By James Kachmar

The affirmative defense of copyright misuse is a court-created affirmative defense to copyright infringement which flows from a similar defense in patent litigation. In 1942, the U.S. Supreme Court in Morton Salt Co. v. GS Suppiger Co. recognized the affirmative defense of patent misuse where a patent holder attempted to maintain an infringement action by improperly tying the use of its patented product to one of its unpatented products. The Supreme Court held that this improper tying of a patented product to an unpatented product required that equity “withhold its assistance from such a use of the patent by declining to entertain a suit for infringement [until] the improper practice has been abandoned …”.

In 1990, the Fourth Circuit Court of Appeal became the first federal appellate court to extend the patent misuse defense to copyrights. On September 28, 2011, the Ninth Circuit issued its opinion in Apple, Inc. v. Psystar Corporation which addressed the important issue regarding the application of the “copyright misuse” affirmative defense in the context of a software licensing agreement.

In Apple v. Psystar, Psystar manufactured and sold personal computers upon which it would load a “master” version of Apple’s Mac OS X operating system. When a customer would order a computer, Psystar would ship the computer with a copy of the “master” operating system installed on it along with an unopened copy of Mac OS X software, which Psystar purchased from either Apple or third party vendors. Psystar could thus claim that it had purchased a copy of Mac OS X for each computer it sold, even though only a master version of Mac OS X was installed on each computer.

Apple sued Psystar for, among other things, copyright infringement. In November 2009, the district court granted summary judgment to Apple and found that (1) Psystar’s use of a copy of the Mac OS X operating system was not a fair use of Apple’s operating system; (2) Psystar infringed on Apple’s exclusive right to create derivative works; and (3) the licensing agreement for Apple’s operating system was not overly restrictive and thus did not constitute copyright misuse. On appeal, Psystar did not argue that the court erred in finding infringement but did argue that the court should have recognized its defense of copyright misuse.

Psystar argued that Apple committed copyright misuse by requiring that licensees of its Mac OS X program run their copies only on Apple computers. Psystar argued that this improperly extended the reach of Apple’s copyright and constituted copyright misuse. In finding that the district court correctly held that there was no copyright misuse, the Ninth Circuit began by examining the history of software licensing agreements. Traditionally, a copyright owner would sell a copyrighted work which gave rise to the “first sale doctrine.” This doctrine allows owners of copies of copyright works to re-sell their copies without restriction. However, U.S. Copyright law expressly states that the first sale doctrine does not apply where a copy of a copyright work is transferred through “rental, lease, loan or otherwise;” such as in connection with a license. Thus, a software user is considered to be a licensee rather than an owner of copyrighted software where the copyright owner “(1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” As the Ninth Circuit recognized, “it is this distinction between sales and licenses that has caused the use of software licensing agreements to flourish and become the preferred form of software transactions.”

As mentioned above, the affirmative defense of copyright misuse arose out of a similar doctrine in patent law. In 1990, the Fourth Circuit applied the misuse defense to copyrights for the first time. In Lasercomb Am., Inc. v. Reynolds, the Fourth Circuit held that a software manufacturer engaged in copyright misuse when it required its customers to agree to a licensing agreement “that barred the licensee from creating any competing software.” The Ninth Circuit addressed the issue of copyright misuses doctrine on several occasions from 1997 to 2005. However, the Ninth Circuit has applied the doctrine sparingly describing “the purpose of the defense as preventing holders of copyrights ‘from leveraging their limited monopoly to allow them control of areas outside the monopoly.’” For instance, in Practice Management Info. Corp. v. American Medical Association (9th Cir. 1997) 121 F.3d 516, the Ninth Circuit upheld a copyright misuse defense because “the copyright licensor in that case prevented the licensee from using any other competing product.”

In turning to the case at bar, the Ninth Circuit rejected Psystar’s argument that Apple was improperly trying to control the use of its operating software after it had been sold. The Court recognized that Apple did not transfer ownership of the Mac OS X software when it sold is DVDs, but rather as clearly explained in the software licensing agreement “the DVD purchasers were licensees not owners of the software.” The Ninth Circuit found that this was consistent with the long history of copyright law which provides that “copyright owners may choose to simply exclude others from the work, i.e., not to transfer their rights … courts have long held that copyright holders may also use their limited monopoly to leverage the right to use their work on the acceptance of specific conditions.” The only prohibition on the ability to control the use of copyright material is that copyright holders cannot use “the conditions to stifle competition.”

The Ninth Circuit held that Apple’s software licensing agreement did not restrict a competitor’s ability to develop their own software, nor does it preclude customers from using non-Apple components with Apple computers. Rather, Apple “merely restricted the use of Apple’s own software to its own hardware.” The Court continued by recognizing that Psystar manufactured its own computer hardware and found that Apple’s software licensing agreement left Psystar “free to develop its own computer software.” Thus, the Ninth Circuit found that the district court properly rejected Psystar’s copyright misuse defense.

The Ninth Circuit has reaffirmed the notion that defendants in copyright infringement claims face an uphill battle in establishing the affirmative defense of copyright misuse.