III. After Divineo ARRAY(0x1bc5b5c)

Despite the Divineo decision, there is uncertainty in the law surrounding mod chips. As such, defendants should carefully craft a defense that looks to the statute and other sources to support the continued use of mod chips.

A. Noninfringing Applications Should Not Be Minimized

Before the DMCA was enacted, case law generally held that there was no copyright violation where a technology possesses both infringing and significant noninfringing applications.73 For example, in Sonyv. Universal, the United States Supreme Court held that the use of videotape recorders did not infringe upon the copyrights of television programs because the device was capable of substantial noninfringing uses.74 Also, the Court held that Sony's sales of videotape recorders did not constitute contributory infringement.75 Several factors influenced the Court's decision to allow the videotape recorders, including the absence of harm to the plaintiff's copyrights,76 the existence of authorized taping, the societal benefits of tape recording,77 and the lack of contributory infringement if the items were used for “legitimate, unobjectionable purposes.”78 Additionally, the Court stated that under the Copyright Act, no one should be held liable where infringement was committed by another.79

Some argue that a consumer's right to use or benefit from noninfringing homebrew software or video games from other regions, to be played on domestic gaming systems, vastly outweighs any potential damage to a copyright owner's bottom line.80 More recently, some courts have held that noninfringing uses may be considered and balanced against the potential infringement.81 Some courts have held that the DMCA should be interpreted only to protect the existing rights of copyright holders and not to “fundamentally alter” either the “legal landscape governing the reasonable expectations of consumers” or “the ways that courts analyze industry practices.”82 In other words, there must be some inherent violation of copyright law for the DMCA to apply when circumventing a technological protection.83

Despite this positive reading for noninfringing applications of technological devices, the DMCA was specifically designed to prevent devices allowing circumvention of technological protection and one court has gone so far as to say that the DMCA defeats even fair use.84 Several courts have determined that Congress, in the wake of the “digital revolution,”85 intended to disallow even noninfringing uses where there is the potential for circumvention of technological protection measures.86 Some courts have even implied that there must be more than a mere capability of a noninfringing use.87 This strand of case law casts a great shadow over any argument that noninfringing uses can outweigh the potential for circumvention, rendering the devices legal.

The defendant in Divineo did not fully explore the additional noninfringing uses of the mod chip.88 Divineo89 could have argued that there should be a balancing test that weighs a product's infringing application against its noninfringing applications as suggested by the Supreme Court in Universal.90 Divineo also failed to argue against the Northern District of California court's interpretation of the DMCA as an excessive expansion of the copyright protection to include even noninfringing applications.91 Hope may be on the horizon, however, due to a bill introduced into the House of Representatives that would prohibit any person from being “liable for copyright infringement based on the design, manufacture, or distribution of a hardware device or of a component of such device if the device is capable of substantial, commercially significant noninfringing use.”92 Mod chips do have many uses other than circumventing protection to pirate copyrighted work, and these additional uses may produce a new standard that could change the outcome of cases concerning mod chips.

B. Stifling Creativity, Innovation, and Research By Not Allowing Mod Chips

Some commentators have noted that copyright holders “may use the DMCA to stifle innovation and reduce competition in the marketplace by hindering the efforts of legitimate competitors attempting to develop interoperable products.”93 In fact, at least one copyright holder has brought a claim against defendants who reverse-engineered software to help foster innovation and creativity.94 It is unlikely that Congress intended the DMCA circumvention provisions to allow a copyright holder to “hinder[] the efforts of legitimate competitors attempting to develop interoperable products,” but unfortunately, this hindrance can be the effect.95 Companies are using the DMCA as a vice to maintain a death-grip on their technologies to maintain their market shares and to increase equipment sales.96 When a copyright holder attempts to hinder the efforts of legitimate competitors or share information with the consumer about their product, issues such as the Xbox 360's “red ring of death”97 will fester behind a veil of secrecy. This leaves consumers and entrepreneurs in the dark about ways they could resolve the issue themselves or with the help of third party competitors.

Some circles debate whether video game software, which includes hardware code, should be patentable instead of copyrightable.

Based on the facts of Divineo, one could argue that the distribution of mod chips allows users to utilize their innovation and creativity, thus distributors should not be afraid to sell mod chips to continue to raise their revenues. Because of the trend Divineo represents, the DMCA could stifle the creativity and innovation that users apply to their own video game systems for the sake of copyright holders who wish to limit the availability of competing products. The anticompetitive nature of the DMCA103 could be argued as a public policy defense to the distribution of mod chips.104 It may also be necessary to call for a change in intellectual property protection to change the circumvention provisions of the DMCA. This change will alleviate any potential anticompetitive effects of using the DMCA to stop consumers and third parties from legally using their innovation and creativity to improve video game systems.

