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`IN THE UNITED STATES DISTRICT COURT
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`FOR THE NORTHERN DISTRICT OF CALIFORNIA
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`APPLE INC., a California corporation,
`Plaintiff,
`
` v.
`PSYSTAR CORPORATION, a Florida
`corporation, and DOES 1-10, inclusive,
`Defendants.
` /
`
`No. C 08-03251 WHA
`
`ORDER RE DEFENDANT’S
`MOTION TO COMPEL AND
`PLAINTIFF’S CROSS-MOTION
`FOR PROTECTIVE ORDER
`
`INTRODUCTION
`Defendant Psystar Corporation has moved to compel Apple Inc. to provide evidence
`regarding the injury Apple has allegedly suffered, including profit margins. In turn, Apple has
`filed a cross-motion for a protective order to prevent Psystar from seeking information
`regarding its profit margins on the sale of its computer models. Because Apple’s profit margins
`are not required for either parties’ claims or defenses in this action, Psystar’s motion to compel
`is DENIED, and Apple’s motion for a protective order is GRANTED.
`STATEMENT
`This discovery dispute began with the Rule 30(b)(6) deposition of Philip Schiller
`regarding Apple Inc.’s injury. In July, Psystar Corporation served Apple with a Rule 30(b)(6)
`deposition notice. Mr. Schiller was designated as Apple’s corporate representative with respect
`to topic 3 in the deposition notice, which sought testimony as to the following:
`The injury suffered by Apple as a result of the allegedly unlawful
`acts about which Apple complains in this action and the injury
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`For the Northern District of California
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`United States District Court
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`that Apple is likely to suffer if these acts continue, including but
`not limited to the amount and manner of calculation of any lost
`profits, and distinguishing between the injury caused by each
`unlawful act in which Apple alleges that Psystar engaged.
`Apple responded that it would “provide a witness to testify on injury suffered by Apple as a
`result of the unlawful acts committed by Psystar that Apple complains about in this action.”
`Mr. Schiller, although designated on the topic of injury, would not testify on the subject. After
`a discovery hearing on the cross motions at issue, the Court allowed the parties to submit
`supplemental briefing.
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`ANALYSIS
`Psystar claims that Apple’s profit margins are relevant to a number of claims and relief,
`namely (1) Apple’s request for statutory damages for copyright infringement; (2) Psystar’s
`claim for copyright misuse; (3) Psystar’s defenses to claims with actual damages, particularly
`trademark infringement; and (4) Apple’s request for permanent injunctive relief. Apple
`counters that its profit margin information is not relevant. Significantly, Apple does not seek
`lost profits as a measure of its actual damages in this action (Apple Supp. Br. 2).
`1.
`COPYRIGHT INFRINGEMENT.
`Psystar first contends that Apple’s profit margins are relevant to statutory damages for
`copyright infringement. The Copyright Act provides that “an infringer of copyright is liable for
`either — (1) the copyright owner’s actual damages and any additional profits of the infringer, as
`provided by subsection (b); or (2) statutory damages, as provided by subsection (c).” 17 U.S.C.
`504(a). Subsection (b) of the Act states that:
`The copyright owner is entitled to recover the actual damages
`suffered by him or her as a result of the infringement, and any
`profits of the infringer that are attributable to the infringement and
`are not taken into account in computing the actual damages. In
`establishing the infringer’s profits, the copyright owner is
`required to present proof only of the infringer’s gross revenue,
`and the infringer is required to prove his or her deductible
`expenses and the elements of profit attributable to factors other
`than the copyrighted work.
`Subsection (c) of the Act provides, in pertinent part, that:
`[T]the copyright owner may elect, at any time before final
`judgment is rendered, to recover, instead of actual damages and
`profits, an award of statutory damages for all infringements
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`involved in the action, with respect to any one work, for which
`any one infringer is liable individually . . . in a sum of not less
`than $750 or more than $30,000 as the court considers just.
