Are Apple’s Legal Wrangles Merely Financial Pipsqueaks?

July 30, 2012
Apple is facing a number of disputes and lawsuits, but should we feel sorry for the computer giant? Not financially, says European Editor in Chief Paul Whytock.

It’s hard to feel sorry for U.S. computer giant Apple—or is it? Its products are mega-successful, and the company is valued at $560 billion in market capitalisation terms. But lately it seems that companies, cities, countries, and even the state of California are trying to take big financial bites out of the Cupertino titan.

In Italy, Apple’s stores could be shut down for a month because of a legal wrangle over warranties. The Italian Competition Authority Autorità Garante della Concorrenza e del Mercato (AMCG) threatened to do so because it believes Apple was not promoting a standard free two-year warranty.

In fact, Apple has already been fined for not telling customers about the warranties and could face more financial penalties if it does not comply. At the root of the problem is Apple’s policy of pushing its own paid-for service contract instead of its free warranty. The potential trading ban follows a fine of €900,000 for failing to tell customers about the standard free warranty. An appeal by Apple has been rejected.

Apple’s own warranty plan, called Apple Care, does not offer the same level of protection to customers. In Italy a standard warranty means firms have to replace a product if it proves defective when it’s taken out of its packaging. In contrast, Apple Care is for problems that occur after the equipment in question has been used.

If Apple does not comply with Italian law and make more of an effort to tell customers about the free warranty, the AMCG could impose a further fine of €300,000.

Domestic Disputes

Closer to Apple’s home, the city of San Francisco and the state of California both have been at odds with the computer company. First, San Francisco proposed banning its city officials from buying Apple Macs following Apple’s decision to leave an environmental initiative that it established in 2006. Called EPEAT (Electronic Product Environmental Assessment Tool), the scheme is aimed at making computers easy to disassemble and recycle. 

Just how much damage San Francisco’s action would do to Apple’s incredibly healthy bank balance is negligible, although it was rumoured that government offices, schools, colleges, and some businesses also would impose a moratorium on the purchase of Apple products. U.S. government rules dictate that 95% of all electronics bought by official agencies must fall under EPEAT’s scheme.

Despite the financial penalties of this action, the real cost to Apple would be in public relations. So what prompted Apple to voluntarily shoot itself in its corporate foot? Industry pundits believe the answer lies in the design of a new laptop from the company. To implement leading-edge screen technology while maintaining a very slim profile, Apple created a product design that would be extremely costly to disassemble and recycle.

In fairness to Apple, it quickly recognised its error and has executed a u-turn at grand prix speed by posting a notice on its Web site saying that it had made a mistake and would immediately rejoin the scheme. So, Apple is back in favour with one of California’s major cities—but not the state itself.

A Californian court has ruled that Apple must defend itself against a lawsuit filed after its devices were found to track users’ activities. The allegations say Apple’s apps were enabled to secretly record the movements and other activities of millions of iPad, iPhone, and iPod touch users. Apple maintains that its user agreements shielded it from liability, although the court felt there was ambiguity about the type and amount of information that been accrued.

iPad $60 Million Dispute

On the other side of the globe, Apple has agreed to pay $60 million to Proview. The Chinese company claimed it owned the rights to the iPad name, which it had registered in 2000, in Chinese territory. Apple said it has had legal ownership of worldwide rights since 2009. But it looks like the Chinese company is in the right, and a court in Guangdong has received $60 million from Apple as requested in the letter of mediation it issued.

It may seem like a lot of money, but industry observers feel that Apple’s reaction is the best strategy for any company facing litigation in China. After all, the Chinese market is a hugely lucrative trading area.

So should we feel sorry for Apple? Certainly, not financially. With its cash reserves it can easily weather any monetary storms resulting from legal disputes. Apple’s technical innovations will always attract corporate followers, and disputes over patent infringements and marketing rights are inevitable. Perhaps Apple’s optimum strategy in dealing with them is to keep doing what it does best, innovating products that keep it way ahead of the pack.

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