Appeal from the United States District Court for the Northern District of California. D.C. No. CV-91-3871-BAC. Barbara A. Caulfield, District Judge, Presiding. Original Opinion Reported at,
Before: William C. Canby, Jr., Stephen Reinhardt, and Edward Leavy, Circuit Judges. Opinion by Judge Reinhardt.
Order AND AMENDED OPINION
REINHARDT, Circuit Judge:
This case presents several difficult questions of first impression involving our copyright and trademark laws.*fn1 We are asked to determine, first, whether the Copyright Act permits persons who are neither copyright holders nor licensees to disassemble a copyrighted computer program in order to gain an understanding of the unprotected functional elements of the program. In light of the public policies underlying the Act, we conclude that, when the person seeking the understanding has a legitimate reason for doing so and when no other means of access to the unprotected elements exists, such disassembly is as a matter of law a fair use of the copyrighted work. Second, we must decide the legal consequences under the Lanham Trademark Act of a computer manufacturer's use of a security system that affords access to its computers to software cartridges that include an initialization code which triggers a screen display of the computer manufacturer's trademark. The computer manufacturer also manufactures software cartridges; those cartridges all contain the initialization code. The question is whether the computer manufacturer may enjoin competing cartridge manufacturers from gaining access to its computers through the use of the code on the ground that such use will result in the display of a "false" trademark. Again, our holding is based on the public policies underlying the statute. We hold that when there is no other method of access to the computer that is known or readily available to rival cartridge manufacturers, the use of the initialization code by a rival does not violate the Act even though that use triggers a misleading trademark display. Accordingly, we reverse the district court's grant of a preliminary injunction in favor of plaintiff-appellee Sega Enterprises, Ltd. on its claims of copyright and trademark infringement. We decline, however, to order that an injunction pendente lite issue precluding Sega from continuing to use its security system, even though such use may result in a certain amount of false labeling. We prefer to leave the decision on that question to the district court initially.
Plaintiff-appellee Sega Enterprises, Ltd. ("Sega"), a Japanese corporation, and its subsidiary, Sega of America, develop and market video entertainment systems, including the "Genesis" console (distributed in Asia under the name "Mega-Drive") and video game cartridges. Defendant-appellant Accolade, Inc., is an independent developer, manufacturer, and marketer of computer entertainment software, including game cartridges that are compatible with the Genesis console, as well as game cartridges that are compatible with other computer systems.
Sega licenses its copyrighted computer code and its "SEGA" trademark to a number of independent developers of computer game software. Those licensees develop and sell Genesis-compatible video games in competition with Sega. Accolade is not and never has been a licensee of Sega. Prior to rendering its own games compatible with the Genesis console, Accolade explored the possibility of entering into a licensing agreement with Sega, but abandoned the effort because the agreement would have required that Sega be the exclusive manufacturer of all games produced by Accolade.
Accolade used a two-step process to render its video games compatible with the Genesis console. First, it "reverse engineered" Sega's video game programs in order to discover the requirements for compatibility with the Genesis console. As part of the reverse engineering process, Accolade transformed the machine-readable object code contained in commercially available copies of Sega's game cartridges into human-readable source code using a process called "disassembly" or "decompilation".*fn2 Accolade purchased a Genesis console and three Sega game cartridges, wired a decompiler into the console circuitry, and generated printouts of the resulting source code. Accolade engineers studied and annotated the printouts in order to identify areas of commonality among the three game programs. They then loaded the disassembled code back into a computer, and experimented to discover the interface specifications for the Genesis console by modifying the programs and studying the results. At the end of the reverse engineering process, Accolade created a development manual that incorporated the information it had discovered about the requirements for a Genesis-compatible game. According to the Accolade employees who created the manual, the manual contained only functional descriptions of the interface requirements and did not include any of Sega's code.
In the second stage, Accolade created its own games for the Genesis. According to Accolade, at this stage it did not copy Sega's programs, but relied only on the information concerning interface specifications for the Genesis that was contained in its development manual. Accolade maintains that with the exception of the interface specifications, none of the code in its own games is derived in any way from its examination of Sega's code. In 1990, Accolade released "Ishido", a game which it had originally developed and released for use with the Macintosh and IBM personal computer systems, for use with the Genesis console.
