Psystar bails on bankruptcy, promises to 'battle Goliath'

Mac clone maker begs out of Chapter 11 after payment plan with its legal team falls through

Psystar, the Mac clone maker embroiled in a legal dispute with Apple, asked a federal judge last week to dismiss its bankruptcy case, saying that it had been unable to reach a payment agreement with its law firm.

At the same time, Psystar said in a letter to customers that it is "again ready to battle Goliath," a reference to Apple, as it announced a new clone powered by Intel's Xeon quad-core "Nehalem" processor.

In the motion submitted last Thursday, Psystar asked a Miami federal bankruptcy court to dismiss the Chapter 11 case it initiated more than a month ago.

"As of the Petition Date, it was the Debtor's intention to restructure its operations to be able to produce a more profitable product and that way be able to meet its obligations and continue the litigation in the Northern District of California," said Psystar, referring to the copyright and software licensing infringement charges that Apple leveled against it in July 2008 for installing Mac OS X 10.5 on its clones.

Psystar said that it had been unable to reach a payment agreement with its legal firm, Palo Alto, Calif.-based Carr & Ferrell. According to previously-filed documents, Psystar owed the firm more than $US88,000, over a third of its total debt.

That, along with the court's ruling on June 19 that the case should continue, even though Psystar had filed for bankruptcy, was a one-two punch the company could not withstand. "In light of Debtor's inability to reach an agreement with its California counsel and the Court's granting Apple's motion for relief from stay, Debtor will not be able to restructure its operation and continue with the California litigation while in Chapter 11," said Psystar.

Psystar ticked off other factors that led to its decision to bail out of bankruptcy proceedings, including the expense of Chapter 11 requirements, and said that it had no interest in filing for Chapter 7, which would put it out of business, as that would demand it liquidate its assets to pay creditors.

In the meantime, Psystar continues to sell Intel-powered machines with Mac OS X 10.5, aka "Leopard," pre-installed on its Web site, the very practice that led Apple to sue it last year. A newsletter sent to past and prospective customers, first reported by The Apple Unofficial Weblog, announced a new system, "Open(7)," and the company's intent to soldier on. "As you all may already be aware, in late May Psystar filed for Chapter 11 protection. Although this was critical to our continued operations, we now are ready to emerge and again battle Goliath," the company's mailing said. It then took a not-too-subtle dig at its opponent. "When life gives you apples, make applesauce."

The Open(7) system comes with a 2.66GHz or 2.93GHz quad-core Intel Xeon "Nehalem" microprocessor, 6GB of RAM, a 1TB hard disk drive and an nVidia GeForce 9500GT graphics card with 512MB of memory. The computer sells for $US1,499 (2.66GHz) and $US1,849 (2.93GHz).

Apple started selling Mac Pro workstations with the same processors in early March. The Mac Pro's price ranges from $US2,499 (2.66GHz) to $US2,999 (2.93GHz).

The Apple-Psystar saga has had its share of twists and turns. Psystar first made news in April 2008, when it starting selling Mac clones with Apple's Leopard operating system, but Apple struck the opening legal blow. Psystar hit back with a countersuit that charged Apple with antitrust violations, but those claims were tossed out by U.S. District Court Judge William Alsup last November.

Since that defeat, Psystar has been on its heels, having resorted in a second attempt at a countersuit to arguing that Apple abused federal copyright laws in tying Leopard to Apple's own hardware.

And after Psystar filed for bankruptcy, Apple was quick to sniff a delay tactic. "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," Apple argued in its demand that its case continue, Chapter 11 be damned.

The court will hold a hearing Aug. 4 to consider Psystar's request to dismiss the Chapter 11 case.

Both Apple and Psystar have asked Alsup to push back several deadlines, including the trial date, which they proposed start Jan. 11, 2010.

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