SOFTWARE COPYRIGHT

BATTLE OF THE GIANTS: ROUND ONE TO APPLE

APPLE COMPUTER INC v MICROSOFT CORPORATION et.al (ND CA, San Francisco Div., No C-88 20149-WWS)

BACKGROUND On the face of it, this case is the latest in a line of lawsuits which have established and then tested the boundaries of the 'look and feel' doctrine under U.S. copyright law. But this case has much more far- reaching implications. The products which Apple allege breach their • copyright in the Mac user interface are Microsoft's latest version of 'Windows' and Hewlett Packard's "New Wave', which is based on Windows. Moreover, Windows is at the heart of IBM's "Presentation Manager" which is itself at the heart of IBM's new operating system OS/2. Little wonder then that the case has attracted more than academic interest and is now being closely watched by the entire industry.

APPLE'S CLAIM Apple allege that the visual displays and images in Microsoft's Windows 2.03 infringe Apple's copyrighted audio-visual works. Microsoft deny the allegations of infringement and further claim that the visual displays in Windows 2.03 are within the scope of a licensing agreement between the parties which was signed in 1985. At a preliminary hearing, held late last year, Microsoft successfully applied for a motion that the action be "bifurcated', meaning essentially that the court would deal first with the claim in contract based on the 1985 Agreement, and then move on to deal separately with the issues of similarity and copyright infringement.

THE 1985 AGREEMENT By 1985, Apple had begun to achieve commercial success with its Macintosh computer. The most 0otable and innovative feature of the Macintosh was its easy to use graphical user interface, including the mouse, icons and windows. In mid-1985, Microsoft announced the impending launch of a competitive product, namely Windows, an operating environment which would run on the IBM-PC and compatible personal computers. Apple felt that

the Windows program infringed their own audiovisual copyrights and informed Microsoft. As a result, the parties entered into negotiations to resolve their dispute. The result was the 1985 Agreement which was the subject of contention in the first phase of the present case. The preamble to that agreement referred to a dispute "concerning the ownership of and possible copyright infringement as to certain visual displays generated by ..... Microsoft's operating environment program "Microsoft Windows Version 1.0". Paragraph 1 contained an acknowledgement by Microsoft that the visual displays intheir program were derivative works of the visual displays contained in Apple's graphical user interface programs. By Paragraph 2A, Apple granted to Microsoft a non-exclusive licence, "to use and sublicence these derivative works in present and future software programs." Microsoft claim that the visual displays generated by Windows version 2.03 are virtually identical to those generated by version 1.0 and are therefore licensed by the 1985 agreement.

APPLE'S CASE Apple's deny that the current version of Windows is covered or was intended to be covered by the 1985 Agreement, in that the Agreement applied specifically to Windows 1.0, and Windows 2.03 was substantially different from the earlier version, and more similar to the Macintosh user interface. Apple's position therefore was that whereas the 1985 Agreement allowed Microsoft to use and sub-licence the visual displays of Windows 1.0, it did not permit them to make future versions of the product more similar to the Macintosh operating environment. Apple also contended that there were substantial differences between the two versions of Windows in question, that were readily apparent. In particular, the earlier version used a 'tiled' system of windows, whereby the windows appear next to one another and do not overlap (The Macintosh environment, at the time used 'overlapping" windows). However, Microsoft introduced overlapping Windows into its product from version 2.0 onwards, in response to customer demand.

Microsoft product documentation at the time emphasised that this constituted a fundamental and substantial change from earlier versions. Referring to notes made during the negotiation of the 1985 Agreement, Apple said that it was quite clear that in entering the negotiations, they "didn't want Windows or future Windows products to look any more like Macintosh than they already did." Moreover Apple produced evidence of a memo written by Microsoft's founder and chairman, Bill Gates to his staff stating that, "'we have to be careful not to take additional things from Apple screens when we make enhancements." Finally, Apple pointed out that Microsoft's interpretation of the 1985 Agreement would have resulted in Apple's granting to one of its main competitors a perpetual and royalty-free licence to use and sub-licence Apple's most valuable asset. It was quite clear from the evidence of witnesses and from a true construction of the Agreement hat this could not have been Apple's intention.

