Vault Corp. v. Quaid Software Limited

CASE NAME	VAULT CORPORATION v. QUAID SOFTWARE LIMITED
COURT	UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF LOUISIANA
CITATION, DATE	655 F. Supp. 750; 1987 U.S. Dist. LEXIS 1180; 2 U.S.P.Q.2D (BNA) 1407; Copy. L. Rep. (CCH) P26,103. February 12, 1987, Filed

PROCEDURAL HISTORY
TRIAL COURT:		APPEAL COURT (for appeal cases only):
PLAINTIFF	Vault	APPELLANT	@
DEFENDANT	Quaid	RESPONDENT	@

DESCRIPTION OF EVENTS
Plaintiff, Vault Corporation, instituted an action against defendant, Quaid Software Limited, seeking a permanent injunction and damages. Vault manufactures certain data security software designed to prevent the copying of software programs, which is sold under the registered trademark PROLOK. Quaid has developed a program called "CopyWrite" which unlocks the PROLOK security software and allows the program contained on the protected diskette to be copied. "Vault sells blank protected diskettes to software producers. The software producer places his program on a PROLOK diskette, and sells the diskette to the public. The user of a program placed on a PROLOK diskette cannot make a copy of the program that will run independently of the original PROLOK diskette. The sole purpose of PROLOK is to inhibit copying of the program by the user." "Vault at all times attempted to prevent the general public from discovering the PROLOK program, method and technology. Their efforts included encrypting the PROLOK program in four layers of code, separating the various different programmers working on the program from each other, having all employees sign nondisclosure agreements prohibiting them from disclosing any of Vault's secrets, the use of shredding devices at the close of business each day to shred all paper containing any portion of the PROLOK program, and keeping the master PROLOK program locked in a safe." Quaid manufactures a software program called "CopyWrite," which allows a user to make copies of programs contained on floppy diskettes. A segment of CopyWrite called "RAMKEY" allows a user to make copies of software programs placed on a PROLOK disk. 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. Without the use of CopyWrite or other methods of unlocking PROLOK, a purchaser of a PROLOK protected software program cannot make a functional archival copy of that program. Vault contends that Quaid made an illegal copy of PROLOK by loading the PROLOK program into the random access memory (RAM) of Quaid's computer. However, any person who purchases a PROLOK disk must necessarily load the PROLOK program into RAM in order to utilize the program.

REMEDY SOUGHT	a preliminary injunction enjoining defendant, Quaid Software Limited, from advertising for sale or selling that portion of its CopyWrite Program that unlocks PROLOK; from violating the PROLOK license agreement; from misappropriating Vault's trade secret (the PROLOK program); from infringing or contributorily infringing Vault's copyright on PROLOK; and ordering the impoundment of all Quaid's copies of CopyWrite that are capable of unlocking PROLOK.

ARGUMENT FOR PLAINTIFF
Vault has moved for an order enjoining Quaid from advertising for sale or selling that portion of its CopyWrite program that unlocks PROLOK; from violating the PROLOK license agreement; from misappropriating Vault's trade secret (the PROLOK Program); and from infringing or contributorily infringing Vault's copyright on PROLOK. Vault is further seeking impoundment of all Quaid's copies of CopyWrite that are capable of unlocking PROLOK.

ARGUMENT FOR DEFENDANT
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COURT OPINION
Louisiana Court does have jurisdiction in the case. "To establish copyright infringement, a plaintiff must prove ownership of a valid copyright and "copying" by the defendant of the copyrighted work. ..." "this Court finds that the copyrights are valid and fully enforceable." "Subsection (1) of Section 117 exempts the "copying" of the computer program which is performed when a program is loaded into a computer's random-access memory (RAM). Quaid's actions clearly fall within this exemption. The loading of the PROLOK program into the RAM of a computer is an "essential step in the utilization" of the PROLOK program. Therefore, Quaid has not infringed Vault's copyright by loading PROLOK into RAM." "Vault has contended that RAMKEY is a derivative work of PROLOK.... RAMKEY is not a substantially similar copy of PROLOK. RAMKEY is not a derivative work of PROLOK." "Vault has contended that Quaid is guilty of contributory infringement because CopyWrite permits a user to make illegal copies of programs placed on PROLOK disks. Vault lacks standing to raise such a claim since it is not Vault, but the customers of Vault who place their programs on PROLOK disks, who may assert such claims. "Even if Vault has standing to pursue a claim for contributory infringement, this Court finds no contributory infringement. "Quaid has met its burden of bringing itself within the § 117 archival exception. CopyWrite is capable of "commercially significant noninfringing uses." "Vault has contended that the steps taken by Quaid to analyze PROLOK and to develop RAMKEY constitute violations of the Louisiana Software License Enforcement Act, La.Rev.Stat 51:1961-1966, and the Uniform Trade Secrets Act, La.Rev.State. 51:1431-1439." " The process of ascertaining information by "reverse engineering" does not constitute a violation of the Louisiana Trade Secrets Acts, on the face of the statute. However, Vault alleges that the license agreement prohibits reverse engineering as provided by the Louisiana Software License Enforcement Act." "The Louisiana Software License Enforcement Act, on the other hand, has invaded the exclusive province of the federal Copyright Act, and has gone beyond trade secrets law by outlawing reverse engineering." "Since the Louisiana Software Act has "touch[ed] upon the area" of the federal patent and copyright law, the provisions of the PROLOK licensing agreement are unenforceable to the extent they are contrary to the policies of the federal Copyright Act. Fantastic Fakes, Inc. v. Pickwick International, Inc., 661 F.2d at 481-483." Since the license agreement is unenforceable, it cannot buttress Vault's claim that Quaid has used "improper means" to discover an alleged trade secret in violation of the Louisiana Trade Secrets Act. Decompiling, disassembly, and reverse engineering are all proper means of discovering any trade secret which may be contained in PROLOK." "Based on the evidence presented at trial and the law in this case, this Court finds that Vault has not shown a reasonable probability of success on the merits of its allegations of copyright infringement and violations of the Louisiana Software License Enforcement Act and the Uniform Trade Secrets Act. Vault has not met its "heavy burden" of proving to this court that a preliminary injunction should issue. .."

DISPOSITION OF CASE
"the motion of plaintiff, Vault Corporation, for a preliminary injunction enjoining defendant, Quaid Software Limited, from advertising for sale or selling that portion of its CopyWrite program that unlocks PROLOK; from violating the PROLOK license agreement; from misappropriating Vault's trade secret (the PROLOK program); from infringing or contributorily infringing Vault's copyright on PROLOK; and ordering the impoundment of all Quaid's copies of CopyWrite that are capable of unlocking PROLOK, be, and the same is here, DENIED."

ECONOMIC ANALYSIS

This case includes trade secrets, and state vs. federal protections. Federal prevail in the case of conflicts.
The court sides with the reverse engineering and the absence of copyright violations. It limits copyright and software protections.