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Apple's Corporate Vigilantism

Apple's Corporate Vigilantism

by , 12:30 PM EDT, August 16th, 2000

Is Apple getting wise to the way the rumor biz works? Last Thursday Apple unexpectedly released details about the forthcoming iBook revision, thus stealing the bread and butter of rumor sites by effectively relocating the news to the mainstream press. Of course, the cat was already out the bag — rumor sites already had the scoop on the new iBooks. Nevertheless, the unusual move by Apple illustrates the creative stretches the company is currently exploring to discourage others from making a business of stealing Apple's trade secrets. And make no doubt about it; dealing Apple's secrets has become a profitable business.

There is a ton of nonsense out there about Apple's lawsuit to find worker bee, the alleged nondisclosure agreement violator who fed Apple Insiders with Apple's trade secrets for at least the last six months.

For the record this is not a First Amendment issue, although there may be some interesting privacy angles involved with subpoenaing Yahoo for records of worker bee's tracks.

Assuming that worker bee signed a nondisclosure agreement (NDA) with Apple in exchange for financial compensation, worker bee willingly surrendered his right to free speech on the narrow topic of Apple's trade secrets as defined in said contract. Case closed. Apple is well within its rights to chase him and as many other NDA violators as it can tag to the ends of the Earth.

Furthermore, Apple's recent initiative to round up and prosecute its own NDA violators is an ethical triumph over Apple's earlier approach to stifling rumors by attacking the rights of the free press to publish information they see fit to print.

Let's be frank: Apple has not been a big supporter of the First Amendment. This in itself is ironic, since Apple's Think Different advertising campaign paints the company as a liberal bastion of free thought.

Apple's actions have revealed a different side of the corporation. They have threatened minor and cash-strapped Web sites with lawsuits that Apple's legal team knows cannot be won in court but would nevertheless bankrupt the offending Web sites if they were forced to mount a protracted legal defense. Worse, while attacking the small guys, Apple has allowed larger, well-funded media outlets to publish without threats of extinction, knowing that they can and will defend themselves in court.

Rewriting the Rules for Free Speech In Cyberspace

Almost everyone agrees that the rules of engagement for the free press on the Internet should borrow from the laws and precedents established by the 224 years of a free ink and paper press in the United States. Unfortunately, a few major multi-billion dollar corporations have taken it upon themselves to attempt to redefine these rules in cyberspace. Even more disappointing, one of these companies happens to be our favorite computer manufacturer.

For instance, Apple regularly sends "NOTICE OF INFRINGEMENT" legal threats to the Internet service providers of Web sites as a brutal scare tactic that has no pre-Internet precedent. It's like suing the printing press business contracted by a newspaper to print its daily edition for something one finds offensive in the paper.

In some cases Apple has allegedly threatened the ISP and didn't bother with forwarding the cease and desist e-mail to the publisher or Webmaster of the site in question. What's next — Apple threatening regional electric utilities of publishers with lawsuits for providing the power that an offending Web site's computers uses?

Another example of Apple's agenda for redefining the rules of engagement with Internet based media can be found in Apple's NOTICE OF INFRINGEMENT e-mails which have been sent to various publishers and ISPs. At the beginning and end of these naturally unsolicited communications, Apple has appended a ludicrous legal exhortation demanding that the content of said e-mail not be disclosed even to the receiver's own mother.

Apple apparently would like the offending ISP or publisher to delete the Web page in question with no explanation offered to its readers, or in the case of an ISP, with no explanation even to the Webmaster and publisher of the site in question!

Since when is a completely uninvited, unnegotiated legal threat not an inherently public act? Since when can one seek to initiate a legal prosecution but remain anonymous? Is this just a scare tactic to reveal the level of the defendant's legal naiveté, or is it an attempt to set a precedent for a lower level of First Amendment protection bestowed upon electronic mail as differentiated from the written word?

This month Apple has changed the focus of its legal department from questionable attacks on free speech to the 25 John Does. It is a great relief to hear that Apple is now going after the truly culpable parties — the company's own NDA violators — in a tacit recognition of the right and duty of the free press to post all the news that's fit print, regardless of whether Apple approves of the source or the content.

Apple's Fear: Corporate Espionage, It Happens!

Yeah I know, sounds like Spy Versus Spy, but it's a very, very real consideration. A few weeks ago we marveled at Redmond's Chutzpah in revealing in grand detail their latest vaporware initiative, Microsoft.net. In essence, Redmond outlined the product goals of the software behemoth years in advance. As a reader pointed out to me, because of its immense size, Microsoft's tell-all strategy makes complete real politick sense. It's a warning for all others to get the heck outta the way, here comes Microsoft!

