Apple says Psystar holding back info in Mac clone legal case

[AppleInsider]

Apple this week asked a federal court judge to intervene in its discovery process with unauthorized Mac clone maker Psystar, which is reportedly violating proper procedure by refusing to answer key questions and turn over critical financial information about its business.

Fed up with the Florida-based firm's online sale of knock-off Mac systems running hacked versions of the Mac OS X operating system, Apple last July sued Pystar in a California court on grounds of copyright infringement. Pystar soon fired back with a counterclaim of is own, alleging that Apple was violating anti-trust laws through the terms of its Mac OS X end user license agreement, which forbids the installation of the software on non-Apple hardware.

The court eventually threw out Pystar's anti-trust claims but is allowing the company to proceed with its second line of defense, which argues that Apple wrongfully extended the scope of its Mac OS copyright through the end user license agreement.

Meanwhile, Apple also at one point expanded its own complaint to allege that Psystar may be part of a larger conspiracy and is seeking to uncover unknown parties who may be secretly backing the clone maker, either financially or otherwise, in its efforts to disrupt Apple's stronghold on Mac hardware sales.

The legal bout, now in the discovery phrase that precedes a formal trial, is seen as a landmark case because it could potentially set a precedent on whether third parties have a right to build and market their own computers capable of running Apple's Mac operating software.

But in a partially redacted administrative request to presiding Judge William Alsup on Wednesday, Apple said representatives for Psystar, including its founder and chief executive Rudy Pedraza, aren't playing nice in the discovery process, and are thus making it extremely difficult for the company and its counsel to obtain the necessary information they need for trial.

In particular, Apple attorney James Gilliland said that despite "numerous meet and confer sessions," Psystar "has produced no monthly profit and loss statement, balance sheets or other financial statements and only a small subset of revenue and cost-related receipts.

"Moreover, at the deposition regarding Psystar’s revenues, profits, assets and liabilities (including investors, lenders or other sources of financial support), taken on March 20, 2009, Psystar’s CEO and founder Rudy Pedraza, the person designated by Psystar to testify on this topic, would not answer basic questions about Psystar’s financials."

Pedraza, who runs small company, reportedly stated approximately 90 times during the deposition "that he did not know or recall answers to basic questions about Psystar’s sales, its general costs and profits, its costs and profits by product line, how it determined its prices and profit margins, [redacted]"

The lack of transparency on Psystar's part regarding its lenders and investors may be an effort conceal the parties behind the Apple-allege conspiracy. Still, these aren't the only disclosure the the small firm is holding back, according to Gilliland. He goes on to inform the judge that Psystar has also failed to turn over any customer purchase receipts or order documents.

"Indeed, despite a supplemental production on April 13, 2009, Psystar still has not produced customer purchase receipts/invoices from at least April 2008, when it began selling its computers, to October 2008. Additionally, only a subset of vendor invoices3, from December 2008 to March 2009, were produced (and those just one day before the deposition)," he wrote.

"Due to these deficiencies in both Psystar’s document production and its testimony (along with others described below), Apple submits this letter brief requesting an order compelling Psystar to produce financial documents sufficient to determine Psystar’s revenues, costs, profits, assets and liabilities and (2) to make available a knowledgeable designee for another deposition on this topic at Psystar’s expense."

A trial date for case is set for November 9th, though a supplemental hearing is likely to be held in the near future to sort through Psystar's failure to comply with standard procedure. The discovery process in the case ends June 26th.

A copy of Gilliland's partially redacted letter to Judge Alsup in PDF format can seen here.

[ View this article at AppleInsider.com ]

[roehlstation]

Wow, conspiracy indeed.

[paxman]

Rudy Pedraza sure has balls.

[Dr Millmoss]

Perhaps Psystar doesn't want to produce any financial statements because they haven't got any. I wouldn't be surprised -- this seems like a real shoestring operation.

[akf2000]

Pystar stories are bo-o-o-ring.

I realise I have taken the time to post this.

[clickmyface]

I like the last sentence in the PDF where it asks for them to cover attorneys fees for wasting everybodys time and failing to comply.

[Gregg Thurman]

"Don't food with Mother Nature."

Psystar is toast... The Court is not going to look at these shenanigans favorably, now or in the future. Decisions have a way of going against a player, even when there is merit to their arguments, with conduct that tries the Court's patience.

[jittery jimmy]

It looks like there is something very funny going on in terms of Psystar. From what I can tell, they're either out-of-control with their finances, or there is a deep secret that they're trying to hide.

I wouldn't be shocked if they fell off the face of the earth to keep their secrets hidden.

