Frostbyte's 1980s DOS Shareware Collection/floppyshareware.zip/floppyshareware/GLEN/SHRINK.ZIP/QUAID.DOC

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               Vault  Corporation, Plaintiff-Appellant, v.  Quaid
                      Software Limited, Defendant-Appellee

                                  No. 87-3516

              UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

          847 F.2d 255; 1988 U.S. App. LEXIS 8456; 7 U.S.P.Q.2D (BNA)
                       1281; Copy. L. Rep. (CCH) P26,293


                                 June 20, 1988

PRIOR HISTORY:   [*1]

   Appeal from the United States District Court for the Eastern District of
Louisiana.

COUNSEL: CHAFFE, McCALL, PHILLIPS, TOLER & SARPY, Kenneth J. Servay, Jarrell E.
Godfrey, Jr., Attorneys for Appellant

   BALDWIN & HASPEL, David Banowetz, Jr., William E. Wright, Jr., John P.
Manard, Jr., Attorneys for Appellee

OPINIONBY: REAVLEY

OPINION: Before REAVLEY, KING and SMITH, Circuit Judges.

   REAVLEY, Circuit Judge:

   Vault brought this copyright infringement action against Quaid seeking
damages and preliminary and permanent injunctions. The district court denied
Vault's motion for a preliminary injunction, holding that Vault did not have a
reasonable probability of success on the merits. Vault Corp. v. Quaid Software
Ltd., 655 F.Supp. 750 (E.D.La.1987). By stipulation of the parties, this ruling
was made final and judgment was entered accordingly. We affirm.

   I

   Vault produces computer diskettes under the registered trademark "PROLOK"
which are designed to prevent the unauthorized duplication of programs placed on
them by software computer companies, Vault's customers. Floppy diskettes serve
as a medium upon which computer companies place their software programs. To use
a program, a purchase loads the diskette into the  [*2]   disk drive of a
computer, thereby allowing the computer to read the program into its memory. The
purchaser can then remove the diskette from the disk drive and operate the
program from the computer's memory. This process is repeated each time a program
is used.

   The protective device placed on a PROLOK diskette by Vault is comprised of
two parts: a "fingerprint" and a software program ("Vault's program"). n1 The
"fingerprint" is a small mark physically placed on the magnetic surface of each
PROLOK diskette which contains certain information that cannot be altered or
erased. Vault's program is a set of instructions to the computer which interact
with the "fingerprint" to prevent the computer from operating the program
recorded on a PROLOK diskette (by one Vault's customers) unless the computer
verifies that the original PROLOK diskette, as identified by the "fingerprint",
is in the computer's disk drive. While a purchaser can copy a PROLOK protected
program onto another diskette, the computer will not read the program into its
memory from the copy unless the original PROLOK diskette is also in one of the
computer's disk drives. The fact that a fully functional copy of a program
[*3]   cannot be made from a PROLOK diskette prevents purchasers from buying a
single program and making unauthorized copies for distribution to others.

   n1 A PROLOK diskette contains two programs, the program placed on the
diskette by a software company (e.g, work processing) and the program placed on
the diskette by Vault which interacts with the "fingerprint" to prevent the
unauthorized duplication of the software company's program. We use the term
"software program" or "program" to refer to the program placed on the diskette
by on of Vault's customers (a computer company) and "Vault's program" to refer
to the program placed on the diskette by Vault as part of the protective device.
We collectively refer to the "fingerprint" and Vault's program as the
"protective device."

   Vault produced PROLOK in three stages. The original commercial versions,
designated as versions 1.01, 1.02, 1.03, 1.04 and 1.06 ("version 1.0") were
produced in 1983. Vault then incorporated improvements into the system and
produced version 1.07 in 1984. The third major revision occurred in August and
September of 1985 and was designated as versions 2.0 and 2.01 ("version 2.0").
Each version of PROLOK has been copyrighted  [*4]   and Vault includes a license
agreement with every PROLOK package that specifically prohibits the copying,
modification, translation, decompilation or disassembly of Vault's program. n2
Beginning with version 2.0 in September 1985, Vault's license agreement
continued a choice of law clause adopting Louisiana law. n3

   n2 The license agreement refers to the program placed on the diskette by
Vault, not the software program placed on the diskette by Vault's customers. See
supra note 1 for terminology. The companies that place their software programs
on PROLOK diskettes, not Vault, own the copyright to their programs and may
include a license agreement covering their programs in the package for sale to
the public.

Vault's license agreement reads:

IMPORTANT! VAULT IS PROVIDING THE ENCLOSED MATERIALS TO YOU ON THE EXPRESS
CONDITION THAT YOU ASSENT TO THE SOFTWARE LICENSE. BY USING ANY OF THE ENCLOSED
DISKETTE(S), YOU AGREE TO THE FOLLOWING PRIVISIONS. IF YOU DO NOT AGREE WITH
THESE LICENSE PROVISIONS, RETURN THESE MATERIALS TO YOUR DEALER, IN ORIGINAL
PACKAGING WITHIN 3 DAYS FROM RECEIPT, FOR A REFUND.

1. This copy of the PROLOK Software Protection System and this PROLOK Software
Protection Diskette (the "Licensed Software") are licensed to you, the end-user,
for your own internal use. Title to the Licensed Software and all copyrights and
proprietary rights in the Licensed Software shall remain with VAULT. You may not
transfer, sublicense, rent, lease, convey, copy, modify, translate, convert to
another programming language, decompile or disassemble the Licensed Software for
any purpose without VAULT's prior written consent.

2. THE LICENSED SOFTWARE IS PROVIDED "AS-IS". VAULT DISCLAIMS ALL WARRANTIES
AND REPRESENTATIONS OF ANY KIND WITH REGARD TO THE LICENSED SOFTWARE, INCLUDING
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
UNDER NO CIRCUMSTANCES WILL VAULT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES EVEN IF VAULT IS APPRISED OF THE LIKELIHOOD OF SUCH
DAMAGES OCCURRING. COME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF
LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR
EXCLUSION MAY NOT APPLY TO YOU.  [*5]

   n3 The license agreement included the following language beginning with
version 2.0:

To the extent the laws of the United States of America are not applicable, this
license agreement shall be governed by the laws of the State of Louisiana.

   Quaid's produce, a diskette called "CopyWrite," contains a feature call
"RAMKEY" which unlocks the PROLOK protective device and facilitates the creation
of a fully functional copy of a program placed on a PROLOK diskette. The process
is performed simply by copying the contents of the PROLOK diskette onto the
CopyWrite diskette with can then be used to run the software program without the
original PROLOK diskette in a computer disk drive. RAMKEY interacts with Vault's
program to make it appear to the computer that the CopyWrite diskette contains
the "fingerprint," thereby making the computer function as if the original
PROLOK diskette is in its disk drive. A copy of a program placed on a CopyWrite
diskette can be used without the original, and an unlimited number of fully
functional copies can be made in this manner from the program originally placed
on the PROLOK diskette.