Nimble little Apple must use a completely different strategy borrowed from the pages of a guerilla fighter's handbook. Apple uses surprise as a key methodology to enable first strikes that keep the company's products 12 to 24 months ahead of competition. Apple publicly counts its inventory in hours. I wonder in what unit of measure they count their innovation lead-time? Apple wisely knows it can't go head-to-head with a Compaq or a Dell. Apple must, with visionary prescience, divine the next insanely great thing and be there before anyone else.

Some have suggested that Apple is primarily interested in squelching leaks to avoid having Steve Job's product release announcements upstaged. Other claim Apple's main concern is not being able to sell old inventory because users are prematurely alerted to a new updates by leaks. And finally Apple's stock price could be manipulated by untimely and unseemly disclosure of product release dates or other information. While all three are considerations, they represent relatively minor nuisances. The first concern is merely about ego. And unsold inventory is much less of a concern since Apple has reduced its inventory to hours from weeks. As for stock price fluctuations, rarely do rumors have anything but the shortest term effect on a stock's price.

What Apple and Steve Jobs are seriously concerned about is corporate espionage, and we have to assume they have information unavailable to us driving their seemingly paranoid attitude. As I've discovered in my two years of covering the Apple beat, when Apple does something contrary to common sense, it's often because those defining common sense don't know what Apple knows.

eMachines' Example

eMachines Inc. (EEEE) is an example of an industry's worst nightmare. The company was founded by the Daewoo chaebol of South Korea and recently incorporated in the United States. eMachines planned to market a PC that was so identical to the iMac that Apple was able to obtain a court ordered injunction to stop the marketing of the iMac rip-off. This incident revealed eMachines'' business model is based upon the harvesting of research and development efforts by US computer manufacturers and then building cheap knockoff PCs with underpaid labor and cheap parts.

eMachines' brazen iMac rip-off caused no scandal in the business world, in fact it garnered good reviews. Analysts -- noting the iMac's great sale figures -- predicted eMachines had a glorious future. If eMachines' iMac rip-off had made it to market, the Apple iMac's total unit sales would certainly be lower than it is today, perhaps significantly lower, since up to 30% of new iMac users are Wintel converts. And no one but Apple and the Mac faithful would have shed a single tear. The moral of the story is that you have to protect your own, because no one else will.

eMachines' objective is to capture the low end PC market with a flood of cheap products at profit margins and prices too narrow and too low for the US PC manufacturers to compete with. After all, the established US PC manufacturers have shareholders that demand profits, and R&D expenses must come off the top of those profits. eMachines, by snatching the fruit of that R&D, avoids the massive capital investments which other corporations must bear. eMachines also benefits from much reduced product introduction times.

Loose Lips Sink Ships

Apple, as the innovation leader in the PC market place, is changing the way the lagging pack of PC manufacturers design their hardware and software. Apple has stayed several steps ahead of the industry since the introduction of the iMac. In fact, the PC vendors still have no competitive answer to the iMac. The danger is that Apple has become the obvious target of everyone's scrutiny. What Apple does today is far more closely monitored by the company's competition than in 1998. In 1995 you probably couldn't give Apple's trade secrets away. Today every one knows Apple's next insanely great development project is worth billions.

How would an unethical PC manufacturer who wants to leapfrog Apple's next insanely great product avoid the crippling cost of research and development? One simple strategy would be to employ "researchers" that utilize chat forums or message boards to contact disenchanted or unstable people that hold sensitive positions at Apple or at one of Apple's development partners.

Now imagine what the consequences might be of a future Mac design leaked to the competition's researchers so early in the development cycle that the competition comes to market with an imitation at nearly the same time or earlier than Apple's product release. It would be almost impossible to convince a court to issue an injunction. If the product was an out-of-the-ballpark homerun like the iMac, the damages to Apple could be billions of dollars in lost sales, and ultimately could jeopardize the future of the entire company.

Is it too much of a stretch of the imagination to suggest that someone might be willing to pay handsomely for Apple's future product designs, which could be worth millions or even billions to the right corporation? If thrillseekers will violate their NDAs just for the kudos of their message board peers, wouldn't some certainly just as readily pass technology for cash?

Conclusion:

Apple has to protect its intellectual property from theft just as aggressively as it protects its buildings from burglary. The best way is to round up the NDA violators and proceed with prosecutions. Only the misinformed would declare that Apple is violating any principles of free speech by suing NDA violators for breach of contract.

What Apple should refrain from doing is inventing creative methods for harassing the free press for doing their job. It is the duty of every news editor to run important news provided by reliable sources even if the articles reveal Apple trade secrets and even if the sources are NDA violators. In fact, it's the nature of a free press to often be in opposition to the best self-interest of the party being covered.

The trade secrets thefts that are the most dangerous are not the ones that appear in the news, but the ones that silently pass to the hands of Apple's competition and that's what Apple's real fear is all about.

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