When Apple, Inc.brought a copyright infringement lawsuit against computer manufacturer Psystar Corp., Psystar claimed that Apple misused Apple’s copyrights.  Last week, the Ninth Circuit Court of Appeals upheld the district court’s ruling in Apple’s favor (pdf) on the copyright misuse claim.

Facts.  Apple’s Software License Agreement (SLA) for its Mac OS X operating system requires users to run the software only on Apple computers and expressly prohibits running the software on a non-Apple computer.  Apple registered its copyright for each version of its operating system. 

Psystar manufactured and sold computers running Mac OS X.  Psystar created a master image by imaging an Apple computer and adding some software of its own.  It shipped its computers with a copy of the master image installed and an unopened copy of Mac OS X in the box.  Psystar argued that because it purchased a copy of the Mac OS X software for every computer sold, it did not make unauthorized copies or distributions and that the Copyright Act did not apply.

Apple filed this case against Psystar in July 2008.  In response, Psystar sought a declaratory judgment of copyright misuse by Apple.  Although Apple initially claimed copyright, trademark, trade dress and state and common law unfair competition violations, Psystar’s copyright misuse defense was the major issue before the Ninth Circuit on appeal.

First Sale Doctrine.  The court discussed the first sale doctrine as a prelude to its copyright misuse discussion.  The distinction between a sale and a license was a key underlying factor in the court’s decision. 

The first sale doctrine allows owners of copies of copyrighted works to resell their copies without restriction.

(Opinion pdf page 9).

Once someone has purchased a copy of a copyrighted work, she is free to transfer that copy to whomever she pleases or publicly display that copy, without violating the copyright owner’s exclusive right to distribute under 17 U.S.C. §106(3) or to publicly display under §106(5).

17 U.S.C. §109 embodies the first sale doctrine.  Under §109(d), the first sale doctrine does not apply to “any person who has acquired possession of the copy or phonorecord from the copyright owner, by rental, lease, loan, or otherwise, without acquiring ownership of it.”  The copyright owner can agree to license the copy, allowing someone else to use that copy, without transferring ownership of that copy to the other person.  The first sale doctrine therefore does not apply to a license.  In Vernor v. Autodesk, Inc., the Ninth Circuit developed a three factor test to distinguish between a software licensee and an owner of a copy:

We hold today that a software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.

(Opinion pdf page 11).

The court ruled that it was clear from Apple’s licensing agreement that purchasers of Mac OS X software were licensees of the software, not owners.

Copyright Misuse.

As defined by the Ninth Circuit,

Copyright misuse involves restraining development of competing products.

(Opinion pdf page 14).

The purpose of the copyright misuse defense is to prevent copyright holders “from leveraging their limited monopoly to allow them control of areas outside the monopoly.”  (Opinion pdf page 13). 

The court indicated that “[a] software licensing agreement may reasonably restrict use of the software as long as it does not prevent the development of competing products.”  (Opinion pdf 15-16).

Psystar argued that Apple’s SLA impermissibly extended the reach of Apple’s copyright by requiring purchasers to run their copies of the Mac OS X only on Apple computers and therefore amounted to copyright misuse.

The court ruled that Psystar’s copyright misuse defense failed because it was an attempt to apply the first sale doctrine to a valid licensing agreement.  The court also indicated that Apple’s licensing agreement did not prevent others from developing their own computers or operating systems and appropriately attempted to prevent infringement and to control the use of the copyrighted material.

This case is Apple Inc., v. Psystar Corporation, No. 10-15113.