Psystar stops selling Mac clones with Apple's OS

Mac clone maker Psystar has agreed to pay Apple nearly $2.7 million in a partial settlement approved today by the federal judge who has overseen the 17-month case.

Psystar has also halted sales of Intel-based clones with Mac OS X preinstalled. Late Tuesday, its Web site showed all Mac clone models as "out of stock." The company's attorney confirmed that Psystar will no longer sell computers with Apple's operating system pre-loaded.

The Doral, Fla.-based company's dispute with Apple, however, is not over, nor apparently is its business of selling knock-offs able to run Apple's operating system.

"We will take the case up with the Ninth Circuit," said Psystar's chief attorney K.A.D. Camera of the Houston firm Camera & Sibley LLP. In an interview late Tuesday, Camera said Psystar will file an appeal with the U.S. Court of Appeals for the Ninth Circuit over a Nov. 13 summary judgment by federal Judge William Alsup, who said Psystar violated Apple's copyright as well as the Digital Millennium Copyright Act (DMCA) when it installed Apple's operating system on the clones it sells.

"We think that Judge Alsup got it wrong," said Camera. "The effect [of the settlement] is to allow the case to be heard by the Ninth Circuit," he continued, and characterized the settlement as "extremely favorable" to Psystar.

Camera based that comment on the conditions of the settlement. Although Psystar has agreed to pay Apple a total of $2.68 million in damages, attorneys fees and other costs, the agreement stipulates that Apple cannot collect until "any and all appeals in this matter are concluded or the time for filing any such appeal has lapsed."

The appeals process can, of course, stretch on for years, a fact Psystar seems to be counting on. "We've agreed that Apple will not collect these damages until all appeals have been heard," Camera noted. "Until then, we have no liability."

The settlement acknowledged the reality of the Nov. 13 ruling, in which Alsup said the evidence supported five of the 11 claims that Apple leveled against Psystar. In each of the five claims, the two companies put their stamp on Alsup's findings. "With respect to Apple's First Claim for Relief (Copyright Infringement) in the Amended Complaint, judgment may be awarded in favor of Apple and against Psystar," said the first of five similar lines in the settlement document.

Camera rejected the idea that Psystar was admitting defeat by agreeing to the stipulations on the five claims. "We're conceding nothing," he said, and repeated Psystar's plans to take up Alsup's summary judgment with the appeals court.

As part of the settlement, Apple has withdrawn the remaining six charges -- which included trademark infringement and unfair business practice violations -- but only for now. It retains the right to reintroduce them later.

Psystar will also continue its lawsuit which accuses Apple of breaking several antitrust laws by tying Mac OS X 10.6, known as Snow Leopard, to Mac hardware. That case is pending in a Florida federal court. Alsup had ruled in September that Apple could not extend its California lawsuit to include Snow Leopard, although Apple has petitioned the Florida court to either dismiss the case or transfer it to Alsup's jurisdiction.

Camera promised that Psystar will fight such a move. "We think the Florida court is the proper venue," he said.

He also confirmed that Psystar will no longer sell computers with Mac OS X -- either Leopard or Snow Leopard -- preinstalled, but said Psystar would continue selling its Intel-based machines with other operating systems.

Psystar's Mac clone business -- which Apple had estimated accounted for the bulk of the company's revenues -- would then hinge on Rebel EFI, a $50 utility that the company debuted in October. Rebel EFI lets owners of generic PCs install and run Apple's Snow Leopard operating system.

By continuing to market Rebel EFI, Psystar would shift the responsibility of installing Mac OS X onto customers. Psystar would presumably sell Rebel EFI to customers, who would have to obtain a copy of Snow Leopard, then use Rebel EFI to install and run the operating system on a Psystar system.

In a filing Monday that claimed a settlement was imminent, Psystar argued that Rebel EFI should not be liable to the injunction Apple asked for last week . That injunction, currently before Alsup, is the only unfinished business of the California case. Alsup will hear oral arguments Dec. 14 from both parties on Apple's injunction request.

"Our Rebel EFI is currently in litigation in Florida, and we think it should be litigated there," Camera said, explaining Psystar's strategy.

If Alsup denies Apple an injunction that would block Rebel EFI sales, and Psystar's argument holds up in the Florida case, the company could still sell what would be a Mac OS X-less clone, then give customers a do-it-yourself tool to install and run Apple's OS on the machine.

"We may sell machines," Camera said, noting that in that case Psystar would be like any other computer maker. "Customers can buy Rebel EFI, a machine from us or from Dell, and with Rebel EFI, install OS X on whatever computer they please,' he said.

Some think it unlikely that Psystar's tactic will hold water. "I seriously doubt the court will see any difference between what Psystar has just agreed it did and what it proposes to do in the future with Rebel EFI," said the Groklaw legal blog in a post Tuesday.

"This case is not over by a mile. Now Psystar is trying to argue that you and I have the right to use Rebel EFI because we are not commercial users. As you can see, Psystar is still angling to stay in business some way, somehow," Groklaw added.

Psystar and Apple have been tangling in court since July 2008, when Apple sued the clone maker over copyright and software licensing violations. Until yesterday, Psystar had been selling Intel machines with Mac OS X pre-installed since April 2008.

Copyright © 2009 IDG Communications, Inc.

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