Untitled Document

SONY COMPUTER ENTERTAINMENT, INC., a Japanese corporation; SONY COMPUTER ENTERTAINMENT AMERICA, INC., a Delaware corporation, Plaintiffs-Appellees, v. CONNECTIX CORPORATION, a California corporation, Defendant-Appellant.

PRIOR HISTORY:
Appeal from the United States District Court for the Northern District of California. D.C. No. CV-99-00390-CAL. Charles A. Legge, District Judge, Presiding.

JUDGES:
Before: Herbert Y. C. Choy, William C. Canby, Jr. and Barry G. Silverman, Circuit Judges. Opinion by Judge Canby.

OPINION:

CANBY, Circuit Judge:
In this case we are called upon once again to apply the principles of copyright law to computers and their software, to determine what must be protected as expression and what must be made accessible to the public as function. Sony Computer Entertainment, Inc., which brought this copyright infringement action, produces and markets the Sony PlayStation console, a small computer with hand controls that connects to a television console and plays games that are inserted into the PlayStation on compact discs (CDs). Sony owns the copyright on the basic input-output system or BIOS, which is the software program that operates its PlayStation. Sony has asserted no patent rights in this proceeding.

The defendant is the Connectix Corporation, which makes and sells a software program called "Virtual Game Station." The purpose of the Virtual Game Station is to emulate on a regular computer the functioning of the Sony PlayStation console, so that computer owners who buy the Virtual Game Station software can play Sony PlayStation games on their computers. The Virtual Game Station does not contain any of Sony's copyrighted material. In the process of producing the Virtual Game Station, however, Connectix repeatedly copied Sony's copyrighted BIOS during a process of "reverse engineering" that Connectix conducted in order to find out how the Sony PlayStation worked. Sony claimed infringement and sought a preliminary injunction. The district court concluded that Sony was likely to succeed on its infringement claim because Connectix's "intermediate copying" was not a protected "fair use" under 17 U.S.C. § 107. The district court enjoined Connectix from selling the Virtual Game Station or from copying or using the Sony BIOS code in the development of other Virtual Game Station products.

Connectix now appeals. We reverse and remand with instructions to dissolve the injunction. The intermediate copies made and used by Connectix during the course of its reverse engineering of the Sony BIOS were protected fair use, necessary to permit Connectix to make its non-infringing Virtual Game Station function with PlayStation games. Any other intermediate copies made by Connectix do not support injunctive relief, even if those copies were infringing.
The district court also found that Sony is likely to prevail on its claim that Connectix's sale of the Virtual Game Station program tarnishes the Sony PlayStation mark under 15 U.S.C. § 1125. We reverse that ruling as well.

I. Background

A. The products

Sony is the developer, manufacturer and distributor of both the Sony PlayStation and Sony PlayStation games. Sony also licenses other companies to make games that can play on the PlayStation. The PlayStation system consists of a console (essentially a mini-computer), controllers, and software that produce a three-dimensional game for play on a television set. The PlayStation games are CDs that load into the top of the console. The PlayStation console contains both (1) hardware components and (2) software known as firmware that is written onto a read-only memory (ROM) chip. The firmware is the Sony BIOS. Sony has a copyright on the BIOS. It has claimed no patent relevant to this proceeding on any component of the PlayStation. PlayStation is a registered trademark of Sony.

Connectix's Virtual Game Station is software that "emulates" the functioning of the PlayStation console. That is, a consumer can load the Virtual Game Station software onto a computer, load a PlayStation game into the computer's CD-ROM drive, and play the PlayStation game. The Virtual Game Station software thus emulates both the hardware and firmware components of the Sony console. The Virtual Game Station does not play PlayStation games as well as Sony's PlayStation does. At the time of the injunction, Connectix had marketed its Virtual Game Station for Macintosh computer systems but had not yet completed Virtual Game Station software for Windows.

B. Reverse engineering

Copyrighted software ordinarily contains both copyrighted and unprotected or functional elements. Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1520 (9th Cir. 1993) (amended opinion); see 17 U.S.C. § 102(b) (Copyright protection does not extend to any "idea, procedure, process, system, method of operation, concept, principle, or discovery" embodied in the copyrighted work.). Software engineers designing a product that must be compatible with a copyrighted product frequently must "reverse engineer" the copyrighted product to gain access to the functional elements of the copyrighted product. See Andrew Johnson-Laird, Software Reverse Engineering in the Real World, 19 U. Dayton L. Rev. 843, 845-46 (1994).

Reverse engineering encompasses several methods of gaining access to the functional elements of a software program. They include: (1) reading about the program; (2) observing "the program in operation by using it on a computer;" (3) performing a "static examination of the individual computer instructions contained within the program;" and (4) performing a "dynamic examination of the individual computer instructions as the program is being run on a computer." Id. at 846. Method (1) is the least effective, because individual software manuals often misdescribe the real product. See id. It would be particularly ineffective in this case because Sony does not make such information available about its PlayStation. Methods (2), (3), and (4) require that the person seeking access load the target program on to a computer, an operation that necessarily involves copying the copyrighted program into the computer's random access memory or RAM. n1

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n1 Any purchaser of a copyrighted software program must copy the program into the memory of a computer in order to make any use at all of the program. For that reason, 17 U.S.C. § 117(a)(1) provides that it shall not be an infringement for one who owns a software copy to make another copy "created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner." Connectix contends that its copying is within the protection of section 117, but our disposition of the fair use issue makes it unnecessary for us to address that contention. See Sega, 977 F.2d at 1517-18 (rejecting contention that disassembly is protected by section 117).

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Method (2), observation of a program, can take several forms. The functional elements of some software programs, for example word processing programs, spreadsheets, and video game displays may be discernible by observation of the computer screen. See Sega, 977 F.2d at 1520. Of course, the reverse engineer in such a situation is not observing the object code itself, n2 only the external visual expression of this code's operation on the computer. Here, the software program is copied each time the engineer boots up the computer, and the computer copies the program into RAM.

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n2 Object code is binary code, consisting of a series of the numerals zero and one, readable only by computers.

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Other forms of observation are more intrusive. Operations systems, system interface procedures, and other programs like the Sony BIOS are not visible to the user when they are operating. See id. One method of "observing" the operation of these programs is to run the program in an emulated environment. In the case of the Sony BIOS, this meant operating the BIOS on a computer with software that simulated the operation of the PlayStation hardware; operation of the program, in conjunction with another program known as a "debugger," permitted the engineers to observe the signals sent between the BIOS and other programs on the computer. This latter method required copying the Sony BIOS from a chip in the PlayStation onto the computer. The Sony BIOS was copied again each time the engineers booted up their computer and the computer copied the program into RAM. All of this copying was intermediate; that is, none of the Sony copyrighted material was copied into, or appeared in, Connectix's final product, the Virtual Game Station.

Methods (3) and (4) constitute "disassembly" of object code into source code. n3 In each case, engineers use a program known as a "dissassembler" to translate the ones and zeros of binary machine-readable object code into the words and mathematical symbols of source code. This translated source code is similar to the source code used originally to create the object code n4 but lacks the annotations drafted by the authors of the program that help explain the functioning of the source code. In a static examination of the computer instructions, method (3), the engineer disassembles the object code of all or part of the program. The program must generally be copied one or more times to perform disassembly. In a dynamic examination of the computer instructions, method (4), the engineer uses the disassembler program to disassemble parts of the program, one instruction at a time, while the program is running. This method also requires copying the program and, depending on the number of times this operation is performed, may require additional copying of the program into RAM every time the computer is booted up.

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n3 Source code is readable by software engineers, but not by computers.
n4 Software is generally written by programmers in source code (and in other more conceptual formats) and then assembled into object code.

C. Connectix's reverse engineering of the Sony BIOS

Connectix began developing the Virtual Game Station for Macintosh on about July 1, 1998. In order to develop a PlayStation emulator, Connectix needed to emulate both the PlayStation hardware and the firmware (the Sony BIOS).

Connectix first decided to emulate the PlayStation's hardware. In order to do so, Connectix engineers purchased a Sony PlayStation console and extracted the Sony BIOS from a chip inside the console. Connectix engineers then copied the Sony BIOS into the RAM of their computers and observed the functioning of the Sony BIOS in conjunction with the Virtual Game Station hardware emulation software as that hardware emulation software was being developed by Connectix. The engineers observed the operation of the Sony BIOS through use of a debugging program that permitted the engineers to observe the signals sent between the BIOS and the hardware emulation software. During this process, Connectix engineers made additional copies of the Sony BIOS every time they booted up their computer and the Sony BIOS was loaded into RAM.
Once they had developed the hardware emulation software, Connectix engineers also used the Sony BIOS to "debug" the emulation software. In doing so, they repeatedly copied and disassembled discrete portions of the Sony BIOS.

