Source: http://jolt.richmond.edu/v1i1/liberman.html
Timestamp: 2016-07-25 00:10:11
Document Index: 618312955

Matched Legal Cases: ['§ 117', '§\n117', '§ 106', '§\n117', '§ 117', '§ 117', '§ 301', '§ 154', '§ 101', '§ 102', '§ 102', '§ 301', '§ 106', '§ 710', '§ 1', '§ 59', '§ 757', '§ 12', '§ 109', '§ 109', '§ 109', '§ 109', '§ 178', '§ 186', '§\n51', '§ 117', '§ 106', '§ 106', '§\n51', '§ 51', '§ 101', '§ 107', '§ 102', '§ 107', '§ 117', '§ 117', '§ 261']

Cite As: Michael Liberman, Comment, Overreaching Provisions in Software License Agreements, 1 RICH. J.L. & TECH. 4 (1995) <http://www.richmond.edu/jolt/v1i1/liberman.html>[**]. I. Introduction
{1} Historically, software license agreements
emerged as the most popular means of protection of proprietary
rights in computer software. As a common form of contract and
trade secret protection, software licenses coexist with other
forms of intellectual property rights such as patent and copyright.
The importance of these forms of protection has recently increased.
Where the licensor fails to consider the implications of the relation
between these forms of protection, the licensor's attempts to
maximize contractual protection while restricting the licensee's
activities regarding the licensed software may result in overreaching.
Under these circumstances, a court may invalidate the license
agreement in whole or in part.
{2} Software license agreements serve several
functions in transactions involving the transfer of computer technology.
One of the most important legal functions is protection of the
proprietary rights of the licensor in the transferred software.
Other functions include controlling the revenue streams generated
by licensed software and determining the rights and responsibilities
of the parties regarding the performance of the licensed technology.
Issues related to these functions encompass the applicability
of Article 2 of the Uniform Commercial Code, including offer and
disclaimer of warranties, determining the appropriate types of
licenses to utilize, such as single user/CPU licenses, site/enterprise
licenses, and network/concurrent licenses.[1]
{3} Although these issues are important,
they are beyond the scope of this paper. The paper focuses primarily
on the contractual protection of the intellectual property rights
of the licensor, limitations on such protection imposed by federal
copyright law and instances where the license agreement may be
unenforceable due to overreaching. Since there is no black letter
legal definition of what constitutes overreaching, this paper
defines overreaching as defeating oneself "by going too far
or by doing or trying to gain too much."[2]
{4} Section II explores the role and functions
of the software license agreement in the context of the interrelations
between patent, copyright, trade secret and contract law.
{5} Section III discusses instances of
overreaching and the leading court decisions invalidating software
{6} Section IV analyzes the rationale of
the court decisions, their practical implications, and ways of
avoiding overreaching provisions in contractual arrangements.[3]
II. Applicability of Different Branches of Law to
{7} Proprietary rights in computer software
can be protected by copyright, patent, trade secret and contract
law. Originally, the two most common means of software protection
were those available under contract law and trade secret law.
Later, copyright law became another prominent form of protection.
Only recently has patent protection for computer software become
{8} Trade secret, copyright and patent
law are "static" forms of protection in the sense that
they may exist independently of any underlying business transactions
and do not necessarily require any transfer of intellectual property
from one party to another. In contrast, the need for a license
agreement usually arises as one of the contractual forms of protection
when the underlying business transaction involves the transfer
of intellectual property, such as computer software. In this sense,
a software license agreement is a "dynamic" form of
{9} Transactions involving the transfer
of computer software are subject to both federal and state laws.
Generally, state law governs contractual and trade secret aspects
of the transaction, while federal law governs aspects related
to patent, copyright and antitrust issues.[4]
{10} The United States Supreme Court has
addressed the interrelation between federal and state law numerous
times.[5] The Supreme Court has consistently
held that state laws must yield when they directly or indirectly
afford protection that clashes with the objectives of federal
patent or copyright law.[6] As the Court stated
in Sears, Roebuck & Co. v. Stiffel Co., when state law
touches upon the area of patent or copyright statutes, the benefits
of the federal policy may not be denied by state law.[7]
{11} The objectives of both patent and
copyright laws are based on the power of the Congress "[t]o
their respective Writings and Discoveries."[8]
{12} A patent gives an inventor "the
right to exclude others from making, using, or selling the invention
throughout the United States."[9] In order
to qualify as a patentable invention, the "process, machine,
manufacture, or composition of matter, or ... improvement thereof"[10] must meet rigorous requirements of novelty,
utility and non-obviousness, codified in sections 101, 102 and
103 of the Patent Act.[11] Because of the
historical difficulty of defining computer software as patentable
subject matter, patents were used less often than copyright for
the protection of software. However, this has recently changed.
{13} Copyright law applies to "original
works of authorship fixed in any tangible medium of expression"[12] and "[i]n no case does copyright protection
for an original work of authorship extend to any idea, procedure,
regardless of the form in which it is described, explained, illustrated,
or embodied in such work."[13] Therefore,
copyright protects the expression of an idea but not the idea
itself. Copyright protection begins from the moment the work is
fixed in a tangible form. According to the Copyright Act, federal
copyright law preempts all other "legal or equitable rights
general scope of copyright . . . and [that] come within the subject
matter of copyright . . . . "[14]
{14} There is no dispute that computer
software is subject matter that can be protected under copyright
law. After the 1980 amendment, the Copyright Act contains language
specifically covering both literal and non-literal elements of
computer software.[15] Literal elements include
both source and object code.[16] Non-literal
elements include user interface and the structure (architecture)
of the program. Although courts may differ as to the rationale
and sequence of logical steps necessary to extract layers and
components of a program structure that can be protected,[17]
the general rule is that non-literal elements of the program can
{15} Among the exclusive rights that copyright
law grants to a copyright owner are the rights to perform or authorize
copying, modifying (preparing derivative works), displaying and
distributing of copies of the program.[18]
Therefore, if the literal and non-literal elements of computer
software can be protected under federal copyright law, the licensor
assumes a certain risk that the contractual protection relied
upon may be ineffective because of federal law preemption.
{16} As a form of contractual protection,
a license agreement may serve several functions. It may establish
the necessary relationships between the parties to effectuate
other forms of protection, for example, trade secret protection.
It may also provide some additional means of protection under
state common law where either federal or state statutory protection
{17} The Uniform Trade Secrets Act codifies
the common law of trade secrets[19] and has
been adopted in some form by a majority of states.[20]
"Trade secret" means
information, including ... a formula, pattern, compilation,
program, device, method, technique, or process, that: (1) derives
disclosure or use, and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.[21]
{18} The factors to be considered in deciding
whether information constitutes a trade secret are set forth in
the Restatement of Torts: (1) the extent to which the information
is known outside of the business; (2) the extent to which it is
known by employees involved in the business; (3) the extent of
measures taken by the owner of the business to guard the secrecy
of information; (4) the value of the information to the owner
of the business and to his competitors; (5) the amount of efforts
expended by the owner of the business in developing the information;
and (6) the amount of efforts which should be expended in order
to properly acquire or duplicate the information by others.[22]
{19} Unlike a patented invention, which
is disclosed to the public, the innovation or software to be protected
as a trade secret should be reasonably kept in secret from the
public. Another distinction is that "unlike the standard
applicable to an applicant for a patent, the trade secret proponent
is not required to prove its claim nationwide."[23]
A license agreement may be a part of reasonable efforts to maintain
secrecy of the information and an essential part of securing trade
secret protection. The license agreement can accomplish this by
contractually establishing confidential relations between the
parties and restricting the dissemination and use of the information
outside of the business of the information owner.
