Tech Law


The People vs. Apple

Apple has been accused of acting as ringleader of a price-fixing racket, enlisting half a dozen market-dominating companies in a conspiracy to profiteer through anticompetitive practices and artificial price inflation. The market: e-books.

The U.S. Department of Justice has sued Apple along with a handful publishers, accusing them of orchestrating a sales agreement that effectively changed the business model under which e-books were sold. The syndicate, according to the DoJ, pushed an agency model upon the industry, basically limiting retailers to selling e-books only for the prices named by publishers, as opposed to a wholesale model, which would allow retailers to establish their own prices.

Apple rounded up the major publishers named in the suit and convinced each of them to sign functionally identical agency contracts, according to the DoJ. That would eliminate price competition and facilitate Apple’s habit of taking a 30 percent cut of the total revenues earned through downloads of things like apps and e-books. Those publishers then allegedly turned around and demanded that everyone else who sold their e-books jump on the agency bandwagon too.

One of the biggest losers in Apple’s alleged dealings with publishers was Amazon, which lost some control over how it priced its e-books.

About half the publishers named in the suit folded immediately and settled with the DoJ. But Apple and others fought on, and it seems that Cupertino may have a good shot at getting off the hook, for the most part. Even if Apple were the syndicate hub, it’s not much of a book publisher itself, so it might be more difficult for the DoJ to sell a case that it was responsible — to the same degree as publishers — for price-fixing in an industry in which it participates only indirectly. So Apple may not have to pay as much to make this go away.

The other publishers face a tougher fight. Publishing is their game, and as some of the biggest names in the business, it’ll be easier to prove they were colluding to fix prices.

There’s also a question of just how much damage this alleged activity really caused. Apple’s huge, and the publishers involved are among the biggest in their field, but price-fixing is an accusation that’s usually shot at companies that are already enormously dominant in their fields. And in the field of e-books, Amazon happens to be the top player.

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All in the Timing

Best Buy recently outlined a new plan to get itself back on track and compete against online retailers that are profitably running circles around the big-box approach to selling. That plan involves dozens of store closures, layoffs on every level of the corporate ladder, and a new focus on smaller stores that sell primarily wireless products.

What it didn’t say at the time was that Best Buy’s new direction also involved the departure of the chain’s CEO, Brian Dunn.

That news came early this week, and it was quite a surprise. The company insisted the decision was mutual — Dunn wanted out and Best Buy wanted him gone. But he’s spent nearly 30 years there, and despite the slump Best Buy’s in, it’s unusual to see a boss step down so soon after he lays out a dramatic new plan for the future of his company. He didn’t even get a chance to fail.

The situation started smelling fishier by mid-week — and it was an aroma that triggered memories of a jarring executive ejection from yesteryear, that of Mark Hurd.

Hurd used to be the CEO of HP. Then came allegations of inappropriate use of corporate funds — much of them spent in the company of a female HP associate who was not his wife. Big scandal, Hurd got the boot, and HP’s top offices were thrown into even more disarray than usual. Don’t worry too much about Hurd, though; he more or less landed on his feet with Oracle.

With Best Buy’s Brian Dunn, the details and allegations began dripping out just after his departure was announced. A Best Buy spokesperson revealed that his resignation came just after a probe into his personal conduct kicked off. That probe involved an audit committee, though according to the spokesperson, it’s not related to Best Buy’s operations or financial controls.

And after that came allegations — unsubstantiated at this point — of an inappropriate relationship with a female staffer. Reports asserting that information cited anonymous sources.

Exactly what that means is still unclear — we don’t know if it was a fully consensual relationship, a possible case of sexual harassment, or even whether anything actually happened at all. But judging by Best Buy’s words and actions in this matter, whatever this matter happens to be, it sounds like the company expects a lot of lurid details to bubble up any minute now.