Connectix also used the Sony BIOS to begin development of the Virtual Game Station for Windows. Specifically, they made daily copies to RAM of the Sony BIOS and used the Sony BIOS to develop certain Windows-specific systems for the Virtual Game Station for Windows. Although Connectix had its own BIOS at the time, Connectix engineers used the Sony BIOS because it contained CD-ROM code that the Connectix BIOS did not contain.

Early in the development process, Connectix engineer Aaron Giles disassembled a copy of the entire Sony BIOS that he had downloaded from the Internet. He did so for the purpose of testing a "disassembler" program he had written. The print-out of the source code was not used to develop the Virtual Game Station emulator. Connectix engineers initially used this copy of the Sony BIOS to begin the reverse engineering process, but abandoned it after realizing that it was a Japanese-language version.

During development of the Virtual Game Station, Connectix contacted Sony and requested "technical assistance" from Sony to complete the development of the Virtual Game Station. Connectix and Sony representatives met during September 1998. Sony declined Connectix's request for assistance.
Connectix completed Virtual Game Station for Macintosh computers in late December 1998 or early January 1999. Connectix announced its new product at the MacWorld Expo on January 5, 1999. At MacWorld, Connectix marketed the Virtual Game Station as a "PlayStation emulator." The materials stated that the Virtual Game Station permits users to play "their favorite Playstation games" on a computer "even if you don't yet have a Sony PlayStation console."

D. Procedural history

On January 27, 1999, Sony filed a complaint alleging copyright infringement and other causes of action against Connectix. Sony subsequently moved for a preliminary injunction on the grounds of copyright and trademark infringement. The district court granted the motion, enjoining Connectix: (1) from copying or using the Sony BIOS code in the development of the Virtual Game Station for Windows; and (2) from selling the Virtual Game Station for Macintosh or the Virtual Game Station for Windows. Order on Mot. for Prelim. Inj. at 27. The district court also impounded all Connectix's copies of the Sony BIOS and all copies of works based upon or incorporating Sony BIOS. Id. at 27-28. Connectix now appeals from this order.

II. Discussion

To prevail on its motion for injunctive relief, Sony was required to demonstrate "either a likelihood of success on the merits and the possibility of irreparable injury or that serious questions going to the merits were raised and the balance of the hardships tip sharply in its favor." Cadence Design Sys., Inc. v. Avant! Corp., 125 F.3d 824, 826 (9th Cir. 1997) (internal quotation marks and bracket omitted), cert. denied, 523 U.S. 1118 (1998). We reverse the grant of a preliminary injunction only when "the district court abused its discretion or based its decision on an erroneous legal standard or on clearly erroneous findings of fact." Roe v. Anderson, 134 F.3d 1400, 1402 n.1 (9th Cir. 1998) (internal quotation marks omitted), aff'd on other grounds, sub nom. Saenz v. Roe, 526 U.S. 489, 143 L. Ed. 2d 689, 119 S. Ct. 1518 (1999). We review the scope of injunctive relief for an abuse of discretion. SEC v. Interlink Data Network of L.A., Inc., 77 F.3d 1201, 1204 (9th Cir. 1996).
Connectix admits that it copied Sony's copyrighted BIOS software in developing the Virtual Game Station but contends that doing so was protected as a fair use under 17 U.S.C. § 107. Connectix also challenges the district court's conclusion that Sony has established a likelihood that Connectix's Virtual Game Station tarnishes the PlayStation trademark. We consider each of these claims below.

A. Fair use

The fair use issue arises in the present context because of certain characteristics of computer software. The object code of a program may be copyrighted as expression, 17 U.S.C. § 102(a), but it also contains ideas and performs functions that are not entitled to copyright protection. See 17 U.S.C. § 102(b). Object code cannot, however, be read by humans. The unprotected ideas and functions of the code therefore are frequently undiscoverable in the absence of investigation and translation that may require copying the copyrighted material. We conclude that, under the facts of this case and our precedent, Connectix's intermediate copying and use of Sony's copyrighted BIOS was a fair use for the purpose of gaining access to the unprotected elements of Sony's software.
The general framework for analysis of fair use is established by statute, 17 U.S.C. § 107. n5 We have applied this statute and the fair use doctrine to the disassembly of computer software in the case of Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1993) (amended opinion). Central to our decision today is the rule set forth in Sega:

Where disassembly is the only way to gain access to the ideas and functional elements embodied in a copyrighted computer program and where there is a legitimate reason for seeking such access, disassembly is a fair use of the copyrighted work, as a matter of law.

Id. at 1527-28 (emphasis added). In Sega, we recognized that intermediate copying could constitute copyright infringement even when the end product did not itself contain copyrighted material. Id. at 1518-19. But this copying nonetheless could be protected as a fair use if it was "necessary" to gain access to the functional elements of the software itself. Id. at 1524-26. We drew this distinction because the Copyright Act protects expression only, not ideas or the functional aspects of a software program. See id. at 1524 (citing 17 U.S.C. § 102(b)). We also recognized that, in the case of computer programs, this idea/expression distinction poses "unique problems" because computer programs are "in essence, utilitarian articles - articles that accomplish tasks. As such, they contain many logical, structural, and visual display elements that are dictated by the function to be performed, by considerations of efficiency, or by external factors such as compatibility requirements and industry demands." Id. Thus, the fair use doctrine preserves public access to the ideas and functional elements embedded in copyrighted computer software programs. This approach is consistent with the "'ultimate aim [of the Copyright Act], to stimulate artistic creativity for the general public good.'" Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 432, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984) (quoting Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 45 L. Ed. 2d 84, 95 S. Ct. 2040 (1975)).

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n5 The factors for determining fair use include:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

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We turn then to the statutory fair use factors, as informed by our precedent in Sega.

1. Nature of the copyrighted work

Under our analysis of the second statutory factor, nature of the copyrighted work, we recognize that "some works are closer to the core of intended copyright protection than others." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 586, 127 L. Ed. 2d 500, 114 S. Ct. 1164 (1994). Sony's BIOS lies at a distance from the core because it contains unprotected aspects that cannot be examined without copying. See Sega, 977 F.2d at 1526. We consequently accord it a "lower degree of protection than more traditional literary works." Id. As we have applied this standard, Connectix's copying of the Sony BIOS must have been "necessary" to have been fair use. See id. at 1524-26. We conclude that it was.

There is no question that the Sony BIOS contains unprotected functional elements. Nor is it disputed that Connectix could not gain access to these unprotected functional elements without copying the Sony BIOS. Sony admits that little technical information about the functionality of the Sony BIOS is publicly available. The Sony BIOS is an internal operating system that does not produce a screen display to reflect its functioning. Consequently, if Connectix was to gain access to the functional elements of the Sony BIOS it had to be through a form of reverse engineering that required copying the Sony BIOS onto a computer. n6 Sony does not dispute this proposition.

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n6 Connectix offers evidence that it attempted to gain access to the functionality of the Sony BIOS by attaching a "logic analyzer" to the input and output leads of the chip on which the Sony BIOS was located within the PlayStation console. This form of observation does not appear to require the making of an intermediate copy, but was of limited value because it permitted the observation of inter-chip, but not intra-chip signals. Sony does not suggest that this form of observation alone would have permitted Connectix engineers to gain access to the functional elements of the Sony BIOS.

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The question then becomes whether the methods by which Connectix reverse-engineered the Sony BIOS were necessary to gain access to the unprotected functional elements within the program. We conclude that they were. Connectix employed several methods of reverse engineering (observation and observation with partial disassembly) each of which required Connectix to make intermediate copies of copyrighted material. Neither of these methods renders fair use protection inapplicable. Sega expressly sanctioned disassembly. See id. at 1527-28. We see no reason to distinguish observation of copyrighted software in an emulated computer environment. Both methods require the reverse engineer to copy protected as well as unprotected elements of the computer program. Because this intermediate copying is the gravamen of the intermediate infringement claim, see 17 U.S.C. § 106(1); Sega, 977 F.2d at 1518-19, and both methods of reverse engineering require it, we find no reason inherent in these methods to prefer one to another as a matter of copyright law. Connectix presented evidence that it observed the Sony BIOS in an emulated environment to observe the functional aspects of the Sony BIOS. When this method of reverse engineering was unsuccessful, Connectix engineers disassembled discrete portions of the Sony BIOS to view directly the ideas contained therein. We conclude that intermediate copying in this manner was "necessary" within the meaning of Sega.

