Nov
6
2011

Restricting Software to Certain Hardware is not Copyright Misuse - Apple Inc. v. Psystar Corporation

These days, software is not "sold" it is "licensed."  Although you bought and paid for the software, you do not own the software and never will.  One of the primary reasons software is licensed is to get around the "first sale doctrine."  The first sale doctrine allows someone who has purchased a copyrighted product to resell their copy of the product without restriction.  When software is licensed, you typically cannot resell it (which means the company selling the software can sell more copies).  Another reason software is licensed instead of sold is to restrict what users can do with the software, such as forbidding the running of an Apple operating system on less expensive computers.

But the restrictions which are allowed in software licenses are not limitless.  Overly restrictive licenses may result in "copyright misuse." The doctrine of copyright misuse forbids restrictive copyright licensing practices which are contrary to public policy such as being anti-competitive.

In Apple Inc. v. Psystar Corporation, ___ F.3d. ___ (9th Circuit 2011) the Ninth Circuit Court of Appeals considered and rejected arguments that Apple's software license restrictions which prevent the use of Mac OS X software on non-apple computers was "copyright misuse."

Psystar is a small computer manufacturer which sold non-Apple computers with Apple's Mac OS X pre-installed.  Mac OS X is locked to Apple hardware so to get the operating system to run on Psystar computers the company created an image of the Mac OS X software with a custom bootloader and kernel extensions and then copied that image on to its hardware.  Psystar then bundled an un-opened retail copy of Mac OS X with each computer it sold, presumably to legitimize its activities.

Not surprisingly, Psystar was immediately sued by Apple and promptly lost. The District Court granted summary judgment for Apple across the board including on Apple's claims for copyright infringement.  The District Court rejected Psystar's defense that Apple's Software License Agreement requiring that Mac OS X only be run on Apple brand computers was copyright misuse.

Psystar appealed the denial of its copyright misuse defense to the Ninth Circuit.  On appeal Psystar argued that Apple's software license attempts to extend copyright protection to Apple hardware which is not copyrightable.

The heart of Psystar's argument is that the Copyright Act affords Apple protection only against unauthorized copying and distribution of the operating software, but not on its use once it is purchased. Thus, because Psystar purchased unopened copies of Mac OS X and included these copies when it sold its computers, Psystar argues the Copyright Act is inapplicable and its alterations permissible.

In support of its argument of copyright misuse, Psystar cites Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999).  As the court in Alcatel explained, copyright misuse, forbids the use of  a copyright to obtain a monopoly on property not covered by the copyright.  In Alcatel, the plaintiff, DSC, sold telephone switching systems run by proprietary software licensed to its customers.  One of the software license restrictions was that customers were only authorized to run the software in conjunction with DSC's equipment.  Frequently telephone switching systems would need to be expanded.  This was accomplished by adding expansion cards to the system.  When expansion cards are added to the system DSC's  proprietary software is automatically downloaded on to the expansion cards.  A DSC competitor would thus be prevented from selling competing expansion cards as the mere act of inserting the competing card into the telephone switching system would result in DSC's software being run on non-DSC hardware in violation of the software license.  The Court in Alcatel held that DSC's restriction of running its software only on DSC hardware could reasonably be found to be copyright misuse.  The court reasoned,

Any competing microprocessor card developed for use on DSC phone switches must be compatible with DSC's copyrighted operating system software. In order to ensure that its card is compatible, a competitor such as DGI must test the card on a DSC phone switch. Such a test necessarily involves making a copy of DSC's copyrighted operating system, which copy is downloaded into the card's memory when the card is booted up. If DSC is allowed to prevent such copying, then it can prevent anyone from developing a competing microprocessor card, even though it has not patented the card.

In this case Psystar argues that Apple misused its copyright in the Mac OS X software by restricting the use of the software to Apple brand computers.  The Apple software license stated in part,

This License allows you to install, use and run one (1) copy of the Apple Software on a single-Applelabeled 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.

Competitors such as Psystar were thus prevented from selling competing computers which also ran the Mac OS X software.  Apple, however, argued that its software license terms were not "copyright misuse" as nothing in its software license prevents Psystar from competing in the personal computer space by developing its own computer and operating system.

Apple responds that to adequately demonstrate copyright misuse, Psystar must show either that the license agreement restricts creativity or that it restricts competition, and that this license agreement does neither. Apple distinguishes Alcatel as an attempt to stifle competition by preventing competitors from developing competing products, whereas here Psystar is free to develop both competing hardware and software.

The Ninth Circuit sided with Apple.  The court held that Apple's license was not copyright misuse,

principally because [Apple's] licensing agreement was intended to require the operating system to be used on the computer it was designed to operate, and it did not prevent others from developing their own computer or operating systems. These licensing agreements were thus appropriately used to prevent infringement and control use of the copyrighted material.

The court reasoned that a "software licensing agreement may reasonably restrict use of the software as long as it does not prevent the development of competing products" and that "Psystar produces its own computer hardware and it is free to develop its own computer software."

While the argument that the license merely required "the operating system to be used on the computer it was designed to operate" sounds reasonable in theory, the truth is that modern personal computers are for all intents and purposes identical with identical components made from a handful of hardware manufacturers.  For example, Apple's microprocessors and Psystar's microprocessors both come from Intel.  To say that Apple is simply restricting its software to the hardware it was designed to run on is a misunderstanding of modern computers in which two computers sold under different brand names can have identical processors, memory, motherboards, and hard-drives.  One may look snazzier than the other or have a cooler logo but both are technically speaking the same computer.

This case is another in a long series which is slowly expanding copyright protection. Unlike patent law which can restrict someone from "using" an item which infringes a patent, copyright law does not grant the author the ability to dictate the private "use" of an item entitled to copyright protection.

But the right license apparently does. Imagine an artist which sells a painting that can only be displayed on New Year's Eve.  Or an author which decries in a shrink-wrap license that only those over 65 may read his work.

Sounds silly right?  Not the way the case law is moving.

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