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Psystar - The November 12, 2009 Hearing Transcript
Tuesday, April 13 2010 @ 11:50 PM EDT

Last time we looked in on Apple v. Psystar, Psystar had lost big time and was filing an appeal and telling the lower court they would be very, very legal while awaiting word from the appeals court.

While you and I wait, we can read the newly released transcript [PDF] from the hearing held on November 12, 2009. This was the final hearing prior to the ruling from Judge Alsup in the California case that shut down Psystar. Both parties had filed motions for summary judgment, Apple for copyright infringement and violation of the DMCA, among other things. Psystar had asserted essential step and first sale defenses, along with copyright misuse. All the filings can be found on our permanent Psystar Timeline page, if you want to really follow along with all the fine points.

But for now, let's review recent history, and let's try to discern the bigger picture. First, we had SCO alleging that the GPL was unConstitutional in its litigation against IBM in connection with an assertion of ownership of code that both a judge and a jury have now ruled it never owned. Next, we had Psystar claiming that Apple had no right to tie hardware and software, claiming both antitrust violation and, when that failed, copyright misuse. Then we had MySQL's prior owner asking the EU Commission to change the license on that code, the GPL, to a BSD-like license to make it more business-friendly. And now we have TurboHercules asking the EU Commission to find IBM has no right to license its code to whomever it wishes.

Anybody starting to see a pattern to all this? The biggest pattern similarity to me is that all of them are about wanting to use someone else's code without having to abide by the license, the assertion that for one reason or another, the author of software code can't choose the terms under which he chooses to license it and that others who didn't write it get to use it the way they wish to, instead of having to write their own.

Another pattern I notice is that in each case, the party asserting the invalidity of the license didn't or doesn't have much to lose. None of the cases are a battle of the titans between two large and successful companies. It's closer to the patent troll M.O., meaning there is a potential upside for the little guy but not much downside even if the anti-license party loses.

They all cost a lot of money for the company being forced into the courts, and they were all made into big media events by the eventually losing party, with large companies trashed and smeared in the press, even though the likely winner was predictable from day one even to us non-lawyers. That's another way of saying they are fairly weird cases, all of them.

There are a couple more transcripts in the Psystar case still not yet released, both of which will be available in May, in case you are tracking such things, the hearing transcripts for July 9 and August 20, 2009. We had an eyewitness report from the September 4, 2009 hearing, but this will be our first real look at these two hearings from July and August. It was not long after the July hearing that Psystar's original lawyers on the case, Carr & Ferrell, dropped out and were replaced by Camara & Sibley, so I'm looking forward to that one.

Sometimes I see comments that assert that Psystar only lost because it made too many copies. That was very much part of the problem. But I think you will see from the hearing that this wasn't the only problem. For one thing, Apple argued at the hearing that first-sale allows for no copies at all. And the DMCA isn't even about copying, only access.

Here, then, is the transcript of the November 12, 2009 hearing as text, with line numbers removed so those relying on screen readers don't go bonkers trying to read it:

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

United States District Court
Northern District of California
Before The Honorable William Alsup

Apple, Incorporated,

Plaintiff, vs.

Psystar Corporation,

Defendant.

____________________________

No. C08-3251 WHA

San Francisco, California
Thursday, November 12, 2009

Reporter's Transcript Of Proceedings

Appearances:

For Plaintiff:
Townsend and Townsend and Crew
[address]
By: Jim G. Gilliland, Esquire

For Defendant:
Camara & Sibley, LLP
[address]

By: K.A.D. Camara, Esquire
Christian Curtis, Esquire

Reported By:
Sahar McVickar, RPR, CSR #
Official Reporter, U.S. District Court
For the Northern District of California

(Computerized Transcription By Eclipse)

Thursday, November 12, 2009

2:00 P.M.

P R O C E E D I N G S

THE COURT: Now let's go to Apple.

THE CLERK: Civil action 08-3251, Apple, Inc., versus Psystar Corporation.

THE CLERK: Counsel, can you please state your appearances? And we'll get set up.

MR. CAMARA: Kiwi Camara for the defendant, Psystar Corporation. I'm joined by Christian Curtis.

THE COURT: Great.

MR. GILLILAND: Good afternoon, Your Honor. Jim Gilliland and Mehrnaz Boroumand Smith for Townsend and Townsend and Crew for Apple.