[randythot]

Originally Posted by jittery jimmy

It looks like there is something very funny going on in terms of Psystar. From what I can tell, they're either out-of-control with their finances, or there is a deep secret that they're trying to hide.

I wouldn't be shocked if they fell off the face of the earth to keep their secrets hidden.

Sounds like a bag of hurt coming on...
And, likely that a large backer is lurking hoping to maintain anonymity leaving psystar in the lurch? (as others have noted)

If they're just a small op, then the game is over...otherwise, this may potentially get interesting, and Apple is gonna eat some Pystar!

[solipsism]

Originally Posted by akf2000

Pystar stories are bo-o-o-ring.

I realise I have taken the time to post this.

I have to agree, but I like the comments. I didn't even read this article. I'll wait until the final verdict is made before readin about how much Psystar has to pay and how quickly they have to shut down.

[g3pro]

Apple: the New Microsoft.

Sounds catchy.

[Johnny Mozzarella]

I think DELL or HP is aiding and abetting Pystar.

Although it would be more risky, moving to custom chipsets in their desktop and laptop computers could effectively stop Pystar. I'm sure that is a road they would only go down should the court side with Pystar, which is unlikely.

[bsenka]

Originally Posted by Dr Millmoss

Perhaps Psystar doesn't want to produce any financial statements because they haven't got any. I wouldn't be surprised -- this seems like a real shoestring operation.

Either that, or Pedraza has some bad debts or bad connections that are draining him dry. Things you can't exactly put on the books.

[fraklinc]

This is where the case gets interesting, now they're gonna be force to reveal how the company gets funded. Things are not looking good for psystar now.

[Virgil-TB2]

Originally Posted by jittery jimmy

It looks like there is something very funny going on in terms of Psystar. From what I can tell, they're either out-of-control with their finances, or there is a deep secret that they're trying to hide.

I wouldn't be shocked if they fell off the face of the earth to keep their secrets hidden.

I'm still not sure. As long as their behaviour can be explained by ideological blindness and general stupidity, I'm inclined to stay on the fence in regards the presence of a conspiracy.

The biggest argument against it, it that the truth always comes out eventually. If Microsoft or some other big concern is pulling Psystar's strings, it will eventually be public knowledge. Nothing can be kept secret forever, especially in a court case. Seen that way, it's a really dumb move for Microsoft to make, borderline criminal even.

[NasserAE]

Originally Posted by bsenka

Either that, or Pedraza has some bad debts or bad connections that are draining him dry. Things you can't exactly put on the books.

Most likely they are hiding money offshore as a contingency plan.

[jwervel16]

Originally Posted by AppleInsider

Pedraza, who runs small company, reportedly stated approximately 90 times during the deposition "that he did not know or recall answers to basic questions about Psystar’s sales, its general costs and profits, its costs and profits by product line, how it determined its prices and profit margins, [redacted]"

Wow, he repeated that sentence 90 times in third-person? Grueling.

[josealva]

It is almost certain that this company has a big financial backer. This company, whose operation initially looked like a scam, must be spending a fortune in lawyer fees. I had read that the owner has a uncle who is a lawyer. I thought that the reason the owner was so bold.

I have subsequently read that this company has a big time law firm representing them. Without a doubt they need a lot of money to finance their defense regardless of the legitimacy of this company or its operation.

So they real question: Who is hiding behind Psytar? There are a lot of people with deep pockets out there. But who would have an interest in Psystar succeeding?

Dell? HP? Acer? I thought about Microsoft wanting to hurt Apple. But if Apple is forced to allow 3rd parties to sell Mac OSX computers, that is potentially a greater threat to MS than Apple in its current state. I am almost certain a PC vendor is backing Psysar, but who??

That is the fascinating story here. Will we ever know? Will someone let something slip or leak out?

[fraklinc]

The question is, how is psystar able to afford a hot shot law firm that cost more than what they will make in 10 years selling hackintosh.

[LemCen]

You know... Some people say they switched to a mac because of the os, but IMO those psystars are uuuuugly!!!

[irnchriz]

I think that if Apple push any harder we might be reading reports in the news about Psystar execs being found chopped up and tossed in the Florida keys.

[SirROM]

Originally Posted by josealva

It is almost certain that this company has a big financial backer. This company, whose operation initially looked like a scam, must be spending a fortune in lawyer fees. I had read that the owner has a uncle who is a lawyer. I thought that the reason the owner was so bold.

So they real question: Who is hiding behind Psytar? There are a lot of people with deep pockets out there. But who would have an interest in Psystar succeeding?