Once More, With Feeling

Nokia and Microsoft are grizzled veterans of the smartphone scene, but their long-term presence hasn’t translated into success for either company over the past few years. Microsoft’s Windows Mobile was once a big player in the small world of mobile OSes, and Nokia made very nice smartphones back before most people knew or cared what a smartphone was.

Anymore, though, the market belongs to Android and iPhone, with Research In Motion’s BlackBerry hanging on by its fingernails. Windows Mobile is working out of some guy’s closet in Redmond, and Nokia has opted to reinvent itself after turning its back on Symbian and MeeGo, two mobile OSes it had been championing just a couple of years ago.

But these two companies have made a pact to rejuvenate their mobile aspirations as partners — Microsoft’s relatively young Windows Phone platform running on a new generation of Nokia devices directed at the U.S. market. It took months to get things rolling, but it appears now Winkia phones are ready to hit with full force.

The first of these phones to arrive on U.S. shores was the Lumia 710, which debuted on T-Mobile earlier this year. Not much impact there. Middling specs, pedestrian design, and availability only on the smallest of the major U.S. carriers limited its appeal.

That was just the opening act, though. Now the Lumia 900 is available on AT&T, and that’s the phone the companies have really put their weight behind.

The Windows Phone OS has been getting good marks from critics since it first arrived. As for the hardware, they’ve praised Lumia 900’s design. It’s still a glass rectangle like pretty much all other smartphones, but it has some interesting details like the rounded edges and a loud blue color option — or white or matte black if you want something more subdued. Its specs might not qualify it for Superphone status at this moment in history, but it pulls its weight, it has a nice Carl Zeiss lens and an AMOLED screen, it does LTE, and the $100 price point is something that could turn a lot of heads when comparable phones cost about twice as much.

AT&T, Nokia and Microsoft have aligned for a major marketing push to make the Lumia 900 a hit — promotional programs, big ad spends, even a free concert in the middle of New York. With that kind of coordination, one might think the phone’s actual launch day would be made up to be a big event. Apparently not — it came out on Easter Sunday. Not a huge shopping day in the U.S. In fact, lots of AT&T stores shutter their doors for the holiday.

But that didn’t prevent the phone from picking up buzz. Specific sales figures aren’t in, but there are indicators that the Lumia may be selling pretty well so far. It topped Amazon’s bestseller list for a while, and some buyers claim AT&T stores are running out of inventory fast.

If the Lumia 900 is a hit, Nokia may be the company that needs it the most. Right around the time the phone went to the shelves, Nokia revealed disappointing handset sales for the first quarter of the year, and the news took a heavy toll on its share value. Maybe three months from now it’ll be able to tell a different story.

You’ve Got Patents

In its heyday, AOL introduced millions of Americans to the Internet for the first time, usually through noisy and slow dial-up connections. And believe it or not, dial-up access is still an important source of revenue for the company. Its choking-robot modem song is still being sung every day in households all over the country.

But AOL knows that in order to get any real revenue rolling in, it has to do much more than just rely on a dwindling number of users who either can’t get broadband where they live or aren’t aware it exists. Its latest gig is selling patents, and its newest customer is none other than Microsoft.

Redmond has paid AOL $1 billion for 800 patents, covering everything from technologies that fill out Web forms automatically to online video to instant messaging functions. Many are relatively new patents, but there are some golden oldies in there too, including several patents that originally belonged to Netscape.

The last big patent buy-off to hit our radar was Facebook’s move to purchase rights to 750 technologies from IBM, probably to fend off a legal assault from Yahoo. In that case, it was an old, enormous great-gramps of a company selling a tiny fraction of its total patent holdings to a young upstart for the purpose of self-defense.

In the case of AOL, though, it just sold a huge chunk of its portfolio to an older, larger company that’s already sitting on a mountain of patents. And while Microsoft’s purpose for acquiring those patents isn’t entirely clear, they’re probably not meant to be a counterstrike weapon just in case Yahoo or anyone else drops a legal bomb in Microsoft’s back yard.