THE COURT: Great. Welcome to both of you. All right, here's a motion for summary judgment. We'll let the plaintiff go first. Each side is going to get roughly the same amount of time the last group had, so please make your best points. I'm very familiar with the record, so you use the time in the way that you want. Okay.

MR. GILLILAND: Thank you, Your Honor. These are the parties' cross-motions for summary judgment. So they have, in essence, agreed that there are no disputed issues of material fact at least with a couple of the key --

THE COURT: Well, so if you lose on their motion,

2

you will agree there is not a disputed issue of fact?

MR. GILLILAND: With respect to the copyright infringement and Digital Millennium Copyright Act claims, Your Honor, I believe the issues are joined and that the parties have said there are no disputed issues of fact. So, indeed, those --

THE COURT: Usually when they say that, they just mean it if they win. So that's why --

(Laughter.)

THE COURT: But you are willing to say if you lose you will stand by that.

MR. GILLILAND: I prefer to win, Your Honor, but --

THE COURT: I won't hold you to that unless you both agree to it.

MR. GILLILAND: Indeed, from Apple's perspective, if we were to have the good fortune of winning on our DMCA and copyright infringement claims that would, in large measure, go towards ultimately resolving this case. Because we do think that those are the heart of the matter, and we are looking forward to the Court's consideration of them. And, in fact, by the fact that we have cross-motions, the record, all six of those briefs put together show that it is undisputed that Apple has the copyrights, registered copyrights in Mac Os 10, Mac Os 10 Leopard, and Don't Steal MAC OS; that Psystar has made multiple copies; that

3

it has adapted those copies to run on non-Apple hardware; that in order to do that, it has circumvented our technological protection measures. And then it has resold those computers to the public. It's not disputed that --

THE COURT: Let me ask you this: Let's say you did not have any encryption codes, and so forth, that you just had straightforward software, and it was sold under the same agreement, same license, and so forth --

MR. GILLILAND: Yes. THE COURT: Wouldn't your argument still be the same? Or is it necessary for you to win that there is a encryption thing?

MR. GILLILAND: I'll answer that in two ways, Your Honor. First, it is not necessary to -- with respect to the copyright infringement claims. But secondly, with respect to the remedy, it is relevant to know whether there has been a violation of the DMCA.

Let me go through something that is in the briefs and that you have already seen, but that may help crystallize what the issues are.

THE COURT: Um-hmm.

MR. GILLILAND: At the end of day, it does not matter, actually, when the software is licensed or whether it's sold to Psystar because whatever they are doing both violates

4

Apple's license and violates the Copyright Act and the Digital Millennium Copyright Act. Whether you use the Essential Step defense or the First-Sale defense, two-thirds of what Psystar is doing is unlawful. So let me walk the Court through, if you don't mind.

Psystar obtains one retail DVD in Mac Os 10; it's the upgrade version, we say it's licensed. And they then -- and this is undisputed because they said that Dr. Kelly's report that Apple submitted, they accept it. And they say that this is clear, they agree, they confirm Dr. Kelly's report that this is how Psystar makes and distributes its computer.

Psystar copies Mac OS 10 onto an Apple Macintosh computer. This is lawful; nobody disputes this. It's permitted by Apple's license. If they are an owner, it's covered by the Essential Step defense. But then, they make multiple additional copies after that, and all of those are unlawful, under the -- under the Copyright Act and under the license.

So the next thing that Psystar does is it copies Mac OS 10 again from its MAC Mini, from the Apple Computer onto what Psystar calls the "imaging station." The imaging station is a Psystar computer. So now we have two copies of Mac OS 10 made from the original, and neither the Essential Step defense nor the First-Sale defense allows more than one copy. Beyond that, Psystar adds its own software -- I'll

5

come back to that in a moment -- but it adds it software so that Mac OS 10 can run on a non-Apple computer. And then, as the record shows, and it's not disputed, they make copy after copy after copy onto each of the Psystar computers. And the evidence in the record shows that there are approximately 800 of them that have been sold so far.

Again, this additional copying is not an essential step for using the software; the essential step occurred back here (pointing). This is not a reselling of the software that Psystar bought under the First-Sale Doctrine; this is making multiple, multiple copies.

And then, as the Court knows, you can't just use software by sticking it into the computer. The software is loaded into the hard disk drive, but in order to run it has to be loaded into RAM. This is the RAM over here (pointing).

