Psystar dealt crushing blow in ongoing legal proceedings with Apple

Yesterday, Judge William Alsup, United States District Judge for the Northern District of California, dealt Psystar a crushing blow in its ongoing litigation with Apple over whether or not Psystar could market and sell non-Apple computers running modified copies of Apple's operating system. If you're not familiar with the circus case, I refer you to, well...grab a coffee and click here. The two companies, embroiled in litigation since early last year, recently completed pre-trial discovery and each filed cross motions for summary judgment.

Judge Alsup put the ultimate hurt on Psystar when it granted Apple's motion for summary judgment and denied Psystar's motion for the same. In a sweeping order (courtesy Groklaw), the court agreed with Apple's take on the case and dismissed all of Psystar's defenses, both on the merits and for having waived and failed to properly plead.

The end result was a dramatic and startling court order in an ongoing series of dramatic legal squabbles between the two companies. And at least one of Psystar's attorneys saw this coming. The litigation doesn't end here; various issues still remain for trial such as breach of contract and trademark infringement, but Psystar has been gutted. The court is clearly unsympathetic to Psystar's core position and while damages on the copyright issues falling in Apple's favor in the order have not been ruled upon, it would probably behoove Psystar to start looking under the couch cushions for spare change.

A hearing is scheduled for December 14 on the remaining issues and for damages.

Read on for a more detailed analysis of the court's order....

The crux of Apple's beef with Psystar concerned the copyright it holds for its operating system and Psystar's alleged violation of said copyright. The order dealt most extensively with those claims. Judge Alsup agreed with Apple that Psystar's use of the Apple operating system on Psystar's computers constituted copyright infringement, violating Apple's rights to reproduction, distribution as well as the right to create derivative works.

Specifically, Psystar had defended the claim of reproduction infringement by arguing that the incidental copying of the software when it loaded it on its own computers did not constitute infringement because there exists a limited exception in the copyright law allowing copying or modifying a protected work without incurring liability. In denying that defense, Judge Alsup not only denied reliance on a failure to plead the issue, but that such a defense would be absurd in light of the way in which Psystar made copies of the program in its business.

More interestingly, the court tackled the biggest conceptual difference between Apple and Psystar's arguments, that being violation of Apple's distribution rights under its uncontested copyright. Apple continued to assert that sales of its operating system consisted of single license sales. For its part, Psystar hung its hat firmly on the idea that the sales made the purchasers owners of a copy, not mere licensees. The distinction between who is an owner and who is a licensee is arcane, but important.

By arguing that purchasers of OS X were owners of a valid copy and not licensees of a valid copy, Psystar could then argue that its resale constituted a valid application of the "first sale" doctrine, which permits a valid owner of a copy to resell the copy. A licensee has no such rights. The court eviscerated Psystar's novel argument by first agreeing with Apple that the sales were indeed licenses, as plainly laid out in Apple's license agreement. It then took it one step further when it ruled that, even if it accepted Psystar's argument that the sale was an ownership, Psystar could not rely on the first sale doctrine. The court ruled that the initial loading of the operating system on its machines through an "imaging station" copied from a Mac Mini with altered bootloaders and modified kernel extension files were unlawful copies in the first place, and reliance on the first sale doctrine required that the copies be lawfully made. Since they were not, the court refused to permit Psystar to rely on the first sale doctrine, even in a hypothetical acceptance of the idea that the copies were purchased, not licensed.

The court went on to agree with Apple's assertion that Psystar had violated Apple's right to create derivative works under the law. The court, relying on Psystar's admitted replacement of whole files within OS X, ruled that the result constituted a derivative work. For its part, Psystar had argued that because Apple's source code, object code, or kernel extensions had not been modified, there had been no infringement. But Psystar's replacement of the bootloader and the kernel extensions had the ultimate effect of permitting OS X to run on machines that otherwise would not run it. That, alone, constituted the creation of an infringing, derivative work.

In dispensing with the remainder of the copyright issues, the court ruled that Psystar had committed contributory infringement by intentionally inducing or encouraging others to commit copyright infringement, and denied Psystar's claim that Apple had committed copyright misuse, finding that its restriction that its software be used strictly on Apple machines was not unreasonable or unduly restrictive. Judge Alsup reasoned that cases where copyright misuse was found, the copyright holder had tried to restrict users from using competitor's products, not, as here, where Apple merely restricts users from using its products on competitor's products. Ultimately, the court found that Apple had not tried to "control competition in an area outside the copyright."

Lastly, the court agreed that Psystar had violated the Digital Millennium Copyright Act when it decrypted Apple's software and circumvented the software's technological measures that prevented it from running on an unauthorized computer and then sold it to the public. Psystar didn't deny that it had circumvented the protection measures, but instead tried to rely on the idea that Apple's security measures were ineffective due to the fact that circumvention code was widely available on the Internet. If it could prove that the security was ineffective, then it couldn't be held liable for circumventing it. The court did not accept that argument by stating that the mere wide availability of a circumvention measure was not an argument against the effectiveness of the security of the software. In other words, if, in typical use, most people aren't breezing around OS X's security, then the security was effective.

The court acknowledged that several issues asserted by Apple against Psystar remained for trial, including claims of trademark infringement and dilution, breach of contract, and unfair competition. At this point, Psystar can only hope to stem its losses, but it seems that any chance of it emerging from this litigation with a valid business model in place is quite unlikely.