Apple Inc. v. Psystar Corporation

Filing 51

Transcript of Proceedings held on 1-22-09, before Judge William Alsup. Court Reporter/Transcriber Katherine Wyatt, Telephone number 925-212-5224. Per General Order No. 59 and Judicial Conference policy, this transcript may be viewed only at the Clerks Office public terminal or may be purchased through the Court Reporter/Transcriber until the deadline for the Release of Transcript Restriction.After that date it may be obtained through PACER. Any Notice of Intent to Request Redaction, if required, is due no later than 5 business days from date of this filing. Release of Transcript Restriction set for 5/4/2009. (kpw, COURT STAFF) (Filed on 2/4/2009)

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Apple Inc. v. Psystar Corporation Doc. 51 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page1 of 27 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 BY: 17 18 19 20 2 1 REPORTED BY: PAGES 1 - 26 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE WILLIAM H. ALSUP APPLE INC., A CALIFORNIA CORPORATION,, ) ) ) PLAINTIFF, ) ) VS. ) NO. C 08-3251 WHA ) PSYSTAR CORPORATION, A FLORIDA ) CORPORATION,, ) ) SAN FRANCISCO, CALIFORNIA DEFENDANT. ) THURSDAY ) JANUARY 22, 2009 ___________________________________) 2:00 O'CLOCK P.M. TRANSCRIPT OF PROCEEDINGS APPEARANCES: FOR PLAINTIFF: TOWNSEND AND TOWNSEND AND CREW TWO EMBARCADERO CENTER, EIGHTH FLOOR SAN FRANCISCO, CALIFORNIA 94111-3834 JAMES G. GILLILAND, ESQUIRE AND MEHRNAZ BOROUMAND SMITH, ATTORNEY AT LAW CARR & FERRELL LLP 2200 GENG ROAD PALO ALTO, CALIFORNIA 94303 COLBY B. SPRINGER, ESQUIRE FOR DEFENDANT: BY: KATHERINE WYATT, CSR 9866, RMR, RPR OFFICIAL REPORTER - US DISTRICT COURT COMPUTERIZED TRANSCRIPTION BY ECLIPSE 22 23 24 25 KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Dockets.Justia.com Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page2 of 27 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 JANUARY 22, 2009 2:00 O'CLOCK P.M. PROCEEDINGS THE COURT: OKAY. APPLE VERSUS PSYSTAR. JIM MR. GILLILAND: GOOD AFTERNOON, YOUR HONOR. GILLILAND AND MEHRNAZ BOROUMAND SMITH FOR PLAINTIFF APPLE. MS. SMITH: THE COURT: GOOD AFTERNOON. WELCOME BACK. COLBY SPRINGER FOR DEFENDANT PSYSTAR MR. SPRINGER: CORPORATION. THE COURT: OKAY. WELCOME BACK TO YOU, AS WELL. ALL RIGHT. THIS IS A MOTION FOR -- BY PSYSTAR TO MOVE TO AMEND, SO YOU WANT TO GO FIRST? MR. SPRINGER: THANK YOU, YOUR HONOR. AS THE COURT RECALLS IN THE PRIOR MOTION TO DISMISS THE COURT DISMISSED THE ANTITRUST CLAIMS AND GRANTED PSYSTAR THE OPPORTUNITY TO FILE A MOTION FOR LEAVE TO AMEND, WHICH IS WHY WE'RE HERE TODAY. IN THE CURRENT PROPOSED AMENDED COMPLAINT PSYSTAR INTRODUCES FOUR NEW CAUSES OF ACTION, TWO OF WHICH ARE RELATED. THERE'S A CONSPIRACY MISUSE CLAIM WITH RESPECT TO APPLE'S LICENSING ACTIVITY, SPECIFIC TO THEIR EULA. AND THERE'S ALSO A COPYRIGHT MISUSE CLAIM WITH RESPECT TO THE DIGITAL MILLENNIUM COPYRIGHT ACT CLAIM THAT APPLE HAS SUBSEQUENTLY BROUGHT IN THEIR FIRST-AMENDED KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page3 of 27 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COMPLAINT. THERE'S ALSO AN UNFAIR COMPETITION CLAIM RELATED TO BOTH OF THOSE. AND I'LL EXPLAIN THE REASON WHY PSYSTAR HAS BIFURCATED BOTH OF THOSE, IN SHORT. AS THE COURT IS WELL AWARE, GRANTING LEAVE TO AMEND IS -- IT'S VERY WELL FAVORED. IN THE INSTANCES WHERE LEAVE TO AMEND IS DENIED, IT'S USUALLY BASED ON ONE OF FOUR FACTORS: BAD FAITH, WHICH WE CONTEND IS CLEARLY NOT THE CASE HERE; UNDUE DELAY, WHICH IS, AGAIN, NOT THE CASE HERE. PSYSTAR BROUGHT THEIR MOTION IN ACCORDANCE WITH THE COURT'S PRIOR ORDER. PREJUDICE TO THE OPPOSING PARTY, IN THIS CASE APPLE. WE CONTEND THAT THERE WOULD BE NO PREJUDICE HERE. AND ALSO WITH RESPECT TO FUTILITY OF THE AMENDMENT. IT'S THIS LAST CATEGORY ON WHICH APPLE OPPOSES THE MOTION, AND WHICH I WISH TO ADDRESS SHORTLY OR QUICKLY ON FOUR SPECIFIC POINTS. THE FIRST OF THOSE POINTS IS THAT WE HAVE PSYSTAR HAS PROPERLY PLED THEIR COPYRIGHT MISUSE CLAIM WITH RESPECT TO THE END-USER LICENSING AGREEMENT. THE COPYRIGHT MISUSE CLAIM IS BASED ON THE NINTH CIRCUIT'S HOLDING IN PRACTICE MANAGEMENT CORPORATION, WHICH RECOGNIZED COPYRIGHT MISUSE. ESSENTIALLY, THE PRACTICE MANAGEMENT DECISION AND SUBSEQUENTLY CLARIFIED IN THE A&M RECORDS VERSUS NAPSTER DECISION, COPYRIGHT MISUSE EXISTS WHEN A PARTY ATTEMPTS TO KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page4 of 27 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 