Psystar files for bankruptcy likely delaying Apple case

[AppleInsider]

Psystar abruptly filed for bankruptcy protection in the state of Florida last week in a move that's likely to delay or end its ongoing legal proceedings with Apple over the sale of unauthorized Mac clones.

The voluntary petition for bankruptcy [PDF] was filed last Thursday in the United States Bankruptcy Court for the Southern District of Florida, indicating that Psystar is more than $259,000 in debt. The MacObserver, speculates that this may be an indication that the company's financial backers may have pulled out under the belief that Apple will inevitably prevail in the lawsuit against the unauthorized clone maker.

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 on grounds of copyright infringement. Pystar retaliated 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 allowed 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.

For its part, Apple has also said in court documents that it believes 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.

In an amended motion filed [PDF] last week, Psystar attributed its hardships to the turbulent global economy and pullback in consumer spending, saying the crisis has spilled over to its creditors, who have tightened their terms and become more demanding for immediate payments.

"Debtor’s vendors due to their own financial problems are not being able to supply all necessary items to allow Debtor to produce their product, thus, forcing Debtor to pay higher prices for parts in order to fulfill customer orders in a timely manner and to assure satisfaction with the product," Psystar's attorneys wrote. "These factors seriously contribute to the Debtor not being able to turn a significant profit in each sale."

Psystar's request for bankruptcy may delay its case against Apple given that proceedings in that case will be put on hold while the bankruptcy court hears the clone maker's case for Chapter 11 protection. However, the bankruptcy court will reportedly hold a meeting on June 5th where Psystar's creditors will be named, meaning any unknown parties backing the clone maker financially will be exposed.

It's likely to be only a few months before the court lifts its hold on Psystar's proceedings with Apple. But as the MacObserver points out, "Even if Psystar has plans of continuing its battle against Apple to sell PCs with Mac OS X installed, it isn't in a strong position to move forward once the Judge overseeing its bankruptcy lifts the automatic stay since it doesn't likely have money to pay for its legal defense."

For its part, Psystar maintained in court documents filed last week that it "plans on emerging from this Chapter 11 with a strong and effective plan to make an increasingly higher profit and still provide the consumer with the product that they have grown to enjoy and trust."

[ View this article at AppleInsider.com ]

[Neruda]

Originally Posted by AppleInsider

the bankruptcy court will reportedly hold a meeting on June 5th where Psystar's will be named, meaning any unknown parties backing the clone maker financially will be exposed.

Where Pystar's [backers, investors, partners..] will be named?

I don't think that it would be fair if the bankruptcy filing stays the civil law suit. Apple has probably spent hundreds of thousands of dollars in legal fees at this point, so the case should be allowed to proceed just for its precedential value to Apple. Of course, any judgment against Psytar would then be subject to the bankruptcy filing (priority rules, enforcement, etc).


11 U.S.C. § 362(a).
The automatic stay bars, inter alia:
(1) the commencement or continuation of lawsuits or administrative proceedings against the debtor to recover pre-petition claims;

[Jimzip]

Heheh. So begins the tumbling of dominoes that will undo those pricks.

Edit: I might add, that if it's discovered that there is actually a conspiracy behind this, the whole thing is really quite intriguing. Quite the effort to destroy the reputation and try and undo the model of another company!

Jimzip

[shavex]

sad day.

[roehlstation]

Originally Posted by Neruda

Where Pystar's [backers, investors, partners..] will be named?

I don't think that it would be fair if the bankruptcy filing stays the civil law suit. Apple has probably spent hundreds of thousands of dollars in legal fees at this point, so the case should be allowed to proceed just for its precedential value to Apple. Of course, any judgment against Psytar would then be subject to the bankruptcy filing (priority rules, enforcement, etc).


11 U.S.C. § 362(a).
The automatic stay bars, inter alia:
(1) the commencement or continuation of lawsuits or administrative proceedings against the debtor to recover pre-petition claims;

Hundreds of thousands in legal fees? not likely, they have their own staff lawyers.

[irnchriz]

I hope they lose their homes and the shirt off their backs.

