Software Licenses (and Apple’s Dominance) Are Reinforced by Ninth Circuit
IP Business Litigation Lawyer
The Ninth Circuit recently reaffirmed a company’s ability to use a license agreement to significantly restrict customers’ use of its software.
In Apple, Inc. v. Pystar Corporation (filed September 28, 2011), Apple sued Pystar Corp., a small computer company selling its own brand of “Open Computers” running Apple’s proprietary operating system.
Apple claimed Pystar would purchase Apple’s software, copy it onto its Open Computer, and sell the computer to purchasers who wanted to run Apple’s software, but not pay Apple computer prices. Pystar would also include an unopened copy of Apple’s software with the computer to show that it purchased the software that was copied onto its computers.
Apple claimed Pystar infringed its copyright by copying Apple’s software onto unauthorized, non-Apple, computers in violation of the Apple license agreement, which provided:
“The License allows you to install, use and run one (1) copy of the Apple Software on a single-Apple-labeled computer at a time. You agree not to install, use or run the Apple Software on any non-Apple labeled computer, or to enable others to do so.”
Pystar argued Apple was misusing its copyright by requiring purchasers to run Apple’s software only on Apple-brand computers.
The Ninth Circuit rejected Pystar’s copyright misuse argument finding a restrictive software license “represents a legitimate exercise of a copyright holder’s right to conditionally transfer works of authorship, and does not constitute copyright misuse.” In doing so, the court affirmed the grant of summary judgment in Apple’s favor, as well as the permanent injunction that prohibited Pystar from selling Open Computers running Apple’s software.
This ruling is significant in that it reinforces a copyright owner’s right to significantly limit a customer’s use of its software licenses. However, to show that the customer is a software licensee rather than an owner, the copyright owner should be able to demonstrate that its purported license:
1. Specifies that the user is granted a license;
2. Significantly restricts the user’s ability to transfer the
software; and
3. Imposes notable use restrictions.
If the copyright owner is not able to satisfy this 3-part test, it may be determined that the user of the software owns the software, and therefore has the right to sell and resell the software without restriction.
Therefore, copyright owners should not only consider licensing, rather than selling, their software, but also make sure that software licenses meet the above three-part test to avoid relinquishing the ability to control the use of its software.
Nicholas Kanter is a Business Litigation Lawyer. His practice focuses on business, intellectual property and real estate matters. You can reach him by calling 818.990.2120.