Apple, Inc. v. Psystar Corp., C 08-03251 WHA.

Citation586 F.Supp.2d 1190
Decision Date18 November 2008
Docket NumberNo. C 08-03251 WHA.,C 08-03251 WHA.
PartiesAPPLE INC., a California corporation, Plaintiff, v. PSYSTAR CORPORATION, a Florida corporation, Defendant.
CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California

James G. Gilliland, Jeb Bacon Oblak, Megan M. Chung, Mehrnaz Boroumand Smith, Townsend and Townsend and Crew LLP, San Francisco, CA, for Plaintiff.

Christine S. Watson, Robert Joseph Yorio, Christopher Paul Grewe, Colby B. Sringer, Carr & Ferrell LLP, Palo Alto, CA, for Defendant.

ORDER GRANTING MOTION TO DISMISS COUNTERCLAIMS

WILLIAM ALSUP, District Judge.

INTRODUCTION

Plaintiff Apple Inc. brought this lawsuit against defendant Psystar Corporation asserting copyright and trademark violations related to Psystar's alleged use of Apple's operating system. Psystar filed counterclaims against Apple alleging violations of federal and state antitrust laws. Apple moved to dismiss Psystar's antitrust counterclaims. For the reasons stated below Apple's motion to dismiss the counterclaims is GRANTED.

STATEMENT

Apple Inc. manufacturers and markets the Macintosh Computer and the OS X Operating System ("Mac OS"). Operating systems like Mac OS control and direct the interaction between software applications such as word processors and internet browsers, and the central processing unit and the various hardware in a computer. Apple is the exclusive manufacturer and master licensor of Mac OS (Countercl. ¶ 14,18, 21).

Psystar manufacturers and distributes a tailored line of computers called Open Computers. Psystar's Open Computers support a wide range of operating systems including Mac OS, Microsoft Windows XP and XP 64-bit, Windows Vista and Vista 64-bit and Linux 32 and 64-bit kernels. Psystar allows its customers to choose the operating system on the computers they purchase (Countercl. ¶ 15).

Numerous companies manufacturer entire computer hardware systems, including (but not limited to) Dell, Acer, Lenovo, Sony and Hewlett-Packard. In addition, numerous companies manufacture and sell components—such as hard drives, processors and graphics processing cards— used by those computer manufacturers (Countercl. ¶ 22-25).

The counterclaim, however, identifies no companies other than Apple and Psystar that currently sell computers compatible with Mac OS. Apple manufacturers an exclusive line of hardware systems that support Mac OS, including the Mac Pro, the Mac Mini, the MacBook the MacBook Air, the MacBook Pro, and the iMac. The counterclaim alleges that, by virtue of Apple's End User License Agreement and other anti-competitive conduct, consumers wishing to use Mac OS have no alternative to the Apple-label computer hardware systems. The counterclaim alleges that there is no compelling technological reason why other manufacturers could not produce computer hardware systems capable of hosting, executing and running MAC OS, and that, but for the exclusionary conduct of Apple, such third parties could and would assemble hardware components capable of running Mac OS (Countercl. ¶¶ 25-28).

The counterclaim avers that there exist two relevant markets. The first alleged market consists of one product: Mac OS. The complaint asserts that Apple's Mac OS is not reasonably interchangeable with other operating systems such as Microsoft Windows and therefore comprises its own market. The second alleged market consists of computer hardware systems capable of executing Mac OS. The counterclaim avers that, through its anti-competitive conduct, Apple's exclusive line of computer hardware systems dominate the market for Mac OS-capable computer hardware systems (Countercl. ¶ 17).

