Tuesday, February 10, 2009

Apple v PsyStar update

The judge in the Apple v Psystar case has handed the clone maker an interim victory, agreeing the company can pursue it's case for copyright misuse. But he's also warned both parties that they need to cut the tit for tat legal manoeuvres and prepare for a substantive trial.

Ars Technica, cnet and ComputerWorld all have reports.

Apple had originally sued PsyStar for using and selling the OS X Operating System (“Mac OS”) in clone machines. The judge, Hon. William Alsup, then threw out PsyStar's antitrust claims against Apple in response to the original lawsuit (see Justia for the details). So PsyStar came up with the rather clever copyright misuse argument - 'we bought the Mac OS from Apple and they're saying we can't play with it unless we buy their hardware to use with it too.'
"PsyStar alleges that Apple has improperly leveraged its Mac OS copyrights in order to gain exclusive rights with respect to Mac OS-compatible computer hardware systems not granted in the Mac OS copyrights, in two general respects.

First, PsyStar alleges that Apple has wrongfully extended the scope of its Mac OS copyright via its End User License Agreement (“EULA”), which specifically required that consumers install Mac OS only on Apple-labeled computers, as well as by embedding certain technical barriers to interoperability in Mac OS — kernel panic and infinite loops (Countercl. ¶¶36–51).2

Second, PsyStar alleges that Apple is leveraging its Mac OS copyrights by improperly asserting claims under the Digital Millennium Copyright Act, 17 U.S.C. 1201 et seq. (“DMCA”). PsyStar alleges, in effect, that Apple is improperly extending its Mac OS copyright into the computer hardware market by intimidating potential competitors into avoiding the market with dubious DMCA claims (Countercl. ¶¶ 52–56).

The proposed counterclaim asserts four claims for relief, all of which seek a declaratory judgment that Apple’s Mac OS copyrights are unenforceable. The first claim alleges copyright misuse based on Apple’s exclusive licensing of Mac OS in its EULA. The second claim alleges copyright misuse based on Apple’s use or threat of DMCA claims against potential competitors for Apple’s Mac OS -based computers. The third claim alleges a violation of California’s unfair competition laws predicated on the alleged copyright misuse related to the EULA. The fourth claim alleges a violation of California’s unfair competition laws predicated on the alleged copyright misuse related Apple’s DMCA claims."
Apple argued in response that PsyStar lost with the antitrust tactics and shouldn't be allowed a second chance to concoct a case on copyright misuse grounds. Apple also argued that copyright misuse could only be used by PsyStar as a defense against copyright infringement and not as a counterclaim against Apple. The judge is clear in rejecting this argument (page 4, line 17):
"Apple contends that copyright misuse may only be asserted as a defense, not as a counterclaim. This order is unconvinced, however, that misuse may never be asserted as a counterclaim for declaratory relief. PsyStar may well have a legitimate interest in establishing misuse independent of Apple’s claim against it, for example, to clarify the risks it confronts by marketing the products at issue in this case or others it may wish to develop. Moreover, if established, misuse would bar enforcement (for the period of misuse) not only as to defendants who are actually a party to the challenged license but also as to potential defendants not themselves injured by the misuse who may have similar interests."
So not only Psystar, but other organisations, not party to the lawsuit, might get the right to sell computers with the Mac OS, if PsyStar wins the case. The judge mentioned in the earlier part of the order that "Few competitors, if any, other than PsyStar, however, currently sell computers compatible with Mac OS" and the Apple legal team were presumably attempting to bury that particular can of worms with the efforts to close of the copyright misuse counterclaim. He draws parallels to patent misuse which can be used in counterclaims and "finds no reason to reject plaintiff’s misuse counterclaims as necessarily futile."

