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Seminar Paper on Business Ethics Contributors: Gautam Choudhary, Roll No. 25 Pratap Kulhari, Roll No. 50

Software Patent and Copyright Failures: Business Ethics Case

Business ethics is a very broad term and widely used throughout the world. The term business ethics first started to be used in the United States in the early 1970s as businesses were growing bigger and more powerful. Business ethics are guidelines or behaviours that businesses and individuals use daily to deal with the world, and even smaller situations they might find themselves in. Race, gender, age and religion all play a role in a persons ethics. This paper considers some of the ethical issues that arise in the practice of software Patent and Copyright Failures.

ethics: A system of moral standards or values. A particular moral standard or value ethical: having to do with ethics or morality; of or confirming to moral standard Software patent: software patent is a "patent on any performance of a computer realised by means of a computer program".

When a company decides to execute a strategic decision, the decision will concern its stakeholders, either through the making of the decision itself or through implementation of the decision. Although strategic decisions are generally made "to attain superior performance" (Hill, Charles) improving the welfare of the internal stakeholders, the attainment of this goal may cause the entity to disregard their notion of right and wrong moral principles in order to achieve that goal. Software patents have been controversial for decades, as scholars and policymakers debate whether the incentive for creation they provide is enough to justify the limits they place on competitors. But for better or worse, they play an increasingly important role in allocating competitive control over important innovations. The task of business ethics is to make sure business decisions encompass an ethical element, and to make sure that managers take ethical implications of strategic decisions into account before choosing a line of action When determining whether a business decision is ethical, three models can be used in the classification process. Briefly summarised the three models can be seen to be: 1. Utilitarian Model an ethical decision is one that results in the greatest happiness for the greatest number of stakeholders. 2. Morals Rights Model an ethical decision is one that best maintains and protects the rights and civil liberties of stakeholders. 3. Justice Model an ethical decision is one that allocates benefits and harm among stakeholders fairly and equitable.


Copyrights and patents are used to protect a certain expressions of ideas and processes. These laws are intended to protect the inventor(s). But how useful are they? What is the computer industries track record in protecting inventions? What are we doing discussing ethics anyway? This paper will present a series of case studies which will illustrate how copyrights and patents have failed to protect inventors. After that discussion, the paper will examine whether there is an ethical view which could justify the failure of the patent and copyright laws.

Intellectual property laws have been around for some time. Inventors and creators had been and are still relying on copyright and patent laws to protect their inventions. The question naturally arises: why are they protecting their inventions and creations? There are a number of reasons. First of all, the majority of inventors feel that after spending sometimes years of hard work inventing a solution to a particular problem, they ought to get some benefit, recognition, or reward from society. In my opinion, these days many inventors are not from the upper class rich politicians as was the case up to about 100 years ago. Therefore, owning and trading intellectual property can be a means of survival for a person, an organization, and a country. More importantly, it allows an individual to negotiate with a large company. The laws can protect the small against the big. Intellectual property laws dont always protect a single person. They can protect a company or many companies. A company can dedicate some employees to invent a certain component of a system and patent it or copyright it. This may protect the company in a variety of ways, one of which is that another company cannot hire away engineers and have them re-develop that same component. Another motivation for intellectual property laws is to showcase that if you work hard, invent something useful, or solve a significant problem, you will be rewarded. This gives incentive for others to be productive, contribute, and invent. There is a lot of controversy whether the concept of patents and copyrights are applicable to the digital age, by offering the protection of software. This paper argues that software is different and cannot be protected by copyrights or patents. It presents a series of case studies that demonstrate that these laws have failed to protect inventors. It also demonstrates that in the computer world, inventions are a seemingly insignificant step in getting any rewards or benefits. One inherent weakness in intellectual property laws is that they protect the expression of an idea, but not the idea itself. As history has shown, in software, this limitation, however ethical it may be, is close to useless in protecting the inventor. There are only so many basic inventions in software. The most notable ones are word processors, spreadsheets, databases, and the graphical user interface (GUI). This means that if you invent the first spreadsheet, the UI may be copyrighted and the particular implementation of the functions behind it can be protected. But, this does very little in protecting you against some other guys writing a spreadsheet which is more user friendly, calculates faster, and provides more functions, even though you were the inventor of the spreadsheet. There are only so many general purpose software programs. The rest of computer software is specialized, developed for a particular purpose, to solve a specific problem. These specific software solutions may rely on the general purpose solutions, but refine them. By refining them they become specific applications targeting a specific set of users with a specific set of problems. More importantly, the number of these specific purpose applications is growing, and the number of inventors growing. Lets look at some case studies where intellectual property rights seemed to have been ignored.

