Copyright Law | Expert Legal Commentary

November 18, 2011

Apple v. Psystar: Ninth Circuit Upholds Validity of Software Licensing Agreements against Copyright Misuse Defense

Apple, Inc., v. Psystar, Corp.

By Tom Zuber and Ryan Smith of Zuber Lawler & Del Duca

Apple v. Psystar: Ninth Circuit Upholds Validity of Software Licensing Agreements against Copyright Misuse Defense

The Ninth Circuit recently upheld the validity of conditional software licenses which avoid the pitfalls of the first sale doctrine. In Apple, Inc., v. Psystar, Corp., No. 10-15113, 2011 U.S. App. WL 4470623, (9th Cir. Sept. 28, 2011), the Ninth Circuit upheld a permanent injunction against Psystar due to its infringement of Apple’s copyrighted software. Psystar asserted copyright misuse defense against Apple. However, the Court found that Apple’s valid software licensing agreement did not prevent Psystar from making competing products, and thus was not a misuse of copyright.

Background

Computers made by Apple run on various versions of OSX, an operating system developed and copyrighted by Apple.  OSX is only distributed under a software license agreement (“SLA”) and is not sold outright.  Apple prevents the installation of OSX on non-Apple computers by using lock-and-key mechanisms built into OSX.  These mechanisms search for particular hardware components found within only Apple computers and verify the genuineness of the computer.  Id. at *2.

Psystar created its own line of computers that ran OSX.  Psystar engineered workarounds to the lock-and-key mechanisms and installed the same licensed iteration of OSX on all of its computers.  Psystar then bought and packaged a retail boxed version of OSX for each of its computers in an attempt to include a valid OSX license with each machine.  Id.

Apple sued Psystar in 2009 for infringement of Apple’s copyrighted OSX.  The district court granted Apple’s motion for summary judgment, upholding the validity of OSX’s SLA and holding that Psystar infringed on Apple’s right to create derivative works.  Id. at *3.  The district court then issued a permanent injunction against Psystar, enjoining all current and future infringement of OSX and the manufacture or sale of any device to circumvent Apple’s software production. Id.  Psystar appealed, arguing that the district court erred when it rejected Psystar’s defense of copyright misuse. Id.

Ninth Circuit Upholds Strong Software License Agreement Powers

On appeal, Psystar argued that the first sale doctrine applied to OSX and thus Apple could not control the use of OSX after a sale. Id. at *4.  In its analysis, the Court employed its three-part Vernor test, which held that a software user is a licensee and not an owner of a copy of software if the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.  Id. at *6 (citing Vernor v. Autodesk, Inc., 621 F.3d 1102, (9th Cir. 2010)).  The Court found that Apple’s SLA satisfied the test, finding that the license prohibited redistribution and sublicensing.  Id. at *6.

Moreover, the Court rejected Psystar’s misuse of copyright defense.  While copyright holders can “use their limited monopoly to leverage the right to use their work on the acceptance of specific conditions,” the Court noted that such conditions cannot prevent the development of competing products. Id. at *9.  Psystar analogized to Alcatel, in which the copyright holder’s SLA prevented the development of competing products because licensees of its phone switching software were effectively prohibited from using the software to test and develop non-Alcatel add-on parts.  Thus, Alcatel’s competitors could not test their competing parts without breaking the license.  Id. at *9-10 (citing Alcatel USA, Inc. v. DGI Techs., Inc.,166 F.3d 772 (5th Cir. 1999).  In the instant case, the Court found that Apple’s SLA did not prevent competitors from developing competing operating systems, nor did it prevent consumers from using non-Apple expansion components.  Id. at *10.  Thus, the Court held that unlike Alcatel, Apple’s SLA “represents the legitimate exercise of a copyright holder’s right to conditionally transfer works of authorship, and does not constitute copyright abuse.”  Id.

The Court also upheld the permanent injunction’s scope to include versions of OSX not litigated in the district court.  The Court analogized to Walt Disney Co. in noting that “[c]ourts have extended injunctive relief beyond the four corners of the litigated copyrighted works to cover non-litigated items of similar character.”  Id. at *11 (citing Walt Disney Co. v. Powell, 897 F.2d 565 (D.C.Cir. 1990).

Conclusion

In rejecting the misuse of copyright defense, the Ninth Circuit signaled its firm support for the validity of software licenses and the restrictive conditions that copyright holders can impose on licensees.  Software developers should take notice of the benefits of distributing software under SLAs, especially the expanded control over redistribution and closed-system environments involving same-company software and hardware.  To learn how to better take advantage of SLAs, developers should contact experienced copyright counsel.

About the Authors

Tom Zuber is a Partner of Zuber Lawler & Del Duca, focusing on intellectual property protection and exploitation.

Image Credit: ©iStockphoto.com/alexsl

View a PDF of the judicial opinion

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Tom Zuber
Ryan Smith

Companies Mentioned

Apple, Inc.

Psystar Corp.

Also See:

Seltzer v. Green Day: Ninth Circuit Upholds Green Day’s Fair Use of Street Art

Hart v. Electronic Arts, Inc.: Third Circuit: No First Amendment Protection for Using Athlete’s Likeness in Video Game

Metropolitan Regional Information Systems v. American Home Realty Network: Fourth Circuit Rules Web Site Owner Can Enforce Copyright on User-Uploaded Photos

Cariou v. Prince: Court Finds Appropriated but Altered Photos Protected under Fair Use

Golan v. Holder: Divided Supreme Court Upholds Copyright Statute Taking Works Out of the Public Domain

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Companies Mentioned

Copyright Law

The following companies are mentioned in Copyright Law Updates:

MGA Entertainment (HK) Ltd.

Mattel, Inc.

UMG Recordings, Inc.

American Society of Composers, Authors, and Publishers

MGA Entertainment Inc.

Paramount Pictures Corp.

NBC Studios, Inc.

Disney Enterprises, Inc.

Veoh Networks, Inc.

CSC Holdings, Inc.

CBS Broadcasting Inc.

Cablevision Systems Corp.

Cable News Network LP, LLLP

American Broadcasting Companies, Inc.

Westbound Records, Inc.

Kamind Associates, Inc. a.k.a. KAM Industries

Janice Combs Publishing, Inc. d.b.a. Justin Combs Publishing

All Headline News Corp.

Bad Boy Records LLC

American Software Development Company, Inc.

Bad Boy Entertainment, Inc. d.b.a. Bad Boy Records

Affordable Video Systems, Ltd.

Yahoo! Inc.

Dream Games of Arizona, Inc.

Television Music License Committee

Frank Diana City Entertainment

SESAC, Inc.

PC Onsite

RealNetworks, Inc.

AOL LLC f.k.a. America Online, Inc.

Northern Lights Products, Inc. d.b.a. GlowProducts.com

Litecubes, LLC

Poof Apparel Corp.

Derek Andrew, Inc.

Metro-Goldwyn-Mayer Pictures, Inc.

Geoffrey Productions, Inc.

Universal City Studios LLLP

Twentieth Century Fox Film Corp.

Turner Network Television LP, LLLP

Turner Network Sales, Inc.

Turner Classic Movies, LP, LLLP

Simon & Schuster, Inc.

Turner Broadcasting System, Inc.

The Cartoon Network LP, LLP

Dow Jones & Company, Inc.

YouTube, LLC

Apple, Inc.

Focus Features, LLC

Dow Jones Reuters Business Interactive, LLC

YouTube, Inc.

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