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Apple v. Psystar (and the “Apple tax”): Legal Analysis

by John S.

Apple Computers is perhaps the best in the business at garnishing favorable press. Everyone knows about the iPhone, iPod, and the new iPad from the commercial blitzkrieg surrounding Apple’s key note addresses. In addition to its key note addresses, Apple has also produced a line of popular commercials entitled “Mac v. PC”. These commercials, among other things, tell consumers about Apple’s Mac OS X: an alternative to windows. The commercials suggest that Mac OS X is superior to Windows because of its stability, ease of use, and invulnerability to viruses and malware. What is implied, however, but not immediately clear from watching the commercials is that Mac OS X is only available on Apple computers; if you want the advantages of Mac OS X, then you need to buy an Apple.

This can be a sore point for many consumers, because the starting price of the cheapest Apple computer is the $599 mini, which doesn’t even include a monitor. To get the full Mac OS X experience, a consumer needs to spend at least $1000 (which is about the price of Apple’s cheapest laptop). Computer geeks everywhere are more than happy to tell you that this high entry price is due to the “Apple tax”.

Without digging too deeply into the issue, here is a quick overview of what the “Apple tax” means: an Apple computer costs approximately 15% more than a PC with comparable hardware specifications; this is largely uncontested. This 15% price difference is called the “Apple tax”, and PC fans argue this is the price that Apple charges for the privilege of using a computer with Mac OS X (again assume this simple model for the sake of the argument, there are other points to be made as to aesthetic design, reliability, etc). This poses the question of whether it is fair for Apple to create an extremely competitive and desirable operating system while at the same time confining it to expensive Apple computers.

In April 2008, Psystar felt that this was not fair, and began selling computers with Mac OS X pre installed for the low price of $399. Since Mac OS X will not work on non-Apple hardware, Psystar had to a create a modified version of Mac OS X that bypassed this limitation, and then pre-installed the modified operating system on all of their computers. Predictably, Apple sued Psystar in July of 2008 for copyright infringement, trademark infringement, and software licensing violations seeking statutory damages and a permanent injunction. The resulting Apple v. Psystar case was widely followed by numerous internet communities because it asked, for the first time, not if Apple’s business model was fair, but if it was legal.

Analyzing the Case

The case begins with an analysis of the copyright infringement claims from Apple. To succeed on a copyright infringement claim, Apple had to prove that it was the owner of the copyright, and then prove that Psystar violated one of the exclusive rights granted by the copyright in question. Apple easily demonstrated its ownership of the copyright on Mac OS X, and then alleged that Psystar violated its exclusive reproduction, distribution and derivative works rights.

Reproduction Right

Apple claimed that Psystar violated its exclusive right to copy Mac OS X when Psystar made copies of Mac OS X and installed those copies on its non-Apple computers. Psystar admitted that they made copies of Mac OS X, but in its defense responded with a fair use defense and a statutory defense under §117(a). However, as the judge said in his decision, Psystar failed to properly plead §117(a), never mentioned the four fair use factors, and cited to irrelevant case law in its fair use defense. The court found that Psystar violated Apple’s exclusive reproduction right.

Distribution Right

Apple next contended that Psystar violated its distribution right by offering and selling Mac OS on Pystar computers to the public. Psystar again admitted to violating this right. In its defense, Psystar claimed protection under the First Sales Doctrine. The First Sales Doctrine provides that “the owner of a particular copy...lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of copyright owner, to sell or otherwise disposte of the possession of that copy”. Again the judge wasted little time in dispelling this defense. Psystar’s Mac OS X copies were clearly not protected by the First Sales Doctrine because Psystar’s copies were unauthorized, illegal copies, thus violating the “lawfully made under this title” requirement. The judge also felt the case law Psystar cited was not on point and irrelevant. For these two reasons, the court ruled that Psystar violated Apple’s distribution rights of Mac OS X.