Dell? HP? Acer? I thought about Microsoft wanting to hurt Apple. But if Apple is forced to allow 3rd parties to sell Mac OSX computers, that is potentially a greater threat to MS than Apple in its current state. I am almost certain a PC vendor is backing Psysar, but who??

That is the fascinating story here. Will we ever know? Will someone let something slip or leak out?

Drum roll please.....

I will now reveal Pystar's secret backer: Palm

[Mike Eggleston]

It seems to me that there is a serious player behind this. However, I just can't shake the feeling the M$ is in fact behind this. THink this through for a second, NONE of the Manufactures out there have the capital right now to be funding this operation; not Acer, HP, Dell, or even Sony. However, M$ does have a lot of capital to be throwing around. I can think of a few reasons why this is the case:

1) This case is a major thorn in Apple's side. Apple does not want to lose its tight integration of hardware and software, so Apple is going to make sure that doesn't happen. That is a resource drain.
2) This is a distraction. Apple's legal forces are focused on Psystar right now. Who knows what things M$ may want to steal from Apple while this is going on.
3) IF Psystar somehow wins this case, M$ has another revenue stream, at the expense of Apple.

[SirROM]

Originally Posted by SirROM

Drum roll please.....

I will now reveal Pystar's secret backer: Palm

I was just kidding. It's really Forrest Gump

[irnchriz]

Originally Posted by iStink

Well, that's what I thought at first, but the key difference here is Psystar isn't some company trying to introduce an original product while Apple stomps them. They are a shoestring operation (as someone pointed out) that's meant to disrupt Apple sales.

Look at these specs:

Psystar:
OSX 10.5 w/ iLife & iWork
2.83GHz C2Q Q9550
8GB DDR2-800
1TB HDD
20x DVD burner
9800GT 512mb
802.11n
Keyboard/Mouse
Three year warranty on parts and support
Add in a $300 monitor from newegg and the final price is 2032.98.

Comparatively from Apple:
2.66 Quad Xeon
3GB 1066DDR3
1TB HDD (same as above, 7200 rpm SATA)
nvidia Gt 120 512mb
keyboard/mouse
802.11n
iWork 09
No monitor mind you, all for 2698.00

Either Psystar isn't turning a profit, or Apple is inflating the price substantially. I think it's somewhere in the middle.

Of course Psystar has had to spend $0.00 in R & D and design and don't need to factor in support costs etc, they are just churning out a beige box capable of running a hacked version of OS X. Any company can make a knockoff and sell it cheaper for ANY product. Would sir like a Gucci wallet for $5, honest its the real deal

You pay peanuts you get...

[Mike Eggleston]

Originally Posted by SirROM

Drum roll please.....

I will now reveal Pystar's secret backer: Palm

No way. Palm doesn't have the resources to have this legal battle continuing. This is truely a battle of Attrition: how much cash can we siphon off from Apple.

[Dr Millmoss]

Originally Posted by Mike Eggleston

It seems to me that there is a serious player behind this. However, I just can't shake the feeling the M$ is in fact behind this. THink this through for a second, NONE of the Manufactures out there have the capital right now to be funding this operation; not Acer, HP, Dell, or even Sony. However, M$ does have a lot of capital to be throwing around. I can think of a few reasons why this is the case:

I don't see it. A company like Psystar doesn't require billions to run. It probably doesn't even take millions. This is a glorified screwdriver shop. If someone is bankrolling Psystar, it certainly doesn't have to be Microsoft, or one of the big OEMs. It could be almost anyone with a few hundred grand and a grudge.

[LE Studios]

Originally Posted by g3pro

Apple: the New Microsoft.

Sounds catchy.

Naw Apple is better than Microcopy I mean Microsoft.

[LE Studios]

Originally Posted by Dr Millmoss

I don't see it. A company like Psystar doesn't require billions to run. It probably doesn't even take millions. This is a glorified screwdriver shop. If someone is bankrolling Psystar, it certainly doesn't have to be Microsoft, or one of the big OEMs. It could be almost anyone with a few hundred grand and a grudge.

Just the lability factor though meaning the company that was bankrolling will be liable and have strong chance losing money because of this too. The Court Fines! LOL!

[jmnikricket]

Originally Posted by jwervel16

Wow, he repeated that sentence 90 times in third-person? Grueling.

Perhaps you should look up "redacted" in the dictionary.

I personally hate the entire concept of the EULA. I think a legitimate copy of OS X should be able to be installed on a PC and sold. Sure it won't work as well since OS X was designed to be used on Apple hardware, but that's the tradeoff. More competition, especially in the OS realm where there are only a few players to begin with, is never a bad thing.

Psystar doesn't even seem to be trying to win this case though and is wasting everyone's time who is involved.