Even before Accolade began to reverse engineer Sega's games, Sega had grown concerned about the rise of software and hardware piracy in Taiwan and other Southeast Asian countries to which it exported its products. Taiwan is not a signatory to the Berne Convention and does not recognize foreign copyrights. Taiwan does allow prosecution of trademark counterfeiters. However, the counterfeiters had discovered how to modify Sega's game programs to blank out the screen display of Sega's trademark before repackaging and reselling the games as their own. Accordingly, Sega began to explore methods of protecting its trademark rights in the Genesis and Genesis-compatible games. While the development of its own trademark security system (TMSS) was pending, Sega licensed a patented TMSS for use with the Genesis home entertainment system.
The most recent version of the Genesis console, the "Genesis III", incorporates the licensed TMSS. When a game cartridge is inserted, the microprocessor contained in the Genesis III searches the game program for four bytes of data consisting of the letters "S-E-G-A" (the "TMSS initialization code"). If the Genesis III finds the TMSS initialization code in the right location, the game is rendered compatible and will operate on the console. In such case, the TMSS initialization code then prompts a visual display for approximately three seconds which reads "PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD" (the "Sega Message"). All of Sega's game cartridges, including those disassembled by Accolade, contain the TMSS initialization code.
Accolade learned of the impending release of the Genesis III in the United States in January, 1991, when the Genesis III was displayed at a consumer electronics show. When a demonstration at the consumer electronics show revealed that Accolade's "Ishido" game cartridges would not operate on the Genesis III, Accolade returned to the drawing board. During the reverse engineering process, Accolade engineers had discovered a small segment of code - the TMSS initialization code - that was included in the "power-up" sequence of every Sega game, but that had no identifiable function. The games would operate on the original Genesis console even if the code segment was removed. Mike Lorenzen, the Accolade engineer with primary responsibility for reverse engineering the interface procedures for the Genesis console, sent a memo regarding the code segment to Alan Miller, his supervisor and the current president of Accolade, in which he noted that "it is possible that some future Sega peripheral device might require it for proper initialization."
In the second round of reverse engineering, Accolade engineers focused on the code segment identified by Lorenzen. After further study, Accolade added the code to its development manual in the form of a standard header file to be used in all games. The file contains approximately twenty to twenty-five bytes of data. Each of Accolade's games contains a total of 500,000 to 1,500,000 bytes. According to Accolade employees, the header file is the only portion of Sega's code that Accolade copied into its own game programs.
In 1991, Accolade released five more games for use with the Genesis III, "Star Control", "Hardball!", "Onslaught", "Turrican", and "Mike Ditka Power Football." With the exception of "Mike Ditka Power Football", all of those games, like "Ishido", had originally been developed and marketed for use with other hardware systems. All contained the standard header file that included the TMSS initialization code. According to Accolade, it did not learn until after the Genesis III was released on the market in September, 1991, that in addition to enabling its software to operate on the Genesis III, the header file caused the display of the Sega Message. All of the games except "Onslaught" operate on the Genesis III console; apparently, the programmer who translated "Onslaught" for use with the Genesis system did not place the TMSS initialization code at the correct location in the program.
All of Accolade's Genesis-compatible games are packaged in a similar fashion. The front of the box displays Accolade's "Ballistic" trademark and states "for use with Sega Genesis and Mega Drive Systems." The back of the box contains the following statement: "Sega and Genesis are registered trademarks of Sega Enterprises, Ltd. Game 1991 Accolade, Inc. All rights reserved. Ballistic is a trademark of Accolade, Inc. Accolade, Inc. is not associated with Sega Enterprises, Ltd. All product and corporate names are trademarks and registered trademarks of their respective owners."
Sega filed suit against Accolade on October 31, 1991, alleging trademark infringement and false designation of origin in violation of sections 32(1) and 43(a) of the Lanham Act, 15 U.S.C. §§ 1114(a)(1), 1125(a).*fn3 On November 29, 1991, Sega amended its complaint to include a claim for copyright infringement. Accolade filed a counterclaim against Sega for false designation of origin under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a).*fn4 The parties filed cross-motions for preliminary injunctions on their respective claims.
After expedited discovery and a hearing, the district court granted Sega's motion. Prior to the hearing, Sega introduced the declaration of Takeshi Nagashima, an employee of Sega. Nagashima stated that it was possible either to create a game program which did not contain the TMSS code but would still operate on the Genesis III, or to modify a game program so that the Sega Message would not appear when the game cartridge was inserted. Nagashima stated that he had been able to make both modifications using standard components, at a total extra cost of approximately fifty cents. At the hearing, counsel for Sega produced two game cartridges which, he represented, contained the modifications made by Nagashima, and demonstrated to the district Judge that the Sega Message did not appear when the cartridges were inserted into a Genesis III console. Sega offered to make the cartridges available for inspection by Accolade's counsel, but declined to let Accolade's software engineers examine the cartridges or to reveal the manner in which the cartridges had been modified. The district court concluded that the TMSS code was not functional and that Accolade could not assert a functionality defense to Sega's claim of trademark infringement.