Case Study 1 Lets take a look at Microsoft for example. In 1973, Gary Kildall wrote a very simple operating system called CP/M (Control Program/Monitor). Seattle Computer Products (SCP) needed an operating system which runs on an 8086-based computer. Because of delays at Digital Research in shipping the product, Tim Patterson decided to write an operating system for this purpose. To do this work, Tim Patterson bought a copy of CP/M and used its manual as the foundation for his new operating system. This operating system was called QDOS for Quick and Dirty Operating System. Shortly after a demo of the operating system to Microsoft, Paul Allen from Microsoft, asked SCP for the rights to sell SCP to an unidentified client. The unidentified client was IBM who had tried to buy CP/M previously from Mrs. Kildall who refused to sign IBMs non-disclosure agreement. Microsoft bought the license for QDOS for $50,000. Bill Gates then negotiated the deal with IBM to let Microsoft keep the rights for QDOS and be able to market this operating system separately from the IBM PC project. Tim Patterson quit working for SCP and joined Microsoft. In summary, Gary Kildall wrote the first reasonable operating system. Tim Patterson at SCP wrote QDOS by reverse engineering Gary Kildalls CP/M based on its user manual. Paul Allen negotiated the acquisition of QDOS from SCP and Bill Gates negotiated the deal with IBM. Gary Kildall and Tim Patterson got paid their regular salaries for writing operating systems. Bill Gates and Paul Allen became the worlds richest people negotiating for settlements world-wide because of accusations for monopolistic practices. But, we have all of these legal intellectual property rights, how could this have happened? Lets pretend for a moment that all of these laws did not exist. How ethical is it of Microsoft to make a fortune on somebody elses invention which is a pattern that repeated itself over and over again in history? One can only wonder, but we will evaluate this in a later section. Case Study 2 As mentioned before, there are a limited number of general purpose applications that are universally useful on the computer. One of these applications as mentioned before is the spreadsheet. The idea for the spreadsheet software application was conceived by Dan Bricklin at Harvard Business School. He went on to develop VisiCalc, which sold over 1 million copies in its lifetime. Visicalc was acquired by Lotus which proceeded to set the new standard for spreadsheet applications in the software world. Lotus was later acquired by IBM

because of the spreadsheet. Mitch Kapor, CEO of Lotus, still feels guilty about having all of the money that he made on the sale because to him, this just was not right. Visicalc was never patented. The Lotus GUI however was copyrighted. Lotus and Borland ran into legal problems when Quattro Pro, Borlands spreadsheet product, copied most of Lotus functionality, menus, buttons, and commands. During the legal dispute between Lotus and Borland, Microsoft was developing and shipping Microsoft Excel their version of the spreadsheet which has an 86% market share. Recap: Dan Bricklin invents the idea of a spreadsheet and implements it. This is bought and improved upon by Lotus. Quattro Pro copies the patented Lotus user interface, and during the legal fallout, Microsoft captures the spreadsheet market. Again, there is an ethical dilemma. The copyright laws did not protect the inventor. In fact, while two companies were directing their resources to protecting themselves under the copyright laws, another software company seized the opportunity and took over the market. This was another example of how little protection the copyright laws offered.

