Apple has filed a
motion to dismiss [PDF] Psystar's counterclaims, which hardly surprises me. I have it as text for you. Apple has asked for a court date on November 6th at 8 AM in Judge William Alsop's courtroom in San Francisco. If any of you are in the area and can attend, that would be fabulous.
Apple says something quite simple and, as far as I'm concerned true, that Apple has no obligation to help Psystar compete against Apple. After all, Apple is not dominant in the field of computers, and Psystar's business model proves it:
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: "PSYSTAR manufactures and distributes computers tailored to customer choosing. As a part of its devotion to supporting customer choice, PSYSTAR supports a wide range of operating systems including Microsoft Windows XP and XP-64 bit, Windows Vista and Vista 64-bit, Linux (32 and 64-bit kernels), and the MacOS." Counterclaims, ¶ 15, lines 8-11 (emphasis added). Since
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. So it asks that all of what it terms Psystar's "deeply flawed antitrust counterclaims" be dismissed with prejudice.
Moreover, 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.
Apple has also filed a
stipulation [PDF] by the parties to take the dispute to nonbinding arbitration with an agreed-upon mediator. They are not mutually exclusive in that if the motion to dismiss is granted, Apple's claims will remain and will go to mediation. We have yet to hear if Psystar will oppose the motion alone or will file an equivalent motion of its own.
MacObserver has an analysis from an attorney, who wishes to remain anonymous. Can you blame him? When folks file odd claims, you don't really know what to expect, so best to stay off the radar, I guess.
Here are all the documents:
Filed & Entered: 09/30/2008
Motion to Dismiss
Docket Text: MOTION to Dismiss Psystar's Counterclaims; Memorandum of Points and Authorities in Support Thereof filed by Apple Inc.. Motion Hearing set for 11/6/2008 08:00 AM in Courtroom 9, 19th Floor, San Francisco. (Gilliland, James) (Filed on 9/30/2008)
Filed & Entered: 09/30/2008
Request for Judicial Notice
Docket Text: Request for Judicial Notice re  MOTION to Dismiss Psystar's Counterclaims; Memorandum of Points and Authorities in Support Thereof filed byApple Inc.. (Attachments: # (1)
Exhibit A-F)(Related document(s)) (Gilliland, James) (Filed on 9/30/2008)
Filed & Entered: 09/30/2008
Docket Text: NOTICE by Apple Inc. re  Request for Judicial Notice, Manual Filing Notification of Exhibit B to Request for Judicial Notice (Gilliland, James) (Filed on 9/30/2008)
Filed & Entered: 09/30/2008
Docket Text: Proposed Order re  MOTION to Dismiss Psystar's Counterclaims; Memorandum of Points and Authorities in Support Thereof by Apple Inc.. (Gilliland, James) (Filed on 9/30/2008)
Docket Text: EXHIBIT B re  Request for Judicial Notice, filed by Apple Inc.. (Related document(s)) (sis, COURT STAFF) (Filed on 9/30/2008)
Filed & Entered: 10/02/2008
ADR Certification (ADR L.R. 3-5 b)of discussion of ADR options
Docket Text: ADR Certification (ADR L.R. 3-5 b) of discussion of ADR options (Gilliland, James) (Filed on 10/2/2008)
Filed & Entered: 10/02/2008
Stipulation and Proposed Order selecting Private ADR
Docket Text: STIPULATION and Proposed Order selecting Private ADR by Apple Inc. (Gilliland, James) (Filed on 10/2/2008)
I did the motion as text, except for the list of cases, which for the sake of time I'll send you to the PDF to read, if you don't mind. The pagination follows the PDF, by the way, not the pagination in the motion itself as a result.
Update: The wonderful Steve Martin has done the Table of Authorities for us, so I'm including it now also. Thank you, Steve.
Update, Sept. 22, 2011: The appeals court has granted Apple's motion for judicial notice of the Florida case:
09/22/2011 - 30 - Filed order (MARY M. SCHROEDER, SIDNEY R. THOMAS and
RONALD M. GOULD): Plaintiff-appellee’s unopposed motion for judicial
notice is GRANTED.  (AF)
The filed Order is one page, and here's the entire text:
Before: SCHROEDER, THOMAS, and GOULD, Circuit Judges.
Plaintiff-appellee’s unopposed motion for judicial notice is GRANTED.
TOWNSEND AND TOWNSEND AND CREW LLP
JAMES G. GILLILAND, JR. (State Bar No. 107988)
MEHRNAZ BOROUMAND SMITH (State Bar No. 197271)
MEGAN M. CHUNG (State Bar No. 232044)
JEB OBLAK (State Bar No. 241384)
[address, phone, fax, email]
Attorneys for Plaintiff and Counterdefendant,
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
(SAN FRANCISCO DIVISION)
APPLE INC., a California corporation,
APPLE INC., a California corporation,
Case No. CV 08-03251 WHA
APPLE INC.'S NOTICE OF MOTION
AND MOTION TO DISMISS
MEMORANDUM OF POINTS AND
AUTHORITIES IN SUPPORT
Date: November 6, 2008
Time: 8:00 a.m.
