Goliath Gives David a Pounding as Psystar Antitrust Suit Flops

Psystar's chief legal defense in its fight with Apple (Nasdaq: AAPL) is off the table -- for the moment at least. U.S. District Judge William Alsup has dismissed charges that Apple is violating antitrust regulations and creating restraint of trade by linking its operating system with its branded hardware.

Psystar is the company that dazzled some Mac fans several months ago -- and raised more than a few eyebrows -- with the offer of a product called "Open Computer." Essentially, Open Computer is a Mac clone that runs the Macintosh OS X Leopard operating system, but is priced well below Apple's US$2,000 or so suggested retail price.

Apple initially seemed unfazed by Psystar's media splash. In July, though, it filed a lawsuit against the company in the U.S. District Court for Northern California, alleging copyright infringement, inducement of copyright infringement, trademark infringement, breach of contract and trade infringement, as well as unfair competition.

Psystar then retained Carr and Ferrell -- the law firm that represented Burst.com when it sued Apple for patent infringement -- to countersue Apple in August. At the heart of Psystar's legal case is the question of whether the Macintosh OS is a single-product market, or whether other operating systems such as Windows are also part of the relevant market, writes Dizzle in a World of Apple blog posting.

"Psystar's success absolutely depended on their being able to demonstrate this single-product market theory, and they argued that this was a factual determination for a jury," Dizzle wrote.

Alsup shot down that argument, noting that "the definition of antitrust 'relevant market' is typically a factual rather than a legal inquiry, but certain legal principles govern the definition. ... Whether products are part of the same or different markets under antitrust law depends on whether consumers view those products as reasonable substitutes for each other and would switch among them in response to changes in relative prices."

Checkmate for Psystar?

If this ruling stands, Psystar's fight is essentially over, Raymond Van Dyke, a technology and intellectual property attorney in Washington, D.C., told MacNewsWorld.

"Ensnaring Apple in an antitrust dispute was a last attempt to keep the hope alive," he said.

The sticking point appeared to be Psystar's effort to apply the term "relevant market" -- an antitrust concept concerning the scope of competition involved -- to the Mac OS alone, he said. "In other words, Psystar was stating that the Mac OS is sine qua non, a product without any competitors, and thus a subject of monopolization. Of course, Microsoft (Nasdaq: MSFT) would readily disagree with this."

Even if Psystar were to win the lawsuit, it is unclear whether it could weather the storm that would ensue, Van Dyke continued. "Even if they obtain the right to bundle from the onset, other and bigger manufacturers would readily move into that market space, quickly overwhelming Psystar."

Without the antitrust hook, however, Psystar is open to the full measure of intellectual property infringement charges brought by Apple -- particularly copyright and trademark violations. Expect a quick settlement, Van Dyke concluded.

Psystar apparently has few, if any, other options.

"The antitrust claim was a counterclaim in the suit brought by Apple, so Psystar was hoping to have a basis for liability by Apple to offset against any liability it had to Apple on Apple's claims," said Tim Connors, a partner at the Cleveland-based law firm Calfee. Psystar's counterclaim is now dismissed, which leaves it in a much worse position in the litigation."

It's hard to imagine Apple losing its suit, so -- at a minimum -- Psystar will not likely be selling Mac clones much longer, Connors told MacNewsWorld.

Swinging for the Fences

Psystar's fight with Apple may not be quite as over as it seems, though.

Essentially, Psystar was swinging for the fence with its initial defense, Chris Collins, an attorney with Vanderpool, Frostick & Nishanian, told MacNewsWorld. "It is a standard argument that someone in Psystar's position would try to run at first to see if it will work." Now, he predicted, it will fall back against a more technical legal defense.

A window is still open for Psystar to continue to pursue the antitrust claims, maintains World of Apple's Dizzle.

"It is very important to note that Apple did not prevail in one important area," the blogger wrote. "Apple requested that Psystar's counterclaims be dismissed 'with prejudice.' That would mean that Psystar would have no opportunity to raise them again in modified form. Instead, the Court dismissed the counterclaims without prejudice, giving Psystar twenty days from November 18, 2008 to move for leave to amend its counterclaims and to explain how the amendment would cure the problems described in the order.

"I believe that Psystar will try again," continues Dizzle. "They have to. If they completely lose their counterclaims, they have very little chance of winning this case."