Jun 14 2006

Contracts trump fair use and reverse engineering

The ability to reverse engineer a product and the amorphous fair use privilege are not inviolate. They can be waived or supplanted by agreement. Contracts control subject only to ordinary standards that might find them anti-competitive or unconscionable in very limited cases.

The interface between contracts and property rights laws such as copyright or trade secret law has sometimes been controversial, but it should not be. A person who might otherwise have a privilege to act in a certain manner can waive that privilege. Indeed, many of the most fundamental privileges in U.S. law can be waived by agreement. So too the privilege to make copies for purposes of some forms of reverse engineering and most other forms of "fair use."
"Reverse engineering" is a process by which the owner of a copy or a product takes a product apart in order to discover how it works or what it contains. For trade secret law, this is a recognized, lawful means of discovering previously secret designs or technology embodied in the product that has been sold on the open market. It has been an important practice in industries where much technology is not protected by patents or copyrights and where products are distributed by outright sales.
But - what if reverse engineering requires making copies of a copyrighted work? Different story. The copies invade the copyright owner's exclusive rights and are permitted under copyright law only if fair use. These copies are fair use in some cases, but not all cases. In general, the cases allow making copies by owners of the copy and only if and as needed to obtain information not protected by copyright.
What if the contract precludes reverse engineering? Should that contract be enforced? Of course. If a person can agree to waive fundamental privileges, such as against self-incrimination, certainly a person can contractually waive the privilege to reverse engineer a product or engage in other acts that might be described as fair use. While some lawyers, and some well-funded organizations such as the EFF, claim that reverse engineering is an inalienable right, that viewpoint is not supported in policy or in copyright law and is not accepted by courts in the U.S.
Some federal statutes protect limited reverse engineering in some contexts, but they do not override contracts. In Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079 (9th Cir. 2005) the court reached that conclusion about the SCPA. The court held that a claim for interference with contract was not preempted. The contract limited licensees to being the sole user of the chip, but the defendant allegedly induced a licensee to allow reverse engineering by it. The court commented: "Most courts have held that the Copyright Act does not preempt the enforcement of contractual rights. We find the logic of these cases persuasive here." The contractual agreement provided a separate source of obligations independent of the property rights rules contained in the statute.
Other courts have reached similar conclusions regarding the copyright law issue. For example, in Davidson the Eighth Circuit held that a shrink wrap license precluding reverse engineering did not conflict with copyright laws. A similar result occurred in the Baystates case.
Copyright sets out property rights, but contracts can establish different obligations, different restrictions and, in this context, can waive privileges otherwise available under copyright law.
This sets an appropriate boundary. U.S. law explicitly recognizes the difference between contract obligation and property rights. The agreement does and should control as to the obligations it sets out and the waivers it implements between the parties to the contract. While the EU Software Directive and the 2002 Official Draft of UCITA override reverse engineering clauses in narrow instances, the overall thrust of case law and practice is properly aimed at enforcing contracts.
The policy is simple: unless there is fraud, unconscionability, or clear violation of competition law, parties and more generally the market should be free to make contractual arrangements suited to an actual market unencumbered by pervasive regulation.

Written By:Tim Feathers On June 14, 2006 3:33 PM

Excellent post on a topic that is often misunderstood.

Written By:inchul kim On August 6, 2007 7:36 PM

I do not understand what you stated in this part because there is no real contract when I bought program CD from WalMart or BestBuy. But when I install the program I knew the EULA. this is a sale, and then I made contract with a publisher with restriction without any choice because we cannot return the program CD. That is a coercive contract even though that is a contract. And because I bought the program CD from merchants I can argue 117(a) privilege but the contract prevents the privilege and thus, it is a misuse or it should be preempted.
If shrinkwrap license is admitted in US, all business will not sell their product but license permanently.


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