Case Study 3 To complete our case studies, lets look at how IBM lost the PC market. Lets start with some technical details. In order to make a generic operating system work with custom hardware it needs to communicate with the BIOS. The BIOS was the crucial link between hardware and the software to make it work. If you can talk to the BIOS, you can replace any part of the computer as long as they know how to talk to the BIOS. IBM of course knew this and they needed the one trick that would keep others from being able to produce IBM compatible PCs. Since the IBM PC was based on commonly available parts, the only thing they could protect was the BIOS. The trick they played was that they copyrighted the entire source code of the BIOS. So, now anybody who wrote their own BIOS had to prove that they were not familiar with the IBM BIOS code. To hinder this effort, IBM made the BIOS code freely available and printed it on every manual. This made the task even more difficult. Anybody writing a BIOS could not look at IBMs code which was really hard to do, since it was printed everywhere. Welcome to reverse engineering. The way Compaq got around this was by recruiting a group of engineers who have never been exposed to the IBM code and start fiddling with the inputs and outputs of the IBM BIOS until they were able to reproduce it. Bingo, after months of hard work and a $1million later, Compaq delivered the first IBM compatible PC with its own BIOS. The short version: IBM is trying to protect its investment and hard work. It copyrights the crucial communication link between the software and the hardware. Compaq reverse engineers the solution to the bit level and working its way backward figures out how the IBM component is working. Once it understood it, it develops its own PCs. Once again, the copyright law has failed to protect the inventor.

The next section evaluates these three cases studies from the following ethical perspectives: utilitarian perspective. (an action is ethical if it results in the greatest happiness for the greatest number). Since there is an indefinite number of ways of looking at who got the greatest benefits in these three cases above, this discussion shall be limited. My first and foremost objective is to determine what benefits if any, there were from the copyrights not being upheld. Case Study 1 Bill Gates ultimately became the worlds richest man. Despite all of his critics, his foundation is donating large amounts of money to benefit 3rd world countries by supplying education, healthcare, and food. Maybe Gary Kildall or Tim Patterson would not have been able to assess that wealth and give it away. Maybe the computer world would have suffered a collapse because a Gary Kildall or a Tim Patterson would not have had the leadership capabilities to build up the software industry in the same way as a Bill Gates can. And maybe, this would not have led to the worlds richest man giving away his wealth and providing benefits to less fortunate people in the world. This would certainly say that from a utilitarian perspective, Microsoft certainly did the right thing by clever marketing, clever strategizing, and immediate execution. And even if our lives are not in perfect harmony with Microsoft products, I have to say, that I have no problems with typing this essay using Microsoft Word running on Microsoft Windows and being able to print and email it all over the world. The only weakness of this argument is that there is a lot of maybe-s at the beginning. The other way of looking at this is that Microsoft took something that was not theirs, dishonestly acquired something for much less than it was worth, and by capitalizing on others ingenuity, hard work, and dedication, they ended up rich. The two people doing the work on the other hand have been cheated out of something that should have been theirs. Looking at Microsofts actions from a Justice perspective, Microsoft did the wrong thing. I do not think that the discussion at Microsoft preceding the acquisition of QDOS ran along the lines of: Bill, well make you the richest man in the world so you can help those nations in Africa. Case Study 2 Well, our main character is the same as in the previous case study. I will not evaluate again, why Bill Gates was right from a utilitarian perspective. Lets look at this case study from a Justice perspective.

A possible Justice interpretation would say that the weaker party should be helped. Microsoft was certainly in the position to help out either party involved in the spreadsheet dispute. But this is not what capitalism is about. Capitalistic societies do not exist because companies help each other out in need without any returns of investment. There is always the reason why companies are nice, and then there is the real reason. Another interpretation could take into account that one way Microsoft drove everybody out of business was by lowering prices by bundling their software. This is clearly a monopolistic practice that we have had laws against for quite some time. So, once again, from a justice perspective Microsoft did the wrong thing. Case Study 3 The reverse engineering effort by Compaq lead to PC clones. This led to major price reductions of PC prices. This led to people like us to afford a PC. This led to me learning my way around on them and getting a job. This is good, because we are constructive members of society. I certainly imagine that there are many other families like mine who have benefited. Not to mention the economic growth that it has created with PCs being everywhere. From a utilitarian perspective, Compaq certainly did the right thing by going around IBM and getting around that pesky copyright. From a justice perspective, the story goes like this. IBM did something and wanted to protect itself. The way they did this can be argued from the various ethical perspectives. Compaq did everything it could to disarm the becoming IBM monopoly and do get its own share of the market. Compaq did not do this reverse engineering to lower prices, to make a living for themselves and become rich. All of their actions were allowed by the law. By fair competition they managed to establish themselves in the market place. But, they copied IBMs work. This is why in my opinion; Compaq did not do the right thing from a justice perspective.


