But Apple would like this to go to trial on some trademark issues and other matters, which it sees as not mooted at all. It says it intends to seek disgorgement of Psystar's ill-gotten gains, by the way. And because Psystar can't possibly pay damages, it argues for a permanent injunction, but despite the recent ruling regarding Snow Leopard not being included in this litigation, Apple asks the court to fashion the injunction to include all its copyrighted Mac OS X software, not just Leopard, so Psystar can't continue to hop about infringing merrily along with each new version of Mac OS X.

As you recall, each side has filed summary judgment motions, with Apple opposing Psystar's motion but Psystar merely responding to Apple's. It knows it can't possibly win, I think, so it's just trying to minimize damages.

It's particularly in these arguments regarding summary judgment that we get the clearest picture yet of what this lawsuit has been all about.

But in addition, there is a really nasty dog fight on the side over confidentiality, with Psystar attempting to get the court to unseal technical information about how to bypass Apple's encryption, information Apple views as a trade secret and which it would like to keep sealed. I view this argument less as core to the litigation, but more as lawyer-jockeying for advantage on Psytar's part. I'll show you what I mean.



First, here's how Apple views the confidentiality issue, in brief:

Psystar has unlawfully circumvented the security mechanism in Apple's Macintosh computers and its Mac OS X operating system software. Now Psystar wants to use the judicial process by which Apple has acted to halt this illegal conduct to reveal Apple's proprietary security mechanism to the world.... The relevant facts needed to understand the significance of this case are that Apple uses an encryption method and Psystar has found a way to circumvent it. Publishing the encryption scheme and the circumvention method in the Court's files will simply invite others to engage in the same unlawful conduct.

Apple and Psystar have been filing documents partially sealed to protect tech info on how Psystar bypasses Apple's encryption. Psystar seemed to me to be redacting a lot more than Apple, which puzzled me until now. I gather Psystar wanted the court to view Apple as over-sealing, so it could ask for sanctions. Sometimes that's the only way to win, and that's why I think Psystar argues for it.

The parties have met and conferred, and Apple lists some documents it says can be unsealed, but it wants to keep its trade secrets secret. Psystar says the method to bypass Apple's encryption has already been revealed, that you can find it all over the Internet, so where's the trade secret? But Apple produces case after case where courts ruled code was still a trade secret despite some having published it on the Internet.

Psystar's other argument is that with dispositive motions, which is what summary judgment motions are, the rule is transparency, with narrow exceptions, and that this judge warned the parties that any attempts to overseal risked having the filing in question tossed out. Of course, that is the relief Psystar asks for. Like I say, sometimes that is the only way to win. If you think you won't win on the merits, you might look for a technicality you can try. SCO tried something similar, trying to accuse IBM of discovery abuse, but it went absolutely nowhere. And now Psystar asks the judge to sanction Apple for seeking to overseal portions of its summary judgment motion. Obviously, if Apple's motion for summary judgment were tossed out, it would protect Psystar from Apple's disgorgement, punitive damages, and trademark claims, in short, all the reap-what-you-sow part of their business strategy.

Outside of the courtroom, Psystar invites us to violate Apple license with them by offering, for around $50 bucks, something new called Rebel EFI, an application it says "allows for the easy installation of multiple operating systems," including Mac OS X, natch. TUAW says this about it:

Besides bypassing EFI requirements, Rebel EFI can also detect for Mac OS X compatible and incompatible hardware, and automatically download appropriate drivers. Skeptical? No worries: the app is free to try (as an ISO download), with a two hour time limit.

I found it particularly interesting to see how Apple handles the recent ruling in Vernor v. Autodesk. Essentially, Apple describes it as a decision out of harmony with cases both before it and since. But even if the decision were correct, and Apple obviously thinks it was not, the facts are so different that Apple's position is that it doesn't apply to Psystar anyway. As for the Vernor court's reliance on United States v. Wise and the concept of permanent ownership meaning a sale and not a license, Apple shows that the court missed an important sentence or two in the Wise decision, which show that certain terms in a license, all of which Apple says it includes, mean that it remains a license no matter what it says about keeping a copy.

Also interesting is that while Psystar says it only passes along the retail DVDs it purchases of Mac OSX, Apple says Psystar hasn't proven that with any evidence, and in fact by Apple's count, Psystar has sold more copies than it paid for, even if first sale covered its activities, which Apple says it doesn't. At most, even if the numbers were identical, first sale would only cover one copy, not the five that Apple claims Psystar makes, nor would it cover the "wholesale" modification and distribution. "Psystar indisputably adapts Mac OS X when adding, deleting, and substituting kernel extensions to make Mac OS X operate on non-Apple hardware," Apple states.

Here's Psystar's argument in a nutshell about unsealing the documents:

In its order granting the joint motion for a confidentiality order, this Court explained that it was granting the joint motion subject to a list of four conditions. The fourth condition, citing Kamakana v. Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006), explains that a compelling reason is necessary to seal any part of a dispositive motion and that such a compelling reason will exist only with respect to trade secrets analogous to the recipe for Coca Cola. See Docket No. 55 at 2. Certainly material that is publicly available on the Internet does not qualify for Coke-like protection. Certainly this Court would not close the courtroom for essentially all of the trial in this case, as would be required if all the material designated by Apple as Confidential or Attorneys Eyes Only really merited sealing in a dispositive motion.

The official Coca-Cola recipe has been kept a secret successfully since a medicinal chemist called John Pemberton first wrote it down in 1886. These days it is supposedly kept under 24-hour guard in a vault in Atlanta, Georgia, even though author Mark Pendergrast published it in his exposé of the cola industry For God, Country & Coca-Cola in 1993. The company maintains that this recipe is not the same as the one it uses.

I notice that Coke's recipe didn't lose its trade secret status because of the book. You can buy that book here. Here's the recipe for OpenCola, speaking of recipes, and it's under the GPL, too. Did you know that there was a Coke dispenser on the Space Shuttle [PDF] in the '90s? Yup. For research purposes, heh heh:

The Fluids Generic Bioprocessing Apparatus-2 (FGBA-2) payload represents an evolutionary step in carbonated fluids management technology. For the Coca-Cola Company, the primary corporate sponsor, FGBA-2 will provide a test bed to determine if carbonated beverages can be produced from separately stored carbon dioxide, water and flavored syrups and determine if the resulting fluids can be made available for consumption without bubble nucleation and resulting foam formation. Coca-Cola also will be verifying and obtaining additional data on the effects of space flight on changes in taste perception. Such data might aid in understanding altered tastes in specific target populations on Earth, such as the elderly, and eventually lead to altered beverage formulations that could increase hydration for such individuals and for astronauts. The sponsor--BioServe Space Technologies--is using the technology and lessons learned from this mission to apply to other commercial space life sciences activities including the development of plant growth and cell culture biotechnology facilities, closed environment research facilities and other projects that require management of two-phase fluids. Payload health and engineering data will be collected along with video images documenting behavior of the carbonated beverages during transfer operations.

I digress.

Apple's position is that it's a famous trademark, and they get special protection, and on the first-sale issue, it says this: first, Psystar isn't an owner of the copy it buys, it's a licensee; and second, even if it were an owner, its behavior goes beyond what first sale allows, in that Psystar modifies and distributes also:

Psystar admits that it copies, modifies and distributes Apple's copyrighted software, Mac OS X, without Apple's consent. Psystar admits that it circumvents - also without Apple's consent - technological protection measures in Mac OS X in order to cause it to operate on computers that were not designed by Apple and for which the software was never intended. Thus, unless Psystar can demonstrate that its conduct falls within narrow exceptions to the statutes - and it cannot- Psystar has violated both the Copyright Act, 17 U.S.c. §§ 101, et seq., and the Digital Milennium Copyright Act, 17 U.S.C. §§ 1201, et seq. Psystar attempts to defend against Apple's copyright infringement and DMCA claims by arguing that it is the "owner" of copies of Mac OS X and, therefore, can do with those copies as it pleases. This argument fails for two reasons. First, Psystar is not the owner; it is a licensee of Mac OS X, and Psystar's right to use the software is strictly limited by Apple's license. Second, even if, contrary to the facts, Psystar were an owner of a copy of Mac OS X, Psystar's infringing conduct exceeds the limited activities permitted by the "first sale" and "essential step" exceptions in the Copyright Act. 17 U.S.C. §§ 109 and 117. The law squarely prohibits Psystar from modifying, reproducing and distributing Apple's copyrighted software without Apple's permission, even if Psystar were deemed an owner of a particular copy. If Psystar's interpretation of these doctrines was correct, a customer who purchases a book, movie or music CD would be free to make and sell unlimited reproductions of that work and to publish and distribute derivative works all because the customer is the "owner" of a single copy. Such a result would completely eviscerate the copyright laws.

Despite its insistence that it has not infringed Apple's rights, Psystar nevertheless states that it will stipulate to a permanent injunction and an award of nominal damages against it, and then contends that the remainder of Apple's claims against it are moot. The relief that Psystar proposes is insufficient. While Psystar's infringement should be enjoined, any injunction must be broad enough to prohibit Psystar's continued unlawful conduct and protect Apple against the recurrence of such conduct. Furthermore, a trier of fact must determine whether Psystar must disgorge its sales revenue, whether Psystar's infringement has been willful, and whether punitive damages are appropriate.

So much for the argument that Psystar just buys a copy and then sells it on under the protection of the first-sale doctrine, eh? Here's why Apple would like a broad, permanent injunction:

Second, Apple's integrated business model will be severely undermined if Psystar is not permanently enjoined from infringing Apple's copyrights and circumventing its technological protection measures. Nothing else will stop Psystar from continuing to sell unauthorized copies of Apple software on non-Apple computers. There is litte doubt that Psystar will use each release of a new version of Mac OS X as a new opportunity to mass reproduce and distribute unauthorized copies of Apple software. And, if the Court declines to grant a permanent injunction, other software pirates, like Psystar, wil argue that by simply purchasing a retail DVD version of Mac OS X, they too are entitled to mass produce and sell software that Apple has spent many years and hundreds of milions of dollars developing.

I'll bet you never thought you'd see Psystar saying this:

It should be clear from the papers that Apple has filed that Apple has spent millions of dollars pursuing this family business, trying to destroy them. The record is replete with Apples admissions that this entire suit is based on a fierce motive to protect Apples market position by any means possible, legal or otherwise. This Court should end this vexatious litigation. Its been millions too much.

Rudy and Robert Pedraza are the founders and, for the moment, remain the dedicated leaders of Psystar.

Here are all the filings:

So, let's take a look at four of the documents. I've left off the headers, except for the titles, and the certificates of service, and the list of cases, and exhibits, just for space and also so I don't go bananas with details, so look to the PDFs for all that.

There is also a lot more I could describe and explain, but the truth is, just getting all this transcribed was such a chore, and one I couldn't delegate, that I need to stop here. Maybe I can swing back around once I recuperate.

If you were wondering where I've been all weekend, this is where. What? You thought I flew to Rio to party on the beach? I wish.

