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Psystar & Apple Tell the Appeals Court Why Mediation Wouldn't Work Out
Wednesday, January 27 2010 @ 04:40 AM EST

It isn't hard to see why mediation wouldn't work for the parties in the Apple v. Psystar litigation, just by reading what each has filed with the US Court of Appeals for the Ninth Circuit in a form called the Mediation Questionnaire:

01/22/2010 - 3 - Filed (ECF) Appellee Apple Inc. Mediation Questionnaire. Date of service: 01/22/2010. [7205615] (JGG)

01/24/2010 - 4 - Filed (ECF) Appellant Psystar Corporation Mediation Questionnaire. Date of service: 01/22/2010. [7205736] (KDC)

The form is a mediation form that they have to fill out within a week of a filing for appeal, telling the court about the case, so their mediation service can figure out what the issues are, or in this case, why mediation would be a wasted effort.

It's a total he said/she said thing. Here's the only thing they agree about: "Both Psystar and Apple agree that this case is not suitable for mediation." But this form is of real interest, in that it gives us our first real indication of what Psystar's appeal is going to be about. It has filed a notice of appeal, but it won't file its brief until May. So this is our first substantive clue.

Here's the docket from the appeals court, to show you where things stand, just before the new filings:

01/15/2010 - 1 - Added attorney K. A.D. Camara for Psystar Corporation, in case 10-15113. [7196649] (GR)

01/15/2010 - 2 - DOCKETED CAUSE AND ENTERED APPEARANCES OF COUNSEL. SEND MQ: Yes. The schedule is set as follows: Mediation Questionnaire due by Attorney K. A.D. Camara due on 01/22/2010. Appellant Psystar Corporation opening brief due 05/03/2010. Appellee Apple Inc. answering brief due 06/02/2010. Appellant's optional reply brief is due 14 days after service of the answering brief. [7196652] (GR)

So that's the schedule. Very different from the fast track SCO was on in its appeal, isn't it? I found Psystar's Mediation Questionnaire answers a little disturbing. Here is what Psystar tells the Appeals Court about Rebel EFI, for example:
The district court invited Psystar to seek a declaratory judgment that a new, unlitigated software product, Rebel EFI, does not violate the district court's injunction. Psystar has not yet taken the district court up on its invitation.
Huh? I didn't remember it like that. So I went to check, to see if I'd misremembered. The judge in the California litigation, after all, wrote this about Psystar, in its order granting Apple's request for an injunction:
Finally, it must be noted that Psystar continues to grossly mischaracterize prior rulings in this case to justify their position on this issue.
Here's what the judge wrote about Rebel EFI, to compare with what Psytar wrote:
Instead, Psystar concentrates its fire on obtaining an exclusion for its aforementioned Rebel EFI product from any injunction issued by this order. Psystar advances three reasons for such an exclusion: (1) Rebel EFI only works with Apple's Snow Leopard product, and Snow Leopard should be excluded from the injunction; (2) the method by which Rebel EFI operates does not fall within "the same type or class" of acts found to be infringing or unlawful in this action, and raises legal issues not litigated by the parties; and (3) an injunction that does not exclude Rebel EFI would cause substantial interference with the sovereignty of in the United States District Court in the Southern District of Florida, where a separate action involving Rebel EFI is pending (Dkt. No. 237).

Since this order has already determined that an express exclusion for Snow Leopard is improper, Psystar's first argument fails. With respect to Psystar's second argument that Rebel EFI differs materially from this case in both fact and law, Psystar cites to no decisions where the terms of an injunction under the Copyright Act or DMCA specifically excluded a non-litigated product of the accused infringer. Instead, Psystar attempts to distinguish the decisions cited by Apple and this order -- such as Walt Disney -- supporting the extension of injunctive relief to non-litigated works of the copyright holder as being "cases where the additional, non-litigated conduct was the same in all legally relevant respects to the actually litigated conduct" (Dkt. No. 237 at 5).

Psystar's argument belies even a casual reading of these decisions. Walt Disney and its progeny addressed the issue of whether non-litigated copyrighted works of the copyright holder should be included within the scope of a court's injunction. Here, Apple is the copyright holder whose rights have been asserted, and therefore Walt Disney is clearly applicable as to whether Snow Leopard should be included in an injunction. By contrast, Rebel EFI is a product of Psystar, the accused infringer in this case (See Dkt. No. 237 at 4). And whether a non-litigated act or product of an accused infringer falls within the ambit of an injunction goes to the enforceability, rather than the scope, of the injunction. See In re Lorillard Tobacco Co., 370 F.3d 982, 986 (9th Cir. 2004) (noting that the three fundamental characteristics of an injunction are that it is directed to a party, enforceable by contempt proceedings, and designed to protect the substantive relief sought by a complaint in more than a temporary fashion) (citations omitted) (emphasis added).

