Sony Computer Entertainment, Inc., a Japanese Corporation Sony Computer Entertainment America, Inc., a Delaware Corporation v. Connectix Corporation, a California Corporation

Citations: 203 F.3d 596; 2000 Cal. Daily Op. Serv. 1106; 2000 Daily Journal DAR 1601; 53 U.S.P.Q. 2d (BNA) 1705; 2000 U.S. App. LEXIS 1744Docket: 99-15852

Court: Court of Appeals for the Ninth Circuit; February 9, 2000; Federal Appellate Court

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In the case 203 F.3d 596 (9th Cir. 2000), Sony Computer Entertainment, Inc. and Sony Computer Entertainment America, Inc. (collectively "Sony") brought a copyright infringement suit against Connectix Corporation regarding its software "Virtual Game Station," which emulates the PlayStation console on PCs. Sony owns the copyright for the PlayStation's BIOS but did not assert any patent rights. Connectix engaged in reverse engineering, copying Sony's BIOS to develop its software, which does not include any of Sony's copyrighted material.

The district court initially ruled in favor of Sony, finding that Connectix's intermediate copying was not fair use under 17 U.S.C. § 107, and issued an injunction against Connectix. However, the Ninth Circuit Court reversed this decision, determining that Connectix's intermediate copies were indeed protected as fair use, necessary for the functionality of its non-infringing software. The court also overturned the district court's finding that Connectix's product tarnished Sony's PlayStation mark under 15 U.S.C. § 1125, thus dissolving the injunction against Connectix.

Sony is the developer, manufacturer, and distributor of the PlayStation console and its games, holding a copyright on the BIOS firmware but no relevant patents related to the PlayStation. The PlayStation system comprises a console, controllers, and game software, with games distributed on CDs. Connectix has created the Virtual Game Station software, which emulates the PlayStation's hardware and firmware, allowing users to play PlayStation games on computers; however, its performance is inferior to that of the actual PlayStation console. 

Reverse engineering is discussed as a method necessary for software compatibility and involves accessing both copyrighted and functional elements of a software program. This process can involve various techniques, including reading documentation, observing the software in use, and conducting static or dynamic examinations of the program's instructions. Due to the lack of available information from Sony about the PlayStation, traditional documentation is deemed ineffective. Most reverse engineering methods necessitate copying the copyrighted program into a computer's memory, which is a crucial aspect of the process. Observational methods allow for the discernment of functional elements through visual representation on a computer screen, but do not provide access to the underlying object code.

Observation of non-visible operations within software systems, such as the Sony BIOS, can be conducted through emulation and debugging. Engineers can run the Sony BIOS in an emulated environment on a computer to monitor interactions with other software. This process involves copying the BIOS from the PlayStation to the computer, where it is loaded into RAM for each session. Notably, this copying does not transfer any copyrighted material into Connectix's final product, the Virtual Game Station.

Additionally, two methods of disassembly are employed. Method (3) entails a static examination where the object code is disassembled into source code, requiring multiple copies of the program. Method (4) involves dynamic examination, disassembling the code instruction by instruction while the program runs, also necessitating program copies.

Connectix initiated development of the Virtual Game Station around July 1, 1998, first focusing on emulating the PlayStation hardware. Engineers extracted the Sony BIOS from a PlayStation console and copied it to their computers, observing its functionality alongside the emulation software through a debugging program. This process involved repeated copying and disassembly of the BIOS for debugging purposes.

Furthermore, Connectix utilized the Sony BIOS for developing the Virtual Game Station for Windows, making daily copies to RAM. Although they had their own BIOS, the Sony BIOS was preferred due to its inclusion of essential CD-ROM code not present in Connectix's version.

Aaron Giles, an engineer at Connectix, disassembled a copy of the Sony BIOS obtained from the Internet to test a disassembler program he created. Although this source code was printed, it was not utilized in the development of the Virtual Game Station emulator. Connectix initially used this BIOS copy for reverse engineering but stopped when they realized it was a Japanese version. In September 1998, Connectix sought technical assistance from Sony during the emulator's development, but Sony declined. Connectix completed the Virtual Game Station for Macintosh in late December 1998 or early January 1999 and announced it at the MacWorld Expo on January 5, 1999, promoting it as a "PlayStation emulator."

On January 27, 1999, Sony filed a copyright infringement complaint against Connectix and sought a preliminary injunction, which the district court granted. The injunction barred Connectix from using the Sony BIOS in developing the Windows version of the emulator and from selling either version. The court also ordered the impoundment of all Connectix copies of the Sony BIOS.