   Quaid first developed RAMKEY in September 1983 in response to PROLOK  [*6]
version 1.0. In order to develop this version of RAMKEY, Quaid copied Vault's
program into the memory of its computer and analyzed the manner in which the
program operated. When Vault developed version 1.07, Quaid adapted RAMKEY in
1984 to defeat this new version. The adapted version of RAMKEY contained a
sequence of approximately 30 characters found in Vault's program and was
discontinued in July 1984. Quaid then developed the current version of RAMKEY
which also operates to defeat PROLOK version 1.07, but does not contain the
sequence of characters used in the discontinued version. Quaid has not yet
modified RAMKEY to defeat PROLOK version 2.0, and has agreed not to modify
RAMKEY pending the outcome of this suit. Robert McQuaid, the sole owner of
Quaid, testified in his deposition that while a CopyWrite diskette can be used
to duplicate programs placed on all diskette, whether copy-protected or not, the
only purpose served by RAMKEY is to facilitate the duplication of programs
placed on copy-protected diskettes. He also stated that without the RAMKEY
feature, CopyWrite would have no commercial value.

   II

   Vault brought this action against Quaid seeking preliminary and permanent
injunctions  [*7]   to prevent Quaid from advertising and selling RAMKEY, an
order impounding all of Quaid's copies of CopyWrite which contain the RAMKEY
feature, and monetary damages in the amount of $ 100,000,000. Vault asserted
three copyright infringement claims cognizable under federal law, 17 U.S.C. @
101 et seq. (1977 & Supp. 1988) (the "Copyright Act"), which included: (1) that
Quaid violated 17 U.S.C. @@ 501(a) & 106(1) by copying Vault's program into its
computer's memory for the purpose of developing a program (RAMKEY) designed to
defeat the function of Vault's program; (2) that Quaid, through RAMKEY,
contributes to the infringement of Vault's copyright and the copyrights of its
customers in violation of the Copyright Act as interpreted by the Supreme Court
in Sony Corp. of Am. v. Universal City Studios, 464 U.S. 417, 104 S.Ct. 774, 78
L.Ed.2d 574 (1984); and (3) that the second version of RAMKEY, which contained
approximately thirty characters from PROLOK version 1.07, and the latest version
of RAMKEY, constitute "derivative works" of Vault's program in violation of 17
U.S.C. @@ 501(a) & 106(2). Vault also asserted two claims based on Louisiana
law, contending that Quaid breached its   [*8]   license agreement by
decompiling or disassembling Vault's program in violation of the Louisiana
Software License Enforcement Act. La.Rev.Stat.Ann. @ 51:1961 et seq. (West
1987), and that Quaid misappropriated Vault's program in violation of the
Louisiana Uniform Trade Secrets Act, La.Rev.Stat.Ann. @ 51:1431 et seq. (West
1987).

   The district court originally dismissed Vault's complaint for lack of in
personam jurisdiction. This court reversed the district court's order of
dismissal and remanded the case for further proceedings. Vault Corp. v. Quaid
Software Ltd., 775 F.2d 638 (5th Cir.1985). On remand, the district court, after
a three-day bench trial, denied Vault's motion for a preliminary injunction
holding that Vault had not established a reasonable probability of success on
the merits. Vault, 655 F.Supp, at 763. Subsequently, the parties agreed to
submit the case for final decisions based on the evidence adduced at the
preliminary injunction trial. On July 31, 1987 the district court entered final
judgment in accordance with its decision on the preliminary injunction.

   Vault now contends that the district court improperly disposed of each of its
claims.

   III. Vault's  [*9]   Federal Claims

   An owner of a copyrighted work has the exclusive right to reproduce the work
in copies, to prepare derivative works based on the copyrighted work, to
distribute copies of the work to the public, and, in the case of certain types
of works, to perform and display the work publicly. 17 U.S.C. @ 106. Sections
107 through 118 of the Copyright Act limit an owner's exclusive rights, and
section 501(a) provides that "[a]nyone who violates any of the exclusive rights
of the copyright owner as provided by sections 106 through 118 . . . is an
infringer of the copyright."

   It is not disputed that Vault owns the copyright to the program its places on
PROLOK diskettes and is thus an "owner of copyright" under @ 106. Therefore,
Vault has, subject to the exceptions contained in sections 107 through 118, the
exclusive right to reproduce its program in copies and to prepare derivative
works based on its program. Vault claims that Quaid infringed its copyright
under @ 501(a) by: (1) directly copying Vault's program into the memory of
Quaid's computer; (2) contributing to the unauthorized copying of Vault's
program and the programs Vault's customers place on PROLOK diskettes; and (3)
preparing  [*10]   derivative works on Vault's program.

   Section 117 of the Copyright Act limits a copyright owner's exclusive rights
under @ 106 by permitting an owner of a computer program to make certain copies
of that program without obtaining permission from the program's copyright owner.
With respect to Vault's first two claims of copyright infringement, Quaid
contends that its activities fall within the @ 117 exceptions and that it has,
therefore, not infringed Vault's exclusive rights under @ 501(a). To appreciate
the arguments of the parties, we examine the legislative history of @ 117.

   A. Background

   In 1974 Congress established the National Commission on New Technological
Uses of Copyrighted Works (the "CONTU") to perform research and make
recommendations concerning copyright protection for computer programs. Before
receiving the CONTU's recommendations, Congress amended the Copyright Act in
1976 n4 to include computer programs in the definition of protectable literary
works n5 and to establish that a program copied into a computer's memory
constitutes a reproduction. n6 Congress delayed further action and enacted an
interim provision n7 to maintain the status quo until the CONTU completed
[*11]   its study and made specific recommendations.

   n4 The 1976 Amendments did not primarily address computer-related copyright
protection. The Amendments eliminated commonlaw copyright, simplified copyright
procedure, and rejected the distinction between the protection of published and
unpublished works. See T. Harris, The Legal Guide to Software Protection 43-44
(1985).

   n5 The definition of "literary works" was amended to include:

works, other than audiovisual works, expressed in words, numbers, or other
verbal or numerical symbols or indicia, regardless of the nature of the material
objects, such as books periodicals, manuscripts, phonorecords, film, tapes,
disks, or cards, in which they are embodied.