EXPAND THE RIGHTS GRANTED UNDER THE COPYRIGHT ACT BY THE MISUSE OF THEIR COPYRIGHT, AS THE NAME SUGGESTS. SO WHEN A PARTY ATTEMPTS TO EXPAND THEIR GOVERNMENT GRANTED MONOPOLY THAT COMES WITH THE COPYRIGHT, THAT CONSTITUTES COPYRIGHT MISUSE. PSYSTAR HAS IDENTIFIED A NUMBER OF INSTANCES IN ITS AMENDED COMPLAINT, SPECIFICALLY WITH THE EULA, BEGINNING AT SECTION 47 OF ITS PROPOSED AMENDED COMPLAINT, AND THEN SUBSEQUENTLY AT SECTION 52 OF ITS PROPOSED AMENDED COMPLAINT WITH RESPECT TO APPLE'S DMCA CLAIMS. SPECIFICALLY, PSYSTAR CONTENDS THAT THROUGH THE USE OF APPLE'S COPYRIGHTS THEY ARE ATTEMPTING TO EXPAND THE RIGHTS FROM THE OS, THE OPERATING SYSTEM, WHERE THEY HAVE THOSE COPYRIGHTS, INTO THE REALM OF COMPUTER HARDWARE. COMPUTER HARDWARE IS NOT SERVICED OR COVERED BY ANY OF THE COPYRIGHTS IN SUIT IN THIS PRESENT ACTION. AS SUCH, APPLE'S ATTEMPTING TO TAKE THEIR COPYRIGHTS FOR THE SOFTWARE AND ENCOMPASS A TOTALLY SEPARATE PRODUCT, A TOTALLY SEPARATE ISSUE, NAMELY THE HARDWARE, THE APPLE-LABELED COMPUTER HARDWARE, WITHIN THOSE COPYRIGHTS, AS WELL. TRYING TO EXPAND THEIR RIGHTS BEYOND THE SCOPE OF COPYRIGHT THAT IS EXPRESSION TO SOMETHING NONEXPRESSIVE: THOSE RIGHTS. PSYSTAR ALSO CONTENDS THAT THE MEANS BY WHICH APPLE TRIES TO ENFORCE THEIR EULA THROUGH DMCA LITIGATION THEY'RE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 HARDWARE, CLEARLY IS EXPANDING Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page5 of 27 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ALSO ATTEMPTING TO ESSENTIALLY ABROGATE CERTAIN RIGHTS THAT EXIST UNDER THE COPYRIGHT ACT WITH RESPECT TO FIRST SALE, FAIR USE, AND THEN ALSO UNDER SECTION 117 CONCERNING SPECIFICALLY DISPOSING OF SOFTWARE AFTER IT'S BEEN INITIALLY PURCHASED. THOSE ISSUES ARE SET OUT CLEARLY IN THE CROSS-COMPLAINT AND ALSO IN OUR MOVING PAPERS. IT'S IMPORTANT TO NOTE, HOWEVER, THAT WHILE COPYRIGHT USE -- MISUSE MIGHT FIND ITS ORIGINS IN ANTITRUST, THERE ARE NO ANTITRUST CLAIMS AT ISSUE IN THE PRESENT COMPLAINT. SO THE ISSUES THAT LED TO THE DISMISSAL OF THE PRIOR CROSS-COMPLAINT, NAMELY MARKET DEFINITION, ET CETERA, NONE OF THOSE ISSUES ARE PRESENT HERE. HENCEFORTH, WE HAVE OVERCOME THE COURT'S ORDER OR WE'RE ADDRESSED THE COURT'S ISSUE WITH RESPECT TO HOW THIS PRESENT COMPLAINT OVERCOMES THE MOTION TO DISMISS PREVIOUSLY. THE SECOND ISSUE THAT APPLE RAISES IS WITH RESPECT TO THEY CONTEND THAT COPYRIGHT MISUSE CANNOT BE BROUGHT IN THE CONTEXT OF A DECLARATORY JUDGMENT. IN THAT CONTEXT, THEY RELY UPON THREE DECISIONS: TICKETMASTER DECISION. WITH RESPECT TO THE ALTERA DECISION, IT'S NOT -WHILE REFERENCE WAS MADE TO COPYRIGHT MISUSE AS A DEFENSE, AND THE REFUSAL TO GRANT COPYRIGHT MISUSE AS A DECLARATORY JUDGMENT IN THAT SPECIFIC INSTANCE, IT'S IMPORTANT TO NOTE THAT THERE WAS NO COPYRIGHT AT ISSUE IN THE ALTERA CASE. ALTERA HAD TO DO KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 ALTERA, MGM VERSUS GROKSTER AND THE Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page6 of 27 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WITH A CONTRACT AND INDUCED BREACH OF CONTRACT CLAIM. THERE IS, HOWEVER, A COPYRIGHT CLEARLY AT ISSUE -SEVERAL COPYRIGHTS, IN FACT, AT ISSUE IN THE PRESENT CASE. SUCH, ALTERA IS INAPPLICABLE. THE OTHER TWO DECISIONS ADDRESSED BY APPLE IN THE MOVING PAPERS, MGM AND THE TICKETMASTER CASE, BOTH OF THOSE CASES ADMITTEDLY DID DENY THE INTRODUCTION OF A COPYRIGHT MISUSE DECLARATORY JUDGMENT ACTION IN BOTH OF THOSE CASES. HOWEVER, BOTH OF THOSE DECISIONS DID NOT ADDRESS IT IN THE CONTEXT OF A PER SE RULE PROHIBITING COPYRIGHT MISUSE. FOR EXAMPLE, IN THE MGM DECISION IT WAS -- A MORE SPECIFIC DISCUSSION WAS HELD WITH RESPECT TO COPY MISUSE DOES NOT AUTOMATICALLY EQUATE TO AN AWARD OF DAMAGES. IN THE TICKETMASTER CASE THERE WAS NO ANALYSIS WHATSOEVER. IT WAS PLAIN AND SIMPLE DENIAL OF THE ALLOWANCE OF SO IT WOULD BE, I THINK, A STRETCH TO AS THE COPYRIGHT MISUSE. SAY THAT TICKETMASTER PROVIDES ANY SORT OF GUIDANCE WITH RESPECT TO HOW COPYRIGHT MISUSE MAY OR MAY NOT BE PLEAD IN THE CONTEXT OF A DECLARATORY JUDGMENT ACTION. THE COURT: WHAT DOES DECLARATORY JUDGMENT GIVE YOU THAT AFFIRMATIVE DEFENSE DOES NOT? MR. SPRINGER: IN THE CASE, AS WELL. WELL, SO AFFIRMATIVE DEFENSE IS PLED AND THIS IS ANOTHER ISSUE THAT APPLE DOES RAISE WITH RESPECT TO ARGUING THAT AFFIRMATIVE DEFENSE AND DECLARATORY JUDGMENT CANNOT BE PLED AT THE SAME TIME. AND WE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page7 of 27 