In the last minutes of December 30, 2008, Apple filed its Opposition to Psystar’s Motion for Leave to Amend its Counterclaims. The first thing that struck me like a ton of bricks when I reviewed the document is that Apple, like Psystar, also used the wrong case caption by failing to include the ten John Doe Defendants! In my mind, it is much more embarrassing for Apple to do so since it was its own request that predicated the addition of these as-yet unnamed Defendants. As I do with Psystar, I put Apple on notice of this error. I expect, unlike Psystar, we will immediately see a motion to correct scrivener’s error. Normally I would have expected one within hours of my notification, but it is likely that its attorneys’ offices are closed until Monday. There were also some minor grammatical errors that I will hold off on pointing out here, giving them a similar amount of time that I gave Psystar before micro-analyzing their grammar.

A copy of this filing may be found here.

So what do I think of the arguments? My short opinion is that Apple nailed all the issues perfectly. Several of the deficiencies I had previously noted were used, and I learned several new rules of law if Apple’s filing is correct.

Brief Background

On August 28, 2008, Psystar filed a Counterclaim which was dismissed without prejudice by the Court on November 18, 2008. Subsequently, on December 2, 2008, Apple’s Amended Complaint was deemed filed giving Psystar another bite at the apple (pun intended) in its second Answer. Further, on December 8, 2008, Psystar moved for leave to file its First Amended Counterclaim. Due to the holidays, the hearing on this motion has been moved from January 15, 2009 to January 22, 2009. Further, the deadlines for Apple to file its Opposition to Psystar’s Motion has been moved to December 31, 2009, and Psystar’s Reply to Apple’s Opposition has been moved to January 7, 2009. The case is currently scheduled for a November 2009, trial date.

Of note, Psystar’s pending Amended Counterclaim differs substantially in nature from its prior—now dismissed—Counterclaim in that it is a request for declaratory relief. Generally speaking (a qualified and licensed attorney would have to give authoritative specifics), in a declaratory action, the facts are not in dispute; but rather the claim is made that at least one of the parties is in doubt as to its rights and duties and is requesting guidance from the Court.

This brief background is repeated nearly in full from one of my prior articles. As it turns out, my suspicion that the fact that this was a declaratory action did turn out to be significant.

Explanation of Some Terminology

In a basic lawsuit, a complaint is filed by the plaintiff, and an answer is filed by the defendant. The answer will address each of the plaintiff’s allegations by number and may assert some affirmative defenses. Affirmative defenses are allegations which, if true, may serve to nullify in part or in full the allegations made by the plaintiff. The burden to prove the allegations of the complaint is upon the plaintiff. However, the burden to prove any affirmative defenses is on the defendant. Unless local rules provide otherwise, the plaintiff does not have to respond to the affirmative defenses as they are presumed to be denied.

Remember that the standard for proof in a civil matter is not “beyond a reasonable doubt” as it is in a criminal case, but “by a preponderance of the evidence,” which is a lesser burden. I have heard attorneys explain this to juries as requiring one side to prove its case by as little as a fifty-one percent probability. There is another civil standard of “clear and convincing evidence” that is a standard that falls somewhere between the two. As far as I can tell, California holds to the “preponderance of the evidence” standard, but a properly licensed attorney would need to verify that.

In this present case, Psystar asserted forty-two affirmative defenses in its Answer to Apple’s Amended Complaint.

Summary of Apple’s Argument

In analyzing this filing, I have found that Apple has made clear and concise statements that aptly summarize its arguments. Since that is not a talent I share, I will quote directly from its Opposition where possible to give the reader the Cliff’s Notes version.

In its Introduction and Factual Background, Apple succinctly summarized the main thrust of its argument (pages 2–3):

“… Psystar has taken its previously asserted affirmative defense of copyright misuse and has improperly recast it as the basis for four amended counterclaims. Yet, the law is clear: copyright misuse is an affirmative defense — not a cause of action — and cannot be asserted as a counterclaim for declaratory relief. Nor should the Court allow Psystar to assert unfair competition counterclaims that are entirely derivative of its two improper copyright misuse claims.”

and,

“… this Court granted Apple’s motion [to dismiss], holding that ‘Psystar’s claim that Mac OS-compatible computer hardware systems constitute a distinct submarket or aftermarket contravenes the pertinent legal standards’ … . In its Order [dismissing Psystar’s Counterclaims] the Court gave Psystar leave to amend those counterclaims but required that Psystar file a motion to explain how it had overcome the pleading insufficiencies set forth in the Court’s Order. [omitted citation] The Court further stated it would dismiss all inadequately pled claims without further leave to amend.”