17 U.S.C. @ 101 (1977). A House Report stated that "[t]he term 'literary works'
. . . also includes computer data bases, and computer programs to the extent
that they incorporate authorship in the programmer's expression of original
ideas, as distinguished from the ideas themselves." H.R.Rep. No. 1476, 94th
Cong., 2d Sess. 54, reprinted in 1976 U.S.Code Cong. & Admin.News 5659, 5667.
Section 102 specifies that copyright protection exists in "original works of
authorship," which is defined to include "literary works." 17 U.S.C. @
102(a)(1).  [*12]

   n6 Section 102(a) was amended to protect original works of authorship which
can be reproduced "either directly or with the aid of a machine or device." 17
U.S.A. @ 102(a) (1977).

   n7 17 U.S.C. @ 117 (1977). This section provided:

   Notwithstanding the provisions of sections 106 through 116 and 118, this
title does not afford to the owner of copyright in a work any greater or lesser
rights with respect to the use of the work in conjunction with automatic systems
capable of storing, processing, retrieving, or transferring information, or in
conjunction with any similar device, machine, or process, than those afforded to
works under the law, whether title 17 or the common law or statutes of a State,
in effect on December 31, 1977, as held applicable and construed by a court in
an action brought under this title.
   In 1978 the CONTU issued its final report n8 in which it recognized that
"[t]he cost of developing computer programs is far greater than the cost of
their duplication," CONTU Report at 26, and concluded that "some form of
protection is necessary to encourage the creation and broad distribution of
computer programs in a competitive market," id. at 27. After acknowledging
[*13]   the importance of balancing the interest of proprietors in obtaining
"reasonable protection" against the risks of "unduly burdening users of programs
and the general public," id. at 29, the Report recommended the repeal of section
117 n9 (the interim provision) and the enactment of a new section 117 which
would proscribe the unauthorized copying of computer programs n10 but permit a
"rightful possessor" of a program to make or authorize the making of another
copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is 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, or

(2) that such new copy or adaptation is for archival purposes only and that all
archival copies are destroyed in the event that continued possession of the
computer program should cease to be rightful.

Id. at 29-30 (emphasis in original).

   n8 Final Report of the National Commission on New Technological Uses of
Copyrighted Works (July 31, 1978) (the "CONTU Report" or the "Report").

   n9 With respect to the repeal of @ 117, the Report reasoned that

[s]ection 117, designed to subject computer uses of copyrighted works to
treatment under the old law, vitiates that proscription, at least insofar as
machine-readable versions are not "copies" under the 1909 Act. Therefore, to
prevent any question about the impropriety of program piracy, and to assure that
all works of authorship are treated comparable under the new law, Section 117
should be repealed.

CONTU Report at 30-31 (footnotes omitted).  [*14]

   n10 The Report recommended that @ 101 be amended to add the definition of a
"computer program" as, "a set of statements or instructions to be used directly
or indirectly in a computer in order to bring about a certain result." CONTU
Report at 30.

   Because the act of loading a program from a medium of storage into a
computer's memory creates a copy of the program, the CONTU reasoned that "[o]ne
who rightfully possesses a copy of a program . . . should be provided with a
legal right to copy it to that extent which will permit its use by the
possessor," and drafted proposed @ 117(1) to "provide that persons in rightful
possession of copies of programs be able to use them freely without fear of
exposure to copyright liability." Id. at 31. With respect to proposed section
117(2), the "archival exception," the Report explained that a person in rightful
possession of a program should have the right "to prepare archival copies of it
to guard against destruction or damage by mechanical or electrical failure.
But this permission would not extend to other copies of the program. Thus one
could not, for example, make archival copies of a program and later sell some to
another while retaining  [*15]   some for use." Id.

   In 1980, Congress enacted the Computer Software Copyright Act which adopted
the recommendations contained in the CONTU Report. Section 117 was repealed,
proposed section 117 n11 was enacted, and the proposed definition of "computer
program" was added to section 101. The Act's legislative history, contained in a
short paragraph in a committee report, merely states that the Act, "embodies the
recommendations of [the CONTU] with respect to clarifying the law of copyright
of computer software." H.R.Rep. No. 1307, 96th Cong., 2d Sess., pt. 1, at 23,
reprinted in 1980 U.S.Code Cong. & Admin.News 6460, 6482. The absence of an
extensive legislative history and the fact that Congress enacted proposed
section 117 with only one change n12 have prompted courts to rely on the CONTU
Report as an expression of legislative intent. See Micro-Sparc, Inc. v. Amtype
Corp., 592 F.Supp. 33, 35 (D.Mass.1984); Atari, Inc v. JS & A Group, Inc., 597
F.Supp. 5, 9 (N.D.Ill.1983); Midway Mfg. Co. v. Strohon, 564 F.Supp. 741, 750 n.
6 (N.D.Ill.1983).

   n11 In enacting the new section 117, Congress adopted the proposed section
with only one change. The final version grants "owners," as opposed to "rightful
possessors," a limited right to copy and adapt their software. Amended section
117 reads, in full,

   Notwithstanding the provisions of section 106, it is not an infringement for
the owner of a copy of a computer program to make or authorize the making of
another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is 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, or

(2) that such new copy or adaptation is for archival purposes only and that all
archival copies are destroyed in the event that continued possession of the
computer program should cease to be rightful.

   Any exact copies prepared in accordance with the provisions of this section
may be leased, sold, or otherwise transferred, along with the copy from which
such copies were prepared, only as part of the lease, sale, or other transfer of
all rights in the program. Adaptations so prepared may be transferred only with
the authorization of the copyright owner.

17 U.S.C. @ 117 (Supp.1988).  [*16]

   n12 See supra note 11.

   B. Direct Copying

   In order to develop RAMKEY, Quaid analyzed Vault's program by copying it into
its computer's memory. Vault contends that, by making this unauthorized copy,
Quaid directly infringed upon Vault's copyright. The district court held that
"Quaid's actions clearly fall within [the @ 117(1)] exemption. The loading of
[Vault's] exemption. The loading of [Vault's] program into the [memory] of a
computer is an 'essential step in the utilization' of [Vault's] program.
Therefore, Quaid has not infringed Vault's copyright by loading [Vault's
program] into [its computer's memory]." Vault, 655 F.Supp. at 758.

   Section 117(1) permits an owner of a program to make a copy of that program
provided that the copy "is 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." Congress recognized that a computer program cannot be used unless
it is first copied into a computer's memory, and thus provided the @ 117(1)
exception to permit copying for this essential purpose. See CONTU Report at 31.
Vault contends that, due to the inclusion of the phrase "and that it is
[*17]   used in no other manner," this exception should be interpreted to permit
only the copying of a computer program for the purpose of using it for its
intended purpose. Because Quaid copied Vault's program into its computer's
memory for the express purpose of devising a means of defeating its protective
function, Vault contends that @ 117(1) is not applicable.

