Competitive Intelligence

Apple Corps vs. Apple Computer: Fighting Over Music, Round Three

The Beatles management company said on Friday it is seeking a court injunction against Apple Computer Inc., insisting the computer maker's iTunes online music store breaches the band's trademark. Apple Corps is owned by Sir Paul McCartney, Ringo Starr (seen above), John Lennon's widow Yoko Ono, and the estate of George Harrison.

In February 1968, The Beatles, Ltd. changed its name to Apple Corps, Ltd. with subsidiary holdings as follows: Apple Electronics, Apple Films Ltd., Apple Management, Apple Music Publishing, Apple Overseas, Apple Publicity, Apple Records, Apple Retail, Apple Tailoring Civil and Theatrical, Apple Television (planned), Apple Wholesale (planned). Here's a few excerpted items on the matter from Yahoo news:

Apple Corps., the company formed by the Fab Four to manage its business interests and serve as the band's music label, issued a brief statement on Friday saying it had filed court papers in a London High Court in July seeking penalties and an injunction against the computer maker.

"Specifically, (the) complaint is made over the use by Apple Computer of the word "Apple" and apple logos in conjunction with its new application for downloading pre-recorded music from the Internet," the London-based company said in a statement.

The company did not elaborate on the penalties it is seeking, but said the computer maker violated a 1991 agreement specifying that it could use the Apple trademark for computer products only.

"Unfortunately, Apple and Apple Corps. now have different interpretations of this agreement and will need to ask a court to resolve this dispute," Apple Computer said in a statement.

Launched in April, Apple's iTunes has given hope to weary music executives looking for an alternative to free file-sharing services such as Kazaa and Morpheus, which have created a black market of sorts for free songs on the Internet.

Music executives blame file-sharing and CD-burning for contributing to a three-year decline in global recorded music sales. The Recording Industry Association of America this week announced it has sued 261 song swappers, a tactic that has drawn criticism from consumer groups.

Apple iTunes has been one of the few bright spots in the industry's attempt to woo back computer-savvy consumers.

Earlier this week, the company said it had sold 10 million song downloads in its first four months. Apple's iTunes is available only in North America to Apple computer users, a small sliver of the total personal computer market. However, Apple has said it is on track to deliver a version of the online music store for use on the ubiquitous Windows PC platform by the end of this year.

Apple has secured licenses from each of the five major music labels to sell music downloads, including EMI, home to The Beatles catalog. The Beatles, however, have not made their music available to iTunes or any other industry-backed service.

The stakes could be high: Apple's iTunes Music Store has sold more than 10 million songs at 99 cents each since its April 28 launch, and is central to Apple's strategy to promote its computers as digital entertainment hubs.

Despite Jobs' admiration of the Fab Four, still missing from the iTunes store are any songs from the Beatles. Apple Corps, which controls most of the Beatles' recordings, has traditionally been wary of releasing its music in new formats and has yet to authorize distribution on any Internet music site.

The London lawsuit is the latest legal spat between the two cultural icons. In 1981, the Beatles, who had released most of their recordings on the Apple label, sued Apple Computer over the corporate name. The case ended after the tech company paid the Beatles' company an undisclosed amount of money and agreed to only use the name for computer products.

A decade later, the Beatles sued again, alleging Apple Computer was violating the initial agreement by using its apple logo on music-synthesizing products. That case was settled out of court with Apple Computer again paying an undisclosed amount to the Beatles company and signing the agreement around which the latest lawsuit revolves.

Terms of the 1991 settlement were kept confidential, with Apple Computer allotting $38 million at the time to settle the litigation. Some think the latest case may lead only to a walk down penny lane. Charles Wolf, analyst with Needham & Co., predicted Friday that the two companies will settle if a judge doesn't throw out the lawsuit.

The Cupertino-based company is already paying hefty royalties to the five major record labels for the right to distribute their music online. It pays the labels an estimated 65 cents per song in addition to about 25 cents per song in other distribution and credit card processing fees. Wolf thinks the Beatles company would only manage to exact perhaps a half penny per song from Apple.

"They'll never stop the iTunes Music Store," Wolf said. "The point of the suit is to collect money and they won't get any money if they cut off the store."

Wolf thinks Apple Computer's lawyers must have considered the Beatles agreement prior to the online music store launch. "They named it the 'iTunes Music Store,' right?" Wolf said. "They must have thought about this because (the name) 'Apple Music Store' has more brand equity."

The Beatles' holding company has always been diligent in protecting its property and trademark. In addition to the computer company, Apple Corps has sued others over domain names and unauthorized use of the Apple logo.

Its latest case against Apple Computer will hinge on the details of the 1991 agreement, said San Francisco lawyer Eric Sinrod of Duane Morris LLP, who specializes in intellectual property and information technology.

"The devil is in the contractual details and how restricted Apple Computer is in terms of using its trademark," Sinrod said. "Since the online music space is an area where many people are trying to grab territory now, this could be a situation of an aggressive fight."

It's unlikely that either Apple company envisioned at the time of their deals today's digital revolution of music — how consumers can store thousands of songs on their computers or portable music players, including Apple Computer's iPod, and how they can buy songs with the click of a button, such as through the iTunes Music Store.

The Beatles sued and won another lawsuit when Apple shipped computers that allowed music to be played through attachable speakers. That lawsuit charged breach of a trademark agreement since Apple had agreed to steer clear of the music business. Fox News estimates Apple has paid US$50 million in the lost suits so far.

This latest round of legal proceedings surround Apple's popular MP3 player, the iPod and the iTunes Music Store, which just sold its 10 millionth song online.

"When it first happened with the iPod, we said, "What could they be thinking?" said a Beatles legal insider, who agreed that posters announcing the iPod from "AppleMusic" were among the most egregious violations. "They knew we had the agreement, and that we'd won a lot of money from them already."

It would seem that Apple's destiny is intertwined with that of it's erstwhile brand competitor, whether anyone identifies Apple Corps with The Beatles or not.

- Arik