{20} Where necessary elements of trade
secret protection are lacking, a license agreement may create
rights and obligations between the parties which are intended
to protect, by contract, the intellectual property rights of the
licensor.[24] For example, although the standard
of novelty for a trade secret is substantially lower than for
a patent, there is still a requirement that trade secret information
possess at least a minimal degree of novelty.[25]
Where the software at issue is lacking a necessary degree of novelty,
courts have denied trade secret protection.[26]
However, even under such circumstances a license agreement may
protect licensed software as valuable know-how. A program may
be valuable merely because it already exists and performs some
useful function, and the party who acquires the right to use such
a program saves considerable expense on development. In this situation
contractual common law protection created by a license agreement
may be the only protection available for the licensor, and therefore
the only legal means to support the underlying business transaction.
{21} Another benefit of contractual protection
in the form of license agreements is the ability to strengthen
the licensor's position in asserting rights under other forms
of intellectual property protection. For example, including notification
of the licensor's copyright in a license agreement may make it
easier for the licensor (in case of infringement by the licensee)
to recover either damages for the infringement,[27]
or an award of statutory damages. As for trade secrets, license
agreement provisions for confidentiality, reasonable non-competition
and reasonable restriction on the use and distribution of licensed
software may facilitate the licensor's ability to prevent competitors
from obtaining licensed programs. This ability is not automatically
provided by trade secret law.
{22} A license agreement, as opposed to
a sale, allows the licensor to retain the title to the software
which goes into possession of the licensee under the agreement.
This is essential for establishing contractual obligations facilitating
both trade secret and copyright protection of the licensor.
{23} After enactment of the Computer Software
Rental Amendments Act in 1990[28] federal
copyright law prohibits licensees and purchasers from leasing
the computer programs without permission of the copyright owner.[29] There are still significant differences
in the rights of purchasers and licensees. Perhaps the most significant
of these differences is based on the first sale doctrine, under
which a purchaser (as opposed to a licensee) of a copyrighted
item has the right to sell that copy or dispose of it in any way
without the permission of a copyright owner.[30]
By contracting for a license agreement as opposed to a sale, the
owner of the intellectual property retains the right to exercise
control over further disposition of the software. The licensor
can also attempt to contractually restrict certain activities
regarding the licensed software.
{24} There are certain limitations on
what can be accomplished by contractual means where issues of
public policy are involved,[31] especially
relating to restraints on competition.[32]
"The common law courts would require a substantial demonstration
of the need for a restraint. Courts value highly the right to
compete free from contractual restraint and have permitted restraints
no broader than those required by the justification."[33]
{25} Another limitation may be imposed
by the relevant state statute -- "a contract cannot be used
to go beyond the limits of the statutory right. Under our law,
as it has developed, the statutes provide the limits to contract."[34] "This tradition suggests that courts
should not expand the scope of intellectual property rights simply
because owners assert such rights and claim a loss of value if
the rights are not recognized."[35] Vault
Corp. v. Quaid Software confirmed the theory that in addition
to private contractual arrangements, state statutes are without
power to extend the licensor's protection beyond the limits of
the statutory rights established by federal law.[36]
III. Leading Court Decisions Invalidating Software
{26} Adequate employment of software license
provisions gives the licensor an opportunity to effectively protect
its intellectual property rights in licensed software. However,
in some instances the licensor is overzealous in asserting its
rights and stretching them beyond the scope of state trade secret
and contract protection, "trespassing" into the area
of federal copyright or patent law. Ordinarily this occurs when
the licensor tries to use as much protective language as possible
without proper analysis of the licensed software and the interrelation
of state and federal law. According to one commentator,
once lawyers persuaded software developers that they could
not sell their programs like books and instead had to demand
that their customers sign onerous license agreements as a condition
to access to the software, the floodgates were opened for lawyers
to pile into the agreements all protection they could think of
for their clients.[37]
In such cases, the licensor may be exposed to the alleged infringer's
challenge, based generally on the grounds of federal copyright
law preemption. The court decisions discussed in this section
demonstrate that such a challenge may be successful even where
the licensee in fact breaches the license agreement or infringes
the copyright. It has been noted that "in the area of activity
restrictions . . . the courts and legislatures have been somewhat
active, both in setting aside restrictions they perceive as overreaching,
and in providing new law to deal with legitimate concerns that
vendors have had to address through their licenses."[38]
{27} The facts in two of the discussed
cases - Sega Enterprises v. Accolade, Inc.[39]
and Atari Games Corp. v. Nintendo of America[40]
- do not directly involve software licenses. In these cases, both
defendants purchased and reverse-engineered software products
without the permission of the developer and copyright owner. However,
these decisions are discussed here because the prohibition on
copying and reverse engineering of the software is a common provision
for software licenses where the software is licensed in the form
of object code. The rationale of the court decisions in Sega and
Atari is applicable to software license disputes and can serve
as a guideline for the drafter of a license agreement attempting
to avoid overreaching.
{28} Other decisions discussed in this
section deal with software license agreements of different types,
ranging from the box-top (or shrink-wrap)[41]
licenses in Vault Corp. v. Quaid Software[42]
to customized software in Lasercomb America v. Reynolds.[43]
{29} In Vault Corp. v. Quaid Software,
the plaintiff developed a program to protect a certain type of
magnetic disk from unauthorized copying. The defendant copied
plaintiff's program, analyzed how it worked and based on this
analysis, developed its own program. The main purpose of this
program was to defeat Vault's protection scheme. In addition,
the second version of Quaid's software contained approximately
thirty characters copied from Vault's program. The shrink-wrap
license agreement accompanying Vault's software specifically prohibited
the licensee from transferring, sublicensing, renting, leasing,
conveying, copying, modifying, translating, converting to another
programming language, decompiling or disassembling[44]
the licensed software for any purpose without the licensor's prior
written consent.[45]
{30} Vault brought an action seeking an
injunction and monetary damages. The plaintiff asserted that Quaid
committed copyright infringement by (1) copying Vault's program
for the purpose of developing a program designed to defeat the
function of Vault's program, and (2) copying approximately thirty
characters of Vault's program into Quaid's program, which Vault
contended constituted a derivative work.[46]
{31} Vault also asserted two claims based
on state law. First, it contended that Quaid breached the license
agreement by decompiling and disassembling Vault's program in
violation of the Louisiana Software License Enforcement Act[47] ("Louisiana's License Act"). Second,Vault
claimed that Quaid misappropriated Vault's program in violation
of the Louisiana Uniform Trade Secrets Act[48]
(this latter claim was abandoned by Vault on appeal).
