FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ALTERA CORPORATION, 

Plaintiff-counter- Nos. 03-17323 claimant-defendant- 03-17334 Appellee,

D.C. No.

v.  CV-99-21134-

CLEAR LOGIC, INCORPORATED, JW/PVT

Defendant-counter- OPINION claimant-plaintiffAppellant. 

Appeal from the United States District Court

for the Northern District of California

James Ware, District Judge, Presiding

Argued and Submitted

April 12, 2005—San Francisco, California

Filed September 15, 2005

Before: Procter Hug, Jr., Warren J. Ferguson, and

Pamela Ann Rymer, Circuit Judges.

Opinion by Judge Hug;

Concurrence by Judge Rymer

13303
COUNSEL

David M. Heilbron and C. William Craycroft, Bingham

McCutchen LLP, East Palo Alto, California, for the appellant.

Karl J. Kramer, Morrison & Foerster LLP, Palo Alto, California, for the appellee. 

Sandeep Jaggi, Milpitas, California, for amicus curiae LSI

Logic Corporation. 

OPINION

HUG, Circuit Judge: 

This case involves an infringement action by Altera Corporation (“Altera”) against Clear Logic Incorporated (“Clear

ALTERA v. CLEAR LOGIC 13307
Logic”) under the Semiconductor Chip Protection Act of

1984, 17 U.S.C. §§ 901-14 (“SCPA”). Altera also brought

state law claims against Clear Logic for intentionally inducing

Altera’s customers to breach their software license agreements with Altera and also for intentional interference with

those contractual relations. A jury found for Altera on all

claims and a judgment was entered for $30.6 million in damages, $5.4 million in prejudgment interest and $394,791.68 in

costs. The district court judge also entered an injunction preventing Clear Logic from engaging in those activities against

Altera. We affirm the judgment and the injunction. 

I.

Overview

Filling the gap between copyright law and patent law, the

SCPA aims to protect the substantial investment of innovative

firms in creating the semiconductor chips that are “at the vortex” of the modern information age. H.R. Rep. No. 98-781, at

2 (1984); S. Rep. No. 98-425 at 7-9. These chips operate

microwave ovens, televisions, computers, robots, Xray

machines, and countless other now indispensable apparatuses.

S. Rep. No. 98-425 at 7-9. Each chip carries its own blueprint.

Pirate firms can strip the layers of a semiconductor chip and

replicate the design at a cost substantially lower than the original firm’s investment. Id. 

Altera and Clear Logic are competitors in the semiconductor industry. Altera manufactures programmable logic devices

(“PLDs”), which are chips that can be programmed to perform various logic functions. A customer uses Altera’s

MAX+PLUS II software to program the PLD to perform the

desired function.1 The software helps to route the functions

1Altera sells chips to companies that use those chips to perform logic

functions in devices they produce, not to individual consumers. For example, a company that manufactures printers might purchase PLDs from

Altera to perform the functions necessary to operate the printer. 

13308 ALTERA v. CLEAR LOGIC
through the thousands of transistors that make up the PLD,

ideally achieving the maximum functionality for the particular

function desired. Because the PLD can be programmed and

reprogrammed, the customer, working with Altera, can continue to work with the PLD and the software until the PLD

meets the customer’s exact needs. This process can take

months. 

Clear Logic manufactures a different type of chip:

Application-Specific Integrated Circuits (“ASICs”). These

chips are designed to perform one specific function and cannot be programmed by the customer. They use less power, are

smaller and, for a customer with a large order, are often

cheaper. Customers will sometimes start with PLDs and

switch to ASICs once they have determined exactly what they

need the chips to do. Traditionally, a company that converts

from PLDs to ASICs must again start from a high level of

description and work toward the end product, the ASIC. This

can take a few months and there is a substantial risk that even

after the initial attempt, the first chip will not work and more

time and money will have to be invested in perfecting the

product. 

Clear Logic works from a different business model. When

customers program Altera devices, using the Altera software,

a file called a bitstream is generated. Clear Logic asks customers to send the bitstream to Clear Logic, and Clear Logic

uses the bitstream to create an ASIC for the customer. Clear

Logic only produces ASICs that are compatible with Altera

chips. The laser process Clear Logic uses to create chips with

the bitstream allows for a turnaround time of just a few

weeks, and rarely produces an incompatible chip. 

Faced with the loss of millions of dollars in business,

Altera has challenged Clear Logic’s business model. In the

district court, Altera argued that Clear Logic infringed its

rights under the SCPA by copying the layout design of its registered mask works for three families of chip products. Clear

ALTERA v. CLEAR LOGIC 13309
Logic denied the infringement and asserted an affirmative

defense of reverse engineering. The jury returned a verdict in

favor of Altera on the infringement claim. 

