Software Copyright Protection in Japan

by Karl Ruping

The software market is one of the most promising segments of Japan's post-bubble economy. According to government statistics, 1995 software sales topped JPY372 billion, a year-on-year increase of 136%. But these sales figures do not represent all the software loaded onto Japanese computers. The Business Software Alliance (BSA) estimates that the use of illicit software in Japan cost the industry an estimated JPY180 billion in 1995. While preliminary 1996 data suggests a drop in piracy rates, losses to developers remain high.

While imported software continues to enjoy a large share of the Japanese market overall, its share in some segments has declined with the rise of domestic products. To stay competitive in Japan's growing packaged software market, therefore, foreign software developers are establishing Japanese operations to localize not only their products, but their customer services and market research as well.

"This has become a very competitive market," observes Tom Coyner of Applied Communications Inc., Japan. "We have to provide direct support and offer products that can be customized to attract the more demanding Japanese client."

Competition has resulted in a bonanza for Japanese computer users: a wider selection of lower priced applications, with improved quality and service. For software developers, meanwhile, the pain of reduced prices has been offset by sharp increases in sales, and the prospect of future growth. The hurt that does not seem to heal, though, is the high rate of copyright infringement in Japan.

Intellectual property wrongs
What are software developers doing to help curtail piracy? Some seek a technological solution, turning to software- or hardware-based protection systems. Rainbow Technologies, one of the leaders in the field of hardware-based software protection solutions, claims a 70% share of the Japanese market. Rainbow offers a hardware key verification system that developers incorporate into their application. While business has been brisk, a hardware-based piracy solution is practical only for certain niche and high-end software packages where the additional cost can be justified.

Unfortunately, the legal alternatives for protecting computer software are limited. A patent provides a 20-year exclusive right to use a new invention that was not anticipated by others "skilled in the art." Few software applications, however, can satisfy the high level of novelty and inventiveness necessary to obtain a patent. Patent protection for software thus remains the exception rather than the rule, although this could change as computer applications grow more sophisticated and the Japan Patent Office becomes increasingly receptive to this new area of technology.

Neither is trade secret (which establishes the right to prevent use of commercial information that another party has obtained by means of unauthorized access) an attractive form of protection for software - particularly in Japan. Mass sales of a program defeat the supposed "secrecy" of the proprietary information stored in its code, and the legal effectiveness of shrink-wrap license agreements that restrict access remains questionable.

Theoretically, a customized program incorporating the provider's know-how may be considered a trade secret. Protective orders do not exist in Japan, however, and enforcement of a trade secret requires the release of the proprietary information at trial, which defeats the whole purpose of maintaining secrecy.

The most common form of software protection is copyright. This intellectual property right protects an author's "creative expression" in a work, although not the basic idea. Copyright protection lasts until 50 years after the death of the author (or from the date of publication/ creation if the "author" is a corporation). There are no procedural requirements, although registration and affixation of a copyright notice assists in establishing infringement and securing statutory damages.

Foreign companies have long complained of the low level of protection accorded intellectual property in Japan. Recently, however, the Japanese government has made various substantive and procedural improvements - not merely in response to gaiatsu (foreign pressure), but also to protect domestic industry interests. A cynic might note that enforcement quickly improved when Japan became a net exporter of intellectual property (to many countries that themselves have less-than-impressive intellectual property regimes). As Japanese software producers continue to improve their domestic market shares and look to foreign markets, the pressure for more effective copyright (and patent) protection of software will increase.

Piracy!
The unauthorized copying of an entire program to create a counterfeit copy is undeniably a threat to software developers. More difficult to prove, yet possibly more damaging, is the unauthorized copying of portions of program code to produce a competing software package.

Piracy comes in three flavors: commercial, private, and corporate. Commercial piracy is when a party engages in copying entire programs and then directly or indirectly offers these counterfeit products for sale. This is not only a violation of copyright; it is a criminal act, with a stiff fine and/or hard time for offenders who are caught.

In 1993, Aichi Prefecture police closed down one of Japan's largest and most sophisticated illegal software rings. Over a dozen individuals were operating a computer network system that had provided 17,000 software titles to over 5,000 documented clients, generating JPY64 million in revenue. Since this highly publicized case, clandestine sales of illegal programs appear to have declined significantly.

The private copying of software for personal use - and the sharing of illegal copies among friends - is a global concern. Legal action is seldom an attractive option to the copyright holder, however, since the high investigative costs are not offset by the usually meager recoveries (particularly in Japan, where courts do not recognize punitive damages).Enforcement, therefore, has shifted to education. Large software developers and industry trade groups engage in various campaigns designed to inform the public that cheating is not only wrong, but hurts the consumer by hindering the development of new applications.