We decline to follow the approach taken by the district court. The district court did not focus on whether Connectix's copying of the Sony BIOS was necessary for access to functional elements. Instead, it found that Connectix's copying and use of the Sony BIOS to develop its own software exceeded the scope of Sega. See Order at 17 ("They disassembled Sony's code not just to study the concepts. They actually used that code in the development of [their] product."). This rationale is unpersuasive. It is true that Sega referred to "studying or examining the unprotected aspects of a copyrighted computer program." 977 F.2d at 1520 (emphasis added). But in Sega, Accolade's copying, observation and disassembly of Sega's game cartridges was held to be fair use, even though Accolade "loaded the disassembled code back into a computer, and experimented to discover the interface specifications for the Genesis console by modifying the programs and studying the results." Id. at 1515. Thus, the distinction between "studying" and "use" is unsupported in Sega. Moreover, reverse engineering is a technically complex, frequently iterative process. Johnson-Laird, 19 U. Dayton L. Rev. at 843-44. Within the limited context of a claim of intermediate infringement, we find the semantic distinction between "studying" and "use" to be artificial, and decline to adopt it for purposes of determining fair use. n7

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n7 We are unable to locate evidence in the record to support the district court's finding that Connectix "gradually converted Sony's code to their own code," Order at 11, if by this statement the court meant that Connectix engineers failed to create an original work. True, Connectix engineers admitted to combining the Sony BIOS with the Virtual Game Station hardware emulation software to test and develop the hardware emulation software. But in drafting the Connectix BIOS, Connectix engineers never claimed to do anything other than write their own code, even though they used, observed, copied and sometimes disassembled the Sony BIOS as they did so. Sony presents no evidence to the contrary, nor does Sony contend that Connectix's final product contains infringing material.

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We also reject the argument, urged by Sony, that Connectix infringed the Sony copyright by repeatedly observing the Sony BIOS in an emulated environment, thereby making repeated copies of the Sony BIOS. These intermediate copies could not have been "necessary" under Sega, contends Sony, because Connectix engineers could have disassembled the entire Sony BIOS first, then written their own Connectix BIOS, and used the Connectix BIOS to develop the Virtual Game Station hardware emulation software. We accept Sony's factual predicate for the limited purpose of this appeal. n8 Our doing so, however, does not aid Sony.

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n8 The depositions of Connectix engineers Aaron Giles and Eric Traut suggest that Connectix engineers recognized that other engineering solutions were sometimes available.
With respect to the observation of the Sony BIOS in an emulated environment, Traut admitted that it was easier to use the Sony BIOS to develop the hardware emulation software than to develop Connectix own BIOS first, and then use the Connectix BIOS to develop the hardware emulation software.

With respect to the observation of the Sony BIOS with selective disassembly of the code, Traut stated with respect to one bug that there would have been no way to fix the bug without disassembling a portion of the Sony BIOS. He also stated that at other times he disassembled portions of the Sony BIOS when doing so was "the most efficient way of finding that bug." In a subsequent question, he clarified that disassembly was not the only way to fix the bug, just the fastest way to do so.

With respect to Connectix's observation of the Sony BIOS in the development of the Virtual Game Station for Windows, other solutions, presumably disassembly, may have been possible. Connectix engineer Giles responded "I don't know" when asked by Sony counsel if "it would have been possible to write the CD-ROM code before building the emulator."

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Sony contends that Connectix's reverse engineering of the Sony BIOS should be considered unnecessary on the rationale that Connectix's decision to observe the Sony BIOS in an emulated environment required Connectix to make more intermediate copies of the Sony BIOS than if Connectix had performed a complete disassembly of the program. Under this logic, at least some of the intermediate copies were not necessary within the meaning of Sega. This construction stretches Sega too far. The "necessity" we addressed in Sega was the necessity of the method, i.e., disassembly, not the necessity of the number of times that method was applied. See 977 F.2d at 1524-26. In any event, the interpretation advanced by Sony would be a poor criterion for fair use. Most of the intermediate copies of the Sony BIOS were made by Connectix engineers when they booted up their computers and the Sony BIOS was copied into RAM. But if Connectix engineers had left their computers turned on throughout the period during which they were observing the Sony BIOS in an emulated environment, they would have made far fewer intermediate copies of the Sony BIOS (perhaps as few as one per computer). Even if we were inclined to supervise the engineering solutions of software companies in minute detail, and we are not, our application of the copyright law would not turn on such a distinction. n9 Such a rule could be easily manipulated. More important, the rule urged by Sony would require that a software engineer, faced with two engineering solutions that each require intermediate copying of protected and unprotected material, often follow the least efficient solution. (In cases in which the solution that required the fewest number of intermediate copies was also the most efficient, an engineer would pursue it, presumably, without our urging.) This is precisely the kind of "wasted effort that the proscription against the copyright of ideas and facts . . . [is] designed to prevent." Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 354, 113 L. Ed. 2d 358, 111 S. Ct. 1282 (1991) (internal quotation marks omitted). Such an approach would erect an artificial hurdle in the way of the public's access to the ideas contained within copyrighted software programs. These are "aspects that were expressly denied copyright protection by Congress." Sega, 977 F.2d at 1526 (citing 17 U.S.C. § 102(b)). We decline to erect such a barrier in this case. If Sony wishes to obtain a lawful monopoly on the functional concepts in its software, it must satisfy the more stringent standards of the patent laws. See Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 160-61, 103 L. Ed. 2d 118, 109 S. Ct. 971 (1989); Sega, 977 F.2d at 1526. This Sony has not done. The second statutory factor strongly favors Connectix.

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n9 Sony relies on these RAM copies for its contention, which we reject, that there is no significant difference between the facts of this case and our decisions in Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995) and MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993). Those cases are inapposite to our fair use analysis. Neither involved reverse engineering of software to gain access to unprotected functional elements.

2. Amount and substantiality of the portion used

With respect to the third statutory factor, amount and substantiality of the portion used in relation to the copyrighted work as a whole, Connectix disassembled parts of the Sony BIOS and copied the entire Sony BIOS multiple times. This factor therefore weighs against Connectix. But as we concluded in Sega, in a case of intermediate infringement when the final product does not itself contain infringing material, this factor is of "very little weight." Sega, 977 F.2d at 1526-27; see also Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 449-50, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984) (copying of entire work does not preclude fair use).

3. Purpose and character of the use

Under the first factor, purpose and character of the use, we inquire into whether Connectix's Virtual Game Station merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is "transformative."

Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 127 L. Ed. 2d 500, 114 S. Ct. 1164 (1994) (internal quotation marks and citations omitted). As an initial matter, we conclude that the district court applied an erroneous legal standard; the district court held that Connectix's commercial purpose in copying the Sony BIOS gave rise to a "presumption of unfairness that . . . can be rebutted by the characteristics of a particular commercial use." Order at 14-15 (citing Sega, 977 F.2d at 1522). Since Sega, however, the Supreme Court has rejected this presumption as applied to the first and fourth factor of the fair use analysis. Acuff-Rose, 510 U.S. at 584, 594 (clarifying Sony, 464 U.S. at 451). Instead, the fact that Connectix's copying of the Sony BIOS was for a commercial purpose is only a "separate factor that tends to weigh against a finding of fair use." Id. at 585 (internal quotation marks omitted). n10

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n10 Sony points to Micro Star v. Formgen, Inc., 154 F.3d 1107 (9th Cir. 1998), for the proposition that commercial use creates a presumption of unfairness. See id. at 1113 (quoting Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 451, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984)). We do not read Micro Star that way; moreover, such a reading would be contrary to Acuff-Rose. Acuff-Rose expressly rejected such a "hard evidentiary presumption" and stated that the Court of Appeals "erred" by giving such dispositive weight to the commercial nature of the use. 510 U.S. at 584. Also, Micro Star itself involved a use that was non-transformative, which is not the case here. See Micro Star, 154 F.3d at 1113 & n.6. Cf. American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 921-22 (2d Cir. 1995) (amended opinion) (rejecting, on grounds of Acuff-Rose and collected cases, presumption of unfairness for commercial use as applied to Texaco's intermediate copying of copyrighted articles).

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We find that Connectix's Virtual Game Station is modestly transformative. The product creates a new platform, the personal computer, on which consumers can play games designed for the Sony PlayStation. This innovation affords opportunities for game play in new environments, specifically anywhere a Sony PlayStation console and television are not available, but a computer with a CD-ROM drive is. More important, the Virtual Game Station itself is a wholly new product, notwithstanding the similarity of uses and functions between the Sony PlayStation and the Virtual Game Station. The expressive element of software lies as much in the organization and structure of the object code that runs the computer as it does in the visual expression of that code that appears on a computer screen. See 17 U.S.C. § 102(a) (extending copyright protection to original works of authorship that "can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device"). Sony does not claim that the Virtual Game Station itself contains object code that infringes Sony's copyright. We are therefore at a loss to see how Connectix's drafting of entirely new object code for its VGS program could not be transformative, despite the similarities in function and screen output.

Finally, we must weigh the extent of any transformation in Connectix's Virtual Game Station against the significance of other factors, including commercialism, that militate against fair use. See Acuff-Rose, 510 U.S. at 579. Connectix's commercial use of the copyrighted material was an intermediate one, and thus was only "indirect or derivative." Sega, 977 F.2d at 1522. Moreover, Connectix reverse-engineered the Sony BIOS to produce a product that would be compatible with games designed for the Sony PlayStation. We have recognized this purpose as a legitimate one under the first factor of the fair use analysis. See id. Upon weighing these factors, we find that the first factor favors Connectix.

