Shrink–Wrap Software Agreement Prohibiting Reverse Engineering Enforced by Federal Circuit

The U.S. Court of Appeals for the Federal Circuit, applying First Circuit law, has now held that a breach of contract claim involving an agreement not to engage in reverse engineering is not preempted by the Copyright Act and that the district court properly dropped the copyright damages as duplicative of the contract damages. The Federal Circuit also reversed a jury verdict of patent infringement, stating that in suit and, as properly construed, no reasonable jury could have found infringement of the patent claims. Bowers v. Baystate Technologies, Inc., No. 01-11082002 U.S. App. LEXIS 17184, at (Fed. Cir. Aug. 20, 2002).

The technology involved in Bowers’ patent is a template to improve computer aided design (CAD) software. The developers of Geodraft software, which utilizes Bowers’ template, obtained a registered copyright covering their software and licensed it to Bowers. Bowers sold a software product using a shrink-wrap license that prohibited reverse engineering. The ensuing lawsuit involved claims for copyright infringement, patent infringement and breach of contract. The jury found for Bowers on all three claims and awarded damages specific to each violation. The district court upheld the jury’s findings, but dropped copyright damages as duplicative of the contract damages.

On appeal, Baystate argued that the Copyright Act preempts the prohibition of reverse engineering in the contract. The Federal Circuit disagreed, holding that the additional elements of proof within the state law claim for breach of contract, such as mutual assent and consideration, rendered that claim qualitatively different from a copyright claim. The Federal Circuit did agree, however, that the breach of contract damages in this case arose from the same copying and included the same lost sales that formed the basis for the copyright damages. As a result, the court upheld the district court’s decision to drop the copyright damages as duplicative of the contract damages.

On the patent counts, the court held that the district court had erred in its claim construction. Based on the intrinsic evidence, i.e., the written description and reexamination prosecution history, the court found the scope of the claim to be narrower than that found by the district court. Specifically, the court found that based on arguments made during a reexamination distinguishing over certain prior art, Bowers was precluded from asserting a broad, i.e., plain meaning, construction of the disputed term.

Although a change in claim construction at the appellate level generally necessitates a remand to the district court to consider new factual issues, the Federal Court found that under the correct construction, no reasonable jury could find that Baystate literally infringed the asserted patent. Because Bowers did not assert infringement under the doctrine of equivalents, the court simply reversed the finding of patent infringement.