WTO: Impact on IT Sector
by Justice Yatindra Singh
Cite as : (2003) PL WebJour 9
It was around the middle of the last century (1945), Germany was losing, and World War II was coming to an end, that some economists held a conference in Breton Woods, Hampshire, USA to improve economic order. They thought the world would be a better place if there were three international bodies, namely,
(i) to solve monetary/currency problems,
(ii) for reconstruction and development of nations, and
(iii) to harmonise tariffs and international trade.
The first and the second were established and are loosely known as the International Monetary Fund (IMF) and the World Bank, but the third one to be known as the International Trade Organisation (ITO) never took off. US Congress did not approve it and without their support it was not possible to establish it. But all was not lost; representatives of 56 countries again met in Havana (1948) to formulate principles to be followed by nations to improve international trade. This formed the basis for signing up a General Agreement on Tariff and Trade (GATT) in Geneva by the end of the same year. The contracting nations also resolved to form a Board of Trade with a Secretary General to look after its further revision and implementation; thus ended the first round of GATT. Legally, GATT was not a formal organisation, but an agreement entered into by contracting nations.
Broadly, GATT dealt with reducing tariffs and improving trade among the nations, though there wasn't any dispute settlement mechanism. A few more rounds were held and it was the eighth round (started in 1986 with the meeting in Uruguay) that led to creation of the World Trade Organisation (WTO). It was in this round that US sought inclusion of a few other items, among others,
Trade related to intellectual property rights.
Trade related to investment measures.
Trade related to service.
Dispute settlement mechanism.
The eighth round continued for seven-and-a-half years and it often appeared that agreement would not be reached. But ultimately a draft of proposals was prepared under Secretary General Mr Arthur Dunkel and came to be known as Dunkel Draft. It was debated and most of it was approved in December 1994 by 125 countries in the meeting held in Marrakech (Morocco). Among the others it meant,
Establishment of WTO, trade policy review body and dispute settlement body, and
Accepting the agreements forming the basis for international trade.
Thus WTO came into existence on 1-1-1995.
All the WTO agreements (except for a few plurilateral agreements) apply to all WTO members i.e. a member has to accept all of them; it cannot choose. These agreements provide with certain minimum standards to be observed by members and keep trade policies of the members within agreed limits. Among the other agreements, two are:
(i) General Agreement on Trade in Services (GATS).
(ii) Agreement on Trade Related Aspect of Intellectual Property Rights (TRIPS).
Information technology depends upon hardware and software and it provides services relating to information. Any changes in these areas would have impact on IT sector:
(i) In 1996 some member countries of WTO also entered into Information Technology Agreement to reduce tariffs to zero on items related to information technology. India is also one of the signatories to Information Technology Agreement and is to reduce tariffs on it by 2005. This will affect the hardware sector.
(ii) GATS relates to services; much is to be done in this area. This will have impact on IT sector, as services are its main forte.
(iii) The third aspect relates to intellectual property rights (IPR) and is covered by TRIPS.
We will discuss the third aspect in some detail.
Intellectual property rights (IPR)
"What is worth copying is prima facie worth protecting"1 is the genesis for the intellectual property rights. These rights refer to the property that is a creation of the mind. It is broadly divided into two categories:
Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, drawings, paintings, photographs, sculptures and architectural designs.
Industrial property, which includes inventions (patents), trademarks, industrial designs and geographic indications of source.
In India intellectual property is protected under five different Acts, namely,
The Copyright Act, 1957;
The Patents Act, 1970;
The Trade Marks Act, 1999;
The Design Act, 1911; and
The Geographical Indications of Goods (Registration and Protection) Act, 1999.
One more Act titled "The Biological Diversity Bill, 2000" is in the pipeline. There is another area of intellectual property known as "trade secret" but as the name suggests, it is a secret formula or process known to certain individuals that is not registered under any intellectual property law. It does not prohibit anyone else to find it out or develop it who did not know the secret. Nevertheless an employee who has gained knowledge may be prohibited in using it on the ground of breach of confidence, or trust. This is still a part of common law and is so protected under Section 16 of the Copyright Act. It is also so provided in Article 39 of TRIPS. Among different areas of intellectual property two, namely, copyright and patents have impact on software industry.
