Sega v. Accolade
|Sega Enterprises Ltd. vs Accolade, Inc.|
|United States Court of Appeals for the Ninth Circuit|
|Argued July 20, 1992
Decided October 20, 1992
|Full case name||Sega Enterprises Ltd. vs Accolade, Inc.|
|Citations||977 F.2d 1510 (9th Cir. 1992)|
|Accolade's acts of reverse engineering Sega Genesis software to learn about its security systems and subsequent publishing of unlicensed Sega Genesis games are protected under the fair use doctrine of copyright law. Sega is held responsible for using its security system to place its trademark on Accolade's games.|
|Stephen Reinhardt, William C. Canby, Jr., Edward Leavy|
|Majority by||Stephen Reinhardt|
|15 U.S.C. §§ 1114(1)(a), 1125(a) (Lanham Act); 17 U.S.C. §§ 101, 106, 107, 117 (Copyright Act of 1976)|
Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), is a significant case in American intellectual property law. Stemming from the publishing of several Sega Genesis games by video game publisher Accolade, which had reverse engineered the Genesis in order to publish games without being licensed by Sega, the case involved several overlapping issues, including the scope of copyright, permissible uses for trademarks, and the scope of fair use for computer code.
The case was filed in the United States District Court for the Northern District of California, which ruled in favor of Sega and issued an injunction against Accolade preventing them from publishing any more games for the Genesis and requiring them to recall all of their Genesis games they currently had for sale. Accolade appealed the decision to the United States Court of Appeals for the Ninth Circuit on the grounds that their reverse engineering of the Genesis was protected under fair use. In that case, the Ninth Circuit Court of Appeals struck down the previous decision in the district court and ruled that Accolade's use of reverse engineering to publish Genesis titles was protected under fair use, and that their alleged violation of Sega trademarks was the fault of Sega. The case has since become precedent in matters involving reverse engineering and fair use under copyright law.
In March 1984, Sega Enterprises Ltd. was purchased by its former CEO, David Rosen, along with a group of backers. Hayao Nakayama, one of these backers, was named the new CEO of Sega. With the arcade industry being unsuccessful at the time, Nakayama decided to develop for the home console market. During this time, Sega became concerned about software and hardware piracy in Southeast Asia, and particularly in Taiwan. Taiwan was not a signatory of the Berne Convention on copyright, limiting Sega's legal options in that region. However, Taiwan did allow prosecution for trademark infringement. Though Sega had created security systems in their consoles to keep their software from being pirated and to keep unlicensed publishers out, much like their competitor Nintendo, counterfeiters had discovered ways to prevent the Sega trademark from appearing on their games, bypassing the trademark altogether.
After the release of the Sega Genesis in 1989, video game publisher Accolade began exploring options to release some of their PC game titles onto the console. At the time, however, Sega had a licensing deal in place for third-party developers that increased the costs to the developer. According to Accolade founder Alan Miller, "One pays them between $10 and $15 per cartridge on top of the real hardware manufacturing costs, so it about doubles the cost of goods to the independent publisher." In addition to this, Sega required that it would be the exclusive publisher of Accolade's games if Accolade were to be licensed, preventing Accolade from releasing its games to other systems. To get around licensing, Accolade chose to seek an alternative way to bring their games to the Genesis by purchasing one in order to decompile the executable code of three Genesis games and use it to program their new Genesis cartridges in a way that would allow them to disable the security lockouts on the Genesis that prevented unlicensed games from being able to be played. This was done successfully to bring Ishido: The Way of Stones to the Genesis in 1990. In doing so, Accolade had also copied Sega's copyrighted game code multiple times in order to reverse engineer the software of Sega's licensed Genesis games.
As a result of the piracy and unlicensed development issues, Sega incorporated a technical protection mechanism into a new edition of the Genesis released in 1990, referred to as the Genesis III. This new variation of the Genesis included a code known as the Trademark Security System (TMSS), which, when a game cartridge was inserted into the console, would check for the presence of the string "SEGA" at a particular point in the memory contained in the cartridge. If and only if the string was present, the console would run the game, and would briefly display the message: "PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD.". This system had a twofold effect: it added extra protection against unlicensed developers and software piracy, and it forced the Sega trademark to display when the game was powered up, making a lawsuit for trademark infringement possible if unlicensed software were to be developed. Accolade learned of this development at the Winter Consumer Electronics Show in January 1991, at which Sega showed the new Genesis III and demonstrated it screening and rejecting an Ishido game cartridge. With more games planned for the following year, Accolade rushed to identify the TMSS file and did so successfully. They later added this file to the games HardBall!, Star Control, Mike Ditka Power Football, and Turrican.
On October 31, 1991, Sega filed suit against Accolade in the United States District Court for the Northern District of California, on charges of trademark infringement and unfair competition, in violation of the Lanham Act. Copyright infringement, a violation of the Copyright Act of 1976, was added a month later to the list of charges. In response, Accolade filed a counterclaim for falsifying the source of its games by displaying the Sega trademark when the game was powered up. The case was heard by Judge Barbara A. Caulfield.
Sega argued that Accolade had infringed upon its copyrights because Accolade's games contained Sega's material. Accolade insisted however that their use of Sega's material constituted fair use. However, Judge Caulfield did not accept this explanation since Accolade was a game manufacturer, their works were for financial gain, and because their works competed directly with Sega's licensed games, likely resulting in a sales decrease for Sega's games. Accolade's case was further hurt by a presentation by a Sega engineer named Takeshi Nagashima, who showed two Sega game cartridges that were able to run on the Genesis III without the trademark-displaying TMSS, and offered them to Accolade's defense team but would not reveal how that was possible. Ultimately, this would result in Accolade's defeat on April 3, 1992, when Judge Caulfield ruled in favor of Sega and issued an injunction prohibiting future sales by Accolade of Genesis-compatible games incorporating the Sega message or using the results of the reverse engineering. Almost a week later, Accolade was also required by the court to recall all of their Genesis-compatible games.
