Judge grants Apple's motion to dismiss Psystar's counterclaims

A California judge on Tuesday granted Apple's motion to dismiss counterclaims on the part of unauthorized Mac clone maker Psystar, who charged the Mac maker with violating antitrust laws through its vigorous attempts to block third parties from selling rival Mac OS X-based computers.

Apple sued Psystar back in July, asserting that the Florida-based firm was violating both its copyright and trademarks through the sale of computers that had been designed to run a hacked version of the Mac OS X operating system without authorization. Psystar responded a month later with a countersuit that charged Apple with violating federal and state antitrust laws by attempting to squeeze potential rivals out of the market for Mac OS-based PCs.

But in a 19-page order passed down on Tuesday, Judge William Alsup largely reject Psystar's claims and granted Apple's motion to have the countersuit thrown out of court should the clone maker not better its argument through an amended complaint that can be filed no later than Monday December 8th. Should the company fail to do so, all of its claims will be dismissed without leave to amend.

Central to Psystar's complaint was that Apple’s Mac OS X operating system is not reasonably interchangeable with other operating systems such as Microsoft Windows and therefore comprises its own distinct market. The clone maker alleged that Apple has engaged in various forms of anti-competitive conduct in order to "protect its valuable monopoly in the Mac OS market" and that it has also run advertising campaigns to help define the Mac OS as a product separate and distinct from other operating systems.

Apple responded to Psystar's argument by asserting that the company's definition of a market comprised of a single brand of a product is neither legally nor factually plausible. Judge Alsup agreed, noting that the definition of an antitrust "relevant market" is typically a factual rather than a legal inquiry, but certain legal principles govern the definition.

"Whether products are part of the same or different markets under antitrust law depends on whether consumers view those products as reasonable substitutes for each other and would switch among them in response to changes in relative prices," he wrote.

As the Supreme Court has instructed, “The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.” [Brown Shoe v. United States, 370 U.S. 294, 325 (1962)]. As such, the relevant market must include “the group or groups of sellers or producers who have actual or potential ability to deprive each other of significant levels of business.” Thurman Industries, Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir.1989).

In theory, Judge Alsup said it may be possible that, in rare and unforeseen circumstances, a relevant market may consist of only one brand of a product, but added that Psystar's pleadings "fail to allege facts plausibly supporting the counterintuitive claim that Apple’s operating system is so unique that it suffers no actual or potential competitors."

Judge Alsup added that Psystar's pleading as a whole do not prove the Mac OS is an independent, single-product market, but instead work against the clone maker in providing several pieces of evidence to the contrary.

"The counterclaim itself explains that Mac OS performs the same functions as other operating systems," he wrote. "The counterclaim admits that market studies indicate that, although Apple computers with Mac OS enjoy strong brand recognition and loyalty, they are not wholly lacking in competition."

"Psystar also points to Apple’s extensive advertising campaigns," he continued. "Those advertising campaigns more plausibly support an inference contrary to that asserted in the counterclaim — vigorous advertising is a sign of competition, not a lack thereof. If Mac OS simply had no reasonable substitute, Apple’s vigorous advertising would be wasted money. The advertising campaigns suggest a need to enhance brand recognition and lure consumers from a competitor."

As such, the judge concluded that Psystar's counterclaim does not plausibly allege that Mac OS is an independent market. He noted that unlike a case cited by the clone maker involving Kodak — where customers did not knowingly bind themselves to a single brand that later prohibited them from switching among competitors in the primary market — Apple makes it clear in courting its customers that they'll be locked into using the Mac OS only on Apple systems.

"Apple asks its customers to purchase Mac OS knowing that it is to be used only with Apple computers," he wrote. "It is certainly entitled to do so."

The judge also dismissed the remainder of Psystar's stated claims for a lack of sufficient evidence to back them up, including allegations that Apple is violating the common law of unfair competition, the Cartwright Act, and the California Business and Professions Code.

"For the above-stated reasons, Psystar’s claim that Mac OS-compatible computer hardware systems constitute a distinct submarket or aftermarket contravenes the pertinent legal standards, and Apple’s motion to dismiss Psystar’s federal counterclaims is therefore granted," he wrote.