Apple Inc. v. Psystar Corporation

Filing 196

Memorandum in Opposition re 182 MOTION for Summary Judgment [APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT] filed byApple Inc.. (Gilliland, James) (Filed on 10/23/2009)

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Apple Inc. v. Psystar Corporation Doc. 196 Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page1 of 36 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 26 27 28 TOWNSEND AND TOWNSEND AND CREW LLP JAMES G. GILLILAND, JR. (State Bar No. 107988) MEHRNAZ BOROUMAND SMITH (State Bar No. 197271) MEGAN M. CHUNG (State Bar No. 232044) J. JEB B. OBLAK (State Bar No. 241384) Two Embarcadero Center Eighth Floor San Francisco, CA 94111 Telephone: (415) 576-0200 Facsimile: (415) 576-0300 Email: jggilliland@townsend.com mboroumand@townsend.com mmchung@townsend.com jboblak@townsend.com O'MELVENY & MYERS LLP GEORGE RILEY (State Bar No. 118304) Two Embarcadero Center, 28th Floor San Francisco, CA 94111 Telephone: (415) 984-8700 Facsimile: (415) 984-8701 Email: griley@omm.com Attorneys for Plaintiff and Counterdefendant APPLE INC. UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION APPLE INC., Plaintiff, v. PSYSTAR CORPORATION, a Florida corporation, Defendant. AND RELATED COUNTERCLAIMS. Case No. 08-3251 WHA APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT Hearing Date: Hearing Time: Courtroom: Judge: Trial Date: November 12, 2009 2:00 p.m. 9 Hon. William Alsup January 11, 2010 PUBLIC VERSION [REDACTED] APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA Dockets.Justia.com Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page2 of 36 1 TABLE OF CONTENTS Page 2 3 i. INTRODUCTION ..........................................................................................................1 4 5 II. STATEMENT OF FACTS .............................................................................................2 A. Apple's Software License Agreement...... ................... ............... ......... ...... ..... ....2 6 B. 7 8 Psystar Copies And Modifies Mac OS X To Create A Psystar Computer.............................................................................................................3 Psystar Uses Apple's Trademarks And Trade Dress To Advertise Its Computers......................................................................................6 C. 9 III. ARGUMENT ..................................................................................................................6 10 11 1. A. The First Sale Doctrine Does Not Excuse Psystar's Conduct............................7 Psystar May Not Assert The First Sale Doctrine Because It Is A Licensee, Not An Owner, Of Mac OS X................................................................................................7 Even If Psystar May Assert The First Sale Doctrine, Psystar's Copying, Modification, And Distribution Of Mac OS X Constitute Copyrght Infrngement.................................... .11 12 13 2. 14 15 B. 16 17 18 Psystar's Copying Is Not Excused By The "Essential Step" Exception.......................................................................................................... .12 1. Psystar May Not Assert A Section 117 Defense Because It Is Not An "Owner" Of The Software..................................13 2. 19 Psystar's Conduct Exceeds The Narrow Scope Of Section 117's Essential Step Defense ...................................................13 20 21 C. Infrngement..................................................................................................... .15 D. Apple Has Not Misused Its Copyrghts ............................................................17 E. 22 23 Psystar Fails To Establish Any Defense To Apple's DMCA Claims ...............................................................................................................18 1. 24 25 Psystar Concedes The Facts Establishing Its Liability Under The DMCA.................................................................................19 2. 26 27 28 3. Psystar's Legal Arguments Under The DMCA Are Unavailing .............................................................................................19 Apple's Technological Protection Measures Are Effective .. ........ .... ... ......... ... .......... ........ ...... ......... ........ ...... .......... ..... ... ..22 F. Psystar Has Not Proven Nominative Fair Use Of Apple's townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA -1- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page3 of 36 1 TABLE OF CONTENTS (continued) Page 2 3 Famous Trademarks ..........................................................................................23 G. Apple's Remaining Claims Are Not Moot.......................................................24 4 5 1. Damages............................................................................................... .24 2. Apple Is Entitled To A Permanent Injunction.......................................24 6 7 8 iv. CONCLUSION .............................................................................................................27 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 APPLE INC.S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 11 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page4 of 36 1 TABLE OF AUTHORITIES Page CASES 2 3 4 5 321 Studios v. Metro-Goldwyn-Mayer Studios, Inc., 307 F. Supp. 2d 1085 (N.D. CaL. 2004) ........................................................................... passim 6 7 8 A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001)........................................................................................... 25,26 Abdul-Jabbar v. Gen. Motors Corp., 85 F.3d 407 (9th Cir. 1996).....................................................................................................24 Abercrombie & Fitch Co. v. Moose Creek, Inc., 486 F.3d 629 (9th Cir. 2007)................................................................................................... 27 Adobe Sys. Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d 1086 (N.D. CaL. 2000) .............................................................................. 7,8,9 9 10 11 12 13 Adobe Sys. Inc. v. Stargate Software Inc., 216 F. Supp. 2d 1051 (N.D. CaL. 2002) ............................................................................ 7,8,9 14 15 Ajaxo Inc. v. E*Trade Group, Inc., 135 CaL. App. 4th 21 (CaL. App. 2005) ...................................................................................24 16 17 18 Alcatel USA, Inc. v. DGI Tech, Inc., 166 F.3d 772 (5th Cir. 1999)............................................................................................. 17,18 Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079 (9th Cir. 2005)................................................................................................. 17 19 20 21 Apple Computer, Inc. v. Formula Intl, Inc., 594 F. Supp. 617 (C.D. CaL. 1984), aff'd 725 F.2d 521 (9th Cir. 1984).....................12, 15, 16 Apple Inc. v. Psystar Corp., 22 23 586 F. Supp. 2d 1190 (N.D. CaL. 2008) .................................................................................. 17 Assessment Techs. of WL LLC v. WIREdata, Inc., 350 F.3d 640 (7th Cir. 2003)................................................................................................... 17 24 25 Atari Games Corp. v. Nintendo of America, Ltd., 975 F. 2d 832 (Fed. Cir. 1992)................................................................................................ 16 Aymes v. Bonell, 47 F.3d 23 (2d Cir. 1995)........................................................................................................ 