847 F.2d 255 (1988)

No. 87-3516.

June 20, 1988.

[256] Jarrell E. Godfrey, Jr., Kenneth J. Servay, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., for Vault Corp.

David Banowetz, Jr., William E. Wright, Jr., Baldwin & Haspel, John P. Manard, Jr., New Orleans, La., for Quaid Software Ltd.

Before REAVLEY, KING and SMITH, Circuit Judges.

REAVLEY, Circuit Judge:

Vault brought this copyright infringement action against Quaid seeking damages and preliminary and permanent injunctions. The district court denied Vault's motion for a preliminary injunction, holding that Vault did not have a reasonable probability of success on the merits. Vault Corp. v. Quaid Software Ltd., 655 F.Supp. 750 (E.D.La.1987). By stipulation of the parties, this ruling was made final and judgment was entered accordingly. We affirm.

I

Vault produces computer diskettes under the registered trademark "PROLOK" which are designed to prevent the unauthorized duplication of programs placed on them by software computer companies, Vault's customers. Floppy diskettes serve as a medium upon which computer companies place their software programs. To use a program, a purchaser loads the diskette into the disk drive of a computer, thereby allowing the computer to read the program into its memory. The purchaser can then remove the diskette from the disk drive and operate the program from the computer's memory. This process is repeated each time a program is used.

The protective device placed on a PROLOK diskette by Vault is comprised of two parts: a "fingerprint" and a software program ("Vault's program").^[1] The "fingerprint" is a small mark physically placed on the magnetic surface of each PROLOK diskette which contains certain information that cannot be altered or erased. Vault's program is a set of instructions to the computer which interact with the "fingerprint" to prevent the computer from operating the program recorded on a PROLOK diskette (by one of Vault's customers) unless the computer verifies that the original PROLOK diskette, as identified by the "fingerprint," is in the computer's disk drive. While a purchaser can copy a PROLOK protected program onto another diskette, the computer will not read the program into its memory from the copy unless the original PROLOK diskette is also in one of the computer's disk drives. The fact that a fully functional copy of a program cannot be made from a PROLOK diskette prevents purchasers from buying [257] a single program and making unauthorized copies for distribution to others.

Vault produced PROLOK in three stages. The original commercial versions, designated as versions 1.01, 1.02, 1.03, 1.04 and 1.06 ("version 1.0") were produced in 1983. Vault then incorporated improvements into the system and produced version 1.07 in 1984. The third major revision occurred in August and September of 1985 and was designated as versions 2.0 and 2.01 ("version 2.0"). Each version of PROLOK has been copyrighted and Vault includes a license agreement with every PROLOK package that specifically prohibits the copying, modification, translation, decompilation or disassembly of Vault's program.^[2] Beginning with version 2.0 in September 1985, Vault's license agreement contained a choice of law clause adopting Louisiana law.^[3]

Quaid's product, a diskette called "CopyWrite," contains a feature called "RAMKEY" which unlocks the PROLOK protective device and facilitates the creation of a fully functional copy of a program placed on a PROLOK diskette. The process is performed simply by copying the contents of the PROLOK diskette onto the CopyWrite diskette which can then be used to run the software program without the original PROLOK diskette in a computer disk drive. RAMKEY interacts with Vault's program to make it appear to the computer that the CopyWrite diskette contains the "fingerprint," thereby making the computer function as if the original PROLOK diskette is in its disk drive. A copy of a program placed on a CopyWrite diskette can be used without the original, and an unlimited number of fully functional copies can be made in this manner from the program originally placed on the PROLOK diskette.

Quaid first developed RAMKEY in September 1983 in response to PROLOK version 1.0. In order to develop this version of RAMKEY, Quaid copied Vault's program into the memory of its computer and analyzed the manner in which the program operated. When Vault developed version 1.07, Quaid adapted RAMKEY in 1984 to defeat this new version. The adapted version of RAMKEY contained a sequence of approximately 30 characters found in Vault's program and was discontinued in July 1984. Quaid then developed the current [258] version of RAMKEY which also operates to defeat PROLOK version 1.07, but does not contain the sequence of characters used in the discontinued version. Quaid has not yet modified RAMKEY to defeat PROLOK version 2.0, and has agreed not to modify RAMKEY pending the outcome of this suit. Robert McQuaid, the sole owner of Quaid, testified in his deposition that while a CopyWrite diskette can be used to duplicate programs placed on all diskettes, whether copy-protected or not, the only purpose served by RAMKEY is to facilitate the duplication of programs placed on copy-protected diskettes. He also stated that without the RAMKEY feature, CopyWrite would have no commercial value.

II

Vault brought this action against Quaid seeking preliminary and permanent injunctions to prevent Quaid from advertising and selling RAMKEY, an order impounding all of Quaid's copies of CopyWrite which contain the RAMKEY feature, and monetary damages in the amount of $100,000,000. Vault asserted three copyright infringement claims cognizable under federal law, 17 U.S.C. § 101 et seq. (1977 & Supp.1988) (the "Copyright Act"), which included: (1) that Quaid violated 17 U.S.C. §§ 501(a) & 106(1) by copying Vault's program into its computer's memory for the purpose of developing a program (RAMKEY) designed to defeat the function of Vault's program; (2) that Quaid, through RAMKEY, contributes to the infringement of Vault's copyright and the copyrights of its customers in violation of the Copyright Act as interpreted by the Supreme Court in Sony Corp. of Am. v. Universal City Studios, 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984); and (3) that the second version of RAMKEY, which contained approximately thirty characters from PROLOK version 1.07, and the latest version of RAMKEY, constitute "derivative works" of Vault's program in violation of 17 U.S.C. §§ 501(a) & 106(2). Vault also asserted two claims based on Louisiana law, contending that Quaid breached its license agreement by decompiling or disassembling Vault's program in violation of the Louisiana Software License Enforcement Act, La.Rev.Stat.Ann. § 51:1961 et seq. (West 1987), and that Quaid misappropriated Vault's program in violation of the Louisiana Uniform Trade Secrets Act, La.Rev.Stat.Ann. § 51:1431 et seq. (West 1987).

The district court originally dismissed Vault's complaint for lack of in personam jurisdiction. This court reversed the district court's order of dismissal and remanded the case for further proceedings. Vault Corp. v. Quaid Software Ltd., 775 F.2d 638 (5th Cir.1985). On remand, the district court, after a three-day bench trial, denied Vault's motion for a preliminary injunction holding that Vault had not established a reasonable probability of success on the merits. Vault, 655 F.Supp. at 763. Subsequently, the parties agreed to submit the case for final decision based on the evidence adduced at the preliminary injunction trial. On July 31, 1987 the district court entered final judgment in accordance with its decision on the preliminary injunction.

Vault now contends that the district court improperly disposed of each of its claims.

III. Vault's Federal Claims

An owner of a copyrighted work has the exclusive right to reproduce the work in copies, to prepare derivative works based on the copyrighted work, to distribute copies of the work to the public, and, in the case of certain types of works, to perform and display the work publicly. 17 U.S.C. § 106. Sections 107 through 118 of the Copyright Act limit an owner's exclusive rights, and section 501(a) provides that "[a]nyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 ... is an infringer of the copyright."

It is not disputed that Vault owns the copyright to the program it places on PROLOK diskettes and is thus an "owner of copyright" under § 106. Therefore, Vault has, subject to the exceptions contained in sections 107 through 118, the exclusive [259] right to reproduce its program in copies and to prepare derivative works based on its program. Vault claims that Quaid infringed its copyright under § 501(a) by: (1) directly copying Vault's program into the memory of Quaid's computer; (2) contributing to the unauthorized copying of Vault's program and the programs Vault's customers place on PROLOK diskettes; and (3) preparing derivative works of Vault's program.

Section 117 of the Copyright Act limits a copyright owner's exclusive rights under § 106 by permitting an owner of a computer program to make certain copies of that program without obtaining permission from the program's copyright owner. With respect to Vault's first two claims of copyright infringement, Quaid contends that its activities fall within the § 117 exceptions and that it has, therefore, not infringed Vault's exclusive rights under § 501(a). To appreciate the arguments of the parties, we examine the legislative history of § 117.

A. Background

In 1974 Congress established the National Commission on New Technological Uses of Copyrighted Works (the "CONTU") to perform research and make recommendations concerning copyright protection for computer programs. Before receiving the CONTU's recommendations, Congress amended the Copyright Act in 1976^[4] to include computer programs in the definition of protectable literary works^[5] and to establish that a program copied into a computer's memory constitutes a reproduction.^[6] Congress delayed further action and enacted an interim provision^[7] to maintain the status quo until the CONTU completed its study and made specific recommendations.

In 1978 the CONTU issued its final report^[8] in which it recognized that "[t]he cost of developing computer programs is far greater than the cost of their duplication," CONTU Report at 26, and concluded that "some form of protection is necessary to encourage the creation and broad distribution of computer programs in a competitive market," id. at 27. After acknowledging the importance of balancing the interest of proprietors in obtaining "reasonable protection" against the risks of "unduly burdening users of programs and the general public," id. at 29, the Report recommended [260] the repeal of section 117^[9] (the interim provision) and the enactment of a new section 117 which would proscribe the unauthorized copying of computer programs^[10] but permit a "rightful possessor" of a program

to make or authorize the making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or

(2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

Id. at 29-30 (emphasis in original).

Because the act of loading a program from a medium of storage into a computer's memory creates a copy of the program, the CONTU reasoned that "[o]ne who rightfully possesses a copy of a program ... should be provided with a legal right to copy it to that extent which will permit its use by the possessor," and drafted proposed § 117(1) to "provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability." Id. at 31. With respect to proposed section 117(2), the "archival exception," the Report explained that a person in rightful possession of a program should have the right "to prepare archival copies of it to guard against destruction or damage by mechanical or electrical failure. But this permission would not extend to other copies of the program. Thus one could not, for example, make archival copies of a program and later sell some to another while retaining some for use." Id.

In 1980, Congress enacted the Computer Software Copyright Act which adopted the recommendations contained in the CONTU Report. Section 117 was repealed, proposed section 117^[11] was enacted, and the proposed definition of "computer program" was added to section 101. The Act's legislative history, contained in a short paragraph in a committee report, merely states that the Act, "embodies the recommendations of [the CONTU] with respect to clarifying the law of copyright of computer software." H.R.Rep. No. 1307, 96th Cong., 2d Sess., pt. 1, at 23, reprinted in 1980 U.S.Code Cong. & Admin.News 6460, 6482. The absence of an extensive legislative history and the fact that Congress enacted proposed section 117 with only one [261] change^[12] have prompted courts to rely on the CONTU Report as an expression of legislative intent. See Micro-Sparc, Inc. v. Amtype Corp., 592 F.Supp. 33, 35 (D.Mass.1984); Atari, Inc. v. JS & A Group, Inc., 597 F.Supp. 5, 9 (N.D.Ill.1983); Midway Mfg. Co. v. Strohon, 564 F.Supp. 741, 750 n. 6 (N.D.Ill.1983).

B. Direct Copying

In order to develop RAMKEY, Quaid analyzed Vault's program by copying it into its computer's memory. Vault contends that, by making this unauthorized copy, Quaid directly infringed upon Vault's copyright. The district court held that "Quaid's actions clearly fall within [the § 117(1)] exemption. The loading of [Vault's] program into the [memory] of a computer is an `essential step in the utilization' of [Vault's] program. Therefore, Quaid has not infringed Vault's copyright by loading [Vault's program] into [its computer's memory]." Vault, 655 F.Supp. at 758.

Section 117(1) permits an owner of a program to make a copy of that program provided that the copy "is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner." Congress recognized that a computer program cannot be used unless it is first copied into a computer's memory, and thus provided the § 117(1) exception to permit copying for this essential purpose. See CONTU Report at 31. Vault contends that, due to the inclusion of the phrase "and that it is used in no other manner," this exception should be interpreted to permit only the copying of a computer program for the purpose of using it for its intended purpose. Because Quaid copied Vault's program into its computer's memory for the express purpose of devising a means of defeating its protective function, Vault contends that § 117(1) is not applicable.

