Vault Corp. v. Quaid Software, Ltd.
847 F.2d 255 (5th Cir. 1988) is the most celebrated decision on intellectual
property pre-emption. In that case, Vault Corporation developed a
program called "Prolok", which was designed to prevent the unlawful duplication
of other software by "locking it" (in this regard it can be considered
as an example of a "trusted
system" which we shall be looking at this week). Prolok was sold
with a shrinkwrap license which provided, inter alia, that the purcahser
could not copy or reverse engineer any part of the software. Quaid
Software, Ltd purchased the software and reverse engineered it so as to
find a way to defeat Prolok's locking system. It then incorporated
this knowledge into an "unlocking" product called "Ramkey". The final
version of Ramkey did not contain any material copied from Prolok.
Vault Corporation sued Quaid alleging copyright infringement and violation
of the shrinkwrap license. The Fifth Circuit found that there was
no copyright infringement by reverse engineering or producing the product
Ramkey. With regards to the shrinkwrap license, the court found that
it was unenforceable as a contract of adhesion unless the Louisiana Software
License Enforcement Act, which purported to validate such licenses, was
enforceable. In this regard, the Fifth Circuit held that the Louisiana
statue directly conflicted with the rights of purchasers of copyrighted
works set out in section 117 of the Copyright Act, and thus was pre-empted
by federal copyright law. As such, the shrinkwrap license was deemed
to be invalid.
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