Standards As Intellectual Property: An Economic Approach


Standards As Intellectual Property: An Economic Approach


by David Friedman*
"To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;"

U.S. Constitution, Article I, Section 8


In a series of cases decided over the past two decades, courts have tried to define the protection provided by copyright law to computer programs. One issue often implicit and occasionally explicit in such cases is what protection, if any, ought to be provided to standards--a kind of intellectual property that does not fit neatly into the existing classifications. In this essay, I attempt first to explore the nature of intellectual property and intellectual property law and then to consider how standards fit into the analysis. As will become clear, my objective at this point is not to produce clear answers to the question of what the legal rules ought to be but rather to show how such answers might be produced and on what facts they would depend.

The U.S. Constitution establishes two classes of intellectual property: "Writings" and "Discoveries." To protect them, Congress and the courts have produced two bodies of law, copyright law for writings and patent law for discoveries--what we now call inventions. When the provisions of Section 8 were embodied in the first copyright law, "writings" meant written works such as novels. As new forms of intellectual property have become important, they have either been fitted into one of the two existing categories,[1] provided with special protection of their own,[2] or left unprotected.

One approach to understanding how intellectual property law has accommodated novel classes of intellectual creations might be to ask whether the novelties can reasonably be described as new kinds of writings or inventions. This approach cannot explain the development of copyright law for computer programs. It is clear, under current law, that system software in machine language form--code used to enable one part of a computer to control another--is copyrightable. It is equally clear that such software is not a writing, nor analogous to a writing. System software is more nearly analogous to a machine part, an elaborate cam.[3]

I believe that a better approach to explaining the development of intellectual property law is to start by asking why writings are protected by copyright law. The constitution, after all, does not specify how writings and discoveries are to be protected; it does not even suggest that they should be protected in different ways by different bodies of law. If we understand what features of writings made the sort of legal protection provided by copyright law appropriate to that sort of intellectual property, we can then determine whether those features are shared by some new class of intellectual property such as computer programs. If they are, that is a good argument for putting the new sort of property in the box labelled "writings" and protecting it with copyright law--even if it is a machine part or a plant variety.

This article attempts that approach. Part I discusses the general economic arguments for and against protection of intellectual property, shows why those arguments apply with different force to different sorts of intellectual property,[4] and argues that it makes sense to protect certain sorts of ideas with something similar to copyright law, certain sorts with something similar to patent law, and to leave other sorts entirely unprotected. Part II argues that computer programs, in both source and object code form, are appropriately protected by something like copyright law, at least against literal copying.

Part III introduces a class of intellectual property that is at issue in many legal disputes over software but has not been recognized in the law as a separate and distinct category: standards.[5] Part IV tries to show that whether standards ought to be protected, and if so in what way, depends on factual questions whose answers are not entirely clear. Part V briefly summarizes how standards have been treated in computer law. Part VI considers the implications of the analysis for designing legal rules to apply to standards.


Part I: The Economics of Intellectual Property


We live in a society of many millions of people, each with his own knowledge, desires, and resources. Any such society faces a coordination problem--how to get those people to coordinate their efforts in order to achieve their diverse objectives. While many solutions to that problem are conceivable, there seems to be only one sort of solution that works reasonably well for complicated societies: a decentralized system based on the institutions of private property and trade.

In such a system, things belong to people and can be transferred by their owners to other people. An exchange that moves something to someone who values it more than its present owner produces a net benefit, which may be shared between the parties to the exchange. Thus such a system tends to move everything to those who most value it, producing an efficient allocation of goods and services. The logic and limitations of this process make up the branch of economics called price theory.[6]

In order for such a system to work, it is necessary to define, enforce and exchange property rights in the things being allocated. If doing so is sufficiently difficult, the private property solution to the coordination problem may work so badly that other solutions become preferable.[7]

One source of such difficulties is illustrated by Houston v. U. S. Gypsum, the case of the floating island.[8] One party to the case (the Houstons) owned Stack Island in the Mississippi. The other party (U.S. Gypsum) owned a tract of land on the east bank of the river, along with "any islands located between the above described lands [and] the Louisiana-Mississippi state line ... ." At the time when the titles were granted, one party's island was upstream from the stretch of river described in the other party's deed. Over time, however, Stack Island experienced erosion at the upstream end and deposition at the downstream end--with the result that the island floated south into the stretch of river whose islands were included in U.S. Gypsum's property, giving two parties legitimate claims to the same piece of real estate.[9]