Significantly, in its proposed Amended Counterclaim, Psystar does not assert any federal or state antitrust counterclaims. Rather than attempt to fix the problems with its original pleadings, as the Court’s Order allowed, Psystar has abandoned its antitrust theories entirely and instead repackaged its affirmative defense of copyright misuse as two new counterclaims for misuse and two corresponding derivative state unfair competition claims.”

Although I did not state it as elegantly as Apple, this mirrors in part what I said in my last article:

Psystar talks out of both sides of its mouth in its Proposed First Amended Counterclaim insisting that its new arguments do not require that it prove antitrust elements yet continually assumes and alleges the presence of antitrust elements, including separate and subsidiary markets, which have already been rejected by the Court.

As a sidenote, Apple has ceased using the term End User Licensing Agreement (EULA) in favour of the actual name of its contract: Mac OS X Software License Agreement (SLA).

Psystar’s Claims of Copyright Misuse

Even though the DMCA is brought up multiple times by Psystar, Apple points out that “there is no separate defense of ‘DMCA Misuse’ as Psystar admits.” Apple goes on to cite case law supporting its assertion that copyright misuse is only valid as an affirmative defense and has no place in a declaratory action, including one case, MGM Studios Inc. v. Grokster, Ltd., 269 F. Supp. 2d 1213, 1226 (C.D. Cal. 2003), claiming that the facts are “virtually identical” to this present action. Apple quoted the MGM court as follows:

“Copyright misuse has already been asserted by Sharman as an affirmative defense, and the Court will reach all aspects of that issue if necessary. Separately litigating that defense in a declaratory posture would not serve the purposes of declaratory relief, such as clarifying and settling the legal relations of the parties, or affording a declaratory plaintiff relief from the ‘uncertainty, insecurity, and controversy giving rise to the proceeding.’”

I was amused by Apple’s response to some of the over-the-top language used by Psystar:

“Simply describing alleged copyright misuse as ‘brazen’ and seeking declaratory relief, as Psystar has done here, does not convert the legal principle from an affirmative defense to a counterclaim.”

In addition to alleging that Psystar is wrongly attempting to convert an affirmative defense into a counterclaim, Apple has observed the contradictory nature of Psystar’s own pleadings (pages 5–10):

“Not only is there no basis for Psystar’s purported copyright misuse counterclaims, Psystar fails to allege a viable misuse defense in light of its own inconsistent allegations. As acknowledged by this Court and Psystar in its prior briefs, Apple is well within its rights to determine whether, how or by whom its software is reproduced and how it is to be licensed, distributed or used. See Order, at 14 (”[H]ere Apple asks its customers to purchase Mac OS knowing that it is to be used only with Apple computers (Compl. ¶ 28). It is certainly entitled to do so.“) [case law citation omitted] In the Ninth Circuit, it is not copyright misuse to limit the uses of licensed software where one’s competitors are free to develop competing software and customers are free to purchase it. Psystar’s pleadings are unambiguous in showing competition among numerous operating systems, as well as among sellers of computer hardware systems. Accordingly, these counterclaims must fail.”

[sarcasm mode on]But doesn’t Apple realize that Psystar has admitted that it is incompetent to develop something on its own, and so the law must force Apple to let them loot its work? [/sarcasm mode off]

Although that statement was said in sarcasm, it is based in truth. I repeat Psystar’s very own words:

PSYSTAR is informed and believes, and thereon alleges, that there are substantial barriers to entry in the market for operating systems, including the Mac OS market. It is prohibitively difficult, time-consuming, and expensive to create any operating system [missing comma] much less one that would offer substantially identical functionality, security, stability, and other aspects offered by the Mac OS. In general, a new operating system manufacturer faces an almost insurmountable barrier to successful entry to the operating system market. Those barriers would be raised even higher with respect to an operating system that would directly compete with the Mac OS.