   We decline to construe @ 117(1) in this manner. Even though the copy of
Vault's program made by Quaid was not used to prevent the copying of the program
placed on the PROLOK diskette by one of Vault's customers (which is the purpose
of Vault's program), and was, indeed, made for the express purpose of devising a
means of defeating its protective function, the copy made by Quaid was "created
as an essential step in the utilization" of Vault's program. Section 117(1)
contains no language to suggest that the copy it permits must be employed for a
use intended by the copyright owner, and, absent clear congressional guidance to
the contrary, we refuse to read such limiting language into this exception. We
therefore hold that Quaid did not infringe Vault's exclusive right to reproduce
its program in copies under @ 106(1).   [*18]

   C. Contributory Infringement

   Vault contends that, because purchasers of programs placed on PROLOK
diskettes use the RAMKEY feature of CopyWrite to make unauthorized copies,
Quaid's advertisement and sale of CopyWrite diskettes with the RAMKEY feature
violate the Copyright Act by contributing to the infringement of Vault's
copyright and the copyrights owned by Vault's customers. Vault asserts that it
lost customers and substantial revenue as a result of Quaid's contributory
infringement because software companies which previously relied on PROLOK
diskettes to protect their programs from unauthorized copying have discontinued
their use. n13

   n13 Despite the legal protection provided by the amended Copyright Act to
proprietors of computer programs, the unauthorized copying and distribution of
programs has escalated. In 1983 it was estimated that twenty to thirty percent
of the computer software industry's revenues were siphoned off annually by
piracy and the unauthorized resale of software. Nat'l OTC Stock J., April 25,
1983 at 5. Joseph Curry, a survey and statistical analyst, testified that a 1984
survey conducted by him indicated that for every authorized copy of computer
software in use there is one unauthorized copy. He estimated that the loss of
income to software manufacturers resulting from unauthorized copies was
approximately $ 1.3 billion from 1981 to 1984, $ 800 million in 1985, and $ 800
million in 1986. To combat software piracy, companies such as Vault developed
protective devices designed to prevent unauthorized copying. In response,
companies like Quaid developed "code-breakers" which are products that operate
to defeat protective devices and permit a possessor of a program to make
copies. Manufacturers of code-breakers justify their business by contending that
protective devices prevent a purchaser of a program from making archival copies
under @ 117(2) and that their product serves to facilitate the legitimate
creation of such copies. See Note, 17 U.S.C. @ 117: Is the Amendment to the
Copyright Act Adequate to Regulate the Computer Software Market?, 7 Computer/Law
J. 227, 232 (1986).  [*19]

   While a purchaser of a program on a PROLOK diskette violates sections 106(1)
and 501(a) by making and distributing unauthorized copies of the program, the
Copyright Act "does not expressly render anyone liable for the infringement
committed by another." Sony, 464 U.S. at 434, 104 S.Ct. at 785. The Supreme
Court in Sony, after examining the express provision in the Patent Act which
imposes liability on an individual who "actively induces infringement of a
patent," 35 U.S.C. @ 271(b) & (c), and noting the similarity between the Patent
and Copyright Acts, recognized the availability, under the Copyright Act, of
vicarious liability against one who sells a product that is used to make
unauthorized copies of copyrighted material. Id. at 434-42, 104 S.Ct. at 785-89.
The Court held that liability based on contributory infringement could be
imposed only where the seller had constructive knowledge of the fact that its
product was used to make unauthorized copies of copyrighted material, id. at
339, 104 S.Ct. at 787, and that the sale of a product "does not constitute
contributory infringement if the product is widely used for legitimate,
unobjectionable purposes. Indeed, it need  [*20]   merely be capable of
substantial noninfringing uses." Id. at 442, 104 S.Ct. at 789.

   While Quaid concedes that it has actual knowledge that its product is used to
make unauthorized copies of copyrighted material, it contends that the RAMKEY
portion of its CopyWrite diskettes serves a substantial noninfringing use by
allowing purchasers of programs of PROLOK diskettes to make archival copies as
permitted under 17 U.S.C. @ 117(2), and thus that it is not liable for
contributory infringement. The district court held that Vault lacked standing to
raise a contributory infringement claim because "it is not Vault, but the
customers of Vault who place their programs on PROLOK disks, who may assert such
claims. Clearly the copyright rights to these underlying programs belong to
their publishers, not Vault." Vault, 655 F.Supp. at 759. Alternatively the court
held that CopyWrite is capable of "commercially significant noninfringing uses"
because the RAMKEY feature permits the making of archival copies of
copy-protected software, and CopyWrite diskettes (without the RAMKEY feature)
are used to make copies of unprotected software and as a diagnostic tool to
analyze the quality of new computer  [*21]   programs. Id. Therefore, the court
held that the sale of CopyWrite did not constitute contributory infringement.

   While we hold that Vault has standing to assert its contributory infringement
claim, we find that RAMKEY is capable of substantial noninfringing uses and thus
reject Vault's contention that the advertisement and sale of CopyWrite diskettes
with RAMKEY constitute contributory infringement.

   1. Standing

   The Copyright Act provides that the "legal or beneficial owner of an
exclusive right under a copyright is entitled, subject to the requirements of
sections 205(d) and 411 [concerning the recordation and registration of
copyrights], to institute an action for any infringement of that particular
right committed while he or she is the owner of it." 17 U.S.C. @ 501(b). The
Supreme Court in Sony noted that it was the taping of plaintiff's "own
copyrighted programs that provides them with standing to charge Sony with
contributory infringement." 464 U.S. at 434, 104 S.Ct. at 785.

   The focus of Vault's allegation of contributory infringement in its amended
complaint is that CopyWrite, through RAMKEY, enable purchasers of PROLOK
protected programs to infringe the copyrights of  [*22]   Vault's customer and
that, as a result, Vault has suffered damages due to its loss of customers.
While Vault does not own the copyrights to its customer's programs, it does own
the copyright to the program it places on each PROLOK diskette. This program
operates in conjunction with the "fingerprint" to prevent the duplication of
Vault's customer's programs. Uncontroverted testimony established that both
Vault's protective program and its customer's program are copied onto a
CopyWrite diskette when an individual executes a computer's "copy" function in
order to duplicate the customer's program from a PROLOK diskette onto a
CopyWrite diskette, and that RAMKEY then interacts with Vault's program to
defeat its protective function and to make the computer operate as if the
original PROLOK diskette was in one of its disk drives. n14 Therefore, CopyWrite
diskettes, through RAMKEY, facilitate not only the copying of Vault's customer's
software programs but also the copying of Vault's protective program, and, in
addition, RAMKEY interacts with Vault's program to destroy its purpose.

   n14 The latest version of RAMKEY, developed in response to PROLOK version
1.07, operates by intercepting service calls made by Vault's program to the
computer. By this process, RAMKEY is able to make the computer operate as if the
original PROLOK diskette, rather than the CopyWrite diskette with RAMKEY, is in
the computer's disk drive. See McQuaid Deposition at 68-72. In order for RAMKEY
to perform this function, Vault's protective program, as well as Vault's
customer's program, must be copied onto the CopyWrite diskette.  [*23]

   Quaid does not take issue with the validity of Vault's copyright under @
501(b) but instead contends that Vault lacks standing because it failed to
allege contributory infringement based on the copying of its program, as opposed
to the programs of its customers. Vault responds that its pleadings should be
broadly construed to include its contributory infringement claim based on the
copying of its program, and that even if its pleadings are narrowly construed,
they were amended, pursuant to Fed.R.Civ.P. 15(b), to include this claim by
trial testimony which established that Quaid's product contributes to the
unauthorized copying of Vault's program.