Courtroom: 9, 19th Floor
Honorable William Alsup
TABLE OF CONTENTS
I. STATEMENT OF RELEVANT FACTS.....................................................................2
II. THE LEGAL STANDARD FOR A MOTION TO DISMISS........................................................3
III. ALL OF PSYSTAR'S COUNTERCLAIMS SHOULD BE DISMISSED
A. All of Psystar's Counterclaims Require The Definition Of Legally
IV. CONCLUSION .............................................................................................................................17
Plausible Relevant Markets .................................................................................................4
B. Psystar's Alleged Single-Product Relevant Markets Are Neither
Legally Nor Factually Plausible.............................................................................6
1. Courts Repeatedly Reject Single Brand Markets ....................................................6
C. Apple Is Not Obliged To Help Psystar Compete ..............................................................12
2. The Allegations Contained In Psystar's Counterclaims
Disprove Its Contentions About Single Brand Markets ..........................................8
D. Psystar's Cartwright Act Claims Should Be Dismissed....................................................15
E. Psystar's California Unfair Competition Law Claims Should Be
TABLE OF AUTHORITIES
|A. I. Root Co. v. Computer/Dynamics, Inc.,
806 F.2d 673 (6th Cir. 1986)
|Aguilar v. Atlantic Richfield Co.,
25 Cal.4th 826 (Cal. 2001)
|Bank of the West v. Superior Court,
2 Cal.4th 1254, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992)
|Bell Atlantic Corp. v. Twombly,
--- U.S. ----, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)
|3, 5, 8, 12
|Berry v. Coleman,
172 Fed.Appx. 929, 2006 WL 759087, 2 (11th Cir. 2006)
|Branch v. Tunnell,
14 F.3d 449 (9th Cir. 1994)
|Brown Shoe Co. v. United States,
370 U.S. 294 (1962)
|Chavez v. Whirlpool Corp.,
93 Cal.App.4th 363 (Cal.App.2. Dist.2001)
|Chicago Title Ins. Co. v. Great Western Financial
69 Cal.2d 305 (Cal. 1968)
|Chongris v. Board of Appeals of Town of Andover,
811 F.2d 36 (1st Cir. 1987)
|Continental T. V., Inc. v. GTE Sylvania Inc.,
433 U.S. 36, 97 S.Ct. 2549 (1977)
|Corwin v. Los Angeles Newspaper Service Bureau,
4 Cal.3d 842 (Cal. 1971)
|Data General Corp. v. Grumman Systems Support Corp.,
36 F.3d 1147 (1st Cir. 1994)
|Digital Equipment Corp. v. Uniq Digital Technologies,
73 F.3d 756 (7th Cir. 1996)
|7, 8, 11
|Dimidowich v. Bell & Howell,
803 F.2d 1473 (9th Cir. 1986)
|Disenos Artisticos E Industriales, S.A. v. Work,
714 F. Supp. 46 (E.D. N.Y. 1989)
|Epstein v. Washington Energy Co.,
83 F.3d 1136 (9th Cir.1996)
|Fox Film Corp. v. Doyal,
286 U.S. 123 (1932)
|Green Country Food Market, Inc. v. Bottling Group,
371 F.3d 1275 (10th Cir. 2004)
|Hack v. President and Fellows of Yale College,
237 F.3d 81 (2d Cir. 2000)
|Hal Roach Studios, Inc. v. Richard Feiner and Co.,
896 F.2d 1542 (9th Cir. 1990)
|Ill. Tool Works v. Independent Ink, Inc.,
547 U.S. 28 (2006)
|In re Graphics Processing Units Antitrust Litig.,
527 F. Supp. 2d 1011 (N.D. Cal. 2007)
|In re Independent Service Orgs. Antitrust Litig. CSU,
203 F.3d 1322 (Fed. Cir. 2000)
|In re Silicon Graphics Inc. Securities Litigation,
183 F.3d 970 (9th Cir. 1999)
|In re Wang Laboratories, Inc.,
1996 WL 87050 (D. Mass. 1996)
|In re Wireless Telephone Services Antitrust
385 F. Supp. 2d 403 (S.D.N.Y. 2005)
|Insignia Sys., Inc. v. News Corp., Ltd.,
2005 U.S. Dist. LEXIS 42851 (D. Minn. Aug. 25, 2005)
|Jefferson Parish Hospital District No. 2 v. Hyde,
466 U.S. 2 (1984)
|Kolling v. Dow Jones & Co.,
137 Cal.App.3d 709 (1982)
|Lambtek Yogurt Machines v. Dreyer.s Grand Ice Cream,
1997 . 2 Trade Cases (CCH) ¶ 71, 891 (N.D. Cal. 1997)
|Little Caesar Enterprises, Inc. v. Smith,
34 F.Supp.2d 459 n.30 (E.D. Mich. 1998)
|Lucent Technologies, Inc. v. Gateway, Inc.,
2007 WL 2900484, 16 (S.D. Cal. 2007)
|Mack v. South Bay Beer Distributors,
798 F.2d 1279 (9th Cir.1986)
|Marder v. Lopez,
|450 F.3d 445 (9th Cir. 2006)
|Morrison v. Viacom, Inc.,
66 Cal.App.4th 534 (Cal.App.1.Dist.1998)
|Olympia Equipment Leasing Co. v. Western Union Telegraph
802 F.2d 217 (7th Cir. 1986)
|Rebel Oil Co. v. Atlantic Richfield Co.,
51 F.3d 1421 (9th Cir. 1995)
|RLH Industries, Inc. v. SBC Communications, Inc.,
133 Cal.App.4th 1277, 35 Cal.Rptr.3d 469, 475 (Cal.App. 4 Dist.
|Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors,
637 F.2d 1376 (9th Cir. 1981)
|Santa Cruz Medical Clinic v. Dominican Santa Cruz
1994 WL 619288 (N.D. Cal. 1994)
|Schor v. Abbott Labs.,
457 F.3d 608 (7th Cir. 2006)
|SCM Corp. v. Xerox Corp.,
645 F.2d 1195 (2d Cir., 1981)
|Shaw v. Rolex Watch, U.S.A., Inc.,
673 F.Supp. 674 (S.D. N.Y. 1987)
|Snowden v. Hughes,
321 U.S. 1 (1944)
|Southland Sod Farms v. Stover Seed Co.,
108 F.3d 1134 (9th Cir. 1997)
|Spahr v. Leegin Creative Leather Products, Inc.,
2008 WL 3914461 (E.D. Tenn., Aug. 20, 2008)
|6, 8, 11
|Spectrum Sports v. McQuillan,
506 U.S. 447 (1993)
|Sprewell v. Golden State Warriors,
266 F.3d 979 (9th Cir. 2001)
|State of California ex rel. Van de Kamp v. Texaco,
46 Cal.3d 1147 (1988)
|Steckman v. Hart Brewing,
143 F.3d 1293 (9th Cir. 1998)
|Stewart v. Abend,
495 U.S. 207 (1990)
|Sybersound Records, Inc. v. UAV Corp.,
517 F.3d 1137 (9th Cir. 2008)
|Tanaka v. Univ. of S. Cal.,
252 F. 3d 1059 (9th Cir. 2001)
|United States v. Colgate & Co.,
250 U.S. 300 (1919)
|United States v. E.I. DuPont de Nemours & Co.,
351 U.S. 377, 76 S.Ct. 994 (1956)
|United States v. Grinnell Corp.,
384 U.S. 563 (1966)
|United States v. Microsoft Corp.,
147 F.3d 935 (D.C. Cir. 2001)
|Verizon Communs. v. Law Offices of Curtis V. Trinko,
540 U.S. 398 (2004)
|California Business & Professions Code §§ 16700
|California Business & Professions Code §16727.
