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                            THE GIF CONTROVERSY
    Michael Console Battilana                            mcb@cloanto.it
===========================================================================

[It has been quite complicated to follow the GIF licensing situation as of
late.  Initially, it looked like CompuServe were the "bad guys"...the real
situation is far more complex.  This article, while certainly not the final
word, is quite a few illuminating words.  -Jason]

THE GIF CONTROVERSY: A SOFTWARE DEVELOPER'S PERSPECTIVE

    January 27, 1995 - Text revision 1.00
    by Michael Console Battilana <mcb@cloanto.it>
    Copyright (c) 1995 Cloanto Italia srl, All rights reserved
    Parts are quoted with permission from CompuServe Information Service
    Permission granted for non-profit electronic distribution
    Suggested file name: "giflzw1.txt"
    Free by mailing <gltext1@cloanto.it> before February 28, 1995

    This  article was  written with  great care.  It may  reflect personal
    opinions  of  the  author,  which  are  not  necessarily shared by the
    publisher,  who  cannot  assume  any  responsibility  for  mistakes or
    misprints.  Nothing  in  this  article  should  be  regarded  as legal
    counsel.  If you require legal or  other expert assistance, you should
    consult  a  professional  advisor.  Many  of  the designations used by
    manufacturers   and   sellers   to   distinguish   their  products are
    trademarks.  The  author  of  this  article  has made every attempt to
    supply  trademark information about  manufacturers and their products.
    GIF and Graphics  Interchange Format are  service marks of  CompuServe
    Inc.,  an H&R Block  Company. PostScript is  a registered trademark of
    Adobe Systems Inc. TIFF is a trademark of Aldus Corp.

During the past eight years, GIF (Graphics Interchange Format) has
peacefully become the most popular file format for archiving and exchanging
computer images.  At the end of December 1994, CompuServe Inc.  and Unisys
Corporation announced to the public that developers would have to pay a
license in order to continue to use technology patented by Unisys in
certain categories of software supporting the GIF format.  These first
statements caused immediate reactions and some confusion.

This is a very interesting case, which could teach more than one lesson on
the theory and practice of software and the laws.  There are many entities
involved.  Fingers have been pointed at lawmakers, Unisys, CompuServe and
developers.  In theory, it may have been possible for any or all of these
parts to prevent the matter from creating so much anxiety in the first
place.  Yet we are all here, debating on this issue.  This article intends
to provide a collection of information from the history of the controversy
to the most recent events, as they were perceived by a software developer.

CompuServe released GIF as an open specification in 1987.  GIF soon became
a world standard, and today it also plays an important role in the Internet
community.  It was well supported by CompuServe's Information Service, but
many developers wrote (or acquired under license) software supporting GIF
without even needing to know that a company named CompuServe existed.  GIF
was relatively simple, and very well documented in books, articles and text
files.

GIF images are compressed to reduce the file size.  The technique used to
compress the image data is called LZW (after Lempel-Ziv-Welch) and was
first described by Terry A.  Welch in the June 1984 issue of IEEE's
Computer magazine.  Unisys holds a patent on the procedure described in the
article, but the article describing the algorithm had no mention of this. 
The LZW procedure was simple and very well described, and it soon became a
very popular technique for data compression (just as GIF would become a
standard in its own field).  It appears that neither CompuServe, nor the
CompuServe Associate who designed GIF, nor the computer environment in
general were aware of the patent.  GIF is not alone in the use of LZW.  The
TIFF file specification also includes LZW-compression among its compression
methods, and so do dozens of very popular file archiving programs (such as
Compress).

Normally, procedures such as LZW are published on magazines so that they
can be shared by the community of software developers.  LZW itself is a
refinement of other algorithms published in the years before (Ziv-Lempel
and others).  Software is usually protected by copyright law, but in recent
years (since around 1981 in the USA) in several countries it has become
possible to patent software.  While software patents have become an
opportunity for many, they remain a controversial danger for others.  Any
programmer or publisher might be trapped at any time by a patent
infringement claim that could not be foreseen or avoided.

While having the right to pursue legal action or seek damages against
infringing LZW developers and publishers, Unisys has so far been very
accomodating and fair.  It is likely that the success of LZW and its
thousands of implementations, especially among small developers, caught
Unisys unprepared.  Otherwise, it would be difficult to understand how
Unisys could first allow a very large number of small and big developers to
use LZW for years, and then, after the establishment of various standards
based on LZW, change its attitude.

The original CompuServe/Unisys licensing agreement text which had upset so
many developers was immediately followed by clarifications from both
CompuServe and Unisys.  Given that the on-line community tends to be
suspicious about anything that is big, has a legal department or owns
software patents, Unisys had to face a particularly delicate challenge. 
But it probably wasn't easier for CompuServe, who had to explain the patent
issue to its own developers, some of whom felt "betrayed".  The outside
world would learn about this issue from the press in the following days.
Even Time magazine reported about this matter, although like most of the
newspapers it concentrated on GIF more than on TIFF, LZW, Unisys or
software patents.  The full texts of four official statements from
CompuServe and Unisys are included at the end of this article (scan this
text for #1).