We decline to construe § 117(1) in this manner. Even though the copy of Vault's program made by Quaid was not used to prevent the copying of the program placed on the PROLOK diskette by one of Vault's customers (which is the purpose of Vault's program), and was, indeed, made for the express purpose of devising a means of defeating its protective function, the copy made by Quaid was "created as an essential step in the utilization" of Vault's program. Section 117(1) contains no language to suggest that the copy it permits must be employed for a use intended by the copyright owner, and, absent clear congressional guidance to the contrary, we refuse to read such limiting language into this exception. We therefore hold that Quaid did not infringe Vault's exclusive right to reproduce its program in copies under § 106(1).

C. Contributory Infringement

Vault contends that, because purchasers of programs placed on PROLOK diskettes use the RAMKEY feature of CopyWrite to make unauthorized copies, Quaid's advertisement and sale of CopyWrite diskettes with the RAMKEY feature violate the Copyright Act by contributing to the infringement of Vault's copyright and the copyrights owned by Vault's customers. Vault asserts that it lost customers and substantial revenue as a result of Quaid's contributory infringement because software companies which previously relied on PROLOK diskettes to protect their programs from unauthorized copying have discontinued their use.^[13]

[262] While a purchaser of a program on a PROLOK diskette violates sections 106(1) and 501(a) by making and distributing unauthorized copies of the program, the Copyright Act "does not expressly render anyone liable for the infringement committed by another." Sony, 464 U.S. at 434, 104 S.Ct. at 785. The Supreme Court in Sony, after examining the express provision in the Patent Act which imposes liability on an individual who "actively induces infringement of a patent," 35 U.S.C. § 271(b) & (c), and noting the similarity between the Patent and Copyright Acts, recognized the availability, under the Copyright Act, of vicarious liability against one who sells a product that is used to make unauthorized copies of copyrighted material. Id. at 434-42, 104 S.Ct. at 785-89. The Court held that liability based on contributory infringement could be imposed only where the seller had constructive knowledge of the fact that its product was used to make unauthorized copies of copyrighted material, id. at 339, 104 S.Ct. at 787, and that the sale of a product "does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses." Id. at 442, 104 S.Ct. at 789.

While Quaid concedes that it has actual knowledge that its product is used to make unauthorized copies of copyrighted material, it contends that the RAMKEY portion of its CopyWrite diskettes serves a substantial noninfringing use by allowing purchasers of programs on PROLOK diskettes to make archival copies as permitted under 17 U.S.C. § 117(2), and thus that it is not liable for contributory infringement. The district court held that Vault lacked standing to raise a contributory infringement claim because "it is not Vault, but the customers of Vault who place their programs on PROLOK disks, who may assert such claims. Clearly the copyright rights to these underlying programs belong to their publishers, not Vault." Vault, 655 F.Supp. at 759. Alternatively the court held that CopyWrite is capable of "commercially significant noninfringing uses" because the RAMKEY feature permits the making of archival copies of copy-protected software, and CopyWrite diskettes (without the RAMKEY feature) are used to make copies of unprotected software and as a diagnostic tool to analyze the quality of new computer programs. Id. Therefore, the court held that the sale of CopyWrite did not constitute contributory infringement.

While we hold that Vault has standing to assert its contributory infringement claim, we find that RAMKEY is capable of substantial noninfringing uses and thus reject Vault's contention that the advertisement and sale of CopyWrite diskettes with RAMKEY constitute contributory infringement.

1. Standing

The Copyright Act provides that the "legal or beneficial owner of an exclusive right under a copyright is entitled, subject to the requirements of sections 205(d) and 411 [concerning the recordation and registration of copyrights], to institute an action for any infringement of that particular right committed while he or she is the owner of it." 17 U.S.C. § 501(b). The Supreme Court in Sony noted that it was the taping of plaintiff's "own copyrighted programs that provides them with standing to charge Sony with contributory infringement." 464 U.S. at 434, 104 S.Ct. at 785.

The focus of Vault's allegation of contributory infringement in its amended complaint is that CopyWrite, through RAMKEY, enables purchasers of PROLOK protected programs to infringe the copyrights of Vault's customers and that, as a result, Vault has suffered damages due to its loss [263] of customers. While Vault does not own the copyrights to its customer's programs, it does own the copyright to the program it places on each PROLOK diskette. This program operates in conjunction with the "fingerprint" to prevent the duplication of Vault's customer's programs. Uncontroverted testimony established that both Vault's protective program and its customer's program are copied onto a CopyWrite diskette when an individual executes a computer's "copy" function in order to duplicate the customer's program from a PROLOK diskette onto a CopyWrite diskette, and that RAMKEY then interacts with Vault's program to defeat its protective function and to make the computer operate as if the original PROLOK diskette was in one of its disk drives.^[14] Therefore, CopyWrite diskettes, through RAMKEY, facilitate not only the copying of Vault's customer's software programs but also the copying of Vault's protective program, and, in addition, RAMKEY interacts with Vault's program to destroy its purpose.

Quaid does not take issue with the validity of Vault's copyright under § 501(b) but instead contends that Vault lacks standing because it failed to allege contributory infringement based on the copying of its program, as opposed to the programs of its customers. Vault responds that its pleadings should be broadly construed to include its contributory infringement claim based on the copying of its program, and that even if its pleadings are narrowly construed, they were amended, pursuant to Fed.R.Civ.P. 15(b), to include this claim by trial testimony which established that Quaid's product contributes to the unauthorized copying of Vault's program.

Rule 15(b) provides that "[w]hen issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." While Vault's pleadings do not allege contributory infringement based on the copying of its copyrighted program, Quaid's consent to this claim is evidenced by a pretrial memorandum, signed by counsel for both Vault and Quaid, which listed as a contested issue of law "[w]hether Quaid has contributorily infringed Vault's and Vault's customer copyrights" (emphasis added). Quaid does not contend that it has been unfairly prejudiced by Vault's contention of contributory infringement based on the copying of its own program, see Mason v. Hunter, 534 F.2d 822, 825 (8th Cir.1976), nor does Quaid contend that it had inadequate notice of the nature of Vault's claim or an inadequate opportunity to fully and fairly respond, see Henry v. Coahoma County Bd. of Educ., 246 F.Supp. 517, 519 (N.D.Miss.1963), aff'd, 353 F.2d 648 (5th Cir.1965), cert. denied, 384 U.S. 962, 86 S.Ct. 1586, 16 L.Ed.2d 674 (1966). Vault's proposed interpretation or amendment of its pleadings in no way changes the character of the case. See id. at 518. It is beyond dispute that RAMKEY destroys the commercial value of PROLOK diskettes, and while the extent of Vault's damages were not fully developed at trial, the evidence indicated that Vault sustained substantial injuries as a result of RAMKEY and thus has a significant personal stake in the outcome of this litigation. Under these circumstances, we hold that, pursuant to Fed.R.Civ.P. 15(b), Vault has fairly alleged contributory infringement of its copyrighted program and has standing to pursue this claim.

2. Substantial Noninfringing Uses of RAMKEY

Vault's allegation of contributory infringement focuses on the RAMKEY feature of CopyWrite diskettes, not on the non-RAMKEY portions of these diskettes. Vault has no objection to the advertising and marketing of CopyWrite diskettes without the RAMKEY feature, and this [264] feature is separable from the underlying diskette upon which it is placed.^[15] Therefore, in determining whether Quaid engaged in contributory infringement, we do not focus on the substantial noninfringing uses of CopyWrite,^[16] as opposed to the RAMKEY feature itself. See Vault, 655 F.Supp. at 759. The issue properly presented is whether the RAMKEY feature has substantial noninfringing uses.

The starting point for our analysis is with Sony. The plaintiffs in Sony, owners of copyrighted television programs, sought to enjoin the manufacture and marketing of Betamax video tape recorders ("VTR's"), contending that VTR's contributed to the infringement of their copyrights by permitting the unauthorized copying of their programs. 464 U.S. at 419-20, 104 S.Ct. at 777. After noting that plaintiffs' market share of television programming was less than 10%, and that copyright holders of a significant quantity of television broadcasting authorized the copying of their programs, the Court held that VTR's serve the legitimate and substantially noninfringing purpose of recording these programs, as well as plaintiffs' programs, for future viewing (authorized and unauthorized^[17] time-shifting respectively), and therefore rejected plaintiffs' contributory infringement claim. Id. at 442-55, 104 S.Ct. at 789-95.

Quaid asserts that RAMKEY serves the legitimate purpose of permitting purchasers of programs recorded on PROLOK diskettes to make archival copies under § 117(2) and that this purpose constitutes a substantial noninfringing use. At trial, witnesses for Quaid testified that software programs placed on floppy diskettes are subject to damage by physical and human mishap^[18] and that RAMKEY protects a purchaser's investment by providing a fully functional archival copy that can be used if the original program on the PROLOK protected diskette, or the diskette itself, is destroyed. Quaid contends that an archival copy of a PROLOK protected program, made without RAMKEY, does not serve to protect against these forms of damage because a computer will not read the program into its memory from the copy unless the PROLOK diskette containing the original undamaged program is also in one of its disk drives, which is impossible if the PROLOK diskette, or the program placed thereon, has been destroyed due to physical or human mishap.

Computer programs can be stored on a variety of mediums, including floppy diskettes, hard disks, non-erasable read only [265] memory ("ROM") chips, and a computer's random access memory, and may appear only as printed instructions on a sheet of paper. Vault contends that the archival exception was designed to permit only the copying of programs which are subject to "destruction or damage by mechanical or electrical failure." CONTU Report at 31 (emphasis added). While programs stored on all mediums may be subject to damage due to physical abuse or human error, programs stored on certain mediums are not subject to damage by mechanical or electrical failure.^[19] Therefore, Vault argues, the medium of storage determines whether the archival exception applies, thus providing only owners of programs, placed on mediums of storage which subject them to damage by mechanical or electrical failure, the right to make back-up copies. To support its construction of § 117(2), Vault notes that one court has held that the archival exception does not apply to the copying of programs stored on ROM chips where there was no evidence that programs stored on this medium were subject to damage by mechanical or electrical failure, Atari, 597 F.Supp. at 9-10,^[20] and another court has likewise held that the archival exception does not apply to the copying of programs which appear only in the form of printed instructions in a magazine, Micro-Sparc, 592 F.Supp. at 35-36.^[21]

Vault contends that the district court's finding that programs stored on floppy diskettes are subject to damage by mechanical or electrical failure is erroneous because there was insufficient evidence presented at trial to support it,^[22] and, based [266] on this contention, Vault asserts that the archival exception does not apply to permit the unauthorized copying of these programs. Vault performed a trial demonstration to prove that even if a program on an original PROLOK diskette, and Vault's protective program, were completely erased from this diskette, these programs could be restored on the original diskette using a copy made without RAMKEY. Therefore, Vault argues that even if a program recorded on a PROLOK diskette is subject to damage by mechanical or electrical failure, the non-operational copy of a PROLOK protected program made without RAMKEY is sufficient to protect against this type of damage. Vault concludes that, in light of the fact that RAMKEY facilitates the making of unauthorized copies and owners of PROLOK protected programs can make copies to protect against damage by mechanical and electrical failure without RAMKEY, the RAMKEY feature is not capable of substantial noninfringing uses.

The narrow construction of the archival exception, advanced by Vault and accepted in the Atari and Micro-Sparc decisions, has undeniable appeal. This construction would leave the owner of a protected software program free to make back-up copies of the software to guard against erasures, which is probably the primary concern of owners as well as the drafters of the CONTU Report. Software producers should perhaps be entitled to protect their product from improper duplication, and Vault's PROLOK may satisfy producers and most purchasers on this score — if PROLOK cannot be copied by the purchaser onto a CopyWrite diskette without infringing the PROLOK copyright. That result does have appeal, but we believe it is an appeal that must be made to Congress. "[I]t is not our job to apply laws that have not yet been written." Sony, 464 U.S. at 456, 104 S.Ct. at 796. We read the statute as it is now written to authorize the owner of the PROLOK diskette to copy both the PROLOK program and the software program for any reason^[23] so long as the owner uses the copy for archival purposes only and not for an unauthorized transfer.

