The Coming Showdown Over Software Patents

Time was, a bunch of programmers could go into business by developing a software package that improved on an existing one. The main caveat was that they not violate any copyrights--meaning they couldn't copy the actual lines of computer commands from an earlier program. Since there are thousands of ways to write most programs, copyrights didn't often get in the way. Take, for example, the so-called ROM-BIOS, a copyrighted program that served as a bridge between the IBM personal computer's hardware and software. To make a legal PC clone, a programmer had to mimic the functions of the IBM software without actually copying it. It wasn't always easy, but dozens of them succeeded, giving rise to a giant market for PC compatibles.

Things aren't so simple now, because you can get patents on software. And this stronger form of intellectual-property protection makes an enormous difference. Consider a recent suit won by Hayes Microcomputer Products Inc., a modem maker. Hayes modems have a program that simply switches them from transmit mode to receive mode. It's not as complex as the ROM-BIOS, but it's covered by a patent. For the 17 years it is in force--until 2002--Hayes has exclusive rights to any program that performs the same function. So, even though three Silicon Valley modem makers used the same technique to mimic the Hayes program that computer makers used to clone the PC, a federal court in April assessed them $10 million in damages for patent infringement.

Software patents are sending a chill through the industry. Small companies fear patent holders will exact high licensing fees from rivals, driving competing products from the market. "Hayes is making it impossible to compete with them without overcharging for our products," says a spokesman for Everex Systems Inc., one of the three defendants. The specter of legions of patent lawyers is daunting to an industry that thrives on the rapid exchange of ideas and incremental innovations. "If you think we have trouble now, just wait," says Michael H. Morris, general counsel for Sun Microsystems Inc. "There are thousands of software patents now winding their way through the system that are about to explode on the scene."

A decade ago, a software patent was almost unheard of--and, to many, unthinkable. In the 1960s, software was guarded by "trade secret" laws, which forbid employees to disclose inside knowledge. In 1980, an amendment to the Copyright Act gave software developers the same protection novelists and songwriters enjoy. A 1981 Supreme Court decision and a 1983 memo by the Patent & Trademark Office ushered in the current era of software patents.

The ensuing flood of patents has the computer industry and the federal government grappling over the best laws to protect software inventions. For the first time, they are systematically asking the fundamental questions: Is software, with its lists of commands, similar to copyrighted lines of text in a book? Or is a unique program more like a machine or process that can be patented?

Most experts feel that software can fit both descriptions. As a result, some observers are calling for a new, hybrid intellectual-property system that would serve as a replacement for copyright and patent protection for software. "We ought to rethink the whole scheme," argues Paul Goldstein, a Stanford University law professor whose views appear in a new book on the topic published by the National Academy of Sciences.

'MORE CONFUSION.' With thousands of programs already covered by patents or copyrights, the hybrid approach seems unlikely. Indeed, industry groups oppose it--mainly because they think it would weaken U. S. efforts to enforce American software copyrights overseas. A hybrid law "would open up the floodgates to more confusion," says Bruce Lehman, legislative counsel for the Software Publishers Assn., a trade group. Lehman favors "fine-tuning" existing laws.

Government efforts, however, may result in more than just fine-tuning. Both the Copyright Act and the Patent Act may be in for fundamental changes (table). In March, Commerce Secretary Robert A. Mosbacher named 14 business executives to a new commission that has been empowered to propose, by August, 1992, the first major rewrite of the Patent Act in 40 years. Later this month, the panel will begin accepting comments from the public. High on its agenda is determining the need for new rules for software patent protection, says Edward R. Kazenske, a Commerce Dept. staffer who is coordinating the project.

A parallel effort is under way at the Office of Technology Assessment (OTA), which is readying a proposal for Congress in January. One of the key items on its agenda is to define whether copyright, patents, or neither can be used to protect the screen appearance, or so-called "look and feel," of a computer program. That controversial question has, thus far, been left to the courts. The most important such case is Apple Computer's suit against Microsoft and Hewlett-Packard.

In the meantime, some say software patents could work. But the system needs improvement. For example, since software patents are relatively new, the Patent Office lacks a reliable data base to check if an invention is truly unique and, therefore, patentable. As a result, says Ronald Palenski, general counsel for ADAPSO, a software trade group, examiners may be issuing too many unenforceable patents that will lead to unnecessary litigation. Palenski also calls for greater expertise among patent examiners. Gerald Goldberg, who heads the computer-related branch of the patent office, says that is already happening: He's developing new training courses and seeking money to add 54 more examiners to his staff of 145.

Regardless, the government is granting software patents at a rapid clip, helping to double the number of computer-related patent applications between 1987 and 1990. Big companies are filing dozens of applications a year. IBM now has at least twice as many software patents as any other company, an IBM spokesman says. Microsoft Corp. began routinely filing for patents, in addition to copyrights, about two years ago, says William H. Neukom, vice-president for law and corporate affairs: "We have some that are issued, more that are pending, and an even larger number in the pipeline." American Telephone & Telegraph Co. recently sent out letters to dozens of companies demanding that they purchase a license for AT&T's patented way of arranging "windows" on a computer screen.

SECOND THOUGHTS. All this is making small software makers nervous about new development projects because they have no idea if they are infringing on a pending patent. Among their worst fears is that patents will be granted for computer interfaces--programs that link different computers or different programs to one another.

Consider the legal battle between Nintendo of America and Atari Corp. It involves an interface patent for Nintendo's "lock-out device," a program in its video game computers. Under their licensing agreement, Atari had to pay Nintendo a fee for every game it sold that made use of this device. To get around that, Atari created a similar program that would permit its games to work on Nintendo machines. Nintendo charged Atari with patent infringement and won an injunction ordering Atari games off the market. Such an interface patent in the computer industry could have devastating results, perhaps making it impossible to forge links between different computer brands without first paying royalties.

So Congress, the Commerce Dept., and the OTA will have to tread carefully, picking a route that guarantees the rights of software writers but still encourages open competition. These were the goals of the drafters of the nation's first copyright and patent laws 200 years ago. Unfortunately, the framers of those laws weren't computer literate.


A report, due in January, will lay out options for legislation that will update intellectual property law. A key goal will be to promote continued innovation in software


Senators Leahy (D-Vt.) and Simon (D-Ill.) are preparing legislation to amend the Copyright Act. Their effort is aimed at "fair use" of unpublished literary works, but is expected to have implications for software


Secretary Mosbacher formed a panel to recommend changes in patent law. Software patents and are high on the agenda. It's the first such panel since 1966 and may lead to the first overhaul in 40 years


Apple Computer's three-year-old lawsuit against Microsoft and Hewlett-Packard is finally getting down to the heart of the matter--whether Apple's copyright extends to the "look and feel" of its software


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