THE C O M P U T E R LAW AND SECURITY REPORT 5 CLSR

propose the creation of a new class of copyright protected works to be vested in the "maker" of the work who might be defined as "the person by whom the arrangements necessary for the making of that computer output or computer generated work, are undertaken". This proposal however is not intended to detract from any other copyright that might subsist in the work under the normal authorship requirements. It would seem that a strong case has been made out for introducing special provision for this class of work.

Conclusion There is no doubt that for the time being copyright law will continue to provide a statutory framework for the protection of programs. As time goes on its application to software will need to be more finely tuned and ultimately international agreement reached on the fundamental principles of the relationship. Perhaps the most interesting question for the future is whether copyright, in its application to functional works, can continue to operate within the traditional principles of authorship, authors' rights and protection of original forms of expression. The time may come when it is no longer satisfactory to work within legislation whose principles were founded before the information technology revolution arrived. For the time being the courts are likely to continue to wrestle with the problems of identifying the true nature of programs and the copyright status of the different representations of the software. It remains to be seen whether the majority opinion in Apple v. Computer Edge is no more than a minor hurdle in the march of copyright protection for software or the beginning of a rear-guard action to apply some brakes to the relentless drive to protect functional works within the traditional framework of copyright.

Stephen Saxby

Footnote 1Intellectual Property Rights in an Age of Electronics and Information 1986 Office of Technology Assessment Washington DC. 2See Federal Government's response to the October 1985 Report of the Parliamentary Sub Committee on copyright revision dated February 7th 1986. 3Intellectual Property and Innovation Cmnd 9712 HMSO 1986 para 9.5.

4From Gutenberg to Telidon - A White Paper on Copyright 1984 (Canada).

5Report of Sub Committee on the Revision of Copyright - "4 Charter for Creators" October 1985 (Canada).

SOURCES TO STRUCTURES - WHELAN V J A S L O W A N D ITS I M P L I C A T I O N S FOR SOFTWARE DEVELOPERS

Introduction

There are many people working in the software industry (and several lawyers too) who have doubts as to the suitability of existing principles of copyright law when applied to software. Protection is given to the expression of an idea, as distinct from the idea itself, and this may mean source code, object code or microcode. Infringement may be proved on the basis of 'substantial similarity', but what is substantial, and is the qualitative test subjective rather than scientific? The stated objective of copyright law should, however, in theory at least, give comfort to software developers. It was recently expressed in the following terms: 'to create the most efficient and productive balance between

protection (incentive), and dissemination of information to promote learning, culture and development' Indeed, the preservation of the right level of incentive is particularly important for wider economic reasons, and the courts have sought to recognise this fact. Similarly, software developers are concerned that they should be able to reap rewards from their ideas and creativity. The Whelan v. Jaslow case, covered in the last issue of The Report (1986-87) 2 CLSR page 24) in fact encouraged this view, since it found that to confine copyright protection to source code would inhibit development and innovation.

Whelan v. Jaslow In this case, the U.S. Court of Appeals decided that copyright law protection extended beyond the literal source code to the structure, sequence and organisation of the program. A full discussion of this case is beyond the scope of this article, and the arguments in any event have already been presented. Nevertheless, I would recommend a reading of the full transcript to anyone interested in this area of computer law. The Court arrived at its verdict largely for two reasons. Firstly it found that in programming, the greatest expense and difficulty lay in developing the program logic and structure, and that the actual coding was a relatively small part of the process. Consequently, the 'look and feel' was of greater commerical value than the code itself. Secondly, it found that where there are various means of expressing an idea (e.g. the efficient management of a dental laboratory), the particular means chosen (Whelan's program) is not necessary to the purpose and hence part of the expression, and not the idea. Whilst the former argument may carry more weight, it is perhaps true to say that the outcome is both logical and fair. It does however present problems to those opportunists who seek to exploit the 'ideas' of others. The outcome of this case is in fact indicative of a significant trend in the United States, where the courts are prepared to look beyond literal comparisons and to examine wider issues. It is intended to consider this trend in more detail in a future issue of The Report. It is very likely, however, that these cases will be uppermost in the minds of those seeking to influence the copyright debate in this country.

Software houses - concerns To many software houses, these issues seem a trifle unreal, concerned as they are with the day to day commercial realities of software development. The law in the U.K. at least, has not yet been fully tested in this respect, and consequently a sense of uncertainty prevails. Added to this, many software houses are not informed as to their rights in intellectual property, and to the range of remedies and injunctions available. Not all of them are prepared to engage a solicitor and the very cost of proceedings will daunt those whose resources are earmarked for development and marketing. Furthermore, the time taken to bring an action to trial could allow an alleged infringer to gain a vital commerical advantage in the market. These tend to be the real concerns, which is a pity, because as stated, the interest of the software developers in protecting their property and encouraging creativity is at one with the objective of the law of copyright.

Practical implications In order to highlight the problems for software houses, it is worth considering a practical scenario and some possible permutations. The following hypothetical examples assume that both an uncertain legal environment and a competitive commerical environment prevail.