[macFanDave]

Psystar's bankruptcy isn't delaying Apple's case -- it is proving that Apple's case is working!

If Apple can put these chumps out of business completely, they will have successfully defended their intellectual property. So be it with crooks!

[quinney]

If it is determined that Psystar has been backed by deep-pocketed friends in their
suit against Apple, will the assets of those friends be taken into consideration in the
bankruptcy case? In other words, will it be possible for Apple to reach their hands
into those deep pockets, under some scenario?

[striker_kk]

These kind of endings in a battle often happens in fairy tales. Psystar's position would be really pathetic if they wont have money to pay their legal team when they are in fight with Apple.

[Maestro64]

who didn't guess this was going to be the outcome. There is no way a PC assembler even putting OSX on it was going to survey this economy.

The ironic part is when the ower was asked to produce documents to show what his Cash FLow was he answer was he did not have such documentation... At first we though it was some sort of delay tactic, but maybe the guy had no clue and maybe he had no backers he was just an idiot and found so lawyer who shared his dilutions of winning against Apple.

[htoelle]

Originally Posted by Neruda

Where Pystar's [backers, investors, partners..] will be named?

The bankruptcy filing does not necessarily stay the civil law suit. Apple has probably spent hundreds of thousands of dollars in legal fees at this point, so the case should be allowed to proceed just for its precedential value to Apple. Of course, any judgment against Psytar would then be subject to the bankruptcy filing (priority rules, enforcement, etc).

Another thought
Most likely Apple will let this thing die where it is, taking no further action. Going after what remains of Pystar to recover costs would be throwing good money after bad. But suppose for a moment that Apple made something like this as an offer to Pystar. All action against them will cease if Pystar makes a public declaration. That ONE they will cease any and all cloning operations and not restart them at any time in the future. TWO Pystar shall post publicly a list any and all backers past and present.

I think that idea has a snowball's chance in July, but it is nice to dream. The list I think would have some very familiar names.

[Neruda]

Originally Posted by roehlstation

Hundreds of thousands in legal fees? not likely, they have their own staff lawyers.

1. Yes, but in-house counsel rarely deal with these types of cases in-house. This lawsuit is being handled by Townsend and Townsend (an outside law firm), not by Apple's corporate lawyers.

http://www.townsend.com/

Townsend & Townsend is not cheap.

2. Even if this case was being handled by Apple's in-house attorneys, do you think that these lawyers work for free?

[Neruda]

Originally Posted by quinney

If it is determined that Psystar has been backed by deep-pocketed friends in their
suit against Apple, will the assets of those friends be taken into consideration in the
bankruptcy case? In other words, will it be possible for Apple to reach their hands
into those deep pockets, under some scenario?

I believe (correct me if I am wrong) that Psystar is/was a limited liability corporation, in which case the answer would most likely be no.

[Achiever]

Originally Posted by Neruda

I don't think that it would be fair if the bankruptcy filing stays the civil law suit. Apple has probably spent hundreds of thousands of dollars in legal fees at this point, so the case should be allowed to proceed just for its precedential value to Apple. Of course, any judgment against Psytar would then be subject to the bankruptcy filing (priority rules, enforcement, etc).


11 U.S.C. § 362(a).
The automatic stay bars, inter alia:
(1) the commencement or continuation of lawsuits or administrative proceedings against the debtor to recover pre-petition claims;

You just answered your own question correctly. The suit cannot proceed while the bankruptcy is active per the Bankruptcy Code.

Originally Posted by roehlstation

Hundreds of thousands in legal fees? not likely, they have their own staff lawyers.

While Apple certainly has in house counsel (all companies do) they retain outside counsel for specialized litigation, such as this. They are certainly paying good money in attorneys costs/fees, though I am not sure hundreds of thousands of dollars is accurate at this point. A hundred thousand may not be an unreasonable figure given where the case is.

Originally Posted by quinney

If it is determined that Psystar has been backed by deep-pocketed friends in their
suit against Apple, will the assets of those friends be taken into consideration in the
bankruptcy case? In other words, will it be possible for Apple to reach their hands
into those deep pockets, under some scenario?

