By Dunaway, David
Business Perspectives , Vol. 5, No. 3
As the information age progresses, the types of products we make and buy are evolving. The "information component" of goods is rising. The price of hardware continues to fall, while the price of software has risen or has remained constant. This trend will continue because manufacturing costs, a large portion of hardware costs, will continue to fall, while human intelligence costs, and therefore software costs, will keep rising.
Regulation of software is, like the industry itself, in its infancy. Governments all over the world are scrambling to update their copyright and patent laws to compete in the global information arena. As the world leader in software production, the United States has a large stake in making sure its laws do not sap the creative juices that have driven this growth engine.
One of the main inhibitors to growth in the software industry is piracy. The software piracy problem can be broken down into two categories. First, there is the theft of ideas from one company by another. A prime example of this is the suit between Apple and Microsoft. Apple claims that Microsoft stole the idea for its Windows software from the Apple Macintosh. In this case the plaintiff is charging not the copying of code, but the copying of the "look and feel" of the user interface in question.
In the world of integrated circuits, the fuzzy line between hardware and software has made for some lengthy lawsuits. The long-running battle between Intel and Cyrix over Cyrix's microprocessors and coprocessors continues. Intel has sued Cyrix, claiming that the upstart company copied the design for its enormously successful 80387 math coprocessor. Cyrix has sued Intel for trying to drive them out of business.
Corporate battle in the software and integrated circuit arena is expensive and experts see no quick solution to the controversy. A concern is the amount of money companies are spending on litigation that could be put into research and development. Legal fees, even for small software companies, can run into six figures.
The second category of software piracy is the seemingly harmless copying of programs by users. While sharing programs like this seems innocuous, the repercussions nationwide are surprising. The Software Publisher Association estimates that $2.4 billion in revenue was lost by American software companies in 1990 through illegal copying.
To make matters worse, copyright and patent laws can be woefully inadequate in dealing with technological issues such as these. Judges with little background in technology frequently issue precedent-setting rulings. Judge Vaughn Walker, who is presiding over the Apple/Microsoft case, had to get a day of instruction on the Macintosh before he could continue with the case.
The list of companies involved in intellectual property lawsuits reads like a who's who of the high-tech world: Lotus, Ashton-Tate, IBM, Fujitsu, Computer Associates, and the Santa Cruz Operation, to name a few. Yet computer software is only one element of the broader world of intellectual property. Examples of intellectual property being stolen include: Art Buchwald's claim that the story for the movie "Coming to America" had been stolen from him, imitation Cartier and Rolex watches on the streets of New York, and illegally photocopied chapters of textbooks given out in many universities. The impact of pirated intellectual property is enormous--$80 billion in lost sales and 250,000 in lost jobs annually. Piracy of movies, books, and recordings costs the entertainment industry over $4 billion each year.
Intellectual property now accounts for more than 25% annually of United States exports. The current number of lawsuits has risen to almost 6,000, from only 3,800 in 1980. In 1990, over 170,000 patents were filed in the United States, a 39% increase over 1985.
Companies have recognized that intellectual property rights can mean large gains or losses on the balance sheet. …