Computer program copyright holders have gained significant rights at the expense of licensees and the general public because of two recent Ninth Circuit decisions. Instead of the protections that have until now applied equally to all forms of copyrightable expression, such as books and music, computer program copyright holders now receive greater protections within the Ninth Circuit. Under MAI Systems Corporation v. Peak, 991 F.2d 511 (9th Cir. 1993), and Triad Systems Corporation v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995), the owner of copyrighted software may prevent a computer owner who licenses that software from permitting a third party to use that software to help the computer owner, even if that use does not result in the proliferation of any additional copies of computer software.
This result undermines the purpose of the Copyright Act and of the Constitutional provisions concerning copyright. U.S. law has generally provided that the interests of copyright holders and the general public should be balanced. An important way of balancing those interests has been to distinguish between use of a copyrighted work and proliferation of that work for sale. For example, an owner of a book may use that book and may lend it to someone without fear of a copyright infringement lawsuit, even if the person to whom she lends it uses the book for a commercial purpose. As long as copies of the book are not proliferated, the copyright holder's interests are protected.
For computer owners and software licensees, however, the Ninth Circuit does not apply the same standard for use of computer programs. The Ninth Circuit's recent jurisprudence holds that even though no copies of computer software are proliferated when a third party turns on a computer, nonetheless that third party is infringing the computer software maker's copyright. This jurisprudence mechanically applies the law without consideration of the purposes underlying the Copyright Act and the current and historical expectations of the high-technology community.
THE PURPOSE OF THE COPYRIGHT ACT
According to the well-respected commentator on copyright law, Melvin Nimmer, "the primary purpose of copyright is not to reward the author, but is rather to secure the general benefits derived by the public from the labors of the authors." Melvin B. Nimmer, Copyright and Other Aspects of Law §1.03, 1-44.13-14 (2d Ed. 1993). See also United States Constitution, Article I, § 8. This purpose is not unknown to the Ninth Circuit. The court has recognized recently that the purpose of the Copyright Act is "to encourage the production of original works by protecting the expressive elements of those works while leaving the ideas, facts, and functional concepts in the public domain for others to build on." Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1527 (9th Cir. 1992). The Ninth Circuit's more recent cases, however, have lost sight of this balance.
TURNING ON A COMPUTER MAKES A "COPY" IN RAM
The Ninth Circuit has held that turning on a computer and loading a software program from the computer's Read Only Memory (ROM) into the Random Access Memory (RAM) constitutes a "copy" of the computer program for purposes of the Copyright Act. MAI Systems Corporation v. Peak Computer, 991 F.2d 511 (9th Cir. 1993). The issue in MAI was whether the manufacturer of an operating system software program could prevent a licensee of that program from permitting an independent maintenance company from turning on the computer in order to repair the machine. The Ninth Circuit rejected Peak's argument that a temporary electronic "copy" in the computer's Random Access Memory did not constitute a "copy" for purposes of the Copyright Act.
The Ninth Circuit took this unprecedented action based on less than one page of analysis and on cases that involved permanent, not temporary, copies. In the analysis, the Court acknowledges that it has found "... no case which specifically holds that the copying of software into RAM creates a 'copy' under the Copyright Act." Id. at 519. The Court then cites some authority to support its conclusion but recognizes "... that these authorities are somewhat troubling, since they do not specify that a copy is created regardless of whether the software is loaded into the RAM [a temporary 'copy'], the hard disk [a permanent copy] or the read only memory ("ROM") [a permanent copy]." Id.
