From: [ac w f] at [doc.ic.ac.uk] (Anthony Finkelstein) Newsgroups: misc.legal Subject: CyberLaw/Lex 8/93 Date: 14 Sep 93 08:47:45 GMT Posted on behalf of [y--a--n] at [aol.com] replies should be directed to him [CyberLaw (tm) 8/93] SPREADSHEET WARS I. CONSIDERING AN UPGRADE Prior investment (money and time) in software represents a substantial barrier preventing improved computer efficiency and productivity. For example, ABC company may have spent the past few years plodding along with a spreadsheet program. It has invested hundreds of hours training employees to use the software and its arcane commands. All ABC records are fed into its computer system according to elaborate programs designed and written by ABC employees to work with the software. Suddenly, an innovative software publisher develops a new spreadsheet program that will slash training and programming time. But ABC is faced with a number of employees who are finally comfortable with the old software and object to devoting more time to learning something new. ABC also faces the prospect of finding the manpower to rewrite programs that took years to develop unless it can easily use them with the new software. Fortunately, the new software has a feature that allows ABC's employees to use the same command system as the old software while they learn the new and improved features and commands of the new system. The new software will also translate programs ABC has developed for us with the old system. ABC executives can count on easily obtaining approval to buy the new software! But then a federal court rules that the company that wrote the old software can force the removal of the crucial interoperability features from the new software. ABC executives rethink their plan, and decide to defer the purchase of new spreadsheet software for a few more years. If you are responsible for the purchase of computer software for your company, you might be familiar with this scenario. As you may recall, the above-described ruling was recently made in a legal action between Lotus Development Corp. and Borland International, Inc. II. 1-2-3 & QUATTRO In March 1983, Lotus 1-2-3 replaced VisiCalc as the best-selling personal computer program in America. As described by Frank Rose, in "East of Eden," 1-2-3 was an "integrated software package that allowed users to do complex financial analyses, display the results in chart form, and sort through piles of data in a flash." Borland's Quattro and Quattro Pro programs are spreadsheet programs that compete with 1-2-3. Quattro was first introduced in late 1987, and is no longer being produced. Quattro Pro was introduced in 1989 and, as stated by Borland's attorneys, "has won every major award for spreadsheet excellence given in the software industry. Quattro Pro invariably ranks substantially higher than 1-2-3 in head-to-head reviews and user comparisons." In July 1990, Lotus filed suit in federal court in Massachusetts against Borland, alleging infringement of Lotus 1-2-3 by Borland's Quattro and Quattro Pro's "emulation interface." Lotus later added infringement claims related to the "Key Reader" feature of certain Quattro Pro programs. III. INFRINGEMENT BY QUATTRO PRODUCTS On the initial issue of whether a product is copyrightable, the Court set out a 3-part test. The first step, according to the Court, is to determine a product's fundamental "'idea,' 'system,' 'process,' 'procedure,' or 'method'" (collectively, its "Idea"). The second step is to determine whether the product includes any "expression" that is not limited to the essential elements of the product's Idea. The third and last step is to consider the elements of expression not essential to the product's Idea, and determine "whether those expressive elements, taken together, are a substantial part of the allegedly copyrightable work." Applying this test, the Court determined that, "[T] he [Idea] of the 1-2-3 program is a "menu-driven spreadsheet program whose 'user interface involves a system of menus, ... arranged heirarchically, forming a tree in which the main menu is the root/trunk of the tree and submenus branch off from higher menus....'" The Court also concluded that Borland's Quattro products infringe the Lotus 1-2-3 copyright. The Court let the action proceed to trial, however, on disputed factual issues concerning the scope of impermissible copying. IV. MENU COMMANDS & STRUCTURE Following a trial held in phases between February and April 1993, the Court issued two opinions. In the first opinion, dated June 30, 1993, the Court explained that Lotus does not claim that Borland copied the entire 1-2-3 interface, but, rather, that Borland has "illegally copied the Lotus 1-2-3 'menu