Sega Enterprises Ltd. v. Accolade, Inc. is a 1992 decision of the United States Court of Appeals for the Ninth Circuit on whether a competitor may copy a vendor’s program, by disassembling it, in order to learn how to make compatible products. The court held that when disassembly is the only way to reach the unprotected functional elements of a program and the copier has a legitimate reason for seeking them, disassembly is a fair use as a matter of law. It also held that Sega, whose console refused cartridges that lacked a code which made the console display Sega’s trademark, was unlikely to succeed on its trademark claims against Accolade.[1] The decision is one of the best-known US authorities on reverse engineering for interoperability.
Background
Sega developed and sold the Genesis video game console and game cartridges. It licensed its code and its “SEGA” trademark to independent developers, who made Genesis-compatible games in competition with Sega. Accolade was an independent developer that had never been a Sega licensee. It had considered a licence but dropped the idea because the agreement would have made Sega the exclusive manufacturer of all of Accolade’s games.[1]
Accolade worked in two steps. First, it bought a Genesis console and three Sega cartridges, used a decompiler to turn the machine-readable object code into human-readable source code, and studied and annotated printouts to find what the games had in common. It then modified and reloaded the code to test the interface requirements, and wrote a development manual that, according to its engineers, contained only functional descriptions and none of Sega’s code. Second, it wrote its own games from that manual.[1]
Sega had meanwhile become concerned about counterfeit cartridges in Taiwan and other Asian markets, where counterfeiters blanked out the Sega trademark display before reselling games. It built a trademark security system (TMSS) into the Genesis III console. When a cartridge is inserted, the console searches the game program for four bytes spelling “SEGA” (the TMSS initialization code). If it finds them in the right place, the game runs, and the code triggers a display of roughly three seconds reading “PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD”. All Sega cartridges contained the code.[1]
Accolade’s first Genesis III release, “Ishido”, did not run on the new console. A second round of reverse engineering identified the initialization code, which had no function on the original console, and Accolade added it, about 20 to 25 bytes, as a standard header to later games. Each game was 500,000 to 1,500,000 bytes in total. Accolade said it did not know until after the Genesis III shipped in September 1991 that the header also displayed the Sega message.[1]
The dispute
Sega sued on 1991-10-31 for trademark infringement and false designation of origin under the Lanham Act, and on 1991-11-29 added a copyright infringement claim. Accolade counterclaimed for false designation of origin based on the Sega message.[1]
On 1992-04-03 the district court granted Sega a preliminary injunction. It barred Accolade from disassembling Sega’s code, from using or modifying it, from selling Genesis-compatible games created by means that included disassembly, and from selling games that prompt the Sega message. The court rejected Accolade’s fair use defence, finding that Accolade acted for a commercial purpose, that Sega had likely lost sales and that alternatives to disassembly existed. It treated the TMSS code as non-functional on the strength of a Sega employee’s declaration that a game could work on the Genesis III without it, or without showing the message, for about fifty cents of extra cost. On 1992-04-09 it ordered Accolade’s games recalled. The Ninth Circuit stayed the recall order on 1992-04-23 and dissolved the injunction on 1992-08-28, announcing that its opinion would follow.[1]
Decision or outcome
Copyright and fair use
The court (Judges Reinhardt, Canby and Leavy; opinion by Judge Reinhardt) first held that disassembly is copying that falls within the copyright owner’s exclusive rights, rejecting Accolade’s arguments that intermediate copying is not infringement, that section 102(b) of the Copyright Act permits it, and that section 117 (a lawful owner’s right to load a program) authorised it. It held, however, that disassembly can be a fair use under section 107.[1]
On the statutory factors:
- Purpose and character. Accolade was a commercial competitor, but its direct purpose was only to study the functional requirements for compatibility, which the court described as aspects of Sega’s programs not protected by copyright. It wrote its own interface procedures and games, so the commercial aspect was of “minimal significance”. The court also noted a public benefit in the increase in independently designed Genesis games.[1]
- Nature of the work. Programs contain elements dictated by function, efficiency and compatibility, and the court approved the Second Circuit’s approach in Computer Associates v. Altai for separating them. Because object code cannot be read by humans, disassembly is the only way to reach those elements, and it necessarily involves copying. Treating disassembly as always unfair would give the owner a de facto monopoly over functional aspects that Congress excluded from copyright. The court found that chip “peeling” and clean-room programming were not alternatives, because the clean room still needs functional specifications that disassembly supplies.[1] See Computer Associates v. Altai.
