Apple

This was originally published at ZDNet's Between the Lines.

Google CEO Eric Schmidt has resigned from Apple's board but that won't be enough to curtail a probe by the Federal Trade Commission.

In a terse statement, FTC bureau of competition director Richard Feinstein said:

We have been investigating the Google/Apple interlocking directorates issue for some time and commend them for recognizing that sharing directors raises competitive issues, as Google and Apple increasingly compete with each other. We will continue to investigate remaining interlocking directorates between the companies.

Reuters reports that Schmidt's resignation would usually close an FTC investigation of interlocking boards. However, former Genentech CEO Arthur Levinson is on the boards of Apple and Google.

It's likely Levinson will be forced to pick one of the companies.

A federal judge is letting Mac clone maker Psystar amend its legal defense against Apple.

Psystar was delivered a blow in November, when Judge William Alsup of the U.S. District Court in Northern California dismissed Psystar's antitrust claims against the Cupertino, Calif.-based Mac maker. The antitrust suit was a response to a copyright and trademark infringement suit Apple filed in July against Psystar, whose OpenComputers are designed to run the Mac OS X operating system.

In its amended complaint, Psystar accuses Apple of copyright misuse, as well as unfair competition violations based on its alleged copyright misuse.

Judge Alsup, in citing a previous case--Practice Management Information Corp v. American Medical Association--notes in his order:

Copyright misuse does not invalidate a copyright, but precludes its enforcement during the period of misuse." Practice Management, 121 F.3d at 520 n.9. Moreover, "a defendant in a copyright infringement suit need not prove an antitrust violation to prevail on a copyright misuse defense." Id. at 521.

While Judge Alsup found in Psystar's favor by allowing the company to continue its counterclaim with a misuse-of-copyright argument, he denied its motion to amend its claim that Apple's copyright-oriented conduct threatens or harms competition.

Psystar argues that the alleged misuse is, "at the least, unfair in that Apple has attempted (and continues to attempt) to extend the reach of its copyrights by tying them to computer hardware not otherwise protected by the Copyright Act." (Reply at 12). It fails to explain, however, how this conduct constitutes harm to competition or a violation of the spirit of the antitrust laws.

In the context of single-firm conduct, tying requires monopolization. Psystar has identified none--other than the limited monopolies inherent in the copyrights themselves.

According to a report in Computerworld, a trial for the case is set to begin on November 9.

Psystar's Open Computer might be an endangered species after its antitrust claim against Apple was dismissed Tuesday.

(Credit: Psystar)

A federal judge has tossed out Psystar's antitrust lawsuit against Apple, one of its most important avenues to remaining in business.

Judge William Alsup of the U.S. Federal Court for the Northern District of California rejected Psystar's argument that Apple uses anticompetitive practices to prevent companies from selling computers that run Mac OS X, according to court documents spotted by AppleInsider. Psystar can amend its complaint in order to try to convince the judge that it has a better argument, but it has only 20 days to decide whether or not it can overcome the judge's decision.

Psystar has been selling Mac OS-based computers since April, but is under attack in the court system from Apple, which filed a suit against the company in July. Psystar in turn filed its own antitrust complaint against Apple, which some legal observers thought was the company's best chance of winning the dispute and staying in business.

But Alsup was not convinced. He rejected Psystar's argument that the relevant market in this case consisted of a single product: Mac OS. "The pleadings...fail to allege facts plausibly supporting the counterintuitive claim that Apple's operating system is so unique that it suffers no actual or potential competitors," he wrote in his opinion (click here for a PDF copy).

If Psystar fails to come up with a better argument, its counterclaim will be formally dismissed and it will have to get ready to defend itself against Apple's claims that it is infringing on Apple's copyright material and trademarks.

Mac clone maker Psystar officially responded to Apple's copyright infringement lawsuit on Thursday by filing a countersuit that alleges anticompetitive business practices.