commands' and 'menu structure.'" The Court also affirmed its earlier ruling that the 1-2-3 menu commands and structure contain protectable expression. Examining the 1-2-3 menu commands and structure ( the "menu tree"), the Court noted that the set of executable operations of the tree is included within the Idea of 1-2-3; "[t]he determination of the function of each executable operation," observed the Court," is not protected by copyright law." "The menu tree is copyrightable," however, "because the (hierarchical) arrangement of the definition and identification of executable operations contains expression." (Citations omitted.) The Court went on to examine Lotus's claims in light of a "'sliding scale' that determines the scope of copyright protection." According to the Court, "If there is 'essentially only one way to express an idea,' complete copying is permissible. If there are 'only a limited number of ways of expressing the idea,' then proof of 'near identity' of copied expression is required to show infringement. For a work 'embodying only one of an infinite variety of ways of expressing an idea,' duplication or near identity is not required." In this case, the Court found that Borland produced a "virtually identical copy of the entire 1-2-3 menu tree, albeit with additions, in its Quattro and Quattro Pro emulation interfaces." In response to Borland's claim that it was required to abide by functional "constraints" on the design of the menu tree, the Court first noted that the constraints were no more than "guidelines" or "rules of thumb." None, stated the Court, are overriding or dictate any specific result. Pointedly, the Court noted that "Borland programs offer a 'menu builder' that enables users to alter, customize, and create menu trees. If functional considerations restricted the possible expression of the menu tree to a limited number of possibilities, there would be little or no need for a user to modify it." Further, the Court noted that, "[E]ven Borland's experts acknowledge that, given all the various functional considerations, at least a limited range of choices remains for individual menu commands.... In any event, even if there were as few as two acceptable words for each menu command (given the other functional considerations), there would be 2 raised to the 469th power possible menu trees (an astronomical number) having precisely the same menu structure as the 1-2-3 menu tree, but with variations in menu command names.... If the designer of a menu tree chooses not to copy the structure of Lotus 1-2-3, the designer's freedom of expression and range of possible expressions for the menu tree expand dramatically.... [Indeed,] a number of other spreadsheet programs use vastly different menu trees." On the issue of originality, Borland argued that, "because of functional considerations, creation of the [1-2-3] menu tree did not require sufficient originality to justify protection under copyright law." Looking to a recent statement by the U.S. Supreme Court that even a telephone directory containing only facts could meet the "constitutional minimum for copyright protection if it features an original selection or arrangement," the Court here found that, "the 1-2-3 menu tree 'make[s] the grade quite easily, as it possess[es] some creative spark....'" According to the Court, "a wide variety of menu trees is possible"; functional considerations do not, therefore, place the 1-2-3 menu tree beyond the protection of copyright law. V. DELAY IN FILING SUIT Borland raised defenses based on Lotus's delay in bringing legal action against Borland. Lotus filed suit in the __Paperback__ case (an action against another company for infringement of 1-2-3) in January 1987 -- when Borland was developing Quattro. Borland then secured a legal opinion that inclusion of a 1-2-3 emulation interface would not infringe Lotus's copyright. In September 1987, Borland announced its first spreadsheet product, Quattro. In November 1987, Quattro was shipped and it was also advertised in "Lotus Magazine." In early 1988, Quattro was discussed at a high-level Lotus meeting; Lotus later decided not to file suit. In September 1988, Borland acquired certain spreadsheet technology, including a software program containing a menu tree that was a copy of the 1-2-3 menu tree. Borland reengineered the product to become Quattro Pro -- which was released in November 1989. At the end of June 1990, the Court handed down its __Paperback__ decision. The next day, Borland filed suit in California seeking a declaration that its products did not infringe Lotus's copyright. On July 2, 1990, Lotus finally filed suit against Borland. With regard to Lotus's 2-1/2 year delay in filing