In addition, Altera alleged state law claims based on a permitted use provision in its software licensing agreement. Customers can access two versions of the Altera software: one is

a free version available on the internet, the other requires a

subscription fee but includes additional benefits. In either

case, the user must agree to the terms of a license before using

the software. The license agreement has taken several forms,

but Altera’s Vice President of Software and Tools Marketing,

Timothy Southgate, testified that it was unlikely any customers were still using older versions of the software because it

is not compatible with some of the newer products. Each time

the software is updated, the customer must agree to the latest

version of the licensing provision. A provision was added to

the software license agreement in the early 1990’s to prevent

competitors from taking advantage of the software. The current version of the use provision, added to the agreement in

1999, provides that customers may “use the Licensed Programs for the sole purpose of programming logic devices

manufactured by ALTERA and sold by ALTERA or its

authorized distributors (the “Permitted Use”).” The earlier

version did not include the word “sole,” but was otherwise

similar. 

Based on that provision, Altera asserted state law claims for

inducing Altera’s customers to intentionally breach their

license agreements with Altera and also for intentionally

interfering with those contractual relations. Clear Logic

argued that those claims were preempted by federal copyright

law and additionally alleged that the licensing agreements

constitute copyright misuse. The district court found as a matter of law that the claims were not preempted and also denied

as a matter of law the copyright misuse defense because there

was no allegation of copyright infringement. The jury found

for Altera on these claims as well. 

13310 ALTERA v. CLEAR LOGIC
After the jury trial, pursuant to a stipulation of the parties,

the district court determined damages, awarding Altera $30.6

million in damages, $5.4 million in prejudgment interest, and

$394,791.68 in costs. In addition, the court issued a permanent injunction preventing Clear Logic’s activities that were

found to violate Altera’s rights under the SCPA and to induce

the breach of Altera’s software licenses with its customers. 

On appeal Clear Logic does not contest the amount of the

damage award, only its liability for those damages. It also

does not contest the specific terms of the injunction. It contends that the district judge misinterpreted the application of

the SCPA, and improperly instructed the jury concerning the

defense of reverse engineering. Clear Logic also contests liability under the state law claims. 

II.

The Semiconductor Chip Design Process and the

Semiconductor Chip Protection Act

Clear Logic and Altera define the stages and terms relating

to the chip design process differently.2 According to Altera,

the layout is “the physical arrangement of the components on

the chip.” The architecture is comprised of “the components

and the structures that are physically arranged within the

chip.” Clear Logic argues that the architecture is essentially

a block diagram showing the basic arrangement of the chip.

From this conceptual plan, the designer creates floor plans

that show the arrangement of functional modules, focusing on

how the designer will group major components. The floor

plan and the architecture are both at high levels of abstraction.

The designer next creates an electrical schematic, which is a

2Altera filed a Motion to Strike, objecting to several portions of Clear

Logic’s Reply Brief. We grant Altera’s motion to strike with respect to the

discussion of the evidence at page 23 of Clear Logic’s reply brief, but

deny the remainder of the motion. 

ALTERA v. CLEAR LOGIC 13311
two-dimensional abstract drawing. After this, a layout

designer creates a three-dimensional layout design which

includes the specific placement of all of the elements of the

chip and is used to make the glass masks that are printed onto

the chip. 

Despite their disagreement over the specific definitions of

industry terms and the specific steps in the process of chip

design, Altera and Clear Logic agree that chip design starts

with a high level idea and moves toward the placement of

individual transistors on a chip in several layers. Ultimately,

the schematics and floor plans are used to develop the specific

placement of every transistor that will eventually go on the

chip. Glass disks are etched with the pattern for each layer of

the chip, and these glass disks, called masks, are printed onto

the semiconductor chip, one layer at a time, by photolithography.3

 S. Rep. No. 98-425 at 2-3. Generally, there are eight to

twelve layers to the chip, each of which requires a separate

mask. Id. The series of all of the masks is the mask work. 

Reverse engineering has long been an accepted practice in

the semiconductor chip industry. By photographing and

chemically dissolving each layer of the chip, a second company can recreate the entire mask work for any chip. The process allows legitimate analysis of chips to spur innovation and

improvement on existing designs, but also makes direct copying of chips feasible. S. Rep. No. 98-425 at 4. At the behest

of the semiconductor industry, Congress sought to protect this

important facet of the American economy, and indeed of

modern American society, while preserving the validity of

reverse engineering as an appropriate form of competition. 

[1] After extensive debates, Congress passed the Semiconductor Chip Protection Act in 1985, creating sui generis pro3There are other ways of fixing the mask work on the chip, but the

SCPA is intended to protect that pattern regardless of the technological

process that takes it from idea to chip. 

