Are emulators illegal?

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An emulator is a program like any other, and falls under the same rules and guidelines that affect all software. The intended usage of an emulator does not affect its legality in anyway.

The usage of an emulator is also completely legal, and any reverse engineering of a system's BIOS to make emulation possible is also legal. The case of Sony vs. Connectix concluded the following:

"Connectix's reverse engineering of the Sony BIOS extracted from a Sony PlayStation console purchased by Connectix engineers is protected as a fair use."

There are some gray areas regarding this however. Some emulators require a copy of the system's BIOS to operate, and distributing a BIOS file is in fact illegal unless the copyright holder authorizes the distribution, or if the copyright becomes nullified.(Which can happen because of other events not discussed here.)

ROMs unto themselves are also perfectly legal to own, copy, and distribute. These rules do NOT apply to copyrighted material however, and it just so happens that most ROMs are made from data that is still under copyright.

The idea that it is legal to download a ROM if you own an authorized copy of the software (or that you must delete within 24 hours of downloading if you do NOT own it), is false and is more or less a courtesy to video game manufacturers. It is illegal to perform an unauthorized download of copyrighted material in any form whether or not you own a legally distributed copy.

However, it IS legal to copy an officially distributed piece of copyrighted software as a personal backup, as also concluded in the Sony vs. Conexant case that stated:

"Any purchaser of a copyrighted software program must copy the program into the memory of a computer in order to make any use at all of the program. For that reason, 17 U.S.C. Section 117(a)(1) provides that it shall not be an infringement for one who owns a software copy to make another copy"

Though whether or not creating a ROM image specifically is legal has been openly debated. Primarily because of the ruling in Amiga Vs. JS&A Where the use of the PROM Blaster to copy the magnetic cartridges was NOT protected by a user's right to copy software.

Whatever the case, it remains illegal, to distribute legally made backups without authorization from the copyright holder.

The rules above apply regardless of any ROM copyright holder's rules and policies. Though no court ruling has tested the concept that purchasing a game might bind the consumer into a legal contract giving the manufacturer the power to apply additional restrictions regarding the game's usage.

Copyright infringement is a criminal offense, but it is typically the responsibility of the copyright holder to initiate any sort of prosecution. However, It is often too difficult or impossible for copyright holders to obtain sufficient information to prosecute individuals who copy and distribute ROM files. Because of this, ROM distribution between individuals is generally considered a safe practice. However, this does not hold true for public file hosting and distribution where the copyright infringer can be identified.

The typical response to copyright infringement is a "cease and desist" letter detailing the copyrights that have been violated, and informing the infringer that failure to remove the content will result in legal action. Extreme cases of copyright infringement may be considered a federal offense which could result in up to ten years imprisonment (see the No Electronic Theft Act, 18 U.S.C. 2319).
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