Reverse Engineering Clause Upheld for Shrink-Wrap Agreements

A recent refusal by the US Supreme Court to hear an appeal from a lower courts decision further strengthens the position of software producers in the use of anti-reverse engineering clauses in shrink-wrap licenses. Reverse engineering is a common practice among software developers where a competing product is examined in great detail to learn each step of design, construction, and operation, perhaps to produce a copy or an improved version. It is also a common practice for software licensors to include in their shrink-wrap license provisions to prohibit users from reverse engineering the product licensed. In the case of Bowers v. Baystate Technologies, Inc., the plaintiff Bowers, a lone software developer, claimed patent and copyright infringement, and contractual breach, in that Baystate, a licensee of his software, allegedly violated the provision of their license agreement that prohibited reverse engineering. Evidence was presented of similarities between the products of the parties in structure, design, idiosyncratic design choices, and inadvertent design flaws. The US District Court for Massachusetts agreed with the plaintiff in awarding him damages of US$5.27 million. On appeal, the Federal Circuit Court of Appeal reversed the patent infringement verdict. However, on the question of reverse engineering, the Court held that private parties are free to contractually forego the limited ability to reverse engineer a software product under the exemptions of the Copyright Act, and concluded that the Copyright Act does not pre-empt the plaintiffs contract claims, which were well-founded on the facts. In making this finding, the appellate Court left untouched the general rule that reverse engineering is permissible as an exception to copyright infringement. This is likely to encourage increased efforts on the part of US software producers to impose more restrictive provisions in shrink-wrap agreements. For another report on this case, see: http://www.itworld.com/Man/2681/030627reverseengineer/pfindex.html. For examples of reverse engineering clauses in shrink- and click-wrap agreements, visit: http://www.cptech.org/ecom/ucita/licenses/reverse.html. For the Federal Circuit Court of Appeal decision, Harold L. Bowers v. Baystate Technologies, Inc., 302 F.3d 1334 (Fed. Cir. 2002), see: http://makeashorterlink.com/?A65221645. Summary by: Peter Wang