|California Business & Professions Code § 17200
|New York Times, "Apple Riding A 51% Jump In Mac Sales,"
April 24, 2008
|New York Times, "As Apple Gains PC Share, Jobs Talks of
a Decade of Upgrades,"
October 22, 2007
|The Wall Street Journal, "Microsoft Kicks Off Seinfeld
Sept. 5, 2008, p. 2
|1 ABA Section of Antitrust Law, Antitrust Law
Developments, 588-89 (6th ed. 2007)
|Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An
Analysis of Antitrust
Principles and Their Application, ¶563d
|U.S. Const. Art. I, § 8, cl. 8
NOTICE OF MOTION AND MOTION TO DISMISS
PLEASE TAKE NOTICE that on November 6, 2008, at 8:00 a.m., or as soon thereafter as the
matter can be heard, in the courtroom of the Honorable William Alsup, located at 450 Golden Gate
Avenue, San Francisco, California 94102, plaintiff and counterdefendant, Apple Inc. ("Apple") will,
and hereby does, move for an order dismissing Psystar Corporation's ("Psystar") Counterclaims.
Apple seeks an Order dismissing all of Psystar's Counterclaims with prejudice.
MEMORANDUM OF POINTS AND AUTHORITIES
Defendant Psystar Corporation is knowingly infringing Apple's copyrights and trademarks, and
inducing others to do the same. 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.
Ignoring fundamental principles of antitrust law, and the realities of the marketplace, Psystar
contends that Apple has unlawfully monopolized an alleged market that consists of only one product,
the Macintosh® computer. However, in direct contradiction to Psystar's claimed Mac®-only market,
Psystar admits that "a seemingly infinite list of manufacturers may be found in the computer hardware
system marketplace," including "Dell, Acer, Lenovo, Sony, and Hewlett-Packard to name but a few."
Counterclaims, ¶ 22, lines 13-17. Psystar also admits, in further contradiction to its alleged Mac-only
market, that Apple has gone to great lengths in the media to position its Mac as superior to other
personal computers against which it directly competes. Counterclaims ¶¶ 31-35.
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: "PSYSTAR manufactures and distributes computers tailored to customer choosing. As a
part of its devotion to supporting customer choice, PSYSTAR supports a wide range of operating
systems including Microsoft Windows XP and XP-64 bit, Windows Vista and Vista 64-bit, Linux (32
and 64-bit kernels), and the MacOS." Counterclaims, ¶ 15, lines 8-11 (emphasis added). Since
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, 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.
I. STATEMENT OF RELEVANT FACTS
Apple launched its Macintosh computer line in 1984. Both parties agree the Mac is "considered
to be reliable and to enjoy ease-of-use" and that its current operating system, Mac OS X Leopard®,
"has received 'significant acclaim.'" Answer, ¶ 3, lines 23-25; ¶ 6, lines 20-22. Apple is the exclusive
manufacturer of the Mac and its operating system. Counterclaims, ¶ 18, lines 13-16; ¶ 27, lines 18-21.
Apple's licensing agreement with its customers prohibits the use of the Mac operating system on non-Apple computers. Answer, ¶ 18, lines 3-5; Counterclaims, ¶ 57, lines 9-10.
Psystar also "manufactures and distributes computers . . ." Counterclaims, ¶ 15, line . Psystar
tailors the hardware and software configurations it sells "to customer choosing." Id. Its Open
Computers can be configured to run the Windows® XP operating system, the Windows Vista®
operating system, the Linux operating system or Mac OS®. Id., lines 8-12. Psystar, however, does not
have a license to copy, use or sell Mac OS, and the terms of the Mac OS license agreement prohibit use
of that software on non-Apple hardware. Counterclaims, ¶¶ 57, lines 9-10; ¶ 61, lines 5-18.
Notwithstanding the way it runs it own business, Psystar alleges the Mac is so superior to other
personal computers, especially those based upon Microsoft's Windows operating system, that other
PCs are not "and cannot be considered an effective substitute" for the Mac. Counterclaims, ¶ 19, lines
22-26. Psystar asserts that the features and functions of the Mac are so special, and its customers are so
loyal, that there is a legally and economically cognizable relevant product market limited exclusively to
the Macintosh operating system. Counterclaims, ¶¶ 18-20. By definition, Apple is the only participant
in this alleged market.
Next Psystar claims there is a second market for computer hardware alone (without an
operating system) that could run Mac OS, which Psystar calls the "Mac OS Capable Computer
Hardware Systems" market. Counterclaims, ¶¶ 21-26. Psystar alleges the only companies in this
purported market are Apple and Psystar, although Psystar claims other companies would enter this
"market" if Apple were forced to allow them to install Apple's Mac OS on their computers.
Counterclaims, ¶¶ 24, 26. Finally, within this alleged market of two, Psystar asserts there is a sub-market consisting of the computers Apple sells - its Mac line of computers - called the "Apple-Labeled
Computer Hardware Systems submarket" - in which Apple is the only participant. Countercaims, ¶ 27,
While Apple agrees its Macintosh computers are superior to other personal computers, that does
not mean they face no competition. Indeed, Psystar repeatedly contradicts its own market definitions
with allegations throughout its Counterclaims showing active competition between Apple and other PC
manufacturers. Consequently, Psystar's allegations fail to allege a viable claim that Apple has
restrained trade in any commercially real market.
II. THE LEGAL STANDARD FOR A MOTION TO DISMISS
A motion to dismiss under Federal Rule of Civil Procedure (b)() tests the "legal sufficiency"
of the claims alleged in the complaint. In re Graphics Processing Units Antitrust Litig., 527 F. Supp.
