COMPETITION
Internet, recorded music

 

It took the jury in the Apple anti-trust case less than three hours to rule that the IT giant had not been anti-competitive with the software updates it made to the iPod back in the big bad days of digital rights management (DRM) protection on downloads.

At the beginning of the case an Apple security expert defended a series of iTunes updates as protection from hackers rather than moves to shut out competitors, in a class action antitrust lawsuit in an Oakland federal court. At issue was the claim that Apple maintained a music player monopoly from 2006 to 2009 by releasing updates to its music store that made it impossible for iPods to play songs from competing stores such as Real Network’s Harmony. The Plaintiffs (and more on who they were later!) said this harmed consumers by making it costly to switch to other devices, and allowed Apple to charge high prices. The plaintiff’s argued that during synchronization with an iPod, iTunes software would generate an error message when it spotted music not purchased from Apple residing in the user’s iTunes library. The message would instruct users to reset their iPod to its factory settings. During the reset, songs not purchased from iTunes would be erased, without the iPod owner’s knowledge.

The then market-leading iPod could only play MP3s (with no DRM) and Apple’s own brand of AAC (with DRM). Apple said that as during the period in question the major labels would only sell downloads that came with DRM protection, this meant that iPod owners could only buy major label content from Apple’s own iTunes store. In response the digital firms, most notably Real Networks, which were unable to licence Apple’s FairPlay system for their download ventures, tried to backwards engineer their own AAC files with DRM protection that would work on the iPod. But they say that Apple kept updating its iPod software to stop such files from working; so much so that an iPod software update might delete music files bought from rival companies using backwards engineered DRM technology.

Plaintiff’s expert Roger Noll of Stanford University explained that the decade-old case harked back to a time before music streaming sites like Spotify and Pandora when the iPod was at the height of its popularity. Under questioning from plaintiffs lawyer Bonny Sweeney, Noll testified that Apple’s share of the MP3 market climbed rapidly after the iTunes store debuted, eventually reaching more than 80 percent when measured by sales. “That’s the event that caused them to have monopoly power, and that monopoly power continued grow and was sustained,” Noll said. Meanwhile, the iPod’s gross margin, a measure of how much profit companies extract from the goods they sell, reached about 35 percent. Once Apple solidified its hold on digital music, challengers were hard-pressed to compete, Noll said. Apple users were unlikely to ditch their iPods because they would have to relinquish their stashes of music in iTunes, Noll noted.

Augustin Farrugia, a senior director at Apple, told the jury during the trial’s second day that updates were necessary to provide bolster security in a system that “had flaws everywhere.” Farrugia also pointed out that Apple’s updates did not prevent songs downloaded from Amazon.com’s mp3 store – another competitor – from being played in iTunes or on iPods. Commerce times commented “Apple claims it erased iPod users’ music files for their own good — and likewise, that it kept them in the dark about its “security” practices to protect them. iPod users who were foolish enough to buy music anywhere except at iTunes likely would be confused by any effort to explain why the company found it necessary to delete their renegade selections, the company argued in its defense”.

Ahead of a planned disposition made by Steve Jobs before his death, the head of iTunes Eddy Cue put the blame at the feet of DRM obsessed record labels saying “Steve was mighty upset with me and the team whenever we got hacked. If a hack happened, we had to remedy that hack within a certain time period or they [the record labels] would remove all their music from the store”. As for the argument back in the DRM days that Apple should allow third parties to use its FairPlay system, Cue denied that the IT firm deliberately vetoed such proposals to block out rivals from the rapidly growing digital music space. “We thought about licensing the DRM from the beginning”, he argued. “It was one of the things that we thought was the right move [that would] expand the market faster”. Blaming the labels more overtly for their DRM obsession, Cue went on: “We believed in interoperability, which was DRM-free. They [the record labels] wanted to have their cake and eat it too. They wanted to have all the interoperabilities of DRM-free but with all the protections of a DRM”.

It then transpired that the two lead plaintiffs may have actually brought their iPods outside of the window when the alleged abuses took place, with Judge Yvonne Gonzalez Rogers reportedly commenting “I am concerned that I don’t have a Plaintiff. That’s a problem” According to BBC, the Plaintiffs’ lawyer Bonny Sweeney confirmed that the plaintiffs’ iPods may not be covered by the lawsuit’s timeline, but she said 8 million people were affected. At this juncture it seemed that none of the named Plaintiffs were actually eligible to bring the case – because as the claim narrowed down, plaintiffs needed to be to linked to the period of the iPod’s history the case related too – and a number of Plaintiffs were struck off the lawsuit after it was shown they had not been iPod owners/Apple customers at the relevant time – ultimately leaving just one plaintiff, Marianna Rosen. And then Apple’s lawyers went on to prove that [a] some of Ms Rosen’s  iPods had not been used between 2006 and 2009, [b] some had not been using the software at the heart of this case and [c] two iPods bought in 2008 were purchased on Rosen’s husband’s company credit card, so she didn’t have a direct contractual relationship with Apple and therefore no claim. On hearing this, the judge initially gave the plaintiff’s lawyers 24 hours to find another claimant who is eligible under the current parameters of the case. However Judge Yvonne Gonzalez Rogers then tabled her decision for later in the trial, and Apple lawyer William Isaacson told the judge the tech giant was in no hurry to resolve the issue saying “We were not thrilled with this,” he said. “We want to win this case on the merits, and we think we’re going to.”

Wrapping up the case, Patrick Coughlin, representing former iPod owners, told the jury: “[Apple] don’t believe that you own your iPod. They believe that they still have the right to choose for you what third-party player can play on a device that you bought and you own”. Noting the allegation that iPod software updates deleted unofficial tracks, he said that Apple set out to “degrade your experience” so that there were songs “you can play one day [and then] you can’t play the next”.

Apple’s attorney Bill Isaacson hit back, arguing that the idea everyone was losing their tracks with every iPod update was made up, and that this whole case was about lawyers postulating for the sake of it, and in doing so stifling technical innovation. He told the court: “This is all made up. It’s lawyer argument. [There is] no evidence that [track deletion] ever happened … there’s no consumers, no iPod users, no surveys, no Apple business documents”. He concluded by pleading that the jury not “hold a great company liable and tell them to stop innovating – to stop innovating based on nonsense”. And Apple prevailed. Welcoming the ruling, a spokesperson for Apple said “We created iPod and iTunes to give our customers the world’s best way to listen to music. Every time we’ve updated those products – and every Apple product over the years – we’ve done it to make the user experience even better”. An appeal may follow.

http://www.cnet.com/news/apple-ipod-itunes-antitrust-closing-arguments/

http://www.santacruzsentinel.com/business/20141208/lead-class-member-eligibility-questioned-in-apple-case

http://www.entlawdigest.com/2014/12/04/3524.htm and http://www.ecommercetimes.com/story/Apple-Accused-of-Secretly-Snuffing-Non-iTunes-Music-Purchases-81443.html