9th Circuit Apple software decision offers another lesson for software sellers: license restrictions vs. competition

Author:  Tom Casagrande

The 9th Circuit recently offered additional clarity for software sellers about what kinds of license restrictions are permissible.  In short, even very strict restrictions are permissible as long as they do not, by their terms or in effect, prevent users from developing competing products.


Apple Inc. v. Psystar Corp., No. 10-15113 (9th Cir. Sept. 28, 2011) concerned Apple’s claim that Psystar infringed Apple’s copyright when it bought Apple MAC OS X operating system software, imaged it on to non-Apple computers, and then sold the computers.  Psystar’s activities violated a restriction in the license Apple purported to grant purchasers at the point of sale, which prohibited “licensees” of the software from using the system on non-Apple computers. 


Psystar argued that this restriction was either inapplicable or invalid.  Specifically, Psystar first argued that the transaction was a sale and, as such, first sale doctrine precluded Apple’s attempt to restrict how Psystar used the software.  In the alternative, Psystar argued that even if the transaction was license, the use restriction constituted misuse of Apple’s copyright. 

The 9th Circuit noted held that Apple validly structured the transaction as a license and not a simple sale.  Invoking its recent discussion of the sale/license issue in Vernor v. Autodesk, Inc., 621 F.3d 1102, 1111 (9th Cir. 2010), the court noted that the document accompanying the purchase contained the three earmarks of a license:  (1) it stated that it was a license and not a sale; (2) it contained significant transfer restrictions; and (3) it contained significant use restrictions.  First sale doctrine therefore did not immunize Psystar’s activities.

Nor did the restrictions in the license amount to copyright misuse, because they reasonably restricted use of the software but did not prevent the development of competing products.  The court distinguished decisions in cases where similar types of restrictions on the types of products with which software could be used effectively made it impossible for users to develop competing software.

Protection under the Copyright Fashion Bill (ID3PA)

Author:  Jason Nardiello

The Innovative Design Protection and Piracy Prevention Act (HR.2511, formerly the IDPPPA, now called the ID3PA) is a proposed amendment to the Copyright Act. The bill (which I will refer to as the “Fashion Bill”) is now in its fourth version and if it passes, it will be the most significant law for both the apparel design industry and individual designers.

The aim of the Fashion Bill is to address a “loophole” in current IP protection for apparel. Under current copyright law, companies engaged in the wholesale copying of apparel--essentially pirates--do so with little threat of liability. This is the result of years of judicial decisions which, in the aggregate, now provide a substantial degree of immunity from copyright infringement for apparel copyists. In contrast, copying literature or music to the extent that apparel is currently copied would certainly be considered unlawful under copyright law.

On July 15, 2011 Congress again heard testimony in support of the passage of the Fashion Bill, which seeks to address this gap in the protection of apparel. The testimony and supporting documents can be found here.

Apparel protected under the Fashion Bill

To be subject to protection, the article of apparel must be new and novel. The types of apparel protected are:

•  men’s, women’s or children’s clothing

•  underwear

•  outerwear

•  accessories (gloves, footwear, headgear, handbags, purses, wallets, duffel bags, suitcases, tote bags, and belts)

How protection is obtained under the Fashion Bill

In order to be protected under the Act, the article must be created after the enactment of the Fashion Bill.

Further, although registration is not required, design owners must include a notification on the article’s label along with the year and owner’s name.

What is not protected

•  Designs more than 3 years old, measured from the time the design is made public

•  Designs created prior to the enactment of the Fashion Bill

•  Designs that are “substantially identical” to a protected design

•  An advertisement, book, periodical, newspaper, photograph, broadcast or motion picture of an article of apparel (if you photograph a dress that is a protected design, the photograph would not infringe the Fashion Bill)

Other features of the Fashion Bill and some thoughts

To address objections that earlier proposed versions of the Fashion Bill were too protective of leading designers and would hinder competition, proponents of the Bill agreed to inclusion of the narrower “substantially identical” standard for infringement, which both advances the agenda of stopping pirates while still permitting “inspired by” designs . Under this standard, only a true copy would likely be actionable under the Fashion Bill.  For instance, companies such as Forever 21, which do not hide the fact that they copy hit designers and sell the clothing at a fraction of the original price of the authentic article, would likely find themselves in violation of the Fashion Bill, should it pass. Can you tell which dress is the original created by top designer, Jonathan Saunders and which is the one coped by Forever 21?

Here’s a hint: The dress on the right was offered for sale for $22.80 while the one on the left sold for over $1000. This kind of “reproduction” would probably not be considered merely “inspired by” but rather a substantially identical copy of a protected design.

If the Fashion Bill finally becomes law, the two biggest battle grounds for litigation will likely be centered on (1) what constitutes “substantially identical” and (2) what design is considered “new” or “novel” sufficient to trigger protection.

Through the author’s contact with general counsel of some luxury goods companies, future articles will discuss how some proponents of the Fashion Bill view “substantially identical” and “new” or “novel” under the Act. You may be surprised.

1st Circuit gives basic copyright lesson for software creators

Author: Tom Casagrande

ATTENTION SOFTWARE COMPANIES!

Develop software?  Register copyright.  Modify software?  Register again.  And keep a archival copy of each version.

Those are the lessons from the recent First Circuit decision in Airframe Systems, Inc. v. L-3 Communications Corp., No. 10-2001 (1st Cir. Sept. 14, 2011).  The plaintiff Airframe hadn’t taken these easy steps, and it lost an otherwise perfectly good copyright infringement case as a result.

Here’s what happened.  Airframe registered the original software code, then licensed defendant L-3 to use that code.  Over time, as its clients changed or upgraded their computer operating systems, Airframe routinely modified its software to work on these new platforms.  But it did not register the code for the modified versions.  When L-3 upgraded its computer system, it somehow got ahold of a newer, non-registered version of the code and used that as the basis to modify its licensed code to be compatible with the new computer system.  Airframe found out and sued.

L-3 filed a motion for summary judgment, arguing there was no evidence it infringed.  Airframe put in an affidavit showing how similar L-3’s software was with a modified but unregistered version of the copyrighted software.  The court didn’t explain why Airframe didn’t compare the infringing code to the original, registered code.  Maybe it didn’t have a copy; maybe it didn’t think to do so.  In any event, the trial court thought this was a fatal error.  Airframe appealed to the First Circuit Court of Appeals.

Airframe got no sympathy from the appeals court.  The First Circuit first noted that copyright holders can sue only if they have registered the copyright in the infringed work.  It then explained that to prove infringement, a plaintiff has to prove both “factual copying” of the registered work and “substantial similarity.”  The 1st Circuit ruled that Airframe never proved the content of its registered software (i.e., the original version), so it couldn’t, as a matter of law, establish “factual copying” of the registered work.  It didn’t matter that L-3’s software was substantially similar to a modified, unregistered version, because that didn’t prove that L-3’s software was substantially similar to the original, registered version.

So, to repeat the important lessons here:

            (1) It’s not enough to register the copyright in the original source code.  When you modify it, register the modified versions too; and

            (2) Retain copies of all prior versions because you never know which one you might need in an infringement case.