In other words, distinguishing the Walt Disney line of decisions provides no protection to Psystar with respect to its own product, Rebel EFI. Whether Rebel EFI violates the terms of the injunction set forth in this order is a factual issue more appropriate for a contempt action. See Jerry's Famous Deli, Inc. v. Papanicolaou, 383 F.3d 998, 1001 (9th. Cir. 2004) (affirming a contempt order after factual findings by the district court indicated that the defendant violated a permanent injunction directed to prevent infringement of the plaintiff's trademarks).

Common sense also supports this distinction between the terms and enforceability of an injunction. As Psystar readily admits, Rebel EFI has not been litigated in this action and was not subject to discovery. Moreover, Psystar's opposition brief appears to purposefully avoid providing a straightforward description of what Rebel EFI actually does (See Dkt. No. 237). Thus, it is not only inappropriate, but impossible to determine on this record whether Rebel EFI falls within "the same type or class of unlawful acts" found at summary judgment. This order declines to "bless" a product about which it knows little of substance. Psystar's second argument is therefore rejected, and Psystar -- if it continues to do so -- sells Rebel EFI at its peril.

Finally, Psystar asserts that issuing an injunction without excluding Rebel EFI would "invade the jurisdiction of Judge Hoeveler of the United States District Court for the Southern District of Florida" (Dkt. 237 at 3). To support their argument, Psystar cites to United States v. AMC Entertainment, 549 F.3d 760, 770 (9th Cir. 2008), quoting in relevant part:

[W]hen exercising its equitable powers to issue an injunction, a court must be mindful of any effect its decision might have outside its jurisdiction. Courts ordinarily should not award injunctive relief that would cause substantial interference with another court's sovereignty.
What Psystar conveniently omits, however, are the paragraphs immediately following the quoted language. As the remainder of the decision clearly explains, the district court's granting of a nationwide injunction in AMC Entertainment was improper because the injunctive relief directly conflicted with an existing decision by the Fifth Circuit, and circuit courts "expect [their] pronouncements [to] be the final word within the [c]ircuit's geographical area, subject only to en banc or Supreme Court review." Id. at 771. Since neither the United States District Court for the Southern District of Florida nor the Eleventh Circuit Court of Appeals has issued any pronouncement on the legality of Rebel EFI under the Copyright Act or DMCA, Psystar's argument lacks merit. Moreover, as explained above, whether Rebel EFI or any future or non-litigated Psystar product violates the injunction issued by this order is a question more appropriate for contempt proceedings. This order does note, however, that if such contempt proceedings are brought against Psystar, comity with respect to the action before Judge Hoeveler in Florida will be properly considered. This determination would, of course, also examine the harm that delay would cause Apple, the stage of the proceedings in the Florida case, and whether the record before the undersigned provides a more complete framework to do justice to the issues presented. But these questions are for another day.

In sum, Rebel EFI will not be expressly excluded from the terms of the injunction. It should be clear, however, that this ruling is without prejudice to Psystar bringing a new motion before the undersigned that includes real details about Rebel EFI, and opening itself up to formal discovery thereon. This would serve the purpose -- akin to a post-injunction motion vetting a "design-around" in a patent action -- of potentially vetting (or not vetting) a product like Rebel EFI under this order's decree. Moreover, Psystar may raise in such a motion any defenses it believes should apply to the factual circumstances of its new product, such as the 17 U.S.C. 117 defense raised in its opposition and at oral argument. Whether such a defense would be successful on the merits, or face preclusion or other hurdles, this order cannot predict. What is certain, however, is that until such a motion is brought, Psystar will be selling Rebel EFI at its peril, and risks finding itself held in contempt if its new venture falls within the scope of the injunction.

Psystar makes it sound like the judge was hinting that it would prevail if it brought such a motion, that the judge was encouraging it to do so. Is that how you read his order? Me neither. The judge didn't invite Psystar to file such a motion. It said Psystar could do so, if it wanted to, but that didn't mean it would prevaill. Anyway, why would Psystar bring such a motion in California, where it got thoroughly trounced, when it wants Florida to give it a do-over anyway?