14 26 27 28 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ................................................................................................................23 APPLE INC.S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 11 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page5 of 36 1 TABLE OF AUTHORITIES ( continued) 2 3 Page Chamberlain Group, Inc. v. Skylink Techs., Inc., 4 5 381 F.3d 1178 (Fed. Cir. 2004)............................................................................................... 20 Davidson & Assocs. v. Jung, 422 F.3d 630 (8th Cir. 2005)............................................................................................. 18,21 6 7 8 Downing v. Abercrombie & Fitch Co., 265 F.3d 994 (9th Cir. 2001)................................................................................................... 24 Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d 197 (3d Cir. 2002).................................................................................................... 16 Evolution, Inc. v. Sun 9 10 11 Trust Bank, 342 F. Supp. 2d 943 (D. Kan. 2004) ....................................................................................... 14 Foster Poultry Farms, Inc. v. Suntrust Bank, 12 13 No. 04-5513,2008 WL 160960 (E.D. CaL. Jan. 14,2008) ..................................................... 24 Freeman v. Lasky, Haas & Cohler, 410 F.3d 1180 (9th Cir. 2005).................................................................................................18 14 Hampton v. Paramount Pictures Corp., 15 279 F.2d 100 (9th Cir. 1960)................................................................................................... 10 16 17 18 Horphag Res. Ltd. v. Pellegrini, 337 F.3d 1036 (9th Cir. 2003)........................................................................................... 23, 24 In re Adbox, Inc., 488 F.3d 836 (9th Cir. 2007)................................................................................................... 12 In re Psystar Corp., 19 20 21 Case No. 09-19921 (S.D. Fl. 2009)......................................................................................... 26 Jorst v. D 'Ambrosio Bros. Inv. Co., 22 23 No. 00-03646, 2001 WL 969039 (N.D. CaL. Aug. 13,2001) ................................................. 12 Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005).............................................................................................. 14, 15 Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970 (4th Cir. 1990)................................................................................................... 17 Lexmark Int 'I Inc. v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004)................................................................................. 15, 16,20,21 24 25 26 27 28 townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-325 I WHA - iV- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page6 of 36 1 TABLE OF AUTHORITIES ( continued) 2 3 Page MAl Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993)......................................................................................... 9, 11, 13 4 5 Martone v. Burgess, No. 08-2379,2008 WL 3916022 (N.D. CaL. Aug. 25, 2008) ................................................. 24 MDY Indus., LLC v. Blizzard Entm 't, Inc., 616 F. Supp. 2d 958 (D. Ariz. 2009)....................................................................................... 26 MDY Indus., LLC v. Blizzard Entm 't, Inc., No. CV-06-2555, 2008 WL 2757357 (D. Ariz. July 14, 2008) ..............................................13 6 7 8 9 10 11 Metro-Golden-Mayer Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197 (C.D. CaL. 2007)............................................................................. 26, 27 Midway Mfg. Co. v. Strohon, 564 F. Supp. 741 (N.D. IlL. 1983) ....................................................................................... 7, 14 Mirage Editions, Inc. v. Albuquerque A.R. T. Co., 856 F .2d 1341 (9th Cir. 1988)............................................................................................. 7, 11 12 13 14 15 MySpace, Inc. v. Wallace, 498 F. Supp. 2d. 1293 (C.D. CaL. 2007).................................................................................. 26 Nissan Fire & Marine Ins. Co. v. Fritz Co., 16 17 18 210 F .3d 1099 (9th Cir. 2000)................................................................................................. 23 Novell, Inc. v. Unicom Sales, Inc., No. C-03-2785, 2004 WL 1839117 (N.D. CaL. 2004) .............................................................. 8 19 20 21 Pearl Inv., LLC v. Standard I/O, Inc., 257 F. Supp. 2d 326 (D. Me. 2003) ........................................................................................ 23 PGBA v. Us., 389 F.3d 1219 (Fed. Cir. 2004)............................................................................................... 25 Practice Mgmt. Info. Corp., v. Am. Medical Ass 'n, 22 23 121 F.3d 516 (9th Cir. 1997)...................................................................................................18 24 Prof'l Real Estate Investors v. Columbia Pictures, 25 508 U.S. 49,113 S. Ct. 1920 (1993)....................................................................................... 18 Qad, Inc. v. ALN Assoc., Inc., 770 F. Supp. 1261 (N.D. IlL. 1991), aff'd974 F.2d 834 (7th Cir. 1992).................................17 26 27 28 townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-325 I WHA - v- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page7 of 36 1 TABLE OF AUTHORITIES ( continued) 2 3 Page RealNetworks, Inc. v. D VD Copy Control Ass 'n, _ F. Supp. 2d _,2009 WL 2475338 (N.D. CaL. Aug. 11,2009) .......................18, 19,20,22 4 5 Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597 (9th Cir. 1991)...................................................................................................26 Schloss v. Sweeney, 6 7 8 515 F. Supp. 2d 1068 (N.D. CaL. 2007) .................................................................................. 17 Servo & Training, Inc. V. Data Gen. Corp., 963 F .2d 680 (4th Cir. 1992)..................................................................................................... 8 9 10 11 Silverstein V. Penguin Putnam, Inc., 368 F.3d 77 (2d Cir. 2004)...................................................................................................... 25 SimplexGrinell LP, 12 13 2009 U.S. Dist. LEXIS 30657 (S.D.N.Y. Mar. 31, 2009) ...................................................... 25 Sony Computer Entm't Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957 (N.D. CaL. 2006) .............................................................................. 20, 22 14 15 16 17 18 Stuart Weitzman, LLC v. Micro Computer Res., Inc., 510 F. Supp. 2d 1098 (S.D. Fla. 2007), vacated on other grounds, 542 F.3d 859 (11th Cir. 2008) ................ ........ ............ ....... ..... ..... ............ .......................... ........ .................... ......... 14 Taylor v. List, 880 F.2d 1040 (9th Cir. 1989)................................................................................................. 24 Triad Systems Corp. v. Southeastern Express Co., 19 64 F.3d 1330 (9th Cir. 1995)......................................................................................... 9, 13, 15 United States V. Wise, 20 21 550 F.2d 1180 (9th Cir. 1977)............................................................................................. 9, 10 Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001)............................................................................................. passim Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294 (S.D.N.Y. 2000)......................................................................... 19,22,23 Vernor V. Autodesk, Inc., 22 23 24 25 26 27 28 No. 07-1189, 2009 WL 3187613 (W.D. Wash. Sept. 30, 2009)......................................... 