Suits for the suits

David Braue
17 November, 2008
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Is it just me, or are Apple’s lawyers just swimming in lawsuits?

In its annual 10-K filing with the US Securities and Exchange Commission last week – the document that all US companies file to update regulators on their activities and market position – Apple noted that the company “is vigorously defending more than 21 patent infringement cases, 13 of which were filed during fiscal 2008″.

That’s more than one new patent infringement case per month – not to mention the host of other, pretty serious litigation about alleged anticompetitive practices – including its ongoing antitrust stoush with Psystar; an antitrust lawsuit over iTunes by Norwegian authorities; a suit from Taiwanese MP3 player maker Luxpro that argues Apple’s MP3 market behaviour has been monopolistic; and a class-action $US1.2 billion lawsuit against Apple and AT&T for behaviour including intentionally ‘bricking’ unlocked or unauthorised iPhones.

Throw in the usual array of claims from disgruntled consumers – a class action over poor iPhone 3G performance, complaints that the iPhone’s case develops hairline cracks, and issues with Apple’s defective-product replacement policies, for example – and I can only imagine that Apple’s legal fees are sizable to say the least.

Lawsuits are just part of the job for most big companies, whose broad exposure to value-sensitive consumers makes them sitting ducks when things don’t work out like those consumers would like them to.

Yet even Microsoft, whose antitrust punishments have set records in many countries, doesn’t seem, in my admittedly cursory investigations, to have been sued as often this year as Apple has. Apple’s cases were all subject to interim determinations by judges since the beginning of October, and as far as I can tell Apple has failed to quash any of them. That means there is lots of bothersome, annoying and potentially expensive litigation ahead of Apple.

It takes significant cost-benefit analysis for these types of lawsuits to change a company’s behaviour, and so far Apple has managed to continue toeing the party line regarding its market position, deflecting allegations of anticompetitive behaviour and keeping its FairPlay digital rights management a secret – to the detriment of competitors.

Yet with questions being raised about Apple’s practices on so many fronts, the company is inviting still other potential lawsuits for problems such as its ongoing MobileMe service outages, its apparent habit of depriving iPhone developers of income due to nebulous and frequently-changing App Store guidelines, and its difficult legal stoush as it tries to steal a key IBM executive.

That’s one heck of a lot of litigation – and, presumably, a very deep war chest – for a company that has almost made a name for itself as a corporate do-gooder and a foil for the big, nasty corporatised Microsoft. As we all know well, innovation is Apple’s lifeblood, and innovation should of course be rewarded. But if Apple’s legal exposure continues to grow, the company will find itself in a difficult and uncertain position going forward.

MobileMe, for one, has failed so often and so badly that many consumers have simply written off the service. This sentiment will likely hamper the company’s future efforts in cloud computing; customer goodwill is a difficult thing to get in the first place, and once lost it can be even harder to win back.

For now, I suspect Apple is just hoping to ride its strong portfolio of consumer goods through what is certain to be a lackadaisical Christmas shopping season. iPods are perennial favourites when it comes to filling the space under the tree, and the new MacBooks are winning converts from new users and old. With just under 30 sleeps left until Christmas, Apple shareholders will be crossing their fingers that the legal system can just let iLust keep the wheels turning until next year, when Apple can count its cash and figure out what it is going to do about these annoying lawsuits.

It will continue to fight them, of course, but it is fighting on so many fronts at once that even small losses could point out vulnerabilities in its business case. A loss in the Norwegian iTunes case, for example, would be a huge win for the iPod’s competitors and I’m sure it would quickly cascade into other jurisdictions. The AT&T case could be expensive, but Apple is already selling unlocked iPhones in Hong Kong so a loss would likely be more punitive than transformative. A win by Psystar would be a major headache for Apple, since it would open the floodgates for the Mac clone market that Apple has successfully nobbled time and time again.

Perhaps Apple can pull a rabbit out of its hat and settle its most problematic issues quickly and inexpensively – or, just maybe, these lawsuits will drag on for years, eventually forcing major changes in the way Apple’s core products work. It’s easy to dismiss what may seem like spurious claims against Apple, but even a small trickle in the dike can quickly turn into a torrent. And, whether they’re just opening their umbrellas or donning their lifejackets, the lawyers will be ready.

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