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CONFERE
ENGINEERING UBRARY
UNIVERSITV OF ILLINOIS
URBANAittiJNCMS
Center for Advanced Computation
UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN
URBANA. ILLINOIS 61801
CAC Dociiment No. 120
THE LEGAL PROTECTION OF COMPUTER SOFTWARE
by
John T. Soma-^ and Richard Michael Fischl-^*
October 197^+
Center for Advanced Computation
University of Illinois at Urb ana -Champaign
Urbana, Illinois 618OI
Mr. Soma received his J.D. from the University of Illinois, College
of Law in 1973 and is a member of the Illinois Bar. He received
his M.A. in Economics from the University of Illinois in 1973^ and
presently he is a candidate for a Ph.D. in Economics at the Univer-
sity of Illinois, and a Research Assistant at the Center for
Advanced Computation, Urbana, Illinois.
■X-X-
Mr.Fischl has studied political science at the University of Illinois.
He has been accepted by the University of Illinois, College of Law,
and will be attending the College of Law beginning in the Fall of 1975'
ABSTEACT
Software technology has outgrown the legal
development of software protection. This docioment examines
the legal protection of software through the use of patent,
copyright, and trade secret law. Each of these methods offers
a viable alternative, but each suffers from major weaknesses.
The unique legal problems encountered by a university in soft-
ware development are then examined, followed by a discussion
of Federal Government software procurement policies. Finally,
the legal interaction between private and university software
developers and the Federal Government is briefly examined.
Ill
TABLE OF CONTENTS
Page
PATENT PROTECTION 3
Gottschalk v. Benson k
COPYRIGHT PROTECTION ... 6
Telex V. IBM 7
TRADE SECRET PROTECTION 8
Federal Preemption of State Trade Secret Law 11
Software and Trade Secrets ik
Scope of Protection l6
Criminal and Non-Criminal Remedies Under Trade Secret Law. . l8
THE UNIVERSITY ENVIRONMENT AND PROTECTION OF SOFTWARE 20
Academic Freedom 23
GOVERNMENT PROCUREMENT OF SOFTWARE ■ 2k
Patents Rights and Rights in Data Clauses 25
Software Revision to ASPR's. . 27
CONCLUSION 28
NOTES 30
IV
THE LEGAL PROTECTION OF COMPUTER SOFTWARE^
The computer software industry is one of the most dynamic
growth industries in the United States. In the I950's and I96O ' s the
emphasis was on hardware development, but in recent years the emphasis
has shifted to software development. -' As an example of this shift,
after the hardware was developed for the IBM 36O series, it took five
years to develop the supporting software.'- -^ The industry is highly
innovative and has low barriers to entry. ^-' The legal structure
surrounding the software industry has not, however, kept pace with
the technological changes occurring within the industry. Although
there is voluminous material on the legal protection of software, no
definitive legal principles have emerged concerning the procedures
used to protect software.'- -'
Rapid software development, however, is essential for the
continued growth of the computer industry. Today software packages
are commonly sold for thousands of dollars. In addition, there are
now large numbers of identical computers available upon which these
The authors gratefully acknowledge the assistance and support given
by Professor Hugh Folk, Director, Center for Advanced Computation.
In addition, we wish to thank Professor Peter Maggs, College of Law,
University of Illinois, for reading an earlier draft of this docu-
ment. Dr. Donald Bitzer, Director, Computer-based Education Re-
search Laboratory, University of Illinois, for many helpful comments
and suggestions, Barry Sufrin for several ideas on the academic
freedom issue, and Carol Boast, Assistant Law Librarian, and
Madhavarao Balachandran, Assistant Commerce Librarian for their tire-
less support in the research of this document. We also wish to
thank Frieda Anderson, Center for Advanced Computation, for provid-
ing the ever necessary administrative coordination in the prepara-
tion of this document. Any errors remaining, however, are those of
the authors .
software packages can be used. Large social gains exist if these
software packages can be used on all machines rather than having a
similar software package independently developed for each computer.
Consequently, some type of legal mechanism is essential to provide
software developers with a means to protect their intellectual prod-
ucts. Once appropriate legal protection is provided, the developers
of software will be willing to sell their products, and thus wasteful
duplication of effort can be avoided. By providing a viable method to
protect software, public policy will therefore foster the commercial
development of software. The social gains from such protection are
greater today than in the 1950 's and 1960's due to the recent shift
in emphasis from hardware to software development.
This document has been prepared to review the present legal
status of software protection. Rather than investigating a few areas
in great detail, this document will overview the entire area of soft-
ware protection. Appropriate footnotes will be used to guide the
reader to additional materials on each topic. A major patent revision
bill is currently before Congress, and numerous legal doctrines are
still in the developmental stage. Therefore, the entire legal area
of software protection can be expected to remain in a state of flux
for the forseeable future.
The remainder of this document will first examine the legal
protection of software through the use of patent, copyright, and trade
secret law. Each of these methods offers a viable alternative, but
each suffers from major weaknesses. The unique legal problems en-
countered by a university in software development will then be examined,
followed by a discussion of Federal Government software procurement
policies. Finally, the legal interaction between private and univer-
sity software developers and the Federal Government will be briefly
examined.
PATENT PROTECTION
Although hardware is clearly patentable under existing
[51
patent statutes/ software does not conveniently fall into any of
the present statutory classifications cf patentable material. As a
result of this ambiguity over software patentability, several test
cases have attempted to define the limits of software patentability.
Patent protection is commonly accepted as the strongest form of soft-
ware protection, and thus several proposals are currently before
Congress which would allow patenting of software.'- -'
The status of the various patent law revisions before
Congress is constantly changing. Consequently, this area will not be
examined due to the speculative nature of any inquiry at the present
time. Instead, the present focus will be on the current legal inter-
pretation of this existing patent law with regard to software patent-
ability.
In several early cases, the Supreme Court held that a newly
discovered scientific truth or mathematical expression could not be
patented, but that "a novel and useful structure created with the aid
[■71
of knowledge of scientific truth may be.'"- -* From this line of cases,
and others related to the field of electronlcs,[8l the Court developed
[91
the mental steps doctrine.'- -' In brief, the mental steps doctrine
means that if an idea can be totally carried out by the human mind
without the aid of a mechanical device, then the idea is unpatentable.
Applied to computer programs, the result is devastating because most
software can at least theoretically be performed by the human mind.
The time required for such operations, however, would be measured in
years as compared to seconds with the aid of a computer.
Through a series of cases, the Court of Customs and Patent
Appeals (hereinafter CCPA) attempted to distinguish computer programs
which provided some physical change on materials from programs which
did not physically affect materials.'- -' Based on this distinction.
the CCPA distinguished computer programs performing some physical
act on materials from the mental steps doctrine and upheld several
patents on computer programs. While the Patent Office and CCPA were
distinguishing types of computer programs, the President's Commission
on the Patent System concluded that the Patent Office lacked adequate
methods and facilities for classifying computer programs, and thus
recommended against a patent policy which would allow the patentability
[11]
of computer software. Due to the diversity of opinions and the
resulting ambiguity over software patentability, the legal status of
patenting software remained unclear.
Gottschalk v. Benson
In 1972, the Supreme Court attempted to clarify this
r 121
confused situation by deciding Gottschalk v. Benson.^ -^ Gary Benson
and Arthur Talbot filed an application with the Patent Office in I963
seeking a patent on a method of converting binary coded decimal (BCD)
numerals into pure binary numerals through the use of a mathematical
algorithm. Although this process could be performed mentally with
the aid of pen and pencil, the algorithm enabled one to program a
computer to do the same conversion with large savings in manpower and
tim.e. The Patent Office refused to issue the patent on the ground
that the subject matter of the invention was not within any of the
statutory classes of patentable inventions.'- The Patent Office
reasoned that the application was within the mental steps doctrine
and thus outside of the statutory class of patentable material. On
appeal, the CCPA reversed the Patent Office decision and held that
the patent application claims were within the statutory classification
of patentable inventions and thus patentable as a process under the
riifl
existing patent statutes.'- -'
Writing for a unanimous court with three justices abstaining,
Justice Douglas held that the invention was not patentable under the
existing patent laws. Based on the settled principle that ideas were
not patentable, the Court reasoned that granting a patent for
converting BCD to binary numerals with the aid of a digital computer
would in effect be a patent on the algorithm embodied in the computer
program since the use of the algorithm on a digital computer would be
the only practical method of implementation. The opinion did not
mention the earlier cases developed by the CCPA which had attempted
to distinguish patents issued for computer programs from the mental
steps doctrine. Consequently, the validity of this line of cases is
questionable. Justice Douglas, however, stressed that the opinion was
limited only to invalidating the patenting of a mathematical algorithm
and not the invalidation of all computer programs.
