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Sega Enterprises Ltd. v. Accolade Inc.
977 F.2d 1510 (9th Cit. 1992)

If you owned a Sega Genesis at any time in your life, chances are you will NEVER forget the singsong jingle Sega played every time you started up your system. Who would have thought that the unforgettable sound effect you grew to love (or hate) had a secret agenda?

The inclusion of Sega’s logo during the beginning of every game actually started out as part of an anti-piracy measure, and became the flashpoint of an important copyright lawsuit affecting reverse engineering and the gaming industry in 1992. The developer and publisher Accolade, who brought games like “Ishido” and “Turrican” to gamers, wanted to bring their games to the new Sega Genesis system in the early nineties. However, Sega only allowed officially licensed games play on the Genesis system, and used the anti-piracy measure to enforce this policy. After reverse engineering the Sega anti-piracy code, and including the functionality of that code in their ported games, Accolade was able to sell their games without buying an official license from Sega.

Not amused by Accolade bypassing its financially-beneficial licensing program through reverse engineering, Sega filed a lawsuit against Accolade for copyright infringement. Sega alleged that Accolade infringed on the copyrighted anti-piracy code to port Accolade’s games, but Accolade claimed defended itself by saying that this was necessary to make Accolade products compatible with Sega’s console, and thus should be considered fair-use. The Ninth Circuit Court of Appeals agreed.

The court recognized the possible fair use implications, and proceeded to determine whether Accolade’s actions, while detrimental to Sega’s anti-piracy practices, may have a greater “public benefit” and be considered a fair use. In order to determine whether a use of a copyrighted work is a fair use, a court considers 1) the purpose and character of the alleged infringing use (e.g., commercial, educational, research, etc); 2) the nature of the copyrighted work (creative versus factual/functional); 3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole (e.g., did the alleged infringer take 90% of the copyrighted work; did the infringer take the “heart” of the copyrighted work; or was only a de minimus amount used); and 4) the effect on the potential market for the copyrighted work. Judge Reinhardt stated that the actions of Accolade would not hurt Sega’s game sales, for the important part of the game is the content, not the compatibility code segment that Accolade reverse engineered. An individual will purchase one game over the other based on content and creativity, neither of which was copied by Accolade. Accolade, by standing up to the licensing fees demanded by Sega, essentially represented the independent gaming community.

The court understood that if more game developers were able to bring their products to market because of a lack of licensing fees, the increase in suppliers would have a two-fold impact on the market. The more companies supplying video games, the lower the price of video games will fall. Also, with the influx of new games in the market, the content of every game will have to improve to separate each game from the others.

In addition, the court believed that Accolade had no way to make their product compatible with the Sega Genesis other than to reverse engineer Sega’s copyrighted code. The unique nature of machine code meant that the only way to make the code human-readable was to disassemble it, and only then could one study the code and understand the functional ideas behind it (functional aspects and ideas contained in a work are never copyrightable).

For these reasons, Reinhardt’s decision declared that “[w]here there is good reason for studying or examining the unprotected aspects of a copyrighted computer program, disassembly for purposes of such study or examination constitutes a fair use.” Accolade could disassemble Sega’s code and copy it to study the anti-piracy measures. As long as Accolade’s actions were beneficial to the public, the court saw no reason to uphold Sega’s copyright infringement claim. Accolade, by standing up to the licensing fees demanded by Sega, essentially represented the independent gaming community. Software and hardware developers soon began to reexamine their anti-piracy measures and licensing fees in view of this ruling, which established initial legal guidelines for reverse engineering as fair use.

(With thanks to Mike Harkness for his assistance in the preparation of this post.)
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