The law and economics of reverse engineering

Reverse engineering to extract knowledge about products has a long history as a lawful practice. A legal rule permitting reverse engineering is economically sound as long as this activity takes enough time or is costly enough that innovators can recoup their research and development costs. In recent years, several restrictions on reverse engineering have been proposed or adopted. This Article assesses the economic impact of those restrictions in four industrial contexts: traditional manufacturing industries, the semiconductor chip industry, the computer software industry, and the digital entertainment product industry. We view reverse engineering as one of the important policy levers of intellectual property law, along with rules governing term and scope of protection, and summarize our conclusions in this light. The most obvious settings for the reverse engineering lever are "on" and "off." This study, however, reveals five additional strategies for regulating reverse engineering: (1) regulating a particular means of reverse engineering; (2) adopting a "breadth" requirement for subsequent products; (3) permitting reverse engineering for some purposes but not others; (4) regulating tools for reverse engineering; and (5) restricting dissemination of the resulting information. We conclude that some restrictions on the act of reverse engineering, or on what a reverse engineer can do with the resulting information, may be necessary to ensure adequate incentives to invest in innovation. But in some cases, the restrictions have gone too far. The Article also considers policy responses when innovators seek to prevent the exercise of reverse engineering rights by contract or by technical obfuscation.