13312 ALTERA v. CLEAR LOGIC
tection for mask works embodied in semiconductor chip

products. The Act borrows heavily from copyright law, and

was initially proposed as an extension of existing copyright

protection. S. Rep. 98-425 at 9; S. Rep. No. 98-425 at 12-13

(1984) (analogizing mask works to technical drawings or

audiovisual works subject to copyright protection). In analogizing semiconductor chips to traditional areas of copyright

law, the legislative history notes that, just as a plagiarist who

copies only one chapter of a book may be held liable for

infringement, a person may be liable for copying a part of a

mask work if it is a qualitatively important portion that results

in substantial similarity. S. Rep. No. 98-425 at 16-18. The

realities of the business world, however, would purportedly

make it impractical for a copyist to copy a part of a chip but

create the rest of the chip independently. Id. Where chips

appeared to be similar, Congress assumed that admitting

expert testimony to assist in determining whether subtle

changes in a mask work layout were significant would resolve

the problem of distinguishing a copy from a legitimate reverse

engineering attempt in most cases. Id.

The SCPA defines a “mask work” as 

a series of related images, however fixed or encoded

— 

(A) having or representing the predetermined, threedimensional pattern of metallic, insulating, or semiconductor material present or removed from the layers of a semiconductor chip product; and 

(B) in which series the relation of the images to one

another is that each image has the pattern of the surface of one form of the semiconductor chip product.

17 U.S.C. § 901(a)(2). A semiconductor chip product, in turn,

is 

ALTERA v. CLEAR LOGIC 13313
the final or intermediate form of any product— 

(A) having two or more layers of metallic, insulating, or semiconductor material, deposited or otherwise placed on, or etched away or otherwise

removed from, a piece of semiconductor material in

accordance with a predetermined pattern; and 

(B) intended to perform electronic circuitry functions. 

17 U.S.C. § 901(a)(1). 

[2] The SCPA grants the owner of a mask work the exclusive rights to reproduce the mask work and to “import or distribute a semiconductor chip product in which the mask work

is embodied.” 17 U.S.C. § 905. The Act does not, however,

extend protection “to any idea, procedure, process, system,

method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated,

or embodied in such work.” 17 U.S.C. § 902(c). 

Before trial, the district court granted in part Altera’s summary judgment motion regarding the scope of the SCPA. The

court held that “Altera’s layout is fixed in the final chip product: the placement of the components and their interconnection lines on the actual chip are created using masks which are

the physical embodiment of the layout design chosen by

Altera design engineers. Thus Altera’s layout design is more

than a mere idea. It is the blueprint for the layout of the semiconductor chip.” The court concluded that “the Act is broad

enough to cover the type of claims made by Altera,” but left

for the jury the factual question of whether Altera had proven

infringement. Relying on Brooktree Corp. v. Advanced Micro

Devices, Inc., 977 F.2d 1555 (Fed. Cir. 1992), the only case

to date to examine the SCPA, the court explained that “copying groupings of transistors and interconnection lines may

13314 ALTERA v. CLEAR LOGIC
constitute a violation of the Act.”

4

 The ruling on Altera’s

motion for summary judgment involved a purely legal issue

which we review de novo. 

In Brooktree, the plaintiff alleged that the defendant company had copied its ten-transistor SRAM cell. 977 F.2d at

1563. The court stated that “If the copied portion [of the mask

work] is qualitatively important, the finder of fact may properly find substantial similarity under copyright law and under

the Semiconductor Chip Protection Act,” even if other portions of the chip were not copied. Id. at 1564 (citations omitted). The district court had appropriately allowed the jury to

determine whether the copying of the layout of a cell within

the chip was an infringement of the act. Id. at 1565. 

Altera asserts that the placement of groupings of transistors

on the chip was copied, and does not specifically address the

layout of the transistors within those groupings. Clear Logic

argues that the placement of the groupings is a system or an

idea and is not entitled to protection under the SCPA. We

reject this contention; the boundaries and organization of

these groupings are more than conceptual. As both John Reed

and John Turner testified, these groupings are physically present in the mask work. 

Commentators have suggested analyzing the levels of

abstraction in the production of a computer program or a

mask work to identify the distinction between ideas and

expression, and the degree of similarity, in these formats. See

4 Nimmer on Copyrights § 13.03 (2005) (comparing the analysis of broad ideas, plots, structure, dialogue, or sequence of

events in a novel or play to the levels of abstraction in creating a computer program); Copyright Protection for Semiconductor Chips: Hearings on H.R. 1028 Before the House

4Brooktree was a case that originated in a district court in the Ninth Circuit, and thus, the Federal Circuit stated that it applied Ninth Circuit law

in addressing the SCPA claim. 

ALTERA v. CLEAR LOGIC 13315
Subcomm. on Courts, Civil Liberties, and the Administration

of Justice of the Comm. on the Judiciary, 98th Cong. 316-21

(1983) (letter and article submitted by Eric W. Petraske,

patent attorney) (identifying ideas from electrical information,

geometric information about component placement, size,

shape, circuit design within the mask level). Our own cases

have suggested such an approach is appropriate. See Data

East USA, Inc. v. Epyx, Inc., 862 F.2d 204, 207-09 (9th Cir.