Among the first reactions, some bulletin board systems had all GIF files
deleted from their hard disks (or converted into JPEG format).  Common
remarks included:

    "PROTEST OF NEW COMPUSERVE-UNISYS GIF USAGE TAX !!"

    "They [CompuServe] seem to think that GIF is the greatest thing
    since free online magazines."

    "The announcement by CompuServe and Unisys that users of the GIF
    image format must register by January 10 and pay a royalty or face
    lawsuits for their past usage, is the online communications
    community's equivalent of the sneak attack at Pearl Harbor."

These reactions may require some clarification.

GIF files are not covered by the patent.  There is no risk in distributing
GIF files or in using the GIF name.  According to a CompuServe
spokesperson, "Recent discussions of GIF taxes and fees are totally without
merit.  For people who view GIF images, who keep GIF images on servers, or
who are creating GIF images for distribution, the recent licensing
discussions have no effect on their activities."

Only the software employing the LZW algorithm for writing GIF files is "at
risk".  The Unisys patent includes claims which specifically cover the
decompression of LZW-compressed material, so it may also affect simple GIF
readers.  However, it is in theory possible to create and read GIF files
without using the LZW procedure.  Some developers have produced results
which are similar, if not equivalent, to the LZW algorithm, basing their
routines for compression of binary data and text on Shannon-Fano and AVL
trees.

Unisys, and not CompuServe, has been "trying to impose" a royalty.  The
problem is not specific to GIF, but includes TIFF and archiving software. 
However, it was later clarified that "...  Unisys does not intend to pursue
previous inadvertent infringement by versions of GIF-based software
products marketed prior to 1995...  Unisys does not require licensing, or
fees to be paid, for non-commercial, non-profit GIF-based applications,
including those for use on the on-line services..."

The most popular computer systems still have display and memory
configurations which make them considerably more efficient in displaying
palette-based images.  This is 8-bit indexed data, as supported by the GIF
format.  The creation of a palette-based picture may take hours of
professional color quantization and remapping applied to 24-bit data, in
order to achieve 8-bit results which cannot easily be distinguished from
the original.  The resulting GIF files can quickly be processed with
minimum RAM requirements.

JPEG is excellent for many applications, but it is not an alternative to
GIF.  Unlike GIF, JPEG is lossy (i.e.  it changes the images as they are
compressed) and it does not support palette-based images.  Also, it was not
designed with professional high-resolution images in mind.

CompuServe stated: "CompuServe is announcing that we will coordinate the
development of GIF24, a successor to GIF capable of 24-bit lossless
compression.  CompuServe is committed to keeping GIF24 as an open
specification, available without cost."

The CompuServe licensing agreement was intended as a voluntary service to
the few dozen developers creating software for use primarily in conjunction
with the CompuServe Information Service (CIS).  This includes applications
such as CompuServe "navigators", but does not apply to general purpose GIF
readers/writers (which are not intended for use primarily in conjunction
with CIS).

Any organization using LZW should look at whether they have an infringement
on Unisys' patent.  CompuServe is not involved in any of these discussions
- they are between Unisys and outside developers.

Other interesting considerations emerged.  For example, there is more than
one patent involved.  Lempel, Ziv, Cohn and Eastman patented their original
LZ78 algorithm (US patent 4,464,650).  One Internet leader has collected
information on more than 350 patents on lossless data compression and 100
on lossy image compression.  The LZW algorithm which is now attracting so
much attention is patented by both IBM (4,814,746) and Unisys (4,558,302).
The IBM patent application was filed three weeks before that of Unisys, but
the US patent office apparently failed to recognize that they covered the
same algorithm.  (The IBM patent is more general, but its claim 7 is said
to be exactly LZW.)

The LZW patent issue first surfaced in the press in 1989, when the BTLZ
algorithm (a procedure similar to LZW developed and patented by British
Telecom) was to be approved for data compression into the V.42bis modem
standard.  Unisys said on at least one occasion that it first began to
learn of the widespread use of LZW in connection with the development of
this standard.  The first licensing arrangements put into place included
those with modem manufacturers ($ 20,000 for each one-time license) and
with Adobe PostScript developers ($ 10,000).

An article on "LZW Data Compression" was published in the October 1989
issue of Dr.  Dobb's Journal (see bibliography for more details - scan this
text for #3).  A reader replied in the December issue explaining that the
algorithm was patented.  The author of the article added that he was
unaware of any patent on the algorithm.  More readers wrote, and in the
March 1990 issue the editor-in-chief dedicated his Editorial to this topic,
which in his words "sparked a forest of fires".  The same issue also
contained an official statement by Unisys Corporation, which confirmed that
LZW was patented, mentioned the modem industry, and indicated how
developers could contact Unisys.

