Psystar Moves to Drop Bankruptcy Ahead of Apple Legal Battle

| TMO Scoop

Unauthorized Mac clone maker, Psystar, filed a motion to dismiss its bankruptcy case in Florida on Thursday claiming it couldn't afford to simultaneously deal with that filing along with Apple's copyright infringement case in California.

According to Pystar's filing, "To remain in bankruptcy, [it] will need to expend significant time and effort, and incur substantial fees and costs." In essence, the company claimed it can't afford to restructure its debt and deal with the courts at the same time.

An attorney familiar with these types of cases told TMO that Psysatr's filing "lacks merit and credibility."

He added "[Psystar's] argument is simply this: It can't afford to comply with the expenses imposed by the monitoring and reporting requirements of bankruptcy and the expense of defending itself against Apple's infringement case, so it is moving to dismiss its bankruptcy case so that it can afford to defend its self against Apple's claim of infringement and prosecute its counterclaim against Apple for misuse of copyright."

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 hasn't been doing anything wrong, and that Apple is abusing its position as the only company making Mac OS X-compatible computers by blocking competition.

Psystar eventually filed for bankruptcy in Florida, citing its mounting legal debt. The filing automatically stopped Apple's case in California, but Judge Mark, the official overseeing the bankruptcy, lifted that stay on June 22, allowing Apple move forward again.

Despite its looming clash with Apple's legal team, Psystar introduced yet another Mac clone this week and bragged that it was ready to take on its Cupertino-based rival. "As you all may already be aware, in late May Psystar filed for Chapter 11 protection. Although this was critical to our continued daily operations, we now are ready to emerge and again battle Goliath," the company said.

The PC maker's bankruptcy dismissal request, however, leaves some unanswered questions. It doesn't, for example, say what changed in the company's finances so that it no longer needs bankruptcy protection. The filing also fails to explain how the company can adjust its debts and repay creditors without bankruptcy protection.

"Without that, it has the appearance that Psystar was using bankruptcy for an ulterior and improper purpose," TMO's legal contact said. "The Motion also does not say whether or to what extent Psystar will make its pre-petition creditors whole. With these deficiencies, Judge Mark will, I think, wonder what Psystar has been up to in his court."

Psystar isn't, however, out of the woods in Florida's bankruptcy court. Judge Mark's hearing on the motion is set for August 4th, and there's no guarantee that he'll approve the request.

Psystar's ongoing legal battle with Apple left many speculating that the company had financial backers in the shadows funding its defense since legal cases like this can be astronomically expensive. Now that Psystar is trying to get out of its bankruptcy case -- and presumably has the money to mount a defense against Apple -- speculation about where the money will come from is on the rise again.

TMO's legal contact added "I think that Psystar could rephrase its argument more accurately by stating 'Since filing bankruptcy isn't going to delay Apple's infringement case, we don't need you anymore, as we have always had sufficient funds to continue operations, while we defended Apple's infringement action.'"

If true, the courts in California and Florida won't look kindly on Psystar, and the company could find itself in legal hot water that goes beyond its dealings with Apple.

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Comments

Lee Dronick

Nice scoop Jeff.

Nemo

The inconsistencies in Psystar’s argument are incredible.  Psystar argued that it filed bankruptcy because market conditions and stiffer credit terms by its suppliers forced it to seek bankruptcy protection.  It made little of the costs of its legal battle with Apple as a cause for it bankruptcy, but an examination of its pre-petition debts showed its law firm, Carr & Ferrell, to be among its largest creditors.  Yet, in opposing Apple’s Motion For Relief from stay, Psystar argued that the bankruptcy court should deny Apple’s Motion, because it couldn’t afford to reorganize while battling Apple’s infringement action in the U.S. Dist. Court in California.  Now, Psystar argues to the bankruptcy court that it cannot afford the expenses of bankruptcy, while it has to battle Apple in District Court, so the bankruptcy court should relieve it of the burden of the expense of bankruptcy by dismissing its bankruptcy case so that it can take on Apple in the District Court. 