One possible interpretation of Gottschalk is that
mathematical algorithms are not constitutionally patentable even if
Congress were to amend the patent laws to include them in the statu-
[151
tory classification of patentable material.'- -' Then as a corollary,
programs which use computers to solve mathematical problems are not
currently patentable due to the present patent law. Thus, impliedly,
the existing laws could be amended to include software as a statutory
class of patentable material. The result of Gottschalk, however, is
that at present the status of software patentability is very ambiguous.
Another interpretation of Gottschalk is to read the opinion narrowly
and conclude that only the patenting of mathematical algorithms in
computer programs in prohibited.
The CCPA is still validating patents for computer programs
which adequately describe the program and which do not relate to a
purely mathematical algorithm.'- -* The legal support for issuance of
these patents, however, is based on the pre -Gottschalk case law dis-
riTi
tinguishing computer programs from the mental steps doctrine. "-
The true test of these cases will be a patent infringement suit. The
overall likelihood of a patent holder having his patent validated in
a patent infringement suit is presently low.
On the practical side, a strong deterrent exists against
the use of patents to protect software. The minimum cost of obtain-
ing a patent is approximately one thousand dollars with many patent
applications being considerably higher. The average cost for soft-
ware patents may be considerably higher due to their controversial
nature. In addition, the gestation period for a patent application
averages three years, and thus if a patent is finally disapproved, the
developer of a program will be left in the same position he was before
beginning the patent application procedure. Finally, as previously
stated, many patents are invalidated in infringement suits. With the
current high standards of disclosure, once a patent is declared in-
valid in an infringement suit, its contents are known, and thus trade
secret protection is no longer available. The net result of these
difficulties is that the choice of patent protection for software
is not particularly inviting.'- -'
COPYRIGHT PROTECTION
The difference between patent and copyright protection is
that a patent holder acquires exclusive right to the invention even
if another individual later, but independently, discovers the same
ri9i
idea.^ A copyright, however, only protects one from the mere copy-
ing of the idea or work. For example, if a computer program were
patented, no one could use the same program even if they independently
discovered the program. A copyright, on the other hand, would only
prevent others from copying the exact program. Consequently, if an
individual could prove that he independently developed the program,
then the individual could freely use the program which he independ-
ently developed.'- ^
There are two types of copyright protection. One based on
[211
common law and the other based on federal statutes."- -" While an
author is preparing his work and up to the time the work is published,
the author is protected under state common law copyright. This means
that the author is protected from unauthorized copying, publishing,
[221
vending, performing, and recording of his work. -" Under present
law, until the author permits publication, this common law protection
[231
exists forever. Once the author decides to publish the work, one
\ 2kl
of two alternatives will occur.'- -" First, the author can publish
the work without any copyright notice on the work. If this happens,
the work is considered to have been donated to the public. On the
other hand, if all copies of the work which are authorized by the
author are properly designated as copyrighted material, then the
author is protected under federal copyright statutes. The duration
of the federal copyright protection is 56 years if the copyright is
r 251
properly renewed after 28 years."- -' Under both common law copyright
and statutory copyrights, the author can sue for damages for illegal
copying of his work.^ Damages are based on either actual damages
which he has suffered, or the profits which the copier received from.
the unauthorized copying.
In 1965^ the Copyright Office issued Circular 3ID which
outlined the three basic rules for current registration of computer
[271
programs.'- -^ The first rule is that the individual applying for
the copyright must be the original author. Next, all copies of the
program must be published with the normal copyright designation.
Finally, copies of the program must be deposited with the Copyright
Office, and if the program is in machine language, copies of the pro-
gram both in machine language and in a high level language must be
deposited with the Copyright Office.'- -'
Telex V. IBM
On the practical side, one method to prevent copyright
[291
infringement is to insert meaningless statements into the program.^ -'
If the alleged infringer literally copied the program, these meaning-
less statements will appear, and thus sufficient evidence will be
available to prove infringement. If the program is extremely long.
the proof of availability of the program to the defendant and complete
identity will also be sufficient evidence to prove copyright infringe-
rsoi
ment. In Telex v. IBM '- -' one of the counter claims by IBM against
Telex was for copyright infringement of IBM's Fast Running Interpreter
Enabling Natural Diagnostics (FRIEND) program. The Telex court accept-
ed as sufficient evidence that out of the entire program only a few
minor deviations existed between the IBM original and Telex's version.
In addition, IBM was able to prove that Telex personnel had access to
the IBM program.
r "^H
In Walt Disney v. Alaska Television Co./ ■' the court held
that copyright infringement had occurred when the defendant copied a
television show and transported it to Alaska on magnetic tape. The
mere copying onto magnetic tape was considered the critical element,
not the rebroadcast of the performance. By analogy, one can reason
that the copying of a computer program which is on magnetic tape is
also a copyright violation. Translations of copyrighted material are
also prohibited, and thus the conversion of a copyright program from
one language to another through a compiler should also constitute
[321
copyright infringement.'- ■' ■
IBM Corporation has favored copyright protection, and Elmer
Galbi, Senior Patent Attorney for IBM, has proposed a revision to the
Copyright Act which includes a provision allowing the copyrighting of
computer software. The future of copyright protection of software is
still uncertain."- If the counterclaim in Telex v. IBM is appealed
by Telex, the Telex case will be the first software copyright case
r 3U]
decided by a court of appeals."- -"
TRADE SECRET PROTECTION
A viable third alternative for many firms is the use of
trade secret law to protect software. Just as common law copyright
law originates in the common law of each state, the origin of trade
secret law can also be found in the common law of each state. Although
the scope and vitality of state trade secret law varies from state to
r35l
state, '-•^^-' ,the Restatement of Torts offers a useful definition:
A trade secret may consist of any formula, device, or
compilation of information which is used in one's
business, and which gives him an opportunity to obtain
an advantage over competitors who do not know or use
it. [36]
In Illinois, a trade secret is Judicially defined as "a secret plan or
process, tool, mechanism or compound known only to its owner and those
r 371
of his employees to whom it is necessary to confide it. '"- -■
Judicial recognition of trade secret law has a long history.
Speaking for the Court in Board of Trade of Chicago v. Christie Grain
and Stock Co. , Justice Holmes recognized trade secret law when he
stated that "the plaintiff has the right to keep the work which it has
done, or paid for doing, to itself. The fact that others might do
similar work, if they might, does not authorize them to steal plain-
tiff's."'- -* In a later case, however, Justice Holmes pointed out
that it is not the subject matter per se which gains for itself the
status of trade secret, but rather "the primary fact that the law
makes some requirements of good faith . . . The property may be denied,
r 391
but the confidence cannot be. "'- -^
In order to find sanctuary in the law of trade secrets,
state courts have held that a trade secret must meet four major tests:
1) appropriateness of subject matter, 2) secrecy, 3) novelty, and
k) economic value."- -■ Appropriateness of subject matter has three
broad subcategories of protectable information: l) patentable and
unpatentable inventions along with know-how associated with these
inventions (e.g., secret processes, patterns, compounds), 2) abstract
ideas of a commercial or industrial nature (e.g., advertising plans,
schemes for media presentation), and 3) other sorts of information
which are not novel, but which are of value to the owner (e.g., cus-
fUll
tomer lists, discount codes, supply sources).'-
The second requirement of secrecy is rather vague and has at
least two interpretations: internal and external secrecy. ^ The
distinction between internal and external secrecy is basically one
between in-house secrecy (which involves the steps taken by the owner
of the secret to prevent its disclosure by those in contractual rela-
tionships with him) and industry wide secrecy (which involves the
knowledge of the subject matter among those outside of the owners
control). • When the secrecy requirement is mentioned by courts,
they typically are referring to internal secrecy.
The secrecy requirement is not absolute. Some disclosures
are permissible, but the disclosures are limited to persons who enter
into confidential relationships with the owner of the trade secret.'- -■
As long as all parties maintain the secrecy, the independent discovery
of the information by others need not destroy its protectable status.'- -'
If the secret is revealed by dissemination of the product containing it,
the trade secret is no longer protected.*- ^
The third requirement of novelty is not as stringent as its
ri+7]
counterpart under the patent statutes,"- but the novelty in trade
secret law is more discriminating than the originality concept under
alsi
copyright laws.*- -^ The degree of novelty will also enter into the
determination of damages awarded by the courts.