9,10 Vernor v. Autodesk, Inc. 555 F. Supp. 2d 1164 (W.D. Wash. 2008)..........................................................................9, 10 townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA - VI - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page8 of 36 1 TABLE OF AUTHORITIES (continued) Wall Data Inc. v. Los Angeles County Sherifs Dept., 2 3 Page 4 5 447 F.3d 769 (9th Cir. 2006)..................................................................................... 7,9, 11, 13 STATUTES 6 7 8 15 U.S.C. 1116........................................................................................................................... 25 17 U.S.C. 101...............................................................................................................................1 17 U.S.C. 109.................................................................................................................7,8,9,11 17 U.S.C. 117 ...................................................................................................................... passim 9 10 11 17 U.S.C. 202...............................................................................................................................8 17 U.S.C. 502(a) ........................................................................................................................25 17 U.S.C. 1201.................................................................................................................... passim OTHER AUTHORITIES 12 13 14 15 Fed. R. Civ. P. 8(c)........................................................................................................................ 12 Final Report of the National Commission on New Technological Uses of Copyrghted 16 17 18 Works (1978) .......................................................................................................................... 15 H.R. Rep. No. 105-551, pt. 2 (1998)............................................................................................. 22 S. Rep. No. 105-190 (1998) .......................................................................................................... 20 19 20 21 22 23 24 25 26 27 28 APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - V11 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page9 of 36 1 I. INTRODUCTION 2 Psystar admits that it copies, modifies and distributes Apple's copyrghted software, Mac 3 OS X, without Apple's consent. Psystar admits that it circumvents - also without Apple's consent 4 - technological protection measures in Mac OS X in order to cause it to operate on computers that 5 were not designed by Apple and for which the software was never intended. Thus, unless Psystar 6 can demonstrate that its conduct falls within narrow exceptions to the statutes - and it cannot7 Psystar has violated both the Copyrght Act, 17 U.S.c. 101, et seq., and the Digital Milennium 8 Copyrght Act, 17 U.S.C. 1201, et seq. 9 Psystar attempts to defend against Apple's copyrght infrngement and DMCA claims by 10 arguing that it is the "owner" of copies of Mac OS X and, therefore, can do with those copies as it 11 pleases. This argument fails for two reasons. First, Psystar is not the owner; it is a licensee of 12 Mac OS X, and Psystar's right to use the software is strictly limited by Apple's license. Second, 13 even if, contrary to the facts, Psystar were an owner of a copy of Mac OS X, Psystar's infringing 14 conduct exceeds the limited activities permitted by the "first sale" and "essential step" exceptions 15 in the Copyrght Act. 17 U.S.C. 109 and 117. The law squarely prohibits Psystar from 16 modifying, reproducing and distributing Apple's copyrghted software without Apple's 17 permission, even if Psystar were deemed an owner of a particular copy. If Psystar' s interpretation 18 of these doctrines was correct, a customer who purchases a book, movie or music CD would be 19 free to make and sell unlimited reproductions of that work and to publish and distribute derivative 20 works all because the customer is the "owner" of a single copy. Such a result would completely 21 eviscerate the copyrght laws. 22 Psystar argues that even if it has infrnged, Apple cannot enforce its copyrghts because it 23 has misused them. But Psystar has presented no evidence to support either ground for copyrght 24 misuse. First, there is no evidence that Apple has market power and has misused it, an issue 25 already addressed earlier in this case. Second, Psystar offers no evidence - because none exists 26 that Apple has used its copyrghts to subvert the goals of the Copyrght Act. 27 Psystar's argument that it is not liable for trademark and trade dress infrngement should 28 similarly be rejected. Psystar admits that it uses Apple's trademarks and trade dress to promote townsend. APPLE INC.S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA -1- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page10 of 36 1 the sale of its infrnging products, but asserts that its conduct is excused as "nominative fair use." 2 This is wrong. Psystar has used Apple's marks in ways that far exceed what is "reasonably 3 necessary" to identify its products and has engaged in other conduct clearly intended to suggest 4 that its products are sponsored by Apple. 5 Despite its insistence that it has not infrnged Apple's rights, Psystar nevertheless states 6 that it wil stipulate to a permanent injunction and an award of nominal damages against it, and 7 then contends that the remainder of Apple's claims against it are moot. The relief that Psystar 8 proposes is insufficient. While Psystar's infrngement should be enjoined, any injunction must be 9 broad enough to prohibit Psystar's continued unlawful conduct and protect Apple against the 10 recurrence of such conduct. Furthermore, a trier of fact must determine whether Psystar must 11 disgorge its sales revenue, whether Psystar's infrngement has been wilful, and whether punitive 12 damages are appropriate. 13 As revealed by their simultaneous motions for summary judgment, Apple and Psystar 14 agree there are no material issues of fact regarding Apple's claims that Psystar has engaged in 15 copyrght infringement and violated the DMCA. As demonstrated below, and in Apple's motion 16 for summary judgment, the law and facts require entry of judgment in Apple's favor on those 17 claims. 18 II. STATEMENT OF FACTS 19 The statement of facts Psystar includes in its motion is incomplete and misleading. 20 Moreover, when describing its own activities, Psystar's statement of facts is totally devoid of 21 citations to admissible evidence. Nonetheless, the facts that are actually relevant to this case, 22 which are set forth below, are undisputed. 23 A. Apple's Software License Agreement 24 It is uncontested that Apple sells boxes containing DVDs on which its copyrighted Mac 25 OS X software is written. (Psystar Br. at 5.) Apple includes a Software License Agreement 26 ("SLA") with its software that specifically states that "Apple and/or Apple's licensor(s) retain 27 ownership of the Apple Software itself." (Psystar Br. at 6 and Ex. A at 1.) The SLA also states: 28 APPLE INC. 'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. -2- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page11 of 36 1 2 3 BY USING THE APPLE SOFTWARE, YOU ARE AGREEING TO BE BOUND BY THE TERMS OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS LICENSE, DO NOT USE THE SOFTWARE. (Psystar Br., Ex. A at Preamble.) The SLA specifically restricts use of Mac OS X to Apple 4 5 computers (id. 2.A.): 6 7 the Apple Software on a single Apple-labeled computer as at 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. This License allows you to install, use and run one (1) copy of 8 The SLA also prohibits modification of Mac OS X (id. 2.F) and the sale of any modified 9 versions of Mac OS X (id. 3). B. 10 Psystar Copies And Modifes Mac OS X To Create A Psystar Computer 11 Psystar purchases computer components from third parties and assembles them. (Psystar 12 Br. at 9.) Psystar then loads onto those computers Apple's Mac OS X software, which Psystar 13 modifies with its "own software" to "add features ... to get OS X Leopard to work on a wider 14 range of computers than simply Apple Macintoshes." (Id. at 9, 11.) 