`Here, Apple has elected to seek either Psystar’s profits or statutory damages rather than actual
`damages for its copyright infringement claim. Apple may elect statutory damages regardless of
`the adequacy of the evidence offered as to its actual damages and the amount of defendant’s
`profits, and even if it has intentionally declined to offer such evidence, although it was
`available. See 4-14 NIMMER ON COPYRIGHT § 14.04 (2009); see also L.A. News Serv. v. Reuters
`TV Int’l, 149 F.3d 987, 996 (9th Cir. 1998) (“a plaintiff may recover statutory damages whether
`or not there is adequate evidence of the actual damages suffered by plaintiff or of the profits
`reaped by defendant”).
`The district court has wide discretion in assessing statutory damages. To determine the
`amount of statutory damages, courts consider such factors as
`(1) the expenses saved and the profits reaped; (2) the revenues
`lost by the plaintiff; (3) the value of the copyright; (4) the
`deterrent effect on others besides the defendant; (5) whether the
`defendant’s conduct was innocent or willful; (6) whether a
`defendant has cooperated in providing particular records from
`which to assess the value of the infringing material produced; and
`(7) the potential for discouraging the defendant.
`Microsoft Corp. v. Nop, 549 F. Supp. 2d 1235, 1237 (E.D. Cal. 2008). Notably, the factors
`include the profits reaped by defendant and the revenues lost by plaintiff, not the plaintiff’s
`profits.
`
`To argue otherwise, Psystar primarily relies on Bly v. Banbury Books, Inc., 638 F. Supp.
`983 (E.D. Pa. 1986). But that decision does not support Psystar’s argument. Bly stated:
`“While it is clear that to require a plaintiff to adduce specific proof of actual damages or
`profits would contravene the purpose of the statutory damages provision, this does not mean
`that it is irrelevant whether and to what extent a plaintiff has been harmed by a defendant’s
`infringement.” Id. at 987 (internal citations omitted) (emphasis added). Bly went on to say that
`some courts have held that statutory damages should bear some relation to actual damages
`suffered. In Bly, the plaintiff moved for summary judgment and sought statutory damages for
`copyright infringement. The defendant argued that statutory damages should not be awarded in
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`the absence of evidence of the losses to plaintiff or the gains to defendant resulting from
`defendant’s infringement, and the plaintiff argued that such proof was not relevant. In
`ultimately deciding to award $250 as minimal statutory damages in the absence of any proof of
`plaintiff’s actual damages, the Bly court pointed to the legislative history, which stated “the
`plaintiff in an infringement suit is not obliged to submit proof of damages and profits and may
`choose to rely on the provision for minimum statutory damages.” Id. at 987–88 (quoting H.R.
`REP. NO. 1476, 94TH CONG., 2D SESS. 161 5777) (emphasis added). Likewise, Apple is not
`obliged to provide proof of its own profits when it has elected to seek statutory damages.
`Psystar’s other citations similarly did not explicitly require the copyright owner to
`provide proof of its profit margins when seeking statutory damages. See, e.g., Feltner v.
`Columbia Pictures TV, 523 U.S. 340, 355 (1998) (providing “a right to a jury trial on all issues
`pertinent to an award of statutory damages under § 504(c) of the Copyright Act, including the
`amount itself”); BMW of North America v. Gore, 517 U.S. 559, 581 (1996) (addressing
`due-process challenges to a punitive damages award by examining the ratio of the punitive
`damages to the actual harm inflicted on the plaintiff).
`In conclusion, Psystar has not demonstrated that evidence of Apple’s profit margins is
`required for Apple to seek statutory damages for its copyright infringement claim.
`2.
`TRADEMARK INFRINGEMENT.
`Psystar also contends that Apple’s profit margin information is relevant for Psystar’s
`defenses to any claims for actual damages, specifically Apple’s trademark-infringement claims.
`Psystar states that Apple had not yet made an election to limit its trademark claims to statutory
`damages. Apple, however, represents that it seeks only injunctive relief for its
`trademark-infringement claims (Reply Br. 1). As such, actual damages are not at issue for the
`trademark claims and Psystar’s argument on this point is moot.
