Apple Inc. v. Psystar Corporation

Filing 254

Transcript of Proceedings held on 8/20/09, before Judge William Alsup. Court Reporter/Transcriber Sahar McVickar, CSR, RPR, Telephone number [phone]/[e-mail]. Per General Order No. 59 and Judicial Conference policy, this transcript may be viewed only at the Clerks Office public terminal or may be purchased through the Court Reporter/Transcriber until the deadline for the Release of Transcript Restriction.After that date it may be obtained through PACER. Any Notice of Intent to Request Redaction, if required, is due no later than 5 business days from date of this filing. Release of Transcript Restriction set for 5/24/2010. (McVickar, Sahar) (Filed on 2/23/2010)

Pages 1 - 39 United States District Court Northern District of California Before The Honorable William Alsup Apple, Incorporated, ) ) Plaintiff. ) ) vs. ) ) Psystar Corporation, ) ) Defendant. ) ____________________________)

No. C08-3251 WHA

San Francisco, California Thursday, August 20, 2009 Reporter's Transcript Of Proceedings Appearances: For Plaintiff: By: Townsend and Townsend and Crew Two Embarcadero Center, Eighth Floor San Francisco, California 94111-3834 Mehrnaz Boroumand Smith, Esquire James G. Gilliland, Esquire Tyler Gee, Esquire Camara & Sibley, LLP 2339 University Boulevard Houston, Texas 77005 K.A.D. Camara, Esquire Kent Radford, Esquire Noah Radbill, Esquire Christian Curtis, Esquire

For Defendant: By:

Reported By:

Sahar McVickar, RPR, CSR No. 12963 Official Reporter, U.S. District Court For the Northern District of California (Computerized Transcription By Eclipse)

Sahar McVickar, C.S.R. No. 12963, RPR Official Court Reporter, U.S. District Court [phone]

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Thursday, August 20, 2009 PROCEEDINGS THE COURT: seat, please. THE CLERK: All right, welcome, everyone.

12:00 P.M.

Have a

Calling civil action 08-3251, Apple,

Inc., versus Psystar Corporation. MS. BOROUMAND SMITH: Mehrnaz Boroumand Smith,

Townsend, Townsend and Crew, on behalf of Apple, Inc., Your Honor. THE COURT: Say that name, again. Mehrnaz Boroumand Smith.

MS. BOROUMAND SMITH: THE COURT: Smith?

MS. BOROUMAND SMITH: THE COURT:

Yes.

Thank you. And I've got here with me

MS. BOROUMAND SMITH: Tyler Gee and Jim Gilliland. THE COURT: MR. CAMARA: Psystar Corporation. THE COURT: Great.

I'm K.A.D. Camara for the defendant,

You are going to have to speak louder.

Whenever each lawyer talks, I'm going as to ask you to come to the lecturn because I can't hear. MR. CAMARA: Yes, Your Honor.

It's K.A.D. Camera for the defendant, Psystar Corporation.

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And I'm joined at counsel table by my colleagues, Kent Radford, Noah Radbill and Christian Curtis. THE COURT: MR. CAMARA: THE COURT: All right, welcome. Thank you, Your Honor. Okay, we are here on -- we're just going

to put to one side -- there was -- you bombarded me, and I'm going to probably get a special -- I'll get a magistrate judge to help me so since you are so contentious in this case, maybe. I'm going to wait and see how I feel about it, but I just can't continue to do the kind of discovery disputes that you are bombarding me with. We're going to only deal with today the first one that was sent in, that was about destroying evidence. we'll hear from Ms. Smith on that one. resolve today. MS. BOROUMAND SMITH: Thank you, Your Honor. And so

That one we will

Your Honor, we spent about an hour -THE COURT: Use the microphone.

You can bend it around anywhere you want. THE COURT: Thank you. Go ahead.

MS. BOROUMAND SMITH:

We spent about an hour in the

meet and confer discussing the spoliation motion, and both parties agreed that relevant evidence that should have been produced by Psystar has been erased. two kernel extensions: That evidence consists of

The apple decrypt kernal extension and

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the dsmos kernel extension, as well as a boot loader file that we are calling the Netkas boot loader. Now, the kernel extensions are used to circumvent Apple's technological protection measure, and they contain Apple's copyrighted key in them. And the boot loader is used So

to enable Mac OS X to be booted up on nonApple hardware. we've agreed that Psystar was required to preserve that

evidence, that they were required to produce it, and that they have erased it. The only dispute that we have remaining here today is what the sanctions would be. We are seeking sanctions in

the form of a jury instruction whereby the jury is instructed that the kernels were on Psystar's machines; that they were used and that they were erased. We are also seeking attorney's fees associated with this motion as well as costs that we have had to incur to have our experts find evidence that should have been provided to us as part of discovery. Psystar contends -- in their letter brief, their opposition states that it was an honest mistake, that they didn't know that they were supposed to preserve this evidence, but the facts bear otherwise. Back in March of this year, we

deposed Rudy Pedraza, Psystar's CEO and their designee on technical topics, and we specifically asked him about this dsmos kernel extension as well as the Apple decrypt kernel

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extension, and here is how the testimony went: "Q. Do you know what that dsmos

kernel extension is? "A. "Q. No, I do not. Have you ever seen that reference

before? "A. "Q. "A. No. Never? Never."