1988). Under this approach, we identify the broad idea behind

the design and assess each successive step in the design process, identifying the point at which the idea becomes protectable expression. See Computer Assocs. Int’l, Inc. v. Altai, Inc.,

982 F.2d 693, 706-12 (2d Cir. 1992) (as amended) (explaining

the abstraction-filtration-comparison test for computer programs). 

[3] In considering the chip design process, we recognize, as

do the parties, that with each step, the ideas become more

concrete until they are finally expressed in the layout of the

transistors in the mask work. The customer’s idea is at the

highest level of abstraction, and the schematics and floor

plans convey more concrete ideas, designating how the chip

may be structured or organized. These drawings are preliminary sketches that would not be protected under traditional

copyright principles. Copyright Protection for Semiconductor

Chips: Hearings on H.R. 1028 Before the House Subcomm. on

Courts, Civil Liberties, and the Administration of Justice of

the Comm. on the Judiciary, 98th Cong. 116-17 (1983) (statement of Dorothy Schrader, Copyright Office). It is not until

the level of the mask work, the piece of the process that Congress chose to protect, that there is an expression of that idea.

Those ideas that are physically expressed in the mask work

are subject to protection under the SCPA. 

[4] The district court correctly determined that the organization of the groupings is physically a part of the mask work.

The mask work is structured according to the groupings that

Altera highlighted and the district court correctly allowed the

13316 ALTERA v. CLEAR LOGIC
jury to determine whether those similarities constituted an

infringement of the act. Unlike the outline of an article or the

chapters in a book, these groupings physically dictate where

certain functions will occur on a chip and describe the interaction of parts of the chip. The placement of logic groupings in

a mask work is not an abstract concept; it is embodied in the

chip and affects the chip’s performance and efficiency as well

as the chip’s timing. In accordance with the Federal Circuit’s

holding in Brooktree, it is the province of the jury to determine whether those aspects of the mask work are material,

and whether the similarity between the mask works is substantial. 977 F.2d at 1570. The district court did not err in

finding that the organization of the groupings of logic functions on Altera’s mask works, and the interconnections

between them, was protected under the SCPA. The arrangement of the transistors within those blocks is also entitled to

protection under the SCPA, but, as in Brooktree, the jury

determines whether the similarities are more important than

the differences. Id. 

III.

Reverse Engineering

[5] The SCPA specifically protects the right of

(1) a person to reproduce the mask work solely for

the purpose of teaching, analyzing, or evaluating the

concepts or techniques embodied in the mask work

or the circuitry, logic flow, or organization of components used in the mask work; or 

(2) a person who performs the analysis or evaluation

described in paragraph (1) to incorporate the results

of such conduct in an original mask work which is

made to be distributed. 

17 U.S.C. § 906. This reverse engineering provision explicitly

protects industry practices and encourages innovation. The

ALTERA v. CLEAR LOGIC 13317
second mask work must not be “substantially identical to the

original,” and as long as there is evidence of “substantial toil

and investment” in creating the second mask work, rather than

“mere plagiarism,” the second chip will not “infringe the original chip, even if the layout of the two chips is, in substantial

part, similar.” Brooktree, 977 F.2d at 1566 (quoting MathiasLeahy Memorandum at S12,917). The legislative history, relying on the testimony of industry representatives, indicated that

most cases would probably present clear cut evidence of

direct copying or of innovation and that in cases falling into

the gray area between outright copying and complete originality, the courts should consider the presence or absence of a

paper trail by the second firm. See id. (summarizing relevant

statements from the legislative history discussing reverse

engineering and paper trails). A firm that simply copied

another firm’s mask work would have no evidence of its own

investment and labor, whereas a legitimate reverse engineering job would require a trail of paper work documenting the

analysis of the original chip as well as the development of an

independent design. Id. The district court in this case

instructed the jury that this was a factor to be considered in

determining whether Clear Logic had proven a valid reverse

engineering defense. 

In Brooktree, the Federal Circuit analyzed the defendant’s

paper trail, but held that “the sheer volume of paper” was not

dispositive. Id. at 1569. The trail in that case was susceptible

to the interpretation that the defendant copied the chip. The

court held that the jury was entitled to weigh the evidence and

consider the differences in the chips as well as the similarities,

and could find the similarities sufficient to invalidate the

reverse engineering defense. Id.

In this case, Clear Logic challenges the district court’s formulation of one of the reverse engineering jury instructions.

We look to the instructions as a whole to determine whether

they fairly and accurately cover the substance of the law.

Swinton v. Potomac Corp., 270 F.3d 794, 802 (9th Cir. 2001).

