Intellectual Property Protection for Software

William Fisher

June 23, 2004

Activities that Software Developers Might Control

• Consumer reproduction of object code

• Commercial reproduction of object code

• Incorporation of parts of source code in new programs

• Preparation and distribution of improved versions/derivative works

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Pro-CD Bowers

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Copyright

CONTU

Pro-CD Bowers

Apple EC Directive 91/250

TRIPS 10(1)

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Copyright

Patent

CONTU

DiehrBenson

Flook Alappat

State Street

Pro-CD Bowers

Apple EC Directive 91/250

TRIPS 10(1)

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Subject Matter• Restatement Definition: a process or device for

continuous use in the operation of a business. Includes:– information pertaining to contents of or manufacture of a

product– process of treating or preserving materials– information relating to business operations– computer programs; customer lists

• UTSA expands protected matter to include:– single or ephemeral events– negative information

Subject Matter• Restatement Definition: a process or device for

continuous use in the operation of a business. Includes:– information pertaining to contents of or manufacture of a

product– process of treating or preserving materials– information relating to business operations– computer programs; customer lists

• UTSA expands protected matter to include:– single or ephemeral events– negative information

Requirements for Protection

(1) Information must have been “secret” initiallysome courts add explicit novelty requirement

Requirements for Protection

(1) Information must have been “secret” initiallysome courts add explicit novelty requirement

(2) Plaintiff must have made reasonable efforts to keep it secret

Requirements for Protection

(1) Information must have been “secret” initiallysome courts add explicit novelty requirement

(2) Plaintiff must have made reasonable efforts to keep it secret

(3) The information must be commercially valuable

Requirements for Liability• Breach of Confidence

– confidential relationship– reliance on commercial custom and tacit

understandings

• or: Secret was discovered through “improper means”– e.g., overflights; fraudulent misrepresentations;

phone taps– Not reverse engineering

Requirements for Liability• Breach of Confidence

– confidential relationship– reliance on commercial custom and tacit

understandings

• or: Secret was discovered through “improper means”– e.g., overflights; fraudulent misrepresentations;

phone taps– Not reverse engineering

Remedies• Injunctions

– debate over length and breadth– not available after plaintiff obtains a patent

• Damages– actual damages

• plaintiff’s lost profits, or

• defendant’s gains

– consequential damages– punitive damages– attorneys’ fees

Trade Secret Protection for Software

• Companies sell copies of object code, keep source code secret

• Courts rule that public distribution of object code does not forfeit TS protection, so long as source code is hard to reverse engineer– Data General v. DCI (Del. 1971)– Telex v. IBM (CA10 1975)– Q-Co Industries (SDNY 1985)

Trade Secret Protection for Software

• Appropriate to an era in which software is custom-made by vertically integrated hardware suppliers for large commercial customers

• Weaknesses– Gradual improvement of decompilers– No protection against “piracy” of object code– Limited protection against “downstream”

consumers– Consumers’ demand for access to source code

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Pro-CD Bowers

Typical Shrinkwrap Licenses

• Restraints on resale or rental;• Limits on the manufacturer’s warranties;• Prohibitions on modifying or tampering with the

product (including disassembling or reverse engineering);

• Prohibitions on uses of the product that would have been permitted by the fair-use doctrine;

• Requirements that the consumer not contest the validity of the producer’s copyright or patent;

Contractual Protection

• Pro-CD v. Zeidenberg (CA7 1996):– copyright law does not preempt state contract law,

used to enforce shrinkwrap license restriction on commercial uses

• Bowers v. Baystate Technologies (CAFC 2003):– Copyright law does not preempt state contract law

used to enforce shrinkwrap license restriction on reverse engineering

• UCITA

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Pro-CD Bowers

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Copyright

CONTU

Pro-CD Bowers

Apple EC Directive 91/250

TRIPS 10(1)

Copyright Protection• 1964: Register of Copyrights announces

willingness to register published software programs – upon proof of sufficient “original authorship”– But object-code versions might not constitute

“copies”

• 1964-1977: 1,205 programs registered– 80% by IBM and Burroughs

• 1978: CONTU recommends full copyright protection for software

• 1980: Congress adopts recommendation

Copyright Protection

• 1991: EC Directive 91/250: All member states must modify domestic copyright law to recognize copyrights in software

• 1994: TRIPS Art. 10(1):– “Computer programs, whether in source or object

code, shall be protected as literary works under the Berne Convention”

Basic Copyright ProtectionEntitlements -- §106

(1) Reproduction(2) Derivative Works(3) First Distribution(4) Public Performance(5) Public Display

Exceptions:Fair Use -- §107Merger“essential” or “archival” copying -- §117

Apple v. Franklin (CA3 1983)

Apple v. Franklin (CA3 1983)

Apple

Apple v. Franklin (CA3 1983)

Apple

Apple O.S.

Apple v. Franklin (CA3 1983)

Apple

AppleBorland

Free access Apple O.S.

Apple v. Franklin (CA3 1983)

Apple

Apple O.S.