With regard to the kernel extension for Apple decrypt, he testified also that they never used them on their computers. On May 15th, we -- as of today, when we met -actually, let me kind walk you through the chronology here, Your Honor. We sent a letter on May 15th about the spoliation usual. We met and conferred with new counsel for Psystar on In that meet and

the 23rd, before we filed our letter brief.

confer session, counsel stated that Psystar had never used the dsmos kernel extension or the Apple decrypt kernel extension on their computers. And then we filed our motion because we

believe we had evidence that they did. In their opposition that came in last night, they indicated that they are now acknowledging the possibility that copies of these kernel extensions may have accidentally be been

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transferred to Psystar computers. In our meet and confer today, we told them that but for those kernel extensions, Mac OS X would not have run on Psystar's computers. They went back to their client, and as of

today, 24 hours after, less than 24 hours after they filed their opposition, their client has told them that, yes, there is a high possibility that there is dsmos and Apple decrypt on the earlier Psystar computers. We believe that we are entitled to sanctions, Your Honor, in both the -THE COURT: Just -Yeah.

MS. BOROUMAND SMITH: THE COURT:

You are doing a great job of explaining

this, but assuming that -- assuming it was -- let's say Apple decrypt was on there, so what? MS. BOROUMAND SMITH: So Apple decrypt is the kernel

extension they use to actually circumvent Apple's -THE COURT: Is that illegal? -- technological protection

MS. BOROUMAND SMITH: measures. THE COURT:

What's wrong with that? It has -- it's -- you're not

MS. BOROUMAND SMITH:

allowed to circumvent under the DMCA technological protection measures -THE COURT: You are not allowed to do what?

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MS. BOROUMAND SMITH:

You are not allowed to

circumvent technological protection measures that are used to prevent access to copyrighted works. THE COURT: And that is what some statute says? Yes, the Digital Millennium

MS. BOROUMAND SMITH: Copyright Act. THE COURT:

Okay, I take your word for it.

So you are saying that under that act, if you used Apple decrypt that would a violation of the statute. MS. BOROUMAND SMITH: That's correct because Apple And what has

decrypt contains Apple's copyrighted keys.

happened is they basically circumvented our technological protection measure, which prevents Mac OS X from running on anything but Apple Computers. THE COURT: Okay.

How many units, roughly, were -- had this Apple decrypt on it? MS. BOROUMAND SMITH: It's unclear, Your Honor,

because we don't -- we bought -- our experts ended up buying several those units, and we don't know when they started shipping another decryption text on their computers. But we know that at least up until September, so between April and September we believe they were using either Apple decrypt or dsmos. THE COURT: What are they using now --

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MS. BOROUMAND SMITH:

But part of the issue is they

destroyed evidence, and we don't know. THE COURT: What are they using now to run Apple? They are using another kernel

MS. BOROUMAND SMITH:

extension that they have written called OpenCojones.text and that also contains Apple's copyrighted key. THE COURT: Is that a violation, too? Yes, Your Honor.

MS. BOROUMAND SMITH:

I believe the only difference between the Apple decrypt kernel extensions and the open Cojones kernel extension is that in the Apple decrypt and dsmos kernel extensions the key is written out, just in the form of a poem, and in open Cojones, an algorithm is running to retrieve that poem, and then the poem is used to go into the decryption engine. THE COURT: Well, since you know all of this now --

I'm losing track of what the problem is. Sounds like you we could prove everything you want to prove, so what's the problem/ MS. BOROUMAND SMITH: Well, the problem is, Your

Honor, we have two computers on which we can prove this. Psystar sold a bunch of computers. They had source code or And

executable code that they have destroyed or written over.

had we had that code and all versions of it up until today, we would be able to show that, together with our master copies, what they were shipping on their computers at any given point

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in time. THE COURT: But their brief says that there were

only three lines of code destroyed. What am I thinking of.? MS. BOROUMAND SMITH: So their brief says that they

destroyed opened Cojones -- I'm sorry, they destroyed dsmos and Apple decrypt as well as the boot loader. THE COURT: of code. MS. BOROUMAND SMITH: Yeah, that -- oh, you're And so --

Presumably, that's more than three lines

thinking of the change in the boot loader, Your Honor, and that is a different issue. THE COURT: even get to that yet. MS. BOROUMAND SMITH: THE COURT: back. At the master file stage, you're saying that they deleted from their master file Apple decrypt, for example? MS. BOROUMAND SMITH: So what we area saying is they Okay. Different issue, all right, well, don't

So -- well, wait a minute, let's go

deleted from their code the Apple decrypt kernel extension as well as the Apple -- as well as the dsmos kernel extension. Maybe I should go back and explain how all this stuff works together, if that's okay, if it would be helpful? THE COURT: Do it in less than one minute, okay.

