Information Processing

Software

No patents -- but still protected

Business Week

October 20, 1980

The computer software industry may well be satisfied with a defeat on Oct. 14 when the U.S. Supreme Court once again considers the question of whether software programs would be protected under patent law. For years software companies have been denied requests for patents by the U.S. Patent & Trademark Office on the ground that software programs -- the instructions that tell the computer what to do -- are not "machine processes" and therefore are not eligible for patents. And when the Supreme Court rules, it, too, is likely to go against patents for software.

But now, as the battle for patent status may be drawing to a close, the software industry has lost interest in the fight. The reason: Trade secret and copyright protection appears to work just as well, maybe better.

"The growth of the industry without patents has been enormous," says Thomas M. Nies, vice-president of Cincom Systems Inc. Indeed, the independent software industry could top $8 billion by 1985 -- up from only $2 billion today.

'Most effective'

The unavailability of patents forced the software companies to turn to trade secret legislation to protect their products. And even though there is no federal trade secret law -- and state laws often conflict -- "trade secret [laws] are the most effective protection" the industry has, observes Bruce T. Coleman, vice-president of Informatics Inc. in Woodland Hills, Calif. The overwhelming majority of independent software companies use trade secret law as their primary means of protecting software copy.

In recognition of the importance that trade secret laws play in safeguarding software products, the Association of Data Processing Service Organizations (ADAPSO), has shifted its stance from favoring patent protection to trade secret law as the best form of software security (BW -- July 10, 1978). Given the expense of obtaining a patent, "trade secrets are the better way to go," says Jerome L. Dreyer, ADAPSO's executive vice-president.

As backup security to trade secret protection, software companies turned to copyrights, which treat software programs as literary works. So far, the U. S. Copyright Office has routinely granted most requests for copyright coverage to software companies. Since the Copyright Act was overhauled in 1976, for example, 2,000 copyrights have been issued for software programs. Nevertheless, software is not explicitly mentioned in the Copyright Act of 1976. More important than a favorable Supreme Court decision, say industry executives, is passage of legislation that would bring software under the copyright umbrella.

It may be a good thing that industry thinking has shifted in this direction, because the court is unlikely to decide the current patent cases in the industry's favor. "The court will probably do what it has done in the past and send the matter back to Congress for review," speculates Dreyer.

No obstacle

But this time, the patent issue is unlikely to be revived; it has simply become unimportant in light of the industry's spectacular growth. "When we went public and wooed investors, the question of legal protection for our software come up a lot," recalls Charles O. Rossotti, president of American Management Systems Inc., an Arlington (Va.) software house. But, Rossotti says, once he explained that his products were protected by trade secret laws and license agreements, investors relaxed.

Although some software executives maintain that industry growth would have been greater with patent protection, even they concede that now patent protection would be more of a psychological plus than a necessary safeguard. The absence of patents for software programs "is something that many believe hurts our industry," says Nies of Cincom Systems. "But," he adds, "all experience shows it has not [harmed] us at all."  

Copyright 1980 McGraw-Hill, Inc.