• Authorities in San Mateo, California, contemplate filing criminal charges in connection with the sale of an Apple prototype (of a new iPhone), lost by and possibly stolen from an Apple software engineer and bought for $5,000 by the website Gizmodo.com, the New York Times reports.

• From the San Francisco Chronicle: citing a desire to help fight censorship, Google has launched a tool that discloses requests the company receives from governments for content removal and user data.

• India’s new copyright proposals, which include both fines and jail time for offenders, are still not strict enough for the RIAA, MPAA, and other organizations that lobby for greater intellectual property enforcement, Ars Technica explains.

• From CNET, a summary of the recent Supreme Court decision declaring unconstitutional a law banning Internet videos of animal cruelty, while leaving open the possibility that a narrower law would be permissible.

• A new study funded by net neutrality opponents claims that the FCC’s proposed net neutrality rules would cost the telecommunications industry over 340,000 jobs in the next ten years, PC World reports.

• PatentlyO notes that the Supreme Court has decided to hear a case on international copyright exhaustion, and gives a summary of the case.

• Also from PatentlyO, links to videos of patent attorney Kevin Noonan defending genetic patents on 60 Minutes and the Colbert Report.

• The Southern District of New York’s decision in Association for Molecular Pathology and ACLU v. USPTO and Myriad (the “gene patents case”) handed down last Monday, has generated a lot of commentary this week. Here’s a selection: reports from Wired and On the Edges of Science and Law; IP Watchdog describes the ruling as “inane”; Patent Docs gives more detail on the patents at issue; Patently O thinks the Federal Circuit is likely to reverse the decision; and Holman’s Biotech IP Blog takes the investor’s perspective.

• British science writer Simon Singh (of Fermat’s Last Theorem, The Code Book and Big Bang fame) wins libel case brought against him by the British Chiropractic Association, from The Guardian.

• Jonathan Zittrain’s The Future of the Internet and How to Stop It comments on the iPhone developer license agreement, disclosed through a Freedom of Information Act request.

• From OutLaw, Google, Microsoft, eBay et al call for U.S. privacy law update.

• Salt Lake City jury rejects “copyright troll’s” claim to Unix - Wired reports.

• The European and FCC antitrust complaints against Google are not about Microsoft, opines The Register.

• US criticizes Australian internet filtering plan, from E-Commerce Times.

• The Department of State’s annual Human Rights Report turns the spotlight on internet freedom in China and Iran, from ZDNet Government.

• The US District Court in Delaware stays the patent litigations between Apple and Nokia, pending decisions by the International Trade Commission, says The Register.

• A California appeals court rules that cyberbullying threats are not protected free speech, reports Wired.

• Also from Wired, the Supreme Court agrees to review a Ninth Circuit decision on privacy rights in the context of background checks on government workers.

• The FCC announces that it will recommend the sale of 500 megahertz of spectrum to meet the needs of mobile broadband users, from the Washington Post.

• Programmers in trouble over financial misdeeds: two programmers who developed code for Madoff are charged with fraud (The New York Times, The Register) and the Securities Exchange Commission files a complaint against a one-man Russian investment company for hacking into online portfolios to “pump and dump” stocks (Switched, Wired).

• From E-Commerce Times: TiVo wins its long running patent infringement case against digital video recorder rivals.

• Spicy IP reports that Brazil seems set to invoke WTO intellectual property cross-retaliation provisions for the first time, against the US.

• The European Parliament threatens to bring a legal challenge against the European Commission if it fails to disclose details of the Anti-Counterfeiting Trade Agreement (ACTA), writes Outlaw (see our post on the controversial treaty here).

• Also from Outlaw: Net Neutrality in the UK: Ofcom to probe broadband providers’ management of web traffic.

• Out-Law reports on a US District Court for the Northern District of California case that clarifies how damages for groundless claims of copyright infringement should be determined.

• Apple is suing HTC over infringement of its user interface patents, but it’s really Google it’s after, says IP Watchdog.

