Economics of intellectual property protection for software

Abstract

AbstractThis paper provides an economic analysis of the proper role of copyright protection forcomputer software. We begin by identifying key economic conditions in the software market.Besides its public good characteristics, software generates network externalities through increasedsales of programs and through production of complementary hardware and software. Assignmentof intellectual property rights should be limited to take full advantage of the efficiencies availablein this market.First, we demonstrate that copyright protection of de facto standards should not be grantedto the original developer of a software package. The monopoly created in the process leads topricing that fails to achieve efficient dissemination of the software and fails to reward othersponsors who have invested in the de facto standard. Next, we argue that software interfacespecifications also should not be copyrightable since it would permit extension of market powerto complementary software and to later improvements. Finally, we favor reverse engineeringfor the purpose of achieving interoperability since it enables firms to efficiently designcompatible programs and to guard against unwarranted abuse of copyright protection.In most instances, recent case law is consistent with these principles. Importantly,copyright law has devised a merger doctrine that denies protection whenever a product is the(nearly) unique expression of uncopyrightable idea, a principle that implements our proscriptionsof software copyrights. Nevertheless, several recent court decisions have retreated from thisposition. Copyright protection should be granted to software programs only when theunwarranted grant of monopoly is de minimis. This prescription achieves a balance between theneed to reward innovative developers of software programs and the need to encourage suppliersof complementary and substituted products to build upon and advance prior work.