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IBM-Fujitsu Order Exposes Morass of Software Copyright Law

September 19, 1987

NEW YORK (AP) _ Two computer giants submitted to a dictated peace this past week in a landmark case that highlighted the turmoil over copyright laws governing computer programs.

A pair of arbitrators announced an order giving themselves sweeping powers to regulate relations between International Business Machines Corp. and Japan’s Fujitsu Ltd. - the world’s largest and fourth largest computer makers, respectively.

The arbitrators did something the courts could not do. They not only terminated a dispute over IBM allegations that Fujitsu illegally copied its software, but established a detailed mechanism to prevent future conflicts for a period of five to 10 years.

The decisive action announced Tuesday contrasted conspicuously with the legal morass that has enveloped the field of computer software copyrights.

Copyrights are supposed to protect and encourage innovation, but some computer innovators say uncertainty over what can be copyrighted and the threat of endless litigation are actually doing the opposite.

Often, software disputes pit companies that have well-established products against companies that are trying to seize a piece of the business by making products that are similar but cheaper or with extra features.

Each party typically claims that it alone is on the side of progress and innovation.

The danger of prolonged confusion over copyrights is that cautious computer companies might choose the safe course and stand pat, a course that would ultimately ruin one of the few industries in which the United States remains clearly No. 1 in the world.

Copyright cases dragging through the courts include a landmark computer chip dispute between Intel Corp. and Japan’s NEC Corp. and three cases over the ″look and feel″ of Lotus Development Corp.’s best-selling 1-2-3 spreadsheet program.

Although the arbitration order contains some bad news for both IBM and Fujitsu, it has the merit of letting the companies know exactly where they stand with each other.

Fujitsu will pay IBM a lump sum for a paid-up license to use the operating systems that control IBM’s mainframe computers and will be given access for a fee to the programming information that will allow it to make functional equivalents of future IBM operating systems.

The order guarantees that Fujitsu will be able to continue as a competitor to IBM, the dominant force in the $20 billion-a-year worldwide business of mainframe computers.

Some lawyers think the IBM-Fujitsu order will encourage other companies to set up arrangements to avoid copyright entanglements.

In fact, that has already begun to happen. Many companies that are working on products designed to be compatible with those of an industry leader - such as clones of the IBM personal computer - have the work done in a ″clean room.″

The clean room is a work area staffed only by people who are supposed to have no familiarity with the inner workings of the product they are mimicking and thus cannot be accused of illegal copying.

The IBM-Fujitsu case is a twist because it creates what is, in effect, a ″dirty room.″ Fujitsu engineers will be allowed to look at all of IBM’s programming code for its operating systems, but the arbitrators will control how much of it they can carry out the door.

Copyright lawyers tend to say the system is working as is.

Courts are gradually managing to clarify the areas of software copyrights that were left vague by the 1976 copyright law, argues Robert Morgan of Fish & Neave, a New York law firm specializing in intellectual property.

Others are not so sure.

″I have some questions about whether the courts will ever be conversant enough with the technology to make me comfortable with the judge or the juries making the decision,″ said Michael Scott, director of the non-profit Center for Computer Law in Los Angeles.

In many cases, companies that are accused of copying use the argument that the product they mimic is so established that it has become a standard that in effect belongs to everybody.

″Users of computer products are no different than users of every other product. We all know where the clutch is on a car. We love the fact that we’re standardized on 33 rpm records and standard film cartridges,″ said Kenneth Wasch, executive director of the Washington-based Software Publishers Association.

But Thomas Lemberg, general counsel of Lotus, takes the other side in arguing that other companies should not be allowed to use the same screen display and commands as Lotus 1-2-3.

″What’s so innovative about copying 1-2-3? The innovation comes in creating a better mousetrap, not in copying my mousetrap,″ he said.

In economic news this past week, the government said:

-The nation’s gross national product grew at a 2.5 percent annual rate during the April-June quarter, faster than a previous estimate.

-After-tax corporate profits climbed 4.3 percent in the April-June quarter, the best showing since last fall.

-The deficit in the U.S. current account, the broadest measure of international transactions, widened to a record $41.1 billion in the April- June quarter.

-Business inventories rose 0.2 percent in July as total business sales remained essentially unchanged.

-Housing construction edged down 1.5 percent in August as rising mortgage rates continued to dampen demand for new homes.

-Retail sales climbed 1.3 percent in August, the biggest increase in six months.

-The nation’s factories, mines and utilities operated at 81 percent of capacity in August, and output at U.S. factories, mines and utilities rose 0.3 percent during the month.

-The nation’s commercial banks suffered their worst quarter in more than 50 years in the second quarter, adding $21.2 billion to reserves for bad loans, which caused a $10.6 billion loss.

In other business and economic developments:

-The House approved a bill putting tighter limits on imports of textiles, apparel and shoes, but the measure fell short of the two-thirds majority required to override an expected presidential veto.

-The American Petroleum Institute said domestic crude oil production continued its downward spiral in August, while the nation’s dependence on imported oil increased.

-Sales of U.S.-made cars were down 48.2 percent to 266,192 vehicles during the Sept. 1-10 period, automakers said.

-Ford Motor Co. and the United Auto Workers agreed on a precedent-setting contract guaranteeing the jobs of most of Ford’s 104,000 UAW workers in return for the support of union leaders for more flexible work rules. The agreement still must be approved by the rank and file.

-Thousands of Chrysler Corp. workers in the United States were forced to stay home after about 10,000 Canadian counterparts went on strike, but the Canadian union reached a tentative accord.

-Honda Motor Co. said it will spend $561 million to expand its U.S. operations and also plans to increase the U.S.-built content of its cars.

-Dart Group Corp. proposed to buy Dayton Hudson Corp., one of the country’s largest retailers, in a deal that could be worth $6.3 billion in cash and stock.

-G. Heileman Brewing Co. recommended to its shareholders that they reject a $1.01 billion buyout offer from Australian Alan Bond, as Wisconsin’s governor signed anti-takeover legislation into law that may help the company control its destiny.

-Brockway Inc. agreed to be acquired by Owens-Illinois Inc. for $744 million, in a merger that would increase the privately held Owens-Illinois’ leadership in the glass container industry.

-Marine Midland Banks Inc. accepted Hongkong and Shanghai Banking Corp.’s sweetened $756 million bid to buy the 48 percent of Marine Midland it did not already own.

-Sara Lee Corp. said it was negotiating to buy a food and consumer products unit from Akzo NV of the Netherlands for $600 million and also said it would sell its Electrolux division to managers for an undisclosed sum.

-Shamrock Holdings Inc. agreed to sell its Central Soya Co. Inc. agricultural business to Ferruzzi Agricola Finanziario of Italy for a $125 million profit.

-Times Mirror Co. said it sold the Denver Post to MediaNews Group for $95 million, which a week earlier acquired the Houston Post.

-CBS Inc. said Sony Corp. again had expressed interest in buying the CBS Records group, the second time in a week CBS has disclosed an overture by Sony.

-Equiticorp Holdings Ltd. of New Zealand said it sweetened its hostile buyout offer for Guinness Peat Group PLC of Britain to about $582 million and said it had purchased an additional 11.9 million Guinness Peat shares.

-Chemical New York Corp., the nation’s fourth largest bank holding company, said it would cut its work force by about 10 percent and sell non-strategic businesses.

-R.J. Reynolds Tobacco Co. introduced a nearly smokeless cigarette that may be test-marketed next year.

-Beryl W. Sprinkel, chairman of the president’s Council of Economic Advisers, said he will leave his post in November to return to the private sector.

End Adv Weekend Editions Sept. 19-20

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