Apple Inc. v. Psystar Corporation

Filing 47

*** FILED IN ERROR. PLEASE SEE DOCKET # 48 . *** Reply to 44 Opposition of Apple Inc. to Psystar Corporation's Motion for Leave to Amend its Counterclaims filed byPsystar Corporation. (Attachments: # 1 Appendix Open Source Yoga (2005 WL 756558))(Springer, Colby) (Filed on 1/7/2009) Modified on 1/8/2009 (sis, COURT STAFF). Modified on 1/8/2009 (ewn, COURT STAFF).

Apple Inc. v. Psystar Corporation

Doc. 47

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1 ROBERT J. YORIO (SBN 93178) [e-mail] 2 COLBY B. SPRINGER (SBN 214868) [e-mail] 3 CHRISTOPHER P. GREWE (SBN 245938) [e-mail] 4 CARR & FERRELL LLP 2200 Geng Road 5 Palo Alto, California 94303 Telephone: [phone] Facsimile: [phone] 7 Attorneys for Defendant/Counterclaimant PSYSTAR CORPORATION 8 9 10 11 12 13 14 15 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION APPLE INC., a California corporation, Plaintiff, v. CASE NO. CV-08-03251-WHA PSYSTAR CORPORATION'S REPLY TO APPLE INC. AND IN SUPPORT OF PSYSTAR'S MOTION FOR LEAVE TO AMEND Date: Time: Courtroom: Judge: Thursday, January 22, 2009 8:00 a.m. 9, 19th Floor Hon. William Alsup

PSYSTAR CORPORATION, a Florida 16 corporation, 17 18 19 20 21 22 23 24 25 26 27 28 AND RELATED COUNTERCLAIMS. Defendant.

Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)
Dockets.Justia.com

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 V. 2. 3. IV. III. II. I.

TABLE OF CONTENTS INTRODUCTION .......................................................................................................................... 1 ARGUMENT ................................................................................................................................. 2 APPLE MISINTERPRETS AND MISAPPLIES THE NINTH CIRCUIT'S HOLDING IN ALTERA CORP. V. CLEAR LOGIC, INC. .................................................... 2 THE NINTH CIRCUIT DECISION RECOGNIZING COPYRIGHT MISUSE ORIGINATED FROM A CLAIM FOR DECLARATORY RELIEF........................................ 3 PSYSTAR SATISFIES THE REQUIREMENTS OF THE DECLARATORY JUDGMENT ACT ....................................................................................................... 4 PSYSTAR PROPERLY PLEADS A COPYRIGHT MISUSE CLAIM .................................... 6 1. Apple's Claims Do Not Flow from Apple's Exclusive Rights Under the Copyright Act and Constitute a Gross Attempt to Extend the Same ......................................................................................... 7 Psystar Has Properly Plead a Copyright Misuse Claim ............................. 9 Apple is Overly Reliant Upon Triad's Scant Copyright Misuse Discussion .................................................................................... 10

PSYSTAR PROPERLY PLEADS AN UNFAIR COMPETITION CLAIM ............................ 12

21 CONCLUSION ............................................................................................................................ 13 22 23 24 25 26 27 28 -iPsystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 2 CASES

