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Free Download 9/15/2009 1:02:23 PM EST Excerpt from Patent Licensing Transactions concerning Computer Program Licensing
[1] Computer Program Licensing
While computer programs are susceptible to patent or copyright protection, they are often licensed as confidential technical information (knowhow). Initially it must be understood that computer programs may be in the form of source code or object code. Source code is written by the programmer in one of many languages available to him (i.e., BASIC, PASCAL, COBOL), and is human readable. When source code is fed into a computer, the machine itself, through an assembler or compiler translates the source code to object code--a series of electronic signals which is generally readable only by the computer.
For many years, patent protection has been available for computer programs in combination with process steps or hardware.22 Beyond this, the Court of Appeals for the Federal Circuit walked a fine line in determining whether a particular software algorithm could be patented.23 Finally, the Court decided that a computer program can be patented so long as it produces, "a useful, concrete, and tangible result." Physical transformation is no longer necessary, and the result can be just a number.24 A patent provides protection against the independent development of another; however, it is expensive to obtain, is difficult to police, and lasts for only 20 years from filing.
Copyright protection is clearly available for computer programs in a source code format. While some question exists whether object code can be copyrighted, the trend of the law in the United States is to allow such protection.25 Protection is effected by actual registration in the Copyright Office, or more simply by affixing a copyright notice on the program.26 Copyright protection is inexpensive and has a lengthy term (95-120 years for a company).27 However, a chief disadvantage is that it protects only the form of the program (mode of expression); it does not protect the content of the program.28 It should be noted, however, that it has been held in one case that for a computer program the mode of expression extends beyond the literal code to include the program's structure, sequence, and organization.29
Trade secret or knowhow protection for computer programs is effected by an appropriate confidentiality clause in a license agreement. Such protection covers the content (algorithm) of the program. Where programs are not being widely distributed (as by software vendors who sell large numbers of discs or tapes), it is widely accepted to be the most reliable protection available.30
Combined trade secret/copyright protection may be obtained by registering or affixin Computer Technology and the Law, (Shepard's/McGraw-Hill) at p. 65 a copyright notice to a trade secret program. Since one form of protection covers the content of the program, and the other covers the mode of expression, it would clearly appear that use of both forms is not incompatible.31 Nonetheless, the matter is not absolutely settled.32
Computer program licenses are much like other knowhow licenses. However, where the computer program is customized to the needs of a licensee, payment may be made conditional on an acceptance test. Another point which is the frequent subject of negotiation is whether the program will be supplied in source code or object code format. The licensor will ordinarily prefer to supply object code since it will be difficult to decompile or disassemble the code to determine its basic content. The licensee, however, would like to have source code since it will enable him to more easily make corrections or modifications. One compromise is to place the source code in escrow, to be obtained by the licensee if the licensor is unavailable (as by bankruptcy) to supply modifications.
In the last few years, some companies have been licensing software in so-called "open source" licenses. The source code is included, but various restrictions are placed on how the source code may be used.
A problem that may occur with computer programs, at least at the end of each century, is that of century date compliance. Programmers may represent the year with two digits rather than four digits (i.e., 98 for 1998). Thus, for example, at the beginning of the year 2,000, non-compliant computers will think it is 1900. For the year 2,000, this is known as the Y2K problem, and huge amounts of money have been spent to attempt to correct software. Modern software licenses, depending upon the bargaining power of the parties, will recognize and attempt to deal with this problem.33
Finally, the license should be scrutinized to ensure that any tie of hardware to software does not rise to the level of a misuse or antitrust violation.34 Such a violation was found in the Digidyne case, and although the Supreme Court denied certiorari, a dissent to the denial suggested that a more thorough analysis was warranted.35
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