The Right of Integrity in Software: An Economic Analysis

Article excerpt

ABSTRACT

This paper proposes a new framework for analysis of recent judicial trends in IP-related licensing and post-sale restrictions. It suggests that recent decisions have allowed IP holders to use such restrictions in order to expand the scope of their IP rights, and that such expansion has been allowed without examining its effects on innovation and creativity--and, subsequently, on competition in the market. The paper focuses on one instance of such expansion: the recognition of a right of integrity in software in the U.S. v. Microsoft decision. Following a brief presentation of the special characteristics of the software industry and the history of the right of integrity under U.S. law, the paper proceeds to present the main economic justifications for an abstract right of integrity and, building on these justifications, proposes a set of substantive tests that should be applied by courts before a right of integrity is applied to new subject matter. The paper then applies these substantive tests to demonstrate the undesirability--from an economic perspective--of the application of a right of integrity to software.

TABLE OF CONTENTS

Introduction
I. The Evolution of the Software Industry
II. The Protection of Software
III. Microsoft's Licenses and the Courts' Analysis
IV. The Right of Integrity--Legal Analysis
A. MORAL RIGHTS
B. THE GILLIAM DOCTRINE
V. Right of Integrity in Software: A Conceptual and Pragmatic
Analysis
A. GENERAL
B. CONTINENTAL MORAL RIGHTS AND SOFTWARE
1.    The Conceptual Perspective: The Problem of Personality
2.    The Pragmatic Perspective: The Problem of Software
          Evolution
C. GILLIAM RIGHTS AND SOFTWARE
VI. Right of Integrity in Software: An Economic Analysis
A. WHY AN ECONOMIC ANALYSIS?
B. PREVIOUS ECONOMIC ANALYSIS OF THE RIGHT OF INTEGRITY.
1.    The Hansmann & Santilli Approach
2.    Some Criticism of the Hansmann & Santilli Approach
C. SOME FURTHER THOUGHTS ON THE APPLICABILITY OF THE
     RIGHT OF INTEGRITY
1.   The Secondary Market Test
2.   The Volume-of-Sales Test
3.   The Functional / Artistic Test
D.   APPLICATION OF THE ANALYSIS--THE CASE OF SOFTWARE
VII. Microsoft Revisited
Conclusion

INTRODUCTION

   None of the evidence received by the Commission suggests that
   affording copyright to programs would in any way permit program
   authors to monopolize the market for their products ... [In any
   case] the effect of program copyright on the retail prices of
   consumer goods and services is so small as to be undetectable.

   Conclusions of the National Commission on New Technology
   Uses of Copyrighted Works, 23 (1978).

The law at the intersection between antitrust and intellectual property (IP) is a mess. Faced with the task of balancing one statutory policy that is aimed at promoting innovation and creativity, with another that is aimed at promoting free competition in the market, the courts are at a loss. (1) Lacking a clear theory to support this balancing exercise (2), they have no choice but to sidestep the issue altogether or, alternatively, revert to a series of alleged truisms that lack any clear justification under either IP or antitrust policies. Thus, in many IP-related antitrust decisions, reason stops where market power begins.

One instance where antitrust and IP concerns often clash is in the field of IP licensing, when IP owners use restrictive licensing terms to exert control over the conduct of authorized users of their IP. (3) Clearly, some of these restrictions are anticompetitive. Nevertheless, the social costs associated with reduced competition are not only tolerated by the IP laws, but presumed by them. (4) Therefore, antitrust policy cannot be allowed simply to trump IP law whenever such restrictions are imposed, since this would altogether undermine the rationale underlying IP law. On the other hand, it seems safe to assume that the legislature never intended IP rights to trump all antitrust concerns, as would be the case if IP owners were completely immune from antitrust scrutiny and free to impose any restriction they desire on the buyers/licensees of their IP. …