TABLE OF AUTHORITIES

3 A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001) ................................ 7, 13, 15 4 Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999) .................................... 12, 13 5 Allstate Ins. Co. v. Employers Liability Assur. Co., 445 F.2d 1278 (5th Cir. 1971) ..................... 6 Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079 (9th Cir. 2005) ............................................ 2, 3 6 Arizona Cartridge v. Lexmark Intern, Inc., 421 F.3d 981 (9th Cir. 2005) .................................. 16 7 Beacon Const. Co. v. Matco Elec. Co., 521 F.2d 392 (2d Cir. 1975) ........................................... 6 8 Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908)........................................................................ 9 9 Cel-Tech Communications, Inc. v. Los Angeles Cellular Tech., 20 Cal. 4th 163 (1999) .................................................................................................................................... 16 10 DSC Communications Corp. v. DGI Techs., Inc., 81 F.3d 597 (5th Cir. 1996).......................... 12 11 Horton v. Liberty Mut. Ins. Co., 367 U.S. 348 (1961) .................................................................. 5 12 In re Independent Services Organizations Antitrust Litigation, 203 F.3d 1322 (Fed. Cir. 2000) .............................................................................................................................. 12 13 Lasercomb America, Inc. v. Reynolds, 911 F.2d 970 (4th Cir. 1990) ............................... 8, 12, 16 14 Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270 (1941) ................................................ 5 15 MedImmune Inc. v. Genentech, Inc., 549 U.S. 118 (2007) ....................................................... 5, 6 16 MGM Studios Inc. v. Grokster, Ltd., 269 F. Supp. 2d 1213 (C.D. Cal. 2003) .............................. 7 17 Morton Salt Co. v. G.S. Suppieger Co., 314 U.S. 488 (1942) ..................................................... 13 Open Source Yoga Unity v. Choudhury, 2005 WL 756558 (N.D. Cal. April 1, 2005) ............. 3, 4 18 Practice Mgmt. Information Corp. v. American Medical Ass'n, 121 F.3d 516 (9th 19 Cir. 1997) ...................................................................................................................... 4, 8, 12 20 qad, Inc. v. ALN Assocs., Inc., 770 F. Supp. 1261 (N.D. Ill. 1991) ............................................ 13 Quanta Computer, Inc. v. LG Electronics, 128 S.Ct. 2109 (2008) ............................................. 16 21 Sandisk Corp. v. ST Microelectronics, Inc., 480 F.3d 1372 (2007) .............................................. 6 22 Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000) ............... 3 23 Sony Corp. of America v. Univ. City Studios, Inc., 464 U.S. 417 (1984) ..................................... 6 24 Ticketmaster L.L.C. v. RMG Technologies, Inc., 536 F. Supp. 2d 1191 (C.D. Cal. 2008)........................................................................................................................................ 7 25 Triad Sys. Corp. v. Southeastern Express Co, 64 F.3d 1330 (9th Cir. 1995) ....................... 14, 15 26 27 28 -iiPsystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 STATUTES 2 17 U.S.C. § 109 ......................................................................................................................... 8, 9 3 17 U.S.C. § 117 ............................................................................................................................. 8 4 17 U.S.C. § 1201 ........................................................................................................................... 9 5 28 U.S.C. § 2201 ....................................................................................................................... 4, 7 6 7 OTHER AUTHORITIES 8 Anticircumvention Misuse, 50 UCLALR 1095 (2003) ............................................................... 11 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iiiPsystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 2 3

INTRODUCTION

Apple Inc.'s ("Apple") OPPOSITION TO PSYSTAR CORPORATION'S MOTION FOR LEAVE TO

4 AMEND ITS COUNTERCLAIMS (OPPOSITION) is intentionally crafted to obfuscate the true nature of 5 Psystar's amended counterclaims for copyright misuse and unfair competition. Apple repeatedly 6 attempts to make the present motion a discussion of antitrust law; but no antitrust claim is 7 presented in Psystar's first amended complaint. See OPPOSITION, 1 (alleging an attempt to 8 circumvent the prior dismissal of Psystar's antitrust claims); 2 (discussing market power and 9 relevant market); 11 (concerning a purported failure "to plead any incipient or actual violation of 10 the antitrust law"); 12 (alleging an attempt to resuscitate dismissed antitrust claims). Psystar 11 clearly stated in its MOTION FOR LEAVE TO AMEND (MOTION FOR LEAVE TO AMEND) that Psystar's 12 first amended complaint "does not re-plead its Sherman and Clayton Act antitrust claims." 13 MOTION FOR LEAVE TO AMEND, 9 n. 1 (emphasis added). While Psystar reserved the right to later 14 move for leave to amend and "reintroduce those antitrust claims," then--and only then--would 15 Apple's ongoing antitrust analysis be appropriate for consideration. MOTION FOR LEAVE TO 16 AMEND, 9 n. 1. 17 Psystar's present motion is rooted in Apple's misuse of copyrights. Psystar therefore seeks

18 declaratory relief finding Apple's asserted copyrights to be unenforceable. A declaratory judgment 19 as to Apple's misuse of copyrights would inure to any party presently relegated to the sidelines by 20 Apple's inequitable and overly litigious conduct. Apple's attempts to mischaracterize Psystar's 21 present claims for copyright misuse are, in that regard, understandable. Nevertheless, Psystar's 22 assertions as to Apple's copyright misuse are viable. Psystar's first amended counterclaims 23 evidence a clear case and controversy appropriate for adjudication. Psystar respectfully requests 24 that the Court grant Psystar's MOTION FOR LEAVE TO AMEND. 25 26 27 28 -1Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 2 3 4 5 I.