The CONTU Report's words of "mechanical or electrical failure" are contained in a paragraph quoted in the footnote.^[24] We [267] read the stated causes of damage to be illustrative only, and not exclusive. Similarly, the statement follows with the prohibited use of the archival copies which does not include a prohibition against copying for purposes other than to protect against "mechanical or electrical failure." The Report, or Congress, could have easily limited the scope of § 117(2) to authorize the making of archival copies of programs subject to damage, and to guard against, only mechanical or electrical failure. CONTU did not recommend that language, nor did Congress enact it. Congress, following CONTU's advice, provided that an owner of a computer program may make a copy of that program provided that "such new copy ... is for archival purposes only." 17 U.S.C. § 117(2). Congress did not choose to spell out detailed restrictions on the copying as was done in sections 108 and 112. Congress imposed no restriction upon the purpose or reason of the owner in making the archival copy; only the use made of that copy is restricted. See CONTU Report at 31 ("one could not, for example, make archival copies of a program and later sell some to another while retaining some for use"). An owner of a program is entitled, under § 117(2), to make an archival copy of that program in order to guard against all types of risks, including physical and human mishap as well as mechanical and electrical failure.

A copy of a PROLOK protected program made with RAMKEY protects an owner from all types of damage to the original program, while a copy made without RAMKEY only serves the limited function of protecting against damage to the original program by mechanical and electrical failure. Because § 117(2) permits the making of fully functional archival copies, it follows that RAMKEY is capable of substantial noninfringing uses. Quaid's advertisement and sale of CopyWrite diskettes with the RAMKEY feature does not constitute contributory infringement.

D. Derivative Work

Section 106(2) of the Copyright Act provides the copyright owner exclusive rights "to prepare derivative works based on the copyrighted work." Section 101 defines a derivative work as:

a work based on one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations or other modifications which, as a whole, represent an original work of authorship is a "derivative work."

To constitute a derivative work, "the infringing work must incorporate in some form a portion of the copyrighted work." Litchfield v. Spielberg, 736 F.2d 1352, 1357 (9th Cir.1984), cert. denied, 470 U.S. 1052, 105 S.Ct. 1753, 84 L.Ed.2d 817 (1985). In addition, the infringing work must be substantially similar to the copyrighted work. Id.

The 1984 version of RAMKEY contained approximately 30 characters of source code copied from Vault's program. Vault's program contained the equivalent of approximately 50 pages of source code, and the 1984 version of RAMKEY contained the equivalent of approximately 80 pages of source code. By all accounts, the 30 character sequence shared by RAMKEY and Vault's program constituted a quantitatively minor amount of source code. In response to Vault's contention that RAMKEY constitutes a derivative work, the district court found that "the copying in 1984 was not significant" and that "there has been no evidence ... that there has been any further duplication." Holding that "RAMKEY is not a substantially similar copy of PROLOK," the court concluded that "RAMKEY is not a derivative work." Vault, 655 F.Supp. at 759.

Vault now contends that the district court, in evaluating the 1984 version of RAMKEY, incorrectly emphasized the quantity of copying instead of the qualitative significance of the copied material, and cites Whelan Assoc's., Inc. v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222 (3d Cir.1986), cert. denied, ___ U.S. ___, 107 [268] S.Ct. 877, 93 L.Ed.2d 831 (1987), for the proposition that a "court must make a qualitative, not quantitative, judgment about the character of the work as a whole and the importance of the substantially similar portions of the work." Id. at 1245. See Midway Mfg. Co. v. Artic Int'l, Inc., 704 F.2d 1009, 1013-14 (7th Cir.), cert. denied, 464 U.S. 823, 104 S.Ct. 90, 78 L.Ed.2d 98 (1983). The sequence copied, Vault asserts, constituted the identifying portion of Vault's program which interacts with the "fingerprint" to confirm that the original PROLOK diskette is in the computer's disk drive. Vault contends that, because this sequence was crucial to the operation of Vault's program and RAMKEY's ability to defeat its protective function, the copying was qualitatively significant.

The cases upon which Vault relies, Whelan and Midway, both involved situations where the derivative work performed essentially the same function as the copyrighted work. Whelan, 797 F.2d at 1225-26; Midway, 704 F.2d at 1010-11.^[25] In this case, Vault's program and RAMKEY serve opposing functions; while Vault's program is designed to prevent the duplication of its customers' programs, RAMKEY is designed to facilitate the creation of copies of Vault's customers' programs. Under these circumstances, we agree with the district court that the 1984 copying was not significant and that this version of RAMKEY was not a substantially similar copy of Vault's program.

While Vault acknowledges that the latest version of RAMKEY does not contain a sequence of characters from Vault's program, Vault contends that this version is also a derivative work because it "alters" Vault's program. Vault cites Midway for the proposition that a product can be a derivative work where it alters, rather than copies, the copyrighted work. The court in Midway, however, held that the sale of a product which speeded-up plaintiff's programs constituted contributory infringement because the speeded-up programs were derivative works. 704 F.2d at 1013-14. The court did not hold, as Vault asserts, that defendant's product itself was a derivative work. We therefore reject Vault's contention that the latest version of RAMKEY constitutes a derivative work.

IV. Vault's Louisiana Claims

Seeking preliminary and permanent injunctions and damages, Vault's original complaint alleged that Quaid breached its license agreement by decompiling or disassembling Vault's program in violation of the Louisiana Software License Enforcement Act (the "License Act"), La.Rev.Stat.Ann. § 51:1961 et seq. (West 1987), and that Quaid misappropriated Vault's program in violation of the Louisiana Uniform Trade Secrets Act, La.Rev.Stat.Ann. § 51:1431 et seq. (West 1987). On appeal, Vault abandons its misappropriation claim,^[26] and, with respect to its breach of license claim, Vault only seeks an injunction to prevent Quaid from decompiling or disassembling PROLOK version 2.0.^[27]

Louisiana's License Act permits a software producer to impose a number of contractual terms upon software purchasers provided that the terms are set forth in a license agreement which comports with La.Rev.Stat.Ann. §§ 51:1963 & 1965, and that this license agreement accompanies the producer's software. Enforceable terms include the prohibition of: (1) any copying of the program for any purpose; and (2) modifying and/or adapting the program in [269] any way, including adaptation by reverse engineering, decompilation or disassembly. La.Rev.Stat.Ann. § 51:1964.^[28] The terms "reverse engineering, decompiling or disassembling" are defined as "any process by which computer software is converted from one form to another form which is more readily understandable to human beings, including without limitation any decoding or decrypting of any computer program which has been encoded or encrypted in any manner." La.Rev.Stat.Ann. § 51:1962(3).

Vault's license agreement, which accompanies PROLOK version 2.0 and comports with the requirements of La.Rev.Stat.Ann. §§ 51:1963 & 1965, provides that "[y]ou may not ... copy, modify, translate, convert to another programming language, decompile or disassemble"^[29] Vault's program. Vault asserts that these prohibitions are enforceable under Louisiana's License Act, and specifically seeks an injunction to prevent Quaid from decompiling or disassembling Vault's program.

The district court held that Vault's license agreement was "a contract of adhesion which could only be enforceable if the [Louisiana License Act] is a valid and enforceable statute." Vault, 655 F.Supp. at 761. The court noted numerous conflicts between Louisiana's License Act and the Copyright Act, including: (1) while the License Act authorizes a total prohibition on copying, the Copyright Act allows archival copies and copies made as an essential step in the utilization of a computer program, 17 U.S.C. § 117; (2) while the License Act authorizes a perpetual bar against copying, the Copyright Act grants protection against unauthorized copying only for the life of the author plus fifty years, 17 U.S.C. § 302(a); and (3) while the License Act places no restrictions on programs which may be protected, under the Copyright Act, only "original works of authorship" can be protected, 17 U.S.C. § 102. Vault, 655 F.Supp. at 762-63. The court concluded that, because Louisiana's License Act "touched upon the area" of federal copyright law, its provisions were preempted and Vault's license agreement was unenforceable. Id. at 763.

In Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964), the Supreme Court held that "[w]hen state law touches upon the area of [patent or copyright statutes], it is `familiar doctrine' that the federal policy `may not be set at naught, or its benefits denied' by the state law." Id. at 229, 84 S.Ct. at 787 (quoting Sola Elec. Co. v. Jefferson Elec. Co., 317 U.S. 173, 176, 63 S.Ct. 172, 173, 87 L.Ed. 165 (1942)). See Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669 (1964); see also Mitchell v. Penton/Indus. Publishing [270] Co., 486 F.Supp. 22 (N.D. Ohio 1979) (holding that common law unfair competition claim preempted by the Copyright Act); Triangle Publications, Inc. v. Sports Eye, Inc., 415 F.Supp. 682, 686-87 (E.D.Penn.1976) (holding that state regulation of unfair competition preempted as to matters falling within broad confines of the Copyright Act). Section 117 of the Copyright Act permits an owner of a computer program to make an adaptation of that program provided that the adaptation is either "created as an essential step in the utilization of the computer program in conjunction with a machine," § 117(1), or "is for archival purpose only," § 117(2).^[30] The provision in Louisiana's License Act, which permits a software producer to prohibit the adaptation of its licensed computer program by decompilation or disassembly, conflicts with the rights of computer program owners under § 117 and clearly "touches upon an area" of federal copyright law. For this reason, and the reasons set forth by the district court, we hold that at least this provision of Louisiana's License Act is preempted by federal law, and thus that the restriction in Vault's license agreement against decompilation or disassembly is unenforceable.

V. Conclusion

We hold that: (1) Quaid did not infringe Vault's exclusive right to reproduce its program in copies under § 106(1); (2) Quaid's advertisement and sale of RAMKEY does not constitute contributory infringement; (3) RAMKEY does not constitute a derivative work of Vault's program under § 106(2); and (4) the provision in Vault's license agreement, which prohibits the decompilation or disassembly of its program, is unenforceable.

The judgment of the district court is AFFIRMED.

[1] A PROLOK diskette contains two programs, the program placed on the diskette by a software company (e.g, word processing) and the program placed on the diskette by Vault which interacts with the "fingerprint" to prevent the unauthorized duplication of the software company's program. We use the term "software program" or "program" to refer to the program placed on the diskette by one of Vault's customers (a computer company) and "Vault's program" to refer to the program placed on the diskette by Vault as part of the protective device. We collectively refer to the "fingerprint" and Vault's program as the "protective device."

[2] The license agreement refers to the program placed on the diskette by Vault, not the software program placed on the diskette by Vault's customers. See supra note 1 for terminology. The companies that place their software programs on PROLOK diskettes, not Vault, own the copyright to their programs and may include a license agreement covering their programs in the package for sale to the public.

Vault's license agreement reads:

IMPORTANT! VAULT IS PROVIDING THE ENCLOSED MATERIALS TO YOU ON THE EXPRESS CONDITION THAT YOU ASSENT TO THIS SOFTWARE LICENSE. BY USING ANY OF THE ENCLOSED DISKETTE(S), YOU AGREE TO THE FOLLOWING PROVISIONS. IF YOU DO NOT AGREE WITH THESE LICENSE PROVISIONS, RETURN THESE MATERIALS TO YOUR DEALER, IN ORIGINAL PACKAGING WITHIN 3 DAYS FROM RECEIPT, FOR A REFUND.

1. This copy of the PROLOK Software Protection System and this PROLOK Software Protection Diskette (the "Licensed Software") are licensed to you, the end-user, for your own internal use. Title to the Licensed Software and all copyrights and proprietary rights in the Licensed Software shall remain with VAULT. You may not transfer, sublicense, rent, lease, convey, copy, modify, translate, convert to another programming language, decompile or disassemble the Licensed Software for any purpose without VAULT's prior written consent.