   Rule 15(b) provides that "[w]hen issues not raised by the pleadings are tried
by express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings." While Vault's pleadings
do not allege contributory infringement based on the copying of its copyrighted
program, Quaid's consent to this claim is evidenced by a pretrial memorandum,
signed by counsel for both Vault and Quaid, which listed as a contested issue of
law "[w]hether Quaid has contributorily infringed Vault's and Vault's  [*24]
customer copyrights" (emphasis added). Quaid does not contend that it has been
unfairly prejudiced by Vault's contention of contributory infringement based on
the copying of its own program, see Mason v. Hunter, 534 F.2d 822, 825 (8th
Cir.1976), nor does Quaid contend that it had inadequate notice of the nature of
Vault's claim or an inadequate opportunity to fully and fairly respond, see
Henry v. Coahoma County Bd. of Educ., 246 F.Supp. 517, 519 (N.D.Miss.1963),
aff'd, 353 F.2d 648 (5th Cir.1965), cert. denied, 384 U.S. 962, 86 S.Ct. 1586,
16 L.Ed.2d 674 (1966). Vault's proposed interpretation or amendment of its
pleadings in no way changes the character of the case. See id. at 518. It is
beyond dispute that RAMKEY destroys the commercial value of PROLOK diskettes,
and while the extent of Vault's damages were not fully developed at trial, the
evidence indicated that Vault sustained substantial injuries as a result of
RAMKEY and thus has a significant personal stake in the outcome of this
litigation. Under these circumstances, we hold that, pursuant to Fed.R.Civ.P.
15(b), Vault has fairly alleged contributory infringement of its copyrighted
program and has standing  [*25]   to pursue this claim.

   2. Substantial Noninfringing Uses of RAMKEY

   Vault's allegation of contributory infringement focuses on the RAMKEY feature
of CopyWrite diskettes, not on the non-RAMKEY portions of these diskettes. Vault
has no objection to the advertising and marketing of CopyWrite diskettes without
the RAMKEY feature, and this feature is separable from the underlying diskette
upon which it is placed. n15 Therefore, in determining whether Quaid engaged in
contributory infringement, we do not focus on the substantial noninfringing uses
of CopyWrite, n16 as opposed to the RAMKEY feature itself. See Vault, 655
F.Supp. at 759. The issue properly presented is whether the RAMKEY feature has
substantial noninfringing uses.

   n15 Quaid licensed the RAMKEY feature itself (and not the underlying
CopyWrite diskette) to at least one company which then used RAMKEY, in
conjunction with diskettes it marketed, to permit its customers to make fully
functioning copies of programs recorded on PROLOK diskettes. McQuaid Deposition
at 156 & 181-83.

   n16 The district court held that CopyWrite has "commercially significant
noninfringing uses" in part because CopyWrite diskettes are used to copy
unprotected software and as a diagnostic tool to analyze the quality of new
computer programs. Vault, 655 F.Supp. at 759. The findings upon which this
holding is based are irrelevant to a determination of whether RAMKEY has a
substantial noninfringing use. While CopyWrite diskettes may serve legitimate
functions, Robert McQuaid admitted that, without RAMKEY, CopyWrite would have no
commercial value.  [*26]

   The starting point for our analysis is with Sony. The plaintiffs in Sony,
owners of copyrighted television programs, sought to enjoin the manufacture and
marketing of Betamax video tape recorders ("VTR's"), contending that VTR's
contributed to the infringement of their copyrights by permitting the
unauthorized copying of their programs. 464 U.S. at 419-20, 104 S.Ct. at 777.
After noting that plaintiffs' market share of television programming was less
than 10%, and that copyright holders of a significant quantity of television
broadcasting authorized that copying of their programs, the Court held that
VTR's serve the legitimate and substantially noninfringing purpose of recording
these programs, as well as plaintiffs' programs, for further viewing (authorized
and unauthorized n17 time-shifting respectively), and therefore rejected
plaintiffs' contributory infringement claim. Id. at 442-55, 104 S.Ct. at 789-95.

   n17 The Court held that the unauthorized time-shifting of plaintiffs'
television programs was not an infringement of their copyrights because
time-shifting involved an unharmful noncommercial activity which constituted
"fair use" under 17 U.S.C. @ 107. Sony, 464 U.S. at 447-55, 104 S.Ct. at
791-95.  [*27]

   Quaid asserts that RAMKEY serves the legitimate purpose of permitting
purchasers of programs recorded on PROLOK diskettes to make archival copies
under @ 117(2) and that this purpose constitutes a substantial noninfringing
use. At trial, witnesses for Quaid testified that software programs placed on
floppy diskettes are subject to damage by physical and human mishap n18 and that
RAMKEY protects a purchaser's investment by providing a fully functional
archival copy that can be used if the original program on the PROLOK protected
diskette, or the diskette itself, is destroyed. Quaid contends that an archival
copy of a PROLOK protected program, made without RAMKEY, does not serve to
protect against these forms of damage because a computer will not read the
program into its memory from the copy unless the PROLOK diskette containing the
original undamaged program is also in one of its disk drives, which is
impossible if the PROLOK diskette, or the program placed thereon, has been
destroyed due to physical or human mishap.

   n18 John Kurko, a technical support engineer, testified that he used
CopyWrite to protect against physical mishaps such as house fires and other
catastrophies. Trial Record ("T.R.") at 323. Warren Steinke, an administrative
assistant at an insurance brokerage business, testified that back-up copies of
computer programs were important to protect against damage due to
experimentation with the original program and physical mishaps such as bending
the diskette. T.R. at 325 & 331. Michael Kirk-Duggan, a professor at the
University of Texas, testified that he makes back-up copies to protect against
human error, T.R. at 335, and Peter Stone, a copy protection consultant,
testified that a PROLOK diskette is subject to damage by liquids, severe heat
and sharp objects. T.R. at 422. Finally, Robert McQuaid, in his deposition,
testified that floppy diskettes can wear out and programs placed on floppy
diskettes can be erased by human error. McQuaid Deposition at 16 & 18.  [*28]