The Court also took a right away from licensees of computer software. It held that software licensees do not constitute "owners" of copies of software, and thus are not entitled to the protections listed in Section 117 of the Copyright Act. Id. at 518 n.5. That section provides that "the owner of a copy of a computer program" may authorize another party to use the program as long as the use is an "essential step in the utilization of the computer program." The MAI decision has been universally criticized in the law reviews, in part because of its failure to consider the balance between copyright holders' rights and the rights of the public to have reasonable access to copyrighted works.[2]
MAI AND SEGA
The MAI decision was quite surprising given the fact that seven months earlier another Ninth Circuit panel issued a decision that was quite sensitive to the nature and purpose of the Copyright Act. In Sega Enterprises v. Accolade, 977 F.2d 1510, 1523 (9th Cir. 1992), the Court recognized that the basic purpose of the Copyright Act was to stimulate creativity to benefit the public. The defendant in Sega was accused of copyright infringement for reverse engineering a copyrighted Sega program and then using that information to create its own game program. The Ninth Circuit found that such a use constituted fair use under the Copyright Act.
The Sega court focused on the second of the four fair use factors[3]- the nature of the copyrighted work. It noted that "[t]he protection established by the Copyright Act for original works of authorship does not extend to ... the functional or factual aspects of the work," Id. at 1524, and that "... computer programs are, in essence, utilitarian articles--articles that accomplish tasks." Id. This was so, according to the Court, even though "... the programmer's choice of program structure and design may be highly creative and idiosyncratic." Id.
The Court further noted that the nature of computer software is such "... that computer programs are distributed for public use in object code form [that] often precludes public access to the ideas and functional concepts contained in those programs, and thus confers on the copyright owner a de facto monopoly over those ideas and functional concepts. That result defeats the fundamental purpose of the Copyright Act--to encourage the production of original works by protecting the expressive elements of those works while leaving the ideas, facts, and functional concepts in the public domain for others to build on." Id. at 1527.
According to the Ninth Circuit, a copyright owner may not protect materials that would otherwise be unprotected by the Copyright Act by combining them with protected material: "To the extent that a work is functional or factual, it may be copied, Baker v. Selden, 101 U.S. (11 Otto) 99, 102-04 ... as may those expressive elements of the work that 'must necessarily be used as incident to' expression of the underlying ideas, functional concepts, or facts." Id. at 1524.
This reasoning led to the following conclusion:
Disassembly of object code necessarily entails copying. Those facts dictate our analysis of the second statutory fair use factor. If disassembly of copyrighted object code is per se an unfair use, the owner of the copyright gains a de facto monopoly over the functional aspects of his work--aspects that were expressly denied copyright protection by Congress. 17 U.S.C. § 102(b). In order to enjoy a lawful monopoly over the idea or functional principle underlying a work, the creator of the work must satisfy the more stringent standards imposed by the patent laws.
Id. at 1526.
Regarding the fourth fair use factor--the effect of the use upon the potential market for the copyrighted work--the thrust of the Sega opinion was that, even though Accolade had used copyrighted material, that use had benefitted the public by creating another game program for the public to choose. Thus, the copyright holder's rights were properly balanced with the rights of the general public even though clearly this copying diminished sales of Sega games.
TRIAD V. SOUTHEASTERN - MAI COPYING IS NOT A FAIR USE
The Ninth Circuit had an opportunity after MAI to return to the basic tenets of the Copyright Act and balance the rights of copyright holders with those of software licensees in the case of Triad Systems v. Southeastern Express Co. et al., 64 F.3d 1330 (9th Cir. 1995). However, the Ninth Circuit's decision in that case retreated further from that basic purpose.
Triad, a computer manufacturer, sued Southeastern Express, an independent service organization that services Triad equipment, for copyright infringement. Triad, 64 F.3d at 1333. Both Triad and Southeastern offered Triad computer owners service of their hardware. Triad claimed that Southeastern used Triad's "operating software" (operating system and utilities programs, including diagnostic utilities) when repairing Triad machines, and that such an act constituted copyright infringement. Id. Southeastern counterclaimed against Triad for antitrust violations, claiming that Triad was monopolizing the market for service of Triad computers. Southeastern's claim was essentially that Triad was using its control over Triad's software in order to prevent owners of Triad computers from choosing anyone other than Triad for service.
