On January 27, 2009, Judge Alsup heard oral arguments on Psystar’s Motion for Leave to Amend. The oral arguments were based not only on that motion, but also on Apple’s Reply in Opposition and Psystar’s Response to Apple’s Opposition. The pertinent filings may be found as follows:

Psystar Corporation’s Notice of and Motion for Leave to Amend

Apple Inc.’s Opposition to Psystar Corporation’s Motion for Leave to Amend its Counterclaims

Psystar Corporation’s Reply to Apple Inc. and in Support of Psystar’s Motion for Leave to Amend

The entire case docket can be found at Justia.

As part of World of Apple’s commitment to give its readers the most up-to-date news possible on this case, I am now in possession of the actual word-for-word transcript of the hearing and thus can provide a summary. Rather than following the order of the statements made in the transcript, which can be a bit chaotic, I will separate the main disputes into their own sections and give summaries of the comments/arguments made by Psystar, Apple, and the Court on those particular points. If I have any commentary, I will offer it at the end of that section before moving on. Hopefully this will make this material more understandable to those outside of the legal field. Remember to keep in mind while reading that I am NOT an attorney, and these are merely my personal opinions. Actual legal opinions would have to be given by a properly licensed and qualified attorney.

As background, I had previously authored a four-part series discussing the most important issues that were to be decided as a result of this hearing. For reference, here are links to those prior pieces:

Part One
Part Two
Part Three
Part Four

Issue: Did Psystar Meet the Requirements of the Court’s Prior Order Dismissing Their First Counterclaims?

On November 18, 2008, the Court dismissed without prejudice Psystar’s Counterclaims with the following instructions:

Psystar may move for leave to amend within twenty calendar days of the date of entry of this order. Any such motion should be accompanied by a proposed pleading and the motion should explain why the foregoing problems are overcome by the proposed pleading.

Psystar’s Argument:

Psystar first argued for the principle that motions to amend are generally favoured by courts and are denied based upon at least one of four factors, only one of which Apple has alleged: futility of amendment. The Court was then advised briefly of the four baseses for its counterclaims which Psystar contends do not duplicate or depend upon the previously dismissed theories. Their argument was summed up thusly (quotes are directly from the transcript):

So the issues that led to the dismissal of the prior cross-complaint, namely market definition, et cetera, none of those issues are present here. Henceforth, we have overcome the Court’s Order or we’re [sic] addressed the Court’s issue with respect to how this present complaint overcomes the motion to dismiss previously.

Apple’s Argument:

Apple reminded the Court of its prior dismissal of Psystar’s theory of separate markets and argued that Psystar is basically making a very similar argument under a different name. Apple maintains that the very same issues remain; namely, whether or not there can be a claim of leveraging (which is basically the type of copyright abuse that Psystar is claiming) without a determination of relevant markets and market power. Thus, Apple alleges that Psystar failed to make arguments which overcame the Court’s prior Order dismissing their arguments on market theory, among other factors. Here is the entirety of Apple’s oral argument on this issue (after Judge Alsup commented that Psystar has brought forward a new theory):

So essentially what Psystar has done is taken exactly the same pleading and said: “Well, if it’s not antitrust violation, then we’re going to claim that this is copyright misuse.” At some point in this case we will have to resolve the question of whether or not in the course of intellectual property rights there could be a claim of leveraging without the definition of a relevant market and without any kind of market power. That issue will be resolved here, but it can be resolved in the course of the copyright misuse defense. And there’s no reason for the Court to have to resolve it now. Apple believes that these counterclaims, if asserted, would be futile, because we have the right, as the copyright holder, to restrict who copies our software.

Judge’s Comments:

The discussion quickly delved into the issues of the definition of and support for legitimate copyright misuse allegations, so there was very little judicial commentary on this particular issue. However, Judge Alsup did flatly state to Attorney Gilliland that Psystar has alleged a new theory.

