I just have a feeling that this is going to get really ugly

Notwithstanding Carr & Farrell's earlier success, it will have a much tougher case in defending Psystar. There is no dispute that Psystar violated Apple's license by copying OS X in violation of Apple's exclusive rights pursuant to 17 U.S.C. ? 106. Then the question comes down to whether Apple's EULA is valid.

The EULA appears to rely on on Apple's rights, as set forth in the Copyright Act, to forbid copying of OS X, except as it provides in its license. Id. Copyright is a legal monopoly that an author has in his/its works. That Apple has a monopoly in OS X is no defense to violating the EULA and infringing on Apple's copyright in OS X, because a monopoly that is based on copyright is perfectly legal, with only one relevant exception.

The Essential Facilities Doctrine (Doctrine), which the U.S. Supreme Court first announced in United States v. Terminal Railroad Association, 224 U.S. 383 (1912), prohibits a monopoly in any facility (e.g., a particular technology) that is essential for a competitor to be able to compete. Proving the Doctrine depends on how you define the market and on proving the elements of the claim. Psystar's lawyers will try to define the market as being for computers that run OS X, while Apple's lawyers will define the market as being computers that run operating systems. I think that Apple's lawyers will win on this point because computers running Windows and Linux are clearly competitors and substitutes for computers running OS X. Psystar even says so in its marketing materials. That is all the judge will need to find that the relevant market is the market for computers that are capable of running an operating system or, at least, of running Windows and/or Linux.

The next issue will be, given that the market is all computers that can run Linux and/or Windows, can Psystar prove the element of a claim based on the Doctrine. The elements of the Doctrine are: (1) control of the essential facility by a monopolist; (2) a competitor?s inability to practically or reasonably duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility to competitors. To prevail under the Doctrine, Psystar must prove all of these elements.

Here is where Psystar's case under the Doctrine falls apart. Under no criteria that the U.S. courts use to determine whether a party is a monopoly would Apple, Inc. qualify as monopoly in the market for computers that can run Windows and/or Linux. It is not even close. Psystar also can't prove the second element, because Psystar can easily compete with computers running OS X by using, as it does, computers running Windows and/or computers running Linux. And with Linux, Psystar can alter and modify it however it wants, subject to Linux's GPL license. And, of course, Psystar is free to develop its own operating systems, as Microsoft, Apple, and Linus Torvalds did. And Linux and Apple with OS X are successfully challenging the incumbent, Windows. What's to stop Psystar from doing the same, other than it is a whole lot easier, more fun, and much more profitable to simply steal OS X?

There is no dispute about the third element: Apple denies the use of OS X to competitors.

Psystar also can't prove the fourth element, because the facility, an operating system, is easily provided to competitors, because Microsoft licenses Windows, and Linux is available for free, and Linux is pretty good or at least good enough. In other words, OS X isn't an essential facility, because Psystar and other competitors can compete with either Windows or Linux or both, as Psystar in fact does. See discussion, supra.

Therefore, based on what is publicly known, I doubt that Psystar can succeed in attacking the validity of Apple's EULA based on the Doctrine. And it doesn't immediately appear to me that Psystar has another attack on the validity of Apple's EULA, and without one, Apple should prevail against Psystar on the issue of copyright infringement.

P.S. Psystar may also have criminal liability pursuant to 17 U.S.C. ? 1201 et seq. for using means to circumvent the technical measures that Apple used to protect OS X from being copied to run on non-Apple hardware.

Carr & Farrell didn't win a settlement. Many people thought Apple could be on the hook for hundreds of millions of dollars over that matter. Microsoft ponied up 60 million. Apple only paid 10. It would have cost Apple around that to take the issue to trail. Being that Burst probably had valid claims against Apple, I think if anything Apple got Carr & Farrell to back down.

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Nemo wrote:
Notwithstanding Carr & Farrell's earlier success...
.....copied to run on non-Apple hardware.

Nemo, you hit the nail on the head, with a well versed in the law answer I might add. I can not fathom why Carr and Farrell feels Pystar has a case. Perhaps an out-of-court settlement is their ultimate plan. Sort of legal blackmail if you ask me. I hope Apple's attack dogs eat them alive. This sort of baseless law suit ties up the courts and wastes millions of dollars annually for many businesses.

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BanjoBanker wrote:
This sort of baseless law suit ties up the courts and wastes millions of dollars annually for many businesses.

