Apple files motion for dismissal of Psystar counterclaims

Apple has filed a motion with U.S. District Court seeking to dismiss the claims of Psystar, which allege that Apple has used a monopoly position as the manufacturer of Mac computers to cause restraint of trade, unfair competition, and other violations of antitrust law.

After Apple sued Psystar for selling generic PCs bundled with the company's Mac OS X operating system, Apple was countersued by Psystar over claims that the company had monopolized sales of the Mac.

A month ago, in a press conference held at its Palo Alto, California office, Colby Springer of Carr & Ferrell LLP, the law firm representing Psystar, stated, “We’re alleging restraint of trade, among other things. We’re going to let the court decide.”

Apple has fired back with a 23 page filing [PDF by way of ZDNet] that asks the court to dismiss Psystar's countersuit "with prejudice," which means that Psystar as the plaintiff would be barred from bringing another action on the same claim.

Apple's Dismissal Case

"Defendant Psystar Corporation is knowingly infringing Apple’s copyrights and trademarks, and inducing others to do the same," Apple stated in the filing. "Psystar makes and sells personal computers that use, without permission, Apple’s proprietary operating system software. In an obvious attempt to divert attention from its unlawful actions, Psystar asserts deeply flawed antitrust counterclaims designed to have this Court force Apple to license its software to Psystar, a direct competitor. The Court should reject Psystar’s efforts to excuse its copyright infringement, and dismiss these Counterclaims with prejudice."

Apple's filing states that "Psystar’s very business model is premised on the fact that Apple’s computers compete directly with personal computers using different operating systems. In its Counterclaims Psystar admits computers with the Macintosh operating system (“Mac OS”) are one of many types Psystar sells to consumers," citing a number of different versions of Windows and Linux as examples. "Customers are choosing between these computer systems, the systems necessarily compete with one another. For these reasons and others, Psystar’s effort to assert antitrust claims premised on the existence of a relevant product market restricted solely to Apple’s products fails as a matter of law."

"Moreover," Apple charges, "the ultimate goal of Psystar’s Counterclaims is an order from this Court compelling Apple to help competitors, like Psystar, by forcing Apple to license its proprietary software to those competitors for use on their own computer hardware. Psystar’s effort is contrary to law and must be rejected. Neither the federal nor the state antitrust laws require competitors to stop competing with, and instead to start helping, each other."

"No such thing as a Mac OS market"

"As shown below," Apple noted in its filing, "Psystar’s single-brand relevant market definitions are irremediably flawed. Psystar’s own allegations establish that there is no such relevant market as the 'Mac OS market.' Those allegations also show there is no such thing as a Mac OS Capable Computer Systems market. Consequently, there is no basis for Psystar to claim Apple has market power in any market. As a result, all of Psystar’s claims collapse, since 'failure to identify a[n economically-meaningful] relevant [product] market is a proper ground for dismissing a Sherman Act claim.'"

"Psystar’s effort to define a single-brand relevant market contravenes well-known principles of antitrust law," the filing notes. "Relevant markets generally cannot be limited to a single manufacturer’s products. As the Supreme Court recognized in the United States v. E.I. DuPont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994 (1956), the ‘power that, let us say, automobile or soft-drink manufacturers have over their trademarked products is not the power that makes an illegal monopoly. Illegal power must be appraised in terms of the competitive market for the product.'"

"Most recently, in Spahr, supra, the court rejected almost identical allegations as those made here," Apple stated in the filing, citing an example where the plaintiff "claimed that Leegin’s brand of women’s accessories, called the 'Brighton' brand, was a separate market because the products are unique, they are marketed as 'one of a kind,' customers would not consider other accessories as 'suitable substitutes,' and there was an 'inelasticity of demand' for these products. 2008 WL 3914461, at pp. 3, 8. Applying the Supreme Court’s decision in Twombly, the District Court dismissed the complaint without leave to amend because its definition of the relevant market was implausible 'from the face of the complaint….' Id., at 8."

"The right of a manufacturer to exercise independent discretion with whom he will deal"

"Ultimately," Apple's filing states, "Psystar seeks to force Apple to license its software to competitors, like Psystar, so they can use Mac OS to create Mac 'clones.' Psystar undeniably can sell, and is selling, its Open Computers running Windows or Linux in direct competition with Apple’s Mac. Nevertheless, it also wants to sell computers running Apple’s Mac OS in direct competition with Apple’s Mac. However, one of the bedrock principles of antitrust law is that a manufacturer’s unilateral decision concerning how to distribute its product and with whom it will deal cannot violate the Sherman Act:"

The Sherman Act "does not restrict the long recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. And, of course, he may announce in advance the circumstances under which he will refuse to sell."

James Gilliland Jr., serving as Apple's legal representative in filing the motion for dismissal, concluded, "Psystar’s attempt to direct attention from its infringing conduct should fail. It cannot plausibly define a relevant market in which Apple has market power, so Psystar cannot prove any unfair competition by Apple. Nor can Psystar use the antitrust laws to force Apple to help its direct competitor. Therefore, Psystar’s Counterclaims all should be dismissed with prejudice."

Comparison to previous monopoly claims

Ten years ago, Apple assisted the US Department of Justice in pursuing a claim against Microsoft, which argued that Microsoft had monopolized the market for PC desktop operating systems. The claim in that case was that there were no 'suitable alternatives' for the vast majority of desktop PC users because software incompatibility effectively prevented users from choosing between Windows and other competing operating systems. In Microsoft's case, the software being sold not only lacked any suitable competition, but was also bundled with more than 95% of the PCs sold, with none of the major PC manufacturers able or willing to offer any alternatives.

The judge ruling in that case wrote in 2000 'conclusions of law' that Microsoft had committed monopolization, attempted monopolization, and tying in violation of Sections 1 and 2 of the Sherman Act, and his remedy was that Microsoft must be broken into two separate units, one to produce the operating system, and one to produce other software components.

While the conclusions of law were never challenged, the original remedy was later watered down to a settlement that only required that Microsoft share its application programming interfaces with third-party companies and appoint a panel of three people who will have full access to Microsoft's systems, records, and source code for five years in order to ensure compliance. Objections from the nine states involved with the DoJ were thrown out, while the consent decree for oversight of Microsoft's monopoly has been extended into 2009.

In a second monopoly claim, Apple was accused of monopolizing the European market for online music with iTunes. That claim was brought in France at the urging of Virgin. The US DoJ supported Apple, stating that iTunes' success came in a healthy market with open competition. PC World noted that "the [EU] Commission's main target is not Apple but the music companies and music rights agencies, which work on a national basis and give Apple very little choice but to offer national stores."