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Introduction 

Software CopyrightOren Bracha, Summer 2015

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Introduction

• What is computer software?• Intellectual Property Rights in Software• Software Copyright Rationale• U.S. and E.U. approaches to software

copyright

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Computer Software

• Source Code

• Object Code

• Program’s Output

10 INPUT "What is your name: ", U$20 PRINT "Hello "; U$30 INPUT "How many stars do you want: ", N40 S$ = “”50 FOR I = 1 TO N60 S$ = S$ + "*" 70 NEXT I 80 PRINT S$

00010101 01010001 11101101 11110101[Assembly: LDA#10; JMP#1068]

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Object Code

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Source Code

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Program’s Output

• U.S.: Protected under relevant categories of §102(a).

• Nintendo (ECJ 2014): Parts of videogames that contain unique creative value not reducible to the program’s code (e.g. sound, graphics) are protected under the Information Society Directive (2001/29).

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17 U.S.C. §102

(a) Copyright protection subsists, in accordance with this title, in original works of authorship… Works of authorship include the following categories:

(1) literary works;

(2) musical works, including any accompanying words;

(3) dramatic works, including any accompanying music;

(4) pantomimes and choreographic works;

(5) pictorial, graphic, and sculptural works;

(6) motion pictures and other audiovisual works;

(7) sound recordings; and

(8) architectural works.

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Computer Software

• Source Code

• Object Code

• Program’s Output

10 INPUT "What is your name: ", U$20 PRINT "Hello "; U$30 INPUT "How many stars do you want: ", N40 S$ = “”50 FOR I = 1 TO N60 S$ = S$ + "*" 70 NEXT I 80 PRINT S$

00010101 01010001 11101101 11110101[Assembly: LDA#10; JMP#1068]

Data structures and protocols

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Data structures and protocols

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Intellectual Property Rights in Software

• Trade Secret• Patent• Contract

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Trade Secret• Subject Matter:– Any information, “including a formula, pattern,

compilation, program device, method, technique, or process.”

• Requirements for Protection – Secrecy– Reasonable efforts to keep secret– Value/Competitive advantage – Use – Novelty (in decline)

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Trade Secret

• Scope of Protection– Disclosure, use, [& acquisition]– Requires• Breach of Confidenceor• Improper Means (e.g., overflights; fraudulent

misrepresentations; phone taps); Does not include: independent development; observing items or activities in public view; reverse engineering.

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Trade Secret Difficulties

• Requirements for Protection – Secrecy– Reasonable efforts to keep secret

• Scope of Protection– Requires

• Breach of Confidenceor• Improper Means (e.g., overflights; fraudulent misrepresentations;

phone taps); Does not include: independent development; observing items or activities in public view; reverse engineering.

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Patent

• Examination• Requirements– Subject matter– Utility– Disclosure/Enablement– Novelty– Non-Obviousness

• Protection– 20 years from filling– Against making, using and selling the invention

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Patentable Subject Matter• 1950s Gottschalk v. Benson (1972) software is

“mathematical algorithm” unpatentable because “abstract ideas”

• 1980s: Patentability whenever the software was entangled with physical apparatus and results [(Diamond v. Diehr (1981); Alappat (Fed. Cir. 1994)]

• State Street Bank (Fed Cir. 1998) + AT&T (Fed. Cir. 1999): patentable whenever “a useful concrete, and tangible result.”– Rejection of “business method patents” exclusion

• Alice Corporation Pty. Ltd. v. CLS Bank International (2014): Scrutiny under reinvigorated abstract idea rule.

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Alice Corporation Pty. Ltd. v. CLS Bank International (2014)

Scheme for mitigating “settlement risk”

1) Method Claims:a. Supervisory institution creates a “shadow” credit/debit records for each party.

b. Updating the credit/debit records for each exchange.

c. Allowing only transactions where the debit record does not exceed the credit record.

d. Instructing the end of the day the parties' banks to update their balances according to the daily transactions.

e. [Stipulated in litigation]: implemented using a computer

2) System Claims: a computer system configured to carry out the above method.

3) Media Claims: A computer readable medium containing code for performing the method.

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Software Patents

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Patent Difficulties

• Examination• Requirements– Subject matter

• Alice Corporation Pty. Ltd. v. CLS Bank International (2014)

– Utility– Disclosure Enablement– Novelty– Non-Obviousness

• KSR v. Teleflex (2006)

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Contract

• Shrinkwrap Licenses• Click-on Licenses

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Typical Shrinkwrap Licenses• Restraints on resale or rental by the consumer of his

copy of the product;• Limits on the manufacturers' warranties;• Prohibitions on modifying or tampering with the

product (including disassembling them or reverse engineering);

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

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

• Geographical use limitations.