In the October 2, 1989 issue of PC Week a columnist wrote:

    "Alas, there's no consolation for developers of archiving programs
    that rely on the LZW data-compression algorithm. While cruising
    the bulletin boards last week, Spencer learned that Unisys has a
    patent on the algorithm, upon which a slew of data-compression
    programs are based. Watch out."

Probably in the same period, an article in InfoWorld mentioned modem
manufacturers paying or agreeing to pay royalties to Unisys for the right
to use LZW.

The better informed developers were aware of the LZW patent, and this issue
was debated among a small group of members of the CompuServe PICS Forum
(now GRAPHSUP).  The general feeling at that time was that "Unisys only
intends to get royalties from hardware vendors," and there was some
consensus on the idea that Unisys "wouldn't do anything about pure software
implementations."

Until the end of 1994, debates on CIS show no clear mention of the
requirement to get a license from Unisys for using LZW in GIF applications.
During 1988 at least one developer stopped working on GIF tools because of
considerations regarding the LZW patent, and reportedly "made CIS aware of
it".  This apparently was limited to private verbal conversations, and
information on this behalf could be found neither in the press nor in CIS.

Page 132 ("LZWEncode Filter") of the PostScript Language Reference Manual,
Second Edition, published in December 1990, contains the address of the
Welch Licensing Department at Unisys Corporation.

At this point, at least the readers of some publications were potentially
aware of the LZW patent.  But still, there was no link to GIF.  Unisys
apparently didn't know about GIF, nor did most GIF developers know that GIF
contained LZW technology.  And those who may have known, not necessarily
knew about the patent.

Among the developers who contacted Unisys between the end of 1990 and the
beginning of 1991, there was at least one GIF developer.  He recently
described his experience:

    "Finding the right person was the most difficult part of licensing
    LZW, but hopefully it's easier today (perhaps only 5 phone calls
    would be needed!)... When talking to Unisys back then, my
    recollection is that we had to basically tell the people at
    Unisys, 'Believe me, you DO own a patent on LZW; who do we talk to
    about LICENSING?' When we finally reached the licensing/legal
    department, THEY knew they had a patent, and spelled out the
    terms. I recall the person we were dealing with saying something
    like, 'They [Unisys] laugh when I make all these $1 deals, but we
    have to charge something to protect the patent.'"

The standard back then for PC based software products was $1 per copy sold
(or a 1% royalty), after a $100 advance payment.  Apparently, Unisys still
didn't know that GIF was based on LZW.  In January 1995, Unisys stated:
"Two years ago, Unisys learned that the LZW method was incorporated in the
GIF specification and immediately began negotiations with CompuServe in
January of 1993.  We reached agreement with CompuServe on licensing the
technology in June 1994..."

Two years before that, at the end of 1992, Cloanto, an Italian software
house, contacted Unisys because it was originally interested in a license
for the possible use of LZW in its PostScript Level 2 drivers.  That
correspondence also mentioned GIF and TIFF as using LZW, and anticipated
some of the controversies which would follow 25 months later.  Unisys
replied: "...  You raise a number of interesting issues which require
consideration..."

While disclosing the full contents of this correspondence would probably
not serve anyone's interest, the text of two letters sent to Unisys in 1992
is included at the end of this article (scan this text for #2), because the
author feels that this 1992 perspective could complement the article with a
few interesting ideas.  The letters have not been edited, so some details
(such as the reference to ZIP) may be incomplete with respect to current
knowledge.

Unisys offered Cloanto a $ .25 per unit royalty (1% of the net income) as
an alternative to the PostScript one-time license, but did not directly
answer the question risen by Cloanto: "If we implemented a software GIF or
TIFF image file loader and saver (both formats are based on the LZW
algorithm), would we need a license from Unisys Corp., as far as U.S.  
Patent 4,558,302 is concerned?".  According to public statements, Unisys
did however contact CompuServe the following month.

Between 1993 and 1994, the majority of developers still didn't know that
GIF employed a patented algorithm, although both Unisys and CompuServe were
aware of this, as the developers would learn in December 1994.  Different
opinions have been expressed on this.  Some developers feel that reaching
an agreement behind the scenes was the least destructive thing that could
be done.  Other (at times passionate) opinions picked up on electronic
media are similar to these three:

    "Consider this. CompuServe admits to knowing about patent problems
    with the GIF file format as early as January of 1993. ... [We]
    added GIF support... months after CompuServe admits knowledge of
    the patent problem... We relied on the information that was
    supplied to us by CompuServe. If CompuServe had told us the truth
    when they knew it, we never would have added GIF support..."