• RealNetworks drops its appeal against a ruling declaring that its DVD-copying software violated the DMCA – Wired reports.

• Is it the car or the driver’s fault? Toyota recall casts doubts on driver’s conviction, says Autoblog.

• BusinessWeek reports that Google is pushing for the U.S. to take a WTO action against China over internet censorship (and see our recent post on the subject here).

• Are you liable if you forward a defamatory e-mail with introductory comments? Eric Goldman reports on a recent California appeals case.

• The E-Commerce Times wonders whether Microsoft is behind Google’s recent antitrust troubles.

• Netflix is being sued for its deal to delay the availability of Warner Brothers DVDs, reports the New York Daily News.

• Out-Law opines that the convictions of Google executives in Italy is not just about Italian law – the problem is with the EU directives Italy implements (see our post on the case here).

• Is that really Yao Ming’s Twitter page?  Twitter is testing out a new verified account feature for celebrities.  See our old post on Twitter-squatting here.

Flash, owned and distributed by Adobe, is an extremely popular method to add animation and interactivity to web pages, used by over 85% of top websites.  Anyone who has visited YouTube, Hulu, or the vast majority of media rich websites has enjoyed the benefits of Flash.  Not surprisingly, many iPhone users are already demanding Flash.  Adobe reported that in December 2009 there were seven million attempts to download Flash from iPhones and iPod Touches.

With such a high level of demand, why would Apple refuse to adopt Flash on the iPad, a device well equipped to handle the technical requirements of Flash?  Well known entrepreneur Mark Cuban claims “[t]he reason is obvious. No flash, far less streaming over 3G… Less bandwidth consumed means AT&T can offer a great price on the 3G data service.”  A recent article in the Wall Street Journal offered a different explanation: “Flash would let users freely obtain the kinds of features they can only get now at the Apple App Store.”  In other words, Flash would allow users to watch videos and play games in a world outside of Apple’s control and revenue stream.

As word spread that the iPad would lack Flash, bloggers began to question Apple’s claim that the device would be the “best way to experience the internet.”  Some predict that the iPad’s closely controlled software environment could have a chilling effect on innovation.  Unlike traditional operating systems, the iPad and iPhone operating system forces all software downloads through the App Store, giving Apple significant control over how the devices are used.  Reflecting these concerns, Adobe reacted to Apple’s decision by stating that “[w]e strongly believe the Web should remain an open environment with consistent access to content and applications regardless of your viewing device.”

Normally, one would expect Apple to support Flash due to simple market forces, the argument being that without Flash, fewer people would buy the iPad, thus harming Apple’s profits.  Here, however, Apple is likely more profitable by excluding Flash in order to promote the App Store.  The absurdity of this situation begs the question of whether Apple’s decision is lawful and what might be done to intervene.

Net Neutrality Concerns

Traditionally, net neutrality has been discussed in the context of broadband providers attempting to restrict information exchanged by its networks.  An example would be a cable internet company curbing P2P traffic to save on bandwidth expenses.  Proponents of net neutrality rules argue that legislation or regulation is necessary to stop such limitations.  These rules are generally opposed by telecom providers but supported by consumers and web companies offering high bandwidth music, movies, and games.

Without delving into the merits of the debate, it is sufficient to state that the Obama administration supports net neutrality, prompting the FCC to propose new rules which would expand the scope of net neutrality for both wired and wireless providers.  While still in the rulemaking process, these rules could be codified by the FCC within the next few weeks.

Perhaps the most important new rule would require broadband providers to “treat lawful content, applications, and services in a nondiscriminatory manner.”  This broad provision provides exceptions in order to manage network congestion and prohibit unlawful content.  Under the plain meaning of this rule, Apple’s decision to exclude Flash content in favor of its officially sanctioned apps might very well be prohibited.

