Wall Street's terrific at evaluating so many elements of a company that it's pretty much a darned good arbiter when the collective judgments made about a business.
Except, that is, when it comes to lawsuits.
Last Friday a decision was handed down by a federal judge in a dispute between Apple (AAPL) and Epic Games, the maker of Fortnite, that was widely hailed as a huge victory for the gaming company. The decision sent Apple's stock in a tailspin, sending it from $154 to $149, something that when you consider Apple has 16 billion shares outstanding is a darned big deal.
There's only one problem: Epic didn't win. It lost. In fact it lost big but because a bunch of analysts made cursory judgments about the judge granting an injunction against Apple using an obscure provision of a California antitrust law, a law that has a very low bar, we heard that it could be the end of the App Store's incredibly profitable gaming revenue. Had they bothered to read the whole opinion and consult with counsel they would have realized that Apple came out way ahead, hence why Epic, not Apple, appealed. Epic was arguing that Apple exerts monopoly power to exact exorbitant fees from developers, fess that discourage innovation that's specially outlawed by the Sherman Antitrust Act.
Had Apple lost on that issue the decline in the stock would have been deserving. It wasn't.
Now the judge did rule that Apple demonstrated incipient antitrust behavior on the very narrow notion of steering companies to the App store but the judge had to admit that Apple's just giving the customer - the actual user of the phone - what's best for them both in terms of convenience and security. To go one step further, Apple could have won on all counts except it would have disenfranchised the consumer had it prevailed in the element that the judge found in favor of Epic.
I believe that we will look back and realize that rather than Apple losing, companies that want to use the App store to sell product will have to comply with Apple's wishes.
So how come this decision was so opaque to so many? We have all become conditioned on Wall Street that if any plaintiff winds a temporary restraining order, the loser is pretty much done for.
Unfortunately for Apple, is it difficult to figure out what it can do to cure the judge's finding that it violated the state law on steering. Suffice it to say, though, it could inform people rather easily that if they want to, they can go outside the App store to buy anything it wants. The problem is, of course, who wants to do that?
One of the reasons I have said over and over is that you should own Apple's stock, not trade it, is because with Apple the customer is always right. The judge, Yvonne Gonzalez Rogers, seemed to want to find against Apple because Apple is so powerful but being powerful does not mean being a monopolist and, in what can only be described as ridiculously ironic, Apple would have to side against its core customer in favor of a big rich company if it wanted to avoid any antitrust consequences.
Lawsuits are messy and not easily factored in. We have some in 3M (MMM) about ground water that we can't figure out the potential consequences. Johnson & Johnson (JNJ) has a boatload of suits against it for talc in baby powder and a possible linkage to cancer.
Nobody knows what those suits will be worth to the plaintiffs. But in this one, it's pretty easy: it's worth nothing.