Apple

Although a judge recently ruled in favor of Apple in its copyright infringement case against Psystar, the two companies have reached a new settlement, according to Computerworld and other reports.

Details are sketchy at this point, and there's no confirmation from Apple, but Psystar claimed in a motion filed Monday that a partial settlement has been reached.

"Psystar has agreed on certain amounts to be awarded as statutory damages on Apple's copyright claims in exchange for Apple's agreement not to execute on these awards until all appeals in this matter have been concluded," noted Psystar's motion filed in federal court in San Francisco. "Moreover, Apple has agreed to voluntarily dismiss all its trademark, trade-dress, and state-law claims. This partial settlement eliminates the need for a trial and reduces the issues before this Court to the scope of any permanent injunction on Apple's copyright claims."

Psystar also seems to be looking for a loophole against any injunctions. Apple had asked the court to prevent Psystar from selling clones not just with Leopard, but also Snow Leopard, which was released after the lawsuit began. But in its filing, Psystar argued that it should be allowed to sell its Rebel EFI utility, which lets customers install Snow Leopard on clones sold by the company, thus moving the legal burden away from Psystar.

Psystar's motion also indicated that another motion with further details would be filed Tuesday with Judge William Alsup.

Apple's lawsuit against Psystar began in July 2008 after Psystar started selling Mac clones with OS X installed on them. Apple has argued that its end user license lets people install its operating system on Apple computers only.

On November 13, Alsup ruled in favor of Apple, finding that Psystar's use of OS X on its clones was not "fair use" as the company contended and further finding that Psystar violated the Digital Millennium Copyright Act (DMCA) by "circumventing Apple's protection barrier."

Since then, Apple has been keen to shut down Psystar's Mac clone business permanently, calling for an injunction against the company and potentially millions of dollars in damages, substantially more money than the clone maker has.

Alsup's findings and Apple's fervor in going after Psystar raise the question of why Apple would agree to any kind of settlement at this point. A hearing was set for December 14, with a full trial scheduled to start in January. But if the latest news from Psystar is true, then the company may be able to avoid further courtroom drama.

Neither Psystar nor Apple has responded to requests for comment. We'll provide further details of this latest development as court documents become available.

Apple is not giving up on its desire to get Psystar into a courtoom.

Apple filed a motion on June 5 asking the court to modify a stay of proceedings and to compel Mac clone-maker Psystar to show up in court in November as previously scheduled.

Psystar got an automatic stay of proceedings when it filed for bankruptcy in May, but Apple doesn't think the company should be able to use the bankruptcy laws to do so.

Apple points out in the court documents that Psystar filed for bankruptcy in May, after a motion was granted compelling Psystar to give Apple additional documents. The bankruptcy filing also came just before a scheduled deposition from Psystar.

At the heart of Apple's new motion is that despite Psystar's bankruptcy, the company is still in business and continues to sell its computers with Mac OS X pre-installed. The latter is what prompted Apple to file a copyright infringement lawsuit in the first place.

It's clear from the court documents that Apple is looking for a judgment in the case, not monetary damages. The company said in the filing that it understands that it can't collect against Psystar except through bankruptcy proceedings.

Psystar is just one of the clone companies Apple has to contend with. RussianMac and PearC have also started selling Mac clones in Russia and Germany, respectively.

One of the biggest Mac clone stories to come along in recent months is Quo Computer, a California-based company that has opened a retail store in Los Angeles.

The idea of creating a Mac clone complete with Mac OS X is not a new concept. However, one company is taking its entry into the clone market a step further by opening a retail store in the Los Angeles area.

The new Quo Computer, set to go on sale next week.

(Credit: Quo Computer)

Quo Computer plans to open its first retail location, selling Mac clones, on June 1. This is the first time that I'm aware of that a clone maker will have a storefront to sell its wares. Mac clone companies, to this point, have chosen to sell their systems exclusively on the Web.

