Sega Enters. Ltd. v. Accolade, Inc.

United States Court of Appeals, Ninth Circuit
977 F.2d 1510 (1992)

ELI5:

Rule of Law:

Disassembly of copyrighted computer object code is a fair use of the copyrighted work if it provides the only means of access to the unprotected elements of the code, and the person seeking access has a legitimate reason for doing so.

Facts:

Sega Enterprises, Ltd. (Sega) develops and sells the Genesis video game console and accompanying game cartridges.
Accolade, Inc. (Accolade), a competing game developer, desired to make its games compatible with the Genesis console without entering into Sega's restrictive licensing agreement.
To achieve compatibility, Accolade reverse-engineered Sega's games by purchasing them, disassembling the machine-readable object code into human-readable source code, and studying it to understand the console's interface requirements.
Accolade then created a development manual containing only the functional specifications it discovered, without any of Sega's code, and used it to write its own Genesis-compatible games.
Sega later released the Genesis III console, which included a Trademark Security System (TMSS) that required a specific initialization code to be present in a game cartridge for it to operate.
When the TMSS found this code, it would not only enable the game but also display a message on the screen: 'PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD.'
Accolade, discovering its games were incompatible with the Genesis III, performed a second round of reverse engineering, found the TMSS initialization code, and included it in its own games.
As a result, Accolade's games functioned on the Genesis III but also triggered the Sega trademark message, which Accolade did not intend.

Procedural Posture:

Sega filed suit against Accolade in federal district court for trademark infringement and false designation of origin.
Sega amended its complaint to add a claim for copyright infringement.
Accolade filed a counterclaim against Sega for false designation of origin.
The parties filed cross-motions for preliminary injunctions on their respective claims.
The district court granted a preliminary injunction in favor of Sega, enjoining Accolade from disassembling Sega's code and from selling games created through disassembly.
The district court later modified the injunction to require a recall of Accolade's games.
Accolade appealed the district court's grant of the preliminary injunction to the U.S. Court of Appeals for the Ninth Circuit and sought an emergency stay.

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Issue:

Does the disassembly of a copyrighted computer program's object code, which is the only way to access the program's unprotected functional elements, constitute fair use under the Copyright Act when the purpose is to create a compatible, non-infringing product?

Opinions:

Majority - Reinhardt

Yes. Disassembly of copyrighted computer object code is a fair use under the Copyright Act when it is the only means of accessing the unprotected ideas and functional elements of the program and the copier has a legitimate reason for doing so. The court applied the four statutory fair use factors. First, the purpose of the use was legitimate; although commercial, Accolade's direct purpose was to study the functional requirements for compatibility, which fosters creative expression and public benefit through increased competition, not merely to exploit Sega's work. Second, the nature of the work is significant; computer programs are utilitarian and contain many unprotected functional elements, which gives them a lower degree of protection than more creative works. Third, while Accolade copied the entire programs, this factor is of little weight because the intermediate copying was necessary to understand the unprotected parts, and the final product was not a verbatim copy. Fourth, the use does not usurp the market for Sega's games; Accolade became a legitimate competitor in the market for compatible games, which is a market the Copyright Act does not protect from competition. Thus, the balance of factors weighs in favor of fair use.

Analysis:

This decision is a landmark in intellectual property law, establishing a crucial safe harbor for reverse engineering software for the purpose of creating interoperable products. It affirmed that the fair use doctrine can protect intermediate copying, even wholesale copying, when it is a necessary step to access unprotectable ideas and functional principles embedded in object code. The ruling prevents copyright holders from leveraging their copyright to gain a de facto monopoly over functional aspects of their work, thereby promoting competition and innovation in the software industry. It drew a critical line between pirating a competitor's expressive work and studying it to create a new, compatible product.

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