The United States and Pakistan have similar laws protecting software using copyright and patents despite being at very different stages of economic development. Pakistan has an emerging economy with a per capita GDP of $2000 per capita and a literacy rate of 46%.The US has a more mature economy with per capita GDP of $37,600 and a 97% literacy rate. Despite having similar laws regarding copyright and patent protection Pakistan has rampant piracy problems not seen in the US. It is estimated that 95% of digital media sold in Pakistan is pirated. This may be in part due to the high cost of software relative to income compared to US where software piracy exists but is less rampant. This discrepancy raises the question: Is it ethical to apply the same rules to two countries regardless of economic condition and industry maturity and what is the global effect of having the same laws but enforcing them differently?

Pakistan is eager to capture software development work that has recently been moving to Southeast Asia. Their neighbour India has a rapidly growing software industry that Pakistan would like to emulate. The Pakistani government has begun an initiative to encourage IT development by building business parks specifically for software development and related IT work has plans to improve education and encourage people to get degrees in computer science. An important element in encouraging the growth of the IT industry is providing adequate protection for software development in Pakistan so that foreign countries will feel comfortable sending IT jobs to Pakistan. Pakistans previously existing 1962 copyright law provided protection for software but was considered lacking on several points by other influential countries such as the United States. In 2000, the law was updated to bring it into accordance with TRIPS and WTO, which are the globally recognized standards for copyrights. However, Pakistan has not been successful at enforcing the expanded laws and remains on the International Intellectual Property Alliance (IIPA) Watch List for severe piracy problems. An example of the extent of the problem is that MS Office Suite costs $325 for a licensed copy and can cost as little as $150 for discounted license but can be bought on the street or even in stores in Pakistan for $1.25 for an unlicensed copy. Pakistan finds itself in a conflict because it desires to encourage software development and foreign investment but also wants a population that is computer literate, which is easier to achieve when software is affordable and even inexpensive to a wider portion of the population

Copyrights and patents in the United States have traditionally been intended to protect the rights of the creator to profit from their work and thereby encourage creation of new work and dissemination of the work so that it is available for use and study to others. The US provides copyright and patent protection to software. It complies with TRIPS and is a member of the WIPO and the WTO. The most recent software protection is provided in the US is the Digital Millennium Copyright Act (DMCA). The treaty organizations require all signatory nations to protect the works of all citizens of other signatory nations within their borders. This means that the US is obligated to enforce protection of software created by Pakistanis and vice versa. The US has an interest, not only in protecting software developed within the US, but in foreign countries as well since many American countries now develop software and sell it outside of the US. The US government monitors the IIPA Watch List for violations of copyright law and piracy. Countries are placed on the list based on estimated lost revenue to the US due to piracy and the percentage of digital media that is pirated. Listed countries are ranked into several categories and it can result in trade sanctions against certain countries if they do not improve piracy rates and decrease lost revenue. The result is that countries with emerging economies must make their laws compliant with laws already established by organizations such as the WTO and WIPO. The IIPA designated Pakistan a Priority Foreign Country, the most serious level, in 2004. The estimated loss to US companies in

2003 was $2 billion with 92% of business applications and 96% of entertainment software sold within the country consisting of unauthorized copies.