I'll start with Psystar's response to Apple's summary judgment motion, and then Apple's opposition to Psystar's motion for summary judgment, and then the filings about the sealing issue. I'm providing links to them because there is so much material, my hope is the links will help you to jump to the parts that interest you most and to go back and forth between the various arguments. Of course the court filings don't have those, and I also had to distinguish the footnotes in the various filings. For anything that matters, then, go by the PDFs, as always. So, then, it goes like this:

Also, Psystar has now replied to Apple's motion:

: )

Here then, as text, are the above filings, but not the update by Psystar, in the order of the list I made:

*************************

PSYSTARS RESPONSE TO

APPLES MOTION FOR SUMMARY JUDGMENT

I. TECHNICAL BACKGROUND

Psystar develops software to enable OS X to run on non-Apple hardware. Psystar's software interacts with OS X at its lowest level, the OS X xnu kernel ("Xnu"). A kernel (such as Xnu) provides an interface between higher-level software and underlying hardware resources, and serves to facilitate communications among the various programs a user might run on a computer. [redacted]

2

Since Darwin is open source, any member of the public can download the software and use it under the terms of Apples and other parties open-source licenses.6 Or they can buy a modified version of Darwin with the proprietary graphical user interface known as OS X:

[redacted]

[redacted]

3

The construction of a kernel extension is not a hack. It is something Apple knows about and encourages. Apple produces and distributes documentation and tools that help programmers with

4

[redacted]

5

Psystar makes use of Xnus inherent architectural flexibility. Psystar has written kernel extensions that allow Xnu to run on non-Apple computers. It is clear that Psystar is free to modify and distribute code that allows Darwin to run on non-Apple hardware.

[redacted]

6

7

[redacted]

To prevail on its copyright claims, Apple must show that Psystar violated an exclusive right granted to Apple by the Copyright Act. If Psystar has not violated any such right, then it does not matter, for purposes of analyzing a copyright claim, whether Psystar has violated the SLA. This is because the breach of a promise in the SLA cannot convert an act that was not copyright infringement into one that is infringement; at most, breach of the SLA gives rise to a breach-of-contract claim. Put another way, if Psystars business activities do not invade Apples rights under the Copyright Act, then Psystar does not need any license from Apple to engage in those activities and need not comply with the terms of any such license in order to avoid committing copyright infringement.

A license agreement can be relevant to determining whether a defendant has committed copyright infringement, but only if the defendant has first violated an exclusive right granted by the Copyright Act. This is because a license can permit what would otherwise be a violation. Moreover, even if the defendant has violated an exclusive right granted by the Copyright Act and has done so in violation of a license agreement, the defendant has not necessarily committed copyright infringement. It is copyright infringement only if the term of the license that the defendant violated is a condition of the license, and not a mere covenant. See, e.g., Sun Microsystems, Inc. v. Microsoft

8

This Court need not reach the question whether Psystar violated the SLA because Psystar does not rely on any license from Apple. Psystar contends, instead, that its business activities do not violate any exclusive right that the Copyright Act grants Apple. Because Psystar does not invade any of Apples copyright rights, it does not need any license from Apple to avoid copyright infringement. This Court can safely ignore all those parts of Apples motion for summary judgment that rely on the SLA rather than the Copyright Act.

III. PSYSTAR DID NOT ENGAGE IN COPYRIGHT INFRINGEMENT

Apple contends that Psystar violated three of the exclusive rights granted by the Copyright Act: the reproduction right; the distribution right; and the right to create derivative works. See M. at

9

A. Psystar Does Not Violate Apples Reproduction Right Because Of § 117 And, In The Alternative, Fair Use

[redacted] These copies are made in the course of the imaging process by which Psystar installs copies of Mac OS X on the computers that it sells to end users.

Unauthorized Copy One. [redacted] This is not copyright infringement because it falls under 17 U.S.C. § 117. When Psystar installs a copy of OS X on its imaging-station computer, it is merely installing a copy of OS X that it lawfully purchased, as permitted by § 117. This would be entirely clear if Psystar were installing OS X on the imaging-station computer directly from the OS X DVD. Apple contends that installing OS X on the imaging-station computer from the Mac Mini instead of from the OS X DVD transforms this copying into copyright infringement.

Section 117 provides that it is not an infringement for the owner of a copy of a computer program to make . . . another copy or adaptation of that computer program . . . as an essential step in the utilization of the computer program in conjunction with a machine. When Psystar copies OS X to the imaging-station computer, it is the lawful owner of a copy of OS X and is installing a copy of OS X on a computer. See Psystars Motion for Summary Judgment at 59. This is precisely what § 117 permits. See Psystars Motion for Summary Judgment at 9-11.

Section 117 nowhere requires that the copy that is installed on the computer be made directly from the copy of a computer program that the owner owns. Section 117 provides that the owner of a DVD containing OS X Leopard, as the owner of a copy of a computer program, can install OS X Leopard on his computer. It does not require that this installation be done directly from that DVD.

10

Moreover, in the alternative, it is fair use for Psystar to install copies of OS X that it has a right, as an owner of one OS X DVD per Psystar computer, to install in a more efficient way than by inserting the DVDs in Psystar computers one by one. In Wall Data, the Ninth Circuit considered the Los Angeles Sheriffs Departments decision to install software on 6,007 computers when it had a license for only 3,663 computers. The Sheriffs Department claimed that this was fair use because it took steps to ensure that no more than 3,663 users were using the software at any time, even though the software was installed on 6,007 different computers. The Ninth Circuit rejected this claim of fair use, but stated that using imaging for 6,007 installations would not, in itself, be a problem:

To be clear, we do not hold that a fair use defense is not available simply because the infringer uses technology to make efficient use of its licenses. The problematic aspect of the Sheriffs Departments use is that it took in excess of what it bargained for, not that it was technologically efficient. Thus, for example, if the Sheriffs Department had saved time and money by hard drive imaging RUMBA software onto the number of computers for which it had licenses, its 'efficiency' would not create a problem .

Unauthorized Copy Two.

[redacted]

This copying is not copyright infringement for the same reasons as apply to allegedly unauthorized copy one: § 117 permits Psystar to install copies of OS X that it buys on Psystar computers; and it is fair use to use an imaging station to make the

11

Unauthorized Copy Three.

Copying a computer program into RAM as a result of installing and running that program is precisely the copying that § 117 provides does not constitute copyright infringement for an owner of a computer program. As the Ninth Circuit explained, permitting copies like this was § 117s purpose:

Section 117 was enacted on the recommendation of CONTU, which noted that [b]ecause the placement of any copyrighted work into a computer is the preparation of a copy [since the program is loaded into the computers memory], the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability. CONTU Report at 13.

B. Psystar Does Not Violate Apples Distribution Right Because Of § 109.

[redacted] As discussed in the next section, Psystar does not agree that the addition of Psystars bootloader and kernel extensions constitutes a modification of OS X. Instead, Psystar contends that it is bundling OS X, unmodified, with Psystars own interoperable software. It is just as though Psystar were selling computers with both OS X and Microsoft Word installed: it would not be the case in that situation that Psystar had modified OS X to include Microsoft Word (or vice versa); it would be appropriate to say, instead, that Psystar had bundled OS X with Microsoft Word while modifying neither.

Stripped of the inaccurate modification description, Apples allegation is that Psystar violated its distribution right by selling a package consisting of (1) a Psystar computer, (2) a copy of OS X, and (3) a copy of Psystars bootloader and kernel extensions. It is only (2), the resale of a

12

[T]he first sale doctrine provides that where a copyright owner parts with title to a particular copy of his copyrighted work, he divests himself of his exclusive right to vend that particular copy. While the proprietors other copyright rights (reprinting, copying, etc.) remain unimpaired, the exclusive right to vend the transferred copy rests with the vendee, who is not restricted by statute from further transfers of that copy, even though in breach of an agreement restricting its sale.

C. Psystar Does Not Violate Apples Right To Create Derivative Works Because

Psystar Does Not Create Derivative Works

[redacted]. Psystar responds that adding to or replacing parts of OS X without modifying the OS X source or object code and solely as a result of installing on the same computer additional, separate software written by Psystar is not the creation of a derivative work of OS X.

1. Installing multiple pieces of software on a computer does not create a set of derivative works

13

Another way of saying this is that the changes made by Psystar are entirely functional in nature. With the addition of Psystars kernel extensions, OS X is extended to run on non-Apple computers. Functional changes to a compilation do not create a new works of authorship (a necessary element in the creation of a derivative work). See Silverstein v. Penguin Putnam, Inc., 368 F.3d 77 (2d Cir. 2004) (citing Torah Soft Ltd. v. Drosnin, 136 F.Supp.2d 276, 287 (S.D.N.Y.2001)).

2. Apples cases  Dun & Bradstreet, Strohon, and Artic  are inapposite because they concern defendants who modified the plaintiffs source code or object code, something that Psystar did not do.

This modification was 'large scale,' and included compilation, link editing, and testing of GMI W-2 software with the DBS code at customer sites, and modifying the Geac program language code. He [a Grace witness] further stated unequivocally that in fixing bugs and in adding features, Grace consultants have modified DBSs source code.

14

After all, on the contrary view, would the result of installing Microsoft Word be a derivative work not only of Apples OS X but also of Microsofts Word? The multiplication of derivative-work claims resulting from Apples view as applied to an ordinary computer running third-party software from many different manufacturers would be bizarre. Every major software company would need to cross-license its work with the owners of all other programs that it could expect to be installed on the same computer. This is not the law. Rather, the law is that installing two programs on the same computer does not create a derivative work even if the result of installing one program is to modify some of the ones and zeroes that make up the other program and even if one programs purpose is to improve or expand the total capabilities of the computer system. Cf. Wells Fargo & Co. v. WhenU.com, Inc., 293 F. Supp. 2d 734, 769 (E.D. Mich. 2003) (Even if the presence of an overlapping window could be said to change the appearance of the underlying window on a computer screen, the mere alteration of the manner in which an individual consumers computer displays content sent by plaintiffs websites does not create a 'derivative work.'").

Apples other two cases both involve two video games from the 1980s, Galaxian and PacMan. In Strohon, a district-court case from Illinois, the defendant sold physical ROMs (silicon chips) that could be plugged into a Pac-Man arcade game in place of some of the Pac-Man ROMs to

15

Strohon and Artic are like Dun & Bradstreet in that the defendant took a base of code made by the plaintiff and modified that code to make a new, upgraded version of the plaintiffs product that the defendant called his own. Strohon and Artic are OS Eleven cases. Neither case is analogous to the case at bar because, here, Psystar does not create a new and upgraded operating system; it merely installs its own code along with OS X. This code enhances the operation of the resulting computer, just as third-party drivers help a computer work with hardware like scanners or printers and just as third-party application software like Mozilla Firefox or Google Chrome or Microsoft Internet Explorer helps a computer to surf the web or do other tasks. But the fact that third-party code lets a computer do what it could not do before does not mean that installing that code creates a derivative work of the operating system. It is only when the third-party code creates a new version of the operating system, and not a separate and distinct program, that a derivative-work problem arises.

D. Psystar Owns The Copies Of OS X That It Buys.

[redacted]

16

E. Section 117 Applies To Psystars Installation Of Copies Of OS X.

[redacted] .

1. Psystar has not waived its § 117 defense.

However, to the extent that the court finds § 117 is an affirmative defense, Psystar has pled it. The eighth affirmative defense states that Psystar has not infringed any alleged copyright in this case. Psystar Corporations Answer to Apple Inc.s First Amended Complaint, p. 18. While not mentioning the section by name, Psystar describes the substance of a § 117 defense: that a narrow category of copying is lawful.

17

2. Section 117 applies to Psystar even though Psystar installs copies of OS X for the ultimate purpose of resale to end users.

Formula I has nothing to do with § 117 at all. The case nowhere considers whether § 117 would protect the defendants actions. Indeed, it is not clear whether the defendant owned legitimate copies of Apples software or, instead, owned pirated copies, in which case § 117 would not apply. At issue was whether Apples software programs were copyrightable expressive works or uncopyrightable ideas or algorithms. See Formula I, 562 F. Supp. at 77883. This (except as to the haiku when used as a key) is not at issue in the case at bar.

Formula II considers whether purchasing a lawful copy of Apple software then copying that software not onto a computer, but onto silicon chips that can be plugged into a computer by the end user, is protected by § 117. The court held that this copying was not protected for two alternative

18

Neither reason stated in Formula II is applicable to Psystar. Psystar does not sell kit computers; like Dell, it assembles complete computer systems and sells these working computers to end-users. Because Psystar installs Apples software on its own computers as an essential step for the use of Apples software on those computers, Psystar falls squarely within § 117. Even while the computers are at Psystar, Psystar can use them to run OS X. The installation is an internal use.

Moreover, because OS X, unlike the Apple software at issue in Formula II, cannot be run from the disk, the installation of that software is an essential step in using OS X so that this installation falls within § 117. Psystar does not make a copy of OS X onto a separate component for later, external installation in a computer; it installs its copies of OS X onto working computers internally at Psystar.

IV. PSYSTAR DID NOT VIOLATE THE DMCA.

[redacted] Psystar responds that it did not violate the DMCA because (1) any circumvention did not facilitate infringement and therefore did not violate the DMCA, see Chamberlain Group, Inc. v. Skylink Technologies, Inc., 381 F.3d 1178 (7th Cir. 2004); Realnetworks, Inc. v. DVD Copy Control Assn, No. C-08-4548-MHP, 2009 WL 2475338 (N.D. Cal. 2009) (adopting Chamberlain); Storage Technology Corp. v. Custom Hardware Engineering & Consulting Inc., 421 F.3d 1307 (Fed. Cir. 2005); and (2) Apples anti-circumvention technology is wholly ineffective because the key has been publicly available on the Internet for years, see Lexmark Intl, Inc. v. Static Control Components, Inc., 387 F.3d 522, 547 (6th Cir. 2004).

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V. COPYRIGHT MISUSE

Apple misstates the doctrine of copyright misuse. First, neither proof of an antitrust violation nor a showing of market power is necessary to prevail on a defense of copyright misuse. See Practice Mgmt. Info. Corp. v. American Med. Ass'n, 121 F.3d 516, 521 (9th Cir. 1997) ("a defendant in a copyright infringement suit need not prove an antitrust violation to prevail on a copyright misuse defense). Second, public policy underlying copyright strongly opposes a copyright owner using his copyrights to gain commercial control over products that are not protected under copyright law. In re Napster, Inc., Copyright Litigation, 191 F. Supp. 2d 1087, 1105 (N.D. Cal. 2004) (noting that unduly restrictive copyright licensing agreements can constitute misuse).

The cases cited by Apple bear no resemblance to the issues at hand. In Bell Atlantic Business Systems Services, Inc. v. Hitachi Data Systems Corp., the court rejected the misuse defense because the defendant had alleged no other basis for copyright misuse . . . [b]eyond the [dismissed] antitrust claims. 1995 WL 836331 at *11 (N.D. Cal.). Similarly, in Service & Training, Inc. v. Data General Corp., the court held that even though 'a misuse need not be a violation of antitrust law in order to comprise an equitable defense to an infringement action, appellants have offered no evidence of copyright misuse beyond the previously rejected tying claim. 963 F.2d 680 (4th Cir. 1992). Here, by contrast, Psystar does not offer recycled theories of antitrust violations.

Apples contention that courts have consistently upheld the license restrictions found in the SLA is not supported by the two cases it cites (never mind the irrelevance of this argument). In fact, Apples first case, Triad Systems, is an excellent case to support Psystars position that the sale of software copies extinguishes certain copyrights in the copyright holder: Triad software customers are subject to three different contractual arrangements. From 1976 to 1985, Triad sold its software outright to customers (Regime 1). Because

20

Regime 1 customers own their software, they have rights under the Copyright Act to make or authorize the making of copies in the operation of their computers. As a result, such copies are noninfringing, even if they are made by Southeastern in the course of servicing Regime 1 customers' computers. Triad therefore concedes that Southeastern cannot be barred from making use of software owned by Regime 1 customers.

Apples second case, Microsoft Corp. v. BEC Computer Co., Inc., arose from the defendants distribution of stand-alone copies of the licensed software, which the license prohibited, for less than the prices required in the license agreement. 818 F. Supp. 1313 (C.D. Cal. 1992). Because Psystar paid for every copy of OS X Leopard that it installed, BEC Computer is inapposite.

We now know from the record that Apple fully intended  with singular focus  to use copyright law to enforce the tethering of OS X to Apple hardware. Witness after witness presented by Apple testified to Apples intention to implement certain technological features whose sole purpose is to provide offensive legal weaponry against any user that attempts to use OS X on nonApple hardware:

[redacted]

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VI. MILLIONS TOO MUCH

We need not repeat the misuse arguments made in Psystars Motion for Summary Judgment at 2024 (incorporated by reference). Instead, we simply and respectfully request that the Court deny Apple's motion and provide Psystar the relief it deserves. Psystar is a company not unlike many thousands of other small businesses that are the backbone of the American economy. Rudy and Robert Pedraza are the founders and, for the moment, remain the dedicated leaders of Psystar. They are assisted by a small group of employees, many of whom are also family. The Pedrazas are proud Cuban-Americans who embody the spirit of innovation and hard work of which all of us, as Americans, are so justly proud.

It should be clear from the papers that Apple has filed that Apple has spent millions of dollars pursuing this family business, trying to destroy them.8 The record is replete with Apples admissions

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Dated: October 22, 2009

Respectfully submitted,

CAMARA & SIBLEY LLP

By: /s/ K.A.D. Camara ____________________________

K.A.D. Camara

Attorneys for Defendant / Counterclaimant

Psystar Corporation

Psystar appreciates the assistance of Christian Curtis, Jane Dryer, and the Brooklyn Law Incubator & Policy Clinic in the research and drafting of this response.

[redacted]

[redacted]

[redacted]

[redacted]

See http://developer.apple.com/Darwin/

See http://developer.apple.com/technology/xcode.html.

The materials filed under seal in connection with Psystars Motion for Summary Judgment should now be unsealed under Local Rule 79-5(d). Under the Local Rules, Apple had five days to file a declaration stating good cause for keeping sealed those parts of Psystars motion that Psystar filed under seal. See Local Rule 79-5(d) (Within five days thereafter [after the motion to seal is filed], the designating party must file with the Court and serve a declaration establishing that the designated information is sealable, and must lodge and serve a narrowly tailored proposed sealing order, or must withdraw the designation of confidentiality. If the designating party does not file its responsive declaration as required by this subsection, the document or proposed filing will be made part of the public record.). Apple never filed the required declaration. Accordingly, Psystar respectfully requests that at least this part of the dispositive motions be immediately released to the public.

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APPLE INC.'S OPPOSITION TO

PSYSTAR CORPORATION'S MOTION

FOR SUMMARY JUDGMENT

PUBLIC VERSION

[REDACTED]

[ back to top ]

I. INTRODUCTION

Psystar admits that it copies, modifies and distributes Apple's copyrighted software, Mac OS X, without Apple's consent. Psystar admits that it circumvents - also without Apple's consent - technological protection measures in Mac OS X in order to cause it to operate on computers that were not designed by Apple and for which the software was never intended. Thus, unless Psystar can demonstrate that its conduct falls within narrow exceptions to the statutes - and it cannot- Psystar has violated both the Copyright Act, 17 U.S.c. §§ 101, et seq., and the Digital Milennium Copyright Act, 17 U.S.C. §§ 1201, et seq. Psystar attempts to defend against Apple's copyright infringement and DMCA claims by arguing that it is the "owner" of copies of Mac OS X and, therefore, can do with those copies as it pleases. This argument fails for two reasons. First, Psystar is not the owner; it is a licensee of Mac OS X, and Psystar's right to use the software is strictly limited by Apple's license. Second, even if, contrary to the facts, Psystar were an owner of a copy of Mac OS X, Psystar's infringing conduct exceeds the limited activities permitted by the "first sale" and "essential step" exceptions in the Copyright Act. 17 U.S.C. §§ 109 and 117. The law squarely prohibits Psystar from modifying, reproducing and distributing Apple's copyrighted software without Apple's permission, even if Psystar were deemed an owner of a particular copy. If Psystar's interpretation of these doctrines was correct, a customer who purchases a book, movie or music CD would be free to make and sell unlimited reproductions of that work and to publish and distribute derivative works all because the customer is the "owner" of a single copy. Such a result would completely eviscerate the copyright laws.

Psystar argues that even if it has infringed, Apple cannot enforce its copyrights because it has misused them. But Psystar has presented no evidence to support either ground for copyright misuse. First, there is no evidence that Apple has market power and has misused it, an issue already addressed earlier in this case. Second, Psystar offers no evidence - because none exists - that Apple has used its copyrights to subvert the goals of the Copyright Act. Psystar's argument that it is not liable for trademark and trade dress infringement should similarly be rejected. Psystar admits that it uses Apple's trademarks and trade dress to promote

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Despite its insistence that it has not infringed Apple's rights, Psystar nevertheless states that it wil stipulate to a permanent injunction and an award of nominal damages against it, and then contends that the remainder of Apple's claims against it are moot. The relief that Psystar proposes is insufficient. While Psystar's infringement should be enjoined, any injunction must be broad enough to prohibit Psystar's continued unlawful conduct and protect Apple against the recurrence of such conduct. Furthermore, a trier of fact must determine whether Psystar must disgorge its sales revenue, whether Psystar's infringement has been wilful, and whether punitive damages are appropriate.

As revealed by their simultaneous motions for summary judgment, Apple and Psystar agree there are no material issues of fact regarding Apple's claims that Psystar has engaged in copyright infringement and violated the DMCA. As demonstrated below, and in Apple's motion for summary judgment, the law and facts require entry of judgment in Apple's favor on those claims.

II. STATEMENT OF FACTS

The statement of facts Psystar includes in its motion is incomplete and misleading. Moreover, when describing its own activities, Psystar's statement of facts is totally devoid of citations to admissible evidence. Nonetheless, the facts that are actually relevant to this case, which are set forth below, are undisputed.

A. Apple's Software License Agreement

It is uncontested that Apple sells boxes containing DVDs on which its copyrighted Mac OS X software is written. (Psystar Br. at 5.) Apple includes a Software License Agreement ("SLA") with its software that specifically states that "Apple and/or Apple's licensor(s) retain ownership of the Apple Software itself." (Psystar Br. at 6 and Ex. A at § 1.) The SLA also states:

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BY USING THE APPLE SOFTWARE, YOU ARE AGREEING TO BE BOUND BY THE TERMS OF THIS LICENSE. IF YOU DO NOT AGREE TO THE TERMS OF THIS LICENSE, DO NOT USE THE SOFTWARE.

This License allows you to install, use and run one (1) copy of a single Apple-labeled computer as at 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.

B. Psystar Copies And Modifies Mac OS X To Create A Psystar Computer

Psystar contends that it purchases a Mac OS X DVD at retail (the "Retail DVD Version") for each computer it sells, and Psystar claims that it includes the Retail DVD Version with each computer it ships to its customers. (Psystar Br. at 9-10.) But Psystar does not install the software written on that Retail DVD Version onto each Psystar computer. Instead, as ilustrated below, Psystar makes at least three infringing copies of Mac OS X during its manufacturing process and never actually utilizes the Retail DVD Version that it allegedly includes with each computer.

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Psystar's Copying Process

Psystar copies the hard drive of a Macintosh computer containing Mac OS X (as depicted above on the left side of the diagram) onto its "imaging station" computer (shown in the middle of the diagram). This is the first unlawful copy. Psystar then modifies this copy of Mac OS X to create a "master copy" that wil run on non-Apple computers.A1 Psystar next uses "hard drive imaging" to install copies of its "master copy" of Mac OS XA1 from the imaging station onto each computer it assembles.A3 This is the second unlawful copy (a process repeated many times). Finally, every time Psystar turns on any of the Psystar computers running Mac OS X, which it

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does before shipping each computer, Psystar necessarily makes a separate modified copy of Mac OS X in Random Access Memory, or "RAM."A4 This is the third unlawful copy.

As this process shows, the Mac OS X software installed on Psystar computers is a different copy of the software than the Retail DVD Version. The installed version has been modified so that it can run on Psystar's hardware. Indeed, when Psystar demonstrated its manufacturing process to Apple's expert, Dr. John Kelly, he confirmed that Psystar never uses the Retail DVD Version Psystar claims to include with the computers it sells.A5

It is undisputed that Psystar modifies Mac OS X and circumvents Apple's technological protection measures so that Mac OS X is capable of running on Psystar computers.A6 Psystar agrees that Apple's expert, Dr. Kelly, "clearly describe[s]" Psystar's method for circumventing Apple's security mechanism in Mac OS X. (Psystar Br. at 15.)A7

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C. Psystar Uses Apple's Trademarks And Trade Dress To Advertise Its Computers

When Psystar advertises and sells its computers running Mac OS X, it knowingly trades on Apple's famous trademarks and its trade dress to deliberately target customers already interested in buying an Apple computer. In an obvious attempt to capitalize on Apple's goodwil, Psystar first called its computer the "OpenMac." (Psystar Answer ¶ 12.) Psystar's advertisements extensively use Apple's trade dress and Apple and Mac logos.A11 More than 75 percent of Psystar's text ads include an Apple trademark or trade name.A13 In addition, Psystar uses Apple's word marks APPLE and MAC in the address of certain pages within its website (the URL), such as "www.Psystar.com/OpenMac."A14 Also, Psystar created URLs that will deliberately attract people seeking to buy an Apple computer.A15 And Psystar purchased search terms from Google and Yahoo! based upon Apple's marks and products, so that Google or Yahoo! users searching for an Apple computer or Mac OS X are distracted, confused, and diverted by Psystar ads.A16 Thus, Psystar has deliberately targeted its advertising to consumers already interested in buying an Apple computer.

III. ARGUMENT

Psystar has presented no evidence to dispute that it copies, modifies, and distributes Mac OS X without Apple's consent. The facts set forth above, and in Apple's Motion for Summary Judgment, establish that Psystar has infringed Apple's copyrights and trademarks and violated the DMCA. Psystar therefore relies on certain legal defenses, including the first sale and essential

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step doctrines, copyright misuse, and nominative fair use in an attempt to defend against Apple's claims. For the reasons set forth below, each of Psystar's arguments fails.

A. The First Sale Doctrine Does Not Excuse Psystar's Conduct

Psystar cannot excuse its infringement of Apple's copyrights by relying on the "first sale" doctrine. The "first sale" rule, 17 U.S.C. § 109(a), only allows the owner of a "particular copy" to "dispose of the possession of that copy." This applies strictly to the "particular" physical copy as "purchased and nothing else." Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856 F.2d 1341, 1344 (9th Cir. 1988) (emphasis added). "Section 109 does not authorize adaptation and reproduction of a copyrighted work." Midway Mfg. Co. v. Strohon, 564 F. Supp. 741, 745 (N.D. Ill. 1983). Moreover, section 109 does not supersede the copyright holder's exclusive right to create derivative works.Mirage, 856 F.2d at 1341, 1344; Midway, 564 F. Supp. at 741. Psystar argues that because it "owns" the DVD on which Mac OS X is written, it is entitled to (1) modify Mac OS X and create derivative works, (2) make and distribute unlimited copies of Mac OS X, and (3) circumvent Apple's technological protection measures. Psystar's argument is profoundly wrong.

1. Psystar May Not Assert The First Sale Doctrine Because It Is A Licensee, Not An Owner, Of Mac OS X

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The SLA's express terms, which impose significant limitations and prohibitions on the use and disposition of Apple's software, confirm that the purchasers of Mac OS X are licensees, not owners, and therefore are not entitled to assert section 109 as a defense to infringement. Among the SLA's restrictions are (1) prohibitions against unauthorized uses ofthe software (SLA § 2A); prohibitions against renting, redistributing, or sub-licensing (SLA § 3); (3) limitations on transfer (SLA § 3); (4) limitations on copying the software (SLA §§ 2C and 2F); (4) prohibitions on modifying the software (SLA § 2F); (5) automatic termination in case of breach (SLA §5); and (6) mandatory destruction of the software in case of breach (SLA § 5). Such profound restrictions are wholly inconsistent with Psystar's claimed "ownership" of the software and, instead, conclusively identify a license transaction. See, e.g., Stargate Software, 216 F. Supp. 2d at 1057-58 (finding that terms similar to the SLA "substantially and undeniably interfere[d] with . . . [the] ability to distribute and/or convey title to the products in question"); One Stop Micro, 84 F. Supp. 2d at 1091-92 ("[N]umerous restrictions imposed by Adobe indicate a license rather than a sale because they undeniably interfere with the reseller's ability to further distribute the software."); Novell, Inc. v. Unicom Sales, Inc., No. C-03-2785, 2004 WL 1839117, at *11 (N.D. CaL. 2004) (reservation by copyright owner of all rights not expressly granted and automatic termination for breach indicate a license).

Psystar quotes a single clause from the SLA providing that the licensee owns the "media on which the Apple software is recorded," and argues that this somehow supports Psystar's ownership of the software. Psystar is wrong. The plain meaning of this phrase is that Psystar owns only the disk, not the software written upon it. The Copyright Act makes clear that "[o]wnership of a copyright, or of any of the exclusive rights under a copyright, is distinct from ownership of any material object in which the work is embodied." 17 U.S.C. § 202. Transfer of the "material object" in which the work is "fixed" does not convey rights in the work itself. Id.; see also Serv. & Training, Inc. V. Data Gen. Corp., 963 F.2d 680, 687 n.13 (4th Cir. 1992).

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Vernor v. Autodesk provides little support for Psystar's argument that it owns a copy of Mac OS X and is therefore entitled to assert first sale and essential step defenses. Vernor v. Autodesk, Inc., 555 F. Supp. 2d 1164 (W.D. Wash. 2008) ("Vernor l") and Vernor v. Autodesk, Inc., No. C07-1189, 2009 WL 3187613 (W.D. Wash. Sept. 30, 2009) ("Vernor II"). First, as the Vernor court itself noted, its holding is inconsistent with recent Ninth Circuit case law finding that software licenses precluded the defendants in those cases from asserting the first sale and essential step doctrines: Wall Data, Inc. v. Los Angeles County Sheriff's Department, 447 F.3d 769 (9th Cir. 2006), Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir. 1995) and MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993). The Vernor court acknowledged that:

If the court were to apply this trio of precedent (the "MAI trio") to the license before it, it would conclude that Autodesk did not sell AutoCAD copies to (the purchaser). The terms of the Autodesk License are either indistinguishably similar to or more restrictive than the licenses found not to be sales in the MAI trio.

Furthermore, even if Vernor did apply, the holding is extremely narrow. The court found that Mr. Vernor could resell on eBay the genuine AutoCAD software discs he had purchased. Mr. Vernor did not modify the AutoCAD software; he did not create a master copy of the software to use for mass duplication; he did not pre-install the AutoCAD software onto computers while retaining the master copy; nor did he circumvent a technological protection measure to do all of the above. None of these infringing activities is permitted by section 109, even if the infringer is deemed an owner. Because Psystar does all of these things, Vernor does not immunize Psystar's infringement.

Similarly, Psystar's argument that United States v. Wise, 550 F.2d 1180 (9th Cir. 1977), the case on which Vernor primarily relies, excuses its actions, should be rejected. Wise addressed whether the transfer of certain film reels and prints constituted sales. Psystar argues that under Vernor and Wise, because a "buyer" of a Mac OS X DVD "may keep the DVD indefinitely," a

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The only transaction the court in Wise determined was a "sale" was the so-called Redgrave Contract (Wise, 550 F.2d at 1191-92), in which Warner Brothers gave actress Vanessa Redgrave a print of "Camelot." The Redgrave Contract nowhere stated that it was a license. Instead it stated that Redgrave "will pay [Warner Brothers] our cost for said print" and "[s]aid print is furnished for your personal use and enjoyment and shall be retained in your possession at all times." Wise, 550 F.2d at 1192. The Redgrave Contract further had no termination or destruction provisions. Id.A20 By contrast, Apple's SLA states unequivocally that it is a license and includes destruction and termination provisions. See also Hampton v. Paramount Pictures Corp., 279 F.2d at 103 (agreement is a license where rights are "expressly restricted" and the agreement is called a "license" - even if there "was no requirement that outstanding prints and negatives were to be returned").

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2. Even If Psystar May Assert The First Sale Doctrine, Psystar's Copying, Modifcation, And Distribution Of Mac OS X Constitute Copyright Infringement

Furthermore, the undisputed facts establish that Psystar modifies every copy of Mac OS X that it installs so that Mac OS X can run on Psystar's computers. None of these modified copies is permitted by section 109 because none constitutes the "particular copy" of Mac OS X that Psystar purchased. Mirage, 856 F.2d at 1344 (first sale doctrine did not apply to the defendant's sale of prints that the defendant removed from a book it purchased and then framed and resold; "the derivative works right, remains unimpaired and with the copyright proprietor"). Thus, even if Psystar owns a particular copy of Mac OS X, it stil has infringed Apple's copyrights by modifying Mac OS X and creating multiple unauthorized derivative works.

Psystar's argument that it is absolved of liability for copyright infringement because it allegedly purchases and redistributes a genuine Retail DVD Version of Mac OS X with each of its computers should be rejected. Psystar offers no evidence that it actually ships a Retail DVD Version of Mac OS X with each of its computers, and its motion fails for this lack of admissible

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evidence alone.21 Even assuming Psystar could prove that it included the Retail DVD Version with each computer it shipped, Psystar would at most be entitled to assert the first sale doctrine with respect to that particular copy of the Retail DVD Version. As discussed above, Psystar is not entitled to assert the first sale doctrine with respect to the three types of unauthorized copies and any modified copies that Psystar makes, and all of these copies infringe Apple's copyrights.

B. Psystar's Copying Is Not Excused By The "Essential Step" Exception

Psystar glosses over the clear limitations of the "essential step" rule, which establishes a narrow exception to the general prohibition against unlawful copying of copyrighted works and further restricts distribution of such copies. See 17 U.S.C. § 117(a)-(b). Psystar waived this defense by not pleading it22 and, in any event, it has no merit. The "essential step" defense is intended to ensure only that an owner-user of software can make a single copy of the software program by loading it onto a computer and using it, or can transfer that "exact copy" without violating copyright law. See 17 U.S.C. § 117; Apple Computer, Inc. v. Formula Int'l, Inc., 594 F. Supp. 617, 621-22 (C.D. Cal. 1984), aff'd 725 F.2d 521 (9th Cir. 1984). Nothing in the statute, or cases interpreting it, suggests that section 117 immunizes Psystar's wholesale copying and modification of Mac OS X for the purpose of distributing it for commercial gain on unauthorized platforms to Apple's competitive disadvantage.

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1. Psystar May Not Assert A Section 117 Defense Because It Is Not An "Owner" Of The Software

2. Psystar's Conduct Exceeds The Narrow Scope Of Section 117's Essential Step Defense

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Psystar argues that Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005), somehow indicates that section 117 would protect its unauthorized copying, modification, and distribution of Mac OS X. To the contrary, the Krause court expressly recognized that section 117 permits the owner to take only those steps necessary for the owner to enable the use for which the copyrighted

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work was both sold and purchased. Id. at 128. As the SLA expressly provides, Mac OS X is sold exclusively for use on Apple computers. Psystar's copying and adaptation of Mac OS X are directly contrary to that purpose. Furthermore, the Krause court noted that the rights permitted under section 117 "could 'only be exercised so long as they did not harm the interests of the copyright proprietor.'" Id. at 129 (quoting Final Report of the National Commission on New Technological Uses of Copyrighted Works (1978) at 13, available at http://digital-law-online.info/CONTU/PDF/index.html (hereinafter cited as the "CONTU Report")). The court stated that section 117 therefore would not apply "if the altered copy of [plaintiff's] work were to be marketed by the owner of the copy." Id. at 129. Psystar modifies Mac OS X, markets the modified copies of Mac OS X, and sells them in competition with Apple. That activity is not allowed by section 117 under any circumstance. See, e.g., Apple Computer, Inc. v. Formula Int'l, Inc., 562 F. Supp. 775 (C.D. CaL. 1984), aff'd 725 F.2d 521 (9th Cir. 1984); Apple Computer, Inc. v. Formula, Int'l, Inc., 594 F. Supp. at 620 (rejecting arguments that section 117 authorized creation and distribution of computer "kits" using copies of Apple's operating system software). [redacted]

Psystar has infringed Apple's copyrights with respect to "Mac OS, Mac OS X, Mac OS X version 10.5, and Mac OS X Server, individual files constituting components of Mac OS, Mac OS X, Mac OS X version 10.5, and Mac OS X Server, as well as various files constituting components of other Apple software and firmware found on Apple labeled computers." (Amended Complaint (Docket No. 38) ¶ 26.)

It is undisputed that an operating system, like Mac OS X, is entitled to copyright protection. See, e.g., Triad Sys., 64 F.2d at 1333. Indeed, in Lexmark Int'l Inc. v. Static Control Components, Inc., 387 F.3d 522 (6th Cir. 2004), the case upon which Psystar relies, the court

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emphasized that unlike the printer lock-out code at issue in that case, Apple's operating system is precisely the type of creative expression entitled to copyright protection. Id. at 539. The Lexmark court stated that Apple Computer, Inc. v. Formula Int'l, 725 F.2d at 525, which the plaintiff had cited, was distinguishable from Lexmark, noting that comparing Apple's operating system to the plaintiff's lock-out code was like comparing "the Sears Tower ... to a lamppost." Id. Distinguishing Apple's operating software, the Lexmark court stated, "Given the nature of the Apple program, it would have been exceedingly difficult to say that practical alternative means of expression did not exist and indeed no defendant in the cases advanced that argument." Id.

[redacted] Atari Games Corp. v. Nintendo of America, Ltd., 975 F. 2d 832, 840 (Fed. Cir. 1992) (holding that a software lockout mechanism consisting of "arbitrary programming instructions" arranged "in a unique sequence to create a purely arbitrary data stream" is protectable expression that is not purely functional); see also Dun & Bradstreet Software Servs., Inc. v. Grace Consulting, Inc., 307 F.3d 197, 216 (3d Cir. 2002) (holding that the scope of copyright protection should be analyzed from the point of view of the creator and not the alleged infringer). [redacted] A28

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D. Apple Has Not Misused Its Copyrights

Although Psystar contends that Apple has misused its copyrights, Psystar has failed to explain what Apple has done that allegedly constitutes copyright misuse. Psystar does not contend that the SLA provisions constitute copyright misuse; indeed, Psystar admits that Apple can lawfully license its software for use only on non-Apple hardware. (Psystar Br. at 3.) While Psystar's brief has a footnote citing a few early antitrust cases, it makes no effort whatsoever to introduce evidence that Apple has acted in any anticompetitive way because there is no such evidence. (Psystar Br. at 21, n. 7.) This Court already rejected Psystar's antitrust allegations, stating: "Apple asks its customers to purchase Mac OS knowing that it is to be used only with Apple computers. It is certainly entitled to do so." Apple Inc. v. Psystar Corp., 586 F. Supp. 2d 1190, 1201 (N.D. Cal. 2008) (also available at Docket No. 33 at 14).

Rather, it appears Psystar is arguing that Apple has misused its copyrights by filing this lawsuit and "continu[ing] to prosecute" allegedly invalid copyright infringement and DMCA claims. (Psystar Br. at 22; 23-24). Psystar cites several cases, none of which support this baseless assertion and all of which are factually distinguishable. See Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1090 (9th Cir. 2005) (finding copyright misuse defense could not apply where the plaintiff had not asserted copyright infringement claims); Assessment Techs. of WI LLC v. WIREdata, Inc., 350 F.3d 640, 647-648 (7th Cir. 2003) (finding copyright misuse when plaintiff asserted copyright infringement against defendant for seeking access to public data that was not copyrighted); Qad, Inc. v. ALN Assoc., Inc., 770 F. Supp. 1261, 1267-1270 (N.D. Ill. 1991), aff'd 974 F.2d 834 (7th Cir. 1992) (finding copyright misuse when the plaintiff alleged copying of software that it had copied itself and in which it had no rights); Schloss v. Sweeney, 515 F. Supp. 2d 1068, 1079-81 (N.D. Cal. 2007) (refusing to grant motion to dismiss claim for copyright misuse when defendant had no copyrights in medical records and other materials). A29

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As demonstrated above, Apple's copyright and DMCA claims are meritorious and their filing cannot constitute copyright misuse. To the contrary, Apple has a constitutional right to enforce its copyrights in federal court unless the lawsuit is both objectively baseless and filed for an improper purpose. Prof'l Real Estate Investors v. Columbia Pictures, 508 U.S. 49, 60-61, 113 S. Ct. 1920, 1928 (1993); Freeman v. Lasky, Haas & Cohler, 410 F.3d 1180, 1183-85 (9th Cir. 2005). Psystar makes no attempt to prove either that this lawsuit is a sham or was filed for an improper purpose, and it is not. Therefore, this lawsuit itself cannot be the basis for a claim of copyright misuse.A30

E. Psystar Fails To Establish Any Defense To Apple's DMCA Claims

To succeed on its DMCA circumvention (section 1201(a)(1)) and trafficking (sections 1201(a)(2) and 1201(b)) claims, Apple need only show that its technological protection measures prevent access to or copying of copyrighted material (here, Mac OS X) and that Psystar's circumvention technology facilitates access to or copying of the software. Davidson & Assocs. v. Jung, 422 F.3d 630,640 (8th Cir. 2005); Universal City Studios, Inc. v. Corley, 273 F.3d 429, 441 (2d Cir. 2001); RealNetworks" Inc. v. DVD Copy Control Ass'n, _ F. Supp. 2d _, 2009 WL 2475338 (N.D. Cal. Aug. 11, 2009); 321 Studios v. Metro-Goldwyn-Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1094 (N.D. Cal. 2004). As set forth more fully in Apple's Motion for Summary Judgment, the facts entitling Apple to prevail on its DMCA claims are not in dispute. (Apple's Summary Judgment Br. at 22-25.) Apple embeds a "key" within its hardware that unlocks encrypted code and permits Mac OS X to boot up and run, measures very similar to those taken by the entertainment industry to prevent films and video games from being accessed on unauthorized platforms. See, e.g., Davidson, 422 F.3d at 640-41 (CD key embedded in online video game

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software was effective because it prohibited the games from playing on unauthorized web servers); Corley, 273 F.3d at 444 (encryption technology with decryption keys embedded in approved DVD player hardware prevented users from viewing the DVD "on a competing platform"); RealNetworks, 2009 WL 2475338, at *62 (DVD decryption prevented copying or playing DVDs on an unauthorized "hard drive or portable drive"). Psystar has violated the DMCA because it has used and distributed software code, [redacted] thus enabling the installation and copying of Mac OS X on unauthorized hardware.

1. Psystar Concedes The Facts Establishing Its Liabilty Under The DMCA

2. Psystar's Legal Arguments Under The DMCA Are Unavailng

As a matter of law, Apple need not prove copyright infringement to succeed on its circumvention and trafficking claims. See 17 U.S.c. § 1201; Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294, 329 (S.D.N.Y. 2000) (overriding concern of the DMCA was "promoting the distribution of copyrighted works in digital form while at the same time protecting

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those works from piracy and other violations of the exclusive rights of copyright holders") (emphasis added). It is irrelevant whether downstream customers use the trafficker's technology to engage in infringing or, instead, "fair use" of the copyrighted work. See RealNetworks, 2009 WL 2475338, at *27 ("Fair use is not a defense to trafficking in products used to circumvent effective technological measures that prevent unauthorized access to, or unauthorized copying of, a copyrighted work"); 321 Studios, 307 F. Supp. 2d at 1097 ("the downstream uses of the software by the customers of 321, whether legal or ilegal, are not relevant to determining whether 321 itself is violating the statute"); Sony Computer Entm't Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D. Cal. 2006) ("downstream customers' lawful or fair use of circumvention devices does not relieve (defendant) from liability for trafficking in such devices under the DMCA"); see also Corley, 273 F.3d at 443.

Requiring DMCA plaintiffs to prove copyright infringement would render the DMCA superfluous and negate the very protections the statute was intended to promote. Apple need only establish that its technological protection measures guard material that is "reasonably related" to the interests that the Copyright Act was intended to protect. See Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1195 (Fed. Cir. 2004).A31 Apple's protections undoubtedly relate to interests protected by the Copyright Act because Mac OS X is a copyright-protected work.

Psystar's emphasis on Lexmark illustrates the profound differences between that case and Apple's claims. Mac OS X - which is filled with expressive content - could not be more different than the simple code in Lexmark that merely checked the source of a printer cartridge. The Lexmark court emphasized this important distinction: "Unlike the code underlying video games or DVDs, 'using' or executing the Printer Engine Program does not in turn create any protected expression." Lexmark, 387 F.3d at 548; see also Chamberlain, 381 F.3d at 1199 (noting that in cases finding a DMCA violation, "the access alleged in all three cases was intertwined with a

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Psystar also argues that the DMCA was intended to prevent "piracy," and that Apple, in order to succeed on a DMCA claim, would have to establish that its technological protection measures were designed to prevent someone from physically reproducing DVDs containing Mac OS X. (Psystar Br. at 16.) But courts have refused to import any such requirement into the DMCA. 321 Studio, 307 F. Supp. 2d at 1096 (rejecting argument that because the circumvention technology worked only with the "original DVDs," there could be no DMCA violation).

Psystar quotes Apple testimony in an attempt to create confusion over whether the Apple encrypted binaries are access protections intended to prevent the use of Mac OS X on non-Apple hardware or copy protections intended to prevent duplication. This is an irrelevant distinction because both are entitled to DMCA protection. Compare 17 U.S.C. § 1201(a) (access protections) and 17 U.S.C. § 1201(b) (copy protections); see Corley, 273 F.3d at 440-441. Furthermore, Apple's technological protection measures are both access and copy controls because the purpose and function of Apple's access-protection is to prevent unauthorized installation and running (i.e., copying) of Mac OS X on non-Apple hardware. See 321 Studios, 307 F. Supp. 2d at 1097 (though defendant was "technically correct that CSS controls access to encrypted DVDs, the purpose of this access control is to control copying of those DVDs, since encrypted DVDs cannot be copied unless they are accessed"). While Mac OS X's protection mechanisms may not technically prevent the literal duplication of the media (a futile act for the user if the software will not run on a computer), they nonetheless stop copyright infringement by preventing the unauthorized installation and use (and therefore access and copying) of Mac OS X. Davidson, 422 F.3d at 640-41.

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3. Apple's Technological Protection Measures Are Effective

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"ordinary consumer" or "average consumer"); Reimerdes, 111 F. Supp. 2d at 318 (finding a 40-bit encryption key embedded within authorized hardware effective); Pearl Inv., LLC v. Standard I/O, Inc., 257 F. Supp. 2d 326, 350 (D. Me. 2003); 321 Studios, 307 F. Supp. 2d at 1095. Apple's witnesses testified without contradiction that Apple's technological protection mechanisms function to protect access to Mac OS X and prohibit installation on non-Apple hardware. Indeed, Psystar's own pleadings concede this.35 (Am. Countercl. ¶¶ 33,37-38; Psystar Br. at 16-17).

F. Psystar Has Not Proven Nominative Fair Use Of Apple's Famous Trademarks

Psystar briefly mentions in its "Summary of Argument" section (Psystar Br. at 4) - though without offering any supporting evidence or law - that its use of Apple's trademarks and trade dress constitutes nominative fair use. Psystar has the burden to produce evidence in support of its motion for summary judgment. See Celotex Corp. v. Catrett, 477 U.S. 317,323 (1986); Nissan Fire & Marine Ins. Co. v. Fritz Co., 210 F.3d 1099, 1102-03 (9th Cir. 2000). Thus, to sustain its nominative fair use defense on summary judgment, Psystar was required to submit evidence that (1) it used Apple's trademarks to describe Apple's product and not Psystar's products, (2) the product referred to by Psystar "must not be readily identifiable without use of the mark," (3) Psystar used "only so much of the mark... as is reasonably necessary to identify the product" and (4) Psystar did "nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder." Horphag Res. Ltd. v. Pellegrini, 337 F.3d 1036, 1041 (9th Cir. 2003). Having submitted no evidence whatsoever on this issue, Psystar's motion on the trademark claims must be denied. Apple can defeat the motion for summary judgment "without producing anything."A36 Nissan Fire, 210 F.3d at 1103; see also Id. at 1107 ("(A) nonmoving party

23

has no obligation to produce anything until the moving party has carred its initial burden of production.A37

G. Apple's Remaining Claims Are Not Moot

1. Damages

Psystar is correct that Apple intends to seek disgorgement of Psystar's il-gotten gains from its breach of Apple's SLA. However, Psystar's understanding of California law is wrong; California permits recovery of defendant's unjust enrichment for breach of contract. Ajaxo Inc. v. E*Trade Group, Inc., 135 Cal. App. 4th 21, 55 (Cal. App. 2005). As in Ajaxo and the federal court cases that have applied Ajaxo, Psystar has benefitted by taking from Apple rights for which it has not bargained, and which Apple has not granted, and has thus become unjustly enriched. Martone v. Burgess, No. 08-2379,2008 WL 3916022, at *4 (N.D. Cal. Aug. 25, 2008) (restitution an available remedy for breach of contract and for theft of trade secrets); Foster Poultry Farms, Inc. v. Suntrust Bank, No. 04-5513, 2008 WL 160960, at *49 (E.D. Cal. Jan. 14, 2008) ("Under California law, disgorgement of improperly obtained profits is a remedy for breach of a contract protecting trade secrets and proprietary confidential information."). Because Apple is entitled to recovery of the amount by which Psystar has been unjustly enrched, Apple's damages claims are not mooted by Psystar's willingness to stipulate to the award of nominal damages.

2. Apple Is Entitled To A Permanent Injunction

24

an injunction should be limited to "Psystar's allegedly illegal activities involving OS X Leopard" . . . and "[s]ince neither Psystar nor Apple sells OS X Leopard any longer, it is no great burden for Psystar to agree to an injunction." (Id.) Apple agrees that a permanent injunction is appropriate in this case, but an injunction limited to Mac OS X Leopard is manifestly insufficient, would not alleviate the irreparable harm that Apple suffers as a result of Psystar's infringement, and could encourage more infringement of Apple's copyrighted software by parties other than Psystar. Apple is therefore entitled to broad permanent injunctive relief.

The law is clear: Apple is entitled to injunctive relief broad enough to protect it from continuing or recurring infringement. 17 U.S.C. § 502(a) ("injunction terms must prevent or restrain infringement of a copyright"); 15 U.S.C. § 1116 ("injunction must prevent the violation of any right of the registrant of a mark"). Psystar has advertised that regardless of this lawsuit, it plans to continue sellng computers that infringe Mac OS X. Therefore, in order to ensure that Apple's copyrights are no longer infringed and to avoid the harm that Apple will necessarily suffer if Psystar is not stopped, the Court should permanently enjoin Psystar from selling its computers with any version of Mac OS X or other Apple software for the following reasons.

First, if Psystar is not permanently enjoined from copying, modifying, and distributing Mac OS X, it will essentially be granted a de facto compulsory license to continue these activities. "In the copyright realm, it has been said that an injunction should be granted if denial would amount to a forced license to use the creative works of another." See SimplexGrinell LP v. Integrated Systems & Power, Inc., _ F. Supp. 2d _, 2009 WL 857504, at *23 (S.D.N.Y. Mar. 31, 2009) (quoting Silverstein v. Penguin Putnam, Inc., 368 F.3d 77, 84 (2d Cir. 2004)); see also A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1029 (9th Cir. 2001) (rejecting compulsory royalties and issuing injunctive relief because "[p]laintiffs would lose the power to control their intellectual property").A38

25

Second, Apple's integrated business model will be severely undermined if Psystar is not permanently enjoined from infringing Apple's copyrights and circumventing its technological protection measures. Nothing else will stop Psystar from continuing to sell unauthorized copies of Apple software on non-Apple computers. There is litte doubt that Psystar will use each release of a new version of Mac OS X as a new opportunity to mass reproduce and distribute unauthorized copies of Apple software. And, if the Court declines to grant a permanent injunction, other software pirates, like Psystar, wil argue that by simply purchasing a retail DVD version of Mac OS X, they too are entitled to mass produce and sell software that Apple has spent many years and hundreds of milions of dollars developing.

Third, the continued association of Apple with Psystar's problem-ridden computers and business practices will seriously damage Apple's brand, reputation and goodwill. MDY Indus., LLC v. Blizzard Entm't, Inc., 616 F. Supp. 2d 958, 974 (D. Ariz. 2009) (citing Rent-A-Center, Inc. v. Canyon Television & Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991) ("[I]ntangible injuries, such as damage to ongoing recruitment efforts and goodwill, qualify as irreparable harm."); MySpace, Inc. v. Wallace, 498 F. Supp. 2d. 1293, 1305 (C.D. CaL. 2007) ("Harm to business goodwill and reputation is unquantifiable and considered irreparable.")

Fourth, there is compelling evidence that Psystar will not be able to pay any statutory damages resulting from Psystar's copyright infringement and DMCA violations - another factor courts consider when determining whether to grant injunctive relief. Metro-Golden-Mayer Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197, 1217 (C.D. Cal. 2007). Psystar has already filed for bankruptcy once during the course of this litigation. See In re Psystar Corp., Case No. 09-19921 (S.D. Fl. 2009). Moreover, there is evidence of continuing third party infringement due to Psystar's induced and contributory infringement of Apple's copyrights. Such inducement "'greatly erodes [plaintiffs'] ability to enforce their exclusive rights." Grokster, 518 F. Supp. 2d. at 1217 (citing A&M Records, Inc., 239 F.3d at 1029). Indeed, "the very need to file multiple lawsuits as a consequence of [Psystar' s] inducement is itself supportive of an irreparable harm

26

finding." Grokster at 1219. The facts in this case clearly support the need for a broad permanent injunction enjoining Psystar's copyright infringement and DMCA violations.39

IV. CONCLUSION

For the foregoing reasons, as well as those set forth in Apple's Motion for Summary Judgment, Psystar's Motion for Summary Judgment should be denied in its entirety.

DATED: October 22, 2009

Respectfully submitted, TOWNSEND AND TOWNSEND AND CREW LLP

By: /s/ James G. Gililand, Jr.

JAMES G. GILLILAND, JR.

Attorneys for Plaintiff and Counterdefendant

APPLE INC.

Kelly Decl. ¶¶ 22-24; Chung Decl. Ex. 3 (Benavides Dep.) at 30:17-31:11; Ex. 8 at 89:19- 91 :20. This is not the copy of the software on the Retail DVD Version. (Boroumand Smith Decl. Ex. 1 (Roberto Pedraza Dep.) at 61 :5-22.) Whenever possible Apple wil refer to, and rely upon, evidence submitted with its own Motion for Summary Judgment, including the Declaration of John P. Kelly ("Kelly Decl.") and the Declaration of Megan Chung ("Chung Decl.") and the exhibits and testimony included with those declarations. Any additional evidence submitted in further opposition to this motion is attached to the Declaration of Mehmaz Boroumand Smith in Opposition to Psystar's Motion for Summary Judgment ("Boroumand Smith Decl.").

Psystar admits that it has made at least three "master copies," and Apple's expert has identified five distinct master copies. Chung Decl. Ex. 25. (Psystar's Responses to Court-Ordered Interrogatories 1-15) at Nos. 13-14; Kelly Decl. ¶¶ 15, 18, 25 and Table 2.

Kelly Decl. ¶¶ 22-26; Chung Decl. Ex. 9 at 91: 18-93: 17.

Kelly Decl. ¶ 28; Chung Decl. Ex. 18, Psystar Supp. Responses to Nos. 94-95.

Kelly Decl. ¶ 20. For a detailed description of Psystar's process, please see Apple's Motion for Summary Judgment at pages 7-9 and the referenced exhibits and testimony. The versions of Mac OS X loaded onto the many Psystar computers Dr. Kelly has examined have been different from the Retail DVD Version Psystar ships with those computers. Kelly Decl. ¶¶ 25-26; Chung Decl. Ex. 68.

Kelly Decl. ¶¶ 4, 18; Chung Decl. Ex. 9 at 21 :24-23:13; Ex. 23 at No. 10 (Psystar claims it "develop[ed] technology that would allow the Mac OS to run on a hardware platform other than that of an Apple-Labeled Computer Hardware System."); Exs. 51-54.

Psystar repeatedly cites Dr. Kelly's expert report, but fails to provide the relevant portions of that report to the Court. The sections of Dr. Kelly's report, cited by Psystar in its brief, are submitted as Exhibit 2 to the Boroumand Smith Declaration.

Kelly Decl. ¶ 27a; Chung Decl. Ex. 5 at 98:11-23; Ex. 9 at 62:22-64:3.

Chung Decl. Ex. 15 at 150:6-10; Kelly Decl. ¶ 17.

Chung Decl. Ex. 5 at 98:11-23; Kelly Decl. ¶¶ 17 (Table 3), 27a.

Kell Decl. ¶¶ 27(b)-(e), (Table 4). Chun Decl. Ex. 24 at No. 21 [redacted]

Boroumand Smith Decl. ¶¶ 4-6 & Exs. 3-5; Chung Decl. Ex. 50.

Boroumand Smith Decl. ¶¶ 8-9 & Ex. 7. For example, 25% percent of all text ad impressions used the headline of "$554 OSX Leopard Computer." Leopard® is Apple's registered trademark. Id. at Ex. 7.

Boroumand Smith Decl. ¶¶ 8, 10 & Ex. 7. This "OpenMac" URL was seen over 3.8 milion times according to the data produced by Psystar from Google's AdWords program. Id., Ex. 7.

See, for example, "http://www.psystar.com/why_buy_a_used_apple_computer.html" or "http://www.psystar.com/looking_to_get_an_apple_computer.html." Boroumand Smith Decl. ¶¶ 10-11 & Ex. 8.

Boroumand Smith Decl. Exs. 5, 7-9, 10 at RFA Response Nos. 142-46, 148-52, 158.

Boroumand Smith Decl. ¶ 19.

The Mac OS X SLA specifically provides that "Upon the termination of this License, you shall cease all use of the Apple Software and destroy all copies, full or partial, of the Apple Software." Chung Decl. Ex. 26 ¶ 5.

The court in Vernor found that under Wise, "the critical factor" in determining whether a transaction is a sale or a license is "whether the transferee kept the copy acquired from the copyright holder." 555 F. Supp. 2d at 1170. The Vernor court failed to note, however, that the court in Wise cited a case where although there was no requirement that the purchaser of certain film prints and negatives return the materials, "the agreement on its face [was] clearly a license." Wise, 550 F.2d at 1189 (discussing Hampton v. Paramount Pictures Corp., 279 F .2d 100 (9th Cir. 1960)).

Neither did the agreement in Vernor. There was a type of destruction provision but "the decision to accept Autodesk's destruction requirement [was] entirely in the control of the licensee." Vernor, 2009 WL 3187613 at *7. Apple's licenses do not provide this freedom when its licensee's rights are terminated.

Psystar has not produced, either in discovery to Apple or in support of this motion, evidence that supports this assertion. Indeed the documents produced in discovery indicate that far fewer Mac OS X DVDs were acquired by Psystar than computers it sold. Boroumand Smith Decl. ¶ 14.

Psystar has waived section 117 as an affirmative defense because it did not plead the defense in its Answer. Jorst v. D'Ambrosio Bros. Inv. Co., No. C00-03646, 2001 WL 969039, *9 (N.D. Cal. Aug. 13, 2001) (citing Fed. R. Civ. P. 8(c)); see also In re Adbox, Inc., 488 F.3d 836, 841 (9th Cir. 2007). Although the Court, in its discretion, may permit a defendant to raise an unpleaded defense, the Court should do so only "where the delay does not prejudice the plaintiff." Jorst, 2001 WL 969039, at *9. Because the parties have proceeded through extensive litigation "including the depositions of multiple witnesses" and dispositive motion practice, Apple will be prejudiced if Psystar is permitted to raise a new, untimely defense. Id. Accordingly, Psystar should not be permitted to assert a section 117 defense. Certainly Psystar cannot obtain judgment in its favor based upon a defense that it never pleaded.

Even if section 117 somehow applied to Psytar's mass reproduction and sale of Mac OS X (and it does not), Psystar itself admits that the hard drive imaging step is not "essential" for Psystar's purposes. Rather, as Psystar states: "it's a time" issue, i.e., a matter of convenience. Chung Decl. Ex. 9 at 89:9-23.

See Evolution, Inc. v. SunTrust Bank, 342 F. Supp. 2d 943, 957 (D. Kan. 2004) ("add[ing] desired features" is an adaptation and is not permitted when for commercial purposes); CONTU Report, at 13 (adaptations include: converting from one computer language to another language and "add[ing] features to the program that were not present at the time of rightful acquisition").

Chung Decl. Ex. 48.

The legislative history and the case law are clear. See CONTU Report, at 13 ("[Adaptation] rights would necessarily be more private in nature than the right to load a program by copying it and could only be exercised so long as they did not harm the interests ofthe copyright proprietor."); Midway, 564 F. Supp. at 745 (software modified or adapted under section 117 cannot be transferred); cf. Aymes v. Bonell, 47 F.3d 23, 26 (2d Cir. 1995) (section 117 adaptation can be made only for "internal business needs" and cannot be transferred without express authorization.); Stuart Weitzman, LLC v. Micro Computer Res., Inc., 510 F. Supp. 2d 1098, 1109 (S.D. Fla. 2007), vacated on other grounds, 542 F.3d 859 (11th Cir. 2008) (the "right to modify or add features to the copy" exists "so long as the modifications do not disrupt [copyright holder's] interests as the purported copyright proprietor in the [copyrighted software].").

[redacted]

Declaration of John P. J. Kelly Ph.D. in Opposition to Psystar's Motion for Summary Judgment ("Kelly Decl."), ¶ 2.

Psystar also refers to the Lasercomb, Practice Management and Alcatel cases - all of which involved license agreements that, unlike the one at issue here, limited competition and restrained the development of creative works. (Psystar Br. at 22.) None of these cases supports Psystar's argument that Apple has engaged in copyright misuse by fiing meritorious copyright infringement and DMCA claims against Psystar. All three of these cases are distinguishable. See Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 978-79 (4th Cir. 1990) (copyright misuse found where license agreement prohibited defendant, its directors, officers and employees from assisting in any manner in the development of any kind of CAD software for 99 years); Practice Mgmt. Info. Corp., v. Am. Medical Ass'n, 121 F.3d 516, 520-21 (9th Cir. 1997) (copyright misuse found where license agreement was conditioned on agreement that licensee could use only licensor's coding system); Alcatel USA, Inc. v. DGI Tech, Inc., 166 F.3d 772, 792-94 (5th Cir. 1999) (copyright misuse found where plaintiff asserted its copyright to prevent competition where customers were locked into a single supplier).

Apple's Motion for Summary Judgment addresses other possible Psystar arguments, all of which fail to establish anything approaching copyright misuse under the law. (See Apple's Summary Judgment Br. at 17-19.)

See S. Rep. No. 105-190, at 12 (1998). ("The prohibition in 1201(a)(1) is necessary because prior to this Act, the conduct of circumvention was never before made unlawfuL. The device limitation in 1201(a)(2) enforces this new prohibition on conduct. The copyright law has long forbidden copyright infringements, so no new prohibition was necessary. The device limitation in 1201 (b) enforces the longstanding prohibitions on infringements.") (emphasis added).

Furthermore, contrary to Psystar's argument, a DMCA plaintiff need not show that the protection mechanism itself is copyrighted, only that the material behind the protective mechanism is protected.

The legislative history specifically states that "measures that can be deemed to 'effectively control access to a work' would be those based on encryption, scrambling, authentication, or some other measure which requires the use of a 'key' provided by a copyright owner to gain access to a work." H.R. Rep. No. 105-551, pt. 2, at 39 (1998) (emphasis added). This is exactly what Apple does: Mac OS X requires a key and Apple provides this key to those who are authorized to use it.

See Reimerdes, 111 F. Supp.2d at 317-18 (finding "indefensible as a matter of law" the argument that an encryption key was not effective because it was being distributed online); see also 321 Studios, 307 F. Supp. 2d at 1095 (this would be "equivalent to a claim that, since it is easy to find skeleton keys on the black market, a deadbolt is not an effective lock to a door"); Divineo, 457 F. Supp. 2d at 965 ("The fact that circumvention devices may be widely available does not mean that a technological measure is not, as the DMCA provides, effectively protecting the rights of copyright owners 'in the ordinary course of its operation.'").