   Computer programs can be stored on a variety of mediums, including floppy
diskettes, hard disks, non-erasable read only memory ("ROM") chips, and a
computer's random access memory, and amy appear only as printed instructions on
a sheet of paper. Vault contends that the archival exception was designed to
permit only the copying of programs which are subject to "destruction or damage
by mechanical or electrical failure." CONTU Report at 31 (emphasis added). While
programs stored on all mediums may be subject to damage due to physical abuse or
human error, programs stored on certain mediums are not subject to damage by
mechanical or electrical failure. n19 Therefore, Vault argues, the medium of
storage determines whether the archival exception applies, thus providing only
owners of programs, placed on mediums of storage which subject them to damage by
mechanical or electrical failure, the right to make back-up copies. To support
its construction of @ 117(2), Vault notes that one court has held that the
archival exception does not apply to the copying of programs stored on ROM chips
where there was no evidence that programs stored on this medium were subject to
damage by mechanical  [*29]   or electrical failure, Atari, 597 F.Supp. at 9-10,
n20 and another court has likewise held that the archival exception does not
apply to the copying of programs which appear only in the from of printed
instructions in a magazine, Micro-Sparc, 592 F.Supp. at 35-36. n21

   n19 The CONTU Report did not define the term "mechanical or electrical
failure." At trial, Ray Strackbein, the head of Vault's engineering department,
testified that "mechanical failure" results from damage to a storage medium's
recording surface, while "electrical failure" results from the erasure 56. A
program recorded on a floppy diskette would be subject to mechanical or
electrical failure, if subject to this type of failure at all, only while the
diskette upon which it is recorded is in a computer's disk drive. Strackbein,
T.R. at 256-57.

   n20 The court in Atari held that"

The dangers to ROMs presented by [defendant] are physical dangers not unlike the
risk that a handwritten computer program will be shredded accidentally.
Virtually every copy of a copyrighted work, be it a book, a phonograph record,
or a videotape, faces that kind of risk. Yet Congress did not enact a general
rule that making back-up copies of copyrighted works would not infringe. Rather,
according to the CONTU report, it limited its exception to computer programs
which are subject to "destruction or damage by mechanical or electrical
failure." Some media must be especially susceptible to this danger. [Defendant]
has simply offered no evidence that a ROM in a 2600-compatible video game
cartridge is such a medium.

597 F.Supp. at 9-10 (emphasis in original) (footnote omitted). The court noted
that, other than the @ 117 exceptions, the Copyright Act contains only three
other exceptions for "archival" copying:

Libraries and archives may copy an unpublished work "for purposes of
preservation and security . . . ." 17 U.S.C. @ 108(b). These institutions may
also make a replacement copy of a published work that is "damaged,
deteriorating, lost, or stolen, if the library or archives has, after a
reasonable effort, determined that an unused replacement cannot be obtained at a
fair price." 17 U.S.C. @ 108(c). Finally, @ 112 provides several exceptions for
archival copying of various "ephermeral" works, such as the broadcast of a live
performance of a copyrighted play. See 2 Nimmer on Copyright @ 806.

Id. at 10 n. 2.  [*30]

   n21 In Micro-Sparc, the plaintiff published a weekly magazine containing
computer programs which subscribers could type into their computers. The
defendant typed programs contained in plaintiff's magazine into a computer and
then transferred these programs onto a "master disk." From the master disk, the
defendant copied the programs onto blank diskettes and then sold these diskettes
to subscribers of plaintiff's magazine. 592 F.Supp. at 34.

   In response to plaintiff's claim that defendant's "typing service"
constituted copyright infringement, defendant contended that it was making
back-up copies of programs which appeared in plaintiff's magazine and that its
activity therefore fell within the "archival exception." The court rejected this
defense, holding that when a subscriber to plaintiff's magazine "orders a disk
from the defendant, he possesses the programs as they appear in the magazine. In
this printed form, the programs are susceptible only to physical dangers, such
as accidental shredding." Id. at 35.

   Vault contends that the district court's finding that programs stored on
floppy diskettes are subject to damage by mechanical or electrical failure is
erroneous because  [*31]   there was insufficient evidence presented at trial to
support it, n22 and, based on this contention, Vault asserts that the archival
exception does not apply to permit the unauthorized copying of these programs.
Vault performed a trial demonstration to prove that even if a program on an
original PROLOK diskette, and Vault's protective program, were completely erased
from this diskette, these programs could be restored on the original diskette
using a copy made without RAMKEY. Therefore, Vault argues that even if a program
recorded on a PROLOK diskette is subject to damage by mechanical or electrical
failure, the non-operational copy of a PROLOK protected program made without
REMKEY is sufficient to protect against this type of damage. Vault concludes
that, in light of the fact that RAMKEY facilitates the making of unauthorized
copies and owners of PROLOK protected programs can make copies to protect
against damage by mechanical and electrical failure without RAMKEY, the RAMKEY
feature is not capable of substantial noninfringing uses.

   n22 Ray Strackbein, the head of Vault's engineering department, testified
that programs recorded on diskettes are not subject to damage by electrical
failure. T.R. at 255. There was no testimony to indicate that programs recorded
on diskettes are subject to damage by mechanical failure. The only contrary
evidence was presented by Warren Steinke who testified that CopyWrite protected
against damage due to "a head crash," "a voltage break" or "static electricity,"
T.R. at 331, all of which suggest that programs recorded on diskettes are
subject to damage by electrical failure. Steinke is not a computer programmer by
profession, T.R. at 326, but works as an administrative assistant in an
insurance brokerage business, and hi tstimony was clearly controverted by that
of Strackbein.  [*32]

   The narrow construction of the archivl exception, advanced by Vault and
accepted in the Atari and Micro-Sparc ecisions, has undeniable appeal. This
construction would leave the owner of a protected oftware program free to mak
back-up copies of the software to guard against erasures, which is probaly the
primary concern of owners as well as the drafeo the CONTU Report. Software
producers should perhaps be entitled to protect their product from improper
duplication, and Vault's PROLOK may satisfy produces and most puchsers on this
score--if PROLOK cannot be copied by the purchaser ono a CopyWrite diskette
without infringing the PROLOK copyright. That result does have appeal utwe
believe it is an appeal that mut emade to Congress. "[I]t is not our job to
apply laws that have not yet been written." Sony, 464 U.S. at 456, 104 S.Ct. at
796. We read the statute as it is now written to authorize the owner of the
PROLOK diskette to copy both the PROLOK program and the software program for any
reason n23 so long as the owner uses the copy for archival purposes only and not
for an unauthorized transfer.

   n23 The trial court found:

   It is an ordinary practice of computer users to purchase computer software
and immediately make archival backup copies of that software. This is done in
order to assure the user that in the event of mechanical, electrical or physical
damage to the software program or disks, a functional backup copy is available
for use.

