Apple Inc. v. Psystar Corp.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

APPLE INC., a California  No. 10-15113
corporation,
Plaintiff-Appellee, D.C. No.
v.  3:08-cv-03251-
WHA
PSYSTAR CORPORATION,
OPINION
Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of California
William H. Alsup, District Judge, Presiding

Argued and Submitted
November 30, 2010—San Francisco, California

Filed September 28, 2011

Before: Mary M. Schroeder, Sidney R. Thomas, and
Ronald M. Gould, Circuit Judges.

Opinion by Judge Schroeder

18519
 APPLE INC. v. PSYSTAR CORP. 18521

COUNSEL

George A. Riley, San Francisco, California, for plaintiff-
appellee Apple, Inc.

Kiwi D. Camara, Houston, Texas, for defendant-appellant
Psystar Corporation.
18522 APPLE INC. v. PSYSTAR CORP.
OPINION

SCHROEDER, Circuit Judge:

This case raises important issues regarding the doctrine of
“copyright misuse” as it has developed in the wake of the
technological revolution of the last 30 years. Plaintiff-
Appellee, Apple Inc. (“Apple”), is one of the leading produc-
ers of innovative technological hardware and software that
has spurred enormous consumer demand for ever evolving
technology. The Defendant-Appellant, Psystar Corp.
(“Psystar”), is a small computer manufacturer. Apple brought
this action against Psystar for copyright infringement because
Psystar was using Apple’s software on Psystar computers.

The district court in a published decision held that Psystar
was infringing Apple’s federally registered copyrights in its
operating software, Mac OS X, because Psystar was copying
Mac OS X for use in Psystar’s computers. Apple, Inc. v. Psy-
star Corp. (Apple I), 673 F. Supp. 2d 931, 935-40 (N.D. Cal.
2009). This infringement finding is not challenged on appeal.
The court rejected Psystar’s copyright misuse defense that
asserted the unenforceability of Apple’s Software License
Agreement (“SLA”), requiring Mac OS X users to run their
copies on Apple computers. Id. at 939-40. Psystar appeals that
ruling, as well as the district court’s order enjoining Psystar’s
continuing infringement of the Apple software. In addition,
Psystar appeals the seven separate orders in which the district
court granted Apple’s motions to seal documents on grounds
of maintaining confidentiality.

Psystar’s principal argument on appeal is that the district
court should have held that the license agreement is an unlaw-
ful attempt to extend copyright protection to products that are
not copyrightable. The heart of Psystar’s argument is that the
Copyright Act affords Apple protection only against unautho-
rized copying and distribution of the operating software, but
not on its use once it is purchased. Thus, because Psystar pur-
 APPLE INC. v. PSYSTAR CORP. 18523
chased unopened copies of Mac OS X and included these cop-
ies when it sold its computers, Psystar argues the Copyright
Act is inapplicable and its alterations permissible. Psystar
contends that the Fifth Circuit’s decision in Alcatel USA, Inc.
v. DGI Techs., Inc., 166 F.3d 772 (5th Cir. 1999), involves a
similar situation and that we should follow it.

Apple responds that to adequately demonstrate copyright
misuse, Psystar must show either that the license agreement
restricts creativity or that it restricts competition, and that this
license agreement does neither. Apple distinguishes Alcatel as
an attempt to stifle competition by preventing competitors
from developing competing products, whereas here Psystar is
free to develop both competing hardware and software. The
district court agreed and so do we. Since Psystar has failed to
demonstrate that Apple has misused its copyright in Mac OS
X, we affirm the district court’s grant of summary judgment
on Psystar’s copyright misuse defense. We also affirm the dis-
trict court’s order enjoining Psystar’s continuing infringement
and Digital Millennium Copyright Act (“DMCA”) violations.

In entering the injunction, the district court properly
applied the Supreme Court’s four eBay factors. See eBay Inc.
v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (finding
that well-established principles of equity require a plaintiff
seeking injunctive relief to satisfy a four-factor test). Specifi-
cally, the district court determined that: 1) Apple suffered an
irreparable injury; 2) remedies available at law are inadequate
to compensate for that injury; 3) considering the balance of
hardships between Apple and Psystar, a remedy in equity is
warranted; and 4) the public interest would not be disserved
by a permanent injunction. Apple, Inc. v. Psystar Corp. (Apple
II), 673 F. Supp. 2d 943, 948-50 (N.D. Cal. 2009) (applying
eBay, 547 U.S. at 391 (2006)). We affirm the injunction.