13318 ALTERA v. CLEAR LOGIC
We do not reverse the judgment if the alleged error in the jury

instructions is harmless. Tritchler v. County of Lake, 358 F.3d

1150, 1154 (9th Cir. 2004). 

The district court instructed the jury that 

A defendant does not infringe the mask works of a

plaintiff if the defendant can prove by a preponderance of the evidence that it has engaged in legitimate

reverse engineering. A question on the verdict form

asks you to indicate whether you find that the defendant has proved that it has — that it engaged in legitimate reverse engineering. To establish a legitimate

reverse engineering defense, Clear Logic must prove

by a preponderance of the evidence, the following

requirements: 

Number 1. That Clear Logic reproduced Altera’s

mask works solely for the purpose of teaching, substantially analyzing, or substantially evaluating nonprotectable concepts or techniques embodied in

Altera’s mask works; and, 

2. That Clear Logic did not use or copy any of

Altera’s protectable expression in the Clear Logic

chips, but rather used only the non-protectable concepts or techniques embodied in Altera’s mask

works in developing clear logic’s own chips, which

contain an original layout design. 

(Tr. 1478-79) (emphasis added). The judge continued to

instruct the jury that 

the law actually permits a competitor to reproduce

the mask work if that reproduction is done solely as

a step in a process of creating its own original mask

work. A mask work is original as long as it exhibits

any minimal degree of creativity in any aspect of the

ALTERA v. CLEAR LOGIC 13319
mask work layout. The requisite level of creativity

for originality is extremely low; even a slight amount

will suffice. 

Notice that I use the term “legitimate” reverse

engineering. In the process of reverse engineering,

the competitor is allowed to photograph and reproduce a registered mask work. If the competitor uses

this information to reproduce a substantially identical mask work, as for example a virtual photocopy,

the competitor has not engaged in legitimate reverse

engineering. 

Legitimate reverse engineering would start with

photographing and reproducing the mask work, but

the photograph and reproduction is used for the purpose of study and analysis, and then the competitor

must combine this study and analysis with its own

engineers’ engineering efforts to yield its own original mask work. 

Because the new mask work is designed to be

interchangeable with the registered mask, it may be

substantially similar to the registered mask work. 

(Tr. 1481-82). 

The question on the verdict form pertinent to the defense of

reverse engineering stated: 

Did Clear Logic prove that it reproduced Altera’s

mask works solely for the purpose of analysis to

develop its own original layout design, namely one

which is not substantially identical to components or

groupings of components or interconnections on the

corresponding Altera mask work which are material

and original? 

13320 ALTERA v. CLEAR LOGIC
Answer as to each mask works which is the subject of this action. A “Yes.” answer is a finding that

the defense of legitimate reverse engineering was

proved. A “No.” answer is a finding that the defense

of legitimate reverse engineering was not proved. 

The jury responded “No” with respect to each mask work,

finding that Clear Logic had not established a reverse engineering defense for any of the chip families. 

[6] The SCPA’s reverse engineering provision allows copying the entire mask work. It does not distinguish between the

protectable and non-protectable elements of the chip as long

as the copying is for the purpose of teaching, evaluating, or

analyzing the chip. Although the product created from that

analysis must be original, the process of studying the chip is

not limited to copying ideas or concepts. The district court’s

instructions initially define “legitimate reverse engineering”

to allow copying and analyzing only “non-protectable concepts or techniques.” This is an incorrect statement of the law.

[7] The district judge’s instructions in this case were

extremely thorough; he made a real effort to make the instructions on this complex subject understandable to the jury. The

instructions on the reverse engineering defense extend for

several pages of the transcript. The later instructions correctly

state the law applicable to the defense of reverse engineering

and remedy the initial incorrect statement. They explain that

it is permissible to reproduce “a registered mask work” as a

step in the process of creating an original chip, so long as the

purpose of reproducing the chip is appropriate. The district

judge correctly explained that only minimal ingenuity is necessary for a second chip to qualify as original, and he emphasized the distinction between substantial identity and

substantial similarity. As the court in Brooktree discussed, the

similarities in a chip may outweigh the differences. 977 F.2d

at 1570. In this case, there was sufficient testimony about both

the similarities and the differences in the mask works to allow

ALTERA v. CLEAR LOGIC 13321
a jury to determine whether the Clear Logic mask works were

original as defined under the Act. The incorrect statement in

the instructions was not prejudicial error. 

As our opinion in In Re Asbestos Cases stated: 

Prejudicial error results when looking to the instructions as a whole, the substance of the applicable law

was [not] fairly and correctly covered. The instructions and interrogatories must fairly present the

issues to the jury. If the issues are fairly presented,

the district court has broad discretion regarding the

precise wording. 