If floating islands were the norm rather than the exception in the world of real property, or if we lived in a world of shifting streams where my front yard of yesterday was river today and your back yard tomorrow, it would be very much harder to use the institutions of private property and trade to control the use of land. In the world of intellectual property, floating islands are the norm. Drawing clear boundaries around an idea is rarely easy and often impossible. The result is to make it difficult for parties to know whether or not their intended act infringes someone else's property rights--and, when the act has occurred, to make it difficult for a court to resolve the resulting dispute. The problem is complicated by the fact that trespass on intellectual property is often more difficult to observe than trespass on real property.

A second problem has to do with the creation of property rights. In the context of real property, this issue shows up in the literature on inefficient homesteading.[10] Over time, as the frontier moved west, a tract of land initially beyond the frontier went from not worth cultivating to just breaking even to producing a positive income. If property rights to land were acquired by settlement, as they were under the homesteading act, individuals had an incentive to settle too early. By bearing costs in the early years of settlement, when the land was not yet worth cultivating, they received the right to the flow of future income from ownership of the land. A settler who waited to settle land until it was actually worth farming would arrive to find all of the good land already taken. If information were perfect and settlers identical, the land would would have all been settled as soon as the present value of settling it became positive, and the effect of the homesteading act would have been to dissipate, in costs of premature settlement, the entire land value of a large fraction of the U.S. Under more realistic assumption, the effect was to dissipate a large part of that value.

In the context of intellectual property, the problem appears in the form of patent races. The social value of having a particular invention made may be large, with the result that the inventor who secures the patent can expect a large income from licensing fees. The social value of having the patent made this week instead of next week is very much smaller. But since the patent goes to the first inventor,[11] the difference between inventing this week and inventing next week may be the entire value of the patent. Thus patent law may provide an incentive for inefficiently early invention.

At first glance, it seems strange to view an incentive to create intellectual property as a possible disadvantage of intellectual property law. That a private property system allocates ownership of produced goods, such as automobiles or wheat, to their producer is usually considered a desirable feature of such a system, since by doing so it gives him an appropriate incentive to produce the goods. And patents and copyrights are commonly defended as, among other things, devices to give creators a reward for their creation and thus an incentive to create.

The difference between the cases of homesteading and patent races on the one hand and automobiles (and, as we will see, protection for literary works against literal copying) on the other is that the former cases do, and the latter do not, involve establishing a private property claim to something that already exists and is already valuable. The builder of an automobile or the grower of wheat uses only private property as an input, and pays its owners for it.[12] But the homesteader takes out of the common pool land that already exists and is already valuable--land that would command a positive price if it were auctioned. Less obviously, the inventor who patents a particular process takes out of the common pool the ability to invent and practice that process. Other potential inventors are worse off because they are no longer free to do something that they might have done had he not made and patented his invention. In many cases this may be a trivial loss. But it is not trivial if someone else was about to make the same invention a week later, as in the case of a patent race. Nor is it trivial if the invention is an obvious one, which anyone else could have easily made as soon as practicing the invention became worth doing--and which no one else is free to make once it has been patented.[13]

A third problem with property is the cost of transactions. The typical transaction in an economics textbook involves one buyer, one seller, and one good. Imagine, however, the consequences of a legal system which treated the English language as protectable property, with each new word belonging to its first user. A long sentence concerning some rapidly developing field might require the author to first resolve the conflicting claims of a variety of putative first users, then obtain licenses from three or four copyright owners. Writing a book would involve similar negotiations with hundreds or even thousands of parties. One solution to such a problem might be a system of group licensing, such as that currently used for songs. Another would be the system we in fact use: treating the language as a commons. Similar arguments apply whenever a single activity, such as the building of a machine or writing of a computer program, may infringe diverse rights held by a large number of different claimants. Outside of the area of intellectual property, such arguments provide one reason that we do not treat overflight as tresspass. The costs to a pilot of determining whose land he was flying over and negotiating permission to do so would far exceed any resulting benefit.