The fourth requirement dealing with economic value focuses
on such factors as the value of the information, the amount of effort
expended in obtaining the trade secret, and the difficulty of acquir-
ing or re-acquiring the trade secret.'- ^ In a few instances, heavy
reliance on this fourth requirement has resulted in a lowering of the
rsii
requisite secrecy and novelty standards."-
10
I
Federal Preemption of State Trade Secret Law
Although both the definitions and actual requirements of
trade secret vary between states, there is a well developed body of
trade secret law existing at the state level. This state trade secret
law existed for many years, but was recently threatened by a series
of Supreme Court cases beginning in the mid-1960's. A brief di-
gression to examine this line of cases is appropriate to better appre-
ciate the position which trade secret law occupies in American
jurisprudence.
r 521
Sears Roebuck and Co. v. St iff el Co. "- ^ and a companion
[531
case"- were the first Supreme Court cases in this series which
threatened the very existence of state trade secret law. In Sears,
a pole-lamp sold by Stiffel Co., had previously been held unpatentable.
Sears copied Stiffels' design and sold lamps identical to the Stiffel
pole-lamp. Stiffel then sued Sears under the Illinois unfair com-
petition law. The Court stated that an "unpatentable article, like
an article upon which a patent has expired, is in the public domain
r 5^1
and may be made and sold by whoever chooses to do so. "^ -* In broad
language threatening the very existence of state trade secret law due
to existing federal patent and copyright policy, the Court held that
"a state may not, when the article is unpatented and uncopyrighted,
prohibit the copying of the article itself or award damages for such
[55]
copying.'- -'
[56]
Five years later in Lear, Inc. v. Adkins, the Court held
that a licensee could not be required to pay royalties under a contract
which challeng ed the validity of a patent. The Court reasoned that
requiring such payments would undermine the federal policy favoring
[571
full and free use of ideas in the public domain.'- -' In commenting
on the theoretical basis of a state enforcing patent licensing con-
tracts, the Court stated that "(a)t the core of this ... is the diffi-
cult question whether federal patent policy bars a state from enforc-
ing a contract regulating access to an unpatented secret idea. "^ -^
11
Therefore, although Lear actually rested on a contractual issue of
licensees paying under a contract while testing the validity of a
patent, the Court again questioned the validity of state trade secret
la-w based on federal pre-emption of this law by the federal patent
policy.
r59l
In Goldstein V. California/ ^-' the Court held that the
federal consitutional provision authorizing Congress to grant copy-
rights for "limited times" was only a limit on Congress and not on the
states. Thus a California statute making it a criminal offense to
pirate recordings produced by others was not void for lack of a dur-
ational limit, despite the federal durational limitation on the Con-
gressional power to grant copyrights.'- -' The key to Goldstein is
the Court's conclusion that by congressional silence, Congress indi-
cated that states could regulate copyright matters of a purely local
nature. Where the "need for free and unrestricted distribution of a
writing is thought to be required by the national interest, the Copy-
right Clause . . . would allow Congress to eschew all protection. "*- -'
If Congress were to determine that a matter warranted national copy-
right attention and then preempt the field by concluding that no
copyright protection was needed, any state action would be ultra vires
which attempted to protect what Congress had intended to be free from
restraint.
As seen from Sears, Adkins, and Goldstein the status of
state trade secret law was very unclear. During this same time
period, the Court decided Gottschalk v. Benson'- ^ which has been
previously discussed in the patent protection section of this docu-
ment. Gottschalk invalidated a patent for a computer program con-
verting binary coded decimal (BCD) numerals through the use of a
mathematical algorithm. Reading the opinion broadly, one could con-
clude that all computer programs are unpatentable.'- -' If this
extreme position were taken (and this position may be the final out-
come after several patent infringement suits reach the Supreme Court)
12
the combination of Got ts chalk with Sears, Adkins, and Goldstein,
leads one to conclude that because computer programs are unpatentable,
they are outside the area of trade secret protection, and thus unpro-
tectable by either federal or state law.
The threat of federal preemption over state trade secret
law was eliminated in May of 197^ by the Supreme Court in Kewanee Oil
Co. V. Bicron Corp. Kewanee developed a patentable process which
could grow a seventeen inch crystal of a type useful in detection of
ionizing radiation. Kewanee decided to forgo patent protection, and
instead rely on trade secret law for the protection of this process.
Several Kewanee employees signed agreements not to disclose trade
secrets obtained while employed for Kewanee. These employees left
Kewanee and formed Bicron Corp. which competed with Kewanee in pro-
ducing the seventeen inch crystals. Based on Ohio trade secret law,
the district court granted a permanent injunction against Bicron from
producing the seventeen inch crystals. The Court of Appeals, however,
reversed on the ground that Ohio's trade secret law was preempted by
the federal patent laws.
The Supreme Court reinstated the district Court's opinion
by holding that the Ohio trade secret law was not preempted by the
federal patent laws. The Court distinguished three types of trade
secrets: one known only to its owner not to be patentable, one whose
patentability is considered dubious, and one believed by its owner to
be a patentable invention. In dealing with the first category of un-
patentable inventions, the Court reasoned that there was no public
interest in flooding the overburdened Patent Office with applications
which would be disapproved. In addition, no public disclosure would
occur because patent applications which are denied are kept confiden-
tial. Therefore, as to unpatentable inventions, no conflict existed
between federal disclosure policy and state protection of this type
of trade secret.
13
Concerning those trade secrets of dubious patentability,
the Court invoked the Adkins doctrine that invalid patents are a
serious threat "to the free use of ideas already in the public domain
... . "'- Reasoning from Adkins, the Court concluded that since a
licensee of a patent could challenge the validity of a patent, it was
better that an invalid patent had never been issued in the first place.
The elimination of state trade secret law would bring about the
issuance of more invalid patents as in the case of Lear, and thus
would have an even greater "deleterious effects on society and patent
policy ... . "^ Consequently, the Court concluded that no spectre
of federal pre-emption existed in this second category of dubious
patentable trade secrets.
In dealing with the third category of clearly patentable
trade secrets, the Court reasoned that the protection available to
the owner of an invention through the law of trade secrets is far
weaker than that offered by a patent, and consequently the risk that
an inventor with a clearly patentable item would opt for trade secret
protection and avoid disclosure is remote indeed."- -^
Thus the Court validated all three types of trade secrets
r ^Pti
despite the federal policy of disclosure."- -' Unless Congress takes
affirmative action, state trade secret law is not preempted by
federal patent policy.
Software and Trade Secrets
With the very existence of state trade secret law settled
in light of Kewanee, it is appropriate to return to the four require-
ments of trade secrets [ l) appropriateness of subject matter, 2)
secrecy, 3) novelty, and k) economic value], to determine their
applicability to the special case of software. Computer programs
clearly fall within the first requirement of appropriateness of sub-
ject matter. Most authorities allow trade secret protection of those
entities within the "processes," "mechanism," and "compounds" class, '-
Ik
and therefore, any completed program is protectable. Those programs
which are in the developmental stage are not as safe as completed
programs, but "as the idea becomes more detailed and moves toward im-
plementation, it is more likely to be regarded as qualified for trade
secret protection. "'- -■ Mere documentation and data in the form of
programs will probably fall in the least protectable class of "infor-
mation, involving no element of novelty or discovery, but of value to
FTll
its owner. ""- -•
In order to insure fulfillment of the secrecy requirement,
special care must be taken by the owner both in the case of maintaining
in-house secrecy and in the case of selective proliferation of the
program. Unintentional duplication of programs is commonplace, and
thus in the case of in-house secrecy, the owner should ensure limited
access to the program. Relevant documents should be stamped as secret
or confidential. Public statements about developments should be clear-
ed in advance through a legal officer, and careful records should be
[721
kept of all persons to whom the information is disclosed.^ -' Secrecy
is frequently the key issue in trade secret litigation, therefore,
these safeguards must be taken seriously.
Similarly, in the case of a sale or rental of a program
package, the owner should contract with the vendee to insure that
disclosures are limited and closely controlled to protect the trade
secret status of the program package. Various methods are available
to facilitate maintaining this secrecy including l) only allowing
the transfer of object code, 2) limiting the amount of documentation
transferred with the package, 3) establishing a licensing system on
an individual installation basis, and h) contractual provisions to
limit the grantee or licensee in proliferation of the program from
the installation cite.