Apple may contend that the lack of Flash is a legitimate effort to manage AT&T’s network congestion.   This argument seems weak, however, because Flash requires no more bandwidth than many popular apps, such as the YouTube app and many newly approved voice over 3G apps.  It seems likely that the lack of Flash is really just a way to promote the App Store, making it difficult for Apple to fit this decision within the network management exception.  Even if it were trying to limit network congestion, network neutrality would demand a nondiscriminatory approach, such as offering tiered data plans or prohibiting all high bandwidth functions from the 3G network.

While the FCC has clear authority over wireless networks, it’s not entirely clear that it could mandate software requirements for mobile browsers.  Apple might argue that since it is not a broadband provider, these net neutrality rules should not apply to it.

Still, the FCC seems more than willing to get involved in this arena.  Last fall the FCC inquired into the rejection of the Google Voice app, which caused quite a bit of bad press for Apple.  The inquiry included broad questions about Apple’s method of approving apps.  Given the FCC’s general interest in the app approval process, it is not farfetched for the FCC to inquire about how Apple decides to reject standards in its web browser.

Officially, the FCC’s inquiry into the Google Voice rejection was part of ongoing proceedings into wireless open access and handset exclusivity.  However, it didn’t take a formal FCC ruling for Apple and AT&T to change course and allow voice over 3G apps.  A similar FCC inquiry in this instance might call enough attention to the matter that Apple would relent and decide to allow Flash without the need for formal proceedings.

It will be interesting to see if the FCC decides to get involved in this situation.  Given its recent focus on net neutrality and its willingness to question Apple’s activities, some sort of action in this instance would not be surprising.  Involvement would show that the FCC is serious about making the net a truly open place, even on wireless networks.

• Ephemerallaw assess the chances of Microsoft being sued for the Internet Explorer 6 vulnerability involved in the hacks recently suffered by Google, Adobe and other major companies.

• Billboard.biz reports that search engine Baidu, Google’s arch-rival in China, has won a piracy case brought by the International Federation of the Phonographic Industry for linking to illegal music downloads.

• As Apple launches its latest handheld device, Erblawg reports on Apple’s battle again Fujitsu for the “iPad” trademark.

• The US District Court for the North District of Georgia upholds the forum selection clause in the Facebook User Agreement in copyright infringment suit, writes Eric Goldman on the Technology & Marketing Law Blog.

• Keeping with Facebook, OUT-Law reports that the Canadian Privacy Commissioner is investigating Facebook’s reponse to its earlier investigation into the social networking site’s privacy policy. See also the New York Times advice on the three Facebook settings every user should check now.

• The European competition watchdog has finally cleared Oracle’s $7.4bn purchase of Sun Microsystems, reports the Financial Times (See our post on the backstory here).

• And on a related note, Microsoft warns Google that it is likely to come up against the EU Commissions over anti-trust issues sooner or later, reports E-Commerce Times.

• Californians with medical marijuana prescriptions can now carry any amount of pot, rules the California Supreme Court. Report by Court House News.

• Clever or illegal?  How online retailer Amazon escapes paying sales tax (and saves you from it as well), from Gizmodo.

• South Korea pardons former chairman of Samsung… a second time.  From the Wall Street Journal.

• Your text messages just got a little safer: The Times reports the Ohio Supreme Court has decided a warrant is needed to search a cell phone.

• Obama picks Howard Schmidt as the Chief of Cybersecurity, from the New York Times.

• A modern day Catch Me If You Can: An escaped criminal taunts police with Facebook updates, from Gizmodo.  (Also see this updated link.)

• The Court of Appeals for the Federal Circuit upholds an injunction against Microsoft, requiring it to stop selling certain versions of Word. From the IT World of Canada.

• Verizon defends its $350 smartphone early termination fee to the FCC.  From Gizmodo.

• Microsoft sued over “Bing” name for trademark infringement… by a tiny business in St. Louis.  CNet’s Technically Incorrect reports.

• Against all odds, Psystar claims it will be back, Gizmodo reports.

• An in-the-closet lesbian mother of two sues Netflix for releasing her movie preferences, reports Wired’s Threat Level.

• Google’s controversial Google Book Search program runs into more legal trouble, this time in France.  From the New York Times.