The district court ruled, however, that the Virtual Game Station was not transformative on the rationale that a computer screen and a television screen are interchangeable, and the Connectix product therefore merely "supplants" the Sony PlayStation console. Order at 15. The district court clearly erred. For the reasons stated above, the Virtual Game Station is transformative and does not merely supplant the PlayStation console. In reaching its decision, the district court apparently failed to consider the expressive nature of the Virtual Game Station software itself. Sony's reliance on Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104 (2d Cir. 1998), suffers from the same defect. The Infinity court reasoned that a "change of format, though useful, is not technically a transformation." Id. at 108 n.2. But the infringing party in that case was merely taking copyrighted radio transmissions and retransmitting them over telephone lines; there was no new expression. Id. at 108. Infinity does not change our conclusion; the purpose and character of Connectix's copying points toward fair use.

4. Effect of the use upon the potential market

We also find that the fourth factor, effect of the use upon the potential market, favors Connectix. Under this factor, we consider not only the extent of market harm caused by the particular actions of the alleged infringer, but also "whether unrestricted and widespread conduct of the sort engaged in by the defendant . . . would result in a substantially adverse impact on the potential market" for the original.

Acuff-Rose, 510 U.S. at 590 (quoting 3 M. Nimmer & D. Nimmer, Nimmer on Copyright, § 13.05[A][4], at 13-102.61 (1993)). Whereas a work that merely supplants or supersedes another is likely to cause a substantially adverse impact on the potential market of the original, a transformative work is less likely to do so. See id. at 591; Harper & Row, Publishers, Inc. v. Nation Enters, Inc., 471 U.S. 539, 567-69, 85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985).

The district court found that "to the extent that such a substitution [of Connectix's Virtual Game Station for Sony PlayStation console] occurs, Sony will lose console sales and profits." Order at 19. We recognize that this may be so. But because the Virtual Game Station is transformative, and does not merely supplant the PlayStation console, the Virtual Game Station is a legitimate competitor in the market for platforms on which Sony and Sony-licensed games can be played. See Sega, 977 F.2d at 1522-23. For this reason, some economic loss by Sony as a result of this competition does not compel a finding of no fair use. Sony understandably seeks control over the market for devices that play games Sony produces or licenses. The copyright law, however, does not confer such a monopoly. See id. at 1523-24 ("An attempt to monopolize the market by making it impossible for others to compete runs counter to the statutory purpose of promoting creative expression and cannot constitute a strong equitable basis for resisting the invocation of the fair use doctrine."). This factor favors Connectix.

The four statutory fair use factors must be "weighed together, in light of the purposes of copyright." Acuff-Rose, 510 U.S. at 578. Here, three of the factors favor Connectix; one favors Sony, and it is of little weight. Of course, the statutory factors are not exclusive, Harper & Row, 471 U.S. at 560, but we are unaware of other factors not already considered that would affect our analysis. Accordingly, we conclude that Connectix's intermediate copying of the Sony BIOS during the course of its reverse engineering of that product was a fair use under 17 U.S.C. § 107, as a matter of law. With respect to its claim of copyright infringement, Sony has not established either a likelihood of success on the merits or that the balance of hardships tips in its favor. See Cadence Design Sys., Inc. v. Avant! Corp., 125 F.3d 824, 826 (9th Cir. 1997), cert. denied, 523 U.S. 1118 (1998). Accordingly, we need not address defenses asserted by Connectix under 17 U.S.C. § 117(a)(1) and our doctrine of copyright misuse. We reverse the district court's grant of a preliminary injunction on the ground of copyright infringement. n11

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n11 We do not accept Sony's argument that the downloading of Sony's BIOS from the Internet was itself an infringement justifying the injunction. The evidence of record suggests that the downloaded BIOS played a minimal role, if any, in development of the Virtual Game Station. We conclude that, on this record, the downloading infringement, if such it was, would not justify our upholding the injunction on the development and sale of the Virtual Game Station. The Virtual Game Station itself infringes no copyright. Bearing in mind the goals of the copyright law, "to stimulate artistic creativity for the general public good," Sony, 464 U.S. at 432 (internal quotation marks omitted), we conclude that there is a legitimate public interest in the publication of Connectix's software, and that this interest is not overborne by the record evidence related to the downloaded BIOS. The imposition of an injunction is discretionary. See 17 U.S.C. § 502(a). On this record, we conclude that it would be inappropriate to uphold the injunction because of Connectix's copying and use of the downloaded Sony BIOS; damages would adequately protect Sony's interest with respect to that alleged infringement. See Acuff-Rose, 510 U.S. at 578 n.10 (discussing factors to be evaluated in deciding whether to enjoin product found to have exceeded bounds of fair use).

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B. Tarnishment

The district court found that Connectix's sale of the Virtual Game Station tarnished Sony's "PlayStation" mark under 15 U.S.C. § 1125(c)(1). The district court based its preliminary injunction, however, exclusively on Sony's copyright claim, and did not cite its tarnishment finding as a ground for the injunction. Although we can "affirm the district court on any ground supported by the record," Charley's Taxi Radio Dispatch Corp. v. SIDA of Haw., Inc., 810 F.2d 869, 874 (9th Cir. 1987), we decline to affirm on this alternative ground. Sony has not shown a likelihood of success on each element of the tarnishment claim.

To prevail on its tarnishment claim, Sony must show that (1) the PlayStation "mark is famous;" (2) Connectix is "making a commercial use of the mark;" (3) Connectix's "use began after the mark became famous;" and (4) Connectix's "use of the mark dilutes the quality of the mark by diminishing the capacity of the mark to identify and distinguish goods and services." Films of Distinction, Inc. v. Allegro Film Prods., Inc., 12 F. Supp. 2d 1068, 1078 (C.D. Cal. 1998); 15 U.S.C. § § 1125 (c)(1), 1127 (definition of "dilution"). Connectix does not dispute the first and third of these elements. We address only the fourth element.

Because Sony proceeds under a tarnishment theory of dilution, it must show under this fourth element that its PlayStation mark will "suffer negative associations" through Connectix's use. Hormel Foods Corp. v. Jim Henson Prods., Inc., 73 F.3d 497, 507 (2d Cir. 1996); see also 4 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 24.95 (4th ed. 1996 & Supp. 1999). The district court found the Virtual Game Station does not play PlayStation games as well as the PlayStation console, and that although the Virtual Game Station's packaging contains a disclaimer to this effect, "game players do not comprehend this distinction." Order at 24-25. The Sony PlayStation mark therefore suffers negative associations because of this confusion on the part of consumers who play Sony games on the Virtual Game Station software. Id. at 25.
The evidence on the record does not support such a finding of misattribution. The district court relied primarily on a series of semi-anonymous reviews posted on the Internet and submitted by Connectix. As the district court acknowledged, these reviews were neither authenticated nor identified. More important, the print-out of the comments does not reveal the context in which the comments were made; this omission makes the extent of any confusion by game players difficult to assess reliably. The district court also referred to two focus group studies conducted by market research firms at Sony's bequest. These studies address the difference of quality between the Virtual Game Station and PlayStation, but shed no light on the question of misattribution. Thus, we reject as clearly erroneous the district court's finding that the Virtual Game Station tarnishes the Sony PlayStation mark on a misattribution theory of tarnishment.

Nor are we persuaded by Sony's argument that the difference in quality between the two platforms is itself sufficient to find tarnishment. See Deere & Co. v. MTD Prods, Inc., 41 F.3d 39, 43 (2d Cir. 1994) ("'Tarnishment' generally arises when the plaintiff's trademark is linked to products of shoddy quality," diminishing the value of the mark "because the public will associate the lack of quality . . . with the plaintiff's unrelated goods."). Even if we assume, without deciding, that the concept of tarnishment is applicable to the present factual scenario, there is insufficient evidence to support a finding of tarnishment. "The sine qua non of tarnishment is a finding that plaintiff's mark will suffer negative associations through defendant's use." Hormel Foods, 73 F.3d at 507. The evidence here fails to show or suggest that Sony's mark or product was regarded or was likely to be regarded negatively because of its performance on Connectix's Virtual Game Station. The evidence is not even substantial on the quality of that performance. The Sony studies, each of included eight participants, presented a range of conclusions. One study concluded that "on balance, the results of this focus group study show that the testers preferred the PlayStation gaming experience over the Virtual Game Station gaming experience." The other concluded that consumers found the Virtual Game Station was "generally acceptable" for one game, but "nearly unplayable" on another. The internet reviews submitted by Connectix also presented a range of opinion; while some anonymous reviewers loved the Virtual Game Station, some were ambivalent, and a relative few hated the Virtual Game Station emulation. In the only review for attribution, Newsweek said the software played "surprisingly well," and that some games on the Virtual Game Station "rocked." Steven Levy, "Play it Your Way," Newsweek, Mar. 15, 1999, at 84. This evidence is insufficient to support a conclusion that the shoddiness of the Virtual Game Station alone tarnishes the Sony mark. Sony's tarnishment claim cannot support the injunction.