Triad moved for summary judgment based on the MAI decision. Id. at 1334. Although the district court ruled in Triad's favor on the copying issue, Southeastern raised fair use as a defense (17 U.S.C. §107). The district judge refused to grant Triad's motion for summary judgment on fair use, finding that at least some of the fair use factors weighed in Southeastern's favor. See id. at 1333.
The judge bifurcated the trial, allowing the copyright claim to be tried first. Id. at 1334. The jury, however, was not permitted to make findings on the fair use factors, even though those factors require an analysis of facts.
The district judge made findings of fact on the fair use issue and judgment was entered against Southeastern. Id. Based on the judgment, the judge granted a preliminary injunction in favor of Triad. The injunction was stayed pending appeal, but the Ninth Circuit ultimately ruled against Southeastern when it considered the merits of the injunction. Id. On October 20, 1995, Justice O'Connor of the Supreme Court stayed the injunction; six days later she vacated that stay.
The Ninth Circuit rejected Southeastern's claim regarding fair use. The court found that the service Southeastern performed provided no public benefit, stating that "we detect no appreciable public benefit arising from Southeastern's practice to justify this continuance under the fair use doctrine." Id. at 6891. In doing so the court ignored the fact that Southeastern offered owners of Triad computers a choice of whom to use for maintenance of their computers. Likewise, the court ignored the obvious result of its decision: owners of Triad computers will have no choice but to use Triad for service.
This result undermines the purpose underlying the Copyright Act, which is that the general public should benefit from use of copyrighted works. Under the Ninth Circuit's ruling, software licensees are prevented from freely using the programs which they licensed, even when that use does not result in proliferation of copies of the program.
The court also found that Triad's copyrighted software could be used to extend Triad's control over the service market. The court held that "Triad invented, developed, and marketed its software to enable its customers and its own technicians to service Triad computers. Southeastern is getting a free ride when it uses that software to perform precisely the same." Id. This holding essentially forces independent companies like Southeastern to enter two markets at once: the market for service of a certain brand of computer as well as the market for software to run that computer.
Such a result is expressly prohibited by the Supreme Court's decision in Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992), which specifically held that independent service companies need not enter two markets in order to compete in one of them. The Supreme Court held that "one of the evils proscribed by the antitrust laws is the creation of entry barriers to potential competitors by requiring them to enter two markets simultaneously." Kodak, 504 U.S. at 485. This holding is especially significant because it is in the context of the importance of the independent service industry as viewed by the Supreme Court: "...[T]he development of the entire high-technology service industry is evidence of the efficiency of a separate market for service." Id. at 462.
The Ninth Circuit's analysis is problematic because the software licensee obviously chose Southeastern to service his system. Having paid a license fee to Triad, the licensee would no doubt have been shocked had he been told that using someone other than Triad for service would constitute copyright infringement or require the payment of yet another license fee.
Southeastern's reliance on the Ninth Circuit's reasoning in the Sega case was unavailing. However, if anything the Triad case is more compelling for a finding of fair use than the Sega case. The defendant in Sega copied material in order to create its own work. That copying was clearly commercial, and the new program that was created obviously supplanted the market for Sega's computer game.
By contrast, a Triad software licensee's choice to use Southeastern for service does not supplant the market for Triad's software. Software licensees pay license fees up front when the computer is purchased. Any additional license fees a customer or independent company would be forced to pay under the Ninth Circuit's Triad opinion would be a windfall to the manufacturer and would prevent the software licensee from what should be an authorized use of the computer program.
The Sega conclusion also seems to apply squarely to the Triad case. If one substitutes language describing the challenged conduct in Triad (loading software into a computer) for the challenged conduct in Sega (disassembly of object code) within the quote from the conclusion of Sega quoted above (at page 1524 of the opinion), the parallel is striking. The Ninth Circuit, however, ruled that disassembly of object code was legal, and loading of software into a computer was not.
