INTELLECTUAL PROPERTY RIGHTS IN A KNOWLEDGE-BASED ECONOMY: A NEW FRAME-OF-ANALYSIS

Abstract

The debate on software intellectual property rights (IPRs) has not only highlighted fundamental issues regarding the scheme of protection that software enjoys, it has also pointed out major gaps in the representation of computer programs as economic goods. In this respect, various interpretations of software propose a limited outlook by referring only to particular aspects of computer programs.

The paper discusses the economic nature of software and computational processes and how they should be properly represented as commodities by focusing on software IPR legislation in the US. It elaborates the similarities and differences between software applications and machines on the basis of historical evidence from the evolution of information technologies and computer science. Further, we discuss whether computer programs should enjoy IPR protection (like their physical equivalents) and which legal regime would induce the maximal degree of societal benefits, while satisfying private and public interests.

The paper also elaborates the essential issues of the distinction between ideas and expressions and the ways they are treated as intellectual property. It highlights major aspects in the debate over protection of software applications by both patents and copyrights and analyses the economic impact of the joint regime.

By highlighting the dissimilarities in the economic nature and market behaviour of ideas and expressions we point out the difficulties in drawing parallels between software and physical equivalents. Finally, we provide alternative ways to establish coherent juridical basis and legal policy of software IPRs that aim at stimulating innovation and developing the technological landscape in information technologies.

Keywords:

• Intellectual property rights
• Patents
• Copyrights
• Software
• Computational machines

Acknowledgements

The author is grateful to Robin Cowan, Lee Davis, Christina Elsenga, Marc van Wegberg, the participants of the International Telecommunications Society 16th European Regional Conference (Porto, Sept. 2005) and two anonymous referees for useful suggestions and comments.

Notes

¹Samuelson et al. (1994) refer in their study to the following elements of computer programs: the behaviour of a program, subcompilations, algorithms and features. This paper expands their taxonomy by addressing also the general aim, the output and the source code of programs.

²The tragedy of the anti-commons has originated from Hardin's work (1968) on the tragedy of the commons. Hardin describes a conflict between individual and societal interests for scarce resources that may result in over-utilizing them. To compare, the tragedy of the anti-commons elaborates conflict situations between individual and societal interests that result in under-utilization of public resources.

³Other known ‘tragedies’ that arise from extension of traditional IPR regimes to include knowledge-based technologies in their scope of protection are genetic expressed sequence-tags patenting (Heller and Eisenberg, 1998) and the EC Directive for the Legal Protection of Databases (David, 2000).

⁴ Copyright Act provides legal protection and ownership rights to artistic and literary works (e.g. books, photographs and music) and to their derivatives (e.g. translations and adaptations) for the author's lifetime plus seventy years.

⁵Compilation is the executable form of a computer program, transformed from a high-level language (such as Pascal or C++) into machine language. It is the final, distributed product.

⁶Originally, the system was produced and distributed by AT& T Bell Labs.

⁷The term ‘computers’ is used here in its historical meaning: clerical workers who carried out arithmetical calculations manually, mainly for administrative purposes.

⁸Babbage's attempts to produce the Difference Engine inspired two Swedish innovators, George and Edward Scheutz, who succeeded in developing and manufacturing a different version of the machine, for which a French patent was granted (patent no. 13480, May 1850) (Buxton, 1988; Lindgren, 1990).

⁹Hilbert's tenth problem inquires whether a definite method for solving all mathematical problems exists. Turing's proof, which introduced the new concept of computable numbers, was a milestone in the evolution of computer science and was used as a theoretical basis for the development of digital computers after WWII.

¹⁰Patent applications for a general purpose computer were rejected over the years for different reasons. In 1936, Zuse, a German engineer, submitted a patent application for a general purpose computer to the German Patent Office. Surprisingly, the Patent Office decided that the invention lacked sufficient degree of novelty and rejected it. Later, the USPTO rejected Eckert and Mauchly's patent application for a general purpose computer, since the same machine was introduced earlier by Atanasoff and von Neumann (they did not intend to patent it).

¹¹A testing technique whereby the internal structure and organization of a program are not known to the tester and its source code is not accessible. Its way of operation is revealed by following the way inputs are processed and produce the resulting outputs.

