Software // Operating Systems
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8/29/2008
12:13 PM
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Psystar: Apple Illegally 'Destroys' Competition, Bricks Mac Clones

The upstart Mac cloner claims in an antitrust suit that Steve Jobs and company employ a mix of hype, dubious licensing schemes and technology to dominate the Mac computing environment.

In a move that could profoundly alter the face of the personal computer market, upstart Mac cloner Psystar on Thursday filed a countersuit against Silicon Valley heavyweight Apple, claiming that Steve Jobs' company employs technology, dubious licensing schemes and high-pitched marketing campaigns to illegally destroy competition in the Mac market.

In doing so, Psystar claims, Apple has violated Sherman antitrust rules and other U.S. laws. A Psystar victory in court could pave the way for other PC makers, including big vendors like Dell, HP and Lenovo, to enter the Mac market and offer alternatives to Microsoft Windows PCs.

Psystar claims in court documents filed in U.S. District Court for San Francisco that Apple "has engaged in certain anticompetitive behavior and/or other actions that are in violation of the public policy underlying the federal copyright laws."

The countersuit is in response to a copyright lawsuit that Apple filed against Psystar in July. Psystar sells low-cost knock offs of Apple's pricey Macs—including models that run the glitzy new OS X 10.5 "Leopard" operating system. Apple, in its original complaint, claimed that the clones violate its copyrights over the Mac OS and asked the court to order Psystar to discontinue sales.

Tiny Psystar, which operates out of a non-descript, Miami industrial park, is fighting back. At the heart of its countersuit is the notion that Macs are not part of the broader PC market—where they enjoy less than a 10% share--but, rather, constitute a marketplace of their own. Under that view, Apple is a monopolist because it completely dominates the Mac market by employing licensing terms that forbid third-party manufacturers to build Mac-compatible systems.

Court documents show that Psystar's theory rests on its belief that Macs and Windows-based PCs are not interchangeable, either technologically or in the minds of users. The latter fact is the result of carefully crafted and pervasive Apple ads, dating from the 1990s to the present, in which Apple users are challenged to "Think Different", like Gandhi, or to "Get A Mac" so they can be hip like Apple pitchman Justin Long.

"The Mac OS and Windows operating system are not merely different operating systems with no interchangeability but cultural icons representative of different lifestyles, markets, and that the computing devices of each environment are used for wholly different audiences," Psystar argues in court papers.

Apple's campaigns have been so effective the company could arbitrarily increase its prices by as much as 5% without hurting demand for its products, Psystar claims. Antitrust attorneys in the past have used evidence of a company's ability to impose such a so-called "Small But Significant Non-Transitory Increase In Price" (SSNIP) to prove monopolistic behavior.

"Apple is free to control and charge customers supra-competitive prices" and places "unreasonable restraints on trade," Psystar claims.

Having successfully used advertising techniques to establish the Mac environment as its own marketplace, Apple illegally employs technology to dominate that market, Psystar alleges. Among other things, Apple embeds in the Mac OS software code that will render useless, or brick, third party PCs attempting to run Leopard by sending them into "kernel panic."

Psystar claims its Mac clones cost about one-quarter to half of what Apple branded systems sell for and claims it has been financially damaged by Apple's alleged anticompetitive behavior. It's asking the court to award unspecified, triple damages. It's also asking the court to order Apple to cease its alleged monopolistic behavior.

For its defense and countersuit, Psystar retained the high-profile Silicon Valley law firm Carr & Ferrell. The firm has previously tangled with Apple and won. Partner Robert Yorio in 2007 extracted a $10 million settlement from Apple for Burst.com, which claimed Apple violated its streaming media patents.

Apple versus Psystar is a high stakes case--and not just for the parties involved. If Psystar prevails, it could open the door for other PC makers to offer Mac clones. Such a development would undermine Apple's main business model--which relies on Apple's perceived right to dictate which hardware products can run its software. It could also hurt Microsoft's sales, given that vendors like Dell and HP currently have no alternative to Windows, other than the open source Linux OS, to offer their customers.

Some PC vendors, no doubt, would like to increase their bargaining power with Redmond. The ability to offer Mac clones could give them just that.

A trial date for the case has not been set.

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