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MS. BOROUMAND SMITH:

Okay.

So in order to run Mac OS X on nonApple hardware, Psystar had to do two things: They had to use the kernel

extensions that I've been talking about, and they also had to modify the operating system by using different boot loader because the boot loader that is used in Mac OS X is specifically for Apple computers, and the boot loader that they are using is for nonApple hardware. What they do, is they take a -THE COURT: What they did, or -- what you mean what

MS. BOROUMAND SMITH:

So what they did was they

wrote over that code, Your Honor. THE COURT: They did what? They wrote over that code.

MS. BOROUMAND SMITH: THE COURT:

Over what code? The code for Apple decrypt and

MS. BOROUMAND SMITH:

dsmos as well as the boot loader code for the Netkas boot loader. THE COURT: "Write over" means what? They -- from my understanding

MS. BOROUMAND SMITH:

of what I've been told by counsel, is that they just continued to program, and they didn't save different versions of the code. So let's say today I'm programming, I write some

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portion of the code, and then tomorrow I decide I want to write over that, I write over it, but I don't preserve what I had before. THE COURT: But some of these must have been out

there on real machines. MS. BOROUMAND SMITH: Correct, because what they did

ways they took the -- some of this code, and they stamped it onto master copies. A master copy is then taken and stamped

onto each computer that is sold to customers. THE COURT: copy? MS. BOROUMAND SMITH: THE COURT: copy? MS. BOROUMAND SMITH: Because they haven't produced I'm sorry? So why don't you just rely on the master

Why don't you just rely on that master

the master copy, and it doesn't exist anymore. So if we had the master copy for each time that -from -- the master copies from April of 2008, when they started shipping their computers, till today, then we would be able to establish during that time frame which computers had Apple decrypt on them and which computers had dsmos on them, which computers had the Netkas boot loader on them. But because we

don't have the master copies and because they have written over the source code over time and the executable code, we don't have any of that information.

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THE COURT:

Have you requested the master copies? We have, Your Honor. And

MS. BOROUMAND SMITH:

they've produced what they have, but they don't have the initial master copies, the ones that matter. THE COURT: How many do they have? They have produced two.

MS. BOROUMAND SMITH:

They've produced one as of is July of 2009, so last month, and they've produced, I believe, another one as well. Is that correct? MR. CAMARA: Yes, one earlier and one in July, Your

MS. BOROUMAND SMITH: THE COURT: Okay.

Right. I'm going to give

Have a seat.

you a chance to speak some more in a minute. MS. BOROUMAND SMITH: THE COURT: Thank you, Your Honor.

Let me hear the other side.

All right, what do you have to say? MR. CAMARA: Your Honor, I think you've identified

the issue correctly, which is that they have copies of what was on Psystar's computers. motion. were -THE COURT: Yeah, but they don't know how many you That's, in fact, the basis for their

They have copies of these kernel extensions, which

MR. CAMARA:

Well, we don't know the answer to that

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and they don't know to answer that. THE COURT: we would know. MR. CAMARA: We would, but we have offered to If you haven't destroyed the evidence,

stipulate that until the time the computers had open Cojones on them, we will stipulate that all of them had this code on them. So I think there can be no prejudice to them. offered that in the meet and confer. We

And because we recognize

that the failure to preserve these documents makes it impossible to tell which, if any, computers -THE COURT: Maybe that will work. Don't go away.

Ms. Smith what's wrong with that? MS. BOROUMAND SMITH: THE COURT: to prove? MS. BOROUMAND SMITH: the meet and confer that Mr. -THE COURT: Wait. Just address that part about the So what -- the other part of So --

Doesn't that proving everything you need

stipulation that -- what's wrong with that stipulation? MS. BOROUMAND SMITH: So that's stipulation works,

so long as it's presented to the jury. THE COURT: Of course it would be. Right. But Mr. Camera

MS. BOROUMAND SMITH:

indicated in meet and confer that they wanted to bifurcate and not provide that information to the jury, was my understanding.

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MR. CAMARA:

I think that is a simple

miscommunication, Your Honor. If what we are telling the jury is that Apple decrypt dsmos and the Netkas boot loader were on all Psystar computers shipped before a certain date, we are happy to have that be an instruction to the jury. What I was talking about was if the Court were to prefer a more prejudicial instruction, like Psystar destroyed evidence. THE COURT: What's wrong with telling the jury that

you destroyed the evidence? MR. CAMARA: THE COURT: Well, Your Honor, we think -Is there an issue of bad faith in this

MR. CAMARA: THE COURT:

Yes, Your Honor. Well, if there is an issue of bad faith

and somebody's been destroying evidence, that's highly relevant. MR. CAMARA: Yes, Your Honor, we think it's

certainly highly relevant to the pre-September 2008 computers that contain that destroyed evidence, but we think it would be highly prejudicial with respect to the post-2000 -- sorry, the post September 2008 computers, which everyone agrees do not contain and never did contain Apple decrypt, dsmos, et cetera. So if we could not present to the jury with respect