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BanjoBanker wrote:
Nemo, you hit the nail on the head, with a well versed in the law answer I might add. I can not fathom why Carr and Farrell feels Pystar has a case. Perhaps an out-of-court settlement is their ultimate plan. Sort of legal blackmail if you ask me. I hope Apple's attack dogs eat them alive. This sort of baseless law suit ties up the courts and wastes millions of dollars annually for many businesses.

I have only one thing to say: Psystar must die, for the good of the Mac community.

Perhaps Carr and Farrell feels Apple doesn't have a case because Pystar is paying them to defend it in a lawsuit that by the way Apple has filed against Pystar (not the other way around). What is Carr and Farrell going to say, "well we don't think our client has a defense?"

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BanjoBanker wrote:
Nemo, you hit the nail on the head, with a well versed in the law answer I might add. I can not fathom why Carr and Farrell feels Pystar has a case. Perhaps an out-of-court settlement is their ultimate plan. Sort of legal blackmail if you ask me. I hope Apple's attack dogs eat them alive. This sort of baseless law suit ties up the courts and wastes millions of dollars annually for many businesses.

John, the title is highly misleading. Apple paid Burst 10 million dollars. However, if you do a Google search most people reporting on the Burst lawsuit expected Apple to be on the hook for another Creative 100 million plus type of settlement. Microsoft arguably was a lessor infringer on the same Burst patents and it ponied up 60 million dollars to Burst. Apple only paid 10 when it would likely have cost it close to that to defend itself at a trial. By all accounts, people following the original lawsuit thought Apple got off easy. Accordingly, to suggest this law firm won a settlement out of Apple is inappropriate because it suggests Apple got the short end of the deal. Apple essentially gave up what it would have paid to carry the matter to trial.

Interesting. People are focusing on Apple's licensing claim. I, however, think the copyright and trademark claims are just as strong. Apple needs only win on one front.

I find the likely trademark argument to be the most interesting. Apple will likely successfully argue that Pystar is tarnishing the goodwill Apple has established with it's customers by using Apple's trademarks in association of the sale of Pystar computers. The premise is that Pystar customers are likely to direct any frustrations out with their purchase of Pystar machines on Apple because by Pystar supplying Leopard to it's customers the implication is that it is doing so with Apple's approval. Many other big companies are successful bringing this type of argument.

I also wonder if Apple will address the point that Pystar is literally stealing revenue from it because Apple is a hardware maker that uses the OS as a loss leader to create hardware sales. Unlike Microsoft that sells both full and upgrade versions of software at different prices, all Apple OS sales are essentially upgrades and the price it charges is likely reflective of that. If Apple loses this lawsuit, it likely can sidestep the issue by changing it's pricing to reflect the software on Pystar machines being a full install as opposed to an upgrade. For instance, it can charge non Apple Mac hardware users any price it wants for Leopard thus pricing them out of the market. Clearly, if Apple charges $500 for a full install of Leopard, no hardware maker is going to buy it.

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Nemo wrote:
Notwithstanding Carr & Farrell's earlier success, it will have a much tougher case in defending Psystar. There is no dispute that Psystar violated Apple's license by copying OS X in violation of Apple's rights pursuant to 17 U.S.C. ? 106. Then the question comes down to whether Apple's EULA is valid.

The EULA appears to rely on on Apple's rights, as set forth in the Copyright Act, to forbid copying of OS X, except as it provides in its license. Id. Copyright is a legal monopoly that an author has in his/its works. That Apple has a monopoly in OS X is no defense to violating the EULA, because a monopoly that is based on copyright is perfectly legal, with only one significant exception.

The Essential Facilities Doctrine (Doctrine), which the U.S. Supreme Court first announced in United States v. Terminal Railroad Association, 224 U.S. 383 (1912), prohibits a monopoly in any facility (e.g., a particular technology) that is essential for a competitor to be able to compete. Proving the Doctrine depends on how you define the market and on proving the elements of the claim. Psystar's lawyers will try to define the market as being for computers that run OS X, while Apple's lawyers will define the market as being computers that run operating systems. I think that Apple's lawyers will win on this point because computers running Windows and Linux are clearly competitors and substitutes for computers running OS X. Psystar even says so in its marketing materials. That is all the judge will need to find that the relevant market is the market for computers that are capable of running an operating system or, at least, of running Windows and/or Linux.