As expected, the 54-page complaint, filed in U.S. District Court for the Northern District of California, charges Apple with restraint of trade, unfair competition, and other violations of antitrust law. Miami-based Psystar, owned by Rudy Pedraza, requests that the court find Apple's end-user license agreements (EULA) void and seeks unspecified compensatory and punitive damages.

"The present litigation is more complex than the misinformed and mischaracterized allegations of copyright infringement," attorney Colby Springer, of antitrust specialists Carr & Ferrell, said in a statement. "The litigation involves the anticompetitive nature of the Apple EULA and similar anticompetitive tactics related to the misuse of Apple's copyrights."

Psystar argues that its OpenComputer product is shipped with a fully licensed, unmodified copy of Mac OS X, and that the company has simply "leveraged open source-licensed code including Apple's OS" to enable a PC to run the Mac operating system.

Pedraza said says his company is "allowing more people to take advantage of a great operating system that Apple has created at a more accessible cost than the pricey Mac."

Apple will have 30 days to respond to Psystar's countersuit and so far has declined to comment on the case.

Legal experts say Psystar faces a tough legal challenge in proving Apple has engaged in antitrust behavior by loading its software on its own hardware and thereby allegedly harming consumers and competitors. Psystar's ability to prevail on the issue of having the latitude to load Apple's OS on its own hardware, given it has a licensing agreement with the company, may prove an easier row to hoe, legal experts note.

A newcomer to the PC scene, Psystar caused a stir when it first went online selling white-box Macs earlier this year. The site went down hours after it opened for business because the company was overwhelmed with orders for the OpenComputer, originally called the OpenMac. The site went down several more times as its payment-processing company pulled its services from the Psystar site. Psystar managed to stay shrouded in a bit of mystery for a while, until intrepid gadget-blog readers joined the press in fleshing out some details about the company.

Psystar eventually got back online with a new payment-processing service, and it continues to take orders for the OpenComputer and OpenPro Computer. When Apple finally did file suit against Psystar in July, it surprised nearly no one--except perhaps Pedraza. He said he had no contact with Apple before legal papers were filed against his company. Customarily, there is some sort of communication between companies before lawsuits are filed.

CNET News' Erica Ogg contributed to this report.

Updated 10:00am PT with statement from AMD

Intel's business practices will come under the scrutiny of the U.S. Federal Trade Commission, which has opened a formal antitrust investigation of the chipmaker.

The New York Times, citing lawyers and government officials, reported on Friday morning that subpoenas have begun to arrive at the offices of the world's major PC companies.

Intel has been under intense scrutiny in other parts of the world, especially in Europe, South Korea, and Japan, but it has faced little objection to its business practices here at home in recent years, other than a recent investigation launched at the state level by New York Attorney General Andrew Cuomo.

An FTC representative declined to comment on the investigation, citing its policy of neither confirming nor denying the existence of any ongoing investigations. But Intel confirmed the investigation in a statement issued Friday morning.

"On June 4, the U.S. FTC served a subpoena related to Intel's business practices with respect to competition in the microprocessor market. Since 2006, Intel has been working closely with the FTC on an informal inquiry into competition in the microprocessor market, and has provided the commission staff with a considerable amount of information and thousands of documents," according to the statement. "By proceeding to a subpoena, the commission will be able to obtain not only information that Intel has already committed to provide but also information from other parties. Consistent with its standard practice, Intel will work cooperatively with the FTC staff to comply with the subpoena and continue providing information."

Intel's main opponent, Advanced Micro Devices, has filed an antitrust suit against the company in the federal courts over Intel's alleged practice of offering favorable pricing discounts to PC makers in exchange for keeping AMD's chips out of their system, which Intel has denied. That case is winding its way through the court system, and it shows no signs of coming to a trial anytime soon.

UPDATED 10:00 am PT - AMD issued a statement after news of the investigation was released. "Intel must now answer to the Federal Trade Commission, which is the appropriate way to determine the impact of Intel practices on U.S. consumers and technology businesses. In every country around the world where Intel's business practices have been investigated, including the decision by South Korea this week, antitrust regulators have taken action."