Psystar offers several (related) allegations in support of its claim that Mac OS constitutes an independent market. First, Psystar alleges that Apple has undertaken extensive advertising campaigns—including the "think different" campaign and the "get a Mac" campaign—to define the Mac OS as a product separate and distinct from other operating systems, and that through those efforts customers and merchants have come to recognize Mac OS as a separate and distinct market (Compl. ¶¶ 30-35). Second, the counterclaim avers that, across the spectrum of the Applelabel computer line, Apple computers with traditional computer components are significantly more expensive than similarly configured computers with comparable (or superior) hardware sold by other computer companies utilizing operating systems other than Mac OS, such as Windows. The counterclaim further asserts that "[n]otwithstanding the consistent upward differentiation in price across a broad spectrum ... Apple is known for its `market performance and brand leadership' ... [and] is `well known for its passionate and dedicated consumer base.'" Psystar avers that Apple "has made a conscious and successful effort to create inelasticity of demand through product differentiation in its Mac OS," and that there in fact exists an "insufficient" cross-elasticity of demand. Psystar alleges that Apple's customers would not consider any other operating system to be a reasonably interchangeable alternative (Countercl. ¶¶ 36-43). Third, the counterclaim alleges that a "small but significant non-transitory increase in price" ("SSNIP") would not result in a change in demand for Mac OS (Countercl. ¶ 44).

Psystar claims that Apple has utilized its monopoly power in the alleged "Mac OS market"—in which Apple is, by definition, the only participant—in order to dominate the market for Mac OS-capable computer hardware systems. Psystar alleges that Apple has engaged in various forms of anti-competitive conduct in order to "protect its valuable monopoly in the Mac OS market and, by extension, Apple-Labeled Computer Hardware Systems from potential threats.'" The counterclaim asserts that the following actions constitute the illegal tying of Mac OS to Apple-labeled computer systems, monopoly maintenance or other unlawful behavior (Countercl. ¶¶ 47, 63-64, 67, 72-73).

First, Psystar avers that Apple's End User License Agreement for the Mac OS specifically prohibits customers from installing the operating system on non-Apple computers. The license agreement states (Countercl. ¶ 61):

2. Permitted License Uses and Restrictions.

A. Single Use. This license allows you to install, use and run (1) copy of the Apple Software on a single Apple-labeled computer at a time. You agree not to install, use or run the Apple Software on any non-Apple-Labeled computer or enable another to do so.

Customers, therefore, are contractually precluded from utilizing Mac OS on any computer hardware system that is not an Apple-labeled computer system (Countercl. ¶¶ 61-62, 65-66).

Second, Psystar avers that Apple has erected technical barriers that prevent Mac OS from operating on non-Apple computers. Apple, the counterclaim alleges, intentionally embeds code in Mac OS that causes the operating system to recognize any computer hardware system that is not an Apple computer. If Mac OS recognizes a non-Apple computer, Mac OS will not operate properly. The Mac OS will enter "kernel panic," meaning that the operating system believes that it has detected an internal and fatal error from which it can not recover, and discontinues operation. This renders the computer non-functional (Countercl. ¶¶ 58-59).

Finally, Psystar asserts that Apple had experimented with licensing its system software to other computer makers but has since abandoned the practice. In 1995, Apple launched a "Clone Program" under which it licensed Macintosh ROMs and system software to other computer makers, but Apple ended the program in 1997. Apple also purchased a computer hardware manufacturer capable of running Mac OS. Apple has since announced that it will not allow the use of Mac OS on anything other than an Apple computer (Compl. ¶¶ 49-57).

Psystar alleges that this conduct has caused harmful and anti-competitive effects in the marketplace (Compl. ¶¶ 68-77). Psystar asserts six claims for relief: (1) unlawful tying in violation of Section 1 of the Sherman Act, 15 U.S.C. 1; (2) monopoly maintenance in violation of Section 2 of the Sherman Act; (3) exclusive dealing in violation of Section 3 of the Clayton Act, 15 U.S.C. 14; (4) violations of California's Cartwright Act, Cal. Bus. & Prof.Code § 16700; (5) violations of California's unfair competition law, Cal. Bus. & Prof. Code § 17200, and (6) violations of the common law of unfair competition. Apple moved to dismiss all claims.1

ANALYSIS

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. "All allegations of material fact are taken as true and construed in the light most favorable to plaintiff. However, conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996). The Supreme Court recently clarified the pleading standard for Sherman Act Section 1 claims. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007). It reiterated that under Rule 8(a)(2), only a short and plain statement of the plaintiff's entitlement to relief is necessary. Twombly, 127 S.Ct. at 1964. It also acknowledged, however, that "a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-1965 (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)). The decision explained,

stating such a claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal...

