Judge Dismisses Psystar Bankruptcy, Blocks Stays Against Apple

Psystar, the company Apple is suing for allegedly building and selling Mac clones without authorization, has been granted its motion to dismiss its Chapter 11 bankruptcy case in Florida. The Judge overseeing the case, however, included the stipulation that if Psystar files for Chapter 7 bankruptcy protection Apple's case against the company in California will not be subject to an automatic stay.

According to the court order, Psystar has also been blocked from filing for Chapter 11 bankruptcy protection for six months, and Judge Mark, the Judge overseeing the company's bankruptcy case, is maintaining jurisdiction over the case so he can enforce the terms of his order.

An attorney familiar with this type of case told The Mac Observer "What this means is that Psystar won't be able to use either Chapters 11 or 7 of the Bankruptcy Code to avoid trial in Judge Alsup's court, for if at the conclusion of six months proceedings are still going forward in Judge Alsup's court, I am certain that Judge Mark will not allow Psystar the protection of the Automatic Stay, should it file another Chapter 11 case."

Judge Alsup is the Judge hearing the suit Apple filed against Psystar in northern California alleging the company was violating the Mac OS X licensing agreement with end users, as well as violating the Digital Millennium Copyright Act with the steps it used to install the Mac operating system on PCs. Psystar claimed 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.

That case stalled temporarily when Psystar filed for bankruptcy protection in Florida due in part to its extensive legal bills. According to Psystar's filing the company owed Carr & Farrell, its legal team at the time, over $88,000.

The Florida court ultimately granted Apple's request to lift the automatic stay on its case, and shortly after Psystar moved to drop the bankruptcy saying it couldn't deal with the two cases at the same time.

Psystar has since hired Camara & Sibley -- the legal firm known for defending Jamie Thomas-Rasset against the RIAA in a trial that went poorly for her since she was ultimately hit with a US$1.92 million judgement -- to replace Carr & Farrell.

Psystar's posturing makes it sound as if the company has the ammunition to take down Apple thanks to its claims that it plans to show up in court with "guns blazin'."

Psystar better be prepared to reload a lot since Judge Mark's order to dismiss the bankruptcy filing also lifts any protection the company had against creditors, which means companies still waiting for payment are free to file their own cases for financial relief.

"All of Psystar's creditors are now free to sue in any court of competent jurisdiction to get their debts paid," the attorney said. "I wouldn't be surprised to see Apple institute such a law suit to recover the money that Psystar owes to it, and of course, Apple needn't sell shrink wrapped copies of OS X to a company that is in arrears on its debts to Apple."

While Psystar gears up for potential law suits from creditors, it is also dealing additional depositions for discover in Apple's case. According to Psystar's company blog, Apple lawyers had the opportunity to watch and record the installation of Mac OS X on a PC clone.

"They will observe the building process from start to finish, including the installation of OS X on our machines. We believe the only thing they will discover is what we have been open about from the start, and of course the scorching Florida heat," the company said on its blog.

While Apple's legal team was subjected to the "scorching Florida heat," Psystar is still potentially facing a scorching of its own at the hands of Apple's lawyers. The two companies are scheduled for trial on January 11, 2010, and unless a settlement or summary judgement is reached before that date, Apple looks ready to defend its copyright on Mac OS X in court.