Robert Pedraza, left, and his brother,
Rudy, sell PCs running Apple’s operating
system at half the cost of Macs.
Posted on 11/12/2009 1:41:18 PM PST by Swordmaker
Two rebels defy a beloved computer company
Robert Pedraza is a 24-year-old self-taught programmer with a thin frame, spiky dark hair, gleaming braces and squinty eyes. His brother Rudy is a year older and three inches taller. He wears a half-buttoned dress shirt and has an intense stare.
Last year, the two Miami natives shoved a stick in the eye of America’s coolest corporation. Robert cracked the code behind Apple Computer’s elegant operating system, OS X. It’s the engine that drives iPhones, MacBooks, and all the other shiny white or black toys the world loves. For more than a decade, the Silicon Valley–based firm has coded its operating system to work only on Apple’s expensive hardware.
The Pedrazas’ company, Psystar, buys the software legally and installs it in boxy black desktop towers that sell for as little as $599. That’s about half the price of comparable Macs.
For hundreds of buyers — and lately a score of copycats in Los Angeles and around the world — the brothers’ bold move has meant freedom: Mac’s acclaimed software has been liberated from its pricey hardware.
Apple hasn’t taken the affront lightly. In July 2008, three months after Psystar began shipping computers from a tiny Florida warehouse, the giant firm, with its 35,000 employees and billions of dollars in revenue, filed a 35-page lawsuit in U.S. District Court in San Francisco, claiming Psystar was selling “unauthorized” versions of OS X.
So far, the court hasn’t ruled. Indeed, in August the brothers countersued, charging that the OS maker was illegally trying to inhibit trade. As with Microsoft, which lost a multimillion-dollar antitrust decision in Europe in 2004, Apple is protecting an illegal monopoly, Psystar claims.
Fred von Lohmann, staff attorney for the Electronic Frontier Foundation, a group that advocates for Internet free-speech issues, thinks the brothers just may prevail. “We’ve lived 100-plus years with the basic proposition that if you bought it, you own it,” von Lohmann says. “We don’t let vendors reach into your living room and micromanage how you use a product. Why should Apple get away with it?”
During the past 18 months, the brothers have forked out hundreds of thousands of dollars in legal fees, flirted with bankruptcy, and suffered mega-abuse from hostile Mac bloggers, who have called them hucksters, frauds and credit card thieves. As a kind of threat, street-level photos of their homes were posted on blogs.
The two have no plans to stop. They have already fought through a turbulent childhood and lost their dad to federal prison. Rudy, the business mind behind the venture, barely escaped a cancer scare and a near-fatal brush with a drunk driver.
They say they are prepared to take on everything Apple’s lawyers throw at them, because they believe they’re right, because they think the courts will eventually agree with them, and, maybe most of all, because they believe Apple is trying to bully them.
Last month, the Pedrazas released a new line of Apple clone computers with the latest operating system, Snow Leopard. For an encore, they began selling their software online so that anyone can make a pirated Mac.
“We’re all in, baby,” Rudy Pedraza says, grinning wildly. “Go big or get the hell out.”
Rudy and Robert were born in Miami to a young Cuban immigrant named Rodolfo Pedraza and his wife, Maria Elena Benavides, a first-generation Cuban-American. As youngsters, the boys loved to tinker. They helped their dad take apart a boat engine, clean the pistons, adjust the belts and reassemble it. Theirs was a happy childhood.
But in 1991, a few months after Rudy turned 7, police officers arrested Rodolfo for selling cocaine. He was sentenced to 10 years in federal prison. His sons were devastated.
The brothers declined to discuss their father’s arrest, except to ask that it not be included in the story. “It doesn’t define our lives,” Robert says.
Their father rejected an interview request, and their mother’s last listed address, a West Kendall townhouse, was abandoned and padlocked.
Rudy says he began rebelling against his mother after losing his dad to jail. “I can’t live with rules that well,” he says. But the boys did talk her into buying a clunky PC, even if it could barely run word-processing programs.
Rudy excelled at Coral Park High and was active in Coral Park’s Future Business Leaders of America. His adviser, Nelly Odio, remembers him as “extremely smart, just leaps and bounds above everyone else when it came to computers and programming.”