Very little has been written on the novelty requirement of
computer programs for trade secret protection due to the limited case
law dealing specifically with trade secret protection of computer
15
software. It -would appear, however, that if a program involves many
complicated subroutines, the novelty requirement would be satisfied.
The fourth requirement of value hinges on the value both in
monetary and non-monetary terms which the program has. The greater
the value of the program, the wider the scope of protection afforded by
r73l
the law of trade secrets.'- -" Consequently, it behooves the owner to
establish a detailed log for each use of the program to provide tangi-
ble evidence of its value. The log will establish that such efforts
were worth the time and energy of the owner, and thus implicity, that
the program is valuable. Establishing the actual development costs
of the program is also an important element in ensuring common law
protection.
Scope of Protection
The Restatement of Torts outlines the protection given by
trade secret law. Generally a person is liable for the use or dis-
closure of another's trade secret when he either discovers the secret
by improper means, or breaks a confidence which he has with others.
Further, an individual is liable, if with full knowledge of the facts,
he learns the secret from a third party. Finally, if disclosure is
accidentally made to an individual, and the individual is informed of
the facts, the individual is liable if he uses the trade secret.^ -'
In the case of innocent discovery of the secret, a person is not
liable for his own use of the secret until he receives notice of the
mistaken disclosure.
A common method to protect computer software is the use of
restrictive contractual agreements between the owner of the trade
r75l
secret and all others with whom he deals.'- -^ The two distinct cat
gories of such contractual agreements are employee and non-employee
contracts. Clauses in employee contracts requiring non-disclosure
both during employment and after employment are commonly used.'-
16
These clauses are hardest to enforce when trained employees with
[771
valuable skills are involved.^''-' Another common device used in
employee contracts is the non-competition clause. These clauses
simply limit an employee from competing with the employer for a de-
finite time period and within a specified geographic area once the
employee terminates his relationship with the employer. Courts have
applied a rule of reason to both time and geographic limitations. The
reasonableness of the time period in restrictive agreements will vary
between juridictions, and may vary depending on the type of position
held by the employee.'- -' Traditionally, geographic limitations have
been viewed as the competitive region of the employer, but the soft-
ware industry is national in scope, and thus national territorial
r79l
limitations should be valid.'- -"
Non-employee contracts are more difficult to deal with. A
confidential relationship is less likely to be implied with non-employ-
ees, and thus specific contractual provisions with leasees and vendees
are essential to ensure successful protection. If the owner chooses
to lease his program on a non- exclusive basis, the leasee will only
acquire the right to use the program while title remains in the lessor.
In the contract, the leasee should agree to prevent intentional and
unintentional disclosures to third parties. The time period of the
lease as well as the method of disposition of the transferred materials
at termination of the lease should also be specified.
If the developer chooses to sell the software, full title
and exclusive rights will be transferred to the vendee. In this case
the vendor must agree to forego use and disclosure of the program
once the sale is finalized. Unnecessary litigation can be avoided by
specifying the exact terms of the transaction in the contract.
A transaction similar to outright sale of software is a
contract for development of a program. Problems arise, however, from
the fact that the subject matter of the contract (technically known
17
as the res) does not exist at the time of execution of the contract.
In this relationship, title may reside in either party to the contract,
and therefore, the division of rights sho\ald be clarified before exe-
cution of the contract. Matters such as the rights which the developer
has in using variations of the program for other contracts should be
clarified.*- ■
Although outside the scope of this document, once a contract
to license, sell, or develop is under consideration, there are many
additional legal implications. The normal legal provisions of contract
law enter into each contract such as warranty liability and penalities
for late completion. Careful thought must be given to tax implications
of the contract as well as other legal areas such as antitrust con-
siderations. All of these matters will not be further developed at
this point due to the vast amount of literature in the field and the
impossibility of considering all aspects for each contract.
Criminal and Non-Criminal Remedies Under Trade Secret Law
On the civil side, the owner of a trade secret may obtain
injunctive relief to prevent an appropriator from either disclosing
the secret to a third party or using the secret himself.'- If the
secret has already been disclosed to a third party or used by the
appropriator, the owner may seek damages resulting from the disclosure
or from the profits accured by the use of the trade secret.'- -' In a
recent case on trade secret protection of computer equipment including
software, the court in Telex v. IBM^ held that Telex had violated
the Oklahoma trade secret law and thus ruled in favor of IBM's
[Qk]
counter claim against Telex.
A relatively new aspect of trade secret protection is the
use of state criminal sanctions. A financially destitute employee
with little to lose economically, may consider appropriating a trade
secret if the risk is only a civil injunction or a civil action for
18
damages. The damage done to a developer can be considerable, and
thus many states have added criminal penalties as an additional de-
terrent against trade secret theft. Two methods of providing such
sanctions presently exist: criminal prosection for software theft if
the stolen information is in such a form as to fit the relevant lan-
guage of the existing statute, and specific criminal sanctions for
misappropriation of trade secrets.'- ^ The first category of general
statutory sanctions may be further divided into those jurisdictions
■which define the subject matter of theft in terras of property, -^
those jurisdictions which qualify or extend (in the form of lists) the
e ju:
[89]
property concept in the relevant statutes,^ ^ and those jurisdictions
which provide statutory protection for things of value.
Three complications arise when these statutes are used to
protect trade secrets. First, many of the statutes do not carry sig-
nificant penalties (if at all) for theft involving an "intent to
return, " and thus the appropriator might easily take the program,
copy it, and then return it. Thus the damage would have been done,
but the appropriator would be immune from criminal prosecution under
the general statutes.'- Second, if the relevant statutory wording
only includes the article in which the secret is embodied (i.e.,
magnetic tapes or sheets of paper), the protection is worthless.
Third, the trade secret must qualify for protection or the statute
will be impotent against appropriation by memory rather than copying
of the informatioii.
At the federal level, no express trade secret statutes
exist. There are, however, statutes which prohibit the transporta-
r 911 r 921
tion*- -" and sale or receipt^ -' or stolen goods, wares, merchandise,
securities, or money. The problems raised under the discussion of
state larcency statutes are also pertinent under the federal statutes.
It is still not settled whether the theft of computer programs falls
under the federal statutes.'- -' Further, no protection exists under
these statutes against appropriation by memory. ■-
19
Overall, trade secret protection of software is a viable
r951
alternative for private industry.'- Although trade secret protec-
tion has serious limitations, it currently appears to be the best
alternative for private enterprise .
THE IMIVERSITY ENVIRONMENT AND PROTECTION OF SOFTWARE
As universities become more heavily involved in software
development, they must determine if they want to legally protect the
software they develop. If the university policy is to legally pro-
tect the software which has been developed for commercial use, then
there are three alternatives. As previously discussed, the area of
patent protection is currently very unsettled. Even those patents
which are being granted may later be invalidated in an infringement
suit. Copyrights also present problems in that the amount of real
protection afforded by a copyright is still unknown. At first blush,
therefore, trade secret law appears the most viable method to protect
software which a university has developed and to which the university
has title.
A full discussion of all policy considerations of trade
secret protection of software in a university environment is beyond
the scope of this document, however, a few of the advantages and
disadvantages in the use of trade secret protection merit brief atten-
tion. Assuming the profits from the project are shared with the
university personnel who developed the software, the remaining funds
accrue to the state university at no expense to the taxpayer. On the
negative side, one can argue that the goal of the university should
not be a business of exploiting business ventures, but rather should
be one of education. Therefore, the university policy should be one
of public dedication of all software which is developed at the uni-
versity rather than trade secret protection of the software and com-
mercial sale of the software.
20
Assuming for the moment that the university policy is to use
trade secret laws to protect software which is developed for commer-
cial sale, this policy is fraught with danger. First, employment
agreements would have to he established in which faculty members
agreed to maintain the confidentiality of any software which they
developed. Next, all publications would have to be censored which
dealt with the software being protected by trade secret. Finally,
all research done on protected software would have to be done under
lock and key. It should be noted, however, that the censorship and
lock and key research requirements are not new to the university in
that some government sponsored research and development is done in the
university environment which requires these types of security measures.
