The Software Interface Between Copyright and Competition Law by Ashwin van Rooijen (Information Law: Wolters Kluwer, Brill) The success of computer programs often depends on their ability to interoperate - or communicate - with other systems. Conversely, the extent to which interoperability between computer programs is enabled or facilitated by the law can have a significant impact on innovation and free competition in software. The two legal disciplines that primarily determine the extent to which software interoperability is enabled or facilitated are copyright law and competition law. This important book offers the first in-depth analysis of the current respective copyright and competition law approaches to interoperability. With respect to copyright law, the book offers a comprehensive analysis of how copyright law has been applied to computer programs, how this form of protection affects interoperability, and how the European Software Directive - including its interpretation by courts in Member States - aims to facilitate interoperability. With respect to competition law, the author critically analyzes the application of Article 102 of the TFEU to refusals to supply interface information, including a discussion on the tension between copyright and competition law. The author also examines the substantial body of U.S. case law and accompanying literature on the interplay between copyright law, software and interoperability. Based further on a comparison with relevant ex-ante interconnection rules in European design protection law and telecommunications law, the author advances several recommendations aimed at facilitating interoperability in software copyright law.
Three interrelated approaches combine to convey an integrated and immediately accessible understanding of the subject:
Because of the in-depth analysis of the software interoperability problem with related legal disciplines in both Europe and the United States, and due to the clarity of the presentation, this will be welcomed as a valuable resource by practitioners, jurists, and academics concerned with copyright protection of computer software, interoperability and the interaction between copyright and competition law.
When IBM approached William H. Gates III to supply the operating system for IBM's Personal Computer (PC) in the early 1980s, Mr. Gates recognized the opportunity of a lifetime. Although he had no operating system completed at the time, Gates managed to purchase one from a local developer for $50,000. He then licensed it to IBM for $80,000. The license has been described as the deal of the millennium, albeit not for the modest profit. The opportunities Gates envisioned stretched far beyond IBM's PC and the $30,000 gain. Gates anticipated attempts to reverse engineer the PC's copyrighted core, the BIOS chip, resulting in PC `clones'. In order for the clones to run the same software as IBM's PC, the clones would also require a license for Gates' operating system MS-DOS. Before long, there would be a PC on every single desk, all running Microsoft's operating system. And so it happened: within months, the first cloners presented a fully IBM compatible PC and obtained a license for MS-DOS. This newcomer named itself after its achievement: Compaq is short for compatibility and quality.
More than twenty years later, this interoperability between PC manufacturers has proven more advantageous for Gates than for IBM. Increased competition in fully compatible PC hardware has forced IBM to abandon the PC business; however, it has enabled Gates to roll out successive versions of his proprietary operating systems. Microsoft now serves the vast majority of consumers and businesses with its Windows series of operating systems. However, Gates' own failure to provide interoperability with other software firms also turned against him. Competitors, supported by IBM, have attempted to create software that interoperates with the dominant Windows system but have failed due to Microsoft's refusal to disclose its interfaces. Microsoft defended its refusal relying on intellectual property rights. Its conduct, nonetheless, led the European Commission to find an abuse of a dominant position under competition law. The software giant was ordered to pay a record BUR 1.7 billion fine and to supply all specifications required to create interoperable software. The European Union's second-highest court, the General Court (GC), upheld the Commission's decision, and Microsoft chose not to appeal.
These brief excerpts from the history of the PC1 illustrate that the success of computer programs often depends on their ability to interoperate — or communicate — with other systems. This is due to network effects — the demand for a particular program often increases with its number of users. Network effects cause consumers to select the product with the largest number of other users, which can ultimately lead to all consumers using the same vendor's product. Absent interoperability with that product, competitors often will be unable to attract any consumers to their rival products. However, the substantial market power associated with exploiting network effects can also stimulate significant innovation efforts. Network effects and interoperability thus significantly affect innovation and competition in many software industries.