Appeal to the Ninth Circuit 
Accolade appealed the verdict to the Ninth Circuit of the U.S. Court of Appeals. In support of the appeal, the Computer & Communications Industry Association also submitted an amicus curiae claiming that the district court had made errors in concluding that Accolade had infringed upon Sega's copyright by reverse engineering its software, extending copyright protection to method of operation, and failing to establish if Accolade's video games actually directly competed with Sega's officially licensed games or not. In reviewing the case, the court considered several factors in its own analysis of fair use and reached a different conclusion on the issue than had Judge Caulfield.
On October 20, 1992, the Ninth Circuit overturned the district court's verdict and ruled that Accolade's decompilation of the Sega software constituted fair use, noting that the use of the software was non-exploitative, despite being commercial, and that the trademark infringement, being required by the TMSS for a Genesis game to run on the system, was inadvertently triggered by a fair use act and the fault of Sega for causing false labeling. Of note to the judges was the difference in size between the TMSS file and the sizes of Accolade's games. As noted by Judge Stephen Reinhardt in writing the opinion of the court, the TMSS file "contains approximately twenty to twenty-five bytes of data. Each of Accolade's games contains a total of 500,000 to 1,500,000 bytes. According to Accolade employees, the header file is the only portion of Sega's code that Accolade copied into its own game programs." This made the games overwhelmingly original content, and according to Judge Reinhardt, to the benefit of the public to be able to compete with Sega's licensed games, especially if the games were dissimilar as contended in the appeal.
The attorneys representing Sega argued that the company had invested millions into the Genesis and that Accolade was capitalizing on Sega's investment. In addition to this, Nagashima showed the court a game cartridge that ran on the Genesis that did not display the trademark logo, as he had done in the district court trial. However, the court was not moved by this, deciding that Nagashima's cartridges showed what one could do with knowledge of the TMSS, which Accolade did not possess, and held Sega responsible for placing their own trademark on Accolade's games. As a result of the verdict being overturned, the injunction against Accolade's distribution of Genesis games was ended, and the costs of the appeal were assessed to Sega.
Impact of the decision 
Sega v. Accolade has been an influential case in matters involving reverse engineering of software and copyright infringement, and has been cited in numerous cases since 1993. One such example of this is Sony Computer Entertainment, Inc. v. Connectix Corporation, which expanded on and supported the precedent set by Sega v. Accolade in deciding that reverse engineering the Sony PlayStation BIOS was protected by fair use and was non-exploitative. It was also the first time that the Lanham Act was interpreted in the means that confusion resulting from the placement one's trademark on another work by means of a security program is the fault of the original registrant of the trademark. However, despite the victory for Accolade, the verdict had little impact on either party in the case, as Accolade was licensed by Sega within a year of the verdict and later developed and released Barkley Shut Up and Jam! under license from Sega.
The case has redefined how reverse engineering with unlicensed products is seen in legal issues. Legally, the decision concurred that the nature of Accolade's work in reverse engineering the Sega Genesis was to access ideas that were deemed unprotected by copyright law, and could only be accessed by decompiling. By the verdict, the console's functional principles were established not to be protected by copyright, and that when no other means were available, reverse engineering to access information about these functional principles is protected by the fair use doctrine. The verdict has received criticism as well, citing that though the functional principles are not protectable under copyright law, the TMSS code is protectable, and that by allowing reverse engineering as fair use despite this security, the Ninth Circuit Court of Appeals has encouraged the copying of legally protected programs for the exploration of unprotected functionality.
See also 
- Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992)
- Lemley, Menell, Merges and Samuelson. Software and Internet Law, pp. 126-141, 248-254, 3d ed. Aspen (2006).
- Kent, Steven L. (2001). The Ultimate History of Video Games: The Story Behind the Craze that Touched our Lives and Changed the World. Roseville, California: Prima Publishing. p. 499. ISBN 0-7615-3643-4.
- Kent, Steven L. (2001). The Ultimate History of Video Games: The Story Behind the Craze that Touched our Lives and Changed the World. Roseville, California: Prima Publishing. pp. 550–560. ISBN 0-7615-3643-4.
- Cohen, Julie E. (1995). "Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of "Lock-Out" Programs". Southern California Law Review 68: 1091–1202.
- MacCullouch, David C. (1994). "Sega Enterprises LTD. vs Accolade, Inc.: What's so Fair about Reverse Engineering?". Loyola of Los Angeles Law Journal 14: 465–485.
- Chapman, John H. Brief Amicus Curiae of Computer & Communications Industry Association.
- Stuckey, Kent D. (1996). Internet and Online Law. Law Journal Press. p. 6.37. ISBN 1-58852-074-9.
- Ely, Wayne A. (1993). "Copyright and Trademark Protection of Computer Software - Reverse Engineering of Competitor's Computer Game Software, Required to Comprehend Work, and Resulting in Display of False Trademark, Not Violative of Copyright Act or Lanham Act - Sega Enterprises, Ltd. v. Accolade, Inc., 1993 U.S. App. LEXIS 78 (9th Cir. Jan. 6, 1993)". Temple Environmental Law and Technology Journal 12: 137.