These arguments suggest three factors relevant to the costs of providing legal protection to some particular sort of intellectual property. One is how easy it is to define and defend property in that sort of idea. The harder it is to know what is owned and whether someone is trespassing, the higher the cost of protection. Another is the degree to which someone who creates and claims ownership in that particular sort of intellectual property reduces, by so doing, the options available to other people. The greater the size of such effects, the more likely it is that intellectual property protection will result in expenditures--the consumption of real resources--for the purpose of securing a claim to pre-existing property.[14] The last is how difficult the transactions needed in order to use the intellectual property would be. The more serious these problems are, the less the gains from defining and enforcing property rights in ideas. Where they are sufficiently serious, we are better off with an intellectual commons--a legal regime in which certain classes of ideas are free for all to use--than with intellectual property.

One reason a commons may be a more attractive solution for controlling the use of ideas than it is for controlling the use of land or objects is that, while the number of people who can use a single automobile is limited, the number who can use a single idea is not. So one function of private property--resolving conflicts among different people who wish to use the same piece of property at the same time--is unnecessary in the case of intellectual property. From the standpoint of a static analysis, in which goods, including ideas, already exist and need only be allocated, the commons is the ideal institution for allocating ideas. It may not, however, be the ideal institution for producing them.

So far I have been considering factors relevant to the costs of intellectual property protection. These must be balanced against the benefits--production of more and better intellectual property and better coordination of intellectual property once produced.[15] The larger these benefits are likely to be, the greater the costs we are willing to bear in order to get them.

The benefits from better incentives to produce something depend in part on its supply curve. If we could produce all the wheat anyone wanted at a cost of a penny a bushel, then even a system of property rights which drastically under-rewarded the producer might still produce plenty of wheat.[16] The relevant supply curve has qualitative as well as quantitative dimensions. The existence of shareware word processing programs is evidence that a significant number of such programs would be available even if there were no legal protection for computer programs.[17] But the almost complete absence of shareware word processing programs competitive in quality and features with successful commercial programs[18] suggests that the quality supplied, in the absence of legal protection, would be much lower than what is now available.

A characteristic closely related to supply elasticity is ease of copying. If copying a particular sort of work is difficult and expensive, intellectual property protection may be unnecessary.[19] If copying is cheap and easy, copies may drive the price that can be charged for the original down so far that even something which can be produced quite inexpensively will not be produced in the absence of legal protection.[20]

So one factor relevant to the value of intellectual property protection is the shape of the supply curve. Another is the need for coordination in production. As Edmund Kitch[21] has pointed out, one function of intellectual property is to give the owner both the ability and the incentive to coordinate further developments within his "claim." Where such coordination is important to the production of further intellectual property, intellectual property protection is more valuable than where development can proceed without any formal coordination.[22]

We have now seen some of the important ways in which the characteristics of different sorts of intellectual property affect the case for or against protection. To what extent do such considerations explain the pattern of intellectual property law as it has in fact developed?


II. Putting Things in the Right Boxes: Existing Law


Consider the earliest and most fundamental application of copyright law--the protection of literary works against literal copying. Literal copying of a literary work is easy to recognize, so it is easy to defend and enforce the original author's property right. The chance that one novelist will independently reproduce large parts of another novelist's work is essentially zero, so someone who writes and copyrights a novel does not significantly reduce the opportunities available to other writers.[23] These arguments suggest that the costs of protection against literal copying of literary works are small.

Whether the benefits are large or small is unclear. The coordination argument only applies to the small fraction of all literary works likely to spawn derivative works. So far as elasticity of supply is concerned, it has occasionally been argued that the reward from copyright is unnecessary, since authors would write, and publishers publish, an adequate supply of literature without it.[24] Others have argued the opposite.[25] One factor in favor of protection is that literal copying of written works is easy, making protection more important for written works than for, say, performances. This is particularly true with modern printing technology, since fixed cost is lower for the copier than for the original publisher.

If costs of intellectual property protection for literary works are low and benefits may be high, strong protection is desirable. That is what we have. Copyright is given easily, without any substantial requirements analogous to the requirements of non-obviousness and utility in patent law, and provides a long period of protection.