AppleBorland

Free access

Franklin

Apple v. Franklin (CA3 1983)

Apple

Apple O.S.

AppleBorland

Free access

Franklin

Apple v. Franklin (CA3 1983)

Apple

Apple O.S.

AppleBorland

Free access

Franklin

Copy of Apple O.S.Verbatimcopying

Apple v. Franklin (CA3 1983)

Apple

Apple O.S.

AppleBorland

Free access

Franklin

Copy of Apple O.S.Verbatimcopying

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Copyright

CONTU

Pro-CD Bowers

Apple EC Directive 91/250

TRIPS 10(1)

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Interoperability

• Menu Hierarchies

• Ineffective Enforcement

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of ProgramsCopying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Interoperability

• Menu Hierarchies

• Ineffective Enforcement

Copying Nonliteral Features of Programs

• Whelan (CA3 1986)

• Plains Cotton (CA5 1987)

• *Altai (CA2 1992)

• Kepner-Tregoe (CA5 1994)

Altai Test(1) Abstraction(2) Filtration

Unprotected Material includes:(a) Elements dictated by efficiency(b) Elements dictated by external factors

(i) mechanical specifications of the computer(ii) compatibility requirements of other programs (iii) computer manufacturers' design standards(iv) demands of the industry being served(v) widely accepted programming practices

(c) Elements taken from public domain(3) Comparison

Nichols “Pattern” Test

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Elements dictated by efficiency

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Elements dictated by efficiency

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Elements dictated by external factors

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Elements dictated by external factors

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Elements taken from public domain

Nichols “Pattern” TestId

eaE

xpre

ssio

n

Elements taken from public domain

Comparison

Protected Parts of Plaintiff’s program

Comparison

Protected Parts of Plaintiff’s program

Elements of defendant’s program

Comparison

Protected Parts of Plaintiff’s program

Elements of defendant’s program

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of ProgramsCopying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Interoperability

• Menu Hierarchies

• Ineffective Enforcement

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Reverse Engineering for the Purpose of InteroperabilityInteroperability

• Menu Hierarchies

• Ineffective Enforcement

Organization of Computer Programs

Organization of Computer Programs

Hardware

Organization of Computer Programs

Hardware

Operating System

Organization of Computer Programs

Hardware

Operating System

Application Program

Application Program

Hardware

Operating System

Application Program

Application Program

Interoperability

Hardware

Operating System

Application Program

Application Program

Interoperability

Interoperability Strategy #1(e.g., Microsoft, Apple)

Dell

Microsoft

MicrosoftBorland

Free access

Interoperability Strategy #2(e.g., Sega, Nintendo)

Nintendo

Nintendo

NintendoLicensee

License fees

Interoperability Strategy #3(e.g., MAI Systems Corp.)

MAI

MAI

MAIMAI

No licenses

Sega (CA9 1992)

Sega Genesis III

TMSS

Sega GamesLicensed Games

License fees

Sega (CA9 1992)

Sega Genesis III

TMSS

Sega GamesLicensed Games

License fees

AccoladeGames

Lock-out

Sega (CA9 1992)

Sega Genesis III

TMSS

Sega GamesLicensed Games

License fees

AccoladeGames

Lock-out

Microcode (copied by Accolade)

Sega (CA9 1992)

Sega Genesis III

TMSS

Sega GamesLicensed Games

License fees

AccoladeGames

Lock-out

TMSSinitializationcode

Sega (CA9 1992)

Sega Genesis III

TMSS

Sega GamesLicensed Games

License fees

AccoladeGames

Fair Use Doctrine

• Purpose and Character of the Use– commercial use– transformative uses– parody– propriety of defendant’s conduct

• Nature of the Copyrighted Work– fictional works/factual works– unpublished/published

• Amount of the portion used• Impact on Potential Market

– rival definitions of “market”– only substitution effects are cognizable

Fair Use Doctrine -- as applied in Sega

• Purpose and Character of the Use– commercial use: purpose of A’s copying was “study” (noncom)– transformative uses: concede no transformative use– parody: n.a.– propriety of defendant’s conduct: stress decency of A’s behavior

• Nature of the Copyrighted Work– fictional works/factual works: computer programs deserve less

protection that fictional works– unpublished/published: sale of program = publication

• Amount of the portion used: concede A copied entire program• Impact on Potential Market

– rival definitions of “market”: implicit adoption of narrow version– only substitution effects are cognizable

Reverse Engineering for Interoperability

• Courts finding this to be fair use:– CAFC (Atari 1992; Bowers 2003 [dictum])– CA5 (DSC Communications 1996)– CA 9 (Sega 1992; Sony 2000)– CA11 (Bateman 1996)

• EC Directive 91/250, Art. 6, takes same position

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Reverse Engineering for the Purpose of InteroperabilityInteroperability

• Menu Hierarchies

• Ineffective Enforcement

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Interoperability

• Menu HierarchiesMenu Hierarchies

• Ineffective Enforcement

Menu Hierarchies: Litigation History

• Lotus v. Paperback (DMass 1990)

