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On the other hand, the above should not be understood as implying the finding that object code is not protectable at all. The copyrightability of programs in source language would have very little value if the object code could be produced or copied with impunity. It is concluded, therefore, that the conversion of a source program into object code, which implies no addition to the logic of the program and therefore no value added, constitutes the making of a copy.

Thus, object code should be protected by virtue of the copyright in the source program. It may be noted that in the process of producing object code from a source program, the usual procedure is to combine certain necessary operating parameters into the object code. These parameters often select the specific peripheral units that will be used with the program when the program is run and also select the location of the program in the computer storage units. In the view of this study, these additions to the object code constitute almost nothing that could be classed as original works of authorship. Thus, the generation of object code, even with the addition of these housekeeping functions, cannot be classed as the preparation of a derivative work.

5.7.5 Translation to a New Source Language

The translation of a source program from one source language to another source language should be considered the preparation of a derivative work. The translation makes possible the understanding of the program by an additional group of persons and provides for wider dissemination and use.

5.7.6 Value of Copyright Protection

It is clear from the concept of copyright and from Section 102(b) of the 1976 General Revision that only the "expression" of a program can be protected. As stated in Section 102(b):

"In no case does copyright protection for an original work of
authorship extend to any idea, procedure, process, system,
method of operation, concept, principle, or discovery, re-
gardless of the form in which it is described, explained,
illustrated, or embodied in such work.

The question may be asked, whether protecting the expression only, rather than the concept is valuable. An answer is that copyright protection hopes to prevent a major type of market failure with regard to computer programs, but does not claim to protect against all types of market failure. Therefore, copyright is valuable, but not valuable for every purpose.

It is important to note that unauthorized copying of computer programs, even without any further use or dissemination of the concepts of the program, is a major type of market failure. The reason this is true is that examination of the program code to determine any unique concepts

contained therein requires the expenditure of significant resources, while copying by itself requires only a bare minimum of resources. A copier who is assured that the program in question performs the functions he desires in an error-free manner has obtained something of considerable value, at minimum expense. The added effort of understanding any unique procedures contained in the program is not likely to yield a corresponding advantage for a pragmatic user.

The disclosure of unique concepts, certainly, will assist competitors in the development of competing programs, but whether a particular unique or innovative design concept is protectable would depend on how a statute (such as the patent law) protecting such concepts might be written or might be interpreted. This report is not the proper vehicle for a detailed discussion of this matter; but it can be pointed out that very few programs contain (or need to contain) new concepts as unique as the simplex method for the solution of linear programming problems or the fast fourier transform algorithm, both outstanding advances in computational procedures. For the most part, what is required of programs is that they carry out their intended functions with precision and in an error-free manner. Performance is improved if in addition, programs minimize execution time and use of storage space to the extent practicable. For most applications, unique concepts are not required, and for these programs, copyright protection should be sufficient. Clearly, there appears to be room for further study on the possible protection of unique and innovative programming concepts.

5.7.7 Copyright and Software Industry Strength

One argument against copyrightability of computer programs is that the industry is burgeoning and therefore copyright is unnecessary.

It must be noted, however, that copyright does not specifically protect an industry, but rather a particular work in the marketplace. The protection is particularly important for the smaller entrepreneur who does not have the resources to engage in the kind of retaliatory measures suggested by Hurt and Schuchman or to protect himself against the predatory practice proposed by Breyer and described in Section 4.2 above. Copyrightability promotes competition and innovations by the small competitor. These aspects of the marketplace are important criteria for public policy towards an industry, as are growth and size of the industry.

5.7.8 Duration of Copyright Protection

It seems reasonable to propose that the author of a computer program should not be treated any differently than the author of any other type of copyrightable work. Therefore, the duration of copyright in computer programs should be the same as the duration of copyright in other works.

A reason that has been given for proposing a shorter duration of copyright is that with changing technology, computer programs would become valueless after several years. However, if the proposal of this report is adopted, that an original computer program copyright should be

obtainable only in the source program, and not in the object code, then a separation of the programmer's expression from the hardware technology is promoted. Furthermore, even if popular source languages are altered or improved, the copyright proprietor retains the right to prepare derivative works, permitting him to update the program as required.

5.7.9 User Rights in Computer-Readable Works

A computer program, and a computerized data base as well, are intended for use in conjunction with a computer. That is, a computer-readable work is used by entering it into a computer system and manipulating it through the logic of a computer. It seems reasonable to propose that the copyright proprietor should retain the exclusive right to the use of a computer-readable work in a computer.

However, this study proposes a limitation on the exclusive right of use, in order to reduce transaction costs in connection with the transfer of ownership of copies of computer-readable works. This limitation is intended to operate through improved salability of computer programs and computerized data bases, considered immediately below.