No. Investors are just that. If the company goes under, they lose their investment but the liability of a company invested in does not extend. If it turns out that an Apple friend/competitor has bankrolled this operation, then there could be business ramifications in the open market based on how Apple reacts to the disclosure. For example, if it tuns out that M$ had any interest in this, you can bet your a$$ there will be a "I'm a Mac, I'm a PC" commercial about it (or more).

[Dr Millmoss]

If Psystar had deep-pockets financial backers then they very likely would not be filing for bankruptcy protection.

[Achiever]

As an aside, the June 5th hearing is likely a bankruptcy 341(a) hearing, a/k/a the Meeting of Creditors. During this hearing, the Judge will question the debtor on the bankruptcy petition they have filed, their intentions with the bankruptcy,etc. Creditors are allowed to appear and, subject to the discretion of the Judge, are usually allowed to ask questions fo the debtor. In short, Apple can theoretically appear and ask them who has bankrolled their operation, though in reality, that info should have already been disclosed in the bankruptcy schedules. Probably a "nothing to see here, please disburse" type of situation, but you never know.

[ruel24]

Okay, so Pystar makes computers that are 100% Mac OS X compliant. Why does that make them crooks? The parts are open and freely used on PC's running Windows... Folks, if Pystar would win, we all win. It creates competiton, and therefore better products and lower prices. That's capitalism. Hoping Apple wins out is a vote for higher prices, less choice, and whatever Apple feels we deserve to get from them. In other words, you, the consumer, loses.

[anantksundaram]

"End" is more like it. Good riddance.

[anantksundaram]

Originally Posted by shavex

sad day.

For whom? Why?

Care to elaborate?

[lkrupp]

Originally Posted by shavex

sad day.

That's ignorant.

[justflybob]

Originally Posted by ruel24

Okay, so Pystar makes computers that are 100% Mac OS X compliant. Why does that make them crooks? The parts are open and freely used on PC's running Windows... Folks, if Pystar would win, we all win. It creates competiton, and therefore better products and lower prices. That's capitalism. Hoping Apple wins out is a vote for higher prices, less choice, and whatever Apple feels we deserve to get from them. In other words, you, the consumer, loses.

Oh God, here we go again.

Exactly what part of the fact, that they did not have have a license from Apple to do what they did, do you not understand?

[DDB]

Wait a minute, Pystar is going out of business selling cheap, knockoff Macs because of the pullback in consumer spending?

Aren't all the pundits and armchair experts constantly insisting that cheaper macs are THE ONLY WAY to weather the economic downturn?

Looks like maybe a cheaper mac is not the answer to life after all.

[ivan.rnn01]

Psystar weren't just a small gang of ingenious and energetic little guys. There was a serious power behind them. The power having been emerging from certain developing countries, which wanted cheap Macs. "Nice job, ladies. And nice PC."

[justflybob]

Originally Posted by Dr Millmoss

If Psystar had deep-pockets financial backers then they very likely would not be filing for bankruptcy protection.

Hmm.... It doesn't sound like you have done too many startups.

It's a very common practice for VC types to set contractual goals for the startup to achieve prior to the release of additional funds, also listed in the contract. So, in effect, both parties are clear as to what funds are available and what it takes to have them released to the startup.

So, it is possible that they have, or had, deep pocket associates. Most likely any deep pocket associates would now be quietly fading in the shadows, hoping that the "list" a few posters have mentioned never sees the light of day. Assuming, of course, that said list exists at all.

Truth is, I have no idea of how Psystar was set up, so I could just be talking out my garbage collection heap.

[GTL215]

Originally Posted by DDB

Aren't all the pundits and armchair experts constantly insisting that cheaper macs are THE ONLY WAY to weather the economic downturn?

Looks like maybe a cheaper mac is not the answer to life after all.

DING DING DING! what do we have for him, Johnny?? Hit the nail right on the head.