{32} The Fifth Circuit relied on the Copyright
Act, which specifically states that
it is not an infringement for the owner of a copy of a computer
program to make or authorize the making of another copy or adaptation
of that computer program [when such new copy or adaptation] (1)
... is created as an essential step in the utilization of the
computer program in conjunction with a machine and that it is
used in no other manner, or (2) ... is for archival purposes
only and that all archival copies are destroyed in the event
that continued possession of the computer program should cease
to be rightful.[49]
{33} The court refused to follow Vault's
interpretation of § 117 under which an exception of §
117(1) would permit the copying of a computer program only for
the purpose of using it as intended by the copyright owner. Therefore,
the court decided that "Quaid did not infringe Vault's exclusive
right to reproduce its program in copies under § 106(1)."[50]
{34} The court then addressed the issue
of the derivative work. The Copyright Act provides that the copyright
owner has an exclusive right to prepare derivative works of the
copyrighted source material.[51] An infringing
derivative work must contain in some form a portion of the copyrighted
work and both works must be substantially similar.[52]
In the case at bar, eighty pages of Quaid's work contained thirty
characters from Vault's program. Vault contended that this sequence
of characters was essential to the operation of its program and
was also crucial to the ability of Quaid's software to defeat
the protective function of Vault's program; therefore, as Vault
argued, the copying was qualitatively significant.[53]
Vault relied heavily on the Whelan Associates decision,
which states that a "court must make a qualitative, not quantitative,
judgment about the character of the work as a whole and the importance
of the substantially similar portions of the work."[54]
{35} The Vault court distinguished
Whelan Assocs. based on the fact that in Whelan Assocs.
the derivative work performed essentially the same function as
the copyrighted work, whereas in Vault, Quaid's and Vault's
programs served opposing functions, and were not substantially
similar. Therefore, the court concluded that Quaid's program did
not constitute a derivative work of Vault's program.[55]
{36} Addressing Vault's claims under Louisiana
state law, the court stated that Louisiana's License Act permitted
the inclusion of such terms as the prohibition of (1) any copying
of the program for any purpose, and (2) modifying and/or adapting
the program in any way, including adaptation by reverse-engineering,
decompilation or disassembly in the license agreement.[56]
The Fifth Circuit agreed with the district court that there were
numerous conflicts between the Louisiana License Act and the Copyright
Act.[57] The district court held that Vault's
shrink-wrap license agreement was a contract of adhesion and as
such it could be enforceable only if the Louisiana License Act
was valid and enforceable itself.[58] Citing
the Supreme Court's decision in Sears, Roebuck, the Fifth
Circuit court decided that Louisiana's License Act clearly touched
upon an area of federal copyright law and was therefore preempted
by federal law.[59] The court concluded that
the provision in Vault's license agreement, which prohibited the
decompilation or disassembly of its program, was unenforceable
under federal law.[60]
{37} In Lasercomb America v. Reynolds,[61] plaintiff developed a die-making software
program called Interact and licensed the object code to Holiday
Steel Rule Company ("Holiday"). The license agreement
contained non-compete provisions which prohibited a licensee from
writing, developing, producing or selling such software during
the term of the license agreement (ninety-nine years in that particular
case).[62] The licensee was further prohibited
from writing, developing, producing or selling or assisting others
in the writing, developing, producing or selling computer assisted
die making software (for the term of the license agreement and
for one year after its termination), directly or indirectly, without
Lasercomb's prior written consent.[63] Nevertheless,
Holiday copied the program in violation of the license terms,
and its programmer, Reynolds, reverse engineered and then slightly
modified Lasercomb's program.[64] Holiday
then sold it as a Holiday software product, PDS-100. Reynolds
developed a function that encrypted the Holiday program's output
in order to hide the origin of the program from the customers.
{38} Lasercomb brought an action for copyright
infringement, breach of contract, fraud, misappropriation of trade
secret, unfair competition and false designation of origin.[65] The district court found for the plaintiff
on all counts.[66] One of the defendant's
contentions on appeal was that it was error for the district court
to reject their copyright misuse defense.[67]
{39} On appeal, the Fourth Circuit decided
that the non-compete clause of the license agreement was anti-competitive
and contrary to public policy.[68] The court
upheld the defendant's copyright misuse defense and held that
the plaintiff's copyright, as well as the license agreement, were
unenforceable.[69]
{40} The court stated that "[t]he
question is not whether the copyright is being used in a manner
violative of antitrust law (such as whether the licensing agreement
is 'reasonable'), but whether the copyright is being used in a
manner violative of the public policy embodied in the grant of
a copyright."[70] Although the defendants
did not sign the license, they were able to prove that at least
one other licensee had signed Lasercomb's standard license agreement
which contained an anticompetitive clause. This was sufficient
for the court to find that copyright misuse was a valid defense
for the defendant. The only count on which the court held for
the plaintiff was fraud.[71]
{41} In Sega Enterprises v. Accolade,
Inc.,[72] the plaintiff, a Japanese company,
brought an action for trademark and copyright infringement and
unfair competition. Sega manufactured the Genesis console which
was used to play video games. The object code which manipulated
the console was stored in read-only memory (ROM) which was commercially
available. The defendant, an American company in the business
of developing computer software, reverse engineered Sega's program
from the object code, analyzed it and developed its own software
for Sega's console using the information acquired by reverse engineering.[73]
{42} The Ninth Circuit held that the reverse-engineering
performed by Accolade satisfied the requirements of fair use.[74] In reaching this decision, the court applied
the four factor test for a fair use defense under copyright law:
purposes; (2) the nature of the copyrighted work; (3) the amount
market or value of the copyrighted work.[75]
{43} As for the first factor, the direct
purpose of Accolade's copying was to study Sega's program in order
to be able to provide the compatibility with Sega's console[76] (although the ultimate goal was to develop
its own software for Genesis). In the court's view, this was enough
for Accolade to be able to assert a fair use defense.[77]
{44} Analyzing the second factor, the
court examined the idea/expression dichotomy. Copyright law protects
an expression of an idea, but not the idea itself.[78]
Therefore, in the court's view, copyright law does not protect
functional elements of computer programs necessary for the operation
of a program, because they are not part of a protected expression.[79] Otherwise, a copyright owner would obtain
patent-like protection without meeting the rigorous requirements
for patentability. The court decided that Sega's software could
be afforded a lesser degree of protection than more traditional
literary works because it contained unprotected aspects that could
not be analyzed without copying.[80]
{45} With regard to the third factor,
the court found that Accolade had copied the entire program.[81] This factor favored the plaintiff. However,
the court concluded that the ultimate use of the copied program
was insubstantial and therefore the third factor was of little
weight.[82]
{46} As to the fourth factor, the court
held in favor of the defendant. The court concluded that the effect
of Accolade's activity upon the potential market was not negative
because it would increase the number of programs offered for Genesis
consumers.[83] The court found that there
was no reason to assume that there would be substantial harm to
the market for Sega's products.[84] Even if
there were some insignificant harm to Sega's market, in the court's
view that was not a sufficient reason for denying Accolade's fair
use defense.[85]
{47} The court concluded, therefore, that
three of the four factors were in the defendant's favor and that
Accolade's copying and reverse-engineering were protected by the
fair use defense. In the court's view, reverse-engineering (along
with the copying of the original program) is permitted under copyright
law where there are no other ways to gain access to the program
and understand functional concepts in order to develop compatible
products.[86]
{48} In Atari Games Corp. v. Nintendo
of America,[87] Atari reverse-engineered
a computer program developed by Nintendo to prevent the use of
unauthorized cartridges on the Nintendo Entertainment System.[88] In order to obtain sufficient information
about Nintendo's system, Atari's former counsel obtained source
code for the security program developed by Nintendo from the United
States Copyright Office under false pretenses. This code was later
used in the process of reverse engineering.[89]
{49} Nintendo alleged that Atari had infringed
on its copyright by copying the source code of the program obtained
from the Copyright Office, copying the program during the reverse
engineering process, and creating programs substantially similar
to Nintendo's program. Nintendo moved for a preliminary injunction
which was granted by the district court.[90]
{50} The Court of Appeals for the Federal
Circuit (CAFC) upheld the injunction but disagreed with the district
court's rationale as to the issue of reverse engineering.[91]
The CAFC held that reverse engineering itself, untainted by the
purloined copy of Nintendo's program, was a fair use because it
was the only way to examine the object code on Nintendo's chip.[92] The court stated that intermediate copying
can be justified as a fair use when it is required by the nature
of the work in order to understand the ideas and processes in
a copyrighted work.[93] However, the CAFC
concluded that, because of its use of a misappropriated copy of
Nintendo's source code, Atari should be denied protection under
the fair use defense.[94]
{51} There is no clear-cut rule that proscribes
a way to avoid overreaching. However, an analysis of leading court
decisions will provide some understanding of the grounds on which
software license provisions may be invalidated.
