Source: http://shk-dplc.com/cfo/articles/self.htm
Timestamp: 2019-04-22 10:50:57+00:00

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Imagine that your client owns a small business, Acme Manufacturing Company. As with most modern small businesses, its word processing and accounting records are computerized, as are the ordering, shipping and inventory information. They also have several computer-operated manufacturing and shipping machines.
Acmes software was installed a few years ago. The software companies are no longer providing support for the software, since they have moved on to more updated versions. Now that the owner thinks about it, one of the companies might have even gone out of business. Even though the software companies are no longer providing support, the acme is not really concerned, since everything is running like it is supposed to (most of the time), and it has an in-house MIS person, Monica Jones, who somehow manages to hold everything together.
Acmes owner has been reading a lot about the impending "Year 2000" crisis. A large proportion of software sold on the market had previously used only two digits to store years as electronic data. For example, 1998 would be read by the computer as 98. A person born in 1953, according to most computers, would be born in 53. The problem is that when the year 00 rolls around, the computer will think it is 1900 rather than 2000.
Software that correctly deals with the change in centuries is known as "Y2K compliant." Since Acmes business is so dependent on computers, even though the owner has been afraid of what the answer will be, he finally asked Jones to check over the software to see if it is up to Y2K standards. After a few weeks, he gets the answer he was afraid of: None of it is.
At 12:01 a.m. on Jan. 1, 2000, if the computer doesnt freeze up completely from being confused about the date, it will think that the shipments set to go out the following week are 100 years overdue. Similarly, the accounts receivable and accounts payable will be, according to the computer, 100 years overdue. George on the production line, ready to retire at the end of the month at age 65, isnt going anywhere as far as the computer is concerned because he hasnt been born yet. The client cant afford to spend thousands of dollars for all new software, but also cant afford to have its computers thinking they are in the middle of the Gilded Age at midnight on Dec. 31, 1999.
But Jones, who had always proven to be resourceful and imaginative, thinks there is a third alternative. From her review of the software, she thinks that she can correct the Y2K bugs herself by has modifying the software. All she needs to do, she thinks, is to reverse engineer the existing software, make a copy of the source code to see how the software operates, and upgrade the software herself.
This sounds rather complicated and technical, but from a financial perspective, the owner thinks its terrific. On the other hand, he has this vague recollection from his business law class that it is illegal to make copies of things and make new versions of someone elses works. Jones "solution" might not be so good after all, since a copyright infringement suit might be even more expensive than the other alternatives. The client comes to you in a quandry -- what should he do.
Fortunately, there are two provisions in the Copyright Act that could allow Acme to upgrade its software without fear of liability. First, under appropriate circumstances it is a "fair use," under 17 U.S.C. 107, to reverse engineer or decompile software to learn about its functionality. Also, 17 U.S.C. 117 allows the owner of a copy of software to modify and upgrade the software that it will operate better on a particular computer.
Computer programmers write program code in a programming language such as Cobol, Basic or C. A programmer trained in a language can read it, understand it, fix it and modify it. However, a computer itself cannot understand source code, so it must therefore be compiled into object code. Generally, software is received by the customer/user only in object-code form, i.e., diskettes or a CD-ROM written in strings of 1s or 0s that are readable by the computer.
The courts have held, however, that reverse engineering software through disassembly, for purposes of studying the softwares functionality, is a fair use. (3) Such reverse engineering, to be a fair use, requires that copies of the source code be made only so a software analyst or programmer can study its functionality; that is, to discern the concepts or ideas underlying the computer code.
Assuming, then, that Acme can legitimately reverse engineer the software on its computer to generate a copy of the source code Jones can read, the next step is to legitimately modify the software so that it will operate properly when the turn of the millennium comes.
Any exact copies prepared in accordance with the provisions of this section may be leased, sold, or otherwise transferred, along with the copy from which such copies were prepared, only as part of the lease, sale, or other transfer of all rights in the program. Adaptations so prepared may be transferred only with the authorization of the copyright owner."