Editorial Commentary:

As Judge Alsup seemed to affirm that he was satisfied that this was a different theory (and thus apparently allowing a broad permissive swath in his prior Order), it is likely that he will reject Apple’s futility of amendment argument. The burden to assert futility is pretty high as it is basically asking the court to not even bother considering proof and arguments as no relevant material can possibly be shown that would not be overcome by dismissal or summary judgment. Initially, after reviewing this part of the hearing, the only portion of Psystar’s Motion to Amend which I believed may be denied under this argument were the two unfair competition counts discussed below. In isolation, my thoughts would remain the same. However, Apple made a strong argument in the next portion—though more procedural in nature—that this type of action is simply not a legally recognized remedy given the procedural history of this case. If Apple prevails on that particular point, the futility argument would enter through the back door as it would be futile to attempt to introduce a cause of action which is not recognized by law. In my prior four-part discussion of the issues to be argued at this hearing, I did not address this issue, so I cannot compare any prior thoughts to what was actually argued. It is of interest to note, however, that the Judge may be between a rock and a hard place inasmuch he already ruled that Apple had the right to limit its software in the way that it has. Here is the Court’s direct ruling:

…here Apple asks its customers to purchase Mac OS knowing that it is to be used only with Apple computers. It is certainly entitled to do so.… Psystar also asks the Court to create a non-existent market. This order declines to do so.

If that opinion remains solid, then Apple is correct; these counterclaims would be futile. It seems as if the Judge will have to reverse himself, nuance his prior comments, or grant Apple’s point.

Issue: Can Psystar Plead Copyright Misuse in Both its Affirmative Defenses and in a Declaratory Action?

Brief Definitions: An affirmative defense is an allegation that a party raises to defend themselves in full or in part against the offensive allegations against them. For example, in a libel case, a defendant may use the affirmative defense of asserting that the alleged libelous statement was true and that truth is an absolute defense to libel. So in this case, Apple alleged Psystar had infringed upon its copyrights. Psystar claims that Apple has misused its copyrights as a defense to that allegation.

A declaratory action is an offensive pleading. It’s purpose is to proactively ask a court to rule on an issue of law to give guidance in an area where the parties are unclear as to their rights and obligations. So the question here in more folksy terms is whether or not Psystar can double-dip and claim the same allegation in both a defensive and an offensive posture. This obviously is not an extensive definition of these two concepts, but it is enough to understand what is in dispute.

Psystar’s Argument:

Psystar acknowledged that Apple is relying upon three cases in support of its position, but argues that they are not applicable to the present matter.

1. Altera Corp. v. Clear Logic, Inc., 424 F.3d. 1079 (9th Cir. 2005): Psystar noted that although that court did refer to copyright misuse as a defense, the case is completely factually distinguishable from this case since there were no offensive allegations of copyright infringement.

2. MGM Studios Inc. v. Grokster, Ltd., 269 F. Supp. 2d 1213 (C.D. 2003) and Ticketmaster L.L.C. v. RMG Technologies, Inc., 536 F. Supp 1191 (C.D. Cal. 2008): Psystar conceded that these respective courts did deny the allowance of copyright misuse in the context of declaratory actions. However, Psystar contended that neither court held to a “per se rule prohibiting copyright misuse [in a declaratory action].” Psystar claimed that MGM Studios dealt with issues of damages with regard to copyright misuse and that Ticketmaster didn’t contain any analysis of the issue. Implicit in this line of argumentation is the fact that Psystar’s First Amended Counterclaims do not contain prayers for monetary damages apart from attorneys’ fees and costs.

Apple’s Argument:

Apple’s arguments are contained in its responses to the Judge’s comments below.

Judge’s Comments to Psystar:

Judge Alsup cut right to the chase and asked Psystar what additional relief or advantage would be gained by the declaratory action that was not already covered by its affirmative defenses. Further, the Judge inquired as to the potential impact of a successful declaratory action; specifically, would such a decision impact this case alone or would it render Apple’s copyrights unenforceable as against the whole world.

Psystar’s Responses to the Judge’s Comments:

Psystar responded that there will be products in controversy that are not yet in existence; therefore, a declaratory ruling would give Psystar direction in their continuing research and development. Psystar then argued that because of these future plans of Psystar, the cases that speak of copyright misuse as a preemptive action support their points. Further, Psystar conceded that such a ruling would extend to the whole world if the factual baseses were similar to this case.

Judge’s Comments to Apple:

Judge Alsup inquired what the potential harm was if the duplication of the allegation was allowed. Additionally, he noted (without citing any specific cases by name) that he has observed that such duplicative allegations in both defensive and offensive postures are routinely observed in patent cases. Judge Alsup reiterated his belief that there are patent cases dealing with this issue after Apple asserted that they were unable to find any such cases.

