Apple Inc. v. Psystar Corp..
| Decision Date | 28 September 2011 |
| Docket Number | No. 10–15113.,10–15113. |
| Citation | 11 Cal. Daily Op. Serv. 12386,658 F.3d 1150,2011 Daily Journal D.A.R. 14720,2011 Copr.L.Dec. P 30137,100 U.S.P.Q.2d 1338 |
| Parties | APPLE INC., a California corporation, Plaintiff–Appellee,v.PSYSTAR CORPORATION, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
George A. Riley, David R. Eberhart, O'Melveny & Myers LLP, James G. Gilliland, Jr. and Mehrnaz Broumand Smith, Kilpatrick Townsend & Stockton LLP, San Francisco, CA, for plaintiff-appellee Apple, Inc.Kiwi D. Camara, Houston, TX, for defendant-appellant Psystar Corporation.Appeal from the United States District Court for the Northern District of California, William H. Alsup, District Judge, Presiding. D.C. No. 3:08–cv–03251–WHA.
Before: MARY M. SCHROEDER, SIDNEY R. THOMAS, and RONALD M. GOULD, Circuit Judges.
This case raises important issues regarding the doctrine of “copyright misuse” as it has developed in the wake of the technological revolution of the last 30 years. Plaintiff–Appellee, Apple Inc. (“Apple”), is one of the leading producers of innovative technological hardware and software that has spurred enormous consumer demand for ever evolving technology. The Defendant–Appellant, Psystar Corp. (“Psystar”), is a small computer manufacturer. Apple brought this action against Psystar for copyright infringement because Psystar was using Apple's software on Psystar computers.
The district court in a published decision held that Psystar was infringing Apple's federally registered copyrights in its operating software, Mac OS X, because Psystar was copying Mac OS X for use in Psystar's computers. Apple, Inc. v. Psystar Corp. (Apple I), 673 F.Supp.2d 931, 935–40 (N.D.Cal.2009). This infringement finding is not challenged on appeal. The court rejected Psystar's copyright misuse defense that asserted the unenforceability of Apple's Software License Agreement (“SLA”), requiring Mac OS X users to run their copies on Apple computers. Id. at 939–40. Psystar appeals that ruling, as well as the district court's order enjoining Psystar's continuing infringement of the Apple software. In addition, Psystar appeals the seven separate orders in which the district court granted Apple's motions to seal documents on grounds of maintaining confidentiality.
Psystar's principal argument on appeal is that the district court should have held that the license agreement is an unlawful attempt to extend copyright protection to products that are 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. Psystar contends that the Fifth Circuit's decision in Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir.1999), involves a similar situation and that we should follow it.
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 district court agreed and so do we. Since Psystar has failed to demonstrate that Apple has misused its copyright in Mac OS X, we affirm the district court's grant of summary judgment on Psystar's copyright misuse defense. We also affirm the district court's order enjoining Psystar's continuing infringement and Digital Millennium Copyright Act (“DMCA”) violations.
In entering the injunction, the district court properly applied the Supreme Court's four eBay factors. See eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006) (). Specifically, the district court determined that: 1) Apple suffered an irreparable injury; 2) remedies available at law are inadequate to compensate for that injury; 3) considering the balance of hardships between Apple and Psystar, a remedy in equity is warranted; and 4) the public interest would not be disserved by a permanent injunction. Apple, Inc. v. Psystar Corp. (Apple II), 673 F.Supp.2d 943, 948–50 (N.D.Cal.2009) (applying eBay, 547 U.S. at 391, 126 S.Ct. 1837 (2006)). We affirm the injunction.
We do agree with Psystar, however, that on the secondary issue of sealing, there is no adequate basis in this record to support sealing any Apple records on grounds of confidentiality. We apply the presumption in favor of access and vacate the district court's sealing orders.