¹²This definition can be interpreted either as ‘functionality’, ‘technical features’, ‘operational features’, ‘instructions’, ‘performance’ of a program, a procedure within it or all those elements altogether. Hence, it requires further elaboration and clarity before applying it in new legislative guidelines and in legal and economic analyses of the present regime.

¹³Computer-Aided Software Engineering or Computer-Aided Systems Engineering.

¹⁴The legal protection of semiconductor designs exhibited similar problems: During the 1980s, advances in the design of semiconductor masks challenged the existing framework of IPRs by the lack of appropriate instruments to protect them. Finally, the enactment of the Semiconductor Chip Protection Act in 1984 provided the necessary protection to complete designs and embedded elements (Samuelson and Scotchmer, 2002).

¹⁵It is difficult to assess equivalence between program features due to the abstract nature of software. In comparison, software piracy (i.e. unauthorized reproduction of compilations) can be represented and even modelled with relative ease (see for example: Conner and Rumelt, 1991; Givon et al., 1995; Stolpe, 2000).

¹⁶Merges (1999a) and Cohen and Merill (2003, pp. 82–119) recommend on strengthening the examination guidelines of software patent applications to prevent the legal protection of trivial and ‘obvious’ improvements and existing technologies. Against that, Lemley (2001) argues that, from an economic standpoint, the current examination process is sufficient and ‘rational’. Implementing water-tight examination of software patents will entail high and unnecessary social costs.

¹⁷In 1996, the USPTO finally decided to integrate Court's opinion and the rationale of Whelan ruling into its Guidelines.

¹⁸For example, in the recent case of Bowers v. Baystate Technologies (2003; 64 USPQ2d 1065, CA FC 2002) Supreme Court confirmed the right to prohibit reverse engineering of software products via licensing agreements.

²¹Adapted to software IPR by CONTU (National Commission on New Technological Uses of Copyrighted Works, 1980).

²²A change in US Patent and Trademark Office (USPTO) policy occurred after the US Supreme Court's decision in Diamond v. Diehr, 1981, by which software involved in an industrial process can be considered patentable.

²³See Whelan v. Jaslow (‘Whelan Test’) for the ‘expression/idea’ ruling.

²⁴LAN – Local Area Networks; WAN – Wide Area Network.

²⁵ Sui Generis: ‘of its own kind’, used to describe something that is unique or different.

¹⁹Section 101 states that ‘Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.’

²⁰For example, manual accounting processes that are converted into software can be protected by patents.

²⁶Interoperability suggests that the demand and supply of each component in the system are strongly influenced by technical advances in other elements.

²⁷Whether the present design of patents is optimal in terms of length and breadth or should be modified is discussed in Elad (2005), Ch. 6.

²⁸Law ‘of its own kind’; describes a unique, tailor-made legislation. This form of legal protection for software products and technologies was first proposed by Samuelson et al. (1994). However, as their proposal lacked particular guidelines and analysis of possible economic effects, it has not been widely accepted or pursued either by legal scholars or by economists.

²⁹The links between IPRs and competition policy were exemplified in the recent antitrust allegations of the European Commission and Korea's Fair Trade Commission against Microsoft. Microsoft has denied access to its application programming interfaces (API) of its desktop programs, thereby preventing the development of rival applications by other firms.

³⁰The case of Polaroid Corp. v. Eastman Kodak Co. demonstrates the concerns and the risks of firms that invest in developing complex products that require integration of various technologies, particularly when some components are already patented by rival firms. Polaroid Corporation submitted a lawsuit against Kodak Corporation for infringing twelve of its patents relating to instant cameras. Court found that seven of Polaroid patents were valid and were infringed by Kodak actions (i.e. production and marketing of similar products). Kodak awarded Polaroid over 900 million dollars in damages for infringing its patents, was prohibited from competing with Polaroid in the instant camera and instant film markets and was obliged to abandon its investments in R&D and in production of instant cameras, thus worsening its losses beyond the damages that were determined by Court.

³¹For example, R&D intensity in French software and IT firms is estimated to be 14% of their sales and is relatively stable over time (Abi-Saad et al., 2001).

Additional information

Notes on contributors

Elad Harison

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