Mac software works great because of controlled hardware. Let the hardware run free, and the software ceases to work great. PERIOD!

[Chris_CA]

Wasn't Psystar formed so Joe 6-Pack had a much less expensive alternative to Apple computers?
And they are filing for bankruptcy because of a "turbulent global economy and pullback in consumer spending".
Yet Apple, with their "overpriced systems", is having record revenues...

[macxpress]

Originally Posted by anantksundaram

For whom? Why?

Care to elaborate?

Originally Posted by lkrupp

That's ignorant.

I assume this person thinks that Psystar should be able to make Mac clones legally????

[Neruda]

Originally Posted by justflybob

Oh God, here we go again.

Exactly what part of the fact, that they did have have a license from Apple to do what they did, do you not understand?

I am going to assume that you meant "that they did not have a license from Apple to do what they did".

If not, then the part where the EULA specifically limits installation of the OS to Apple branded hardware which Apple has all the rights to do (since it is their property). If Apple had granted Psystar a license to do what they did then there wouldn't have been a lawsuit (and it would not have gotten past a summary judgment motion if that had been the case).

[justflybob]

Originally Posted by Neruda

I am going to assume that you meant "that they did not have a license from Apple to do what they did".

If not, then the part where the EULA specifically limits installation of the OS to Apple branded hardware which Apple has all the rights to do (since it is their property). If Apple had granted Psystar a license to do what they did then there wouldn't have been a lawsuit (and it would not have gotten past a summary judgment motion if that had been the case).

Yeah, classic case of "fat fingers".

I have corrected my original posting.

[gto65l]

Originally Posted by ruel24

Okay, so Pystar makes computers that are 100% Mac OS X compliant. Why does that make them crooks? The parts are open and freely used on PC's running Windows... Folks, if Pystar would win, we all win. It creates competiton, and therefore better products and lower prices. That's capitalism. Hoping Apple wins out is a vote for higher prices, less choice, and whatever Apple feels we deserve to get from them. In other words, you, the consumer, loses.

If I created the hardware for a GPS navigational system, the parts of which are readily available from many electronics component retailers, and then used TomTom's software by downloading their software updates from their website, which is freely available, would it be stealing?

YES!

TomTom's software is tied to the hardware. All software updates are considered additive to an already purchased license of the software bundled with the hardware. Duplicating the hardware and then using updates as the software is stealing!

Why is this so hard for some people! If Psystar wins, we all lose. Get ready to pay $500 for your Snow Leopard update!

[Chris_CA]

Originally Posted by htoelle

Another thought
Most likely Apple will let this thing die where it is, taking no further action.

Depends on where they think their case is in terms of success.
Apple did not sue to get money from Psystar.
If they let it die, what's to stop Dell or anyone else from making clones?
If they get an actual ruling on their case, that would be a statement to others.

But suppose for a moment that Apple made something like this as an offer to Pystar. All action against them will cease if Pystar makes a public declaration. That ONE they will cease any and all cloning operations and not restart them at any time in the future. TWO Pystar shall post publicly a list any and all backers past and present.

If any offer were made/accepted, I highly doubt it would be made public.
Besides, if the case was settled out of court, whoever was backing them would not have anything to worry about, even if their names were handed over to Apple.

[justflybob]

Originally Posted by ivan.rnn01

"Nice job, ladies. And nice PC."

So you think Patricia Dunn and Carly Fiorina were behind this?

Ah, it all makes sense to me now.

[Dr Millmoss]

Originally Posted by justflybob

Hmm.... It doesn't sound like you have done too many startups.

It's a very common practice for VC types to set contractual goals for the startup to achieve prior to the release of additional funds, also listed in the contract. So, in effect, both parties are clear as to what funds are available and what it takes to have them released to the startup.

So, it is possible that they have, or had, deep pocket associates. Most likely any deep pocket associates would now be quietly fading in the shadows, hoping that the "list" a few posters have mentioned never sees the light of day. Assuming, of course, that said list exists at all.

Truth is, I have no idea of how Psystar was set up, so I could just be talking out my garbage collection heap.

