What the US Justice System is compelling Apple to do is to provide a version of the firmware ... The hesitancy on the part of Apple to comply with this lawful order
Good summary, but those two parts are where it gets tricky.
First off, this decision is in no way final. This was basically the front-line judge. There are several layers of review before it could eventually become a final decision through the courts, and it could take years to go through.
The full order is rather interesting to read if you like legal stuff. It's only about 60 lines of text, a quick read.
They order that apple "shall assist" to create a tool to bypass or disable auto-erase, will enable side-channel password entry, and to disable the delay between entry attempts. Or more simply: they want a tool enabling brute-force attacks on iPhone. Also in the order is that Apple figure out approximately what the help would cost financially if it is feasible.
You pointed out one --- actually two -- big issues. Technically what they are doing is likely possible. Apple could potentially help the government build the software. But as a business this potentially becomes compelled speech, or possibly more than compelled speech, it is compelled research.
First, in the US, the constitution protects both the right to speak freely and the right to refrain from speaking at all. Demanding documents and evidence is allowed, requiring disclosure can be allowed, but actually compelling speech like this is a very rare thing. There are few cases in history where the courts properly demanded speech. In one famous pair of decisions, a school at first was allowed to expel students who did not salute the flag, but three years later -- almost instantly in court-time -- the court reversed the decision. In writing that decision, they noted the flaw if it "guards the individual's right to speak his own mind, but left it open to public authorities to compel him to utter what is not on his mind."
This is one action they are taking. It is nearly unprecedented for the government to compel this type of speech. Software is frequently ruled as speech, so that is a strong tactic.
The second prong of what you mentioned is that this isn't really speech, this is compelled R&D. The courts regularly demand companies do work to release things that already exist, generally with compensation for their time and costs. But in this case the court order is compelling them to create something new. They are not searching for records or releasing dietary information or ingredients. In this case they are being compelled to create something new. Usually that's a civil thing, being able to tie research to funding, tie research to other projects, or otherwise strongly encouraging cooperation by manipulating other agreements. In those cases the company can choose not to comply and take the consequences. Maybe the lose all government contracts for three years, for medical items maybe they lose the ability to process medicaid-funded work, maybe they lose tax exemptions.
But in those cases requiring research (rather than a search or seizure of information and records), it is still an option not to comply. A carrot is offered and can be refused, but there is no stick compelling the research. If they cannot or do not do the thing, they don't get the carrots and may lose existing carrots, but company owners are not jailed for non-compliance for not doing research.
The nature of a demand to do research is also a strong tactic for Apple to take. Can Apple be fined for NOT helping invent something? I'm guessing the appeals court does not want to go this route, there are so few cases where this has happened, if it has ever happened.
Then there is a third thing, the bulk nature of the case, which I'm guessing is going to be the key to deciding legality because there is so much precedent and constitutional law behind it.
As pointed out, the SCOTUS has been very clear recently -- including a few uncommon 9-0 rulings -- that tools enabling bulk operations are very different than tools operating individually. A few recent cases were that GPS on a car is bulk collection at all times versus tailing a car that is an individual operation requiring effort; bulk data collection by NSA of phone records versus individual requests for phone records; bulk forced-release of government charitable donor records versus individual forced-release of data. Individual notes of a license plate versus bulk automated license plate readers. etc. Many of these ruling have had specific guidance to lower judges that electronic tools that operate in bulk are potentially different from more traditional tools need to be reviewed to ensure individual's rights are respected. Just because an order makes sense in an individual case, the damage done to society by tools that could operate in bulk or at radically different terms may not respect society's or an individual's rights. It is fine for officers to do a 'stake out' and monitor a vehicle without a warrant with individual work, but a warrantless GPS search that is constantly doing automated monitoring is too much. It is fine for agents to request access to an individual's phone records, but not fine for automated bulk transfers of all phone records for everyone. Bulk and automated is different from individual and manual, and requires a different standard.
One argument point Apple brought up and is clearly going to appeal on is the bulk nature. Even though the order says it must assist in creating a tool for a single device, the nature of hardware means it can be used on all iphones, the demand is a bulk order but worded as an individual order: Create software to enable attacking this specific device. Apple (and many others) point out that this software enables attacking ALL the devices, including devices owned by business executives, politicians, spies government agents, criminals, lawyers, and common folk. Given the direction of the court in recent years, the FBI keeps reiterating they are only interested in one phone so it is an individual order, Apple keeps reiterating that the tool will be universal so this is a bulk order.
Apple is arguing publicly that the judge may not not understand that this was an order for a bulk demand on the hundreds of millions of iPhones around the world. The open letter suggest the judge applied the standard of an individual operation affecting a single device rather than the standard of a bulk operation affecting tens of millions or hundreds of millions in almost every nation of the globe.
Since there is much recent case law around this argument, and since the SCOTUS has been cracking down hard on bulk operations, this gets back to the original quote, saying that this was a lawful demand.
Apple is not saying it cannot follow the order, technically they probably can do the research in the order. It may cost some money, but the order says they will be paid a reasonable rate for their efforts. Apple is saying that the order is unlawful because it operates in an automated way and in bulk, and they can cite several recent unanimous SCOTUS decisions that suggest they are right.
