By Nathan Geronimo

In a recent opinion, the Ninth Circuit clarified the defense of copyright misuse, finding the defense inapplicable in a dispute between Apple Inc. and Psystar Corp. Apple, one of the most prolific software producers in the world, sued Psystar for copyright infringement based on Psystar’s practice of copying Apple’s Mac OS X operating software for use in Psystar computers. Essentially, Psystar would make a master copy of the Mac OS X software, and install a copy on one of their computers. Psystar would then bundle the computer for sale with an unopened packaged version of MAC OSX that it would purchase from any number of retailers. Psystar would purchase these copies so it could assert that it had purchased the software to run on each computer it sold, when actually the computers would run on the pre-installed copied version of Mac OS X.
Prior to the Ninth Circuit appeal, the Northern District held that Psystar was infringing on Apple’s copyrights in Mac OS X. Psystar argued that the defense of copyright misuse made Apple’s Software License Agreement unenforceable.

The copyright misuse defense is meant to deal with licensing agreements that impose unlawful restraints on the development and creation of competing software, and is aimed at combating egregious anticompetitive restraint. For example, in the only Ninth Circuit decision to uphold a copyright misuse defense, the license at issue permitted licensees to use the licensor’s copyrighted medical coding system, but prohibited the licensee from using any competitor’s products. The Court found that this was an impermissible restraint on competition.
Apple’s License Agreement requires users of Mac OS X to use the operating software on Apple computers only. Psystar argued that the protections of the federal Copyright Act do not extend to a product’s use after it is purchased. The Northern District found the copyright misuse theory unavailing. Psystar did not appeal the Court’s finding of copyright infringement, but appealed its ruling that copyright misuse did not apply.

Apple’s License Agreement reads in pertinent part: “This License allows you to install, use and run one (1) copy of the Apple Software on a single-Apple-labeled computer at a 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.”

License agreements have become pervasive in the industry because of the first sale doctrine, which is codified in 17 U.S.C. section 109, and gives owners of copies of copyrighted works the unrestricted right to resell their copies. However, because the first sale doctrine does not apply to copies which are transferred through rental, lease, loan, or otherwise, it does not apply to licensees of copyrighted works. The defense of copyright misuse has seen resurgence with the increased use of licenses in the software industry.

In the Apple case, the Ninth Circuit held that a “software licensing agreement may reasonably restrict the use of software as long as it does not prevent development of competing products.” The Court found that Apple’s licensing agreement was valid as a license, and thus the first sale doctrine, which does not apply to licenses, did not apply. The Court further found that Apple’s license does not restrict competitors for developing their own software, and does not restrict Apple users from using non-Apple software on their Apple computers. Accordingly, Apple’s license is not an egregious anticompetitive restraint, and “represents the legitimate exercise of a copyright holder’s right to conditionally transfer works of authorship.” Now, the Court clarified, so long as a license agreement does not restrict development and use of competing products, the defense of copyright misuse in infringement actions is not going to fly.