Julie E. Cohen*
68 S. Cal. L. Rev. 1091 (1995)
Copyright 1995 - HTML Version Prepared by the LII with Permission
So far, no court has considered the misuse defense as applied to claims of intellectual property in lock-out programs. Misuse defenses were raised in Sega and Atari, but were not litigated in either case. n444 In the context of lock-out, the concept of misuse is singularly apt. From the copyright perspective, lock-out programs are creative works devised to bar others from utilizing ideas and functional principles that the Copyright Act does not protect. From the patent perspective, they are (or may be) novel and nonobvious inventions that operate to bar access to and use of unpatented computer systems and public domain principles and ideas. In each case, however, application of the [p*1182] misuse defense results in a paradox. In the case of patent, the misuse doctrine as applied to lock-out threatens to nullify the patentee's intellectual property right. In the case of copyright, if functional duplication is permissible, as Part III argues, the copier who takes only functionality does not infringe, and the copier who takes too much - who duplicates protected expression in addition to unprotectable functionality - can never complain of misuse. One result seems too harsh; the other, not harsh enough. This part explores those results and the rules that produce them.
Part V.A addresses the application of the doctrine of patent misuse to a lock-out patent such as the 10NES. It first considers - and rejects - the suggestion that patents such as the 10NES simply should be disallowed for failure to satisfy the Patent Act's requirement of usefulness. n445 It then addresses the reach of the patent misuse doctrine in the lock-out context and argues that the doctrine should be narrowed, but not abandoned altogether in favor of an antitrust approach, as some have suggested. n446 Part V.B addresses the more intractable difficulties posed by application of the misuse doctrine to attempted enforcement of a copyright in a lock-out program. It argues that despite the exclusionary intent behind a copyrighted lock-out program, denominating as misuse conduct that simply makes it more difficult for competitors to achieve interoperability would be inconsistent with the purposes of copyright protection.
The patent misuse doctrine affords an equitable defense to certain claims of patent infringement. n447 As articulated by the Supreme Court, the doctrine prohibits any attempt by the patentee to extend the lawful monopoly conferred on it by the patent laws to an area outside the scope of the patent. n448 Thus, Nintendo's use of the 10NES patent against Atari appears to present the most straightforward case of misuse imaginable. Nintendo's patent monopoly extended only to [p*1183] the lock-out programs embedded in its console and cartridges, not to the console itself, nor to the console operating system. Manufacturing the console to include the later-developed lock-out program did not change that fundamental fact. Accordingly, under the Supreme Court's formulation of the misuse defense, Nintendo's subsequent use of the lock-out patent to ensure that only its licensees could gain access to the console was an unlawful extension of the patent grant.
The arguments against application of the patent misuse defense in the context of lock-out are twofold. First, statutory restrictions on the defense limit its reach in that context to patentees with antitrust market power. n449 By definition, however, a computer system manufacturer that adopts a lock-out regime has such power in the market for programs compatible with its system. The second argument is one of logic, and might be made, roughly, as follows: If the patent may not be invoked against those who gain access to the console using a functional equivalent of the patented device, it is unenforceable, and the patent misuse defense may not be construed to render a duly approved patent unenforceable ex ante. Ultimately, this objection to the misuse defense fails for two reasons. First, if a patented lock-out device has no use other than to enlarge the scope of the patent grant, then the device lacks utility, the patent is invalid, and the question of its enforceability is moot. n450 Second, lock-out devices for computer systems do have other, legitimate uses. n451 However, the argument about enforceability raises important questions about the contours and practical consequences of the misuse doctrine in its current form.