CONCLUSION

Connectix's reverse engineering of the Sony BIOS extracted from a Sony PlayStation console purchased by Connectix engineers is protected as a fair use. Other intermediate copies of the Sony BIOS made by Connectix, if they infringed Sony's copyright, do not justify injunctive relief. For these reasons, the district court's injunction is dissolved and the case is remanded to the district court. We also reverse the district court's finding that Connectix's Virtual Game Station has tarnished the Sony PlayStation mark.
REVERSED AND REMANDED.

SONY COMPUTER ENTERTAINMENT INC., et al., Plaintiffs, v. CONNECTIX CORPORATION, Defendant.

OPINION:

[*1213] ORDER ON MOTION FOR PRELIMINARY INJUNCTION
Now before the court is plaintiff's motion for a preliminary injunction. On January [*1214] 27, 1999 plaintiff Sony filed its complaint alleging copyright infringement and other causes of action against defendant Connectix Corporation. Since that date, Sony made two applications for temporary restraining orders against Connectix' product, the Virtual Game System ("VGS"). This court granted the second application for a temporary retraining order, for the reasons stated on the record in open court on March 11, 1999. After expedited discovery by the parties, the present motion was filed. Sony has also amended its complaint, but this motion for a preliminary injunction is evaluated in the context of [**2] plaintiff's original complaint.

Sony asserts that it is likely to prevail on three claims --copyright infringement, circumvention of technological protection measures, and trademark dilution. For purposes of this motion, the central allegation is copyright infringement. Sony argues that in developing its VGS, Connectix unlawfully copied and used Sony's BIOS code. While Sony concedes that the completed VGS machine does not now contain any of plaintiff's copyrighted material, Sony asserts that the product was unlawfully created by the use of plaintiff's copyrighted code. Sony also contends that the VGS tarnishes its famous PlayStation trademark, because PlayStation games do not run as well on defendant's emulation machine as they do on a PlayStation console. Sony seeks to enjoin Connectix from using Sony's BIOS in the development of its products, and from selling the VGS products made from the use of Sony's code.

The issues have been fully briefed by the parties. Oral argument was heard on April 9, 1999 and the matter was submitted. The court has carefully reviewed the moving and opposing papers, the documents and declarations filed in support and opposition, the parties' arguments [**3] and the applicable authorities. For the reasons discussed below, the court concludes that Sony's motion for preliminary injunction must be granted.

America (collectively called "Sony") are the developers, manufacturers and distributors of the Sony PlayStation and PlayStation games. They also license other companies to make games that can play on the PlayStation system. "PlayStation" is a registered trademark of Sony. The PlayStation system consists of a console, controllers, and software that are designed to produce a three-dimensional game for play on a television monitor connected to the console.

Sony expended over three years and approximately $ 500 million to develop the PlayStation video game system. Since its release in the United States in September 1995, Sony has spent an additional $ 100 million to promote the system. Sony is a leader in the video game console business by selling over twenty million PlayStations worldwide.

The parties essentially agree on the composition of the PlayStation system. The PlayStation console consists of numerous hardware components, including [**4] a MIPS R3000 Central Processing Unit (CPU), Geometry Transfer Engine (GTE), Data Decompression Engine (MDEC), Memory -- main RAM, video RAM, sound RAM, and CD ROM buffer -- Graphics Processing Unit (GPU), Sound Processing Unit (SPU), Graphics Chip, CD-ROM Drive, Game Pad and Serial Port. The GTE and the GPU are custom built microprocessors designed by Sony's engineers for the PlayStation. These chips perform the complex mathematical calculations necessary to produce realistic 3-D graphics. Sony considers the processes performed by the GTE and GPU chips to be company trade secrets.
The console also contains firmware, which is the equivalent of an operating system, that resides in a ROM chip. The [*1215] firmware is the Sony BIOS. n1 Sony holds copyright registrations on its BIOS program. Sony's policy is not to authorize anyone to distribute its BIOS program independent of its inclusion in the PlayStation console, nor to authorize anyone to copy the BIOS for any purpose. The source code for the BIOS is never disseminated by Sony outside the company.

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n1 "BIOS" is an acronym for "basic input-output system."

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The source code n2 of the Sony BIOS consists of a combination of C source code and R3000 microprocessor assembly language. Tools are used to compile and link this source code into a series of instructions that can be executed by the R3000 microprocessor in the PlayStation. The tools produce a file of binary date that is written into the ROM device. The R3000 microprocessor reads instructions from this ROM.

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n2 Source code is software in a human readable form that is written by the software developer. Object code is software in a computer readable form, also referred to as binary data (1's and 0's).

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The operation of the PlayStation is also controlled by a PlayStation video game that is placed in the CD-ROM drive of the console. The video game program sends function calls to the BIOS of the PlayStation console.

The PlayStation console also includes several technological protection measures, which prevent a user from playing a counterfeit PlayStation game. Two of these technological protection measures are relevant [**6] to this motion. One is that PlayStation games include a computer program known as PlayStation Library Code. Sony owns a copyright on its Library Code. Sony licenses its copyrighted Library Code and PlayStation trademark to a number of independent video game developers, for the purpose of making games compatible with the PlayStation. The PlayStation console cannot play a PlayStation game unless it contains the copyrighted Library Code. Another protection measure is that PlayStation games contain WIZ Code. The WIZ Code operates as a gatekeeper to the Library Code. The WIZ Code distinguishes a genuine PlayStation game from a counterfeit. The PlayStation console must read the WIZ Code before it can access the Library Code.

II.

Defendant Connectix Inc. is a developer, manufacturer and marketer of computer software products. Its VGS is called an "emulator," a software program which individuals install on their computers. That software program is designed to emulate a Sony PlayStation, allowing certain computers to run Sony PlayStation games. At this time, Connectix has developed its VGS for Macintosh computers only. Connectix is currently developing a VGS for Windows, and is scheduled [**7] to debut its VGS for Windows in May 1999.

The VGS plays many PlayStation games, but admittedly not as well as when those games are played on a PlayStation console. Connectix specifically includes a disclaimer on its packaging which states that not all PlayStations games are compatible and that some mechanical problems in the running of the games may occur.

III.

The parties agree that in order to develop a PlayStation emulator, Connectix needed to emulate both the PlayStation hardware (i.e., GTE, GPU, etc.) and the firmware (the Sony BIOS).
Connectix began developing VGS around July 1, 1998. In developing the VGS, Connectix decided to first emulate the PlayStation's hardware. Connectix admits that during the early stages of the project, Connectix' engineers used the Sony BIOS to develop the hardware emulator.
Connectix' engineers obtained a copy of the Sony BIOS from the Internet. Apparently, [*1216] the engineers downloaded a copy of the BIOS (object code version) from the Internet and stored the BIOS on its computer hard drives. However, the downloaded BIOS was an outdated Japanese version. After developing a portion of the VGS hardware, Connectix discovered that the BIOS it [**8] was using was the "wrong" version.

After this discovery, Connectix' Chief Technical Officer purchased a Sony PlayStation, broke it apart, and took out the ROM chip containing the BIOS. The contents of that ROM chip were downloaded onto a disk. Connectix' engineers then used this disk to continue their development of the VGS, both the hardware and their own BIOS.

During its development of the VGS, Connectix contacted Sony and requested "technical assistance" from Sony to complete the development of VGS. A meeting occurred sometime in September 1998. Connectix wanted Sony's help to understand the PlayStation's firmware and anti-counterfeit programs. However, Sony declined Connectix's request.

It is undisputed that the early version of VGS contained the complete, unchanged Sony BIOS. Prior to the meeting with Sony, Connectix had not taken any steps to develop its own BIOS. The evidence shows that Connectix did not begin developing its own BIOS until after Sony declined Connectix' request for technical assistance, sometime in October 1998.

As its final step in the VGS development, Connectix replaced the Sony BIOS code with its own BIOS code. Connectix completed VGS for Macintosh computers [**9] some time in late December 1998 or early January 1999. The product was announced at the MacWorld Expo on January 5, 1999. At MacWorld, Connectix specifically marketed VGS as a "PlayStation emulator" -- VGS permits users to play "their favorite PlayStation games" without the need to purchase a PlayStation console.

IV.

A district court may award preliminary injunctive relief if the moving party demonstrates "either a likelihood of success on the merits and the possibility of irreparable injury or that serious questions going to the merits were raised and the balance of hardships tips sharply in its favor." Cadence Design Systems, Inc. v. Avant! Corp., 125 F.3d 824, 826 (9th Cir. 1997), cert. denied, 523 U.S. 1118, 118 S. Ct. 1795, 140 L. Ed. 2d 936 (1998). These formulations of the standard are not separate tests, but represent two points on a sliding scale in which the degree of necessary harm decreases as the probability of success on the merits increases. Dr. Seuss Enterprises, L.P. v. Penguin Books, 109 F.3d 1394, 1396 fn 2 (9th Cir. 1997), cert. dismissed, 521 U.S. 1146 (1997).
In copyright and trademark cases, irreparable injury is presumed upon a showing of likelihood [**10] of success on the merits. Cadence Design Systems, Inc., 125 F.3d at 826-27 (copyright); Rodeo Collection, Ltd. v. West Seventh, 812 F.2d 1215, 1220 (9th Cir. 1987) (trademark).

