After 17 months of litigation, the hammer has finally fallen on Psystar.
The U.S. District Court for the Northern District of California on Tuesday granted Apple's request for permanent injunction against the Mac clone maker. This bars Psystar from peddling PCs with the Mac OS X operating system preinstalled, from circumventing the technological measures Apple uses to prevent unauthorized copying of Mac OS X, and from assisting others in doing so.
"Defendant must bring its conduct into compliance with the injunction by midnight on December 31, 2009, at the latest," U.S. District Judge William Alsup wrote in his ruling. "Defendant must immediately begin this process, and take the quickest path to compliance; thus, if compliance can be achieved within one hour after this order is filed, defendant shall reasonably see it done."
It would seem, then, to be over for Psystar, though we likely haven't yet heard the last of it. Alsup's injunction doesn't include the company's Rebel EFI software, which allows Mac OS X to be installed on PCs. So for now the company can continue to sell it, though Alsup warns that to do so is a risky legal proposition at best.
"Rebel EFI will not be expressly excluded from the terms of the injunction," Alsup wrote. "It should be clear, however, that this ruling is without prejudice to Psystar bringing a new motion before the undersigned that includes real details about Rebel EFI, and opening itself up to formal discovery thereon. This would serve the purpose--akin to a post-injunction motion vetting a 'design-around' in a patent action--of potentially vetting (or not vetting) a product like Rebel EFI under this order's decree.
"Moreover, Psystar may raise in such a motion any defenses it believes should apply to the factual circumstances of its new product, such as the 17 U.S.C. 117 defense raised in its opposition and at oral argument. Whether such a defense would be successful on the merits, or face preclusion or other hurdles, this order cannot predict. What is certain, however, is that until such a motion is brought, Psystar will be selling Rebel EFI at its peril, and risks finding itself held in contempt if its new venture falls within the scope of the injunction."
Below is the permanent injunction order in full:
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A judge has ruled in Apple's favor in its copyright-infringement case against Psystar, which has been selling Mac clones running Mac OS X.
U.S. District Court Judge William Alsup on Friday granted Apple's request for a summary judgment, while denying Psystar's counterclaim.
"In sum, Psystar has violated Apple's exclusive reproduction right, distribution right, and right to create derivative works," Alsup wrote in the ruling (PDF), which was posted by legal site Groklaw.net.
Apple filed its suit in July 2008, a few months after Psystar began selling Mac clones. The case revolved around Psystar's contention that it could run Apple's Mac OS X operating system on non-Apple machines. Apple denied this, stating that its Mac OS X end user license agreement allows people to install the OS on Apple computers only.
Both Apple and Psystar had a requested a summary judgment, which is a determination made without trial based on the merits of a case.
Neither Apple nor Psystar could immediately be reached for comment.
One of Psystar's contentions was fair use. The judge rejected this, stating the company "does not even attempt to address the four factors used to determine fair use." Another of Psystar's claims was "first sale" doctrine, which allows someone who buys copyrighted material to sell it. But Alsup said this doctrine applies only to legal copies, not to the "unauthorized copies" that Psystar produced.
The judge also ruled in favor of Apple's claim that Psystar violated the Digital Millennium Copyright Act. "Psystar has violated the DMCA by circumventing Apple's protection barrier and trafficking devices designed for circumvention," Alsup said.
In addition, the judge rejected Psystar's claims that Apple had misused its copyright and that Apple's licensing agreement was unduly restrictive.
Alsup's ruling did not include a permanent injunction against Miami-based Psystar because, he said, Apple has not requested one yet.
There are other claims Apple has made that could still go to trial, including breach of contract, trademark infringement, and trademark dilution. A hearing to determine remedies is set for December 14. The trial has been scheduled to begin in January.
Updated at 4:15 p.m. PST with more details from the ruling.
Psystar, the controversial Florida company trying to sell so-called clones of Apple computers, says it doesn't have the money to fend off Apple's legal dogs. But with the company's Chapter 11 bankruptcy protection petition filed last week, it looks like Psystar could have minimized the damages it may have to pay Apple.
The bankruptcy petition filed last week shows that Psystar, the maker of the Open Computer, a Mac clone, is more than $250,000 in debt, due to poor sales. Most of the debt is owed to shipping companies, PC parts makers, and more importantly, its law firm Carr & Ferrell, which is representing the company in a suit brought by Apple. Apple sued Psystar last year for copyright and trademark infringement for selling Mac OS X on non-Apple hardware.
But now it looks like Apple will have to get in line. Under normal circumstances, when a defendant in a copyright infringement case files for bankruptcy protection, the copyright case is terminated and there is a hearing, or mini trial, held in the context of the bankruptcy proceeding that will quickly determine if there is indeed money owed to the copyright holder, according to Jesse Fried, co-director of the Berkeley Center for Law, Business and the Economy. In this case, that could mean an accelerated version of the copyright case brought by Apple, which was scheduled to begin hearings in November, to determine if Psystar did indeed infringe on Apple's trademark.
In some cases, the bankruptcy court will allow another court to determine a judgment first--in this case, the U.S. District Court of Northern California, where the copyright claim was filed. But that is a very expensive proposition, and one that's usually unlikely for companies that don't have a lot of money.
Either way, though Apple had asked the court for monetary damages and Psystar's profits it is not likely to get much.
"The bankruptcy court may say this company (owes) Apple $10 million. But that doesn't mean Apple will get that money," said Fried. "They'll be treated like an unsecured creditor."
Unsecured creditors are last in line after secured creditors, which usually means lenders, business debts, and back taxes. Secured creditors can usually recoup the amount owed to them in a bankruptcy. Unsecured creditors get to divide whatever is left over equally.
Essentially, what Psystar's bankruptcy protection filing has done is pressed the fast-forward button on the copyright proceedings and minimized what it could owe.
"They (probably) hope to have Apple's suit quickly resolved, have the dollar amount figured out, and pay Apple only a fraction of the dollar amount determined by court," noted Fried.
Psystar could not be reached for comment. But by filing Chapter 11, which allows companies to pay off their debts and re-emerge as a business in the future, they can pay unsecured creditors like Apple through equity in a new company or debt in a new company, he said.
And because Apple might only get a few cents on the dollar with Psystar now in bankruptcy proceedings, it may not have an incentive to continue with more litigation. Apple had no comment on Psystar's bankruptcy protection filing.
This post was updated at 10:45 a.m. PDT with information from court filings.
Psystar, maker of the the Open Computer, has filed for bankruptcy protection.
The papers were filed in a Florida federal court Thursday. Psystar is more than $250,000 in debt, according to the bankruptcy petition, owed mostly to shipping companies, the IRS, and the law firm Carr & Farrell.
In the filing, Psystar pins its financial mess on the poor economy.
"Debtor sales have been greatly affected by the decrease in consumer spending. The financial crisis has also caused creditors to tighten up their terms and become more demanding for immediate payment," the company said in a court document.
Psystar also blames its partner vendors' own financial problems, which resulted in Psystar having to pay higher prices on parts. At that point, Psystar was unable "to turn a significant profit in each sale."
The Chapter 11 filing will temporarily suspend Apple's copyright infringement suit against Psystar, which is currently before the U.S. District Court of Northern California. But once the bankruptcy protection is sorted out, the copyright case will resume. Apple had no comment on Psystar's bankruptcy filing.
A major question surrounding Psystar and its young CEO, Rudy Pedraza, has been who has provided financial backing to the Miami-based company, which should come to light once all of Psystar's creditors are named.
Psystar began selling desktops and, later, laptop computers running Mac OS X in April of last year. In July, Apple sued it for copyright infringement.
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.
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