Robert began at Coral Park a year after Rudy. He also stood out, hanging with smart kids, doing well in class, and even volunteering to design Coral Park’s Web site for free, Odio says.
After school, Rudy worked long hours designing computer systems for businesses around Miami. He declines to name them, but Odio confirms he pulled in serious cash, even as a 16-year-old. “He was making tons of money in high school as a computer consultant, probably more than I do today,” she says, laughing.
Maria and Rodolfo divorced in 1996, two years before Rodolfo earned early release from prison. The boys moved in with him.
Rudy’s grades were good enough to get him into the University of Florida in 2002, though he later dropped out. Robert never graduated from high school, but he did find work as a computer consultant.
By 2005, the brothers decided to join forces to create a tech firm, and for the next 18 months, they worked small, freelance projects.
They formally incorporated their business in July 2007, under the name Psystar Corp. It was a meaningless name, Robert says, adding, “In hindsight, I wish we’d picked something people could actually pronounce.” (It’s pronounced sigh-star.)
The Pedrazas converted Rudy’s two-car garage into a home base, filling the space with desks, computers and a workshop.
Robert’s pet project was Mac’s OS X operating system.
The OS X system debuted in 1999 and is widely considered among the most user-friendly ever invented. Though the software sold for $100 or less, it was programmed to run only on Mac computers — and the cheapest fully equipped models usually cost about $1,000, almost three times the price of the cheapest PCs available. (Windows, by contrast, can run on nearly every kind of computer, including Macs.)
“Like a lot of people, I’d always loved Apple’s interface,” Robert says, “but there’s no way we could afford that stuff growing up, so we always felt sort of excluded from the company.”
Robert set about learning how Apple’s OS operated and then figured out how to trick it into running on the cheaper PC. He was hardly the first to do so. For nearly five years in the mid-’90s, Apple licensed a host of companies to make authorized clones. Today there’s an entire online culture — called the “Hackintosh” community — devoted to decoding Mac programs for other systems and sharing their secrets.
In fact, members of one such group — the “osx86project” — have since claimed the Pedrazas used their work to hack into Apple’s hardware.
Rudy scoffs at the idea that he borrowed from the Hackintosh scene. “The first thing you have to do is unlearn everything you’ve read online about how to make this work, because it’s all wrong.”
Robert says he found his own wayaround Apple’s built-in security devices. The breakthrough meant that, among other things, the cheap machines were immune to viruses and hackers.
The brothers insist they did not set out to challenge Apple. “It’s a common misconception,” Rudy says. “I kind of wish we had, because we probably could have approached this from a much more logical starting point.”
Rudy does remember telling his brother at some point, “Look, we’re going to sell this thing online.”
Robert was reluctant. “I guess I’m just more conservative than Rudy,” he says. “I wasn’t worried about Apple, really — I just didn’t think it was ready to sell.”
Rudy prevailed. In April 2008, the company went online. Almost immediately, everyone — from Apple bloggers at sites such as MacRumors.com to tech writers at newspapers as far-flung as The Guardian in London and the New Zealand Herald — wanted to know about this mysterious South Florida company that dared to offer Macs at PC prices.
Initially, the reaction was split neatly into three camps: those who applauded the idea, those vehemently opposed to it, and those convinced that the entire thing was a fraud.
“Please, God, let this work out,” wrote one of the first commenters on MacRumors. “This is almost insulting,” wrote the next.
The backlash began in earnest a few days later. “Psystar Exposed: Looks Like a Hoax,” trumpeted Gizmodo, a cheeky blog owned by Gawker. “Who are they, and why are they so shady?” the site demanded. By the end of the week, the site’s writers confidently proclaimed, “These guys are obviously clowns.” Gizmodo then posted photos of the exterior of Rudy’s house in Kendall. “Ass-hat scammers,” one commenter scoffed.
“Having some dude walking around your house is scary,” Rudy says.
It didn’t help that Rudy changed Psystar’s official address three times in the company’s first week, shifting it from his Kendall home to the current headquarters, in a Doral industrial park. Or that Psystar had to suspend sales for a few days while it switched credit card processors — the brothers weren’t equipped to handle the hundreds of orders pouring in.
“We were just not prepared for this kind of reaction,” Rudy says. “And the violence of the backlash was just shocking to us.”