"It's exciting. We are trying to stay as close to Apple as we can with our products," Rashantha De Silva, Quo founder, told CNET News. "We are trying to mimic things as much as we can. I'm hoping that Apple sees the value in what we are doing."

Apple was not immediately available for comment on Quo's endeavors.

Apple's approach to dealing with Mac clones to this point has been far from understanding. The company has a long history of protecting its intellectual property and industrial designs through the courts--just ask troubled clone maker Psystar. That's not lost on De Silva.

"They probably will (sue us)," De Silva said. "There are others doing this, but we have a different attitude. There are thousands of people in the 'Hackintosh' market, but many of them are creating bad products. I don't think anyone wins in that environment."

It's this attitude of selling a high-quality product--albeit cheaper than Apple's offerings--that De Silva hopes will appeal to consumers. Quo vows top-notch support for its customers too.

"Our customer service is gong to be up there with Apple's," De Silva said. "Hardware is important, software is important, and support is hugely important."

Quo's systems will come with Mac OS X Leopard preinstalled. You have to agree to the license when ordering the computer for them to install the operating system. But this brings up a longstanding issue between Apple and clone makers.

Apple's end-user license agreement, or EULA, forbids exactly what the clone makers are doing--installing Mac OS X on non-Apple hardware.

"This license allows you to install, use, and run one (1) copy of the Apple software on a single Apple-labeled computer at a time," the EULA reads. "You agree not to install, use, or run the Apple software on any non-Apple-labeled computer, or to enable others to do so."

This is the argument Apple lawyers used to sue Psystar for selling Mac clones over the Web. Apple and Psystar were scheduled to start their trial in November, but Psystar filed for bankruptcy protection earlier this week.

Even with previous clone failures, De Silva is marching on. To start, Quo will offer three desktop systems: the Life Q, Pro Q, and Max Q. While details of the components are not yet available, De Silva said they are looking at Apple's system configurations for guidance.

Pricing has also not been finalized on the desktop machines, but the company is looking to start pricing at less than $900.

While Quo is starting off with the desktop machines, De Silva said it is looking at offering an Apple TV-like media server and a smaller computer similar to the Mac Mini. Plans on those systems have not been finalized.

In addition to having its retail location and Web-ordering system to ship systems worldwide, De Silva said Quo also wants to be involved in the local community and schools. He hopes to work with school boards to get computers in the hands of children and teachers.

De Silva, a Mac user since 1984, said Quo will help switch PC users to the Mac and feels that ultimately, it will help Apple increase its market share. It remains to be seen if Apple will feel the same way.

The Quo Web site is being worked on now and is set to launch next week. The retail store, located at 2401 West Main Street, Alhambra, Calif., will open for business on June 1.

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.

RussianMac is the latest company to release a Mac clone and test Apple's resolve to stop companies from selling its operating system.

On its Web site, RussianMac says that a full version of Mac OS X Leopard comes pre-installed on its computers. The company also confirms that the operating system is able to receive automatic system updates from Apple once installed.

This is where Apple seems to have the clone makers over a barrel. Apple's Mac OS X End User License Agreement (EULA) clearly forbids anyone from installing the software on hardware not sold by Apple. This effectively closes the door on companies determined to make a Mac clone.

However, RussianMac maintains that it does not violate the terms of the EULA agreement because the operating system was purchased directly from Apple. That still doesn't get around the condition of installing it on an Apple-branded machine.

Legit or not, it is a popular argument. Germany-based PearC is using that defense to sell Mac clone computers in that country.

Of course, in the U.S., Psystar is the case everyone has heard about. The company first made headlines in April 2008 when it released its first Mac clone with Mac OS X pre-installed.

Apple filed a lawsuit against Psystar in July 2008, claiming the company was violating copyright and software licensing agreements.

The legal battle is ongoing between Psystar and Apple. The two are set to meet in court on November 9. Most legal experts expect Apple to ultimately prevail in the case.

Because the laws in each country are different, it's unclear whether Apple could be successful in Russia or Germany.

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.