2. THE LICENSED SOFTWARE IS PROVIDED "AS-IS". VAULT DISCLAIMS ALL WARRANTIES AND REPRESENTATIONS OF ANY KIND WITH REGARD TO THE LICENSED SOFTWARE, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. UNDER NO CIRCUMSTANCES WILL VAULT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES EVEN IF VAULT IS APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU.

[3] The license agreement included the following language beginning with version 2.0:

To the extent the laws of the United States of America are not applicable, this license agreement shall be governed by the laws of the State of Louisiana.

[4] The 1976 Amendments did not primarily address computer-related copyright protection. The Amendments eliminated common-law copyright, simplified copyright procedure, and rejected the distinction between the protection of published and unpublished works. See T. Harris, The Legal Guide to Software Protection 43-44 (1985).

[5] The definition of "literary works" was amended to include:

works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, manuscripts, phonorecords, film, tapes, disks, or cards, in which they are embodied.

17 U.S.C. § 101 (1977). A House Report stated that "[t]he term `literary works' ... also includes computer data bases, and computer programs to the extent that they incorporate authorship in the programmer's expression of original ideas, as distinguished from the ideas themselves." H.R.Rep. No. 1476, 94th Cong., 2d Sess. 54, reprinted in 1976 U.S.Code Cong. & Admin.News 5659, 5667. Section 102 specifies that copyright protection exists in "original works of authorship," which is defined to include "literary works." 17 U.S.C. § 102(a)(1).

[6] Section 102(a) was amended to protect original works of authorship which can be reproduced "either directly or with the aid of a machine or device." 17 U.S.C. § 102(a) (1977).

[7] 17 U.S.C. § 117 (1977). This section provided:

Notwithstanding the provisions of sections 106 through 116 and 118, this title does not afford to the owner of copyright in a work any greater or lesser rights with respect to the use of the work in conjunction with automatic systems capable of storing, processing, retrieving, or transferring information, or in conjunction with any similar device, machine, or process, than those afforded to works under the law, whether title 17 or the common law or statutes of a State, in effect on December 31, 1977, as held applicable and construed by a court in an action brought under this title.

[8] Final Report of the National Commission on New Technological Uses of Copyrighted Works (July 31, 1978) (the "CONTU Report" or the "Report").

[9] With respect to the repeal of § 117, the Report reasoned that

[s]ection 117, designed to subject computer uses of copyrighted works to treatment under the old law, vitiates that proscription, at least insofar as machine-readable versions are not "copies" under the 1909 Act. Therefore, to prevent any question about the impropriety of program piracy, and to assure that all works of authorship are treated comparably under the new law, Section 117 should be repealed.

CONTU Report at 30-31 (footnotes omitted).

[10] The Report recommended that § 101 be amended to add the definition of a "computer program" as, "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result." CONTU Report at 30.

[11] In enacting the new section 117, Congress adopted the proposed section with only one change. The final version grants "owners," as opposed to "rightful possessors," a limited right to copy and adapt their software. Amended section 117 reads, in full,

Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or

(2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

Any exact copies prepared in accordance with the provisions of this section may be leased, sold, or otherwise transferred, along with the copy from which such copies were prepared, only as part of the lease, sale, or other transfer of all rights in the program. Adaptations so prepared may be transferred only with the authorization of the copyright owner.

17 U.S.C. § 117 (Supp.1988).

[12] See supra note 11.

[13] Despite the legal protection provided by the amended Copyright Act to proprietors of computer programs, the unauthorized copying and distribution of programs has escalated. In 1983 it was estimated that twenty to thirty percent of the computer software industry's revenues were siphoned off annually by piracy and the unauthorized resale of software. Nat'l OTC Stock J., April 25, 1983 at 5. Joseph Curry, a survey and statistical analyst, testified that a 1984 survey conducted by him indicated that for every authorized copy of computer software in use there is one unauthorized copy. He estimated that the loss of income to software manufacturers resulting from unauthorized copies was approximately $1.3 billion from 1981 to 1984, $800 million in 1985, and $800 million in 1986. To combat software piracy, companies such as Vault developed protective devices designed to prevent unauthorized copying. In response, companies like Quaid developed "code-breakers" which are products that operate to defeat protective devices and permit a possessor of a program to make copies. Manufacturers of code-breakers justify their business by contending that protective devices prevent a purchaser of a program from making archival copies under § 117(2) and that their product serves to facilitate the legitimate creation of such copies. See Note, 17 U.S.C. § 117: Is the Amendment to the Copyright Act Adequate to Regulate the Computer Software Market?, 7 Computer/Law J. 227, 232 (1986).

[14] The latest version of RAMKEY, developed in response to PROLOK version 1.07, operates by intercepting service calls made by Vault's program to the computer. By this process, RAMKEY is able to make the computer operate as if the original PROLOK diskette, rather than the CopyWrite diskette with RAMKEY, is in the computer's disk drive. See McQuaid Deposition at 68-72. In order for RAMKEY to perform this function, Vault's protective program, as well as Vault's customer's program, must be copied onto the CopyWrite diskette.

[15] Quaid licensed the RAMKEY feature itself (and not the underlying CopyWrite diskette) to at least one company which then used RAMKEY, in conjunction with diskettes it marketed, to permit its customers to make fully functioning copies of programs recorded on PROLOK diskettes. McQuaid Deposition at 156 & 181-83.

[16] The district court held that CopyWrite has "commercially significant noninfringing uses" in part because CopyWrite diskettes are used to copy unprotected software and as a diagnostic tool to analyze the quality of new computer programs. Vault, 655 F.Supp. at 759. The findings upon which this holding is based are irrelevant to a determination of whether RAMKEY has a substantial noninfringing use. While CopyWrite diskettes may serve legitimate functions, Robert McQuaid admitted that, without RAMKEY, CopyWrite would have no commercial value.

[17] The Court held that the unauthorized time-shifting of plaintiffs' television programs was not an infringement of their copyrights because time-shifting involved an unharmful noncommercial activity which constituted "fair use" under 17 U.S.C. § 107. Sony, 464 U.S. at 447-55, 104 S.Ct. at 791-95.

[18] John Kurko, a technical support engineer, testified that he used CopyWrite to protect against physical mishaps such as house fires and other catastrophies. Trial Record ("T.R.") at 323. Warren Steinke, an administrative assistant at an insurance brokerage business, testified that back-up copies of computer programs were important to protect against damage due to experimentation with the original program and physical mishaps such as bending the diskette. T.R. at 325 & 331. Michael Kirk-Duggan, a professor at the University of Texas, testified that he makes back-up copies to protect against human error, T.R. at 335, and Peter Stone, a copy protection consultant, testified that a PROLOK diskette is subject to damage by liquids, severe heat and sharp objects. T.R. at 422. Finally, Robert McQuaid, in his deposition, testified that floppy diskettes can wear out and programs placed on floppy diskettes can be erased by human error. McQuaid Deposition at 16 & 18.

[19] The CONTU Report did not define the term "mechanical or electrical failure." At trial, Ray Strackbein, the head of Vault's engineering department, testified that "mechanical failure" results from damage to a storage medium's recording surface, while "electrical failure" results from the erasure or reformatting of the program. T.R. at 255-56. A program recorded on a floppy diskette would be subject to mechanical or electrical failure, if subject to this type of failure at all, only while the diskette upon which it is recorded is in a computer's disk drive. Strackbein, T.R. at 256-57.

[20] The court in Atari held that:

The dangers to ROMs presented by [defendant] are physical dangers not unlike the risk that a handwritten computer program will be shredded accidentally. Virtually every copy of a copyrighted work, be it a book, a phonograph record, or a videotape, faces that kind of risk. Yet Congress did not enact a general rule that making back-up copies of copyrighted works would not infringe. Rather, according to the CONTU report, it limited its exception to computer programs which are subject to "destruction or damage by mechanical or electrical failure." Some media must be especially susceptible to this danger. [Defendant] has simply offered no evidence that a ROM in a 2600-compatible video game cartridge is such a medium.

597 F.Supp. at 9-10 (emphasis in original) (footnote omitted). The court noted that, other than the § 117 exceptions, the Copyright Act contains only three other exceptions for "archival" copying:

Libraries and archives may copy an unpublished work "for purposes of preservation and security...." 17 U.S.C. § 108(b). These institutions may also make a replacement copy of a published work that is "damaged, deteriorating, lost, or stolen, if the library or archives has, after a reasonable effort, determined that an unused replacement cannot be obtained at a fair price." 17 U.S.C. § 108(c). Finally, § 112 provides several exceptions for archival copying of various "ephermeral" works, such as the broadcast of a live performance of a copyrighted play. See 2 Nimmer on Copyright § 806.

Id. at 10 n. 2.

[21] In Micro-Sparc, the plaintiff published a weekly magazine containing computer programs which subscribers could type into their computers. The defendant typed programs contained in plaintiff's magazine into a computer and then transferred these programs onto a "master disk." From the master disk, the defendant copied the programs onto blank diskettes and then sold these diskettes to subscribers of plaintiff's magazine. 592 F.Supp. at 34.

In response to plaintiff's claim that defendant's "typing service" constituted copyright infringement, defendant contended that it was making back-up copies of programs which appeared in plaintiff's magazine and that its activity therefore fell within the "archival exception." The court rejected this defense, holding that when a subscriber to plaintiff's magazine "orders a disk from the defendant, he possesses the programs as they appear in the magazine. In this printed form, the programs are susceptible only to physical dangers, such as accidental shredding." Id. at 35.

[22] Ray Strackbein, the head of Vault's engineering department, testified that programs recorded on diskettes are not subject to damage by electrical failure. T.R. at 255. There was no testimony to indicate that programs recorded on diskettes are subject to damage by mechanical failure. The only contrary evidence was presented by Warren Steinke who testified that CopyWrite protected against damage due to "a head crash," "a voltage break" or "static electricity," T.R. at 331, all of which suggest that programs recorded on diskettes are subject to damage by electrical failure. Steinke is not a computer programmer by profession, T.R. at 326, but works as an administrative assistant in an insurance brokerage business, and his testimony was clearly controverted by that of Strackbein.

[23] The trial court found:

It is an ordinary practice of computer users to purchase computer software and immediately make archival backup copies of that software. This is done in order to assure the user that in the event of mechanical, electrical or physical damage to the software program or disks, a functional backup copy is available for use.

Vault, 655 F.Supp. at 754.

[24] Because the placement of a work into a computer is the preparation of a copy, the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability. Obviously, creators, lessors, licensors and vendors of copies of programs intend that they be used by their customers, so that rightful users would but rarely need a legal shield against potential copyright problems. It is easy to imagine, however, a situation in which the copyright owner might desire, for good reason or none at all, to force a lawful owner or possessor of a copy to stop using a particular program. One who rightfully possesses a copy of a program, therefore, should be provided with a legal right to copy it to that extent which will permit its use by that possessor. This would include the right to load it into a computer and to prepare archival copies of it to guard against destruction or damage by mechanical or electrical failure. But this permission would not extend to other copies of the program. Thus one could not, for example, make archival copies of a program and later sell some to another while retaining some for use. The sale of a copy of a program by a rightful possessor to another must be of all rights in the program, thus creating a new rightful possessor and destroying that status as regards the seller. This is in accord with the intent of that portion of the law which provides that owners of authorized copies of a copyrighted work may sell those copies without leave of the copyright proprietor.

[25] In Whelan, the copyrighted work was a computer program and the derivative work was the same program written in a different computer language. 797 F.2d at 1225-26. In Midway, the copyrighted work was a video game and the derivative work was a speeded-up version of that game. Midway, 704 F.2d at 1010-11.

[26] While the district court held that the Louisiana Uniform Trade Secrets Act, La.Rev.Stat.Ann. § 51:1431 et seq., was not preempted by the Copyright Act, the court held that the process of ascertaining information by "reverse engineering," used by Quaid to analyze the operation of Vault's program, did not constitute a violation of the Louisiana Trade Secrets Act. Vault, 655 F.Supp. at 761. This holding is not challenged on appeal.

[27] Beginning with PROLOK version 2.0, Vault's license agreement contained a choice of law clause adopting Louisiana law. See supra note 3.