MICROSOFT'S CASE Microsoft claimed that the 1985 Agreement gave them the right to use the licensed visual displays in present and future software programs. They pointed out that in late 1985, Apple had just undergone a change of senior management following the departure of its co- founder Steven Jobs. The new management needed the support of major software suppliers if the Macintosh was to break the dominance of the IBM PC in the office marketplace. Microsoft had, at that stage, already developed a number of programs for the Macintosh including the "Excel" Spreadsheet product. Making a large number of references to the written depositions of both chairmen and both sets of lawyers as to the content of the negotiations, Microsoft claimed that an arrangement was struck whereby Microsoft would delay its release of Excel for the IBM-PC in return for Apple dropping its claim for copyright infringement by the visual displays in Windows 1.0. A number of drafts were subsequently

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produced, the final one of which did not contain a number of restrictions present in Apple's first draft and relating to the "look and feel" of future Microsoft programs. Microsoft also sought to rely on an "entire agreement" clause so as to exclude evidence of any collateral agreement or intention. In particular, they rejected Apple's claim that the Agreement contained an inherent limitation that no future version of Windows could be more similar in appearance to the 1985 Macintosh than Windows 1.0. This assertion was challenged on the basis that it was never reduced to writing since Microsoft had objected to any restrictions being placed on its use of the visual displays. Moreover, such a restriction would have been difficult to quantify.

THE COURT'S DECISION Judge Schwarzer pointed out that the case rested on the interpretation of the 1985 Agreement as a matter of law. He commented that both parties had quoted heavily from

voluminous depositions by the chairmen of Apple and Microsoft, Messrs Sculley and Gates. However, since most of these depositions contained self-serving testimony, they were of little use in interpreting the Agreement, set against the contemporary evidence. This evidence showed that the question whether the licence should be confined to Windows 1.0 was a critical point of contention between the parties. Several drafts of varying scope had been tabled and the records showed that the question of whether it was intended that the agreement should apply only to Windows 1.0 was discussed. Therefore the choice of words used must be considered to have been deliberate. The parties used language showing an intent to limit the licence and the accompanying release of claims to the visual displays in the then current version of Windows, Windows 1.0. In similar fashion, the judge debunked the complex and lengthy arguments as to the interplay of

applications and systems software, by saying that the negotiators in 1985 were not concerned with such matters, only with the visual interface. The judge acknowledged however that if the visual displays in Windows 2.03 are virtually the same as those in Windows 1.0 then version 2.03 would be covered by the 1985 Agreement. However, as has been stated, there were substantial differences, particularly in relation to the use of overlapping windows, and these differences were expressly acknowledged by Microsoft in their promotional material, as a major selling point. Accordingly, the judge upheld Apple's claim and this fascinating case continues to the next stage, concerning copyright infringement. This promises to be a vital test of the 'look and feel' doctrine established in Whelan v Jaslow, and the outcome will be of critical importance to the entire software industry.

David Greaves Editorial Pane/list

BOOK REVIEWS INDUSTRIAL PROPERTY

Multinationals and Industrial Property - The Control of the World's Technology, by Giles V Berlin and Sally Wyatt, 1988 (Harvester-Wheatsheaf 177pp.) £22.50 ISBN 074 500 4857.

This book is written against a background of increasing international competition in which the protection of technology is becoming a major preoccupation for firms, especially those most involved in world-wide competition. Those most affected are the multi-nationals. In the authors' opinion; "few observers have expressed much concern for this beyond the anecdotal level. Everyone is aware of the crucial importance of multi-nationals" role in the development and use of modem technologies, but the conditions for protection and use of industrial property rights

are hardly known at all." The effects of such property rights on the diffusion of technical knowledge between countries are also often under-estimated or distorted. The strategies adopted by these large international corporations affect not only the direction and volume of economic and technological growth but also its shape and content. The authors look at these issues from an international perspective asking some basic questions about why multinationals have industrial property policies, how they are conceived and implemented, and what the effects are on the economies concerned.

Available from Prentice-Hall, 66 Wood Lane End, Hemel Hempstead, Herts, HP2 4RG.

EUROPEAN COMMUNITY LAW Freedom of Data Flows and EEC Law Proceedings of second CELIM Conference 1988 (Kluwer Law 131 pp.) £32 (US$ 57)ISBN 906 544 3665.

This text is the product of the Second CEUM Conference that took place last year in Brussels. CELIM is the European Committee "'Lex Informatica Mercatoriaque" which brings together lawyers from all spheres and all types of training to work together on issues concerning: "'business law, information science law in its widest sense and specifically international law in the European context". It was therefore quite appropriate that CELIM should organise a meeting of specialists, researchers and practitioners to examine, in the context of 1992, how Europe should approach the development of a legal policy towards the handling of information and data and their transmission across national boundaries. Within this lies a conflict which can be seen in the

high regard given to the principles enshrined in international conventions dealing with human rights and data privacy, contrasted with the distinct national interest to develop data processing activities in competition with Member States. This conference sets out to explore potential pathways through these conflicts and to lay the foundations from which community action might take place in the future. The book is divided into two parts, Part 1 asks the question: which legal status for data in Europe ... and elsewhere? And Part 2 considers which status for datafiows in EEC law? This work is the second in the new Computer/Law series published by Kluwer which deals with the most topical aspects of the interaction between information technology, telecommunications, technology and the law.

Available from Kluwer, PO Box 23, 74000 GA Deventer, The Netherlands.

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