This raises the question of whether the effects of interoperability on innovation and competition are recognized in the law. Innovation and competition are primarily affected by two legal disciplines: intellectual property rights —primarily copyright law — and competition law. In order to create interoperable software, a developer must use and have access to the target program's inter-operability information, or interface specifications. For example, all programs designed for the Windows operating system rely on Windows' interfaces. This information, however, can be protected by intellectual property rights, enabling the rightsholder to control the development of competing, interoperable software. However, a refusal to supply this information to competitors could fall under scrutiny of competition law.
Although the exclusivity awarded by intellectual property rights might appear to conflict with free competition, there is an increasing awareness in the legal and economic community that intellectual property rights and competition actually serve complementary purposes: both regimes stimulate and balance innovation, or dynamic efficiency, and price competition, or static efficiency. Intellectual property rights accomplish this by structurally establishing in advance (ex-ante) what is protected and under what conditions. Competition laws accomplish this by after-the-fact (ex-post), case-by-case review of a firm's behavior. The objective of this study is to contribute to the debate about the complementary relationship between intellectual property rights and competition laws by introducing the network effects prominent in the software industry as a complicating factor.
As part of their complementary relationship, intellectual property and competition laws are increasingly called on to anticipate matters traditionally addressed primarily by the other. Thus, intellectual property rights must be curtailed to allow for sufficient static competition despite the existence of the exclusive intellectual property right, whereas competition laws, in addition to the more traditional goal of stimulating static competition, must also safeguard innovation, or dynamic competition. Against this background, the following questions arise: (i) how interoperability affects the balance between innovation and free competition in software; (ii) which of two regimes — copyright law or competition law — primarily should be concerned with striking this balance as affected by interoperability; and (iii) which particular instruments are suitable to approach this problem within these respective regimes.
In order to answer its three-layered research question (supra), this study first evaluates, based on a normative framework (Chapter 2), the current law addressing interoperability in software (Chapters 3 and 4), followed by a comparison with related legal disciplines (Chapter 5), and, finally, conclusions and recommendations (Chapter 6).
Thus, Chapter 2 of this study first provides a normative framework, determining the effects of interoperability (openness) versus non-interoperability (control) based on economic theory. It will demonstrate, first, that the strong need for interoperability in computer programs causes a degree of interdependency between firms, which affects both innovation and competition. Thus, in software development, competing firms are more dependent on each other than in many other industries, in which firms can innovate and compete more independently. Subsequently, Chapter 2 will demonstrate that both interoperability and absence of interoperability can yield positive effects and that a balance must be struck between these two extremes. An analysis of empirical data falls outside the scope of this study. Instead, the focus lies on the legal framework in which the relevant determinations can be made by the appropriate institutions. Chapter 2 will also introduce the two main legal approaches to interoperability — namely, more rigid but certain ex-ante intellectual property rights and more flexible ex post competition laws — and demonstrate that there is a trade-off involved in selecting either one of these approaches to addressing interoperability.
Drawing on the normative framework, Chapters 2-4 aim to provide an analysis of the current respective ex-ante copyright and ex-post competition approaches to interoperability. The legal analyzes in Chapters 3 and 4 are limited to the laws of the European Union and its implementation in the Member States. Chapter 3 will demonstrate how copyright protection of computer programs can enable rightsholders to control interoperability with their programs and which instruments have been implemented to limit such control. It will also demonstrate that, notwithstanding these limiting instruments, copyright law still leaves the rightsholder with substantial control over inter-operability. Conversely, competitors may have insufficient means to establish interoperability with a copyright-protected computer program. This outcome does not correspond with the normative balance established in Chapter 2. Since the problems related to the interaction between copyright law and interoperability have been harmonized at a European level, this analysis will primarily focus on this harmonization instrument — the European Software Directive —and will study the Member States' national copyright laws insofar as they implement or interpret this directive. Whether copyright law provides for legal certainty will be analyzed in the abstract — that is, by identifying any open norms, and subsequently examining whether a coherent interpretation of these norms exists in the literature and by the judiciary.