    "If I chose to put GIF encode/decode functions in my software
    development toolkits, my main threat of legal liability would not
    come from Unisys, but rather from one of my customers being sued
    by Unisys, who would turn around and sue me for selling them some
    code that contained patented algorithms."

    "I still don't have a clue what my situation is if I want to sell
    source and object code that imports and exports GIF images. I am
    not in the end-user app business, but my customers are, and they
    certainly will have to have an LZW license, but what about me?
    I've talked with Unisys by voice and E-mail, and the voice
    discussion was entirely unsatisfactory as I posted when it
    happened - basically the Unisys guy said anyone who sells code for
    $100-$300 a pop was a total _____ for selling it that cheap. The
    E-mail discussions I've had said 'OK - we hear you - we'll get
    back to you.' Never happened."

Unisys replied in part with reassuring clarifications to the general
public, explaining that if the software was developed prior to 1995, or if
it is public domain or freeware, the developer need not to worry.

On January 27, 1995, Unisys announced new licensing policies regarding "The
Welch Patent".  These include a .45% royalty on the total unit selling
price of GIF/LZW products (minimum $0.10, maximum $10.00 per unit) and a
.65% royalty on GIF/TIFF/LZW products (minimum $0.20, maximum $25.00).  For
further information and a copy of the written agreement it is possible to
call Unisys at +1 215 986-4411.

While this enables many software publishers to again ship their products
after a month-long pause, other GIF developers prefer to wait and see how
this situation further evolves.  One developer asked "What if I sign up and
then they announce a new GIF specification which does not use LZW?"

Some of the most active developers prefer to collaborate on the design of a
patent-free evolution of GIF (and TIFF's LZW compression mode). 
Suggestions can be sent via E-mail to GIF24@csi.compuserve.com when sending
from the Internet, or CSI:GIF24 when sending from CompuServe.

Several backwards compatibility issues related to GIF24 are currently being
evaluated by CompuServe and by the other communities participating in this
cooperative project.  Examples of contributions from third parties include
the specification for a "GEF" graphics-exchange format, and the experience
gathered by the developers of the GZIP procedures for data compression.

At the end, it appears that if so many efforts converge into a new,
improved standard, we still have to give part of the credit to the LZW
patent...

    You can contact the author of this text at <mcb@cloanto.it>.
    Any comments, or experience you would like to share, would
    be very appreciated.

#1

If the four official texts from CompuServe and Unisys are not included here
in order to keep the file size reasonable ("lossy compression"), please
check for another file accompanying this text, or send E-mail to
<gltext2@cloanto.it> before February 28, 1995.

[I have decided to take the author up on this offer and have removed some
of the official texts-the developer agreement as previously published in
AR, and a Tim Oren posting.  -Jason]

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#: 181065 S3/Hot News and Rumor
    07-Jan-95  19:12:19
Sb: #Unisys GIF Clarification
Fm: Steve Ahlstrom/SYSOP 76703,2006
To: All

Unisys Clarifies Policy Regarding Patent Use in On-Line Service Offerings

The concerns, inquiries and some apparent confusion that have resulted from
the December CompuServe advisory clearly indicate that we need to clarify
our policy concerning the use of the Unisys Lev Zempel Welch [Lempel Ziv
Welch] (LZW) patent by software developers for the major on-line services.

We want to reiterate earlier communications that the issue of patent
licenses is not focused on the end users of on-line networks, including the
Internet.  We encourage end users to continue to take full advantage of the
outstanding benefits of a rapidly growing on-line community.

Unisys was awarded the patent in 1985.  We became aware of the increasing
interest in our LZW patent beginning in 1990 when many companies approached
us to license the patent for their hardware and software products.  The
growth in the use of compression technology was mushrooming in order to
meet the demands for transmitting increased amounts of data.  To date, more
than 100 companies, including hardware, software and on-line information
services, have licensed the Unisys LZW technology.

Two years ago, Unisys learned that the LZW method was incorporated in the
GIF specification and immediately began negotiations with CompuServe in
January of 1993.  We reached agreement with CompuServe on licensing the
technology in June 1994, which calls for CompuServe to pay Unisys a royalty
of 1% of the average selling price it charges for its software.  This
represents approximately 11 cents for each copy sold and connected to its
information service.

Under the agreement, CompuServe, at its discretion, could relicense the LZW
technology to commercial developers using the GIF specification in software
that connected directly to the CompuServe information service.

With the agreement completed on June 21, 1994, CompuServe was given six
months to implement the terms of its license.  CompuServe later asked for a
one-month extension, which we granted.

Unisys did not require CompuServe to pass on any fee to its sublicensees or
end users.  Such a decision, and the content and timing of CompuServe's
advisory, was at their discretion.