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Autodesk SOFTWARE LICENSE AGREEMENTWorldwide

READ CAREFULLY: AUTODESK, INC. (“AUTODESK”) LICENSES THIS SOFTWARE TO YOU ONLY UPON THE CONDITION THAT YOU ACCEPT ALL OF THE TERMS CONTAINED IN THIS SOFTWARE LICENSE AGREEMENT (“AGREEMENT”).

BY SELECTING THE “I ACCEPT” BUTTON BELOW THIS AGREEMENT OR BY COPYING, INSTALLING, UPLOADING, ACCESSING, OR USING ALL OR ANY PORTION OF THE SOFTWARE YOU AGREE TO BE LEGALLY BOUND BY THIS AGREEMENT. A CONTRACT IS THEN FORMED BETWEEN AUTODESK AND EITHER YOU PERSONALLY, IF YOU ACQUIRE THE SOFTWARE FOR YOURSELF, OR THE COMPANY OR OTHER LEGAL ENTITY FOR WHICH YOU ARE ACQUIRING THE SOFTWARE

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Autodesk SOFTWARE LICENSE AGREEMENTWorldwide

2. SOFTWARE LICENSE

2.1 License Grant. Autodesk grants You a nonsublicensable, nonexclusive, nontransferable, limited license to Install and use machine-readable object code copies of the Software and User Documentation in Your Territory, in accordance with the applicable User Documentation and within the scope of the License Parameters.

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Autodesk SOFTWARE LICENSE AGREEMENTWorldwide

3. PERMITTED AND PROHIBITED ACTIONS3.1 Permitted Actions.

3.1.1 Backup Copy.(a) Backup for All Versions Other than Network

Versions. With respect to any version of the Software except a Network Version, You may make one (1) backup copy of the Software solely for backup purposes in the event that Your primary copy of the Software becomes inoperable. You may Install and Access such backup copy of the Software only in the event that the primary copy of the Software becomes inoperable and You are otherwise unable to Access the Software…

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Autodesk SOFTWARE LICENSE AGREEMENTWorldwide

3.2 Prohibited Actions. Autodesk does not permit any of the following actions and You acknowledge that such actions shall be prohibited:

3.2.1 Use. You may not Install, Access, or otherwise copy or use the Autodesk Materials except as expressly authorized by this Agreement.

3.2.2 Reverse Engineering. You may not (and may not permit any third party to) reverse engineer, decompile, or disassemble the Software or Excluded Materials (if applicable).

3.2.3 Transfers. You may not distribute, rent, loan, lease, sell, sublicense, or otherwise transfer all or any portion of the Autodesk Materials, or any rights granted in this Agreement, to any other person without the prior written consent of Autodesk.

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Autodesk SOFTWARE LICENSE AGREEMENTWorldwide

3.2.4 Hosting or Third Party Use. You may not Install or Access, or allow the Installation or Access of, the Autodesk Materials over the Internet, including, without limitation, use in connection with a Web hosting, commercial time-sharing, service bureau, or similar service, or make the Autodesk Materials available to third parties via the Internet on Your computer system or otherwise…

3.2.6 Modifications. You may not modify, translate, adapt, arrange, or create derivative works based on the Autodesk Materials for any purpose.

3.2.8 Export. You may not export the Autodesk Materials in violation of this Agreement, U.S., or other applicable export control laws. 3.2.9 Use Outside of Territory. You may not Access the Software or User Documentation outside of the Territory.

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Shrinkwrap Licenses Difficulties

• Contract law problems– Formation– Consideration – Standard form contracts and unconscionability

• Contract/copyright interface problems– Statutory Preemption (§301)– Supremacy Clause Preemption – Uncertain doctrine

• Vault Corp. v. Quaid Software (5th Cir. 1988)• Bowers v. Baystate Technologies (Fed. Cir. 2002)

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Intellectual Property Rights in Software

• Trade Secret • Patent [?]• Contract• Copyright [?]

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Copyright: Rationale

• Economic/utilitarian• Natural rights (labor-desert)• Authors’ Personality• Democratic/cultural theories

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2009/24/ECRecitals (2)-(3)

(2) The development of computer programs requires the investment of considerable human, technical and financial resources while computer programs can be copied at a fraction of the cost needed to develop them independently.

