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5.4. Computer-generated works 5.4.1. The use of data bases to hold large amounts of information which can be updated from many sources concurrently, together with the development of programs that can select, manipulate and format data, allow the creation of valuable works without expenditure of identifiable human skill and effort. This applies to works that are literary, artistic or musical in their content.

5.4.2. For example, a telephone directory printed annually from a database, the database being updated throughout the year as subscribers are added to or deleted from the network, is a computer-generated work. The directories are a valuable asset but, since there is no human expenditure of skill and/or labour in producing them, there is no copyright subsisting in the directories. Accordingly, they are open to copying without acknowledgement of their source.

5.4.3. The Government's own publications, based upon census data stored, collated, formatted and printed using computers are also valuable assets in which the Crown seeks to assert copyright. It is not obvious there has been human skill and effort in the production of the various tables and graphs. Most statistical data is now produced directly from the computer with little human involvement in the documents produced.

5.4.4. The financial pages of many newspapers carry stock market lists that are the output of a constantly updated database. While they may only have a transient value, the publishers should nevertheless be able assert copyright in the lists as in other items in the newspaper.

5.4.5. The June 1986 edition of The Computer Journal (Vol. 29 No. 3 pp 282-284) contained an article describing a computer system for generating crossword puzzles, the computer-generated work comprising the grid, answers to the puzzle, cryptic clues at various levels of difficulty and definitions of the answers. No human skill and effort is used in the production of the puzzle. The computer performs the author function. No copyright protection is currently available in respect of the puzzle for there has been no expenditure of human skill and/or labour in producing it. 5.4.6. Works that come under the artistic category include weather maps produced by communication from satellite to computer, examples of which are shown nightly on the various television channels. All extra-terrestial probe pictures that are taken continuously by satellite and then automatically interpreted and enhanced by a computer exhibit no human skill and effort in their production.

5.4.7. The above are some examples of works that are produced to date with little or no human skill and effort, the emergence of so-called expert systems or artificial intelligence machines will extend the boundaries still further. Already expert systems are used to produce optimum tax payment strategies in response to the input of users financial data. Expert systems are also used to analyse seismic and geological data and produce maps

indicating likely areas for oil exploration. Collections of the output of such systems are valuable and, we believe, the owners of these computer-generated works should be able to use copyright to protect their investment in them.

5.4.8. The Government, through the Alvey initiative, is encouraging the development of expert systems. Within the next five years we can expect to see machines that will be able to interrogate many databases held in different locations throughout the world, collate, process and format responses to questions in a time and manner that will be beyond the capacity of any reasonable group of humans. The investment to produce such machines is very large and there should be no doubt that works produced therefrom are protected by copyright in the United Kingdom, as it is in the United State of America.

5.4.9. The Government should note that the owners of copyright works in the U.S.A. are under no obligation to show a direct human involvement in order to establish their right to protection. It is only necessary to demonstrate ownership, which of course can be disputed. It follows that computer-generated works of the type discussed above qualify for protection in the U.S.A.

5.4.10. If the United Kingdom does not extend protection to these works, then it is likely that U.K owners of such works will be barred from protection in the U.S.A. This will mean that U.S. industry and commerce will be able to freely copy U.K. origin works but not their own, leaving U.K industry and commerce at a competitive disadvantage.

5.4.11. Proposal The BCS proposes the creation of a new class of copyright protected works. The copyright owner or "maker" should be defined as the person by whom the arrangements necessary for the making of that computer output or computer-generated work, are undertaken. In this respect a similar definition already exists under Part II of the Copyright Act 1956 in respect of a maker of a cinematograph film where it is not reasonable to identify the contribution of each of the individuals involved in the creation of the film. The rights of the maker should be comparable to the rights enjoyed by the copyright owner under the appropriate Part I class(es) of the Copyright Act 1956, has a human author expended skill and/or labour in creating the work rather than its creation by a computer. The term of protection should be at least twenty-five years to conform with international treaty and reciprocity obligations. The proposed new class should be in parallel with, and not detract from, any other copyright subsisting in the work.

Editor's Note lack of space precludes the publication in this issue of the full BCS submission. The remaining sections dealing predominantly with home taping of audio, video and broadcast material, and with the proposal for an unregistered design right will appear in the next issue.

COMPUTER CONTRACTS INTRODUCTION TO THE LAW ON SOFTWARE LICENCES PART IV: PERFORMANCE AND BREACH

Can a contract be illegal? Illegallity may be present in the formation of the contract or

in its performance and will render the agreement void. At this moment, it is unlawful to sell or supply certain US computing technology to Eastern block countries so any agreement having such a purpose would be void and would not generally give rise to any cause of action unless one of the parties had been actively misled. Thus, if you were asked to supply

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software to a person, not realising that he was acting as an agent for a prohibited purchaser, the law would give you a degree of protection.