1. The Patent Misuse Reform Act of 1988
The installation of a lock-out program in a computer system operates as a tie, by conditioning the initial sale of a system on the subsequent purchase of authorized programs developed by the system manufacturer or its licensees. n452 Thus, for example, installation of the 10NES tied the market for NES-compatible games, formerly open to [p*1184] anyone who could design a game with commercial appeal, to the market for NES consoles. n453 Under the patent misuse doctrine as originally formulated by the Supreme Court, any use of a patented item as the tying product constituted misuse per se. n454 However, the Patent Misuse Reform Act of 1988 narrowed the scope of the patent misuse defense as applied to tying arrangements. n455 Under the resulting section 271(d)(5) of the Patent Act, tying does not constitute a misuse unless "in view of the circumstances" the patentee has market power in the market for the tying product - here, the computer system or video game console. n456 Analysis of the misuse ramifications of lock-out programs must begin with consideration of the extent to which section 271(d)(5) precludes or limits assertion of the misuse defense against the computer system manufacturers that install them.
The crucial question in the market power inquiry is, of course, the definition of the relevant market. In Eastman Kodak v. Image Technical Services, n457 the Supreme Court approved, at least in principle, the use of a single-product definition of the tying product market when the tied product market is derivative of the tying product market. n458 The first question, then, is whether the market for games or programs that are interoperable with a particular system is distinct from the market for that system, making it efficient to provide the two products separately. n459 The existence of independent game developers and the fact that multiple game programs may be purchased separately from the game console demonstrate the existence of distinct, separate markets. Whether a computer system manufacturer that installs lock-out programs has market power in the market for interoperable programs depends on the extent to which the initial system purchase locks the consumer in and precludes or militates against a later decision to switch systems. n460 Here the answer is less straightforward. Although the number, variety, and cost of available programs for different systems will change over time in a manner that consumers may not foresee, the cost of switching consoles - or even of owning two different [p*1185] ones - is significantly lower than the cost at issue in Kodak, that of switching photocopiers. n461
Even though "lock-in" costs may be less significant for computer systems, however, the unique manner in which the tie-in is accomplished constitutes a factor that "in view of the circumstances" n462 should lead courts inexorably to the conclusion that the market power requirement is met. The tying effect achieved by the adoption of a lock-out regime is devastatingly absolute. n463 The coercion required to show tying is not contractual and subject to negotiation, but rather physical and incontrovertible. A lock-out program does not merely restrict competitors' ability to make and sell interoperable programs and consumers' ability to obtain them, but confers, instantly, an absolute right to exclude competitors from making, using, or selling the tied product at all. n464 And yet the patented program itself - the focus of the misuse defense, and the real tying product - is completely unnecessary to the intended function and use of the de facto tying product, the computer system.
Neither the text nor the legislative history of the Reform Act suggests that it was intended to shield a patentee's efforts to control the derivative market of an unpatented commodity by the simple expedient of manufacturing that commodity to include a supernumerary patented device. And no legitimate business reason exists for the adoption of a lock-out regime designed to control the market for programs compatible with an unpatented computer system. A system manufacturer concerned with quality control has other avenues of legal recourse. n465 Accordingly, the manufacturer of a proprietary but [p*1186] unpatented computer system who installs a lock-out program that effectively ties the market for compatible programs to the system market should be deemed to satisfy the market power requirement. n466
2. Lock-Out Patents and the Usefulness Requirement
To be patentable, an invention must be "useful" as well as novel and nonobvious. n467 Compared to the other two statutory requirements for patentability, the usefulness requirement has received relatively little attention, for obvious reasons. Most inventions have self-evident uses. Ordinarily, inventions are developed with an intended use in mind, and that use is disclosed as part of the patent application. n468 The 10NES patent is no exception; it was developed to provide lock-and-key functionality for a video game console, and the patent so states. n469 However, the usefulness requirement also includes a public policy element: The intended use may not be contrary to law. n470 If the intended and only use of the 10NES violates the public policy behind the Patent Act, then the 10NES arguably lacks utility.