So now when Psystar tests its computers, as the evidence shows that it does, it makes yet another copy for each of these, so instead of making one copy, we now have 1, 2, 3, 4, 8 copies.

I've put on these disks a red and a white sliver to show that in making these copies, the second thing that Psystar has done is that it has adapted Mac OS 10; it's changed it. I'm not going to get into the question of whether it's a derivative work right now; again, that's not necessary, but it has supplanted, taken out Apple's boot loader. That is

6

uncontested; it's in Dr. Kelly's report. Mr. Pedraza agrees that when Psystar's software is loaded onto its computers that Apple's boot loader is not used. So, it has changed the boot loader like taking chapter 1 out of a book and putting in a different chapter. And it has disabled or replaced certain of the other kernel extensions in the software.

Now, why did they do that? Well, those are the kernel extensions that call the technological protection measure. So, if this had not been replaced, then when Mac OS 10 had been loaded onto the Psystar computer the kernel extension would have looked for the key, the lock and the key mechanism, the encrypted files, they would have looked for the key, but the key is not inside the computer. Rather, the key is Apple's proprietary key; it's inside the Apple Computers.

So, what Psystar has done is taken away our kernel extensions that look for the key and replaced them with its kernel extension that contain the key. So now the software will run where it was not intended: On non-Apple Computers.

It doesn't matter whether this is pursuant to a license or a sale of the software because neither the Essential Step defense --

THE COURT REPORTER: I'm sorry: neither what?

MR. GILLILAND: ... the Essential Step defense, nor the First-Sale Doctrine allow making of these repeated copies. Beyond that, with respect to the -- so, take a step

7

back. Apple has, I believe, I submit, established it prima facie case of copyright infringement through all of the undisputed facts. We own the copyrights; they have copied; they don't have the authority to do that. It's, in fact, prohibited by the software agreement. And they admit that with respect to the breach of contract claim liability is clear.

So, really, for the Court, then, this boils down to the question of whether Psystar can prove that it is somehow excused from its infringement, either through a statutory exception, or for some other reason.

Now, since Psystar has to prove its defenses, it has the burden: It has to come forward with admissible evidence, and I submit that it hasn't. There is lots of argument in its briefs, but very, very little actual evidence. And, indeed, as I said, what Psystar has done is said that they agree with Apple's evidence; they agree with Dr. Kelly's report.

Dr. Kelly, says, quote, "In order to force Mac Os 10 to run on it's hardware, Psystar has modified the Mac Os 10 operating system installed on Psystar computers by at least, A, supplanting the boot loader that allows Mac OS 10 to boot on a genuine MAC; B, adding kernel extensions to Mac OS 10; and C, disabling kernel extensions and/or removing them from Mac OS 10. That is in the Kelly declaration, paragraph 35(f).

So, with these multiple copies and with modifications to the Mac OS 10 software, Psystar cannot win on

8

any of the defenses that it has asserted. It's asserted the Essential Step defense, the First-Sale defense, and copyright misuse.

With respect to the statutory defenses, Essential Step, as I've shown here, I hope, the multiple copies were not essential. Essential Step defense is a narrow exception; the parties agree on that. It's intended to allow someone to use their software on their computer. It's for internal use only. If you adapt the software, you are not allowed to resell the adapted software without the permission of the copyright holder. And Psystar has exceeded all of those limitations.

With respect to the First-Sale Doctrine, it does not allow any copies whatsoever. The First-Sale defense says that you can resell the copy that you purchased if you own it, that's all it says. So that would mean that Psystar could resell this disk right here. It cannot do any of these other things under the First-Sale Doctrine. And that assumes that it's the owner of a copy rather than the licensee.

The Court does not have to decide whether Psystar is the owner or the licensee because the Essential Step and First-Sale defenses do not apply, anyhow. But, if you do wish to address that issue and weigh into a debate that is going on, it's clear to Apple that there is a license here, a license transaction, not a sale. Apple's software license agreement comes with the disk. It says on the outside of the box before

9

you ever open it up, this is subject to a license.

Inside the box is a copy of the license agreement. On the disk is the license agreement. The license agreement says the software is licensed, not sold to you. It says, yes, you own the disk itself, the transfer vessel, the medium by which the software is delivered to you, but Apple retains title to the software.