ARGUMENT APPLE MISINTERPRETS AND MISAPPLIES THE NINTH CIRCUIT'S HOLDING IN ALTERA CORP. V. CLEAR LOGIC, INC. Apple alleges that Psystar's request for declaratory relief "directly contravenes controlling

6 Ninth Circuit law holding that copyright misuse is available only as an affirmative defense and not 7 for declaratory relief." OPPOSITION, 2. Apple contends that the Ninth Circuit "clearly stated" that 8 copyright misuse "has no role "beyond `its logical place as a defense to a claim of copyright 9 infringement.'" OPPOSITION, 2 (citing Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1090 (9th 10 Cir. 2005)). Apple's reference to the Ninth Circuit's statement is taken out of context. The Ninth 11 Circuit, as quoted by Apple, was stating nothing more than the procedural history from the district 12 court below. The complete context of the Ninth Circuit's statement was: 13 14 15 16 17 Altera, 424 F.3d at 1090 (emphasis added). The Ninth Circuit ultimately affirmed the district 18 court's decision. That finding was following a de novo review that did not apply a per se 19 prohibition on the application of copyright misuse as suggested by Apple. 20 The Ninth Circuit found no reason "to allow Clear Logic to proceed on an independent Finding no clear authority for extending the doctrine of copyright misuse beyond `its logical place as a defense to a claim of copyright infringement,' the district court rejected Clear Logic's argument that Altera's license agreements should not be enforced.

21 claim for copyright misuse when there has been no allegation of copyright infringement." Id. 22 (emphasis added). As noted by Apple's own opposition, "Clear Logic asserted copyright misuse 23 solely as a counterclaim in an action for induced breach of contract and intentional 24 interference with contractual relations." OPPOSITION, 2-3 (emphasis added). The Ninth Circuit 25 in Altera dismissed copyright misuse as a counterclaim not because it was asserted as a 26 counterclaim--as suggested in Apple's opposition--but because no copyright has been asserted 27 that could be misused. See Altera, 424 F.3d at 1090 (holding that an agreement could not be voided 28 "under the pretext of refusing to enforce a copyright that has not been asserted. Copyright -2Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 misuse is not a defense to the [non-copyright related] state law claims asserted by Altera") 2 (emphasis added); see also Open Source Yoga Unity v. Choudhury, 2005 WL 756558 at *8 (N.D. 3 Cal. April 1, 2005) (attached hereto) (Judge Hamilton allowed an assertion of copyright misuse 4 when coupled with an adversarial claim for infringement of copyright); cf. Sony Computer 5 Entertainment, Inc. v. Connectix Corp., 203 F.3d 596, 608 (9th Cir. 2000) (refusing to consider 6 copyright misuse following denial of an injunction for copyright infringement). The application of 7 Altera is inapposite the present matter, which is clearly rooted in copyright. See (Apple's) 8 AMENDED COMPLAINT FOR COPYRIGHT INFRINGEMENT, INDUCED COPYRIGHT INFRINGEMENT, 9 VIOLATION OF THE DIGITAL MILLENNIUM COPYRIGHT ACT ETC., 8-10 (alleging copyright 10 infringement), 10-11 (alleging contributory and induced copyright infringement), 11-12 (alleging 11 violation of the Digital Millennium Copyright Act). 12 13 14 15 As noted in Psystar's MOTION FOR LEAVE TO AMEND, the Ninth Circuit adopted the II. THE NINTH CIRCUIT DECISION RECOGNIZING COPYRIGHT MISUSE ORIGINATED FROM A CLAIM FOR DECLARATORY RELIEF