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to what Psystar is doing now -THE COURT: We are not going to have two trials. We are going to have one jury

What do you mean, two trials?

hear everything and sort it out. MR. CAMARA: THE COURT: Well -If your people happened to destroy

evidence along the way that's relevant, then the jury is going to hear about it. And that's your problem if it's prejudicial

because, you know, evidence can be prejudicial, but rightly so. And if somebody is destroying evidence, that's your -- to my mind, a jury can at least say, hey, they've been out destroying evidence, they're guilty as sin. MR. CAMARA: It's certainly relevant to the

computers that were printed from the -- the missing master boot copies. And I certainly would have no objection to

Mr. Gilliland or Ms. Smith crossing our witnesses using the destruction of that evidence. THE COURT: MR. CAMARA: All right. But it isn't, relevant, I think, Your

Honor, to the computers that were manufactured after September of 2008. THE COURT: Why don't you just prove that the ones

after September 2008 don't have that -- the offending modules on it? MR. CAMARA: In fact, it's agreed that that's so,

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Your Honor.

And that's precisely the way we would like to

proceed, we would like to have competing lawyer argument and cross-examination and testimony. What we object to is an instruction that tells the jury that there has been destruction of evidence because it's quite possible that the jury will think that that's prejudicial not only as to the preSeptember 2008 computers, but also as to the post-September 2008 computers. They will have a field day on cross with this evidence, and that's perfectly proper, but I don't think it requires an instruction from the Court for them to have the advantage that they are entitled to. THE COURT: principles. Well, let me give you some general

I'm missing something in this discussion, so I

want you to help me understand what I'm missing. One way to go here is to just let Apple prove -we'll have no stipulations. One way to go is no stipulations,

and then Apple just prove it up at trial that all this stuff was destroyed. That happens in a lot of trials, and the jury

then says, ah-hah, they destroyed evidence, I don't like these people, they are trying to infringe. But the jury gets all that information because it's highly relevant to the issue of intent. That's one way to go.

Another way to way go would be have a stipulation, but if you have a stipulation, you can't have it both ways.

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You can't then start putting in the same evidence that the stipulation goes to. So you would just have a cold two or

three sentence stipulation that says here is what we did, here is what we did not do. And then you just argue it to the jury

that there is bad faith, based on -- you wouldn't be putting in additional evidence because that would be superfluous. Those are two different ways to try a case, one with a stipulation that knocks out a lot of the Q and A, one without it but you don't get the benefit of the stipulation but you would then get the Q and A. Ms. Smith, what bothers me about your approach is you want me to instruct -- I'm not going to do all this instructing the jury. I can tell them that if somebody

destroys evidence, they can consider that on the issues of bad faith, sure I can do that. has been bad faith. But I'm not going to say that there

I'm not going to say that there has been

destruction, unless something -- if you all were to stipulate and say here is what was destroyed, here is what is not destroyed, then I can instruct the jury along those lines, of course. But then that would preclude you from -- maybe not 100 percent, but 90 percent from getting into the details of that with evidentiary material because that is the whole point of the stipulation. So what am I missing here?

Now, I'll give you one other -- some lawyers in your

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position, Ms. Smith, would be delighted to have all this evidence, and you would just throw it in front of the jury and say look how bad these people are. stipulation. And you would not want a

You would not -- so what is it you are trying to

ask me to -- be careful what you wish for, because you might get it and regret it at trial. What is it you want me to do? MS. BOROUMAND SMITH: Well, to the extent Your Honor

is saying that the information would be -- we wouldn't be able to bring that information in front of the jury -THE COURT: To the extent -- I'm not saying -- I am

saying that if you have a stipulation, then the other side is going to stand up and say we've covered that by the stipulation, why are we going into this. And I probably at

some point -- I'll give you a little bit of loosey-goosey room because no stipulation is perfect, but I would probably cut you off before -- and you'd be unhappy about it. MS. BOROUMAND SMITH: Then I guess you are right, And

Your Honor, I should be careful about what I'm asking for.

I would say that we want to bring that evidence in front of the jury and make sure that they do realize what Psystar has done as far as writing over the code and destroying evidence. But we still would like to seek the expenses that we have incurred bringing this motion as well as the expert -THE COURT: What is the relief you are getting here?

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MS. BOROUMAND SMITH: THE COURT:

I'm sorry?

What is the relief that you are getting

that is -- warrants attorney's fees? MS. BOROUMAND SMITH: Well, it's the fact that had

they not lied to us in their 30(b)(6) deposition, Your Honor, and told us that they did -- we basically went down this whole path trying to find all of this information. We have spent

time meeting and conferring with them, writing briefs, only to find out today what we should have known back in May -THE COURT: Go back over all that. That sounds

Go back through that chronology of how you got

misled on this. MS. BOROUMAND SMITH: Sure.

