Psystar: Apple Is a Monopoly, Countersuit Claims
MARK HACHMAN - PC Magazine

Psystar representatives said they filed a countersuit against Apple on Thursday, arguing that a market could exist for third-party Mac clones, if not for the legal and technical barriers that Apple has set up.

Psystar charged Apple with restraint of trade, unfair competition and other violations of antitrust law in a 54-page complaint filed in the Northern California Division of the United States District Court and emailed to reporters.

In April, Psystar began selling the so-called OpenMac, a name that was eventually changed to the "Open Computer". The Open Computer uses a modified version of Apple's OS X, according to Apple's suit, and provided unauthorized patches that Apple claimed were simply copied from its own Web site. A similar Openserv server sold by Psystar allegedly used the Mac OS X Server edition.

In a suit filed July 8 in a California district court, Apple charged Psystar with eight claims of copyright infringement, breach of contract, trademark and trade infringement, and unfair competition.

But Psystar shot back this week, arguing that Apple itself should be forced to allow competition. Psystar argued that a third party, like itself, could build a generic computer that used the Apple OS, but for Apple's technical and licensing restrictions. The premiums Apple charges versus comparable products running the Microsoft Windows OS also fail a key test of anticompetitive law, Psystar said, which has allowed Apple to carve out a market in which it is the only supplier.

In a statement issued by Carr & Ferrell, Psystar's legal counsel, attorney Colby Springer said "the present litigation is more complex than the misinformed and mischaracterized allegations of copyright infringement," he said. "The litigation involves the anti-competitive nature of the Apple EULA and similar anti-competitive tactics related to the misuse of Apple's copyrights. Issues related to the fair use of various intellectual properties by Psystar also come into play."

As of press time, the complaint was not available on PACER, the database used by the U.S. court system, although a Carr & Ferrell representative said it had been filed. Carr & Ferrell supplied the complaint to reporters.

Psystar: Cloned hardware, but not software

Psystar admitted in its complaint that it had sold an "OpenMac" for several hours. But the company denied that it sells any computer, under any name, with a "modified, unauthorized version of the Leopard operating system," apparently referring to Apple's OS X operating system under its old code name, rather than OS X 10.3 "Panther" or the upcoming "Snow Leopard". Psystar also denied that it has made copies of the Leopard software for sale, that it had made copies of the patches Apple puts out, or that it had generated its own, modified copies â•„ all allegations that Apple had made.

Psystar did admit that it was aware that Apple prohibits the use of the Mac OS on non-Apple hardware, as Apple has stated in the past. But the company challenged what constituted, in its words, what an "Apple-Labeled Computer Hardware System" was, and argued that there exists a "Mac OS Capable Computer Hardware System" that could exist completely independent of Apple, if the court ordered Apple to open its hardware.

"Psystar alleges that there is no technical reason that a third party could not accumulate and assemble the hardware components in an Apple-Labeled Computer Hardware System such that said system would be capable of running the Mac OS, that is, such that the system would constitute a Mac OS Capable Computer Hardware System," Psystar said in its complaint. "On information and belief Psystar alleges that but for the exclusionary conduct of Apple and other conduct amounting to unfair competition, as set forth in greater detail herein, and as exemplified by the activities of Psystar, a third-party could and would assemble the hardware components capable of running the Mac OS."

"â•œThat but for the anticompetitive conduct of Apple as outlined herein, Apple-Labeled Computer Hardware Systems would otherwise be a competing member of the otherwise diverse Mac OC Capable Computer Hardware Systems market," the company's complaint added. That is, Apple's anticompetitive conduct has created a subsidiary market within the Mac OS Capable Computer Hardware Systems market of which Apple is the only member and wields monopoly power."

As proof, Psystar said that a MacBook with a 2.1GHz Intel Core 2 Duo processor, 1GB memory, 120GB hard drive, and combo drive sells for approximately $1,099.00 from the apple.com website. A similarly configured computer running retails at dell.com for approximately $674.00, which is nearly $500 less than that of the Mac. A similar premium exists for the MacBook Pro.

The company then made the argument that Windows fails to provide a competitive alternative to the Apple OS, citing the large base of so-called "fanboys" that would defend the company and its products. "Any other operating system, including but not limited to the Windows operating system lacks the potential or ability to deprive Apple of its customers, especially at a significant level of business as it concerns the Mac OS," the complaint said.

Psystar also cited Apple's own statements that said it would permit Windows to run on its own computers, but not allow the Mac OS to run on PCs built for the Windows OS. If a Mac detects non-authorized Apple hardware, such as that could be used to create a Mac clone, Psystar said that the Mac enters into a "kernel panic" mode and can shut down.

That, in turn, means that only a computer market based an Apple OS could compete against Apple's own products, the justification for Psystar's products and its suit.

According to Psystar, the premium Apple charges is a "small but significant non-transitory increase in price," or SSNIP, a test used in antitrust law to determine whether a company is acting as an illegal monopoly. Psystar said it believes Apple can charge such a SSNIP without customers leaving it to buy a competing device, such as a Windows PC.

Since Apple filed suit against Psystar, "we have seen increased interest in OpenComputer with only a slight decrease in sales" said Rudy Pedraza, Psystar's chief executive, in a statement. With OpenComputer, "we are allowing more people to take advantage of a great operating system that Apple has created at a more accessible cost than the pricey Mac."

Psystar is asking for damages and for the court to issue an injunction halting Apple's alleged anticompetitive practices.