16 copyright misuse doctrine in Practice Mgmt. Information Corp. v. American Medical Ass'n. See 17 MOTION FOR LEAVE TO AMEND, 8 (citing Practice Mgmt., 121 F.3d 516, 520 (9th Cir. 1997)). In 18 the course of events leading to that decision, Practice Management had "filed [a] lawsuit seeking a 19 declaratory judgment that the AMA's copyright . . . was invalid for two reasons," one of which 20 was that "the AMA misused its copyright." Practice Mgmt., 121 F.3d at 518 (emphasis added). 21 Practice Management, therefore, successfully sought declaratory relief as to the misuse of 22 copyrights by the AMA. Apple's opposition, however, would have this Court conclude that the 23 Ninth Circuit recognized copyright misuse while concurrently denying the propriety of misuse as a 24 counterclaim; this conclusion notwithstanding the fact that copyright misuse doctrine was adopted 25 after having been asserted as a counterclaim in Practice Mgmt. Apple's opposition thus defies the 26 bounds of reasonable logic. See Open Source Yoga, 2005 WL 756558 at *8 (citing Practice Mgmt., 27 121 F.3d at 520 (allowing for a declaratory relief assertion of copyright misuse)) and Open Source 28 -3Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 Yoga, 2005 WL 756558 at *8 n. 5 (finding argument against declaratory relief to constitute "an 2 unduly narrow reading of the copyright misuse doctrine"). 3 III. 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 Psystar's counterclaim arises under and is fully compliant with the Declaratory Judgment Act. The Declaratory Judgment Act allows an entity to file suit or counterclaim in an existing suit to obtain a declaration of rights with respect to another party regardless of whether other relief is sought. 28 U.S.C. § 2201 (2007). To maintain a declaratory judgment action, Psystar need only file an "appropriate pleading" such as a counterclaim that establishes (1) jurisdiction and (2) the existence of an actual case or controversy between parties having adverse legal interests. Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 357 (1961). There is no universal rule for compliance with the latter element; the analysis is necessarily tied to the facts of the case. "[T]he question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941); quoted and affirmed in MedImmune Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). Psystar easily meets these requirements. Apple does not claim--nor could it--that the Court lacks jurisdiction over this controversy. See (Apple's) AMENDED COMPLAINT FOR COPYRIGHT INFRINGEMENT, INDUCED COPYRIGHT INFRINGEMENT, VIOLATION OF THE DIGITAL MILLENNIUM COPYRIGHT ACT ETC., 6 at ¶ 19 (stating that "[t]his Court has subject matter jurisdiction" over the action). Likewise, Apple does not claim--nor could it--that there is not a real and substantial controversy between the parties. See (Apple's) AMENDED COMPLAINT FOR COPYRIGHT INFRINGEMENT, INDUCED COPYRIGHT INFRINGEMENT, VIOLATION OF THE DIGITAL MILLENNIUM COPYRIGHT ACT ETC., 5 at ¶ 17 (alleging that Psystar is "misappropriating Apple's proprietary software and intellectual property for its own use"); see also OPPOSITION, 1 (alleging that Psystar is engaged in "ongoing violations of Apple Inc.'s . . . copyright, trademark and contractual rights"). -4Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA) PSYSTAR SATISFIES THE REQUIREMENTS OF THE DECLARATORY JUDGMENT ACT

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1

The nature of Psystar's claim also weighs against dismissal as it embodies the guiding

2 purpose of the Declaratory Judgment Act: to guarantee the target of legal threats an opportunity to 3 obtain a judicial declaration of rights. The Declaratory Judgment Act "should be liberally 4 construed to accomplish its intended purpose of affording a speedy and inexpensive method of 5 adjudicating legal disputes without invoking coercive remedies of old procedures, and to settle 6 legal rights and remove uncertainty and insecurity from legal relationships." See Beacon Const. 7 Co. v. Matco Elec. Co., 521 F.2d 392, 397 (2d Cir. 1975); see also Allstate Ins. Co. v. Employers 8 Liability Assur. Co., 445 F.2d 1278, 1280 (5th Cir. 1971) ("[This chapter of the U.S. Code] is 9 remedial and is to be liberally construed to achieve its wholesome and salutary purpose"). 10 Relevant guidance may also be found in patent law, keeping in mind "the historic kinship

11 between patent law and copyright law." Sony Corp. of America v. Univ. City Studios, Inc., 464 12 U.S. 417, 439 (1984). With respect to the actual case and controversy requirement, the Supreme 13 Court recently reaffirmed that the requirement is satisfied in patent, as in other cases, if the dispute 14 is "definite and concrete, touching the legal relations of parties having adverse interests" and "real 15 and substantial" such that it will permit "specific relief through a decree of a conclusive character." 16 MedImmune, 549 U.S. at 126. The Court of Appeals for the Federal Circuit, too, recently held that 17 a party had standing to seek a declaratory judgment" where the opposing party "took a position that 18 forced the declaratory judgment plaintiff to choose between pursuing arguably illegal behavior or 19 abandoning that which he claimed to have a right to do." Sandisk Corp. v. ST Microelectronics, 20 Inc., 480 F.3d 1372, 1381 (2007). Contrary to Apple's assertion that copyright misuse is relegated 21 to the realm of an affirmative defense, declaratory judgment standing focuses solely on whether the 22 declaratory judgment claims pertain to a real and substantial controversy. 23 Psystar clearly evidences such standing; leave for amend to introduce corresponding