15 Psystar contends that it purchases a Mac OS X DVD at retail (the "Retail DVD Version") 16 for each computer it sells, and Psystar claims that it includes the Retail DVD Version with each 17 computer it ships to its customers. (Psystar Br. at 9-10.) But Psystar does not install the software 18 written on that Retail DVD Version onto each Psystar computer. Instead, as ilustrated below, 19 Psystar makes at least three infrnging copies of Mac OS X during its manufacturing process and 20 never actually utilizes the Retail DVD Version that it allegedly includes with each computer. 21 III 22 III 23 III 24 III 25 III 26 III 27 III 28 III townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA -3- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page12 of 36 1 Psystar's Copying Process Unauthoried Copy Unauthoried Copy Type 2 3 Unauthorzed Copy Typ Typ 1 2 3 4 5 _OOX. "... "', OSX l r' ".i.:.:.:.i.'.:.:. : Mac: ..Q$X.: 6 ';~~'\ 7 8 :OS)(: 9 ;"'PSYSTAR 10 11 Imaging'Station :;~~;,) :OS.)(.: Installation on a Mac mini Unauthorized Copies on Psystar computers 12 13 14 Psystar copies the hard drive of a Macintosh computer containing Mac OS X (as depicted 15 above on the left side of the diagram) onto its "imaging station" computer (shown in the middle of Mac OS X to 16 the diagram). This is the first unlawful copy. Psystar then modifies this copy of 17 create a "master copy" that wil run on non-Apple computers. i Psystar next uses "hard drive 18 imaging" to install copies of its "master copy" of Mac OS X2 from the imaging station onto each 19 computer it assembles.3 This is the second unlawful copy (a process repeated many times). 20 Finally, every time Psystar turns on any of the Psystar computers running Mac OS X, which it 21 22 23 i Kelly Decl. irir 22-24; Chung Decl. Ex. 3 (Benavides Dep.) at 30:17-31:11; Ex. 8 at 89:1991 :20. This is not the copy of the software on the Retail DVD Version. (Boroumand Smith Decl. Ex. 1 (Roberto Pedraza Dep.) at 61 :5-22.) Whenever possible Apple wil refer to, and rely upon, evidence submitted with its own Motion for Summary Judgment, including the Declaration of John P. Kelly ("Kelly Decl.") and the Declaration of Megan Chung ("Chung Decl.") and the exhibits and testimony included with those declarations. Any additional evidence submitted in further opposition to this motion is attached to the Declaration of Mehmaz Boroumand Smith in Opposition to Psystar's Motion for Summary Judgment ("Boroumand Smith Decl."). 2 Psystar admits that it has made at least three "master copies," and Apple's expert has identified five distinct master copies. Chung Decl. Ex. 25. (Psystar's Responses to Court-Ordered Interrogatories 1-15) at Nos. 13-14; Kelly Decl. irir 15, 18, 25 and Table 2. 3 Kelly Decl. irir 22-26; Chung Decl. Ex. 9 at 91: 18-93: 17. 24 25 26 27 28 townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA - 4- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page13 of 36 1 does before shipping each computer, Psystar necessarily makes a separate modified copy of Mac 2 OS X in Random Access Memory, or "RAM.,,4 This is the third unlawful copy. 3 As this process shows, the Mac OS X software installed on Psystar computers is a different 4 copy of the software than the Retail DVD Version. The installed version has been modified so 5 that it can run on Psystar's hardware. Indeed, when Psystar demonstrated its manufacturing 6 process to Apple's expert, Dr. John Kelly, he confirmed that Psystar never uses the Retail DVD 7 Version Psystar claims to include with the computers it sells.5 8 It is undisputed that Psystar modifies Mac OS X and circumvents Apple's technological 9 protection measures so that Mac OS X is capable of running on Psystar computers.6 Psystar 10 agrees that Apple's expert, Dr. Kelly, "clearly describer s J" Psystar's method for circumventing 11 Apple's security mechanism in Mac OS X. (Psystar Br. at 15.)7 12 13 14 15 16 17 18 4 Kelly Decl. ir 28; Chung Decl. Ex. 18, Psystar Supp. Responses to Nos. 94-95. 5 Kelly Decl. ir 20. For a detailed description ofPsystar's process, please see Apple's Motion 19 20 21 for Summary Judgment at pages 7-9 and the referenced exhibits and testimony. The versions of Mac OS X loaded onto the many Psystar computers Dr. Kelly has examined have been different from the Retail DVD Version Psystar ships with those computers. Kelly Decl. irir 25-26; Chung Decl. Ex. 68. 6 Kelly Decl. irir 4, 18; Chung Decl. Ex. 9 at 21 :24-23:13; Ex. 23 at NO.1 0 (Psystar claims it 22 23 24 25 ( edJ technology that would allow the Mac OS to run on a hardware platform other than that of an Apple-Labeled Computer Hardware System."); Exs. 51-54. 7 Psystar repeatedly cites Dr. Kelly's expert report, but fails to provide the relevant portions of that report to the Court. The sections of Dr. Kelly's report, cited by Psystar in its brief, are submitted as Exhibit 2 to the Boroumand Smith Declaration. "develop 8 Kelly Decl. ir 27a; Chung Decl. Ex. 5 at 98:11-23; Ex. 9 at 62:22-64:3. 9 Chung Decl. Ex. 15 at 150:6-10; Kelly Decl. ir 17. 26 27 28 APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA io Chung Decl. Ex. 5 at 98:11-23; Kelly Decl. irir 17 (Table 3), 27a. 1 I Kell Decl. 27 b - e Table 4 . Chun Decl. Ex. 24 at No. 21 townsend. -5- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page14 of 36 1 c. Psystar Uses Apple's Trademarks And Trade Dress To Advertise Its Computers 2 3 When Psystar advertises and sells its computers running Mac OS X, it knowingly trades on 4 Apple's famous trademarks and its trade dress to deliberately target customers already interested 5 in buying an Apple computer. In an obvious attempt to capitalize on Apple's goodwil, Psystar 6 first called its computer the "OpenMac." (Psystar Answer ir 12.) Psystar's advertisements 7 extensively use Apple's trade dress and Apple and Mac logoS.12 More than 75 percent ofPsystar's 8 text ads include an Apple trademark or trade name.13 In addition, Psystar uses Apple's word 9 marks APPLE and MAC in the address of certain pages within its website (the URL), such as 10 ..www.Psystar.com/OpenMac...14 Also, Psystar created URLs that wil deliberately attract people 11 seeking to buy an Apple computer.15 And Psystar purchased search terms from Google and 12 Yahoo! based upon Apple's marks and products, so that Google or Yahoo! users searching for an 13 Apple computer or Mac OS X are distracted, confused, and diverted by Psystar ads.16 Thus, 14 Psystar has deliberately targeted its advertising to consumers already interested in buying an 15 Apple computer. 16 III. ARGUMENT 17 Psystar has presented no evidence to dispute that it copies, modifies, and distributes Mac 18 OS X without Apple's consent. The facts set forth above, and in Apple's Motion for Summary 19 Judgment, establish that Psystar has infringed Apple's copyrghts and trademarks and violated the 20 DMCA. Psystar therefore relies on certain legal defenses, including the first sale and essential 21 22 12 Boroumand Smith Decl. irir 4-6 & Exs. 3-5; Chung Decl. Ex. 50. 23 24 25 26 27 28 all text ad impressions used the headline of"'$554 OSX Leopard Computer." LeopardCI is Apple's registered trademark. /d. at Ex. 7. 14 Boroumand Smith Decl. irir 8, 10 & Ex. 7. This "OpenMac" URL was seen over 3.8 milion times according to the data produced by Psystar from Google's AdWords program. ld., Ex. 7. 15 See, for example, ''http://www.psystar.com/why_buy_a_used_apple_computer.html'' or ..http://www.psystar.com/looking_to_get_an_apple _ computer.html." Boroumand Smith Decl. 13 Boroumand Smith Decl. irir 8-9 & Ex. 7. For example, 25% percent of irir 10-11 & Ex. 8. 