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BELIEVE THAT'S INCORRECT. IN THE CONTEXT AND TO ADDRESS YOUR SPECIFIC QUESTION, THE DECLARATORY JUDGMENT, AS DECISIONS LIKE MEDIMMUNE AND ST MICRO ELECTRONICS PROVE, IT GIVES US SOMEWHAT OF A CLEAR PATH OR CLEARANCE WITH RESPECT TO HOW WE MIGHT OPERATE IN THE FUTURE. NOW, PSYSTAR HAS ADMITTED PUBLICLY THAT THEY CONTINUE TO DEVELOP PRODUCTS, HAVE NEW IDEAS, NEW R&D THAT THEY WOULD LIKE TO MOVE FORWARD INTO THE FUTURE. IT IS QUITE POSSIBLE THAT APPLE MIGHT HAVE AN ISSUE WITH THOSE, AS WELL, AS PSYSTAR DOES DO A NUMBER OR DOES MANUFACTURE A NUMBER OF PRODUCTS THAT UTILIZE THE MAC OS. IN THAT CONTEXT WE WOULD ASK THE COURT: DO WE HAVE TO WAIT TO BE SUED IN ORDER TO MOVE FORWARD WITH THOSE PRODUCTS, AS WELL? AND THAT WAS THE VERY ISSUE ADDRESSED BY THE COURTS IN MEDIMMUNE AND ST MICRO ELECTRONICS. A DJ ACTION, THE DECLARATORY JUDGMENT ACT, EXISTS SPECIFICALLY FOR THIS ISSUE SO THAT A PARTY CAN GET, YOU KNOW, SOME SORT OF CERTAINTY WITH RESPECT TO HOW THEY MAY OPERATE IN THE FUTURE SO THEY DON'T HAVE TO SIT THERE AND WAIT WITH A SORT OF DAMOCLES SWINGING OVER THEIR HEAD WITH RESPECT TO: "WELL, IF WE DO THIS ARE WE GOING TO GET SUED TODAY? WE CAN BE SUED TOMORROW." LET ME POSE THIS QUESTION: IF THE THE COURT: KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page8 of 27 8 WHAT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COPYRIGHT -- TELL ME WHAT THE COPYRIGHT MISUSE IS AGAIN? WAS THE COPYRIGHT ON, AND WHAT WAS THE MISUSE PART? MR. SPRINGER: APPLE HAS A NUMBER OF COPYRIGHTS THROUGH THEIR -- THAT THEY HAVE IDENTIFIED IN THEIR COMPLAINT AS THEY PERTAIN TO VARIOUS ASPECTS OF THE MAC OS, NOT ONLY OS 10'S -THE COURT: GIVE ME ONE EXAMPLE OF -- I'M NOT A I'VE NEVER MAC COMPUTER GEEK, EVEN THOUGH I MIGHT LOOK LIKE ONE. HEARD OF THOSE PRODUCTS. I HAVE HEARD OF APPLE. SO WHAT IS THE -- WHAT IS THE TRADEMARK -- NOT "TRADEMARK" -- WHAT IS THE COPYRIGHT ON -MR. SPRINGER: THE COURT: THE COPYRIGHT, AS WE UNDERSTAND IT -- -- AS ISSUED BY THE COPYRIGHT OFFICE? THE COPYRIGHT COVERS THE OPERATING MR. SPRINGER: SYSTEM. THE CODE THAT WHEN YOU BOOT UP YOUR COMPUTER MAKES THE COMPUTER WORK. THE COURT: ALL RIGHT. CORRECT. SO IT'S NOT THE WORD "APPLE." THAT WOULD BE THE TRADEMARK. MR. SPRINGER: THE COURT: THE WORD "APPLE." MR. SPRINGER: THE COURT: SEE, THAT WAS WHAT I -- I WAS CONFUSING NO. SO IT'S ON THE APPLE -- IT'S ON OKAY. THE ACTUAL -- IT'S GETTING A COPYRIGHT LIKE SOMEBODY WOULD ON A NOVEL, EXCEPT IT'S THE OPERATING SOFTWARE. MR. SPRINGER: CORRECT. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page9 of 27 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: SO THEY GOT A COPYRIGHT ON THE SOFTWARE. YES. MR. SPRINGER: THE COURT: SO WHAT IS THE MISUSE PART? THE COPYRIGHT BY ITS VERY NATURE MR. SPRINGER: COVERS ORIGINAL EXPRESSION. SO IN THAT CONTEXT THEY ARE ALLEGING -- APPLE IS ALLEGING THEY HAVE A COPYRIGHT THAT COVERS THE EXPRESSIVE ASPECTS OF THE OPERATING SYSTEM. AND THIS IS ASIDE FROM THE ISSUE OF THE IDEA EXPRESSION DICHOTOMY THAT EXISTS WHETHER OR NOT SOMETHING CAN ACTUALLY BE COPYRIGHTED. WE WILL SAVE THAT ISSUE FOR ANOTHER DAY. BUT PRESUMING THAT THERE IS ORIGINAL EXPRESSION IN THE OPERATING SYSTEM, APPLE ASSERTS THAT: "WE HAVE A COPYRIGHT. WE HAVE AN EXCLUSIVE RIGHT, AS THOSE RIGHTS ARE IDENTIFIED IN SECTION 106, WITH RESPECT TO THE OPERATING SYSTEM." IT COVERS ONLY EXPRESSION. EXPRESSION. NOW, WHAT THEY HAVE ATTEMPTED TO DO THROUGH THEIR COPYRIGHTS IN CONJUNCTION WITH THEIR END-USER LICENSE AGREEMENTS AND ALSO IN CONJUNCTION WITH THEIR NEW DMCA CLAIM IS TO SAY: "THIS IS GOING TO CONTROL HARDWARE, AS WELL." AND PART OF THAT IS THROUGH THEIR EULA. THAT SAYS: "YOU CAN ONLY USE THIS SOFTWARE ON APPLE-LABELED COMPUTERS." KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 COPYRIGHT COVERS ONLY Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page10 of 27 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 AND FROM THAT THEY ARE ALLEGING THAT PSYSTAR, BECAUSE PSYSTAR IS RUNNING THE MAC OS ON NONAPPLE-LABELED COMPUTERS, THEY ARE SAYING THAT WE HAVE BREACHED THE LICENSE, AND THEREFORE ENGAGED IN INFRINGEMENT OF THEIR COPYRIGHT. COPYRIGHT DOES NOT PROTECT NONCOPYRIGHTABLE SUBJECT MATTER. THE NONCOPYRIGHTABLE SUBJECT MATTER HERE IS THE HARDWARE, THE BOX THAT RUNS THE SOFTWARE ITSELF. THERE'S ALSO ISSUES, AS I MENTIONED, WITH RESPECT TO APPLE ATTEMPTING TO ABROGATE CERTAIN RIGHTS OR DEFENSES THAT EXIST UNDER THE COPYRIGHT, NAMELY FIRST SALE UNDER 109, AND ALSO