Matching Software Protection to the Competition

by Michael A. Lechter

Illegal copying poses a constant problem for all software companies, and it comes in many forms. The illegal copiers include not only conventional software pirates and internal copiers, but also more sophisticated copiers and reverse engineers who try to duplicate others’ ideas and techniques.

Fortunately, software companies have four legal tools to combat such copiers: trade secrets, copyrights, patents and trademarks. Each has its strengths and weaknesses and should be applied as part of an overall strategy.

The Software Pirate and the Internal Copier

The software pirate, who copies software and sells it as the original, presents the most visible threat to mass distribution software companies. Like the pirate, the internal copier typically obtains one legal version of the software and makes multiple copies. Instead of marketing them, however, the internal copier gives them to co-workers or friends.

Copyright and trademark laws provide simple and reasonably effective protection against both software pirates and internal copiers. Copyrights secure the owners' exclusive rights to make copies of software. To prevail in court, an owner simply must show ownership of a valid copyright and demonstrate copying by an infringer. Proof of copying is readily available because the illegal version is usually an exact copy of the original.

A software company's trademarks may also provide protection. Anything that designates the source of the software may be a trademark. This includes names, words, logos, and the like, as well as unique visual aspects, such as icons. Trademark protection is useful against pirates selling copied software under the original trademark, regardless of whether the unauthorized version is identical to the original. To prevail, the owner must prove that the mark used by the counterfeiter is likely to cause confusion among consumers about source, affiliation, or sponsorship. Again, this can usually be proven easily, since software pirates typically market nearly identical products under identical marks. In fact, trademark statutes in at least one state (Arizona) create a presumption of confusion if a registered mark is included in an unauthorized copy of software.

The Sophisticated Copier and the Reverse Engineer

Protecting software from sophisticated copiers and reverse engineers is more complex. Unlike pirates or internal copiers, sophisticated copiers do not merely make unauthorized copies of software; they modify the software and attempt to disguise its copying, and then market the result as a competitive product. Reverse engineers use publicly available information, such as publications and the software itself, to create a competitive product.

Trademark protection is typically ineffective against sophisticated copiers and reverse engineers, since they usually market their software under a different name. However, use of screen layouts and particular icons may sometimes support a trademark infringement case. Copyright protection, while still applicable, is considerably less effective in these cases. Copying original software outright is prohibited, but significant doubt remains about whether non-literal aspects of a program are protected under the copyright laws. A copyright protects only the expression of the idea, not the idea itself. As a result, sophisticated copiers can use the ideas — and often even the structure — of a competitor’s software, as long as they do not copy the code itself. And since reverse engineers only copy the underlying concepts but never the code, copyright protection is ineffective.

Trade Secrets and Patents

Trade secret protection may provide relief from sophisticated copiers, however. While the law varies from state to state, trade secrets generally comprise any knowledge or information that provides a competitive advantage and is not readily available from public information or through other proper means. For software, trade secret protection may exist both for aspects of a program that are not available through public information or from aspects that are available to the public. To maintain trade secret status, an obligation of confidentiality (e.g., precluding decompilation or analysis of the software or disclosing software-related materials to others) must be imposed on each person who has access to the software. This obligation is typically imposed through signed confidentiality or license agreements.

The primary drawback of trade secrets is their fragility. In the absence of an agreement, trade secret laws do not prohibit the sophisticated copier from dissecting a legally obtained copy of the software to establish how it works, and then copying the underlying concepts and secrets. Unfortunately, sophisticated copiers and reverse engineers seldom operate under confidentiality agreements. 

The obligation of confidentiality requirement also gives trade secret protection dubious applicability to mass-marketed software products. Attempts have been made to impose an obligation of confidentiality through so-called "shrink-wrap" or "box-top" licenses, but the legal efficacy of such devices is questionable.

Patents, on the other hand, provide excellent protection, giving the owner the right to prevent anyone from using, making, or selling the patented software without the owner's authorization. This powerful tool protects against independent development by competitors, reverse engineering and simple copying.

However, patents on software inventions can be expensive and take time to obtain. It typically takes a patent application at least a year — and often longer — to make its way through the Patent and Trademark Office. Further, the patent laws require full disclosure of the details of the inventive concept, and many companies are loathe to disclose their technology to the public and their competitors. In any event, for full protection of software, a patent is the only completely effective method of maintaining control over the concepts and techniques.

For a mass-distribution software company wrestling with the sophisticated copier and reverse engineer, the only practical legal option is to patent the aspects it wants to protect. If the patent covers the most commercially important features, a reverse engineer or copier must design a new way to achieve those features or infringe the patent. Either way, the software company retains the advantage. Although the delays and costs associated with patents limit their practicability for some software, patents represent the best — and sometimes only — prospect for protecting truly novel and valuable software concepts.

Like other areas of business, greater protection for software requires greater effort, expense and time. Against basic copiers, software companies can secure sufficient protection using copyrights and trademarks. If more sophisticated copiers threaten the company's intellectual property, however, the software company must acquire patents or protect its trade secrets effectively, in order to secure its rights.

Michael A. Lechter, Esq. is an international intellectual property expert who consults on complex litigation related to patents, trade secrets, copyrights, licensing, trademarks and technology issues. He is counsel to the international law firm Squire, Sanders & Dempsey, LLP., and is best-selling author of “Protecting Your #1 Asset: Creating Fortunes from Your Ideas” (click here to go to Today’s Engineer book review). You can contact him at www.mlechter.com.