For nearly three months in 2008, Psystar sold hundreds of generic PCs with Intel chips, two gigabytes of memory, dual-core processors and the Mac operating system. Driven by heated coverage in the tech press and blogs, hundreds of consumers bought Psystar’s first models, which ran for as little as $399.
On the Web, debate raged over whether the brothers were brave rebels or black beards. Nary a sound came from Apple Inc.’s palatial headquarters at 1 Infinite Loop in Cupertino, California.
That changed on July 3, 2008. Apple filed a 35-page lawsuit against Psystar in California’s Northern District court. Psystar, the lawyers complained, was selling computers loaded with “modified, unauthorized versions” of Mac OS. “Psystar’s actions harm consumers by selling to them a poor product,” the suit claimed.
It was exactly the kind of response the blognoscenti expected from Apple, which has a reputation for ruthless legal assaults against potential competitors — a strategy that clashes with the firm’s carefully groomed image as a laid-back Silicon Valley haven for hipsters.
The hypocrisy is especially clear when you consider the company’s history. It was founded in April 1976 by two 20-something college dropouts — Steve Jobs and Steve Wozniak — who had developed their computers in Wozniak’s parents’ Los Altos garage. Before they ever sold a desktop, they made money building “blue boxes” — illegal devices that hacked into free phone lines.
Less than a decade later, in 1984, Apple burst onto the commercial market with a legendary Super Bowl ad that depicted an Orwellian IBM world smashed to bits by a rebel Apple innovator wielding a sledgehammer. The message was clear: PCs were the status quo; Apple was the innovative alternative.
The firm had some early success, but by the mid-’90s, it had laid off scores of employees. In 1995, Apple began allowing a few companies — most prominently Power Computing in Austin, Texas — to sell Mac clones, cheaper PC hardware running the operating system.
In 1997, Jobs — who had been ousted from Apple during a 1985 power struggle — returned as CEO and immediately put a stop to the program. His plan: Make more money with expensive hardware and nonstop innovation.
It worked. The company introduced the iPod in 2001 and the iPhone in 2007, and has been vacuuming in cash ever since. Despite the global recession, Apple posted its best quarter in history this past October, raking in $9.87 billion in revenue and $1.67 billion in profit.
So why is a company with that kind of bank going after a flea like Psystar?
But Andrew Beckerman-Rodau, a law professor and intellectual-property expert at Suffolk University in Boston, says the company is taking Psystar seriously. “Apple is so successful because they integrate all their hardware and software. They’ve always gone hard after anyone who threatens that. Psystar, in their minds, is a threat.”
Case in point: You have only to head east from downtown L.A. to Alhambra, a blue-collar neighborhood just south of Pasadena. At the corner of West Main Street and Primrose Avenue, on the ground floor of a two-story brick building with a red-tile roof, you can see why the Pedraza brothers have Apple’s suits sweating through their Birkenstocks.
From a loftlike showroom with square pillars and exposed brick, 44-year-old Rashantha De Silva sells PCs running on Mac operating systems under the name of his new firm, Quo Computer. De Silva has been a Mac fanatic since the company’s earliest days, boasting that while he was a student at Pasadena City College in the mid-1980s, he used his student loan to buy his first Mac. Before opening the store, he worked as an independent Mac consultant around L.A.
“I’ve converted hundreds, maybe thousands, of PC people to Mac,” De Silva says, with a lilting Sri Lankan accent. “I’m a die-hard Apple fan.”
Resembling a well-tanned Mr. Clean, with a shiny pate, close-cropped beard and muscular frame, De Silva exhibits no anxiety or guilt as he talks about his controversial course. Quo, which sounds like “core” — as in “apple core” — is the first company that dares to sell Mac clones out of a retail storefront. The new machines may undercut real Macs in price, but ultimately, De Silva insists, they will bring a greater benefit to Apple, even if the company’s bigwigs don’t realize that yet. “Their market share will increase 20 to 30 percent in the next two years. I truly believe so.”
He defends his custom machines by saying it is his right to modify the hardware he buys in any way he chooses — and to sell the result. If you buy a set of tires, he maintains, you have the right to drive them anywhere — not just on certain freeways chosen by a big corporation.
