| Sega Enterprises Ltd. vs Accolade, Inc. | |
|---|---|
| Court | United States Court of Appeals for the Ninth Circuit |
| Full case name | Sega Enterprises Ltd vs Accolade, Inc. |
| Date decided | Oct. 20, 1992 |
| Citation(s) | 977 F.2d 1510 (9th Cir. 1992) |
| Judge(s) sitting | William Canby, Stephen Reinhardt, and Edward Leavy |
Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), is a significant case in American intellectual property law. The case involved several overlapping issues, including the scope of copyright, permissible uses for trademarks, and the scope of fair use for computer code.[1]
This case had two significant holdings. First, copying for the purpose of reverse engineering was likely to be fair use, and second, that the trademark laws do not protect the use of a trademark as a lock-out or authentication mechanism.
Contents |
In the late 1980s, Sega became concerned about software and hardware piracy in Southeast Asia, and particularly in Taiwan. Taiwan was not a signatory of the Berne Convention on copyright, limiting Sega's legal options. However, Taiwan did allow prosecution for trademark infringement. As a result, the Sega Genesis III incorporated a technical protection mechanism intended to facilitate trademark suits against companies producing pirate Genesis games. When a game cartridge was inserted, the console would check for the presence of the string "SEGA" at a particular point in the memory contained in the cartridge. If the string was present, the console would display the message: "PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD." If not, the game wouldn't run. [2]
Accolade, a video game developer, was a legal but unlicensed third-party vendor of Genesis-compatible games. Prior to the release of the Genesis III, they had reverse-engineered a number of Sega games and noted the presence of the 'SEGA' string. Accolade engineers suspected it would at some point be used as an authorization technique and had incorporated the same string into their own games at the appropriate location.
On October 31, 1991, Sega filed suit in the United States District Court for the Northern District of California. Sega raised two primary issues: first, that causing the console to display the Sega message was falsely using the Sega trademark and second, that Accolade's reverse engineering had infringed Sega's copyright. On April 3, 1992, the district court ruled that Sega was likely to prevail at trial, and issued a preliminary injunction on behalf of Sega, prohibiting future sales by Accolade of Genesis-compatible games incorporating the Sega message or using the results of the reverse engineering. Accolade appealed to the Ninth Circuit, which overruled the district court. The opinion of the court was given by Judge Stephen Reinhardt.
Accolade had reverse engineered several of Sega's video games in order to develop their own games that would be compatible with Sega’s Genesis console. In doing so, it was undisputed that Accolade actually did copy Sega’s copyright protected object code. The Ninth Circuit held, however, that this copying constituted fair use.[3]
To reach this result, the court analyzed the four fair-use factors. The factors are: (1) the purpose and character of the use, (e.g., is the use commercial? Educational?); (2) the nature of the copyrighted work; (3) the amount and substantiality of the copied material in relation to the copyrighted work as a whole; and (4) the effect on the market.
On the first factor, the court concluded that the purpose and character of Accolade’s use was commercial, but only minimally so. The court stated that Accolade’s use was “intermediate,” and only intended to discover the functional and thus unprotected elements of Sega’s games. Accolade took this functional information and then produced its own games, and according to the court, added to the promotion of creative expression, which is a core principle of the Copyright Act. Therefore, the court found that the first factor weighed in Accolade’s favor.
The court's discussion of the second factor highlighted the unique challenges of applying copyright law to software. Ideas embedded in, or functional elements of software are not protected by copyright, but expression of those ideas – the code – is protectable; but how can someone access the functional idea without copying the protected code? Essentially, the court concluded that the only way to get to the unprotected functional elements in the software was for Accolade to copy the entire protected expression of those functional elements, and therefore, this factor, the nature of the copyrighted work, also weighed in Accolade's favor.
Regarding the third factor, the amount copied, the court reiterated that Accolade had copied entire Sega programs. However, Accolade extracted the functional aspects and then wrote their own expressive code, thus ultimately using only minimal amounts of protected material in the final Accolade game. The court afforded this factor little weight.
The court determined that the fourth factor, effect on the market, also weighed in Accolade’s favor. A court may not find fair use if an infringing work would take the place of the original work in the market. But the court notes that the Copyright Act was not intended to create monopolies, it was intended to foster creativity. Thus, the court finds that Accolade’s largely original work is merely an acceptable market competitor of Sega's work. While natural market competition might have a negative financial effect on Sega, the court found that the benefit to consumers compelled a finding that the fourth factor weighed in Accolade’s favor. Therefore, the court found that Accolade had engaged in fair use.[4]
The Sega code in question, which Accolade incorporated into their games, caused the Genesis system to display the message "Produced by or under license from Sega enterprises ltd". Sega argued that Accolade had infringed their trademark by releasing games that displayed this message without Sega's authorization. Accolade, in turn, argued that Sega was at fault for displaying this message and falsely claiming credit for Accolade's games.
The 9th Circuit held for Accolade. The evidence showed that Accolade had no intent to mislead consumers. Accolade's game packaging had a prominent label saying "not authorized by Sega." The Sega message was only displayed as a byproduct of necessary steps to get the games to run, In contrast, Sega deliberately was trying to limit competition in the video games market—an impermissible grounds for falsely claiming credit for games produced by a legitimate competitor.[4]