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High-Tech Piracy : Dispute Points Up Copying Controversy

June 24, 1986|JAMES BATES | Times Staff Writer

The president and founder of Vault Corp, W. Krag Brotby, sees his company's main product as something like a lock that's been picked.

The lock in this case is Prolok, a system that the Newbury Park firm developed to prevent the copying of personal computer software and thus thwart the piracy plaguing the software industry.

The lock picker is Quaid Software. The Toronto company openly acknowledges that it cracked Vault's codes and modified its CopyWrite software package for computer users to skirt Vault's defenses and duplicate programs.

Robert McQuaid, Quaid's president and a man who boasts of his ability to smash software protection schemes, argues that Brotby's product unfairly prevents honest computer users from making backup copies for their programs.

Vault's dispute with Quaid has ended up in federal court in New Orleans, where a judge is expected to rule soon on a possibly precedent-setting, $100-million suit that Vault filed last year. The outcome, many legal experts believe, could set a standard for the amount of protection that software makers are entitled to against unauthorized copying.

Brotby contends that, without protection, unauthorized copying--whether by office workers, sophisticated computer hobbyists or bootleggers--will spread. He cites a 1984 study by Future Computing, a Dallas-based market researcher, estimating that software makers lose nearly $800 million in sales each year to piracy. Others doubt that the extent of the problem can be determined, but there is widespread agreement that it is costly.

Even so, the software industry has mixed feelings about Vault's case and software protection in general. Software Publishing, the nation's fourth-biggest independent maker of personal computer software, is dropping copy protection on all of its products. Microsoft, the nation's second biggest, is eliminating it on a selective basis.

The moves were prompted by pressure from users who complain of being prevented from making "archival" copies, which they need in case they damage their original disks. Software makers add that it often is futile to build software protection systems because they constantly are being broken.

According to some computer trade journals, Torrance-based Ashton-Tate, the third-largest software maker in the nation, may release unprotected software to some of its largest customers with the understanding that the firms will voluntarily police its use.

The leading holdout for copy protection among software companies is Lotus, the nation's No. 1 independent. Lotus spokesman Bruce Rogers said the company believes that copy protection systems are effective, and he added that Lotus provides buyers an extra copy of its software to eliminate the need for making a backup.

Brotby said software protection not only thwarts piracy by those who want to sell bootleg copies but also gives businesses tighter control over the software they buy. That, he said, could head off costly suits from software firms trying to crack down on unauthorized copying by a company's staff.

For Vault, a favorable verdict would be encouraging news for a 3-year-old company beset with problems. Last October, the privately held company filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, listing $1.66 million in liabilities and $1.63 million in assets. Brotby said filing was prompted by a dispute with 3M over a contract for the Minneapolis-based company to sell Vault's product.

Vault's Prolok product is a disk bearing a unique physical mark--or "fingerprint"--and electronically coded instructions requiring the program to find the fingerprint before starting to run.

Software makers put their programs on the Vault disk. Although those programs can be copied onto another disk, the fingerprint can't. Consequently, when the unauthorized copies are inserted into a computer, the program refuses to run for want of a fingerprint.

Vault sued Quaid in Louisiana because it is one of only two states with a Software License Enforcement Act, better known as a "shrink-wrap law." Vault's suit is the first test of Louisiana's 1984 law.

Like book publishers and record companies, software companies are protected by federal copyright laws. The Louisiana law, which Vault's attorneys helped draft, gives companies tighter legal defenses against the copying, reselling and renting of their software by adding what is called license protection.

Under the shrink-wrap law, anyone who breaks the plastic wrap that software makers "shrink" around the disks that they sell agrees to abide by a agreement that must be clearly written on the package. In effect, the agreement licenses the buyer to use the software.

Vault alleges in its suit that Quaid broke the licensing agreement for its product, violated trade-secret laws and infringed on its patent.

Traditional Agreements

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