Chapter 4 discusses the ex-post application of competition law to inter-operability. It first focuses on the trade-off between the ex-ante copyright approach and the ex-post application of competition laws, and demonstrates that there are several arguments to address interoperability within copyright law rather than through application of competition laws. The second part of the chapter demonstrates that, should competition law nonetheless be applied, it does not necessarily lead to a more adequate balancing of interests involved in interoperability. The rigid application of the established case law on anticompetitive conduct neither comfortably nor adequately accommodates the specific concerns of a refusal to provide interoperability information. This rigidity also undermines the flexibility that application of competition law is designed to offer. The analyzes in Chapters 3 and 4 demonstrate that both copyright and competition law essentially promote a model of completely independent competition, rather than the type of partial interdependency present in the software industry. In sum, the evaluative analyzes in Chapters 3 and 4 reveal that neither current copyright nor competition laws provide entirely adequate frameworks to balance the interests of interoperability and non-interoperability.
In Chapter 5, the copyright approach to software interoperability will be compared to two legal disciplines in which an ex-ante approach to interconnection is rooted more solidly: European design protection law and telecommunications law. Design protection laws are of interest because they explicitly exclude from intellectual property protection those elements of a design that are necessary for interconnections. A similar approach could eliminate much of the uncertainty surrounding the use of interface specifications under copyright law. Telecommunications law is not an intellectual property right, but it offers an interesting comparison because it is a body of law in which courts and regulators have accumulated substantial experience with interdependent competition and network effects through ex-ante interconnection regulation. Moreover, some of its instruments, in particular regulatory oversight of interconnection negotiations, appear suitable to facilitate access to interface specifications within copyright law.
Chapter 6 will summarize and combine the findings of previous chapters in order to draw conclusions and to discuss, several recommendations, which are aimed at aligning the treatment of software interoperability in copyright and competition laws more closely with the normative framework established in Chapter 2. Some of its recommendations are inspired by U.S. copyright law because there is a substantial body of U.S. case law and accompanying literature on the interaction between interoperability and copyright law.
A number of issues are related to but beyond the scope of this study. This study will focus on two main legal disciplines: copyright law and competition law. The focus on copyright law, rather than other intellectual property regimes, follows from the historical tendency to protect computer programs primarily through copyright rather than other intellectual property regimes. Whether copyright law is indeed the most suitable regime to protect computer programs has been subject to some debate previously. Although this debate will not be revisited, the peculiar role of copyright law in protecting computer programs will be examined in depth in section 3.1 in the context of its implications for interoperability.
Software interoperability is a form of standardization: where two or more manufacturers' products interoperate, there is a (limited) standard. Standards can emerge de-jure — by law, formal agreement or consent — or de-facto, that is, without a formal act. Each standard raises different issues. De-jure standardization primarily raises issues of anticompetitive cooperation between multiple firms (collusion), whereas the principal risk of de-facto standards is a possibly anticompetitive refusal to allow others to use the standard. The focus of this study is on single-firm (unilateral) conduct and de-facto standardization, rather than de-jure standardization and concerted practices between multiple firms.
The problem of software interoperability manifests itself primarily in so-called proprietary software markets, where software is distributed without the original 'blue print' (or source code) of the program. By contrast, the open source model allows the source code of the program to be distributed and modified, which enables other developers to improve the software. The release of a computer program's source code under an open source license generally obviates the need to regulate access to interface information, while the underlying economics are fundamentally different. The focus of this study will be on interoperability in proprietary software rather than under open source models.
In closing, some observations are offered regarding future developments in software interoperability.
For one, it appears high time to consider the effects that intellectual property rights, corrected in some instances by competition rules, can have on standardization, and, thereby, on innovation and competition in certain industries. Currently, intellectual property control over standards is often dealt with similarly to any other intellectual property right. This is true both within intellectual property rights and for their treatment in the competition case law. Yet, this undifferentiated control over standards can impede competition and innovation in industries that substantially rely on standardization because network effects can amplify the market power of the firm controlling the standard. This study has demonstrated that several courts have found a way out to the problem of too much control over standards, in particular within copyright law. However, because standardization considerations are not yet substantially incorporated in the intellectual property laws and competition case law, the courts have necessarily done so without expressly basing their judgments on the effects of standardization. The outcome of these cases is, therefore, of little help to a sustainable standards policy. The suggested reconsideration of control over standards is a matter of competition policy, and competition authorities, therefore, may play an important role in this process.