[28] Section 51:1964 reads, in full:

Terms of which shall be deemed to have been accepted under R.S. 51:1963, if included in an accompanying license agreement which conforms to the provisions of R.S. 51:1965, may include any or all of the following:

(1) Provisions for the retention by the licensor of title to the copy of the computer software.

(2) If title to the copy of computer software has been retained by the licensor, provisions for the prohibition of any copying of the copy of computer software for any purpose and/or limitations on the purposes for which copies of the computer software can be made and/or limitations on the number of copies of the computer software which can be made.

(3) If title to the copy of computer software has been retained by the licensor, provisions for the prohibition or limitation of rights to modify and/or adapt the copy of the computer software in any way, including without limitation prohibitions on translating, reverse engineering, decompiling, disassembling, and/or creating derivative works based on the computer software.

(4) If title to the copy of computer software has been retained by the licensor, provisions for prohibitions on further transfer, assignment, rental, sale, or other disposition of that copy or any other copies made from that copy of the computer software, provided that terms which prohibit the transfer of a copy of computer software in connection with the sale or transfer by operation of law of all or substantially all of the operating assets of a licensee's business shall to that extent only not be deemed to have been accepted under R.S. 51:1963.

(5) Provisions for the automatic termination without notice of the license agreement if any provisions of the license agreement are breached by the licensee.

[29] See supra note 2.

[30] See supra note 11.

320 F.3d 1317 (2003)

Nos. 01-1108, 01-1109.

January 29, 2003.

[1318] [1319] [1320] Frederic M. Meeker, Banner & Witcoff, LTD, of Washington, DC, filed a response for plaintiff-cross appellant. With him on the response were Steve S. Chang, Bradley C. Wright, and Charles W. Shifley.

Robert L. Kann, Bromberg & Sunstein LLP, of Boston, Massachusetts, filed a combined petition for panel rehearing and rehearing en banc for defendant-appellant. Of counsel were Judith R.S. Stern and Erik P. Belt.

Mark A. Lemley, Professor of Law, Boalt Hall School of Law, University of California at Berkeley, of Berkeley, CA, filed an amici curiae brief.

Before CLEVENGER, RADER, and DYK, Circuit Judges.

Opinion for the court filed by Circuit Judge RADER. Concurring/dissenting opinion filed by Circuit Judge DYK.

RADER, Circuit Judge.

Following trial in the United States District Court for the District of Massachusetts, the jury returned a verdict for Harold L. Bowers on his patent infringement, copyright infringement, and breach of contract claims, while rejecting Baystate Technologies, Inc.'s claim for patent invalidity. The jury awarded Mr. Bowers separate damages on each of his claims. The district court, however, omitted the copyright damages as duplicative of the contract damages. Because substantial evidence supports the jury's verdict that Baystate breached the contract, this court affirms that verdict. This court holds also that the district court did not abuse its discretion in modifying the damages award. Nevertheless, because no reasonable jury could find that Baystate infringes claim 1 as properly construed, this court reverses the patent infringement verdict.

I.

Harold L. Bowers (Bowers) created a template to improve computer aided design (CAD) software, such as the CADKEY [1321] tool of Cadkey, Inc. Mr. Bowers filed a patent application for his template on February 27, 1989. On June 12, 1990, United States Patent No. 4,933,514 ('514 patent) issued from that application.

Generally, a CAD software program has many commands that the software presents to the user in nested menus many layers deep. The layering often makes it difficult for a user to find quickly a desired command. To address this problem, the claimed template works with a CAD system as illustrated in Fig. 1 of the '514 patent. In that figure, the '514 patent template lies on top of the digitizing tablet 18 of a CAD computer. The user selects data from the template with a pointing device 20. The template places the many CAD commands in a claimed visual and logical order. Figure 1 shows:

[FIGURE OMITTED]

Mr. Bowers commercialized the '514 patent template as Cadjet for use with CADKEY.

On February 1, 1993, Mr. Bowers requested reexamination of the '514 patent in view of prior art, namely the Keymaster template. Like the '514 patent template, the Keymaster template provides a unified visual representation of many CAD commands. Like the preferred embodiment of the '514 patent, the Keymaster template operates with CADKEY software. Following examiner rejections, the Board of Patent Appeals and Interferences ultimately found some amended claims of the '514 patent patentable. The PTO issued a reexamination certificate on December 9, 1997. U.S. Patent No. B1-4,933,514.

Since the early 1980s, CAD programs have assisted engineers to draft and design on a computer screen. George W. Ford, III, a development engineer and supervisor of quality control at Heinemann Electric, envisioned a way to improve Mr. Bowers' template and CAD software. Specifically, Mr. Ford designed Geodraft, a DOS-based add-on program to operate with CAD. Geodraft allows an engineer to insert technical tolerances for features of the computer-generated design. These [1322] tolerances comply with the geometric dimensioning and tolerancing (GD & T) requirements in ANSI Y14.5M, a standard promulgated by the American National Standards Institute (ANSI). Geodraft works in conjunction with the CAD system to ensure that the design complies with ANSI Y14.5M-a task previously error-prone due to the standard's complexity. Geodraft automatically includes symbols specifying the correct GD & T parameters. Mr. Ford obtained a registered copyright, TX 2-939-672, covering Geodraft.

In 1989, Mr. Ford offered Mr. Bowers an exclusive license to his Geodraft software. Mr. Bowers accepted that offer and bundled Geodraft and Cadjet together as the Designer's Toolkit. Mr. Bowers sold the Designer's Toolkit with a shrink-wrap license that, inter alia, prohibited any reverse engineering.

In 1989, Baystate also developed and marketed other tools for CADKEY. One of those tools, Draft-Pak version 1 and 2, featured a template and GD & T software. In 1988 and 1989, Mr. Bowers offered to establish a formal relationship with Baystate, including bundling his template with Draft-Pak. Baystate rejected that offer, however, telling Mr. Bowers that it believed it had "the in-house capability to develop the type of products you have proposed."

In 1990, Mr. Bowers released Designer's Toolkit. By January 1991, Baystate had obtained copies of that product. Three months later, Baystate introduced the substantially revised Draft-Pak version 3, incorporating many of the features of Designer's Toolkit. Although Draft-Pak version 3 operated in the DOS environment, Baystate later upgraded it to operate with Microsoft Windows ®.

Baystate's introduction of Draft-Pak version 3 induced intense price competition between Mr. Bowers and Baystate. To gain market share over Baystate, Mr. Bowers negotiated with Cadkey, Inc., to provide the Designer's Toolkit free with CADKEY. Mr. Bowers planned to recoup his profits by selling software upgrades to the users that he hoped to lure to his products. Following pressure from Baystate, however, Cadkey, Inc., repudiated its distribution agreement with Mr. Bowers. Eventually, Baystate purchased Cadkey, Inc., and eliminated Mr. Bowers from the CADKEY network — effectively preventing him from developing and marketing the Designer's Toolkit for that program.

On May 16, 1991, Baystate sued Mr. Bowers for declaratory judgment that 1) Baystate's products do not infringe the '514 patent, 2) the '514 patent is invalid, and 3) the '514 patent is unenforceable. Mr. Bowers filed counterclaims for copyright infringement, patent infringement, and breach of contract.

Following trial, the jury found for Mr. Bowers and awarded $1,948,869 for copyright infringement, $3,831,025 for breach of contract, and $232,977 for patent infringement. The district court, however, set aside the copyright damages as duplicative of the contract damages and entered judgment for $5,270,142 (including prejudgment interest). Baystate filed timely motions for judgment as a matter of law (JMOL), or for a new trial, on all of Mr. Bowers' claims. Baystate appeals the district court's denial of its motions for JMOL or a new trial, while Mr. Bowers appeals the district court's denial of copyright damages. This court has jurisdiction under 28 U.S.C. § 1295(a)(1) (2000).

II.

Baystate raises a number of issues that are not unique to the jurisdiction of this court. On those issues, this court applies the law of the circuit from which the appeal is taken, here the First Circuit. Glaxo, Inc. v. Novopharm, Ltd., 110 F.3d [1323] 1562, 1572, 42 USPQ2d 1257, 1265 (Fed. Cir.1997); Atari, Inc. v. JS & A Group, Inc., 747 F.2d 1422, 1439-40, 223 USPQ 1074, 1087 (Fed.Cir.1984) (en banc).

Under the law of the First Circuit, a court of appeals reviews without deference the district court's denial of JMOL. Larch v. Mansfield Mun. Elec. Dept., 272 F.3d 63, 67 (1st Cir.2001). The inquiry is whether the evidence, when viewed from the perspective most favorable to the non-movant, would permit a reasonable jury to find in favor of that party on any permissible claim or theory. Id. The First Circuit reviews the district court's denial of a motion for a new trial for manifest abuse of discretion. Seahorse Marine Supplies, Inc. v. P.R. Sun Oil Co., 295 F.3d 68, 82 (2002). The First Circuit will reduce or set aside a damage award only if it exceeds "any rational appraisal or estimate of the damages that could be based upon the evidence before the jury." Segal v. Gilbert Color Sys., Inc., 746 F.2d 78, 81 (1st Cir.1984) (quoting Glazer v. Glazer, 374 F.2d 390, 413 (5th Cir.1967)). Nevertheless, in the First Circuit, a district court has authority to resolve whether damages awarded by a jury are duplicative, a determination that a court of appeals reviews for an abuse of discretion. Garshman Co. v. Gen. Elec. Co., 176 F.3d 1, 6 (1st Cir.1999). Further, the First Circuit treats federal preemption as a question of law and reviews it without deference. United States v. R.I. Insurers' Insolvency Fund, 80 F.3d 616, 619 (1st Cir.1996) ("[A] federal preemption ruling presents a pure question of law subject to plenary review.").

Claim construction is a question of law that this court reviews without deference. Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454, 46 USPQ2d 1169, 1173-74 (Fed.Cir.1998) (en banc). Infringement, whether literal or under the doctrine of equivalents, is a question of fact. Bai v. L & L Wings, Inc., 160 F.3d 1350, 1353, 48 USPQ2d 1674, 1676 (Fed. Cir.1998); Optical Disc Corp. v. Del Mar Avionics, 208 F.3d 1324, 1333-34, 54 USPQ2d 1289, 1294-95 (Fed.Cir.2000). Obviousness is a question of law, Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966), premised on underlying factual determinations, Dennison Mfg. v. Panduit Corp., 475 U.S. 809, 810-11, 106 S.Ct. 1578, 89 L.Ed.2d 817 (1986). Anticipation is a question of fact. Atlas Powder Co. v. Ireco, Inc., 190 F.3d 1342, 1346, 51 USPQ2d 1943, 1945 (Fed. Cir.1999). Therefore, a district court properly may deny JMOL on these factual issues where substantial evidence supports the jury verdict. Fed.R.Civ.P. 50(a)(1); Sheils Title Co., v. Commonwealth Land Title Ins. Co., 184 F.3d 10, 19 (1st Cir. 1999).

A.

Baystate contends that the Copyright Act preempts the prohibition of reverse engineering embodied in Mr. Bowers' shrink-wrap license agreements. Swayed by this argument, the district court considered Mr. Bowers' contract and copyright claims coextensive. The district court instructed the jury that "reverse engineering violates the license agreement only if Baystate's product that resulted from reverse engineering infringes Bowers' copyright because it copies protectable expression." Mr. Bowers lodged a timely objection to this instruction. This court holds that, under First Circuit law, the Copyright Act does not preempt or narrow the scope of Mr. Bowers' contract claim.