We do agree with Psystar, however, that on the secondary
issue of sealing, there is no adequate basis in this record to
support sealing any Apple records on grounds of confidential-
18524 APPLE INC. v. PSYSTAR CORP.
ity. We apply the presumption in favor of access and vacate
the district court’s sealing orders.

I. Background

Apple launched its Macintosh line of personal computers in
1984. This line of computers has included Mac Pro, iMac,
Mac Mini, MacBook, MacBook Air, and MacBook Pro.
Apple launched its Mac OS X operating system in 2001.
Apple now sells all Mac computers with a preinstalled,
licensed copy of Mac OS X. Apple’s SLA requires that the
Mac OS X be used exclusively on Apple computers. Apple
also separately distributes Mac OS X in a stand-alone, retail-
packaged DVD with licensed software for the sole purpose of
enabling Apple’s existing customers to upgrade their Mac
computers to the latest version of the operating system. Apple
owns a registered copyright for each version of its operating
system and the SLA for each requires the system to be used
only on Apple computers.

In addition to the SLA and the copyrights, Apple uses lock-
and-key technological measures to prevent Mac OS X from
operating on non-Apple computers. This involves the use of
a “kernel” extension, which is software that is executed and
becomes part of the operating system on an Apple computer.
The kernel extension communicates with other kernel exten-
sions to locate the decryption keys in Apple hardware, and to
unlock the encrypted files.

In April 2008, Psystar began manufacturing and selling
personal computers — originally named “OpenMac” and then
renamed “Open Computers.” Psystar’s Open Computers can
run a variety of operating systems, but Psystar has chosen to
sell Open Computers with Mac OS X. To do so, Psystar pur-
chased a copy of Mac OS X, installed this copy of Mac OS
X on a Mac Mini computer, and downloaded various software
updates, using the automatic-update feature of Mac OS X.
Psystar then imaged the Mac Mini with the OS X software,
 APPLE INC. v. PSYSTAR CORP. 18525
i.e., made a copy of the software, and transferred the copy to
a non-Apple computer used as an imaging station. Psystar
then added its own bootloader and kernel extensions to the
Mac OS X on the imaging station, and this copy became the
“master image.” Psystar used this imaging station to repro-
duce the master image and install it on Open Computers for
sale to the general public. Finally, Psystar shipped Open
Computers with a copy of the master image installed, and
with an unopened copy of Mac OS X, which Psystar pur-
chased from Apple or third party vendors such as Amazon, in
the box. The unopened copy enabled Psystar to maintain it
had purchased a copy of Mac OS X for each computer it sold,
but the computer actually was to run on the copy of the
altered Mac OS X installed in the Psystar computer.

On July 3, 2008, Apple filed this action against Psystar in
the Northern District of California, alleging breach and
induced breach of its SLA for Mac OS X, direct and contribu-
tory copyright infringement, trademark and trade dress
infringement, and violation of state and common law unfair
competition laws. Apple later amended its complaint to add
a DMCA claim arising from Psystar’s circumvention of the
technological protection measures employed by Apple to pre-
vent unauthorized access to and copying of Mac OS X.

Psystar asserted a counterclaim for a declaratory judgment
that Apple was misusing its copyright in Mac OS X by requir-
ing purchasers to run their copies only on Apple computers.
The district court dismissed an earlier antitrust counterclaim
that Psystar filed with its initial answer to the original com-
plaint. That ruling is not appealed.

In August of 2009, Apple released its next version of Mac
OS X — Mac OS X Snow Leopard (“Snow Leopard”); Psy-
star, in turn, released a new version of Open Computers,
Rebel EFI, which was capable of running Snow Leopard. On
August 27, Psystar sued Apple in the Southern District of
Florida, alleging new antitrust claims and seeking a declara-
18526 APPLE INC. v. PSYSTAR CORP.
tory judgment that its products did not infringe Apple’s intel-
lectual property in Snow Leopard. Apple moved in the present
case to dismiss or enjoin Psystar’s Florida action and to
reopen discovery in this case related to possible infringement
of Snow Leopard. The district court denied Apple’s motions,
thus closing this record.

Both parties then filed cross motions for summary judg-
ment. On November 13, 2009 the district court granted
Apple’s motion for summary judgment, finding that 1) Psy-
star’s production process and hard drive imaging did not con-
stitute fair use of Apple’s operating system; 2) Psystar
infringed Apple’s exclusive right to create derivative works;
3) Apple’s licensing agreement was not unduly restrictive and
thus did not constitute copyright misuse; and 4) Psystar’s use
of decryption software to obtain access to operating system
violated the DMCA. It explained its reasons in a published
opinion. Apple I, 673 F. Supp. 2d at 933-42. On the same day,
the district court, with only cursory explanation, granted
seven motions to seal documents related to the summary judg-
ment motions.

