Apple v. Psystar was a United States copyright case about whether Apple could enforce the term in its Mac OS X licence that limits the operating system to Apple computers. Psystar Corporation, a small computer manufacturer, sold its own computers with a modified copy of Mac OS X installed. The district court found that Psystar infringed Apple’s copyrights and violated the Digital Millennium Copyright Act (DMCA), rejected its copyright misuse defense and enjoined it. On 28 September 2011 the Ninth Circuit affirmed. It held that the licence term “merely restricts the use of Apple’s own software to its own hardware” and did not stop competitors developing their own products.[1]
Background
According to the Ninth Circuit, Apple sold all Mac computers with a preinstalled, licensed copy of Mac OS X. It also sold Mac OS X separately on retail DVDs so that existing customers could upgrade their Macs. Apple’s Software License Agreement (SLA) for each version required the system to be used only on Apple computers. The relevant section read:[1]
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.
Apple also used technical “lock-and-key” measures, including a kernel extension that located decryption keys in Apple hardware, to stop Mac OS X running on other computers.[1]
The dispute
In April 2008 Psystar began selling computers it called “OpenMac” and later “Open Computers”. The court described the process as follows. Psystar installed a purchased copy of Mac OS X on a Mac Mini, applied updates, and imaged it to a non-Apple computer. It then added its own bootloader and kernel extensions to create a “master image”, which it installed on the computers it sold. Each machine shipped with the master image installed and an unopened retail copy of Mac OS X in the box. In the court’s words, this “enabled Psystar to maintain it had purchased a copy of Mac OS X for each computer it sold”, although the computer actually ran the altered installed copy.[1]
Apple sued on 3 July 2008 in the Northern District of California for breach and induced breach of the SLA, copyright infringement, trademark and trade dress infringement and unfair competition, and later added a DMCA claim. Psystar counterclaimed for a declaration that Apple misused its copyright by requiring purchasers to run their copies only on Apple computers. An earlier antitrust counterclaim had been dismissed and was not appealed.[1]
On 13 November 2009 the district court granted Apple summary judgment. It held that Psystar’s imaging was not fair use, that Psystar infringed Apple’s right to create derivative works, that the SLA was not copyright misuse, and that Psystar’s decryption violated the DMCA. It then issued a permanent injunction against further infringement and against selling circumvention devices.[1] Psystar did not appeal the infringement finding. Its main argument was that the Copyright Act protected Apple only against unauthorised copying and distribution, “but not on its use once it is purchased”.[1]
Decision or outcome
The Ninth Circuit affirmed on copyright misuse and on the injunction:[1]
- Licensee, not owner. The court rejected the premise that Apple had transferred ownership by selling retail DVDs. The SLA stated that the software was “licensed, not sold” and that Apple retained ownership, and it imposed significant use and transfer restrictions. The purchasers were therefore licensees under the three-factor test of Vernor v. Autodesk, and the first sale doctrine did not apply.
- No misuse. The court said copyright misuse “does not prohibit using conditions to control use of copyrighted material, but it does prevent copyright holders from using the conditions to stifle competition”. It concluded that “A software licensing agreement may reasonably restrict use of the software as long as it does not prevent the development of competing products.” Apple’s SLA did not stop competitors developing their own software or customers using non-Apple components with Apple computers, and Psystar remained free to develop its own hardware and software.
- Alcatel distinguished. The Fifth Circuit’s Alcatel decision, on which Psystar relied, involved licence terms that prevented the development of competing products, so it did not apply.
- Injunction. The district court properly applied the four eBay factors. It could also extend the injunction to Snow Leopard, which was not directly litigated, because liability was established and the threat of future infringement was real.
The court agreed with Psystar on one secondary point. It held that the record gave no adequate basis for sealing Apple’s documents and vacated the seven sealing orders.[1]
Significance for software licensing and SAM practice
The opinion is a clear appellate statement in the Ninth Circuit that a licence may restrict where software runs, including tying it to the licensor’s own hardware, as long as the restriction does not prevent the development of competing products.[1] It also confirms that retail packaging does not convert a licence into a sale where the licence reserves ownership and restricts transfer and use. The court described this distinction between licences and sales as the reason licensing “has become the preferred form of software transactions”.[1] Current macOS licence terms, including those on virtualization, are covered in Apple macOS licensing.
Lessons learned
- Hardware restrictions can be enforceable. The court held that Apple’s term limiting Mac OS X to Apple-labeled computers was a legitimate condition on use, because Psystar remained free to develop competing hardware and software.[1] Check each licence for platform or hardware restrictions before deploying software on new infrastructure.
- A boxed copy is still a licence. Because the SLA said the software was “licensed, not sold” and restricted transfer and use, DVD purchasers were licensees and could not rely on first sale.[1]
- One purchased copy per machine is not enough. Psystar shipped an unopened copy with each computer, but the computers ran copies made from its modified master image, and the infringement finding was not challenged on appeal.[1] Licences cover the copies actually installed and run.
- Misuse is a narrow defense. The court said it had upheld a copyright misuse defense only once, where a licence barred the licensee from using any competing product.[1] Customers disputing a restrictive licence term should not expect misuse to excuse non-compliance.