JAN - FEB THE COMPUTER LAW AND SECURITY REPOR~

Software House (A) produces a system analysis and specification for Client (B) in the hope that it will also be awarded the contract for the programming work to follow. B, however, does not use A for the programming and either does the work itself or contracts it out to a third party. A would normally wish to retain copyright in the specification, but this is often a point determined by the relative bargaining power of the parties. If A has had to assign copyright to B as part of the agreement, to what extent is A to be restrained from using ideas and skills acquired in the process? It is sensible in agreements for bespoke work of this nature, to incorporate a clause into the contract, whereby, notwithstanding the passing of ownership, the software house reserves the right to use skills and knowledge acquired. This could then go on to specify any particular programing tools, techniques and skills developed in the course of the work. On the other hand, this type of provision would prevent A's future business activities from being stifled by the fear of an action for infringement, should it ever take on a similar type of job. But on the other hand, A could use those very skills and programming techniques to devise a system which it could immediately market to B's competitors. Another possibility would be for B to employ A's competitor (C) to do the programming work based on the specification that it has acquired. This time however, C negotiates to retain copyright in the final program and merely licences it to B. The outcome here is that A has lost the potential benefits of its efforts to its competitor. Even if A had managed to retain copyright in the original specification, it is still open to B to take the principles and structures involved in the work, and to ask C to produce a program based upon those structures. Problems can also arise where B wishes to have some software developed, which will give it a leading edge in a

particular marketplace. B may pay A a substantial sum ol money for such a development and in return acquire a licence which would be exclusive for a fixed period, say two years, and non-exclusive thereafter. If A immediately uses the same structures and techniques in a similar program which it then sells to the whole market, then B's investment has been totally wasted. No doubt that if such a case went to court, the judge would, on the basis of reasoned arguments, attempt to distinguish between structures and techniques, but this in itself will not alleviate the general uncertainty in the meantime. In times of high staff turnover, similar commercial considerations can arise where employees leave, taking their 'skills' to a competitor, or setting up in competition themselves. No-one would challenge a person's right to use general skills in another job, but the decision in Whelan v. Jaslow does contain implications in this area and the scope of 'general' skills is likely to be tested. One can of course look to the contract of employment and to the trade secrets area of intellectural property to help in cases of this nature. The recent case of Faccenda Chicken v. Fowler [1986] I ALL ER 724 is informative in providing guidelines as to what restraints may be effected in the period after employment has ceased.

Summary The aim here has not been to provide a definitive statement of the state of copyright law, but to consider how the arguments about the scope of protection are beginning to open up. To the extent that software houses may at some stage need to resort to law to protect their property, they would be well advised to remain abreast of the debate.

David Greaves Editorial Panelist

SOFTWARE LICENCES

I N T R O D U C T I O N TO THE LAW ON S O F T W A R E L ICENCES PART V: U N D E R S T A N D I N G THE T E R M S

What is an 'entire agreement' clause? An example would be one of the opening clauses on the Lotus 1 - 2 - 3 Licence Agreement: '/MPORTANT Each Lotus product is licensed by Lotus Development (UK) Limited to the origina/ purchaser of the product for use only on the terms set forth below.' During the course of any pre-contractual negotiations, many different representation may be made about the system's capabilities, after sales service, etc. An 'entire agreement' clause limits the terms of the agreement to the information contained in the written agreement itself. If faced with such a clause in a proposed contract, either strike it out or ensure that a detailed schedule is appended to the agreement which sets out the requirements specification and which notes any promises or undertakings which were made by the sales representative. Without this, you will find it impossible to rely upon anything which was said before the contract was made.

Why do contracts stipulate the duration of the agreemen~ In contracts of services or hire, it is customary to set fixed periods to allow for a renegotiation of the rates for the services or for the continuation of the hire at the expiry of each period. Warranties or guarantees limit the period of responsibility but note that guarantees can only improve the minimum level of statutory protection which the law allows and that there is

actually no need to rely upon a formal guarantee when making a claim for defective goods or services.

Why do licence agreements provide that the copyright belongs to the supplier? Thus, Victor Technology Inc. put it bluntly, '1 understand that software will always remain your property.', whereas Ashton Tate are slightly more circumspect, ' You acknowledge that the materials and copyright and other intellectual property rights in the materials are the sole and exclusive property of Ashton Tate: An intellectual property rights, eg. copyright, patents, registered designs, etc., are formal rights known as 'choses in action'. A chose may be legal, ie. enforceable in a court of law or it may be equitable. The old common law rule was that a chose could not be assigned unless proper consents were given. The position is now adjusted by statute. These rights exist in law quite independently of actual property. So a patent is a right which protects an idea of some novel process which is capable of being traded in as any other form of physical property. In as much as such rights do exist, they are governed by the normal rules of contract and, in appropriate circumstances, by the rules of equity. The statutory form of transfer is governed by section 136 of the Law of Property Act 1925 which requires the transfer to be absolute, in writing, and with notice given to all interested parties if it is to pass a good title. It need not be contractual, ie. supported by consideration. In equity, these requirements need not be complied with. There are no particular formal

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