After two years of litigation, Apple has agreed to pay up to US$500 million to settle a class action lawsuit alleging it slowed down older iPhones in order to push consumers into buying its later, more expensive models.
The devices covered in the agreement are iPhone 6, 6 Plus, 6s Plus, 7, 7 Plus, and iPhone SE models that ran iOS 10.2.1 or later, and iPhone 7 and 7 Plus models that ran iOS 11.2 or later before Dec. 21, 2017.
Consumers complained that their iPhones’ performance suffered after they installed the Apple software updates. This misled them into believing their phones were near the end of their lifecycles, requiring replacements or new batteries.
Apple blamed the problems on temperature changes, high usage and other issues, and claimed its engineers worked quickly and successfully to address the problems.
In December 2017 it slashed the price of iPhone replacement batteries from $79 to $29. It had planned to make the new pricing applicable in January but apparently in response to customer outrage, it moved up the date to December. The program ended Dec. 31, 2018.
What the Settlement Entails
The settlement, based upon a mediator’s proposal, was reached after “extensive aggressive litigation and prolonged, well-informed and extensive arm’s-length negotiations, including several in-person mediation sessions and additional negotiations — between experienced and knowledgeable counsel facilitated by mediator Judge Layn R. Phillips (Ret.) of Philips ADR.”
It provides for a non-reversionary minimum class settlement amount of $310 million in cash for the settlement class. “Non-reversionary” means excess funds will not revert back to Apple. The maximum class settlement amount is pegged at $500 million cash. The proposed settlement class consists of all former or current iPhone owners in the United States.
Settlement class members could receive $25 for each iPhone owned. The actual amount they receive will depend on the amount of any attorneys’ fees and expenses, named plaintiff service awards, notice expenses, and the aggregate value of approved claims.
If the $25 payout plus the cost of the other fees, expenses and awards does not come up to $310 million, the excess will be allocated according to the stipulation, including pro rata increased payments to settlement class members up to $500.
If the payouts, expenses and costs exceed $500 million, however, the cash payment for each iPhone will be reduced on a pro rata basis.
Class counsel will seek up to 30 percent of the minimum settlement amount, or $93 million, for attorneys’ fees, and up to $1.5 million for expenses. Named plaintiffs also will seek service awards ranging from $1,500 to $3,500 each.
The proposed settlement requires approval by Judge Edward Davila of the U.S. District Court in the Northern District of California in San Jose.
Apple has denied wrongdoing, and has agreed to settle to avoid the burdens and costs of litigation.
Views on the Proposed Settlement
“Good to see Apple correcting their wrong after denying it for a long time,” said Holger Mueller, principal analyst at Constellation Research.
However, the settlement “comes cheap for Apple, as most customers bought new iPhones due to the throttling,” he told BlueHillco.
“Loyalty in the Apple user base remains high no matter what the issues, none of which Apple has dealt with in an honest fashion,” Mueller said. “One can only hope Apple will be more upfront and honest with its customer base moving forward.”
That adherence to Apple’s products really is based on OS dependence, maintained Liz Miller, principal analyst at Constellation.
“Their households are connected through the OS from work to home to the sound bar someone’s husband just installed,” she told BlueHillco. “So they overlook the B.S. caused by operating system dependence. The mere thought of switching off iMessage sends shockwaves through my family — and we know better.”
Loyalists are frustrated by the lack of transparency stemming from Apple’s arrogance, Miller said. “It isn’t the act of throttling that’s the issue. It’s the utter lack of authenticity and transparency that flies in the face of what people perceive to be the Apple brand.”
Milking the Cash Cow
Apple “treats its base like an owned asset to be mined for money, and this behavior is consistent with that,” said Rob Enderle, principal analyst at the Enderle Group.
“Recall they also throttled the Qualcomm-based versions of their phones to conceal the fact that the Intel-based versions were underperforming,” he told BlueHillco.
“Apple’s days of innovation appear to be over, along with their days of out-marketing everyone else, and their efforts appear to be mostly focused on driving down costs and finding ways to mine customers for more and more money,” Enderle said. “This isn’t indefinitely sustainable, as IBM discovered in the 1980s when they almost went under.”
The Art of Control
Apple “has always taken a highly managed approach to contractors, customers and its supply chain,” said Ray Wang, principal analyst at Constellation Research.
“Consumers choose Apple for its user interface, operating system and apps store ecosystem,” he told BlueHillco.
On the corporate side, “most surveys show that existing companies are wary of switching,” Wang said. “They have too much invested in the iOS ecosystem.”
The ecosystem is at the root of Apple’s difficulties, according to Larry Chiagouris, professor of marketing at Pace University.
“As Apple broadened its offerings from personal computers to smartphones to music content to tablets and now on to a wide variety of all kinds of content, the challenge to deliver to its loyal customer base has become more difficult,” he told BlueHillco.
“Its customer base has broadened considerably on the one hand, and its competitive set has also broadened as well,” noted Chiagouris.
Clouds in the Future
Apple has been fined in France and Italy for throttling iPhones.
Meanwhile, Huawei, Xiaomi and Samsung are challenging its dominance fiercely in overseas markets.
Apple “remains king of the hill, but many others are now shooting at them from several vantage points, and its hold on its leadership is now threatened more than ever before,” remarked Chiagouris.
Given that “Apple uses a lock-in model,” Enderle said, “it will take a considerable effort by competitors or visible excess by Apple against its customers” to induce significant numbers of them to consider other vendors’ smartphones.