THE NATURE OF MAI "COPYING"--ANOTHER JUDICIAL APPROACH
Whether, as MAI decided, a temporary "copy" is made electronically in the random access memory of a computer is a metaphysical question of no particular interest. If one reads a book owned by someone else on how to maintain a computer and then uses that knowledge to maintain computers for profit, one clearly has not infringed the copyright of the book although one has literally made a temporary "copy" of the book on one's retina. Similarly, if one uses a computer owner's program to maintain the computer owner's computer, then a temporary copy of what is on a tape or a disk is made electronically in the random access memory of the computer. Like the copy of a book made on the retina of the reader, the electronic copy of the computer program is different in nature from what is copied. Likewise, the "copying" is temporary even though in both cases - the book and the software - the use is for profit.
A district court case from the Southern District of New York - where MAI is not the law - illustrates the point well. See Amsinck v. Columbia Pictures Industries, Inc., 862 F. Supp. 1944 (S.D.N.Y. 1994). The plaintiff in Amsinck sued Columbia Pictures for the movie maker's use in a film of a copyrighted work of the plaintiff's in a motion picture. Amsinck, 862 F. Supp. at 1045. The full-length movie contained footage of a copyrighted mobile made by the plaintiff. Id.
The court found that no "copy" of the mobile had been made for purposes of the Copyright Act even though the mobile itself appeared in the film. As an example the Amsinck court cites a case which held that the broadcasting of copyrighted hand puppets was not a copy for the purposes of copyright infringement because " . . . the act of broadcasting altered the copyrighted items to such a degree that they became so different in nature from the actual copyrighted design that the use was not a copy." Mura v. Columbia Broadcasting System, Inc., 2457 Supp. 587, 590 (S.D.N.Y. 1965). The court further reasoned that defendant's use of the filmed mobile was not meant to supplant demand for plaintiff's work nor to diminish interest in the work, and that defendant's use was fleeting and impermanent. Id. at 1048. Indeed, the court found that the defendant's acts may well have increased demand for the mobiles in general. Id. at 1049.
All of these factors apply in Southeastern. Customers purchase what Triad calls "operating software" (operating system plus utilities, including diagnostic utilities) because that is what it takes to operate the Triad computer, much like a car comes with dashboard indicators for oil level and engine temperature. When a mechanic turns on a car to activate the dashboard indicators, he is not supplanting sales of those indicators but merely using them for the purpose for which they were sold or licensed to the car buyer, i.e., to help the car buyer maintain her car.
Similarly, Southeastern's use of the operating software licensed by the Triad computer purchaser does not supplant any sales or licensing of that software. The customer has already licensed it so that his computer can be maintained. Southeastern is using it for the purpose of selling maintenance, not selling operating software. The use of the operating software is purely intermediate, and does not supplant sales or licenses of the operating software.
Triad claims that sales or licenses to service companies like Southeastern are diminished by Southeastern's intermediate use, but this argument is disingenuous. If the operating software is useful to maintenance companies like Southeastern, then Triad could have no possible justification for licensing it to the computer purchaser that uses a service company like Southeastern because in that case the customer would have no use for the operating software. What Triad is doing is obvious - forcing the customer to use Triad for maintenance.
Like the defendant in Amsinck, Triad's use of the operating software may well increase demand for the operating software. Purchasers are more likely to buy a computer or other durable consumer good if there is a second source of maintenance. Otherwise consumers are totally dependent upon the manufacturer with respect to maintenance.
Although the Amsinck court ruled that there was no copying, the court also ruled that, even if there had been copying, it was a fair use. This ruling was based on the fourth and most important fair use factor - whether the copy can be used as a substitute for the plaintiff's original work. The analysis of this issue in Amsinck is Doric in its simplicity: "The film's reproduction of the Baby Bears Artwork would not serve as a suitable substitute for someone who wishes to own a mobile bearing Amsinck's artwork." Id. at 1049. Similarly, Southeastern's use of the operating software for the purpose of maintenance does not supplant licenses of the software to Triad hardware customers who need the software to operate their computers. Customers have already licensed the program from Southeastern; requiring an additional license fee to be paid by the customer or an ISO would simply constitute a windfall to Triad.