{52} 1. State trade secret and contract
law are preempted by federal copyright law. This is perhaps the
most important premise for the court decisions that affect the
resolution of all other issues relevant to software license disputes.
Whether the legal or equitable right asserted or prohibited by
the license agreement in question is equal to any of the exclusive
rights within the general scope of federal copyright law is key
to deciding the question of the validity of the license agreement.
{53} To resolve this issue, the courts
appear to differ in the application of the "equivalence of
rights" test. The Vault[95] court,
in invalidating the license agreement and Louisiana's License
Act, found that the provisions of state law clearly conflicted
with federal law but did not directly address the "additional
element" test. In Foresight Resources Corp. v. Pfortmiller,[96] the fifth circuit reached a similar decision,
emphasizing that the plaintiff's claim was based "precisely
upon the same facts as those underlying plaintiff's copyright
infringement claims."[97] The court in
Computer Assocs. v. Altai[98] held
that state law is not preempted where the state claim contains
additional elements (for example, a breach of a confidential relationship)
which change the nature of the cause of action. In other words,
under the "additional element" test, if the elements
of the plaintiff's claim under state law are exactly the same
as the elements of the claim under federal law, state law is preempted.[99]
{54} As the court decisions suggest, in
order to successfully challenge the validity of a license agreement,
the licensee may rely on the doctrine of federal law preemption
in at least three different ways.
{55} Under the first rationale, if state
law affords the licensee fewer rights in the licensed program
than federal copyright law, the license may be held unenforceable.[100] The second option for the licensee is
to raise an equitable defense of copyright misuse.[101]
The third option is to assert a fair use defense under federal
copyright law.[102]
{56} 2. Unreasonable, anticompetitive
non-compete clauses may be used by the infringing licensee as
an equitable copyright misuse defense.[103]
The whole license may be held unenforceable even where the infringing
acts are totally unrelated to the non-compete clause itself.[104] The obvious lesson is to draft non-competition
provisions more carefully and to avoid anticompetitive language
in the license of the copyrighted work. In addition to using a
severability clause, the benefits that a particular provision
can give must be carefully balanced against the dangerous possibility
that if anti-competitive, the whole license agreement becomes
{57} 3. The enforceability of box-top
(shrink-wrap) licenses is highly questionable. The Vault
court unequivocally treated a license of such type as a contract
of adhesion and, therefore, unenforceable.[105]
Although a more recent decision in Step-Saver Data Systems
v. Wyse Technology[106] does not directly
address the issue of overreaching, it provides an important insight
into the rationale that may be applied to the cases of overreaching.
Addressing the disclaimer of warranties made in the box-top license,
the Step-Saver court stated that where the disclaimers
are made available to the potential licensee only after the contract
is formed, section 2-207 of the U.C.C., and not the license itself,
governs the interpretation of the agreement.[107]
Therefore, in the absence of an affirmative act on the part of
a prospective licensee indicating that he or she was aware of
the terms of the box-top license agreement (for example, where
a customer in the computer store fails to read a box-top license
and the licensor attempts to enforce such a license), there is
a significant probability that the court would find overreaching
and hold the license agreement unenforceable in part or in whole.
{58} 4. Courts have held that reverse
engineering and disassembly constitute fair use under certain
circumstances. As the court held in Sega, "we conclude
that where disassembly is the only way to gain access to the ideas
and functional elements embodied in a copyrighted computer program
and where there is a legitimate reason for seeking such access,
disassembly is a fair use of the copyrighted work, as a matter
of law."[108] Although the Sega
and Atari courts did not deal with this issue in the context
of a license agreement, this rationale can be applicable to software
license disputes based on the federal law preemption doctrine.
A similar rationale was employed by the Vault court in
invalidating a software license under Louisiana state law.[109]
{59} 5. When applying the fair use defense
to the copying and reverse engineering of the software products,
courts do not necessarily engage in the analysis aimed at the
precise separation of the protected and unprotected elements of
the programs (similar to the approaches of the Lotus,[110] Computer Assocs.[111]
or Gates Rubber[112] courts) in order
to allow copying and reverse-engineering only for the unprotected
elements of the program (ideas and facts) and disallow it as for
the protected elements (expressions of the ideas). The courts
do not reason that the fair use defense may be applicable only
to the protected elements of the program because the doctrine
of fair use itself is aimed at the justification in some instances
of using the protected elements in a manner which, without the
fair use defense, would constitute infringement. Instead, it was
enough for theSega court to find that allegedly infringing
programs contained some unprotected elements under copyright law
in order to reject plaintiffs' claims for unpermitted copying
and reverse engineering of the whole program.
{60} 6. Judicial interpretation of §
117 of the Copyright Act, as evidenced by the Vault opinion,
does not allow the licensor to control the manner in which the
program may be lawfully used for the purposes of § 117(1)'s
exception to the Copyright Act.[113]
{61} 7. Even where the court is required
to make a qualitative judgment about the importance of the part
of the program copied by an alleged infringer, the court has the
discretion to determine its own criteria for making such a judgment.
Where policy considerations are involved which favor promoting
competition on the market, the plaintiff's argument that the copied
part of the program constitutes the main value of the program
and is crucial for its functioning, as well as the functioning
of the allegedly infringing program, may be rejected, as it was
rejected by the Vault court.[114]
{62} There are a number of tools of contractual
protection available to the parties to a license agreement.[115] A license agreement ordinarily contains
a provision where the parties acknowledge the status of the licensed
program and licensed documentation as confidential/proprietary
information. Confidential/proprietary information (subject to
some additional requirements) is information disclosed to the
licensee by the licensor or some other authorized party. In addition
to the confidential information commonly used in other types of
trade secret/know-how license agreements, software license agreements
allow the licensor to designate research programs, computer software,
program files, source, object and executable codes as confidential.
