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The copyright principles that apply to computer programs emerge from two contending interests — the desire to provide robust protection in order to stimulate and reward creativity and the need to allow the public to use and adapt copyrighted works. Some courts have narrowed copyright protection for computer programs in view of practical considerations. Most famously, the 2nd U.S. Circuit Court of Appeals established a harsh test (for copyright owners) to determine when two programs are substantially similar in Computer Associates Intern. Inc. v. Altai Inc., 982 F.2d 693 (2d Cir. 1992). Other rulings hold that copying a program for the purpose of reverse engineering may be fair use. Sony Computer Entertainment Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000). For the most part, however, federal courts have afforded programmers liberal protection under the Copyright Act. This is illustrated by two recent decisions: Dun & Bradstreet Software Services Inc. v. Grace Consulting Inc., 307 F.3d 197 (3d Cir. 2002) and Bowers v. Baystate Technologies Inc., 302 F.3d 1334 (Fed. Cir. 2002). Plaintiff Dun & Bradstreet Software Services, now known as Geac Computer Systems Inc., markets a suite of software business applications under the name Millennium. The software prepares tax reports required by federal and state governments. Defendant Grace Consulting is a software consultant, specializing in maintenance and support for Millennium. Grace customizes Millennium for the specific needs of individual clients, fixes bugs in the software, and provides tax and regulatory updates. Of most concern to Geac was Grace’s Remain on Release product, which functions as Grace’s version of Geac’s W-2 tax program and uses copy-and-call commands to retrieve data and run code from Millennium. As Grace put it, Remain on Release “allows customers to stay on their present [Millennium] release without [Geac's] expensive upgrades.” Grace conceded that its employees had made “large scale” modifications in Millennium in the course of fixing bugs, updating, and customizing the program and had copied portions of Geac code. It argued, however, that these acts did not constitute infringement, because (among other reasons) the copying was de minimus, justified by “industry custom and practice,” and was necessary to ensure that Grace’s program could work with Millennium. The jury returned a verdict for the defense on the copyright counts. The 3rd Circuit took the opposite view, and ruled that no reasonable jury could fail to find copyright infringement. Writing for the circuit, Judge Max Rosenn rejected each of the arguments Grace made. First, the court found that Grace could not assert a de minimus defense. Grace’s program could not work without using the material taken from Geac’s code; the portion taken was material, the court ruled. The court also refused to accept Grace’s argument that infringement was justified by industry custom and practice. The court found that Geac’s license agreement, which prohibited the copying done by Grace, was unambiguous and could not be altered by purported industry custom and usage. And the court made plain its view that custom and usage could never be used to limit rights granted under the Copyright Act. The court next considered Grace’s attempt to invoke the doctrine of externalities, established by the 2nd Circuit in the Computer Associatescase. The court wrote: “In many instances it is virtually impossible to write a program to perform particular functions in a specific computing environment without employing standard techniques.” 982 F.2d at 709. Therefore, copyright protection will not extend to elements of a program that “necessarily result from external factors inherent in the subject matter of the work.” Mitel Inc. v. Iqtel Inc., 124 F.3d 1366, 1375 (10th Cir. 1997). Relying on this doctrine, Grace contended that, in a modern computer environment, software programs must be designed to work with licensed copies of other programs. A program that is designed to update or modify another program would inevitably be given broad license to copy from that other work. Given the importance of intraoperability, it is not hard to advance policy arguments in favor of Grace’s position. Yet the 3rd Circuit ruled that Grace’s argument turned the doctrine of externalities on its head. The court said that the doctrine focuses on those external factors that influenced the copyright owner. Those elements are not protected by copyright. But, the court said, Grace was looking at “externalities from the eyes of the plagiarist, not the eyes of the program’s creator.” The Federal Circuit’s recent decision in Bowers v. Baystate Technologies Inc.deals with preemption — when copyright law might trump contract terms. Copyright holders who are unsatisfied with the extent of protection available under the Copyright Act — or who simply want to add another string to their bow — often require licensees to sign license agreements. When such agreements should be preempted under the Copyright Act is a matter of intense academic debate, but so far federal courts have been unwilling to use the preemption provisions to override private agreements. In the Bowerscase, the author of computer-assisted design software distributed the product subject to a shrinkwrap license that prohibited use of the software for the purpose of reverse engineering. At trial, the defendant argued that the Copyright Act preempted that contract clause. Apparently accepting that position, the district court instructed the jury that “reverse engineering violates the license agreement only if [the defendant's] product that resulted from reverse engineering infringes [the plaintiff's] copyright.” That instruction effectively read the reverse-engineering prohibition out of the contract. The Federal Circuit rejected the preemption defense. Looking to ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996) and Wrench LLC v. Taco Bell Corp., 256 F.3d 446 (6th Cir. 2001), the court concluded that “most courts have found that the Copyright Act does not preempt contractual restraints on copyrighted material.” It approved of the conclusion of ProCD that “the mutual assent and consideration required by a contract claim render that claim qualitatively different from copyright infringement.” Under that rationale, no restrictions imposed by a valid contract will be preempted. It would not be difficult to imagine a copyright regime in which software is considered more of a business tool than a literary work. In that regime, the doctrine of externalities would be broadly construed, fair use would be expanded to allow copying necessary for programs to work together smoothly, and preemption and copyright misuse would be applied to bar contractual limits on reverse engineering. As Dun & Bradstreetand Bowersillustrate, the federal courts are clearly going down a different path. Lewis R. Clayton is a litigation partner in New York’s Paul, Weiss, Rifkind, Wharton & Garrison ( www.paulweiss.com) and co-chairman of the firm’s intellectual property litigation group. Robyn M. Sorid is an associate with the firm. If you are interested in submitting an article to law.com, please click herefor our submission guidelines.

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