I’ll never forget the time I interviewed the late Rose Bird, then the Chief Justice of the California Supreme Court.
At the time, Bird was getting ready for her re-election campaign and had done a series of media interviews in a bid to garner the public’s support.
I was a legal affairs analyst for the San Francisco Examiner. After putting Chief Justice Bird on the hot seat, I filed a page-one story predicting that Bird would go down in defeat.
And I didn’t stop there…
My deep-background research with my network of contacts convinced me a slew other justices would also lose their re-election bids. The reason? Their rulings on one hot button issue – the death penalty.
I don’t bring this up just to toot my own horn. But only to let you know that when it comes to analyzing controversial and complicated legal matters, I’m pretty good at reading the tea leaves.
So you can believe me today when I tell you who I think will win the simmering dispute between the FBI and Apple Inc. (Nasdaq: AAPL)…
Silicon Valley Circles the Wagons
What’s happening now between Apple and the FBI is more than a mere legal “test case.” This Silicon Valley contretemps carries ramifications for everyone who owns – or is looking to own – a smart phone, tablet or laptop.
Which makes this case nothing less than the most consequential privacy rights showdown of the 21st Century.
And that means that, no matter how this case shakes out, the tech landscape will be altered forever. And that will have impact the value of technology investments across the board.
That’s one of the reasons why nearly every single major Silicon Valley firm has lined up behind Apple.
In This Corner…
At first glance, CEO Tim Cook appeared to be losing, at least in the court of public opinion.
After all, it’s hard for a majority of Americans to believe that the cell phone owned by Syed Rizwan Farook, a terrorist who slaughtered 14 innocents should be shielded from federal investigators.
As if to underscore the point, a couple of weeks ago Pew Research reported that 51% of those surveyed believed that Apple should help the FBI unlock Farook’s iPhone. Apple had the backing of 38% and 11% were unsure.
I bring up the public relations battle so you know that I’m not making this next statement lightly.
Based on the evidence to date, I believe Apple will win this case.
Because regardless of public opinion, the legal momentum clearly favors Apple.
Here’s what I mean.
A Stand for Freedom and Liberty
Not many folks know it, but this fight has been brewing for more than a decade.
It began in 2005 when a Texas federal magistrate denied a request by criminal investigators to gain access to a suspect’s mobile phone.
Since that time, federal magistrates – who are judges without life tenure and hear civil cases – have remained on the front lines of the struggle to protect digital privacy rights.
I believe these safe guards are paramount. That’s because our modern mobile devices contain more than texts, emails, and phone calls.
They also hold sensitive data about our private lives and finances… the state of our health… information about our jobs and employers… and the passwords to bank and brokerage accounts.
That’s why I was concerned when the FBI was able to convince a federal magistrate to order Apple to unlock Farook’s encrypted device.
Apple has appealed the ruling, saying it cannot directly gain access to a locked phone. The only way to do that is through a “back door” that would involve writing code to gain access.
In letter to Apple customers, Cook argued that to do so would violate his firm’s trade secrets, and would leave hundreds of millions of iPhones vulnerable to hackers and spies.
“While we believe the FBI’s intentions are good, it would be wrong for the government to force us to build a backdoor into our products,” Cook wrote.
“And ultimately, we fear that this demand would undermine the very freedoms and liberty our government is meant to protect.”
Government on the Ropes
If Apple were to lose, the door would be open for governments to gain access to an entire array of tech products – your tablet, PC, smart watch and car (which these days is basically a smart phone on wheels).
The government’s reach could even extend to routers, modems and even entire computer networks.
For its part, the FBI (and some commentators) dispute Cook’s version, and say that it’s the government’s request is very narrow in scope.
But in Congressional testimony last Tuesday, FBI director James Comey made what amounts to an about face. He told Congress that this case could become “precedential” – meaning it could in fact set a broad legal precedent.
Ironically, that is the exact argument Apple has been making all along…
And it gets worse for the FBI. It turns out the agency has admitted that it made a mistake in trying to unlock Farook’s phone, a misstep that meant data on the phone would no longer back up to iCloud.
Had it not followed the wrong procedure, the agency might not have needed Apple to break into the phone in the first place, because the company had already given the FBI access to data stored on Farook’s iCloud account.
You can bet Apple will use that disclosure in its legal pleadings, which will automatically put the FBI on the defensive.
Apple got more ammo for its legal case from another federal magistrate. Though the case is not directly related to Apple it does have huge ramifications for the fight with the FBI.
A Victory for Privacy
On Feb. 29 Magistrate Judge James Orenstein issued a 50-page opinion denying the Justice Department’s request that Apple provide access to a drug suspect’s iPhone.
Orenstein’s ruling is important because at present there is no law that directly affects the “cracking” of a criminal suspect’s phone.
For that reason the FBI and Justice Department relied on what many Americans don’t doubt think is an opaque, arcane law.
I’m talking about the All Writs Act. Written in 1789, and adopted the same week as the Fourth Amendment to the U.S. Constitution, the All Writs Act is still in use today. Prosecutors cite it in cases when no clear law covers requests for search warrants such as in the case of the San Bernardino terrorist.
But Orenstein said the government’s view of the act is so broad “as to cast doubt on [its] constitutionality if adopted.”
This was a strong rebuke that couldn’t have come at a worse time for the Bureau. The next day Comey appeared before Congress and was dealt a second setback.
Questions and comments from both liberal and conservative committee members indicated scant enthusiasm for enacting any new law giving the FBI any new powers to search digital devices.
For his part, Cook continues to maintain that Apple will take the case all the way to the U.S. Supreme Court.
Should it come to that, Cook and Apple won’t be going alone.
Last Thursday some 31 tech firms filed what are known as “amicus” (or “friend of the court) briefs on Apple’s behalf.
These firms include Silicon Valley Google, Twitter, LinkedIn, Amazon, Microsoft and AT&T.
That puts the FBI in the difficult position of arguing that the entire technology industry is wrong and that its investigative needs – as seemingly valid as they may be – trump privacy rights.
That’s why I believe based on what we know now that Apple, its customers and investors will prevail in court.
If All Else Fails…
The outcome of this Silicon Valley “Showdown of the Century” is far from certain. Like I said earlier, if the FBI wins, the tech landscape – especially the smartphone landscape – could change dramatically.
As investors, we need to be ready to adjust to shifting “facts on the ground.”
That’s why I want you to know about a tiny $5 firm with an amazing technology called “Onboard IQ,” which is already poised to disrupt the smartphone industry, possibly in the next 30 days.
This firm controls 41 patents for this technology, and its revenue could soar 11,900%. To put that into perspective, in the iPhone’s first five years, Apple’s sales grew by 5,101% – that’s less than half of the growth we’re talking about here.
So while hardly anyone in America owns this company’s name, I believe it’s getting ready to make a lot of folks a lot of money.
You can read all about it here.
- Strategic Tech Investor: Six Weeks From Now Is Crucial.