[solipsism]

Originally Posted by Mike Eggleston

It seems to me that there is a serious player behind this. However, I just can't shake the feeling the M$ is in fact behind this.
[...]
3) IF Psystar somehow wins this case, M$ has another revenue stream, at the expense of Apple.

What revenue stream is that? Getting a a couple nickels from every unofficial Mac clone that Psystar sells?

If Psystar wins this case, everyone loses, Psystar loses, the consumer loses, Apple loses, but MS loses the most. They risk losing their grasp on the PC vendors who know have a viable alternative for an OS and one that the consumers will pay more.

[skipjakk]

Could they have a PC side to their business that their using to subsidize the Mac clone business?

[LE Studios]

Originally Posted by iStink

Well, that's what I thought at first, but the key difference here is Psystar isn't some company trying to introduce an original product while Apple stomps them. They are a shoestring operation (as someone pointed out) that's meant to disrupt Apple sales.

Look at these specs:

Psystar:
OSX 10.5 w/ iLife & iWork
2.83GHz C2Q Q9550
8GB DDR2-800
1TB HDD
20x DVD burner
9800GT 512mb
802.11n
Keyboard/Mouse
Three year warranty on parts and support
Add in a $300 monitor from newegg and the final price is 2032.98.

Comparatively from Apple:
2.66 Quad Xeon
3GB 1066DDR3
1TB HDD (same as above, 7200 rpm SATA)
nvidia Gt 120 512mb
keyboard/mouse
802.11n
iWork 09
No monitor mind you, all for 2698.00

Either Psystar isn't turning a profit, or Apple is inflating the price substantially. I think it's somewhere in the middle.

Key thing is without a Mac OS X then what? This is no different then a Blank CD but until you burn it with music then it become of value. This also boil down to Microsoft Windows Vista vs Apple Mac OS X Tiger which one is better with the configuration? One more example! You buy Metallica album from Amazon as a MP3 that Variable bit rate up to 160Kbps then burn it to a CD; then buy the same Metallica album from iTunes that's MPEG-4 AAC (iTunes Plus) at a Constant 256Kbps then burn that to a CD, so which one will sound better? The one from iTunes of course!

[Rot'nApple]

Originally Posted by Dr Millmoss

Perhaps Psystar doesn't want to produce any financial statements because they haven't got any. I wouldn't be surprised -- this seems like a real shoestring operation.

Shoestring operation is right, which is why Apple wants to see who else is behind financing this two bit operation. It's probably that billionaire, capitalism good for me, socialism good for you, George Soros. He's got his crooked hands into everything!

[Mike Eggleston]

Originally Posted by Dr Millmoss

I don't see it. A company like Psystar doesn't require billions to run. It probably doesn't even take millions. This is a glorified screwdriver shop. If someone is bankrolling Psystar, it certainly doesn't have to be Microsoft, or one of the big OEMs. It could be almost anyone with a few hundred grand and a grudge.

This has been going on Since July of 2008. It is May of 2009. That is A lot of Man-Hours which has to be paid. Lawyers are not going to wait around to be paid for this. So you have to have a constant revenue stream to pay for it. Since I believe that Psystar isn't even close to being able to pay the lawyer costs by itself, it has to have a backer. Depending upon the number of lawyers dedicated to the case (and by the story's implications, it does seem to be quite a few), that is # of lawyers X $$$ X # of hours dedicated to it = BIG CASH AMOUNT.

This is far bigger than just some guy with a grudge.

Example (a very small example):
3 Lawyers
3 full days a week (roughly 960 hours = 10 months, 4 weeks in a month, 3 days a week, 8 hour days)
$100 / hour

3 * 960 * 100 = $288,000... as of present.

More likely example:
10 Lawyers
5 days a week (1,600 hours)
$200 / hour

10 * 1600 * $200 = $3,200,000 .... In Lawyer Costs alone. That doesn't include (potential) damages...

[quinney]

Originally Posted by josealva

So they real question: Who is hiding behind Psytar?

[Dr Millmoss]

Originally Posted by Mike Eggleston

This has been going on Since July of 2008. It is May of 2009. That is A lot of Man-Hours which has to be paid. Lawyers are not going to wait around to be paid for this. So you have to have a constant revenue stream to pay for it. Since I believe that Psystar isn't even close to being able to pay the lawyer costs by itself, it has to have a backer. Depending upon the number of lawyers dedicated to the case (and by the story's implications, it does seem to be quite a few), that is # of lawyers X $$$ X # of hours dedicated to it = BIG CASH AMOUNT.

This is far bigger than just some guy with a grudge.

