October 19, 2011
Court Rejects Copyright Misuse Defense Against Apple and Affirms License Restrictions in OS X License Agreement -- Apple v. Psystar
[Post by Venkat Balasubramani]
Apple Inc. v. Psystar Corp., 10-15113 (9th Cir. Sept. 28, 2011) [pdf]
This is a dispute over whether Apple can enforce a restriction in its software license agreements which requires end users to run the Mac OS only on Apple computers. Short answer: yes.
Psystar sold "Open Computers," which were originally called "OpenMacs," and intended as cheaper alternatives for Apple computers. In order to allow these machines to run the Mac OS, Psystar "purchased" (licensed) a copy of the Mac OS X, installed this copy on a Mac computer, downloaded various updates, then made a copy of the software and transferred it to a non-Apple computer. Psystar then "added its own bootloader and kernel extensions to the software" on the non-Apple computer and this copy became the "master image." Psystar shipped "Open Computers" with a copy of the "master image" installed, but it also shipped an unopened copy of the Mac OS X which Psystar had purchased from a third party vendor.
Apple sued, alleging breach of contract, direct and contributory copyright infringement, trademark and trade dress infringement, and unfair competition claims. It also added a DMCA claim to the mix. Psystar counterclaimed, alleging copyright misuse. The district court found Psystar infringed and entered an injunction against it. Psystar asserted an antitrust counterclaim, but that claim was dismissed and Psystar didn't appeal that dismissal. Psystar also did not appeal the copyright infringement ruling.
Psystar argued that the language in the SLA which barred the use of OS X on non-Apple computers "impermissibly extend[ed] the reach of Apple's copyright."
The court starts by noting that the sale versus license distinction (most recently affirmed by the court last year in Vernor v. Autodesk) is "well established." According to the court, this distinction "has caused the use of software licensing agreements to flourish and become the preferred form of software transactions." Psystar argued that Apple sold, rather than licensed, its software to Psystar, but the court spends less than a page explaining that Apple makes its copies of OS X available as a license and not a sale.
The court focuses on the misuse defense. Copyright misuse is an affirmative defense to a claim for copyright infringement, and it was borrowed by courts from patent law. While the Ninth Circuit has recognized the misuse doctrine, it notes that it has been applied "sparingly." The purpose of the defense is to "prevent . . . holders of copyright from leveraging their limited monopoly to allow them control of areas outside the monopoly." The court says it upheld the defense in only one case and there the licensor prevented the licensee from using any other competing product. In another case (Triad Systems v. Southeastern Exp.), misuse was asserted as a defense against a claim of infringement against a service provider who made copies in the course of performing maintenance on the software. The court rejected the misuse defense and held that the service provider infringed when it made copies in the course of performing maintenance. Although a key part of Triad had been legislatively overruled by an amendment to section 117(c), the Ninth Circuit in this case reaffirmed Triad's holding that a license restriction only constitutes misuse when it expressly limits use with a competing product.
Psystar looked to a Fifth Circuit misuse case (Alcatel USA v. DGI Technologies) where the license agreement allowed for use of the software "only in conjunction with [licensor]-manufactured hardware." The court distinguishes Alcatel on the basis that, unlike the licensing agreement there, the OS X license agreement only restricted the use of Apple's software to its computers--third parties were free to develop operating systems for use on Apple computers.
This is a big win for Apple and one that, as Evan notes, "solidifies Apple’s approach to enforcing a controlled, closed ecosystem for the distribution of software used for Macs and iDevices."
It's a win for software companies as well as it provides a resounding endorsement of Vernor. I keep wondering how Vernor v. Autodesk is going to play out. The court here does not spend much time debating the license versus sale issue, notwithstanding the fact that the software here was licensed to a less sophisticated consumer than in Vernor and there was no mention of possession, which was central in Vernor. In fact, there have been a few district court cases addressing the license versus sale issue post-Vernor, but in none of the cases did courts spend much time debating the issue of whether the transaction was a sale or license. Psystar appears to confirm that Vernor effectively shut the door on the use of the first sale doctrine in the software context (once the shrink-wrap comes off).
The case is also a significant limitation of the copyright misuse defense. This defense rarely gets play anyway, but the court's reading of it is narrow. The court notes that in order to constitute misuse, a limitation in a license agreement must "restrict [a] competitor's ability to develop [competing] software." In the Fifth Circuit case, Alcatel similarly argued that it only mattered whether there was an express limitation, but the Fifth Circuit rejected that argument, finding it key that the competitor "was effectively prevented from developing its product" because it did not have the freedom to test its systems with Alcatel's software. Alcatel did not look only to the express terms of the licensing agreement, but that's what the court does in this case. There's no discussion in this case of whether the limitations in the license agreement effectively limit the development of an alternative operating system.
There was also zero discussion of the effect of Apple's copy control mechanisms. Although the district court concluded that Psystar's use of "decryption software to obtain access to [the] operating system violated the DMCA," there's really no mention of this issue in the Ninth Circuit opinion.
I'm not sure what to make of the fact that Psystar did not appeal the copyright infringement ruling. I wonder if Psystar was thinking about making an argument that Psystar clients bought a copy of the OS X, so the shipment of the pre-installed version of the OS X was not an infringing distribution because it was merely an archival or back-up copy that the purchaser could have made him or herself. The fact that the transaction is deemed a license and not a sale put the kibosh on this argument. (See the MDY v. Blizzard case where the court held that section 117 was not available to licensees: "Ninth Circuit's Mixed Opinion in Glider/WoW Bot Case".) I don't think Psystar had a clean argument under section 117 anyway, given that the language of this section only applies to "exact copies," and the two versions of the OS X differed slightly.
I wonder if the result would have been different if Psystar merely distributed the pre-packaged version of the OS X and separately distributed the software components which the end user could use to install and run the OS X on whatever machine they desired? The limitation in the license agreement was fairly broad, and I wonder if the italicized portion could have more effectively supported a misuse argument:
This License allows you to install, use and run one (1) copy of the Apple Software on a single-Apple-labeled computer at a time. You agree not to install, use or run the Apple Software on any non-Apple labeled computer, or to enable others to do so.
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