Psycho Sensei

An interesting analysis from the DRM Blog whose link is at the end of the story

In case you haven't heard by now, a gentlemen named Thomas Slattery has filed a lawsuit in the U.S. District Court in San Jose (9th Circuit I believe) against Apple and iTunes. He makes the argument that we at DRM Blog have been spouting for a while, that Apple is using its marketing strength to lock customers into their hardware and software.


Many people think that Slattery has no chance of winning, that the lower courts shy away from ruling on such matters. But we think that his lawyers know exactly what they're doing.

"Apple has unlawfully bundled, tied, and/or leveraged its monopoly in the market for the sale of legal online digital music recordings to thwart competition in the separate market for portable hard drive digital music players, and vice-versa," the suit charged.


no one's said it outright yet, but Slattery's lawyers are making the same arguments that were used against Microsoft and Internet Explorer several years ago when the courts ruled against the software giant.


So I'll call it how I see it. I think they have a shot, if for no other reason than that they can show precedence with a similarity of business predatory business practices and pricing between Apple and Microsoft. Actually, their business models aren't all that disparate, perhaps reversed but certainly similar. Microsoft makes software that will work on the lowest common denominator of computers to lock in the largest number of people to its software products. Apple makes unique hardware that locks users into using its software products. The same business model approached from different views.


Now it's time for a little history lesson. Microsoft's main legal downfall during their anti-trust battle was that they used their market position to predatorily price a product to undercut similar products that were being sold by the competition. In that case it was Internet Explorer which they gave away for free and bundled (key words there) it with their operating system. By doing so, they made it virtually impossible for Netscape and other companies to sell their browsers when another one was being given away for free.


Apple has essentially done the same thing. Apple gave away their iTunes multimedia player software completely free first to MacIntosh users then bundled (there's that word again) the player software with the iTunes store software for PC users.


Then Apple priced songs at far below market value, 99-cents, a level that many have argued Apple can not be making a profit on, and at best, can only break even. The courts understand that consumers will naturally choose a lower-priced product, and that predatorily low prices have routinely been used by market leaders to drive out competition.


Finally, Apple wrapped it all up in their FairPlay DRM agreement, to which all users are required to consent, that forbids all music purchased from iTunes from having the DRM removed. Although you can burn a back-up of your songs to CD (the Redbook CD format, the standard that all CD players recognize), but allows no transfer of said purchased songs to other mp3 players (i.e. Apple's competition). And since it breaks the DRM agreement to do so, a customer is forbidden to rerip that back-up CD to mp3 form. Thus, to truly take your digital music on the go, you have to buy their iPod. Check out iTunes Music Store's ToS. It says you're allowed to export your music for personal use, but literally can't because the songs won't play on any other device.


Another argument that begs to be made is that Apple took the open mp4 standard and changed it so that it would not work with standard mp4 players. By wrapping their digital rights management scheme around it, Apple broke an open standard. Compare this with Sony's approach. Sony took ATRAC and added DRM that locked it down. The difference is that Sony owns ATRAC and ATRAC was never an open licensed standard. This can also be compared to Nintendo and its console market. Nintendo was clearly the market leader in the console market but no other manufacturer could build cartridges for the Nintendo. This was challenged in court several times and Nintendo always won. The reason that both Sony and Nintendo will always win these cases is that those two companies were using proprietary technology that was never licensed to anyone else. The reason that this might hurt apple is that MP4 is an open standard that Apple licensed from another company and consumers have the assumption that their MP4s will work with any MP4 player.


Under the guise of intellectual property protection, Apple has created a very predatory business model intended to lock consumers into their technology. They sell the songs to sell the device, but the real problem is that they've potentially violated anti-trust laws to do it. One way that Apple could probably diffuse this issue would be to simply licens FairPlay to other hardware and software makers.


I should also add that the Ninth Circuit is one of the most liberal courts and tends to be overturned more than another other circuit. What this means is that regardless of the outcome, we may very well see this case, or another one like it, go all the way to the Supreme Court, or at least be remanded back down to the lower courts by the Supreme.

[DRM Blog]