16 Boroumand Smith Decl. Exs. 5, 7-9, 10 at RFA Response Nos. 142-46, 148-52, 158. townsend. APPLE INC. 'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA -6- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page15 of 36 1 step doctrines, copyrght misuse, and nominative fair use in an attempt to defend against Apple's 2 claims. For the reasons set forth below, each ofPsystar's arguments fails. 3 A. The First Sale Doctrine Does Not Excuse Psystar's Conduct 4 Psystar cannot excuse its infrngement of Apple's copyrghts by relying on the "first sale" 5 doctrine. The "first sale" rule, 17 U.S.C. 109(a), only allows the owner of a "particular copy" to 6 "dispose of the possession of that copy." This applies strictly to the "particular" physical copy as 7 "purchased and nothing else." Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341, 8 1344 (9th Cir. 1988) (emphasis added). "Section 109 does not authorize adaptation and 9 reproduction ofa copyrghted work." Midway Mfg. Co. v. Strohon, 564 F. Supp. 741, 745 (N.D. 10 IlL. 1983). Moreover, section 109 does not supersede the copyrght holder's exclusive right to 11 create derivative works. Mirage, 856 F.2d at 1341, 1344; Midway, 564 F. Supp. at 741. Psystar 12 argues that because it "owns" the DVD on which Mac OS X is written, it is entitled to (1) modify 13 Mac OS X and create derivative works, (2) make and distribute unlimited copies of Mac OS X, 14 and (3) circumvent Apple's technological protection measures. Psystar's argument is profoundly 15 wrong. 16 17 1. Psystar May Not Assert The First Sale Doctrine Because It Is A Licensee, Not An Owner, Of Mac OS X 18 By its terms, section 1 09( a) is limited to the "owner" - not the licensee - of a particular 19 copy. As is typical in the software industry, Apple licenses its software to end users. See Wall 20 Data Inc. v. Los Angeles County Sherifs Dept., 447 F.3d 769, 786 n.9 (9th Cir. 2006) ("(TJhe first 21 sale doctrine rarely applies in the software world because software is rarely 'sold. "'); Adobe Sys. 22 Inc. v. Stargate Software Inc., 216 F. Supp. 2d 1051, 1059 (N.D. CaL. 2002) (noting how software 23 "fundamentally differs from more traditional forms of medium"); Adobe Sys. Inc. v. One Stop 24 Micro, Inc., 84 F. Supp. 2d 1086, 1091-92 (N.D. CaL. 2000). Psystar acknowledges that Apple, 25 when providing its software to users, expressly states that the Mac OS X software "is licensed, not 26 sold, to you by Apple Inc. ('Apple') for use only under the terms of this License, and Apple 27 reserves all rights not expressly granted to you." (SLA 1 (emphasis added).) This license 28 language also is featured on the outside of the packaging for Mac OS X, which states: townsend. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA -7- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page16 of 36 1 "Important Use of this product is subject to acceptance of the Software License Agreement(s) 2 3 included in this package. Don't steal software. www.apple.com...17 The SLA's express terms, which impose significant limitations and prohibitions on the use and disposition of Apple's software, confirm that the purchasers of 4 5 Mac OS X are licensees, not owners, and therefore are not entitled to assert section 109 as a defense to infrngement. Among the SLA's restrictions are (1) prohibitions against unauthorized uses ofthe software (SLA 2A); 6 7 8 (2) prohibitions against renting, redistributing, or sub-licensing (SLA 3); (3) limitations on transfer (SLA 3); (4) limitations on copying the software (SLA 2C and 2F); (4) prohibitions on modifying the software (SLA 2F); (5) automatic termination in case of 9 breach (SLA 5); and 10 11 (6) mandatory destruction of the software in case of breach (SLA 5). Such profound restrictions the software and, instead, are wholly inconsistent with Psystar's claimed "ownership" of 12 13 conclusively identify a license transaction. See, e.g., Stargate Software, 216 F. Supp. 2d at 105758 (finding that terms similar to the SLA "substantially and undeniably interfere(dJ with. . . (theJ ability to distribute andlor convey title to the products in question"); One Stop Micro, 84 F. Supp. 14 15 2d at 1091-92 ("(NJumerous restrictions imposed by Adobe indicate a license rather than a sale because they undeniably interfere with the reseller's ability to further distribute the software."); Novell, Inc. v. Unicom Sales, Inc., No. C-03-2785, 2004 WL 1839117, at *11 (N.D. CaL. 2004) 16 17 18 (reservation by copyrght owner of all rights not expressly granted and automatic termination for breach indicate a license). 19 20 21 Psystar quotes a single clause from the SLA providing that the licensee owns the "media on which the Apple software is recorded," and argues that this somehow supports Psystar's 22 23 ownership of the software. Psystar is wrong. The plain meaning of this phrase is that Psystar owns only the disk, not the software written upon it. The Copyrght Act makes clear that "( 0 Jwnership of a copyrght, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied." 17 U.S.C. 202. Transfer of 24 25 26 27 28 the "material object" in which the work is "fixed" does not convey rights in the work itself. /d.; see also Servo & Training, Inc. V. Data Gen. Corp., 963 F.2d 680,687 n.13 (4th Cir. 1992). 17 Boroumand Smith Decl. ir 19. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. -8- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page17 of 36 1 Vernor v. Autodesk provides little support for Psystar's argument that it owns a copy of 2 3 Mac OS X and is therefore entitled to assert first sale and essential step defenses. Vernor v. Autodesk, Inc. 555 F. Supp. 2d 1164 (W.D. Wash. 2008) ("Vernor l') and Vernor v. Autodesk, 4 5 Inc., No. C07-1189, 2009 WL 3187613 (W.D. Wash. Sept. 30, 2009) ("Vernor Il'). First, as the Vernor court itself noted, its holding is inconsistent with recent Ninth Circuit case law finding that 6 7 8 software licenses precluded the defendants in those cases from asserting the first sale and essential step doctrines: Wall Data, Inc. v. Los Angeles County Sherif's Department, 447 F.3d 769 (9th Cir. 2006), Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995) and 9 10 11 MAl Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993). The Vernor court acknowledged that: precedent (the "MAl trio") to the Ifthe court were to apply this trio of license before it, it would conclude that Autodesk did not sell the Autodesk AutoCAD copies to (the purchaser). The terms of License are either indistinguishably similar to or more restrictive than the licenses found not to be sales in the MAl trio. 12 13 14 15 Vernor I, 555 F. Supp. 2d at 1172. Vernor also is inconsistent with recent Northern District of California case law. See, e.g., Stargate Software, 216 F. Supp. 2d at 1057-58; One Stop Micro, 84 F. Supp. 2d at 1091-92. 16 17 18 Furthermore, even if Vernor did apply, the holding is extremely narrow. The court found that Mr. Vernor could resell on eBay the genuine AutoCAD software discs he had purchased. Mr. Vernor did not modify the AutoCAD software; he did not create a master copy of the software to 19 20 21 use for mass duplication; he did not pre-install the AutoCAD software onto computers while retaining the master copy; nor did he circumvent a technological protection measure to do all of 22 23 the above. None of these infrnging activities is permitted by section 109, even if the infrnger is deemed an owner. Because Psystar does all of these things, Vernor does not immunize Psystar's 24 25 infrngement. Similarly, Psystar's argument that United States v. Wise, 550 F .2d 1180 (9th Cir. 1977), 26 27 28 the case on which Vernor primarily relies, excuses its actions, should be rejected. Wise addressed whether the transfer of certain film reels and prints constituted sales. Psystar argues that under Vernor and Wise, because a "buyer" of a Mac OS X DVD "may keep the DVD indefinitely," a APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 9- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page18 of 36 1 sale must have occurred. (Psystar Br. at 7.) This is factually incorrect,18 and focuses on only a 2 single factor in the test applied in Wise.19 In determining whether a given transfer was to an owner 3 or a licensee, the Wise court considered multiple factors which establish that Apple licenses Mac 4 OS X. Specifically, the court observed that (1) agreements with limitations on duplicating or 5 copying indicate a license; (2) agreements designated as licenses and transferrng "only limited 6 rights" indicate a license; (3) reservation of right of title indicates a license; (4) agreements "not 7 phrased in terms of a license" indicate a sale; and (5) an upfront payment standing alone does not 8 establish a sale when considered in light of the entire agreement. 