When must the contract be performed? You may fix a time limit in the contract and the general rule is that the obligations must be performed within that time. If no time for performance has been agreed, the obligations should be discharged within a reasonable period of time. It is possible to make time 'of the essence'. The effect is to make the issue of performance fundamental to the validity of the agreement and a breach of such a term entitles you to repudiate the agreement. This can be included as an express term, or implied where the circumstances in which the contract was made show that time was intended to have that level of importance.

What is performance?

You have to look at the contract and all its terms, both express and implied. Only when all those terms which impose performance requirements have been met will the contract come to an end.

What happens when there is a breach? Any breach of a contractual obligation may give the innocent party the option to treat the contract as at an end, subject to the right to claim damages. In order to justify terminating the agreement, the breach must go to the root of the contract and show that the party in default has repudiated his obligations. Thus, in a contract where stage payments are to be made, a minor delay in making one payment is not usually sufficiently serious, but it would be different if the breaches had reasonably undermined the innocent party's confidence in the other's ability to pay. When a serious breach occurs, you have the option whether to accept it as a repudiation or not. If you do not accept it, the agreement remains in force and the defaulting party may resume performance. If the repudiation is accepted, the agreement comes to an end and you can claim damages.

What are damages? The purpose of damages is, in financial terms, to place the injured party in the same position as if the contract had been properly.performed. The amount claimable is the value of the performance to the person aggrieved and not the cost of performance to the defaulting party. In general, the loss must have been reasonably foreseeable and arise directly from the breaches which have occurred. Thus, if you are likely to suffer some more unusual items of loss in the event of a breach, you should inform the other party before the contract is made. The courts are also developing a new heading of damages whereby you may claim for the vexation, annoyance, frustration and emotional distress arising from the breach, but the rules for the valuation of such redress are still being worked out and the results are a little uneven at present.

Is there a way to force someone to honour an agreement? There is a remedy called specific performance which is an order of the court instructing a defaulting party to carry out contractual obligations. This is a discretionary remedy and will not be granted where damages would be a more appropriate remedy. It is also not available where the contract is for personal services, nor where the court might be required to supervise continuing performance. Thus, it cannot be used to force a software producer to write a commissioned program.

It is not usually awarded in contracts involving the sale of goods unless there is some unique quality attaching to those goods.

Are the rules different in contracts for the sale of goods? These are contracts where the seller agrees to transfer ownership of goods to a buyer for a money consideration. It does not cover contracts of barter or exchange. The goods which form the subject matter of the contract may either be held by the seller or they may be supplied through acquisition or manufacture. The relevance in this context is that when you acquire software, you inevitably purchase the medium upon which the software is stored whether tape, disk or chip. The main terms of these contracts are either conditions or warranties. A condition is a fundamental term which goes to the root of the contract whereas a warranty is not so important. Under the Sale of Goods Act 1979, several highly important conditions and warranties are implied and may not be excluded by the seller. Thus, there is an implied condition that the seller has the right to sell the goods at the time ownership is to pass. Similarly, the goods must correspond with their description, be of merchantable quality and be fit for the purpose for which they were acquired. This would mean that programs supplied on faulty disks could be rejected. Further, if you have agreed to a sale by sample, eg. where you might agree to a multiple purchase of some micros with a particular hard-wired chip, the bulk must be of the same quality as the one which you have been shown.

What is the situation in a contract of hire?

A contract of hire is distinguishable from a contract for the sale of goods because there is no intention in the agreement to make the hirer the owner of the goods. However, the Supply of Goods and Services Act 1982 will imply terms into the contract which are broadly similar to those outlined above as applicable to sale and which offer comparable protection to the hirer.

What about contracts for the supply of services? The Supply of Goods and Services Act 1982 implies a set of terms into any contract where one party has agreed to provide a service for another, ignoring whether goods are also to be supplied. The Act would therefore apply to a contract for software support. The first implied term is that the supplier will use reasonable care and skill in carrying out the service. Secondly, in the absence of contrary agreement, the services must be provided within a reasonable period of time. Finally, if no exact figure is agreed for the consideration, the recipient of the service must always pay a reasonable price for the work done.

When do I become the owner of goods! The general answer is that ownership will pass when the parties intend it to pass, so the precise moment in time may be defined in the contract. In default of such agreement there are certain presumptions, the most relevant of which are:-

• where there is an unconditional contract for sale and the goods are already identified and in a deliverable state, ownership passes when the contract is made;

• if something has to be done to put the goods into a deliverable condition, ownership will not pass until that work has been done and the buyer has notice of it;

• when goods are delivered to the buyer on approval, ownership will pass when the buyer indicates acceptance or does some act adopting the transaction.