`3.
`INJUNCTIVE RELIEF.
`Psystar also argues that Apple’s profit margins are relevant to Apple’s request for a
`permanent injunction. The Supreme Court has stated that
`A plaintiff seeking a permanent injunction must satisfy a
`four-factor test before a court may grant such relief. A plaintiff
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`must demonstrate: (1) that it has suffered an irreparable injury;
`(2) that remedies available at law, such as monetary damages, are
`inadequate to compensate for that injury; (3) that, considering the
`balance of hardships between the plaintiff and defendant, a
`remedy in equity is warranted; and (4) that the public interest
`would not be disserved by a permanent injunction.
`eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
`Pursuant to the four-factor test, Apple must prove it has suffered irreparable harm.
`Other than for trademark infringement claims, there is no presumption of irreparable harm with
`respect to a permanent injunction. “[I]rreparable harm may not be presumed, but in
`run-of-the-mill copyright litigation, such proof should not be difficult to establish. Thus,
`[p]laintiffs may establish an irreparable harm stemming from the infringement (e.g., loss of
`market share, reputational harm).” MGM Studios, Inc. v. Grokster, Ltd., 518 F. Supp. 2d 1197,
`1215 (C.D. Cal. 2007) (internal citations omitted). To obtain a permanent injunction, Apple
`contends it will attempt to show injury to its brand’s goodwill and business reputation as well as
`try to prove that Psystar induced copyright infringement and circumvented Apple’s protection
`measures in violation of the Digital Millennium Copyright Act.
`Psystar cites to several Fifth Circuit decisions to support its argument that it needs
`Apple’s lost profit data to show Apple has not suffered harm that is incalculable or irreparable.
`None of those decisions, however, expressly stated that a plaintiff must produce evidence of lost
`profits. In passing, z4 Techs stated that the plaintiff would not “suffer lost profits, the loss of
`brand name recognition or the loss of market share” and “[t]hese are the type of injuries that are
`often incalculable and irreparable.” z4 Techs., Inc. v. Microsoft Corp., 434 F. Supp. 2d 437,
`440 (E.D. Tex. 2006). There, the plaintiff’s motion for a permanent injunction was denied,
`because the plaintiff could be compensated for any harm by calculating a reasonable royalty for
`defendant’s continued use of the product at issue. Id. at 441.
`The other cited decisions merely stand for the proposition that the “lost goodwill of a
`business operated over a short period of time is usually compensable in money damages,” and
`they did not address profit margin data in relation to lost goodwill. See DFW Metro Line Servs.
`v. Southwestern Bell Tel. Co., 901 F.2d 1267, 1269 (5th Cir. 1990) (denying preliminary
`injunction where the plaintiff was only in business for one and a half years and any injury could
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`be calculated and recompensed in the form of damages); GTE Card Services Inc. v. AT&T
`Corp., 1997 WL 74712, at *3 (N.D. Tex. Feb. 12, 1997) (denying preliminary injunction where
`the plaintiff’s business was not yet one year old and the availability of monetary damages
`precluded a showing of irreparable injury).
`In a conclusory fashion, Psystar also argues that financial profit data is necessary for
`Psystar to later show that monetary damages would be adequate and to demonstrate that the
`balance of hardships between the parties does not require an equitable remedy. Again, the few
`decisions Psystar cites are inapposite and do not shed any light on its assertion that lost profit
`data is necessary. See Smith v. Sprint Comm’s. Co., 1996 WL 1058204, at *4 (N.D. Cal.
`Sept. 13, 1996) (stating that the “evaluation of a claim for injunctive relief does not require the
`Court to calculate damages” and concluding plaintiff could not plead irreparable harm because
`she paid the telephone company’s filed rate and money damages from the telephone company
`would suffice to compensate her); Lauratex Textile Corp. v. Allton Knitting Mills, Inc., 519
`F. Supp. 730, 732 (S.D.N.Y. 1981) (granting permanent injunction because money damages
`would not suffice when there was a strong probability that the defendant would continue to
`infringe plaintiff’s copyright in the future).