Pursuant to sec. 117(1), a rightful owner of a copy of a computer program can make modifications to the computer program to facilitate the continuing use of the software in operating its business for internal purposes. (9) The first question, however, is who is the "owner" of the copy of the software? Unlike other copyrighted works, such as books, records, pictures, computer software is technically not "sold," it is "licensed." Thus, technically, the licensor is the true owner of each copy of the software.
Since, in our example, Acme paid for its software up front, and its right to keep and use the software is perpetual, it would be considered to be the "owner" of the copy of the software under sec. 117. The next issue is what rights the "owner" of a copy of software has.
In summary, Congress gave owners of a copy of software the right to modify or update the copy for their own use. If the software vendor wishes to prohibit or limit users from making such modifications, it must do so by contract. If the applicable agreement is silent, the software user is allowed to make its own modifications.
Thus, Acmes right to modify and update its software to comply with Y2K standards will depend upon its license agreements with the software suppliers. Unless the license agreement prohibits Acme from making its own modifications, sec. 117 gives it the right, if it is the "owner," to make such modifications for its own use, so long as they are only used in-house and not sold to others. If the license agreement prohibits Acme from making modifications, it is in a difficult position. It could ask permission from the licensor, which may or may not be forthcoming, or it could try to get the licensor to make the necessary upgrades, which Acme will obviously have to pay for.
If the licensor wont agree to allow the upgrades to be made, or wants to charge an unfair price, Acme is in a more difficult position. There is an argument to be made that such a refusal would be a breach of the implied covenant in every contract that neither party will do anything which will injure the rights of the other to receive the fruits of the contract. (17) This is just an argument, however, which can only be won in litigation, which is what Acme doesnt want.
The situation is not very different if the license agreement prohibits modification of the code and the licensor is out of business. In that case, there isnt anyone to get permission from, nor is there anyone to do the work. On the other hand, there also probably isnt anyone who will sue Acme for copyright infringement, either. The problem with taking your chances in that instance is that very often someone will appear out of the woodwork, like a former owner or a bankruptcy trustee, when there is a quick dollar to be made with a lawsuit. Thus hoping not to get caught at doing something wrong in that instance is just as much a crap shoot as in any other instance.
Subject to the clients good faith, it is generally a fair use of copyrighted software to reverse engineer the software it lawfully obtained for the purpose of studying its functionality, and to create a copy of source code from object code through decompilation, so long as the created source code is used only for studying the functionality of the software. The Copyright Act also gives the owner of a copy of software the right to modify or upgrade its own copy of the software to run on its own computers. A licensor, however, can restrict by contract a licensees right to make such modifications.
1. See Atari Games Corp. v. Nintendo of America, 975 F.2d 832, 844 n. 6 (Fed. Cir. 1992).
2. Sega Enterprises, Ltd. v. Accolade, Inc., 977 F.2d 1510, 1518 (9th Cir. 1992).
3. Sega, 977 F.2d 1518-28; Atari, 975 F.2d at 842-45.
4. Atari, 975 F.2d at 843; Sega, 977 F.2d at 1522-23.
5 Sega, 977 F.2d at 1520.
6. Atari, 975 F.2d at 843.
7. Harper & Rowe Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562 (1985).
8. Sega, 977 F.2d 1518-19.
9. Aymes v. Bonelli, 47 F.3d 23 (2d Cir. 1995).
10. Applied Information Management, Inc. v. Icart, 976 F. Supp. 149, 153-54 (E.D.N.Y. 1997).
13. Aymes, 47 F.3d at 26; Foresight Resources Corp. v. Pfortmiller, 810 F. Supp. 1006, 1009-10 (D. Kan. 1988).
14. Foresight Resources, 719 F. Supp. at 1009, quoting Final Report of the National Commission on New Technological Uses of Copyrighted Works 13-14 (1978) (emphasis provided by Foresight court).
15. DSC Communications Corp. v. Pulse Communications, 976 F. Supp. 359 (E.D. Va. 1997); Foresight Resources, supra at 1010.
16. Foresight Resources, supra at 1010.
17. See Association Group Life, Inc. v. Catholic War Veterans of the United States of America, 61 N.J. 150, 153 (1972).
© 1998 Marc S. Friedman, Lindsey H. Taylor and Benedict B. Carmicino. All Rights Reserved.

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