It may sound quaint to some, but the role of the court is to find the truth and rule on the facts as they actually are. Presenting your case in the best possible light is part of that process. Lawyers advocate for their clients. But it is supposed to be true and accurate. As I view it, if you misrepresent or stretch the truth, you are supposed to lose. Like I said, quaint.

Here's the order, also referenced, so you can follow along. It's one of the orders Psystar is evidently appealing, because it denied Psystar's copyright misuse defense. Maybe, like me, your first reaction on seeing Psystar say that the court sealed too much is to wonder why they are so eager to spill those beans. But on rereading the court's order, I think this is the part that explains it:

As to the second argument, Psystar contends that Apple's anticircumvention technology was ineffective because the decryption key for circumvention is publicly available on the internet. This argument fails. "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." Sony Computer Entm't Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D. Cal. 2006). Generally, measures based on encryption "effectively control" access to copyrighted works. Here, when the decryption key was not employed, the encryption effectively worked to prevent access to Mac OS X. And that is all that is required. See Universal City Studios v. Reimerdes, 111 F. Supp. 2d 294, 318 (S.D.N.Y. 2000) (noting that when a decryption program was not employed, the encryption worked to control access to the protected work). Accordingly, Psystar has violated the DMCA by circumventing Apple's protection barrier and trafficking devices designed for circumvention. Apple's motion for summary judgment on its DMCA claim must be granted
I think Psystar would like to argue on appeal that they aren't guilty of a DMCA violation because the way to hack the encryption was known and on the internet. But why would a court in its right mind uphold that as a defense? If it were to do so, no DRM method would be effective in the legal sense, if you think about it, because sooner or later they are all hackable. That is precisely why they come up with laws about not circumventing encryption or any technology designed to keep you out. They know that there is nothing technically that can 100 per cent be relied on to keep you out. So for a court to uphold Psystar's position would be to say that the DMCA means nothing at all. All you'd need to do is post your hack from a country that doesn't care about US laws, and then point to those web pages as your defense in a US court case about violating the DMCA. I simply can't imagine any US court deciding to do that.

My favorite sentence from Psystar is this one, where it puts on its halo:

Psystar sought to provide a lower cost, higher quality alternative to Apple's hardware.
Higher quality at a lower cost. In your life experience, have you found it to be true that higher quality products cost less? I guess if you are switching from Microsoft Windows to GNU/Linux, then it'd be true. But hardware? Who sells better quality hardware at a lower cost?

[ Update: Of course, as an anonymous commenter astutely points out, "It's much easier for a company to sell for lower, when they aren't trying to recoup software development costs."]

I've put their responses to the same questions side by side in a chart, so you can compare them visually.

Please describe briefly the dispute that gave rise to this lawsuit.Please describe briefly the dispute that gave rise to this lawsuit.
Psystar is a technology startup that manufactured and sold non-Apple personal computers capable of running Apple's OS X operating system. Psystar sought to provide a lower cost, higher quality alternative to Apple's hardware. Apple sued Psystar for copyright infringement and violations of the anti-circumvention provisions of the DMCA, claiming that selling hardware capable of running OS X (and hence competing with Apple in the market for personal computers) is illegal.Through efforts spanning more than a decade and investments totaling hundreds of millions of dollars, Apple Inc. ("Apple") has developed its proprietary Mac OS X operating system. All of Apple's famous Mac line of computers, known for their seamless integration, ease of use and reliability, are sold with Mac OS X pre-installed. In order to maintain the high quality of its products and provide customers with the excellent Apple experience to which they are accustomed, Apple limits Mac OS X to run on Apple computers through the terms of its software license agreement and through technological protection measures in its Mac OS X software.

In April 2008, Psystar Corporation ("Psystar") began selling the OpenMac (later renamed the Open Computer) and OpenPro computers pre-installed with, and enabled to run, Mac OS X in direct violation of the terms of Apple's Software License Agreement for Mac OS X (SLA). To make its computers run Mac OS X, Psystar enaged in wholesale copying, alteration and commercial distribution of Apple's copyrighted software and circumvented Apple's technological protection measures in that software. Psystar also marketed its computers using Apple's trademarks and trade dress in a manner that led to consumer confusion. In response to Psystar's infringement of Apple's intellectual property rights and its violation of the terms and conditions of the SLA, Apple filed suit against Psystar in 2008.