THE DISPOSITION OF SOFTWARE UNDER SECTION 117 AS THOSE ISSUES ARE DISCUSSED IN OUR MOVING PAPERS. SO, IN ESSENCE, APPLE IS NOT ONLY TRYING TO EXPAND THE SCOPE OF THEIR COPYRIGHT BEYOND PURE SOFTWARE, BUT INTO THE REALM OF HARDWARE, WHICH IS NOT COVERED BY THE COPYRIGHT. ARE ALSO ATTEMPTING TO ELIMINATE CERTAIN RIGHTS THAT ARE EXPRESSLY SET FORTH IN THE COPYRIGHT ACT WITH RESPECT TO WHAT THE COPYRIGHT DOES AND DOES NOT COVER AND THE RIGHTS OF USERS, END-USERS DOWN THE LINE. THE COURT: ALL RIGHT. NOW, IF YOU WERE CORRECT THAT THEY THERE IS COPYRIGHT MISUSE AND YOU GOT A DECLARATION TO THAT EFFECT, WHAT WOULD BE THE EFFECT OF THAT? MR. SPRINGER: SO WHEN A COPYRIGHT MISUSE IS FOUND, THE COPYRIGHT IS UNENFORCEABLE. SO LET'S SAY -THE COURT: AGAINST YOU OR AS AGAINST THE WORLD? KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page11 of 27 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MISUSE. MR. SPRINGER: LEAST PSYSTAR. IT WOULD BE UNENFORCEABLE AGAINST AT AND IT WOULD ARGUABLY BE UNENFORCEABLE BY APPLE AGAINST THIRD PARTIES, AS WELL, TO THE EXTENT THAT THEY ARE ENGAGED IN SIMILAR MISUSE OF THAT COPYRIGHT. THE THEORY IS VERY SIMILAR TO THE CONCEPT OF PATENT AND, IN FACT, COPYRIGHT MISUSE AND PATENT MISUSE BOTH BUT IT'S IMPORTANT TO FIND A COMMON ORIGIN IN ANTITRUST LAW. REMEMBER, AGAIN, THAT NEITHER REQUIRES PLEADING OF MARKETS, MARKET POWER, AS WOULD BE THE CASE IN AN ANTITRUST ARGUMENT. THE COURT: ALL RIGHT. THANK YOU. LET ME HEAR FROM THE OTHER SIDE. MR. GILLILAND: FOR APPLE. TO TAKE YOU BACK JUST A STEP, YOU'LL RECALL THAT THERE WERE ANTITRUST COUNTERCLAIMS WERE ASSERTED BASED ON AN ALLEGATION OF TIE-IN BETWEEN THE MACINTOSH OPERATING SYSTEM SOFTWARE AND THE MAC HARDWARE. AND THE COURT RULED THAT THERE WAS NO -THE COURT: I REMEMBER. -- RELEVANT MARKET. THANK YOU, YOUR HONOR. JIM GILLILAND MR. GILLILAND: THE COURT: I THREW THAT OUT. ALL RIGHT. MR. GILLILAND: THE COURT: BUT NOW THIS IS A NEW THEORY. SO ESSENTIALLY WHAT PSYSTAR HAS DONE MR. GILLILAND: IS TAKEN EXACTLY THE SAME PLEADING AND SAID: KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page12 of 27 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HERE. "WELL, IF IT'S NOT ANTITRUST VIOLATION, THEN WE'RE GOING TO CLAIM THAT THIS IS COPYRIGHT MISUSE." AT SOME POINT IN THIS CASE WE WILL HAVE TO RESOLVE THE QUESTION OF WHETHER OR NOT IN THE COURSE OF INTELLECTUAL PROPERTY RIGHTS THERE COULD BE A CLAIM OF LEVERAGING WITHOUT THE DEFINITION OF A RELEVANT MARKET AND WITHOUT ANY KIND OF MARKET POWER. THAT ISSUE WILL BE RESOLVED HERE, BUT IT CAN BE RESOLVED IN THE COURSE OF THE COPYRIGHT MISUSE DEFENSE. AND THERE'S NO REASON FOR THE COURT TO HAVE TO RESOLVE IT NOW. APPLE BELIEVES THAT THESE COUNTERCLAIMS, IF ASSERTED, WOULD BE FUTILE, BECAUSE WE HAVE THE RIGHT, AS THE COPYRIGHT HOLDER, TO RESTRICT WHO COPIES OUR SOFTWARE. WE HAVE THE RIGHT TO RESTRICT WHO DISTRIBUTES OUR SOFTWARE. IF THIS HAD BEEN A NOVEL, WE COULD ONLY LICENSE OUT THE RIGHT TO PUBLISH IT IN A HARD COPY BOOK. AND WE COULD RESERVE TO OURSELVES THE DIGITAL RIGHTS FOR AN AUDIO BOOK, FOR EXAMPLE. SUCH RESTRICTIVE LICENSING OCCURS FREQUENTLY AND IS NOT UNLAWFUL IN THE ABSENCE OF MARKET POWER. THE COURT: WELL, THEY SAY YOU DO HAVE MARKET POWER MR. GILLILAND: WELL, THEY WOULD LIKE TO CLAIM THERE'S MARKET POWER, BUT THIS COURT HAS ALREADY FOUND THAT THERE CAN'T BE A MARKET RELATED OR LIMITED SOLELY TO APPLE. AND KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page13 of 27 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IF WE THEN GO AND TALK ABOUT ALL THE OPERATING SYSTEMS ON ALL THE COMPUTERS WE'RE PRETTY CONFIDENT THAT WE WILL BE ABLE TO PROVE THAT THERE'S NO MARKET POWER. THE COURT: YOU'RE SAYING THAT THE NINTH CIRCUIT HAS HELD THAT YOU CANNOT HAVE COPYRIGHT MISUSE NO MATTER HOW ABUSIVE UNLESS THERE'S MARKET POWER. MR. GILLILAND: THE COURT: I DID NOT SAY THAT YET. OKAY. BUT I DID SAY THAT THAT ISSUE WILL MR. GILLILAND: HAVE TO BE RESOLVED IN THIS CASE. WHETHER OR NOT THERE COULD BE UNLAWFUL -- THAT IT COULD BE COPYRIGHT MISUSE TO HAVE A LICENSING SCHEME SUCH AS THIS IN THE ABSENCE OF MARKET POWER. THE TRIAD SYSTEMS CASE FROM THE NINTH CIRCUIT, IN TRIAD THERE WAS A COMPUTER COMPANY THAT MADE THE HARDWARE, THAT MADE THE SOFTWARE. THEY LICENSED THE SOFTWARE TO THEIR CUSTOMERS. THEY SAID: "YOU MAY ONLY USE THIS SOFTWARE ON OUR COMPUTERS. YOU CANNOT LET ANYBODY ELSE EVEN COME IN AND USE YOUR OWN COMPUTER WITH THIS SOFTWARE." AND THE COURT HELD THAT THAT WAS NOT COPYRIGHT MISUSE. THE COURT: COURT? MR. GILLILAND: VERSUS SOUTHEASTERN. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 RIGHT, NINTH CIRCUIT. TRIAD SYSTEMS WAS THAT THE NINTH CIRCUIT OR DISTRICT Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page14 of 27 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: AND THEY SAID THAT WAS NOT COPYRIGHT? WAS THAT BEFORE OR AFTER THAT CASE THAT AUTHORIZED COPYRIGHT MISUSE? MR. GILLILAND: SYSTEMS IS 64 F.3D. MANAGEMENT CASE. THE COURT: PRACTICE MANAGEMENT WAS 121. WELL, THAT WAS BEFORE THAT, THEN. SO PRACTICE MANAGEMENT? IT WAS -- TRIAD AND IT WAS, I BELIEVE, AFTER THE PRACTICE MR. GILLILAND: THEY ALREADY ADDRESSED COPYRIGHT MISUSE THERE AND SAID THAT IT WAS NOT MISUSE. NOW, IN PRACTICE MANAGEMENT THERE WAS A DIFFERENT ALLEGATION THERE. PRACTICE MANAGEMENT, THE AMERICAN MEDICAL ASSOCIATION HAD CREATED THIS COMPENDIUM OF BILLING CODES THAT WERE GOING TO BE USED BY THE GOVERNMENT FOR MEDICARE REIMBURSEMENT. AND THEY PUBLISHED THOSE BILLING CODES AND GOT A COPYRIGHT ON THAT AND ENTERED AN AGREEMENT WITH THE HEALTH CARE FINANCE AGENCY WHICH SAID: "YOU MAY ONLY USE OUR CODES. YOU ENTER AN EXCLUSIVE DEALING AGREEMENT THAT WE WILL LICENSE OUR CODES AND OUR COMPENDIUM TO YOU, BUT THERE'S AN EXCLUSIVE AGREEMENT. YOU CANNOT USE ANYBODY ELSE'S." AND IN THAT INSTANCE, THE NINTH CIRCUIT SAID: "WELL, THAT RESTRICTS COMPETITION IN CREATING COMPENDIUMS." HERE, THERE'S NOTHING IN APPLE'S LICENSE AGREEMENT KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page15 of 27 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THAT RESTRICTS ANYBODY TO CREATE THEIR OWN OPERATING SYSTEM, RESTRICTS ANYBODY TO CREATE THEIR OWN HARDWARE. IN FACT, PSYSTAR HAS CREATED ITS OWN HARDWARE. ARE COMPETING WITH APPLE. THERE'S NOTHING IN OUR LICENSE THEY AGREEMENT THAT RESTRICTS COMPETITION IN ANY WAY. THE COURT: SAY THAT AGAIN. THERE'S NOTHING IN APPLE'S LICENSE MR. GILLILAND: AGREEMENT THAT RESTRICTS COMPETITION IN ANY WAY BECAUSE -THE COURT: ON THEIR MACHINE. MR. GILLILAND: BUT THEY CAN CREATE THEIR OWN WELL, YOU SAY THEY CAN'T USE THE SOFTWARE MACHINES, AND THEY CAN PUT THE LINUX OPERATING SYSTEM ON IT OR THE WINDOWS OPERATING SYSTEM ON IT OR THE UBUNTU OPERATING SYSTEM ON IT. AND THEY CAN SELL THEM IN DIRECT COMPETITION WITH THE APPLE MACINTOSH WITH THE APPLE OPERATING SYSTEM ON IT. AND IF I MIGHT TAKE A STEP BACK, THIS IS AN IMPORTANT ISSUE, AND IT WILL BE RESOLVED IN THIS CASE. BUT IT DOESN'T HAVE TO BE RESOLVED THROUGH A COUNTERCLAIM FOR DECLARATORY RELIEF. THE COURT: WHAT'S THE HARM OF HAVING A COUNTERCLAIM IF IT'S GOING TO BE IN THE CASE, ANYWAY? MR. GILLILAND: WELL, TWO THINGS. FIRST OF ALL, SINCE IT'S ALREADY PLEADED AS A MISUSE DEFENSE, THE ISSUE IS JOINED BETWEEN APPLE AND PSYSTAR. BUT IT IS LIMITED TO APPLE AND PSYSTAR, ESTABLISHING A PRINCIPLE IN THIS CASE, THAT ONE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page16 of 27 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COULD TAKE AN AFFIRMATIVE DEFENSE AND TURN IT AROUND AND FILE A DECLARATORY RELIEF ACTION WHEN THERE'S NOT ALREADY PENDING A LAWSUIT WOULD BE -- WOULD OPEN UP FEDERAL COURTS TO ALL KINDS OF NEW -THE COURT: THERE IS A LAWSUIT HERE. THERE IS A LAWSUIT HERE. MR. GILLILAND: THE COURT: THE THING I KEEP THINKING ABOUT IN PATENT CASES THEY DO THIS ALL THE TIME, THE PATENT OWNER SUES THE OTHER SIDE NOT ONLY DEFENDS ON THE GROUND THAT THE PATENT IS INVALID, BUT THEY ROUTINELY ASK FOR DECLARATORY RELIEF THAT IT'S INVALID AND UNENFORCEABLE. MR. GILLILAND: AND NO ONE BLINKS AT THAT. AND THE YOU'RE RIGHT, YOUR HONOR. UNENFORCEABILITY COUNTERCLAIM USUALLY SAYS: "DUE TO INEQUITABLE CONDUCT AND/OR PATENT MISUSE." THE COURT: RIGHT. SO WE WENT BACK TO THE CASE BOOKS, MR. GILLILAND: AND WE LOOKED TO FIND: IS THERE A CASE IN WHICH THE COURTS IF ACTUALLY IN THE PATENT CONTEXT ADDRESS THIS SPECIFIC ISSUE? YOU'VE ALREADY ASSERTED THIS AS AN AFFIRMATIVE DEFENSE CAN YOU ALSO ASSERT IT AS A DECLARATORY RELIEF ACTION? AND WE DID NOT FIND ANYTHING. THE COURT: I THINK THERE ARE CASES ON THAT. I REMEMBER IT COMING UP IN THIS CONTEXT BECAUSE THE ORIGINAL PLAINTIFF WITH OWNING THE PATENT DECIDED TO GIVE UP AND DISMISS KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page17 of 27 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THEIR COMPLAINT. AND THE JUDGE SAID: TOO LATE. THE OTHER SIDE HAS A RIGHT TO "NO. DECLARE YOUR PATENT INVALID." SO THE CASE THEN WENT FORWARD ON THE COUNTER CLAIM TO DECLARE -- SO THAT THE -- IN OTHER WORDS, THE DEFENDING PARTY HAD AN INTEREST IN GETTING A DECLARATION THAT THE PATENT WAS UNENFORCEABLE, EVEN THOUGH THE ORIGINAL PLAINTIFF HAD GIVEN UP BECAUSE THEY HAD OTHER PRODUCTS IN THE PIPELINE AND THEY WANTED TO GET IT CLEARED UP, CLEARED AWAY AND THEIR CUSTOMERS AND ALL OF THOSE REASONS. MR. GILLILAND: YES, THERE ARE SUCH CASES, BUT NOT ANY THAT I'VE FOUND THAT RELY EXCLUSIVELY ON THE QUESTION OF PATENT MISUSE. FREQUENTLY THEY'RE ARGUMENTS WITH UNENFORCEABILITY OR INVALIDITY RELATING TO EITHER FRAUD ON THE PATENT OFFICE OR INVALIDITY -THE COURT: THAT COULD BE. THAT COULD BE, BECAUSE I BUT WHY DON'T REMEMBER IT COMING UP WITH THE PATENT MISUSE. WOULDN'T THAT JUST BEEN ANALOGOUS TO THE OTHER? MR. GILLILAND: WELL, WHAT WE HAVE ARE TWO CASES THAT AND WE HAVE NOT THE ONES ARE DIRECTLY ON POINT INVOLVING COPYRIGHT. BEEN ABLE TO FIND ANY DIRECTLY ANALOGOUS IN PATENT. THAT ARE DIRECTLY ON POINT INVOLVING COPYRIGHT ARE MGM STUDIOS VERSUS GROKSTER AND TICKETMASTER VERSUS RMG, BOTH OUT OF THE CENTRAL OF DISTRICT OF CALIFORNIA AND BOTH INVOLVING FACT CIRCUMSTANCES WHICH ARE -- AND PROCEDURAL POSTURES WHICH ARE KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page18 of 27 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VIRTUALLY IDENTICAL TO THIS ONE. IN BOTH OF THOSE CASES THE COPYRIGHT HOLDER FILED INFRINGEMENT ACTIONS. IN BOTH OF THOSE CASES THE DEFENDANTS ASSERTED ANTITRUST COUNTERCLAIMS. IN BOTH OF THOSE CASES THE COURTS SAID THE ANTITRUST COUNTERCLAIMS WERE INADEQUATELY PLED. IN BOTH OF THOSE CASES THE DEFENDANT HAD ALSO PLEADED PATENT MISUSE AS A DEFENSE. IN BOTH OF THOSE CASES THEY THEN AND IN BOTH TRIED TO PLEAD COPYRIGHT MISUSE AS A COUNTERCLAIM. CASES THE COURT SAID: "THAT'S UNNECESSARY, IMPROPER USE OF THE DECLARATORY JUDGMENT ACT AND NEEDLESSLY COMPLICATES AN ALREADY COMPLEX CASE." THE ISSUE AS BETWEEN PSYSTAR AND APPLE IS ALREADY JOINED, AND WE DON'T NEED TO ADD ANOTHER COUNTERCLAIM TO SAY THE SAME THING OVER AGAIN. THE TICKETMASTER CASE CALLED THEM: "DUPLICATIVE AND A NEEDLESS WASTE OF JUDICIAL RESOURCES." AND THE GROKSTER CASE SAID: "THE DECLARATORY JUDGMENT ACT IS NOT INTENDED TO PROVIDE A FORUM FOR ESTABLISHING THE LEGAL RELATIONS BETWEEN DECLARATORY DEFENDANTS AND ALL THE WORLD THE MISUSE ISSUE IS ALREADY HERE IN OUR CASE, AND THAT'S SUFFICIENT." THE OTHER ALLEGATIONS HERE ARE FOR UNFAIR COMPETITION KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page19 of 27 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 UNDER THE CALIFORNIA SECTION 17200 OF THE BUSINESS AND PROFESSIONS CODE. THESE ARE ESSENTIALLY THE SAME ALLEGATIONS. THE COURT ALREADY FOUND THAT THERE WAS NO CLAIM STATED UNDER SECTION 17200. SO WE THINK, AGAIN, THAT THOSE CLAIMS SHOULD BE DISMISSED, AS WELL, OR SPECIFICALLY HERE. THE COURT: ALL RIGHT. PERMISSION TO ADD THEM NOT GRANTED MR. GILLILAND: BECAUSE THAT'S REALLY WHAT WE'RE ASKING FOR, THAT PSYSTAR IS ASKING FOR HERE. THE COURT: ALL RIGHT. THANKS. I GOT TO BRING IT TO A CLOSE. MR. GILLILAND: THE COURT: ONE MINUTE OR DO YOU NEED ANY? ONE MINUTE, YOUR HONOR? MR. SPRINGER: THE COURT: ALL RIGHT. ONE MINUTE. THREE QUICK POINTS, AND I'LL MAKE SURE MR. SPRINGER: I SPEAK SLOWLY. I APOLOGIZE AGAIN. I CAN'T EMPHASIZE ENOUGH THE IMPORTANCE THAT COPYRIGHT MISUSE IS NOT PREDICATED ON MARKET POWER. THE NINTH CIRCUIT HAS FLAT OUT SAID IN PRACTICE MANAGEMENT QUOTE: "A DEFENDANT IN A COPYRIGHT INFRINGEMENT SUIT NEED NOT PROVE AN ANTITRUST VIOLATION TO PREVAIL ON A COPYRIGHT MISUSE DEFENSE." SO MARKET POWER IS WHOLLY IRRELEVANT WITH RESPECT TO THE COPYRIGHT MISUSE CLAIMS IN THE PRESENT ACTION. THE SECOND ISSUE I'D LIKE TO ADDRESS -KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page20 of 27 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: READ THAT QUOTE QUOTE: TO ME AGAIN. MR. SPRINGER: "A DEFENDANT IN A COPYRIGHT INFRINGEMENT SUIT NEED NOT PROVE AN ANTITRUST VIOLATION TO PREVAIL ON A COPYRIGHT MISUSE DEFENSE." THE COURT: HOW ABOUT PROVING MARKET POWER, THOUGH? THERE IS NO SPEAKING ABOUT MARKET MR. SPRINGER: POWER. THERE IS NO SPEAKING ABOUT MARKET DEFINITION. WHILE COPYRIGHT MISUSE DOES FIND ITS ORIGINS FROM THE ANTITRUST, AS DOES PATENT MISUSE, COPYRIGHT MISUSE IS IN NO WAY PREDICATED UPON THE TRADITIONAL ANTITRUST MARKET POWER MARKET DEFINITION ANALYSIS. SO ANY ISSUES WITH RESPECT TO MARKET POWER -THE COURT: HOW WOULD THAT WORK HERE? WHY ISN'T IT RIGHT THAT IF APPLE HAS WRITTEN UP ITS OWN SOFTWARE, IT HAS A COPYRIGHT ON THE SOFTWARE, AND