The district court then, in a second published opinion,
issued a permanent injunction against Psystar, enjoining all
current and future infringement of Apple’s Mac OS X soft-
ware and the manufacture or sale of any device to circumvent
Apple’s software production. See Apple II, 673 F. Supp. 2d at
948-49. The court ruled in favor of Apple in its legal argu-
ment on copyright infringement and found that Apple would
suffer irreparable harm if an injunction did not issue. The
court found that the Apple software did not work well on Psy-
star computers and was causing Apple a loss of business repu-
tation. “With respect to its brand, business reputation, and
goodwill, Apple has put forth significant evidence, undisputed
by Psystar, that its investment in and commitment to high
standards of quality control and customer service would be
irreparably harmed if Psystar’s illegal activities were allowed
to continue.” Id.
 APPLE INC. v. PSYSTAR CORP. 18527
This appeal by Psystar followed. The principal issue is
whether the district court erred when it rejected Psystar’s
defense of copyright misuse.

II. Psystar’s Affirmative Defense of Copyright Misuse

Psystar contends that Apple misused its copyright in Mac
OS X in two ways. Psystar first contends that Apple misused
its copyright by asserting invalid claims of copyright infringe-
ment in this case. We find this contention entirely unpersua-
sive, however, given that Psystar does not appeal the district
court’s findings of infringement of Apple’s valid copyright in
Mac OS X.

Psystar’s main contention of misuse is aimed at Apple’s
requirement that licensees of Mac OS X run their copies only
on Apple computers. The relevant section of Apple’s SLA for
Mac OS X provides,

This 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.

Psystar contends that this language barring use of the Apple
software on non-Apple computers impermissibly extends the
reach of Apple’s copyright and constitutes misuse. We con-
clude that the district court correctly ruled that Apple had not
engaged in copyright misuse. As we will explain, this is prin-
cipally because its licensing agreement was intended to
require the operating system to be used on the computer it
was designed to operate, and it did not prevent others from
developing their own computer or operating systems. These
licensing agreements were thus appropriately used to prevent
infringement and control use of the copyrighted material.
18528 APPLE INC. v. PSYSTAR CORP.
A. Software licensing agreements, rather than sales,
have become ubiquitous in the software industry
because they enable the licensor to control the use
of the copyrighted material.

To understand why license agreements, rather than sales,
have become the predominate form of the transfer of rights to
use copyrighted software material, it is necessary to under-
stand the legal principle that applies when copyrighted works
are not licensed, but sold: the “first sale doctrine.” The first
sale doctrine allows owners of copies of copyrighted works to
resell their copies without restriction.

The doctrine was first recognized by the Supreme Court in
Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908). At issue in
Bobbs-Merrill was the exclusive right of a copyright owner to
restrict the resale terms of its copyrighted material. The
Supreme Court interpreted the then copyright statute’s “sole
right to vend” to bar a publisher from restricting future sales
of a book by placing a notice on the book’s cover that limited
resale to $1 or more. Id. at 350. Congress codified the first
sale doctrine in the 1909 Copyright Act, see 17 U.S.C. § 41
(1909), and then refined the doctrine in the 1976 Copyright
Act and its subsequent amendments. See 17 U.S.C. § 109
(2008). As currently constituted, the doctrine exempts subse-
quent owners who then sell a legitimate copy of a copyrighted
work from claims of infringing the original owner’s exclusive
distribution rights:

Notwithstanding the provisions of Section 106(3),
the owner of a particular copy or phonorecord law-
fully made under this title, or any person authorized
by such owner, is entitled, without the authority of
the copyright owner, to sell or otherwise dispose of
the possession of that copy or phonorecord.

Id. at § 109(a). Thus, once a publisher sells a valuable,
vellum-bound volume, for example, it forfeits its exclusive
 APPLE INC. v. PSYSTAR CORP. 18529
distribution privilege and enables the buyer, the new owner of
the volume, to resell the copy to another buyer. See 2
MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON
COPYRIGHT § 8.12[B][1][d] (rev. ed. 2010).

