Apple Makes a Deal With Psystar

Just days ago, Apple had Mac clone maker Psystar on the ropes and was poised to deliver a knockout.

But instead, the Cupertino, Calif. computer giant agreed to settle its 17-month lawsuit against the firm, leaving Psystar in business.

But it’s not exactly cause for celebration for the smaller firm.

In court filings this week, Psystar and Apple (NASDAQ: AAPL) said they had reached a partial agreement that would leave Psystar, which recently entered into bankruptcy protection, on the hook for at least $2.7 million in damages and other costs.

According to the latest filing from Psystar, it has agreed to pay Apple statutory damages and legal costs for infringing on Mac OS X 10.5 “Leopard,” while Apple has agreed not to make it pay the $2.7 million in damages until after the appeals are exhausted.

Psystar said in its filing that “Apple has agreed to voluntarily dismiss all its trademark, trade-dress, and state-law claims. This partial settlement eliminates the need for a trial and reduces the issues before this Court to the scope of any permanent injunction on Apple’s copyright claims.”

The company may not necessarily be out of the woods yet, however.

Apple said in a separate filing today (available here in PDF format) that the six charges it dismissed were done so “without prejudice,” meaning it can refile them again if it wants.

Neither Apple nor Psystar responded to calls for comment. As of press time, Psystar still offers Mac OS X-powered PCs for sale on its site, but all are listed as out of stock.

Looking for holes in Apple’s injunction

Also still in doubt is the fate of a permanent injunction that Apple had sought last week after a judge ruled that Psystar violated its copyright as well as the Digital Millennium Copyright Act (DMCA) by installing OS X on the PC clones it sells.

Psystar is seeking a bit of wiggle room in that injunction, asking the court in its latest filing to allow it to continue selling two products: Mac OS X 10.6 “Snow Leopard” and its own Rebel EFI utility, which Psystar offers for $50 to aid in the installation of Mac OS X on a generic PC.

The company argued that Snow Leopard and Rebel EFI should be excluded from any injunction because both products came out after the case’s discovery process ended.

“If this Court were to grant an injunction broad enough to cover Mac OS X Snow Leopard, it would be undoing its earlier decision not to allow Apple to introduce Snow Leopard into this case after maintaining that discovery about Snow Leopard was irrelevant,” Psystar said in its filing. “Indeed, Apple asks this Court to go one step further and enjoin not only Psystar computers running Mac OS X Snow Leopard, but also an entirely new software-only product, Rebel EFI, that has not been the subject of any discovery at all in this action.”

Psystar also argued that sales of Rebel EFI could be lawful if buyers are protected under copyright law 17 U.S.C. § 117, which limits how much control a computer seller has over the actions of an end user.


Because Rebel EFI users are end users, Psystar argues that its use doesn’t constitute copyright infringement. What this means is that Psystar is looking to shift the burden of responsibility onto the customer: Instead of building a Mac OS X clone itself, it wants the right to sell consumers a bare PC, Mac OS X and Rebel EFI — letting them do the installation themselves.

Good luck with that, said industry analyst Rob Enderle.

“Most folks buying Apple stuff want that appliance-like experience, and they won’t get that here,” Enderle, principal analyst with The Enderle Group, told

“This will go to guys who build ‘Hackintoshes,’ which will never be a big market,” he added, referring to the nickname for generic PCs that run Mac OS X.

The Internet is replete with instructions on how to install the OS on a PC built from generic parts. Even though the Mac is Intel-based, the process is not easy and requires some tinkering and understanding of PC internals to get it right — which is where Psystar aimed to cash in.

Enderle doesn’t think this week’s detente came about out of any desire by Apple to go easy on Psystar. Instead, he said, it was to keep Psystar quiet.

“With the current administration focused like a laser beam on antitrust, you could say that Apple within their segment is a monopoly, and they didn’t want the attention,” Enderle said.

Apple may be just under 10 percent of the overall PC market, but in the Macintosh market, it’s 100 percent of the field — with a significant ability to shape the market’s pricing and policies.

“They needed to shut Psystar up before someone could take interest, and Psystar was doing everything they could to bring a listening ear to them by yelling ‘antitrust!’ to anyone who would listen,” Enderle said. “Apple was already investigated once for antitrust over iTunes and doesn’t want that again.”

Additionally, Apple recently hired Bruce Sewell, the former head of Intel’s legal department, and he knows a thing or two about antitrust headaches. Enderle suspects Sewell wanted to avoid a fight.

“There’s little doubt they could have won, but the collateral damage would have been terrible,” Enderle said. “Microsoft killed Netscape but the collateral damage [in the form of antitrust investigations] was awful for them. This was the fastest way to shut Psystar up.”

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