IF IT WANTS TO SAY TO ITS CUSTOMERS: "YOU CAN USE OUR SOFTWARE, BUT ONLY ON OUR COMPUTERS," WHAT'S WRONG WITH THAT? I MEAN, YOU CAN GO OUT AND DO YOUR OWN SOFTWARE OR YOU COULD USE LINUX AND SELL YOUR COMPUTER. SO WHY IS THERE A DECISION IN THE NINTH CIRCUIT THAT SAYS THAT SCENARIO IS ILLEGAL? MR. SPRINGER: IT DOESN'T SPEAK ABOUT SCENARIO, BUT THE IN THAT CONTEXT YOU'RE ALMOST ASKING TO PROVE A NEGATIVE. KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page21 of 27 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 COPYRIGHT MISUSE IS -- CONCERNS THE GOVERNMENT GRANT, THE GOVERNMENT TRUST, THE QUID PRO QUO THAT YOU GET THROUGH AN INTELLECTUAL PROPERTY -- AN INTELLECTUAL PROPERTY MONOPOLY FROM THE RELEVANT GOVERNMENT OFFICE, IN THIS CASE THE COPYRIGHT OFFICE. WITH THE COPYRIGHT YOU HAVE A VERY SPECIFIC ENUMERATED LIST OF RIGHTS. THOSE ARE SET FORTH IN SECTION 106. WHEN YOU TRY TO EXPAND THE SCOPE OF THAT COPYRIGHT BEYOND THE RIGHTS IN 106, THE RIGHT TO DISPLAY, THE RIGHT TO COPY, THE RIGHT TO DISTRIBUTE, ET CETERA, ONCE YOU EXPAND BEYOND THOSE RIGHTS AND USE THE COPYRIGHT AS SORT OF YOUR BULL PULPIT YOU ARE MISUSING YOUR COPYRIGHT. THE GOVERNMENT HAS GIVEN YOU. THE COURT: HOW WOULD IT WORK UNDER YOUR THEORY? IF YOU ARE EXPANDING THE GRANT THAT APPLE HAS THE COPYRIGHT ON THE SOFTWARE -MR. SPRINGER: THE COURT: CORRECT. -- AND YOU HAVE THE COMPUTER, AND YOU AND THEN, YOUR CUSTOMER SELL YOUR COMPUTER TO YOUR CUSTOMER. SAYS: "I WOULD LIKE TO RUN THE APPLE SOFTWARE ON THIS," AND THEN YOU HAVE TO SAY: "WELL, WE DON'T HAVE A LICENSE. WE CAN'T SELL YOU THAT. SO YOU'LL HAVE TO GO DEAL WITH APPLE." THEN, APPLE SAYS: "WE DON'T WANT TO DEAL WITH YOU. WE DON'T WANT TO KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page22 of 27 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SELL OUR SOFTWARE TO YOU." DOESN'T APPLE HAVE THE RIGHT TO DO THAT? MR. SPRINGER: APPLE HAS LIMITED RIGHTS WITH RESPECT TO THE SCOPE OF THEIR COPYRIGHT. A COPYRIGHT IS NOT A BLANKET ABSOLUTE GRANT OF TO DO WHATEVER YOU WANT TO DO, WHENEVER YOU WANT TO DO IT, HOWEVER YOU WANT TO DO IT. WITH RESPECT TO HOW YOU USE A COPYRIGHT. THE COURT: PROBABLY THERE ARE LIMITS, BUT YOUR ARE THERE ARE LIMITS NOT ADDRESSING MY SCENARIO SO -MR. SPRINGER: SCENARIO -THE COURT: IN MY SCENARIO DOES APPLE HAVE TO SELL -WELL, SO YOUR SCENARIO IS THE OR "LICENSE" IS THE RIGHT WORD -- LICENSE ITS SOFTWARE TO YOUR CUSTOMER? MR. SPRINGER: THAT THEY DON'T. IN THE CONTEXT HERE APPLE IS SAYING AND WE BELIEVE THAT BY THEM SAYING -- WE BELIEVE THAT BY HAVING A RESTRICTION IN THEIR EULA SAYING IT CAN ONLY RUN ON APPLE-LABELED COMPUTER HARDWARE THAT THEY HAVE EFFECTIVELY LEVERAGED THAT COPYRIGHT TO REQUIRE THE PURCHASE -YOU KNOW, TO BRING IN HARDWARE THAT'S NOT COVERED BY THE COPYRIGHT. IN THAT SENSE, THEY HAVE LEVERAGED THAT COPYRIGHT TO EXPAND THEIR RIGHT TO EXPAND THEIR COMMERCIAL BENEFITS, THEIR COMMERCIAL INTEREST INTO AREAS THAT ARE OUTSIDE THE COPYRIGHT LAW. THE HARDWARE, THE COMPUTER ITSELF, THE BOX, IS NOT KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page23 of 27 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PROTECTED BY ANY OF THESE COPYRIGHTS. AND THEY ARE SAYING: "WE'RE GOING TO USE THOSE COPYRIGHTS HOWEVER TO BASICALLY LASSO THOSE IN AND BASICALLY EXPAND THE RIGHT OF OUR COPYRIGHT. PSEUDO PATENT." THE COURT: POINT. WELL, ALL RIGHT. I SEE THE LEVERAGE LET ME WE ARE GOING TO CREATE A BUT YOU'RE STILL NOT ANSWERING MY QUESTION. GIVE YOU TWO SCENARIOS. MR. SPRINGER: THE COURT: ALL RIGHT. AND YOUR TIME IS UP. I APOLOGIZE. MR. SPRINGER: THE COURT: BUT IS MR. -- IS HE HERE YET? YOUR HONOR, I DON'T THINK YOU HAVE TO MR. BABCOCK: WORRY ABOUT -THE COURT: JUST A MOMENT. OKAY. WELL, WE WILL HAVE OUR HEARING IN I'M SORRY TO KEEP YOU WAITING. BUT LET ME GIVE YOU TWO SCENARIOS. SCENARIO NUMBER ONE, LET'S SAY APPLE HAS WRITTEN THIS GREAT SOFTWARE. BUT FOR PECULIAR REASONS IT WANTS TO KEEP IT TO ITSELF, AND IT'S NOT SELLING IT TO ANYBODY. IT'S GOT A COPYRIGHT ON IT, BUT IT'S NOT SELLING IT -- IT'S JUST SELLING IT INTERNALLY TO ITS OWN PEOPLE. MR. SPRINGER: THE COURT: EMPLOYEE ONLY THING. WITHIN THE COMPANY OR -JUST AN WITHIN THE COMPANY, YES. AND THEN, YOUR COMPANY COMES ALONG AND KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page24 of 27 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 KNOWS ABOUT IT AND BUILDS SOFTWARE THAT -- HARDWARE, SORRY -THAT WOULD RUN ON IT. AND YOUR CUSTOMER GOES TO APPLE AND SAYS: "SELL ME A LICENSE TO