I. Statement of Facts

Nintendo designed a program, the 10NES, for its Nintendo Entertain System (NES) to prevent the NES from accepting unauthorized game cartridges. The 10NES was programmed onto chips located in the NES console and in each game cartridge. Thus, only 10NES-enabled cartridges could “unlock” access to the NES console.

After a failed attempt to replicate the 10NES program, Atari, in December 1987, licensed the technology from Nintendo under strict licensing terms. Nintendo themselves placed Atari’s games in 10NES-enabled cartridges, and limited Atari, as well as other licensees, to five new NES games per year.

In early 1988, Atari applied to the Copyright Office for a reproduction of the 10NES source code, which the Copyright Office provided to Atari based on a false allegation by Atari that Atari needed the copy for pending litigation. There in fact was no pending litigation.

Based on the acquired source code, Atari developed its own program, the Rabbit program, which generated signals indistinguishable from the 10NES program and gave Atari access to the NES without Nintendo’s license conditions. The line-by-line instructions of the programs vary because Atari used a different microprocessor and programming language.

Nintendo brought suit against Atari alleging copyright infringement (and patent infringement, among other allegations). Atari brought several claims against Nintendo and asserted a copyright misuse defense. The United States District Court for the Northern District of California granted Nintendo’s request for a preliminary injunction based on copyright infringement. Atari appealed.

II. Argument

The Federal Circuit observed that while it had jurisdiction based on patent infringement claims included in the action, the court applies the law of the regional circuits, the Ninth Circuit in this case, to resolve issues of copyright law.

The Federal Circuit stated that “[t]o prevail on its copyright infringement claim, Nintendo must show ownership of the 10NES program copyright and copying by Atari of protectable expression from the 10NES program.” Ownership of the 10NES program was not in dispute, and thus, Nintendo had to prove only the copying of protectable expression.

A. Copyright Protection Extends to Computer Programs

The court determined that computer programs fall under the statutory definition of “literary works,” and thus copyright protection extends to computer programs and to instructions encoded on computer chips. “The expression adopted by the programmer is copyrightable element of a computer program,” but “the actual processes or methods embodied in the program are not within the scope of copyright law.” Thus, “[a]t a minimum, Nintendo may protect under copyright the unique and creative arrangement of instructions in the 10NES program.”

B. Reproduction of an Unauthorized Copy from the Copyright Office Is Infringement

Next, the court held that “Nintendo is likely to show successfully that Atari infringed the 10NES copyright by obtaining and copying the source code from the Copyright Office.” Atari obtained a copy from the Copyright Office by providing false information about a pending litigation, therefore obtaining an unauthorized reproduction. Thus, Atari infringed Nintendo’s copyright based on the reproduction of an unauthorized copy from the Copyright Office.

C. Efforts to Reverse Engineer Alone Do Not Support Copyright Infringement

Next, the court determined that the “Copyright Act permits an individual in rightful possession of a copy of a work to undertake necessary efforts to understand the work’s ideas, processes, and methods of operations.” Thus, “reverse engineering object code to discern the unprotectable ideas in a computer program is fair use.” This fair use, however, does not extend to commercial exploitation of protectable expression, and in addition, requires an individual to possess an authorized copy. The court thus held that reverse engineering of an authorized copy of the 10NES program that is necessary to understand 10NES is fair use, however, “Atari could not use reverse engineering as an excuse to exploit commercially or otherwise misappropriated protected expression.”

D. Substantial Similarity Exists Between Atari’s Rabbit Program and Nintendo’s 10NES Program

The court then also held that “Nintendo is likely to prove substantial similarity between the Rabbit and 10NES programs sufficient to support its infringement claims.” The court primarily relied on the fact that Rabbit incorporated unnecessary features, including features that were deleted from the original 10NES program. Thus, the court concluded that “copying of fully extraneous instructions unnecessary to the 10NES program’s functionality” suggests copying, not independent creation.

E. Copyright Misuse

Atari argued as a defense to copyright infringement that Nintendo misused its copyright. Because there was no statutory basis for the copyright misuse defense, the court determined that the defense was solely an equitable doctrine. Therefore, while copyright misuse may be a viable defense, any party seeking the defense must have clean hands. Atari was ineligible to invoke the defense because of its lie to the Copyright Office to obtain a copy of the 10NES program.

The court therefore held that the district court did not err by granting the preliminary injunction against Atari.