The next issue will be, given that the market is all computers that can run Linux and/or Windows, can Psystar prove the element of a claim based on the Doctrine. The elements of the Doctrine are: (1) control of the essential facility by a monopolist; (2) a competitor?s inability to practically or reasonably duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility to competitors. To prevail under the Doctrine, Psystar must prove all of these elements.

Here is where Psystar's case under the Doctrine falls apart. Under no criteria that the U.S. courts use to determine whether a party is a monopoly would Apple, Inc. qualify as monopoly in the market for computers that can run Windows and/or Linux. It is not even close. Psystar also can't prove the second element, because Psystar can easily compete with computers running OS X by using, as it does, computers running Windows and/or computers running Linux. And with Linux, Psystar can alter and modify it however it wants, subject to Linux's GPL license. And, of course, Psystar is free to develop its own operating systems, as Microsoft, Apple, and Linus Torvalds did. And Linux and Apple with OS X are successfully challenging the incumbent, Windows. What's to stop Psystar from doing the same, other than it is a whole lot easier, more fun, and much more profitable to simply steal OS X?

There is no dispute about the third element: Apple denies the use of OS X to competitors.

Psystar also can't prove the fourth element, because the facility, an operating system, is easily provided to competitors, because Microsoft licenses Windows, and Linux is available for free, and Linux is pretty good or at least good enough. In other words, OS X isn't an essential facility, because Psystar and other competitors can compete with either Windows or Linux or both, as Psystar in fact does. See discussion, supra.

Therefore, based on what is publicly known, I doubt that Psystar can succeed in attacking the validity of Apple's EULA based on the Doctrine. And it doesn't immediately appear to me that Psystar has another attack on the validity of Apple's EULA, and without one, Apple should prevail against Psystar.

P.S. Psystar may also have criminal liability pursuant to 17 U.S.C. ? 1201 et seq. for using means to circumvent the technical measures that Apple used to protect OS X from being copied to run on non-Apple hardware.

I think Apple will win, but I hope Apple looses this one. If Psystar can afford to sell "Macs" at their price then Apple certainly can as well. Some competition for the MacOS will be good for USERS. At the very least, let this be a lesson to Apple:

SELL A MIDRANGE TOWER

People want one, if YOU don't provide, some else will, and all you can do is play legal games instead of competing.

I can buy a Macintosh with an OS X license. I can resell that Mac and the license goes with it so I'm reselling the license.

How is what Psystar doing any different? Well, it's not buying the Mac. But it did buy a license to the OS for which it paid Apple full retail.

Now the license restricts the use of code, but is that legal? They couldn't stop me from reproducing my LPs onto cassette tape as long as I didn't sell it, even though the LP clearly states Do Not Reproduce.

Here, let me pull this from my Butt... United States Code, Chapter 17, section 117 17 USC 117 allows for the copying and selling of a computer program under limited circumstances.

So Pystar used OS X as it was intended to be used. Just not with Apple hardware. Can Apple limit that use? I think it's clear that copying OS X and selling it is illegal. Some say that Pystar had to do some reverse engineering to make OS X run on their hardware and that this constitutes a violation of another part of the license agreement. But, the DMCA specifically provides for reverse engineering of software for interoperability purposes.

Instead of using The Essential Facilities Doctrine perhaps Pystar will claim that the EULA unfairly limits their business.

Dear ctopher: The flaw in your analysis is that Sec. 117 does not apply, because, by using OS X on non-Apple hardware, you are not a lawful licensee of OS X. Under the terms of Apple's EULA, only those purchasers of OS X, who use it according to the terms of the EULA, are legitimate owners or, more correctly, licensees of OS X. The moment that you install OS X on a non-Apple device, you are in violation of the EULA and are, therefore, not an licensee. Since Sec. 177(a) applies only for legitimate licensees/owners, Sec. 117(a) does not apply to anyone whose use of OS X violates the EULA.

I say licensee rather than owner, because almost no software is sold in a manner that transfers all rights in the software to the purchaser. Nearly all software and certainly OS X is sold subject to the terms of its EULA, which means you only purchase the right to use OS X in a manner that complies with the terms of the EULA. That why that screen appears, after installation of OS X, asking you whether your accept the terms of the EULA. You either accept the terms of the EULA or OS X won't run, and you can take your disk back to Apple and get your money back. Your options are either to accept OS X as a licensee subject to the terms of the EULA, or you can decline to purchase OS X. There is no option for you to buy and own OS X without restrictions and to use, dispose of, and/or control OS X as you wish.