Courts respect freedom of contract and do not lightly set aside freely-entered agreements. Beacon Hill Civic Ass'n v. Ristorante Toscano, 422 Mass. 318, 662 N.E.2d 1015, 1017 (1996). Nevertheless, at times, federal regulation may [1324] preempt private contract. Cf. Nebbia v. New York, 291 U.S. 502, 523, 54 S.Ct. 505, 78 L.Ed. 940 (1934) ("Equally fundamental with the private right is [the right] of the public to regulate [the private right] in the common interest."). The Copyright Act provides that "all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright ... are governed exclusively by this title." 17 U.S.C. § 301(a) (2000). The First Circuit does not interpret this language to require preemption as long as "a state cause of action requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display." Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1164, 32 USPQ2d 1385, 1397 (1st Cir.1994) (quoting Gates Rubber Co. v. Bando Chem. Indus., 9 F.3d 823, 847, 28 USPQ2d 1503, 1520 (10th Cir.1993)); see also Computer Assoc. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 716 (2d Cir.1992) ("But if an `extra element' is `required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state-created cause of action, then the right does not lie "within the general scope of copyright," and there is no preemption.'") (quoting 1 Nimmer on Copyright § 1.01[B] at 1-15). Nevertheless, "[n]ot every `extra element' of a state law claim will establish a qualitative variance between the rights protected by federal copyright law and those protected by state law." Id.

In Data General, Data General alleged that Grumman misappropriated its trade secret software. 36 F.3d at 1155. Grumman obtained that software from Data General's customers and former employees who were bound by confidentiality agreements to refrain from disclosing the software. Id. at 1154-55. In defense, Grumman argued that the Copyright Act preempted Data General's trade secret claim. Id. at 1158, 1165. The First Circuit held that the Copyright Act did not preempt the state law trade secret claim. Id. at 1165. Beyond mere copying, that state law claim required proof of a trade secret and breach of a duty of confidentiality. Id. These additional elements of proof, according to the First Circuit, made the trade secret claim qualitatively different from a copyright claim. Id. In contrast, the First Circuit noted that claims might be preempted whose extra elements are illusory, being "mere label[s] attached to the same odious business conduct." Id. at 1165 (quoting Mayer v. Josiah Wedgwood & Sons, Ltd., 601 F.Supp. 1523, 1535, 225 USPQ 776, 784 (S.D.N.Y.1985)). For example, the First Circuit observed that "a state law misappropriation claim will not escape preemption ... simply because a plaintiff must prove that copying was not only unauthorized but also commercially immoral." Id.

The First Circuit has not addressed expressly whether the Copyright Act preempts a state law contract claim that restrains copying. This court perceives, however, that Data General's rationale would lead to a judgment that the Copyright Act does not preempt the state contract action in this case. Indeed, most courts to examine this issue have found that the Copyright Act does not preempt contractual constraints on copyrighted articles. See, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 39 USPQ2d 1161 (7th Cir.1996) (holding that a shrink-wrap license was not preempted by federal copyright law); Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 457, 59 USPQ2d 1434, 1441-42 (6th Cir.2001) (holding a state law contract claim not preempted by federal copyright law); Nat'l Car Rental Sys., Inc. v. Computer Assocs. Int'l, Inc., 991 F.2d 426, 433, 26 USPQ2d 1370, 1376 (8th Cir. 1993); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990); Acorn Structures v. Swantz, 846 F.2d 923, [1325] 926, 6 USPQ2d 1810, 1812 (4th Cir.1988); but see Lipscher v. LRP Publs., Inc., 266 F.3d 1305, 1312, 60 USPQ2d 1468, 1473 (11th Cir.2001).

In ProCD, for example, the court found that the mutual assent and consideration required by a contract claim render that claim qualitatively different from copyright infringement. 86 F.3d at 1454. Consistent with Data General's reliance on a contract element, the court in ProCD reasoned: "A copyright is a right against the world. Contracts, by contrast, generally affect only their parties; strangers may do as they please, so contracts do not create `exclusive rights.'" Id. Indeed, the Supreme Court recently noted "[i]t goes without saying that a contract cannot bind a nonparty." EEOC v. Waffle House, Inc., 534 U.S. 279, 122 S.Ct. 754, 764, 151 L.Ed.2d 755 (2002). This court believes that the First Circuit would follow the reasoning of ProCD and the majority of other courts to consider this issue. This court, therefore, holds that the Copyright Act does not preempt Mr. Bowers' contract claims.

In making this determination, this court has left untouched the conclusions reached in Atari Games v. Nintendo regarding reverse engineering as a statutory fair use exception to copyright infringement. Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832, 24 USPQ2d 1015 (Fed.Cir.1992). In Atari, this court stated that, with respect to 17 U.S.C. § 107 (fair use section of the Copyright Act), "[t]he legislative history of section 107 suggests that courts should adapt the fair use exception to accommodate new technological innovations." Atari, 975 F.2d at 843. This court noted "[a] prohibition on all copying whatsoever would stifle the free flow of ideas without serving any legitimate interest of the copyright holder." Id. Therefore, this court held "reverse engineering object code to discern the unprotectable ideas in a computer program is a fair use." Id. Application of the First Circuit's view distinguishing a state law contract claim having additional elements of proof from a copyright claim does not alter the findings of Atari. Likewise, this claim distinction does not conflict with the expressly defined circumstances in which reverse engineering is not copyright infringement under 17 U.S.C. § 1201(f) (section of the Digital Millennium Copyright Act) and 17 U.S.C. § 906 (section directed to mask works).

Moreover, while the Fifth Circuit has held a state law prohibiting all copying of a computer program is preempted by the federal Copyright Act, Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255 (5th Cir.1988), no evidence suggests the First Circuit would extend this concept to include private contractual agreements supported by mutual assent and consideration. The First Circuit recognizes contractual waiver of affirmative defenses and statutory rights. See United States v. Spector, 55 F.3d 22, 24-5 (1st Cir.1995) (holding that a contractual waiver of the statute of limitations defense constitutes an "effective waiver of defendant's rights under the statute of limitations" if the agreement were properly executed, and the "waiver is made knowingly and voluntarily."); Tompkins v. United Healthcare of New England, 203 F.3d 90, 97 (1st Cir.2000) (stating that "in some circumstances contractual waiver of statutory rights is permissible," citing Canal Elec. Co. v. Westinghouse Elec. Corp., 406 Mass. 369, 548 N.E.2d 182, 187 (Mass. 1990) ("a contractual waiver of statutory rights is permissible when the statute's purpose is the `protection of the property rights of individual parties ... rather than ... the protection of the general public.'")). Thus, case law indicates the First Circuit would find that private parties [1326] are free to contractually forego the limited ability to reverse engineer a software product under the exemptions of the Copyright Act. Of course, a party bound by such a contract may elect to efficiently breach the agreement in order to ascertain ideas in a computer program unprotected by copyright law. Under such circumstances, the breaching party must weigh the benefits of breach against the arguably de minimus damages arising from merely discerning non-protected code.

This court now considers the scope of Mr. Bowers' contract protection. Without objection to the choice of law, the district court applied Massachusetts contract law. Accordingly, contract terms receive "the sense and meaning of the words which the parties have used; and if clear and free from ambiguity the words are to be taken and understood in their natural, usual and ordinary sense." Farber v. Mutual Life Ins. Co., 250 Mass. 250, 253, 145 N.E. 535 (Mass.1924); see also Kelly v. Marx, 428 Mass. 877, 881, 705 N.E.2d 1114 (Mass.1999) ("The proper course is to enforce contracts according to their plain meaning and not to undertake to be wiser than the parties.") (quoting Guerin v. Stacy, 175 Mass. 595, 597, 56 N.E. 892 (1900) (Holmes, C.J.)).

In this case, the contract unambiguously prohibits "reverse engineering." That term means ordinarily "to study or analyze (a device, as a microchip for computers) in order to learn details of design, construction, and operation, perhaps to produce a copy or an improved version." Random House Unabridged Dictionary (1993); see also The Free On-Line Dictionary of Computing (2001), at http://wombat.doc. ic.ac.uk/foldoc/foldoc.cgi?reverse + engineering (last visited Jul. 17, 2002). Thus, the contract in this case broadly prohibits any "reverse engineering" of the subject matter covered by the shrink-wrap agreement.

The record amply supports the jury's finding of a breach of that agreement. As discussed above, the district court erred in instructing the jury that copyright law limited the scope of Mr. Bowers' contract protection. Notwithstanding that error, this court may affirm the jury's breach of contract verdict if substantial record evidence would permit a reasonable jury to find in favor of Mr. Bowers based on a correct understanding of the law. Larch v. Mansfield Mun. Elec. Dept., 272 F.3d 63, 69 (1st Cir.2001). The shrink-wrap agreements in this case are far broader than the protection afforded by copyright law. Even setting aside copyright violations, the record supports a finding of breach of the agreement between the parties. In view of the breadth of Mr. Bowers' contracts, this court perceives that substantial evidence supports the jury's breach of contract verdict relating to both the DOS and Windows versions of Draft-Pak.

The record indicates, for example, that Baystate scheduled two weeks in Draft-Pak's development schedule to analyze the Designer's Toolkit. Indeed, Robert Bean, Baystate's president and CEO, testified that Baystate generally analyzed competitor's products to duplicate their functionality.

The record also contains evidence of extensive and unusual similarities between Geodraft and the accused Draft-Pak — further evidence of reverse engineering. James Spencer, head of mechanical engineering and integration at the Space and Naval Warfare Systems Center, testified that he examined the relevant software programs to determine "the overall structure of the operating program" such as "how the operating programs actually executed the task of walking a user through [1327] creating a [GD&T;] symbol." Mr. Spencer concluded: "In the process of taking the [ANSI Y14.5M] standard and breaking it down into its component parts to actually create a step-by-step process for a user using the software, both Geodraft and Draft-Pak [for DOS] use almost the identical process of breaking down that task into its individual pieces, and it's organized essentially identically." This evidence supports the jury's verdict of a contract breach based on reverse engineering.

Mr. Ford also testified that he had compared Geodraft and Draft-Pak. When asked to describe the Draft-Pak interface, Mr. Ford responded: "It looked like I was looking at my own program [i.e., Geodraft]." Both Mr. Spencer and Mr. Ford explained in detail similarities between Geodraft and the accused Draft-Pak. Those similarities included the interrelationships between program screens, the manner in which parameter selection causes program branching, and the manner in which the GD&T; symbols are drawn.

Both witnesses also testified that those similarities extended beyond structure and design to include many idiosyncratic design choices and inadvertent design flaws. For example, both Geodraft and Draft-Pak offer "straightness tolerance" menu choices of "flat" and "cylindric," unusual in view of the use by ANSI Y14.5M of the terms "linear" and "circular," respectively. As another example, neither program requires the user to provide "angularity tolerance" secondary datum to create a feature control frame — a technical oversight that causes creation of an incomplete symbol. In sum, Mr. Spencer testified: "Based on my summary analysis of how the programs function, their errors from the standard and their similar nomenclatures reflecting nonstandard items, I would say that the Draft-Pak [for DOS] is a derivative copy of a Geodraft product."

Mr. Ford and others also demonstrated to the jury the operation of Geodraft and both the DOS and Windows versions of the accused Draft-Pak. Those software demonstrations undoubtedly conveyed information to the jury that the paper record on appeal cannot easily replicate. This court, therefore, is especially reluctant to substitute its judgment for that of the jury on the sufficiency and interpretation of that evidence. In any event, the record fully supports the jury's verdict that Baystate breached its contract with Mr. Bowers.

Baystate does not contest the contract damages amount on appeal. Thus, this court sustains the district court's award of contract damages. Mr. Bowers, however, argues that the district court abused its discretion by dropping copyright damages from the combined damage award. To the contrary, this court perceives no abuse of discretion.

The shrink-wrap license agreement prohibited, inter alia, all reverse engineering of Mr. Bowers' software, protection encompassing but more extensive than copyright protection, which prohibits only certain copying. Mr. Bowers' copyright and contract claims both rest on Baystate's copying of Mr. Bowers' software. Following the district court's instructions, the jury considered and awarded damages on each separately. This was entirely appropriate. The law is clear that the jury may award separate damages for each claim, "leaving it to the judge to make appropriate adjustments to avoid double recovery." Britton v. Maloney, 196 F.3d 24, 32 (1st Cir.1999) (citing Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 451 n. 3, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993)); see also Data Gen. Corp. v. Grumman Sys. Support Corp., 825 F.Supp. 340, 346 (D.Mass.1993) ("So long as a plaintiff is not twice compensated for a single injury, a judgment may be comprised of elements drawn from separate ... remedies."), aff'd [1328] in relevant part, 36 F.3d 1147 (1st Cir. 1994). In this case, the breach of contract damages arose from the same copying and included the same lost sales that form the basis for the copyright damages. The district court, therefore, did not abuse its discretion by omitting from the final damage award the duplicative copyright damages. Because this court affirms the district court's omission of the copyright damages, this court need not reach the merits of Mr. Bowers' copyright infringement claim.

