Tech Industry

Appeals court backs Apple in investor suit

Court upholds earlier decision that investors cannot sue Apple over fact that Power Mac G4, other products, failed to meet expectations.

A federal appeals court this week upheld a lower court decision that Apple Computer investors cannot sue the company over the fact that the Power Mac G4 Cube and other products didn't live up to Apple expectations.

The attempted class action suit, filed on behalf of those who purchased Apple shares between July 19 and Sept. 28 of 2000, also alleged that Apple knew some of its sales projections were false at the time they made them, a charge the appeals court said was not supported by the facts presented in the case.

The suit referred specifically to projections made in the summer of 2000 by Apple's then-CFO Fred Anderson that Apple sales would grow that quarter by 10 percent. It also cites comments by former controller and current CFO Peter Oppenheimer that a transition in Apple's education sales force was "progressing nicely." Apple later reported sales that fell short of expectations and said its sales force transition had been more difficult than it anticipated.

The Ninth Circuit Court of Appeals said Monday that companies are to be given leeway because forecasts are by their nature only estimates. It also upheld the lower court's ruling that the plaintiffs did not present evidence to show that any problems in the education sales force transition would translate into lower sales for the company.

As for the Cube, the lawsuit said Apple CEO Steve Jobs touted sales projections that did not materialize and that he was aware early on of problems with the computer, including an "overly sensitive power switch" and cracks, or as Apple termed them, "mold lines," that detracted from the aesthetics of the computer's clear case.

"Because design, marketing and manufacturing problems are common to business, a securities fraud claim must do more than allege the existence of such problems," the court said in its ruling. "Plaintiffs must allege with particularity that a speaker knew that the severity, timing and extent of such problems rendered the statement false when made."

The court ruled that there was no evidence that Jobs knew of the problem when he introduced the Cube. And, the court said, "although plaintiffs do allege that Jobs learned that Apple was having significant problems in the manufacture of the Cube during (the fourth quarter of 2000), they fail to allege with specificity when Jobs learned this information, exactly what information was conveyed to Jobs, or that Jobs knew the extent of the problems."

Separately, the Mac maker has also faced claims in recent months over its sales practices, the battery on its iPod and its use of the FairPlay digital-rights management technology, which works only with Apple's music store and players. The company has also filed several court actions of its own, including suits over new product leaks and another action against three men who it says leaked Tiger, the next version of Mac OS X, onto the Internet.

An Apple representative was not immediately available for comment. Representatives of the firm that brought the suit--Lerach Coughlin Stoia Geller Rudman & Robbins--did not immediately respond to an e-mail seeking comment.