Nor does Sec. 117(b) apply. By its express terms 117(b) only permits transfer of all rights by sale, lease, or otherwise, where "Adaptations so prepared may be transferred only with the authorization of the copyright owner." Apple's EULA specifically forbids use or transfer of OS X for use on non-Apple hardware, so 117(b) by its own terms cannot authorize transfer of rights in OS X for use, as Psystar has done, on non-Apple hardware.

So it comes down to whether the EULA is valid and enforceable. My view is that the EULA agreement is valid and enforceable. See my positing under Nemo, supra.

As for a copyright holder not being able to restrict copying, I believe that you are wrong. In Sony v. Betamax, the U.S. Supreme Court (the Court) allowed copying for the limited purpose of shifting the time that a viewer could watch a recorded television program. The Court has never held that copying across devices for personal use is okay, and it has certainly never allowed copying for redistribution, especially where that redistribution can have a negative impact on a copyright holder's proprietary interests. While the Court might allow limited copying solely for personal use, I doubt that it would ever allow mass copying and distribution of a copyrighted work as a non-infringing use of that work. To do so would read the Copyright Act out of existence in direct contradiction of the U.S. Constitutions, which expressly gives Congress the authority to grant copyrights and letters patent.

As a practical matter, copyright holders don't seem to be concerned about copying from, let's say, your computer to a CD, provided that copy on your computer is legally obtained, but copying from legally owned CD to a P2P network is another matter, and the lower federal courts and the Court in MGM v. Grokster have been clear that such copying is infringement under the Copyright Act.

17 U.S.C. ? 1201(f) does not apply, because it only permits reverse engineering of a legally obtained copy and only for the purpose of achieving interoperability. Since Psystar's copies and use of OS X are in violation of the EULA, they are illegal, and thus, the copies of OS X installed on Psystar's computers are illegal, so Sec. 1201(f) would not apply on that grounds alone. And installing OS X as the operating system for Psystar's computer goes well beyond reverse engineering for the purpose interoperability, and thus, Sec. 1201(f) is also inapplicable, because Psystar's use of OS X as the operating system for its computers exceeds the scope of the permission granted by the statute. Therefore, 1201(f) is inapplicable to this matter, because the statute does not permit using OS X as the operating system for Psystar's computers, and therefore, Sec. 1201(f) cannot authorize Psystar's use of OS X on its non-Apple computers.

In the instant matter, Psystar is installing OS X on non-Apple hardware in violation of Apple's EULA, which forbids the installation or use of OS X on non-Apple devices. Thus, those who deploy OS X on non-Apple hardware are not legitimate owners or licensees, nor do they have Apple's authorization to transfer OS X for use on non-Apple hardware. In fact, the EULA expressly forbids such use. Therefore, 17 U.S.C. ?? 117(a) and (b) do not apply, and to the extent that the EULA is valid and enforceable--and I believe to it be both valid and enforceable--Apple can prohibit copying, use, reverse engineering beyond what is necessary to achieve interoperability, and/or transfer of OS X for use on non-Apple hardware.

Nemo,

I am very naive in these matters and you've impressed me so far. So if you don't mind I'd love to hear how you might defend Pystar. Lets say they hired you to defend them against Apple. How would you proceed (Assuming they don't want to cave) if Apple claims EULA infringement?

First, I'd tell Psystar what it's in for. I'd tell them that this is going to be one hell of a fight. Apple cannot afford to lose, so it will spare no expense and will undertake every licit means to prevail in this matter. I'd tell them that we might have a real problems with the DMCA (17 U.S.C. ? 1201(a)), depending on how Psystar's principals reversed engineered their computers to run OS X. As discovery proceeds to build the record, the U.S. Attorneys for either the N.D. of California or the Southern District of Florida might see enough to decide to indict Psystar's principals for violating the DMCA. I'd also tell them that it doesn't look good. Apple is standing on established principles, so it will be easy for the judge to simply conform to those principles. And, last but not least, it is going to cost a fortune to defend this case. Since there is no way that I'd take this case on contingency, I'd want to know how Psystar is going to pay for this case.