• Lotus (CA1 1995)

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Interoperability

• Menu HierarchiesMenu Hierarchies

• Ineffective Enforcement

Dimensions of Diminishing Copyright Protection

• Copying Nonliteral Features of Programs

• Reverse Engineering for the Purpose of Interoperability

• Menu Hierarchies

• Ineffective EnforcementIneffective Enforcement

Source: Business Software Alliance

Possible Explanations

• Local Self-Interest

• Ideology

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest– United States in 19th century– Developing countries today

• Ideology

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology– Global:

• From “monopoly” to “Intellectual Property”

• From nationalism to comity

• Habit yields sense of entitlement (VCRs, MP3)

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology– Local:

• Labor theory

• Romantic conception of authorship/personality theory

• Communal conceptions of creativity

• Socialism; anti-individualism

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology

• Pressure– TRIPS– Bilateral Agreements– Trade sanctions

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology

• Pressure

• Improved Marketing

Possible Explanations

• Local Self-Interest

• Ideology

• Pressure

• Improved Marketing

Piracy Rates Within the United States

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Blue = below average piracy rate Red = above average piracy rate

35 states fit the pattern; 15 do not

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Copyright

CONTU

Pro-CD Bowers

Apple EC Directive 91/250

TRIPS 10(1)

Forms of IP for Software

1950 1960 1970 1980 1990 2000

Trade Secrecy

Contracts

Copyright

Patent

CONTU

DiehrBenson

Flook Alappat

State Street

Pro-CD Bowers

Apple EC Directive 91/250

TRIPS 10(1)

Processes

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Patent Protection• Gottschalk v. Benson (US 1972)

• Parker v. Flook (US 1978)

• Diamond v. Diehr (US 1981)

• Federal Circuit Relaxation of the Test, 1982-present

Federal Circuit Relaxation of the Test• Freeman-Walter-Abele test (1977-1982)

– Is the algorithm applied as part of an otherwise statutory process or apparatus claim?

• gradual weakening, 1982-1994– Iwahashi (1989)– Arrhythmia (1992)

• In re Alappat (CAFC 1994)– an algorithm embedded in a general purpose

computer becomes a patentable machine• PTO Guidelines (1996): will accept applications

for software on disks• State Street Bank (CAFC 1998)• AT&T (CAFC 1999)

State Street Bank

Investment Portfolio

partn

ership

Mut

ual F

und

4Mutual Fund 5

Mutual Fund 1

Mut

ual F

und

2

Mutual Fund 3

State Street Bank

Investment Portfolio

partn

ership

Mut

ual F

und

4Mutual Fund 5

Mutual Fund 1

Mut

ual F

und

2

Mutual Fund 3IndividualInvestor

State Street Bank

Investment Portfolio

partn

ership

Mut

ual F

und

4Mutual Fund 5

Mutual Fund 1

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ual F

und

2

Mutual Fund 3IndividualInvestor

State Street Bank

Investment Portfolio

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ership

Mut

ual F

und

4Mutual Fund 5

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Mut

ual F

und

2

Mutual Fund 3IndividualInvestor

11%

14%

20%

25%

30%

Data Processing System

State Street Holdings• Transformation of data by a machine into a

final share price constitutes a practical application of an algorithm and is therefore patentable subject matter

• Repudiate the “business-methods” exception to patentability

Software Patent Grants

0

2000

4000

6000

8000

10000

12000

14000

1995 1996 1997 1998 1999 2000 2001

Software Patent Grants

• Over 100,000 software patents issued to date in U.S.

Patent Doctrines by Technology Sector

Patent Doctrines by Technology Sector

= average

Patent Doctrines by Technology Sector

Utility

= average

Patent Doctrines by Technology Sector

Utility Novelty

= average

Patent Doctrines by Technology Sector

Utility Novelty Obviousness

= average

Patent Doctrines by Technology Sector

Utility Novelty Obviousness Disclosure

= average

Patent Doctrines by Technology Sector

Utility Novelty Obviousness Disclosure

= average

= software

Patent Doctrines by Technology Sector

Utility Novelty Obviousness Disclosure

= average

= software

= biotechnology

Patent Doctrines by Technology Sector

Utility Novelty Obviousness Disclosure

= average

= software

= biotechnology

Sophisticated PHOSITA;Mature technology

Patent Doctrines by Technology Sector

Utility Novelty Obviousness Disclosure

= average

= software

= biotechnology

Sophisticated PHOSITA;Mature technology

Unsophisticated PHOSITA;Unpredictable technology

What sorts of IP Protection (if any?) are appropriate for softeware?

Patent Rights Most Likely to Foster Innovation in field where:

1) High R&D Costs2) High degree of uncertainty concerning success

of particular lines of research3) Content of technological advances can be

ascertained easily by competitors through “reverse engineering”

4) Technological advances can be mimicked by competitors rapidly and inexpensively

5) Innovators highly responsive to monetary incentives

6) Innovation not cumulative