For Sony to obtain injunctive relief, it needed to show a likelihood of success on the merits or raise serious questions about the merits while demonstrating that the balance of hardships favored them. Connectix admitted to copying Sony's BIOS but argued that this constituted fair use under 17 U.S.C. § 107. They also contested the district court's finding that their product could tarnish the PlayStation trademark. The fair use argument is examined in the context of software copyright, where object code is protected, but the underlying ideas and functions are not. The court found that Connectix's intermediate copying of the BIOS was fair use for accessing unprotected elements of the software.

The framework for analyzing fair use is defined by 17 U.S.C. § 107, which has been applied in the context of disassembling computer software, particularly in Sega Enterprises Ltd. v. Accolade, Inc. The key rule from Sega establishes that disassembly is considered fair use when it is the only means to access the ideas and functional elements of a copyrighted program for a legitimate purpose. The court acknowledged that although intermediate copying might infringe copyright, it can still qualify as fair use if necessary to access software's functional elements, given that copyright protects only expression, not ideas or functionalities.

In assessing the nature of the copyrighted work, it is recognized that some works are more protected than others. The Sony BIOS is deemed less protected due to its inclusion of unprotected elements that cannot be analyzed without copying. Consequently, Connectix's copying of the Sony BIOS is justified as fair use because it was necessary for accessing the functional elements, which are not publicly available and require reverse engineering to obtain. Sony's acknowledgment of the difficulty in obtaining technical information about the BIOS supports this conclusion.

The critical issue is whether Connectix's methods of reverse-engineering the Sony BIOS were necessary for accessing the unprotected functional elements of the program. The conclusion reached is that they were necessary. Connectix utilized observation and partial disassembly, both of which involved creating intermediate copies of copyrighted material. The court indicates that these methods do not negate fair use protection, referencing Sega's endorsement of disassembly. 

Connectix's initial approach involved observing the Sony BIOS in an emulated environment, and when this was insufficient, they resorted to disassembling parts of the BIOS to understand its functionality. This intermediate copying is viewed as "necessary" under the precedent set by Sega. 

The court critiques the district court's reasoning, which suggested that Connectix's use of the Sony BIOS went beyond what Sega allowed. The district court's distinction between "studying" and "use" is deemed unpersuasive, as Sega upheld fair use despite Accolade's modifications and experiments with the disassembled code. The court emphasizes that the process of reverse engineering is complex and iterative, making the distinction between studying and using the software artificial in the context of fair use.

Additionally, the argument presented by Sony—claiming that Connectix’s repeated observation led to unnecessary intermediate copies—is rejected. The court agrees with Sony’s factual premise but asserts that it does not support Sony's position. The necessity referenced in Sega pertains to the method of reverse engineering rather than the frequency of its application.

Sony's interpretation of fair use is criticized for being ineffective and potentially manipulable, as it would impose unnecessary burdens on software engineers who need to create intermediate copies during development. The document argues against establishing a rule that would favor less efficient engineering solutions merely to minimize the number of intermediate copies, as this could hinder public access to ideas and concepts that are not eligible for copyright protection. It asserts that if Sony seeks to monopolize functional software concepts, it must adhere to stricter patent standards, which it has not done.

Regarding the statutory factors of fair use, the second factor—the amount and substantiality of the portion used—leans against Connectix due to its disassembly and multiple copying of the Sony BIOS. However, it notes that in cases of intermediate infringement, this factor carries little weight if the final product does not contain infringing material. The first factor—purpose and character of the use—examines whether Connectix's Virtual Game Station adds new expression or meaning. The district court's application of a presumption of unfairness due to Connectix's commercial intent is deemed erroneous, as the Supreme Court has clarified that this presumption should not apply to the first and fourth factors of the fair use analysis. Instead, commercial purpose is considered only as a factor weighing against fair use, not an automatic presumption of unfairness.

Connectix's Virtual Game Station is deemed modestly transformative, as it introduces a new platform allowing consumers to play Sony PlayStation games on personal computers, expanding gaming accessibility in environments lacking the original console. Despite functional similarities, the Virtual Game Station is recognized as a distinct product, emphasizing the originality in the organization and structure of its object code. Sony does not assert that the Virtual Game Station infringes its copyright through object code, leading to the conclusion that Connectix's creation of new object code is transformative.

The analysis also considers the commercial nature of Connectix's use, which is characterized as intermediate and indirect. Connectix's reverse engineering of the Sony BIOS to ensure compatibility with PlayStation games is acknowledged as a legitimate purpose under fair use principles. Consequently, the first factor of the fair use analysis favors Connectix.