{63} The Model Software License Provisions
offer a number of clauses which may be used for the protection
of the licensor's proprietary rights and restriction of certain
licensee's activities. These clauses determine: (a) security conditions,[116] (b) non-use obligations,[117]
(c) non-disclosure obligations,[118] (d)
restrictions on unauthorized copying,[119]
(e) disclosure procedures ordered by governmental bodies,[120]
(f) requirements of no removal of proprietary legends,[121]
(g) requirements of reports of third-party misappropriation,[122] and (h) post-termination procedures.[123]
{64} If the licensor wants to minimize
the probability of overreaching while restricting the licensee's
activity regarding the licensed software, it may consider separating
different means of contractual protection. The licensor may then
apply only those contractual clauses or devices which are more
appropriate to the particular software product or its component
(in addition to the means of protection available under federal
copyright and patent law).
{65} A good starting point may be a detailed
and precise definition of the licensed software. The particular
provisions depend on the complexity of the software product. In
some cases, a satisfactory definition may require reference to
a special supplement or appendix, which may also include a detailed
description of important software characteristics.[124]
{66} The licensor may choose to protect
the whole software product by taking advantage of the appropriate
confidentiality provisions. Such provisions could include, among
others, a security conditions clause, a non-disclosure obligation
clause and a non-use obligation clause.[125]
{67} It may be beneficial for the licensor
to apply different means of legal protection to both the software
components which provide interface (compatibility) with hardware
and other "external" software components of the system
(the "ideas and facts" or "functional elements")
and those parts of the program which constitute "the expression
of the ideas."
{68} As for the first group, the analysis
of the Sega and Atari decisions leads to an argument
for the licensor to not cover such software components with the
clause restricting unauthorized copying, duplicating, reverse
engineering, reverse compiling and disassembling as long as the
non-disclosure obligation clause and other relevant clauses adequately
protect the licensor's proprietary rights in these components.
{69} As for the second group of software
components, the use of the clause restricting unauthorized copying,
duplicating, reverse engineering, reverse compiling and disassembling
may be helpful in supplementing and strengthening copyright and
trade secret protection.[126] However, while
drafting such provisions, the licensor has to take into consideration
the limitations imposed on the licensor's exclusive rights conferred
by federal copyright law. Otherwise, a licensor's attempt to prohibit
certain uses of the software,[127] or to
impose stricter limitations on the licensee's right to make copies
or adaptations of the copyrighted program in instances specifically
permitted by § 117,[128] may result
in overreaching. The court decisions in Vault and Lasercomb
support these propositions.[129]
{70} The licensor may also identify crucial
components and treat them as separate parts of the licensed software
system, specifically prohibiting their copying and reverse engineering.
This may help the licensor to avoid a situation similar to that
in Vault, where the defendant Quaid copied and used the
most important and valuable part of the plaintiff Vault's program.
The Vault court did not find infringement on the part of Quaid,
notwithstanding Vault's arguments that the copied part was essential
to its functioning and that the Whelan Associates decision
directed courts to make a qualitative, not a quantitative, judgment
about the importance of the copied part.[130]
{71} The above approach may allow the
licensor to adequately protect different functional components
of the program with different means of legal protection and to
avoid the invalidation of the license agreement because of overreaching.
Even if the licensee reverse engineers the software component
which is not covered by the clause prohibiting unauthorized copying
and reverse engineering, it may not be able to exploit this information
under appropriately drafted non-use obligation and non-disclosure
obligation clauses. At the same time, the license agreement itself
will not be vulnerable to the licensee's allegations of overreaching.
{72} The proposed approach may be illustrated
by the following example. Suppose A company develops for B company
a communication system consisting of hardware and software components.
Hardware is delivered under the contract of sale, and software
is licensed out from A to B.
{73} The licensee, B, develops its own
application programs which run on different computers connected
to the network. In order to interact with each other and to exchange
the application data necessary for their work, the application
programs use the licensed communication software. Logically these
application programs are placed on top of the underlying licensed
communication software, which in turn is placed on top of the
underlying hardware and communication devices.
{74} The communication software consists
of different parts. These parts may be viewed as several layers,
functioning on different logical levels, where programs at each
level are responsible for the realization of the functions designated
to that particular level only. The programs interact with their
counterparts on different computers. In order to communicate with
each other, different programs at the same level of hierarchy
follow special rules of interaction, which are called protocols.
The programs of any level may also interact with other software
(or, in case of the lowest level - hardware) components residing
at the adjacent levels of the vertical hierarchy. The rules governing
such interactions are called interfaces.
{75} Application data, which is being
transmitted from an application program working on one computer
to an application program working on another, is delivered from
the highest logical level of software system to the lowest, being
processed respectively by the programs of each logical level.
Eventually this data is delivered from the programs of the lowest
logical level to the hardware components of the system and transmitted
through the communication devices and communication channels to
the destination computer. There the application data makes its
way up through all logical levels of software components and is
eventually delivered to an application program-addressee.
{76} For the typical software system described
in this example it is common for the licensor to disclose to the
licensee the interface between the programs of the highest logical
level and the application programs presumably developed by the
licensee. The licensed software is rendered useless to the licensee
without this information. However, the interfaces between the
program components of different levels (including the interface
between the lowest-level software components and the hardware)
and the protocols may be proprietary information of the licensor
and thus subject to protection under the license agreement.
{77} Licensed software's primary value
may be enjoyed in two ways. First, the software components of
the lowest level in the logical hierarchy are designed specifically
to facilitate the operation of the underlying hardware and communications
devices. Thus it is possible for the licensee to acquire the use
of the whole system. This information about the interface with
the hardware is crucial for writing software intelligently on
the lowest level. Otherwise, the whole system hierarchy, including
the programs of the higher levels, becomes useless. Thus, the
party obtaining such information acquires the principal ability
to develop its own software and to use underlying hardware and
communication equipment. Such information may be treated as a
"fact," "idea" or "functional element."
Access to this information makes it possible to exploit the whole
system, including both hardware and software components, without
regard to the effectiveness of its particular implementation.
Technically, the interface between the software components at
the lowest level and hardware may be realized through a program.
Where there are only one or few possible ways of interacting through
the use of predetermined codes, the "expression" of
the idea (as implemented in the program) and the "idea"
itself (the concrete codes, or bit combinations, of the interface)
merge into one and may be treated as an "idea," or "functional
element" (in terms of the Sega court). As such, it
is considered unprotected under copyright law.
{78} The second aspect relates to the
performance characteristics of the whole structure of the software
system, including all hierarchy levels. Designing, coding, testing,
system tuning, eliminating mistakes and other stages of the software
life cycle may be much more expensive than hardware components.
The logical structures, algorithms and programming techniques
employed for the realization of the software may be the primary
asset for the party who desires to develop a whole system. The
ready and effective software system provides an advantage for
the party who gets access to such a system. Therefore, the main
value is based upon the practical realization of the programs
as a particular expression of scientific and engineering ideas
which underlie the design of the software system.