Computer Program and Copyright
Source code and object code
Computers do not understand our language. They only understand "machine language" or "machine code" i.e. instructions which consist of a series of 0s and 1s. A suitably trained or skilled programmer can write a program in machine code for a computer. But the process is slow and tedious and the program, although intelligible to the computer, will be virtually unintelligible to anyone except an equally skilled programmer. From the early days of computers, an alternative language for writing programs, known as "assembler language", was devised. While assembler language had advantages over writing a programme in machine code, it still required many instructions to be written in order to achieve the simplest tasks. A number of high-level languages such as BASIC, Fortran, COBOL, Pascal etc. have been devised in order to simplify the work of a programmer. The use of these high-level languages enables a programmer to write a program in terms, which nearly resembles ordinary English than those used in lower-level languages. They also permit complex operations for the computer to be directed by a relatively compact command. The programs as written by a programmer are known as the source code. When an assembler or a compiler converts them into machine code, they are known as the object code. This conversion is one-way. It is not possible to convert object code into source code.
The question, whether source code and object code both are protected by copyrights or not, has troubled the courts and has been differently answered by them. The Australian High Court in 1986 held that the source code is a literary work and is protected as a copyright. But no such protection was given to the object code. The majority held2:
"I have not found anything ... that has persuaded me that (the object code) a sequence of electrical impulses in a silicon chip not capable itself of communicating anything directly to a human recipient, and designed only to operate a computer, is itself a literary work, or is the translation of a literary work within the Copyright Act."
Amendments in the Copyright Act
The Berne Convention, 1986 (for protection of literary and artistic works) provided that computer software (object code and source code) and compilation of data be protected under the Copyright Acts. TRIPS has proceeded from the Berne Convention and Article 10 of TRIPS requires members to amend the laws accordingly. Since then, we have amended the Copyright Act by two amending Acts, namely, Act 38 of 1994 and Act 49 of 1999. These amending Acts amended Section 2(o) of the Copyright Act to change the definition of the words "literary work". It now includes computer programme as well as computer database. The result is that not only the computer programs (subject code as well as object code) are protected but computer database is also protected as a copyright. In India infringement of a copyright is a penal offence and civil remedies (injunction, damages etc.) are also available (TRIPS Articles 41 to 50, 61). By the two amending Acts consequential amendments were also made in other sections to make enforcement more realistic.
Article 11 of TRIPS mandates members to provide authors with right to authorise or to prohibit commercial rental of at least computer programs and cinematographic works. This has also been so provided under Section 14(b) of the Copyright Act.
Some are using copyrights so that no one may have any rights in software; they copyleft it. In open-source software or free software, source code and object code are freely available to be used, modified and improved. In order to copyleft it, the owner first states that it is copyrighted and then adds distribution term that gives everyone the right to use, modify and redistribute (original or modified programme) only if the distribution terms are unchanged: modified version (source code and object code) are freely available and could be further modified and distributed only on the same terms. Not all open-source software is copylefted; it could be non-copylefted. This depends on the terms of the licence of the software. There are different kinds of licences. General Public Licence (GPL) contains a condition that copylefts software. Such software, under GPL licence, is also known as GPLed software.
Business Methods, Computer Programs and Patent
Patent rights are stronger rights than copyrights and like copyright laws, differ from country to country. Article 27 of TRIPS, read along with the footnote, provides that patents may be granted for inventions (process or end product) that are new and useful: they should not be obvious or frivolous. Laws of member countries are similar. If a patent is for a process for a known result then any other person may take out patent for another process for arriving at the same result. But if it is for the end result and describes a process then the patent is entitled to protection against other processes for arriving at the same result. In India, unlike copyright, only civil remedies of injunction and damages are available for infringement of a patent. TRIPS mandates members to provide criminal procedures and penalties in case of wilful trademark counterfeiting or copyright piracy on commercial scale but not for violation of patents (Article 61).
Section 3 of the Indian Patents Act explains those that are not inventions. There is no such limitation in the US law as the Congress intended to include anything under the sun that is made by man but the US Supreme Court in Diamond v. Chakarbarty3 held:
"This is not to suggest that ... law has no limits or that it embraces every discovery. The laws of nature, physical phenomena, and abstract ideas have been held not patentable. Thus a new mineral discovered in the earth or a new plant found in the wild is not patentable subject-matter. Likewise, Einstein could not patent his celebrated law that E=mc2; nor could Newton have patented the law of gravity. Such discoveries are manifestation of nature free to all men and reserved exclusively to none."
The US Supreme Court in Parkar v. Flook4 also held that a method for updating alarm limits during catalytic conversion, which is a mathematical formula, is not patentable.
The Patents Act in India or in US neither specifically refers to programs for computers nor to the business methods. The US Supreme Court in Gottschalk v. Benson5 held that a method for programming any type of general purpose digital computer to convert binary-coded decimal numerals into pure binary numeralsnot being limited to any art or technology or to any particular machinery or to a particular end useis not a process, capable of being patented: algorithm itself can not be patented. The result is that computer software may not be patented in its own right but what would be the position if it were a part of an industrial or business process?
