Insurance For The Industry's Future

Business Forum

Insurance For The Industry's Future

By William H. Gates

The New York Times

September 25, 1983

William H. Gates is chairman and executive vice president of the Microsoft Corporation in Seattle. Microsoft filed a friend of the court brief in support of Apple in the Apple v. Franklin case.

Earlier this month, a Federal appeals court in Philadelphia delivered a landmark ruling that may have saved the future of the United States computer software industry. In a case brought by the Apple Computer Company against the Franklin Computer Corporation, in which Apple sought to stop Franklin from copying two of its popular models, the court decided that all computer software, whether it appears on a floppy diskette or is etched into the silicon chips deep inside a computer, is protected by United States copyright laws.

It was a landmark decision for the protection of intellectual property. And the court wisely cut through the technical jargon that Franklin had introduced to make the case seem more complicated than it was.

Software is delivered to users in a form called object code, which stores computer instructions as a series of 0's and 1's. These 0's and 1's can be stored on several types of media. The most common of these is a diskette. The object code in the Franklin case was stored on a Read-Only Memory chip, or a ROM.

Franklin admitted it had copied Apple's software so the only issue was whether the software was protected by copyright. Franklin said first that object code was not copyrightable, second, that even if it were copyrightable, that does not apply to object code in ROM, and, finally, a particular type of software called operating software is not copyrightable.

The court disagreed with Franklin on all of these points. This was the first clear ruling at the appeals level on all of these points and struck down lower court rulings to the contrary.

The software industry is one of the nation's fastest-growing and most important leadership industries. The primary reason that the United States continues to dominate the computer business is because it has consistently been at the forefront of software innovation. In many ways, the future of the computer industry will be governed by software development.

More and more products are using software to be flexible and friendly. And without the copyright protection, innovation and growth in the software industry would stop. Software companies have always assumed that they would receive equitable protection for their work, so the court ruling was simply a confirmation of what was expected rather than a windfall. In fact, the courts in Great Britain and Germany had already affirmed the copyrightability of software.

The software business is highly competitive, with thousands of companies trying to improve the usability and functionality of their software packages in order to achieve high-volume sales. Even more work is required since the lack of excellent software is the main reason why computers are still difficult to use. It is only fair for companies that invest millions of dollars in product research and development to receive some return when they have a best-selling product.

Imagine the disincentive to software development if after months of work another company could come along and copy your work and market it under its own name. In effect, that is what Franklin did with the Apple II's operating software. Without legal restraints on such copying, companies like Apple could not afford to advance the state-of-the-art.

If Franklin had won, both Franklin and Apple would have eventually lost out to computer pirates in Taiwan, Hong Kong and Singapore, who would think nothing about using Apple software and low-cost labor to flood the American market with cheap clones. The court-confirmed protection for intellectual property, such as software, sets the United States apart from countries such as Taiwan. The court did not have to evaluate the importance of software to come to its ruling, however. That is what makes the ruling so important.

Systems that recognize human speech, aid in medical diagnosis or allow you to keep your records on a home or portable computer all rely on software. In the information age we are entering, software will be part of the infrastructure that allows people to know more and to lead a richer life. Software protection will only increase the efforts to further this innovative work.

Thus, the ruling was so important and the courts should be thanked for allowing software innovation to move forward without any doubt as to whether our laws protect it.