So back in March, we had a 30(b)(6) deposition of Psystar's CEO, Rudy Pedraza. At that deposition, we asked him

whether he knew what the dsmos kernel extension was, whether Psystar used the dsmos kernal extension -THE COURT REPORTER: MS. BOROUMAND SMITH: Slow down just a little for me. I'm sorry.

And similarly, we asked him about the Apple decrypt kernel extension and whether or not Psystar used that kernel extension: The answers to all of those questions were "no." We then -THE COURT: Stop just a second. Yes.

MS. BOROUMAND SMITH:

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THE COURT: MR. CAMARA: THE COURT:

That's totally false, isn't it? Well -I mean, sounds totally false based on

what I'm hearing today that that testimony was just false. MR. CAMARA: Well, here's what happened. They --

the people at Psystar -- well, I won't defend that, Your Honor, I think those answers were false. THE COURT: MR. CAMARA: THE COURT: MR. CAMARA: All right. Coming from a 30(b)(6) deponent. All right. Robert Pedraza at the business was in

charge of this, but, certainly, Rudy Pedraza should have had that information at the 30(b)(6) deposition. If I could give the Court some background? THE COURT: MR. CAMARA: the Court knows. Go ahead. We came into this case a month ago, as

And after coming in, we have done our best to We have just produced

clean up the discovery that took place.

a massive amount of documents curing, I think, almost all of the outstanding problems, if not all of the outstanding problems. We have produced witnesses for depositions, including Mr. Pedraza, again, in Miami. Mr. Pedraza's is being

deposed still again next week here in San Francisco. So we have taken major steps. We have implemented a

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source control program to maintain changes.

All changes that

are committed to the source code so that something like that won't happen again in the future. Rudy and Robert Pedraza, this is a startup in Miami. It's a small office. business. There are five guys running this

They did not receive advice from former counsel

about how the preservation rules applied to things like source code and things like the document images. some of this has not been preserved. We have offered stipulations, as Your Honor just heard, that we think cure the problem from a substantive point of view. And so we think that Rudy and Robert acted in good And, regretfully,

faith and continued to act in good faith, especially over the past month, taken steps to cure all the substantive objections so that a substantial penal argument is not warranted. With respect to the missing files, Apple decrypt, dsmos and the Netkas boot loader, it's clear that Apple and Apple's counsel would have undertaken an independent investigation to verify whether or not those files were on our computers, no matter what with Psystar had produced in discovery. That's what any good lawyer would do. So certainly, if there is any award, we would hope that it be narrowly tailored to any additional work that this discovery fight has generated. Certainly, the independent

investigation into computers that they bought would have been

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performed no matter what. THE COURT: Here is one thing that I think should be

done, and this is not a stipulation, per se, it's going to be a court ordered interrogatory. But Ms. Smith, you are going to write it. want a big firm -- I don't want a big firm thing with definitions and instructions, just a plain interrogatory with no lead-in that says something like, do you admit that Apple decrypt was used on computers? that. Then I assume your answer is going to be "yes." MR. CAMARA: Well, Your Honor, I think so, too, but They haven't You make it, you know, refine I don't

we haven't seen the basis for their motion. supplied the expert testimony. THE COURT: They don't need to.

Listen, you ought to go what was on your own computers. If you don't know what's on your own computers, I'm

going to get upset. MR. CAMARA: We have offered that as a stipulation,

and the answer will be yes, Your Honor. THE COURT: All right.

And then the next question is on how many computers was it on? And then you ask the same question, dmso, and how And then these are going to be court-ordered

many was it on.

interrogatories which you can read to the jury.

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MS. BOROUMAND SMITH: THE COURT:

Okay.

And so you get this done by Monday.

And then you answer it by Monday of the following

MR. CAMARA: THE COURT:

Yes, Your Honor. And now, I don't want 36

interrogatories, I'm thinking about like 8 or 9 that would pin down this information that's come out today. Ms. Smith, are you following me? MS. BOROUMAND SMITH: THE COURT: much relief. I am, Your Honor.

All right, so at least you'll get that

You'll get a clear-cut interrogatory answer and That's not a stipulation,

-- that you can read to the jury. that's a interrogatory answer.

Now, the jury may take into account that during the course of discovery you tried to clean up the problem. But

they can also figure out, probably, that there was some monkey business going on earlier. and that's up to them. If they want to -- you know this would be classic evidence that goes to intent, if they were lying about whether the Apple decrypt was used or not. be done. And then explain the boot loader thing to me -- boot loader thing to me. So that part I think should And maybe that indicates bad faith,

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MS. BOROUMAND SMITH:

Sure.

So the boot loader, Your Honor, is a -- it's a file that allows the computer to boot up on certain hardware. THE COURT: Right, I understand that. And what they've done -- in

MS. BOROUMAND SMITH:

order to run Mac OS X on nonApple hardware, you have to modify the boot loader that is contained within the copyrighted works that constitute the Mac OS X. So what they have done is basically taken a new boot loader, put it in together with the Mac OS X software in order to allow it to run on the hardware that they want it to run on. They have created a derivative work, in essence. And what they have done is they have not provided to us, in either master copy or as part of executable code, the Netkas boot loader that they used, which is separate and different from the boot loader that is used by Apple as part of Mac OS X. THE COURT: Just a second. I want your

interrogatories -- write this down -- to state that they admit that the masters were destroyed, and that the dates -- and they ask for the dates that they were destroyed. I'm talking about

the ones that had those Apple and dsmos on it. MS. BOROUMAND SMITH: THE COURT: Okay.

