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Apple Inc. v. Psystar Corp.: Ninth Circuit Holds that Apple did not Engage in Copyright Misuse

Copyright Patent

Apple Inc. v. Psystar Corp., No. 10-15113 (9th Cir. Sept. 28, 2011)

Slip Opinion

The Ninth Circuit affirmed the Northern District of California’s holding that Psystar infringed Apple’s federal copyrights, and vacated and remanded the district court’s grant of Apple’s motion to seal summary judgment papers. The district court had rejected Psystar’s defense of copyright misuse, in which Psystar had argued that Apple’s Software Licensing Agreement (“SLA”) requiring users to run Mac OS X only on Apple computers “impermissibly extend[ed] the reach of Apple’s copyright.”

The Ninth Circuit held that Apple did not engage in copyright misuse by restricting the use of its software to Apple computers because this restriction did not prevent other companies from developing competing products. The court upheld the district court’s grant of an injunction on the grounds that it did not abuse discretion, even though Psystar did not contest the ruling that the enjoined use of Apple’s software did in fact constitute infringement. Finally, the court vacated and remanded the district court’s sealing orders, finding that the district court did not adequately provide reasons underlying its decision given that there is a presumption in favor of access.

The Wall Street Journal provides an overview of the case and notes that Psystar has shut down its operations. Internet Cases criticizes the decision for reaffirming Apple’s long-standing policies of distributing software and hardware as a “closed ecosystem,” which limits third parties from creating valuable technologies in this space. 

Apple has been marketing personal computers since 1984. In 2001, the company launched its Mac OS X operating system. Since then, Apple has been selling its computers with a preinstalled copy of its operating system. Apple has also been distributing Mac OS X separately, but Apple’s SLA requires that Mac OS X be used exclusively on Apple computers. Apple prevents users from running Mac OS X on non-Apple computers by using “kernel” extension software imbedded in Mac OS X which unlocks encrypted files on Apple hardware. Psystar manufactured and sold its own line of “Open Computers” with Mac OS X pre-installed and bundled with an unopened copy of Mac OS X. Psystar gets around Apple’s encryption technology by altering the software on Apple hardware and copying it to each computer that it sells.

In holding that Psystar had infringed Apple’s copyrights, the court relied on its own three-factor test in Vernor v. Autodesk, Inc., 621 F.3d 1102, 1107-08 (9th Cir. 2010). The court stated that Apple’s agreement with its customers was a license and not a sale, because Apple specified that purchasers of its software were granted a license and restricted their ability to use and transfer the software. Accordingly, because individuals were only granted a license, the first-sale doctrine did not apply.

In response, Psystar mounted a copyright misuse defense. The court recognized that this is a valid defense when a firm’s use of its copyright prevents other firms from developing competing products, but rejected the defense in this case because Psystar was not inhibited from creating its own software. In so doing, the court distinguished Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999), on which Psystar relied. In Alcatel, the Fifth Circuit had found copyright misuse when a manufacturer of telephone switching equipment included a provision in its operational software license that this software could only be used with the company’s hardware, which prevented competitors from copying the software for needed testing and development for competing hardware components. Unlike Alcatel’s license, Apple’s SLA did not prevent Psystar from developing its own operating systems; it “merely restrict[ed] the use of Apple’s own software to its own hardware.”

This decision refines and narrows the scope of the “copyright misuse” defense to only those cases where the firm’s use of its copyright prevents other firms from developing competing products.

Laura Fishwick is a 2L at the Harvard Law School.