The statute specifically excludes the doctrine’s application,
however, when the copy is transferred through “rental, lease,
loan, or otherwise, without acquiring ownership of it.” 17
U.S.C. at § 109(d). Thus, the first sale doctrine does not apply
to a licensee. See Vernor v. Autodesk, Inc., 621 F.3d 1102,
1107-08 (9th Cir. 2010) (“The first sale doctrine does not
apply to a person who possesses a copy of the copyrighted
work without owning it, such as a licensee.”), petition for
cert. filed, 79 U.S.L.W. 3674 (U.S. May 18, 2011) (No. 10-
1421). Our court’s application of § 109(d) in Vernor not only
reconciled our prior cases and avoided a possible disagree-
ment with the Federal Circuit, but also constituted a signifi-
cant validation of license restrictions on transfer and use of
software. See Marcelo Halpern, Yury Kapgan, & Kathy Yu,
Vernor v. Autodesk: Software and the First Sale Doctrine
Under Copyright Law, 23 No. 3 INTELL. PROP. & TECH. L.J. 7,
10 (2011) (arguing that Vernor suggests that such restrictions
“are likely to be more prevalent and powerful.”).

Vernor involved a garage sale purchase by Timothy Vernor
of sophisticated Autodesk software. Autodesk was a manufac-
turer of computer-aided design software used by architects,
engineers, and manufacturers. Vernor, 621 F.3d at 1104. It
offered its software to customers pursuant to an accompany-
ing SLA, which customers were required to accept before
installing the software. Id. The licensing agreement for the
software provided, inter alia, that Autodesk retained title to
all copies and that the customer had a nonexclusive and non-
transferable license to use it. Id.

Vernor purchased a used copy of Autodesk’s AutoCAD
Release 14 software (“Release 14”) at a garage sale and sold
it on eBay. Id. at 1105. To enforce its SLA, Autodesk filed a
18530 APPLE INC. v. PSYSTAR CORP.
number of DMCA take-down notices with eBay related to
Vernor’s initial eBay listing and his subsequent listing of four
additional copies he acquired at an office sale. Id. at 1105-06.
Eventually, eBay suspended Vernor’s account. Id. at 1106.

Vernor then brought suit against Autodesk seeking a
declaratory judgment to establish that he was a lawful owner
of Release 14 copies and thus his sales were entitled to the
first sale doctrine’s protection. Id. We ruled that Vernor was
not an owner of the software and, hence, not entitled to sell
copies on eBay. Id. at 1111-112. We rejected Vernor’s con-
tention that because he was entitled to keep possession of the
software he was a purchaser, rather than a licensee. Id. Rely-
ing on our prior interpretations of § 109(d) and its predeces-
sors, we articulated a three factor test for distinguishing
between a software licensee and an owner of a copy:

We hold today that a software user is a licensee
rather than an owner of a copy where the copyright
owner (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 restric-
tions.

Id. at 1111. In applying this test to Autodesk’s SLA, which
explicitly reserved Autodesk’s title to Release 14 copies and
imposed significant transfer and use restrictions, we held that
Autodesk’s customer from whom Vernor acquired the used
copies was a licensee, not an owner of the copies. Id. at 1111-
12. Thus, neither Autodesk’s original customer nor Vernor
could sell or resell copies of Release 14 under the first sale
doctrine. Id. at 1116.

It is this distinction between sales and licenses that has
caused the use of software licensing agreements to flourish
and become the preferred form of software transactions. See
Glen O. Robinson, Personal Property Servitudes, 71 U. CHI.
L. REV. 1449, 1473 (2004) (detailing “[t]he emergence of
 APPLE INC. v. PSYSTAR CORP. 18531
software licensing [as a means] of contractual avoidance of
the first sale doctrine.”). The distinction is well established in
this circuit. See, e.g., Vernor, 621 F.3d at 1108-09; Wall Data,
Inc. v. L.A. Cnty. Sheriff’s Dep’t, 447 F.3d 769 (9th Cir.
2006); and United States v. Wise, 550 F.2d 1180, 1191 (9th
Cir. 1977).

B. Licensees have reacted to the proliferation of
software licensing agreements by asking the courts
to apply copyright misuse defense to limit the scope
of such agreements.

[1] Copyright misuse is a judicially crafted affirmative
defense to copyright infringement, derived from the long-
standing existence of such a defense in patent litigation. The
patent misuse defense was originally recognized by the
Supreme Court in 1942, in holding that the owner of the
patent on a salt tablet machine could not require licensees to
use only unpatented salt tablets sold by the patent owner.
Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942).
The Court held that this improper tying of a patented product
and an unpatented product constituted misuse, and prohibited
the patent holder from maintaining infringement actions until
the patent holder ceased misuse of the patent. Id. at 493
(“Where the patent is used as a means of restraining competi-
tion with the patentee’s sale of an unpatented product . . .
[e]quity may rightly withhold its assistance from such a use
of the patent by declining to entertain a suit for infringement
[until] the improper practice has been abandoned and [the]
consequences of the misuse of the patent have been dissipat-
ed.”).