Not necessarily. Lawyers often take on cases like these on contingency, especially when big corporations are the targets. They hope for a settlement out of court, from which they typically get half or more. And from the briefs I've read in this case so far, it seems the lawyers for Psystar aren't exactly sweating the legal details. The entire antitrust angle was so much pie in the sky. I suspect they're trying to grind away until Apple gets sick of dealing with the thing, and pays them to go away. I suspect they've miscalculated.

As for how Psystar stays afloat, I have no idea. But it couldn't cost that much to keep the doors open, at least nominally. Can you still order a computer from them, or is it "light's on but nobody's home"?

[dreyfus2]

Originally Posted by iStink

Well, that's what I thought at first, but the key difference here is Psystar isn't some company trying to introduce an original product while Apple stomps them. They are a shoestring operation (as someone pointed out) that's meant to disrupt Apple sales.

Look at these specs:

Psystar:
OSX 10.5 w/ iLife & iWork
2.83GHz C2Q Q9550
8GB DDR2-800
1TB HDD
20x DVD burner
9800GT 512mb
802.11n
Keyboard/Mouse
Three year warranty on parts and support
Add in a $300 monitor from newegg and the final price is 2032.98.

Comparatively from Apple:
2.66 Quad Xeon
3GB 1066DDR3
1TB HDD (same as above, 7200 rpm SATA)
nvidia Gt 120 512mb
keyboard/mouse
802.11n
iWork 09
No monitor mind you, all for 2698.00

Either Psystar isn't turning a profit, or Apple is inflating the price substantially. I think it's somewhere in the middle.

Hm, I can not follow your math here. Apple uses a much more expensive CPU (retail price approx. 780 USD for the Xeon vs. 330 USD for the C2Q, both cost less in batches though), a chassis that is for sure 2-3 times more expensive, better and more expensive RAM, etc.
This comparison does not indicate any price inflation by Apple. If you consider the consumer's position when having warranty issues with a company that does not even know its own financials... it is only the Psystar product that is overpriced here (unless, of course, they offer something like more than 250 Genius Bars, free training lessons, included world-wide warranty and the guarantee that OS updates will work for at least 5-6 years).

[clickmyface]

Originally Posted by jmnikricket

Perhaps you should look up "redacted" in the dictionary.

I personally hate the entire concept of the EULA. I think a legitimate copy of OS X should be able to be installed on a PC and sold. Sure it won't work as well since OS X was designed to be used on Apple hardware, but that's the tradeoff. More competition, especially in the OS realm where there are only a few players to begin with, is never a bad thing.

Psystar doesn't even seem to be trying to win this case though and is wasting everyone's time who is involved.

In what way does forcing Apple to let any company modify and resell OS X create "more competition" among operating systems?

Psystar is not offering a new OS, they are not offering any form of competition in the OS market. They are simply modifying and reselling the operating system developed over the last 30 years by Apple.

It is reasonable to assume that Apple only charges $129.00 for their operating system because they subsizie many costs by selling Apple designed hardware packages along with the OS. Apple's entire philosophy is offering a complete package. Apple has expressed no interest in doing what their chief competitor does, which is to rely on 3rd party hardware vendors to build systems for users.

Given the reality that Apple has the highest consumer satisfaction ratings in the industry, we can assume that they are correct in their approach. If you do not want what Apple is offering, you have other options.

The anti-trust argument was thrown out from the very begging.

[solipsism]

Originally Posted by dreyfus2

Hm, I can not follow your math here. Apple uses a much more expensive CPU (retail price approx. 780 USD for the Xeon vs. 330 USD for the C2Q, both cost less in batches though), a chassis that is for sure 2-3 times more expensive, better and more expensive RAM, etc.
This comparison does not indicate any price inflation by Apple. If you consider the consumer's position when having warranty issues with a company that does not even know its own financials... it is only the Psystar product that is overpriced here (unless, of course, they offer something like more than 250 Genius Bars, free training lessons, included world-wide warranty and the guarantee that OS updates will work for at least 5-6 years).

The fans in the Mac Pro are quite, the mother board isn't off the shelf, then there is the fine tuning of the engineering and the additional cost of "going Green" that Apple now has to follow being the leader of premium computers. There is the cost of support* and all the little costs that have to figured out and pushed to each device, like marketing, legalese, etc.

That is not to say that the machine iStink priced is not a good value for the money, just that it comes with some cavets that make it less ideal for many people. This applies to the big box makers, too.

* Pretty much all the parts in the Psystar machine will come with a 1-year, 3-year, lifetime or somewhere-in-between warranty, but these aren't expensive for the component OEMs to offer as they require you to send in the component on your dime, not theres, which makes it less likely that you will do it even if you know the fault is in their component.