Consistent with the entire information industry's desire to protect
intellectual property, Unisys will expect all of the major commercial
on-line information services companies employing the LZW patent to license
the technology from Unisys at a reasonable rate.  The on-line service
companies are not required to sublicense the technology to developers
producing software for the commercial on-line services.  It will be, as it
is today, at the on-line service's discretion as to whether it charges a
license fee to developers or chooses an alternative method to account for
its licensing fees payable to Unisys.

We recognize and are concerned -- thanks in large part to the recent and
very active use of the on-line network -- that developers did not
understand that the patented technology was resident in GIF.  Taking that
into account, Unisys does not intend to pursue previous inadvertent
infringement by versions of GIF-based software products marketed prior to
1995.

Concerning all future software product development and enhancement of
existing products for accessing on-line services, Unisys expects developers
of commercial, for-profit sftware to secure a license from Unisys, or
through the licensed on-line service, for the use of the patented
technology.  The very reasonable terms should prove no financial barrier to
the introduction of product into the on-line network.

Unisys does not require licensing, or fees to be paid, for non-commercial,
non-profit GIF-based applications, including those for use on the on-line
services.

Concerning developers of software for the Internet network, the same
principle applies.  Unisys will not pursue previous inadvertent
infringement by developers producing versions of software products for the
Internet prior to 1995.  The company does not require licensing, or fees to
be paid for non-commercial, non-profit offerings on the Internet, including
'Freeware'.

Commercial developers of GIF-based software for the Internet are expected
to secure a licensing agreement with Unisys for software products
introduced beginning in 1995, or enhancements of products that were
introduced prior to 1995.  Again, terms should not preclude the entry by
these firms into the marketplace.

For organizations introducing World Wide Web servers and 'Home Page'
offerings, most will not be required to secure a license from Unisys.  Most
organizations acquire software from other developers to create their
offerings on their servers.  Therefore, only the software firms who sell
the enabling software for profit would be expected to secure a licensing
agreement from Unisys.

Unisys understands that this issue has caused concern.  We want to reassure
all users and developers that we are strong proponents of the on-line
industry.

We're proud that this important Unisys technology has played a role in the
introduction of innovative products and services, many of which are fueling
the explosive growth of the information superhighway.

As members of the information community we want to strike the appropriate
balance between information access and the rights of all information
companies, including the developers of software, to protect their
intellectual property rights.

Patent information: Contact Welch Patent Licensing Department; Unisys;Mail
Stop C1SW19; P.O.  Box 500, Blue Bell, PA 19424.

Or via Internet, send E-mail to LZW_INFO@UNISYS.COM, or use a form
available on the Home Page of the Unisys Web Server
(http:\www.unisys.com) to request follow-up information.

Media contacts: Unisys Public Relations -- Bob O'Leary   (215) 986-6413
                                        or Oliver Picher (215) 986-5367
---------------------------------------------------------------------

---------------------------------------------------------------------

 From: rmarks@ecdcsvr.tredydev.unisys.com (Richard Marks)
 Date: Fri, 6 Jan 1995 22:09:14 GMT

Unisys LZW Patent FREQUENTLY ASKED QUESTIONS             January 6, 1995

Since we released our statement this morning clarifying the terms of our
LZW patent licensing agreement, we have received several questions from
both the press and the on-line community at large.  We thought we would
share with you some of the most frequently asked questions -- and our
answers.  We hope this may help answer some similar questions you have.

What is the LZW patent?

The LZW patent covers methods and apparatus for lossless compression and
decompression of digital data.  Unisys holds a U.S.  patent (number
4,558,302) as well as equivalent patents on the technology in Canada,
France, Germany, U.K.  and Italy.  Equivalent patents are also pending in
Japan.

How did Unisys get the patent?

Data compression and decompression is a critical aspect of data
transmission and storage and is very much of interest to Unisys and the
industry.  The patent is the result of research done by Terry Welch at
Sperry Corporation in the early 1980s that extended previous work by
researchers Lempel and Ziv.  Sperry Corporation was granted the U.S.
patent in 1985.  Sperry and Burroughs merged in 1986 to form Unisys, thus
Unisys became the owner of the Sperry patents.

Why is LZW so widely used?

It is a very efficient compression method and a highly advantageous way of
compressing and decompressing data for a wide variety of purposes.  It is
easy to implement, operates at high speed and results in high compression
ratios without loss of data (that is, it significantly shrinks the file
size).

GIF has been in use since 1987.  Why is Unisys enforcing its rights now? 
Unisys only became aware of the use of LZW in the GIF specification two
years ago.  We immediately began negotiations with CompuServe at that time
and reached an agreement in June, 1994.  The existence of the patent has
never been a secret.  In fact, we have completed licensing agreements for
LZW technology with over 100 companies since 1990, for products including
hardware, software and on-line information services.  With most of these
companies, it was the licensees who approached Unisys, not Unisys forcing
the taking of a license.

Why did it take you so long -- almost five years -- to figure out that GIF
was infringing on your patent?

