Apple CEO, other execs hit with shareholder suit over ebook conspiracy

9 Comments

Apple shareholders are suing CEO Tim Cook along with some of the company’s other executives and directors, claiming that their role in a price-fixing conspiracy with publishers damaged the company.

According to a complaint filed on Thursday in California state court, Cook and other senior [company]Apple[/company] figures bear “responsibility for ensnaring Apple in a multi-year anticompetitive scheme” that resulted in a highly-publicized trial and a proposed $450 million payout by the company to settle related complaints that it illegally raised the price of ebooks.

The new lawsuit, a so-called “derivative suit,” is a type of corporate litigation that is available to shareholders who believe that a company’s own directors won’t take action to protect it from mismanagement. Such suits, however, have also been described as a form of shakedown in which law firms extract easy payouts from big corporations.

In the case of Apple, the shareholders claim that Cook and others, including directors Al Gore and Bill Campbell, breached their fiduciary duty to the company and engaged in “waste of corporate assets.” They want the court to order Apple’s board to implement better governance measures, and for Cook and the other defendants to pay restitution to shareholders and to pay the shareholders’ legal bills.

Apple, as its custom, did not provide a comment on the litigation.

According to the shareholders, the complaint is based in part on non-public documents that it obtained by suing Apple to comply with a shareholder inspection demand. And while parts of the filing are blacked out, most of the allegations it contains — including tales of Apple pressuring publishers — amount to a rehashing of familiar details from the recent anti-litigation.

The complaint also publishes the annual salaries of Cook and the other defendants, dating from 2009, in order to support the shareholders’ claim that Apple’s leadership has no incentive to stop the mismanagement.

While Apple’s overall performance does not appear to have been damaged by the ebook debacle, the company’s directors are likely to find a way to settle the case all the same.

As a recent report by James Stewart in the New York Times explains, a flaw in the incentive structure of U.S. securities law means that it is in companies’ interests to simply pay the lawyers to go away, rather than get bogged down in years of time-consuming and expensive litigation.

Crane v. Cook et al

9 Comments

Walter Daniels

I have been waiting for a shareholder to do this. Even better is if a shareholder in Hachette’s parent corp would do it. The penalties (under Securities Exchange Commission) can be very stiff. Not only financial, as in fines, but _restitution_, can be very high. It can also result in: barring from *any* stock transactions; jail time; and who knows what else. _One_ of the penalties, under SEC rules, is to “give back” the “ill gotten gains.” (I.e., all the money received, as well as stock, during that time period.)
The parent corp. of Hachette, would have a _very_ hard time, IMO, fighting such charges. They not only admitted to the “bad behavior,” but have *continued* it, in another form.
There’s an old folk saying. “When you find yourself in a hole, *stop digging.*”

Rowena Cherry

I suggest other shareholders complain to the court about legal fees for the ambulance chasers and also opt out of the class. It could not be a class action if most other shareholders exercise their right to opt out. I shall do so, and I hope others will.

It’s a pity one cannot sue Destiny Crane for her apparently greedy and apparently malicious interference. One wonders how many Apple shares she owns, and how many Amazon shares she owns!

fredhstein

My simplistic logic:
Either the case has merit and a good chance of success, or not.
In either scenario, it seems Apple would fight, to prevent setting a precedent. Apple can spend unlimited funds on lawyers, vs the class action lawyers.

Since it is filed in CA, not US, one asks, why? Is it just a quirk of one particular CA law? And then do only CA shareholders get the settlement?

Last question: Were shareholders hurt? Apple’s success with the iPad and with content outweigh all the legal costs, direct and indirect. The contracts with publishers played a key role in the success of iPad which is now worth about $60B according to Trefis.

Jeff John Roberts

Thanks for the comment, Fredhstein. Considering that Apple became the richest company in the world during the very time that Cook and others were allegedly “mismanaging” it gives you an idea about the quality of the lawsuit.