Apple’s Responses to the Judge’s Comments:

Apple pointed out that since copyright misuse has already been alleged, the issue is already ripe between the parties, and more importantly, it is limited to Psystar and Apple and not all of known civilization. Apple acknowledged the Judge’s point with regards to patent misuse cases but asserted that there are no patent cases in which this specific issue was addressed (which basically nullified the prior acknowledgment). In other words, Apple was unable to find a patent misuse case which answered the question: If you’ve already asserted this [patent misuse] as an affirmative defense can you also assert it as a declaratory relief action? In light of the Judge’s insistence that there were such cases, Apple countered that those cases involved fact patterns of fraud on the patent office. Apple furthered countered that while there are no patent cases that directly answer this question, there are two California cases (MGM and Ticketmaster) which do in fact directly answer this question in relation to copyright misuse with procedural postures which are virtually identical to this case, including a dismissal of antitrust counterclaims and attempts to defensively and offensively claim copyright misuse. The following portion is a good summary of Apple’s argument:

In both of those cases the defendant had also pleaded patent [sic—transcriptionist error or accidental misstatement by Attorney Gilliand as the cases involve copyright] misuse as a defense. In both of those cases they then tried to plead copyright misuse as a counterclaim. And in both of those cases the court said:

“That’s unnecessary, improper use of the declaratory judgment act and needlessly complicates an already complex case.”

The issue as between Psystar and Apple is already joined, and we don’t need to add another counterclaim to say the same thing over again. The Ticketmaster case called them:

“Duplicative and a needless waste of judicial resources.”

And the Grokster case said:

“The declaratory judgement act is not intended to provide a forum for establishing the legal relations between declaratory defendants and all the world the misuse issue is already here in our case, and that’s sufficient.”

Editorial Commentary:

The most recent case cited was the 2005 Altera case which was in support of Apple’s position. The Altera case specifically stated that the doctrine of copyright misuse has no place “beyond ‘its logical place as a defense to a claim of copyright infringement.’” Psystar attempted to deflect the force of this statement by claiming that it appeared in a mere recital of the history of the case. I believe this deflection is specious as the court was hearing a case on appeal and would not have repeated without comment a principle of law that was blatantly incorrect. The Altera court gave also gave background information on the creation of the doctrine of copyright misuse and specifically stated that it was defined as a defense against an offensive claim of copyright infringement. While Psystar is correct that the facts are distinguishable, it appears to me that the distinctions do not affect the basic legal principles relied upon by Apple. In fact, the Altera case contains this specific quote:

The intent of the parties is the governing notion of contract law. Altera’s intent is clear from the language of its license agreement: Altera sought to prevent competitors from benefiting from its software. The district court correctly gave effect to the terms of the contract and the intent of the parties and we affirm the district court’s denial of Clear Logic’s motion for summary judgment on that issue.

We must remember that the copyright infringement case does not appear in isolation and arguably does not even primarily involve the installation of OS X on non-Apple-labeled hardware, but Psystar’s modification of Apple’s code in order to enable it to do so. The installation issue was addressed primarily in breach of contract allegations.

I note that Psystar steered clear of citing Open Source Yoga Unity v. Choudbhury, 2005 WL 756558 (N.D. Cal. April 1, 2005) which it previously seemed to rely pretty heavily upon since it attached the case as an exhibit to one of its recent filings regarding the proposed amended counterclaims. I believe that this may be due to the fact that the Open Source court specifically stated that copyright misuse exists solely as a defense to copyright infringement but goes on to carve out a potential exception when a declaratory action is filed preemptively in light of a reasonable expectation of litigation. Psystar very cleverly attempted to “fit” into this exception by claiming that they are preemptively asking for guidance on future products. I believe this also is specious and would render the specific principle meaningless as any party could claim that they have future business plans that could be affected. Further, Apple’s Amended Complaint has already addressed and pro-actively included Psystar’s future product line that it has publicized (see paragraph 15 of Apple’s Amended Complaint).

In MGM, the court specifically rejected a contention that a duplicative copyright misuse allegation in a declaratory posture would serve an important public purpose in notifying the rest of the world that the plaintiff’s conduct was improper and unenforceable. The court stated that this was simply an attempt to have a universal decision made that is independent of whether or not this defendant prevailed upon its own specific affirmative defense of copyright misuse. That is precisely what Psystar is attempting to do here as explicitly stated in pages 5 through 6 of its Reply in Opposition:

These unsupported arguments are nothing more than window dressing for Apple’s true concern—the nuclear fallout from a declaratory judgment as to [the] unenforceability [sic] of Apple’s copyrights. such a judgment would ‘have the force and effect of a final judgment’ not only with respect to Psystar but to other parties attempting to compete alongside Apple.

