World of Apple

Today there has been activity on both the California and the Bankruptcy Court dockets. As expected, Judge Alsup (California) has allowed the substitution of counsel by Psystar. Those requests, particularly when no dates are affected and the other party does not object, are routinely approved.

On the Bankruptcy docket there are just two entries which do not have associated filings as follows:

07/17/2009 46 Meeting of Creditors Held and Concluded Filed by U.S. Trustee Office of the US Trustee. (^UST13, DD) (Entered: 07/17/2009)

07/17/2009 47 Until Further Notice, the United States Trustee Will Not Appoint a Committee of Creditors Pursuant to 11 USC Section 1102. Filed by U.S. Trustee Office of the US Trustee. (^UST13, DD) (Entered: 07/17/2009)

To put this in context, here is the prior entry from July 2, 2009:

07/02/2009 45 Notice of Hearing (Re: 44 Motion to Dismiss Case Voluntary Filed by Debtor Psystar Corporation.) Hearing scheduled for 08/04/2009 at 02:00:00 PM at 51 SW First Ave Room 1406, Miami. (Howlan, Elaine) (Entered: 07/02/2009)

Apparently there was a confidential meeting of the creditors held, and it was decided at this time that a committee will not be appointed. I suspect that this is due to the prior docket entry showing there is a pending hearing date upon which Psystar might be released from bankruptcy. Remember, that is not a dead certainty despite the fact that Psystar misrepresented that it was to its customers via its newsletters.

Basically, this is all pro forma at this points, but it shows that both Courts are moving their dockets along.

On July 15, 2009, Psystar filed a Motion with the Court requesting allowance for substitution of counsel from the firm of Carr & Ferrell, LLP (the firm where Colby Springer is employed) to K.A.D Camara of Camara & Sibley, LLP of Houston, Texas and David Vernon Welker of Welker & Rosario of Davis, California. No specific reason is given other than that the substitution will be in the interest of justice, and Apple does not oppose the substitution. Such requests are routinely granted when they don’t require the changing of any dates in the Scheduling Order.

Now here is my speculation. It seems apparent that there was some conflict of interest over the outstanding legal bills which were disclosed in Psystar’s Bankruptcy filings, thus, a change was needed on those grounds. However, my attention was drawn immediately to the retention of Texas counsel. It could mean absolutely nothing, but Texas courts are well-known (though this reputation is disputed) for being friendly to Plaintiffs in intellectual property cases. For example:

Juries in East Texas, unlike those in Houston, Dallas or Austin, are much less likely to have a member with any technical training or education, which exacerbates the problem from the defense perspective, but makes East Texas federal courts an attractive venue for would-be plaintiffs, who know that the jury will, instead, gravitate toward softer or superficial issues that are difficult to predict.” The result is to facilitate the activities of what Tyler calls “patent pirates”: enterprises that exist to file patent suits rather than to manufacture products, and which benefit from asymmetrical costs of litigation (discovery in a patent case can cost the manufacturer-defendant a million dollars or more, while the plaintiff license-holder may have few or no documents worth discovering).

(via Overlawyered)

Even though that quote deals more with patent cases, the same reputation is true of intellectual property cases in general. Psystar would definitely benefit from a less technically savvy jury pool. So, you might ask, how is this relevant since Psystar is the Defendant? Well, don’t forget that they are also a Plaintiff in their countersuit, and not liking the cool reception in California, might want to try their hand in Texas. This is sheer speculation. I have no idea or basis as to how it would be possible to get this case moved or a sister case opened in Texas. It may be totally impossible. However, I find it hard to find it merely coincidental that a Texas attorney was retained. Perhaps it was simply for his experience in similar successful cases. I am positive more information will be forthcoming.

As I had suggested in my last article in which I noted that although a second mediation had been ordered, no date had been set, an Order has come from Magistrate Judge Zimmerman setting the mediation for July 30, 2009. This Order is a bit more detailed than I expected, with the following statements being of particular interest:

It is the responsibility of counsel to ensure that whatever discovery is needed for all sides to evaluate the case for settlement purposes is completed by the date of the settlement conference.

Does this mean that someone who can do more than answer “I don’t know” more than 80 times when asked financial questions about Psystar will give a 30(b)(6) deposition within the next several weeks? Will those elusive email attachments be printed and produced to Apple?

Any party who is not a natural person shall be represented by the person or persons not directly involved in the events which gave rise to the litigation but with full authority to negotiate a settlement.

This may be common in California, but I have never seen such a stipulation in mediation orders on cases that I have worked on as a legal assistant. This means that although Rudy Pedraza may attend (as he certainly will), he cannot be the person at the conference who has the authority to settle the case. This is somewhat illusory since whatever authority any other designated person is given will have been given by Rudy, but I suspect the reason for this provision is to have such authority given outside of the mediation itself which can get highly emotional. This way, the amount of potential settlement is decided in a more calm state of mind.

Now that the automatic stay has been lifted, the California Court has issued its Second Case Management Scheduling Order. All of the previous future deadlines have been moved forward by approximately one month with the new trial date set for January 11, 2010.

