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.

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.