With respect to Sega's copyright claim, the district court rejected Accolade's contention that intermediate copying of computer object code does not constitute infringement under the Copyright Act. It found that Accolade had disassembled Sega's code for a commercial purpose, and that Sega had likely lost sales of its games as a result of Accolade's copying. The court further found that there were alternatives to disassembly that Accolade could have used in order to study the functional requirements for Genesis compatibility. Accordingly, it also rejected Accolade's fair use defense to Sega's copyright infringement claim.
Based on its Conclusion that Sega is likely to succeed on the merits of its claims for copyright and trademark infringement, on April 3, 1992, the district court enjoined Accolade from: (1) disassembling Sega's copyrighted code; (2) using or modifying Sega's copyrighted code; (3) developing, manufacturing, distributing, or selling Genesis-compatible games that were created in whole or in part by means that included disassembly; and (4) manufacturing, distributing, or selling any Genesis-compatible game that prompts the Sega Message. On April 9, 1992, in response to a request from Sega, the district court modified the preliminary injunction order to require the recall of Accolade's infringing games within ten business days.
On April 14, 1992, Accolade filed a motion in the district court for a stay of the preliminary injunction pending appeal. When the district court failed to rule on the motion for a stay by April 21, ten business days after the April 9 recall order, Accolade filed a motion for an emergency stay in this court pursuant to 9th Cir. R. 27-3, together with its notice of appeal. On April 23, we stayed the April 9 recall order. The April 3 preliminary injunction order remained in effect until August 28, when we ordered it dissolved and announced that this opinion would follow.
In order to obtain a preliminary injunction, the movant must demonstrate "either a likelihood of success on the merits and the possibility of irreparable injury, or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor." Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1174 (9th Cir. 1989). We may reverse the district court's grant of a preliminary injunction to Sega if the district court abused its discretion, made an error of law, or based its decision on an erroneous legal standard or on clearly erroneous findings of fact. Religious Technology Ctr. v. Scott, 869 F.2d 1306, 1309 (9th Cir. 1989); Lou v. Belzberg, 834 F.2d 730, 733 (9th Cir. 1987), cert. denied, 485 U.S. 993, 99 L. Ed. 2d 512, 108 S. Ct. 1302 (1988).
Accolade raises four arguments in support of its position that disassembly of the object code in a copyrighted computer program does not constitute copyright infringement. First, it maintains that intermediate copying does not infringe the exclusive rights granted to copyright owners in section 106 of the Copyright Act unless the end product of the copying is substantially similar to the copyrighted work. Second, it argues that disassembly of object code in order to gain an understanding of the ideas and functional concepts embodied in the code is lawful under section 102(b) of the Act, which exempts ideas and functional concepts from copyright protection. Third, it suggests that disassembly is authorized by section 117 of the Act, which entitles the lawful owner of a copy of a computer program to load the program into a computer. Finally, Accolade contends that disassembly of object code in order to gain an understanding of the ideas and functional concepts embodied in the code is a fair use that is privileged by section 107 of the Act.
Neither the language of the Act nor the law of this circuit supports Accolade's first three arguments. Accolade's fourth argument, however, has merit. Although the question is fairly debatable, we conclude based on the policies underlying the Copyright Act that disassembly of copyrighted object code is, as a matter of law, a fair use of the copyrighted work if such disassembly provides the only means of access to those elements of the code that are not protected by copyright and the copier has a legitimate reason for seeking such access. Accordingly, we hold that Sega has failed to demonstrate a likelihood of success on the merits of its copyright claim. Because on the record before us the hardships do not tip sharply (or at all) in Sega's favor, the preliminary injunction issued in its favor must be dissolved, at least with respect to that claim.