24 counterclaims should be granted. Apple, however, contends that to do so would "contravene[] the 25 objectives of the Declaratory Judgments Act" and "serve only to complicate this litigation 26 needlessly." OPPOSITION, 3 (relying on MGM Studios Inc. v. Grokster, Ltd., 269 F. Supp. 2d 1213 27 (C.D. Cal. 2003) and Ticketmaster L.L.C. v. RMG Technologies, Inc., 536 F. Supp. 2d 1191 (C.D. 28 Cal. 2008)). Despite this pretense, Apple fails to explain how Psystar's claims would contravene -5Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 the Declaratory Judgment Act. Apple likewise fails to explain how allowing Psystar's claims 2 would needlessly complicate the present litigation. These unsupported arguments are nothing more 3 than window dressing for Apple's true concern--the nuclear fallout from a declaratory judgment as 4 to unenforceability of Apple's copyrights. Such a judgment would "have the force and effect of a 5 final judgment" not only with respect to Psystar but to other parties attempting to compete 6 alongside Apple. 28 U.S.C. § 2201(a); see also discussion supra INTRODUCTION. 7 8 9 IV. PSYSTAR PROPERLY PLEADS A COPYRIGHT MISUSE CLAIM Apple contends with great aplomb that Psystar's copyright misuse claims are `futile' and

10 would `inevitably be defeated on summary judgment.' See OPPOSITION, 5. This exhibition of 11 hubris continues in Apple's unfettered declaration that "Apple is well within its right to determine 12 whether, how or by whom its software is reproduced and how it is to be licensed, distributed or 13 used." Id. at 6-7. The Ninth Circuit says otherwise; Psystar elects to abide by the Ninth Circuit's 14 determination. 15 A copyright holder is not entitled to "leverag[e] their limited monopoly to allow them to

16 control areas outside the [copyright] monopoly." A&M Records, Inc. v. Napster, Inc., 239 F.3d 17 1004, 1026-27 (9th Cir. 2001) (emphasis added). Copyright misuse likewise "forbids the use of 18 the copyright to secure an exclusive right or limited monopoly not granted by the Copyright 19 Office." Practice Mgmt., 121 F.3d at 520 (quoting Lasercomb America, Inc. v. Reynolds, 911 F.2d 20 970, 977-79 (4th Cir. 1990) (emphasis added)). Notwithstanding the Ninth Circuit's clarity as to 21 the limits of copyright and the corresponding license, distribution, and sale of software, Apple 22 makes an unambiguous and unilateral declaration that it is immune from the likes of 17 U.S.C. § 23 117 (limitations on exclusive rights in computer programs), 17 U.S.C. § 109 (limitations on 24 exclusive rights), and the first sale doctrine because Apple will decide "whether, how or by whom 25 its software is . . . distributed or used." OPPOSITION, 5. 26 27 28 -6Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1.

Apple's Claims Do Not Flow from Apple's Exclusive Rights Under the Copyright Act and Constitute a Gross Attempt to Extend the Same

Apple contends that because Psystar is "distributing computers with Apple's copyrighted

4 software loaded on them" that "Apple is well within its rights in asserting copyright infringement 5 claims against Psystar." OPPOSITION, 6. Apple likewise contends that "various individuals . . . 6 have infringed Apple's intellectual property rights"; presumably Psystar customers. (Apple's) 7 AMENDED COMPLAINT FOR COPYRIGHT INFRINGEMENT, INDUCED COPYRIGHT INFRINGEMENT, 8 VIOLATION OF THE DIGITAL MILLENNIUM COPYRIGHT ACT ETC., 6 at ¶ 18. Apple's assertion that 9 Psystar cannot distribute computers with Apple software (and that a purchaser could not use the 10 same) would run roughshod over 17 U.S.C. § 117(b). Psystar distributes computers with 11 legitimately purchased copies of Mac OS loaded thereon; many of those copies directly obtained 12 from Apple. And for every computer that Psystar distributes with the Mac OS installed, Psystar 13 also includes a legitimately purchased copy of the Mac OS. While Psystar complies with Section 14 117(b) of the Copyright Act, Apple attempts to usurp those limitations by telling Psystar and its 15 customers that Apple--and Apple alone--will say "whether, how or by whom its software is . . . 16 distributed or used." OPPOSITION, 5. 17 Such declarations likewise run afoul of 17 U.S.C. § 109 and the first sale doctrine. Once a