As is common in industry, we don't have massive people resources devoted to
searching and finding products which may be infringing and then undertaking
the complex task of reverse engineering the products to determine whether
or not they have infringed on the patent.  In the case of GIF, as soon as
we became aware we immediately sought to protect the patent through a
license to CompuServe.

Is this part of a larger campaign to enhance your revenues?

No.  The actual revenue derived from this particular patent is not
significant.  However, Unisys has invested hundreds of millions of dollars
in overall technology development and has protected its investments in the
form of thousands of patents.  We have a responsibility to our shareholders
to ensure that we protect these valuable company assets.

Why have you targeted the on-line industry now?

Unisys has not specifically targeted the on-line industry, evidenced by the
fact that we have licensed this technology to hardware, software and
information services companies over the past several years.  We became
aware of the applicability of our patent to the GIF specification and we
simply undertook negotiations with CompuServe as the primary stakeholder in
this specification.  The announcement content and timing of CompuServe's
action was solely a CompuServe business decision.

The agreement with CompuServe says I can only use GIF in accessing
CompuServe?  What about other on-line services?

Our relicensing agreement with CompuServe allows CompuServe to relicense
the technology only for use in accessing the CompuServe information
network.  However, commercial, for-profit developers are free to contact us
to secure a license for LZW.  Non-commercial, non-profit users aren't
required to secure a license to use the technology.

Is Unisys willing to negotiate with other developers?

Absolutely.  Unisys wants to encourage the use of its patented technology
and is therefore continuing to make licenses available under the patent at
reasonable and non-discriminatory terms and conditions to any interested
party.  Keep in mind that Unisys can only license the patented LZW
technology.  Unisys has no other stake in GIF (other than using it for our
own graphics transmission).

What do you consider "reasonable terms"?

While we will conduct negotiations with each applying developer, the
CompuServe royalty rate is somewhat indicative of the terms that should
cause no financial barrier to product entry into the on-line marketplace,
or anywhere else.  The CompuServe agreement calls for the company to pay
Unisys a royalty of approximately 1% of the selling cost of the product for
each product sold and connected to the on-line service.  Given the
calculation of the average price of CompuServe products, this came out to
about 11 cents per product sold and connected.

GIF is used extensively on the World Wide Web.  What does Unisys intend to
do there?

Unisys in no way wants to discourage end users and developers from making
use of this technology.  We intend to license commercial software
developers.  However, non-commercial, non-profit products, including
freeware, need not pay license fees.  Organizations introducing a World
Wide Web server and home page to the Internet are not expected to license
the technology if they used a third-party software application to develop
their server offering.  Only the commercial third-party developer in that
case should secure a license.

What about Internet browsers?

Again, our focus is on the developers and not on the end user.  Also, our
action is primarily focused on for-profit developers.  If a developer
intends to make a profit or provide a product for commercial use, they
should negotiate a license from Unisys.

Will this hurt the use of GIF?

We certainly hope not.  GIF has been outstanding for handling graphics
files and its use of LZW technology is one of the factors in its success. 
Again, the licensing terms are very modest and should not be a barrier to
its use.

Will users of CompuServe have to pay a royalty to Unisys every time they
upload or download a GIF file?

No.  Revenue to Unisys under the CompuServe license is independent of the
number of files transferred.

What will be the impact on end users and commercial software developers?

There should be no impact on individual end users.  We encourage them to
take full advantage of GIF.  For developers, the impact should be minimal.
Again, Unisys continues to make licenses under the patent available to any
interested party at reasonable and non-discriminatory terms and conditions.
License fees for this technology should not be a barrier to any software
developer.

Why did you announce the changes during the Christmas holiday?

We concluded the license with CompuServe on June 21, 1994.  CompuServe was
given six months to implement the terms of the license agreement. 
CompuServe asked for, and we granted, a one-month extension.  The timing
and content of the announcement, and for that matter, the need for the
announcement, were entirely of CompuServe's choosing and without Unisys
knowledge or approval.

I'm using freeware or shareware that can manipulate GIF files.  Can I still
use it?

Yes.

What about freeware developers?

Our focus is on commercial, for-profit developers.  Freeware is exempted
from licensing fees.

And shareware developers?

Shareware developers that intend to make a profit from their software
should negotiate a license with nisys.  Alternatively, if their software is
intended to access CompuServe only, they might want to take advantage of
CompuServe's relicensing agreement with us.

Was the Unisys patent ever challenged?

The Unisys LZW patent was challenged in 1993, re-examined by the United
States Patent and Trademark Office, and the patentability of all claims was
reconfirmed in January of 1994.  This is a valid and fully enforceable
patent.

Via Internet, send E-mail to LZW_INFO@UNISYS.COM, or use a form available
on the Home Page of the Unisys Web Server (http:\www.unisys.com) to
request follow-up information.

