By Amanda Avila on March 11, 2009 at 3:41 pm
Author: Stuart Loh
Defendant Psystar Corporation (“Psystar”) makes and sells a line of computers which support the plaintiff Apple Inc.’s (“Apple”) operating system, MacOS. Apple sued Psystar asserting copyright and other claims related to Psystar’s use of MacOS. In these proceedings, Psystar filed for leave to amend its counterclaims against Apple, dropping its previous counterclaims and asserting new ones under the copyright misuse doctrine and California unfair competition laws. Apple unsuccessfully challenged the copyright misuse counterclaims, arguing that copyright misuse could only be employed as a defense and not a counterclaim, and that in any event Psystar had failed to allege sufficient facts to ground such a claim. The court found that, at this stage in the proceedings, the cases cited did not definitively support Apple’s arguments. However, the court denied Psystar’s unfair competition counterclaims because Psystar did not adequately plead any actual or incipient violation of antitrust laws, as required to make out a claim of unfair competition.
Defendant Psystar Corporation (“Psystar”) makes and sells a line of computers that support the plaintiff Apple Inc.’s (“Apple”) operating system, MacOS. Apple sued Psystar, asserting copyright, trademark and other claims related to Psystar’s use of MacOS. Subsequently, Psystar filed to amend its earlier counterclaims against Apple which alleged antitrust violations and to replace them with new counterclaims under the copyright misuse doctrine and California unfair competition laws.
Psystar’s proposed new counterclaims were based on two allegations concerning Apple’s conduct. First, that Apple wrongfully extended the scope of its MacOS copyright by requiring MacOS to be installed on Apple-labeled computers in its end user license agreement, and by embedding certain technical interoperability barriers in MacOS (the court referred to “kernel panic” and “infinite loops” but did not elaborate on these barriers). Second, that MacOS copyright was being leveraged improperly by Apple’s use of “dubious” DMCA claims to intimidate potential competitors. Based on these two allegations, Psystar proposed four new counterclaims which sought a declaratory judgment that the MacOS copyrights be held unenforceable because Apple violated California’s unfair competition laws and engaged in copyright misuse. The court allowed the two copyright misuse counterclaims but denied the two unfair competition counterclaims.
Apple argued that copyright misuse, a doctrine adopted by the Ninth Circuit in Practice Management Information Corp. v. American Medical Ass’n, 121 F.3d 516, 520 (9th Cir. 1997), may only be alleged as a defense and not a counterclaim. Similar to the patent misuse doctrine, copyright misuse “forbids the use of copyright to secure an exclusive right … not granted by the [Copyright] Office and which is contrary to public policy to grant.” Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1090 (9th Cir. 2005). A finding of copyright misuse precludes the enforcement of copyright during the period of misuse and does not require an antitrust violation to be proved. The court rejected Apple’s argument, identifying that copyright misuse has been employed in an action for declaratory judgment even though it has been described in previous cases as a defense. The court also distinguished Altera, which held that copyright misuse should only be used as a defense to a copyright infringement claim. The Altera court held that copyright misuse should be employed only as a defense to a copyright infringement claim, and not a state law claim or where no claim or threat of copyright infringement is asserted. In contrast, Apple had in these proceedings alleged copyright infringement against Psystar.
Apple also argued that Psystar’s counterclaims failed to adequately plead sufficient facts to support a claim of copyright misuse. Apple argued that it is within its rights to determine the licensing, distribution and use of its copyright products. The court held that while this may be ultimately true, it was arguable and there was no reason to find the claims futile at this stage. To support its argument, Apple referred to Triad Systems v. Southeastern Express Company, 64 F.3d 1330 (9th Cir. 1995). In that case, Triad claimed that Southeastern infringed the copyrights in Triad’s software when Southeastern serviced Triad computers. Southeastern claimed that Triad’s licensing restrictions on its software constituted copyright misuse, but that claim failed. Nonetheless, Triad Systems was held to be insufficiently clear to deny Psystar’s counterclaim—the scope of its holding was unclear and “its entire analysis consisted of four sentences.”
Finally, Apple argued that Psystar’s claims of unfair competition fail because Psystar did not adequately plead any actual or incipient violation of antitrust laws (both sides agreed that “unfair” conduct means conduct which threatens or harms competition). The court agreed and denied Psystar’s unfair competition counterclaims noting that while copyright misuse does not require a finding of an antitrust violation, unfair competition does, and Psystar had not identified any conduct by Apple that could ground an antitrust claim. (Psystar had made a “single-product-market theory” argument that had been rejected in earlier proceedings.)
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