Reverse engineering in software contracts: legal analysis and stakeholder implications

Contract Law (Legal, Ethical & Social Issues in Computing)

Contract Law

The contemporaneous society is evolving at a rapid pace and most of the emergent changes are derived from the technological background. The hi-tech innovations play a pivotal part in the way we now live our lives and the domain is subjected to numerous modifications. One particular change affecting the it industry relates to the legislation that governs it. This was rather scarce in the beginning, but efforts have been made to improve the legal standards of conducing it operations and using it products.

Despite the steps made in the direction of better legislating Information Technology, breaches still occur. The most common breaking of law in it refers to piracy, or the unauthorized usage of software products. The need to answer to this problem has generated endless debates between it moguls, some beginning to charge more for their products, whilst others starting to create their products in open source code. Reverse engineering, however not considered equal to piracy, has also generated disputes.

The federal and administrative powers have increased their efforts to regulate the field and their most outstanding result was the composition of the Principles of the Law of Software Contracts. The aim of this paper is to analyze the specifications in the document relative to reverse engineering. Otherwise put, the paper will assume the situation of a software producer which stated in his contracts to providers that he bans all forms of reverse engineering. The question at the basis of the analysis is "Under what conditions should a customer or researcher or journalist be allowed to reverse engineer a computer program?"

2. Outline of Analysis and Arguments

In answering the question posed in the previous section, various sources will be used. Some of the sources cite articles in law journals and other speciality journals. The American Law Institute will also be addressed. Finally, websites will be looked at.

The first step in addressing the issue identified in the abstract is that of properly understanding the concept of reverse engineering. Once this is achieved, the analysis will move to explore to effects of RE upon various categories of stakeholders, such as organizational employees, business partners, customers or stockholders.

With the bases of the study having been set, the paper will continue by revealing the legislative stipulations in relation to reverse engineering. Given that the legislation is still unable to perfectly regulate the system, its application will be best revealed by a look at three real cases which appeared before the court. Their results are different and based on the particular circumstances of each situation.

A full comprehension of the topic will be achieved with the analogy between software RE and two other scenarios. The findings indicate that while reverse engineering is often frowned upon, it is a necessary means of achieving development in the it industry. The paper comes to an end with a section on conclusions and recommendations.

3. Stakeholders

Reverse engineering affects a wide variety of individuals, which interact with the company, affect the company or are affected by it. However, before being able to identify the categories of stakeholders and the roles they play in reverse engineering, one should first clearly comprehend the concept. In a simplistic formulation, reverse engineering refers to the thorough analysis of a product, with the purpose of becoming accustomed with the principles at its basis. Once this is achieved, the individual will proceed to creating a new item, which does not copy the specifications in the initial program, but is based on its underlying concepts. Pamela Samuelson and Suzanne Scotchmer define reverse engineering as "the process of extracting know-how or knowledge from a human-made artefact." A more complex definition is offered by Patricia Zimmermann. She states that "reverse engineering dismantles technologies like cars or computer codes to understand how their parts articulate. It cracks codes and invents new forms, always emphasizing building something new out of the structures of the old."

Various categories of stakeholders are influenced in the process of reverse engineering. A first such category is composed of the organizational employees, who strive to create the initial software application. Their efforts are disconsidered when a new product based on their ideas is launched within the market. Foremost, since the company may lose its competitive edge, employees could face the risks of losing their jobs. Then, as the product obtained through reverse engineering would generate additional competition, sales could decrease and negatively affect the overall profitability. This would harmfully impact the stakeholders, who would retrieve fewer financial benefits. Also, business partners could lose their trust in the organization who has failed to protect itself. The effects upon the customer seem however positive as he would get access to a wider product palette and, given the increased competition, the products available within the market would enjoy superior quality and lower retail prices.

5. The Cases

As it has been stated in the previous sections, the legislation in terms of reverse engineering has evolved and the practice is generally encouraged as a means of development. In the it industry however, the actual laws are scarcer and the disputes often end up in courts.

Brooktree Corp vs. Advanced Micro Devices Inc.: The first of the reverse engineering cases to reach the court room occurred in 1989, when Brooktree Corp sued Advanced Micro Devices Inc. The accusations revolved around the fact that Advanced had thoroughly studied and copied 23 up to 30% of Brooktree's colour graphics palette chip. They argued that this in fact represented the core of their product. The judge seemed in favour of Advantage and believed that there were major differences between the two products. Despite this however, the jury ruled in favour of Brooktree Corp.

Creative Technology Ltd. Vs. Aztech Systems PTE Ltd.: Creative Technology had launched the Sound Blaster PC Sound Card. Aztech wanted to produce a similar product and with this aim, they purchased and studied Creative's gadget. The resulting product, a competing substitute of the Sound Blaster, was only 4% identical with the initial one, but the comparison of the two indicated that the latter was achieved by copying some elements of the first. The court ruled infringement had occurred on the part of Aztech Systems PTE Ltd.

News Datacom Ltd. Vs. Satellite Decoding Systems: The object of the case was a Smart Card with a chip and a software application. It was initially launched by News Datacom and Satellite Decoding had launched a similar product, based on the same functions. News Datacom was unable to provide evidence of reverse engineering on the smart card and argued that the complexity of the device was the reason for it. However, the similarities between the two products, the plaintiff believed, were sufficient evidence that reverse engineering had indeed occurred. The presiding judge disagreed with them and "commented that if reverse engineering was possible, then they should reverse engineer the alleged infringement to obtain evidence of infringement."

6. Analogies

The situation assumed in the first section of the paper, that of a software product which could or could not be reverse engineered by a customer, researcher or journalist, can be considered through the lens of other situations as well. For starters, take the case of the remote control. The gadget was created decades ago and along the years, it has become of vital importance for various activities (watching television, listening to music or operating machines). Given that the first manufacturer of remote controls would have been the only one with the right to produce it, the segment would have evolved at an extremely slow pace. Through reverse engineering however, numerous other producers began to manufacture the item and the customer is today able to choose from a wide variety of products those which best fit their needs.

The second example is that of Microsoft, the it giant. If the company's products came to be subjected to reverse engineering, the company would lose its prestige, its competitive position and consequently the money of the investors and the jobs of its employees.

The first situation presents the benefits of reverse engineering with the aid of a remote control analogy. The second sees the downside of RE through the analogy with Microsoft. These two analogies perfectly integrate in the current situation and legislation relative to reverse engineering. The reason behind this statement is that, while the analogies present different situations, they both lead to the same conclusion - the status of reverse engineering is still unstable and a wholly integrated stand has yet to be taken.

7. Conclusions and Recommendations

The current legislation has evolved significantly from its past stages, but it is still far from perfectly regulating the it industry. Reverse engineering is one of the topics which generated tumultuous debates. A clear law on allowing and prohibiting it has yet to be issued. Most times, it is up to the buyer and seller to stipulate their RE demands in an additional clause. When one of the parties breaks the agreement, the court decides based on the circumstances of each case. The courts often use the copyright laws to settle reverse engineering cases. Generally speaking, the buyer of the software application, the journalist or the researcher is able to break the RE ban imposed by the seller when the latter does not own a patent for the software application; when the RE process would not lead to the creation of a competitive product, or when the information contained in the initial project is necessary and not available in other sources.

The above statements are generally true within the United States, but most of the other countries have yet to address the matter of reverse engineering. The varying stands that each international player takes depend directly on the country's levels of technological development. Given then these diverse levels of technological advancements throughout the globe, the main recommendation is for reverse engineering to not be governed by the World Trade Organization, but by each individual player.

Harman, G.C., Di Penta, M., New Frontiers of Reverse Engineering, 2007 Future of Software Engineering, IEEE Computer Society

Samuelson, P., Scotchmer, S., the Law and Economics of Reverse Engineering, Yale Law Journal, Vol. 111, 2002

Zimmermann, P.R., Reverse Engineering: Dismantling and Customizing for the New Global Media Ecology, Afterimage, Vol. 34, 2006

Principles of the Law of Software Contracts, Council Draft No. 3, the American Law Institute, November 7, 2008

Mauk, J.E., the Slippery Slope of Secrecy: Why Patent Law Preempts Reverse-Engineering Clauses in Shrink-Wrap Licenses, William and Mary Law Review, Vol. 43, 2001

Frequently Asked Questions and Answers about Reverse Engineering, Chilling Effects, http://www.chillingeffects.org/reverse/faq.cgi#QID195lastaccessed on February 4, 2009

The American Law Institute, 2008

Newby, T.G., What's Fair Here Is Not Fair Everywhere: Does the American Fair Use Doctrine Violate International Copyright Law? Stanford Law Review, Vol. 51, 1999

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