The Beatles’ Apple Corps claims Apple Computer is violating a 1991 promise not to sell music.

March 28, 2006

The decades-long fight between The Beatles and Steve Jobs flared up Tuesday after reports that their companies are going to court on charges that Apple Computer’s iTunes online store violates a settlement with the band’s record label.

Apple Corps, owned by remaining Beatles Paul McCartney and Ringo Starr and widows Yoko Ono and Olivia Harrison, will face off with Apple Computer in a London court Wednesday. The company alleges that as part of a 1991 settlement, the computer firm had agreed to stay out of the music selling business.

Fast forward to the Age of iTunes. The Beatles’ distribution company claims the computer maker is unfairly using the name “Apple” to sell music via its iTunes online content store, started in 2003 as a support service for iPod music players.

Apple Computer says iTunes accounts for about 80 percent of legal music downloads in the United States and 70 percent in the United Kingdom. The greater music-buying public could be affected if a judge agrees to Apple Corps` request to stop the computer firm from using the Apple trademark to sell online music.

Piper Jaffray analyst Gene Munster, however, doesn’t think the case will get that far.

“Apple [Computer] is probably going to pay to make this go away,” Mr. Munster said, noting that it’s unlikely any outcome would negatively affect the company.

Even a $50-million settlement—almost double what the Cupertino, California-based electronics maker paid Apple Corps in 1991—would only be 1.25 percent of the company’s $4 billion cash reserves, he said. And Mr. Munster noted that Apple recently bought back shares from Mr. Jobs for $250 million.

Apple Computer shares fell $0.80 to $58.71, although that likely was more related to Tuesday’s broad market decline in the U.S. than the court battle with the Fab Four’s music company.

The 1991 settlement, which included a $26-million payout by the computer maker, was the last time the two ended up in court.

Apple Corps, started in 1968, had a green apple-shaped logo. The computer company co-founded by Mr. Jobs in 1976 used a similar insignia—a rainbow-colored apple with a bite taken out.

A trademark lawsuit filed by the Beatles in 1981 was settled for $80,000 and a promise from Apple Computer not to sell music. A music synthesizing program caused the band’s company to claim breach of the agreement, and that ended with the 1991 settlement.

Now, the computer maker and The Beatles’ company have different opinions as to what “selling music” means.

Apple Computer claims that it only agreed not to distribute physical recordings like CDs, tapes, and vinyl records, and says iTunes is allowable “data transmission” as defined by the 1991 agreement.

Apple Corps counters that the selling of music files over the Internet is covered by the agreement, and will ask the court to force its foe to stop using the Apple trademark to sell online recordings.

The legal status of online downloads versus physical recordings could be fueling the dispute.

“When you buy a CD from a store, you own the CD but not the copyright,” said Fred Von Lohmann, a senior staff attorney for the Electronic Frontiers Foundation (EFF). “There’s the question of what you ‘own’ from a download service. If you look at iTunes’ [users’ agreement] it doesn’t say one way or the other if you own that track.”

But attorney Lynda Zadra-Symes of Knobbe, Martens, Olson & Bear said when tracks are obtained through paid legal download services, customers purchase the right to use the songs but not to own them. Although she doesn`t work with Apple personally, other attorneys in her firm do.

Ms. Zadra-Symes and Mr. Von Johmann agreed that the case is more a contract dispute than a trademark disagreement. The companies agreed to a “field of use agreement” in which they would operate in different realms—Apple Corps in music and Apple Computer in electronics and related spaces.

The wording of the 1991 settlement will determine whether Apple Computer is in breach.

“Apple Computer has a tough argument. There’s nothing in there that specifically [addresses] transmission of music,” Ms. Zadra-Symes said.

But the computer firm’s field of use included broadcasting and transmission of data. So it could probably argue that it’s within its rights to broadcast music and transmit files via the Internet.

The computer maker did not immediately respond to requests seeking comment. Apple Corps was not available for comment.

The flap in London is just the latest anti-Apple issue in Europe. Last week, the lower house of France’s parliament approved a bill that would require iTunes and other services to make downloads playable on all portable audio players (see French Bill Threatens iTunes). Tracks from iTunes can only be played on iPods and computers.

Meanwhile, Apple also faces lawsuits stateside, which also involves digital music. Last October, the company was sued for selling scratch-prone Nanos, the tiniest iPod currently on the market (see Nano Owners Sue Apple).

And in February, the company was sued for hearing losses incurred by those who claim Apple doesn’t fairly warn of the hazards of too much earphone use (see Turn Down iPod Volume).

Ironically, this complaint was addressed in January by yet another British rocker who shot to fame in the 1960s: guitarist Pete Townshend of the Who (see Pete Townshend Shushes iPod).