In 1990, the Fourth Circuit became the first federal circuit
to extend the misuse rationale to copyrights. See Lasercomb
Am., Inc. v. Reynolds, 911 F.2d 970, 972 (4th Cir. 1990). In
Lasercomb, a software manufacturer required its customers to
agree to a licensing agreement that barred the licensee from
creating any competing software. Id. at 978 (“Each time
18532 APPLE INC. v. PSYSTAR CORP.
Lasercomb sells its Interact program to a company . . . the
company is required to forego utilization of the creative abili-
ties of all its officers, directors and employees in the area of
CAD/CAM die-making software.”). Drawing on patent mis-
use jurisprudence, the Fourth Circuit concluded that Laser-
comb’s licensing agreement was an “egregious”
anticompetitive restraint, which amounted to copyright mis-
use. Id. at 979. It was aimed at preventing the creation of
competing software.

Subsequently, our court recognized the existence of a copy-
right misuse doctrine. See, e.g., Altera Corp. v. Clear Logic,
Inc., 424 F.3d 1079, 1090 (9th Cir. 2005); Practice Mgmt.
Info. Corp. v. Am. Med. Ass’n, 121 F.3d 516, 521 (9th Cir.
1997), amended by 133 F.3d 1140 (9th Cir. 1998). In Altera,
we made it clear that the defense is not a defense to state law
claims, and in A & N Records v. Napster, Inc., 239 F.3d 1004
(9th Cir. 2001), we rejected the applicability of the defense on
the merits, upholding, in the circumstances of that case, the
district court’s conclusion that there was actionable copyright
infringement.

[2] We have thus applied the doctrine sparingly. The doc-
trine did not apply in Altera when there had been no allega-
tion of copyright infringement. 424 F.3d at 1090. In Napster,
we observed that the plaintiffs who sought to enjoin unli-
censed use of copyrighted works were entitled to do so
because they were not seeking to extend a copyright monop-
oly to other products or works. We described the purpose of
the defense as preventing holders of copyrights “from lev-
eraging their limited monopoly to allow them control of areas
outside the monopoly.” Napster, 239 F.3d at 1026.

Our decision in Practice Management is the only case in
which we upheld a copyright misuse defense. We did so
because the copyright licensor in that case prevented the
licensee from using any other competing product. 121 F.3d at
520-21. In Practice Management, a publisher and distributor
 APPLE INC. v. PSYSTAR CORP. 18533
of medical books was using a coding system developed by the
American Medical Association (“AMA”) to enable physicians
and others to identify particular medical procedures with pre-
cision. Id. Practice Management sued the AMA for a declara-
tory judgment that the AMA’s copyright in its coding system,
the Physician’s Current Procedural Terminology (“CPT”),
was not valid. Id. at 518. The CPT had become an industry
standard, and the AMA had a licensing agreement that
allowed the Health Care Financing Administration (“HCFA”)
to use the AMA system. The agreement provided, however,
that HCFA use only the AMA system. Id. at 520-21 (the
agreement required “HCFA to use the AMA’s copyrighted
coding system and prohibit[ed] HCFA from using any
other.”).

We held this was copyright misuse, because the AMA was
not entitled to use the license agreement to prevent the use of
all competitor’s products. Id. at 521 (“Conditioning the
license on HCFA’s promise not to use competitors’ products
constituted a misuse of the copyright by the AMA.”). In rec-
ognizing clear abuse of the copyright, we observed that the
AMA’s misuse was its limitation on the HCFA’s right to
decide whether or not to use other systems as well. It was not
necessary to decide whether the limitation, in the antitrust
context, would have been reasonable or not. We said that “a
defendant in a copyright infringement suit need not prove an
antitrust violation to prevail on a copyright misuse defense.”
Id. (citing Lasercomb, 911 F.2d at 978).

[3] No such limitation existed in Triad Sys. Corp. v. Se.
Express Co., 64 F.3d 1330 (9th Cir. 1995). We therefore
rejected a copyright misuse defense and upheld the software
licensing agreement. Id. at 1337. We held that there was no
abuse where the copyright license did not prevent the licensee
from developing competing software. Triad has significance
for this case because we there adopted the Fourth Circuit’s
view in Lasercomb that copyright misuse involves restraining
development of competing products. See 911 F.2d at 928.
18534 APPLE INC. v. PSYSTAR CORP.
Triad, a hardware and software producer, brought a copy-
right infringement action against Southeastern, an indepen-
dent service organization that services Triad hardware. Triad
licensed its copyrighted operating and diagnostic software for
use by its licensees in the operation of Triad computers. 64
F.3d at 1333. Triad’s software license agreement prohibited
the licensee from making copies of the software and from
allowing third parties to use the software. Id. Triad alleged
that Southeastern infringed Triad’s copyrights when South-
eastern’s technicians serviced a licensees’ computers,
because, during servicing, Southeastern copied Triad’s operat-
ing and service software and loaded it into Southeastern mem-
ory. Id.