Sony first argues that it has shown a likelihood of success on its copyright infringement claim because Connectix admits to copying and using Sony's BIOS code.

A copyright owner enjoys the exclusive right to reproduce a copyrighted work, to prepare derivative works based on the copyrighted work, and to distribute a copyrighted work. See 17 U.S.C. § 106(1), (2) and (3). To prove copyright infringement, a plaintiff must show two elements: (1) ownership of a valid copyright, and (2) copying of expression protected by the copyright. Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330, 1335 (9th Cir. 1995).
[*1217] Sony has provided a copy of its Certificate of Registration with the Copyright Office for its BIOS code, and its ownership under Berne Convention procedures. This raises a presumption of the validity of Sony's copyright in its BIOS code. See 17 U.S.C. § 410(c). Defendant has not rebutted this presumption.

Sony's copyright infringement claim is based on a theory of intermediate [**11] infringement. Sony alleges that Connectix is guilty of two distinct forms of intermediate infringement: First, Sony contends that during the development of both the Macintosh and Windows versions of VGS, Connectix repeatedly duplicated the Sony's BIOS code in its entirety and used those copies while it developed a computer program that emulates the hardware components of the PlayStation console. Second, Sony contends that Connectix disassembled Sony's BIOS in order to develop its own VGS BIOS by gradually replacing elements of Sony's code with its own.

Connectix does not address Sony's argument regarding the alleged intermediate infringement, nor does Connectix address the authorities cited by Sony. Instead, Connectix argues that Sony's copyright claim fails because Sony has not met the preliminary burden of establishing that Sony's BIOS is entitled to copyright protection. Connectix argues that Sony must perform a so-called "filtration analysis" to demonstrate that its BIOS constitutes protected expression. Computer Associates v. Altai, 982 F.2d 693, 707 (2nd Cir. 1992). The Ninth Circuit also discussed the filtration test in Apple Computer, Inc. v. Microsoft Corp., 35 F.3d [**12] 1435, 1442 (9th Cir. 1994). In determining whether unlawful copying has occurred, it is appropriate to use a two-part test "having 'extrinsic' and 'intrinsic' components." Id. In brief, the extrinsic test considers whether there are substantial similarities in both ideas and expression based on external criteria. Id. The intrinsic test measures similarity of expression from the standpoint of the ordinary reasonable observer, with no expert assistance. Id. The intrinsic test measures expression subjectively and compares the works "as a whole." Id. at 1443.

Sony responds that a filtration analysis is not necessary because Connectix has admittedly copied and used Sony's copyrighted work in its entirety. Sony cites Mitel, Inc. v. Iqtel, Inc., 124 F.3d 1366, 1373 (10th Cir. 1997). This court agrees that a filtration analysis is not applicable in the present case, because of the Ninth Circuit's holdings in MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 517-519 (9th Cir. 1993), and Triad Systems Corp., 64 F.3d at 1335.

In MAI Systems Corp., the Ninth Circuit held that a "copying" for purposes of copyright law occurs when a computer [**13] program is transferred from a permanent storage device to a computer's RAM. The court explained that a company's loading of copyrighted computer software onto the memory of its central processing unit causes a copy to be made. MAI Systems Corp., 991 F.2d at 518. In the absence of the express permission of the copyright owner, such an act constitutes copyright infringement. Id. The district court in MAI Systems Corp. did not perform a filtration analysis because the entire copyrighted operating system had been used in the accused's computer.
Further, in Triad Systems Corp. the Ninth Circuit took the MAI Systems Corp. holding a step farther. The Ninth Circuit explained that when an entire computer software program is copied, there is no doubt that protected elements of the software were copied. Triad Systems Corp, 64 F.3d at 1335 citing Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1525 (9th Cir. 1992). In the wholesale copying of a copyrighted operating system, a filtration analysis is not necessary. Id.
The present case is indistinguishable from MAI Systems Corp. and Triad Systems Corp. Connectix concedes that the Sony BIOS is an operating [**14] system for a [*1218] computer. Also, Connectix admits that it copied Sony's BIOS in its entirety. The primary engineers of the VGS testified to this fact in their depositions. Two complete "base" copies were made of the Sony BIOS -- one was allegedly downloaded from the Internet, and the other came from the ROM chip inside the PlayStation console. It is this admitted wholesale copying of the protected Sony BIOS which constitutes a "copy" under the Copyright Act. And the Connectix engineers admitted that they used the copies to develop the emulator of Sony's hardware, and to gradually convert Sony's code to their own code.

Defendant has submitted supplemental declarations of their engineers, which were made after their depositions were taken. Defendant says that the later declarations are to "put [their] responses to [plaintiff's counsel's] questions in context for the Court, because the answers could be misleading otherwise." The court has not attributed much weight to those supplemental declarations. The declarations directly contradict the engineers' deposition testimony. In their supplemental declarations, both engineers make retractions of their deposition testimony or provide [**15] placating explanations which defuse their testimony. But it is their deposition testimony which is most significant. See e.g. Radobenko v. Automated Equip. Corp., 520 F.2d 540, 544 (9th Cir. 1975) (a party cannot create an issue of fact in a motion for summary judgment by a subsequent declaration contradicting his or her own deposition testimony).

Connectix argues that it had to copy and run the entire Sony BIOS "to understand" and "to study" the BIOS' functional elements. This argument is misplaced in the present step in the analysis. That is, Connectix' reasons for its copying and use of the Sony BIOS involve an alleged defense, which only becomes relevant in the later "fair use" defense analysis. At this stage of the motion, Connectix admits to copying and using the entire Sony BIOS. This is unlawful copying under the Copyright Act. In light of this, there is no doubt that protectable material was copied by Connectix. Sony has shown a likelihood of success as to its prima facie case.

VI.

This conclusion however does not end the court's analysis. Even though Sony has established a strong showing of copyright infringement, Connectix has asserted a "fair use" defense under 17 [**16] U.S.C. § 107.

Fair use is an equitable rule requiring a balancing of multiple factors "in light of the purposes of copyright." Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 578, 127 L. Ed. 2d 500, 114 S. Ct. 1164 (1994). The fair use defense "permits courts to avoid rigid application of the copyright statute when, it would stifle the very creativity which that law is designed to foster." Dr. Seuss Enterprises, L.P., 109 F.3d at 1399, quoting Iowa State Univ. Research Found., Inc. v. American Broadcasting Cos., 621 F.2d 57, 60 (2nd Cir. 1980). The burden of proof on the fair use defense is on Connectix. Acuff-Rose Music, Inc., 510 U.S. at 590; see also Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 107 (2nd Cir. 1998) (fair use is an affirmative defense to a claim of infringement, the burden of proof is on its proponent).

There are four factors to be considered and weighed by the court in determining if a fair use defense exists in a given case: (1) the purpose and character of the accused use; (2) the nature of the copyrighted work; (3) the importance of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the accused's [**17] use on the potential market for or value of the copyrighted work. See 17 U.S.C. § 107.

Sony initially argues that Connectix is barred from asserting fair use as a defense because it has acted in "bad faith" with regards to its development of the VGS. Adobe Systems Inc. v. Southern Software, [*1219] Inc., 1998 U.S. Dist. LEXIS 1941, *18, 45 U.S.P.Q.2D (BNA) 1827 (N.D.Cal. 1998). Most of Sony's arguments regarding Connectix' "bad faith" arise from Connectix' alleged use of improperly downloaded confidential and proprietary Sony documents from the Internet. Sony argues that Connectix admittedly made multiple copies of the Sony BIOS for months during its development of VGS, starting from the bootleg copies found on the Internet. Sony concludes that intermediate copying may be fair use only if the user has copied an authorized copy of the original work.

This issue is not relevant or necessary to the present motion. Sony has amended its complaint to allege the improper use of the material downloaded from the Internet, and will apparently argue that it is a ground for a further motion for a preliminary injunction. But the record is presently incomplete on this issue. And the court need not [**18] now address it for purposes of the present motion. The court therefore examines the four fair use factors. In that context, it is clear that defendant's copying and use of the BIOS from the Sony PlayStation was not authorized:

(1) The first factor is the purpose and character of the use, and whether the use is for a commercial purpose. The central purpose of this inquiry is to see whether the new work merely "supersedes the objects" of the original creation or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message. Acuff-Rose Music Inc., 510 U.S. at 579. It asks whether and to what extent the new work is "transformative." Id. The fact that copying is for a commercial purpose weighs against a finding of fair use. Sega, 977 F.2d at 1522 citing Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 562, 85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985). However, the presumption of unfairness that arises in such cases can be rebutted by the characteristics of a particular commercial use. Id.

Sony argues that Connectix' copying and use of the BIOS was for a purely commercial purpose. [**19] Connectix developed VGS to directly compete with the PlayStation. This is demonstrated by the fact Connectix markets its product as a substitute for PlayStation. VGS has the intended purpose of rivaling the PlayStation. Sony also argues that the VGS is not a transformative work. Connectix used the Sony BIOS to develop a product which does the same thing as a PlayStation. VGS is made to be a replacement for Sony's PlayStation.

In response, Connectix argues that it did not copy the BIOS for a direct commercial purpose; i.e., Connectix never sold or distributed a version of the VGS that contained the Sony BIOS. This argument is insufficient. While Connectix' final product does not contain any copyrighted code, Connectix demonstrated and promoted its "substitute" PlayStation product with Sony's BIOS in the VGS prototype. And it used Sony's BIOS to build both its hardware emulator and its own code.
Connectix argues that the VGS is transformative because it operates on a different platform -- a computer instead of a television. But the VGS supplants Sony's prior invention. Connectix concedes that the VGS contains the same components as a PlayStation. The VGS does not do anything [**20] new, anything different, or anything unique from the PlayStation. It plays PlayStation games on a visual platform. A computer monitor and a television screen are interchangeable for purposes of this analysis.

Finally, Connectix contends that its activities are identical to those of Accolade in Sega. Accolade developed video games that were compatible with Sega's game platform. Here, Connectix argues that it developed a game platform that is compatible with Sony's video games. This case is distinguishable from Sega. In Sega, Accolade had made copies of Sega's video game [*1220] programs in the process of reverse-engineering them solely in order to figure out the requirements for compatibility with Sega's game platform. Sega, 977 F.2d at 1514-1515. Accolade then developed its own games to operate for the Sega platform. Accolade created something new. Here, Connectix is not creating its own product to be used in conjunction with Sony's PlayStation. Rather, VGS is a substitute product. It is undisputed that VGS was developed as a replacement for PlayStation.
Based on the evidence before the court, the first fair use factor favors Sony.

(2) The second factor is the [**21] nature of the copyrighted work. This factor recognizes that creative works are "closer to the core of intended copyright protection" than informational and functional works, "with the consequence that fair use is more difficult to establish when the former works are copied." Acuff-Rose Music Inc., 510 U.S. at 586.

Sony argues that while its BIOS constitutes a computer program, it is nevertheless a creative work. It is creative, Sony explains, because of how it is structured; i.e., how the programmer decided to express the elements. Connectix copied that expression. Connectix argues that this factor favors it, because Sony's BIOS is an invisible, utilitarian operating system and is afforded a lower level of protection. Sega, 977 F.2d at 1520. Further, Connectix contends that it "had to" copy the Sony BIOS to access the unprotected elements. This is permitted by Sega. Id.

In Sega the Ninth Circuit stated that because of the nature of computer programs, disassembly of computer program code could be fair use if it was for the purpose of studying the unprotectable ideas contained in the copyrighted software, and if it was the only way to gain access to and [**22] understand those ideas. Id. at 1527. However, Connectix' engineers have admitted that they disassembled Sony's code not just to study the concepts. They actually used that code in the development of defendant's product.

Based on the deposition testimony of Connectix' primary engineers of the VGS, this factor favors Sony. Connectix attempts to bring its actions within Sega by submission of the later declarations of its engineers and the declaration of an expert. The court has discussed the supplemental declarations above. Defendant's expert did not consider the depositions of the engineers in formulating his opinions. And his opinions cannot contradict the engineers' statements of fact as to what they did.

(3) The third factor is the amount and substantiality of the portions used. Any conclusion with respect to this factor requires analysis of both the quantity and quality of the alleged infringement.
The record is that Connectix copied and used all of Sony's BIOS in the development of the VGS. Sony contends that this wholesale copying militates against finding fair use. Marcus v. Rowley, 695 F.2d 1171, 1176 (9th Cir. 1983).

Connectix argues that the court should [**23] give little weight to the extent of intermediate copying, because the final product contains no copyrighted materials. Sega, 977 F.2d 1510 at 1526-27 (where the ultimate (as opposed to direct) use is limited, the factor is of little weight).

However, Connectix' copying of the Sony BIOS was both quantitatively and qualitatively substantial. First, Connectix admits to copying the entire Sony BIOS. Connectix also admits that it used the BIOS daily while it was developing the hardware emulation portion of its VGS. The Sony BIOS was never disassembled during this time. Rather, it was used its entirety. Further, Connectix admits that it used the whole Sony BIOS when it was first developing its own BIOS. It is undisputed that the Sony BIOS is the vital component of the PlayStation console. The BIOS is what makes the PlayStation function. Here, Connectix copied and [*1221] used this core component in its entirety. Taking the heart of the original, and making it the heart of a new, is to purloin a substantial portion of the essence of the original. Acuff-Rose Music Inc., 510 U.S. at 587.

The record demonstrates both substantial quantitative and qualitative copying. The third factor favors Sony. [**24]

(4) The fourth factor is the effect of the use upon the potential market for or value of the copyrighted work. This factor requires courts to consider not only the extent of market harm caused by the actions of the alleged infringer, but also "whether unrestricted and widespread conduct of the sort engaged in by the defendant...would result in a substantially adverse impart on the potential market" for the original. Acuff-Rose Music, Inc., 510 U.S. at 590 quoting 3 M. Nimmer & D. Nimmer, Nimmer on Copyright § 13.05[A][4], p. 13-102.61 (1993).

Both parties submit expert declarations from economists regarding the market impact of the VGS on Sony. The parties agree that Sony is being harmed by the sales of Connectix' emulator. Both experts agree that Sony has, and will, lose sales of its PlayStation console. To the extent an individual purchases a VGS to play PlayStation games, those consumers will be less likely to buy PlayStation consoles. Connectix markets its VGS emulator as a substitute for the PlayStation console. To the extent that such a substitution occurs, Sony will lose console sales and profits.

Connectix's expert attempts to rebut this conclusion by focusing [**25] on possible benefits to Sony from the VGS. Defendant's expert contends that while Sony may lose console sales, this will have no financial impact on Sony. He explains that VGS will in fact increase profits for Sony because it will increase Sony's revenues from the sale of games and the licensing of game software. However, the arguments presented by Connectix' expert are not supported by evidence that Sony does not make substantial profits from its console sales.

VII.

The court concludes that Sony has shown a high probability of success on its copyright infringement claim. And Sony has shown sufficient evidence of irreparable injury.

VIII.

Connectix raises copyright misuse as a defense. However, at the present time, defendant has not presented a sufficient record on which this court could make any decision in defendant's favor.
Connectix also argues that its use of the Sony BIOS is protected under Section 117(1) of the Copyright Act. Section 117 allows the lawful owner of a copy of a computer program to copy or adapt the program if the new copy or adaptation "is created as an essential step in the utilization [**26] of the computer program in conjunction with a machine and...is used in no other manner." 17 U.S.C. § 117(1). Connectix contends that it "legitimately downloaded the Sony BIOS from a PlayStation it had purchased as an essential step in using the Sony BIOS with a personal computer."
Connectix's argument is not the law in this Circuit. In Sega, 977 F.2d at 1520, the Ninth Circuit rejected the use of Section 117 to excuse intermediate copying by disassembly. The court stated that "Section 117 does not purport to protect a user who disassembles object code, converts it from assembly into source code, and makes printouts and photocopies of the refined source code version." Id.

IX.

Sony also contends that it is likely to prevail on its trademark dilution claim, because Connectix admits that PlayStation [*1222] games do not run as well on the VGS as they do on a Sony PlayStation. 15 U.S.C. § 1125.
The Federal Trademark Dilution Act provides that

The owner of a famous mark shall be entitled...to an injunction against another person's commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality [**27] of the mark.

15 U.S.C. § 1125(c)(1).
In order to prove a violation of Section 1125(c), Sony must show that (1) its mark is famous; (2) Connectix is making a commercial use of the mark in commerce, (3) Connectix' use began after the mark became famous; and (4) Connectix' use of the mark dilutes the quality of the mark by diminishing the capacity of the mark to identify and distinguish goods and services. 15 U.S.C. § 1125(c)(1).

Connectix concedes that Sony's "PlayStation" and "Sony Computer Entertainment" trademarks are famous and distinctive, and that defendant's use began after these marks became famous. Thus, the court only addresses the second and fourth factors.

The evidentiary record demonstrates that Connectix is making commercial use of the PlayStation mark in commerce. Connectix markets the VGS as a PlayStation emulator -- an almost perfect substitute for the Sony PlayStation console. The front of the box in which VGS is packaged uses the PlayStation logo. It states "Play many popular PlayStation games on your Mac." Further, the primary business objective of Connectix is to sell the VGS, which allows consumers to play PlayStation games on their computers. VGS sells [**28] on the basis of the popularity and value of Sony's PlayStation mark.

Dilution is defined as the "lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of (1) competition between the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake or deception." 15 U.S.C. § 1127.