847 F.2d 523, 524-25 (9th Cir. 1988) (internal citations and

quotation marks omitted, alteration in original). In the case at

hand, the interrogatory (or question) presented to the jury was

clear and concise and correctly stated the law. It is significant

that this was the statement of the law to which the jury particularly responded. We hold that, viewing the instructions and

the interrogatory as a whole, the legal issue was fairly presented to the jury. 

IV.

Copyright Preemption and the State Law Claims

In addition to Altera’s claims under the SCPA alleging

infringement of Altera’s mask works, Altera alleged that

Clear Logic caused Altera customers to use Altera software in

violation of its software licensing agreement. Clear Logic

argues that the state law claims related to the software licensing agreement are preempted by federal copyright law. The

Copyright Act specifically preempts “all legal or equitable

rights that are equivalent to any of the exclusive rights within

the general scope of copyright.” 17 U.S.C. § 301(a). The

rights protected under the Copyright Act include the rights of

reproduction, preparation of derivative works, distribution,

13322 ALTERA v. CLEAR LOGIC
and display. 17 U.S.C. § 106. Whether copyright preemption

applies is a question of law reviewed de novo. Waits v. FritoLay, Inc., 978 F.2d 1093, 1099 (9th Cir. 1992). 

The district court found that the Copyright Act did not preempt Altera’s state law intentional interference claims based

on the “sole use” provision because the claims included an

“extra element” not included within the Copyright Act’s protections. We agree with the district court. 

If a state law claim includes an “extra element” that makes

the right asserted qualitatively different from those protected

under the Copyright Act, the state law claim is not preempted

by the Copyright Act. Summit Mach. Tool Mfg. v. Victor CNC

Sys., 7 F.3d 1434, 1439-40 (9th Cir. 1993); Bowers v. Baystate Techs Inc., 320 F.3d 1317, 1323-24 (Fed. Cir. 2003).

Most courts have held that the Copyright Act does not preempt the enforcement of contractual rights. See Bowers, 320

F.3d at 1324-25 (noting that “most courts to examine this

issue have found that the Copyright Act does not preempt

contractual constraints on copyrighted articles”); Nat’l Car

Rental Sys., Inc. v. Computer Assocs. Int’l, 991 F.2d 426, 431

(8th Cir. 1993) (“National’s use of the licensed programs constitutes an extra element in addition to the copyright rights

making this cause of action qualitatively different from an

action for copyright.”); ProCD, Inc. v. Zeidenberg, 86 F.3d

1447 (7th Cir. 1996) (noting that “courts usually read preemption clauses to leave private contracts unaffected”). We find

the logic of these cases persuasive here. 

In ProCD, the Seventh Circuit considered a situation similar to the circumstances of this case. A consumer purchased

ProCD’s software and used it in a manner contrary to the

terms of the shrinkwrap license; he put the information on a

website and made it available to companies at a fee lower

than ProCD’s rate, although the terms of the license allowed

only for private use. 86 F.3d at 1454-55. Likewise, Altera’s

customers use software to create a bitstream (which is essenALTERA v. CLEAR LOGIC 13323
tially information) and provide that information to Clear

Logic, despite the terms of the agreement that restrict the customers to using that information for programming Altera

products. The right at issue is not the reproduction of the software as Clear Logic argues, but is more appropriately characterized as the use of the bitstream. Similarly, the Eighth

Circuit distinguished between use and reproduction in

National Car Rental Systems, 991 F.2d at 432, specifically

holding that use is a qualitatively different right. Id.

[8] We find these cases compelling. A state law tort claim

concerning the unauthorized use of the software’s endproduct is not within the rights protected by the federal Copyright Act, and accordingly, we affirm the district court’s ruling rejecting preemption. 

V.

Copyright Misuse

Finding no clear authority for extending the doctrine of

copyright misuse beyond “its logical place as a defense to a

claim of copyright infringement,” the district court rejected

Clear Logic’s argument that Altera’s license agreements

should not be enforced because they operate as “illegal tying

arrangements because Altera is using its copyright in its programming software to control competition in an area outside

the copyright, i.e. Altera’s chip hardware.” We review this

question of law de novo, and we affirm the district court’s ruling. See Waits, 978 F.2d at 1099. 

In Practice Management Information Corp. v. American

Medical Association, we adopted the doctrine of copyright

misuse, specifically describing the doctrine as a “defense to

copyright infringement.” 121 F.3d 516, 520 (9th Cir. 2001)

(emphasis added); see also A&M Records v. Napster, Inc.,

239 F.3d 1004, 1026-27 (9th Cir. 2001) (discussing copyright

misuse as an affirmative defense). The Fifth Circuit has dis13324 ALTERA v. CLEAR LOGIC
cussed copyright misuse as an “unclean hands defense” which

“forbids the use of the [copyright] to secure an exclusive right

or limited monopoly not granted by the [Copyright] Office

and which is contrary to public policy to grant.” Alcatel USA,

Inc. v. DGI Techs, Inc., 166 F.3d 772, 792 (5th Cir. 1999)

(alterations in original, internal citations omitted). 