The case for the protection of inventions is much less clear. Drawing a line around an idea in order to define what does or does not use it is very much more difficult than recognizing direct copying from a literary work. And the patenting of inventions involves a much larger element of limiting what others can do than does the copyrighting of written works. Patent law should be, and is, much more grudging in permitting the creators of ideas to establish rights to them, and much less generous in the length of time for which protection is provided, than is copyright law. The same arguments suggest that copyright law should, as it in fact does, exclude from its protection the ideas embedded in literary works.

These arguments suggest that the allocation of new forms of intellectual property to existing legal boxes makes sense in terms of the relation between the characteristics of the new forms and the form of protection appropriate for them. Where copying is easy to do and easily recognized and independent invention unlikely, we would expect copyright law or something similar. We would even expect to see copyright law for physical machines if the technology existed for cheaply, easily, and recognizably copying them.[26] Where copying is expensive and hard to recognize and independent invention likely, we would expect to see something like patent protection. Where the factors leading to high cost of property protection are combined with factors leading to low benefits, we would expect to see no protection at all.[27]

This pattern explains the application of copyright law to literal copying of computer programs. Machine language system software is not a writing, but it shares with writings the features that make copyright law an appropriate form of protection. Like a writing, it is easily copied. Literal copying is easy to prove. Independent invention is unlikely.[28] It is therefore not surprising that software is protected as if it were a writing under present copyright law.

So far I have considered only literal copying. Ordinary literary works are protected against non-literal copying as well. The case for such protection is less clear, both because the relevant lines are harder to draw and because broader protection risks establishing rights that reduce the alternatives available to other writers. Copyright law attempts to prevent that from happening through the doctrine of merger, under which protection is severely restricted when it threatens to block the only way, or one of a small number of possible ways, of expressing a particular idea.[29]

In the area of computer software, most current legal uncertainty involves non-literal copying. One of the central issues, and the one that is the chief concern of this essay, is the copying of standards.


Part III: What is a Standard?


A producer does something in a particular way--makes an electric socket and an electric plug with a particular size and shape. Suppose there are many other equally good forms that plug and socket might easily have taken. Once one has been chosen, other producers wish to imitate it--not because it is better than what they could do themselves but because consumers prefer all of their plugs to fit into all of their sockets.

The size and shape of the plug are a standard. The plug itself may not be. It may have many other features which are irrelevent to what plugs fit into what sockets--what it is made of, for example. In this case as in many more complicated ones, what is a standard is not a product but a particular feature of a product.

Consider a word processor--Microsoft Word in the Macintosh market at present, or Wordstar and later Word Perfect in the MSDos market--which commands a large fraction of its market. One reason for using it is that it is a good product. Another possible reason is that the user wishes to be able to exchange documents with other people who are using it. A third is that the institution using it wishes to be able to hire secretaries without having to retrain them--and new hires who are familiar with a word processor are likely to be familiar with the dominant one.

The second of these objectives applies to some individuals and institutions but not to others, and satisfying it does not require the use of the dominant product. Most word processors can save documents in a variety of different formats, and there exist programs for translating among formats. If I wish to use WriteNow on the Macintosh and send my documents to journals that use Word, I merely save my documents in Word format. The format used for compatibility need not be the format of the dominant product. If I wish to convert my documents from WriteNow on the Macintosh to Word Perfect for Windows, I can do it by saving in Rich Text Format--a standard invented by the producer of neither product but supported by both.

Satisfying the third objective without using the dominant product is, in practice, harder--but for many users, the second objective is irrelevant. For an author doing his own typing, for example, it does not matter what word processors other people use, as long as he can exchange documents with them. If an institution does wish to be compatible in this sense with the dominant product, doing so may not require using that product. There is the alternative of using another product designed do be similar enough so that a worker trained on one can easily learn the other.

The standard is not the product but one of its features, such as the format it saves in or its user interface. The feature may be, and often is, separable from the product. And the particular feature that is a standard may be other things as well--a writing or an invention, for example. In discussing standards, it is often useful to talk about them as if a single thing or feature either is or is not a standard. In fact, a particular feature of a product may be valuable primarily because it is a standard, primarily for reasons unrelated to its being a standard, or in part because it is a standard and in part for other reasons.

