Miami-based Psystar takes on Apple

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 a quarter-foot taller. He counters the computer-nerd image with a half-buttoned dress shirt and an intense stare.

Last year, the two Miami natives — one relaxed and jovial, the other driven and relentless — 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 toys the world loves. For more than a decade, the Silicon Valley firm has coded its operating system to work only on the firm's expensive hardware.

The Pedrazas' company — called Psystar — legally buys the software and then 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 Doral warehouse, the giant firm with 35,000 employees and billions of dollars in revenue filed a 35-page lawsuit in California claiming Psystar was selling "unauthorized" versions of OS X.

So far, the court hasn't ruled. Indeed, in August the brothers countersued, charging the OS maker was trying to illegally 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 might prevail. "We've lived 100-plus years with the basic proposition that if you bought it, you own it," he 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 some blogs.

The two plan to continue fighting. They already fought through a turbulent childhood, lost their dad to federal prison, and saw their mom accused of abuse. Rudy, the business mind behind the venture, barely escaped a cancer scare and a near-fatal brush with a drunk driver.

They're prepared to take on everything Apple's millionaire 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 don't like a bully telling them what to do.

Last month, the Pedrazas released a new line of Apple clone computers with the latest operating system, Snow Leopard. And 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."

On July 17, 1982, a young Cuban immigrant named Rodolfo Pedraza married Maria Elena Benavides, a first-generation Cuban-American, in Miami. Rodolfo, then age 25, had grown up in South Florida after fleeing Cuba with his parents soon after Fidel Castro took power.

The couple had their first child, Rodolfo Jr. — soon nicknamed Rudy — a little more than a year later, on December 5, 1983. Robert followed on August 13, 1985.

The young family eventually moved to a pastel-colored home just north of the Tamiami Trail in Westchester, a blue-collar, heavily Hispanic neighborhood west of Little Havana, where Rodolfo started a series of short-lived business ventures. In 1979, there was Dade Elevator, which folded two years later, according to state business records. Then came a company called Deco Motors, which he shuttered in 1986. Maria Pedraza, in contrast, found stable work as a legal secretary.

The boys loved to tinker. Robert vividly remembers his mom's fury when she came home to find the parts of a brand-new remote control car spread across the living room floor. It had been disassembled down to the tiny plastic screws.

"I've always liked understanding how things work, I guess," Robert says, smiling, "even if I couldn't put it back together again afterward."

As young boys, they helped their dad take apart a boat engine, clean the pistons, adjust the belts, and reassemble it. It was a happy childhood, even if the brothers spent as much time quarreling as playing. In 1990, their younger sister, Michelle, was born.

But in 1991, a few months after Rudy turned 7 years old, police officers slapped handcuffs on Rodolfo and hauled him away in a squad car.

The boys' dad had been caught in a sting of two Fort Pierce drug dealers named James Middleton and Larry Munson. A St. Lucie County detective named Marvin Ashabraner had spent more than six months tailing the dealers and tapping their phones as they sold coke from their homes and a woodworking shop.

Around 12:30 p.m. March 30, 1991, cops watched Rodolfo roll into Fort Pierce in the same white and blue Chevy pickup that a known Miami drug dealer had used a few weeks earlier to deliver a bulging manila envelope of cocaine.

Exact details of the bust are unclear, but two years later, a jury convicted Rodolfo for unloading at least a pound of cocaine. On February 22, 1993, a judge sentenced him to ten years in federal prison and fined him $250,000 plus court costs.

Soon after that, Rodolfo boarded a bus for the Butner Federal Correctional Complex, a sprawling penitentiary in the hills of central North Carolina. It was home to President Reagan's would-be assassin, John Hinckley Jr.; and the mastermind of the 1993 World Trade Center bombing, Omar Abdel-Rahman. Today it houses disgraced financier Bernie Madoff.

The sentence devastated Rodolfo's two young sons. Not long after their dad left for prison, the boys, their sister, and their mother moved to a small, one-story home on Jose Canseco Street, just a few blocks west of Miami Coral Park Senior High School, which both brothers would attend a few years later.

The brothers declined to discuss their father's arrest, except to ask it not be included in the story. "It doesn't define our lives at all," Robert says. "We were just little kids. We had nothing to do with it."

Their father rejected an interview request, and their mother's last listed address, a West Kendall townhouse, was abandoned and padlocked. Michelle, now a student at FIU, didn't respond to an email seeking an interview.

Rudy admits he began rebelling against his mother after losing his dad to jail. "I'm an independent person. I can't live with rules that well," he says. "I needed to do my own things. My father understood that you can guide someone in the direction you need to guide them, but you need to let them make their own decisions. I don't know if my mother could accept that."

Despite that adolescent rebelliousness, Rudy excelled at Coral Park High. Yearbook photos from 1999 to 2002 show a pudgy kid with an earnest smile whose long, parted bangs inched up his forehead. By his senior year, Rudy wore a serious expression and a businessman's no-nonsense haircut.