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A great deal of attention has been paid to the truth-is-stranger-than-fiction drama of the Psystar bankruptcy filings. However, buried in the flurry of filings were some overlooked gems. I had mentioned one of these in my last article in which I had pointed out that Rudy Pedraza threatened, in a Declaration to the Bankruptcy Court, a potential new suit against Apple to be filed in the Florida State Court system. However there was even more buried treasure.

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The Psystar case has taken a odd path. Just after the Court-ordered deadline for production of financial records and just prior to the date scheduled for the deposition of the Psystar representative who would not answer “I don’t know” over 90 times when asked about the company’s finances, Psystar filed for Chapter 11 bankruptcy (reorganization) in its home state of Florida. While not conclusive, the timing certainly seems suspicious. It would be helpful to know if they fully complied with the production of the financial records. Apple’s statements to the Bankruptcy court did not state whether Psystar complied with that first deadline. If they did, it would not seem likely that avoiding the Court Order was a motive in the bankruptcy filing as they would have done so prior to that date and avoided the whole issue.

I believe it is helpful to provide a timeline of events leading up to the current posture of this matter, and I have done so at the conclusion of this piece with links for additional reference and past World of Apple analysis to those who are interested. Additionally, within the timeline I have provided copies of previously obtained transcripts that have not been posted elsewhere. I am able at this time to post them as the time limit noted in the Federal Court docket for public release has passed.

Current Status

On June 11, 2009, the Bankruptcy Court denied Psystar’s request for continued use of its check stocks and deposit slips but granted Psystar’s request to continue to use its business forms. This has been misreported in several places leaving the impression that Psystar was allowed to use none of its business documents while in fact they were allowed the use of some.

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Yesterday, Apple filed its Notice of Entry of Order Granting Motion by Apple, Inc. for Relief from Stay in order to inform Judge Alsup that this case can proceed. I expect that Apple will aggressively pursue this matter in the coming days.

Please look for a summary of the status thus far as well as some interesting tidbits not yet reported here (or elsewhere that I have seen) over this weekend.

In a support document posted yesterday Apple has seemingly given a warning to Palm who recently released its Pre handset while touting one of the leading features as its ability to sync with Apple’s iTunes software.

It was reported at the time that the Palm Pre emulates an iPod therefore tricking iTunes into syncing with the device, in Apple’s support note titled “About unsupported third-party digital media players” the company warns that future updates to iTunes could break such features.

Apple designs the hardware and software to provide seamless integration of the iPhone and iPod with iTunes, the iTunes Store, and tens of thousands of apps on the App Store. Apple is aware that some third-parties claim that their digital media players are able to sync with Apple software. However, Apple does not provide support for, or test for compatibility with, non-Apple digital media players and, because software changes over time, newer versions of Apple’s iTunes software may no longer provide syncing functionality with non-Apple digital media players.

Background

Several days ago (I have been a bit ill and could not write this piece until now), Psystar filed its required Summary of Schedules with the Florida Bankruptcy Court. A copy of this filing may be viewed here. On Page 10, as part of “Schedule F — Creditors Holding Unsecured Nonpriority Claims,” Apple’s claim is listed as being valued at $75,000.00.

Misinformation from the Apple Web. Again.

Recently, Macworld reported that Psystar claimed that Apple has a $75,000.00 claim against them and proceeded to ignorantly speculate on how that dollar figure was calculated. Specifically:

It’s possible that all or part of the $75,000 represents Mac OS X orders Psystar placed with Apple. At the list retail price of $129 per license, the $75,000 translates into 581 copies of Leopard.

Umm. What? It is apparent that the writer of this piece knows very little about the law. Anyone at all familiar with the Federal Court system would know immediately why that figure was chosen.

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Yesterday, Apple filed a Motion with the Southern District of Florida Bankruptcy Court for Relief from the Automatic Stay of Proceedings in its lawsuit with Psystar and to allow the case to proceed to trial as previously scheduled. In its arguments, Apple sets forth twelve factors that the Florida Bankruptcy Courts have used in determining whether such a stay should be lifted as follows (citing In re Beane, — B.R. —, 2008 WL 6053198 (M.D. Fla. July 15, 2008):

(1) whether relief would result in a partial or complete resolution of the issues;
(2) lack of any connection with or interference with the bankruptcy case;
(3) whether the other proceeding involves the debtor as a fiduciary;
(4) whether a specialized tribunal with the necessary expertise has been established to hear the cause of action;
(5) whether the debtor’s insurer has assumed full responsibility for defending it;
(6) whether the action primarily involves third parties;
(7) whether litigation in another forum would prejudice the interests of other creditors;
(8) whether the judgment claim arising from the other action is subject to equitable subordination;
(9) whether movant’s success in the other proceeding would result in a judicial lien avoidable by the debtor;
(10) the interests of judicial economy and the expeditious and economical resolution of litigation;
(11) whether the parties are ready for trial in the other proceeding; and
(12) the impact of the stay on the parties and the balance of harms.

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