B.

Turning now to the patent counts, patent claim language defines the scope of the invention. SRI Int'l v. Matsushita Elec. Corp., 775 F.2d 1107, 1121, 227 USPQ 577, 586 (Fed.Cir.1985) (en banc). As a general rule, claim language carries the ordinary meaning of the words in their normal usage in the field of invention. Toro Co. v. White Consol. Indus., 199 F.3d 1295, 1299, 53 USPQ2d 1065, 1067 (Fed.Cir.1999). Nevertheless, the inventor may act as his own lexicographer and use the specification to supply implicitly or explicitly new meanings for terms. Markman v. Westview Instruments, Inc., 52 F.3d 967, 979-80, 34 USPQ2d 1321, 1330 (Fed.Cir.1995) (en banc), aff'd 517 U.S. 370, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996). Thus, to help determine the proper construction of a patent claim, a construing court consults the written description, and, if in evidence, the prosecution history. Id. A claim construction that excludes from its scope a preferred embodiment "is rarely, if ever, correct and would require highly persuasive evidentiary support." Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1583, 39 USPQ2d 1573, 1578 (Fed.Cir.1996).

As described previously, Mr. Bowers' invention claims a template that simplifies operation of a CAD program. A CAD program, such as CADKEY, comprises numerous commands accessible to the user in nested menus many layers deep. For example, CADKEY includes a variety of main menus, such as CREATE and TRANSFORM. Each main menu, in turn, offers many different selections. These options provide additional menus with further selection possibilities, or working functions. The CREATE main menu of CADKEY Version 3.02 is representative. A portion of that menu structure is shown below, where asterisks indicate material omitted for brevity:

[1329]
CREATE
    Line
        Endpts
            Cursor  |
            Point   | 
            Endent  | 
            Center  | 
            Intrsc  > (Position menu) 
            Alongl  | 
            Polar   | 
            Delta   | 
            Key — In| 
        String 
            (Position menu) 
        Par/prp 
            * * * 
        Tangent 
            Arc Pt
            2 Arcs 
        Hrz/vrt 
            Horiztl
            Verticl
            Both
        Angle 
        Rectang 
            * * * 
        N-Gon 
        Mesh 
            Ruled
            General 
    Arc * * * 
    Circle * * * 
    Point * * * 
    Polyin * * * 
    Fillet * * * 
    Chamfer * * * 
    Conic * * * 
    Polygon * * * 
    Spline * * *

In this menu structure, menu items indicated in italicized type represent working functions, while all others represent additional menus simply providing more menu options. For example, "Line" is a sub-menu of CREATE. Selection of "Line" [1330] leads to a variety of menu items including the sub-sub-menu "Endpts" and the working function "Angle." "Endpts," in turn, leads to a variety of working functions such as "Cursor" and "Point."

The '514 patent describes a template that presents a single visual representation of many of the available CAD program commands. Mr. Bowers asserts claim 1, the only independent claim:

1. In a computer system including a central processing unit having a keyboard entry station with a plurality of keys for data entry and a pointing device station having a pointer with at least one pointer button for data entry and responsive to positionable movement of said pointer, and including system operating functions having successive layers of a main menu of selectable group functions and [a plurality of sub-levels of sub-menus] successive series of a first layer of sub-menus, and at least a second sub-layer of sub-menus having selectable group sub-functions, accessible by successive entries on said keyboard or said pointer to select an ultimate working function, the improvement comprising:

(a) a template for use with said pointing device;

(b) indicia arranged on the template and located in a plurality of groups, one group of each corresponding to one predetermined, selectable item of said main menu and all said indicia in a respective group bearing a common group identifying characteristic;

(c) at least a second plurality of indicia, each of which corresponds to a predetermined selectable item of a sub-menu corresponding to an item of said main menu;

(d) means securing said templates in a fixed orientation to said tablet whereby said pointing device can select a working function with a single movement of the said button.

U.S. Patent No. B1-4,933,514, col. 1, l. 25 to col. 2, l. 19. The reissued claim's altered language is not at issue in this appeal.

Figs. 3A-D of the '514 patent illustrate a template according to claim 1 and configured to operate with CADKEY. That template is illustrated below as a composite of Figs. 3A-D. The template includes a variety of indicia that represent selected items from the CADKEY menus. For example, the template includes the main-menu indicia "CREATE" (middle) and "TRANSFORM" (lower-right corner). In turn, other indicia are associated with those main-menu indicia (e.g., using location and color) to form main-menu indicia groups. To illustrate, the "CREATE" main-menu indicia group includes the sub-menus "Lines," "Arcs," "Circ," "Points," "Plygns," and "Splines" (sub-menu indicia), but not the remaining "CREATE" sub-menus "Polyin," "Fillet," "Chamfer," or "Conic," see supra at pp. 15-16. In the template, each of the "CREATE" group's sub-menus has working functions in columns below. The working function indicia represent working functions dependent from the relevant sub-menu. For example, the working function indicia associated with the "Lines" sub-menu fall below that heading and include "Tan:ArcPt," "Tan:2Arcs," "Horz," "Vert," and "Horz/Vert."

[1331] [FIGURE OMITTED]

The parties dispute the meaning of paragraphs b, c, and d of claim 1. This court agrees generally with the district court's construction of paragraphs b and c. With respect to paragraph d, however, the district court erred in its construction. Under a correct construction of that paragraph, no reasonable jury could find that Baystate infringes claim 1. In view of this court's holding of noninfringement, this court does not reach the alternative ground for challenging the district court's judgment based on patent invalidity.

The district court construed paragraph b: "at least two groups must appear on a template where one group corresponds to a main menu item and the other corresponds to another main menu item." In other words, the template must include at least two main-menu indicia groups, such as the "CREATE" and "TRANSFORM" groups described above. Baystate argues, nevertheless, that the reexamination history requires that "every group of the template must correspond to a main menu item." The history of reexamination indicates otherwise.

During reexamination, Mr. Bowers noted that each group of the Keymaster template did not correspond to a main-menu item. With respect to those groups that did correspond to main-menu items, Mr. Bowers argued that those did not satisfy claim paragraphs c and d. Mr. Bowers [1332] thus admitted that a set of Keymaster template groups satisfy claim paragraph b, but he then distinguished them in view of paragraphs c and d. Specifically, Mr. Bowers stated: "Each of the groups of the Keymaster template does not correspond to one selectable item of the main menu of the Cadkey system." Baystate would read this statement to mean that the claim's reference to a "plurality" of groups on the template encompasses all groups on the template. In other words, Baystate reads "each" in several of Bowers' statement to mean "all." The claim, however, uses the term "plurality," meaning "comprising, or consisting of more than one." The Oxford English Dictionary (2d ed. 1989). Thus, Bowers' references to "each" refers to the "at least two groups" required by the claims. To read Bowers statements too strictly would exclude from claim scope the preferred embodiment of the '514 patent — a disfavored result. That embodiment includes, for example, a group "SET" that is not associated with a CADKEY main-menu item. In sum, this court agrees with the district court's interpretation of paragraph b.

With respect to paragraph c, the district court interpreted claim 1 to require "that at least two indicia contained in the second set of indicia contained within one of the at least two groups of indicia described in claim 1(b) must correspond to an item of the first submenu of the main menu item to which the group corresponds." In other words, at least one of the main-menu indicia groups paragraph b requires must include at least two indicia associated with a sub-menu of the main-menu. '514 patent at col. 4, ll. 9-16. The specification supports the trial court's interpretation. In the preferred embodiment, for example, the sub-menu "Lines" under the "CREATE" group defines two columns of indicia representing working functions. Id. at col. 4, ll. 9-16. The sub-menu indicium "Lines" and the working functions in columns below are associated with the "Lines" sub-menu of the "CREATE" main-menu, thus satisfying the claim requirement. In sum, paragraph c requires that at least one of the main-menu indicia groups include at least two indicia associated with the same sub-menu of the main-menu.

With respect to paragraph d, the district court held "that the single movement of the pointing device's button can, but need not, select a working function." Properly construed, however, this limitation requires that each of the indicia associated with the sub-menu of a main-menu group must represent a working function accessible with a single movement of the pointer button (e.g., as opposed to access through further selection via a drop-down menu). Using the "Lines" sub-menu as an example, see Figs. 3A-D supra at p. 18, paragraph d requires that all indicia below that sub-menu must represent working functions. The specification and the reexamination history support this construction of paragraph d.

As just described with respect to the "Lines" sub-menu, the '514 patent discloses a sub-menu with one or more columns of working functions. '514 patent at col. 4, ll. 9-16. This arrangement supplies the second plurality of indicia required by paragraph c. Id. at col. 4, ll. 9-16. The specification discloses expressly that all indicia associated with sub-menus (i.e., "Line," "Arcs," etc.) of the "CREATE" group represent working functions.^[1]Id. at col. 4, ll. 24-26. For example, two [1333] columns fall beneath the "Lines" sub-menu within the "CREATE" group. Each indicium in those columns, e.g., "Tan:ArcPt," "Tan:2Arcs," "Horz," "Vert," and "Horz/Vert," represents a working function that depends from the "Lines" sub-menu. Id. at col. 4, ll. 24-65 ("The individual items appearing in the rows of each of these columns [defined by the sub-menu indicia] represent an ultimate working function"). In other words, consistent with this court's construction, all the indicia associated with the sub-menus of the "CREATE" group represent working functions.

The reexamination history also precludes this court from adopting a broader construction. Specifically, with respect to "working functions," the claim language recites only that the "pointing device can select a working function with a single movement of the said button." During the reexamination proceedings, Mr. Bowers argued that the Keymaster template did not satisfy this limitation because that template's "DETAIL" and "TRANSFORM" main-menu groups included indicia that did not represent working functions. With reference to the "DETAIL" group more specifically, that group includes sub-menus "Dim," and "Arr/Wit," and an additional indicium "Misc." The Keymaster "DETAIL" group and relevant portions of the CADKEY 3.02 menu structure are shown in the figure below. In that figure, working functions are highlighted.

[FIGURE OMITTED]

The indicia "Dim," "Arr/Wit," and "Misc" each have a group of indicia underneath them. However, as shown above, none of those indicia groups includes only working functions. With respect to the group "Misc," Mr. Bowers made clear that the indicia "Note," "X-Hatch," "Change," and "Set," all represented additional menus rather than working functions. For example, selecting the indicium "X-Hatch" simply presents an opportunity to select the actual working cross-hatching functions of "Brick," "Steel," "Copper," "Alloys," "Aluminum," "Rubber," or "Marble" [1334] (not shown in the menu structure above). A user simply cannot access these cross-hatching functions through a single movement of the pointing device button using the Keymaster template. In like manner, as shown in the figure, the indicia groups associated with "Dim" and "Arr/Wit," respectively, also include indicia that do not represent working functions.

After claim construction, the infringement inquiry shifts to a comparison of the claim with the allegedly infringing device. Kemco Sales, Inc. v. Control Papers Co., 208 F.3d 1352, 1359, 54 USPQ2d 1308, 1312 (Fed.Cir.2000). To prove infringement, the patentee must show that the accused device contains each limitation of the asserted claim, Mas-Hamilton Group v. LaGard, Inc., 156 F.3d 1206, 1211, 48 USPQ2d 1010, 1014 (Fed. Cir.1998), or an equivalent of each limitation, Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 40, 117 S.Ct. 1040, 137 L.Ed.2d 146 (1997). This comparison is a question of fact. Bai, 160 F.3d at 1353. Hence, a change in the claim construction at the appellate level generally necessitates a remand to the district court to consider new factual issues unless the record on appeal supplies substantial evidence to support the jury verdict under the new claim construction. See Fed.R.Civ.P. 50.