5.8 IMPROVING SALABILITY OF COMPUTER-READABLE WORKS

Several kinds of copyrighted works are offered for sale at retail. Books, maps, and sound recordings are typical of this class. The advantage of sale over lease or rental is that transaction costs are minimized. No agreement, except to pay the retail price, need be made. The buyer obtains ownership over the copy or phonorecord he has purchased, including the right to resell that copy, except for certain rights retained by the copyright owner. The retained rights include the rights to make and sell copies (with exemption for fair use, compulsory licenses, etc.), the right to prepare derivative works, and the rights to perform and display the work publicly.

If the rights to computer-readable works could be defined in such a way as to promote the sale rather than lease of such works, transaction costs might be similarly minimized. This would be, certainly, in the public interest.

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One of the problems in the sale of computer-readable works is the right of the buyer to copy for his own use. Here, "buyer" means the purchaser of a copy where ownership of the copy is transferred. For works published in paper, "use" simple means "reading" and no copying is required. For sound recordings, "use" means "playing" the recording on a playback mechanism, but again, no copying is required. For computerreadable works, copying into the computer is required in order to use, and in addition, archival copies are made in normal practice in case a copy in use is destroyed inadvertently.

In Section 112 of the 1976 General Revision, the right to ephemeral recordings is recognized for a "transmitting organization." This means that a radio station or TV station has the right to record a performance that it is transmitting for its own internal purposes, for example, "for purposes of archival preservation or security.

It seems reasonable to suggest that buyers of computer-readable works ought to have similar statutory rights of ephemeral recording in order to be able to effectively use what they have bought. It seems reasonable to suggest, also, that restrictions on the use of such ephemeral recordings ought to be imposed. For example, if a buyer resells the copy of the computer-readable work that he has bought, he ought to be required to destroy all ephemeral copies. The buyer ought to be able to resell no more than one copy of a computer-readable work if he had bought only one copy. Furthermore, the right of internal use should be distinguished from network use. The usage rights of a buyer should not include the right to make the work available to outsiders through a computer network or otherwise.

The effect of the allowance for free internal use in situations of transfer of ownership means that there could be no performance royalty charged. If the seller wants the buyer to pay for each individual use of the computer-readable work, the seller would have to negotiate a lease or rental agreement with the buyer. For lease with per-use charges, the transaction costs are probably higher than for outright sale.

5.8.2 The Right to Make and Use Machine Code

Similarly, the need of a buyer to copy a computer-readable work into a computer in order to use it requires that the buyer make object code out of the work. It seems reasonable to suggest, in order to promote the sale of computer-readable works and thereby reduce transaction costs, that a buyer be permitted, for his own use, to convert a computer-readable work to object code and to use the code in his own computer.

5.8.3 Differential Pricing

Another concept which might induce an increase in sales rather than leases is differential pricing between individual buyers and institutional buyers. This concept has been described in Chapter 4 of this report as having a theoretical economic basis, and the concept is further described in Appendices C1 and C2. The concept, in general, has been described in terms of the sale of scientific journals, but there is no reason why the concept could not be adapted and utilized for the sale of computer-readable works, as proposed in Appendix D.

In general, an individual buyer would be one with a single computer system and a small number of terminals. For the sale of computer programs, that is, computer-readable works that are typically manipulated

by the arithmetic units of computer systems, an institutional buyer could be defined as one with a large number of computer systems on which the program might run or as one who could be expected to use the program to benefit many individuals. For the sale of computer-readable data bases or textual works, that is, works that are typically viewed at terminals with subsets being retrieved by users, an institutional buyer could be defined as one with a large number of internal (user) terminals attached to his system.

5.8.4 Data Base Access Services

A special type of institutional buyer must be noted. The independent data-base access service employs a computer-readable data base, and for a use-dependent fee, permits outsiders to obtain printouts of subsets of the data base at external user terminals.

The data base access service is providing derivative works to outsiders through the printouts, as well as displaying the work publicly, two rights which are reserved to the copyright holder under Section 106.

In order to make the concept of outright sale useful to independent data base access services, these services would have to be given statutory permission to display computer-readable works publicly and to prepare derivative works. It is not clear that copyright proprietors would want to give up these rights in this situation.

5.9 SUMMARY

The issue of computer-readable works was raised significantly in Senate hearings in 1967. Predictions of vast changes in methods of production and distribution of works alerted publishers and authors to the need for language in the copyright law which protected their works in computers. The predictions were premature, but technically feasible, and within the realm of possibility, depending on many social, economic, and psychological factors.

The 1976 General Revision clarified rights in works fixed in any tangible medium, but the insertion of Section 117, because of the establishment of CONTU, continued certain ambiguities. The 1976 Act abolishes common law protection for fixed, but unpublished works and provides statutory protection instead.

The most important act assuring maximum Federal protection is registration of the copyright and deposit of the necessary copy. Disclosure through this act is an important quid pro quo for Federal protection.

The Register of Copyrights is entitled to make rules allowing the depos of identifying information instead of complete copies for certain classes of work. The principle of maximum information transfer would seem to demand complete disclosure for scientific and technical information.

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