All right, so, now, coming back to the

boot loader, what do you say to the boot loader problem?

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MR. CAMARA:

Your Honor, it's exactly the same

Just as Apple decrypt and dsmos were on those images, And we would be happy to answer the same

so was Netkas.

interrogatories -THE COURT: interrogatories. Now, how much are you asking for by way of All right, those -- add those to the

MS. BOROUMAND SMITH:

We are seeking the amount that

we expended on filing this motion. THE COURT: How much is that? I haven't done the

MS. BOROUMAND SMITH: calculation. I apologize.

THE COURT:

You get $5000. Okay, thank you, Your Honor.

MS. BOROUMAND SMITH: THE COURT: But --

Probably a lot less than you really

You going to complain about $5000? MR. CAMARA: THE COURT: No, Your Honor. All right, $5000.

Now, on the other one -- you know, I just got -- you are using this as an occasion to argue over this one, and then -- and then instead of replying, I get these brand new arguments, brand new products. So Ms. Smith, what's going on here?

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MS. BOROUMAND SMITH:

So, Your Honor, this -- we

have a motion that was filed by Mr. Camera with regards to topic three deposition that they noticed up on a 30(b)(6). This is our opposition. I know you didn't order us to respond.

It's an opposition, as well as a motion for protective order on certain issues. THE COURT: Just a minute.

Why can't they take a deposition of your people on what that harm has been? this is for experts. I don't buy -- it's bogus to say that

How are their experts going to prepare

their reports without knowing what you contend are the damage items? MS. BOROUMAND SMITH: testimony on harm to Apple. So, Your Honor, we did provide

We provided testimony on And Mr. Schiller

irreparable injury to Apple, specifically.

was designated to testify on that topic, and he did testify for several hours, actually, during his personal -THE COURT: MR. CAMARA: irreparable injury. Well, then, what's the problem? Your Honor, he was not designated on

Irreparable injury, as you know, is a I

predicate to an injunction, it has nothing to do with harm.

can read from (sic) you from our brief exactly what those were, and, indeed, Apple's agreement that provides -THE COURT: All right. So I did misspeak, Your Honor.

MS. BOROUMAND SMITH:

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I meant to say injury and not irreparable injury. did have him testify on was irreparable injury. THE COURT: about damages. MS. BOROUMAND SMITH:

But what we

Well, somebody should be testifying

So our damages except is going We're not --

to be testifying about that as well. THE COURT: damage study?

But, how are they going to do their

You know, it's not just the plaintiff gets a damage study; they get to go out and hire an expert, and they got to be feeding him information all this time. And if you are

stonewalling on the issue of how you have been damaged, they are going to have two weeks to prepare. MS. BOROUMAND SMITH: That's correct, Your Honor. I

understand they have the right to have certain information, but we are not seeking lost profits in this case, and we have told them that. The information that they are seeking is subject to another topic, topic 8, and not to topic three. They are

seeking information about profit margins and revenues, and what not. THE COURT: What are you seeking, then? What kind

of damages are you seeking? MS. BOROUMAND SMITH: So for our breach of contract

case, we are seeking disgorgement as well as -- or nominal

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damages.

For our copyright infringement and our DMCA claims, And for our trademark

we are seeking statutory damages.

claims, we are going to prove that there has been harm to Apple's brand and tarnishment, as well. THE COURT: How are you going to prove that? We are going to prove that

MS. BOROUMAND SMITH:

through secondary -- establishing evidence of secondary meaning and likelihood of confusion surveys that we are going to submit tomorrow. THE COURT: said, Mr. Camera? MR. CAMARA: Your Honor, first, they only waived the What do you say to what counsel just

lost profits claim after we had this fight at the deposition. So to say that that somehow excuses the failure to present the witness on the topic is not correct. If we look at their objections to our deposition topic, they have all the big firm objections, and then at the end they say, subject to and without waiving these objections and a general statement and objections. Apple will provide a

witness to testify on injury suffered by Apple as a result of the unlawful acts committed by Psystar that Apple complains about in this action. We went to that deposition, prepared to

take it, and Mr. Schiller refused to give us testimony on that point. With respect to the relevance of lost profits from

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Apple, that is relevant to the statutory damages award that they seek in this case. THE COURT: Say that again. You said it okay, I

just was back on that point. Say it again. MR. CAMARA: Sure, Your Honor.

