Sega v. Accolade

Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992), is a case in which the United States Court of Appeals for the Ninth Circuit applied American intellectual property law to the reverse engineering (the reproduction of another manufacturer's product following detailed examination of its construction or composition) of computer software. Stemming from the publishing of several mh:awesomegames:Sega Genesis games by video game publisher Accolade, which had disassembled Genesis software in order to publish games without being licensed by Sega, the case involved several overlapping issues, including the scope of copyright, permissible uses for trademarks, and the scope of the fair use doctrine for computer code.

The lawsuit was filled in 1991 by Sega against Accolade for the publishing of the latter's games bypassing the trademark security system (TMSS) code introduced on the Sega Genesis III.

Background
In 1988, Sega released their Mega Drive console in Japan, in addition to 4 launch games for the system. It would later be released in North America in 1989 as the Genesis, then in 1990 in the PAL regions, keeping the name Mega Drive in those regions.

After the release of the Genesis in 1989, Accolade, a video game publisher, began exploring options to release some of their PC games onto that console. At the time, a royalty rate-per-game of between US$10-15 per cartridge was required for third-party developers to make games for the console. To get around licensing, Accolade chose to seek an alternative way to bring their games to the Genesis by purchasing a console in order to decompile the executable code of three Genesis games and use it to program their new cartridges in a way that would allow them to disable the security lockouts that prevented playing of unlicensed games. This was done successfully to bring Ishido: The Way of Stones to the Genesis in 1990. In doing so, Accolade had also copied Sega's copyrighted game code multiple times in order to reverse engineer the software of Sega's licensed Genesis games.

As a result of Accolade publishing unlicensed and pirated games on the Genesis, Sega attempted to make a technical protection mechanism into a new edition of the Genesis released in 1990, referred to as the Genesis III. Accolade discovered that a trademark security system (TMSS) had been introduced on the model, which would test with a bit of coding when booting up a game. This could make it harder for unlicensed games to be played on this model. Sega demonstrated the Genesis 3 model's TMSS by showing it refusing to boot up an Ishido cartridge, one of the games made by Accolade. It didn't stop Accolade from continuing to make unlicensed games for the Genesis, however, as they managed to extract the TMSS code to publish more games on the system.

Lawsuit
When Sega discovered the incident, in October 31, 1991, they filed a lawsuit against Accolade in the United States District Court for the Northern District of California, for copyright infringement and unfair competition in violation of the Lanham Act. The latter counter-sued Sega for falsely displaying the "Produced by or under license by Sega" text on their games' start-up sequences. Sega claimed it was copyright infringement due to Accolade's game cartridges containing the TMSS's code, but Accolade stated that this constituted fair use.

Appeal
In April 14, 1992, the court ruled in Sega's favor ordering Accolade to recall all of their games for the console. The appeal costed Accolade about US$500,000 in legal fees to oppose the injunction. They were granted a temporary stay, meaning that they did not have to recall the existing games, but were ordered to cease any reverse engineering or development of software for Sega's console.

During the appeal, the court found that the TMSS code was around 25 bytes large, whereas Accolade's games were typically 500 KB to 1.5 MB large, and so was deemed to be largely original content. In a way, it was decided that Sega did this to themselves by adding the TMSS file, and the court rejected the claim that Accolade's games were unfair competition for Sega's own games, but Sega could provide any evidence that their sales had suffered as a result. On the issue of reverse engineering, the court found that where disassembly is the sole of discovering the working of a copyrighted computer program and where there existed a legitimate reason to do so disassembly is fair use.

On August 28, 1992, the decision was made in Accolade's favor, and Sega were made liable for the costs of the appeal. Each party was to continue as they had, prior to the court proceedings. The injunction was however still held as Sega appealed the decision.

Settlement
In 1993, Sega and Accolade then entered into a settlement which made Accolade an official licensee of Sega (meaning they can produce Genesis games under Sega's license). The full terms of this licensing deal were not made public, but both parties agreed to pay their own legal fees. In an official statement, Sega of America chairman David Rosen expressed satisfaction with the settlement.

Impact
The lawsuit has been cited in numerous cases since 1993. The case has redefined how reverse engineering with unlicensed products is seen in legal issues involving copyright. The decision has legally concurred that Accolade's reverse engineering work on the Sega Genesis was to access ideas that were uncopyrighted by the law and could only be accessed by decompiling. This would mean the Genesis's functional principles were established not to be protected by copyright.