18 copyright owner consents to the sale of particular copies of a work, the owner may not thereafter 19 exercise distribution rights with respect to those copies. See, e.g., Bobbs-Merrill Co. v. Straus, 210 20 U.S. 339, 350-51 (1908) (recognizing more than 100 years ago the concept of first sale and the 21 limitations imposed upon a copyright owner in light thereof). Psystar acquired lawful copies of the 22 Mac OS from Apple; those copies were lawfully acquired from authorized distributors including 23 some directly from Apple; Psystar paid good and valuable consideration for those copies; Psystar 24 disposed of those lawfully acquired copies to third-parties. See generally 17 U.S.C. § 109(a) 25 (2008). 26 Apple's assertions concerning the Digital Millennium Copyright Act (DMCA) and Apple's

27 purported rights likewise offend the limited scope of a government granted copyright monopoly. 28 See OPPOSITION, 6 (concerning Apple's DMCA claims). A violation of the DMCA requires that -7Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 circumvention of "a technological measure that effectively controls access to a work protected 2 under [the Copyright Act]." 17 U.S.C. § 1201(A)(1)(a) (2007). Apple contends that Psystar has 3 admitted to circumvention of such a technological measure. See OPPOSITION, 6. Psystar has not 4 admitted to any circumvention--notwithstanding Apple's best efforts to suggest that Psystar has 5 done otherwise--nor does Apple even identify such a measure for circumvention. Apple solely 6 relies on a naked assertion that it "employs technological protection measures." (Apple's) 7 AMENDED COMPLAINT FOR COPYRIGHT INFRINGEMENT, INDUCED COPYRIGHT INFRINGEMENT, 8 VIOLATION OF THE DIGITAL MILLENNIUM COPYRIGHT ACT ETC., 11 at ¶ 44. It was not until the 9 parties engaged in the present motion practice that Apple asserted a so-called "check" constitutes 10 this purported technological measure. See OPPOSITION, 6 (quoting PSYSTAR'S FIRST AMENDED 11 COUNTERCLAIM, ¶ 40). 12 This discussion of a `check' by Psystar is not an admission as to the existence of a

13 technological measure or circumvention of the same. Psystar explicitly states that the Apple "code 14 that causes kernel panic and/or infinite loop does not constitute a technological copyright 15 protection measure." PSYSTAR'S FIRST AMENDED COUNTERCLAIM, ¶ 81 (emphasis added). 16 Psystar likewise states that the Apple "code that causes kernel panic and/or infinite loop does not 17 effectively control access to a copyrighted work." PSYSTAR'S FIRST AMENDED COUNTERCLAIM, ¶ 18 82 (emphasis added). 19 Psystar references kernel panic and infinite loop not with respect to circumventing software

20 but to evidence that Apple is illicitly attempting to extend its reach in the copyrights of the Mac OS 21 to non-copyrightable hardware. See PSYSTAR'S FIRST AMENDED COUNTERCLAIM, ¶ 45. Apple 22 attempts to disguise interoperability--which is favored by the copyright laws--as circumvention. 23 Apple then proceeds to bring suit under the DMCA to prohibit such interoperability. Customers are 24 thereby required to utilize Apple-Labeled Computer Hardware Systems--hardware system that are 25 wholly outside the scope of any copyright held by Apple. See PSYSTAR'S FIRST AMENDED 26 COUNTERCLAIM, ¶ 84. 27 28 -8Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1

2.