• The New York Times discusses the increasingly complex battle over e-book publishing rights.

• True/Slant reports on Facebook CEO Mark Zuckerberg’s glitch with his social network’s new privacy settings, and asks whether the changes might violate FTC regulations.

• Misbehaving in the jury box: jurors researching on Wikipedia led to an overturned murder conviction, and jurors friending each other on Facebook is the subject of mistrial challenge, reports the ABA Journal.

• Former state representative and convicted pederast Ted Klaudt claims his name is covered by “common law copyright” and says news organizations that use it in coverage have to pay him $500,000 in licensing fees, blogs The Legal Satyricon.  That’s TED KLAUDT making the claim.  TED KLAUDT.

• Wired’s Threat Level reports on a new hacker application that deletes traces of illegal computer activity when it detects a commonly used suite of police forensic tools beginning to run.  If it doesn’t work perfectly, this could be a godsend for prosecutors looking to indict on obstruction of justice charges.

• Microsoft dips its toes a little deeper into open-source waters with Moonlight 2, the Linux version of its web application framework Silverlight.  With the new version, Microsoft extends its Patent Covenant to End Users of Moonlight to users who get the framework from any third-party, including distributors like Red Hat or Ubuntu.

• Apple-Psystar, the final chapter, on Gizmodo.

• Fake Steve Jobs rallies iPhone users to DoS attack AT&T today, reports Gizmodo.

• The FTC sues chipmaker Intel for antitrust violations, everyone reports.

• Europe drops its antitrust case against Microsoft after the software giant agreed to offer consumers a choice of web browsers installed with copies of Windows, says the New York Times.

• Video sharing site Vimeo is sued by Capitol Records over user-posted lip dubs, reports NewTeeVee.

• The Supreme Court will review employers’ access to employees’ text messages on company-owned mobile devices, reports the Wall Street Journal.

• Judges and Facebook – Is it ok to be FB friends with lawyers?  The Florida Judicial Ethics Advisory Committee says no, reports the New York Times.

• Michael Arrington and Crunchpad sues JooJoo for the joint tablet venture that so publicly went wrong, says Gizmodo.

• The Environmental Protection Agency announces that greenhouse gases pose a danger to human health and environment.  New federal and possibly international regulation are expected to follow, according to the New York Times.

• Who will protect us from the robot invasion?  Maybe lawyers will, a pair of scholars at Stanford University tells the San Francisco Chronicle.

• The legal implications of new technology aren’t all covered in intellectual property classes – Andrew Breitbart’s Big Government blog looks at the possible use of eminent domain to take the “wind rights” of farmers and build green-friendly windmills.

• Text messages are the new “digital lipstick on the collar” and are increasingly showing up as critical evidence in divorce cases, writes the New York Times.

• The EU drops its antitrust case against memory-maker Rambus in exchange for concessions, according to the Associated Press.

• A federal judge finalizes a $675,000 verdict against a Boston University student for sharing 30 copyrighted songs online, Wired’s Threat Level reports.

• Apple countersues Nokia for patent infringement – this is getting ugly, says All Things Digital’s Digital Daily.

• A payroll and credit card payment processing company’s failure to protect itself from massive data breach was not grounds for a securities fraud case by shareholders.  Law.com discusses the New Jersey District Court ruling.

Background

Apple was not always hostile to clones. In fact, from 1995 to 1997, Apple  licensed several companies, such as Power Computing, to build and sell Mac clones. But this era came to a close when Steve Jobs returned to the company in 1997, and Apple has not granted a license to produce clones since. In April 2008, Florida-based Psystar, Inc. began selling computers on which it had installed modified copies of OS X. Apple, not surprisingly, quickly filed suit alleging a veritable laundry list of state and federal claims. Apple recently moved for summary judgment on its copyright infringement, DMCA violation, and contributory infringement claims.  The court granted Apple summary judgment on all three claims.

Copyright Infringement

Apple alleged that Psystar had infringed upon its two registered copyrights in Mac OS X by violating its reproduction right, distribution right, and right to create derivative works.