{79} The licensor will most likely seek
to protect his intellectual property rights in both aspects of
the licensed software: in operations/development facilitation
and in performance characteristics. Keeping the information concerning
the interface with the hardware secret will prevent unauthorized
development of programs which exploit the hardware, the communications
equipment and the network. Protecting information about the design,
structure and practical implementation of the whole software system
will support the licensor's software market position and prevent
competitors from gaining an unfair advantage over the licensor.
{80} While it may be tempting for the
licensor to invoke as much protective language as possible without
regard to the function and structure of the software, the possibility
of overreaching should be noted. In addition to the security conditions
clause, non-use obligations clause and non-disclosure obligations
clause, the licensor may include provisions prohibiting the licensee
from copying, duplicating, reverse-engineering, reverse-compiling
and disassembling of any part of the licensed software system.
Later, if the licensee copies and reverse engineers the licensed
software, including the components implementing interaction with
the hardware and communication equipment, the licensor may bring
an action for breach of the license agreement. But it may turn
out that the employed provisions are "overinclusive"
and lead to overreaching.
{81} Employed provisions may be appropriate
for protection of the licensor's rights in the second aspect,
i.e. for protection of the design, structure and implementation
of the software system. Most likely, these will be considered
an expression of the idea and will be afforded federal copyright
{82} However, as for the first aspect,
such provisions may lead to overreaching. The prohibition of the
copying and reverse-engineering is intended to apply to the components
of the lowest levels of software hierarchy interacting with the
hardware (as well as to all other components). This may effectively
protect the "ideas," but not the "expressions"
of ideas. It may also make it impossible for the licensee to obtain
the information necessary to provide compatibility between the
software and hardware components. For example, if the licensee
decides to develop its own programs to be used on the hardware
system which the licensee had already acquired, such protection
may not be available for the licensor, according to the Sega
and Atari courts.[131] Under the Vault
decision, if such restrictive provisions are included in the license
agreement and the licensor later brings an action for breach of
a license agreement, the court may hold that the restrictive provisions
touch upon the area of federal copyright law and constitute overreaching.
{83} In addition, the impermissible restriction
on copying and reverse-engineering of the program components responsible
for the compatibility of the software system with the hardware
and communication devices may be interpreted as an intentional
restriction of competitors' access to the market. This may not
only subject the licensor to accusations of antitrust violations,
but also may allow the licensee to successfully raise the copyright
misuse defense, according to the Lasercomb court.[132]
Additionally, this may also lead to an invalidation of the license
agreement because of overreaching restrictions on copying and
{84} Under these circumstances, the licensor
may argue that federal copyright law preemption should not apply
to its claim under state trade secret law or state contract law,
which is valid under the "equivalence of rights" doctrine.[133] The licensor's argument may be premised
upon the contention that its claim includes an extra element -
a breach of confidentiality provision under the license agreement
- which is not required for bringing an action for copyright infringement.
However, the licensor may face significant difficulties defending
{85} In order to be treated as confidential/proprietary,
the information should be disclosed to the licensee by the licensor
or by a third party with the licensor's consent. In the case where
the licensee attempts to reverse-engineer the program, the software
system was obviously delivered in object code, which is readable
by the computer, but is generally unreadable by humans. The very
purpose of reverse-engineering is to translate the program from
object code into source code, which makes further analysis, adaptation
and use of the program possible for the licensee, without having
to gain permission from the licensor. The licensee may therefore
have a valid argument that software in object code is not confidential/proprietary
information because it was not disclosed by the licensor. In fact,
the licensee may argue that the very prohibition of the reverse
engineering in the license agreement is irreconcilable with the
contention that the program was disclosed to the licensee. One
does not have to reconstruct information if it is already disclosed,
and the reverse-engineering constitutes the process of such reconstruction.
{86} Therefore, if the software in object
code was not disclosed to the licensee by the licensor and is
not confidential/proprietary information, then no confidential
relationship as to this information was established between the
parties. The copying and reverse engineering of the object code
does not breach the confidentiality provisions of the license
{87} Hence, the licensor fails to satisfy
the "extra element" test. Under the "equivalence
of rights" doctrine, state law is preempted by federal copyright
law. Accordingly, the licensor most likely has no valid claim
under the described circumstances because the fair use defense
{88} In order to avoid these types of
problems, the licensor has several options.
{89} The licensor may decide to separately
define the software components of the lowest logical level which
interacts with the hardware and communication equipment. Then
he may define the rest of the software system. As to the software
components of the lowest level, the licensor may choose to use
the full range of intellectual property protection provisions,
including security, non-use and non-disclosure clauses, with the
exception of activity-restricting provisions that prohibit reverse-engineering
and equivalent procedures. As to the rest of the software system,
the prohibition of reverse-engineering in addition to security,
non-use, non-disclosure and other protective provisions may be
{90} The licensor may also consider providing
the source code of the components of the lowest level, or disclosing
the information about the interface with the hardware and communication
equipment sufficient to enable the licensee to develop his own
communication software. This allows the licensor to impose stringent
restrictions on the possible use of such information, minimizing
the chance of impermissible exploitation. Under these circumstances,
the licensee loses justification for copying and reverse-engineering
the whole system because of the separation of the whole system
into two functionally distinct parts. Additionally, confidential
relations are established as to the whole system, including the
programs of the lowest level. In other words, this strengthens
the licensor's position for bringing an action under state trade
secret or contract law where the confidential relations are breached
by the licensee. Therefore the licensor obtains an additional
element for its claim, and avoids preemption of its state law
claim by federal copyright law, under the "equivalence of
rights" doctrine.
{91} Another benefit for the licensor
in employing such an approach is premised on the fact that it
establishes a pro-competitive character for the respective non-compete
clause.[134] Thus the possibility of the
equitable defense of copyright misuse and invalidation of the
license agreement on public policy grounds is eliminated. The
discussed approach may be selected when there is an insignificant
chance of the disclosed information being unlawfully acquired
by the licensor's competitors. However, under certain circumstances
such an approach may be unacceptable. Where the practical implementation
of "policing" procedures is too burdensome or expensive
and the probability of misappropriation of disclosed confidential
information by licensor's competitors is too high, the proposed
approach may be impermissibly risky. This is true even if it seems
to be viable from a purely legal standpoint.
{92} As an alternative approach the licensor
may consider the use of a source code escrow package.[135]
This package includes a complete copy of the source code and executable
code of the licensed program, and a complete copy of design documentation
and user documentation. It encompasses complete instructions for
compiling and linking each part of the source code into executable
code, with precise identifications of the components of the system
software necessary to generate executable code from the source
code. Such a source code escrow package should be delivered to
an escrow agent. Certain events can trigger the release of the
source code escrow package from the escrow agent to the licensee
temporarily or permanently during the pre-defined maintenance
period. Ordinarily, such events may include: (a) insolvency or
inability of the licensor to pay its debts as they become due
(permanent release); (b) filing by the licensor a petition for
protection under the Bankruptcy Code (permanent release); (c)
acquiring a business of the licensor by a licensee's competitor
(permanent release); or (d) inability or failure of the licensor
to cure a breach of certain warranties for a predetermined period
of time (in this case, the release is temporary for the period
of time necessary to effectuate any reasonable attempt of the
licensee to cure the breach).[136] If the
licensee obtains the right of access to the source code escrow
package from the escrow agent upon the occurrence of one of these
pre-defined events, the licensee must properly document the occurrence
of such an event. All the materials and information comprising
the source code escrow package should be maintained in strict
confidence and may be used or disclosed only in accordance with
the confidentiality provisions of the license agreement. In case
of a temporary release, the licensee must promptly return all
released materials to the licensor when the circumstances which
caused the release are no longer in effect. It is the licensee's
obligation to promptly respond to the licensor's requests concerning
the use or contemplated use of the source code escrow package
and the information about the licensee's employees having access
{93} Traditionally, one of the main functions
of the source code escrow package is to serve as a protective
tool for the licensee when the licensor faces bankruptcy or insolvency
problems, where the licensor does not fulfill its support or maintenance
obligations or where breaches of warranties take place. However,
such a package may also be effectively employed by the licensor
to avoid overreaching when related to the prohibition on reverse-engineering
of the program object code.
{94} Under the proposed approach, the
parties may agree to the additional mutually acceptable pre-defined
circumstances which will enable the licensee to temporarily obtain
access to the source code or certain parts of the source code.
For example, this would be applicable where the program components
interact with hardware, or where the information is sufficient
to reconstruct the interface between communication software components
and hardware. The licensee's need to obtain the information about
the interface with hardware and communication equipment to make
certain program modifications with its own resources, or develop
its own programs, may be an example of such predetermined events.
If the licensee lawfully obtains access to the source code, it
must comply with the established procedural and confidentiality
requirements under the control of an escrow agent. Furthermore,
the licensee has to properly document the occurrence of an appropriate
event and must maintain the obtained information in strict confidence.
It may be used only in compliance with the non-use obligation
clause, the non-disclosure obligation clause and other relevant
clauses of the license agreement.
{95} Thus, the licensor will be able to
achieve the desired degree of protection without incurring the
risk of court-declared invalidation of the license agreement due
to overreaching.
{96} Overreaching occurs where a license
agreement places impermissible restrictions on the licensee's
activities relating to the licensed software. Under such circumstances,
the license agreement may be invalidated in whole or in part.
Common issues where overreaching takes place are prohibitions
on reverse-engineering coupled with copying of the program, and
non-compete clauses which are anticompetitive.
{97} Often overreaching occurs where the
licensor is trying to contractually obtain patent-like protection
for licensed software without meeting the rigorous requirements
of patent law. It also occurs where the software sought to be
protected contains functional elements unprotected under copyright
law, and where reverse-engineering is the only method available
for the licensee to understand how the licensed software works
to achieve compatibility with other components of its computer
{98} In decisions that hold license agreements
unenforceable because of overreaching, courts rely on the doctrine
of federal law preemption, the fair use defense under federal
copyright law and the equitable defense of copyright misuse. To
resolve the issue of federal copyright law preemption, the courts
employ the "equivalence of rights" doctrine and the
"extra element" test. Moreover, courts are willing to
actively apply public policy considerations aimed at the protection
of the market competition from unreasonable restraints and promoting
the free flow of useful ideas protected under patent law.
{99} To minimize the risk of overreaching,
the licensor may perform an analysis aimed at determining which
elements of the program are either protected or unprotected under
federal copyright law. The licensor should then apply adequate
means of contractual protection to the different elements of the
program, in addition to careful drafting (using a severability
clause) and refraining from anticompetitve provisions.
1292 (3d ed. 1992).
[3] In this paper the pronoun "it"
will be used in reference to the terms "licensor" and
"licensee" unless the context otherwise dictates. The
impersonal pronoun is chosen because, in the context of software
licensing, the licensor and the licensee are ordinarily organizations
and entities as opposed to individuals.
[4] See infra notes 8-14, 19-36 and
[5] See e.g., Sears, Roebuck & Co.
v. Stiffel Co., 376 U.S. 225 (1964) (patent and copyright law);
(patent and copyright law); Bonito Boats, Inc. v. Thunder Craft
Boats, Inc., 489 U.S. 141 (1989) (trade secret and contract law).
[6] Bonito, 489 U.S. at 152. The doctrine
of federal law preemption was later codified in the Copyright
U.S.C. § 301 (1988).
[7] Sears, 376 U.S. at 229 (citing
Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S. 173, 176 (1942)).
[8] U.S. CONST. Art.
U.S.C. § 154 (1988).
[10] 35
[11] 35
U.S.C. §§ 101-103
[12] 17
U.S.C. § 102(a) (1988 & Supp. IV 1992).
U.S.C. § 102(b) (1988 & Supp. IV 1992).
U.S.C. § 301(a) (1988).
[16] See Apple Computer v. Franklin
Computer Corp., 714 F.2d 1240, 1249 (3d Cir. 1983). See infra,
note 44 For a discussion of the terms "source
code" and "object code."
[17] See e.g., Gates Rubber Co. v.
Bando Chem. Indus., 9 F.3d 823 (10th Cir. 1993) (applying a modified
abstraction-filtration-comparison approach); Computer Assocs.
Int'l. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992) (applying an
abstraction-filtration-comparison approach); Whelan Assocs. v.
Jaslow Dental Lab., 797 F.2d 1222 (3d Cir. 1986) (protecting the
structure, sequence and organization of program), cert. denied,
479 U.S. 1031 (1987); Lotus Dev. Corp. v. Borland Int'l, 799 F.
Supp. 203 (D. Mass. 1992), rev'd,
63 U.S.L.W. 2565 (1st Cir. 1995) (applying a levels of formulation
of the idea approach).
U.S.C. § 106 (1988).
[19] 55 AM. JUR. 2D Monopolies
§ 710.3 (1994).
[20] 12 ROGER M.
MILGRIM, MILGRIM ON
TRADESECRETS § 1.01(2)(b) (1994).
Thirty four states have adopted the Uniform Trades Secrets Act.
For a complete list see id.
[21] VA. CODE
ANN. § 59.1-336 (Michie 1992 Replacement
[22] RESTATEMENT OF
TORTS § 757 cmt. b (1939).
[23] Dionne v. Southeast Foam Converting
Packaging, 397 S.E.2d 110, 113 n.2 (Va. 1990).
[24] 2 STEVEN Z.
SZCZEPANSKI, ECKSTROM'S
LICENSING IN FOREIGN AND
DOMESTIC OPERATIONS § 12.02[8], at
12-31 (1995).
[25] Kewanee Oil Co. v. Bicron Corp., 416
U.S. 470, 476 (1974).
[26] See Jostens, Inc. v. National
Computer Systems, 318 N.W.2d 691 (Minn. 1982).
[27] See 2 SZCZEPANSKI,
[28] 17
U.S.C. § 109(b),(e) (Supp. V 1993) (amending 17
U.S.C. § 109 (1988)).
[29] 17
U.S.C. § 109(b).
U.S.C. § 109(a).
[31] RESTATEMENT
(SECOND) OF CONTRACTS § 178 (1979).
[32] Id. § 186. [33]
Edmund W. Kitch, Intellectual Property and the Common Law,
78 VA. L. REV. 293,
303 (1992).
