created a very large retail market for application software--for word processing, spreadsheets, even games--as well as a lucrative market for PC operating-system software. In 1988, domestic revenues for PC software reached nearly $3 billion. 10 The widespread use of PCs also facilitated the growing use of online databases; domestic revenues for on-line business databases alone amounted to $6.5 billion in 1988.11 Rapid growth and technological innovation made markets for PCs and PC software quite volatile, even compared to the mainframe and minicomputer markets a decade earlier. New hardware and software firms would introduce products, enjoy brief success, and go out of business within the space of a Other firms built on initial successes and went on to become few years. industry leaders. A few years after introducing a successful product, however, they might find that a substantial fraction of their market was being taken by competitors offering similar--sometimes improved--products, often at a lower price. This phenomenon, and the volatility of PC markets, has brought new attention to questions about how best to provide intellectual-property protection for software. At the same time, they illustrate the complex relationship between intellectual-property protection and stimulation of creativity. 10 Ann Stephens, Software Publishers Association (SPA), personal 11 Information Industry Association (IIA) data, 1989. The Intellectual Property Bargain and Software In the United States, an "intellectual property bargain" underlies intellectual-property protection. The bargain between creators and society sets a balance between two social objectives: 1) encouraging the production and dissemination of new works and inventions (by providing economic incentives to creators) and 2) encouraging widespread access to and use of 12 these works and inventions. Thus, the limited monopoly granted to authors via copyright and to inventors via patent is a quid-pro-quo arrangement to serve the public interest, rather than a system established only to guarantee income to creators. Copyright is granted in exchange for publishing the work so that it is disseminated. But copyright, which is relatively easy to obtain and longlasting compared to a patent, is intended only to protect the expression in a work from unauthorized copying, not to protect the underlying ideas from independent creation or use. CONTU's recommendation that full copyright protection be extended to all forms of computer software was implemented in the 1980 amendments to the Copyright Act. Even then, CONTU recognized certain inherent difficulties in applying copyright (which does not protect ideas, processes, or procedures) to software. A special concern was the impossibility of establishing a precise line between the copyrightable "expression" in a program and the 12 See U. S. Constitution, art. I, sec. 8, cl. 8. For a discussion of noncopyrightable processes it implements--the distinction between expression and "idea." The 1986 OTA report, Intellectual Property Rights in an Age of Electronics and Information, discussed the difficulty of applying copyright to functional works such as programs. 13 This is a major issue today, as evidenced by ongoing "look and feel" and "structure, sequence and organization" copyright suits. Moreover, market changes like the almosthundredfold increase in PC use since CONTU make the financial stakes much higher. 14 Patent protection, which is stronger than copyright in that ideas are protected (even from independent invention), is of shorter duration. But th the requirement for patentability is stiff: the invention must be useful, novel,¡ and nonobvious compared to prior discoveries (the "prior art") that are patented, in he public domain, or otherwise widely known. Moreover, patent is granted in exchange for full disclosure of the best way of implementing or practicing the invention--the purpose of the patent is to "teach" others and thereby stimulate technological progress as they seek to build on (or invent around) the discovery. Patent protection was generally considered "not applicable" to software until the early 1980s. Since 1981, there has been 13 See OTA-CIT-302, April 1986, pp. 78-85. 14 Some commentators believe that over 90 percent of computer programs 15 renewed interest in patents for software and related inventions.1 Over the past 7 years, patents have issued for software-related inventions such as a spell-checking routine, logic-ordering operations for spreadsheet programs, a brokerage cash-management system, and a bank college-savings system. In the last year, some highly visible software-patent lawsuits and controversies concerning patents for algorithms have served as targets for more general concerns over the appropriateness of patents for software and algorithms. These arise both from fears of stifling technological progress, as well as from practical problems software and algorithms raise for patent. system administration. One of these problems is the relative paucity of "prior art" for patent examiners to use in evaluating patent applications for software and algorithmic inventions.16 Another problem is the lack of special classification for or cross-references to issued patents. As a result, it is virtually impossible to even find, let alone count or profile, all softwarerelated or algorithmic patents. This means that patent examiners and the 15 A 1981 Supreme Court decision (Diamond v. Diehr, 450 U.S. 175 (1981)) public have no effective way of searching for and studying them. Another concern is that the time lag between patent application and issuance is relatively long compared to software life cycles. Trade secret protection, provided under individual State laws, protects against use or disclosure of the secret by others (but not against accidental disclosure or independent creation). Most foreign nations outside of Western Europe do not recognize trade secrets, either domestically or internationally. Trade secret has been the traditional favorite of the industry to protect software and its underlying ideas, logic and structure. Unlike copyright or patent, there is no limitation on its duration. When software is protected by trade secret, information remains undisclosed for as long as trade-secret 17 status is maintained. For society, this can lead to a lack of knowledge about the state-of-the-art. In turn, this can adversely affect patent examinations and lead to "re-inventing the wheel" rather than building on (or around) prior advance. Controversies Over Software Protection Legal protection for computer hardware was traditionally provided by patent or trade secret; this combination served fairly well to protect major hardware advances, as well as more-incremental developments. Because protection for computer software did not fit so neatly within the traditional forms of intellectual property, the process by which software developers and 17 By contrast, patent rights are granted in exchange for full |