In authorizing courts to enjoin dilution, Congress intended "to protect famous marks from subsequent uses that blur the distinctiveness of the mark or tarnish or disparage it." H.R. Rep. No 374, 104th Cong., 1st Sess. 3 (1995), Toys "R" Us Inc. v. Akkaoui, 1996 U.S. Dist. LEXIS 17090, *7, 40 U.S.P.Q.2D (BNA) 1836 (N.D.Cal. 1996). "Blurring" occurs when a defendant uses a plaintiff's trademark to identify the defendant's goods or services, creating the possibility that the mark will lose its ability to serve as a unique identifies of the plaintiff's product. Panavision International, L.P. v. Toeppen, 141 F.3d 1316, 1326 fn 7 (9th Cir. 1998) citing Ringling Bros. Barnum & Bailey, Combined Shows, Inc. v. B.E. Windows, Corp., 937 F. Supp. 204, 209 (S.D.N.Y. 1996). "Tarnishment" occurs when a famous mark is improperly [**29] associated with an inferior or offensive product or service. Id.

Sony argues that its "PlayStation" mark is being tarnished because some PlayStation games do not function as well on VGS as they do on a PlayStation console. Sony has presented evidence that some games run slower, skip screens, have less control responsiveness, and have poorer graphics and sound. Sony argues that even though the VGS contains disclaimers about the playability of PlayStation games, consumers are confused about the source of their unsatisfactory game playing experience using the VGS. It is this confusion which is allegedly tarnishing the high quality reputation of the "PlayStation" mark.

In its defense, Connectix argues that Sony's dilution claim is rebutted by the "overwhelmingly positive reviews" of VGS by actual game players. As evidence, Connectix has submitted various documents, most of which have been downloaded from the Internet. Sony has objected [*1223] to this evidence because the "positive reviews" are from anonymous, Internet postings and constitute hearsay. Sony's objection is well taken. Connectix' evidence consists of various, unidentified Internet reports on the VGS. Some of the reports do [**30] not have an identified author. Other reports do not address the issues raised in the motion and thus have limited relevance.

There is one document which defendant submitted but which is detrimental to defendant's position. It is the printout from the "macinsearch" web-page. While the document is not identified or authenticated, it appears to consist of reviews from VGS consumers who have played various PlayStation games on their VGS. Some of these reviews are positive in nature. However, the majority of the reviews indicate a dissatisfaction with the game playing on VGS. What is even more relevant about these negative reviews is that they indicate that the game players are associating the poor performance with the PlayStation game, and not with the VGS. For example, a game player reviewing the FIFA '98 "PlayStation" game stated "this game work but the game skipped frames which made it difficult to play. I would rate this game marginally playable." Another game player reviewing the same game stated "the game plays like a pig, really slow and jerky with grainy, stuttering, unintelligible audio." As for NHL '98, the reviewer stated "this game worked but the game [**31] skipped frames which made it difficult to play. I would rate this game marginally playable." As for NHL '99, the reviewer stated "the game freezes whenever a goal is scored." (In all cases, the emphasis is added).

While Connectix admits that poor performance of a PlayStation game is due to the VGS and not to the game, it is evident from the reviews that game players do not comprehend this distinction. These reviews, coupled with Sony's surveys, demonstrate that the inferior quality of game performance with the VGS is tarnishing the PlayStation high-quality game trademark.

Connectix also argues that the "minor problems" allegedly encountered by running PlayStation games on VGS, even if true, do not rise to the level necessary for a claim of trademark dilution. Connectix contends that an unlawful tarnishment requires a showing that the trademark was used in an "unwholesome or degrading context." E.g. Minnesota Mining and Manufacturing Co. v. Rauh Rubber, Inc., 943 F. Supp. 1117, 1132 (D.Minn. 1996) aff'd 130 F.3d 1305 (8th Cir. 1997).
However, the case law in the Ninth Circuit holds that "tarnishment occurs when a famous mark is linked to products of poor quality [**32] or is portrayed in an unwholesome manner." See Panavision Int'l L.P. v. Toeppen, 945 F. Supp. 1296, 1304 (C.D.Cal. 1996) aff'd Panavision Int'l L.P. v. Toeppen, 141 F.3d 1316, 1325 (9th Cir. 1998) (emphasis added). The record before the court demonstrates that consumers are associating Sony's "PlayStation" mark with the VGS, and are getting inferior results. Sony has established a likelihood that Connectix' VGS dilutes its PlayStation trademark. And irreparable injury is presumed.

Since Sony has made a strong showing as to its copyright and trademark claims, and of irreparable injury, the court need not discuss Sony's claim of defendant's alleged circumvention of Sony's technological protection measures.

XI.

The remaining issue is the scope of the preliminary injunction to be issued.
Sony seeks to enjoin the sale of VGS, both for Macintosh and Windows, based on Connectix' intermediate infringement. Sony argues that it is irrelevant that the final product does not actually contain any Sony BIOS, that an injunction on the sale of VGS is proper in light of the [*1224] policies underlying the Copyright Act, and that if an injunction does not issue Connectix will escape the consequences [**33] of its infringing conduct.

In response, Connectix argues that the court has no authority to enjoin its sale of VGS because the product admittedly does not contain any copied code. Defendant cites Kepner-Tregoe, Inc. v. Leadership Software, Inc., 12 F.3d 527, 533 (5th Cir. 1994). However, that case is distinguishable in light of Ninth Circuit law. The Ninth Circuit has held that

...intermediate copying of computer object code may infringe the exclusive rights granted to the copyright owner in section 106 of the Copyright Act regardless of whether the end product of the copying also infringers those rights.

Sega, 977 F.2d at 1519 (emphasis added). That case does not speak directly to the issue of the appropriate remedy, but it does focus on the nature of the wrong.

While it is undisputed that VGS does not contain any copyrighted material, in a copyright infringement claim based on intermediate infringement, the composition of the end product is not the sole test. The infringing conduct is based on how the end product was developed. Here, the evidence is clear that Connectix unlawfully copied and used Sony's BIOS to develop its VGS. Thus, [**34] the only effective remedy for such intermediate infringement is to enjoin the end product. If not, an intermediate infringer could always avoid the consequences of illegal copying and use by editing the protected code out of its final product.

While such a broad injunction could have a serious effect on defendant's business, the Ninth Circuit has recognized that a defendant "cannot complain of the harm that will befall it when properly forced to desist from its infringing activities." Triad Systems Corp., 64 F.3d at 1338.
Therefore, this court believes that it has the authority to enjoin, and should enjoin, the retail sale of VGS under Sega, 977 F.2d at 1519.

Connectix is therefore enjoined and restrained, pending the trial of this action: (1) From making copies of or using Sony's BIOS, or derivative works based upon or incorporating Sony's BIOS, as a step in developing VGS for Windows. (2) From selling or distributing VGS for either Macintosh or Windows-based computer systems. (3) Connectix is ordered to deliver to the court, in the care of the Clerk of the Court, all copies of Sony's BIOS and all copies of derivative works based upon or incorporating Sony's BIOS. (4) This [**35] order shall bind the parties, their officers, agents, servants, employees, bind the parties, their officers, agents, servants, employees, and attorneys, and all those who would act in concert with them after receiving actual notice of this order. Fed. R. Civ. P. 65(d).

Finally, Rule 65(c) requires plaintiff to post a security "in such sum as the court deems proper." Fed. R. Civ. P 65(c). This generally means an amount sufficient to cover defendant's incidental and consequential costs arising from the injunction. Neither party has addressed the issue of a bond amount in this preliminary injunction motion. Sony was required to post a bond in the amount of $ 100,000 in conjunction with the court's order on Sony's second application for a temporary restraining order. However, in light of the scope of the court's present order, the court will consider raising the amount of bond on motion by defendant.

A status conference will be held on May 7, 1999, at 11:00 a.m., to consider the scheduling of further proceedings in the case.
IT IS SO ORDERED.
DATED: April 20, 1999.
CHARLES A. LEGGE
United States District Judge

SONY COMPUTER ENTERTAINMENT, INC., a Japanese corporation; SONY COMPUTER ENTERTAINMENT AMERICA, INC., a Delaware corporation, Plaintiffs-Appellees, v. CONNECTIX CORPORATION, a California corporation, Defendant-Appellant.

OPINION:

I. Background

A. The products

B. Reverse engineering

C. Connectix's reverse engineering of the Sony BIOS

D. Procedural history

II. Discussion

A. Fair use

1. Nature of the copyrighted work

2. Amount and substantiality of the portion used

3. Purpose and character of the use

4. Effect of the use upon the potential market

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - B. Tarnishment

CONCLUSION

SONY COMPUTER ENTERTAINMENT INC., et al., Plaintiffs, v. CONNECTIX CORPORATION, Defendant.

OPINION:

I.

II.

III.

IV.

V.

VI.

VII.

VIII.

IX.

X.

XI.

- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
B. Tarnishment