2d 1011, 1018 (N.D. Cal. 2007). To survive a motion to dismiss under Federal Rule of Civil Procedure
12 (b)(6), Psystar must plead facts that, if true, render its antitrust allegations not just possible, but
plausible. Bell Atlantic Corp. v. Twombly, --- U.S. ----, 127 S.Ct. 1955, 1964-65, 167 L.Ed. 2d
929 (2007); In re Graphics Processing Units, supra, 527 F. Supp. 2d at 1023-4. While claims challenged
by a motion to dismiss need not have detailed factual allegations, "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." See Twombly, 127 S.Ct. at 1955, 1974.
Inconsistent allegations regarding material facts should not be considered as true. Chongris v. Board of
Appeals of Town of Andover, 811 F.2d 36, 37 (1st Cir. 1987) (citing Snowden v. Hughes, 321 U.S. 1, 10
(1944)); Berry v. Coleman, 172 Fed.Appx. 929, 932, 2006 WL 759087, (11th Cir. 2006)
("conclusory allegations [that] contradict the other facts alleged in the complaint" need not be taken as
true). Moreover, "conclusory allegations of law and unwarranted inferences are insufficient to defeat a
motion to dismiss for failure to state a claim. Epstein v. Washington Energy Co., 83 F.3d , 1136, 1140
(9th Cir. 1996) (citations omitted)." In re Graphics Processing Units, supra, 527 F. Supp. 2d at 1018.
When evaluating the sufficiency of a complaint, courts may consider all materials properly
submitted as part of the complaint or counterclaim, such as exhibits. See Hal Roach Studios, Inc. v.
Richard Feiner and Co., 896 F.2d 1542, 1555 (9th Cir. 1990). Courts "are not required to accept as
true conclusory allegations which are contradicted by documents referred to in the complaint."
Steckman v. Hart Brewing, 143 F.3d 1293, 1295 (9th Cir. 1998). In addition, courts may take judicial
notice of "matters of public record," Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1282 (9th
Cir. 1986), and need not accept as true allegations that contradict matters properly subject to judicial
notice. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
III. ALL OF PSYSTAR'S COUNTERCLAIMS SHOULD BE DISMISSED WITH
Psystar's Counterclaims all are based on the facially implausible premise that there is a separate
relevant product market for the Mac operating system and that there is no competition in that market.
The Counterclaims also presuppose, contrary to the law, that Apple is required to help its competitors
compete against it. The allegations in Psystar's Counterclaims, and the documents it incorporates by
reference in those claims, establish that Psystar has not pled, and cannot plead, any viable antitrust or
unfair competition claims. Consequently, all of its Counterclaims should be dismissed with prejudice.
A. All of Psystar's Counterclaims Require The Definition Of Legally Plausible
For each of its antitrust claims Psystar must plead, and ultimately prove, one or more
economically meaningful relevant product markets. To state a viable tying claim in violation of
Section 1 of the Sherman Act, as Psystar attempts in its first Counterclaim, requires that Psystar plead
and prove Apple has power in the relevant market for the tying product, which it claims is "the Mac OS
market." Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 13-14, 104 S.Ct. 1551, 1558-59
(1984); Ill. Tool Works v. Independent Ink, Inc., 547 U.S. 28, 36, 126 S.Ct. 1281, 1287 (2006).
Likewise, to state a valid claim under Section of the Sherman Act, as attempted in Psystar's second
Counterclaim, Psystar must demonstrate that Apple has monopoly power in a relevant product market
(again, the alleged Mac OS market). United States v. Grinnell Corp., 384 U.S. 562, 570-71, 86 S.Ct. 1698, 1703-1704
(1996); Spectrum Sports v. McQuillan, 506 U.S. 447, 455, 115 S.Ct. 884, 890 (1993);
Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1432-33 (9th Cir. ). Psystar's exclusive
dealing claims under Section of the Clayton Act require proof that a substantial portion of the
claimed relevant market usually greater than 50% was foreclosed. Jefferson Parish, 466 U.S. at 45-6; Insignia Sys., Inc. v. News Corp., Ltd., 2005 U.S. Dist. LEXIS 42851 (D. Minn. Aug. 25, 2005)
(exclusive dealing claim dismissed for failure to allege percentage of foreclosure in properly defined
relevant market). Here, Psystar alleges that Apple "has substantially lessened competition in the Mac
OS Capable Computer Hardware Systems marketplace to the point of near elimination."
Counterclaims, ¶ 109, lines 12-13.
As shown below, 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." Tanaka v. Univ. of S. Cal., 252
F. 3d 1059, 1063 (9th Cir. 2001) (affirming dismissal where plaintiff sought to restrict the relevant
market to UCLA soccer). Absent some suggestion that Apple exercised substantial market power in a
relevant product market, Psystar's antitrust claims should be dismissed with prejudice and not be
permitted to continue into their "inevitably costly and protracted discovery phase." Asahi Glass Co. v.
Pentech Pharmaceuticals, Inc., 289 F.Supp.2d 986, (N.D.Ill.2003) (Posner, J., sitting by
designation). See also, Twombly, supra, 127 S.Ct. at 1967 ("It is no answer to say that a claim just shy
of plausible . . . can, if groundless, be weeded out in the discovery process . . ."); Spahr v. Leegin
Creative Leather Products, Inc., 2008 WL 3914461 (E.D. Tenn., Aug. 20, 2008) at pg. ("[F]urther
factual inquiry through discovery will add nothing to the question before the Court. It is patently
obvious from the face of the complaint that the plaintiff's definition of the relevant product market is
deficient and cannot be cured.")
B. Psystar's Alleged Single-Product Relevant Markets Are Neither Legally Nor
1. Courts Repeatedly Reject Single Brand Markets
Psystar's effort to define a single-brand relevant market contravenes well-known principles of
antitrust law. 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.'" 1 ABA Section of Antitrust Law,
Antitrust Law Developments, 588-89 (6th ed. 2997). Reasonably interchangeable products that serve
the same use are in the same market. United States v. E.I. DuPont DeNemours Co., at 404, 76 S.Ct.