This well-reasoned and practical approach to "copying" is also present in Nimmer on Copyright, which recognizes that the distinction between use of a program and actual copying of a program is important in determining the existence of copyright infringement. Nimmer states "not every unauthorized use of a work, even assuming such work emanates from a copyrighted work is necessarily an infringement of copyright. A use of a copyrighted work is not an infringing act if such a use does not fall within the scope of those rights expressly granted to the copyright proprietor." 2 Nimmer on Copyright § 8.01[A] at 8-13 (footnotes omitted). Nimmer observes that "[t]his protection has never accorded the copyright owner complete control over all possible uses of his work." Id. at 8-13 n.6 (quoting Sony Corp v. Universal City Studios, Inc., 464 U.S. 417, 432 (1984) ).
WHO CAN MAKE AN MAI COPY
AN ALTERNATIVE LEGISLATIVE APPROACH
The root of the problem that confronts software licensees today in the Ninth Circuit lies in the MAI court's reading of Section 117 of the Copyright Act, i.e., interpreting "owner of a copy of a computer program" to be the owner of the copyrighted work rather than the owner of a copy of that work. See Vault Corp. v. Quaid Soft. Ltd., 847 F.2d 255 (5th Cir. 1988). This interpretation of Section 117 does not make sense because it gives copyright owners a right they do not need: to make copies of their own works. Congress is currently considering a bill, H.R. 533, which would change the word "owner" to "rightful possessor" as the Commission on New Technological Uses of Copyrighted Works (known as the CONTU Commission) originally recommended to Congress in 1978. H.R.Rep. No. 12207, 96th Cong., 2d Sess. pt.1, at 23. This simple change would allow licensees to have full use of the computer programs that they have licensed. This would include their rights under Section 117, which the Ninth Circuit has currently repealed.
CONCLUSION
Application of the Copyright Act to software without balancing the underlying purposes of the law is like fitting square pegs in round holes. See Sega at 1524. MAI and Southeastern are excellent examples of that because they conflate use with copying. The man on the street - not to speak of the high-technology community - knows the difference between permanently copying the software program on a tape and temporarily using it. Our law should also recognize this simple fact.
ENDNOTES
1. Ron Katz and Janet Hart are attorneys with the San Francisco office of the international law firm Coudert Brothers. Mr. Katz serves as lead counsel for Southeastern Express.
2. See e.g. Johnson, The Uncertain Future of Computer Software Users' Rights In The Aftermath of MAI Systems, 44 Duke L.J. 327, 328 ("The MAI Systems case demonstrates how a series of legal determinations, each somewhat defensible as a mechanical application of statutory language and caselaw precedent, can yield a result that is plainly at odds with the policies behind the statutes it seeks to apply.") ; Stovsky, MAI Systems Corp. v. Peak Computer, Inc.: Using Copyright Law to Prohibit Unauthorized Use of Computer Software, 56 Ohio L.J. 593 ("The Ninth Circuit's ruling permits software vendors to use copyright interests in their programs to control who uses the machine and in what capacity") ; Arriola, Software Copyright Infringement Claims After MAI Systems v. Peak, 69 Wash. L.Rev. 405 ("The MAI Systems court reached a flawed decision lacking any cogent rationale or supporting public policy") ; Levin, MAI v. Peak: Should Loading Operating System Software Into RAM Constitute Copyright Infringement?, 24 Golden Gate U. L. Rev. 649 ("The MAI decision has resulted in incongruous consequences that have puzzled and confused both the legal community and third-party maintenance providers").
3. On the first factor--the purpose and character of the use--the Court noted that, although a commercial use weighs against fair use, it is not dispositive. Id. at 1522. On the third factor--the amount and substantiality of the use--the Court noted that, although using an entire program weighs against fair use, it is not dispositive. Id. at 1526.