As originally conceived, the public policy underlying the usefulness requirement was directed at inventions deemed "frivolous or injurious to the well-being, good policy, or sound morals of society." n471 [p*1187] During the first part of the twentieth century, several patents on devices for gambling or "games of chance" were invalidated on morality-based grounds. n472 Gradually, however, courts retreated from a morality-based approach. At first, courts simply held that an otherwise immoral invention would satisfy the usefulness requirement if it had the capacity for beneficial use. n473 More recently, although current formulations of the public policy exception to the usefulness requirement retain "immorality" as a basis for rejecting a patent, courts considering utility-based challenges to patents have suggested that the public policy exception will be invoked only to reject patents covering devices whose use violates the law. n474 As a result, the scope of the modern public policy exception is extremely narrow. In the last fifty years, there is no reported case denying patent protection on public policy grounds.
Obviously, lock-out programs do not raise questions of immorality. Instead, lock-out programs test the reach of the public policy exception's illegality prong. Assuming, still, that a lock-out program such as the 10NES has no use other than to enlarge the scope of the patent grant by excluding competitors from creating and marketing programs for an unpatented computer system, its "usefulness" turns on whether triggering an equitable defense to an infringement claim is sufficient to establish illegality. Lock-out programs are not illegal in the formal sense. No law forbids their development or use, nor does their use violate any criminal law, in the way that use of a gambling machine violated nineteenth-century laws against gambling. The public policy underlying the Patent Act is violated only if the lock-out patent is enforced. n475 And even then, what is violated is not a provision of the Patent Act, but a judicially created, highly fact-specific, equitable rule. n476 Militating against a finding of usefulness, however, is the fact that the public policy in question is not based on moralistic notions of correct behavior, but rather on the legislative purpose embodied in a federal statute.
Ultimately, however, we need not resolve the question whether lock-out programs are illegal, and so nonuseful, because enforcement [p*1188] of a lock-out patent violates patent policy. Lock-out programs such as the 10NES also have the potential for lawful - that is, non-misuse - use. Accordingly, by analogy to the "beneficial use" rule developed in the turn-of-the-century gambling cases, n477 they are "useful" within the meaning of the Patent Act.
Consider four scenarios. The first, which I shall call scenario A, involves the Atari fact pattern, minus Atari's fraud on the Copyright Office. n478 Nintendo installs a lock-out program in its video game system, the NES, and Atari reverse engineers the device so that it can market NES-compatible game cartridges. Nintendo then sues Atari for patent infringement. In scenario B, the Rip-Off Company ("ROC"), an offshore computer company, copies Nintendo's games and imports the counterfeits into the United States for distribution. When ROC begins distributing counterfeit Nintendo games that incorporate the 10NES lock-and-key technology, Nintendo files suit for patent infringement. In scenario C, Nintendo decides to diversify its business portfolio. It begins marketing an office computer system (the "NOS") that incorporates a lock-out device designed to restrict access to the system to those holding authorized access cards. Hacker, Inc. reverse engineers the device so that it can break into the secure system or, for a fee, enable others to do so, and Nintendo sues Hacker. In the final scenario, scenario D, a manufacturer of IBM-compatible clones installs a lock-out program in its computers to enable their use as a secure office system.
In scenario B, the lock-out program is employed, at least ostensibly, to make software counterfeiting more difficult - an indisputably lawful purpose. n479 When the 10NES is copied, the patent provides Nintendo with another remedy against ROC, in addition to any copyright, trademark, or unfair competition claims that Nintendo chooses to assert. As in scenario A, enforcement of the patent in scenario B [p*1189] results in a type of exclusion. However, the excluded party in scenario B is in a poor position to invoke equity, because it has simply appropriated Nintendo's intellectual property - Nintendo's game programs and the 10NES program - for its own use. n480 In this context, Nintendo's use of the patent to identify and pursue ROC for software piracy constitutes an appropriate, though elaborate, strategy for protecting its intellectual property rights. n481
The use of the 10NES technology suggested in scenarios C and D also is lawful. Although, technically speaking, the lock-out device installed in the NOS achieves the same result as that installed in the NES, the consequences for the purchaser of the system are very different. In scenario A, installation of a lock-out device in the NES results in fewer NES-compatible games available for purchase. In scenarios C and D, lock-out is precisely the result desired by purchasers of the system, whether it is the proprietary NOS or the adapted clone, to protect the security of information stored there. Nor does the use of lock-out technology in the NOS exclude competitors in the absolute sense, since it does not affect the market for interoperable software that can be installed on the system, and also leaves room for competitors to design and market their own secure systems to other customers. Put differently, in scenarios C and D, the lock-out program targets alien users, not alien programs, and thus does not effect an unlawful expansion of the patentee's intellectual property rights.
