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Thursday, February 17, 2005, 10:05 pm PT (01:05 am ET)

Class action suit accuses Apple of unlawful practices, misappropriation of trade secrets

A class action lawsuit has been filed against Apple Computer with two classes, one for Apple resellers and the other for consumers, AppleInsider has learned.

In the 26-page complaint, filed in the San Francisco County Superior Court in California on Thursday, a group of consumers and Apple resellers allege that Apple has engaged in acts of unfair and unlawful business practices, breach of contract, and misappropriation of trade secrets. These actions have also resulted in violations of the Consumers Legal Remedies Act and Song Beverly Act, the suit claims.

The class action lawsuit was filed by three firms on behalf of Jack Branning, James Seybert, Stacey Blevins, Tom Siechert and Joe Weingarten. Together they accuse Apple of repackaging and selling refurbished machines to resellers and consumers as 'new products' without notification to the reseller or end customer. They say Apple has not always honored its extended warranty contracts known as Apple Care, and have often shorted consumers on the term of new product warranties.

The plaintiffs also charge the company with further warranty abuse, and failure to extend warranty dates based on the time it takes to repair a product. For example, if Apple spends a month to repair a customer's iBook, the suit says that Apple is obligated to extend the warranty period one month because the product was not in the consumer's hands. Apple's refusal to correct warranty dates has resulted in the reseller or consumer being wrongfully charged for repairs, the suit says.

Resellers are also charging the company with unfair and unlawful competition, saying Apple has stocked its own retail stores before the retail channel in an effort to recruit customers to its own sales channels. They also allege Apple has used unfair pricing policies. The suit says Apple has sold Macs to end users at prices below their own wholesales costs, and that Apple has made promises to sell its products below the price of any other Authorized Apple Reseller.

Resellers also argue that Apple is not properly reflecting the repair costs or requirements on equipment, which unfairly places warranty repair burden on the reseller channel. The court documents also reveal allegations that Apple at times has refused to compensate for, or accept returns of, defective parts provided for repairs.

The plaintiffs say they can prove that Apple has consistently shipped product directly to end consumers faster than they have to resellers, resulting in additional losses to the reseller channels. They further accuse Apple of providing educational and government discounts to persons not qualified, which in some cases fall below or at reseller costs.

Ironically, the lawsuit also accuses Apple of misappropriating of trade secrets, saying the company is taking confidential reseller information and using it to develop customer lists for its own in-house sales force. This allows Apple to bypass resellers and secure large direct orders originally intended for the resellers. In recent months, Apple has been scrambling aggressively to protect what it claims are its own trade secrets, filing a lawsuit against ThinkSecret and subpoenaing other journalists to reveal their sources.

This latest class action lawsuit joins similar ones filed against Apple by resellers in recent years. MacAdam vs. Apple, filed in 2003, alleges breach of contract and fraud by Apple. The suit is still awaiting trial in the Santa Clara Superior Court in San Jose, Calif, following a recent change in the plaintiff's counsel.

The class action suit also comes just hours after Congress passed legislation that would transfer most large, multistate class action lawsuits to federal court. The bill, which is backed by President George Bush and expected to be signed into law, will move such lawsuits from state courts to federal venues. State courts have earned a reputation for issuing multimillion-dollar verdicts, republicans argue, where lawyers receive large fees and the class members receive virtually nothing. However, democrats say the aim of the bill is not to help the consumer, but rather to help big business escape multimillion-dollar verdicts from state courts at the ultimate expense of the consumer.