While these two very different countries have similar laws protecting software they are at very different points of economic development and have different goals in adopting these laws. Pakistans goal is to increase the amount of software being developed within its borders. The United States goal is also to encourage development but it also has a strong interest in making sure that its copyright holders get compensated for their software used within Pakistan and other foreign countries. Pakistan does not have this motivation yet because it produces relatively little software and relies on imported software for personal and business use. While protecting the rights of software creators may encourage growth of the software development industry in the future it will be painful for a while and may even slow development because the cost of licensed software relative to income makes purchasing it prohibitive for much of the population. This may lead to a large divide between those with access to new technology and a large portion of the population who cannot afford access to computers and software. Pakistan has little choice about adopting these laws if it wants to participate in the global market. Foreign companies are reluctant to invest in countries where protection for intellectual property is not considered adequate. Adequacy is defined by the major treaties, which were originally written by western European countries and the United States, countries already producing the property in need of protection

Considering how these common laws impact each country the question that arises is: Is enforcing the same copyright and patents law for software in both countries ethical? This section will examine this question using several theories that offer differing views about the definition of what is considered ethical. The utility theory of ethics considers the most ethical solution to be the one that produces the most utility. The Pakistani governments reluctance to enforce copyright law does increase utility in Pakistan. Most Pakistanis cannot afford the normal retail price of software but they can afford the prices at which unauthorized software is sold. Therefore if software is inexpensive it offers more utility because it is available to a wider portion of the population. However, in the long term lack of enforcement may not increase utility in Pakistan because it limits motivation for software development and foreign investment. Less new software and related technology leads to a decrease in utility compared to what would be produced if more development were occurring. This is somewhat of a moot point in Pakistan, though, were software development is already minimal. In the US not enforcing copyright law would make software available to more people but not to the extent that it does in Pakistan. It would reduce utility to those in the software development industry since it would become harder to profit from software when there is no enforcement limiting distribution of unauthorized copies or infringing works. By this measure the ethics of enforcing the law is related to the population to which the law is applied. According to the utility theory, applying these laws in Pakistan and countries like it is unethical because utility is not maximized. However, these same laws seem ethical in the United States where they may promote utility. The theory of natural rights is the idea that people have an inherent right to certain liberties that others do not have the right to violate. Natural rights are often considered entitlements (for example, food, education, housing) normally perceived only as in-strumental to achieving certain ends, such as development and economic growth. Also included in the scope of natural rights is the right to the product of ones own labour. Therefore, using the work of another without permission is a violation of another persons natural rights. By failing to enforce laws protecting the creators right to software governments allow those who reproduce, imitate, or sell software without authorization from the copyright or patent owner to violate of natural rights of the creator. People within Pakistan clearly participate in this violation of natural rights. It is estimated that Pakistan produces nine times the amount of illegally copied optical discs (this includes music and software) than can be absorbed within its borders. These copies are not for sales within its borders but are exported to other countries expanding the violation of the creators right to the product of his own labour. The other view of natural rights is that people have the right to freedom of expression and by extension the right to means of communication. The Council of Europe has taken this position by saying that communication access, including Internet access is fundamental right, related to freedom of expression. If this is extended to cover Internet access it may also be extended to cover the software needed to access the Internet. This argument is a bit of a stretch because it seems that it could be expanded without bound to computers, the electricity to run the computer, and so on. While freedom of expression is an arguable natural right, Internet access is not. The Internet may be the fastest and easiest route for widely communicating a message but is by no means the only method. Those who do not have Internet access still have other means of communication and therefore lack of Internet access does not violate the right to free expression. By the measure of natural rights failing to prevent copyright violations is unethical. It clearly violates the right to product of ones own work, which is a legitimate natural right. The theory of duty says that there are certain things that we are duty bound to do, or not to do, and that it is unethical not to fulfill a duty. In the context of software protections and Pakistans goal of creating an IT and software development industry this raises the questions: Do wealthy nations have the duty to foster development to improve the condition of poorer nations? If so, should the US and other members of intellectual property treaty organizations promote development by relaxing copyright and patent restrictions? Pakistan wants to grow their IT industry and is also concerned about avoiding creation of a digital divide. One part of growing the industry is graduating