Vault, 655 F.Supp. at 754.  [*33]

   The CONTU Report's words of "mechanical or electrical failure" are contained
in a paragraph quoted in the footnote. n24 We read the stated causes of damage
to be illustrative only, and not exclusive. Similarly, the statement follows
with the prohibited use of the archival copies which does not include a
prohibition against copying for purposes other than to protect against
"mechanical or electrical failure." The Report, or Congress, could have easily
limited the scope of @ 117(2) to authorize the making of archival copies of
programs subject to damage, and to guard against, only mechanical or electrical
failure. CONTU did not recommend that language, nor did Congress enact it.
Congress, following CONTU's advice, provided that an owner of a computer program
may make a copy of that program provided that "such new copy . . . is for
archival purposes only." 17 U.S.C. @ 117(2). Congress did not choose to spell
out detailed restrictions on the copying as was done in sections 108 and 112.
Congress imposed no restriction upon the purpose or reason of the owner in
making the archival copy; only the use made of that copy is restricted. See
CONTU Report at 31 ("one could not, for example,   [*34]   make archival copies
of a program and later sell some to another while retaining some for use"). An
owner of a program is entitled, under @ 117(2), to make an archival copy of that
program in order to guard against all types of risks, including physical and
human mishap as well as mechanical and electrical failure.

   n24 Because the placement of a work into a computer is the preparation of a
copy, the law should provide that persons in rightful possession of copies of
programs be able to use them freely without fear of exposure to copyright
liability. Obviously, creators, lessors, licensors and vendors of copies of
programs intend that they be used by their customers, so that rightful users
would but rarely need a legal shield against potential copyright problems. It is
easy to imagine, however, a situation in which the copyright owner might desire,
for good reason or none at all, to force a lawful owner or possessor of a copy
to stop using a particular program. One who rightfully possesses a copy of a
program, therefore, should be provided with a legal right to copy is to that
extent which will permit its use by that possessor. This would include the right
to load it into a computer and to prepare archival copies of it to guard against
destruction or damage by mechanical or electrical failure. But his permission
would not extend to other copies of the program. Thus one could not, for
example, make archival copies of a program and later sell some to another while
retaining some for use. The sale of a copy of a program by a rightful possessor
and destroying that status as regards the seller. This is in accord with the
intent of that portion of the law which provides that owners of authorized
copies of a copyrighted work may sell those copies without leave of the
copyright proprietor.

CONTU Report at 31-32 (footnote omitted).  [*35]

   A copy of PROLOK protected program made with RAMKEY protects an owner from
all types of damage to the original program, while a copy made without RAMKEY
only serves the limited function of protecting against damage to the original
program by mechanical and electrical failure. Because @ 117(2) permits the
making of fully functional archival copies, it follows that RAMKEY is capable of
substantial noninfringing uses. Quaid's advertisement and sale of CopyWrite
diskettes with the RAMKEY feature does not constitute contributory infringement.

   D. Derivative Work

   Section 106(2) of the Copyright Act provides the copyright owner exclusive
rights "to prepare derivative works based on the copyrighted work." Section 101
defines a derivative work as:

a work based on one or more preexisting works, such as a translation, musical
arrangement, dramatization, fictionalization, motion picture version, sound
recording, art reproduction, abridgment, condensation, or any other form in
which a work may be recase, transformed, or adapted. A work consisting of
editorial revisions, annotations, elaborations or other modifications which, as
a whole, represent an original work of authorship is a "derivative  [*36]
work."

To constitute a derivative work, "the infringing work must incorporate in some
form a portion of the copyrighted work." Litchfield v. Spielberg, 736 F.2d 1352,
1357 (9th Cir.1984), cert. denied, 470 U.S. 1052, 105 S.Ct. 1753, 84 L.Ed.2d 817
(1985). In addition, the infringing work must be substantially similar to the
copyrighted work. Id.

   The 1984 version of RAMKEY contained approximately 30 characters of source
code copied from Vault's program. Vault's program contained the equivalent of
approximately 50 pages of source code, and the 1984 version of RAMKEY contained
the equivalent of approximately 80 pages of source code. By all accounts, the 30
character sequence shared by RAMKEY and Vault's program constituted a
quantitatively minor amount of source code. In response to Vault's contention
that RAMKEY constitutes a derivative work, the district court found that "the
copying in 1984 was not significant" and that "there has been no evidence . . .
that there has been any further duplication." Holding that "RAMKEY is not a
substantially similar copy of PROLOK," the court concluded that "RAMKEY is not a
derivative work." Vault, 655 F.Supp. at 759.

   Vault now contends  [*37]   that the district court, in evaluating the 1984
version of RAMKEY, incorrectly emphasized the quantity of copying instead of the
qualitative significance of the copied material, and cites Whelan Assoc's., Inc.
v. Jaslow Dental Laboratory, Inc., 797 F.2d 1222 (3d Cir.1986), cert. denied,
    U.S.    , 107 S.Ct. 877, 93 L.Ed.2d 831 (1987), for the proposition that a
"court must make a qualitative, not quantitative, judgment about the character
of the work as a whole and the importance of the substantially similar portions
of the work." Id. at 1245. See Midway Mfg. Co. v. Artic Int'l, Inc., 704 F.2d
1009, 1013-14 (7th Cir.), cert. denied, 464 U.S. 923, 104 S.Ct. 90, 78 L.Ed.2d
98 (1983). The sequence copied, Vault asserts, constituted the identifying
portion of Vault's program which interacts with the "fingerprint" to confirm
that the original PROLOK diskette is in the computer's disk drive. Vault
contends that, because this sequence was crucial to the operation of Vault's
program and RAMKEY's ability to defeat its protective function, the copying was
qualitatively significant.

   The cases upon which Vault relies, Whelan and Midway, both involved  [*38]
situations where the derivative work performed essentially the same function as
the copyrighted work. Whelan, 797 F.2d at 1225-26; Midway, 704 F.2d at 1010-11.
n25 In this case, Vault's program and RAMKEY serve opposing functions; while
Vault's program is designed to prevent the duplication of its customers'
programs, RAMKEY is designed to facilitate the creation of copies of Vault's
customers' programs. Under these circumstances, we agree with the district court
that the 1984 copying was not significant and that this version of RAMKEY was
not a substantially similar copy of Vault's program is designed to prevent the
duplication of its customers' programs, RAMKEY is designed to facilitate the
creation of copies of Vault's customers' programs. Under these circumstances
we agree with the district court that the 1984 copying was not significant and
that this version of RAMKEY was not a substantially similar copy of Vault's
program.

   n25 In Whelan, the copyrighted work was a computer program and the derivative
work was the same program written in a different computer language. 797 F.2d at
1225-26. In Midway, the copyrighted work was a video game and the derivative
work was a speeded-up version of that game. Midway, 704 F.2d at 1010-11.
[*39]

   While Vault acknowledges that the latest version of RAMKEY does not contain a
sequence of characters from Vault's program, Vault contends that this version is
also a derivative work because it "alters" Vault's program. Vault cites Midway
for the proposition that a product can be a derivative work where it alters,
rather than copies, the copyrighted work. The court in Midway, however, held
that the sale of a product which speeded-up plaintiff's programs constituted
contributory infringement because the speeded-up programs were derivative works.
704 F.2d at 1013-14. The court did not hold, as Vault asserts, that defendant's
product itself was a derivative work. We therefore reject Vault's contention
that the latest version of RAMKEY constitutes a derivative work.