Interestingly enough the Grokster case get a mention in a footnote if only to give Judge Alsup the opportunity to disagree with part of one of the decisions in that protracted saga which suggested copyright misuse could not be used as the basis of a counterclaim.
"Insofar as other district courts have concluded that the doctrine may not be asserted as a counterclaim, this order respectfully disagrees.3
3 See, e.g., Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 269 F. Supp. 2d 1213, 1225–26 (C.D. Cal. 2003), aff’d, 380 F.3d 1154, vacated on other grounds by Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005); Ticketmaster L.L.C. v. RMG Technologies, Inc., 536 F. Supp. 2d 1191, 1199 (C.D. Cal. 2008)."
It has to be said that the facts were completely different in that instance and I would have thought, therefore, clearly distinguishable.
"This order... rejects the argument that misuse may never be asserted as a counterclaim and declines to find PsyStar’s misuse counterclaims futile on that basis.

Apple further argues that amendment would be futile because the proposed amended counterclaims fail to plead sufficient facts to support the claim. In its proposed amended counterclaims, PsyStar alleges that Apple leveraged Mac OS copyrights to secure exclusive rights not within the scope of the monopolies granted by those copyrights, i.e., to Mac OS compatible computer hardware systems. The complaint avers that Apple accomplished this through its EULA, through allegedly spurious litigation and by other means.

Apple responds that it is within its rights to determine whether, how or by whom its software is reproduced and how it is to be licensed, distributed or used. This may ultimately prove to be true. Apple, however, identifies no reason to bar the claims as matter of law at the pleading stage. This order declines to find the claims futile."
Apple also argued the precedent the claimed was set in the Triad case:
"Apple cites Triad Systems v. Southeastern Express Company, 64 F.3d 1330 (9th Cir.1995). Triad was a seller of computer systems that performed sales, inventory and accounting tasks for auto parts stores... Triad and Southeastern competed in the business of servicing Triad computers."
Southeastern argued copyright misuse but the court sided with Triad. But Judge Alsup here says the Triad case is not conclusive in the matter of barring access to a copyright misuse counter claim. Apple also argued that the judge said Psystar had no case on antitrust grounds so they should have no case on copyright grounds either but the judge gives that argument short shrift:
"Apple also cites language from the November 2008 order in this case granting Apple’s motion to dismiss PsyStar’s counterclaims. The order addressed the antitrust issues then before the court; it did not opine one way or the other on the merits of Apple’s instant copyright claims or PsyStar’s misuse allegations. For all of these reasons, PsyStar’s motion for leave to amend is granted with respect to the proposed misuse counterclaims."
He does, however, hand Apple a small victory too at the end of the decision:
"PsyStar’s single-product-market theory was previously rejected (Dkt. No. 33). Plaintiff fails otherwise to identify an actual or incipient violation of antitrust laws or the spirit thereof — harm to competition. PsyStar argues that the alleged misuse is, “at the least, unfair in that Apple has attempted (and continues to attempt) to extend the reach of its copyrights by tying them to computer hardware not otherwise protected by the Copyright Act” (Reply at 12). It fails to explain, however, how this conduct constitutes harm to competition or a violation of the spirit of the antitrust laws. In the context of single-firm conduct, tying requires monopolization.
PsyStar has identified none — other than the limited monopolies inherent in the copyrights themselves. The Section 17200 claims, therefore, are futile. PsyStar’s motion for leave to amend the Section 17200 claims is denied."
So the clone maker's attempts to resurrect unfair competition under the cloak of misuse of copyright failed. Good news for Apple since it theoretically undermines PsyStar's case - 'we bought it from Apple and they're saying we can't play with it unless we buy their hardware to use with it too'.

In practical terms if the copyright misuse case prevails it opens the way for clone makers to install the Mac OS, which is what Apple has successfully avoided since the inception of the company. Yet such avoidance, according to this judge at least, has not offended competition laws. There are clues in the order suggesting that the judge may ultimately side with Apple but it remains one to watch. After all if Microsoft are guilty of tying their browser to their operating system in a way that breaches competition laws, as suggested by the EU antitrust authorities, then surely Apple, a company which has actively and aggressively pursued such bundling practices, must be at least equally culpable?

See the order in full below (or head over to a slightly larger font, full browser window version at Justia).

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