In Disarming Testimony, Apple Chief Eases Tax Tensions

Even the panel’s fiery chairman, Senator Carl Levin of Michigan, after blasting Apple for creating “ghost companies” that diverted billions of tax dollars from American coffers and caused needy seniors to go without meals, had some kind words for Mr. Cook and his company.

“We love the iPhone and the iPad,” Mr. Levin said, going on to commend Mr. Cook and two other executives for voluntarily appearing before the Senate Permanent Committee on Investigations. “I know it’s not easy to come in front of a spotlight but it’s important for us.”

Other senators seemed even more mollified by Mr. Cook’s low-key performance.

Senator John McCain, the senior Republican on the panel, who had earlier criticized Apple “as among America’s largest tax avoiders,” took pains to modulate his message. “You managed to change the world, which is an incredible legacy for Apple,”he told Mr. Cook.

“You have to be a pretty smart guy and a pretty tough guy, too, and I say that in a complimentary way,” he added.

Mr. Cook was especially disarming.

“It’s important to tell our story, and I’d like people to hear directly from me,” he told Mr. McCain and the other senators.

Apple, he testified, pays “all the taxes we owe — every single dollar.”

Mr. Cook joined Apple in 1998 as an expert in sales and operations, creating the efficient supply chain that helped catapult the company into the top ranks of the technology industry. He became chief executive in 2011.

While his predecessor, Steven P. Jobs, was famous for his creative vision and flamboyant performances at introductions of the company’s products, Mr. Cook was known for his behind-the-scenes work — particularly for his shrewd negotiating tactics with suppliers.

These skills seemed to stand him in good stead on Tuesday.

Apple, Mr. Cook said, was a victim of an outdated tax system. “Unfortunately, the tax code has not kept up with the digital age,” he said.

“The tax system handicaps American corporations in relation to our foreign competitors who don’t have such constraints on the free movement of capital.”

Apple is hardly unique in seeking to legally shield tens of billions in profits from tax collectors in the United States and overseas, even if its tactics may have been unusually aggressive.

According to one study cited by Mr. Levin, 30 of the largest American multinationals, with more than $160 billion in profits, “paid nothing in federal income taxes over a recent three-year period. Zero.”

Corporate tax loopholes, Mr. Levin said, need to be closed “whether or not we reform the overall tax code.”

On Monday, Congressional investigators unveiled a detailed report showing how Apple subsidiaries — based in Ireland but spanning other regions around the world — had helped the company pay as little as one-twentieth of 1 percent in taxes on billions of dollars in income.

Mr. Cook sought to draw a sharp distinction between sales in the United States and those abroad, arguing that the company had complied with local laws everywhere.

“The way I look at this is that Apple pays 30.5 percent of its profits in taxes in the United States,” he said. “We do have a low tax rate outside the U.S., but this is for products we sell outside the U.S.”

Again and again, Mr. Cook said Apple was proud to be an American company, even if the majority of its sales took place outside the United States and were taxed at lower rates. “We are an American company, whether we are selling in China or Egypt or Saudi Arabia.”

In the most spirited exchange of the hearing, Mr. Levin bore down on the fact that Apple’s Irish subsidiaries manage to shelter much of the company’s income in Europe, Asia and the Middle East while it pays a higher rate on sales in North and South America.

Nelson D. Schwartz reported from Washington and Brian X. Chen from New York.

Supreme Court Eases Import and Sale of Copyrighted Products

WASHINGTON — In a pair of decisions issued on Tuesday, the Supreme Court made it easier to import textbooks and other copyrighted products from abroad and made it harder for plaintiffs in class-action suits to stay out of federal court.

The copyright case, Kirtsaeng v. John Wiley & Sons, No. 11-697, arose from the activities of a Thai student who attended Cornell University and the University of Southern California. The student, Supap Kirtsaeng, helped pay for his education by selling textbooks that his friends and relatives had bought in Thailand at low prices and shipped to him.

A publisher of some of the textbooks, John Wiley & Sons, sued Mr. Kirtsaeng for copyright infringement, and it won $600,000 in the lower courts. In a 6-to-3 decision, the Supreme Court threw out that award and ruled that imported copyrighted goods were subject to the same rules as goods bought in the United States: owners of particular copies can do what they like with them.

In legal jargon, the court applied the first-sale doctrine to copyrighted materials from abroad. Under that doctrine, buyers of books, records and other copyrighted goods may lend or sell them as they wish.

The decision will have consequences for all manner of products, including books, records, art and software. Industry groups had told the justices that a decision permitting copyrighted foreign goods to be sold in the United States would limit their ability to sell materials more cheaply in developing markets and result in higher prices overall.

The case turned on a phrase in the Copyright Act, which limits the first-sale doctrine to works “lawfully made under this title.” The lower courts said that textbooks manufactured outside the United States could not have been made under American law and so remained subject to the control of the owner of the copyright.

Justice Stephen G. Breyer, writing for the majority, said the phrase was not concerned with geography. He said he doubted “that Congress would have intended to create the practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial and consumer activities.”

Much of his opinion concerned the potential consequences of a contrary ruling, one that he said “could prevent a buyer from domestically selling or even giving away copies of a video game made in Japan, a film made in Germany or a dress (with a design copyright) made in China.”

He buttressed the point by surveying supporting briefs from libraries, used-book dealers, technology companies and museums, all of which warned that allowing copyright suits over goods imported from abroad would have pernicious consequences. Libraries could be barred from lending foreign books, the briefs said, and museums from displaying foreign art.

In their own briefs, Wiley and its allies discounted this “parade of horribles” as unrealistic. Justice Breyer responded, “We are not so sanguine.” The possible practical problems of ruling the other way, he said, “are too serious, too extensive and too likely to come about for us to dismiss them as insignificant — particularly in light of the ever-growing importance of foreign trade to America.”

An aside in a 1998 decision suggested that the court would rule differently on Tuesday, but Justice Breyer said the court was free to ignore a statement made in passing. “Is the court having once written dicta calling a tomato a vegetable bound to deny that it is a fruit forever after?” he asked.

Chief Justice John G. Roberts Jr. and Justices Clarence Thomas, Samuel A. Alito Jr., Sonia Sotomayor and Elena Kagan joined the majority opinion.

Justice Ruth Bader Ginsburg, joined by Justice Anthony M. Kennedy and, for the most part, Justice Antonin Scalia, dissented, saying the majority’s “bold departure from Congress’s design” was “stunning.” She added that there were many ways to address “the anticipated horribles” that Justice Breyer had outlined.

“It should not be overlooked,” she wrote, “that the ability to prevent importation of foreign-made copies encourages copyright owners such as Wiley to offer copies of their works at reduced prices to consumers in less developed countries who might otherwise be unable to afford them.”

In the class action case, Standard Fire Insurance Company v. Knowles, No. 11-1450, the court unanimously ruled that plaintiffs’ lawyers cannot avoid the requirements of a federal law that allows some kinds of class actions to be moved from state to federal court by promising to accept less money than the class might be owed.

The law, the Class Action Fairness Act of 2005, allows defendants to move some big class actions out of state courts thought to be hostile to business interests as long as the proposed class has more than 100 members, at least one of them is from a different state than a defendant and the amount at stake is more than $5 million.

The case concerned the Standard Fire Insurance Company, which is based in Connecticut and was accused in a proposed class action filed in Arkansas of failing to make full reimbursements for property damage claims. The plaintiffs’ lawyers stipulated that they would limit to $5 million the amount sought by the lead plaintiff and the class he sought to represent.

Justice Breyer, writing for the court, said the tactic would not work. “Stipulations must be binding,” he wrote. But, he said, “a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.”