   IV. Vault's Louisiana Claims

   Seeking preliminary and permanent injunctions and damages, Vault's original
complaint alleged that Quaid breached its license agreement by decompiling or
disassembling. Vault's program in violation of the Louisiana Software License
Enforcement Act (the "LIcense Act"), La.Rev.Stat.Ann. @ 51:1961 et seq. (West
1987), and that Quaid misappropriated Vault's program in violation of the
Louisiana  [*40]   Uniform Trade Secrets Act, La.Rev.Stat.Ann. @ 51:1431 et seq.
(West 1987). On appeal, Vault abandons its misappropriation claim, n26 and, with
respect to its breach of license claim, Vault only seeks an injunction to
prevent Quaid from decompiling or disassembling PROLOK version 2.0. n27

   n26 While the district court held that the Louisiana Uniform Trade Secrets
Act, La.Rev.Stat.Ann. @ 51:1431 et seq., was not preempted by the Copyright Act,
the court held that the process of ascertaining information by "reverse
engineering," used by Quaid to analyze the operation of Vault's program, did not
constitute a violation of the Louisiana Trade Secrets Act. Vault, 655 F.Supp. at
761. This holding is not challenged on appeal.

   n27 Beginning with PROLOK version 2.0, Vault's license agreement contained a
choice of law clause adopting Louisiana law. See supra note 3.

   Louisiana's License Act permits a software producer to impose a number of
contractual terms upon software purchasers provided that the terms are set forth
in a license agreement which comports with La.Rev.Stat.Ann. @@ 51:1963 & 1965,
and that this license agreement accompanies the producer's software. Enforceable
terms   [*41]   include the prohibition of: (1) any copying of the program for
any purpose; and (2) modifying and/or adapting the program in any way, including
adaptation by reverse engineering, decompilation or disassembly.
La.Rev.Stat.Ann. @ 51:1964. n28 The terms "reverse engineering, decompiling or
disassembling" are defined as "any process by which computer software is
converted from one form to another form which is more readily understandable to
human beings, including without limitation any decoding or decrypting of any
computer program which has been encoded or encrypted in any manner."
La.Rev.Stat.Ann. @ 51:1962(3).

   n28 Section 51:1964 reads, in full:

   Terms of which shall be deemed to have been accepd under R.S. 51:1963, if
included in an accompanying license agreement which conforms to the provisions
of R.S. 51:1965, may include any or all of the following:

(1) Provisions for the retention by the licensor of title to the copy of the
computer software.

(2) If title to the copy of computer software has been retained by the licensor
provisions for the prohibition of any copying of the copy of computer software
for any purpose and/or limitations on the purposes for which copies of the
computer software can be made and/or limitations on the number of copies of the
computer software which can be made.

(3) If title to the copy of computer software has been retained by the licensor,
provisions for the prohibition or limitation of rights to modify and/or adapt
the copy of the computer software in any way, including without limitation
prohibitions on translating, reverse engineering, decompiling, disassembling,
and/or creating derivative works based on the computer software.

(4) If title to the copy of computer software has been retained by the licensor,
provisions for prohibitions on further transfer, assignment, rental, sale, or
other disposition of that copy or any other copies made from that copy of the
computer software, provided that terms which prohibit the transfer of a copy of
computer software in connection with the sale or transfer by operation of law of
all or substantially all of the operating assets of a licensee's business shall
to that extent only not be deemed to have been accepted under R.S. 51:1963.

(5) Provisions for the automatic termination without notice of the license
agreement if ny provisions of the license agreement are breached by the
licensee.  [*42]
   Vault's license agreement, which accompanies PROLOK version 2.0 and comports
with the requirements of La.Rev.Stat.Ann. @@ 51:1963 & 1965, provides that "you
must not . . . copy, modify, translate, convert to another programming
language, decompile or disassembly" n29 Vault's program. Vault asserts that
these prohibitions are enforceable under Louisiana's License Act, and
specifically seeks an injunction to prevent Quaid from decompiling or
disassembling Vault'sprogam.

   The district court held that Vault's license agreement was "a contract of
adhesion which could only be enforceable if the [Louisiana License Act] is a
valid and enforceable statute." Vault, 655 F.Supp. at 761. The court noted
numerous conflicts between Louisiana's License Act and the Copyright Act,
including: (1) while the License Act authorizes a total prohibition on copying,
the Copyright Act allows archival copies and copies made as an essential step
in the utilization of a computer program, 17 U.S.C. @ 117; (2) while the
License Act authorizes a perpetual bar against copying, the Copyright Act grants
protection against unauthorized copying only for the life of the author plus
fifty years, 17 U.S.C. @ 302(a);   [*43]   and (3) while the License Act
places no restrictions on programs which may be protected, under the Copyright
Act, only "original works of authorship" can be protected, 17 U.S.C. @ 102.
Vault, 655 F.Supp. at 762-63. The court concluded that, because Louisiana's
License Act "touched upon the area" of federal copyright law, its provisions
were preempted and Vault's license agreement was unevforceable. Id. at 763.

   In Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S.Ct. 784, 11
L.Ed.2d 661 (1964), the Supreme Court held that "[w]hen state law touches upon
the area of [patent or copyright statutes], it is 'familiar doctrine' that the
federal policy 'may not be set at naught, or its benefits denied' by the state
law." Id. at 229, 84 S.Ct. at 787 (quoting Sola Elec. Co. v. Jefferson Elec.
Co., 317 U.S. 173, 176, 63 S.Ct. 172, 173, 87 L.Ed. 165 (1942)). See Compco
Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S.Ct. 779, 11 L.Ed.2d 669
(1964); see also Mitchell v. Penton/Indus. Publishing Co., 486 F.Supp. 22 (N.D.
Ohio 1979) (holding that common law unfair competition claim preempted by the
Copyright Act); Triangle Publications, Inc. v. Sports Eye, Inc.,   [*44]   415
F.Supp. 682, 686-87 (E.D.Penn. 1976) (holding that state regulation of unfair
competition preempted as to matters falling within broad confines of the
Copyright Act). Section 117 of the Copyright Act permits an owner of a computer
program to make an adaptation of that program provided that the adaptation is
either "created as an essential step in the utilization of the computer program
in conjunction with a machine," @ 117(1), or "is for archival purpose only," @
117(2). n30 The provision in Louisiana's License Act, which permits a software
producer to prohibit the adaptation of its licensed computer program by
decompilation or disassembly, conflicts wit the rights of computer program
owners under @ 117 and clearly "touches upon an area" of federal copyright law.
For this reason, and the reasons set forth by the district court, we hold that
at least this provision of Louisiana's License Act is preempted by federal law,
and thus that the restriction in Vault's license agreement against decompilation
or disassembly is unenforceable.

   V. Conclusion

   We hold that: (1) Quaid did not infringe Vault's exclusive right to reproduce
its program in copies under @ 106(1); (2) Quaid's advertisement  [*45]   and
sale of RAMKEY does not constitute contributory infringement; (3) RAMKEY does
not constitute a derivative work of Vault's program under @ 106(2); and (4) the
provisions in Vault's license agreement, which prohibits the decompilation or
disassembly of its program, is unenforceable.

   The judgment of the district court is AFFIRMED.