Psystar Has Properly Plead a Copyright Misuse Claim

Apple contends that Psystar "erroneously relies on Alcatel" from the Fifth Circuit "for the legal basis of its misuse claim." OPPOSITION, 7. While Apple may wish that Psystar relied upon a single case from the Fifth Circuit to evidence Apple's copyright misuse, Psystar's original motion and current reply rely upon the precedent set forth by the Ninth Circuit, namely in Practice Mgmt. To the extent that Psystar references another circuit--Fifth Circuit or otherwise--it is for a premise that the Ninth Circuit has adopted or to evidence complementary reasoning to the extent that the Ninth Circuit has not fully commented upon a specific issue. See discussion supra SECTION II; see also MOTION FOR LEAVE TO AMEND, 8 (concerning adoption of copyright misuse by the Ninth Circuit in light of Practice Mgmt.). But for Apple to suggest that Psystar exclusively lays the foundation of its motion on the reasoning Fifth Circuit is simply disingenuous. While Psystar does reference the Alcatel decision--Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999)--it is initially for the premise that notwithstanding certain similarities between antitrust and copyright, a plaintiff need not evidence an underlying antitrust claim to prove copyright misuse. See MOTION FOR LEAVE TO AMEND, 8 (citing Alcatel). Psystar also refers to Lasercomb, 911 F.2d 970, DSC Communications Corp. v. DGI Techs., Inc., 81 F.3d 597 (5th Cir. 1996), and In re Independent Services Organizations Antitrust Litigation, 203 F.3d 1322 (Fed. Cir. 2000) in this regard. Psystar also makes reference to the Alcatel decision in the context of Apple's misuse of the DMCA. See MOTION FOR LEAVE TO AMEND, 11 (noting that Apple's DMCA tactics "closely resemble[] the behavior at issue in Alcatel" where "the Fifth Circuit barred DGI from doing with contract and copyright what Apple is attempting to do vis-à-vis the DMCA"); see also Anticircumvention Misuse, 50 UCLALR 1095 (2003) (discussing Alcatel as a framework for copyright misuse in the context of the DMCA).1 In the course of its motion, Psystar also refers to

Reference to the Alcatel decision also addresses Apple's incorrect assertion that Psystar "provides no authority" with respect to a copyright misuse claim in the context of the DMCA. See OPPOSITION, 2 n. 1. Psystar also notes that it does assert a counterclaim for misuse of the DMCA, which is clearly labeled "Second Claim for Relief (Declaration of Unenforceability for Copyright Misuse (DMCA))." PSYSTAR'S FIRST AMENDED COUNTERCLAIM, 19 at l. 5-6 and ¶ 78-90.

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1 the Supreme Court's holding in Morton Salt Co. v. G.S. Suppieger Co., 314 U.S. 488 (1942) 2 (MOTION FOR LEAVE TO AMEND, 9), the Ninth Circuit in A&M Records (MOTION FOR LEAVE TO 3 AMEND, 8, 11), and the Northern District of Illinois in qad, Inc. v. ALN Assocs., Inc., 770 F. Supp. 4 1261 (N.D. Ill. 1991) (MOTION FOR LEAVE TO AMEND, 10) with respect to addressing Apple's 5 copyright misuse; Apple's suggestion that Psystar has placed all of its eggs in the basket of the 6 Fifth Circuit is, therefore, simply incorrect. 7 8 9 10 Apple relies upon Triad Sys. Corp. v. Southeastern Express Co. to support its contention 3. Apple is Overly Reliant Upon Triad's Scant Copyright Misuse Discussion

11 that Psystar's copyright misuse claim is doomed to fail. See OPPOSITION, 7-8 (generally relying 12 upon Triad, 64 F.3d 1330 (9th Cir. 1995)). Apple contends that because Triad "did not attempt to 13 control the use of its hardware" that Apple should likewise escape a finding of copyright misuse 14 that would render its copyrights unenforceable. OPPOSITION, 7. Apple's argument is fallacious. 15 `Use' of hardware as posited by Apple in the context of Triad is irrelevant to Psystar's

16 copyright misuse claim. Psystar does not allege that Apple is controlling the specific use of an 17 Apple-Labeled Computer Hardware System. Psystar does not allege that Apple requires an Apple18 Labeled Computer Hardware system to only be used at particular times, in a particular fashion, or 19 for a particular ends or purpose. 20 What Psystar does allege is that Apple is inappropriately extending its copyrights in the

21 Mac OS to the purchase of an Apple-Labeled Computer Hardware System for the purpose of using 22 the Mac OS. See FIRST AMENDED COMPLAINT, ¶ 72. Through Apple's End User License 23 Agreement (EULA), to load or execute a copy of the Mac OS requires (according to Apple) the 24 purchase and exclusive use of an Apple-Labeled Computer Hardware System with the Mac OS. 25 See FIRST AMENDED COMPLAINT, ¶¶ 69, 70. A copyright is exclusive to creative works; Apple's 26 copyrights in the Mac OS do not cover hardware. An Apple-Labeled Computer Hardware System 27 does not embody an independently created expression protectable by the Copyright Act. See FIRST 28 AMENDED COMPLAINT, ¶ 71. Not only is such an extension of copyrights in the Mac OS to an -10Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 independent hardware component anticompetitive (i.e., to the detriment of other hardware 2 manufacturers), Apple's EULA violates the public policy of the copyright laws by overextending 3 the limited copyright monopoly. See FIRST AMENDED COMPLAINT, ¶ 73-75. This type of monopoly 4 extension through tying is the exact behavior prohibited by the copyright misuse doctrine. 5 Copyright misuse seeks to "prevent[] copyright holders from leveraging their limited monopoly to 6 allow them control of areas outside the monopoly" otherwise granted by the Copyright Act. A&M 7 Records, 239 F.3d at 1026-27; see also Practice Mgmt., 121 F.3d at 520 ("forbid[ding] the use of 8 the copyright to secure an exclusive right or limited monopoly not granted by the Copyright 9 Office"). 10 Notwithstanding the propriety of Psystar's copyright misuse claim, Apple's characterization

