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EC Approves “Software Directive” Establishing Principles of Software Protection for Europe

July 1991

The European Council of Ministers has approved the “Software Directive,” which establishes principles of software protection that are to be incorporated into the laws of each member state of the European Community. This is the single most significant development in the law relating to the computer industry since the U.S. revised its copyright laws in the mid-1970’s. The Directive effects some important extensions of principles first enunciated in U.S. copyright law, and also implements an important compromise between competing interests in the area of reverse engineering, stating an EC “industrial policy” of promoting the growth of open systems. The Directive will necessitate changes in the licensing practices of most software companies that sell into the European market.

Unfortunately, the Directive is rife with ambiguities and generalities. As with the U.S. copyright statute, much of the value of the Directive as guidance for software owners and users will have to await both its implementation in the laws of individual countries, and the courts’ interpretation and application to specific fact situations in future litigation. In this article, we will note and analyze the most important provisions of the Directive, and discuss some of the more critical ramifications of these provisions for U.S. companies selling software in Europe.

What is protected and how: The Directive protects “computer programs” and their “preparatory material.” Neither term is defined. The protection is to be accomplished by copyright law. Essentially, the owner of the copyright, or “rightholder,” has control of the reproduction , translation ,arrangement or other alteration of the program, and of distribution to the public of the original or altered version. In line with a recent amendment to the U.S. copyright statute, the Directive forbids rental of a program without the owner’s consent.

What is not protected: “Ideas” and “principles” are specifically excluded from protection. This corresponds to a fundamental principle of U.S. law, which states that copyright protects against the copying of the expression of an idea, not of the idea itself. The Directive states that among the “ideas and principles” that are not protected include those which underlie the program’s “user interface.” This, of course, merely states without solving the fundamental question of “look and feel” protection, as discussed in theLotus case in our last issue: Do the screens, icons, menus and commands that make up a “user interface” rise to the level of expression protected by copyright, or are they only “ideas”?

Fundamental rights of the user: The U.S. copyright statute grants the “owner” of a copy of a software program the inherent right to make additional copies or adaptations for two limited purposes: Where the copy or adaptation is an “essential step” in the utilization of the program on a computer, or when it is for archive purposes. The few courts that have interpreted the “essential step” right have limited it to the right to copy the program into non-permanent memory to run the program. Also, since the right is given only to the “owner” of a copy, it is easily negated by the program owner granting a license, rather than selling “ownership” of the copy.

The Directive gives users broader rights than U.S. copyright law, although how much broader remains to be seen as the Directive is implemented by the various nations and interpreted in the courts. However, a “lawful acquirer” (a term used but not defined in the Directive) of a program has the right to reproduce the program, and to translate , adapt , arrange or otherwise alter it, when these actions are “necessary” for the program’s “intended purpose.” The Directive states that “error correction” is one of the “intended purposes” of a program.

The Directive also gives rightful users the inherent right to make necessary backup copies. In contrast to U.S. copyright law, which implicitly permits copyright owners to license programs to users and restrict their back-up rights, the Directive makes unenforceable such a restriction in a license agreement, where the back-up in “necessary.”

The “person having the right to use” the program has another inherent right:The Directive refers to (but does not define), a class of users described as persons “having the right to use” a program. This class of users can observe, study or test the functioning of the program in order to determine its underlying “ideas and principles.” However, this right only applies if it is exercised while loading, displaying, running, transmitting or storing the program, and only if the person is entitled to perform the function in question. Of course, as pointed out earlier, the “ideas and principles” are not protectible in any case. In this, the Directive appears to comport with U.S. copyright law, allowing reverse engineering of a program that stops short of derivation of the actual source code. What is not clear from the Directive is whether the copying is lawful if the only reason for a particular “loading” or “running” is to accomplish the determination of the program’s “ideas.”

Decompilation or “Reverse Engineering”: The greatest interest in the Directive was generated by its treatment of reverse engineering, or more specifically, the right of a user to derive the source code of a licensed program. Here, two important trends intersected: the legal system’s developing protection of aspects of computer programs other than actual code, and the industry’s surge towards interoperable or “open” systems. Although the lobbying efforts for and against a liberal right of reverse engineering were often described as a split between the “American” (IBM, DEC) and Japanese points of view, a significant role was played by “CUE,” or Computer Users of Europe.

The Directive allows the reproduction and translation of the form of program code, without the consent of the owner, only for the purpose of achieving the interoperability of the program with some other program, and only if this reverse engineering is indispensable for this purpose. It follows, then, that if the permitted derivation of “ideas and principles” discussed above is sufficient to achieve the interoperability, the derivation of specific code is not permitted.

Because of the obviously sensitive nature of any authorization to reverse engineer proprietary software, the right is very restricted. It may not be exercised to develop a program that infringes the copyright of the original. Furthermore, the Directive states the overall principle that the permitted reverse engineering may not be interpreted so as to “unreasonably prejudice” the program owner’s “legitimate interests” or conflict with the program’s “normal exploitation.”

No doubt, the committee’s intent was to invalidate contract clauses prohibiting reverse engineering that is permitted by the Directive. However, it is interesting to note that unlike the case with back-up copies, the Directive does not expressly forbid such clauses. This is yet another area of ambiguity that will no doubt be the subject of much future litigation.

TLB Comment : While the Directive will eventually bring greater uniformity in the legal protection of software in Europe, many license terms and restrictions now commonly used will become unenforceable or suspect. for the next several years, United States software companies will need to periodically review their standard contract forms for compliance with the Directive and changes in the laws of each EC country in which they operate, in order to maintain effective license agreements and proprietary protection.