And the license puts substantial restrictions on the use of that software, on the number of copies that can be made, where it can be installed, how it can be transferred, and a requirement that if there is a breach of the license, it terminates immediately, and the software has to be --

THE COURT: If you were to win this motion, what would be the remedy? And what else would there be to decide?

MR. GILLILAND: Well, so Psytar has indicated a willingness to stipulate to an injunction of some sort, but narrowly tailored to relate only to Leopard --

THE COURT REPORTER: Only to?

MR. GILLILAND: Leopard, Mac Os 10 version 10.5. We think that the remedy has to be commensurate with the violations, and the violations are an infringement of Apple's copyrights in Leopard and Mac Os 10 and also circumvention of our technological protection measure.

So there would need to be an injunction that would be -- prohibit circumvention of our technological protection

10

measure through distributing the key, whether it be scrambled or unscrambled, in plain text, or otherwise. We believe that would be a necessary predicate.

Then the next question is, what would be left? And in truth, Your Honor, probably not very much. There are trademark infringement claims; there are breach of contract claims. I would envision this case playing out in a way similar to the MDY Versus Blizzard Arizona. There, when the District Court issued an injunction, the parties were able to stipulate to a monetary damage figure, dismiss everything else without prejudice, and then allow the Ninth Circuit to consider the case.

So, of course, Psystar would have to be agreeable to that, but that is what I think is a likely outcome, were the Court to rule in our favor.

THE COURT: All right, let's hear from the other side.

MR. GILLILAND: Thank you, Your Honor.

THE COURT: I'll give you a few moments of rebuttal.

MR. CAMARA: Your Honor, the two points I want to focus on are two points that Apple didn't address at all, the DMCA claim and copyright misuse. We do think that reaching the DMCA claim is important because that is where the bulk of the statutory damages are. Under the Copyright Act, statutory damages are per work, so they get, presumably, the minimum for

11

infringement of one work, OS 10. But under the DMCA, statutory damages are per active circumvention, which is literally every time Psystar or one of those end users would sell one of those computers that is engaged in circumvention.

Now, on the DMCA claim, the disagreement is over whether or not you have to circumvent in order to commit copyright infringement, or whether just any kind of circumvention will do. Apple takes the position that any kind of circumvention will do. We take the position that you have to circumvent to infringe.

If you look at the Federal Circuit's decision in Chamberlain, this Court's decision in Facebook, and other decisions around the country, I think it's clear that a copyright infringement as a result of circumvention is an element of a DMCA claim.

So, if we focus on the acts of circumvention, that circumvention happens only when someone boots up a Psystar computer. It does not happen when Psystar is installing OS 10 and its own software on the imaging station, or on any of the Psystar computers. So none of those arrows on the chart have anything to do with a DMCA claim as opposed to the copyright infringement claim.

The only thing that circumvention allows you to do is run OS 10, and running OS 10, whether it's by Psystar or the by the end users, is in the core of the protection granted by

12

Section 117. So we argue that just like in Storage Tech, because the circumvention is happening only to do something which is permitted by 117, namely, running OS 10. It cannot be a violation of the DMCA, and therefore we should get summary judgment on that claim, and there should be no statutory damages under the DMCA.

To answer the Court's question, we do think summary judgment is appropriate either way, depending on how the Court comes out on the law. We don't think there are fact issues.

The second point I want to reach is the defense didn't address, which is copyright misuse. We think this is actually a clear case of copyright misuse. And it's clear because of the testimony of Apple's own witnesses. And here I'm going to read or argue the testimony, so I don't know if Apple wants to move to seal the courtroom.

But that testimony is that Apple put in place the lock and key mechanism, the Haiku and the anti-circumvention technology for one purpose, and one purpose alone, which was to enforce the license term that ties OS 10 to Apple hardware. So it's brought its copyright infringement and DMCA claims in this case to enforce its ability to control how people use OS 10, specifically, that they use OS 10 only on Apple-provided hardware. And that is not a right granted by the Copyright Act.

And the cases say, the copyright misuse cases say

13

that when you attempt to bring copyright claims to enforce a right which is not one of the rights granted by the Copyright Act, then that is copyright misuse. And you lose the right to enforce your copyright, even on otherwise valid copyright claims. We don't think those are valid claims, but we think copyright misuse is dispositive of the entire case.

