Judge Lays Out New Apple v Psystar Roadmap

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Apple's case against Psystar, the company that's making unauthorized Mac clones, is back on track with a new trial date set for January 11, 2010. The trial had been temporarily put on hold after Psystar filed for bankruptcy protection in Florida.

Judge Alsup, the Judge overseeing Apple's copyright case in northern California, set an August 21 deadline for Discovery and all replies to Discovery must be submitted two weeks later. Any motions, including Summary Judgement or Dismissal motions, must be submitted by October 8, and a final pre-trial conference is scheduled for December 14.

Apple filed a lawsuit against Psystar in northern California claiming the company was violating the Mac OS X licensing agreement with end users, and that it was violating the Digital Millennium Copyright Act with the steps it used to install the Mac operating system on PCs. Psystar asserted that it should be allowed to build and sell PCs with Mac OS X pre-installed and that Apple is overstepping its bounds by blocking companies from selling Mac clones.

The case in California stalled temporarily when Psystar filed for bankruptcy protection in Florida due in part to its extensive legal bills. The Florida court granted Apple's request to lift the automatic stay on its California case, and shortly after Psystar moved to drop its bankruptcy saying it couldn't deal with the two cases at the same time. The Florida court hasn't yet agreed to drop the bankruptcy filing.

Since Psystar is still bound by the requirements of the bankruptcy court, Apple will likely watch closely for any information about who is paying the company's legal bills since Carr & Farrell -- the legal firm Psystar hired to represent it in California -- is still on the job.

"It has been my experience that lawyers don't work for free, except on pro bono cases, and this is not for Carr & Ferrell a pro bono case," an attorney familiar with this type of case told TMO. "Yet, while in bankruptcy, Psystar must report any payment to Carr of Carr's pre-petition debt to the bankruptcy court through the U.S. Trustee and cannot make any payment of Carr's debt that would either prejudice other creditors or pay Carr's debt ahead of other creditors, at least not without the bankruptcy court's permission."

He added "If Psystar is paying Carr's post-petition legal fees as an administrative expense, which is an expense necessary to administer Psystar's bankruptcy estate, that too must appear in Psystar regular reports to the bankruptcy court through the U.S. Trustees' office."

If Psystar doesn't report any payments for Car & Ferrell to the bankruptcy court, the idea that someone else is funding the company's legal defense will likely gain more traction. As a creditor in Psystar's bankruptcy case Apple is entitled to the company's payment reports, and will likely follow those reports closely.

If Psystar's bankruptcy reports show that other companies are helping fund the company's legal battle, Apple could try to include them in its case against Psystar, too. If so, Apple's case against Psystar could drag out even longer.

Comments

Lee Dronick

Yes, this could get real interesting, especially who is going to pay Carr & Ferrell.

geoduck

Exactly. Somebody is paying the bills.

An open question to any lawyers out there
Let’s assume for the moment that some third party (let’s call them DL for the sake of argument) is paying PsyStar’s legal fees. Let’s further assume that PsyStar and DL are actively working to keep their help off the books and invisible to the courts (either this one or the Bankruptcy court). Would this break any laws?

Nemo

Perhaps, some laws have been broken.  There are the ancient torts of Champerty and Maintenance.  Champerty and Maintenance prohibit anyone, expect a lawyer, from taking and financial interest in the outcome of a case and prohibits strangers to a case, those who don’t have legal standing to participate, from providing financial support for party to a case to sustain that party’s litigation.  However, this is easy to circumvent by making a passive equity investment in a company, as Microsoft did with SCO.  As long as their is no agreement that the invested funds be used for the lawsuit, Champerty and Maintenance would be nearly impossible to prove, as in the SCO v. IBM case.  But I expect that Mr. Gilliland, Apple’s lead counsel, will make or has made the appropriate inquiries in discovery.

Then there is bankruptcy law.  As a bankrupt, Psystar is obliged to disclose to the bankruptcy court all of its assets, liabilities, income, and expenses, including inchoate claims, rights, and promises, such as lawsuit and enforceable promises to invest or provide funds.  That would include any investments, equity holders, and any legally enforceable agreements to invest in Psystar.  Any failure to disclose any legally enforceable assets, including promises or contracts to invest, would be fraud that is subject to civil penalties and could, under the right circumstances, constitute obstruction of justice and/or perjury and/or criminal fraud.  But I don’t have enough facts to offer any informed opinion on any of these matters.  However, Apple’s lawyers are very able, and I am sure that they will pursue and urge the U.S. Trustee to pursue any potential wrongdoing.

Finally, there is Psystar’s attempt to exit bankruptcy.  It is rare for a bankrupt company to want to exit bankruptcy so quickly, and the timing is suspect, because Psystar filed to dismiss it bankruptcy case right after it loss on Apple’ motion to lift the automatic stay with respect to the infringement case in California. 

Psystar attempt to exit bankruptcy raises two immediately relevant questions.  What changed in the state of its finances so that it no longer needs protection from its creditors to reorganize its business?  And what is Psystar’s plan for paying its pre-petition (the petition to file bankruptcy) creditors and its post-petition creditors?  Psystar’s only answer to the first question is unpersuasive, that is, its new Open 7 computer with OS X installed.  There is nothing special about the Open 7 as a piece of hardware, as number a manufacturers now sell computers with Intel’s new i7 CPUs, and as i7 computers go, the features and capabilities of the Open 7, except for OS X, are generic and second rate.  As for OS X, even Psystar were to prevail and win the right to install OS X on its generic PCs, that would avail Psystar nothing, because other better financed and more capable OEMs (HP, Dell, Sony, Toshiba, etc.) would quickly produce PCs with OS X at lower prices or with greater capabilities or both and run Psystar out of business.  So the Open 7 with OS X installed isn’t a viable business plan, either because it is illegal and, thus, will be enjoined or is legal and will be quickly be copied by other more capable player so that Psystar has no competitive advantage.

The second question raises questions of its own.  If Psystar can now suddenly afford to execute a plan that will make its creditors whole, it raises the question of whether Psystar ever needed to file bankruptcy but fraudulently filed its bankruptcy for an improper purpose, in which case both Judges Mark and Alsup will be baying for blood.  Fraudulent use of bankruptcy is patently illegal and warrants severe sanctions, and delay of the infringement case in California would be unethical, a violation of the rules of federal civil procedure (FRCP), and would warrant sanctions under the FRCP and/or pursuant to Judge Alsup broad powers as Chancellor in Equity to police the misconduct of parties in his court. 

But all of this depends on the what evidence can be adduced to establish any of these possible wrongs.

cb50dc

As for OS X, even [if] Psystar were to prevail and win the right to install OS X on its generic PCs, that would avail Psystar nothing, because other better financed and more capable OEMs (HP, Dell, Sony, Toshiba, etc.) would quickly produce PCs with OS X at lower prices or with greater capabilities or both and run Psystar out of business.

Does that further support the speculation that’s been made regarding Psystar as a precedent-setter? If Psystar were to come out victorious here, AND if someone else has been funding them, then, given the ample potential profits to be made off OS X, they wouldn’t mind the relatively small change they’ve shelled out to start and sustain Psystar. For that matter, they could then simply let Psystar fail, having served its purpose, focus on making their Hackintoshes, and on cashing the checks.

Lee Dronick

For that matter, they could then simply let Psystar fail, having served its purpose, focus on making their Hackintoshes, and on cashing the checks.

Yes, cannon fodder.

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