He was active in Coral Park's Future Business Leaders of America. His adviser, Nelly Odio, remembers him as perhaps the best computer whiz to pass through the school. "He was extremely smart, just leaps and bounds above everyone else when it came to computers and programming," she recalls.

Robert began attending Coral Park a year after Rudy. He also stood out in the classroom, Odio says.

She knew about the brothers' tough home life. "[Rudy] might just call me Mom if you mention me today," Odio says, because of all the support she offered.

Odio remembers Rudy hanging out with a group of smart kids, doing well in class, and even volunteering to design Coral Park's website for free. He also worked long hours after school designing computer systems for businesses around Miami. Rudy 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 he earned early release from federal prison — a move that only threw the Pedrazas' lives into more disarray. The parents soon began battling in court over custody of their children, according to records.

By 2000, Rudy's sophomore year of high school, he had moved out of his mom's house and in with his dad. In 2001, Robert joined them. Michelle stayed with her mother, according to court records. "Our dad just gave us a lot more freedom to do our thing," Rudy says.

In custody papers, Rodolfo Sr. wrote that "verified allegations of child abuse or neglect [had] been made" in the case. Maria denies this in her filings, claiming there had "never been any verbal or physical abuse." She says she allowed Rudy to "live temporarily with his father" in late 2000, but a few weeks later, "it became evident the former husband was not providing a safe, secure, and appropriate home."

The boys mostly stayed with their dad after that. Rudy graduated in 2002 with grades good enough to get him into the University of Florida. "That was the happiest I'd ever seen him, when he got accepted," Odio says.

Robert, in contrast, transferred out of Coral Park after his sophomore year and attended nearby Felix Varela Senior High School. He never graduated.

Through all the conflict, the brothers realized their passion for computers. In the mid-'90s, they talked their mom into buying a computer. It was a clunky PC that could barely run word processors.

With their mom pulling in only about $600 a week as a legal secretary and their dad struggling to return to life outside the pen, the Pedraza brothers couldn't afford better.

Rudy moved to Gainesville in fall 2002 and enrolled in UF's college of liberal arts and sciences. His plan was to study computer science, but university records show he was an English major. Either way, the point was moot by the end of his sophomore year, when he was rushed to the hospital for emergency surgery on his mouth. "I had a serious cancer scare," Rudy says, pointing at the left side of his mouth. Most of his bottom teeth are missing on that side, and Rudy talks with a pronounced lisp. "It shook me up, so I dropped out of school for a while."

By 2005, he was back in Miami, living in a rented one-story house on a quiet street in Kendall. Rudy and Robert, who had been working as a computer consultant, decided to join forces in a tech firm.

For a year and a half, they worked small freelance projects. In July 2007, they formally incorporated Psystar Corp. It was a meaningless name, Robert says, adding, "Trust me, in hindsight, I wish we'd picked something people could actually pronounce." (It's pronounced sigh-star.)

They converted Rudy's two-car garage into a home base, filling the space with desks, computers, and — in a back corner — a workshop where Robert could tinker.

In the afternoon rush-hour chaos of the Palmetto Expressway, Rudy Pedraza weaved his Honda through the frantic traffic. He'd been home from college for more than a year. His body was well recovered from surgery, though he'd lost a lot of weight.

A pickup truck suddenly flashed into his peripheral vision. Rudy only had time to register that it was barreling across the five lanes of traffic toward his passenger-side door. Before he could move the wheel, the impact smacked the Honda off course and sent it careening toward a guardrail.

He glimpsed the 50-foot drop from the overpass and imagined his car slamming through the fence and plummeting to the ground. He wasn't wearing a seat belt. Just before contact, he braced his arms against the steering wheel and screamed.

The front of the car crumpled like a Styrofoam cup. An airbag exploded into Rudy's face and scalded his arms. His car skidded for a half-mile. Miraculously, it didn't flip. The guardrail held. He survived.

"I still don't know how, honestly," Rudy says. "Adrenaline, I guess. But I can say without a doubt that crash was the moment when Psystar was truly born."

For the previous few months, while the brothers did consulting work for a company that sold storage units, Robert had spent hours of free time at the cluttered table in Rudy's garage. His pet project was Mac's OS X operating system.

The system, whose first version debuted in 1999, is widely considered one of the user-friendliest 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 sold for around $1,000, almost three times the price of the cheapest PCs on the market. (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 a cheaper PC. He was hardly the first to do so. For nearly five years in the mid-'90s, Apple actually 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 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," Rudy says, "because it's all wrong."

Robert says he found his own way around Apple's built-in security devices. The breakthrough meant that, among other things, the cheap machines were virtually immune to viruses and hackers.

But not until Rudy's near-death experience did the brothers decide to do anything with the pet project. "It's a common misconception that we set out to challenge Apple," Rudy says. "I kind of wish we had, because we probably could have approached this from a much more logical starting point. But that's not how it happened."

