Fostering the Business of Innovation: the Untold Story of Bowers v. Baystate Technologies

• Citation: Vol. 7 No. 4
• Publication year: 2012

Washington Journal of Law, Technology and Arts Volume 7, Issue 4 Spring 2012

Fostering the Business of Innovation: The Untold Story of Bowers v. Baystate Technologies

Robert W. Gomulkiewicz (fn*) © Robert W. Gomulkiewicz

Abstract

Perhaps the law review literature does not need another article on the Federal Circuit's Bowers v. Baystate Technologies case. That case has received more than its share of attention from commentators, all criticizing Judge Rader's majority opinion and most extolling the virtues of Judge Dyk's dissent. Despite the storm of scholarly criticism, however, courts have followed Judge Rader's opinion. This Article tells the untold story of why courts have been wise to do so. The Article explains how commentators have argued that federal intellectual property law should have preempted Bowers' claims for breach of a shrinkwrap license prohibition on reverse engineering. Instead, Judge Rader's majority opinion eliminated Bowers' copyright claim by refusing to award Bowers any remedies for copyright infringement and hinted that in many instances contract damages for breach of a prohibition on reverse engineering would be de minimus. By using remedies rather than federal law preemption, Judge Rader's approach achieved a result that was fairer to the parties and more congruent with sound innovation policy and the business of innovation.

Table of Contents

Introduction .............................................................................. 446

I. Historical Backdrop: End User Licenses and Reverse Engineering ........................................................................ 448

A. End Users Licenses ....................................................... 448

B. Reverse Engineering ...................................................... 449

II. Facts and Rulings of Bowers v. Baystate Technologies ....... 452

A. Facts .............................................................................. 452

B. Rulings .......................................................................... 453

1. Trial Court Rulings .............................................. 453

2. Initial Federal Circuit Ruling and Response to It .. 454

3. Federal Circuit Ruling After Rehearing-A Revised Opinion and Judge Dyk's Dissent ........... 455

4. Judge Rader's Majority Opinion ........................... 455

III. Bowers v. Baystate: A Better Balance Through Remedies .. 457

A.Intellectual Property Law Balance ................................. 457

B.A Remedies Approach Creates the Best Balance ............ 460

1. Better Climate for Business Model Innovation ..... 460

2. Courts Decide Cases, Legislatures Make Laws ..... 464

IV. Final Reflection .................................................................. 465

Conclusion ................................................................................ 466

Introduction

Perhaps the law review literature does not need another article on the Federal Circuit's Bowers v. Baystate Technologies, Inc. case.(fn1) That case has received more than its share of attention from commentators, all criticizing Judge Rader's majority opinion and most extolling the virtues of Judge Dyk's dissent.(fn2) Despite the storm of scholarly criticism, however, courts have followed Judge Rader's opinion.(fn3) This Article tells the untold story of why courts have been wise to do so. It shows how Judge Rader's approach assures that intellectual property and contract law work in tandem to foster the business of innovation.(fn4)

Following this Introduction, the Article sets out the historical backdrop of the Bowers case. It explains how the Federal Circuit decided the Bowers case in the midst of intense industry-wide debates about the enforceability of mass-market software licenses and the importance of reverse engineering in software innovation. Following the historical backdrop, the Article describes the key facts and rulings of the Bowers case. Finally, the Article explains how commentators have argued that federal intellectual property law should have preempted Bowers' claims for breach of a shrinkwrap license prohibition on reverse engineering. Instead, Judge Rader's majority opinion eliminated Bowers' copyright claim by refusing to award Bowers any remedies for copyright infringement and hinted that in many instances contract damages for breach of a prohibition on reverse engineering would be de minimus. By using remedies rather than federal law preemption, Judge Rader's approach achieved a result that was fairer to the parties and more congruent with freedom of contract and sound innovation policy.

I. Historical Backdrop: End User Licenses and Reverse Engineering

A. End Users Licenses

Today, nearly every software user knows that software comes with a license (often called an "End User License Agreement" or "EULA" for short). Software developers began using EULAs in the 1980s during the personal computer revolution when software became a mass-market product. For many years, the enforceability of EULAs seemed in doubt. Scholars argued against their enforceability on a variety of grounds.(fn5)

Beginning with the ProCD, Inc. v. Zeidenberg case in 1996,(fn6) however, courts began to enforce EULAs.(fn7) By the time the Federal Circuit decided the Bowers case in 2003, courts enforced EULAs on a regular basis (unless the software licensor failed to give the user a meaningful opportunity to review the EULA or to manifest assent).(fn8) Nonetheless, dissatisfaction about the enforceability of EULAs remained strong in many quarters.(fn9) Yet attention moved from their general enforceability to the enforceability of certain terms, such as prohibitions on reverse engineering (the contract term at issue in Bowers).(fn10)

B. Reverse Engineering

Reverse engineering means "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."(fn11) In the software context, reverse engineering includes de-compilation or disassembly of machine-readable object code to discover human-readable source code. A competitor can use information gleaned from reverse engineering to create either a competitive product or a compatible product. Many people have highlighted the virtues of reverse engineering.(fn12) The Supreme Court has characterized reverse engineering as an "essential part of innovation."(fn13)

Some intellectual property law doctrines support reverse engineering. Trade secret law considers reverse engineering a proper means of discovering information.(fn14) The Copyright Act often does not stand in the way of reverse engineering to discover ideas even when copying is involved. Several courts, including the Federal Circuit, have ruled that making intermediate copies of software to uncover unprotectable ideas may amount to a defensible "fair use" under the Copyright Act.(fn15) In addition, the Digital Millennium Copyright Act permits the circumvention of technological measures in some circumstances for the purpose of engaging in reverse engineering.(fn16)

Despite all the positive aspects of reverse engineering, it is important not to overstate its significance. In the software industry, reverse engineering object code to discover source code can be very time consuming and may not yield much useful information.(fn17) In addition, a significant amount of technical information about software, including its source code, is available by license, including under various open source software licenses, through standards organizations, and in software development kits and developer tools products.

It is also important to place the discovery of information via reverse engineering in the broader context of trade secret law and practice. Contracts are a normal and necessary measure used to protect the secrecy of trade secret information.(fn18) Moreover, enforceable contracts foster the sharing of information by allowing trade secret holders to share confidential information with third parties in a way that retains the information's secrecy.(fn19) Trade secret law does not treat the acquisition of information by breach of contract as proper. To the contrary, acquiring information through breach of contract constitutes an illegal misappropriation of trade secrets.

Software developers often view their source code as a valuable trade secret and thus use contracts to bolster the secrecy that is inherent in distributing only the machine-readable object code. In other words, when software developers distribute software in object code form, they often do so because this form does not reveal secrets contained in the source code.(fn20) Knowing that the software user could potentially discover the secrets by decompiling the object code, software developers get users to agree contractually that they will not reverse engineer the object code.

Sometimes these trade secret-related contracts are called nondisclosure agreements (NDAs). Now that software has become a mass-market item, EULAs also have become an important legal tool to protect the secrecy of source code. EULAs, like NDAs, protect the secrecy of software by contract.

Against this backdrop, the Federal Circuit decided the Bowers case. The case pits the enforceability of EULAs against the practice of reverse engineering. To those who question the enforceability of...