However, these arguments contradict each other or at least are inconsistent.  The market conditions that Psystar says were the principal cause of its bankruptcy filing haven’t improved, and, if anything, the credit terms from its suppliers have gone from stiff to COD, cash on delivery.  So Psystar’s revenue will still be constrained by poor demand for its computers.  Its creditors will now be free to sue for their money in state courts.  And Psystar will now have to resume its defense of Apple’s infringement suit.  But weren’t these the very factors that were the cause of Psystar bankruptcy filing?  Nothing has changed.  And at least bankruptcy protected Psystar from it pre-petition debts.  If Psystar?s problem was one of not making enough revenue and profits, nothing has changed to alleviate those problems, unless Psystar has found a new source of funds. 

If Psystar has sufficient funds to make applesauce out of Apple, when did it get those funds, pre-petition or post-petition?  And who is the source of those funds?  And exactly what is the amount of those funds?  And since it is now so flush, why can’t it make its pre-petition creditors whole before exiting bankruptcy? 

That Psystar claims that it now has sufficient funds to operate its business and defend Apple’s infringement suit, notwithstanding the same bad market for its computers will, I think, cause Judges Mark and Alsup to wonder whether Psystar has improperly abused the process of justice in both of their courts to delay and pervert the course of justice.

geoduck

Are there any penalties for pulling a stunt like this? Isn’t there some point where the court can come down and say ‘for trying to use one court to subvert another we will fine you the courts legal costs of XX million dollars’.

Well maybe not. SCO never got nailed

gslusher

Nemo:

Thanks for the very cogent analysis.

Lee Dronick

Report????Quote ?? security said on July 3rd, 2009 at 2:29 AM:
Thanks For shearing have nice day

“Shearing?” Yes customers could be getting “fleeced.”

cb50dc

?Shearing?? Yes customers could be getting ?fleeced.?

Keep that up, buddy, and the Pun Police will be all over you.  :D

Lee Dronick

Sir Harry Flashman said: ?Shearing?? Yes customers could be getting ?fleeced.?
Keep that up, buddy, and the Pun Police will be all over you.?

I see that the post to which I was responding has been deleted. Is there some sort of spambot doing those postings?

cb50dc

Is there some sort of spambot doing those postings?

Sir H,

When I read your quip, I didn’t recall seeing “shearing,” but it was worth the reply. I know on several occasions in macobserver forums I’ve seen some obviously generic blather posts, not at all relating to the subjet; they always include a link, simply trying to get web traffic. Maybe what you replied to was one of those.

If you do see something you believe is spam, just click “Report” in the upper right.

Best,
CB

Intruder

Yes. It was spam. I reported it for deletion.

Lee Dronick

Ff

Lee Dronick

Hmmm, some sort of operater error trying to post via my iPhone.

Lee Dronick

Anyway the spammer posted a single line that read “Interesting thank you for shearing.” I couldn’t resist making the pun no more than Rodger Rabbit can resist responding to A shave and a haircut, two bits!

B9robot

Isn’t that an oxy moron. I want to pull out of bankruptcy because I don’t have enough money to fight it? Huh?
Psystar used the court by filing for bankruptcy just to try and delay Apple’s case against it. Then it backfired when Apple’s motion to continue the case was granted. Now Psystar wants to cancel the bankruptcy case. I think that’s perjury or something when you lie about something in court. The judge in this case needs to throw the book at Psystar for this.
They are obviously lying about many things and eventually it will come out just like that and they will be history, very BAD history.
The judge needs to shut them down. The good thing about this is Apple has that much more to show how lame Psystar really is by there latest actions. grin

B9robot

I can’t wait to hear what the judges say about this. wink

cb50dc

I’m learning more and more about the legal system from just this one case. As a longtime fan of the “Law & Order” series, I hope this fall they’ll base a story on this whole thing, “ripped from the headlines!”

The opening discovery scene could entail finding the literally hacked-up shell of a hackintosh.  grin

cb

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