Apple and the Beatles: The End of a Long and Winding Road?

The decision by Apple Corps, the Beatles’ music company, to allow distribution of Beatles songs on iTunes appears to have been vindicated by the initial sales figures achieved (two million singles sold in the first week, reports Billboard). However, the release of Beatles’ music on iTunes, the final act in the resolution of the long-running trademark dispute between Apple Computer and Apple Corps, also illustrates the basic truth underlying the resolution of many trademark negotiations: the company with the biggest consumer footprint ultimately wins.

When the first Apple Computer v. Apple Corps trademark dispute was settled in 1981, Apple Computer agreed not to enter the music business and Apple Corps agreed not to enter the computer business (a history of the dispute is chronicled here). And yet, 26 years after the 1981 settlement, as part of the final resolution of the parties’ dispute, Apple Computer became the owner of Apple Corps’ music trademarks (for example, U.S. Registration No. 78430230 for the word mark APPLE, assignment to Apple Computer recorded January 7, 2008). Apple Corps, which once successfully challenged Apple Computer to protect Apple Corps’ own music trademarks, is now a mere licensee of those same marks from Apple Computer — a clear demonstration of the effect of changed economic circumstances. The assignment by Apple Corps of its marks evidently represents a significant weakening of Apple Corps’ rights in the APPLE mark, as a licensee always faces some risk of loss of the license, even if the license is expressed to be irrevocable.

The major reason for this change in circumstances is iTunes, which has not only provided Apple Computer with strong trademark rights in the mark APPLE used for music distribution, but also — not incidentally — significant revenues with which to acquire ownership of the Apple Corps’ trademarks. Surely Apple Corps’ revenues from the Beatles remained none too shabby, even without iTunes. But iTunes is now the largest music retailer in the United States. It certainly seems likely that, when the most recent Apple v. Apple dispute settled in 2007, far more music consumers would have associated the mark APPLE with iTunes than with the Beatles. The resolution of the trademark dispute confirmed the existing reputation of the APPLE mark in the minds of consumers familiar with iTunes. And, evidently, in agreeing to their iTunes deal, even Apple Corps found it difficult to ignore the potential revenues from this powerful new distribution channel.

Looking at the history of this dispute and the various settlement agreements of the parties over the years, it appears that the parties may not have foreseen the effect of the Internet on the development of the computer and music industries. Obviously, in an ideal world an attorney preparing a settlement agreement should consider the client’s business as it might be in the future, as well as the way it is at the time the settlement is being negotiated. When possible, a settlement agreement should anticipate such changes.

Of course, there are limits to how much one can foresee. Frankly, if an attorney working in 1981 could have predicted the emergence and eventual dominance of digital music distribution, he or she probably should not have been spending time negotiating trademark settlement agreements. As this long-running dispute demonstrates, however, companies should be mindful that changes in circumstances can shift the balance of power dramatically, and so should not be shy in leveraging that position to reshape prior agreements — to take one final bite at the apple, so to speak.