1012. The outer boundaries of a 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 Co. v.
United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1523-1524 (1962). "Most courts correctly define the
presumptive market to include similar products, even though they can be differentiated by brand or
features." Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles
and Their Application, ¶563d.
Courts consistently have rejected the exact same effort to define a single-brand product market
as Psystar attempts here. See, e.g., Ron Tonkin Gran Turismo, Inc. v. Fiat Distributors, Inc., 637 F.2d
1376, 1378 (9th Cir. 1981) (rejecting market definition limited to Fiat cars based on "unsubstantiated
belief that for a sizeable number of customers only a Fiat will do"); Lucent Technologies, Inc. v.
Gateway, Inc., 2007 WL 2900484, 16 (S.D. Cal. 2007) (rejecting relevant market of "MPEG-2
compliant computers" where MPEG-2 was patented, yet "interchangeab[le] with other technologies in
the market"). For example, in Lambtek Yogurt Machines v. Dreyer's Grand Ice Cream, Inc., 1997 -
2 Trade Cases (CCH) ¶ 71, 891 (N.D. Cal. 1997), plaintiff's antitrust claim was dismissed because it
alleged a single-brand market of "equipment capable of dispensing Dreyer's frozen yogurt." Id. at pg. 80, 296:
"Defendants are incapable of monopolizing the market for its own brand
of product. A manufacturer has a natural monopoly in the sale and
distribution of its own products. [Citations omitted] Such natural
monopolies do not contravene antitrust laws."
Id. See, Digital Equipment Corp. v. Uniq Digital Technologies, Inc., 73 F.3d (7th Cir. 1996)
(rejecting market power in a "firm's own products" where it "sells in vigorous competition"); A. I. Root
Co. v. Computer/Dynamics, Inc., 806 F.2d 673, 675-6 (6th Cir. ) (company's unique operating
system software and hardware is not a relevant market; rather the relevant market is all "small business
computers," which admittedly included IBM, NCR and Seiko); In re Wang Laboratories, Inc.,
1996 WL 87050 (D. Mass. 1996) (single manufacturer's computer not the relevant market). As the Tenth
Circuit Court of Appeals said in Green Country Food Market, Inc. v. Bottling Group, LLC, 371 F.3d
1275, 1282 (10th Cir. 2004), "Even where brand loyalty is intense, courts reject the argument that a
single branded product constitutes a relevant market." Accord, Hack v. President and Fellows of Yale
College, 237 F.3d 81, 86-87 (2d Cir. 2000) (affirming district court's grant of defendant's motion to
dismiss because the "Yale education" market is not a "plausible" relevant market). Confronted with
implausible singe-brand product market claims, trial courts have not hesitated to dismiss them.
Lambtek Yogurt, supra; Little Caesar Enterprises, Inc. v. Smith, 34 F.Supp.2d 459, 477 n. 30 (E.D.
Mich. 1998) ("[C]ourts [are] reluctant to find market power in single brand products, no matter how
coveted or unique, if other brands of the product might, at a certain price level, be selected as
substitutes for the preferred brand."); Shaw v. Rolex Watch, U.S.A., Inc., 673 F.Supp. 674, 679 (S.D.
N.Y. 1987) (market for Rolex watches is not even a "plausible product market" and the court "does
not need protracted discovery to state with confidence that Rolex watches are reasonably
interchangeable with other high quality timepieces"); Disenos Artisticos E Industriales, S.A. v. Work, 714
F. Supp. 46, 48 (E.D. N.Y. 1989) (fact that some customers "echo the brand loyalties...furnishes
no basis for employing a single-product market definition.")
Most recently, in Spahr, supra, the court rejected almost identical allegations as those made
here. 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.
"If the plaintiffs were correct... a whole host of products which enjoy brand
loyalty, such as Pepsi, Coca-Cola, Rolex watches, fast foods, Chevrolet, Ford, Chrysler,
Volkswagen and Dodge automobiles, office supplies, ice cream, and the like would all
become relevant markets for antitrust purposes. Plaintiffs ignore, however, volumes of
case law which reject such a conclusion."
Id., at 9. (footnotes citing cases omitted). Noting that "[c]ourts have consistently refused to consider
one brand to be a relevant market of its own when the brand competes with other potential substitutes
[citations omitted]," the court dismissed plaintiff's claims without leave to amend. This Court should
do the same.
2. The Allegations Contained In Psystar's Counterclaims Disprove Its
Contentions About Single Brand Markets
Despite the plethora of legal authority which makes clear that an antitrust plaintiff cannot
legitimately plead a single brand market, Psystar has still attempted to do so. Yet with this attempt,
Psystar has asserted allegations that disprove its own contentions regarding the existence of an alleged
Mac OS market. All of Psystar's claims rely on the unsupported premise that Mac OS is a unique
that has no competition whatsoever. Psystar grounds all of it its Counterclaims on the
allegation that "the Mac OS market is distinct and unique as compared to other operating systems in
including but not limited to the Windows operating system from Microsoft
Corporation." Counterclaims, ¶ 19, lines 22-24 (emphasis added). Without any factual support -- i.e.,
"on information and belief" -- Psystar asserts "the Windows operating system is not and cannot be
considered an effective substitute for Mac OS; the same holds true for any other operating system."
Id., lines 25-26; ¶ 45, lines 26-28. However, this unsupported assertion is directly contradicted
elsewhere in the Counterclaims where Psystar admits that it offers the Windows and Linux operating
systems as substitutes for the Mac OS on Psystar's own computer hardware. Counterclaim ¶ 15. It is
simply not plausible that Psystar would offer Windows and Linux as alternative choices to the Mac OS
on its own computers if they were not competitive substitutes for one another. Indeed, the allegations
in Psystar's Counterclaims, along with the documents Psystar references, demonstrate that its artificial,
hyper-narrow, market definitions must fail and its Counterclaims must fail along with them.
Psystar alleges that Apple has been so successful in advertising its products that loyal customers
would never consider switching to another brand. Counterclaims, ¶¶ 30-35.