- Amount used. Accolade disassembled whole programs, which weighed against it, but the court gave the factor little weight because the ultimate use was limited.[1]
- Market effect. Accolade did not seek to supplant any Sega game, and a consumer might buy both. The court said that an attempt to monopolise a market by making it impossible for others to compete runs counter to the purpose of the Act.[1]
The court concluded that disassembly is a fair use “as a matter of law” where it is the only way to gain access to the ideas and functional elements of a program and there is a legitimate reason for seeking that access. It added that this did not insulate Accolade from a claim of infringement over its finished products, which Sega had reserved the right to bring on remand.[1]
The trademark security system
Sega argued that Accolade infringed its trademark because the Sega message appeared when an Accolade game ran. The court placed primary responsibility for any resulting confusion on Sega. The TMSS regulated access to the console, and Sega had deliberately built a device that both limited access and caused false labelling. Accolade’s only objective was compatibility, and its packaging stated that it was not associated with Sega. The court said that a trademark is misused if it serves to limit competition in the manufacture and sale of a product, and that the effect of the message display, not Sega’s anti-piracy intent, was what mattered under the Lanham Act.[1]
On functionality, the court held that the burden of showing the code was non-functional lay with Sega. A feature is functional if it is essential to use or affects cost or quality, and compatibility with the Genesis III was part of the benefit consumers wanted. The Sega employee’s declaration showed only that someone familiar with the TMSS could engineer around it. It did not establish that a competitor without that knowledge could, or that any alternative method was known in the industry. Sega had also declined to disclose how it modified its test cartridges, and the court noted that a protective order was available to protect sensitive evidence.[1]
The court affirmed in part, reversed in part and remanded. It declined to direct the district court to grant Accolade’s own request for a preliminary injunction, and assessed costs against Sega. It left open that Sega might meet its burden at trial.[1] The opinion is a ruling on a preliminary injunction, and this article does not describe later proceedings.
Significance for software licensing and SAM practice
Sega is a copyright and trademark decision, and the parties had no licence between them. Its fair use holding is nonetheless a reference point for disputes over reverse engineering done to achieve compatibility.
Contract terms can change the position. In Davidson & Associates v. Jung (8th Cir. 2005), the developers of a server that let Blizzard games run without the vendor’s CD key checks had agreed to licence terms banning reverse engineering. The Eighth Circuit held that the contract claim was not preempted and that the interoperability exception in the DMCA did not protect them, because their circumvention allowed unlicensed copies to be played.[2] See Davidson v. Jung.
Congress later added an express reverse-engineering exemption for interoperability to the anti-circumvention rules, limited to acts that do not constitute infringement.[3] See DMCA section 1201 and anti-circumvention.
Lessons learned
- Functional interfaces are not owned through copyright. The court treated the requirements for working with the console as unprotected functional elements and said that a rule against disassembly would hand the vendor a monopoly Congress withheld.[1] When a vendor says that a compatible or replacement product copied its code, ask what was taken, and whether the work was limited to learning the interface.
- Check for a contract. Accolade was not a licensee and was not bound by an end user licence. Where a party has accepted a licence term that bans reverse engineering, courts may enforce it, as in Davidson.[2] Licence managers should read the reverse-engineering clauses in the agreements they sign, and should not assume that the fair use result in Sega overrides them.
- Lock-out design carries legal risk for the vendor. Sega’s console check doubled as a trademark display, and the court held that Sega, not the competitor, was primarily responsible for the resulting confusion.[1] A licensing or access-control mechanism is judged by its effects on competition as well as by its purpose.
- The finished product is judged separately. The fair use holding covered the intermediate copying only. Accolade’s games, and the 20 to 25 byte header it copied into them, remained open to challenge.[1] Keep a record of what was learned from reverse engineering and what was written independently.