As to the copyright protection of computer programs, one might also reconsider the relevance and effects of protecting computer programs as literary works under the Berne Convention. The rationale for this form of protection appears to have been the strong need that was felt to establish an international framework for providing incentives to develop computer programs. This was most straightforward to conceive by treating computer programs as 'yet another' literary work within the meaning of the Berne Convention. However, it was already observed that copyright protection of computer programs has very little to do with protecting traditional literary works. It is effectively a form of sui generis protection that focuses on preventing access to know-how (source code) of the computer program. Moreover, the literary works rhetoric can have negative consequences for a problem that was perhaps not yet recognized at the time, namely, interoperability and protection of interface specifications. After all, these specifications constitute source or object code similar to the rest of the program and, therefore, might be considered copyrightable subject matter.
Based in part on the TRIPS agreement, the WCT and the European Software Directive, the majority of states have come to protect computer programs in this way (i.e., as literary works under the Berne Convention), even if the obligation to protect computer programs as literary works arguably does not arise from the genie Convention itself. Now that the original objective of creating an international level playing field for software protection has thus been achieved, and now that the problem of interoperability arguably manifests itself as one of similar importance to protection of computer programs as such, it may be an appropriate time to reconsider this specific form of protection under copyright law, giving more weight to the problem of interoperability and protection of interface specifications.
Taking this thought one step further, the question arises whether copyright law should indeed be the primary ex-ante instrument to address the interoperability problem in computer programs. Menell has argued that network features of computer programs (interfaces) should be protected, if at all, by patent law, because of its focus on innovation (rather than originality) and its shorter term of protection. Interestingly, a patent approach to protection of interfaces might also obviate the problem of access to interface specifications because patent law contains a strong disclosure requirement.
Some of the ways in which standardization issues could be addressed might be borrowed from trademark law. Unlike copyright law, trademark law expressly deals with ex-post standardization issues. In particular through its `genericide' doctrine, trademark law recognizes that a mark can lose protection if it becomes a de-facto standard. An interesting and important characteristic of trademark law, which also applies to the protection of interface specifications, is its goodwill function: the protection of signs under trademark law encourages firms to establish goodwill associated with their mark and thus, indirectly, to innovate. The incentives provided by trademark law are thus directed at the goodwill behind the mark, not primarily at the creation of the mark itself. This resembles the important indirect function of providing for control over interface specifications: control over interface specifications should not primarily lead to advances in interface technology but should, to a limited extent, enable the rightsholder to exploit a closed network. As noted in Chapters 3 and 4, respectively, neither current copyright law nor competition law adequately recognize this important indirect function of control over interface specifications, which can lead to inadequate analyzes.
In this outlook, a final question is how the problem of interoperability in proprietary software will be affected by the ongoing evolution in software development, use and distribution. For one, the increasing use of open source software purposely reduces the developers' control over source code, including interface specifications, thus significantly facilitating interoperability. Another development is the increasing use of hosted applications or software as a service, which do not run on the end-user's computer but rather on a remote server, which the end-user is provided access to via a network connection. Although this type of computing could be traced back to the early days of mainframes, more modern and feature-rich applications had not proven suitable for such hosted use until the recent emergence of more bandwidth and enabling technologies, such as virtualization. As a result of these technologies, software applications are now increasingly being offered as a hosted service, run on a remote server rather than on the end-user's computer. In such models, the rightsholder can maintain complete control over his or her computer program, making decompilation for interoperability purposes difficult. Consequently, the reproduction right in copyright law, which plays a central role in regulating decompilation of locally run computer programs, will have little bearing on this form of software use. The role of contract law and the law of misappropriation, however, may become more significant for regulating these relationships.
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