The establishment of proper incentives for software develop-
ment in a university environment is also a difficult problem. Three
general types of incentives exist. First, at the beginning stages
of an individual's career, acceptance in his field will be sufficient
incentive. It should be noted, however, that the power of this in-
centive quickly diminishes as the individual becomes accepted in his
field. Second, as an individual successfully develops software, he
can be advanced within the organization, and thus the individual will
receive both monetary gains as well as peer group approval as incentive
for further software development. Again, however, the power of this
second type of incentive diminishes as an individual reaches higher
levels of the organization. Finally, there can be some type of direct
payment to university personnel for the development of software.
At present the University of Illinois does not have a formal
procedure to reward university personnel who successfully develop
software. The General Rules Concerning University Organization and
r97l
Procedure,'- -' only provide a modest incentive for development of
patentable ideas and authorship of copyrightable material. The Pro-
cedure on Patent Matters of The General Rules is the key provision in
payment to inventors and reads as follows:
21
The determination as to what portion of net income shall
be paid to the inventor or discoverer^ after the payment
of costs of securing a patent and of development and admin-
istration, from a patent held by the University or trans-
ferred by it to the University of Illinois Foundation shall
be studied by the University Patent Committee, which shall
make a recommendation to the President. In most cases, the
University contribution in use of facilities and resources
will be significant and, therefore, the inventor will have
little real claim to compensation over his regular Univer-
sity salary. In some cases, the University Patent Committee
shall recommend that the proportion of net income assigned
to the inventor shall fall in the range of 10 to 15 per cent
of net income. In unusual cases, in which the University
contribution is obviously less, this percentage allocation
to the inventor may go to 25 per cent and, in rare cases,
the rate may be higher. (emphasis added)[98l
The use of net income is critical, in that the inventor has
little control over the expenses which the University incurrs in the
adrainistration and development of his patent.
The Copyright and Recordings section of The General Rules
provides the framework for payment to authors who copyright material.
The main section reads as follows:
A University Committee on Copyrights and Recordings,
appointed by the President, will review the circum-
stances involved in each case that might arise under
the principle stated in (e), [the use or sale of copy-
righted material resulting in net income to the Uni-
versity] and make recommendation concerning it to the
President and Board of Trustees. It is expected that
the Committee will be guided in its recommendations by
standards analogous to those stated in Section 18(g)
concerning patents. [99]
Therefore, at present the University of Illinois does not have a
formal procedure to reward and encourage software development, but
provisions do exist to encourage, on modest levels, the development
of patentable inventions and copyrightable material.
22
Academic Freedom
The secrecy measures necessary for the trade secret
protection of software conflict with the general principles of aca-
demic freedom, rights and freedoms of students, and professional ethics
of faculty. For example, the University of Illinois Statutes state
that:
It is the policy of the University to maintain and
encourage full freedom, within the law, of inquiry,
discourse, teaching, research and publication and to
protect any member of the academic staff against in-
fluences, from within or without the University,
which would restrict him in the exercise of the free-
doms in his area of scholarly interest. [100]
The I9U0 Statement of Principles on Academic Freedom and Tenure of the
American Association of University Professors and the Association of
American Colleges states:
Institutions of higher education are conducted for the
common good and not to further the interest of either
the individual teacher or the institution as a whole.
The common good depends upon, the free search for truth
and its free expression.
Academic freedom is essential to these purposes and
applied to both teaching and research . . . Academic
freedom in its teaching aspect is fundamental for the
protection of the rights of the teacher in teaching
and of the student to freedom in learning.
(a) The teacher is entitled to full freedom in
research and in the publication of the results sub-
ject to the adequate performance of his other academic
duties, but research for pecuniary return should be
based upon an understanding with the authorities of
the institution. (emphasis added and footnotes
omit ted) [101]
The preamble of the Joint Statement on Rights and Freedoms of Students
of the American Association of University Professors, the National
Association of Student Personnel Administrators, the United States
National Student Association, the American Association of Colleges,
23
the Association of American Colleges, and the National Association
of Women Deans and Counselors states:
Freedom to teach and freedom to learn are inseparable
facets of academic freedom. The freedom to learn
depends on appropriate opportunities and conditions
in the classroom^ on the campus, and in the larger
community. [ 102]
Finally, the Statement on Professor Ethics of the American Association
of University Professors emphasizes the need for complete academic
freedom by stating:
As a member of his institution, the professor seeks above
all to be an effective teacher and scholar. Although he
observes the stated regulations of the institution, pro-
vided they do not contravene academic freedom, he main-
tains his right to criticize and seek revision. [103]
As one can see, the use of trade secret law to protect
software in a university environment has major obstacles. Overall,
the only solution is to examine each case on an individual basis. A
balance must be made between the right of students to learn in an
environment unburdened by security measures, the right of faculty to
teach and do research, and finally the right of society to receive the
maximum return on all resources spent on universities. The balance
is an extremely difficult one to draw, and only time will tell the
eventual outcome of such considerations.'- -'
GOVERNMENT PROCUREMENT OF SOFTWARE
An additional area of concern is the relationship between
both private and public suppliers of software and the federal Govern-
ment. One of the main reasons the Federal Government must contract
for development of software is the high manpower costs of properly
trained computer personnel. Salaries of twenty to twenty-five
thousand are common for qualified personnel, but the present civil
service salary system cannot easily accommodate such high salaries. L -^^
2k
Although direct sales of pre-developed software protected
under patents or copyrights would be the best legal method to contract
with the Government for software, such situations are atypical J ■'-'^"^
The normal situation is for the Government to contract, for the devel-
opment of software. There are three main methods to contract for soft-
ware development.^ First, a software firm may contract to supply
trained personnel on a daily basis to develop software for the Govern-
ment. If this is done, it is reasonably clear that the Government is
entitled to exclusive rights to all software developed by the software
personnel. Another method is to bid for a contract, but to include
a cost plus clause in which the Government agrees to absorb any addi-
tional costs above a certain figure under various conditions of cost
overruns. Again, the Government pays for everything and thus it is
reasonably clear that the Government would acquire exclusive rights
to the contract.
The third approach is to contract for software development,
but the cost is a fixed item in the contract. If the Government
supplied all of the resources to develop the software, then the Govern-
ment should be entitled to exclusive rights in the software. The
difficulty arises when the software developer supplies some of the
resources in the software development.
Patent Rights and Rights to Data Clauses
In most government contracts for research and development
and governmental supply, two types of provisions outlining the govern-
ment's rights to intellectual property are included.*- ^ These two
provisions are the patent and data clauses. The patent provision,
usually entitled the Patent Rights clause, requires that the contractor
supply the Government written disclosure of each invention conceived
of under the contract or the first reduction to actual practice. Most
rights which the Government has under the patent clause are specifi-
cally spelled out, but these specified rights do not presently cover
25
software. NASA had adopted a broader patent provision referred to as
riOQl
the New Technology clause'- -' which replaces the traditional Patent
Rights clause. The New Technology clause requires the reporting of
all inventions^ and in addition, the reporting of all innovations.
The data provision, usually entitled the Rights in Data
clause, is used in most Government contracts where the delivery of
data is specified. This clause does not specifically call for acqui-
sition of any data, but rather defines the rights which the govern-
ment has in the specified data. The rights which the government has
under the Rights in Data clause are either limited to very specified
uses, or unlimited. '-
Delivery of computer programs may be specifically required
in the contract, or delivery provisions may be included under the
general patent provision. Thus the rights which the Government has
in any computer programs developed under the contract depend on
whether the patent or data provision of the contract is used.
As can be seen from this general discussion, no specific
contract provisions currently exist which explicitly define the rights
of each party to a Government software procurement contract. An ex-
ample of this ambiguity can be found in McDonnell Automation Co.^ ^
in which the Air Force contracted for a computer program to aid Air
Force attorneys in researching various federal statutes. After the
system, entitled Legal Information Through Electronics (LITE), was
developed, the contractor protested when the Government exerted un-
limited rights to the program under the Rights in Data clause. The
Comptroller General held that the Government was entitled to an un-
limited license to the program under the Rights in Data clause. With
proper contract provisions dealing with computer programs, this case
and many unreported disputes could be avoided in Government procure-
ment law.
26
Software Revision to ASPR's
In response to the need for a specific contract provision
dealing with computer programs the Armed Services Procurement Regula-
tion Committee issued a proposed change to the Armed Services Procure-
ment Regulation (ASPR) in September of 1973-^ ^-' Much debate has
occurred over this proposal, and final issuance of a new ASPR on com-
puter programs has not occurred.
Assuming a contractor negotiates a limited Rights in Data
clause with the Government, the contractor must still determine the
type of legal protection which he will use to protect his software.