He remembers reading open-mouthed the first reports of Psystar’s business plan and thinking, This is the future.
“I’m afraid we were going to end up with another Microsoft, with people buying so many bad computers for years just because that’s all they can get,” De Silva says. “Competition is important.”
His Quo store, which opened in June, is just a hint of the tsunami that may follow if Psystar wins its court battle against Apple. Copycats such as the German firm PearC and the Moscow-based RussianMac are betting the Pedrazas pull out a legal victory.
It’s not a situation that makes Rudy particularly happy. “These guys are riding our coattails and we’re shouldering all the court costs,” he huffs.
The company doesn’t wield anything close to Apple’s resources, but the Pedrazas think they have the law on their side. Several copyright and intellectual-property experts say they might be correct.
Apple’s suit against Psystar argues the Pedrazas violate copyright law by altering the operating system software. To the giant firm’s lawyers, Psystar’s crime is akin to illegally remixing a song and reselling it as one’s own.
But the brothers contend an operating system is more like a CD than a song. Apple’s attempt to dictate what kind of computer runs the software, they believe, would be akin to Def Jam insisting consumers play the latest Jay-Z only on Sony stereos.
Psystar pays full price — $29 — for each copy of OS that it installs on its computers. So once they pay for it, the Pedrazas ask, why can’t they use it however they like?
“It’s like buying a book,” Robert says. “Once I own it, I can tear pages out, underline sentences, even rewrite a whole section. If I can find a buyer, I can resell that one copy however I please.”
On a broader scale, the Pedrazas’ legal team pitches the case against Apple as a battle for the future soul of the computer world. If the brothers win, Apple might be forced to allow its programs to run on any computer on the market.
“This isn’t just about some Florida start-up versus Apple,” says Kiwi Camara of the Houston law firm Camara & Sibley, which represents Psystar. “It’s about recognizing a future where anything can be connected to anything else.”
Apple’s attorneys, of course, see things differently. Filings clearly lay out their reasoning. Whenever people buy copies of Mac OS, they consent to a licensing agreement that pops up when the program is installed. The users promise not to alter the software or run it on anything but Apple hardware.
Psystar has clearly violated both promises, the lawyers contend.
What’s more, Apple holds that consumers who purchase an operating system don’t actually own the software. Instead, they purchase the disc and then are “licensed” to use the system. It’s a dubious-sounding arrangement but one that courts, at least so far, have upheld. Many lawyers refer to a 1996 appeals decision, ProCD Inc. vs. Zeidenberg, which found that click-through computer contracts were, in fact, binding.
“Apple feels that if it doesn’t go after Psystar, it leaves the door open to all these other companies that want to do the same thing,” says Jim Dalrymple, a blogger at Macworld.com. “They want to control the whole product, from software to hardware to advertising, because they present themselves as the one company that can give you everything you need. They don’t want to lose that.”
So the California case, in essence, comes down to whether Apple’s licensing agreement trumps the Pedrazas’ rights as consumers. Both Apple and Psystar have asked the judge to bypass a trial by issuing a summary judgment.
“There’s a lot at stake in this case,” says the Electronic Frontier Foundation’s von Lohmann. “If Psystar loses, it could set the stage for companies to have a lot more leeway to demand that you use their hardware.”
It’s not an impossible argument to win, experts say. “They’ve already put some really good arguments forward,” says Randy Friedberg, an intellectual-property lawyer following the case in New York. “There’s essentially one really interesting question here, and it’s whether that licensing agreement holds up.”
Apple also claims Psystar is selling an inferior product, one which diminishes the company’s standing in the marketplace. But several tech Web sites have reviewed Psystar’s computers and say the company delivers quality products.
“It was nothing special visually, but from a performance standpoint compared to the price, it was great,” says Rich Brown, a writer for CNET.com, who checked out a Psystar last year. “We were pretty surprised. A few of our Web guys upstairs actually bought one after trying the review model.”
Derek Rohaly, a 22-year-old Penn State student, nabbed a $1,300 Psystar desktop; a comparable Apple model would have cost $3,500. The music major uses complex mixing programs. “It felt risky, but I ended up with a really great product at a really low price,” Rohaly says.