11 that "[t]he Ninth Circuit's decision in Triad turned on the fact that competitors could design their 12 own software to replace Triad software" and that Apple is therefore immune from copyright misuse 13 liability is inaccurate. Triad was decided in the context of the issuance of a preliminary injunction. 14 See Triad, 64 F.3d at 1334 (concerning Southeastern's appeal from a preliminary injunction). 15 Because Triad was decided in the context of a preliminary injunction, the Triad court looked to 16 issues of irreparable injury (64 F.3d at 1334-35), likelihood of success on the merits (64 F.3d at 17 1335), and fair use (64 F.3d at 1335-1337). Copyright misuse was addressed in the context of 18 twelve, single column lines of discussion--a solitary paragraph. See Triad, 64 F.3d at 1337. And 19 while the Triad court noted as a matter of procedural history that the district court had found "Triad 20 did not attempt to prohibit Southeastern . . . from developing its own service software to compete 21 with Triad," it would be inaccurate to suggest that the Triad court "based its decision" on this 22 finding as is suggested by Apple. Id.; OPPOSITION, 8 (contending that Triad turned on the issue of 23 copyright misuse). Triad can hardly be considered a keystone in the Ninth Circuit's application of 24 the copyright misuse doctrine. Practice Mgmt.--as referenced by Psystar--is not only the more 25 recent decision but clearly provides the more robust analysis of copyright misuse. Practice Mgmt. 26 should be interpreted as controlling in the Ninth Circuit. 27 28 -11Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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1 V. 2 3

PSYSTAR PROPERLY PLEADS AN UNFAIR COMPETITION CLAIM

Apple contends that "Psystar has failed to allege any predicate unlawful practice for its

4 17200 counterclaims." OPPOSITION, 10. Apple has engaged in the misuse of its copyrights. This 5 activity is, at the least, unfair in that Apple has attempted (and continues to attempt) to extend the 6 reach of its copyrights by tying them to computer hardware not otherwise protected by the 7 Copyright Act. See FIRST AMENDED COUNTERCLAIM, ¶¶ 67-77, 78-90. Unfair conduct is conduct 8 that "threatens or harms competition." Cel-Tech Communications, Inc. v. Los Angeles Cellular 9 Tech. Co., 20 Cal. 4th 163, 187 (1999). 10 Unfair conduct is inclusive of that behavior that violates the spirit of the antitrust laws. Id.

11 A tying arrangement as implemented by Apple through the misuse of its copyrights constitutes a 12 violation of the spirit of the antitrust laws but copyright misuse need not prove an actual antitrust 13 violation. See Lasercomb, 911 F.2d at 976-79. Psystar has therefore evidenced unfair competition 14 by Apple through conduct perpetuated by its copyright misuse. See MOTION FOR LEAVE TO 15 AMEND, 12; cf. Arizona Cartridge v. Lexmark Intern., Inc., 421 F.3d 981, 986-87 (9th Cir. 2005) 16 (concerning post-sale restrictions that were found valid but prior to the United States Supreme 17 Court rendering its decision in Quanta Computer, Inc. v. LG Electronics, 128 S.Ct. 2109 (2008), 18 which would likely abrogate those restrictions under the new interpretation of patent exhaustion). 19 20 21 22 23 24 25 26 27 28 -12Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)

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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

CONCLUSION For the foregoing reasons, Psystar respectfully requests that the Court grant Psystar's motion for leave to amend and allow for entry of the First Amended Counterclaim attached to its original motion as Exhibit A.

January 7, 2009

CARR & FERRELL LLP

By:

/s/ Colby B. Springer ROBERT J. YORIO COLBY B. SPRINGER CHRISTOPHER P. GREWE Attorneys for Defendant/Counterclaimant PSYSTAR CORPORATION

-13Psystar Corporation's Reply to Apple Inc. and in Support of Psystar's Motion for Leave to Amend (Case No. CV-08-03251-WHA)