Psystar also conclusorily
asserts that a small but significant change in the price of Apple's computers would not cause
consumers to buy computers from another manufacturer. Id., ¶¶ 36-38. According to Psystar, studies
have shown that Apple is "known for its 'market performance and brand leadership'... 'far outranks its
closest competitor'... [and] is 'well known for its passionate and dedicated customer base.'"
Counterclaims, ¶ 38, lines 10-12 (emphasis added). See also, id., ¶ 35.
Yet, this allegation again is
one of many in which Psystar admits that Apple has competitors, thereby contradicting its market
definitions. See also, Counterclaims ¶¶ 15, 22-23, 36-37.
Psystar's allegations about the competition that is actually occurring contradict its artificial
single-brand market definitions. For example, Psystar's allegations about Apple's extensive
advertising campaign comparing the features of Mac computers to computers running the Windows
operating system affirmatively prove that Apple is in direct head-to-head competition with the likes of
Dell, Hewlett-Packard, Sony, and others. For example, the "Get a Mac" advertising campaign relied
upon by Psystar (Counterclaims, ¶¶ 34-35) specifically compares the features and functions of a Mac
with a competing PC running the Windows operating system (See, Apple's Request for Judicial Notice,
Exs. A and B.)
Among other things, the ads cited by Psystar:
Request for Judicial Notice, Ex. A, pp. 1-3, 5, 22, 32, 47, and 56. Yes, as alleged by Psystar, some
purchasers have concluded Apple's Mac is better than Windows-based PCs (Counterclaims, ¶ 35).
And, yes, as Psystar asserts, some Windows-based PCs are less expensive for that reason. Id., ¶¶ 36-37. But, that is the very essence of competition involving quality and price! Phillip E. Areeda &
Reference a Wall Street Journal review that the Mac is "the finest
desktop PC on the market, at any price . . .";
Show that Macs and PCs sold by other companies can work
together on a computer network;
Note that both computers run the application program, Microsoft
Acknowledge that both can be used for videoconferencing;
Quote a review from PC World magazine that "the fastest
Windows Vista notebook we tested this year is a Mac";
Assert that former purchasers of PCs from other companies are
switching to the Mac and can transfer files from competing
computers to a Mac easily; and
Reference another review from the Wall Street Journal that Mac
OS X "Leopard is better and faster than Vista."
Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application, ¶563d
(describing cases rejecting relevant market definition that were limited to manufacturer's differentiated
brand); see also In re Wireless Telephone Services Antitrust Litigation, 385 F. Supp. 2d 403, 419-420
(S.D.N.Y. 2005) ("the mere existence of a brand and brand identification in the marketplace are not
synonymous with market power. ... In general, where 'interbrand competition exists...it provides a
significant check on the exploitation of interbrand market power because of the ability of consumers to
substitute a different brand of the same product.'") (citing Continental T. V., Inc. v. GTE Sylvania Inc.,
433 U.S. 36, 52 n.19, 97 S.Ct. 2549, 2558 (1977)); Wang Laboratories, Inc., 1996 WL 87050, supra.
Indeed, as the Seventh Circuit Court of Appeals recognized in Digital Equipment Corp. v. Uniq Digital
Technologies, Inc., 73 F.3d 756 (7th Cir. 1996), "[c]omputer manufacturers are vigorous rivals; prices
drop daily; this is one of our economy's most competitive sectors."
Psystar's conclusory allegations regarding "cross-elasticity and SSNIP" do not rescue its effort
to allege a single-brand product market. See, Counterclaims, ¶¶ 36, 37, 43. Specifically, Psystar
asserts, on information and belief, "that a percentage change in price of one product, namely the Mac
OS, will not result in a change in quantity that consumers will demand of another product as evidenced
by the price differentiations . . . as otherwise set forth above." Id., 43 ¶ at lines 11-13. This assertion is
so vague it is meaningless. Moreover, the "price differentiations" between products that Psystar cites
do not relate to the price of operating systems. All of the cited advertising, and all of Psystar's price
comparisons, refer to complete and functioning computer systems, not to operating systems without
computers. Consequently, Psystar's allegations about the cross-elasticity of demand for computer
systems provide no support whatsoever for its contention that there is a separate product market for one
brand of operating system software.
Equally vague allegations about cross-elasticity of demand were rejected last month in Spahr v.
Leegin Creative Leather Products, 2008 WL 3914461 (W.D. Tenn. 2008), where the court granted
defendant's motion to dismiss:
"Plaintiffs do allege . . . that 'Brighton-brand products are distinct
products characterized by an inelasticity of demand.' Plaintiffs have not,
however, alleged facts which explain their conclusory allegation. This is
precisely the type of conclusory allegation the Supreme Court cautioned
against in Twombly, 127 S.Ct. at 1966."
2008 WL 3914461 at *9, fn 2. Likewise, Psystar here provides no factual basis for its assertion that the
price of the Mac OS (alone) is not constrained by the price of Windows XP or Windows Vista or Linux
alone. Consequently, its conclusory allegation that there is no cross-elasticity of demand must be
Finally, Psystar admits that operating system software from competing suppliers all serve the
"18.... Operating systems like the Mac OS control and direct the interaction
between software applications such as word processors, Internet browsers, and
applications and the central processing unit of the computer and its various hardware
Counterclaims, ¶¶ 18, 21, 28. While the operating system in an Apple computer may perform its
functions in a different (and better) manner than the operating system in other computers, the systems
are economically interchangeable since they serve the exact same purpose. Therefore, they all belong
in the same relevant market.
* * *
"21.... Operating systems -- like the Mac OS -- manage the interaction between
various prices of hardware such as a monitor or printer. The operating system also
manages various software applications running on a computing device.
* * *
"28.... Without an operating system, a computer can perform virtually no useful
Psystar has not alleged a plausible relevant product market in which Apple has market power.
Without such, all its Counterclaims fail.
C. Apple Is Not Obliged To Help Psystar Compete
Ultimately, 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.
United States v. Colgate & Co., 250 U.S. 300, 307, 39 S.Ct. 465, 468 (1919); Verizon Communs. v.
Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408, 124 S.Ct. 872, 879 (2004) ("as a general
matter, 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." (internal quotation marks omitted)); Schor v. Abbott Labs., 457 F.3d 608,
610-11 (7th Cir. 2006) (affirming dismissal of monopolization claim on a motion to dismiss because
"antitrust law does not require monopolists to cooperate with rivals by selling them products that would
help the rivals to compete").
Even if Apple had market power in a true relevant market, the antitrust laws cannot be used to
force Apple to license its Mac OS to a competitor such as Psystar. Forced sharing is an anathema to
the Constitutional and statutory framework for copyrights, which explicitly gives copyright owners the
right to exclude as an incentive to create new works. See U.S. Const. Art. I, § 8, cl. 8 ("To promote the
Progress of Science and useful Arts, by securing for limited Time, to Authors and Inventors the
exclusive Right to their respective Writings and Discoveries"); 17 U.S.C. § 106 (2000); Stewart v.
Abend, 495 U.S. 207, 228-29, 110 S.Ct. 1750, 1764 (2000) ("[N]othing in the copyright statutes would
prevent an author from hoarding all of his works during the term of the copyright."); Fox Film Corp. v.
Doyal, 286 U.S. 123, 127, 52 S.Ct. 546, 547 (1932) ("The owner of the copyright, if he pleases, may
refrain from vending or licensing and content himself with simply exercising the right to exclude others
from using his property"). Thus, Apple cannot be compelled to allow Psystar to use the copyrighted
Mac OS in Psystar's computers.
As the United States Supreme Court has emphatically stated, the mere possession of market
power, even monopoly power, "is not only not unlawful; it is an important element of the free-market
system." Trinko, supra, 540 U.S. at 407, 124 S.Ct. 879. It is this opportunity to triumph in the market
that "attracts `business acumen' in the first place . . . [and] induces risk taking that produces innovation
and economic growth." Id. As a result, the Supreme Court confirmed in Trinko that except in rare
circumstances clearly not present here even monopolists cannot be compelled to deal with their rivals
or part with the source of their advantage. The Supreme Court emphasized that:
Compelling . . . firms to share the source of their advantage is in some tension
with the underlying purpose of antitrust law, since it may lessen the incentive
for the monopolist, the rival, or both to invest in . . . economically beneficial
facilities. Enforced sharing also requires antitrust courts to act as central
planners, identifying the proper price, quantity, and other terms of dealing -- a
role for which they are ill suited. Moreover, compelling negotiation between
competitors may facilitate the supreme evil of antitrust: collusion.
Trinko, 540 U.S. at 407-08, 124 S.Ct. 879; see also United States v. Microsoft Corp., 147 F.3d 935,
946-48 & n.9, 950-51 (D.C. Cir. 2001) ("[a]ntitrust scholars have long recognized the undesirability of
having courts oversee product design, and any dampening of technological innovation would be at
cross-purposes with antitrust law").
Even in the most extreme case a complete monopoly protected by patents the antitrust laws
do not require forced licensing. Thus, in SCM Corp. v. Xerox Corp., 645 F.2d 1195 (2d Cir., 1981),
Xerox had the exclusive patent rights to plain paper photocopiers, a product so superior that it
dominated any potential substitute such as coated paper copying or mimeographs. 645 F.2d at 1200.
Nevertheless, the Second Circuit held that the antitrust laws could not be used to force Xerox to license
its intellectual property to a competitor. 645 F.2d at 1209-1210. Likewise, in Data General Corp. v.
Grumman Systems Support Corp., 36 F.3d 1147, 1187 (1st Cir. 1994), the First Circuit affirmed the
dismissal of antitrust counterclaims that were premised on Data General's refusal to license its
copyrighted software to a direct competitor. See also, In re Independent Service Orgs. Antitrust Litig.
CSU, L.L.C., 203 F.3d 1322, 1327 (Fed. Cir. 2000) (following Data General).
Psystar cannot allege Apple has monopoly power in either a PC operating systems market or a
personal computer market since Microsoft's Windows has market power in those markets. But even if
Apple had market power, competitors are not required by the antitrust laws to help their rivals. There
is no "general principle of antitrust law that a competitor is entitled to the assistance . . . of any firm in
its market that happens to have monopoly power. A monopolist is not required to subsidize its
competitors. . . ." Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 802 F.2d 217,
219 (7th Cir. 1986). For all of these reasons Psystar's antitrust Counterclaims should be dismissed.
D. Psystar's Cartwright Act Claims Should Be Dismissed
Psystar's state antitrust claims, pleaded under California's Cartwright Act, Business &
Professions Code §§ 16700 et. seq. suffer from all the same infirmities as its federal claims, and more.
First, there is no cause of action for unilateral monopolization under the Cartwright Act. Dimidowich v.
Bell & Howell, 803 F.2d 1473, 1478 (9th Cir. 1986) ("No California statute deals expressly with
monopolization or attempted monopolization;" "This claim is not cognizable under the Cartwright Act,
for it fails to allege any combination."); Santa Cruz Medical Clinic v. Dominican Santa Cruz Hosp.,
1994 WL 619288, 13 (N.D. Cal. 1994) ("Single firm monopolization is not cognizable under the
Cartwright Act. State of California ex rel. Van de Kamp v. Texaco, Inc., 46 Cal.3d 1147, 1163
(1988).") Second, Cartwright Act tying and exclusive dealing claims have the same requirements as
the federal Sherman Act which, as shown above, Psystar cannot meet.
Psystar's tying claim under California law fails because it has not pled, and cannot plead, a
legally-cognizable relevant product market in which Apple has market power. Corwin v. Los Angeles
Newspaper Service Bureau, Inc., 4 Cal.3d 842, 856-858 (Cal. 1971) (citing federal tying cases as
precedent). Likewise, Psystar's exclusive dealing claim fails under California law because its
allegations demonstrate there cannot be an anticompetitive effect in any economically-plausible,
legally-cognizable relevant market. Chicago Title Ins. Co. v. Great Western Financial Corp., 69 Cal.2d
305, 315 (Cal. 1968) (federal interpretations of section of the Clayton Act control California's
interpretation of Business & Professions Code §16727); Morrison v. Viacom, Inc., 66 Cal.App.4th
534, 548 (Cal.App.1.Dist.1998) ("An 'antitrust injury' must be proved; that is, the type of injury the
antitrust laws were intended to prevent, and which flows from the invidious conduct which renders
defendants' acts unlawful. [Citations.]" (citing Kolling v. Dow Jones & Co., 137 Cal.App.3d 709, 723
(1982)). For all the same reasons discussed above, Psystar has not met, and cannot meet, any of these
pleading requirements, so its state law antitrust claims should be dismissed.