A standard is not simply any product with high market share. Such a product is a standard in the sense in which I am using the term only to the degree to it is a desirable because it has market share--which is not at all the same thing as having market share because it is desirable. If there is no significant advantage to using the same product as other people, or if the advantage can be gotten in other ways, as in the examples above, then a product may have an arbitrarily high market share without being a standard.

Furthermore, contrary to what much of the literature seems to assume, the fact that something is a standard is not necessarily an argument against making it protectable intellectual property.[30] As we will see in the next section, the special features of standards provide arguments both for and against protection. The fact that something is a standard provides some arguments against giving it protection that it otherwise would be entitled to. But it also provides arguments for why something otherwise unprotectable, such as the set of interface features that define an "IBM compatible" computer, ought to be protectable as a standard, despite the fact that it does not meet the requirements of protection under either copyright or patent law. And in some cases, one might argue that an item of intellectual property, considered as a standard, ought to belong to a different claimant than the same item considered as a writing or an invention.[31]


Part IV: The Economics of Standards


Ought standards to be protectable forms of intellectual property? The arguments offered above suggest that the answer depends on the answers to a number of different questions:

Is it easy to define and protect property rights in standards? For many sorts of standards--for example size and shape of electrical plugs and sockets--the answer is yes. For some others it may be no. Consider the litigation between Apple and Microsoft on whether or not Windows infringes on the look and feel of the Macintosh interface.

Does the creation of a standard, combined with its legal protection, reduce the opportunities available to other creators? This is a more complicated question in the context of standards than in the context of either writings or inventions. One answer might be that it does not, so long as the number of possible standards is large. A different answer is that even if there are many alternatives that could have been chosen, the fact that one alternative has become a standard may eliminate the opportunity to choose another.

Consider the application of the patent race argument to standards. If standards are very useful and shifting from one standard to another is very difficult, there will be an automatic "first to invent" rule for standards. Whichever standard comes first will be likely to go into general use, blocking the adoption of other and perhaps superior standards. If we give the inventor of a standard legal ownership of it, he will have an incentive to try to invent and implement a standard early--thus obtaining a reward based not on the value of getting a standard established a little sooner than it otherwise might have been but on the full value of having the standard.[32]

Are standards easily supplied--so easily that the additional incentive provided by legal protection is unnecessary? In many cases the answer may be yes. But some standards--the Macintosh interface, say, or the BIOS for the IBM PC--are complicated constructions. In such cases, the availability and quality of the standard may very much depend on the reward provided, or not provided, by intellectual property law.[33]

Even where inventing a standard is not costly, making it a standard may be. The Lotus menu tree, or some almost equally good alternative, could perhaps have been designed in a few weeks by an intelligent user familiar with both Visicalc and the capabilities of the new IBM PC. But converting the menu tree from a description on a piece of paper to a standard in worldwide use required massive expenditures to produce and market a product using that standard. Where such expenditures are necessary to make something a standard, and where the existence of standards is valuable, the reward provided by the legal ownership of the standard may provide an important incentive to produce it.[34]

Is it important that someone own a standard in order to coordinate its future development? For simple standards, the answer is no. For complicated standards, it may be yes. One reason for the Macintosh's ease of use was Apple's policy of defining rules for both the user interface and the machine interface of Macintosh software and pressuring software producers to follow them.[35] That policy was made possible by Apple's control over the Macintosh and its software, enforced not by legal protection of the interface[36] but by legal protection of the Macintosh ROMs. As long as Apple was the only company that could make Macintosh compatible computers, it had an incentive to invest resources in maintaining a consistent standard for Macintosh software, thus raising the value of the hardware that ran it. And its control over Macintosh hardware provided it with leverage to use in persuading software producer to follow its guidelines, since only by so doing could they guarantee compatibility with the next revision of the ROMs and system software.[37]

Even if coordination is important, ownership of a standard is not the only possible way of getting it. One alternative is to have standards set by government agencies. Another is to have standards designed by committees established by professional associations or groups of manufacturers and voluntarily adopted by firms wishing to produce mutually compatible products. The viability of those alternatives is another consideration relevant to whether standards ought to receive protection.

