Apple v. Psystar and the undying EULA question – by “Michael M”

psystar

The first major battle in a case with potentially significant implications for the enforceability of EULAs has just been fought. The result was disappointing. Judge Alsup, a federal judge in the Northern District of California, just granted Apple summary judgment on its copyright claims in Apple v. Psystar. Apple, of course, is the major California computer company. Psystar is a small Florida company that gained notoriety in April of last year for their “Open Computer,” which optionally shipped with Mac OS X installed (a legally purchased, retail copy of the operating system was also included in the box). Apple was predictably displeased with Psystar for selling what are essentially Hackintoshes and sued the company in June of 2008. Other Mac clone manufacturers have popped up, but Psystar became the movement’s figurehead. Its litigation with Apple promised to test the legality of the cloning business model. That test has so far gone very poorly for the cloners.

Psystar and similar companies build machines out of generic PC hardware designed to match Apple’s specifications as closely as possible. They then use kernel extensions and some other hacking to trick OS X into running on the generic machines. The OSx86 project (a portmanteau of OS X and the x86 architecture of modern PCs) has managed to perfect this process to an amazing degree. Psystar apparently copied the OSx86 method and marketed its product towards less sophisticated users. Critically for the litigation, hacking OS X to run on generic hardware involves decrypting a few essential system files, using a leaked decryption key. Apple added this layer of decryption to foil efforts like OSx86 or and has successfully claimed that the OSx86 hack violates the DMCA’s anti-circumvention and anti-trafficking provisions.

Apple’s complaint makes several claims against Psystar, but the core of the complaint is copyright infringement and related DMCA violations. The OS X EULA permits installation of the software only on “Apple-labeled” hardware, which Psystar’s Open Computer is not. Apple claims that Psystar was therefore in violation of the license agreement and made several infringing copies of the software in the course of installing OS X. Apple’s motion for summary judgment focuses on Psystar’s alleged violation of Apple’s distribution and copying rights, secured by their copyright in OS X. Apple also argues that Psystar’s hacked version of OS X is in fact a derivative work, which further violates the OS X copyright. Finally, Apple tries to use the DMCA against Psystar, claiming that Psystar illegally circumvents their encryption scheme and then traffics in the circumvention mechanism.

Psystar’s counterargument rests principally on copyright misuse and the first sale doctrine. The copyright misuse defense tries to cast Apple’s EULA restrictions as antitrust violations, an argument for which the Court had very little patience. The first sale argument, however, cuts to the heart of the EULA enforceability debate. Psystar claims that Apple sold rather than licensed copies of OS X, so that Psystar’s resale of the software (admittedly installed on a hard disk rather than on a CD) was beyond Apple’s control. Apple, however, relies on terms in the license agreement that restrict the use of OS X, terms that only apply if the software is in fact licensed.

Unfortunately, Judge Alsup neatly sidestepped the sell-versus-license issue in granting Apple summary judgment. Noting that the statutory basis for the first sale doctrine, §109 of the Copyright Act, only protects copies that are “lawfully made,” Alsup found that Psystar’s particular method of installing OS X onto its Open Computer is illegal. Because the record relating to the installation method is heavily redacted, determining the precise details of Psystar’s operation is difficult. Nevertheless, it is clear that Psystar installed OS X onto a single Mac Mini and then cloned that installation onto its Open Computers. Even though Psystar allegedly included a legal retail DVD copy of OS X with each Open Computer (although Psystar’s lawyers failed to include sworn support for this), copying the Mini’s operating system violated Apple’s copyright. Worse, the DVD copy of OS X sometimes failed to match the installed copy exactly. Alsup does not address the legality of individually installing OS X on the Open Computers. Groklaw points out, however, that such a process would be so inefficient as to be practically impossible for a business like Psystar. The result for Psystar is a finding of infringement, EULA questions notwithstanding.

Several claims that remain for trial would force the Court to face the EULA debate more squarely, but there is good reason to believe Psystar won’t ever get that far. In addition to its core copyright and DMCA claims, Apple also alleges breach of contract (namely, the OS X EULA). Breach of a contract requires a valid contract in the first place, so it’s hard to imagine how the Court could avoid settling the EULA question when it addresses the breach of contract claim. The statutory damages to which Apple is likely entitled from its copyright claims, however, threaten to shutter Psystar almost immediately. Even modest damages would probably be fatal, since the company is already in serious financial distress. Moreover, an injunction would cut off any revenues that Psystar might have used to fund their legal battle (although whether the Open Computer is still being sold is unclear). Apple’s victory in summary judgment last Friday may mean the end of the road for Psystar and the Mac clones without any substantial closure on the enforceability of software EULAs.

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