Instead, Rudy remembers telling his brother inside Psystar's garage-turned-office a few months after the accident on the Palmetto: "Look, we're going to sell this thing online."

"I was much more reluctant to do it," Robert says. "I guess I'm just more conservative than Rudy. I wasn't worried about Apple, really — I just didn't think it was ready to sell."

But Rudy was tired of waiting. "I almost died! And that was not even from a risk I had taken; it just happened," he says. "I realized you can't wait for tomorrow. You just have to go."

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.

At first, the reaction was split neatly into three camps: those applauding the idea, those vehemently opposed, and those convinced the entire thing was a fraud. "Please, God, let this work out," wrote one of the first posters at 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 that "these guys are obviously clowns." Gizmodo then posted photos 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 low as $399.

On the web, meanwhile, debate raged over whether the brothers were brave rebels or Blackbeards. Nary a sound came from Apple Inc.'s palatial headquarters at 1 Infinite Loop in Cupertino, California.

That changed July 3, 2008, when Apple dropped a 35-page lawsuit against Psystar in the Golden State's Northern District. 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," they claimed.

It was exactly the kind of response the blognoscenti expected from Apple, which has become known 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.

Apple burst onto the commercial market in 1984 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 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, the company 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?

Apple doesn't comment about ongoing litigation, and a spokeswoman in California who wouldn't give her name declined to comment for this story other than to laugh and say, "Who asked you to do this story? These Psystar guys pitched you on it?"

Fact is, they didn't pitch us. And if Apple isn't concerned, it should be. The larger firm is fighting because — believe it or not — it's worried about Psystar.

"Apple is so successful because they integrate all their hardware and software," says Andrew Beckerman-Rodau, a law professor and intellectual property expert at Boston's Suffolk University. "They've always gone hard after anyone who threatens that. Psystar, in their minds, is a threat."

Head east from downtown Los Angeles along the San Bernardino Freeway toward Alhambra, a blue-collar neighborhood just south of Pasadena. At the corner of West Main Street and Primrose, on the ground floor of a two-story brick edifice with a red tile roof, is the reason the Pedraza brothers have Apple's executives sweating through their socks and Birkenstocks.

From a small showroom, 44-year-old Rashantha De Silva sells PCs with Mac operating systems at his new firm, Quo Computer. De Silva has been a Mac fanatic since the company's earliest days. He remembers eagerly reading about Psystar's business plan and thinking, This is the future.

"Competition is important," he says in a lilting Sri Lankan accent. "I'm afraid [without it, Apple is] going to end up another Microsoft. People will buy bad computers just because that's all they can get."

De Silva's storefront business, which opened in June, is just a hint of the tsunami that might follow if Psystar wins its court battles 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 — and 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 firms' lawyers, Psystar's crime is akin to illegally remixing a song and reselling it as one's own.

But the Pedrazas 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. And if I can find a buyer, I can resell that one copy however I please.

On a larger 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 startup 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 assent 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 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 that courts, at least so far, have upheld. Many lawyers refer to a 1996 appeals decision, ProCD, Inc. v. 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 who 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 von Lohmann, from the Electronic Frontier Foundation. "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 that diminishes the company's standing in the marketplace. But several tech websites have reviewed Psystar's computers and say the company delivers quality.

"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 that would have cost $3,500 for a comparable Apple model. A music major, Rohaly uses complex mixing programs. "It felt risky, but I ended up with a really great product at a really low price," he 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 the company quickly emerged from bankruptcy in August.

Psystar'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 the computers. The company also owed about $25,000 to credit card processing companies handling the orders.

But the filing also shows the deep personal risk Rudy Pedraza is running by taking on Apple. The bankruptcy listed a $120,000 personal loan from the 25-year-old programmer — and Rudy admits that is just a fraction of the debt he has incurred fighting Apple in court. Psystar, at the time, 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 immense cost of fighting Apple in court has led to conspiracy theories on the web 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. From the firm's tiny headquarters, tucked next to a T-shirt-filled warehouse and the Koen Pack Company in a bland industrial complex off NW 107th Avenue in Doral, Rudy and less than a dozen other employees still churn out new computers.

Last month, when Apple released its Snow Leopard operating system, 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 case argues 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,'" the company argues.

It's a position that echoes the massive decision against Microsoft in Europe in 2004, when a court found the software giant broke competition rules by tying the Windows operating system to its media player. Microsoft was forced to allow rival programs and 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 if they abuse that position."

Apple hasn't yet responded to the Florida suit. But the brothers won their first real legal victory this past 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, they've been sorely disappointed.

Instead, just last month, Psystar slapped the computer giant again. The Pedraza brothers began selling software that allows users to install Mac OS on their own PCs.

Pretty much anyone with basic computer knowledge can make a cloned Mac for just the cost of a full tank of gas in an SUV. "It's important to question authority and buck the system," Rudy says by way of explanation.

He and his brother have given the software an apt name: Rebel.

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