Why Psystar’s new lawsuit is baseless, and what they may be looking to achieve

Mon, Aug 31, 2009

Legal, News

Last week, un-authorized clone maker Psystar filed a lawsuit against Apple in the state of Florida seeking a declaratory judgment from the court which would allow it to sell Snow Leopard on non-Apple hardware in addition to seeking an injunction against Apple to prevent it from tying OS X to Apple hardware.  Psystar’s arguments rest on the claims that Apple’s actions are anti-competitive, restrict trade, and are ultimately in violation of anti-trust regulations.

If this all sounds familiar, it’s because we’ve already been down this road once before.  If you recall, similar arguments levied by Psystar were dismissed by the California court overseeing the current case a number of months ago for having no legal merit.  Now, it seems that Psystar is attempting to roll the dice yet again, this time in Florida.

As usual, though, Psystar’s legal arguments are tenuous at best, poorly thought out, and riddled with contradictions.

If you recall, Psystar initially alleged that Apple’s refusal to allow OS X to run on third party hardware gave Apple an illegal monopoly in the OS X market.  Funny, last time we checked there was no such thing as an OS X market.  There’s a computer market, in which OS X is one of the available options, but OS X unto itself isn’t a market.

In Apple’s original filing to dismiss Psystar’s counterclaims, it noted:

Psystar’s effort to define a single-brand relevant market contravenes well-known principles of antitrust law. Relevant markets generally cannot be limited to a single manufacturer’s prodcuts.

Not surprisingly, the court agreed and dismissed Psystar’s claims, tossing its OS X market theory into the trash.

But Psystar is back, and they have balls – you gotta give them that.  In their new lawsuit, they’ve dropped the assertion that Apple has a monopoly in the OS X market, and instead, now allege that Apple has a monopoly in the premium computer market.

Apple’s share of revenue in the market for premium computers – computers priced at over $1,000 – is currently 91%.  Apple’s conduct violates the Clayton and Sherman Acts in that Apple is monopolizing the market for premium computers, illegally integrating across the markets for hardware and operating systems for use in personal computers, entering into illegal exclusive-dealing agreements that prevent buyers of Mac OS X from buying their hardware from competitors like Psystar, illegally tying Mac OS X to Macintoshes and thereby substantially decreasing competition in the market for hardware for premium personal computers…

[In case you’re curious, the 91% figure was the result of data compiled exclusively in June of 2009, and was put together by NPD]

Just as it did with its claims of an “OS X market”, Psystar is once again making up a “market” out of thin air. The fact of the matter is that there’s no distinguishable market for “premium computers”, and Psystar’s attempt to use NPD’s data to prove a monopoly in this contrived “market” is completely laughable.  For example, who decided that $1,000 is the cut off point for what’s considered a “premium” computer?  NPD’s terms are self-defined and they possess no objective authority on the matter.  After all, who’s to say that $800 machines aren’t premium computers?  The whole “premium” designation is completely arbitrary.

Also, it appears that Psystar didn’t really take a look at NPD’s data in its entirety.  If they had, they would have noticed that the average selling price for a Windows PC was $489 while the average selling price for a Mac desktop came in at $1,398.  Similarly, the average selling price for a Windows notebook came in at $520 while Mac notebooks checked in at $1,400.   Psystar’s assertion that Apple is abusing its power to control the $1,000+ segment of the computer market ignores the fact that most PC manufacturers don’t price their products that high.  It’s like arguing that Rolls Royce restricts trade and is an illegal monopoly because 91% of all cars sold in the $500,000+ segment of the auto market are Bentleys.

Psystar, here, is basically jumping up and down, and hoping that the court will acknowledge that most “premium” purchased computers are Macs, all the while hoping that they ignore the fact that most PC’s are priced well below the arbitrarily designated $1,000 price point to begin with.  Apple isn’t restraining trade here, and PC manufacturers are more than able to price their machines however they see fit.

Psystar attempts to explain its position thusly:

Apple has the power to control prices and exclude competition from the market for premium personal computers because it has the exclusive right to Mac OS X Snow Leopard and uses that right to prevent competitors such as Psystar from selling competing personal computers that run Mac OS X Snow Leopard… Apple willfully acquired this market power by abusing its copyright monopoly in Mac OS X.

This argument is complete nonsense, and directly contradicts the entire premise of Psystar’s case.  Apple’s tying of Snow Leopard to its own hardware has absolutely nothing to do with controlling prices and excluding competition.  More importantly, Psystar asserts that Apple is restricting competition in the premium computer market while at the same time it makes it plainly clear that it sells computers that don’t even fall into that market.