[9] When copyright misuse applies, we do not allow

enforcement of the copyright for the period of misuse. Practice Mgmt Info Corp., 121 F.3d at 520 & n.3. Because the

remedy for copyright misuse is equitable, it makes little sense

to allow Clear Logic to proceed on an independent claim for

copyright misuse when there has been no allegation of copyright infringement. Cf. Sony Computer Entm’t, Inc. v. Connectix Corp., 203 F.3d 596, 608 (9th Cir. 2000) (refusing to

consider copyright misuse where Sony had not established a

likelihood of success on the merits sufficient to merit injunctive relief on a claim of copyright infringement). We have

already rejected Clear Logic’s copyright preemption argument. We cannot now void the license agreements under the

pretext of refusing to enforce a copyright that has not been

asserted. Copyright misuse is not a defense to the state law

claims asserted by Altera. 

VI.

The District Court’s Interpretation of the

Software License Agreement

In denying Clear Logic’s motion for summary judgment,

the district court found, as a matter of law, that “if [Altera’s]

software is used to create a bitstream, which is in turn used

to program a Clear Logic device, the software has necessarily

been used to program the Clear Logic device.” Such a use

would be contrary to the permitted use provision in Altera’s

software license agreement, which provides that users may

“use the Licensed Programs for the sole purpose of programming logic devices manufactured by ALTERA and sold by

ALTERA v. CLEAR LOGIC 13325
ALTERA or its authorized distributors.” Clear Logic urges

the court to take extrinsic evidence into consideration and

reach a more limited reading of the license provision. We

review the denial of a motion for summary judgment de novo,

and finding no error in the district court’s interpretation of the

contract, we affirm. Lee v. Gregory, 363 F.3d 931, 932 (9th

Cir. 2004). 

Under California law, extrinsic evidence is admissible if

the language of the contract is “reasonably susceptible” of the

meaning urged by the parties. Pacific Gas and Electric Co. v.

G.W. Thomas Drayage & Rigging Co., 442 P.2d 641 (Cal.

1968). Thus, even if the language appears unambiguous on its

face, the court must first make a preliminary determination

whether the evidence is relevant to prove a meaning of which

the instrument is reasonably susceptible. Banco do Brasil,

S.A. v. Latian, Inc., 285 Cal. Rptr. 870 (Cal. Ct. App. 1991).

Thus, the parties may introduce evidence to explain the terms

of the contract, but they may not introduce evidence of terms

not specifically included in the contract or evidence that contradicts the terms of the contract. Id. at 891; see also

Brinderson-Newberg Joint Venture v. Pacific Erectors, Inc.,

971 F.2d 272, 277 (9th Cir. 1992). 

As Clear Logic reads the contract, the permissible use provision covers only the use of the software, but not the “output

of the program, including the bitstream file.” The district

court initially rejected this argument, finding that “the unambiguous language of the software license provides that the

Altera software may be used to program an Altera device. If

the software is used to create a bitstream, which in turn is

used to program5 a Clear Logic device, the software has nec5Clear Logic makes much of the district court’s use of the term “program” with respect to the Clear Logic devices. But if “create” is substituted for “program” in the district court’s statement, the result is the same.

The importance is not whether a Clear Logic device can be programmed,

but that the end device is not an Altera product. 

13326 ALTERA v. CLEAR LOGIC
essarily been used to program the Clear Logic device.” In its

order denying Clear Logic’s motion to reconsider, however,

the district court stated that it had “thoroughly reviewed Clear

Logic’s extrinsic evidence for a second time” and found that

the evidence did not support Clear Logic’s interpretation of

the terms. 

[10] The intent of the parties is the governing notion of

contract law. Altera’s intent is clear from the language of its

license agreement: Altera sought to prevent competitors from

benefitting from its software. The district court correctly gave

effect to the terms of the contract and the intent of the parties

and we affirm the district court’s denial of Clear Logic’s

motion for summary judgment on that issue. 

VII.

Clear Logic’s Motion for Judgment as a

Matter of Law on Altera’s State Law Claims:

The Validity of the License Agreements

Finally, Clear Logic argues that Altera should have been

forced to prove which customers were subject to which

licensing provision, and whether each of those contracts was

valid. We review the district court’s denial of Clear Logic’s

motion for judgment as a matter of law de novo, Bell v. Clackamas County, 341 F.3d 858, 865 (9th Cir. 2003), viewing the

evidence in the light most favorable to Altera. Reeves v.

Sanderson Plumbing Prod., Inc., 530 U.S. 133, 149-50

(2000). 

Altera argues that it did not have to prove that any specific

customers were parties to specific provisions, because tortious

interference “arises from interference with the contractual

relationship, not from interference with any specific contract.”

