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Apple Files Motion for Relief from Stay in Psystar Bankruptcy
Tuesday, June 09 2009 @ 11:12 PM EDT

Apple has filed a Motion for Relief from Stay [PDF] with the bankruptcy court, and a hearing has been set for June 17th at 3 PM in Miami. Apple asks the court to modify the stay to allow the litigation in California to proceed to a final determination. Guess what case it relies on? In re The SCO Group, where the court lifted a stay so that Novell could finish up a copyright infringement action. I knew they were good for something.

Here are the docket listings to bring us up to date:
05/29/2009 - 21 - Order Granting Motion to Honor Deposits, Re: # 5 . (Covington, Katrinka) (Entered: 06/03/2009

05/29/2009 - 22 - Order Setting Further Hearing, (Re: 3 Motion for Maintenance of Existing Bank Accounts filed by Debtor Psystar Corporation, and 4 Motion to Assume/Reject filed by Debtor Psystar Corporation). Hearing scheduled for 06/08/2009 at 10:00:00 AM at 51 SW First Ave Room 1406, Miami. (Covington, Katrinka) (Entered: 06/03/2009)

06/04/2009 - 23 - Emergency Application to Employ Lazaro J Lopez as Attorney [Affidavit Attached] Filed by Debtor Psystar Corporation. (Attachments: # 1 Exhibit) (Lopez, Lazaro) (Entered: 06/04/2009)

06/05/2009 - - of Hearing (Re: 23 Emergency Application to Employ Lazaro J Lopez as Attorney [Affidavit Attached] Filed by Debtor Psystar Corporation.) Hearing scheduled for 06/08/2009 at 10:00:00 AM at 51 SW First Ave Room 1406, Miami. (Howlan, Elaine) (Entered: 06/05/2009)

06/05/2009 - 25 - Motion for Relief from Stay [Fee Amount $150] Filed by Creditor Apple, Inc.. (Attachments: # 1 Exhibit 1) (Singerman, Paul) (Entered: 06/05/2009

06/08/2009 - 26 - Order Setting Hearing and Imposing Briefing Schedule, (Re: 25 Motion for Relief From Stay filed by Creditor Apple, Inc.). Hearing scheduled for 06/17/2009 at 03:00:00 PM at 51 SW First Ave Room 1406, Miami. (Covington, Katrinka) (Entered: 06/09/2009) 06/09/2009 27 Schedules Filed: [] Filed by Debtor Psystar Corporation. (Attachments: # 1 Local Form 4) (Lopez, Lazaro) (Entered: 06/09/2009)

Apple says it is not going to collect any judgment against Psystar other than through the bankruptcy process or order of the court. But Apple has a property interest here, and it lacks adequate protection as things stand, it argues, because while Apple has asked the California court for an injunction, it hasn't gotten to that issue yet, and Psystar continues its business practices since filing for bankruptcy just as it did before it filed, "thus subjecting the Debtor to ongoing claims of infringement."

That means that the eventual bill for damages will continue to grow, which the judge will understand as a problem for a Debtor seeking to reorganize. How will anyone, from the judge to the parties involved, figure out what this Debtor owes to Apple unless the California case is brought to resolution? The bankruptcy court could take over, but California has reached almost the very end of discovery, and the case involves highly technical issues which the California court is particularly equipped to handle.

And until a sum certain is arrived at, how can there be a confirmable plan? Discovery reveals, Apple continues, that in excess of 80% of all sales by Psystar have been of "unauthorized 'clones' or 'knock-off computers that are designed to run, without permission, a modified version of Apple's proprietary operating system." If Apple's claims of infringement prevail, what will that mean for Psystar's business? Since Chapter 11 is for reorganization, what would Psystar reorganize? Someone at some point has to decide if Psystar's current business model is viable or instead unlawful copyright and trademark infringement. If the latter, does Psystar have an alternative business model that would enable it to reorganize? "The Debtor has no legitimate property rights in an infringing product and cannot pursue reorganization of its business affairs based on the sale of products that violates applicable non-bankruptcy law," Apple argues.

Clearly a court has to reach a conclusion on the infringement issue before Psystar can even know what it has to work with to try to keep afloat, if that is even possible. If it's not possible, then Psystar can't qualify for Chapter 11 protection. Psystar filed for bankruptcy just weeks before discovery was due to close, with a trial date set for November 9th, 2009.

Worse, from Apple's perspective, is that Psystar is continuing to sell computers that Apple views as violative of its rights. "Delay of the Infringement Action will permit Psystar to continue selling its infringing computer systems in violation of Apple's intellectual property rights with impunity, thus tarnishing the reputation of Apple's genuine products to Apple's obvious detriment....This Court should not allow Psystar to use the automatic stay to insulate its continued, unlawful sale of products that infringe Apple's intellectual property rights."

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