Publication | ThinkSet

The Evolution of Intellectual Property Rights: From Punch Cards to Pixels

David Kalat

Winter 2019

David Kalat discusses a 1971 story that shows how laws protecting IP struggle to keep pace with technology.

In 1971, a small accounting firm decided to take advantage of the dawning computer age and switched over some of its services to automation. The company hired a software engineer to write custom code, only to watch in horror as the developer literally took their software hostage to extort a higher fee. The developer stole the punch cards—which is what contained the custom code in those days—and went into hiding. He also demanded $100,000.

The police caught the blackmailer in just three days, charged him with grand theft and impounded the stolen punch cards. The company’s president pleaded with the sheriff to return the cards, but the sheriff refused. The cards were evidence in the case, to be securely locked up until trial.

This left the company in an untenable situation. As far as the president was concerned, it didn’t matter whether the cards were being held for ransom or as evidence—he was being deprived of his property. More importantly, his company had committed to its new automation and was crippled without the software.

So, in the middle of the night, the president broke into the sheriff’s office to steal back his own property from the evidence room long enough to run off a copy at a local data center, and then break back into the police station to return it. Perhaps just as amazingly in retrospect, the case never went to trial. The prosecutor dropped the charges against the blackmailing software engineer, convinced that no jury in 1971 would recognize the taking of a stack of paper cards with holes in them to be anything approaching “theft.”

The Evolution of Intellectual Property Rights Lags Technology

We don’t actually know the company’s name—the story was recounted in Donn B. Parker’s 1976 book Crime By Computer, and Parker, an early computer security consultant, chose to keep his clients’ names confidential. But the case is among the first to show how laws protecting intellectual property have historically struggled to keep pace with technological developments, which is especially true when it comes to protecting computer software.

In the 1960s, the US Patent and Trademark Office (PTO) was confronted with a four-year backlog of unreviewed patent applications and an overworked, exhausted staff that lacked the expertise to evaluate computer code. Four years later—in a move that is unfathomable today—the PTO simply declared software to be unpatentable.

Not everyone agreed with that assessment, but with the case of Gottschalk v. Benson, the Supreme Court agreed with the PTO that software was beyond the reach of patent protection, on the logic that algorithms are just math, and math is a property of the natural world that people discover, not invent. This did not settle the matter, and the court and PTO have changed their thinking over the years.

The Types of Intellectual Property Rights Businesses Must Invoke

Copyright protection, on the other hand, has always been available for software, but it’s more or less useful depending on circumstances. In a notorious incident in 1994, an MIT student named David LaMacchia set up an electronic bulletin board for users to upload and download software and games. Prosecutors were flummoxed to discover they could not prosecute him for criminal copyright infringement under the laws at that time, because his actions lacked commercial motive or gain. In the years that followed, services like Napster pushed at those same pressure points and exposed similar gaps.

Trade secret protections have been the most commonly invoked IP protection for computer software. Unlike for copyrights or patents, trade secrets have no formal registry—instead the protection derives from the nature of the secrecy itself. This poses a conundrum for software developers. If a trade secret can only be recognized if the IP in question is available to and used by only a small number of legitimate owners, then how can software be distributed to masses of consumers without breaking that very secrecy?

To resolve this, the industry has developed the concept of “shrink wrap licensing,” wherein the software is not sold to consumers but licensed to them under conditions and restrictions imposed by the publishers. Somewhere in the process of installing the software, the end user either breaks a literal shrink wrap or, more commonly in an era of digital distribution, clicks through a license agreement embedded in the program’s installer.

This is all to say that technological developments tend to outpace legal developments. Barely fewer than 50 years ago, the owner of an accounting firm actually broke into a police department to secure the programming, documented on paper cards, that he needed to run his company. The world of legal protections for software have improved since that sorry beginning, but both the law and the technology are certain to continue to evolve.

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David Kalat