Psystar, in a half-hearted attempt to create evidence to defeat Apple's claims submitted a half-page ambiguous, conclusory declaration from its CEO (a) attaching what is purported to be lines of code available on the Internet, (b) stating that the CEO "compiled and ran" that code, and (c) concluding that the CEO believes anyone could compile and run the code. (Psystar's Ex. I.) Setting aside the lack of foundation, authentication, or admissibility of the purported evidence, it is not at all clear what the declaration and attached documents (two of which were never produced in discovery) are intended to show. They certainly do not contradict all the evidence in the record - including Psystar's own statements - that Apple's security mechanism wil prevent the average consumer from accessing and installing Mac OS X in the ordinary course of operation. (Chung Decl. Ex. 66 at PS006530, PS006532.) Indeed, Psystar's CEO testified that it took him a couple of months to create the circumvention technology and other necessary modifications to Mac OS X. (Boroumand Smith Decl. Ex. 11 at 27:9-18, 41:12-42:9.)

Psystar's unsupported allegations of course cannot be the basis for summary judgment. See Taylor v. List, 880 F.2d 1040, 1044 (9th Cir. 1989).

Apple has ample evidence disproving Psystar's nominative fair use defense. First, Psystar used Apple's trademarks and trade dress to describe Psystar's products, not Apple's products, in its advertisements, especially in light of Psystar's modifications to Apple's Mac OS X operating software. (See Boroumand Smith Decl. ¶¶ 4-7, Exs. 3-6.) Second, Psystar could have advertised its computers without showing Apple's trade dress and trademarks, like other computer manufacturers who do not show Microsoft's operating system on their computers. (See id. ¶ 16, Ex. 12-13.) Third, there is genuine issue as to whether Psystar used only so much of the mark as is reasonably necessary. (See id. ¶¶ 4-7, Exs. 3-6.) Fourth, Apple will introduce survey evidence at trial which establishes that Psystar's use of Apple's trademark and trade dress causes consumers to think that Apple has given its permission to, or sponsored, Psystar. (See id. ¶ 17, Ex. 14.) When such factors are in dispute, the Ninth Circuit has refused to affirm summary judgment. Downing v. Abercrombie & Fitch Co., 265 F.3d 994, 1009 (9th Cir. 2001); Abdul-Jabbar v. Gen. Motors Corp., 85 F.3d 407,413 (9th Cir. 1996); see also Horphag, 337 F.3d at 1041.

There is no support for Psystar's notion that Apple is somehow less entitled to a permanent injunction because it did not seek a preliminary order. PGBA v. U.S., 389 F.3d 1219, 1232 (Fed. Cir. 2004) stands only for the non-controversial proposition that the lower court in that case did not err in withholding injunctive relief. Apple is entitled to injunctive relief. There is no support for Psystar's notion that, because Apple did not move for a preliminary injunction, it is any less entitled to a permanent one.

Moreover, there is a presumption of irreparable harm once a trademark owner establishes a likelihood of confusion. Abercrombie & Fitch Co. v. Moose Creek, Inc., 486 F.3d 629, 634 (9th Cir. 2007). Here Apple's uncontested survey evidence is clear; both Psystar's marketing of its computers running Mac OS X and the computers themselves are likely to confuse consumers into thinking that Apple is a sponsor of, or affiliated with, Psystar computers. Boroumand Smith Decl. Ex. 14.

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**********************

PSYSTAR CORPORATION'S

OPPOSITION TO APPLE'S MOTION

TO SEAL APPLE'S MOTION FOR

SUMMARY JUDGMENT

Psystar opposes Apple's request that the motions for summary judgment in this case, and the exhibits on which they are based, be filed under seal.

A. No "Compelling Reason" Exists To Seal The Dispositive Motions

None of the materials in either party's motion for summary judgment contains anything approaching the type of sensitive material for which the courtroom can be sealed in the context of a dispositive motion or at trial. See Kamakana v. Honolulu, 447 F.3d 1172 (9th Cir. 2006). When this Court granted the joint request for a protective order governing confidentiality designations in this case, it expressly stated that it was granting that request "subject to the following conditions, including adherence to the recently announced strict caution against sealing orders by the Ninth Circuit." Order Approving Stipulated Protective Order Subject to Stated Conditions (Docket No. 55) at 2.

The fourth condition that this Court imposed stated in full:

In Kamakana v. Honolulu, 447 F.3d 1172, 1179 (9th Cir. 2006), the Ninth Circuit held that more than good cause, indeed, "compelling reasons" are required to seal documents used in dispositive motions, just as compelling reasons would be needed to justify a closure of a courtroom during trial. Otherwise, the Ninth Circuit held, public access to the work of the courts will be unduly compromised. Therefore, no request for a sealing order will be allowed on summary judgment motions (or other dispositive motions) unless the movant first shows a "compelling reason," a substantially higher standard than "good cause." This will be true regardless of any stipulation by the parties. Counsel are warned that most summary judgment motions and supporting material should be completely open to public view. Only social security numbers, names of juveniles, home addresses and phone numbers, and trade secrets of a compelling nature (like the recipe for Coca Cola, for example) will qualify. If the courtroom would not be closed for the information, nor should any summary judgment proceedings, which are, in effect, a substitute for trial. Motions in limine are also part of the trial and must likewise be laid bare absent compelling reasons. Please comply fully. Noncompliant submissions are liable to be stricken in their entirety.

The argument and evidence that Apple would have this Court seal falls far short of the standard for closing the courtroom. The technological methods and other supposed trade secrets

2

described in the sealed portions of Apple's motion for summary judgment have already been described in documents publicly available on the Internet. See Ex. C. People have been building "Hackintosh" computers, that is, non-Apple computers that run Mac OS X, for years. As a result, any number of publicly accessible websites describes in detail the Apple technology that is at issue in this case. We compiled Exhibit C in about ten minutes using a few simple Google searches. It provides a list of several web sites [redacted]

3

Apple cannot even claim to be unaware of this publicly available information. [redacted]

4

Most of the remaining material redacted by Apple pertains to information provided by Psystar -- which does not believe that this information warrants sealed filings in the context of a dispositive motion. Apple is attempting to hide evidence from the public in complete disregard of the applicable standards, in just the same way it designated whole swathes of documents and entire deposition transcripts as confidential or attorneys' eyes only throughout this litigation. Apple designated literally every word in every deposition of an Apple witness as at least "confidential" and in almost all cases "attorneys' eyes only."

Apple cannot claim that it was unaware of this Court's order regarding sealing of dispositive motions (as Apple has claimed it simply "forgot" about other court orders before). On October 7, Psystar informed Apple by email of the order and that, pursuant to it, Psystar intended to file its entire motion and supporting exhibits publicly. See Ex. A. This email was a follow-up on earlier discussions between counsel for Psystar and counsel for Apple at which counsel for Apple stated that they did not believe that there was any special order applicable to motions for summary judgment as distinguished from trial. Counsel for Apple replied the next day that it would regard any filing by Psystar of material designated confidential or attorneys' eyes only as "a violation of [the Protective Order] subject to a motion for contempt." See Ex. B. Faced with this threat, Psystar redacted its motion and exhibits and filed a motion to seal in which it requested that this Court deny its motion to seal and allow its entire motion for summary judgment to be placed in the public record. See Docket

5

This case pits the efforts of one company to dictate every aspect of the use of its technology against a much smaller company that defends itself on the law. The public has a right to understand and a strong interest in understanding the facts and circumstances leading to the final rulings of this Court. Many people wonder how far a large company's power extends when it wields the saber of late-twentieth-century intellectual-property law. This Court's answers, and the arguments and evidence on which they are based, should be a matter of public record.

B. This Court Should Strike Apple's Motion For Summary Judgment In Its Entirety As A

Sanction For (Yet Again) Flouting A Court Order.

The parties were warned when the original protective order was approved:

Please comply fully. Noncompliant submissions are liable to be stricken in their entirety.

1. Apple wholly ignored its obligation to produce documents as kept in the ordinary course of business or organized by document request, relying on an agreement between counsel that Apple could not produce, that former counsel for Psystar has said in writing never existed, and for which there was no written evidence at all. 2. Apple failed to disclose a key witness, Jacques Vidrine, the head of OS X Security, whose declaration Apple then relied on in support of its motion to enjoin the Florida case, in blatant violation of a Court Order issued less than 10 days earlier barring Vidrine from this case entirely. 3. Apple agreed to provide a witness, Phil Schiller, to testify about damages; at his deposition, Mr. Schiller refused to testify about this subject at all, even though Apple had agreed to the deposition on that topic and had not moved for any protective order in advance of the deposition.

To this list of violations already presented, we can now add two more. Judge Zimmerman ordered Apple to serve on Psystar a demand including calculation of attorneys' fees 14 days before the settlement conference last week. On the fourteenth day, no demand arrived. Two days later,

6

counsel for Psystar reminded counsel for Apple of the need for a demand. Counsel for Apple replied that he simply "forgot" the order. Two more days passed before Apple sent a demand to Psystar.

And when Apple sent its demand, it served Psystar with the confidential portion of its demand, despite an order form Judge Zimmerman that Apple serve this portion only on him and not on Psystar. It is as though Apple couldn't be bothered to look at Judge Zimmerman's order at all.

And now we have the issue described in this opposition: Again, Apple blatantly disregarded an Order of this Court, this time to the prejudice not only of Psystar but also of the large and very interested public that is following this case. Psystar respectfully requests that this Court de-designate all redacted materials in Apple's motion for summary judgment, deny Apple's motion to seal, and order that the unredacted version of Apple's motion and all supporting materials be placed in the public file. Psystar further submits that it would be entirely appropriate for this Court to make good on its promise that "noncompliant submissions . . . be stricken in their entirety."

Dated: October 12, 2009

Respectfully submitted,

CAMARA & SIBLEY LLP

By: /s/ K.A.D. Camara____________________________

K.A.D. Camara

Attorneys for Defendant / Counterclaimant

Psystar Corporation

7

APPLE INC.'S REPLY IN SUPPORT OF

ITS MOTION TO SEAL PORTIONS OF

APPLE'S MOTION FOR SUMMARY

JUDGMENT, PORTIONS OF THE

LYNDE DECLARATION, THE KELLY

DECLARATION AND EXHIBITS 3-16,

23, 41, 62-64 AND 69

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I. INTRODUCTION Psystar has unlawfully circumvented the security mechanism in Apple's Macintosh computers and its Mac OS X operating system software. Now Psystar wants to use the judicial process by which Apple has acted to halt this illegal conduct to reveal Apple's proprietary security mechanism to the world. But the "compelling reasons" required by the Ninth Circuit justify sealing that information: revealing it would cause competitive harm to Apple and chill use of the judicial system to stop violations of the Digital Millennium Copyright Act ("DMCA"). This Court can fully resolve the parties' cros