C. Fair Use Under the DMCA

The text of the DMCA states that it will not affect the rights inherent in other acts, seemingly including the fair use provisions of the Copyright Act.105 Unfortunately, this has not been the case.106 By prohibiting any valid way of achieving fair use, the DMCA has effectively eliminated the fair use exception to copyright infringement and has created an even stronger monopoly for the creators of video games. Fortunately, there are potential solutions to this unfortunate interpretation of the DMCA.

In an interesting pre-DMCA case, Lewis Galoob Toys, Inc. v. Nintendo of America, Inc.,107 a district court ruled in favor of Galoob, a video game accessory manufacturer whose product altered aspects of video games.108 Galoob was the manufacturer of the Game Genie, a video game peripheral that allowed Nintendo users to input cheat codes.109 These codes allowed users to adjust the original video game code and “cheat” the system, enabling an enhanced video game experience.110 A preliminary injunction was issued to stop Galoob from selling the Game Genie, and Galoob brought suit to remove the injunction. The primary issue in the case was whether the Game Genie created “derivative works.”111 The court quickly dismissed this argument by stating that “inherent in the concept of a 'derivative work' is the ability for that work to exist on its own, fixed and transferable from the original work.”112 The Game Genie, however, only worked when attached to the video game cartridge and system; the Game Genie's effects could not be considered a derivative work.113

The court then took the extra step of stating that even if the Game Genie was a derivative work, the plaintiff would not be guilty of infringement based on the fair use exception.114 The court reviewed the Universal decision and determined that the plaintiff satisfied all four factors for fair use.115 The court made several statements concerning fair use in the context of the Game Genie, including: “[a] family's 'non-commercial' home use of its video games creates a presumption of fair use,”116 the “published nature [of video games] supports fair use,”117 and “because game owners have the right to use the games they purchase, their use does not weigh against fair use.”118 The court concluded that the defendant had not been harmed.119 Under the Galoob test, the mod chip similarly survives. If Galoob were applied to future cases, the fair use balancing test would always apply and would tip the scales in favor of mod chip usage on video gaming software.

The solution to the piracy problem has always been, and continues to be, pursuing legal remedies rather than disallowing fair use.121 There is case law supporting fair use as a viable defense to copyright infringement claims based on reverse engineering of software and systems.122 One of the main purposes of mod chips is to circumvent the region encoding that discourages a consumer from buying legal copies of games abroad, even those not available within their home country, because their video game system will not allow games from other regions to be played.123 Region encoding allows game manufacturers to segregate markets and sell games in different regions at different prices;124 thus, forbidding the production of mod chips has anticompetitive effects.125 Because of the legal uses of mod chips, consumers' reverse engineering should be considered fair use. This argument is further supported by significant evidence that fair use is a major source of revenue to the U.S. economy.126

The fair use doctrine seems to support the argument that creating and using mod chips to circumvent technological protections is considered legally valid reverse engineering as long as the consumer is attempting to promote the interoperability of his or her video game system with other legal software.127 The application of mod chips to circumventing region-encoding could satisfy all four factors used to determine fair use in the Galoob case. In this context, the use is for gaining access to games bought legally in other countries, and the copyrighted work is the code within the hardware that prevents, instead of protects, the system from utilizing other region's games disks. The copyright is one small sliver of the overall scheme of protections, and the negative effect on the potential market for the copyright is minimal, as it likely would have the effect of inducing consumers to spend more money on games they do not normally have access to.

D. Reverse Engineering Under the DMCA

Another potential argument defending mod chip distribution or use involves the reverse engineering exception in the DMCA.128 When a consumer purchases a console, he or she is, in effect, legally obtaining a license129 to use the code built in the hardware system.130 Mod chip use is the only way to gain the information needed to access the components of the code so that a consumer can independently create software.131 Prior to the DMCA, courts took a very liberal view on reverse engineering of video game protections and allowed it for “intermediate copying.”132 After the creation and implementation of the DMCA, however, courts showed a stricter approach to copying and held that “the interest in protecting copyright holders' security measures is greater than the interest of fair users that may attempt to use the functional components of intellectual property to create new platforms and software.”133 This reverse engineering argument, besides quoting significant precedent prior to the enactment of the DMCA, may not be a valid justification for the distribution and use of mod chips. Thus, it may not be advantageous to argue the reverse-engineering exception in the DMCA as a reason to allow the distribution and use of mod chips.

E. Australia's Approach to Mod Chips

Legal treatment of mod chips varies among nations.134 Under Australian law, unless the chip's sole purpose is for piracy, it is legal.135 This approach may seem naïve, but with both a judicial and legislative assault on potentially over-reaching DMCA lawsuits, it is one that could be successfully implemented in the United States. The Australian approach empowers consumers to shop for the best price of games, regardless of where games were manufactured, because consumers can legally buy mod chips to circumvent region-encoding.136 This system would allow consumers and mod chip distributors to innovate by increasing the ways in which the current video game systems can be used.