Now, on the facts, the Alcatel case in the Fifth Circuit is almost exactly on point. That is the case where -- it was an operating system case, again, a maker of telephone switches, I think, had a license provision that required that the operating system be used only on their hardware. And the Court in that case said that that constituted copyright misuse for exactly the reasons that I just stated.

THE COURT: What was that case, again?

MR. CAMARA: It's Alcatel Versus DGI Technologies Incorporated, 166 F.3d 772 at 793. And it's discussed in our reply brief in support of our MSJ at page 8. I'll read the quotation:

"DGI reasons that as DSC's software is licensed to customers to be used only in conjunction with DSC manufactured hardware, DSC indirectly seeks to obtain copyright protection of its hardware, its microprocessor card, through the enforcement of its software copyright. We agree with the DSC one-panel's conjecture and the jury's finding that the DMC's licensing for its imports operating system constitutes misuse."

14

And you can take one of the very next sentences and just plug in Apple, and it makes perfect sense:

Apple's operating system is licensed to customers to be used only in connection with Apple manufactured hardware.
That is what the Fifth Circuit held was misuse.

But that's not the only case: There is the Practice Management case from the Ninth Circuit, which held that an attempt to generate exclusive use of a certain medical billing system was copyright misuse for exactly the same reason: It attempts to protect a right which is not protected by the Copyright Act.

So Apple has made a big deal about the fact that we haven't offered lots of document that kind of prove up our affirmative defenses and drown the Court; we haven't done that because we think it's a simple case and one which we can win on using only the testimony of Apple's witnesses.

Every single Apple witnesses who we ask this question to, and I think we asked all of them, testified that the only reason the technological protection measure was put in was to enforce the license term.

And, you know, these are cited at pages 9 and 10 of our reply and in the copyright misuse section of our motion. But just to give you an example, this is Simon Patience the head of OS 10 development, testifying:

"Q. Did Apple install the Apple

15

protected binaries for any reason other than limiting Mac Os 10 to Apple hardware?"
The witness:
"A. The April binaries were installed specifically to enforce the license section, which requires you to run Mac OS 10 on Apple hardware."
There is similar testimony from Michael Culbert (phonetic), from Robert Mansfield, and from several other Apple witnesses, again, cited in the briefing. So we think copyright misuse is clear, and we think that's dispositive of the case.

If the Court decides to reach the 117 and 109 arguments, we think it's clear that 109 and 117 apply because the software license agreement states expressly that you are the owner of the media on which the Apple software is recorded, "you" in this case meaning Psystar. And the Copyright Act, Section 101, defines a copy as the material object on which a copyrighted work is recorded.

So, Apple talks a lot about how they have only licensed OS 10, how they retain title to OS 10, how Psystar doesn't own the OS 10; those are all true and not the point. The question is whether or not Psystar has title to a copy of OS 10, not to OS 10 itself, because if Psystar does have title to such a copy, then it gets the benefit of 109 and 117.

16

If you look at 117, you know, the other argument they make, they try to compare Psystar to a kind of a pirate, and they do it using things like this diagram here, where they make the suggestion that we take one copy of 0S 10, that disk in the upper left-hand corner, and generate all these other copies of OS 10, but that simply isn't the way Psystar's business operates. Psystar buys one copy of OS 10 for every computer that it makes.

THE COURT: Is that sworn to in this record?

MR. CAMARA: Kelly says it, and we don't oppose it. So they try to create a fact question about it by citing to the declaration of Ms. Smith, where she says she reviewed a variety of financial records which aren't disclosed. So we think that testimony is incompetent, and we didn't produce any because we agree with Apple and Kelly.

THE COURT: Kelly is the Apple expert?

MR. CAMARA: Kelly is Apple's expert.

THE COURT: Read to me what Kelly says.

MR. CAMARA: Let me find where Apple says it. Okay, so it's at the Apple motion at page 7. It's cited at page 5 of our reply. And the quotation from Apple's motion is, "as a result, Psystar actually transfers two copies of Mac OS 10 with every computer it sells. Psystar includes both a Mac Os 10 DVD and a hard drive copy of Mac Os 10 onto the Psystar computer." So that is Apple talking at Apple

17

motion 7. And let me pull up what Apple cites. We, of course, think that's sufficient since they've stated it in their motion.

(Searching through motion.)