`In sum, Psystar has not shown that Apple’s profit margins are necessary for a
`determination as to a permanent injunction.
`4.
`COPYRIGHT MISUSE.
`Psystar has asserted a claim for copyright misuse. The copyright misuse doctrine
`“forbids the use of the [copyright] to secure an exclusive right or limited monopoly not granted
`by the [Copyright] Office and which is contrary to public policy to grant.” Altera Corp. v.
`Clear Logic, Inc., 424 F.3d 1079, 1090 (9th Cir. 2005). “The misuse defense prevents
`copyright holders from leveraging their limited monopoly to allow them control of areas outside
`the monopoly.” A&M Records v. Napster, Inc., 239 F.3d 1004, 1026 (9th Cir. 2001).
`According to Psystar, “Apple’s profit margins are relevant in this case because a
`reasonable juror might consider them in deciding whether Apple has used its copyright in Mac
`OS X to diminish competition in the market for personal computers” (Psystar Supp. Br. 13).
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`Citing no support, Psystar argues that if Apple’s profit margins are unusually large, then this
`suggests that Apple’s alleged efforts to limit competition in the market for personal computers
`have been successful. There, however, has been no demonstration that such evidence would be
`probative. On a related point, a court in this district excluded evidence of excessive profits
`under FRE 403 and stated:
`First of all, the probative value of HTC’s evidence of
`“supracompetitive” profits was very weak. Many courts have
`disparaged the evidentiary value of high profits to indicate
`monopoly power. See, e.g., In Re IBM Peripheral EDP Devices,
`Etc, 481 F. Supp. 965, 981 (N.D. Cal. 1979) (“the inference that a
`defendant that enjoys healthy profits only does so because of an
`unhealthy market structure is not a strong one”); Forsyth v.
`Humana, Inc., 827 F. Supp. 1498, 1511 (D. Nev. 1993) (“proof of
`excessive profits . . . may be misleading and subject to several
`interpretations”). After all, high profits may be indicative of a
`variety of factors other than a monopoly power, such as an
`extraordinary market, operating efficiency, or high-quality
`management.
`
`* * *
`Second, the danger of prejudice, unfair confusion, and misleading
`the jury from introducing the “supracompetitive” profit evidence
`was high. HTC could have used the evidence of the Mercury
`News’ high profits to play on “David versus Goliath” sympathies.
`High Technology Careers v. San Jose Mercury News, 1995 WL 115480, at *3 (N.D. Cal.
`Mar. 14, 1995) (Judge Williams). Similarly, in this action, whether or not Apple has high profit
`margins will provide little, if any, evidentiary value for Psystar’s copyright misuse claim.
`It is true that some courts have looked to anticompetitive conduct when evaluating
`copyright misuse claims, but that did not include an examination of high profits. See, e.g.,
`Assessment Techs. of WI, LLC v. WIREdata, Inc., 350 F.3d 640, 647 (7th Cir. 2003); Practice
`Mgmt. Info. Corp. v. AMA, 121 F.3d 516, 520 (9th Cir. 1997); Lasercomb America, Inc. v.
`Reynolds, 911 F.2d 970, 972 (4th Cir. 1990). In the absence of any showing that Apple’s profit
`margins are necessary to address Psystar’s copyright misuse claim, Psystar’s request is denied
`on this ground.
`
`CONCLUSION
`For the foregoing reasons, defendant Psystar’s motion to compel testimony regarding
`Apple’s profit margins is DENIED, and Apple’s motion for a protective order excluding Apple’s
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`product line profit margin information is GRANTED. If it turns out that there is a plausible way
`in which Apple’s profit margin would be relevant, then it will be presumed and the jury will be
`told that the amount of the profit margin would have been adverse to Apple with respect to that
`question. With this final caveat, there can be no prejudice to Psystar.
`IT IS SO ORDERED.
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`Dated: September 22, 2009.
`
`
`WILLIAM ALSUP
`UNITED STATES DISTRICT JUDGE
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