Currently, the most viable method to use in protection of computer
programs is trade secret law. Until recently, it was an axiom of
Government contract law that the exclusive remedy for governmental
breach of a contract providing for limited use of proprietary data'- •*
was a damage action in the Court of Claims pursuant to the Tucker
Act.'- -' This belief was recently shattered in International Engin-
eering Co. V. Richardson'- ^ in which plaintiff sought to enjoin the
Government's misuse of proprietary information. The district court
held that it did have jurisdiction and did grant an injunction against
the Government's misuse of the proprietary information.
Other remedies for the Government's misuse of proprietary
information include requests to the General Accounting Office to have
the Comptroller General order cancellation of bids (or requests for
bid proposals) if proprietary data is being disclosed by the Govern-
ment.'- -' The Boards of Contract Appeals is another alternative to
prevent the Government's misuse of proprietary data."- -' The Boards,
however, only have jurisdiction over current contracts. Finally, a
suit for unauthorized use of proprietary information could be brought
in the Court of Claims.'- -' Damages would then have to be assessed,
based on the damage sustained by the victim or by the profits earned
by the wrongdoer who used the misappropriated material. The latter
27
course of action^ however, is unappealing due to the fact that the
secrecy of the computer program is lost, and thus future use of the
program under trade secret protection is impossible.
Once the ASPR software regulation is issued, future contracts
with the Government should become better defined. In addition, if the
present case law develops and allows injunctive relief in federal
District court, the protection of software through trade secret law
will be more viable due to the immediate availability of judicial
remedy through injunctive relief.
CONCLUSION
Although many alternatives exist for the legal protection
of software, no definite answer exists for the best method to protect
software in both the public and private sectors of the economy. On
the private side of the economy, a developer of software may be able
to obtain patent protection if the computer program is related to a
mechanical device and falls under the line of cases currently being
decided by the Court of Custom and Patent Appeals. It should be noted,
however, that the ti^e test of these patents will be in an infringe-
ment suit. Next, copyright protection may be an alternative, and as
seen in the recent Telex v. IBM, such protection has withstood the
first test at the district court level. At present, probably the
optimal technique to protect software due to the uncertainties of
patent and copyright protection is through the use of trade secret law.
The use of trade secret law, however, is by no means without difficulty.
In contracts between private developers and the Government, trade
secret protection is more viable today due to the recent case law
allowing injunctive relief against the Government for misuse of trade
secret data by the government. The revision of the ASPR regulations
on computer programs will also help clarify this situation.
28
On the public side of a university developing computer
software for commercial sale, the picture is even less clear. The
university must face the legal obstacles of either patent, copyright,
or trade secret protection which the private sector has to consider.
In addition, if the university were to adopt trade secret protection
of software, the university must resolve the conflict between trade
secrets and academic freedom. Even if all of these issues could be
resolved, there is no definitive answer as to the contractual relation
between a university and the Government in contracting for software
in which the university has contributed some of its own resources in
the development of the software.
The computer industry is dynamic, and the most rapid growth
now occurring in the industry is in software development. Software
technology has outgrown the legal development of software protection.
Thus in the foreseeable future, the legal protection and regulation
of software will remain in a state of flux until major solutions
evolve which permit an intelligent and rational method to protect
computer software.
29
NOTES
[ I] Bauer, "Software Markets in the 70's/' Expanding Use of
Computers in the 7Q's: Markets --Needs- -Technology,
(ed by Grunberger, 197lT
[2] Auerbach, "Technological Forecast/' Expanding Use of Computers
in the 70's: Markets--Needs --Technology, (ed by
Grunberger, 1971) •
[3] See generally. Bower, "Market Changes in the Computer Services
and Industry, k The Bell Journal of Economics and
Management Science ^39' (1973).
[k] See e.g. George Washington University, Computers in Law
Institute, The Law of Software (1968 and I969). For an
up to date bibliography on software protection see
American Bar Association, Section of Patent, Trademark
and Copyright Law, 197^ Committee Report (prepared for
the I97U ABA Meetings August 12-15, 197^) [hereinafter
ABA, 1974 Report] .
[ 5] Hardware clearly falls under the statutory definition of a
machine or manufacture. 35 U.S.C § 101 (197O).
[6] See e^. S. I36O, 93rd Cong., 2nd Sess. See also ABA,
197^ Report for a discussion of various parts of these
proposals to amend the existing patent laws.
[7] Mackay Co. v. Radio Corp., 306 U.S. 86, (1938).
[8] See e^. Cochrane v. Diener, 9^+ U.S. 780 (1876); O'Reilly
V. Morse, I5 How (56 U.S.) 62 (l853).
[9] Woodcock, "Mental Steps and Computer Programs," 52 J. Pat.
Off. Soc'y. 275 (1970).
[10] See Note, lU Boston Coll. Ind. and Comm. L. R. IO5O (1973);
Note, k Loyola Univ. of Chicago, L. J. 56O (1973).
[II] Commission on Patent System, The 1966 Report of the
President's Commission on the Patent System (reprinted
in S. Doc. No. 5, 90th Cong., 1st Sess. p 21).
[12] i+09 U.S. 63 (1972).
30
[13] Congress defined the categories of discoverers and inventions
for which patents may presently be granted:
The term "process" means process, art or method, and
includes a new use of a known process, machine, manu-
facture, composition of matter, or material. 3^ U.S.C
§ 100(b).
In addition, 35 U.S.C. § 101 provides:
Whoever invents or discovers any new and useful process,
machine, manufacture, or composition of matter, or any
new and useful improvement thereof, may obtain a patent
therefore, subject to the conditions and requirements
of this title.
[lU] Application of Benson, UUl F.2d 682 (C.C.P.A. 1971).
[15] See Note, k Loyola Univ. of Chicago L. R. 560, 575 (1973)-
[16] See Application of Brandstadter, kQk F.2d 1395 (CC.P.A.
1973); Application of Doyle, 1+82 F.2d I385 (C.C.P.A.
1973); Application of Comstock, U81 F.2d 905 (C.C.P.A.
1973); Application of Knowlton, I+8I F.2d 1357 (C.C.P.A.
1973).
[17] See Application of Musgrave, 1+31 F.2d 882 (C.C.P.A. 1970);
Application of Mahony, 1+21 F.2d 7^+2 (CCP.A. 1970);
Application of Bernhart, kYJ F.2d 1395 (C.C.P.A. I969);
Application of Prater, 415 F.2d 1393 (C.C.P.A. I969).
[18] The Canadian Government recently issued a patent on a
computer program. See Computerworld p 1 (August 'J ,
197^)' If any foreign government upholds a patent on
a computer program, the patent may be valid in the U.S.
under the various patent treaties. See generally ABA,
I97I+ Report 287.
[19] Galbi, "Software and Patents: A Status Report," Computer
Law Service § k - 2, art. 1 (ed by Bigelow, I97 4 ) .
[20] For a concise legislative history of copyright law see
footnote 17 in Goldstein v. California, 1+12 U.S. 5I+6,
562 (1973).
31
[21] See Generally, Nimmer, Nimmer on Copyrights (197^)
. [hereinafter Nimmer], Nicholson, A Manual of Copyright
Practice for Writers, Publishers, and Agents (2nd. ed . 1970)
[22] Nimmer, § 111.
[23] Under the recently passed Senate revision hill of the
copyright law (S. I36I, 93^^^. Cong., 2nd Sess.), the
duration of copyright protection would be 50 years
after the author's death for both common law and stat-
utory copyright rather than the existing perpetuity
period for common law copyrights and 56 years for
statutory copyright.
[2U] Nimmer, § 112.
[25] Under the Senate revision bill (S. I36I, 93rd. Cong., 2nd
Sess.), the statutory duration would be changed to the
life of the author plus 50 years.
[26] Nimmer, §§ I50 and I5I.
[27] See Bigelow, Computer Law Service (197^) appendix ^-3a for
a reprint of the circular.
L -■ See generally. Note, "Copyright Protection for Computer
Programs," 6k Colum. L. R. I27U (I96U). The Senate
recently passed a bill (S. I36I, 93]^d. Cong., 2nd Sess.)
revising the existing copyright statutes. Computer pro-
grams are proper subject matter under the proposed bill.