suit, the Court did not find it unreasonable, inexcusable, or motivated by a desire to "speculate with Borland's money." The Court did not accept the argument that "Lotus waited to file suit in an effort to trap Borland into expending large sums of money on Borland's spreadsheet products and, later, to reap the benefits of Borland's investment." Instead, the Court found that Lotus had delayed to avoid "expensive duplicative litigation all of which might have been unsuccessful if Lotus lost in Paperback. This avoided a risk of needlessly wasting court and party resources." Delay for such reasons, found the Court, was not unreasonable. The Court also found, among other things, that Borland did not prove that it took any action in reliance on Lotus's delay in bringing suit or in Lotus's silence as to whether Borland's Quattro products infringe. VI. MACRO INTERPRETATION In August 1993, the Court issued its opinion on Phase II of the trial. This opinion mainly concerns the Key Reader feature of Quattro Pro version 2.0 and subsequent releases of Quattro Pro. (Quattro Pro versions 2.0, 3.0 and 4.0 contained both the Key Reader feature and the 1-2-3 emulation interface described above. The emulation interface was removed from version 4.1 and subsequent versions of Quattro Pro.) Briefly stated, the Key Reader feature interprets "macros" (a sequence of steps designed and programmed by the user of a spreadsheet) written using the Lotus 1-2-3 command language. The Key Reader feature, states the Court, "follows the text of the macro as though the characters were being typed during the program's use of a copy of the 1-2-3- menu tree (and with some other means for interpreting the various special Lotus 1-2-3 macro language commands)." (The details of the creation and the features of the Key Reader are under seal and not disclosed by the Court in its Opinion.) According to the Court, "[T]o interpret macros, Borland's programs use a file with phantom menus consisting of a virtually identical copy of the Lotus menu tree that Borland used for its emulation interface, but with only the first letter of each menu command where the complete menu command name previously appeared." In response to Borland's arguments that it was entitled to create and use the phantom menus to enable users of its programs to translate and implement macros those users have written using Lotus 1-2-3, the Court distinguished between 2 methods used to translate macros. One method is to implement a one-time translation of a 1-2-3 macro into a different macro language, for use with a different menu tree. Another method, used by the Key Reader, is to "interpret macros on-the-fly, by reference to 'phantom' menus that contain a copy of the Lotus menu tree." Regarding the continuous macro translation implemented by Borland, the Court rejected Borland's contention, among others, that copyright protection for the 1-2-3 menu structure and the first letters of the commands in the 1-2-3 menu tree "would be equivalent to copyright protection for a 'system' or 'method' of communication between the user and the program." As stated by the Court, "The fact that users of Lotus 1-2-3 have created macros in reliance on expressive aspects of Lotus 1-2-3 does not convert that expression into a part of the 'system.' That Borland wishes to copy protected expression contained in Lotus's menu tree for what Borland contends is a utilitarian purpose also does not turn that expression into a 'system' [unprotectable] under copyright law." Borland also argued that its use of the phantom menus is permissible, because the menus "do not appear on the screen and are not communicated to the user." The Court dismissed this argument for three reasons: "First, the phantom menus may ... be printed out.... If one accepts the proposition that nonliteral aspects of computer code are copyrightable, the fact that the printed form of what Borland copied is not identical to any Lotus code or is not actually displayed to the user in not material to a finding that the Lotus menu structure contains copyrightable expression. Second, the fact that the phantom menus are not displayed does not mean that the user does not know they are there. Finally, copyright protection has been accorded to forms of computer code that are not generally intelligible to humans." (Citations omitted.) The Court went on to conclude that "what Borland copied into the Key Reader phantom menus is substantially similar to Lotus 1-2-3" and that "the Lotus menu structure, including the first letters of the command names that mark that structure, constitutes a substantial part of the Lotus expression." VII. FAIR USE The Court also rejected all of Borland's other