Companies all too often engage in corporate piracy, such as when a single software application is "shared" by multiple users in the office without paying for this added use. A program may be copied onto several PCs, or loaded onto a network to serve several (or sometimes several hundred) employees. A survey of some 3,000 business PC users by the Japan Personal Computer Software Association revealed that over 50% had deliberately copied software, even though 96% knew or suspected that this was illegal.

Piracy is not necessarily a corporate policy, but "There is a great deal of copying done by employees, of which management might or might not be aware," notes Yoshikazu Takaishi, a leading intellectual property attorney (and formerly General Counsel of IBM Japan). "If companies were to adopt stronger oversight policies, they could effectively insulate themselves from any potential liability that may arise from this sort of activity."

Current enforcement efforts are focused on the corporate pirate. This offers a single target responsible for multiple violations, and enforcement costs per copy are lower and recovery much greater, relative to private infringement. Further, a corporation is a prime defendant since it has attachable assets and, even more valuable, a business reputation that could be tainted by being branded a pirate.

While large software manufacturers have the resources and expertise to police domestic violations, a more common alternative in Japan is to have an industry watchdog do the investigation, then either turn the case over to the relevant developers or pursue enforcement activities on their behalf. Most active in this regard are the BSA and the Association of Copyright for Computer Systems (ACCS). Enforcement efforts have become increasingly aggressive and successful. In October 1996, Microsoft, Lotus, and Justsystem reached a JPY140 million court settlement with an Osaka corporation that had been running 1,000 illegal copies of ten titles.

Successful corporate enforcement largely depends on tip-offs from disgruntled employees. But in Japan, piracy hotlines, or hyperlinks on the Web, are not as effective as in other countries. Recognizing Japan's lifetime employment system and hierarchical social structure, BSA's Diane Smiroldo acknowledges that Japanese workers are less likely to turn in their employer. "Investigations must be culturally sensitive to be effective," she notes. A BSA campaign in New York featured a picture of a tie with a nail sticking out, a telephone hotline number, and the caption "Nail Your Boss." It worked in Manhattan, but probably would not be as successful in Shinjuku.

Or in Kasumigaseki. Individuals and corporate users are not the only pirates. High schools and public universities also are visible infringers. It's ironic that these public pirates are under the supervision of the Ministry of Education, which administers Japan's Copyright Act. Some loyal bureaucrats in government agencies are also software pirates, but enforcement activities have not yet gone that far. At least, not yet.

Copyrighting code, and the Copyright Code
Japanese intellectual property law is based on the Continental European (in particular, German) model. In 1899, Japan joined the Bern Convention for the Protection of Literature and Artistic Works and adopted its first copyright legislation. The Copyright Act, though, did not anticipate the protection of technological material, and subsequent revisions (as recent as 1984) have failed to recognize computer software as copyrightable material.

Two Japanese ministries have competed for regulatory authority over emerging software technology: the Ministry of Education (whose Cultural Affairs Agency is responsible for copyright law) and the Ministry of International Trade and Industry (MITI; responsible for patent and trademark registration through the Japanese Patent and Trademark Office). In the early 1970s, these two ministries initiated competing studies on computer software protection. As one could expect, the Ministry of Education favored extending copyright protection, while MITI proposed a new sui generis right... one managed by MITI.

The ministries remained deadlocked even as legal battles arose over the lucrative and internationally competitive game software market. In 1982, the Tokyo District Court considered the interests of Japan's computer game industry in the Taito Corporation Case. A competing video game designer had allegedly copied the object code from the read-only-memory (ROM) of Taito's video game machine. The defendant claimed that the object code was not "legible to a person," and that it was not authored by a programmer, but by a compiler (program). The court ruled, however, that both source code and object code are protected under the Copyright Act as a work of authorship. The Yokohama and Osaka District Courts followed, in 1983 and 1984, respectively, with similar decisions involving counterfeit versions of video game software.

In response to this judicial action, the two ministries initiated new studies regarding the legal protection of computer programs. But again, each pursued a different path. It wasn't until 1988 that, recognizing domestic and international trends, the two ministries reached informal agreement and drafted a revision of the Copyright Act.

Today, Japanese copyright law recognizes a computer program as copyrightable. Article 2(1) of the Act defines a program as "an expression of combined instructions given to a computer so as to make it function and obtain a certain result." While this definition is broad, other provisions significantly narrow the scope of software copyright.

Putting personality in program
Japanese copyright protects the creative expression of an author's "thoughts or sentiment" in a particular work. As with its Continental European cousins, Japanese copyright theory is based on the author's "personality" contained in his or her creation. The utilitarian nature of software, however, does not easily conform to the traditional concept of copyright. Even if a programmer has a personality, it is not clearly represented in a segment of code.