Apple’s reproduction right

Under 17 U.S.C. § 117(a), an owner of a copy of a computer program may copy or modify that program for limited purposes. Though it is doubtful that Psystar’s use was the sort covered by this exception, the court did not need to consider this because it found that Psystar waived the defense by neglecting to plead it in their answer. The court also denied Psystar the defense of “fair use” under 17 U.S.C. § 107 because Psystar failed to address the four factors used to determine fair use. (These factors are: the purpose and character of the use, the nature of the copyrighted work,  the amount and substantiality of the portion taken, and the effect of the use upon the potential market.)

Apple’s distribution right

The first sale doctrine, codified under 17 U.S.C. § 109, is the right of the purchaser of a copy of a copyrighted work to then sell that particular copy of the work without the authorization of the copyright owner. Though Apple was not willing to concede that Psystar, or anyone for that matter, could own a copy of Mac OS X rather than a license to use it, the court assumed for the sake of argument that Psystar did own the initial copy they purchased. Even under this assumption, Psystar’s use was a violation of Apple’s distribution right because it made unauthorized copies for distribution.

Apple’s right to create derivative works

Defined in 17 U.S.C. § 101, a derivative work is work based upon a preexisting work which itself represents an original work of authorship. The court found that Psystar violated Apple’s exclusive right to produce derivative works when it made modifications to Mac OS X to get it to run on non-Apple hardware.

Contributory Infringement

In addition to Psystar’s direct copyright infringement, the court found that Psystar committed “contributory infringement.” Contributory infringement occurs when an individual or entity induces or encourages others to infringe a copyright. The court found that Psystar was accomplishing this by selling machines to the public with its unauthorized copies of Mac OS X installed.

Violation of the DMCA

Section 1201(a)(1)(A) of the Digital Millennium Copyright Act makes it a violation of the act to “circumvent a technological measure that effectively controls access to a work protected under the title.” The court found that Psystar violated this section of the statute when it used decryption software to circumvent the security measures Apple built into Mac OS X to prevent it from running on non-Apple computers. Furthermore, Psystar also violated § 1201(a)(2), which prohibits trafficking in technology designed to circumvent protections on a work covered by the act, by marketing the computers featuring its hacked version of OS X. If this weren’t enough bad news for Psystar, the court also found that every time a computer with their circumvention installed was turned on they committed yet another violation of the DMCA (§1201(b)) by creating another copy of their modified OS X in the computer’s memory.

Copyright Misuse – Psystar Grabs At A Straw

In its cross-motion for summary judgment Psystar claimed that Apple was guilty of copyright misuse. Copyright misuse can be understood as a legal cousin of antitrust violation (a theory already proposed by Psystar and rejected by the court). Copyright misuse occurs when a copyright is used in a way that violates the public policy embodied in copyright law. This is a rather nebulous concept, which the court acknowledged, but the line demarcating misuse in the case law seems to be that a licensing agreement for use of a copyrighted work cannot go so far as to attempt to control competition outside the copyright. The court illustrated such an overreaching licensing agreement by citing the  Fourth Circuit case of Lasercomb America v. Reynold, Inc., 911 F.2d 970 (4th Cir. 1990). In Lasercomb America, Lasercomb sold a software program on the condition that buyers agree to noncompete language which would prohibit them from developing their own software in that area. Apple’s refusal to allow OS X to be installed on non-Apple machines is distinguishable because it seeks only to control the use of their own software and is therefore not a violation.

Moving Forward

Apple hasn’t yet filed a motion on its non-copyright claims—breach of contract, induced breach of contract, trademark infringement, trademark dilution, trade dress infringement, state unfair competition, and common law unfair competition—which remain for trial.  Additionally, Apple hasn’t asked for a permanent injunction yet, but it seems inevitable at this point.  As of November 21, 2009, “Hackintosh” computers can still be purchased on Psystar’s website.

The full text of the summary judgment order is available here.

By Ben Liebowitz and Michael Holloway