Instead, the company could use its new patents as weapons in its legal cold war with Google. Microsoft’s style isn’t to just push the button and launch the nukes like Yahoo did, though — not all the time, anyway. Sometimes it just sits down with a Google partner — an Android phonemaker, perhaps — and talks about how incredibly similar some of its patents are to technologies used in Android, and wouldn’t it be a shame if there was some kind of infringement going on. Oh, and we’re running a special on licenses this week, don’t you know.

This is how Microsoft has managed to draw hundreds of millions of dollars a year in profits from the sales of Android phones.

Then again, perhaps Microsoft was playing defense, in a way. Maybe Redmond just bought those patents to keep them out of Google’s hands. If that’s the case, it apparently wasn’t much of a battle — Google reportedly didn’t even bid on them.

Last Splash

In a matter of weeks, Facebook will stand on the altar of capitalism and take a vow to have and to hold any investor who comes along with a enough cash to buy a share. When it makes that commitment, it’ll no longer be a freewheeling commercial bachelor. It’ll have to settle down, answer to its shareholders, report its income, and fixate entirely on maximizing profits.

The big day is inching closer for Facebook, and maybe that’s one thing that was on its mind when it treated itself to one of the biggest social media splurges on record. It went out and spent $1 billion to buy up Instagram. Maybe this was Facebook’s bachelor party, maybe it was a wedding gift to itself, but whatever it was, it was an incredible amount of money to spend on what’s basically a photo-sharing application and miniature social network.

Granted, Instagram isn’t as ridiculous as Color, the social app that a year ago managed to secure tens of millions in funding before it even launched, then went very quiet very quickly. Instagram actually built up a many-millions-strong user base in the year and a half before it hit the motherlode, though for most of its existence it limited itself to the iOS platform.

What Instagram does is pretty simple. You use your phone to take a picture. Then Instagram throws in a shot of instant nostalgia by way of filters, colorations, distortions — basically it turns that image from something that looks like it was taken with a high-tech camera into something that looks like it was taken 40 years ago using old film. Then it uploads the image to the Instrgram network, where others can view your photo and you can peruse similar shots.

I will not disclose whether that’s art, but some of Instagram’s more devoted members do take the service pretty seriously. There was an uproar a couple of weeks ago when a version for Android was finally made available. Before that, Instagram was strictly iOS, and some users lamented what they said was an influx of unwashed hacks.

But does it all sound like a company worth $1 billion? It’s worth it if the buyer says so, I guess, and now Facebook is the proud owner of a billion-dollar mobile photo-sharing app and network. Whether it was a good investment depends on what Facebook is going to do with it.

Critics have pointed out that Facebook already does photo sharing, so what did it really get from this deal? A billion-dollar filter pack? Others see more possibilities besides just integrating a few photo features and login options. Instagram could bring some kind of new mobile power to Facebook, which is something the network could really use. The acquisition could be used to give Facebook’s visual discovery and search a new sheen, or give brands and companies new ways to reach customers through Facebook, sort of in the way Pinterest has done so far.

That’s something that could be a huge moneymaker for Facebook and partners — F-commerce. Make it easy to buy and sell stuff directly through the network. And how will an app for making sepia-toned photos make that happen? I have no idea.

1 Comment

  • WOW! How do you title a weekly recap "The People vs. Apple? Its some much more. Have you even read the case file? Case 1:12-cv-02826-UA Document 1 Filed 04/11/12 you can find it at DoJ website Furthermore Apple can’t get of the hook for a situation that neither has merit nor is controlled by them. Look at Walmart for a better example if you need on. Companies are in the business of making money, that simple. The biggest part is that Apple explained what they offered and the book companies could take it or leave it. Do remember that at this time Apple didn’t even have the iPad on the market, which means the biggest player Amazon had the largest share and thus most control. Sometimes I do wonder on the write styles of some stories, but then again the title did make me read on!

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