Apple's Jobs Keeps His Job, But Legal Perils Remain

Apple's 10-K annual report -- delayed to include the results of an investigation of its past stock option grant practices -- last week delivered some good news for investors and fans of the company: It appears that Steve Jobs will keep his job.

"The biggest question on investors' minds was whether Jobs would lose his job," says Jonathan Hoopes, managing director of equity research at investment bank ThinkEquity Partners.

Given the statement issued by Al Gore, chair of a special committee of the board of directors that investigated Apple, and Jerome York, chair of Apple's Audit and Finance Committee, expressing confidence in Jobs, Hoopes says, "It's hard not to put faith in what they say" and expects Jobs will be around for a while.

While Hoopes remains bullish about Apple's prospects in 2007, based on accelerating Mac sales and the company's upcoming iTV digital lifestyle device, Apple faces legal threats beyond its options quagmire that may not be resolved in the company's favor.

Perhaps the most significant is a patent infringement claim, Apple Computer v. Burst.com, that involves significant Apple hardware and software -- iTunes Store and software, iPod devices, Final Cut Studio, GarageBand, iMovie, iDVD, iWeb, and Apple's .Mac service. Burst made similar claims against Microsoft and won a settlement in 2005. But Burst's lawsuit against Apple isn't scheduled for trial until Feb. 26, 2008, leaving the lawyers time to work things out.

Another case, Tucker v. Apple Computer, filed on July 21, 2006, alleges that Apple's linkage between its iTunes Music Store and iPod represents an illegal monopoly and violates California law.

Apple's attorneys dismiss Tucker's claim. In a court filing, they argue, "Imposing a duty of interoperability would inhibit the very innovation and technological advances that the antitrust laws are designed to promote. The antitrust laws, in short, require companies to compete, not cooperate with each other."

Late last year, however, the judge in that case rejected Apple's line of reasoning and denied the company's motion to dismiss. That suggests Tucker's claim may have more merit than meets the eye.

Bruce D. Sunstein, an intellectual property attorney and co-founder of Bromberg Sunstein LLP, sees the case as a collision between consumer expectation and corporate desire. The fact that the iPod/iTunes combination became the de facto standard for legal commercial digital downloads wouldn't normally obligate Apple to make its products interoperable, explains Sunstein. "But it's also true that the closer you get to a monopoly, the less you can make that argument," he says. "Once you become successful, the rules do change."

For Apple, that would be a bitter irony: To have spent the last 10 years under Steve Jobs emerging from Microsoft's shadow, only to run into the same regulations that tripped up Bill Gates and company.