E. Psystar's California Unfair Competition Law Claims Should Be Dismissed
Psystar's contention that Apple has engaged in an "unlawful and/or unfair business practice"
(Counterclaims, ¶ 120, lines 7-9) in violation of Business & Professions Code § 17200, is premised
entirely on its contentions that Apple has violated federal and state antitrust laws. Since Psystar's
antitrust claims are irreparably flawed, its §17200 claim fails as well. Aguilar v. Atlantic Richfield Co.,
25 Cal.4th 826, 866-867 (Cal. 2001) (no §17200 claim where predicate antitrust law claim dismissed);
RLH Industries, Inc. v. SBC Communications, Inc., 133 Cal.App.4th 1277, 1286, 35 Cal.Rptr.3d 469, 475
(Cal.App. 4 Dist. 2005) ("Having properly granted [Defendant] summary judgment on the
Cartwright Act causes of action, the court also properly granted [Defendant] summary judgment on the
unfair competition cause of action"); Chavez v. Whirlpool Corp., 93 Cal.App.4th 363, 375-376
(Cal.App.2. Dist.2001) ("[C]onduct alleged to be 'unfair' because it unreasonably restrains competition
and harms consumers, such as the resale price maintenance agreement alleged here, is not 'unfair' if
the conduct is deemed reasonable and condoned under the antitrust laws.").
Apparently misunderstanding California common law, Psystar asserts that Apple has engaged
in an "unlawful and/or unfair business practice within the meaning of the common law of unfair
competition," (Counterclaims, ¶ 124 at lines 23-25). Common law unfair competition is a trademark
doctrine that refers to the practice of "passing off." Sybersound Records, Inc. v. UAV Corp., 517 F3d
1137, 1153 (9th Cir. 2008); Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1147 (9th Cir.
1997) ("`The common law tort of unfair competition is generally thought to be synonymous with the
act of 'passing off' one's goods as those of another ... [, or] acts analogous to 'passing off,' such as the
sale of confusingly similar products, by which a person exploits a competitor's reputation in the
market.' Bank of the West v. Superior Court, 2 Cal.4th 1254, 1263, 10 Cal.Rptr.2d 538, 544, 833 P.2d 545, 551
(1992). Because Plaintiffs' allegations do not amount to `passing off' or its equivalent,
Defendants are correct that Plaintiffs' claim for unfair competition was properly dismissed.").
Since no such allegations are made here, Psystar's unfair competition claims -- both statutory
and common law -- should be dismissed.
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.
DATED: September 30, 2008
TOWNSEND AND TOWNSEND AND CREW LLP
By: /s/ James G. Gilliland, Jr.
JAMES G. GILLILAND, JR.
Attorneys for Plaintiff
If a document is incorporated by reference in a complaint, but is not physically attached, the entire
document may be considered if it is central to the claim and no party questions its authenticity. See
Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006). As the Ninth Circuit Court of Appeals stated in In
re Silicon Graphics Inc. Securities Litigation, 183 F.3d 970, 986 (9th Cir. ), a district court may
"consider documents 'whose contents are alleged in a complaint and whose authenticity no party
questions, but which are not physically attached to the [plaintiff's] pleading,' " quoting Branch v.
Tunnell, 14 F.3d 449, 454 (9th Cir. 1994).
2 Psystar asserts that an operating system, without a computer, is a separate product. This assertion
also is wrong. Digital Equipment Corp. v. Uniq Digital Technologies, 73 F.3d 756, 761 (7th Cir. 1996)
(selling operating system software together with a computer is not a tie since "[a]n operating system is
essential to make a bunch of silicon chips a `computer.' No OS, no computation. ... Every
manufacturer in the business includes an operating system with the physical parts that make up a
computer."). However, for the purposes of this motion Apple is not addressing this additional flaw in
3 Even when trying to allege a single-brand market Psystar stumbles, acknowledging in this allegation
the existence of the actual "marketplace," which is the market for personal computers with installed
operating systems. In that market Apple has less than an 8% share, while computers running operating
systems from Microsoft have a market share of almost 90%. See, New York Times, "Apple Riding A
51% Jump In Mac Sales," April 24, 2008, pp. C1, C8 (Apple Req. for Judicial Notice, Ex. E)
("International Data Corporation's survey this month showed Apple with a 6 percent share of the
American market in the first quarter..."); New York Times, "As Apple Gains PC Share, Jobs Talks of a
Decade of Upgrades," October 22, 2007, pp. C1, C8 (Apple Req. for Judicial Notice, Ex. D) ("Last
week, the research firm Gartner said PC shipments in the United States grew only 4.7 percent in the
third quarter . . .. Gartner forecast that Apple [would achieve] . . . an 8.1 percent share of the domestic
4Examples of the complete text of the advertisements cited by Psystar are submitted as Exhibit A of
Apple's Request for Judicial Notice, and a CD with sample videos of these ads is attached as Exhibit B.
5 The press release about these third-party studies, quoted by Psystar, is attached as Exhibit C to
Apple's Request for Judicial Notice.
6 Just this month Microsoft launched a counter advertising campaign "to rejuvenate its Windows brand,
which has been battered in recent years in commercials by rival Apple Inc. . . . The vast majority of PCs continue to run on Windows, though Apple's Mac business has steadily gained market share,
rising to 7.8% of new PC shipments in the U.S. . . according to research firm IDC." The Wall Street
Journal, "Microsoft Kicks Off Seinfeld Campaign," Sept. 5, 2008, p.2 (Apple's Request for Judicial
Notice, Ex. F).
7 Psystar also makes reference to the "allegations as made by APPLE in its complaint" but this adds no further specificity to its vague allegations.