defenses, including one based on "fair use." Borland claimed that use of the 1-2-3 menu structure and the first letters of the 1-2-3 menu commands is a fair use permitted under copyright law. The Court rebuffed Borland's fair use defense by focusing, in substantial part, on the fact that Borland copied from Lotus for commercial purposes. The Court noted that copying for such purposes has previously been found to be "presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright." The Court further remarked, among other things, that, "Borland tries to minimize the impact of having a profit motive on its fair use defense by contending that Key Reader is actually used by consumers and only for interpreting the macros that the consumers have written. The customer's use of the part of Quattro Pro that Borland copied from Lotus, however, does not change the character of __Borland's__ use of the copied materials -- to please consumers and increase sales. To contend that copying is closer to a fair use because customers want the copied materials is entirely without merit." In response to the claim that "permitting Borland to market an 'improved' spreadsheet product while maintaining macro compatibility for users of Lotus 1-2-3 stimulates (Borland's) artistic creativity," the Court held that "Borland is not entitled to rely on the consumer's private use of the program for execution of macros to claim fair use." For these and other reasons, the Court found that Borland's Key Reader infringes Lotus's copyrights. VIII. TROUBLING ISSUES The Court's rulings in this case highlight at least two troubling issues. First, copyright law concerning computer software is being interpreted in opposing fashion by federal courts in Massachusetts and California. If Borland had succeeded in having a district court in California hear the Lotus action, the outcome here may have been in favor of Borland not Lotus. (It is also apparent that had Apple Computer brought its highly-publicized suit against Microsoft and Hewlett-Packard for infringement of the Apple Macintosh graphical user interface in federal court in Massachusetts instead of California, Apple may very well have won its case.) The current state of the law certainly does not lend stability to the U.S. computer software industry, one of the nation's most important and vital industries. Second, the rulings in the Lotus case concerning fair use seem to give excessive consideration to the fact that the alleged infringing product is a commercial product and little consideration to the promotion of learning (a goal of copyright law stated in the U.S. Constitution) and the public welfare. These latter issues may soon be addressed in the Lotus action, as the latest rulings have led computer users to file arguments in the case. Following the August ruling, computer user groups from around the country filed a brief arguing that Borland be allowed to bring an immediate appeal of the Court's rulings. The founder of a small Boston software company, David Pollack, also filed a motion with a federal appeals court requesting that the rulings be reversed on the grounds they violate Pollack's First Amendment rights, by preventing him from using Lotus 1-2-3's macro programming language. Further information concerning the Court's rulings can be found in the following opinions: __Lotus Development Corp. v. Borland Development, Inc.__, Civ. No. 90-11662-K (D. Mass. July 30, 1993 and August 12, 1993). (A copy of these opinions and other information concerning this action were kindly made available to the author by David Hayes, Esq., of Fenwick & West, and Gary Reback, of Wilson, Sonsini, Goodrich & Rosati. Both are located in Palo Alto, California. Mr. Reback represents Borland International, Inc.) CyberLaw (tm) is published solely as an educational service. The author may be contacted at [j r s n r] at [well.sf.ca.us]; [c--er--w] at [aol.com]; questions and comments may be posted on America Online (go to keyword "CYBERLAW"). Copyright (c) 1993 Jonathan Rosenoer; All Rights Reserved. CyberLaw is a trademark of Jonathan Rosenoer. CyberLex (tm) [8/93] Notable legal developments reported in August 1993 include the following: # Nearly 370 IRS employees have been investigated or disciplined for using government computers to create fraudulent tax returns or bro wse taxpayer accounts. (San Jose Mercury News, August 3, 1993, A1.) # Two former police officers in San Jose, California, face sentencing after pleading no contest to felony conspiracy charges involving the sale of confidential "rap sheet" and driver information to a private investigator. Under California law, police officers are allowed to access criminal background information only