Apple launched its Macintosh line of personal computers in 1984. This line of computers has included Mac Pro, iMac, Mac Mini, MacBook, MacBook Air, and MacBook Pro. Apple launched its Mac OS X operating system in 2001. Apple now sells all Mac computers with a preinstalled, licensed copy of Mac OS X. Apple's SLA requires that the Mac OS X be used exclusively on Apple computers. Apple also separately distributes Mac OS X in a stand-alone, retail-packaged DVD with licensed software for the sole purpose of enabling Apple's existing customers to upgrade their Mac computers to the latest version of the operating system. Apple owns a registered copyright for each version of its operating system and the SLA for each requires the system to be used only on Apple computers.
In addition to the SLA and the copyrights, Apple uses lock-and-key technological measures to prevent Mac OS X from operating on non-Apple computers. This involves the use of a “kernel” extension, which is software that is executed and becomes part of the operating system on an Apple computer. The kernel extension communicates with other kernel extensions to locate the decryption keys in Apple hardware, and to unlock the encrypted files.
In April 2008, Psystar began manufacturing and selling personal computers—originally named “OpenMac” and then renamed “Open Computers.” Psystar's Open Computers can run a variety of operating systems, but Psystar has chosen to sell Open Computers with Mac OS X. To do so, Psystar purchased a copy of Mac OS X, installed this copy of Mac OS X on a Mac Mini computer, and downloaded various software updates, using the automatic-update feature of Mac OS X. Psystar then imaged the Mac Mini with the OS X software, i.e., made a copy of the software, and transferred the copy to a non-Apple computer used as an imaging station. Psystar then added its own bootloader and kernel extensions to the Mac OS X on the imaging station, and this copy became the “master image.” Psystar used this imaging station to reproduce the master image and install it on Open Computers for sale to the general public. Finally, Psystar shipped Open Computers with a copy of the master image installed, and with an unopened copy of Mac OS X, which Psystar purchased from Apple or third party vendors such as Amazon, in the box. The unopened copy enabled Psystar to maintain it had purchased a copy of Mac OS X for each computer it sold, but the computer actually was to run on the copy of the altered Mac OS X installed in the Psystar computer.
On July 3, 2008, Apple filed this action against Psystar in the Northern District of California, alleging breach and induced breach of its SLA for Mac OS X, direct and contributory copyright infringement, trademark and trade dress infringement, and violation of state and common law unfair competition laws. Apple later amended its complaint to add a DMCA claim arising from Psystar's circumvention of the technological protection measures employed by Apple to prevent unauthorized access to and copying of Mac OS X.
Psystar asserted a counterclaim for a declaratory judgment that Apple was misusing its copyright in Mac OS X by requiring purchasers to run their copies only on Apple computers. The district court dismissed an earlier antitrust counterclaim that Psystar filed with its initial answer to the original complaint. That ruling is not appealed.
In August of 2009, Apple released its next version of Mac OS X—Mac OS X Snow Leopard (“Snow Leopard”); Psystar, in turn, released a new version of Open Computers, Rebel EFI, which was capable of running Snow Leopard. On August 27, Psystar sued Apple in the Southern District of Florida, alleging new antitrust claims and seeking a declaratory judgment that its products did not infringe Apple's intellectual property in Snow Leopard. Apple moved in the present case to dismiss or enjoin Psystar's Florida action and to reopen discovery in this case related to possible infringement of Snow Leopard. The district court denied Apple's motions, thus closing this record.
Both parties then filed cross motions for summary judgment. On November 13, 2009 the district court granted Apple's motion for summary judgment, finding that 1) Psystar's production process and hard drive imaging did not constitute fair use of Apple's operating system; 2) Psystar infringed Apple's exclusive right to create derivative works; 3) Apple's licensing agreement was not unduly restrictive and thus did not constitute copyright misuse; and 4) Psystar's use of decryption software to obtain access to operating system violated the DMCA. It explained its reasons in a published opinion. Apple I, 673 F.Supp.2d at 933–42. On the same day, the district court, with only cursory explanation, granted seven motions to seal documents related to the summary judgment motions.
The district court then, in a second published opinion, issued a permanent injunction...
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