Opponents of protection for standards have sometimes argued that such protection would force competing firms to adopt inconsistent standards. But a central element of a market system is trade for mutual advantage. If a particular standard is much more valuable if widely used, then the owner of the standard has an incentive to license it widely.[38] Such contracting has costs, however. If property protection provided no benefit--if standards were easily produced and required no coordination--then it would be even easier to get consistency by treating a standard as common property and allowing anyone who wished to follow it. That is how we treat the English language--probably the most complicated as well as the most widely used standard employed by our society.

These arguments suggest three alternative ways in which the law might treat standards. One is to decide whether standards typically fit into the copyright or the patent box and classify them accordingly as writings, as discoveries, or, if they fit into neither box, as unprotectable. A second would be to construct legal rules designed to distinguish among standards according to which box, if either, they fit into. A third would be to construct a sui generis form of protection, as has been done for computer chip masks, plant reproduction, and (unsuccessfully) boat hulls.


Part V: The Legal Treatment of Standards in Computer Law


A number of early cases in computer law[39] dealt with protection of standards. In Apple v Franklin,[40] for example, Judge Sloviter held that Franklin was not entitled to copy Apple software even if doing so was the only practical way of making a computer capable of running software written for the Apple II. He held that while the doctrine of merger might prevent Apple from copyrighting the only way of accomplishing some task, such as compiling source code into object code, Franklin's claim that there were a limited number of ways of making its operating system capable of running programs designed for the Apple II "has no pertinence to either the idea/expression dichotomy or merger."

The first case I know of which explicitly raised the issue of standards in the computer context was Synercom v UCC.[41] Synercom had modified a public domain stress analysis program in order to make it easier to use and had then spent a considerable amount familiarizing customers with its use. UCC took a different public domain stress analysis program and modified it to accept input data in the formats invented and popularized by Synercom. Synercom sued for violation of its copyright on the input formats.[42] In his decision, Judge Higgenbotham analogized the Synercom formats to the H-shift pattern of an automobile stick shift. He argued that such a standard was properly classified as an idea rather than an expression, and was thus unprotectable under copyright law.

The most important cases on the other side are Lotus v. Paperback and Lotus v Borland.[43] The relevant standard was the Lotus menu tree--the way in which the commands the user could give the spreadsheet were organized and represented. Paperback Software's VP Planner used the same menu tree as Lotus 1-2-3 in order to make it easy for users familiar with Lotus 1-2-3 to switch to VP Planner. Judge Keeton held that copying the menu tree infringed Lotus' copyright in its program. He argued that, because there were many equally good ways in which the commands might have been organized, Paperback was not protected by the doctrine of merger--the idea could have been expressed in other ways. In Lotus v Borland, Judge Keeton ruled that a copy of the Lotus menu tree infringed Lotus' copyright even when it was invisible to the user, embedded in Borland software used to translate Lotus macros. He thus followed Judge Sloviter rather than Judge Higgenbotham, holding that copyright could be used to prevent a competitor from producing compatible software. Viewed as a defense of protection for standards, his position goes farther than Judge Sloviter's. Paperback and Borland had copied a small part of Lotus's program, and one embodying little effort or creativity,[44] so might perhaps have been entitled to exemption under the doctrine of fair use, whereas Franklin had copied fourteen complete programs from Apple.

A recent case ruling against protection of standards is Sega v Accolade.[45] The question there was whether a company that wished to make computer game cartridges compatible with the Sega game console was entitled to disassemble Sega's code in order to figure out how to do so, and to include a short segment from Sega's compatibility code in their own cartridges.[46] The court held that both the disassembly and the copying were permissible under the fair use exception to the copyright code.

