Successful with Consumers, Apple Not Always So Successful in Court

Over a decade ago, when Microsoft was at the center of the computing universe and—not coincidentally—at the center of a sweeping antitrust action brought against it by the US government, this point was often made: You think this is bad? Imagine what it'd be like if Apple was in charge! Flash forward to today and Apple is, in many ways, in the driver's seat, with dominant digital media, apps, phone, and tablet platforms. And although Apple has thus far avoided the antitrust anvil, the Cupertino company is discovering an unhappy dark side to its market power. Sure, it can bully rivals in public, but when those spats hit the legal system, Apple often finds itself on the wrong end of the law.

We'll ignore Apple's indiscretions in China for the moment (the company certainly isn't alone in doing business with human rights violators that churn out desirable electronics gear for clueless American consumers, though it's arguably the highest-volume producer of such products) and look instead at Apple's growing portfolio of high-profile legal issues in the United States. So far, I see a few big losses and one win.

iPod playlist suit. Apple was ordered late Friday to pay $8 million in damages to a patent-holding company that had sued the Cupertino consumer electronics giant for violating two of its patents related to device playlist downloads. This firm, Personal Audio, claims that it's no patent troll, however, stating that it exists to license its intellectual property to other companies. But whereas Archos, Coby Electronics, and Sirius XM Radio all settled similar cases, Apple refused, and Personal Audio sued for $84 million.

Here, Apple seems like a victim of sorts. But in a move that will seem familiar to long-time Microsoft followers, Apple was admonished and fined by the court for a last-minute submission of more than 6,300 pages of documentation that it says proves it developed iPod playlist functionality in-house. The judge wasn't amused, and refused to even consider the evidence.

"This is not the first time that important evidence has untimely emerged in this case," the judge noted at the time. "The court finds that Apple has engaged in a pattern of failing to meet its obligations to search its records and files and question those employees known to have information that Apple may use to support its claims or defenses, and to disclose such information in accordance with the Federal Rules of Civil Procedure and the orders of this court." He then fined Apple $10,000 for the transgression and a jury later issued a guilty verdict against the company.

But don't feel too bad for Apple. Its iPod line, though in decline, earned $8.3 billion in revenues—that's "billion" with a "b"—last year alone.

Amazon's Appstore for Android. Although the US patent and trademark system is widely known to be a revolving door of quick-stamp approvals no matter how spurious the claim, Apple's successful trademark for the term "App Store" has been fought by the many, many companies who have been using similar terms for their online stores, in many cases for years. So when Apple turned its legal sights on retailing giant, which this year launched its own Appstore for Android, I was curious to see how quickly Apple would lose the case. Turns out it happened almost immediately.

Apple filed the suit back in March, claiming that Amazon's store would "confuse and mislead" consumers who were looking for iPhone apps. The judge disagreed and in fact quickly accused Apple of trying to confuse and mislead the court. After reviewing all the documents in the case, Judge Phyllis J. Hamilton was even more convinced that Apple was wasting her time. So, last week she threw out an Apple request for a preliminary injunction, sending the case to a trial the company can't win instead.

"Apple speculates that Amazon's App Store will allow inappropriate content, viruses, or malware to enter the market," she wrote in her ruling, "but it is not clear how that will harm Apple's reputation, since Amazon does not offer apps for Apple devices."

More important, perhaps, the judge noted that Apple had not proven contrary to widespread claims that the "app store" term was generic, leaving open the possibility that its competitors could challenge the validity of the mark. "Apple has not established a likelihood of success on its dilution claim," she wrote. "Apple has not established that its 'App Store' mark is famous, in the sense of being 'prominent' and 'renowned' ... There is also evidence that the term 'app store' is used by other companies as a descriptive term for a place to obtain software applications for mobile devices."

Exactly. And that's what Amazon, Microsoft, and many other Apple competitors have been claiming for months. And you have to think these companies are just begging Apple to take this court to trial. A loss there would be catastrophic for the Cupertino company.

Apple vs. Samsung. I haven't really covered this case much in WinInfo, but Apple and Samsung are engaged in a crazy series of legal battles that are pitting the sometimes partners/sometimes competitors against each other in a way that is increasingly devastating to the relationship. The short version is that Samsung is one of Apple's biggest electronics part suppliers: It creates chips and screens that Apple uses in its iPods, iPhones, and iPads, and is thus a crucial Apple partner. In fact, Apple COO Tim Cook has previously stated that Apple is Samsung's biggest customer.

Alas, Apple is also Samsung's biggest competitor. Samsung makes smartphones based on Windows Phone and Android that compete with the iPhone, and in recent months it's shipped a variety of Android-based tablet devices—the Samsung Galaxy lineup—that look and work an awful lot like Apple's successful iPad. Apple isn't amused, and it has sued Samsung both for copying the iPhone in its phones and for copying the iPad in its tablets.

Samsung, of course, isn't exactly toothless when it comes to mobile expertise and, perhaps more important, in owning related patents. So it has cross-sued Apple in turn, and today the two companies are more bound by their overlapping lawsuits than they are by their parts partnership. The details of some of these suits aren't even public because of the venue (South Korea) and the timing (as recently as just 10 days ago in one case).

So far, Apple has done pretty well against Samsung. There's little doubt that the design of Samsung's Galaxy products was inspired by similar Apple products (or, as Apple noted in one court document, "blatantly imitate the appearance of Apple's products"). But until recently, it looked as if both companies were going to use their partnership as a failsafe switch against total nuclear meltdown.

Nope! Apple is instead lining up new suppliers for its upcoming iPhone 5 (and possibly an iPad 2 HD), which sources tell me should be released between August 19 and September 10 of this year. And when Apple's next-generation products do hit the market, the demand for Samsung chipsets and screens is going to drop precipitously, as are its revenues. You know, unless the two companies can patch things up.

I don't see it happening, and I don't see Apple giving an inch to a company that had the temerity to use its experience helping build Apple products to make its own copy-cat devices. Here, the real loser is Samsung, which apparently decided that its Apple relationship was just a stepping stone to an all-Android future.

The trouble for Apple is that successful companies are a bigger target, and that's true for legal accusations both real and baseless. As with Microsoft before it, and with Google now, Apple is going to find itself in court more and more frequently. And while its belligerent attitude has won it a certain class of fans in the tech blogosphere, this attitude isn't always conducive to happy legal outcomes. It's something that Apple's insular leadership needs to consider going forward.

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