Beatles' Company Sues Apple Computer

By | September 13, 2003 at 12:00 AM

The Beatles want to take another bite out of Apple Computer Inc.

Their record company, Apple Corps Ltd., said Friday that it was suing Apple Computer because the technology company violated a 1991 agreement by entering the music business with its iTunes online store.

When Steve Jobs co-founded Apple Computer in 1977, he is said to have chosen the name in part as a tribute to the Beatles. The 1991 agreement dealt with the future use of the name “Apple” and of both companies’ well-known logos.

Apple Corps, founded in 1968, is owned by Sir Paul McCartney; Ringo Starr; John Lennon’s widow, Yoko Ono; and the estate of George Harrison. It sued on July 4, about a month after Apple Computer launched its iTunes Music Store, a download music service.

The Beatles’ suit, filed in the High Court in London, seeks an injunction to enforce the terms of the 1991 agreement, and monetary damages for the alleged contract breach.

“Unfortunately Apple and Apple Corps now have differing interpretations of this agreement and will need to ask a court to resolve this dispute,” said Katie Cotton, an Apple Computer spokeswoman.

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.

Shares of Apple closed Friday at $23.10, up 54 cents, on the Nasdaq Stock Market.

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