UK court will make core decision in APPLE Case

Apple Corps, the Beatles' production company, and Apple Computer have agreed to consolidate the Californian part of their battle over the APPLE trademark for music with the British suit. The case will be heard by the High Court of England and Wales. Apple Corps claims that the iTunes online music store violates a previous agreement limiting the types of business that Apple Computer may pursue under the APPLE trademark.

In 1978 Apple Corps sued Apple Computer over alleged trademark violations. That round was settled with a small number of dollars changing hands, wherein Apple Computer promised to stay out of the music business. However, it later included software to allow its computer users to record electronic instruments, which Apple Corps saw as a violation of a 1981 settlement agreement. Resolving that case, Apple Computer paid an eight-figure dollar amount and signed another settlement designed to establish the ground rules on what the parties could do with their respective Apple names. That settlement agreement is confidential, although key portions seem to leak out from time to time. Another dispute started last year. This time Apple Corps complained that Apple Computer's iTunes and iPod products, which provide music services, violate the secret agreement. While the agreement details imply that the music company allowed the computer company to pursue digital music services, it did not permit the sale and distribution of physical music materials, such as CDs.

It is difficult to establish clearly the motives behind Apple Corps' action. Is it trying to exploit a diluted trademark to attempt to extract yet more settlement money from the computer company for something the latter is not really doing? The iPod and iTunes goods and services do not bear the APPLE mark. The use and registration of the word 'apple' is widespread among many goods and services and, in common parlance - at least in the United States - the computer company's hardware is commonly referred to as a Mac, not an Apple. It appears that only the apple logo appears anywhere in connection with the iPod and iTunes brands. It is questionable whether anyone would seriously believe that today's Apple Computer, aka Mac, has any relationship with the Beatles' music company.

Moreover, a big-dollar jackpot does not seem likely. The computer company's profits on its iTunes music store are minimal at best. It derives only a few cents from a 99¢ music download and it is not yet clear whether it has turned the corner of profitability with this project. As trademark damages are tied to profits of the alleged violator, it would not appear that a very large settlement is in the offing or even likely for the music company.

It remains to be seen if the High Court judge, who owns his own iPod, will be able to see what the core issues are. Should Apple Computer lose the third round of this match, it could still spin off the iTunes and iPod divisions as a separate entity hoping to make it profitable under those names.

For a background discussion of this case, see APPLE action governed by English law, rules High Court and Beatles' Apple sues computer Apple.

Robert Lyon, Holland & Knight LLP, Los Angeles