(3) Computer programs are playing an increasingly important role in a broad range of industries and computer program technology can accordingly be considered as being of fundamental importance for the Community's industrial development.

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Intellectual Products as “Public Goods”

• No possibility to exclude others• No rivalry

• Problem: insufficient incentive to create; leading to inefficiently low number of such goods being produced

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Economic Conditions Created by the Grant of a Copyright

$

Quantity

P(Y)

Y

Marginal Cost

Demand

In the absence of copyright, copying and competitionwill drive the price down close to marginal cost

P(X)

X

P(Z)

Z

Resultant Consumer Surplus

Q

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Economic Conditions Created by the Grant of a Copyright

$

Quantity

P(Y)

Y

Marginal Cost

Demand

Profit-Maximizing Behavior by a Copyright Owner who can engage in perfect price discrimination

P(X)

X

P(Z)

ZProfit-maximizing output

“Monopoly Profits”

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Economic Conditions Created by the Grant of a Copyright

$

Quantity

P(Y)

Y

Marginal Cost

Demand

P(X)

X

P(Z)

Z Q

In the absence of price discrimination copyright ownerwill set a profit maximizing price and output

Pro

fit-

max

imiz

ing

pric

e

Profit-maximizing output

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Economic Effects of Profit-Maximizing Behavior by a Copyright Owner

$

Quantity

Demand

B

C

D

E

F

G

H

Marginal Cost

Profit-maximizing output

Pro

fit-

max

imiz

ing

pric

e

Monopoly Profits

O

A

I

1

2

3

Consumer Surplus

Deadweight Loss (foregoneconsumer surplus)

E

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Economic Effects of Profit-Maximizing Behavior by a Copyright Owner

Cost

Static(access)

Dynamic(future innovation)

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Software Landmarks1940s General purpose programmable computer

1970s Unbundling of software and hardware

1980s Rise of personal computer and consumer software

1990s Digital age

Copyright Landmarks

1964 First software copyright registration

1970s Debate intensifies

1978 CONTU recommends software copyright

1980 Minor changes to 1976 Copyright Act

1991 Directive 91/250/EEC

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Unique Features of the Software Industry

• Textual Machines• Cumulative • Standard-based (network externalities)• Fast moving • Alternative business models

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U.S. Approach

• Application of general copyright under the 1976 Copyright Act– A computer program as a “literary work”– Implied statutory recognition: definition and

limitations.

• Special principles of “software copyright” in case law.

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Copyrightability of Code

• H.R. Rep. No. 941476, 94 Cong. 2nd Sess. “The term ‘literary works’… includes… computer programs to the extent that they incorporate authorship in the programmer’s expression of original ideas, as distinguished from the ideas themselves.”

• CONTU Final Report (1980)– “[A] program is created, as are most copyrighted works by

placing symbols in a medium. In this respect it is the same as a novel, poem, play, musical score…”

– “Programs should no more be considered machine parts than videotapes should be considered parts of projectors…”

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17 U.S.C §101

A ‘computer program’ is a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.

“Literary works” are works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, manuscripts, phonorecords, film, tapes, disks, or cards, in which they are embodied.

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17 U.S.C §117(a) Making of Additional Copy or Adaptation by Owner of Copy.—

Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a

machine and that it is used in no other manner, or (2) that such new copy or adaptation is for archival purposes only

and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

(b) Lease, Sale, or Other Transfer of Additional Copy or Adaptation.— Any exact copies prepared in accordance with the provisions of this section may be leased, sold, or otherwise transferred, along with the copy from which such copies were prepared, only as part of the lease, sale, or other transfer of all rights in the program…

(c) Machine Maintenance or Repair…

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E.U. Approach

• Harmonizing Directive– 91/250/EEC– 2009/24/EC

• Protection to Computer Programs– “As literary works” [Art. 1(1)]– “within the meaning of the Berne Convention” [Art.

1(1)]– 2009/24/EC as “Lex Specialis” [UseSoft (ECJ 2012)]

• Emerging case law on the Directive and its relationship with other legal sources

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Article 1(1)Object of protection

In accordance with the provisions of this Directive, Member States shall protect computer programs, by copyright, as literary works within the meaning of the Berne Convention for the Protection of Literary and Artistic Works. For the purposes of this Directive, the term ‘computer programs’ shall include their preparatory design material.