I do not see how Psystar’s intent could have been made any plainer, and as such, appears to be in direct opposition to the MGM precedent.

The Ticketmaster case is equally blunt and damaging to Psystar’s arguments, even citing Psystar’s primary case (Practice Mgmnt., to be discussed later) as well as Apple’s primary cases (Altera and MGM) in support of this position:

Ticketmaster argues that “copyright misuse” is an affirmative defense to a claim for copyright infringement, and does not support an independent claim for damages. The Court agrees. Altera Corp. v. Clear Logic, Inc., 424 F.3d. 1079, 1090 (9th Cir. 2005) (affirming district court’s refusal to “extend[ ] the doctrine of copyright misuse beyond ‘its logical place as a defense to a claim of copyright infringement’ “); Practice Mgmt. Info. Corp. v. American Medical Ass’n., 121 F.3d 516, 520 (9th Cir. 1997) (adopting rule that “misuse is a defense to copyright infringement”); Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 269 F. Supp. 2d 1213, 1225 (C.D. 2003) (noting that, as even defendant conceded, “copyright misuse cannot found a claim for damages”). Accordingly, Ticketmaster’s motion to dismiss is hereby GRANTED as to RMG’s Second Counterclaim for “Misuse of Copyright.” And as this holding is not based on the way in which this claim was pled, but on the fact that no such claim can ever be pled, the dismissal of this claim is WITH PREJUDICE, as no possible amendment could save it.

This issue seems to highly in Apple’s favour. It further appears to falsify Psystar’s assertion that the Ticketmaster case contained no analysis. The above-quoted paragraph certainly appears to be an analysis.

Issue: Can Psystar Plead Violations of Unfair Competition Under Section 17200 of the California Business and Professions Code?

Although these counterclaims appear last in the actual filing, I am addressing them out of order in this article as the hearing did not conclude with this issue. In fact, it was addressed only briefly.

Psystar’s Argument:

With the exception of a single mention of the existence of these counterclaims, Psystar did not use any of its time to argue these points. Arguments could be said to be implied, however, in its arguments for a proper pleading of copyright misuse.

Apple’s Argument:

Apple asserted that the two California unfair competition counterclaims are basically the same claim repeated twice, and the Court has already ruled that Apple did not violate these codes.

Editorial Commentary:

These two counterclaims are entirely dependent upon the copyright misuse counterclaim (though the converse is not true), thus it is understandable that not much time was spent on them. In fact I suspect that Psystar doesn’t expect these to stand.

Issue: Did Psystar Sufficiently Plead a Basis for Copyright Misuse Allegations?

Psystar’s Argument:

As noted above, Psystar relies heavily upon Practice Mgmt. Info. Corp. v. American Medical Ass’n., 121 F.3d 516 (9th Cir. 1997) for its justification of the existence of copyright misuse theory (which Apple never denied,) but more importantly, for its definition of copyright misuse as an attempt to expand the limited monopoly granted to the copyright holder into areas that are not covered by the copyright without regard to issues of market or market power. Specifically, Psystar argues that Apple has used its software copyrights (and implies that it may later dispute that OS X, in at least its “expressive elements,” can even meet the requirements of a work that is eligible to be copyrighted) to control hardware which is outside the scope of the software copyrights and itself is not a copyrightable work. It is Psystar’s position that copyright only covers expression, and that Apple is attempting to combine its copyrights with its software license and its newly alleged DMCA claim to control hardware which is outside of the scope of the limited monopoly rights on its software.

Psystar further argues that Apple’s actions are in violation of fair use (without explaining how), the first sale doctrine, and Section 117 of the Copyright Code; and as such, is eliminating rights that are granted to purchasers of copyrighted works. Additionally, Psystar takes particular care to note that these claims do not require proof of antitrust elements, specifically market issues.

Apple’s Argument:

Apple stated in summary:

We have the right to restrict who distributes our software. If this had been a novel, we could only license out the right to publish it in a hard copy book. And we could reserve to ourselves the digital rights for an audio book, for example. Such restrictive licensing occurs frequently and is not unlawful in the absence of market power.