for official investigat ions. (San Jose Mercury News, August 24, 1993, 1B.) # A federal court ruled unconstitutional a provision of the 1984 Cable Act banning phone companies from providing video services in areas in which they own monopoly phone systems. The decision, based on the First Amendment, would allow telephone companies to establish their own cable systems. (San Jose Mercury News, August 25, 1993, 1A; New York T imes, August 25, 1993, A1.) # AT&T announced that it will acquire McCaw Cellular Communications, the nation's largest cellular telephone company. (New York Times, August 17, 1993, A1.) # The Justice Department's Antitrust Division is launching an investigation into complaints by software companies that Microsoft Corp. used its size, market practices, and product design to thwart competition. The investigation follows the closing of a Federal Trade Commission investigation of Microsoft. (Wa ll Street Journal, August 23, 1993, A3; San Jose Mercury News, August 21, 1993, 8D.) # Microsoft Corp. has sued to block sales of a data compression utility produced by Stac Electronics, because of alleged misappropriation of trade secrets and infringement of Microsoft patents (Wall Street Journal , August 10, 1993, B6.) # A federal appeals court ruled that the Government must save electronic mail and memoranda under the same standards used for paper communications. The case relates to efforts of the Bush Administration to erase computer files containing electronic communications between officials d uring the Reagan Presidency. (New York Times, August 14, 1993, p.1.) # A federal district court judge ruled that elements of Borland's Quattro Pro spreadsheet program infringe copyrights for Lotus's 1-2-3 spreadsheet program, and issued an injunction against Borland -- which allows Borland now to appeal the judge's rulings in the case. (San Jose Mercury News, August 13, 1993, 1C, and August 20, 1993 , 1C; Wall Street Journal , August 13, 1993, B5, and August 20, 1993, C3.) # The International Trade Commission has agreed to investigate complaints by National Semiconductor that Mitsubishi Electric Corp. and Mitsubishi Electronics America violated National's patents concerning the design and manufacture of computer memory chips, including DRAMs, SRAMs, and EPROMs. (San Jose Mercury News, August 28, 1993, 9D) # Intel Corp. and Cyrix Corp. settled their patent dispute over the Cyrix design of math co-processors. Intel will pay Cyrix $500,000 if a decision by a Texas judge is upheld on appeal; Cyrix will pay Intel $2,000,000 if it is overturned. (San Jose Mercury News, August 6, 1993, C3.) # A California judge has removed the Santa Cruz district attorney's office from a prosecution concerning alleged theft of Borland International, Inc. trade secrets by top executives of a competitor, Symantec Corp. According to the court, more than $10,000 of prosecution expenses had been paid by Borland. Independent attorneys state that the payments were not illegal, but gave the appearance of undue influence and impropriety. The California attorney general's office will take 2 weeks to review the case and decide how to proceed. (San Jose Mercury News, August 24, 1993, 7E, and August 25, 1993, 1D.) # The tax bill passed by Congress includes a proposal to auction part of the nation's airwaves. The frequencies, about 340 million hertz of the radio frequency spectrum, will be used for personal c ommunications services. (New York Times, August 9, 1993, C11.) # The Clinton Administration is preparing to ease export restrictions on U.S. computer goods. Ashton Carter, assistant secretary of Defense, said that the United States is talking with its allies about dissolving the Coordinating Committee for Multilateral Export Controls (COCOM), and "replacing it with a smaller, leaner regime." (San Jose Mercury News, August 14, 1993, 1A.) # IBM has filed a lawsuit against Conner Peripherals, Inc., alleging patent infringement related to IBM magnetic disk storage technology. IBM has also asked that certain Conner patents be declared invalid. (New York Times, August 13, 1993, C3; San Jose Mercury News, August 12, 1993, 3E; Wall Street Journal, August 13, 1993, B5.) CyberLex (tm) is published solely as an educational service. Copyright (c) 1993 Jonathan Rosenoer; All Rights Reserved. CyberLex is a trademark of Jonathan Rosenoer. -- ______________________________________________________________________________ Anthony Finkelstein | Email: [ac w f] at [doc.ic.ac.uk] Imperial College, | Phone: +44 71 589-5111 x7535 Department of Computing, | Fax: +44 71 581 8024 180 Queens Gate, | London SW7 2BZ, UK | _____________________________________________________________________________