Hmm, I don't see how it matters. The popular conspiracy theory is that Psystar is a front for a one of Apple's major competitors. If that was the case, then I don't think they'd let them fail for want of a few hundred grand. FWIW, I've never bought into these conspiracy theories, so I see this bankruptcy filing as evidence that big money backers never existed. This does not rule out venture capital, just the kind some seem to be convinced exists.

[roehlstation]

Originally Posted by Neruda

1. Yes, but in-house counsel rarely deal with these types of cases in-house. This lawsuit is being handled by Townsend and Townsend (an outside law firm), not by Apple's corporate lawyers.

http://www.townsend.com/

Townsend & Townsend is not cheap.

2. Even if this case was being handled by Apple's in-house attorneys, do you think that these lawyers work for free?

They are on retainer, I doubt we're in the hundreds of thousands at this point.

[teckstud]

Originally Posted by GTL215

DING DING DING! what do we have for him, Johnny?? Hit the nail right on the head.

Mac software works great because of controlled hardware. Let the hardware run free, and the software ceases to work great. PERIOD!

In other words- it's a bag of hurt?

[melgross]

We really don't know whether any large company or individual is financing this behind the scenes. Apple says that the believe, suspect that it may be so, but it's not know yet that it is so.

Now, even if Apple does shut them down legally, meaning that the courts agree with Apple's stance, there are two other companies that have started to do the same thing, except that they are overseas. One, I believe, is in Russia. That means that they are likely beyond any law, as Russia doesn't give a hoot about patents, copyrights or trademarks.

What will happen with those two?

That's the bigger question.

[BenRoethig]

Yet Apple, with their "overpriced systems", is having record revenues...

Apple is doing great, but the Mac OS X platform is underperforming compared to where it should be. The company has too many holes. The "desktops" have a bias towards the low end of the scale and the laptops are too high end.

[melgross]

Originally Posted by Dr Millmoss

Hmm, I don't see how it matters. The popular conspiracy theory is that Psystar is a front for a one of Apple's major competitors. If that was the case, then I don't think they'd let them fail for want of a few hundred grand. FWIW, I've never bought into these conspiracy theories, so I see this bankruptcy filing as evidence that big money backers never existed. This does not rule out venture capital, just the kind some seem to be convinced exists.

I doubt a venture capitalist would sink money into this. It's much too risky. When venture capitalists are lagging in putting money into legit firms, why would they want to put one into one that has at best, a 50/50 chance based on Apple's annoyance? It would be a bad enough risk without that to start up a company like this in this climate.

[macFanDave]

Originally Posted by ruel24

Okay, so Pystar makes computers that are 100% Mac OS X compliant. Why does that make them crooks? The parts are open and freely used on PC's running Windows... Folks, if Pystar would win, we all win. It creates competiton, and therefore better products and lower prices. That's capitalism. Hoping Apple wins out is a vote for higher prices, less choice, and whatever Apple feels we deserve to get from them. In other words, you, the consumer, loses.

Capitalism runs on the ability for competitors to protect their intellectual property. Apple clearly states that the Mac OS X must run on Apple hardware, therefore Psystar PC's are not 100% compliant -- they do not comply to the Apple License Agreement.

There are plenty of choices in computing -- Macs, Windows PC's, Linux and other *nixes. Apple has a unique business model of a so-called monopoly of hardware, software and OS, and that gives the Mac its distinctive performance, consistency and reliablilty. Some of us choose this arrangement over ones that are supposedly freer or cheaper.

Any group of crooks that would break the Apple way and making it work more like the Windows PC is actually taking away a distinct choice from consumers.

[Dr Millmoss]

Originally Posted by melgross

I doubt a venture capitalist would sink money into this. It's much too risky. When venture capitalists are lagging in putting money into legit firms, why would they want to put one into one that has at best, a 50/50 chance based on Apple's annoyance? It would be a bad enough risk without that to start up a company like this in this climate.

You could be right. We're all pretty much in guess mode. Venture capitalists do take risks with their money, though you wouldn't find me risking a nickel on these guys.