They are claiming that lost profits are no longer relevant because they have stipulated not to seek them, agreed not to seek them. THE COURT: MR. CAMARA: Um-hmm. They are still relevant to the

statutory damages claim because one factor that a jury can consider in setting statutory damages under the Copyright Act is the amount of injury to the plaintiff. And a major part of

the injury to the plaintiff, Apple, based on the sale of Psystar computers running Mac OS X, is any decline in sales and any loss of profit that Apple suffered. And the legislative history and the cases interpreting the statutory damages provision of the Copyright Act bear that out. If the Court will indulge me, to quote,

simply, from the Senate report, quote, "The plaintiff in an infringes suit is not obliged to submit proof of damages and profits and may choose to rely on the provision for minimum statutory damages." But that's not what they are seeking, they want the

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jury to pick a number from the range.

However, there is

nothing in section 504, this section, to prevent a court from taking account of evidence concerning actual damages and profits in making an award of statutory damages. And the Supreme Court in Feltner, the decision that guarantees a jury trial on statutory damages in a copyright case, says that in setting what it believes is a just award, the jury can be presented with all evidence relevant to what is a just award. And here, I think the actual damages suffered by the plaintiff are plainly relevant. pursue actuals or statutories. It's their election whether to But even if they pursue the

statutories, we get to argue that the actuals weren't that large. MS. BOROUMAND SMITH: THE COURT: Your Honor, may I respond?

What do you say? So the case law on statutory

MS. BOROUMAND SMITH:

damages in copyright case does look at different factors as to what the range of damages will be, whether they should be on the higher end or the lower end. But what they look at

specifically, and this is throughout all the copyright cases, is not lost profits, but lost revenues to the plaintiff. They

do look at lost profits for the defendant, but they look at lost revenues for the plaintiff. THE COURT: Say that again.

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MS. BOROUMAND SMITH:

They don't look at lost

THE COURT:

The "they" is who? The courts.

MS. BOROUMAND SMITH: THE COURT:

Court don't look at? Don't look at lost profits for That is the factor

MS. BOROUMAND SMITH:

the plaintiff, they look at lost revenues.

that they consider rather than lost profits. What they do look at is lost profits for the defendant as a factor. THE COURT: How can the defendant lose anything?

They are the wrongdoer. MS. BOROUMAND SMITH: THE COURT: That's true.

So how do they lose anything?

Maybe you mean profits, disgorgement. MS. BOROUMAND SMITH: Sorry, not lost profits, but

THE COURT:

All right. She says

Mr. Camera, what do you say to Ms. Smith?

that the case law does not allow for -- you got to look only at revenue, not profits, for the plaintiff. MR. CAMARA: does not say that. With respect, Your Honor, the statute

The cases that Counsel's discussing are

mainly District Court cases that cite kind of a popular paragraph that lists some factors but doesn't purport to be

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exclusive. The Supreme Court, in Feltner, held that you are entitled to a jury trial on statutory damages and that the jury may hear anything relevant to setting that award. I think it's clearly relevant to what amount of penalty is fair to know what injury was done. And here, the

injury is that sales that would have gone to Apple went to Psystar instead, that's the central element of injury. So when we are arguing to the jury that the number from the range, which is quite large, 750 to 150,000 for wilful infringement, should be on the low end of that range, I think we're entitled to say, hey, the computer's price was 2 or $3000, and not all of that was profit. amount of it was profit. THE COURT: I'm not prepared to make a legal ruling In fact, quite a small

on what the statute would allow a jury to consider on the issue of statutory damages. So are you willing to state on the record that you had no profits, Ms. Smith? I can't believe that would be true. Well, Your Honor, it's not

MS. BOROUMAND SMITH:

that we had no profits -- I'm sorry. THE COURT: Well, why -- so his argument,

Mr. Camera's argument, is the jury can consider the extent to which Apple would have made any profit on this, anyway. And I

am not going to make a legal ruling on that now, so why don't

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you just go give him the information? MS. BOROUMAND SMITH: Your Honor, we have several

concerns about giving our profit margins to -- to the defendants in this case. One of them stems from recent activity on their website where they have stated that -- they have actually listed all the people that are being deposed from our side, given the dates, and asked people to provide questions for those depositions. At the end of that listing, they have

indicated that after this case is over they will provide information that comes out of those depositions to the public. We have -- we are very concerned. Our profit

margins, all of this information that they are seeking is extremely confidential to Apple, they don't release it at all. And so they're concerned that if they hand over this information to anyone on the other side that it will be released to the public. And it's a legitimate concern based on

the statements that are on Psystar's website. Additionally, this information, Your Honor, is not relevant. And we would be happy to further brief this issue of

statutory damages and what information is relevant to the assessment of statutory damages. One other thing, Your Honor: We have agreed to

produce a witness to testify as to our revenues, our costs -sorry, our revenues associated with Mac OS X and the CPUs, our

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R & D costs and the advertising and marketing costs associated with those. What we do not want to reveal is our profit

margins on a product-by-product line. There are profit margins for Apple, generally across the board in our 10Ks, but they are not reliant on a profit-by-profit line. They are highly confidential. And if

any of that information at any point got out, it would be very problematic for Apple. THE COURT: Is there any information -- sorry. Is

there any briefing on this point in this paper paperwork now? MS. BOROUMAND SMITH: THE COURT: There is --

On the legal point. There is very little briefing

MS. BOROUMAND SMITH:

on the legal point with the exception of on page 3, where I cite to some cases with regards to the statutory damages, but it's not briefed extensively. THE COURT: Is this what this whole issue is,

Mr. Camera, is on profit margin by product? MR. CAMARA: No, no. That's one part of the issue,

Your Honor, but we would ask other questions about harm to Apple of the 30(b)(6) witness designated on that topic. This is also a procedural aspect to this, Your Honor, which is that we made that designation, they made a variety of objections to it, but not this one. And, indeed,

they, in their objections, stated affirmatively that they would

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provide a witness to testify about harm to Apple.