The district court's ruling that the Virtual Game Station is not transformative is deemed erroneous, as it overlooked the unique expressive quality of the software. The comparison to Infinity Broadcast Corp. v. Kirkwood is criticized for failing to recognize the transformative nature of Connectix's work, which involves new expression rather than mere retransmission.

Regarding market impact, the fourth factor also supports Connectix, indicating that the use of its product is unlikely to harm the potential market for the original PlayStation games. Transformative works, unlike those that simply supplant existing products, are less likely to adversely affect the market, reinforcing the conclusion that Connectix's Virtual Game Station aligns with fair use principles.

The district court determined that Sony would suffer losses in console sales and profits due to competition from Connectix's Virtual Game Station, which it deemed transformative and a legitimate market competitor rather than a mere substitute for the PlayStation console. This competitive dynamic does not negate fair use, as copyright law does not grant Sony monopoly control over devices for its games. Weighing the four statutory fair use factors, three favor Connectix and one carries little weight, leading to the conclusion that Connectix's copying of the Sony BIOS during reverse engineering constituted fair use under 17 U.S.C. § 107. Sony failed to demonstrate a likelihood of success on its copyright infringement claim, resulting in the reversal of the preliminary injunction. 

Regarding the tarnishment claim, the district court found that Connectix's actions tarnished Sony's "PlayStation" mark. However, since the injunction was based solely on copyright infringement, the appellate review did not affirm the injunction on tarnishment grounds. Sony must prove four elements to succeed on this claim; while Connectix does not dispute two of these, the focus is on demonstrating that Connectix's use dilutes the mark's quality by diminishing its ability to identify goods and services.

Sony, pursuing a tarnishment theory of dilution regarding its PlayStation mark, must demonstrate that the mark suffers negative associations due to Connectix's use of the Virtual Game Station. The district court found that the Virtual Game Station does not perform as well as the PlayStation console and that consumers misunderstand this distinction, leading to negative associations for the PlayStation mark. However, the appellate review identified flaws in the evidence supporting this finding. The court noted that the district court relied on unverified Internet reviews and focus group studies that did not address misattribution adequately. The evidence did not convincingly demonstrate that Sony's mark would be viewed negatively based solely on Connectix's product performance. While some focus group participants preferred the PlayStation, others found the Virtual Game Station acceptable for certain games, with mixed reviews online. This variability did not substantiate a claim of tarnishment based on product quality alone. Consequently, the appellate court rejected the district court's conclusion that the Virtual Game Station tarnished Sony's mark, determining that the evidence was insufficient to support such a claim, and thus Sony's request for an injunction could not be upheld.

Connectix's reverse engineering of the Sony BIOS from a purchased PlayStation is deemed fair use, leading to the dissolution of the district court's injunction against Connectix. If any intermediate copies of the BIOS infringe on Sony's copyright, this does not warrant injunctive relief. The court also reverses the finding that Connectix's Virtual Game Station tarnished the Sony PlayStation mark. 

While the document notes that any software user must copy the program to utilize it, the court does not address Connectix's claim under 17 U.S.C. § 117 due to the fair use ruling. The fair use determination is based on factors including the purpose of use, the nature of the copyrighted work, the amount used, and the effect on the market. 

Connectix attempted to analyze the Sony BIOS functionality through a logic analyzer, which did not necessitate intermediate copying but was limited in its effectiveness. The court finds no support for the district court's claim that Connectix gradually converted Sony's code into its own, asserting that Connectix engineers wrote original code despite using and observing the Sony BIOS. There is no evidence presented by Sony to contradict this assertion, nor does Sony claim that the final product contains infringing material. Additionally, statements from Connectix engineers indicate awareness of alternative engineering solutions.

Traut acknowledged that utilizing the Sony BIOS was more efficient for developing hardware emulation software than creating a separate Connectix BIOS. He noted that disassembling portions of the Sony BIOS was essential for fixing certain bugs, although it was not the only method available. Connectix engineer Giles was uncertain if CD-ROM code could have been developed prior to the emulator. Sony's argument relied on RAM copies, which were deemed insufficiently analogous to prior case law, including Triad Systems and MAI Systems, as those cases did not involve reverse engineering for accessing unprotected functional elements. Sony cited Micro Star to suggest that commercial use presumes unfairness; however, this interpretation was rejected in light of Acuff-Rose, which deemed such a presumption improper. Furthermore, Micro Star involved non-transformative use, unlike Connectix's case. The downloading of Sony's BIOS was not considered a significant infringement, as it played a minimal role in developing the Virtual Game Station, which itself did not violate copyright. The court recognized a public interest in Connectix's software that outweighed concerns regarding the BIOS download. Therefore, an injunction was deemed inappropriate, with damages considered sufficient to protect Sony's interests regarding the alleged infringement.