MR. CAMARA: So the citation is at page 7 of Apple's motion for summary judgment. It's Footnote 38. And it cites the Kelly declaration at paragraph 20; the Chung declaration at Exhibit 9. It cites some deposition testimony. I can pull that up --

THE COURT: Sorry, what is the page number in the Apple motion?

MR. CAMARA: Page 7 of the Apple motion and Footnote 38. And so the Apple motion itself says that we include a disk with every computer. And then, it cites the Kelly declaration and some deposition testimony. So the only question --

THE COURT: But the copy that is on the hard drive is not made from that particular disk, it's --

MR. CAMARA: That's correct.

THE COURT: -- it's made from your master system.

MR. CAMARA: That's correct. So it is, I suppose, a conceivable outcome, and it seems to be Apple's argument, that we could have our business if only we do it in the time-consuming way, which is we tear open the Apple packages, put in the Apple CD, and install them all by hand.

18

So that is the only difference here, but that difference was addressed by this -- by the Ninth Circuit in Wall Data in that footnote where they say that if everything else were covered by 117, then the fact that you use an imaging station, and, in fact, it was exactly like ours, an imaging station that pushed out copies on multiple computers, that alone would not would create copyright infringement. And if forced to pick a doctrine, the Court would have picked fair use.

But the fundamental point is that, surely, the difference between a legal business and not, the difference between millions of dollars in damages and not, is not whether or not we pick out the CD, put it in the drive, and load them manually that way as opposed to using the imaging station.

The question should turn on whether or not what we are really doing, which is installing OS 10 with some Psystar software, is legal or not and not with -- you know, whether we do it in an efficient way or an inefficient way, which takes us to the next point, which is the question of whether -- these white and red slices. Does the fact that Psystar installs its own software along with OS 10, software that interoperates with OS 10 somehow cause there to be a problem. And we think not, for the fundamental reason that if it is the case that installing two different pieces of interoperable software creates a derivative

19

work or creates an adaptation under 117, then those derivative works and adaptations are on every single computer that drives multiple pieces of software. And all those software companies would have, to be technically legal, obtain cross-licenses from each other for all those derivative works. But that is not the way the industry works.

What Apple would have this Court do is rule that way so that the legality of all of these derivative works, supposed derivative works that exits on all the computers, exists kind of at the sufferance of the industry. And you can see why they want that, because Apple is not going to sue Microsoft, and Microsoft is not going to sue Apple. Who they are going to sue are people like Psystar, who have nothing else to offer them, and who are making these derivative works.

That Psystar doesn't create a derivative work when it installs its own software along with Apple's, it does that by right, it doesn't do that at the sufferance of Apple. And that is not an argument we are making up: The Ninth Circuit considered the question in Galoob when it talked about spell checkers that replaced the spell checker in a word processing program. Does introducing an improved spell checker create a derivative work? Galub held, no. Galub held that it would be contrary to the purpose of copyright to hold in the opposite direction because it would stifle the creation of new works like the improved spell checker.

20

THE COURT: What do you improve on here?

MR. CAMARA: We --

THE COURT: Why is your software an improved version -- well, whether it's improved or not is subject to argument. And we think we should be able to compete with Apple.

We think it's improved because it allows OS 10 to run a wider range of hardware, which is something that our customers enjoy. Whether that is better or not is to be a subject of market competition, not legal competition.

And incidentally, we don't do this through some obscure method. When they talk about kernel extensions, they repeatedly try to argue as though this were some kind of hack, basically, but it's not. We deposed their witnesses about that, too. And when we deposed their witnesses about kernel extensions -- and this testimony is in, I think, pages 1 through 8 of our response to their motion for summary judgment, they testified that kernel extensions are part of both Darwin and OS 10; that it's something they expected third parties to do; that, in fact, the most common thing for kernel extensions is to make OS 10 compatible with other hardware. They go on and on.

So we're using the feature of OS 10 just like its ability to run applications: It can run applications, and it can run new hardware, like a digital camera. That is not the

21

problem; the problem is that Apple doesn't want it to run on a specific kind of hardware, namely, computers not manufactured by Apple. And why do they want that? Again, it goes back to the misuse argument: It is not to protect their right in OS 10. Psystar increased its sales in OS 10 because we buy a copy for every computer we sell. It is to protect other proprietary rights; namely, their right to control our customers' use of OS 10, on which computers they use OS 10, and that is not a right that is protected by the Copyright Act.