If Psystar still wanted to proceed and I believe that it could pay me, I'd tell them that there is little dispute that you Psystar copied OS X in violation of Apple's EULA. Apple is clearly the author of OS X, and its rights under the Copyright Act are well established, 17 U.S.C. ? 106. What Psystar has done doesn?t qualify under the Fair Use Doctrine, because violating copyright for one's own commercial benefit is not within the ambit of any accepted category of Fair Use, and since the fight to free speech, that is expression of Psystar's speech, is not in any way implicated by installing OS X on an Open Computer, there is no chance that any lower federal court would hold that Psystar is engaged in fair use, and the Supreme Court would almost certainly never so hold. The other avenue for attacking a copyright, abuse of copyright, has even less merit. So our best shot and probably our only shot is to attack the EULA as a violation of U.S. antitrust law. Notwithstanding my prior posts about the Essential Facilities Doctrine, that Doctrine is Psystar's best shot.

We'd have to win on defining the market to be the market for computers running OS X. I'd try to persuade the judge that Windows and Linux OSs are not substitutes for OS X. I'd argue that OS X is a distinct product that provides unique features and capabilities, and a unique user's experience that can't be duplicated on other OSs.

When it comes to Apple as a monopoly, I'd argue that Apple's sales are surging and that 2/3 of U.S. sales of notebook computer costing more than $1,000.00 went to Apple. Similarly, in desktops, sales f desktops costing more than $1,000.00 are going to Apple.

If we could win on the definition of the market and could persuade the judge that Apple's recent success at least heralded its status as new monopoly, we'd have some slight chance.

The problem is that the tools of economist will almost certainly show that Linux and Windows are substitutes for OS X. In fact, Vista and other version of Windows dominate the enterprise. So we will probably lose on defining the market, and if we lose on this point, we lose, because the court won't find Apple to be a monopoly and OS X to be an essential facility.

And while Apple is having great success, especially in certain markets, such as education, creative markets, and high end consumers, Windows is still dominant by far, with Apple having only an 8.5% share in the U.S. and a lot less international market share. And Apple's success is only a recent trend line that is growing very slowly relative to the market. Microsoft next rendition of Windows or Midori could change everything. That is why U.S. District Courts evaluate whether a party is a monopoly based on extant market share and not the results of the latest quarter.

So given that Steve Jobs will not compromise or settle the case on any terms that will allow a third party to install OS X on its computers, I'd advise Psystar to settle the case on terms that let consumer keep their OS X Open Computers or at least on terms where Apple paid to have those computer recalled or replaced with Mac Minis. Psystar would promise to stop installing OS X on its computers and promise to stop reverse engineering its computers so that they could run OS X. Finally, Psystar would publicly apologize to Apple and acknowledge the validity and enforceability of its EULA. Apple would have to promise not to refer this matter to any U.S. Attorney and keep the results of discovery confidential.

Steve, who, as a young man, was a bit of rogue himself, and who I am sure empathizes with the rebel streak in Psystar's principals, would, I think, accept this deal rather than risk an adverse judgment, though that risk is slight. Psystar could then continue in business selling Open Computers with Linux and Vista installed. Because, the downside risks of not settling on terms similar to those set forth, supra, are financially catastrophic for Psystar and, perhaps, its principals, could result in jail time if a U.S. Attorney gets involved, and are so likely to occur, I would strongly urge Psystar to seek a settlement along the lines set forth, supra.

However, I qualify the foregoing by stating that, unlike the attorneys for the parties, I am not in possession of facts that the parties have, nor have I done the exhaustive and detailed study of the legal principles and authority that will dispose of the case. So matters could be quiet different than the foregoing analysis, which is based on open source intelligence.

That was fun. I really appreciate you sharing your knowledge. I completely understand that there's going to be a lot we don't know, but analyzing what is out there is a great intellectual exercise. Of course you're much better at it that I am, you seem to actually have some knowledge of the field!

I much prefer this type of discussion rather than just reading about what someone "wishes" would happen without at least considering facts.

BTW - You had me at "Id."

There was a court case, which I wish I could find for you. In this case was the same legal grounds pystar will bring with them to the table. The case was a software that was specifically made for an computer. The courts ruled that they cannot do this because it creates a monopoly. Man I wish I had this case, I read it somewhere else online.

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Anonymous wrote:
There was a court case, which I wish I could find for you. In this case was the same legal grounds pystar will bring with them to the table. The case was a software that was specifically made for an computer. The courts ruled that they cannot do this because it creates a monopoly. Man I wish I had this case, I read it somewhere else online.