more computer scientists and people with technical degrees. A method of promoting interest in this area is to make software more readily available so that a wider range of people become exposed to and interested in software. This also has the effect of lessening the divide between those who can afford software and those who cannot. In order to help achieve these goals Pakistan does not strongly enforce copyright protections. Pakistan is a relatively small country, with a small market, so lack of enforcement probably doesnt hurt individual software developers in the other countries very much despite the estimated total loss in revenue by the IIPA. The US may be able to help countries like Pakistan by not requiring that they enforce copyright until their economic situation has improved. Of course, this may not be an ideal solution to supporting development because it might be difficult to begin to enforce copyright and patent laws after having ignored them for a while. The United States, rather, feels they have the duty to protect copyright holders. This protection not only covers American citizens but also is extended to all citizens of WTO and WIPO member nations. The US expects that the other members of these organizations will also fulfill the duty that they have committed to by signing these treaties and passing laws that meet the global requirements called for by the treaties. The question of duty comes down to a decision between the duties to protect the rights of copyright holders versus making software available and thereby promoting technological growth in developing nations. Because nations including Pakistan have signed agreements saying that they will protect the rights of copyright and patent holders they have a duty provide those protections. While wealthier countries may have a duty to help those who are less fortunate there are many other ways to encourage that growth such as subsidizing software and sponsoring improvements in education. Allowing unauthorized use of software is not the only way to promote growth therefore that is not a duty

The ethical theories discussed in this paper generally do not support the view that it is unethical to globally apply the same copyright and patent protections to software. Duty is weak argument for the ethics not enforcing copyright because by not enforcing copyright the duty to protect those who have created the software is put aside. While I do not agree with the argument presented by some that enforcing software patents and copyright is ethical because it is the only means for promoting growth of software development within a country, we do agree that software copyright and patents should be enforced and that it makes sense to apply the same policy in all countries. Protecting the interests of the software developer does encourage software development but it is only one of many components. Education and making the computers and software widely available also promote development. The ethical approach is to promote and support all of the components that go into promoting growth and not solely relying on legal protections. Unfortunately, in some nations such as Pakistan, an effort is only made at the legal protections and even that is weak. This in itself is an ethical failure because it fails to protect the work of those who spend time and money to develop and produce software. While the existing protections may not be perfect, 50 years is a long time to protect something as rapidly changing as software, it is ethical to provide common protection. We deliberately chose, in my opinion, the three most prominent cases of how copyright legislation was eschewed at the beginning of the industry. The fundamental motivation shared by computer enthusiasts who created the software industry was: You are telling me that this cannot be done? Watch me! It is the recognition of this desire why Andy Grove made his famous statement: In technology, anything that can be done, will be done. This is why in technology, whenever you say that I created something that nobody else can, you can bet your life on it that there is a group of hackers reverse engineering, disassembling, or figuring out otherwise how to prove you wrong. In this respect, my opinion, the odds are that it is not the copyrights and patents that will reward you for your efforts, but a combination of the following factors: 1. 2. 3. 4. 5. 6. Acceptance Superior technology Customer support Marketing Reputation Price

If you have something new and novel in technology, run with it, build a company around it, and make sure that you offer the best available service to your customers for efficiency is your only real protection. Considering that these intellectual property issues could not be tackled appropriately in the most industrious nation of the world, in the quickest adapting economy, and most progressive legal system, I have very little hope that global intellectual property rights will prevail. They cannot be enforced. Even if an attempt is made, I do not see any signs that the world will be able to unite itself against the problem. But there is a deeper issue. The utilitarian argument can always prevail. There is always going to be an optimist like myself who will say, Well, maybe that was the best for us at that time because we just dont know what the future holds. Maybe, humanity has something built in to the right thing which ultimately benefits the most people. Can we prove it? No. Can we argue it? Yes. Can we try to do the right things as foggy as they may be? We can always try to do the best we can.