Judge Overturns Copyright Ruling Against Borland : Computers: Landmark decision against Lotus further narrows the scope of protection for software.

In a landmark ruling that further narrows the scope of copyright protection for computer software, a federal appeals court in Boston on Thursday overturned Lotus Development Corp.’s victory in a copyright infringement lawsuit against Borland International.

The ruling by the U.S. 1st Circuit Court of Appeals breathes new life into ailing Borland, which has been reeling from a series of strategic blunders and massive losses. Lotus was expected to seek damages of between $100 million and $300 million, a sum that would likely have put Borland out of business.

The case involved the command menu in the Quattro Pro personal computer spreadsheet program, which was developed by Borland but sold last year to Novell. The Quattro Pro menu was essentially a copy of the one used in Lotus’ market-leading 1-2-3 spreadsheet--a design that Borland correctly believed would make it far easier to persuade 1-2-3 users to switch to Quattro Pro.

Lotus filed suit for copyright infringement four years ago, and in August, 1993, a district court judge ruled in Lotus’ favor. But the appeals court on Thursday agreed with Borland’s claim that the menu is a “method of operation,” and not the expression of a creative idea, and thus cannot be protected under copyright law.

The decision comes on the heals of the U.S. Supreme Court’s refusal to hear Apple Computer’s appeal in a copyright infringement suit against Microsoft Corp. In both cases, the courts have now shown themselves reluctant to view software as a creative, rather than a functional, work and thus subject to broad copyright protection.

Not surprisingly, Borland executives were elated with the ruling. A defeat in the case, they had long claimed, would not only hurt Borland, but would stifle new-product development throughout the industry.

“This removes a big cloud from this company,” said Borland Chairman Philippe Kahn. “And this is a clear victory for consumers and software programmers. This will create a more competitive software industry.

“We took a position of principle and we were criticized,” Kahn added, “but now we’ve been vindicated.”

Borland retained liability for any damages when it sold Quattro Pro to Novell, and Thursday’s decision could clear the way for the rest of Borland to be acquired by a stronger company.

Tom Lemberg, general counsel for Lotus, said he was surprised by the court’s decision. “Obviously we think this is a mistake and we think this decision is bad for the software industry,” he said. “We’re studying our options.” Lotus could ask for a re-hearing by the Court of Appeals, or could appeal to the U.S. Supreme Court.

“The trend by the courts has been to cut back on any kind of copyright protection for software,” said Jack Brown, a partner with the law firm Brown & Bain who had represented Apple in its suit against Microsoft. “The courts haven’t appreciated that there is real artistry in software code.

“These kinds of decisions auger ill for the software industry, which, after all, Congress wants protected,” he asserted.

Brown said he didn’t think Lotus would get far with an appeal.

“I think the chances are very good that the Supreme Court will uphold the appeals court’s decision should Lotus appeal,” he said. “After all, the court didn’t protect the most famous graphics in the world.”