Two elements are required for traditional copyright protection: thoughts or sentiment, and creative expression. While having rejected train timetables and basic business forms as lacking the requisite "thought or sentiment", courts have found that the computer code in a program may include the "thought" of the technician/author. This requires, however, a significant amount of code that was not itself copied, part of the public domain, or dictated by the computing environment.

An even more challenging hurdle is "creative expression" - a concept developed with literary and artistic works in mind. A commercially attractive program precisely and efficiently accomplishes its intended functions. In other words, programs are valued for their usefulness rather than the esthetic beauty of their code.

In Japan, as in the US, if a computer function (idea) can be expressed in only a limited number of ways, the programmer's "expression" merges with the "idea." This "merger doctrine" denies copyright protection to the most basic (and efficient) code sequences.

While US copyright extends to an author's "original expression" (not "creative expression") fixed in a tangible medium, Japanese courts demand a high level of creative expression for elements of a software program to enjoy copyright protection. In IGM v. Mets (1994), the defendant had allegedly copied the plaintiff's MS-DOS-based Install Batch File (IBF) into its software package. Even before considering any similarity with the plaintiff's program, the court found that the IBF did not contain commands with sufficient creative expression and, according to the legislative definition, was a data file that did not qualify for copyright protection.

Decompilation and interfaces
Copyright infringement can be something less than pirating an entire program. A competitor may be interested in only segments of the program: a complex subroutine that is beyond the skill of the programmer, the organization of program elements, or an interface needed to establish compatibility.

A programmer may be attracted to the structure, sequence, and organization (SSO) of a program. US copyright extends protection to such nonliterary elements of a program (based on a confusing and often-criticized formula), but this does not appear to be the case in Japan. Japan's Copyright Act excludes "algorithms" from its definition of copyrightable material, and courts have interpreted this to mean a program's SSO.

An algorithm is defined as a "means of combining, in a program, instructions given to a computer." In System Science v. Toyo Sokki (1987), the defendant had modified System Science's printing subroutine such that there was no literal similarity in the program code. The court characterized the "processing flow" of the subroutine and its structure as an algorithm beyond copyright protection.

An ongoing debate is whether copyright extends to the interface that determines a program's relationship with its environment. To ensure interoperability for his or her new creation, a programmer must understand and incorporate all or some of an existing application's interface. The Japanese Copyright Act excludes "rules" from its definition of program copyright, which the Cultural Affairs Agency interprets to mean any rule on how a program interacts with a different program. Though no court cases address this point, Japanese academics generally agree that a program interface is not protected by copyright.

Even if an interface is not protected, it may be legally inaccessible. The programmer must decompile a program to discover its interface, and the decompilation process requires making a copy (technically, an unauthorized copy) of the program's object code. The US (based on court cases) and the European Community (through legislation) allow limited decompilation; Japan does not. A 1993, Japanese government proposal to revise the Copyright Act along the lines of the European model caused a wave of protest from the foreign software community, and was quickly abandoned.

The decompilation issue is far from dead, however. Given a chance, the usually reserved Japanese judiciary may import a fair-use concept and create a decompilation exception. Foreign software developers, however, remain uneasy about the potential for non-literal copying of their proprietary code.

In summation
Software piracy in Japan, both individual and corporate, remains a serious concern for developers. According to MITI estimates (based on a 1993 survey of over 100 software companies), the typical software application was copied three to four times. While the situation has been improving each year, losses to developers are still high. A 1995 joint study by the Business Software Association and the Software Publishers Association claimed that 55% of software applications in use in Japan were illegal copies.

But the climate is changing, with developers, industry associations, and the government turning a sterner eye on all forms of software piracy. While there are minor differences, Japanese domestic copyright is now largely in line with that of other industrialized nations, and Japan has become an important partner in the development of a global intellectual property regime.

This is the second in Professor Ruping's series of articles on computer and technology law in Japan. The first, "What's in a CyberName," In our March issue, looked at the issue of trademarks on the Internet. You can contact the author directly at ruping@ tuj.ac.jp.

For more information about software copyright and piracy, contact:
Association of Copyright for Computer Software (ACCS)
phone 03-5976-5178, fax 03-5976-5177
Business Software Alliance (BSA)
phone 03-3239-7719
http://www.bsa.org/
Copyright Research & Information Center
phone 03-3501-5539, fax 03-3501-5754
http://www.japanlink.co.jp/cric/
Japan Personal Computer Software Association (JPCSA)
phone 03-3253-9166, fax 03-3253-0159
http://www.infos.or.jp/jpsa
Software Information Center (SOFTIC)
phone 03-3437-3071, fax 03-3437-3398
http://www.bekkoame.or.jp/~softic/
Software Publishers Association (SPA)
phone 0120-288-220, fax 03-3288-2080
http://www.spa.org/

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