Section II7 is the key provision and states:
Notwithstanding the provisions of sections IO6
through 116, this title does not afford the owner
of copyright in a work any greater or lesser
rights with respect to the use of the work in
conjunction with automatic systems capable of
storing^ processing, retrieving, or transferring
information, or in conjunction with any similar
device, machine, or process, than those afforded
to the works under the law, whether title I7 or
the common law or statutes of a state in effect
on December 31? 197^> as held applicable and
construed by a court in an action brought under
this title.
32
[29] Galbi^ "Copyright and Unfair Competition Law as Applied
to the Protection of Computer Programming/' Computer
Law Service, § 1+-3, art. 1, p I7 (ed by Bigelow, 197^)-
[30] 367 F. Supp. 258 (N.D. Okl. 1973).
[31] 310 F. Supp. 1073 (W.D. Wash. I969)
[32] See Galbi, "Copyright and Unfair Competition as Applied to
the Protection of Computer Programming," Computer Law
. Service, § ^-3^ art 1, p 18 (ed by Bigelow, 197 i|).
[33] Galbi, "Proposal For New Legislation to Protect Computer
Programming," I7 Bull. Copyright Soc'y. 280 (197O);
Morris, "Protecting Proprietary Rights of Computer
Programs: The Need For New Legislative Protection, "
21 Catholic Univ. L. R. 181 (I97O) [hereinafter Morris].
[3^] Williams 8e Wilkens v. U. S., Docket No. 73, 1279 (^87 F.2d
13^5) (U.S. Ct. Clms.) is presently before the Supreme
Court. In Williams the National Institute of Health
made over one million single copies of various obscure
medical journal articles, some of which Williams ^e.
Wilkens had copyrighted. With a strong dissent, the
U.S. Court of Claims held U-3 that the photo copying of
a copyrighted article, one copy at a time, was not an
infringement of the copyright. Therefore, the outcome
of this case will undoubtedly affect the status of soft-
ware copyright protection.
[35] Bender, "Trade Secret Protection of Computer Software," 38
Geo. Wash. L. Rev. 909, 926 (1970) [hereinafter Bender].
[36] Restatement of Torts, § 757, comment (b), (1939). See also
Mycalex Corp. v. Pemco Corp., 6k F. Supp. i^-20, 423
(Md. 191+6).
[37] Victor Chemical Works v. Iliff, 299 HI- 532, 5^5 (1921). The
identical quote was used again in Schulenburg v.
Signatrol, Inc., 33 HI. 2d 379, 385 (1965), cert, denied.
383 U.S. 959 (1966).
[38] 198 U.S. 236, 250 (1905). See also Ellis, Trade Secrets
§ 12, (1953) [hereinafter cited as Ellis] which states:
33
The common law gives a man the right to keep
his ideas or the results of the work he has done,
or paid for doing, to himself. The fact that
others are at liberty to do similar work, if they
wish, does not authorize them to steal his. The
principle is fundamental. The broad terms 'ideas'
and 'work' are used in stating it, instead of the
more usual one 'trade secrets, ' since the latter
is frequently interpreted as something akin to an
unpatented invention.
[39] Dupont Power Co. v. Masland,2Ui+ U.S. 100, 102 (191?).
[ho] See generally, Wessel, "Legal Protection of Computer
Programs," ^3 Har. Bus. Rev. 97 (March- April, I965)
(hereinafter Wessel) . Several of these requirements
are discussed in Kewanee Oil Co. v. Bicron Corp. ,
U.S. , 9^ s. ct. 1879 (197)4).
[Ul] Turner, The Law of Trade Secrets 12 (1962) [hereinafter
cited as Turner] .
[k2] See B. F. Goodrich Co. v. Wohlgemuth, II7 Ohio App. U93 (Ct.
App. 1963); Kaumagraph Co. V. Stampagraph Co., 235 N.Y.
1 (1923); National Tube Co. v. Eastern Tube Co., 3
Ohio Ct. C. Rep. N.S. ^+59 (Cir. Ct. I902), aff'd, 69
Ohio St. 560, 70 W.E. 1127 (1903).
[i+3] Bender, 928.
[kk] Morris, 195. See also DuPont Powder Co. v. Masland, 2^4
U.S. 100, (1917); General Aniline and Film Corp. v.
Frantz, 50 Misc. 2d 99I+, 27^ N.Y.S. 2d 63h, 151 U.S.P.Q.
136 (N.Y. Sup. Ct. 1966); Cincinnati Bell Foundry Co.
V. Dodds, 10 Ohio Dec. Rep. 15^ (Super. Ct. I887).
[U5] Bender, 928.
[U6] See We s ley- Jess en Inc. v. Reynolds, F. Supp.
(ill. 197^), 182 B.N. A. Pat., Trademark, and
Copyright J. , A-2 (June I3, 197^) (trade secret no
longer a trade secret if embodied in a product which
is then sold and examined with reverse engineering
techniques). See also Oppenheim, Cases on Unfair Trade
Practices 237 T2d ed. 1965)-
3i+
[UT] W. R. Grace ^ Co. v. Hargadine, 392 F.2d 9 (6th Cir. I968)
(comparison of patent and trade secret novelty require-
ment). Bender, at note 101, gives an example of the
nature of patent novelty:
Consider an invention which no one alive has
anticipated; and the patent for which reads
■no prior art. If, one year after the patent
issues, an archeologist discovers an old Indian
cave in Arizona with wall paintings disclosing
that invention, the patent is invalid for lack
of novelty. Such is the absolute nature of
patent novelty. Bender, 929*
[kQ] Alfred Bell and Co. v. Catalda Fine Arts Inc., I9I F. 2d 99
(2d Cir. 1951) (example of copyright novelty). Bender
again states: "For a copyright it will suffice that
the author contributed more than a merely trivial
variation, i.e., something of 'his own'." Bender, note
100, at 939.
[U9] Bender, 929.
[50] See Wessel, 100.
[51] Ellis, § lU.
[52] 376 U.S. 225 (196U).
[53] Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 23^ (196^)
[5^+] 376 U.S. at 231
[55] 376 U.S. at 232.
[56] 395 U.S. 653 (1969).
[57] The Court noted the heavy economic burden involved in patent
• litigation, and therefore, the extra burden of the
royalty payments could deter most attempts to challenge
patents. In particular, the Court stated:
The deterrent effect would be particularly severe
in the many scientific fields in which invention
is proceeding at a rapid rate. In these areas,
a patent may well become obsolete long before its
17 -year term has expired. If a licensee
35
has reason to believe that he will replace a
patented idea with a new one in the near future,
he will have little incentive to initiate lengthy
court proceedings, unless he is freed from lia-
bility at least from the time he refuses to pay
the contractual royalties. 395 U.S. at 6'J3-k.
[58] 395 U.S. at 672.
[59] ^12 U.S. 5^6 (1973). Chief Justice Burger, writing for the
majority, merely distinguished Sears and Compco from
Goldstein. Dissents by Justice Douglas and Justice
Marshall (each concurred in by Justice Brennan and
Justice Blackmun), however, rely on Sears and Compco.
[60] U12 U.S. at 560-561.
[61] U12 U.S. at 559.
[62] 4-09 U.S. 63 (1972).
[63] Kaul, "And Wow State Protection of Intellectual Property?"
60 A. B.A.J. 198, 200 (February I97U) stated:
While some observers have expressed the view that
Benson did not completely bar protection of com-
puter programs, it is extremely doubtful whether
valid protection is possible under the patent laws
as they are now written.
[6U] U.S. , 9k s.ct. 1879 (197^).
[65] U.S. at , 91+ s.ct. at I889.
[66] U.S. at , 9I+ s.ct. at I89O.
[67] One should note, however, that trade secrets such as the
Coca Cola secret formula are patentable, but through
the use of trade secret protection, these ideas can
be protected for periods longer than the 17-year patent
protection period.
[68] For a discussion of the future of trade secrets after Kewanee
see 182 B.N. A. Pat., Trademark, and Copyright J. , A-9
Tjune 13, 197^)
36
[69] ^3 C.J.S., Injunctions, § l48 (19^5).
[70] See Irizarry y Puente v. Harvard College, 2^48 F.2d 799, (1st
Cir.):. cert, denied, 356 U.S. 9^7 (1957): Hamilton
National Bank v. Belt, 210 F.2d 706, (D.C Cir. 1953).
[71] Bender, 927.
[72] Wessel, 100.
[73] Ellis, § Ik.
[7^1 See Restatement of Torts, §757 (1939).
[75] See Doerfer, "The Limits on Trade Secret Law Imposed by
Federal Patent and Antitrust Supremacy, " 80 Harv. L.