Triad sought to enjoin Southeastern from servicing its com-
puters because of the infringement. Southeastern asserted a
copyright misuse defense, claiming Triad was trying to
monopolize its computer maintenance. By restricting third
party use of its software, “Triad ha[d] used its intellectual
property monopoly over Triad software to leverage its posi-
tion in the Triad computer maintenance market.” Triad Sys.
Corp. v. Southeastern Exp. Co., 1994 WL 446049, *3 n.1
(N.D. Cal. Mar. 18, 1994). The district court rejected this
argument and this court affirmed on appeal, holding that there
was no attempt to stifle competition in the service software
market. “Triad did not attempt to prohibit Southeastern or any
other [independent service operator] from developing its own
service software to compete with Triad.” Triad, 64 F.3d at
1337.

[4] To the extent that Triad held that copying of software
for purposes of servicing the computer was unlawful, it has
been legislatively overruled. See 17 U.S.C. § 117(c); see also
Melissa A. Bogden, Note, Fixing Fixation: The RAM Copy
Doctrine, 43 ARIZ. ST. L.J. 181, 196-97 (2011). To the extent
that its reasoning requires rejection of a misuse defense in
contexts other than maintenance, its reasoning remains the
law of the circuit. A software licensing agreement may rea-
 APPLE INC. v. PSYSTAR CORP. 18535
sonably restrict use of the software as long as it does not pre-
vent the development of competing products.

C. Psystar’s Misuse Defense fails because it is an
attempt to apply the First Sale Doctrine to a valid
licensing agreement.

Psystar attempts to distinguish Triad from the present case
by invoking the first sale doctrine. Psystar argues that Apple,
unlike Triad, attempts to control the use of Mac OS X soft-
ware after it has been sold, because Psystar purchased retail-
packaged copies of the operating software. Psystar contends
that while the copyright owner can refuse to sell copies, it
cannot control their subsequent use. This argument falsely
assumes that Apple transferred ownership of Mac OS X when
it sold a retail-packaged DVD containing software designed
to enable Apple’s existing customers to upgrade to the latest
version of the operating system. The buyers of that DVD pur-
chased the disc. They knew, however, they were not buying
the software. Apple’s SLA clearly explained this.

[5] The DVD purchasers were licensees, not owners, of the
software. The Mac OS X SLA, states that the software is “li-
censed, not sold, to [the customer] by Apple Inc. (Apple) for
use only under the terms of this License.” Thus the SLA pro-
vides that Apple “retain[s] ownership of the Apple Software
itself.” The SLA also imposes significant use and transfer
restrictions, providing, inter alia, that a licensee may only run
one copy and “may not rent, lease, lend, redistribute or subli-
cense the Apple Software.” Cf. Wall Data, 447 F.3d at 785
(“Generally, if the copyright owner makes it clear that she or
he is granting only a license to the copy of software and
imposes significant restrictions on the purchaser’s ability to
redistribute or transfer that copy, the purchaser is considered
a licensee, not an owner, of the software.”). The license thus
satisfied Vernor’s three factor test for demonstrating the exis-
tence of a licensor/licensee relationship. 621 F.3d at 1111.
18536 APPLE INC. v. PSYSTAR CORP.
[6] Contrary to Psystar’s assertion, such licensing arrange-
ments are also firmly rooted in the history of copyright law.
While copyright owners may choose to simply exclude others
from their work, i.e. not to transfer their rights, see Stewart v.
Abend, 495 U.S. 207, 228-29 (1990); Fox Film Corp. v.
Doyal, 286 U.S. 123, 127 (1932), courts have long held that
copyright holders may also use their limited monopoly to
leverage the right to use their work on the acceptance of spe-
cific conditions, see, e.g., Metro-Goldwyn-Mayer Distrib.
Corp. v. Bijou Theatre Co., 59 F.2d 70, 77 (1st Cir. 1932)
(holding that if a motion picture license is subject to the con-
dition that its exhibition must occur at specified times and
places, the licensee’s exhibitions at other times and places is
without authority from the licensor and therefore constitutes
copyright infringement).