Diamond v. Diehr6 (the Diehr case) was a case involving a process for curing rubber that included a computer program.7 The court by a 5:4 decision held that a patentable claim does not become unpatentable merely because it uses a mathematical formula, computer program or a computer. In short, a computer program may not be patentable as such but may be patentable as a part of an industrial process.
Traditionally, the only kinds of processes that could be patented were those concerned with technology. Many other activities including business methods or data analysis which one would consider processes were excluded from patents. But since the Diehr case there has been a shift in US. US Patent and Trade Office (USPTO) has issued Manual of Patent Examining Procedures containing guidelines for patenting inventions. Its earlier policy for computer-related inventions para 706.03(a) was as follows8:
"Though seemingly within the category of process or method, a method of doing business can be rejected as not being within the statutory clauses."
This was deleted and a new paragraph para 706.03(a) was added:
"Office personnel have had difficulty in properly treating claims directed to methods of doing business. Claims should not be categorized as methods of doing business. Instead such claims should be treated like any other process claims."
This was noticed by the Court of Appeals in US in State Street Bank v. Signature Financial Group (the State Street case)9 and the Court held that:
"Whether the claims are (patentable or not) should not turn on whether the claimed subject-matter does 'business' instead of something else."
The Court also held that:
"To be patentable an algorithm must be applied in a 'useful' way. ... We hold that the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces a useful, concrete and tangible result."
In short, the law in US is that, "an abstract idea by itself never satisfies the requirements of patent law. However, an abstract idea when practically applied to produce a useful, concrete and tangible result satisfies it". Today, USPTO has one chapter on patent business methods and is granting patents to software techniques for business methods and data analysis if they are useful. Australia and Japan have also followed suit. Some examples of patents of business methods are: single click to order goods in an online transaction; an online system of accounting; online rewards incentive system; online frequent buyer program; and programs letting customers setting their own prices for hotel bookings etc.
The European Patent Convention, 1973 specifically states that "schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers" will not be regarded as inventions Article 52(2)(c). This is also the law of member countries of the European Patent Convention and computer programs and business methods cannot be patented there. However, in practice, the approach has changed. The applications for patents are now considered if presented as producing technical effects (i.e. programme for speeding up image enhancement) rather than as claiming abstract programs or business methods.
The European Commission in February 2002 unveiled a new approach to software patents, which may draw US criticism, as it would set tougher criteria in Europe for granting of a patent. The proposal, which aims to standardise a variety of software patent rules across the fifteen-member EC bloc, requires that software contain new ideas to qualify for patent protection. In addition, patents would apply only to software loaded on a machine or connected to an operating system. It is different than US patent rules, which permit patents for software independent of machines and which do not necessarily require innovation. These proposals have yet to be approved by European Parliament and EC member States.
The law whether computer programs are patentable per se or in conjunction of business methods is still in a flux. In US "the Business Method Patent Improvement Act of 2000"10 was introduced in the Congress on 3-10-2000 and would apply to all pending applications as well as to all patents issued. It will restrict the ability of USPTO to issue business method patents and among others would create a presumption of obviousness where a computer has been used primarily to implement a known business method. It is not yet passed and many feel that it may never be passed. Perhaps this could be one of the points of discussion in WTO.
In 1999, Michael Lewis wrote a book on the success story of the Silicon Valley entitled The New New Thing: a Silicon Valley Story. The most quoted line from this book is: "The definitive smell inside a Silicon Valley start-up was of curry." Let's hopewith better understanding of WTO and its impact on IT sectornot only inside a Silicon Valley start-up but also the operating system of e-commerce will smell of curry.
- Paterson, J. in University of London v. University Tutorial Press Ltd., (1916) 2 Ch 601.
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- Gibbs, J. in Computer Edge Pty. Ltd. v. Apple Computer Inc., (1986) 161 CLR 171. Full text is also available in database of judgments of the High Court of Australia at http://www.hcourt.gov.au/
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- 447 US 303 : 65 L Ed 2d 144
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- 437 US 584 : 57 L Ed 2d 451
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- 409 US 63 : 34 L Ed 2d 273
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- 450 US 175 : 67 L Ed 2d 155
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- Rubber in a mould is to be heated for a given time according to the equation (Arrhenius equation) named after its discoverer Svante Arrhenius. The inventor had found a process for constantly measuring temperature inside the mould, which was fed to a computer that opened the mould at the right time.
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- See Hotel Security Checking Co. v. Lorraine Co., 160 F 467 (2nd Cir. 1908) and In re, Wait, 24 USPQ 88, 22 CCPA 822 (1934).
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- 149 F 3d 1352. Text is also available at http://www.ll.georgetown.edu/Fed-Ct/Circuit/fed/opinions/97-1327.html
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- The text of the bill is available at
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