Rev. 1U32 (1967) [hereinafter Doerfer].
[76] Bender, 93^.
[77] See Note, "Developments in the Law - Competitive Torts," 77
Harv. L. Rev. 888 (196U). Doerfer at note I6 states:
Trade secret controversies growing out of
employment relationships present special
difficulties. The interest in allowing an
employee to move from job to mob without
allowing his employers to claim a proprietary
interest in the skills acquired during his
stay must be balanced against the interest
in permitting the holder of a competitive
advantage to make a limited disclosure of his
secret in order to exploit it. A former em-
ployee may continue to use general knowledge,
but not secrets, acquired in Yiis work; no ex-
plicit agreement is necessary to enable a
former employer to restrain disclosure.
[78] See Klein, "The Technical Trade Secret Quadrangle: A Survey,"
55 Nw.U.L.Rev. ^+37 (i960).
^'^^ 10 Cavitch, Business Organizations § 23^.02 (197^)-
[80] Id., § 233.02.
37
[8l] See Kewanee Oil Company v. Bicron Corporation, U.S.
, 94 S.Ct. 1879 (197^); Schulenburg v. Signatrol,
Inc., 33 111. 2d 379 (1965), cert, denied 383 U.S.
959 ( 1966 )( although an injunction is a drastic remedy,
it may be granted in appropriate instances). See also,
"Software, Statutes, and Stare Decisis," 13 How.L.jT
J+20 (1967).
[82] See Morris 195-
[83] 367 F. Supp. 258 (Okla. D.C. 1973).
[81+] Id., Conclusion # kQ.
[85] Bender states:
When the secret can "be utilized "by the thief with
only a nominal investment, the possibility of civil
suit may prove to be an empty threat. A software
house is perhaps the best example of a business re-
quiring a low initial investment of capital. To
launch his own software house, one needs only a
programmer, a pad, and a pencil. Thus, especially
if he happens to be a programmer, an employee who
turns thief may have precious little of an invest-
ment to lose as a result of a lawsuit. Bender, 9^2.
[86] The Illinois definition of property also includes trade
secrets, 111. Rev. Stat., ch. 38, § 15-1 (197^)-
[87] These include Oregon, Utah, Idaho, and Kentucky. In addition,
Bender states:
In any of these four jurisdictions only strict
attention to the wording and comprehension of
interpretive cases will indicate whether the
larceny statute can be used to prosecute theft
of a trade secret. Bender, 9^5-
[88] These include Alabama, Alaska, Arizona, Connecticut, Delaware,
Indiana, Iowa, Mississippi, Nevada, North Dakota, Rhode
Island, South Carolina, South Dakota, Texas, Vermont,
Washington, West Virginia and Wyoming. Bender, 9^5.
38
[89] These include District of Columbia ("anything of value"),
Florida ("article of value of any kind"), Hawaii
("anything of marketable, saleable, assignable, or
available value") Kansas ("valuable thing -whatsoever"),
Louisiana ("anything of value"), Maryland ("thing"),
Missouri ("valuable thing"), Montana ("article of value
of any kind"), and Virginia ("money or other thing").
In addition, Bender states that:
Prosecution will generally be easier under these
statutes than under those using the word 'property, '
since it should be easier to show that a trade
secret is a thing of value than to show it is
property. Bender, 9k6.
[90] For a recent case in which the defendant was convicted under
a felony theft statute rather than a specific trade
secret theft statute, see Hancock v. Texas, 1+02 S.W. 2d
906 (Texas Grim. App. 19^6), 379 F.2d 552 (5th Cir. I96T)
(defendant's petition for habeas corpus denied at dis-
trict court and his appeal to the 5th Cir. also denied).
[91] 18 u.s.c. § 231^ (1970).
[92] id^, § 2315.
[93] In several cases the courts have held that the act of trans-
porting photostatic copies of the stolen information
(not computer programs) violated the federal statutes.
See e.g. , United States v. Greenwald, U79 F.2d 320
(6th Cir.), Cert denied, i+1^ U.S. 8'?k (l973)j United
States V. Bottone, 365 F.2d 389 (2d Cir. I966), cert,
denied, 385 U.S. 97k (I966); United States v. Lester,
282 F.2d 750 (3rd Cir. I96O), cert, denied, 36U U.S.
937 (1961).
[9^+] _See United States v. Bottone, 365 F.2d 389, (2d Cir. I966)
(court commented that 15 U. S.C. 231^^- would not apply
• to the theft of trade secrets by memory).
[95] It is generally conceded that patent protection is better
than trade secret protection for computer programs.
See Sheers and Encke, "Copyrights of Patents for Com-
puter Programs?", k9 J. Pat. Off. Soc'y 323 (1967)-
[96] For more discussion of the advantages and disadvantages of
trade secret protection of computer programs see
Morris 197*
39
[97] The General Rules Concerning University Organization and.
Procedure (revised May, 1972). [hereinafter The
General Rules] .
[98] Id. § 18(c).
[99] Id. § 19(f).
[ 100] University of Illinois Statutes, Art . X , § 2 ( I97 2 ) .
[101] 56 A.A.U.P. Bulletin 323, 32^ (Autumn I97O).
[102] 5^ A.A.U.P. Bulletin 258 (Sunmier I968).
[103] 55 A.A.U.P. Bulletin 86 (Spring I969).
[ 104] For an earlier treatment of difficulties encountered by
universities in managing research see Palmer, University
Research Problems (19^9 and I962). The developers of
PLATO IV have proposed a compensation arrangement for
developers of course related software (courseware) which
uses copyright protection. Under this proposed plan,
the University of Illinois would receive 20 percent of
gross revenue while the author would receive the re-
maining 75 percent of gross revenue. The accent is on
gross revenue, in that the author will have more con-
trol over his courseware than under the University
Copyrights and Recordings provision where University
administrative expenses would reduce the gross revenue
to zero net revenue. If the author was commissioned by
the University to develop the courseware under a re-
leased time arrangement, the University's share would
be increased to 60 percent of gross revenue, while the
author's share would be reduced to kO percent of gross
revenues. Finally, if some one unrelated to the Uni-
versity developed courseware, the University would
receive 80 percent of gross revenue while the author
would receive the remaining 20 percent. This procedure
avoids the trade secret problems previously discussed
and also provides reasonable incentive for courseware
development. The problems encountered in the regulation
of courseware, however, are unique to PLATO IV type
situations.
1^0
[105] See Bigelow, Computer Law Service, Introduction to art 3^
"~ §3.
[106] See Saragovitz, "Patents - Trade Secrets - Technical Data Use
and Misuse by the U.S. Government/' 15 Vill. L.Rev.
331 (1970).
[107] Wofsey, "Contracting For Software/' Computer Law Service
art. 2, § 3-3 (ed by Bigelow).
[108] See Levy, "Computer Programs in Government Procurement/'
10 Will, and Mary L. R. 658 (1969). See also C.CH.
Gov't. Contracts Rep, p li|,110; lU,200; 1^^,205; 14,220.
[109] N.A.S.A. IP 9.101-U.
[110] Under A.S.P.R. § 9-201, unlimited rights in data means that
the Federal Government has the right to use, duplicate,
or disclose technical data in any manner and for any
purpose.
[Ill] J+9 Opinions of the Comptroller General 12^+, 2 Comp . Law
Serv. Rep. 29I (1969).
[112] Proposed A.S.P.R. Change to Amend 9-202-2(c) (Case 7O-83)
discussed in I78 B.N. A. Patent, Trademark, and Copyright
Rep. A- 18 (May I6, 197^)- '
[113] See Hinrichs, "Proprietary Data and Trade Secrets Under
Department of Defense Contracts," 36 Mil. L.Rev. 6I
(1967) (hereinafter Hinrichs) .
[iii+] 28 u.s.c. § 149U (1970).
[115] F. Supp. , (Dist. Ct. 1973) U90 B.N. A. Fed Contract
Rep. D-1 "(jW 23, 1973).
[116] Hinrichs, 89.
[117] See "Unauthorized Use of Proprietary Information by the
Government: A Mixed Bag of Remedies," 512 B.N. A.
Fed. Contract Rep. K-1 (July 1, 197^+).
[118] See Kostos, "Unauthorized Use of Technical Data in Government
Contracts: Remedies of the Data Owner, " 6 Boston Coll.
Ind. and Com. L.R. 753 (1965)
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