Page:Sega Enterprises v. Accolade.pdf/13

 nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(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. 17 U.S.C. § 107. The statutory factors are not exclusive. Rather, the doctrine of fair use is in essence “an equitable rule of reason.” Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 560, 105 S.Ct. 2218, 2230, 85 L.Ed.2d 588 (1985) (quoting H.R.Rep. No. 1476, 94th Cong., 2d Sess. 65, reprinted in 1976 U.S.C.C.A.N. 5659, 5679). Fair use is a mixed question of law and fact. Id. “Where the district court has found facts sufficient to evaluate each of the statutory factors,” an appellate court may resolve the fair use question as a matter of law. Id.

In determining that Accolade’s disassembly of Sega’s object code did not constitute a fair use, the district court treated the first and fourth statutory factors as dispositive, and ignored the second factor entirely. Given the nature and characteristics of Accolade’s direct use of the copied works, the ultimate use to which Accolade put the functional information it obtained, and the nature of the market for home video entertainment systems, we conclude that neither the first nor the fourth factor weighs in Sega’s favor. In fact, we conclude that both factors support Accolade’s fair use defense, as does the second factor, a factor which is important to the resolution of cases such as the one before us.

With respect to the first statutory factor, we observe initially that the fact that copying is for a commercial purpose weights against a finding of fair use. Harper & Row, 471 U.S. at 562, 105 S.Ct. at 2231. However, the presumption of unfairness that arises in such cases can be rebutted by the characteristics of a particular commercial use. Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1152 (9th Cir.1986); see also Maxtone-Graham v. Burtchaell, 803 F.2d 1253, 1262 (2d Cir.1986), ''cert. denied'', 481 U.S. 1059, 107 S.Ct. 2201, 95 L.Ed.2d 856 (1987). Further “[t]he commercial nature of a use is a matter of degree, not an absolute….” Maxtone-Graham, 803 F.2d at 1262.

Sega argues that because Accolade copied its object code in order to produce a competing product, the Harper & Row presumption applies and precludes a finding of fair use. That analysis is far too simple and ignores a number of important considerations. We must consider other aspects of “the purpose and character of the use” as well. As we have noted, the use at issue was an intermediate one only and thus any commercial “exploitation” was indirect or derivative.

The declarations of Accolade’s employees indicate, and the district court found, that Accolade copied Sega’s software solely in order to discover the functional requirements for compatibility with the Genesis console—aspects of Sega’s programs that are not protected by copyright. 17 U.S.C. § 102(b). With respect to the video game programs contained in Accolade’s game cartridges, there is no evidence in the record that Accolade sought to avoid performing its own creative work. Indeed, most of the games that Accolade released for use with the Genesis console were originally developed for other hardware systems. Moreover, with respect to the interface procedures for the Genesis console, Accolade did not seek to avoid paying a customarily charged fee for use of those procedures, nor did it simply copy Sega’s code; rather, it wrote its own procedures based on what it had learned through disassembly. Taken together, these facts indicate that although Accolade’s ultimate purpose was the release of Genesis-compatible games for sale, its direct purpose in copying Sega’s code, and thus its direct use of the copyrighted material, was simply to study the functional requirements for Genesis compatibility so that it could modify existing games and make them usable with the Genesis console. Moreover, as we discuss below, no other method of studying those requirements was available to Accolade. On these facts, we conclude that Accolade copied