Apple's recall demand would probably kill Psystar, says IP attorney

But Mac clone maker might counter with anti-competitive argument

Apple Inc.'s demand that a Mac clone maker recall computers because the company installed Mac OS X on the machines may be an extreme measure, but it's hardly unprecedented, an intellectual property attorney said today.

"It would be extreme because it would likely put Psystar out of business, but it's not a remedy that's coming out of the blue. It's not completely without precedent," said Carole Handler, a partner in the intellectual property (IP) department of Wildman, Harrold, Allen & Dixon. Handler is best known for her work on a case involving Marvel Enterprises that, among other things, established protection for copyrighted characters in online games and returned the movie rights to the Spiderman character to the company.

Earlier this month, Apple charged Psystar Corp. with multiple copyright, trademark, breach-of-contract and unfair competition violations for preinstalling Mac OS X 10.5 on Intel-based computers. According to the lawsuit, Psystar violated the Mac OS X end-user licensing agreement (EULA) by installing Leopard on its OpenComputer desktops and OpenServ servers, both which can be ordered from the Doral, Fla. company with Apple's operating system already installed.

The EULA forbids installing the OS on non-Apple hardware.

Among its requests for relief, Apple asked the court to stop Psystar from selling Leopard-equipped computers, turn over the profits it has made since it began the practice in April and recall all systems it has already sold.

That last demand, which was received prominent play in news reports, including by Computerworld, isn't as unusual as it sounds, according to Handler.

Settlement agreements drafted by plaintiffs' attorneys in copyright infringement cases will sometimes include language that spells out a recall, particularly when the continued presence of the product might cause some additional harm to the injured party. Defense attorneys, meanwhile, work to exclude such a recall or draft settlements that preemptively bar them.

In this case, Handler said, she could see Apple making the argument that it might be hit with follow-on lawsuits by customers stranded by Psystar if the Florida company was forced to stop supporting Mac OS X users it already had on its roles.

"It's unusual because the financial impact is so extreme, but there's nothing that keeps Apple from asking for it," Handler said. "And if a court decides Psystar is doing nothing but being in the infringement business, it may also decide that the world would be better off without them."

More important, said Handler, was what legal strategy, if any, Psystar has in mind. "At first blush, it looks like Apple has a very strong copyright case. But my guess is that Psystar [went into this] with a legal theory, and the first thing I would turn to if I were them would be to argue that Apple's conduct is anti-competitive.

"Clearly, if I was them I couldn't say that they didn't copy Mac OS X, so I would have to come up with something else," she said.

That something else could be an anti-competitive defense that would argue Apple's limiting use of its operating system to its hardware, and only its hardware, is ultimately damaging to consumers. "One of the issues I would set forth is that the Apple license limits the Mac operating system onto to its Apple-made hardware."

A company doesn't need to be the size of a Microsoft, or even have a dominant part of the market share, to be charged with anti-competitive behavior, said Handler. And this, she added, is where it gets interesting.

Psystar might argue that what Apple offers in Mac OS X is sufficiently unique that there is no substitute, and with Apple controlling the use of the OS, the case might be made that that behavior prevents competition which otherwise would drive down prices.

"What Psystar might say is 'What we would like to do is use the Mac operating system's unique features more broadly on a variety of hardware. We would like to break the connection between the hardware and the software'," said Handle, who admitted Psystar would have its work cut out for it. "I think it's a very, very hard argument to make, but I wouldn't be surprised if they tried."

If Psystar did try that tack, Apple would certainly counter. "'This is BS,' Apple would say. 'We're struggling to obtain market share'," Handler said.

But Apple could be playing with fire here. "You have to be careful, because the defense may raise questions that haven't been raised before," said Handler.

And the company is lucky that the case stays within the U.S. and its laws. "Antitrust agencies have never questioned the exclusive license, but if this was in Europe, Apple would have a much harder time. I think Neelie Kroes [the head of the European Union's antitrust agency] would be all over this."

Handler had no inside information on how Apple or Psystar would proceed, but she was eager to see it play out. "I'm curious as to what [Psystar] will do, but my guess is that they will mount some kind of direct attack on licensing."

In other news, Psystar's Web site, which was intermittently offline Tuesday and offline all day Wednesday, was back in operation Thursday. Yesterday, a woman who answered the sales line at Psystar blamed the outage on a spike in traffic and promised it would be up and running "shortly."

Copyright © 2008 IDG Communications, Inc.

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