Fifty years ago a former IBM programmer and North American Aviation Corporation marketer pooled $100 to form a new company, Computer Science Corporation (CSC).

Fewer than 4,000 computers existed worldwide at the time but, as the information services industry grew, so did CSC fortunes. For high-profile clients (e.g. NASA and the Federal Aviation Administration, AT&T and Dupont) CSC programmers designed and built the Internet-precursor Infonet, Europe’s first ATM network, and the flight-testing system for the B-2 stealth bomber.

Why, then, five years ago was one of the most significant events in company history—and perhaps trade itself—the firing of four insurance software programmers in East Hartford, Connecticut?

When their jobs were transferred to lower-wage CSC employees in India, the former employees applied for financial compensation, job training, and reemployment assistance from the Department of Labor. Their simple claim: they had lost their jobs due to offshoring, and so were eligible for assistance under the decades-old Trade Adjustment Assistance Act, or TAA.

Department of Labor lawyers argued otherwise. “The TAA…was written with rust belt factory workers and Southern textile shops in mind,” explains Paul McDougall of Information Week. “The Department of Labor held that coders didn’t qualify because they weren’t manufacturing a physical product, or, in the department’s narrow legalese, an ‘article.’”

At issue is the evolving definition of goods and services in the information age—as well as who enjoys the rewards that come from intellectual property innovations age.

“The way the world economy is going, services and software are traded the same way products alone used to be traded,” says John Barton, George E. Osborne Professor of Law, Emeritus, at the Stanford Program in Law, Science & Technology. “Clearly, we want to give the world economy the benefit of free trade in telecommunications, banking services, software, and insurance services—free trade in general is very positive for the world economy and the U.S. economy.”

Less-expensive software written in India, for example, hurts American computer programmers but aggregate global productivity expands and, ultimately, benefits the U.S.

Osborne says trade-offs are unavoidable. “The point of the Trade Adjustment Act is to make it politically possible for Congress to accept trade agreements that dislocate labor—when worker jobs are offshored, TAA [benefits] make it marginally less harmful.” This analysis, however, still begged the fundamental question: were computer programmers the knowledge economy equivalent of autoworkers—or, when it came to offshoring, were they on their own?

Turned down by the government, the fired CSC workers filed suit with the U.S. Court of International Trade. In January of 2006, judge Nicholas Tsoucalas told the government to rethink its position. By April, the Department of Labor complied. Henceforth, it said, full assistance would be available to the four CSC programmers—and colleagues.

Just in time. Almost simultaneously, CSC announced it would cut 5,000 jobs in the United States and Europe and replace them with Indian employees. Rivals EDS and IBM, among others, immediately matched or exceeded CSC’s move. “Offshoring is moving up the technological food chain with more sophisticated jobs and facilities going overseas,” Representative Bart Gordon, a Tennessee Democrat, responded. His estimate: since 2000, approximately 500,000 Americans a year have lost work to overseas workers.

Until renewed innovation can reverse the trend, balance sheet considerations will likely lead to further legal skirmishes. “This country has already gone through the restructuring of its manufacturing sector,” Paul McDougall observes. “For manufacturing workers, TAA benefits are a bill that’s mostly been paid. Not so with the technology and professional services sectors. The rationalization of these industries on global lines is just beginning.”

And as it does, thinks McDougall, affected American information technology employees deserve the same aid as displaced assembly line workers. “Just because a product doesn’t arrive on our shores in a crate doesn’t mean it’s not subject to the same economic laws of production, supply, and demand as, say, a box of ball bearings.” wt