9 The only transaction the court in Wise determined was a "sale" was the so-called Redgrave 10 Contract (Wise, 550 F.2d at 1191-92), in which Warner Brothers gave actress Vanessa Redgrave a 11 print of "Camelot." The Redgrave Contract nowhere stated that it was a license. Instead it stated 12 that Redgrave "wil pay (Warner Brothers) our cost for said print" and "(s)aid print is furnished for 13 your personal use and enjoyment and shall be retained in your possession at all times." Wise, 550 14 F.2d at 1192. The Redgrave Contract further had no termination or destruction provisions. Id.2o 15 By contrast, Apple's SLA states unequivocally that it is a license and includes destruction and 16 termination provisions. See also Hampton v. Paramount Pictures Corp., 279 F.2d at 103 17 (agreement is a license where rights are "expressly restricted" and the agreement is called a 18 "license" - even if there "was no requirement that outstanding prints and negatives were to be 19 returned"). 20 21 22 23 this License, you shall cease all use of the Apple Software and destroy all copies, full or partial, of the Apple Software." Chung Decl. Ex. 26 ir 5. i 9 The court in Vernor found that under Wise, "the critical factor" in determining whether a 18 The Mac OS X SLA specifically provides that "Upon the termination of transaction is a sale or a license is "whether the transferee kept the copy acquired from the 24 25 copyrght holder." 555 F. Supp. 2d at 1170. The Vernor court failed to note, however, that the court in Wise cited a case where although there was no requirement that the purchaser of certain film prints and negatives return the materials, "the agreement on its face (was) clearly a license." Wise, 550 F.2d at 1189 (discussing Hampton v. Paramount Pictures Corp., 279 F .2d 100 (9th Cir. 1960)). 26 27 28 20 Neither did the agreement in Vernor. There was a type of destruction provision but "the decision to accept Autodesk's destruction requirement (was) entirely in the control ofthe licensee." Vernor, 2009 WL 3187613 at *7. Apple's licenses do not provide this freedom when its licensee's rights are terminated. APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 10- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page19 of 36 1 2. 2 Even If Psystar May Assert The First Sale Doctrine, Psystar's Copying, Modifcation, And Distribution Of Mac OS X Constitute Copyright Infringement 3 Section 1 09( a) permits the owner of a "particular copy" of software to "sell or otherwise 4 dispose of possession of that copy" without the copyrght owner's permission. 17 U .S.C. 5 109(a); Mirage, 856 F.2d at 1344. As discussed above, in the course of building its computers 6 Psystar makes three types of unauthorized copies from a single copy of Mac OS X that it 7 purchased at retail: (1) Psystar copies Mac OS X from an Apple computer onto its non-Apple 8 "imaging station"; (2) Psystar then uses the imaging station to make multiple modified copies of 9 Mac OS X which it installs on every Psystar computer; and (3) Psystar makes an additional copy 10 of Mac OS X in RAM whenever it turns on its computers. None of these copies is the "particular 11 copy" of Mac OS X that Psystar purchased. See, e.g., MAl Sys. Corp., 991 F .2d at 518-19 12 (copying to RAM alone constitutes infrngement); see also Wall Data, 447 F.3d at 775. Thus, 13 even ifPsystar were deemed the owner ofthe particular copies of Mac OS X that it purchased, 14 Psystar may not assert the first sale doctrine with respect to any of the unauthorized copies it 15 makes. 16 Furthermore, the undisputed facts establish that Psystar modifies every copy of Mac OS X 17 that it installs so that Mac OS X can run on Psystar's computers. None of these modified copies is 18 permitted by section 109 because none constitutes the "particular copy" of Mac OS X that Psystar 19 purchased. Mirage, 856 F.2d at 1344 (first sale doctrine did not apply to the defendant's sale of 20 prints that the defendant removed from a book it purchased and then framed and resold; "the 21 derivative works right, remains unimpaired and with the copyrght proprietor"). Thus, even if 22 Psystar owns a particular copy of Mac OS X, it stil has infrnged Apple's copyrghts by 23 modifying Mac OS X and creating multiple unauthorized derivative works. 24 Psystar's argument that it is absolved ofliability for copyrght infrngement because it 25 allegedly purchases and redistributes a genuine Retail DVD Version of Mac OS X with each of its 26 computers should be rejected. Psystar offers no evidence that it actually ships a Retail DVD 27 Version of Mac OS X with each of its computers, and its motion fails for this lack of admissible 28 APPLE INC.'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 11 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page20 of 36 1 evidence alone.21 Even assuming Psystar could prove that it included the Retail DVD Version 2 with each computer it shipped, Psystar would at most be entitled to assert the first sale doctrine 3 with respect to that particular copy of the Retail DVD Version. As discussed above, Psystar is not 4 entitled to assert the first sale doctrine with respect to the three types of unauthorized copies and 5 any modified copies that Psystar makes, and all of these copies infrnge Apple's copyrghts. 6 B. Psystar's Copying Is Not Excused By The "Essential Step" Exception 7 Psystar glosses over the clear limitations ofthe "essential step" rule, which establishes a 8 narrow exception to the general prohibition against unlawful copying of copyrghted works and 9 further restricts distribution of such copies. See 17 U.S.C. 117(a)-(b). Psystar waived this 10 defense by not pleading it22 and, in any event, it has no merit. The "essential step" defense is 11 intended to ensure only that an owner-user of software can make a single copy of the software 12 program by loading it onto a computer and using it, or can transfer that "exact copy" without 13 violating copyrght law. See 17 U.S.C. 117; Apple Computer, Inc. v. Formula Intl, Inc., 594 F. 14 Supp. 617, 621-22 (C.D. CaL. 1984), aff'd 725 F.2d 521 (9th Cir. 1984). Nothing in the statute, or 15 cases interpreting it, suggests that section 117 immunizes Psystar's wholesale copying and 16 modification of Mac OS X for the purpose of distributing it for commercial gain on unauthorized 17 platforms to Apple's competitive disadvantage. 18 19 20 21 22 23 21 Psystar has not produced, either in discovery to Apple or in support of this motion, evidence that supports this assertion. Indeed the documents produced in discovery indicate that far fewer Mac OS X DVDs were acquired by Psystar than computers it sold. Boroumand Smith Decl. ir 14. 