Apple smells a PhatRat, antitrust, options scandal, other legal wrangles

Stan Beer
Tuesday, 02 January 2007 17:43

IT Industry - Strategy

It seems that one price of success in the technology game is an increasingly unwelcome association with the legal profession. At least that appears to be the case with Apple Computer, which has just had one of the most successful years in its corporate history.

With iPods selling like hot cakes, the Mac platform undergoing an Intel driven resurgence, and a set of numbers that would please even the most discerning stock holder, Apple looked set to finish 2006 with champagne corks popping all round. Unfortunately an alleged stock options backdating bogey has arisen which threatens to drag Steve Jobs himself, as well as other senior executives into the mire.

Apple itself raised the irregularities concerning stock option grants made as far back as 1997 and, as a consequence, intends to restate its earnings from 2002 going forward. The issue concerns some Apple executives, including Mr Jobs, allegedly receiving options grants backdated to a time when they were at a lower price.

In the case of Mr Jobs, however, Apple says the grant was cancelled and he received no financial gain. Nonetheless, Apple has admitted it has been taken to court over the issue and any hint of stigma concerning corporate governance is something the company clearly doesn't need.

Another potentially bothersome issue is an antitrust lawsuit filed against Apple in July over its FairPlay DRM copy protection system. As iTunes and iPod users know, transferring music downloads to an iPod from online stores other than iTunes cannot be done directly and the same is true for transferring iTunes downloads to other portable music players. Apple wanted the case dismissed but, according to an Associated Press report, on December 20 a judge denied the request.

Other troubling issues for Apple concern a class action suit levelled against Apple in November, alleging high failure rates of the logic board of the iBook G4 notebooks and a claim by a company called PhatRat Technology that the Nike + iPod Sport Kit announced in May 2006 infringes its patents.

Add the above to the dispute that Apple Computer had with The Beatle's Apple Corp over iTunes, which may yet resurface, and the settlement that Apple was forced to reach with Creative Technologies over the navigation system used in iPods and it seems that 2006 was not exactly all music to Apple's ears.