It may be argued that the possibility of scenarios C and D does not save the 10NES patent, because the claims asserted in the patent were limited to a device for authenticating "a videographics software program." n482 The Nintendo patent contributes to the goal of the Patent Clause to advance knowledge in the "useful arts," but the advancement of knowledge alone will not support a patent grant. n483 [p*1190] Thus, scenarios C and D constitute an argument for the utility of lock-out programs in general, not the 10NES in particular. However, under the "capacity for lawful use" standard advanced here, the possibility of scenario B is enough to establish the 10NES' usefulness, or at least to incline courts to address that question on a case-by-case basis. Thus, we turn once again to the doctrine of misuse.
3. Lock-Out as Patent Misuse
The conclusion that lock-out programs have lawful uses, and so need not fail the public policy test for usefulness, also answers the argument that holding Nintendo's enforcement of its patent against Atari to be a misuse would nullify the 10NES patent. Quite clearly, it would not. The preceding section has identified at least three non-Atari contexts in which a lock-out patent might be enforced. Unfortunately, that does not entirely solve the first of our two misuse paradoxes. As a practical matter, application of the misuse doctrine in Atari might in fact have barred any subsequent enforcement of the 10NES patent. That result is not unique to lock-out, however; it is a function of the current formulation of the patent misuse defense.
Consider again scenarios A and B. If Nintendo sues ROC, as in scenario B, it can enforce the 10NES patent; if Nintendo sues Atari, as in scenario A, it cannot. However, if the factual predicate for scenario A exists, Nintendo cannot enforce its patent against ROC, either. A finding of patent misuse bars the patentee from enforcing its patent against anyone, even a clear infringer who otherwise could raise no defense to the infringement claim. n484 Under this approach to the patent misuse doctrine, the core principle underlying the doctrine is one of reciprocal obligation. When a patent is issued, the patentee's promise that it will not abuse the limited monopoly granted it is an implied quid pro quo. n485 A misuse of the patent constitutes voluntary divestiture by the patentee of its right to invoke the protection of the patent laws until the misuse is purged and its consequences "fully dissipated." n486
[p*1191]
ROC, meanwhile, has received a windfall. It has defeated Nintendo's infringement claim even though Nintendo committed no misuse of the patent with respect to ROC. There is no requirement of standing to invoke the patent misuse defense. n487 Accordingly, ROC may invoke the defense to its own benefit, whether or not it has been injured by Nintendo's use of the 10NES. A corollary to the absence of a standing requirement is that there need not be even rough parity between the remedy - complete and unconditional nonenforcement of the patent - and the injury suffered by the infringer as a result of the patentee's attempt to extend its grant. Thus, for example, in scenario B, ROC benefits even though its injury is nil.
For these reasons and others, n488 Professor Lemley has suggested that the patent misuse defense should require an antitrust analysis. Antitrust principles, it is claimed, more precisely match the remedy afforded by law to the harm done, both to the accused infringer and to society generally. n489 As argued in Part V.A.1, system manufacturers who install lock-out programs to exclude competitors from unpatented computer systems should be deemed to satisfy the Patent Misuse Reform Act's requirement of antitrust market power. However, whether or not installation of the 10NES to prevent competitors from developing NES-compatible games constitutes an antitrust violation, [p*1192] antitrust law does not afford an appropriate foundation for the doctrine of patent misuse, although courts may find certain antitrust principles useful in defining its scope.