Media contacts: Unisys Public Relations -- Bob O'Leary   (215) 986-6413
                                        or Oliver Picher (215) 986-5367
---------------------------------------------------------------------

#2

If the texts of the two letters are not included here in order to keep the
file size reasonable, please check for another file accompanying this text,
or send E-mail to <gltext2@cloanto.it> before February 28, 1995.

---------------------------------------------------------------------
 From Cloanto/Unisys - November 6, 1992

[salutation]

   Thank you for your kind reply.  I don't want this matter to take you
more time than necessary.  I'll try to concentrate on a few very practical
points, confident that Unisys understands the position of thousands of
developers like us, and will maybe increase both its popularity and its
profits by applying more diversified policies.

   Let's suppose we added the Welch algorithm for data compression in our
low end paint program and word processor, sold at $ 99 and $ 49 list, with
a 75% distributor discount.  Data compression is clearly not one of the
major reasons why one would buy such a product.  Also, there are more
efficient and specific algorithms than Lempel-Ziv-Welch.  A 1 $ royalty (as
in your standard proposal) would increase our costs by more than 25%.  The
book-keeping overhead alone would be a good reason for us to employ
different compression algorithms.

   So, why would we use LZW?  Ever since the original 1984 article on data
compression by Terry Welch, this algorithm's diffusion was boosted by an
incredible number of publications, "public domain" source code and de-facto
standards.  Just look at the TIFF and GIF image file formats and the many
LZW based file archivers no BBS or PC-user could do without.  Nobody (and
here I must include Unisys) has ever done anything practical in order to
let reasonably informed programmers know that Unisys Corporation could some
day ask 1 $ for each product sold.  Given the success of the algorithm, not
taking a strong position was equivalent to encouraging people to use it.

   On the other hand, it is not quite clear to what degree and in which
countries the Unisys patent should be relevant to pure software
applications.  (I was asking you something similar in my first letter.) At
the same time, while public discussions rise awareness of these issues,
many opinion leaders are warning about possible degenerations of a system
which accepts "software patents".  I understand that in this complex and
potentially unstable situation Unisys may prefer prudent and diplomatic
moves.

   Adobe Systems' developer support material says that "Unisys has agreed
that ISVs may obtain such a license for a modest one-time fee." A una
tantum solution seems to be very appropriate to me (in the 50 to 250 $
range?) I know and work with several companies with similar standards.  No
doubt that, excluding hardware applications and compression-oriented
software (which is what I expect you to be more interested in protecting),
such a policy would allow to Unisys to address the smaller developers and
software vendors with more success and less bureaucracy.  In the case of
your proposed license agreement, I would have no problem paying the
required advance (i.e.  one time fee) and signing for a 0 $ royalty (and at
the same time becoming a strong Unisys supporter).  Reconsidering Adobe's
note quoted above, maybe I just received the wrong contract proposal.

[regards]
---------------------------------------------------------------------


---------------------------------------------------------------------
 From Cloanto/Unisys - November 12, 1992

[salutation]

   I appreciated receiving your second letter.  As far as my case is
concerned, I would only like to repeat one simple question.  Beyond this, I
am very interested in the various aspects of the matter, and would like to
provide you with some stimuli from my point of view (corporate developer
support programs, developers, developer conferences, specialized press,
etc.)

   My question: If we implemented a software GIF or TIFF image file loader
and saver (both formats are based on the LZW algorithm), would we need a
license from Unisys Corp., as far as U.S.  Patent 4 558 302 is concerned?

   If I were on your side, and had to start from scratch, I would consider
different groups of LZW implementors.  In the first group, I would put
everybody who developed an interface to handle the very popular PC
standards for file formats (e.g.  GIF, TIFF, ZIP, ARC, ZOO, LHA, LZH,
IFF-C1C0/C1K0, Compress, etc.  - mainly bitmap graphics files and file
archiving formats) which derived from the 1984 article by Terry Welch.  In
the second group, I would target all those interested in hardware
implementations of the algorithm, and software which depends heavily on the
use of the algorithm.  I don't know enough about your business or the
Patent to define more groups.

   Maybe all the above names of file formats do not mean much to you.  If
you have a friend who enjoys PC graphics, he or she certainly uses (knowing
it or not) those formats, and has several files ending with ".GIF" or
".TIF" on the hard disk.  If you also know somebody who has a modem
connected to the PC, all the archives he has ever transferred probably had
one of the other suffixes mentioned.

   A bitmap file format specifies how images you use on your PCs should be
stored on disk for future reuse, or exchange with other software.  An
archiving program merges several different files, belonging to the same
collection (e.g.  a piece of software and its support files), into a single
file, which is easier to store and transfer.

