Will a lawsuit today keep Apple away?

Last week Psystar, an obscure Miami-based company, launched a legal attack on Apple that could cripple one of California’s key high-tech innovators. The case offers lessons for entrepreneurs and gives the courts an opportunity to end a legal scam that hurts consumers.

In April, Psystar began selling inexpensive Mac knock-offs without Apple’s permission. Instead of hiding its apparent copyright violations, the company openly flaunted the law, advertising its product as a “hackintosh.” Psystar justifies its actions as righteous for “bringing [Apple’s software] to the masses,” and even accuses Apple of breaking the law for interfering with this mission.

What kind of law allows a burglar to sue his victim? Antitrust enables any small or failing firm to steal with impunity from its more popular competitors. In this game, laws designed to promote competition are used as weapons to punish visionaries who create competitive products. Few companies deserve visionary status more than Apple.

Legions of devoted customers camp out for days to obtain its latest products. In July Apple sold one million new iPhones in a single weekend. After revolutionizing how people listen to music through iTunes and the iPod, the company today holds 70 percent of the lucrative digital music market. Last month Apple surpassed Google to become the most valued firm in Silicon Valley. This success and brand loyalty has triggered a surge in demand for Macintosh computers.

Though traditionally viewed as specialized products for select consumers, Macs are gaining considerable traction against mainstream competitors. So far this year, Mac sales have grown at more than twice the rate of the PC market. As a result, Apple dominates the premium computer market, capturing two-thirds of all sales above $1000. Apple’s success makes it a prime target for antitrust, and Psystar last week took the first shot.

According to 120-year-old antitrust statutes, successful firms can face nearly unlimited punishment for any arbitrary reason. In a rapidly evolving technology sector where companies rise and fall with the click of a mouse, these laws serve no benefit for consumers. Instead, they are routinely invoked by weak competitors to handicap a popular market leader. These legal battles divert funds from research and development, discourage future innovation, and eliminate quality products from the marketplace.

As explained in a new Pacific Research Institute study, Tech Titans or Political Piñatas? How Global Antitrust Laws String Up, Beat Down, and Hold Back America’s Leading Innovators, abuse of antitrust laws has accelerated dramatically in the decade since the government’s successful prosecution of Microsoft. Ironically, Apple CEO Steve Jobs once asked regulators to split Microsoft into two companies. Today, his own company is in the crosshairs.

Similar to complaints against Microsoft, Psystar alleges that it is illegal for a leading firm to tie its products together. In Apple’s case, the company’s acclaimed operating system can only run on Macintosh hardware. If Psystar prevails, Apple would be forced to separate software from hardware, and let its Mac operating system run on any generic PC. Though consumers might initially welcome a flood of Mac clones, such a scenario would mark an end to Apple as they know it today.

If ordered to allow its software on any piece of generic hardware, maintaining compatibility will prove difficult and expensive. To protect its image and reputation, the company will shift considerable resources to its software operation. As its operating system becomes widely available on inexpensive PCs, Apple will ultimately become a software firm and phase out the Mac entirely.

Consumers, not unelected judges and regulators, should decide the future of the Macintosh. The government manipulation of thriving high-tech markets harms consumers and creates profound unforeseen consequences. When this case reaches trial in San Francisco, the court should reject baseless and self-serving abuse of antitrust laws. To end the antitrust game, the judge should leave Apple alone and take a bite out of Psystar. That would set an example for the rest of the nation and the world.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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