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Federal Appeals Court Issues Wide-Ranging Copyright Decision in Vault v. Quaid

October 1988

A recent decision from the Federal Court of Appeals in New Orleans establishes several important precedents in computer copyright law. Vault Corp., the creator of the PROLOK copy protection scheme, filed suit against Quaid Software, creator of a program that could be used to unlock the PROLOK protection device. Vault asserted several bases for liability. First, Vault claimed that its copyright was violated when Quaid copied the Vault program into computer memory for the purpose of developing a means to defeat Vault’s copy protection system. Although the copyright statute expressly permits the owner of a copy of a computer program to copy it from magnetic or other media into memory, Vault argued that this provision of the law should be interpreted to permit copying of a program only to make use of it for its intended purpose. The court rejected this argument, holding that the law contains no language suggesting that the copy in memory must be employed for a use intended by the copyright owner, and declining to read limiting language of this sort into the statute.

Second, Vault argued that Quaid was guilty of “contributory copyright infringement” for distributing a program whose sole use was to encourage others to make illegal copies of Vault-protected programs. under legal standards established by the Supreme Court, liability for contributory infringement may be imposed only where the seller has knowledge of the fact that its product is used to make unauthorized copies. However, even if the seller does have such knowledge, it will escape liability if the product is capable of substantial noninfringing uses.

Quaid argued that in addition to being used to make copies that might be illegally distributed, its program could be used to make archival copies of copy-protected programs, a form of copying that the copyright laws expressly permit, and therefore the product was capable of a substantial noninfringing use. Quaid introduced evidence at trial that some users of its program used it only to make archival copies. Based on this evidence, the court agreed that Quaid had a viable defense to the claim of contributory infringement.

Lastly, Vault claimed that by decompiling or disassembling Vault’s program, Quaid had violated the Louisiana Software License Enforcement Act. Louisiana is one of several states that have enacted laws permitting software companies to impose certain contractual terms upon purchasers through the use of shrink-wrap license agreements. One of the license restrictions permitted by the Louisiana law is a prohibition against reverse engineering a program by decompilation or disassembly, and Vault had included this restriction in its shrink-wrap license.

However, the court found that the Louisiana law was preempted by federal copyright law, and therefore was unenforceable. Under the doctrine of federal preemption, where a state law touches upon an area controlled by federal law, the state law is superseded by the federal law. The court found that decompilation and disassembly of a program was permissible under federal copyright law and therefore Vault’s efforts to prohibit this activity under Louisiana law was illegal.

TLB Comment: Vault v. Quiad removes most doubts regarding the legality of reverse engineering software when it is sold in binary form under shrink-wrap licenses. The decision also creates uncertainty regarding the validity of the state software license statutes that have been enacted, and most likely will discourage the passage of similar laws in states which may be considering them.