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Further Readings

Intangible PERSONAL PROPERTY consisting of mathematical codes, programs, routines, and other functions that controls the functioning and operation of a computer's hardware.

Software instructs a computer what to do. (The computer's physical components are called hardware.) Computer software is the general term for a variety of procedures and routines that harness the computational power of a computer to produce, for example, a general operating system that coordinates the basic workings of the computer or specific applications that produce a database, a financial spreadsheet, a written document, or a game. Computer programmers use different types of programming languages to create the intricate sets of instructions that make computing possible.

Until the personal computer revolution began in the 1980s, software was written mainly for business, government, and the military, which employed large mainframe computers as hardware. With the introduction of personal computers, which have rapidly increased in power and performance, software has emerged as an important commercial product that can be marketed to individuals and small business as well as big business and the government.

Software is, under the law, INTELLECTUAL PROPERTY and therefore entitled to protection from persons who seek to exploit it illegally. Software can be protected through the use of trade secrets, COPYRIGHT, PATENTS, and TRADEMARKS.

TRADE SECRET protection may apply to unpublished works and the basic software instructions called source code. Typically trade secrets will be effective if a company develops software and wishes to prevent others from finding out about it. A person who works on developing the software will be required to sign a nondisclosure agreement, which is a contract that obligates the person signing it to keep the project a secret.

Once software is developed and is ready to be sold, it can be copyrighted. Copyright protects the expression of an idea, not the idea itself. For example, a person could not copyright the idea of a computer database management system but could copyright the structure and content of a database software program that expresses the idea of a database system.

Court decisions appear to have limited copyright protection for some features of software. In Apple Computer v. Microsoft Corporation, 35 F.3d 1435 (9th Cir. 1994), the court held that Apple Computer could not copyright the graphical user interface (GUI) it had developed for its Macintosh computer. Microsoft Corporation's Windows software program contained a GUI nearly identical to Apple's. The court stated that Microsoft and other software developers were free to copy the "functional" elements of Apple's GUI because there are only a limited number of ways that the basic GUI can be expressed differently.

In Lotus Development Corp. v. Borland International, 49 F.3d 807 (1st Cir. 1995), Lotus alleged that Borland had copied the hierarchical menu system of the Lotus 1-2-3 spreadsheet program, which contained 469 commands, in its Quattro spreadsheet program. The court of appeals ruled that Borland had not infringed on Lotus's copyright because the menu command hierarchy was a "method of operation," which is not copyrightable under federal copyright law (17 U.S.C.A. § 102(b)).

Patent law supplies another avenue of protection for software companies. A patent protects the idea itself. It is often an unattractive option, however, because it takes a significant amount of time, usually two years, and money to obtain a patent from the U.S. PATENT AND TRADEMARK OFFICE. The patent process is complicated and technical, with the applicant required to prove to the Patent and Trademark Office that a patent is deserved. Because the shelf life of a software program is often short, seeking a patent for the program is often impractical.

Trademark law protects the name of the software, not the software itself. Protecting a name from being used by others can be more valuable than other forms of protection.

When software is leased or sold, the purchaser usually must agree to accept a software license. When a business negotiates with a software company, it will sign a license agreement that details how the software is to be used and limits its distribution. A software license is an effective tool in preventing PIRACY.

When consumers buy software from a software company or through a third-party business, they find in the packaging a software license. The license is typically on the sealed envelope that contains the software media, which itself is sealed in plastic wrapping. These "shrink-wrap licenses" describe contractual conditions regarding the purchaser's use of the software. The opening of the shrink-wrap, according to the license, constitutes acceptance of all of the terms contained in the license agreement.

The purchaser is informed that the software is licensed and not sold to the purchaser. By retaining title to the software, the computer software company seeks to impose conditions upon the purchaser, or licensee, that are not otherwise permissible under federal copyright law. The principal terms of the shrink-wrap license include prohibiting the unauthorized copying and renting of the software, prohibiting reverse engineering (figuring out how the software works) and modifications of the software, limiting the use of the software to one computer, disclaiming warranties, and limiting liabilities.

The enforceability of shrink-wrap licenses has been challenged in the courts. The prevailing view is that when mass-market prepackaged software is sold, the transaction is a sale of goods and not a true license agreement. The key issue is whether the license document is part of an enforceable contract. Defenders of shrink-wrap licenses argue that the purchaser agrees to the conditions of the license after breaking the packaging seal and therefore contract law must uphold the written terms of the contract. Opponents argue that the sequence of events in the typical software purchase transaction is skewed. The purchaser is not aware of the license agreement until after the sale is consummated. The purchaser's acceptance of the license agreement is inferred when he or she opens the package or uses the software. However, the purchaser does not sign the license agreement. She may not even read the terms of the license agreement and, in any case, does not expressly agree to them.

In Step-Saver Data Systems v. Wyse Technology, 939 F.2d 91 (1991), the Third Circuit Court of Appeals held that the shrink-wrap license did not become part of the contract and therefore was not a valid modification to a previously existing contractual relationship for the sale of prepackaged computer software. The court concluded that, under the UNIFORM COMMERCIAL CODE § 2-207, a contract had existed prior to the opening of the package, the license contained new terms that materially altered the contract, and the purchaser did not expressly accept these terms. Because of these conclusions, the license agreement was invalid and unenforceable.

Lawsuits involving the software industry have not been limited to intellectual property disputes. In 1998, the U.S. Justice Department brought an antitrust lawsuit against Microsoft Corporation, alleging that the company had illegally taken advantage of its software MONOPOLY to stifle competitors in the software market. A federal district judge in 1999 found Microsoft guilty of violating ANTITRUST LAWS and in 2000 ordered that the company be divided into two separate companies, U.S. v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). However, a federal appellate court in 2001 overruled the district court's ruling, though it upheld the finding that Microsoft had violated antitrust laws. In 2002, Microsoft and the JUSTICE DEPARTMENT reached a settlement whereby Microsoft agreed to disclose sensitive technology to its competitors and to allow manufacturers and customers to remove Microsoft icons from some of the features in the company's system software.

Software developers have legitimate concerns about software piracy. Counterfeiting is an international problem that results in the sale of millions of dollars of pirated software. The Software Publisher's Association (SPA) and the Business Software Alliance (BSA) are major organizations that combat software piracy. The SPA is the leading international trade association for the personal computer software industry. Both SPA and BSA have collected millions of dollars worldwide from companies that have used pirated software. Most companies using pirated software are reported by former employees.

Piracy can take a number of forms. Computer users can commit piracy by using a single copy of licensed software to install on multiple computers. Similarly, copying disks and swapping disks inside and outside of the workplace can constitute forms of software piracy. The INTERNET has likewise become a major source for illegally pirated software. A number of websites offer full, pirated programs that can be downloaded for free or exchanged with other users. Although the BSA, SPA and other organizations have sought to track these providers and take them offline, such sites still exist.

A number of programs are available to protect software against piracy. Many companies require users to enter special pass codes that correspond to the specific copies purchased by the users. Other software must be registered directly with the company over the Internet. Although piracy still exists at a significant rate, the BSA estimated that software piracy during 2001 cost companies $10.97 billion. Nonetheless, statistics indicate that piracy has been on the decline since the mid-1990s. Among the reasons noted by the BSA for this reduction are the employment of more effective means of distributing legal copies of software and a reduction in the price of software over the previous decade.

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