The last thing Apple (NASDAQ: AAPL) needs right now is a trip to the courtroom. The company's stock has been so volatile that it seems a strong gust of wind is all it takes to shoot share prices up or down.
Now, with CEO Tim Cook likely to testify to an e-book price-fixing case and reports that the assigned judge already believes the company is guilty, legal woes could be the next reason to send Apple stock plummeting. Here's what's going on, and why Apple investors probably shouldn't worry.
Comparing Apples and Amazons
This price-fixing case has dogged Apple since April 2012. The U.S. Department of Justice filed a claim that the company was in cahoots with several publishers to raise the prices on their e-books, in order to try and compete with e-tail juggernaut Amazon.
Even though the scheduled court date isn't until June 3, there's already some damning evidence against Apple, including an email from Steve Jobs telling News Corp.'s James Murdoch to "[t]hrow in with Apple and see if we can all make a go of this to create a real mainstream e-books market at US$12.99 and $14.99."
Adding fuel to the fire is the fact that all of Apple's supposed cohorts (including Hachette, HarperCollins, Macmillan, and Simon & Schuster) in the price-fixing scandal have settled their cases and agreed to repay their customers. Penguin Books settled most recently, agreeing to disburse US$75 million among its consumer base. The DOJ has now fixed its focus on Apple, believing the company to be the "ringmaster" in the whole operation, although the company still persistently denies this claim.
How Apple might pay
I wrote earlier that a guilty verdict could make Apple take an out-of-pocket hurting. However, as more and more publishers have settled, the total reimbursement to customers has amounted to US$164 million. Apple's most recent free cash flow was estimated at US$44 billion. If the company was forced to pay a similar amount as all the involved publishers, it could easily do so and still maintain an epic stack of cash.
Right now Apple has bigger problems than whether or not it can afford a settlement payout. Its quarterly revenue is down 20% from Q4 of last year. The market has been waiting for Apple to come out with the next big tech innovation, whether it's an iTV or a smart watch. Like a kid on the day after Christmas, Wall Street is starting to get bored with the toys it already has.
Cutting to the core
Apple wouldn't get a gold star in the ethics department if it turns out the company isn't innocent of these charges. But that definitely wouldn't ruin the company, or prevent its ability to continue work on new products. Its stock might temporarily drop if a guilty verdict is announced, but Apple's near-term fate depends more on the success of whatever gizmo it comes up with next.
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The Motley Fool's purpose is to help the world invest, better. Click here for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
A version of this article, written by Caroline Bennett, originally appeared on fool.com.