Altera cites Ramona Manor Convalescent Hospital v. Care

Enterprises, 225 Cal. Rptr. 120, 126 (Cal. Ct. App. 1986) to

support that claim. The language in that case, however, refers

ALTERA v. CLEAR LOGIC 13327
to the allegedly infringing party’s intent at the time of the

conduct in question. When the defendant performs the act that

causes the interference, the defendant need not know exactly

who is a party to the contract, so long as he knows he is interfering with a contractual relationship. Id.; see also Sebastian

Int’l. v. Russolillo, 162 F. Supp. 2d 1198, 1203-04 (C.D. Cal.

2001) (taking note of this distinction); Rest. 2d Torts § 766

(Comment p) (noting that the person inducing a breach must

be aware that there is a contract, but need not know the specific parties to the contract). For purposes of alleging the two

state law torts Altera has alleged, interference with contractual relations and inducing breach of a contract, Altera must

prove not only that Clear Logic knew a contract existed, but

must prove, as an element of the breach of contract claim, that

a valid contract existed. The terms of a contract on paper,

with no evidence that any parties agreed to those terms, do not

prove the existence of a valid contract. 

[11] Nonetheless, the district court properly denied judgment as a matter of law. The permitted use restriction was

added to the Altera software licensing agreement in 1996, and

the word “sole” was added in 1999. The addition of the word

“sole” makes the intent clearer, but does not alter the legal

operation of the terms. Furthermore, the printed bitstreams

Altera submitted at trial identify the version of the software,

and therefore the version of the permitted use restriction at

issue. Renewing a software subscription includes renewal of

the licensing agreement, so that customers must agree to an

updated version of the licensing agreement periodically, and

few customers are likely to maintain an older version of the

software because the older version may not support newer

product lines. Altera customers cannot use the software, and

therefore create the bitstreams, without agreeing to the licensing agreement, including the permitted use restriction. In

essence, a valid contract is a prerequisite to the creation of a

bitstream from Altera software, and the jury could logically

conclude that valid contracts were formed via the Altera

licensing agreements before customers sent bitstreams to

13328 ALTERA v. CLEAR LOGIC
Clear Logic. We therefore affirm the district court’s denial of

judgment as a matter of law on the final claim. 

Conclusion

The judgment of the district court and the permanent

injunction are AFFIRMED. 

RYMER, Circuit Judge, concurring: 

I agree that the district court’s instructions did not constitute reversible error on the record presented to us for review.

As the district court held, the selection, combination and

arrangement of electrical components in the mask works

(which it called the “mask work layout design”), including the

placement, orientation, and interrelationship of groupings of

transistors and interconnection lines are protectible. 

However, I write separately for two reasons. First, to

emphasize that our decision today does not mean that the

SCPA protects chip functionality or provides protection to

chips in any way synonymous with the protections provided

through patent law. To the extent our opinion or the district

court’s rulings pertain to functionality, it is in the context of

a case where the experts differed with each other (and even

occasionally with themselves) about what the layout design

amounts to, and what the architecture of the semiconductor

chips at issue is in relation to the organization of components,

groupings of transistors, and interconnecting lines. Based on

the state of the evidence, I cannot say that the district court

erred in allowing the jury to consider the entirety of the mask

works for both chips including not only the design layout of

the transistors, but also how these transistors came together on

the chip to form components and how both chips placed interconnecting lines between those components and groups of

transistors. Each side capitalized on the instructions, Clear

ALTERA v. CLEAR LOGIC 13329
Logic arguing that the differences in how it laid out its transistors led to substantial and original design differences

between its family of chips and Altera’s chips, while Altera

argued that the way it grouped its transistors into different

components and placed interconnecting lines between those

components was original to Altera and substantially copied by

Clear Logic. In this way, on the facts adduced in this particular case, the jury could decide whether the expression of those

elements in Altera’s family of chips was original and substantially similar to the expression of those same elements in

Clear Logic’s family of chips. 

Second, to suggest that this is the type of case in which it

might have been useful to have a court-appointed, independent expert. Neutral definitions and a common understanding

of the underlying technology would have been extremely

helpful as background for determining whether the chips

should have been compared for substantial similarity only at

the transistor level, only at the component level, or at some

level in between. 

I salute the district court and the parties for having held a

tutorial on the technology. It was undoubtedly valuable to the

district judge. The only problem is, it was unreported (which

is understandable, as a principal benefit of a tutorial is the

opportunity for informal exchange) and thus, it was unavailable to assist us. In future cases where such formats are used

— and I encourage it, having benefitted from similar tutorials

when I served as a district judge — I urge district judges and

litigants to consider the possibility of videotaping the tutorial

for whatever assistance it may be to the court of appeals. 

13330 ALTERA v. CLEAR LOGIC