USE THAT GREAT SOFTWARE." APPLE SAYS: "NO, IT'S JUST INTERNAL ONLY." SURELY THAT CAN'T BE SOME KIND OF COPYRIGHT MISUSE. MR. SPRINGER: THE COURT: BUT THAT'S NOT THE SITUATION. I UNDERSTAND. ALL RIGHT. BUT YOU WOULD AGREE THAT THAT'S NOT ANY KIND OF MISUSE. MR. SPRINGER: IT WOULD SEEM IT WOULD BE VERY SO WITH RESPECT TO THE DIFFERENT THAN THE SITUATION HERE. ARGUMENT WE'RE MAKING FOR MISUSE HERE, NO, IT IS NOT THE SAME. THE COURT: ALL RIGHT. SO NOW WHAT THEY DO INSTEAD IS THEY DO SELL IT TO SOME PEOPLE, BUT ONLY TO THOSE PEOPLE WHO BUY THEIR COMPUTER. LICENSE IT TO BE USED ONLY WITH THEIR OWN COMPUTERS. THAT IS LEVERAGING IN A WAY, BUT -- OKAY. SO IF THEY HAD THE RIGHT TO WITHHOLD IT AND USE IT FOR THEMSELVES, WHY DON'T THEY HAVE THE RIGHT TO JUST WITHHOLD IT AND LICENSE ONLY THOSE PEOPLE WHO BUY THEIR COMPUTERS? MR. SPRINGER: DIFFERENT SCENARIOS. THE COURT: I KNOW THEY ARE DIFFERENT, BUT WHY ARE WHY SHOULD IT MAKE A DIFFERENCE? IN YOUR LATTER SCENARIO THEY PUT THE BECAUSE YOU PRESENTED TWO VERY THEY DIFFERENT LEGALLY? MR. SPRINGER: PRODUCT ON THE SHELF, AS THEY DO IN THE REAL WORLD, AS THEY DO KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page25 of 27 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IN THE PRESENT LITIGATION, AND YOU, ME, ANYONE IN THIS ROOM CAN GO INTO ANY APPLE STORE AND BUY THE PRODUCT. AND, IN FACT, THAT'S WHAT PSYSTAR DOES WITH A NUMBER OF COPIES OF THE OPERATING SYSTEM. THEY GO INTO THE APPLE STORE, AND THEY BUY IT. GO TO AN APPLE-AUTHORIZED RETAILER, AND THEY BUY IT. THEY THEY PAY GOOD AND VALUABLE CONSIDERATION TO BUY A BOX OF THE APPLE SOFTWARE OFF THE SHELF. THEY USE IT. THEY HAVE PAID GOOD MONEY FOR IT, AND AND WITH THAT COMES CERTAIN RIGHTS AND THE ELIMINATION OF CERTAIN RIGHTS WITH RESPECT TO APPLE. SO, FOR EXAMPLE, THE FIRST SALE DOCTRINE THEY HAVE EXHAUSTED CERTAIN OF THEIR RIGHTS ONCE THEY SELL THE PRODUCT FOR GOOD AND VALUABLE CONSIDERATION, AS IS THE CASE HERE. THE COURT: WELL, IF YOU'RE ABLE TO BUY THAT SOFTWARE NOW, WHAT'S THE PROBLEM? MR. SPRINGER: QUESTION. THE COURT: IT AND USING IT. MR. SPRINGER: THE COURT: EXACTLY. THEY ARE SUING YOU BECAUSE YOU ARE BUYING THAT'S APPLE. ASK APPLE THAT THEY ARE SAYING YOU SHOULD NOT BE ALLOWED TO DO THAT; THAT SOMEHOW YOU ARE VIOLATING THE LICENSE AGREEMENT. MR. SPRINGER: THEY ARE SAYING THAT WE VIOLATED THE LICENSING AGREEMENT, AND PSYSTAR'S REPLY TO THAT IS: KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page26 of 27 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "THE WAY YOU HAVE LICENSE AGREEMENT VIS-A-VIS YOUR COPYRIGHTS IS MISUSE OF YOUR COPYRIGHTS. YOU'RE EXPANDING YOUR RIGHTS TO THE HARDWARE, WHICH IS NOT COVERED BY THE COPYRIGHT." IT'S ALSO ABROGATING CERTAIN RIGHTS AND DEFENSES THAT ARE GIVEN TO PSYSTAR AND SUBSEQUENT PURCHASERS OF THE SOFTWARE UNDER THE COPYRIGHT LAW. SO IN THAT SENSE, THAT IS HOW APPLE IS MISUSING THE COPYRIGHTS. THAT IS HOW THEY ARE LEVERAGING THEIR RIGHTS FROM PURE SOFTWARE INTO THE REALM OF HARDWARE, WHICH IS NOT PROTECTED BY THE COPYRIGHT. EXPANDED THE SCOPE. SO IN THAT CONTEXT THEY HAVE THEY HAVE EXPANDED THEIR RIGHTS UNDER THE COPYRIGHT AS IS EXPRESSLY PROHIBITED BY PRACTICE MANAGEMENT AND A&M RECORDS V. NAPSTER. THE COURT: I DON'T KNOW THE ANSWER TO THIS. I'LL IT'S HAVE TO STUDY IT MORE, SO I HAVE TO BRING IT TO A CLOSE. UNDER SUBMISSION. MR. SPRINGER: MR. GILLILAND: THE COURT: THANK YOU, YOUR HONOR. THANK YOU, YOUR HONOR. THANK YOU ALL. SEE YOU SOON. (THEREUPON, THIS HEARING WAS CONCLUDED.) KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 Case3:08-cv-03251-WHA Document51 Filed02/04/09 Page27 of 27 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 2 23 24 25 KATHERINE WYATT, OFFICIAL REPORTER, CSR, RMR (925) 212-5224 __________________________________ CERTIFICATE OF REPORTER I, KATHERINE WYATT, THE UNDERSIGNED, HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS WERE REPORTED BY ME, A CERTIFIED SHORTHAND REPORTER, AND WERE THEREAFTER TRANSCRIBED BY ME INTO TYPEWRITING; THAT THE FOREGOING IS A FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS. I FURTHER CERTIFY THAT I AM NOT OF COUNSEL OR ATTORNEY FOR EITHER OR ANY OF THE PARTIES IN THE FOREGOING PROCEEDINGS AND CAPTION NAMED, OR IN ANY WAY INTERESTED IN THE OUTCOME OF THE CAUSE NAMED IN SAID CAPTION. THE FEE CHARGED AND THE PAGE FORMAT FOR THE TRANSCRIPT CONFORM TO THE REGULATIONS OF THE JUDICIAL CONFERENCE. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND THIS 24TH DAY OF JANUARY, 2009.