Advanced Micro Devices on Monday resurrected its old allegations against Intel, although it kept the salacious details under a thick layer of black ink.

AMD filed a heavily redacted brief as part of its ongoing antitrust case against Intel, saying it has new, specific evidence of Intel's misconduct but blacking out almost all of the evidence in the brief. AMD filed suit in 2005, claiming that Intel has used intimidation and predatory pricing to coerce PC and server vendors into excluding AMD's chips from their products. Intel denies all charges.

In its initial complaint, AMD claimed to have evidence of Intel's wrongdoing but has never shared specific allegations against individuals, or explained exactly how Intel's tactics were deployed. Now, it claims to have at least shared them with the court, although because specific individuals are named the redactions are apparently necessarily. The document is pretty much unreadable; I liked The Register's take on it.

Despite AMD's claims that it cites "chapter and verse" in the brief, as AMD's chief lawyer told The Wall Street Journal, the footnotes of the brief appear to be signals of who AMD needs to depose to prove its allegations. For example, following the first section in which AMD apparently lays out specific (if redacted) complaints involving Intel's dealings with Dell, the company's lawyers write: "Plaintiffs will likely need to depose witnesses from various levels of the Intel and Dell organizations to establish that (interesting, juicy part redacted)."

This case remains in the discovery phase, and any trial appears very far off.

Intel is set to defend itself next week against anticompetitive charges brought by the European Commission.

This saga has dragged on for several months, although not quite reaching the epic proportions of the antitrust case filed against Intel in the U.S. by AMD. The EC has accused Intel of anticompetitive business practices in Europe such as pressuring customers to use Intel PCs with rebate checks and selling chips below cost, practices Intel has denied.

Intel will get to argue its answer to the statement of objections delivered by the EC during a hearing scheduled for Tuesday and Wednesday, according to IDG News Service. Reuters said a decision is unlikely to be made next week, as the hearing official will merely submit a report to Neelie Kroes, the competition commissioner for the European Union.

It's much easier to analyze data when you've already determined what you want to conclude.

The author of the "economic study" produced by the ERS Group on behalf of AMD's antitrust lawyers, O'Melveny & Myers, said that his analysis of Intel's profits over the last 10 years assumed from the start that Intel was guilty of anticompetitive behavior, rather than reaching that conclusion based on the data. Michael Williams, director of the ERS Group, calculated that Intel has pocketed $60 billion in ill-gained profits after a thorough exercise that seems to have been undertaken merely to lend some validity to a number for AMD's press releases.

Pressure is certainly building on Intel after the European Commission's decision to send the company a "statement of objections," asking it to explain behavior that the EC's Competition division thought was anticompetitive. But that's hardly a guilty verdict; Intel has 10 weeks to respond.

Rather than wait to see the final outcome, however, AMD seized on the distraction from its recent financial performance and began pouring on the rhetoric. AMD's study (don't pretend ERS stumbled upon this data and brought it to CEO Hector Ruiz's attention) concludes that Intel "extracted" $60 billion in "monopoly profits" during the 10-year period from 1996 to 2006.

Williams said the analysis was based on the work of Merton Miller and Franco Modigliani, who won a Nobel Prize for their method of determining economic value. It involves figuring out what Intel's total profits were for the 10-year period ($141.8 billion), subtracting Intel's cost of capital ($54.2 billion, or what ERS estimates is Intel's cost of securing investment in its microprocessor business) and determining that Intel earned $87.7 billion in "economic profits," a rate of economic return of 16 percent.

ERS thinks that's unusually high. Williams said the average economic rate of return for the semiconductor industry over that period of time was negative 7.7 percent. Rather than look for other reasons why Intel's number might be high, however, Williams immediately assumes that based on the goings-on in Europe and Japan, those profits must have been gained from monopoly behavior.