Early in its brief, Psystar makes a point of bragging about how great their hardware is, but more significantly, how much cheaper it is than Apple’s.

Psystar competes with Apple by selling superior personal computers at substantially lower prices.

By its very own admissions, Psystar isn’t competing in the market it claims Apple is monopolizing.   It recently wrote a blogpost on its site which includes the following blurb:

It is our goal at Psystar to offer a great product (OS X) to people who are not included in Apple’s target market. Steve Jobs has even said, “There are some customers which we choose not to serve.” Some people simply cannot afford an Apple computer. Others would like to see better performance from their machines with hardware configurations that Apple does not provide. Our Psystar machines were developed to fill niches that a larger corporation like Apple doesn’t serve.

By its very own admissions, Psystar shouldn’t be affected at all by Apple’s moves in the $1,000+ segment of the market.  But, the reality is that Psystar is affected because Apple doesn’t even want Psystar competing in the low-end of the market with their OS X enabled Psystar machines either.  So it’s readily apparent that this isn’t a case centering on the “premium computer market”, but rather goes back to Apple’s decision not to license OS X at all, for any market.  This case is once again an attempt by Psystar to argue that Apple has a monopoly in the OS X market, a ridiculous notion already dismissed by the court.

Now you also may be wondering how Psystar can file a case which obviously hinges on issues already shot down by the court in California.  Well, Psystar argues that this case is entirely different because “that case is limited to Psystar computers running Mac OS X Leopard” while this one concerns Snow Leopard.  Umm, yeah.

Psystar attempts to back this up by alleging that the “technical mechanisms used by Apple to tie Mac OS X Snow Leopard to Macintoshes” is completely different than those used in Leopard.  Curiously, though, Psystar doesn’t take the time to describe how those technical restrictions have changed, if at all, and even more perplexing, is that the suit was filed on August 26,  two days before Snow Leopard even went on sale.

Call me crazy, but it seems blatantly obvious that Psystar is using the Snow Leopard release simply as a pretense to launch a frivolous lawsuit against Apple where it can bring up arguments which have already been dismissed for having no legal basis.

As pointed out by Groklaw, this new lawsuit may also be an attempt by Psystar to remain in business selling Snow Leopard should its current case involving Leopard fall in Apple’s favor.  “.. if California grants Apple’s request for a permanent injunction. Psystar is viewing any such injunction as covering only Leopard, not Snow Leopard.”

Pretty shrewd Psystar, pretty shrewd.

Finally, and somewhat comically, Psystar is so bold as to argue that Apple’s assertion that only Macs can run Snow Leopard is harming Psystar’s reputation as it paints their business as engaging in illegal conduct.  It even wants “money damages for lost sales and injury to Psystar’s business reputation” as a result.

Classy, as always.

Groklaw has a more technical legal analysis of Psystar’s EULA and Copyright claims over here.



4 Comments For This Post

  1. dizzle Says:

    Hi guys, I enjoyed this piece as well as the one at Groklaw. It will be likely a few days before I have my analysis up at World of Apple as I “think” I may have some different perspectives but for the most part I think we are all on the same page. As usual, I will email you once my piece is up, and I wanted to publicly thank you for our mutual exchanges of email and information.

  2. Peter Says:

    While I don’t disagree with you, defining a market is always interesting.

    For example, did you know that Apple was not considered a competitor to Microsoft during Microsoft’s antitrust trial? Microsoft tried to show Apple as one of their competitors, but the judge nixed it because Apple’s computers were based on PowerPC, not Intel.

    So Microsoft was judged to have abused their monopoly in operating systems for Intel-based personal computers. In other words, the judge broke up the market into “Intel-based” and “Non-intel based.”

  3. Jared Says:

    Wow. Just… wow. Psystar is just… stupid and ballsy. Nice writeup.

  4. Bob Says:

    “Apple’s share of revenue in the market for premium computers – computers priced at over $1,000 – is currently 91%”

    Before even getting to all the arguments against Psystar’s filing listed above, the basis for their complaint about Apple’s share of the “market for premium computers” is fundamentally flawed. NPDs data shows that Apple has this share of the market for computers sold AT RETAIL, and specifically excludes computers sold online (e.g., through the manufacturer’s web site). Psystar does not, as far as I know, sell their computers in retail establishments and therefore does not compete and is not even _attempting_ to compete in the market they cite.

    As a computer manufacturer who sells only online, they have no standing to file suit alleging unfair trade in a completely different market. To be affected by Apple’s alleged market power, they’d have to provide data to show the market power Apple has in the market for computers sold online. Does Psystar then allege that Apple sells more computers online than Dell and HP together, for instance?

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