Sega Enterprises Ltd. v. Accolade, Inc.

Facts

P developed and marketed the 'Genesis' console. D is an independent developer, manufacturer, and marketer of computer entertainment software, including game cartridges that are compatible with the Genesis console. P licenses its copyrighted computer code and its 'SEGA' trademark to a number of independent developers of computer game software. Those licensees develop and sell Genesis-compatible video games in competition with P. D does not have a P license. D explored the possibility of entering into a licensing agreement but abandoned the effort because the agreement would have required that P be the exclusive manufacturer of all games produced by D. D reversed engineered P's video game programs in order to discover the requirements for compatibility with the Genesis console. AD transformed the machine-readable object code contained in commercially available copies of P's game cartridges into human-readable source code using a process called 'disassembly' or 'decompilation.' D engineers studied and annotated the printouts in order to identify areas of commonality among the three-game programs. They modified the programs through trial and error and studying the results. From this P created a development manual that incorporated the information it had discovered about the requirements for a Genesis-compatible game. The manual contained only functional descriptions of the interface requirements and did not include any of P's code. D then created its own games for Genesis. D relied only on the information concerning interface specifications for the Genesis that was contained in its development manual. With the exception of the interface specifications, none of the code in its own games is derived in any way from its examination of P's code. P had developed its own trademark security system (TMSS). The 'Genesis III', incorporates the licensed TMSS. When a game cartridge is inserted, the microprocessor contained in the Genesis III searches the game program for four bytes of data consisting of the letters 'S-E-G-A' (the 'TMSS initialization code'). If Genesis III finds the TMSS initialization code in the right location, the game is rendered compatible and will operate on the console. (That is not even close to a security code; it is crap). The TMSS initialization code then prompts a visual display for approximately three seconds which reads 'PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD' (the 'Sega Message'). All of P's game cartridges, including those disassembled by D, contain the TMSS initialization code. D returned to the drawing board. During the reverse engineering process, Accolade engineers had discovered a small segment of code - the TMSS initialization code - that was included in the 'power-up' sequence of every D game, but that had no identifiable function. The games would operate on the original Genesis console even if the code segment was removed. In the second round of reverse engineering, D added the TMSS initialization code to its development manual in the form of a standard header file to be used in all games. The file contains approximately twenty to twenty-five bytes of data. Each of D's games contains a [total of 500,000 to 1,500,000 bytes. The header file is the only portion of P's code that D copied into its own game programs. P does not raise a separate claim of copyright infringement with respect to the header file. P filed suit alleging trademark infringement and false designation of origin in violation of sections 32(1) and 43(a) of the Lanham Act. P amended its complaint to include a claim for copyright infringement. D counterclaimed against P. The parties filed cross-motions for preliminary injunctions on their respective claims. P's employee, Nagashima showed the court how it was possible to create a game program that did not contain the TMSS code but would still operate on the Genesis III, or to modify a game program so that the Sega Message would not appear when the game cartridge was inserted. The total cost was approximately fifty cents. P offered to make the cartridges available for inspection by D's counsel but declined to let D's software engineers examine the cartridges or to reveal the manner in which the cartridges had been modified. The district court concluded that the TMSS code was not functional and that D could not assert a functionality defense to P's claim of trademark infringement. The court rejected D's fair use defense. The court rejected D's fair use defense. The court enjoined D from: (1) disassembling P's copyrighted code; (2) using or modifying P's copyrighted code; (3) developing, manufacturing, distributing, or selling Genesis-compatible games that were created in whole or in part by means that included disassembly; and (4) manufacturing, distributing, or selling any Genesis-compatible game that prompts the P Message. The court required D to recall the infringing games within ten business days. P appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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