Watching a Master at Work

For reasons personal and professional, I’ve been closely following the Federal government’s price-fixing case against Apple, set to go to trial in New York next month.

Buried in the material released in the case are a series of emails between Steve Jobs and several people at News Corp, chief among them James Murdoch. Long story, short version: with several deft moves, Jobs brings Murdoch around to his way of thinking and closes the deal – on Apple’s terms. This is negotiating at its best.

Quartz Magazine has done a really good narrative piece stitching the emails together to show how Jobs did it. This should be required reading in business and law schools.

Regarding the trial

I think Apple wins this one. Their main argument to the jury will likely be this: The government is going after the wrong party. The real villain is, which has been engaging in illegal business practices to drive everyone else out of the market with artificially low, unsustainable, predatory prices. Apple sought to upset’s criminal applecart, brining sanity to the marketplace for the long-term benefit of producers (writers and publishers), booksellers (bookstores and, yes, even, and consumers (readers). If Apple made a tidy profit along the way, well, they are a company and are in the business of making money (by making truly magical products, as Jobs would say). The argument is simple, understandable, and has the added virtue of being true.

Finally, does anyone think it is a coincidence that the government primed the pump against Apple this week with its attacks on the company for their corporate tax policies? If you do, I have a bridge I’d like to show you.

As I wrote the other day, everybody hates a winner.

Apple and Taxes

When the fox eats all the chickens, the farmer doesn’t get to blame the fox for the shoddy henhouse construction. The fox is just doing what a fox is supposed to do. It is up to the farmer to secure his chickens.

Same goes for lawmakers lamenting the sorry state of US tax laws.

It is difficult to criticize a company for following the rules. It can be done, but not with any credibility. I assume these lawmakers are making a big deal about it because Apple are following the rules and still making a profit, which pisses off those companies that are actually breaking laws and still can’t win. When the boss has a bad day, you have a bad day.

You can find a PDF of Apple CEO Tim Cook’s prepared remarks before Congress here.

Apple has an effective US corporate tax rate of roughly 21% after various adjustments. This is far higher than most companies. As they begin to make more of their products in the USA, that rate should increase. And all that money parked overseas? Those aren’t hidden US profits. Sixty-one percent of Apple’s revenue are from activities outside the USA. From a shareholder perspective, it would be irresponsible for Apple to bring that money into the USA under the current tax code.

Admittedly, the “incorporate in Ireland, conduct business in the USA” model is sneaky. Or, as the lawyers who came up with it probably call it, good business. Laws can be amended, but you can’t prosecute a corporation for following the rules.

But in America, everyone hates a winner.