As I suggest above, this is more of a about a securities law firm shaking down Apple than a legitimate grievance.

As for Apple settling, you’re right that it has the bucks to fight — and Apple is never afraid to litigate. In this case, though, if the case gets to the discovery stage, it may settle simply to avoid the hassle of Cook and other busy people in the company getting dragged into depositions.

Iesabel Teres

Is this video meant to be ironic? The DOJ case was not kosher, the purpose of it was not to protect or avenge consumers, and this video has Steve Jobs telling the press backstage not to worry too much about the fact that Apple will not punish Authors who price their books above $9.99, because the publishers are about to revolt against Amazon’s draconian policies anyway. There wasn’t any collusion to “raise prices” in the nascent eBooks market by Apple, but there was a rather natural hatred from publishers for the control that had been forced on them by Amazon in order to sell eBooks, where Amazon told them what they could charge, and then told them they would get 30% percent of sales, and then charged them for uploading files, charged them for the size of the content they submitted to pay for the Kindle owners “free” cellular data plans. Amazon wants the ignorant masses to believe that because they make it easy and cheap, that they are the good guys, but they make it easy and cheap by cheating content creators, slave labor, and “special” connections. What other retailer do you know that after being in business for 10 years and never breaking even or turning a profit, continued another 10 years and has money to burn making tablets and phones out of vanity? Walmart does the same thing, and that is, open in an area and undercut the local businesses with sacrificial pricing that could not sustain them, by paying wages far lower than poverty or average for that area, until those businesses are dead, and that area belongs to them. Amazon does not like to report sales and numbers, even when other companies would be legally required to do so, and manages to go decades without it’s business paying for itself. It is funded from a deeper well to destroy competitors, and Apple is a threat to that plan because of it’s unpredictable creative spark and tendency to side with consumers in matters of fair use and privacy. This “Shareholder Suit” was correctly identified by the first comment: a stunt to manipulate the perception of masses who will not or can not actually investigate or understand the facts. Your Amazon Overlords will soon be selling you Soylent Green, and you’ll shuffle along, believing them when they tell you it’s just as good as Bacon.

James the Former

A lovely rant, but since this is a lawsuit based on state corporate law filed in a state court, I’m not sure why the makeup of Congress would have any effect on it.

Michael W. Perry

Shareholders? No, Jeff, if you’d actually looked at the court filing, you’d see only one measly little plaintiff is listed, a Destiny Crane. That doesn’t even merit the plural for stockholders, much less any suggestion that Apple shareholders have risen up en masse to redress a great wrong. Compare that to the five San Diego lawyers suing and no doubt hoping for a quick buck. Given the city’s nice climate, I suspect the city is glutted with underemployed and increasingly desperate lawyers.

You did get it right with this: “As a recent report by James Stewart in the New York Times explains, a flaw in the incentive structure of U.S. securities law means that it is in companies’ interests to simply pay the lawyers to go away, rather than get bogged down in years of time-consuming and expensive litigation.”

Don’t expect that to change as long as the Democrats control at least one house in Congress. Here’s a breakdown of the top law-firm political contributions for 2013-2014:

http://www.opensecrets.org/industries/indus.php?ind=K01

Lots of blue in that chart, meaning Democrats. Quite a bit of green (for outside groups) too. Not much red (for Republicans) though. And yet Apple’s executives tilt very heavily Democratic. In a sense, with both this lawsuit and that by the DOJ over ebook pricing, Apple’s simply reaping what they’ve sown. It’s hard to feel sorry for them. Note this:

“Contributions to federal candidates and political committees by lawyers have increased during the past 10 years, and collectively, they are consistently larger during presidential election years. Each cycle, the contributions significantly favor Democrats. In the 2008 election cycle, the industry contributed a massive $234 million to federal political candidates and interests , 76 percent of which went to Democratic candidates and committees.”

Personally, I suspect that almost everyone who owns Apple stock is delighted by the company. It’s too bad Apple’s executives are such idiots when it comes to politics.

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