22 Psystar has waived section 117 as an affirmative defense because it did not plead the defense 24 25 in its Answer. Jorst v. D 'Ambrosio Bros. Inv. Co., No. COO-03646, 2001 WL 969039, *9 (N.D. CaL. Aug. 13,2001) (citing Fed. R. Civ. P. 8(c)); see also In re Adbox, Inc., 488 F.3d 836, 841 (9th 26 27 28 Cir. 2007). Although the Court, in its discretion, may permit a defendant to raise an unpleaded defense, the Court should do so only "where the delay does not prejudice the plaintiff." Jorst, 2001 WL 969039, at *9. Because the parties have proceeded through extensive litigation "including the depositions of multiple witnesses" and dispositive motion practice, Apple wil be prejudiced ifPsystar is permitted to raise a new, untimely defense. Id. Accordingly, Psystar should not be permitted to assert a section 117 defense. Certainly Psystar cannot obtain judgment in its favor based upon a defense that it never pleaded. APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA - 12 - townsend. Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page21 of 36 1 1. Psystar May Not Assert A Section 117 Defense Because It Is Not An "Owner" Of The Software 2 3 Psystar cannot invoke section 117 because, as discussed above, under clear Ninth Circuit 4 authority, Psystar is not an "owner" but a licensee of Mac OS X. See Wall Data, 447 F.3d at 785. 5 Only a license is granted when "the copyrght holder (1) makes clear that it is granting a license to 6 the copy of the software, and (2) imposes significant restrictions on the use or transfer of the copy 7 ...." MDY Indus., LLC v. Blizzard Entm 't, Inc., No. CV-06-2555, 2008 WL 2757357, at *8 (D. 8 Ariz. July 14, 2008) ("(L)icensees of a computer program do not 'own' their copy ofthe program 9 and therefore are not entitled to a section 117 defense.") (citing Wall Data, 447 F.3d at 785); see 10 also MAl Sys. Corp., 991 F.2d at 518 (section 117 does not apply to a licensee); Triad Sys. Corp., 11 64 F.3d at 1333 (section 117 applied when Triad sold software but did not apply when Triad 12 began to license its software). The SLA could not be more clear that it is granting a license to use 13 the Mac OS X software, and the terms of that license impose "significant restrictions on (its) use 14 (and) transfer." Accordingly, Psystar is not an "owner" and cannot invoke section 117 to justify 15 any of its conduct. 16 17 18 2. Psystar's Conduct Exceeds The Narrow Scope Of Section 117's Essential Step Defense Even if, despite Wall Data's clear holding, Psystar could be considered an "owner of a 19 copy," section 117(a)'s narrow exception for copying that is essential to the utilzation of software does not authorize Psystar's mass reproduction and distribution of 20 21 Mac OS X without Apple's permission. See Wall Data, 447 F.3d at 785-86 (holding that copying software onto multiple 22 23 computers via "hard drive imaging" is not an immunized "essential step" but, rather, an infrnging "matter of convenience"). Psystar concedes that section 117 only authorizes the "owner of a copy of a computer program to take steps necessary to run that program on his computer." (Psystar Br. 24 25 at 10.) Yet, there is no dispute that Psystar is doing far more than what is necessary to use Mac 26 27 28 OS X when it copies, modifies, installs, and distributes Mac OS X with its computers. None of this is authorized by section 117.23 23 Even if section 117 somehow applied to Psystar's mass reproduction and sale of Mac OS X APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 13 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page22 of 36 1 Furthermore, Psystar's conduct cannot be justified because section 117(b) explicitly 2 prohibits the transfer of computer programs that have been adapted without "the authorization of 3 the copyrght owner." 17 U.S.C. 117(b). Psystar indisputably adapts Mac OS X when adding, 4 deleting, and substituting kernel extensions to make Mac OS X operate on non-Apple hardware. 24 5 Psystar admits it adds features "to increase (Mac OS X'sJ functionality." (Psystar Br. at 11 6 (Psystar takes "steps" to make Mac OS X "work on a wider range of computers than simply Apple 7 Macintoshes.").) Psystar also concedes that making software run on a different platform (or 8 "porting" the software, as Psystar characterizes it) requires making an adaptation under section 9 117. (Psystar Br. at 10-11.) Psystar then takes this adaptation and "resell(sJ the package.,,25 10 Under section 117, "(a Jdaptations so prepared may be transferred only with the authorization of 11 the copyrght owner." 17 U.S.C. 117(b).26 Because Apple has never authorized Psystar to copy 12 or adapt Mac OS X, Psystar is forbidden from transferrng Apple's software and section 117 13 provides no defense. 14 Psystar argues that Krause v. Titleserv, Inc., 402 F .3d 119 (2d Cir. 2005), somehow 15 indicates that section 117 would protect its unauthorized copying, modification, and distribution of 16 Mac OS X. To the contrary, the Krause court expressly recognized that section 117 permits the 17 owner to take only those steps necessary for the owner to enable the use for which the copyrghted 18 19 Psystar's purposes. Rather, as Psystar states: "it's a time" issue, i.e., a matter of convenience. (and it does not), Psystar itself admits that the hard drive imaging step is not "essential" for 20 21 22 23 Chung Decl. Ex. 9 at 89:9-23. 24 See Evolution, Inc. v. SunTrust Bank, 342 F. Supp. 2d 943,957 (D. Kan. 2004) ("add(ingJ desired features" is an adaptation and is not permitted when for commercial purposes); CONTU Report, at 13 (adaptations include: converting from one computer language to another language and "add(ingJ features to the program that were not present at the time of rightful acquisition"). 25 Chung Decl. Ex. 48. 24 25 26 27 28 26 The legislative history and the case law are clear. See CONTU Report, at 13 ("(AdaptationJ rights would necessarily be more private in nature than the right to load a program by copying it and could only be exercised so long as they did not harm the interests ofthe copyrght proprietor."); Midway, 564 F. Supp. at 745 (software modified or adapted under section 117 cannot be transferred); cf Aymes v. Bonell, 47 F.3d 23, 26 (2d Cir. 1995) (section 117 adaptation can be made only for "internal business needs" and cannot be transferred without express authorization.); Stuart Weitzman, LLC v. Micro Computer Res., Inc., 510 F. Supp. 2d 1098, 1109 (S.D. Fla. 2007), vacated on other grounds, 542 F.3d 859 (11 th Cir. 2008) (the "right to modify or add features to the copy" exists "so long as the modifications do not disrupt (copyrght holder's J interests as the purported copyrght proprietor in the (copyrghted softwareJ."). APPLE INC. 'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 14- Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page23 of 36 1 work was both sold and purchased. Id. at 128. As the SLA expressly provides, Mac OS X is sold 2 exclusively for use on Apple computers. Psystar's copying and adaptation of Mac OS X are 3 directly contrary to that purpose. Furthermore, the Krause court noted that the rights permitted 4 under section 117 "could 'only be exercised so long as they did not harm the interests of the -, 5 copyrght proprietor.'" Id. at 129 (quoting Final Report ofthe National Commission on New 6 Technological Uses of Copyrghted Works (1978) at 13, available athttp://digital-law- 7 online.info/CONTU/PDF/index.html (hereinafter cited as the "CONTU Report")). The court 8 stated that section 117 therefore would not apply "if the altered copy of (plaintiff s J work were to 9 be marketed by the owner of the copy." /d. at 129. Psystar modifies Mac OS X, markets the 10 modified copies of Mac OS X, and sells them in competition with Apple. That activity is not 11 allowed by section 117 under any circumstance. See, e.g., Apple Computer, Inc. v. Formula Intl, 12 Inc., 562 F. Supp. 775 (C.D. CaL. 1984), aj'd 725 F.2d 521 (9th Cir. 1984); Apple Computer, Inc. 13 v. Formula, Intl, Inc., 594 F. Supp. at 620 (rejecting arguments that section 117 authorized 14 creation and distribution of computer "kits" using copies of Apple's operating system software). 15 16 17 18 19 20 21 Psystar has infrnged Apple's 22 copyrghts with respect to "Mac OS, Mac OS X, Mac OS X version 10.5, and Mac OS X Server, 23 individual fies constituting components of Mac OS, Mac OS X, Mac OS X version 10.5, and Mac 24 OS X Server, as well as various fies constituting components of other Apple software and 25 firmware found on Apple labeled computers." (Amended Complaint (Docket No. 38) ir 26.) 