Psytar refuses to divulge financial information to Apple, and what it might be trying to hide

Sun, May 3, 2009

Analysis, Legal, News

Last July, Apple sued clone maker Psystar for illegally selling non-Apple hardware running OS X.  Ever since, Psystar has engaged in a number of legal gymnastics in an effort to divert attention away from the issue at hand.

If you recall, Psystar initially responded to Apple’s lawsuit by counterclaiming that Apple maintained an illegal monopoly in the OS X market.  Not surprisingly, this specious and illogical argument was swiftly tossed out by the court, forcing Psystar to go back to the drawing board and file a motion to amend their counterclaim.

Now, Psystar appears to be intentionally hiding pertinent financial information it originally agreed to produce, prompting Apple to file a motion seeking to compel Psystar to divulge its financial statements.

In a document filed with the court last week, Apple noted that Psystar had failed to provide relevant financial information such as as revenues, profits, purchase receipts, and invoices.

Psystar has produced no monthly profit and loss statements, balance sheets or other financial statements and only a small subset of revenue and cost-related receipts.

Apple also writes that during his deposition, Psystar president Rudy Pedraza was curiously unable to recall even basic financial information about the company he’s in charge of running.

Mr. Pedraza, who runs this small company, stated approximately 90 times during the deposition that he did not know or recall answers to basic questions about Psystar’s sales, its general costs and profits, its costs and profits by product line, how it determined its prices and profit margins…

Why Apple cares, and what Psystar might be hiding

Psystar’s financial information is of extreme interest to Apple because it’s a necessary factor in determining how much in damages Apple would seek to recoup should the court rule in its favor.  But there might also be a much larger issue in play.

In a motion filed last December, Apple noted that it had reason to believe that “persons other than Psystar” were involved in running Psystar’s business.  Obviously, these mystery men (or perhaps corporation) Apple refers to are unknown, and Apple subsequently refers to them as “John Does 1 through 10.”   In other words, Apple believes that there are some big purse strings working behind the scenes at Psystar, and it wants to find out exactly who or what it is.

An obvious and substantial portion of Psystar’s financial information relates to “investors, lenders, and other sources of financial support”, and that is a big part of what Apple’s looking for.  If Psystar disclosed this information to Apple, it would subsequently expose and identify the John Does Apple believes exists.  While it might sound conspiratorial, how else can one explain Psystar’s reluctance to hand over even the most basic of financial information?  How else can one explain that the president of a company would have no idea how his own company is run?  It should also be noted that many have questioned how Psystar was able to retain/afford the services of an extremely prestigious law firm for a somewhat tenuous legal case.

In any event, in response to Psystar’s refusal to play nice, Apple is seeking an order to compel Psystar to “produce financial documents sufficient to determine Psystar’s revenues, costs, profits, assets and liabilities”, and to make available a person who, unlike Rudy Pedraza, is actually well-versed in Psystar’s financials.

Update: Psystar responded to Apple’s allegations, and we break it all down over here.

A PDF copy of Apple’s motion can be downloaded here.


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