D. The Fifth Circuit’s Decision in Alcatel Unlike This
Case Involved Restrictions Aimed At Stifling
Competition.

[7] The copyright misuse doctrine does not prohibit using
conditions to control use of copyrighted material, but it does
prevent copyright holders from using the conditions to stifle
competition. Psystar relies on the Fifth Circuit’s opinion in
Alcatel. This reliance is inapposite. In Alcatel, the license con-
ditions prevented development of competing products, and
thus constituted copyright misuse. See 166 F.3d at 793-94.

In Alcatel, the plaintiff and copyright holder (formerly
known as DSC) manufactured telephone switching systems
consisting of copyrighted operational software and numerous
non-copyrighted components. Id. at 777. The software license
agreement provided that the software was “licensed to cus-
tomers to be used only in conjunction with DSC-
manufactured hardware,” and such hardware included expan-
sion cards. Id. at 793. To develop compatible cards, the defen-
dant had to download and copy the software for testing and
development purposes. Id. at 779. This would have been a
 APPLE INC. v. PSYSTAR CORP. 18537
breach of the licensing agreement. The Fifth Circuit held,
however, that the restrictive terms of the licensing agreement
constituted copyright misuse.

[8] Unlike the licensing agreement in Alcatel, Apple’s
SLA does not restrict competitor’s ability to develop their
own software, nor does it preclude customers from using non-
Apple components with Apple computers. Instead, Apple’s
SLA merely restricts the use of Apple’s own software to its
own hardware. As the district court properly concluded,
Apple’s SLA has “not prohibited others from independently
developing and using their own operating systems.” Apple I,
673 F. Supp. 2d at 939. Psystar produces its own computer
hardware and it is free to develop its own computer software.

Moreover, Alcatel was a complex case involving unfair
competition, antitrust claims, as well as copyright infringe-
ment. It eventually went to a jury that found misuse as a mat-
ter of fact on uncontested instructions. 166 F.3d at 779-80.
The Fifth Circuit effectively upheld the misuse verdict. Id. at
793. Alcatel does not support Psystar’s contention that it can
copy Apple’s copyrighted operating software and use it to run
competing hardware. Apple was entitled to injunctive relief.

[9] Alcatel appears to be more like our decision in Practice
Management where we found an anticompetitive license con-
dition. See 121 F.3d at 520-21. In Practice Management, the
agreement prohibited the licensee from using any competing
system. In Alcatel, the agreement effectively prohibited the
licensee from using any competing expansion cards. There-
fore, Apple’s SLA, like the one we reviewed in Triad, repre-
sents the legitimate exercise of a copyright holder’s right to
conditionally transfer works of authorship, and does not con-
stitute copyright misuse.

III. Scope of Apple’s Injunctive Relief

Psystar challenges the scope of the injunctive relief granted
by the district court. Psystar filed suit in Florida, after Apple
18538 APPLE INC. v. PSYSTAR CORP.
filed this suit for infringement in California. But due to a dis-
covery dispute, the subject matter of the two suits are not
identical — Psystar’s suit in Florida focused only on Apple’s
Snow Leopard and Psystar’s Rebel EFI product. Apple II, 673
F. Supp. 2d at 951-53 (detailing the relevant differences
between the two products). The difference in subject matter
is principally due to Apple’s refusal to allow discovery of
Snow Leopard in the present suit. The district court corre-
spondingly refused to reopen discovery after Psystar filed suit
in Florida. Id. at 952-53.

Psystar therefore argues that the injunction should
expressly exclude Snow Leopard and Rebel EFI, contending
that the district court should defer to the Florida litigation to
resolve the issues related to Apple’s Snow Leopard and Psy-
star’s Rebel EFI. The problem is that the legal issues in this
case and in the Florida case are materially similar, and the
Florida court had not yet issued any ruling. The fact that Psy-
star was the first to file suit, in Florida, does not require the
same issues to be relitigated there.

We have described the first to file rule as “a generally rec-
ognized doctrine of federal comity which permits a district
court to decline jurisdiction over an action when a complaint
involving the same parties and issues has already been filed
in another district.” Pacesetter Sys. Inc. v. Medtronic, Inc.,
678 F.2d 93, 94-95 (9th Cir. 1982). This rule, however, “is
not a rigid or inflexible rule to be mechanically applied, but
rather is to be applied with a view to the dictates of sound
judicial administration.” Id. at 95.