To continue reading

Request your trial
44 cases
  • Epic Games, Inc. v. Apple Inc.
    • United States
    • U.S. District Court — Northern District of California
    • September 10, 2021
    ...extremely rare" and courts have rejected such market definitions "[e]ven where brand loyalty is intense." Apple, Inc. v. Psystar Corp. , 586 F. Supp. 2d 1190, 1198 (N.D. Cal. 2008) (internal quotation marks and citation omitted). But see id. ("Antitrust markets consisting of just a single b......
  • Packaging Sys., Inc. v. PRC-Desoto Int'l, Inc.
    • United States
    • U.S. District Court — Central District of California
    • July 14, 2017
    ...is typically a factual rather than a legal inquiry, but certain legal principles govern the definition." Apple, Inc. v. Psystar Corp. , 586 F.Supp.2d 1190, 1196 (N.D. Cal. 2008) (citing Newcal Indus. , 513 F.3d at 1045 ). A product market comprises "products that have reasonable interchange......
  • Dang v. Niners
    • United States
    • U.S. District Court — Eastern District of California
    • August 2, 2013
    ...Id. at 1045 (citing Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 436–37 (3d Cir.1997)); see alsoApple, Inc. v. Psystar Corp., 586 F.Supp.2d 1190 (N.D.Cal.2008). Generally, the relevant market must be a “ product market. ” Newcal, 513 F.3d at 1045 (emphasis in original). Suc......
  • Realpage, Inc. v. Yardi Sys., Inc.
    • United States
    • U.S. District Court — Central District of California
    • February 13, 2012
    ...is typically a factual rather than a legal inquiry, but certain legal principals govern the definition.” Apple Inc. v. Psystar Corp., 586 F.Supp.2d 1190, 1196 (N.D.Cal.2008) (citing Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir.2008)). A product market comprises ......
  • Request a trial to view additional results
3 books & journal articles
  • Antitrust Analysis of Unilateral Conduct by Intellectual Property Owners
    • United States
    • ABA Antitrust Library Intellectual Property and Antitrust Handbook. Second Edition
    • December 6, 2015
    ....”). At least one district court has held that the Illinois Tool holding also applies to copyrights. See Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190, 1197 Analysis of Unilateral Conduct 173 monopoly power is significant, most of the case law in the context of a refusal to license or ......
  • Tying and bundled discounts
    • United States
    • ABA Antitrust Library Antitrust Law and Economics of Product Distribution
    • January 1, 2016
    ...to which it is tied.”). 79. See Telerate Sys. v. Caro, 689 F. Supp. 221, 235-36 (S.D.N.Y. 1988). 80. Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190, 1200-1203 (N.D. Cal. 2008). Evidence Relevant to Separate Products Suggestive of Single Product Suggestive of Separate Products Seller iss......
  • Table of cases
    • United States
    • ABA Antitrust Library Intellectual Property and Antitrust Handbook. Second Edition
    • December 6, 2015
    ...2014), 48, 193, 199 Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 5416941 (W.D. Wisc. 2012), 189, 194 Apple, Inc. v. Psystar Corp., 586 F. Supp. 2d 1190 (N.D. Cal. 2008), 172 Apple Inc. v. Samsung Elecs., 2012 U.S. Dist LEXIS 67102 (N.D. Cal. 2012), 287 Apple Inc. v. Samsung Elecs. Co. 20......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT