Sega v. Accolade

In March 1984, Sega Enterprises Ltd. was purchased by its former CEO, David Rosen, along with a group of backers. Hayao Nakayama, one of these backers, was named the new CEO of Sega. Following the crash of the arcade industry, Nakayama decided to focus development efforts on the home console market. To get around licensing, Accolade chose to seek an alternative way to bring their games to the Genesis by purchasing a console in order to decompile the executable code of three Genesis games and use it to program their new cartridges in a way that would allow them to disable the security lockouts that prevented playing of unlicensed games. As a result of the piracy and unlicensed development issues, Sega incorporated a technical protection mechanism into a new edition of the Genesis released in 1991, referred to as the Genesis III. This new variation of the Genesis included code known as the Trademark Security System (TMSS), which, when a game cartridge was inserted into the console, would check for the presence of the string "SEGA" at a particular point in the memory contained in the cartridge. If and only if the string was present, the console would run the game, and would briefly display the message: "Produced by or under license from Sega Enterprises LTD." This system had a twofold effect: it added extra protection against unlicensed developers and software piracy, and it forced the Sega trademark to display when the game was powered up, making a lawsuit for trademark infringement possible if unlicensed software were to be developed. Accolade learned of this development at the Winter Consumer Electronics Show in January 1991, at which Sega showed the new Genesis III and demonstrated it screening and rejecting an Ishido game cartridge. With more games planned for the following year, Accolade successfully identified the TMSS code. They later added this code to the games HardBall!, Star Control, Mike Ditka Power Football, and Turrican. ==Lawsuit==

On October 31, 1991, Sega filed suit against Accolade in the United States District Court for the Northern District of California, on charges of trademark infringement and unfair competition in violation of the Lanham Act. Copyright infringement, a violation of the Copyright Act of 1976, was added a month later to the list of charges. In response, Accolade filed a counterclaim for falsifying the source of its games by displaying the Sega trademark when the game was powered up. The case was heard by Judge Barbara A. Caulfield. Accolade's case was further hurt by a presentation by a Sega engineer named Takeshi Nagashima, who showed two Sega game cartridges that were able to run on the Genesis III without the trademark-displaying TMSS, and offered them to Accolade's defense team but would not reveal how that was possible. Ultimately, this would result in Accolade's defeat on April 3, 1992, when Judge Caulfield ruled in favor of Sega and issued an injunction prohibiting future sales by Accolade of Genesis-compatible games incorporating the Sega message or using the results of the reverse engineering. Almost a week later, Accolade was also required by the court to recall all of their Genesis-compatible games. ==Appeal==

The decision in the district court ruling had been very costly to Accolade. According to Accolade co-founder Alan Miller, "Just to fight the injunction, we had to pay at least half a million dollars in legal fees." Amicus briefs were also submitted by the American Committee for Interoperable Systems, the Computer and Business Equipment Manufacturers Association, and copyright law professor Dennis S. Karjala from Arizona State University. The judges in the case had decided that Sega had violated this provision of the act by utilizing its trademark to limit competition for software for its console. The court's written opinion followed on October 20 and noted that the use of the software was non-exploitative, despite being commercial, and that the trademark infringement, being required by the TMSS for a Genesis game to run on the system, was inadvertently triggered by a fair use act and the fault of Sega for causing false labeling. ==Settlement==

On January 8, 1993, with Sega's petition for a rehearing still pending, the court took the unusual step of amending its October 20, 1992 opinion and lifted the injunction preventing Accolade from developing or selling Genesis software. As Accolade's counterclaim for false labeling under the Lanham Act was declined by the Ninth Circuit, this essentially left "each party as free to act as it was before the issuance of preliminary injunctive relief" while the district court considered the counterclaim. The financial terms of the settlement were also not disclosed, although both companies agreed to pay their own legal costs. In an official statement, Sega of America chairman David Rosen expressed satisfaction with the settlement. According to Rosen, "This settlement is a satisfactory ending to what was a very complex set of issues. Not only are we pleased to settle this case amicably, we've also turned a corner in our association with Accolade and now look forward to a healthy and mutually beneficial relationship in the future." Accolade's Alan Miller expressed more excitement with the settlement and the opportunities it presented for the company, saying in his statement, "We are very pleased with the settlement, and we're excited about the new markets it opens to Accolade. Accolade currently experiences strong demand for its Sega Genesis products in North America and Europe. We will now be able to publish our products on the Sega Genesis and Game Gear systems throughout the world." Despite the settlement, however, Accolade had lost somewhere between $15 million and $25 million during the injunction period, according to Miller. ==Impact==

Sega v. Accolade has been an influential case in matters involving reverse engineering of software and copyright infringement, and has been cited in numerous cases since 1993. One such example of the precedent set by this case is Sony Computer Entertainment, Inc. v. Connectix Corporation, which was issued in 2000 by the Ninth Circuit, specifically cited Sega v. Accolade in deciding that reverse engineering the Sony PlayStation BIOS was protected by fair use and was non-exploitative. It was also the first time that the Lanham Act was interpreted to mean that confusion resulting from the placement of one's trademark on another work by means of a security program is the fault of the original registrant of the trademark. This aspect of the decision has received criticism as well, citing that although the functional principles are not protectable under copyright law, the TMSS code was protectable and by allowing reverse engineering of the TMSS as fair use, the decision had encouraged the copying of legally protected programs. ==See also==