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The problem which you are likely to face is that computer systems can sometimes be complicated to install and implement. Indeed, attempts at implementation may be well under way before it is realised that the promised system will not work. Nevertheless, ownership of this expensive white elephant may already have passed. If such a situation does arise, it might be possible to claim that there has been a breach of the agreement and to claim damages. In some cases, however, hardware may be delivered in separate stages, consisting of discrete items, each of which has been described separately but which will not be useful unless operated together. In such cases, it is better to provide that ownership will not pass until such time as all the items have been delivered and installed, and have been shown to function in an integrated system. Where both hardware and software are being supplied in a package deal, you may have the situation where you have become the owner of the hardware but that it will not operate the particular software which you wanted. If you are buying a complete package including some specialised applications software and where, in a sense, the hardware is no more than a processing unit, it is advisable to delay the passing of ownership until the entire system has been evaluated. Also note that, under normal circumstances, the risk passes at the same time as ownership. So if you have a fire and the hardware and/or software is damaged or destroyed, you will still be required to pay the contract price. This will apply whether you have taken delivery or not! So did you have the system insured?

When are the goods accepted?

Acceptance of the goods takes place when the buyer tells the seller that the goods are acceptable or when the buyer does something which is inconsistent with the seller's rights. Retaining the goods for an unreasonably long time without communicating with the seller can also amount to acceptance. However, it is often useful to specify performance criteria and testing standards in the contract. It should be for the buyer to supply the test data and for the seller to supply the technical expertise in the testing. If the suppliers for the hardware and the software are different, it might be useful to provide for common testing. Although this will more usually apply in acquiring larger systems, it is always worth considering the issues of acceptance for operating purposes and legal acceptance for the purposes of the Sale of Goods Act since some time may elapse before system bugs become apparent.

David Marshall, Report Correspondent Author Best Terms: A Guide to Software Acquisition where this article first appeared.

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M A K I N G USE OF M O D E L C O N T R A C T S

The growing number of disputes between computer users and their suppliers has focused attention upon the terms of computer contracts. Dissatisfied users often find that their attempts to litigate founder because of the unsatisfactory nature of the contract documentation which they signed before the system was installed. Typically, the standardised small print contained in the supplier's paperwork purports to cut down the extent of legal liability towards the consumer to an unacceptably low level.

Legislation - such as the Unfair Contract Terms Act 1977 - controls the effectiveness of contractual exclusion clauses, but testing their scope in the courts is a protracted, expensive and potentially risky business. One solution to the problem is to make use of model forms of computer contracts which take account of the user's legitimate commercial expectations. The past few years have seen increased interest in model forms and a number of them are now available. Readers of The Report will already be familiar with the model contracts prepared under the auspices of the Institute of Purchasing and Supply, which have been explained in several earlier articles by Edward Sambridge.

The CECUA model conditions

One of the most important of all examples of model computer contracts is that in respect of the purchase of computer equipment produced by the Confederation of European Computer User Associations ("CECUA"). The document was produced by a working group which drew its members (including Mr. Sambridge) from a number of European states. The introduction to the CECUA model conditions notes that the preparation of equitable, balanced terms in respect of computer acquisition should provide a variety of benefits including:

- the balanced protection of the interests of both parties to the transaction; - the elimination of ambiguities; - brevity in documentation;

- the widespread unification of contract practices. Nevertheless, CECUA accepted that the evolution of an all- embracing "standard contract" was impossible, given in particular the complexity and rate of technological development of computing systems. It was made clear that the CECUA model conditions are intended to provide a commercially equitable framework within which any variation of computer supply can be accommodated. In particular, it is not necessary to adhere to any particular condition that does not truly reflect the intention of the parties to the contract. Because they merely "comprise a basic framework which reflects the rights and obligations of both parties, individual conditions can be added to, or deleted, in accordance with particular negotiations." Thus, model conditions can aid both users and suppliers in drafting contracts that truly reflect their intentions. The CECUA model is divided between contract clauses, dealing with legal, commercial, technical and administrative matters, and schedules which enable a specific description of the items to be supplied. Taken as a whole, the CECUA model contains a great deal of useful information. The model clauses are accompanied by specific commentaries which avoid jargon and which make clear what particular provisions can and cannot achieve, whilst reiterating vital (but sometimes overlooked) points such as the importance of first defining one's requirements fully and clearly before entering into a computer agreement. CECUA took the precaution of presenting the model conditions to the Commission of European Communities, which confirmed that they give no reason for intervention under Article 85.1 and Article 86 of the Treaty of Rome.

