Is iTunes taking a bite out of Apple Corp?

As accounting & business goes to press, the world is still awaiting the judgement of Mr Justice Mann, sitting in the High Court's Chancery Division in London. Is Apple Computer pushing its luck, trying to sell music in close association with the Apple brand? Or is the famously litigious Beatles-backed Apple Corp displaying its customary short fuse when it comes to all matters musical and appley? Stefan Stern writes

Apples have a lot to answer for. If it weren't for apples, we'd all still be prancing happily naked in the garden of Eden, in blissful ignorance. And as any classicist could tell you, the golden apple fashioned by the Greek goddess Eris led directly to the Trojan war. (It's a long story).

Fast forward to 2004, and the trouble with apples continues. Not so much the fruit - it's the two famous companies, which have apples as their logo, that are causing all the fuss. Last autumn Apple Corp, the business originally founded by The Beatles in 1968, announced that it was suing Apple Computer, the iconic high-tech company, after the latter launched its new iTunes business, an on-line market for downloadable music to be played on Apple Computer's new iPod machine - the must-have accessory for the well-heeled youth (and middle-youth).

There is history here - not quite as ancient and bloody as the tale told by Homer, but only just. And it is ironic indeed that Apple Corp, the company founded by the Fab Four with no little idealism and even naïvety, has now become one of the most aggressive of international businesses.

Apple Corp started life in Savile Row in London's swish Mayfair district. It was described by someone who was there in 1968 as 'the longest cocktail party', a reference to the freewheeling and intoxicated air with which Apple Corp first greeted the world.

As a reaction to the daunting big business environment which they more or less reluctantly inhabited, the Beatles decided that they could try and support artists and other creative types without all the fuss and rigmarole of the modern corporation. (Cynics have suggested that launching Apple Corp was actually a tax-saving dodge. Perish the thought!)

At Apple's HQ, money was thrown after new initiatives, both good and bad. Soon the sums were not adding up. The well-meaning chaos in Savile Row even inspired one of the Beatles' later songs, You Never Give Me Your Money, on side two (as we used to say) of the album Abbey Road.

But after the Beatles split up, Apple Corp gradually became a more professionally run outfit, as indeed it had to if the money wasn't going to run out. Since that time Apple, now run by the Beatles' former road manager Neil Aspinall, has kept a watchful eye on developments in the music and media businesses, making sure that any intellectual property still controlled by Apple Corp is not unfairly exploited.

Enter, in 1977, Apple Computer and its founder, Steve Jobs. Apple Computer had a lot in common with the original ethos of Apple Corp - it emerged from an alternative culture, and was committed to pleasing aesthetics. Jobs has indeed admitted that the naming of his new company was to some extent influenced by the existence of the Beatles' creative empire.

But this is where the sweet harmonies break down. The two companies have been in and out of court for nearly 20 years, each struggling to stake their claim over their related, but distinct, corporate identities. If a Venetian master had to paint the scene, there would be two serpents, not just one, curled round this lovely green apple.

The current dispute surrounds a 1990 out-of-court settlement, when Apple Computer agreed not to use its name and logo in connection with computer products used in the recording or reproduction of music, while Apple Corps agreed not to oppose Apple's trademark registrations for computer equipment. The computer firm handed over $26.4m as part of this agreement.

But technological progress created further legal problems down the line. When computers started coming with loudspeakers attached, making possible the playing of music, Apple Corp's lawyers got twitchy again. The Beatles' lawyers won that second case too, and banked another $25 million in the process.

Now the two firms' lawyers are facing each other down again. Apple Computer claims that the iTunes store does not contravene the 1990 agreement. Yes, it is music played on an Apple machine, but any similarity with Apple Corp's business is incidental.

Apple Corp feels differently. They see this as just the latest example of Apple Computer exploiting Apple Corp's name and identity by association. Indeed, when the iTunes product lines for the iPod were first introduced, it was under the heading AppleMusic, a label that has since been dropped. The courts have been asked to sort out this latest dispute.

The Argentine writer, Jorge Luis Borges, famously described the Falklands War of 1982 as 'two bald men fighting over a comb". In the music business today, battles by what we still call 'record companies' to protect copyright, and revenue, are not too dissimilar.

For the background to this latest Apple versus Apple bust-up is a music industry in trouble. In the digital age protecting any information and intellectual property has become terribly difficult. And music has proved the most downloadable (and rip-offable) art form of all.

MP3 files, downloaded and shared on websites such as the (in)famous Napster, have gobbled away at record company profits. Apple Computer's iTunes is a sensible and worthy attempt to legitimise this process. For 99 cents, it is possible to download individual tracks to play on your iPod. Since opening for business a year ago, over 10m songs have been downloaded. Do the math, as they say in the States: iTunes is already 'the largest on-line music business in the world', according to the characteristically modest Jobs.

Apple Corp, meanwhile, is merely doing what so many other music businesses are trying to do: desperately protecting revenue at every turn. The world, it seems, is full of techno-savvy kids downloading and 'burning' music, acquiring whatever they want for free.

But this situation is rich in irony. For years, record companies were notorious for making huge sums of money on the back of exploited artists. Consumers were ripped off too. And when CDs arrived, they were often grossly overpriced in certain markets.

There's another reason why record company angst can't be taken too seriously. Thirty years ago when, it was said, 'home taping was killing music', in fact the biggest home tapers were also among the biggest buyers of records.

With the help of an initiative like iTunes, this could become true again. And at least record companies will be able to recoup some money by licensing music, via iTunes, to be played on iPods.

Apple Corps hardly needs the money it may well raise by winning this latest case with Apple Computer. It has seen a 194% rise in profits since releasing a compilation album of 27 Beatles hits in 2000. Apple Corps profits have doubled each year since, reaching £18.2m in 2002. The greatest irony of all is that a firm founded in the spirit of rebellion and brotherly love finds itself once again in the courts, represented by costly lawyers.

Record companies will fight in vain to hold back technological progress. While some of us may still look back fondly at the process of gingerly pulling 12 inches of black vinyl from a sleeve, and laying it, green apple side up, on a record player, few people under the age of 35 feel the same way.

Even those of us who still buy CDs regularly - labelled the '50 quid bloke' by a British magazine - are some way behind the technological curve on this one. Listening to music today, if you're smart enough, has become an even simpler process. All you need is love, a computer, and broadband access. Let it be.

Stefan Stern is a regular contributor to the specialist press and an expert on work, management and industrial issues.