Additionally, Apple addressed Psystar’s primary case (Practice Mgmnt.) by pointing out significant factual differences. Specifically, in Practice Mgmnt., the licensee of copyrighted medical codes was forbidden to use a competitor’s medical codes in any publication produced by the health organization. In the present case, Apple’s licensing agreement does not forbid the use of any other operating system nor the development of any competing operating system which facts would be required for it fall under the precedent of Practice Mgmnt.

Judge’s Comments to Apple:

Judge Alsup notes that Psystar does allege that Apple has market power.

Apple’s Responses to the Judge’s Comments:

Apple pointed out that the Court has already previously ruled that there cannot be a market limited solely to Apple, and in the context of the entire personal computer market, Apple does not have the requisite market power. At one point Apple appears to imply that this case might be one of first impression (i.e., an issue which has not yet been addressed by an appropriate court) with regards to the issue of whether the type/kind of copyright misuse alleged in this case can even exist without corresponding market power since it is a thinly disguised leveraging allegation which would fall under antitrust law.

In addition to the issue of market power, Apple pointed out that its licensing agreement does not control hardware at all, but only the use of the software, much in the same way that a publisher may publish a book only in hardcover without danger of being accused of attempting to expand its copyright into the control of the binding market. In support, Apple cited to Triad Systems Corp. v. Southeastern Express Co., 64 F.3d 1330 (9th Cir 1995), in which software was limited by its copyright owner for use only on Triad’s computer hardware, and the court ruled that this was not copyright misuse.

Psystar’s Rebuttal:

Psystar once again emphasized that case law indicates that market power and antitrust elements need not be proven in a copyright misuse “defense.” [I put defense in quotes because Psystar is not arguing for a defensive claim of copyright misuse but an offensive one.]

Judge’s Comments to Psystar with Psystar’s Interaction:

Judge Alsup strongly questioned Psystar as to its position that Apple does not have the right to control its licenses. Psystar responded by falling back to the concept of the limited monopoly grants of copyright works which are sold, though the Judge was specifically dealing with licensure. When pressed on licensure, Psystar responded that Apple is using its license to leverage its copyright to bring in its own hardware. The Judge conceded the leveraging point but proceeded to ask Psystar to answer two hypothetical scenarios:

Scenario One: Apple writes software and limits its use to its own internal employees. Psystar asks for a license, and Apple refuses. How is that copyright abuse?

Psystar simply responded that the situation is not the same as the one at hand, to which the Judge agreed, and noted that they both would agree that there would be no copyright misuse in that scenario.

Scenario Two: Apple writes software and chooses to sell it only to people who buy Apple computers—or more specifically license it to be used only with their computers. While this may be leveraging, the Judge inquired how this is any different than the first scenario.

At this time Psystar pointed to the fact that Apple will sell anyone a boxed copy of OS X. It is sitting on retail shelves, and anyone can come in and purchase it. Psystar argues that this factual scenario results in the elimination of certain rights that Apple previously held due to the first sale doctrine. Judge Alsup then—surprisingly—asked what the issue was if Psystar is allowed to buy the software as if he were suddenly unclear as to the nature of the dispute. Psystar once again explained their position with regards to an unlawful expansion of copyright privileges.

Editorial Commentary:

I must admit that I became concerned with this portion of the arguments as the Court seemed to be genuinely confused over basic computer terminology and knowledge. The Judge stated that he has never heard of OS X but has heard of Apple. He further expressed confusion as to what copyright was alleged as being infringed, at one point stating that he thought it was the use of word “Apple,” which is not anywhere close to what is at issue. Additionally, later comments of the Judge seemed to imply that he believed that Apple was disputing the validity of the very idea of copyright misuse, which is not the case.

There is a very important and nuanced point here that cannot be missed. Psystar is relying upon a case (at least in the oral arguments) in which a licensor restricted the licensee from using an equivalent category of competing product. That is not the case here. Practice Mgmnt. compared like kind works (medical billings codes) to like kind works (a competitor’s medical billing codes). At the risk of writing a bad pun, Practice Mgmnt. was comparing apples to apples. In order for this case to be analogous to Apple’s license, the licensing agreement for OS X (an operating system) would have to place restrictions upon the use of a product of like kind (a competitor’s operating system). It simply isn’t applicable in my opinion, but I fear this distinction may be lost in the shuffle. It took a bit of digestion for me to understand Apple’s point, but once grasped, it is blindingly obvious. Apple has placed no restriction on its hardware. A consumer can buy Apple hardware and use it to run competing operating systems. Apple has placed no restriction on the use of competing software, in fact, competing software can be ran alongside OS X.