Apple scored a brief victory this past May, when Psystar filed for Chapter 11 bankruptcy. The company, Rudy says, “needed some breathing room” as it worked to develop new models and fight off the legal onslaught. But Psystar emerged from bankruptcy in August.
The company’s filing did make a few things clear. One is that the company was selling a significant number of computers. Among the debtors listed was DHL, with a pending $12,793 bill for shipping computers. The company also owed about $25,000 to credit card processing companies that had been handling the orders.
But the filing also shows the deep personal risk Rudy is running by taking on Apple. The bankruptcy listed a $120,000 personal loan taken out by the 25-year-old programmer — and Rudy admits that is just a fraction of the debt he has incurred while fighting Apple in court. Psystar, at the time of filing, owed its first law firm — Carr & Ferrell — $88,464 in back fees.
“There’s no question I’m investing a lot of money,” he says.
The cost of fighting Apple has led to a host of conspiracy theories discussed on the Web: namely that Mac rivals such as IBM and Microsoft secretly fund Psystar.
Not true, Rudy says. “I’m the secret funder. It’s just me.”
But Psystar has no plans to fold. Rudy and fewer than a dozen employees still churn out new computers at the firm’s tiny headquarters, tucked next to a T-shirt-filled warehouse and the Koen Pack Company in a bland Doral industrial complex. When Apple released its Snow Leopard operating system recently, Psystar responded the very next day with Snow Leopard–enabled clones.
The defiant move came a little more than a month after Psystar filed its own lawsuit against Apple, an antitrust claim in U.S. District Court in Miami, arguing that Apple, in essence, runs an illegal monopoly.
The suit claims that because Apple sells a unique, “premium computer,” it shouldn’t be allowed to corner the market on its operating system by requiring purchases of the company’s hardware.
“By tying its operating system to Apple-branded hardware, Apple restrains trade in personal computers that run Mac OS X, collects monopoly rents on its Macintoshes, and monopolizes the market for ‘premium computers,’ ” Psystar argues.
It’s a position that echoes the massive decision against Microsoft in Europe in 2004, when a court found that the software giant broke competition rules by tying the Windows operating system to its media player. Microsoft was forced to allow rival programs, as well as pay $794 million in damages.
“There are some genuine issues in that argument,” says Ury Fischer, an intellectual-property lawyer with Coral Gables’ Lott & Friedland. “Apple clearly doesn’t have a monopoly in the computer world, but they do have a defined niche. The question is whether they abuse that position.”
Apple hasn’t yet responded to the Florida suit. But the Pedraza brothers won their first real legal victory in September, when the judge presiding over Apple’s suit in California refused Apple’s motion to combine the two cases.
If Apple and the blogosphere expected Psystar to fold after the company struck back, they’ve been disappointed.
Instead, just last month, Psystar slapped the computer giant again. The Pedrazas began selling software that allows users to install Mac OS on their own PCs.
Now, anyone with basic computer knowledge can make a cloned Mac for the cost of an SUV’s full tank of gas. “It’s important to question authority and buck the system,” Rudy says by way of explanation.
He and his brother have aptly named the software Rebel.
We're going to have to agree to disagree to this, as noted in my previous post, this stance seems to fly in the face of the doctrine of first sale.
If they want to fight piracy they will have to go where the pirates are. That seems to be Yemen.
:-)
Yes, it was... but the adjudication hinged on what the agreement said. In the judgement the ruling was careful to make the distinction between a license and a sale. In the case that most people point to and the Bacall case, it was ruled to be a sale because of the language was written wrong. Other cases in which it is explicitly spelled out that the contract is a license have consistently been upheld and the doctrine of 1st sale is not applicable.
It would, if it were a sale of the software instead of a sale of a right to access and use the software... an entirely different thing.
Apple is selling the OS to folks.
. . . and your position is that if they want to make their OS function as a loss leader for their hardware, they can do so only by making their hardware in such a way that PC's can't adequately emulate it. Otherwise, they cannot engage in their chosen system business. They must be in the software business and, separately, the hardware business.Although they could, I suppose, price their OS at $1,000,000 per licensed copy - and give people who own or buy Macs a $999,901 rebate, and a warranty of operability. Would that suit you better than seeing Apple refuse to sell licensed copies of OS X to people who don't own Macs?
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