Apple (AAPL) Reaches Settlement Over iPhone 'Batterygate'

Apple Inc. (AAPL) has reached a second settlement in the United States designed to end lawsuits over what has come to be known as "batterygate." Earlier in 2020, in response to a class action lawsuit brought on behalf of iPhone users, Apple reached a $500 million settlement. The latest "batterygate" settlement will cost a reported $113 million, payable to 34 U.S. states whose attorneys general had launched consumer fraud suits against Apple.  

The potential costs to Apple with respect to the state lawsuits could have been orders of magnitude greater. Just in Arizona, for example, each willful violation of that state's Consumer Fraud Act could have a carried a fine of up to $10,000.

Significance For Investors

While the settlement amounts from "batterygate" remain manageable so far for Apple, given its total annual net sales of $274.5 billion, the much bigger cost to the company is in the big hit to its reputation, the current and future impact of which on sales and profits is difficult to measure or forecast. Moreover, "batterygate" appears to be a critical event that significantly ratcheted up political and regulatory scrutiny of Apple, turning it into a frequent target across the political spectrum.

'Batterygate' in Brief

In 2017, a growing number of users began to find significant degradation of speed in older iPhones, plus unexpected shutdowns. The culprit was Apple's pre-programmed "throttling" of iPhone performance in a new version of its iOS operating system when battery power declines, which the company later claimed was designed to protect these devices from potential damage. However, Apple did not advise consumers about this key programming change in advance, or about the fact that they could remedy the problem simply, and cheaply, by replacing the battery.  

Instead, absent clear disclosures from Apple, many consumers believed that the iPhones themselves had become defective, leading them to purchase new devices. The lawsuits brought by the state attorneys general allege that Apple deliberately tried to generate sales of new iPhones by concealing the true cause of this performance problem, a charge that Apple denies. This settlement has yet to be approved by a judge.  

Settlement Details

The latest $113 million settlement will not benefit consumers, since the payments will go to state governments, rather than to iPhone users who had incurred costs as a result of "batterygate." Under the terms of the earlier $500 million class action settlement, any current or former owner of an iPhone 6 or iPhone 7 can receive a payment of about $25 from Apple, while some named class members can receive $1,500 or $3,500.

Pursuant to the earlier class action settlement, Apple will pay out at least $310 million but no more than $500 million, with the final figure to be determined by the number of claimants. Thus, the $25 payment per iPhone may go up or down, depending on the final number of claimants. The deadline for submitting claims was in October 2020, and a fairness hearing regarding the settlement process is scheduled for Dec. 4, 2020.

Meanwhile, Apple also faces investigations and fines in other countries related to "batterygate." Among these is a roughly $25 million fine assessed in France.  In 2018, Apple had lowered the cost of battery replacements and offered partial refunds to some iPhone users who had bought new batteries.