26 It is undisputed that an operating system, like Mac OS X, is entitled to copyrght 27 protection. See, e.g., Triad Sys., 64 F.2d at 1333. Indeed, in Lexmark Intl Inc. v. Static Control 28 Components, Inc., 387 F.3d 522 (6th Cir. 2004), the case upon which Psystar relies, the court APPLE INC. 'S OPPOSITON TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-325 I WHA townsend. - 15 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page24 of 36 1 emphasized that unlike the printer lock-out code at issue in that case, Apple's operating system is 2 precisely the type of creative expression entitled to copyrght protection. Id. at 539. The Lexmark 3 court stated that Apple Computer, Inc. v. Formula Int'l, 725 F.2d at 525, which the plaintiff had 4 cited, was distinguishable from Lexmark, noting that comparing Apple's operating system to the 5 plaintiffs lock-out code was like comparing "the Sears Tower ... to a lamppost." Id. 6 Distinguishing Apple's operating software, the Lexmark court stated, "Given the nature of the 7 Apple program, it would have been exceedingly diffcult to say that practical alternative means of 8 expression did not exist and indeed no defendant in the cases advanced that argument." Id. 9 10 11 12 Atari Games Corp. v. 13 Nintendo of America, Ltd., 975 F. 2d 832, 840 (Fed. Cir. 1992) (holding that a software lockout 14 mechanism consisting of "arbitrary programming instructions" arranged "in a unique sequence to 15 create a purely arbitrary data stream" is protectable expression that is not purely functional); see 16 also Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d 197,216 (3d Cir. 17 2002) (holding that the scope of copyrght protection should be analyzed from the point of view of 18 the creator and not the alleged infrnger). 19 20 21 22 23 24 25 26 27 28 28 Declaration of John P. J. Kelly Ph.D. in Opposition to Psystar's Motion for Summary Judgment ("Kelly Decl."), ir 2. APPLE INC. 'S OPPOSITON TO PSYSTAR CORPORA nON'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA townsend. - 16 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page25 of 36 1 D. Apple Has Not Misused Its Copyrights 2 3 Although Psystar contends that Apple has misused its copyrghts, Psystar has failed to explain what Apple has done that allegedly constitutes copyrght misuse. Psystar does not contend that the SLA provisions constitute copyrght misuse; indeed, Psystar admits that Apple can 4 5 lawfully license its software for use only on non-Apple hardware. (Psystar Br. at 3.) While Psystar's brief 6 has a footnote citing a few early antitrust cases, it makes no effort whatsoever to 7 8 introduce evidence that Apple has acted in any anticompetitive way because there is no such evidence. (Psystar Br. at 21, n. 7.) This Court already rejected Psystar's antitrust allegations, stating: "Apple asks its customers to purchase Mac OS knowing that it is to be used only with 9 10 11 Apple computers. It is certainly entitled to do so." Apple Inc. v. Psystar Corp., 586 F. Supp. 2d 1190, 1201 (N.D. CaL. 2008) (also available at Docket No. 33 at 14). 12 13 Rather, it appears Psystar is arguing that Apple has misused its copyrghts by filing this lawsuit and "continu(ing) to prosecute" allegedly invalid copyrght infrngement and DMCA claims. (Psystar Br. at 22; 23-24). Psystar cites several cases, none of 14 15 which support this baseless assertion and all of which are factually distinguishable. See Altera Corp. v. Clear Logic, Inc., 424 16 17 18 F.3d 1079, 1090 (9th Cir. 2005) (finding copyrght misuse defense could not apply where the plaintiff had not asserted copyrght infrngement claims); Assessment Techs. of WL LLC v. WIREdata, Inc., 350 F.3d 640,647-648 (7th Cir. 2003) (finding copyrght misuse when plaintiff asserted copyright infrngement against defendant for seeking access to public data that was not 19 20 21 copyrghted); Qad, Inc. v. ALN Assoc., Inc., 770 F. Supp. 1261, 1267-1270 (N.D. Il. 1991), aff'd 974 F.2d 834 (7th Cir. 1992) (finding copyrght misuse when the plaintiff alleged copying of software that it had copied itself 22 23 and in which it had no rights); Schloss v. Sweeney, 515 F. Supp. 2d 1068, 1079-81 (N.D. CaL. 2007) (refusing to grant motion to dismiss claim for copyrght misuse when defendant had no copyrghts in medical records and other materials).29 24 25 26 29 Psystar also refers to the Lasercomb, Practice Management and Alcatel cases - all of which involved license agreements that, unlike the one at issue here, limited competition and restrained the development of creative works. (Psystar Br. at 22.) None ofthese cases supports Psystar's argument that Apple has engaged in copyrght misuse by fiing meritorious copyrght infringement and DMCA claims against Psystar. All three of 27 28 these cases are distinguishable. See Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 978-79 (4th Cir. 1990) (copyrght misuse found where license agreement prohibited defendant, its directors, officers and employees from assisting in any manner townsend. APPLE INC.'S OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR SUMMARY JUDGMENT CASE NO. 08-3251 WHA - 17 - Case3:08-cv-03251-WHA Document196 Filed10/23/09 Page26 of 36 1 As demonstrated above, Apple's copyrght and DMCA claims are meritorious and their 2 filing cannot constitute copyrght misuse. To the contrary, Apple has a constitutional right to 3 enforce its copyrghts in federal court unless the lawsuit is both objectively baseless and filed for 4 an improper purpose. Prof'l Real Estate Investors v. Columbia Pictures, 508 U.S. 49, 60-61, 113 5 S. Ct. 1920, 1928 (1993); Freeman v. Lasky, Haas & Cohler, 410 F.3d 1180, 1183-85 (9th Cir. 6 2005). Psystar makes no attempt to prove either that this lawsuit is a sham or was filed for an 7 improper purpose, and it is not. Therefore, this lawsuit itself cannot be the basis for a claim of 8 copyrght misuse.3o 9 E. Psystar Fails To Establish Any Defense To Apple's DMCA Claims 10 To succeed on its DMCA circumvention (section 1201(a)(1)) and trafficking (sections 11 1201(a)(2) and 1201(b)) claims, Apple need only show that its technological protection measures 12 prevent access to or copying of copyrghted material (here, Mac OS X) and that Psystar's 13 circumvention technology facilitates access to or copying of the software. Davidson & Assocs. v. 14 Jung, 422 F.3d 630,640 (8th Cir. 2005); Universal City Studios, Inc. v. Corley, 273 F.3d 429, 441 15 (2d Cir. 2001); RealNetworks" Inc. v. D VD Copy Control Ass 'n, _ F. Supp. 2d _' 2009 WL 16 2475338 (N.D. CaL. Aug. 11,2009); 321 Studios v. Metro-Goldwyn-Mayer Studios, Inc., 307 F. 17 Supp. 2d 1085, 1094 (N.D. CaL. 2004). As set forth more fully in Apple's Motion for Summary 18 Judgment, the facts entitling Apple to prevail on its DMCA claims are not in dispute. (Apple's 19 Summary Judgment Br. at 22-25.) Apple embeds a "key" within its hardware that unlocks 20 encrypted code and permits Mac OS X to boot up and run, measures very similar to those taken by 21 the entertainment industry to prevent films and video games from being accessed on unauthorized 22 platforms. See, e.g., Davidson, 422 F.3d at 640-41 (CD key embedded in online video game 23 24 25 in the development of any kind of CAD software for 99 years); Practice Mgmt. Info. Corp., v. Am. Medical Ass 'n, 121 F .3d 516, 520-21 (9th Cir. 1997) (copyrght misuse found where license agreement was conditioned on agreement that licensee could use only licensor's coding system); Alcatel USA, Inc. v. DGI Tech, Inc., 166 F.3d 772, 792-94 (5th Cir. 1999) (copyrght misuse found 26 27 28 where plaintiff asserted its copyrght to prevent competition where customers were locked into a single supplier). 30 Apple's Motio

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