Briefly describe the procedural history, the result below, and the main issues on appeal.Briefly describe the procedural history, the result below, and the main issues on appeal.
Apple won summary judgment and an injunction below. The district court sealed large parts of the summary-judgment papers. Psystar believes that the summary judgment was error, inter alia, because the district court erred in holding that Apple's efforts to use its copyright in OS X to control the hardware on which purchasers of OS X run OS X did not constitute copyright misuse. Psystar further believes that the district court's sealing orders were error because the sealed material reflected only material that is already available in the public record and because Apple failed to comply with the district court's local rules regarding motions to seal. Psystar further believes that, even accepting the district court's conclusions on the merits, the district court's injunction was overbroad in that it decides issues that are presently in litigation in an antitrust case in the United States District Court for the Southern District of Florida (Psystar v. Apple) -- a case that the California district court declined to dismiss or stay despite Apple's request that it do so. On July 3, 2008, Apple filed suit against Psystar in the Northern District of California for direct and contributory copyright infringement, breach and induced breach of contract, trademark and trade dress infringement and unfair competition. The case was assigned to Judge William Alsup. On August 28, 2008, Psystar filed its Answer and Counterclaims asserting that Apple was violating the antitrust laws by licensing Mac OS X for use only on Apple hardware. Apple moved and the Court dismissed Psystar's antitrust counterclaims with leave to amend. Psystar chose not to amend its antitrust counterclaims, instead seeking to file counterclaims seeking a declaratory judgment of copyright misuse. On December 2, 2008, Apple amended its complaint to add allegations that Psystar circumvented Apple's technological protection measure in Mac OS X. Psystar's motion to amend its counterclaim was granted in February, 2009, and the parties focused on discovery efforts.

On May 22, 2009, Psystar filed for bankruptcy under Chapter 11 in the Southern District of Florida. The bankruptcy court granted Apple's motion to lift the stay on June 19, 2009, and Psystar withdrew its bankruptcy petition. On October 8, 2009, after having completed discovery, the parties filed cross-motions for summary judgment. Apple sought summary judgment of its copyright infringement and DMCA claims and Psystar's affirmative defenses to those claims. Psystar sought summary judgment on all of Apple's claims. On November 13, 2009, the court granted Apple's motion in full, and denied Psystar's motion in full. Fewer than two weeks later the court entered a stipulated judgment setting damages for Psystar's copyright and DMCA violations at $2.67 million, and dismissing Apple's trademark, trade dress and state law claims without prejudice. On December 14, 2009, the Court also issued a permanent injunction order enjoining Psystar from infringing Apple's copyrights in Mac OS X, circumventing Apple's technological protection measures and trafficking in circumvention devices. In its Notice, Psystar has stated that it plans to appeal all adverse rulings issued by the district court.

Describe any proceedings remaining below or any related proceedings in other tribunals. Describe any proceedings remaining below or any related proceedings in other tribunals.
The district court invited Psystar to seek a declaratory judgment that a new, unlitigated software product, Rebel EFI, does not violate the district court's injunction. Psystar has not yet taken the district court up on its invitation.

A separate antitrust case, Psystar v. Apple, is pending in the United States District Court for the Southern District of Florida. A motion to transfer is pending in that case. Apple's motion in the California case to dismiss or stay the FLorida case was denied.

As described above, the district court case is closed and there are no remaining proceedings in the lower court.

In September, 2009, Psystar filed duplicative litigation in the Southern District of Florida. The Psystar computers and software at issue in that case are both addressed in Judge Alsup's injunction order, and Psystar's Florida complaint asserts antitrust claims that were previously dismissed by Judge Alsup. Apple has moved the Florida court to dismiss or transfer Psystar's second-filed action to the Northern District of California. Briefing is closed and the parties are awaiting the Florida court's decision.

Provide any other information that might affect the suitability of this case for mediation. Provide any other information that might affect the suitability of this case for mediation.
Both Psystar and Apple agree that this case is not suitable for mediation. The parties have previously participated in mediations to no avail, including mediation immediately preceeding the district court's ruling on summary judgment. Nothing material has changed since then. The parties simply disagree about the determinative law and seek this Court's ruling to resolve their dispute.Both Apple and Psystar agree that this case is not suitable for mediation. The parties have previously participated in two court-ordered mediations that were unsuccessful. There is no reason to believe that another attempt at mediation will facilitate resolution of this dispute.

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