   Right now, LZW is certainly not the most space efficient way for
compressing an image or another type of file for archiving purposes, but
all this started back in 1984, and has now become a standard.  There was a
big boom in 1985.  Back then, only Huffman and run-length compression were
widely used.  Ancestors of LZW, like LZ77, LZSS, LZH and LZ78, were blurry
defined and had not encountered much success.  The programs I mentioned in
the first group do not even depend on LZW because of its run-time speed
(one of the key aspects of LZW), but because it was supported and
documented everywhere.  It's a bit like the history of VHS videotapes (Beta
was the better format, but VHS somehow became the leader).

   There are hundreds of publications explaining LZW without a single
reference to Unisys.  I see new articles every few weeks on very popular
magazines.  There are CD-ROMs sold for less than 50 $, each containing
hundreds of references to LZW.

   The applications of the first group are not "broader than simply driving
PostScript printers".  I write PostScript drivers and can assure you that
only very few companies and people will ever have to handle LZW for this
purpose.  PostScript is a very specific case, and it is not simple.  File
formats, instead, are everywhere.

   The reason why I put hardware and software in the same second group is
that the distinction between the two is becoming more and more faint.  For
example, on many PCs equipped with a Digital Signal Processor, a modem
featuring the V.42bis standard you mentioned can be emulated in software. 
I know of several modem manufacturers who distribute new releases of their
microcode on private or public electronic bulletin boards, so that users
can either reprogram their modems automatically, or burn a new EPROM and
install it into the modem.

   If it were difficult to decide whether LZW is strategic to a piece of
software which cannot immediately be classified as belonging to the first
group, the usual royalty agreement could be applied.  However, I wouldn't
expect this formula to encounter much popular success.

   Once a solution had been found for settling the de facto situation,
defining which file formats fall into the first group, and a clear policy
for approaching those implementing the formats, one would have to start
advertising, contacting all magazines, publishers, BBSs, etc.  Somebody
would have to be hired to keep track of all the new material which is
published every day, attend conferences, etc.

   The royalty solution will not work with the first group.  It will even
be hard to convince them to accept that there is a patent involved (is it
relevant, after all?) People would find solutions for not paying royalties
(like writing a paint program and then releasing public domain external
modules to handle GIF and TIFF).  Of all the solutions I have seen
companies adopting, I feel that only a one time, 50 $ to 250 $ fee, would
be accepted.  It could be bundled with a package of technical documentation
on LZW, and a dissertation on the patent, so that people could better
appreciate what they receive in change.  It would have to become a popular
solution, something the small developer would be proud paying for because
"He has licensed a patent from Unisys Corporation".  You could even
authorize everybody to use LZW for free for applications in the first group
(possibly starting with us), but you cannot afford to have the public
against you.

[regards]
---------------------------------------------------------------------

#3

---------------------------------------------------------------------
Bibliography:

[Author Unknown - Information Appreciated]
"Spencer the Katt"
PC Week, October 2, 1989

[Author, Article Title and Exact Date Unknown - Information Appreciated]
[Article on LZW and Modem Implementations]
InfoWorld, Probably 1989 +/- 6 Months

Adobe Systems Incorporated
"LZWEncode Filter"
PostScript Language Reference Manual, Second Edition
Addison-Wesley Publishing Company
ISBN 0-201-18127-4

Association of Shareware Professionals Forum
CompuServe GO ASPFORUM

Bell, Timothy C., Cleary, John G. and Witten, Ian H.
"Adaptive Dictionary Encoders"
Text Compression
Prentice Hall
ISBN 0-13-911991-4

Cloanto Italia srl
Supplement to Personal Paint Manual
Version 6.1/1995, January 27, 1995

Console Battilana, Michele
"LZW Data Compression without Hashing"
University of Udine Exam Project, July 9, 1987

Elmer-Dewitt, Philip
"Will Gates Get the Net?"
Time, January 30, 1995, Page 47

Erickson, Jonathan
"Patent Letter Suits" (Editorial)
Dr. Dobb's Journal, March 1990, page 6

Gardner, Ray
"LZW Patent Issues" (Letter)
Dr. Dobb's Journal, December 1989, page 8

Graphics Support Forum
CompuServe GO GRAPHSUP

Knuth, Donald E.
The Art of Computer Programming
Volume 3 / Sorting and Searching
Addison-Wesley Publishing Company
ISBN 0-201-03803-X

Landy, Gene K.
The Software Developer's and Marketer's Legal Companion
Addison-Wesley Publishing Company
ISBN 0-201-62276-9

Nelson, Mark R.
"LZW Data Compression"
Dr. Dobb's Journal, October 1989, pages 29-36, 86-87

Nelson, Mark R.
"LZW Patent Issues" (Reply to Letter)
Dr. Dobb's Journal, December 1989, pages 8-12

Unisys Corporation
"Patented Algorithms" (Letter)
Dr. Dobb's Journal, March 1990, page 8

Welch, Terry A.
"A technique for high performance data compression"
IEEE Computer, June 1984, pages 8-19