It has been argued that the particular economic model adopted by the antitrust laws is uniquely ill-suited to evaluate the intellectual property system, because the antitrust laws focus exclusively on short-term, price-based competition among essentially fungible products. n490 The intellectual property laws take a longer-term view, focusing on competition through innovation. n491 One consequence of this difference in emphasis is that, despite their vaunted capacity to measure the harms done to competition and mete out the appropriate quanta of redress, the antitrust laws may not view as cognizable certain harms to the innovative process that flow from misuse of a grant of patent or copyright protection. For example, an attempt to enforce a lock-out patent against a legitimate software developer is, in essence, an attempt to preclude, or at least control, continuing innovation in a particular type of computer technology. n492 Such conduct need not drive up consumer prices - indeed, the intellectual property owner may use license royalty rates to keep its prices low, out of recognition that low prices heighten existing barriers to entry by restricting a new entrant's ability to recoup its research and development costs.
Even more fundamentally, the antitrust laws delineate the permissible bounds of private use of private property. Generally speaking, one may conduct a private enterprise for private gain until the point at which the public's interest in competition is injured. A patent or copyright, in contrast, implicates the public from the outset, and not only because the limited monopoly accorded is a public grant. Through doctrines such as fair use, the "idea-expression" distinction, and the rule against patent protection for natural laws and mathematical formulae, the public is given rights that overlap the boundaries of [p*1193] the copyright or patent even before the term of the grant has expired. n493 The specialized doctrines of patent and copyright misuse are better tailored to maintain the correct balance of public and private interests. n494
In short, the overbreadth of the patent misuse doctrine as currently formulated does not justify abandoning the concept of patent misuse altogether. Both economically and normatively speaking, the patent misuse doctrine serves important purposes that the antitrust laws do not. However, the expansive "abuse-it-and-lose-it" approach to the patent misuse doctrine, which rewards "true" infringers and penalizes the patentee for far more than its unlawful conduct, seems overly harsh. Given that the application of patent and copyright principles to computer programs is often uncertain, and millions of dollars can turn on the answers, misuse as to one class of alleged infringers should not cost the patentee its rights as to others. In the copyright context, several courts have required that would-be beneficiaries of a misuse defense show some nexus between their infringement and the copyright owner's inequitable conduct. n495 Courts considering patent misuse defenses should do the same. n496
The real problem with application of the patent misuse defense in the context of lock-out is one that the antitrust laws do not address. If enforcement of a lock-out patent against would-be creators of interoperable software constitutes misuse, such legitimate competitors need not expend the effort to develop their own functional equivalents of the lock-out program. They can simply copy the patented program, with the only barrier being the difficulty of copying. Courts are thus faced with a new dilemma. Use of the lock-out program to exclude those seeking to create interoperable software impermissibly extends the scope of the grant, but allowing copying destroys [p*1194] the patentee's incentive to develop new technological solutions. However, the disincentive that results from literal copying is not one that the patent misuse doctrine can address, because the patent laws do not protect literal code, but only the product or process it embodies. n497 As a practical matter, although the patent misuse defense may be available to some literal copiers, it will avail only the competitor who infringes by equivalent. A competitor who copies the literal code of a lock-out device will be liable for copyright infringement. n498
When the focus of the misuse inquiry shifts from patent to copyright, the outcome is radically different. If copyright allows a competitor like Atari to duplicate all of the functional features of a copyrighted lock-out program, as I have argued it does, n499 it appears that there is no conduct left for the copyright misuse defense to reach. n500 If Atari takes only as much expression as is necessary to [p*1195] allow it to duplicate interoperability-related processes and routines, there is no infringement. If Atari takes creative expression as well, Nintendo's assertion of its copyright to protest the qualitative difference in Atari's copying is not a misuse. n501 This section considers whether this contraction of the copyright misuse defense is justified in view of lock-out's exclusionary purpose, and, if so, whether the doctrine of copyright misuse retains any independent force in lock-out cases.