[36] 847 F.2d 255 (5th Cir. 1988); see
infra discussion in Section III.
[37] Thomas M. S. Hemnes, Restraints
on Alienation, Equitable Servitudes, and the Feudal Nature of
Computer Software Licensing, 71 DENV.
U. L. REV. 577, 581 (1994).
[38] Ronald E. Myrick & Penelope S. Wilson,
Licensing Rights to Software, in TECHNOLOGY
LICENSING AND LITIGATION 1993, at 467 (PLI Patents, Copyrights,
Trademarks, and Literary Property Course Handbook Series No. 354,
[41] Box-top, or shrink-wrap, licenses contain
pre-printed terms of the agreement between the software publisher
and the customer which the customer is supposed to accept by opening
the package with a software product. Ordinarily, such terms can
state that the customer has not acquired title to the software
but merely obtained a non-transferable personal license to use
the software. For a detailed discussion of box-top licenses see
David A. Einhorn, Box-top Licenses and the Battle-of-the-forms,
5 SOFTWARE L.J. 401, 418 (1992).
[44] Using programming languages, computer
programmers develop software in the form of source code, which
is readable by humans. The software is then translated into the
object code, in which the program is represented by the combination
of 1s and 0s. Then the software is transformed into the executable
code, which can be run on the computer. As a practical matter,
in order to understand the program and to intelligently and effectively
modify or improve it, programmers need access to the source code.
Reverse-engineering, decompiling and disassembling are functionally
similar procedures of reconstructing the text of the program by
converting software from the forms suitable to usage by the computer
back into the source code.
[45] Vault, 847 F.2d at 257 &
[47] LA. REV.
STAT. ANN. §§
51:1961-1966 (West 1987 & Supp. 1995).
[49] 17
U.S.C. § 117 (1988 & Supp. V 1993).
[50] Vault, 847 F.2d at 261 (referring
U.S.C. § 106(1) (1988 & Supp. V 1993)).
[51] 17
U.S.C. § 106(2) (1988 & Supp. V 1993).
[52] Vault, 847 F.2d at 267 (citing
Litchfield v. Spielberg, 736 F.2d 1352, 1357 (9th Cir. 1984)).
[54] Whelan Assocs. v. Jaslow Dental Lab.,
797 F.2d 1222, 1245 (3d Cir. 1986).
[56] LA. REV.
STAT. ANN. §
51:1964 (West 1987 & Supp. 1995).
[57] Vault, 847 F.2d at 269 (comparing
La. Rev. Stat. Ann. §§ 51:1961-1966 (West 1987 &
Supp. 1995) with 17
U.S.C. §§ 101-810 (1988 & Supp. V 1993).
[58] Vault Corp. v. Quaid Software Ltd.,
655 F. Supp. 750, 761 (E.D. La. 1987), aff'd 847 F.2d 255
[59] Vault, 847 F.2d at 269-70 (citing
Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 (1964).
[66] Lasercomb America v. Holiday Steel
Rule Die Corp., 656 F. Supp. 612, 616 (M.D.N.C.), appeal dismissed,
829 F.2d 36 (4th Cir. 1987).
U.S.C. § 107 (1988 & Supp. V 1993).
[78] 17
U.S.C. § 102(b) (1988 & Supp. V 1993).
[90] Atari Games v. Nintendo of Am., Nos.
88-4805, 89-0027, 89-0824, 1991 WL 57304, at *6 (N.D.Cal. Apr.
11, 1991) aff'd, 975 F.2d 832 (Fed. Cir. 1992).
[95] Vault Corp. v. Quaid Software, 847
F.2d 255 (5th Cir. 1988).
[98] See Computer Assocs. v. Altai,
Inc., 982 F.2d 693 (2d Cir. 1992).
[99] See Page M. Kaufman, Note, The
Enforceability of State "Shrink-Wrap" License Statutes
in Light of Vault Corp. v. Quaid Software, Ltd., 74 CORNELL L. REV. 222, 230
[100] Foresight, 719 F.Supp. at
1010 (citing Vault Corp. v. Quaid Software Ltd., 847 F.2d 255,
270 (5th Cir. 1988)).
[101] Lasercomb America v. Reynolds, 911
F.2d 970, 978 (4th Cir. 1990).
[102] 17
U.S.C. § 107. See also Sega Enters. v. Accolade,
Inc., 977 F.2d 1510 (9th Cir. 1992); Atari Games Corp. v. Nintendo
of America, 975 F.2d 832 (Fed. Cir. 1992).
[105] Vault Corp. v. Quaid Software, 847
F.2d 255, 269 (5th Cir. 1988).
[108] Sega Enters. v. Accolade, Inc., 977
F.2d 1510, 1527 (9th Cir. 1992).
[110] Lotus Dev. Corp. v. Borland Int'l,
799 F. Supp. 203 (D. Mass. 1992), rev'd,
[111] Computer Assocs. Int'l. v. Altai,
[112] Gates Rubber Co. v. Bando Chem. Indus.,
9 F.3d 823 (10th Cir. 1993).
[113] Vault, 847 F.2d at 261. It
is legal for the licensee to perform or authorize, without the
licensor's permission, the copying or adaptation of the program
if the resulted copy or adaptation is "created as an essential
step in the utilization of the program in conjunction with a machine."
§ 117(1).
[115] See generally D.C. Toedt III,
Model Software License Provisions, in THE
LAW AND BUSINESS OF
18-1 to -149 (D.C. Toedt III ed., 1994).
[125] See Toedt, supra note 114. A security conditions clause sets
the standard for the protection of confidential/proprietary information
which should be maintained by the licensee (usually on the same
level as the one for protection of licensee's own confidential
information). A non-use obligation clause prohibits the licensee
from using the confidential/proprietary information during certain
a limited time upon termination of the license (except as for
the benefit of the licensor or with a licensor's prior approval).
A non-disclosure obligation clause contains standard provisions
prohibiting disclosure of the confidential/proprietary information
to any third party without prior consent of the licensor, restricting
the personnel of the licensee which shall have access to the proprietary
information and determining the procedures to which such personnel
shall comply in order to have confidentiality of the disclosed
proprietary information being enforced.
[127] 17
[128] 17
U.S.C. § 117.
[129] See Vault Corp. v. Quaid Software,
847 F.2d 255 (5th Cir. 1988); Lasercomb America v. Reynolds, 911
F.2d 970 (4th Cir. 1990).
[131] Sega Enters. v. Accolade, Inc., 977
F.2d 1510, 1514 (9th Cir. 1992); Atari Games Corp. v. Nintendo
of America, 975 F.2d 832, 844 (Fed. Cir. 1992).
[132] Lasercomb America v. Reynolds, 911
F.2d 970, 974 (4th Cir. 1990).
[134] Philip Abromats, Copyright Misuse
and Anticompetitive Software Licensing Restrictions: Lasercomb
America, Inc. v. Reynolds, 52 U. PITT.
L. REV. 629, 653 (1991) ("where noncompete
provisions might actually enhance competition by providing protection
to program developers that would enable them to write software
that would otherwise go undeveloped.").
[135] See Toedt, supra note
114, § 261.1.