What, then, is the current status of intellectual protection for standards in the context of software copyright? This question involves three separate issues. The first is whether a standard can itself be copyrighted. Synercom appears to imply that the answer is no, the two Lotus cases that it is yes.[47] The second is whether material that must be copied in order to make it practical to follow a standard may be barred from copyright by the principle of merger, on the theory that a standard is an unprotectable idea and copyright may not be used, even indirectly, to protect ideas. That is the theory rejected in Apple v Franklin but arguably accepted in Sega v Accolade--at least to the extent that the latter case justified the inclusion of a small piece of Sega's code in the Accolade game cartridges on the theory that it was necessary for compatibility.[48] Finally, there is the issue of whether copyright can be used to maintain trade secrecy for a standard. Sega claimed the right to use copyright law to prevent the copying and disassembly of its compatibility code, and thus to maintain as a trade secret the requirements for compatible cartridges. The court rejected this claim,[49] holding that copying Sega's code for the purpose of disassembling it so as to discover the ideas necessary to produce compatible cartridges was fair use if there was no other way of getting the information.[50]

The court's language in Sega suggests the possibility of a rule more hostile to the protection of property in computer programs than any of these. "In order to enjoy a lawful monopoly over the idea or function underlying a work, the creator of the work must satisfy the more stringent standards imposed by the patent law. Bonito Boats, Inc. ... ." This raises the issue of preemption of trade secret protection by Federal copyright law--the copyright equivalent of patent preemption in Sears, Compco, and Kewanee.[51]

If, as the Sega court suggests, copyright protection against disassembly is limited if disassembly is the only way of getting at the unprotected ideas behind the protected expression of a machine language program, what does that imply for situations where even disassembly is inadequate to get at the ideas? In a world where disassembly is legal but where copyright owners still wish to keep the underlying ideas of their programs secret, there may be a market for compilers designed to produce code that is hard to disassemble. Carried to its logical conclusion, the court's position could be taken as an argument for requiring copyright registrations of programs to include the complete source code, thus making the ideas freely available to competitors--as is now supposed to happen under the disclosure requirements of patent law.


Part VI: Do We Need a New Box?


The implications of these arguments for what the law ought to be depend on the technology of producing, popularizing, developing, and changing standards. They also depend, as do most conclusions about legal rules, on how good the courts are at recognizing the relevant distinctions. If the best that courts can be expected to do is to distinguish things that are standards from things that are not, then we must decide what legal regime is best for standards in general and accept the fact that whatever regime we choose will be inappropriate for some particular standards. If courts can make finer distinctions--between, for example, standards that are easy to invent (the Lotus menu tree) and those that are difficult to invent (the Macintosh interface)--we may have the option of tailoring protection to the standard being protected.

For standards that are easily produced--meaning both that they are easily devised and that they can come into general use without extensive marketing efforts by their inventors--the correct rule is probably no protection. For standards that are expensive either to devise or to establish or both, the desirability of protection depends on two factors--how easily the inventor can get a return by combining an unprotectable standard with a protectable product and how difficult it is, if the standard is protectable, to negotiate the licensing agreements required to put it into general use.

If we believe that the circumstances that make protection desirable are common, and that where protection is undesirable it also does little harm, perhaps because it is reasonably easy to switch from one standard to another,[52] we should favor copyright protection for standards, accepting the result in Lotus and rejecting the result in Synercom. Under the opposite assumptions, we should follow the courts that have held, implicitly or explicitly, that standards are not copyrightable.

An alternative approach might be to protect standards under patent law rather than under copyright law. Patent law, after all, is designed, as copyright is not, to limit its protection to innovations that are large enough to be worth protecting.[53] This might work for standards that are expensive to devise. But standards that are inexpensive to devise and expensive to establish would be rejected as obvious, and thus unpatentable, under present law.

Finally, we might try to devise a new set of legal rules specifically tailored to protect those standards, and only those standards, that deserved protection. Factors such as the cost of inventing a standard and getting it adopted, the ease with which users could move between standards, and perhaps even the willingness of the owner of a standard to license it to others, would then become legally relevant to the degree of protection offered.


Part VII: Conclusion


In the course of this essay, I have tried to establish two broad propositions. The first is that intellectual property law, both as it exists and as it ought to exist, may be interpreted as an attempt to adapt legal rules to the differing costs and benefits of creating, defending, and exchanging property in different sorts of intellectual creations. The second is that standards are a special sort of intellectual creation and that the law ought to take account of their special characteristics in determining what sort of protection they should have. I have not tried to carry the argument to its conclusion: a set of recommendations for how the law ought to treat standards. One reason is that I believe the economics of network externalities require more analysis than has yet been done. Another is that, even if the analysis were complete, the conclusions depend on facts about the market for standards, both in software and in other fields, which I, at least, do not know.

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