Right to Create Derivative Works

Apple next alleged that Psystar violated its right to create derivative works of Mac OS X. The right to create a derivative work essentially means that Apple has the right to create a work based upon Mac OS X. Apple said Psystar violated this right when it created the modified version of Mac OS X to run on the Psystar hardware. Psystar contended that their modified version of Mac OS X didn’t violate this right because they didn’t modify Apple’s source code. The judge did not find Psystar’s argument persuasive, and pointed out that if one were to remove the files Psystar added to Mac OS X, the operating system would even be able to boot onto a computer. The judge further added that Psystar failed to supported its argument with valid case law, while Apple reinforced its arguments with relevant case law. Again Psystar was found to have infringed on Apple’s copyright.

Contributory Infringement

The last copyright infringement claim brought against Psystar was contributory infringement: “one infringes contributorily by intentionally inducing or encouraging direct infringement.” Psystar was accused of contributory infringement because it sold its unauthorized copies of Mac OS X to the public. Psystar didnt offer a defense on this issue.

Copyright Misuse Defense

However, although it lost on all the copyright infringement claims, Psystar still had a chance to win this case with a doctrine called “Copyright misuse”. Copyright misuse is a defense to copyright infringement which “forbids the use of a copyright to secure an exclusive right or limited monopoly not granted by the Copyright office and which is contrary to public policy.” A misused copyright is invalid and thus cannot be infringed upon.

Psystar argued that Apple’s attempt to use a copyright to tie Mac OS X to Apple hardware constituted copyright misuse because it was violative of public policy. This argument relies on the idea of the “Apple Tax” (discussed above): it is simply unfair to the public to tie a good operating system to extremely expensive hardware.

However, on this issue the law seems not to have supported Psystar’s argument. The court pointed to cases that constituted copyright misuse, and distinguished the copyright use by Apple from those cases. For example, the court first highlighted a 9th circuit decision that invalidated an AMA copyright on a coding system. AMA required contracting parties to ONLY use AMA”s coding system and nothing else. Apple never prohibited purchasers from using competitors products, it simply prevents users from using Mac OS X on competitors products. To be analogous to the AMA coding system, Apple would have had to force users to agree to never use Windows after purchasing Mac OS X. The court’s second illustrative case of copyright misuse was a 4th circuit decision. A company, Lasercomb, required purchasers of its software to agree to forego utilization of the creative ability of all its officers, directors, and employees in the area of of CAD/CAM die-making software (the kind of software that Lasercomb made) for a period of ninety-nine years. Apple’s copyright use was no where near as egregious as Lasercomb, Apple simply tries to control the use of its own software where as Lasercomb tried to control the business practices of its customers; an area clearly outside of Lasercomb’s copyright.

After analyzing the case law, the court felt that Apple’s use of its copyright on Mac OS X was distinguishable and therefore not violative of public policy. Psystar’s copyright misuse defense failed.

Wrap Up

After reading through the case a number of times I was left with a confusing question: why did Psystar let this case go to court? Psystar must have known they were violating Apple’s copyright in one way or another. Even though Pystar had defenses for some of the copyright infringement claims they completely conceded on contributory infringement. This leads me to believe that Psystar felt that they it might actually win on their Copyright Misuse defense. But, by looking at the AMA and Lasercomb precedents for Copyright Misuse (both of which Psystar cited in its response), it was fairly evident that both cases were distinguishable from Apple’s copyright use. So again, why would Psystar let this case go to court when it knew Pystar violated Apple’s copyright AND it should have seen that the Copyright Misuse cases did not support its position? It could have been a serious misjudgment by the attorneys involved or a strong conviction that a judge could be convinced that Apple’s business mode violated public policy and that the “Apple tax” was just plain wrong. Psystar gambled and lost.

Now, as a result of the Apple v. Psystar decision, there is no question that Apple’s copyright on Mac OS X is valid. Open source supporters around the world can continue to groan about the fairness of Apple’s restrictive software, but Apple v. Psystar makes it clear that tying Mac OS X to Apple hardware is legal.