(source)

Apple further noted that Psystar’s claim that Apple frivolously asserted a DMCA count is contradicted by its own attorney’s statement at the hearing for the Motion to Dismiss. This now explains why Apple had previously stated that it was amending its Complaint to include this new claim stating that it was based on new information. This new information is apparently Colby Springer’s own representations to the Court that Apple has embedded code in OS X to prevent its use on non-Apple labeled hardware and that Psystar has developed a means to neutralize this code. I find it interesting that it was represented that this override “means” was developed by Psystar when it is my understanding that it is nothing more than the code developed by the OSx86 Project. Is Psystar taking credit for someone else’s work? If Psystar is not using the OSx86 Project’s code, why did they add a new restriction on their work requiring that it be used only for non-commercial purposes?

Redistribution and use in binary form for direct or indirect commercial purposes, with or without modification, is stricktly [sic] forbidden.

Apple goes on to note that Psystar is relying upon a single case (Alcatel U.S.A., INc. v. DGI Tech., Inc., 166 F.3d 772 (5th Cir. 1999)) in another Circuit which contains findings that have been expressly rejected by the Ninth Circuit in multiple cases. Further, Apple alleges that this single case is clearly factually distinguishable from the present action. In the Alcatel case, DSC was attempting to control hardware for which it did not have copyrights which effectively prevented anyone from manufacturing a competing piece of hardware. In this case, Apple is not attempting to control hardware but rather the use of its properly copyrighted software for which there are multiple viable competitive alternatives. (I once again call for those on the Apple web who falsely—though innocently—reported that Psystar was benighted enough to be claiming that Apple did not copyright OS X to publish corrective pieces.) Psystar’s premise smuggles in its theory of certain distinct markets which was already rejected by the Court.

Psystar’s Claims of Unfair/Unlawful Business Practice

Apple asserts that Psystar has done nothing to demonstrate that it has overcome the Court’s objections to these same claims pled in its previous —now dismissed—Counterclaim.

Specifically (page 9):

“In fact, the proposed Section 17200 counterclaims suffer the same defects as before: a complete lack of support in law or in fact.”

and (pages 9–10),

“Moreover, Psystar’s Section 17200 claims are wholly derivative of its copyright misuse claims, and therefore must fail for the same reasons as the proposed misuse counterclaims discussed supra. Psystar has predicated every specific allegation of conduct in its state law counterclaims on the alleged ‘misuse of [Apple’s] copyrights.”"

Restated in English, if Psystar fails on its claim of copyright misuse as an issue appropriate for declaratory judgment; its third and fourth counterclaims must also fail as they depend upon the success of the first two. Apple further addresses Psystar’s claim that Apple somehow waived its rights by waiting to file suit or enter into licensing discussions by pointing to case law demonstrating that an allegation of laches is not a valid basis for a claim of violation of Section 17200 but rather is properly pled as an affirmative defense.

Psystar’s Claims of Violations of the “Spirit” of Antitrust Law Which has Caused Psystar Harm

Personally, I think this line of argumentation was a poor tactical decision on Psystar’s part. The Court had already rejected its antitrust arguments, and this seems to be an obviously transparent attempt to paint a white horse and call it a zebra. Apple points to a ruling of the California Supreme Court (page 11):

“When a plaintiff who claims to have suffered injury from a direct competitor’s ‘unfair’ act or practice invokes section 17200, the word ‘unfair’ in that section means conduct that threatens an incipient violation of an antitrust law or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition.

Apple further points out that Psystar regurgitates previously rejected language and arguments from its prior—now dismissed—Counterclaim alleging tying, leveraging, and monopoly.

Conclusion

Please remember that this filing is Apple’s Opposition to Psystar’s Motion for Leave to Amend and not its opposition to the proposed First Amended Counterclaim itself as that document is not officially a pleading in this case until such time as the Court grants permission for filing. If the Court does allow it to be filed, I expect that we will see another Motion to Dismiss filed by Apple. My personal opinion, with the caveats that I have not yet read the pertinent case law and am accepting Apple’s representations of same at face value and that I am NOT a lawyer, is that Apple has made a strong case for denial of Psystar’s Motion for Leave. However, I also keep in mind the proverb:

“He who pleads his cause first seems right; until another comes and questions him.” (Proverbs 18:17)