I would like to use the remainder of my time for any questions the Court has. I can talk about remedies if the Court would like.

THE COURT: What is your view on remedies? MR. CAMARA: Our view on remedies is that the case is moot if the Court agrees with us. If the Court agrees with us on the DMCA claim, then the case is practically moot because that eliminates their claim for statutory damages.

If the Court also agrees with us on the copyright claim, then the case is really moot because Apple has waived its claims for actual damages on all of its other causes of action. Disgorgement is not a remedy for breach of contract. And we have cited some California cases contrary to what Apple asserts. And we think no injunction is appropriate because neither party sells Leopard any more, so there is nothing to enjoin.

22

THE COURT: No party what?

MR. CAMARA: Sells OS 10 Leopard any more. That is the prior version of Mac OS 10 that we both sold at the time this litigation commenced. And then we filed a case in Florida over OS 10 Snow Leopard and over Rebel EFI, which is the stand-alone version of our software.

THE COURT: Where does that case stand right now?

MR. CAMARA: It was served last week, so the answer is due.

THE COURT: Has a motion to transfer been made?

MR. CAMARA: No.

THE COURT: All right. Let me give a short rebuttal --

MR. CAMARA: Thank you, Your Honor.

THE COURT: -- to the other side. And then we'll bring it to a close.

MR. GILLILAND: Thank you, Your Honor. A couple of things. A motion for transfer will be made now that the complaint has been served on us in Florida. That would be due shortly before Thanksgiving.

I'll try to take Mr. Camara's points in order. He talked about copyright misuse: There are two recognized doctrines for copyright misuse. One is unfair competition, antitrust. This Court has already found that there is no antitrust -- viable antitrust allegation here.

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The other would be proof, proof by Psystar that Apple has done something to suppress creativity, that Apple has used its copyrights in some way that would prevent Psystar from developing its own operating system or its own computers. No such evidence has been submitted whatsoever.

Mr. Camara made reference to the Alcatel case from the Fifth Circuit, but he ignored the Triad case from the Ninth Circuit. And this decision is controlled by Triad, which is at 64 F. 3rd 1330.

In the Triad case, the plaintiff's license agreement said you can only use our software together with our hardware. And the Ninth Circuit said, "We conclude that defendant cannot show that it is likely to prevail on it's asserted copyright misuse defense. Triad did not attempt to prohibit Southeastern from developing its own service software to compete with Triad." Precisely the same thing is true here; Apple has done nothing to prevent Psystar from developing its own software.

Secondly, Mr. Camara says that under the DMCA we have to prove infringement; that is not true. Section 1201(a)(1) says that circumventing a technological protection measure which protects access to a copyrighted work is -- does violate the DMCA.

And, of course, Mac OS 10 is a copyrighted work; the technological protection measure protects access to it so that it cannot be copied onto non-Apple Computers, which is one of

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the rights of the copyright holder, the right to prohibit reproduction of its copyrighted work.

Likewise, Judge Patel, in the RealNetworks case, said that there is no fair use defense or anything of that nature to a DMCA violation. The question is, rather, whether the technological protection measure is reasonably related to the right of the copyright owner. And, here, we say it most assuredly is.

With respect to Mr. Camara's argument that Psystar has purchased one copy of Mac OS 10 for each of its computers that it has sold, I say again that they have the burden of proving this if they are going to claim a First-Sale defense or an Essential Step defense.

THE COURT: They cite to your brief --

MR. GILLILAND: They cite --

THE COURT: -- and to your expert. So what do you say to that?

MR. GILLILAND: I will direct the Court to Mr. -- Dr. Kelly's declaration, paragraph 15, Table 2. What Dr. Kelly says is: In the computers that I looked at, the disk that came with them had a different version of Mac OS 10 on it than the computers. It does not say that they sold the disk with the computer, it says specifically the opposite of that.

THE COURT: By that, does Kelly mean the encryption segment is the only difference, or --

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MR. GILLILAND: No, Your Honor. And if that -- if the Court's has the opportunity later to look at Table 2, you'll see that what Dr. Kelly says --

THE COURT: Show it to me. I don't remember that.

MR. GILLILAND: It's right here. I apologize for my markings.

THE COURT: I'll give it back to you.

MR. GILLILAND: It looks like your letter that you used -- you'll see that he says:

On computer A, loaded onto it was version 10.5.2, but, in the box, was version 10.5.0.