On the issue of literal infringement, Mr. Bowers relies upon the accused templates' "CREATE" and "TRANSFORM" groups to satisfy the limitations of claim 1. With respect to paragraph d, Mr. Bowers proffered evidence showing only that each of the "CREATE" and "TRANSFORM" groups included some, but not all, indicia representing working functions. Moreover, the record contained undisputed evidence showing that the limitations of paragraph d are not met.

Specifically, Baystate's director of MIS (management information systems), John Pentecost, produced reports comparing menu trees of the relevant versions of CADKEY with corresponding versions of Baystate's accused Draft-Pak templates. That unrebutted evidence shows that each of the sub-menus under the "CREATE" group includes an associated dependent indicium — e.g., "End Pts" depending from "Line"; "3Pts" depending from "Arc"; "Ctr + Edge" depending from "Circle"; "Pos" depending from "Point"; "String" depending from "Polyin"; "5 Cond" depending from "Conic"; "Rect" depending from "Polygon"; and "2D Cubic" depending from "Spline" — that activates menus rather than a working function. Moreover, that evidence shows that none of the "TRANSFORM" group indicia activates working functions. This court, therefore, determines that the record shows that the '514 patent is not literally infringed. Because Mr. Bowers did not assert infringement under the doctrine of equivalents, this court does not consider that issue.

In sum, this court perceives no basis upon which a reasonable jury could find that Baystate's accused templates infringe claim 1 of the '514 patent. Hence, this court reverses the district court's denial of Baystate's motion for JMOL of non-infringement.

CONCLUSION

Because substantial evidence supports the jury's verdict that Baystate breached its contract with Mr. Bowers, this court affirms that verdict. This court holds also that the district court did not abuse its discretion in omitting as duplicative copyright damages from the damage award. Because no reasonable jury could find that Baystate infringes properly construed claim 1, this court reverses the verdict of patent infringement.

[1335] COSTS

Each party shall bear its own costs.

AFFIRMED-IN-PART, REVERSED-IN-PART.

DYK, Circuit Judge, concurring in part and dissenting in part.

I join the majority opinion except insofar as it holds that the contract claim is not preempted by federal law.^[2] Based on the petition for rehearing and the opposition, I have concluded that our original decision on the preemption issue, reaffirmed in today's revision of the majority opinion, was not correct. By holding that shrinkwrap licenses that override the fair use defense are not preempted by the Copyright Act, 17 U.S.C. §§ 101 et seq., the majority has rendered a decision in conflict with the only other federal court of appeals decision that has addressed the issue — the Fifth Circuit decision in Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir.1988). The majority's approach permits state law to eviscerate an important federal copyright policy reflected in the fair use defense, and the majority's logic threatens other federal copyright policies as well. I respectfully dissent.

I

Congress has made the Copyright Act the exclusive means for protecting copyright. The Act provides that "all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright ... are governed exclusively by this title." 17 U.S.C. § 301(a) (2000). All other laws, including the common law, are preempted. "[N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State." Id.

The test for preemption by copyright law, like the test for patent law preemption, should be whether the state law "substantially impedes the public use of the otherwise unprotected" material. Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 157, 167, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989) (state law at issue was preempted because it "substantially restrict[ed] the public's ability to exploit ideas that the patent system mandates shall be free for all to use."); Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 231-32, 84 S.Ct. 784, 11 L.Ed.2d 661 (1964). See also Eldred v. Ashcroft, ___ U.S. ___, 123 S.Ct. 769, 154 L.Ed.2d 683 (2003) (applying patent precedent in copyright case). In the copyright area, the First Circuit has adopted an "equivalent in substance" test to determine whether a state law is preempted by the Copyright Act. Data Gen. Corp. v. Grumman Sys. Support Corp. 36 F.3d 1147, 1164-65 (1st Cir.1994). That test seeks to determine whether the state cause of action contains an additional element not present in the copyright right, such as scienter. If the state cause of action contains such an extra element, it is not preempted by the Copyright Act. Id. However, "such an action is equivalent in substance to a copyright infringement claim [and thus preempted by the Copyright Act] where the additional element merely concerns the extent to which authors and their licensees can prohibit unauthorized copying by third parties." Id. at 1165 (emphasis in original).

II

The fair use defense is an important limitation on copyright. Indeed, the Supreme Court has said that "[f]rom the infancy of copyright protection, some opportunity for fair use of copyrighted materials has been thought necessary to fulfill copyright's very purpose, `[t]o promote the [1336] Progress of Science and useful Arts....' U.S. Const., Art. I, § 8, cl.8." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 575, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994). The protective nature of the fair use defense was recently emphasized by the Court in the Eldred case, in which the Court noted that "copyright law contains built-in accommodations," including "the `fair use' defense [which] allows the public to use not only facts an ideas contained in the copyrighted work, but also expression itself in certain circumstances." Id. at ___, 123 S.Ct. 769.

We correctly held in Atari Games Corp. v. Nintendo of America, Inc., 975 F.2d 832, 843 (Fed.Cir.1992), that reverse engineering constitutes a fair use under the Copyright Act.^[3] The Ninth and Eleventh Circuits have also ruled that reverse engineering constitutes fair use. Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1539 n. 18 (11th Cir.1996); Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1527-28 (9th Cir.1992). No other federal court of appeals has disagreed.

We emphasized in Atari that an author cannot achieve protection for an idea simply by embodying it in a computer program. "An author cannot acquire patent-like protection by putting an idea, process, or method of operation in an unintelligible format and asserting copyright infringement against those who try to understand that idea, process, or method of operation." 975 F.2d at 842. Thus, the fair use defense for reverse engineering is necessary so that copyright protection does not "extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work," as proscribed by the Copyright Act. 17 U.S.C. § 102(b) (2000).

III

A state is not free to eliminate the fair use defense. Enforcement of a total ban on reverse engineering would conflict with the Copyright Act itself by protecting otherwise unprotectable material. If state law provided that a copyright holder could bar fair use of the copyrighted material by placing a black dot on each copy of the work offered for sale, there would be no question but that the state law would be preempted. A state law that allowed a copyright holder to simply label its products so as to eliminate a fair use defense would "substantially impede" the public's right to fair use and allow the copyright holder, through state law, to protect material that the Congress has determined must be free to all under the Copyright Act. See Bonito Boats, 489 U.S. at 157, 109 S.Ct. 971.

I nonetheless agree with the majority opinion that a state can permit parties to contract away a fair use defense or to agree not to engage in uses of copyrighted material that are permitted by the copyright law, if the contract is freely negotiated. See, e.g., Nat'l Car Rental Sys., Inc. v. Computer Assocs. Int'l, Inc., 991 F.2d 426 (8th Cir.1993); Acorn Structures v. Swantz, 846 F.2d 923, 926 (4th Cir.1988). See also Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488 (5th Cir.1990). But see Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 457 (6th Cir.2001) ("If the promise amounts only to a promise to refrain from reproducing, performing, distributing or displaying the work, then the contract claim is preempted."). A freely negotiated agreement represents the "extra element" [1337] that prevents preemption of a state law claim that would otherwise be identical to the infringement claim barred by the fair use defense of reverse engineering. See Data Gen., 36 F.3d at 1164-65.

However, state law giving effect to shrinkwrap licenses is no different in substance from a hypothetical black dot law. Like any other contract of adhesion, the only choice offered to the purchaser is to avoid making the purchase in the first place. See Fuentes v. Shevin, 407 U.S. 67, 95, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). State law thus gives the copyright holder the ability to eliminate the fair use defense in each and every instance at its option. In doing so, as the majority concedes, it authorizes "shrinkwrap agreements ... [that] are far broader than the protection afforded by copyright law." Ante at 1326.

IV

There is, moreover, no logical stopping point to the majority's reasoning. The amici rightly question whether under our original opinion the first sale doctrine and a host of other limitations on copyright protection might be eliminated by shrinkwrap licenses in just this fashion. See Brief for Electric Frontier Foundation et al. as Amici Curiae 10. If by printing a few words on the outside of its product a party can eliminate the fair use defense, then it can also, by the same means, restrict a purchaser from asserting the "first sale" defense, embodied in 17 U.S.C. § 109(a), or any other of the protections Congress has afforded the public in the Copyright Act. That means that, under the majority's reasoning, state law could extensively undermine the protections of the Copyright Act.

V

The Fifth Circuit's decision in Vault directly supports preemption of the shrinkwrap limitation. The majority states that Vault held that "a state law prohibiting all copying of a computer program is preempted by the federal Copyright Act" and then states that "no evidence suggests the First Circuit would extend this concept to include private contractual agreements supported by mutual assent and consideration." Ante at 1325. But, in fact, the Fifth Circuit held that the specific provision of state law that authorized contracts prohibiting reverse engineering, decompilation, or disassembly of computer programs was preempted by federal law because it conflicted with a portion of the Copyright Act and because it "`touche[d] upon an area' of federal copyright law." 847 F.2d at 269-70 (quoting Sears, Roebuck, 376 U.S. at 229, 84 S.Ct. 784). From a preemption standpoint, there is no distinction between a state law that explicitly validates a contract that restricts reverse engineering (Vault) and general common law that permits such a restriction (as here). On the contrary, the preemption clause of the Copyright Act makes clear that it covers "any such right or equivalent right in any such work under the common law or statutes of any State." 17 U.S.C. § 301(a) (2000) (emphasis added).

I do not read ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.1996), the only other court of appeals shrinkwrap case, as being to the contrary, even though it contains broad language stating that "a simple two-party contract is not `equivalent to any of the exclusive rights within the general scope of copyright.'" Id. at 1455. In ProCD, the Seventh Circuit validated a shrinkwrap license that restricted the use of a CD-ROM to non-commercial purposes, which the defendant had violated by charging users a fee to access the CD-ROM over the Internet. The court held that the restriction to non-commercial use of the program was not equivalent to any rights protected by the Copyright Act. Rather, the "contract reflect[ed] private ordering, essential to efficient functioning [1338] of markets." Id. at 1455. The court saw the licensor as legitimately seeking to distinguish between personal and commercial use. "ProCD offers software and data for two prices: one for personal use, a higher prices for commercial use," the court said. The defendant "wants to use the data without paying the seller's price." Id. at 1454. The court also emphasized that the license "would not withdraw any information from the public domain" because all of the information on the CD-ROM was publicly available. Id. at 1455.

The case before us is different from ProCD. The Copyright Act does not confer a right to pay the same amount for commercial and personal use. It does, however, confer a right to fair use, 17 U.S.C. § 107, which we have held encompasses reverse engineering.

ProCD and the other contract cases are also careful not to create a blanket rule that all contracts will escape preemption. The court in that case emphasized that "we think it prudent to refrain from adopting a rule that anything with the label `contract' is necessarily outside the preemption clause." 86 F.3d at 1455. It also noted with approval another court's "recogni[tion of] the possibility that some applications of the law of contract could interfere with the attainment of national objectives and therefore come within the domain" of the Copyright Act. Id. The Eighth Circuit too cautioned in National Car Rental that a contractual restriction could impermissibly "protect rights equivalent to the exclusive copyright rights." 991 F.2d at 432.

I conclude that Vault states the correct rule; that state law authorizing shrinkwrap licenses that prohibit reverse engineering is preempted; and that the First Circuit would so hold because the extra element here "merely concerns the extent to which authors and their licensees can prohibit unauthorized copying by third parties." Data Gen., 36 F.3d at 1165 (emphasis in original). I respectfully dissent.

[1] Bowers urges in a conclusory fashion that this construction would render the preferred embodiment outside the scope of the claims, a result that requires "highly persuasive evidentiary support," Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1583, 39 USPQ2d 1573, 1578 (Fed.Cir.1996). Bowers has not established his premise (that the preferred embodiment is outside the claim scope), and even if he had, the reexamination history provides just that highly persuasive evidentiary support, as this court explains below.

[2] Like the majority, I do not reach the copyright claim.

[3] In the patent context, reverse engineering is viewed as an important right of the public. Bonito Boats, 489 U.S. at 160, 109 S.Ct. 971.