"Only four companies earned economic returns of 16 percent or more--Microsoft (38.25 percent), UST Inc. (28.54 percent), Coca-Cola Co. (16.58 percent), and Intel (16.01 percent)--and each of these companies has been associated with antitrust determinations," we learn. But remember, "of course, high economic returns by themselves do not demonstrate anticompetitive conduct."

So, ERS "generously" assumes that some of Intel's profits can be attributed to its strengths as a company, whether that's a recognizable brand, deep patent portfolio, or the tendency of its only major competitor to screw up every five years. It decides that five percentage points, or $27.3 billion, is in the clear, arriving at a nice round $60 billion profit figure as the tainted spoils of Intel's predatory conduct.

So basically, the study was an exercise in assigning a number to throw around in AMD's press releases. After all, if you assume that the vast majority of someone's profits stem from their monopoly position, does it really matter whether the final number is $20 billion, $40 billion, or $60 billion?

"By any standard, Intel has earned extraordinary profits," Williams said. "I'm assuming some of those profits are derived from anticompetitive conduct. There's some chance I'm wrong."

Look, Intel dominates the x86 processor market. And it certainly does have to worry about the EC proceedings and the U.S. antitrust trial. But if anybody at AMD actually reads this thing, here's some free PR advice: the horse is dead.

If Intel is in fact guilty of using a dominant position to hurt AMD's business prospects, either AMD or the government needs to prove that in court. No major PC executive or ex-executive has stepped forward to corroborate AMD's claims (other than Rahul Sood, who didn't exactly scream "J'Accuse!" either) turning the whole exercise into a battle of relentless press releases and ridiculous studies that do more to harm goodwill than to build it.

If you have real evidence of Intel's misconduct, present it, or have one of your customers give me a call. Don't insult the intelligence of the public--which would ordinarily like to support an underdog--with studies such as this one.

Intel's legal team will be very busy for the next 10 weeks.

That's how long the world's largest chipmaker has to come up with an explanation for business practices that the European Commission has declared "abuse of a dominant market position." The Directorate-General for Competition on Thursday sent Intel a "statement of objections," which sounds like a polite way of doing business but is quite serious.

The EC cited three examples of objectionable conduct after it investigated Intel's practices and the European PC market at the request of AMD. First, it said Intel offers "substantial rebates" in order to get PC companies to use Intel's chips, and not AMD's, in its products. It expanded that charge to include payments allegedly made by Intel to delay or scuttle the launch of AMD-based PCs in Europe. And it also said that Intel has sold server processors below cost in order to hamper AMD's business.

"These three types of conduct are aimed at excluding AMD, Intel's main rival, from the market. Each of them is provisionally considered to constitute an abuse of a dominant position in its own right. However, the Commission also considers at this stage of its analysis that the three types of conduct reinforce each other and are part of a single overall anti-competitive strategy," the EC said in a press release Friday.

Now Intel has to prove that it either didn't do those things, or that the EC is misinterpreting Intel's business practices, said Bruce Sewell, Intel's general counsel and a senior vice president at the company. Intel does provide rebates to customers, but it argues that the rebate program doesn't run afoul of any fair competition laws. The company also thinks that its costs may not have been calculated correctly in this particular assesment.

But the burden is now on Intel to come up with a satisfactory explanation for its behavior. It will be interesting to see if AMD is able to use any decision against Intel in Europe as part of its antitrust case winding its way through a court in the lovely state of Delaware.

It's not clear that AMD would be allowed to present the results of a European decision in a U.S. courtroom, but it will presumably do its best to do so should the EC find against Intel. Intel has already suffered a legal blow in Japan, and if a similar result is found in Europe, it could be hard to prevent a U.S. court or the Department of Justice from taking a very close look at Intel's conduct here.

Intel has 10 weeks to submit a formal response in writing, and then the EC will either agree with Intel and remove the objections, ask for more information, or find against Intel and levy fines and sanctions. Stay tuned.