THE COURT: I see. All right.

MR. GILLILAND: Maybe I have them reversed, but that is the point.

Beyond that, Exhibit 68 is a letter from a customer saying there is no disk in my box. And, as Mr. Camara pointed out, the records that they produced show substantially fewer purchases of Mac OS 10 DVDs.

THE COURT: What was the page number of Kelly there?

MR. GILLILAND: This is Dr. Kelly's declaration in support of Apple's motion for summary judgment. It's page 6, Table 2, and summarized in his paragraph 15, Your Honor.

THE COURT: All right.

MR. GILLILAND: Last point with respect to derivative works. As I said earlier, it's not necessary to address that question. The Essential Step talks about

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adaptations, doesn't talk about derivative works. If there is an adaptation made, Section 117(b) says it cannot be sold without the permission of the copyright holder, the original copyright holder. There can be no doubt that there is an adaptation going on here because otherwise this would not run on an non-Apple Computer.

Beyond that, we think that it's a false simile being used here: Running a word processor on top of the operating system is an authorized use of the operating the system. Ripping out the boot loader and putting in a new one, or turning off the kernel extensions and putting in your own is not authorized by any license agreement or any agreement between Apple and Psystar.

THE COURT: All right.

MR. GILLILAND: That's all I got, Your Honor. Thank you.

THE COURT: Mr. Camara, I will give you a couple of minutes if you want to have any response.

MR. CAMARA: I'd like to direct my comments at whatever the Court's interested in. I can pick some topics, if --

THE COURT: What do you say to the Kelly thing, the -- Kelly is not quite as expansive as -- you said that you accepted Apple's version that you include a disk with every single Psystar unit sold, but the actual Kelly testimony is

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narrower than that and was really making a different point, that the versions that they sampled were not the same versions that were loaded onto the hard drive.

MR. CAMARA: I have two responses, Your Honor. First, Mr. Gilliland cited a different section of the Kelly report, which is not the section cited in his brief, which is what I quoted to you word for word. So, their brief does say exactly what I said in exactly those words. And the Court can obviously verify that.

THE COURT: Let's get to the bottom of that now.

MR. CAMARA: Sure.

THE COURT: Go get the place that you cited. And I -- I think you said it was page 7, Footnote 38.

MR. CAMARA: Page 7 of Apple's motion for summary judgment.

THE COURT: Footnote 38. So, what do they cite to -- there, for Kelly, there?

MR. CAMARA: Here is page 7 of their motion. This is them talking, the direct quotation:

"As a result, Psystar actually transfers two copies of Mac OS 10 with every computer it sells. Psystar includes both a Mac OS 10 DVD, which was not used in any way during the installation of Mac OS 10, and a hard drive copy of Mac Os 10 on the Psystar computer."

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That is a direct quotation. They stated it in their motion. We didn't contest it. We seek summary judgment based on the facts as they have asserted them. Now they have a footnote --

THE COURT: But that is in their opening motion.

MR. CAMARA: Yes.

THE COURT: When was your opening motion?

MR. CAMARA: In our opening motion, we simply asserted -- frankly, Your Honor, we weren't aware that this was a contested thing, so we have just asserted it. It may be that in some deposition testimony cited by one of the parties; I don't have that citation for the Court right now.

As soon as we got this motion from Apple, we thought it was genuinely not contested because Apple says it right here. I can explain what Kelly is talking about, if the Court would like that.

THE COURT: Well, but you said that this Footnote 38 cited some different part of the Kelly; what does it cite to?

MR. CAMARA: Kelly declaration, paragraph 20; Chung declaration, Exhibit 9 at 87, 9 to 89, 23; 112, 19 to 113, 25; and Exhibit 17 that numbers 55 to 56.

THE COURT: All right.

MR. CAMARA: I must apologize, Your Honor, I don't know quite what all those things are, but, again, our position is they have asserted it; they have cited authority for it, so

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we think we are entitled to take it as an undisputed fact, if we are willing to agree to it, which we are.

THE COURT: All right, time's up. Sorry.

MR. CAMARA: Thank you, Your Honor.

THE COURT: Under submission. Thank you.

MR. GILLILAND: Thank you, Your Honor.

THE COURT: You're welcome.

(Proceedings adjourned at 2:53 p.m.)

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