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Apple Faces Antitrust, New Patent Case

By Erika Morphy MacNewsWorld ECT News Network
Jan 3, 2007 8:19 AM PT

As 2007 begins, Apple executives might wish they could make a resolution to spend less time in the courtroom. However, like many New Year's resolutions, that is unlikely to occur.

Apple Faces Antitrust, New Patent Case

The company has been served with 11 suits in the past six months, according to a recent Securities and Exchange Commission filing. Several of the suits relate to its backdating of options; others, such as Tucker v. Apple Computer and PhatRat Technology v. Apple Computer, deal with antitrust and patent issues, respectively.

Apple is no stranger to these types of cases. Tucker v. Apple Computer, for instance, is similar to a suit filed in Europe challenging the exclusive link between iTunes and the iPod.

The suit, filed in July in the U.S. District Court, Northern District of California, seeks class action status. It alleges that Apple is violating antitrust law because content purchased from iTunes can only be played on the Apple-manufactured iPod and no other device. The suit is seeking damages for anyone who purchased an iPod or content from iTunes after April 2003. A motion filed by Apple to dismiss the charges was denied.

Following Microsoft

There is nothing illegal about the way that Apple has designed its product, Robert McTamaney, a partner with Carter Ledyard & Milburn, told MacNewsWorld, noting the similarities between this case and United States v. Microsoft, an antitrust suit against Microsoft in the 1990s.

"The original Microsoft case was basically a 'tying' case, which alleged that Microsoft had an operating systems monopoly and was forcing Windows purchasers to buy the company's 'bundled' Internet Explorer browser," he said.

In the Apple case, McTamaney explained, "the company's alleged monopoly in digital music players -- namely the iPod and its progeny -- is claimed to force users to also buy their music from iTunes and not from other digital music vendors." The suit also claims that Apple has encoded its iTunes files so they will solely play on the iPod and not on competitors.

Ultimately, McTamaney believes, this case will fizzle out.

"It is settled antitrust law that even if iPod holds a momentary monopoly, just as Netscape Navigator did, there is nothing at all illegal with having success in business if, as with iPod, the growth or development is 'a consequence of a superior product, business acumen or historic accident,'" he said.

"This is the famous Grinnell Principle, and it is the law of the land, and it has been the law for about 50 years," McTamaney added. In other words, if a company sells music and wants its player to play its music and not that of its competitors, then it can design its product to make that easier.

"Just as the U.S. Court of Appeals said in the original Microsoft case, companies have broad leeway to design and to integrate their products any way they want to, even if ease of use is virtually the only commercial justification," he noted.

Nike + iPod = Infringement?

In the PhatRat Technology v. Apple Computer case filed in October, PhatRat alleges that the Nike + iPod product offering -- which uses a sensor to connect Nike shoes to the iPod -- infringes on several of its own patents.

This case is still in the early stages of development and thus it is unclear what impact, if any, it will have on Apple, Marc Pensabene, partner with Fitzpatrick, Cella, Harper & Scinto, told MacNewsWorld.

It is unlikely to be the last patent challenge for Apple, he stated. "As the iPod becomes more and more popular, you can bet that Apple will be subject to more suits simply because of the potential recovery of claims."

Other cases filed against Apple challenge the quality of its products. For example, Vitt v. Apple Computer alleges that logic boards of iBook G4 systems fail at an abnormally high rate, and Greaves v. Apple Computer states that white MacBook models discolor easily.

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