A lock-out program is, in a sense, a creative work designed to frustrate the production of other creative works. Lock-out programs are specifically designed to make copying and reverse engineering as difficult as possible. n502 The installation of a lock-out program in a computer system constitutes an attempt by the copyright owner to dictate who may create works based on a particular set of functional principles and who may not. Nintendo and Sega used their devices to control the number and selection of video games interoperable with their consoles n503; in the future, the manufacturer of the "set-top box" that serves as my gateway to the "information superhighway" might use a lock-out program to control the number and selection of on-line services that I may access from my living room. Arguably, allowing any enforcement of copyright in a lock-out program against would-be creators of interoperable programs offends core principles of copyright by preventing or reducing the likelihood of the development and dissemination of new creative works. Under this view, such enforcement would constitute misuse per se, even if the competitor has taken creative expression.
From the programmer's perspective, however, the difficulty of reverse engineering a lock-out program is one measure of its creativity. According copyright protection to a newer and more ingenious lock- [p*1196] out program rewards and encourages this creative effort. n504 A misuse allegation by an inartful reverse engineer thus pits two fundamental copyright principles - the rule against monopoly of functional principles n505 and the incentive structure for encouraging the production and distribution of new creative works - squarely against one another.
Ultimately, allowing the difficulty of reverse engineering to justify a finding of misuse would beg the question why the difficulties inherent in reverse engineering an operating system should be treated differently. Reverse engineering an operating system, or any other computer program distributed in object code, is difficult. n506 A lock-out program simply builds in another layer of programming that a reverse engineer must decipher, and another sequence whose function must be duplicated while avoiding substantial similarity to protected matter in the original. Moreover, given the short market life of many computer programs, increasing the difficulty of reverse engineering arguably promotes the purposes of copyright. Lock-out routines that are difficult to reverse engineer increase the copyright owner's lead time over would-be developers of interoperable products. The freedom to develop difficult lock-out routines thus increases the likelihood that the copyright owner will be able to recoup its initial investment before competing products developed through reverse engineering enter the market. n507 Accordingly, the added difficulty of reverse engineering a lock-out program is not something that the [p*1197] copyright law should recognize as a ground for a finding of misuse. Such a rule would have a chilling effect on the innovation that the law seeks to encourage. The Copyright Act may shelter the reverse engineer's efforts, but it does not forbid the copyright owner from making those efforts more difficult.
If the reverse engineer who takes protected expression in the course of duplicating unprotectable functionality may not argue difficulty as grounds for invoking the copyright misuse defense, what becomes of the copyright misuse defense in interoperability-related cases? Although the right to duplicate functional features of copyrighted computer programs significantly narrows the scope of the defense, it does not eliminate it entirely. Would-be creators of interoperable programs who choose to license the lock-out technology rather than reverse engineer it may be able to invoke the copyright misuse defense to challenge the console manufacturer's license agreement. n508 The fact that a reverse engineering option is available should not justify the imposition of contractual terms that amount to copyright misuse on software developers who, for whatever reason, choose not to avail themselves of the reverse engineering process.
It has been argued that the license restrictions in Atari and Sega actually furthered the distribution of creative works by enabling Nintendo and Sega to charge lower prices for their consoles, which in turn enabled more consumers to buy them. Under this theory, such licenses serve as variable-proportion tying arrangements that further the purpose of copyright by promoting overall "product diffusion." n509 Economically, that argument rests on the dubious assumption that courts should look to the total number of games distributed, rather than the number of different games available, in making that determination. The two measures are neither equivalent nor fungible, and maximizing the former number will not necessarily maximize the latter. n510 To the contrary, the licensing policies adopted by Sega and Nintendo impose a ceiling on the number of different games that will be approved for manufacture, and thus effect a decrease in the variety of games that would otherwise be available for purchase. Moreover, it [p*1198] strains credulity to argue that the purposes of copyright are served by a system that allows the console manufacturer to use its control over the uncopyrightable functional principles on which the console operates to dictate which creative works may be developed and distributed, and who may develop them. License agreements that restrict the development of interoperable products in the purported interest of product diffusion do not automatically or necessarily further the purposes of copyright, and should be scrutinized carefully to ensure that they do not have the opposite effect.