Mac clone company silent on court risk

Psystar is currently selling Open Computers with Apple's Mac OS X Leopard preinstalled, in what appears to be a clear violation of Apple's software licence agreement.

These types of agreements, known as end user licensing agreements (EULAs) have been upheld by several US court rulings as valid contracts between a software maker and a customer, even if the customer didn't have a chance to read the licensing agreement until after they purchased the product.

Psystar's Open Computer, which appears likely to face a legal challenge from Apple in due time.

(Credit: CNET Networks)

Specific provisions of EULAs have been deemed unlawful, but the general concept that software customers licence software, rather than purchase it, has endured.

According to legal experts, Psystar will need a significant amount of cash to fight off Apple's likely challenges on several different fronts. While Psystar might be able to make some headway, their only apparent hope of scoring a decisive win is to file an antitrust suit and convince a court that Apple's domination of the market for computers running Mac OS X is harming consumers.

Rudy Pedraza, the head of Psystar, said that on the advice of his lawyers he was unable to comment on the legal issues potentially facing Psystar, although he did say that the company has yet to receive any contact from Apple. An Apple representative declined to comment on Psystar.

The looming Psystar-Apple battle centres on the licensing agreement that Apple requires Leopard users to accept if they want to use the product, in much the same manner as almost every piece of software sold in the world. The most pertinent line is probably this one: "This Licence 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."

There's little doubt Psystar is installing Apple software on non-Apple-labeled computers, said Richard Vermut, a lawyer with Rogers Towers in Florida who specialises in software licensing and technology patent matters. "Generally speaking, a software developer has the right to sell software with these shrink-wrap licences, or end-user agreements, and they are enforceable" unless the terms of the licence would harm the consumer or otherwise violate existing laws, he said.

The precedent for enforcing these types of licences dates back to a 1996 case called ProCD vs. Zeidenberg, Vermut said. Back in the early 1990s, ProCD sold a specially organised compilation of a phone directory on a compact disc that Matthew Zeidenberg copied onto his hard drive and made available over the Internet for a cheaper price. ProCD sued Zeidenberg, claiming he was violating the terms of the licence that came along with the software by redistributing the software.

To enter into a contract, the terms of the contract have to be "offered and accepted," Vermut said. The lower district court said the licences were not enforceable because the terms were on the inside of the package, and therefore couldn't be accepted before purchasing the product. But the U.S. Court of Appeals for the 7th Circuit overturned that ruling, determining that "shrink-wrap licenses are enforceable unless their terms are objectionable on grounds applicable to contracts in general (for example, if they violate a rule of positive law, or if they are unconscionable)."

In the ProCD case, Zeidenberg had the opportunity to review the licence prior to installing the software on his computer, and his decision to click "I agree" constitutes acceptance of the terms of that licence, the appeals court ruled. If you can back out of the deal after reading the terms, by declining to install the software or returning the box, you've asserted your right-of-refusal under that ruling.

"There are a lot of problems with shrinkwrap licences, but there's a good chance the court would find it enforceable," said Chris Ridder, a fellow at Stanford Law School's Centre for Internet and Society.

Roger Towers' Vermut agreed. "For the most part, looking at more recent cases, courts are following ProCD," he said. "There still isn't any appellate court decision that is giving wholesale refusal to recognise this type of licensing."

One argument that Psystar could try to advance is that when you purchase software, the company is actually selling it to you, not leasing it with certain rights granted the way things exist now, Stanford's Ridder said. This would allow Psystar to invoke the "first-sale doctrine" that allows owners of copyright works to sell or redistribute that product without running afoul of copyright restrictions.

Psystar's best shot — albeit a long one — at keeping its doors open for business would be to argue that Apple is illegally tying the purchase of its operating system to the purchase of its hardware because it has a monopoly on the sale of Mac OS X-based computers, said Jim Burdett, an attorney with Venable in Washington, DC.

Burdett, a lawyer at Compaq during what he jokingly called the "First Clone Wars" said Psystar would have to convince a judge that the relevant market in this case is limited to just Mac OS X-based computers, not personal computers in general. Although Apple has a very small share of the general personal computer operating system market but a rather large share of the Mac OS X market.

"It would be an interesting situation to argue from the Sherman Act side, if you had the money," Burdett said. "I don't think it's too insurmountable, it's just a very costly issue to raise."