Some of my concerns as to possible confusion on the part of the Court could be due to the nature of reading a transcript where only bare words, and sometimes only sentence fragments, are recorded without the benefit of non-verbal cues. Additionally, it appears that the Court was rushed for time as an attorney in the next case scheduled for hearing had arrived, so this hearing had to be wrapped up somewhat abruptly. I really would have liked Apple to have had the opportunity to drive home the above-referenced nuances as I don’t think they were made clear in oral arguments; however, they are made very clear in Apple’s written opposition.

The Court concluded the hearing as follows:

I don’t the answer to this. I’ll have to study it more, so I have to bring it to a close. It’s under submission.

For a discussion as to what is meant by “under submission,” please read my earlier article on that issue.

Editorial Conclusory Remarks

So what will this pending decision mean for the parties? If the Court rules against Psystar and disallows the filing of the amended complaint, it does not mean that Psystar has lost its defense of copyright misuse as it is still preserved in its affirmative defenses. It will mean that they will have lost their strategic position of holding the potential threat of a global determination of un-enforceability of Apple’s software copyrights which Psystar describes on the scale of “nuclear fallout.” It has become clear to me that this is the primary, if not the sole, reason that this route was even chosen. Obviously, if the Court allows the filing of the amended counterclaims, this additional threat level pressure will be placed on Apple. In short, these issues are more strategic at this point rather than dispositive (in my lay opinion).

Due to the limited time allotted for hearings, the attorneys have to pick and choose what arguments they wish to raise. There are several points that I would have loved to have been addressed; namely, Psystar’s incongruous arguments that Apple did not employ technological protective measures, and Psystar’s crafty attempts to skirt around the licensing issue in its written response through the “creative” use of strategically placed ellipsises. In comparing my thoughts anticipating the arguments of counsel, I was pretty much right on target with two exceptions. First, I gave greater detail than Apple actually did to many of the issues. This was undoubtedly due to the realities of limited time and difficult choices to be made as to what material to present orally. The second exception is far more interesting. Psystar’s argument that its declaratory counterclaims are in fact preemptive as there are future products planned came completely out of the blue in my world; it wasn’t even on the edge of a potential thought.

As an aside I note that the court reporter’s transcript caption also does not list the ten John Doe defendants. It is as if they were added and then fell off the face of the earth without any definitive identification of who they were other than the secondhand information that I have from my source close to Psystar who said that they were definitely not the OSx86 project developers. I take that information with a grain of salt as my source is not particularly sophisticated in the technological issues in this case.

Correction to previous article: The mediation was previously scheduled for the end of January, but the parties have since stipulated to conduct mediation on February 18, 2009. If my source for Psystar is correct, and the Judge promised a ruling within ten to twelve days, this would nullify my prior thought that the Judge might be holding off on ruling in order to give the parties motivation to settle. Now that I have the transcript, the reason (at least in part) for any delay in ruling is known: the Judge said that he needed to research the case law. I note that the only source for the information that a ruling could be expected within that time frame is from someone close to Psystar President Rudy Pedraza who received the information from Mr. Pedraza. Since the transcript did not record any promise of a decision time-frame, I went back to my source and discovered that Psystar’s attorneys had advised Psystar to expect a ruling within that time frame based upon the usual pattern and practice of that Judge and not based upon any overt commitment from him. So in short, he may rule tomorrow, he may not rule for 120 days, after which the parties may request a ruling. This Judge does seem to be very quick in docket turnaround, so I would expect a fairly quick ruling, but would not be terribly surprised if it is delayed until after the mediation.

Note: Although this linked article is couched within the framework of the European Union, it makes some compelling points regarding the purpose of prohibiting leveraging in some cases and not in others. Specifically:

Second, in markets where innovation and investment are particularly important, consumers may place a higher value on receiving new or better services than on the price of these services. In these markets, most of the value to consumers is created by maintaining the firm’s incentives to innovate and invest. These benefits may not be immediate, but may only unfold and be realized in the longer run. When leveraging takes place in such markets, intervention by a regulator often means imposing remedies that may, at best, alter, distort, or reduce, and at worst, eliminate the incentives to invest and innovate. In these cases, the risks and costs of intervening, when the authority should not, could be more serious than in other cases.

Harm and benefits to the consumer and competition must be viewed in the long-term to fulfill the spirit of these regulations. Similar wording has appeared in discussions of similar American jurisprudence.

*minor grammatical corrections made after publication