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Apple reaches $22.5 million settlement in Nano scratch suit

Company denies wrongdoing and says it settled the class action suit filed in 2005 "to avoid burdensome and costly litigation." Payments will start at $15 to $25 per iPod Nano.

Apple has reached a $22.5 million settlement agreement in the class action iPod Nano scratch lawsuit and potential claimants began receiving settlement notices this week, according to the plaintiffs attorney.

The lawsuit, filed in October 2005 in a California Superior Court in Los Angeles County, alleges Apple's iPod Nano is prone to scratches and its alleged defects were not disclosed by the company.

A $22.5 million cash settlement agreement was reached in late October and a court has preliminarily approved the agreement, said the plaintiffs attorney. But it wasn't until this week that notices of the settlement agreement began going out to the potential pool of claimants, estimated to be a few million people.

A court hearing is scheduled for April 28 for final court approval on the settlement agreement.

Under the settlement agreement, potential claimants must have purchased an iPod Nano that was subject to scratches that affected the enjoyment of using the media player device, or impaired its operation.

Users who opt to file a claim may be eligible to collect one of two types of payments.

Tier one payments of $25 per iPod Nano purchased, may be distributed to claimants who did not receive a free slip case when they originally purchased their iPod Nano.

Tier two payments of $15 may be distributed to users who received a free slip case with their original iPod Nano purchase.

Those payment figures, however, may shift in one direction or the other, depending on how many users file a claim.

If there are additional funds leftover, after all tier one and two users file a claim, then the remainder will be distributed to those claimants--but that additional payout will be capped at 150 percent of the type of tier they filed under. And any money left in the fund after those additional payouts will be award to charities.

But if the number of claimants outstrips the $22.5 million fund, then the payouts will be reduced on a prorated basis.

Apple declined to comment on the settlement agreement.

However, on the lawsuit Web site, Apple denies all allegations in the lawsuit and in the class action, noting it is "entering into this settlement to avoid burdensome and costly litigation. The settlement is not an admission of wrongdoing or an indication that any law was violated."