We have previously held that the Copyright Act does not distinguish between unauthorized copies of a copyrighted work on the basis of what stage of the alleged infringer's work the unauthorized copies represent. Walker v. University Books, 602 F.2d 859, 864 (9th Cir. 1979) ("The fact that an allegedly infringing copy of a protected work may itself be only an inchoate representation of some final product to be marketed commercially does not in itself negate the possibility of infringement."). Our holding in Walker was based on the plain language of the Act. Section 106 grants to the copyright owner the exclusive rights "to reproduce the work in copies", "to prepare derivative works based upon the copyrighted work", and to authorize the preparation of copies and derivative works. 17 U.S.C. § 106 (1)-(2). Section 501 provides that "anyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 . . . is an infringer of the copyright." Id. § 501(a). On its face, that language unambiguously encompasses and proscribes "intermediate copying". Walker, 602 F.2d at 863-64; see also Walt Disney Productions v. Filmation Associates, 628 F. Supp. 871, 875-76 (C.D. Cal. 1986).
In order to constitute a "copy" for purposes of the Act, the allegedly infringing work must be fixed in some tangible form, "from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device." 17 U.S.C. § 101. The computer file generated by the disassembly program, the printouts of the disassembled code, and the computer files containing Accolade's modifications of the code that were generated during the reverse engineering process all satisfy that requirement. The intermediate copying done by Accolade therefore falls squarely within the category of acts that are prohibited by the statute.
Accolade points to a number of cases that it argues establish the lawfulness of intermediate copying. Most of the cases involved the alleged copying of books, scripts, or literary characters. See v. Durang, 711 F.2d 141 (9th Cir. 1983); Warner Bros. v. ABC, 654 F.2d 204 (2d Cir. 1981); Miller v. Universal City Studios, Inc., 650 F.2d 1365 (5th Cir. 1981); Walker v. Time Life Films, Inc., 615 F. Supp. 430 (S.D.N.Y. 1985), aff'd, 784 F.2d 44 (2d Cir.), cert. denied, 476 U.S. 1159, 90 L. Ed. 2d 721, 106 S. Ct. 2278 (1986); Davis v. United Artists, Inc., 547 F. Supp. 722 (S.D.N.Y. 1982); Fuld v. NBC, 390 F. Supp. 877 (S.D.N.Y. 1975); Cain v. Universal Pictures Co., 47 F. Supp. 1013 (S.D. Cal. 1942). In each case, however, the eventual lawsuit alleged infringement only as to the final work of the defendants. We conclude that this group of cases does not alter or limit the holding of Walker.
The remaining cases cited by Accolade, like the case before us, involved intermediate copying of computer code as an initial step in the development of a competing product. Computer Assoc. Int'l v. Altai, Inc., 23 U.S.P.Q.2D (BNA) 1241 (2d Cir. 1992) ("CAI"); NEC Corp. v. Intel Corp., 10 U.S.P.Q.2D (BNA) 1177 (N.D. Cal. 1989); E.F. Johnson Co. v. Uniden Corp., 623 F. Supp. 1485 (D. Minn. 1985). In each case, the court based its determination regarding infringement solely on the degree of similarity between the allegedly infringed work and the defendant's final product. A close reading of those cases, however, reveals that in none of them was the legality of the intermediate copying at issue. Sega cites an equal number of cases involving intermediate copying of copyrighted computer code to support its assertion that such copying is prohibited. Atari Games Corp. v. Nintendo of America, Inc., 18 U.S.P.Q.2D (BNA) 1935 (N.D. Cal. 1991); SAS Institute, Inc. v. S&H Computer Systems, Inc., 605 F. Supp. 816 (M.D. Tenn. 1985); S&H Computer Systems, Inc. v. SAS Institute, Inc., 568 F. Supp. 416 (M.D. Tenn. 1983); Hubco Data Products v. Management Assistance, Inc., 219 U.S.P.Q. (BNA) 450 (D. Idaho 1983). Again, however, it appears that the question of the lawfulness of intermediate copying was not raised in any of those cases.
In summary, the question whether intermediate copying of computer object code infringes the exclusive rights granted to the copyright owner in section 106 of the Copyright Act is a question of first impression. In light of the unambiguous language of the Act, we decline to depart from the rule set forth in Walker for copyrighted works generally. Accordingly, we hold that intermediate copying of computer object code may infringe the exclusive rights granted to the copyright owner in section 106 of the Copyright Act regardless of whether the end product of the copying also infringes those rights. If intermediate copying is permissible under the Act, authority for such copying must be found in one of the statutory provisions to which the rights granted in section 106 are subject.
B. The Idea/Expression Distinction
Accolade next contends that disassembly of computer object code does not violate the Copyright Act because it is necessary in order to gain access to the ideas and functional concepts embodied in the code, which are not protected by copyright. 17 U.S.C. § 102(b). Because humans cannot comprehend object code, it reasons, disassembly of a commercially available computer program into human-readable form should not be considered an infringement of the owner's ...