The only case that Psystar cites to support its argument,
United States v. AMC Entm’t, Inc., 549 F.3d 760 (9th Cir.
2008), is inapposite to the facts presented here. This is
because before the district court entered the injunction that
was on appeal in that case, the appellate court of a sister cir-
cuit had reached the opposite result. In AMC, our court
remanded the issuance of a nation-wide injunction entered by
 APPLE INC. v. PSYSTAR CORP. 18539
the district court judge in California because, prior to its issu-
ance, the Fifth Circuit declined to enter a similar injunction in
a case with identical issues. Id. at 773. We held that a “district
court in the Ninth Circuit should not ‘negate something that
has already been determined in adversary proceedings’ before
the United States Court of Appeals of the Fifth Circuit [as it]
would cause substantial interference with the established judi-
cial pronouncements of . . . sister circuits.” Id.

Here, in contrast, neither the United States District Court
for the Southern District of Florida, much less the Eleventh
Circuit Court of Appeals, has issued any pronouncement on
the legality of Snow Leopard or Rebel EFI under the Copy-
right Act or DMCA. Apple II, 673 F. Supp. 2d at 955.

While Psystar stresses that the copyrighted work in the
Florida case is different, federal law provides the district court
the discretion to “grant temporary and final injunctions on
such terms as it may deem reasonable to prevent or restrain
infringement of a copyright.” 17 U.S.C. § 502(a). The DMCA
also provides authority to grant injunctive relief. Id. at
§ 1203(b)(1). Courts have extended injunctive relief beyond
the four corners of the litigated copyrighted works to cover
non-litigated items of similar character. See, e.g., Walt Disney
Co. v. Powell, 897 F.2d 565, 568 (D.C. Cir. 1990) (extending
a permanent injunction to copyrighted characters that were
not expressly litigated in the underlying action); Warner Bros.
Records, Inc. v. Brown, 2008 WL 4911161, at *2-3 (N.D. Cal.
Nov. 13, 2008).

[10] Here, as in Walt Disney, it is appropriate to perma-
nently enjoin the future infringement of copyrighted works,
such as Snow Leopard, even if not directly in issue because
liability has been established as between the parties, and the
threat of harm through future infringement of Snow Leopard
is real. The same was true in Walt Disney, where the court
extended relief. The court said “liability has been determined
adversely to the infringer, there has been a history of continu-
18540 APPLE INC. v. PSYSTAR CORP.
ing infringement and a significant threat of future infringe-
ment remains.” 897 F.2d at 568. Thus, the district court did
not abuse its discretion when it rejected Psystar’s claim that
Rebel EFI should be expressly excluded from the permanent
injunction. The order did not contradict or interfere with any
order issued by a court in any other jurisdiction.

IV. District Court’s Sealing Orders

Psystar contends that the district court erred in granting
Apple’s motions to seal summary judgment papers, because
the court failed to articulate specific reasons supporting its
decision to seal. Psystar raised this challenge in its Opposition
to Apple’s Motion to Seal Apple’s Motion for Summary
Judgment. We agree, and remand.

Apple requested that the court seal portions of the summary
judgment filings relating to its technological protection mea-
sures and other proprietary technology used to restrict access
to its copyrighted Mac OS X. The district court granted seven
sealing orders in connection with the parties’ respective
motions for summary judgment, oppositions, and replies, but
none of the orders provide any specific explanation. They
state no more than the following: “For good cause shown and
based on compelling reasons . . .”

Our circuit has joined the Seventh Circuit in requiring dis-
trict courts to start with a strong presumption in favor of
access when deciding whether to seal records. Hagestad v.
Tragesser, 49 F.3d 1430, 1434 (9th Cir. 1995); see also
Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172, 1178-
179 (9th Cir. 2006). The publication of materials that could
result in infringement upon trade secrets has long been con-
sidered a factor that would overcome this strong presumption.
See EEOC v. Erection Co., Inc., 900 F.2d 168, 170 (9th Cir.
1990). Yet where the district court fails to articulate the ratio-
nale underlying its decision to seal, we are unable to review
the decision. We have therefore reversed an order that without
 APPLE INC. v. PSYSTAR CORP. 18541
explanation sealed court documents. See Hagestad, 49 F.3d at
1434-35 (citing EEOC, 900 F.2d at 169).

[11] Here, Apple concedes that at least one of the orders
to seal inappropriately extended to non-confidential material.
This, coupled with the district court’s failure to articulate any
reasoning or findings underlying its decision to seal, compel
us to vacate the district court’s sealing orders and remand for
further consideration.

CONCLUSION

The district court’s grant of summary judgement in favor of
Apple and its entry of a permanent injunction against Psy-
star’s infringement of Mac OS X are affirmed. The district
court’s orders granting Apple’s motion to seal litigation docu-
ments are vacated and remanded for further consideration.

AFFIRMED in part, REMANDED in part.

Costs are awarded to Apple.