The Software Piracy Battle

The New York Times

July 31, 1984

When the Lotus Development Corporation received a report from an informant that Rixon Inc. had made unauthorized copies of a Lotus financial spreadsheet computer program for use in its branch offices, Lotus filed a $10 million copyright complaint. Rixon promptly settled for an undisclosed sum.

In the Rixon case, as well as a new lawsuit filed last week against Health Group Inc. of Nashville, Lotus has been testing a new tactic in its campaign against the growing problem of software piracy: deterrence through fear of exposure in the courts.

For years companies have been looking for ways to keep people from making unauthorized copies of computer programs, which can be worth hundreds of dollars each and which can be duplicated in a minute or so, more easily than a cassette tape. But no sooner is a new protection device found than a new method of circumventing it seems to be found, too.

Supplement to Technical Hurdles

And so the case involving Rixon - at the time a subsidiary of Schlumberger Inc. but since sold to Computer and Systems Engineering of Watford, England - has attracted attention in the industry as a way to supplement efforts to set up technical blockades against copying abuses.

The emphasis, analysts say, is more on the embarrassment a lawsuit might cause than on any penalty, which most companies could find relatively easy to deal with. There is also a desire to alert top management to any abuses in lower echelons. As Mitchell Kapor, president of Lotus, put it: ''More important than trying to punish companies is to make them aware of what is going on.''

Meanwhile, efforts to extend legal barriers against software piracy have been proceeding both in Washington and at the state level. Last month, for example, Louisiana legislators approved a law establishing the validity of the ''contract agreement'' on each software package forbidding consumers to make unauthorized copies. Similar efforts to bring the issue under contract law, rather than under copyright statutes, are under way in California, Georgia and several other states.

How serious is the impact of unauthorized software? Very serious, the industry says, much more so than consumers probably appreciate.

''For every software product sold, between two and 10 copies are floating around,'' said Marvin Goldschmidt, vice president of business development at Lotus, which is based in Cambridge, Mass. ''Along with the great loss of revenue for the computer industry, the drop in profits may deter companies from developing software in the future.''

Many businesses that rely on software believe, however, that the software producers have been pricing their products too high. Indeed, they say the piracy issue can be reduced to a question of value: If the user does not feel the software is worth its price, he will try to make copies.

''They do not perceive their actions as stealing,'' said Tod Riedel, a spokesman for First Micro Group, a business computer users organization.

Still, software manufacturers such as Lotus are determined to fight the phenomenon and are beginning to pool resources. The most vigorous antipiracy force is the Association of Data Processing Service Organization, which has formed two committees to handle the issue.

One group, the Software Fund, concentrates on enforcement through the courts and on an education program to inform users when it is illegal to copy software. The other, the Software Committee, deals with the effort to strengthen antipiracy laws and to improve protection through technical security devices.

Cumbersome for Buyers

Besides their vulnerability, however, such technical devices present other problems. They make it more cumbersome for a buyer to use the program, analysts say, as well as creating a sense of distrust and suspicion. Morever, because the diskettes on which programs are written can easily be damaged by dust, spills or by repeated use, many manufacturers encourage buyers to make back- up copies.

''Users have a legitimate right not to be burdened,'' said Mr. Kapor of Lotus.

Companies are striving to develop systems that will stymie unauthorized copying but not hamper the consumer. For example, the Vault Corporation, recently introduced a device, called Prolok, that uses a fingerprint on a small disk as a lock. Only the individual with that print can get into the program and unscramble it.

All the same, the experts agree, even the best devices will not keep intruders from eventually outwitting the system. Thus, the companies are emphasizing legal remedies.

At present, except in Louisiana, the manufacturers must rely on copyright law - specifically, on the landmark case Franklin v. Apple, handed down in 1983 by the United States Court of Appeals for the Third Circuit in Philadelphia. In that case, involving the Franklin Computer Corporation and Apple Computer Inc., the court ruled that all programs can be copyrighted, even if they are an integral part of a computer's circuitry.

'Intellectual Property Rights'

The Apple decision strengthened the notion of ''intellectual property rights'' - that is, the concept that an idea or complex of ideas, like a computer program, merits protection under copyright law just as tangible property does. Still, copyright law does not cover all the problems that arise from software copying.

The law allows companies to prevent a buyer from copying, for example, but it does not prevent the buyer from renting the products to a third party. As a practical matter, once the software is circulating on a rental basis, preventing unauthorized copies is virtually impossible.

Using Contract Law

But legal authorities say there may be a way to save the situation through contract legislation of the kind just passed in Louisiana. ''By attaching agreements to the purchase of software, manufacturers can obtain rights under contract law that might not be available to them under the Federal copyright law,'' said Alan Grogan, an expert on intellectual property rights.

In the meantime, however, the emphasis remains on copyright protection and the prospective embarrassment of a lawsuit.

''Litigation is a dramatic way of showing that unauthorized copying is a crime against companies,'' said Jerry Dreyer, the president of Association of Data Processing Service Organization.

Copyright 1984 The New York Times Company