The IPS model forms

The Institute of Purchasing and Supply (from which, incidentally, the CECUA model terms are available) has prepared a number of its own model forms:-

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- model forms and conditions of contract for the supply and installation (purchase) of computer equipment;

- a model form of conditions of contract for the hire and servicing (maintenance) of computer equipment;

- a model form of licensing agreement for the use of computer software products;

- a model form of agreement for the trial of computer software products.

As Edward Sambridge's articles have indicated, the philosophy underlying the various IPS forms corresponds to that of the CECUA model. In particular, notes for guidance make it clear that the models provide the computer user with a basis upon which he can seek, through negotiation, to achieve his particular individual requirements.

Are model forms useful? No-one doubts the laudable intentions of those who have laboured hard to produce wide ranging model contracts for the benefit of computer users. Questions have, however, occasionally been asked about the extent to which model forms are valuable in practice. Those with experience of computer negotiations well know that many suppliers have standarised and negative responses to attempts to tailor the terms of computer acquisition contracts to specific circumstances. Certainly, it is important not to expect too much of model forms. Careful reading of the accompanying notes will make it clear that model terms are not proferred as a solution to every problem in every case. What they do provide is a workable and carefully thought-out basis for negotiation. At the very least, a would-be computer user (or his professional adviser) who is familiar with the contents of the various models

mentioned above will be in a position to make a realistic appraisal of the supplier's standard supply terms. He will be on the alert for key points that have been overlooked, as well as clauses which are weighted too heavily in favour of the supplier.

Conclusion Ultimately, the value of model computer contracts will depend upon two factors. First, the respective bargaining strength of the supplier and consumer will - as in all contract negotiations - have a crucial bearing upon the outcome. Secondly, if a would-be computer user fails to give sufficient thought to the required terms at an early stage in negotiations, he may find that he is, in commercial terms, committed to a potentially unsatisfactory transaction even if he has not entered into a legally binding contract. It makes sense, therefore, for computer users and their advisers to consider all proposed transactions in the context of the guidance provided by model computer contracts, as well as the proliferating literature on this fascinating subject. Large companies with substantial negotiating strength will find it much easier, of course, to negotiate satisfactory tailor-made terms than small family businesses which propose to acquire a computer from one of the multi-national suppliers. Often, the final contract terms will reflect model conditions in part only. But there is little doubt that time devoted to a full consideration of the terms which may be suitable for inclusion in the contract, in the light of guidance provided by model terms, will be time well spent.

Martin Edwards, Solicitor Report Correspondent

SOFTWARE PROTECTION

VOLUNTARY I N D U S T R Y S T A N D A R D S FOR A H A R D W A R E - B A S E D S O F T W A R E PROTECTION SYSTEM: A N T I T R U S T I M P L I C A T I O N S

Introduction Agreements between competitors to standardise product specific~ttions may, from the point of view of the participants, provide tangible rewards. The agreement can enhance product substitutability, it can minimise customer confusion, it can enable suppliers to the parties to benefit from longer production runs thereby realising scale economies which may be passed on. Such agreement may by the same token have consequences which, from the point of view of antitrust enforcement agencies, are of equivocal value. The agreement can stifle competition in design innovation, it can further erect barriers to new entry. Vigilance is thus the name of the game. This article sets out to examine the question of product standardisation and antitrust law in the context of a specific scheme in the USA to develop voluntary industry standards for a hardware-based software protection system. In an ensuing article the issue of how the competition authorities in the UK and EEC would react to similar schemes will be considered.

The ADAPSO case: Facts The Association of Data Processing Service Organisations (ADAPSO) is an association of computer software and service corporations. Its members include most of the leading US

developers of microcomputer software for business use. ADAPSO decided, during 1985, to formulate standards to reduce the unauthorised copying of software. This copying, ADAPSO claimed, cost the software industry $1.3 billion in lost revenues between 1981 and 1984 and $800 million in 1985. The standards that ADAPSO advocated for development were to be based upon a particular type of software protection system which would be made up of three constituents: a " lock" imbedded in the software; a lightweight portable "keyring" that would plug into the computer; and, a small "key" that would plug into the keyring. The three parts combined would allow the use of the protected software. The actual degree of standardisation advocated was to be kept to a minimum with efforts being concentrated on the physical connections and communications between parts of the system and between the system and the computer. This would enable equipment manufactured by various firms to operate together as a complete system. Of importance was the fact that the association did not attempt to standardise the entire software protection system or attempt to use standardisation as an exclusionary device to diminish the competitiveness of rival systems or erect entry barriers to those firms contemplating development of their own schemes. If these had been the goals of the ADAPSO plan antitrust clearance would not have been forthcoming. ADAPSO, to further sanitise the scheme of anticompetitive effects, indicated that it would: (1) endeavour to solicit the

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