It's only at

the deposition itself that this objection was asserted. As Your Honor knows, the expert deadline is tomorrow for case in chief evidence, and rebuttal experts are a few weeks after that. And then the summary judgment deadline hits.

So we would request that the Court rule on the legal issue at the appropriate time, perhaps in a motion in limine, but not hold up fact discovery and thereby delay our ability to prepare for experts, summary judgment, and trial. THE COURT: Well, you ought to go ahead and do the And then in

depositions on what they are willing to provide.

the meantime, I'm going to ask you to submit by Monday briefs on the issue of whether or not Townsend is correct that the profit margins for the plaintiff are irrelevant, irrevocably irrelevant. MS. BOROUMAND SMITH: Your Honor, may we be

permitted to do the deposition on the topic that -- on the information that we are willing to provide next week? THE COURT: Go ahead and do that, yes. Because, I I won't even

mean, I won't rule on this, probably, next week. be here next week. MS. BOROUMAND SMITH: THE COURT:

Okay, Your Honor. But

So I won't be able to rule on it.

you can get the briefing done -- in fact, I'll give you till Thursday of next week. My law clerk can be looking at it. And

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both sides simultaneously submit, and as soon as I get back, I'll try to rule on it around August 31. MS. BOROUMAND SMITH: week? THE COURT: You got all these problems: I may have So submit by Thursday of next

to undo the trial date if you continue to have all these problems because, see, now you are putting me in a position where you are going to come in and say, oh, we go to redo the experts, oh, we got to do all this after-the-fact discovery. I'm not going to undo the trial date yet, but this is what -- all these discovery motions put a lot of pressure on the trial date and the schedule. MS. BOROUMAND SMITH: Honor. MR. CAMARA: Your Honor, given that the witness We understand that, Your

designated to testify on damages refused to do so, might we request that that deposition take place in Houston, which would be far more convenient for us and for our cash-strapped client? MS. BOROUMAND SMITH: Your Honor, they are out here

next week for depositions for Rudy Pedraza, anyways, because one point that Mr. Camera didn't mention was the fact that all of their financials documents were not provided to us until last Friday. THE COURT: All right, do all of that out here. I

don't think it's warranted to go to Houston yet.

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Is there another dispute you have, or is that it? MR. CAMARA: That is all on our side, Your Honor. I believe that's it for us

MS. BOROUMAND SMITH: right now, as well, Your Honor. THE COURT:

Now, Ms. Smith, in your submission next

week, in addition to saying you are not going to seek lost profits, you might offer whatever proviso that would be on the issue of statutory damages, such as Apple has refused to or will refuse to tell the jury what that profit margins are. the jury is entitled to assume the worst. And

I don't know, I'm

making that up, but, you know, on the one hand you don't want -- you want to accuse them of stonewalling, and then whenever it comes time for you to turn over some information, you don't want the jury to know it. MS. BOROUMAND SMITH: THE COURT: being even-handed. MS. BOROUMAND SMITH: Your Honor, we don't believe Your Honor --

So think about whether or not you are

the information is relevant, but we will do what you say. THE COURT: Well, you may be right. I'm not going

to say -- but you may be wrong on that, too.

And if under

statutory damages that's relevant and you refuse to turn it over, I'm going to tell the jury that you have stonewalled. MS. BOROUMAND SMITH: THE COURT: Okay, Your Honor.

Just like we are going to let the jury

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know that they have destroyed evidence. MR. CAMARA: Thank you, Your Honor. Thank you.

MS. BOROUMAND SMITH: THE COURT:

All right, see you soon.

(Proceedings adjourned at 12:45 p.m.)

---o0o---

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CERTIFICATE OF REPORTER

I, Sahar McVickar, Official Court Reporter for the United States Court, Northern District of California, hereby certify that the foregoing proceedings were reported by me, a certified shorthand reporter, and were thereafter transcribed under my direction into typewriting; that the foregoing is a full, complete and true record of said proceedings as bound by me at the time of filing. The validity of the reporter's

certification of said transcript may be void upon disassembly and/or removal from the court file.

/s/ Sahar McVickar Sahar McVickar, RPR, CSR No. 12963 Friday, August 21, 2009

Sahar McVickar, C.S.R. No. 12963, RPR Official Court Reporter, U.S. District Court [phone]