The dark side of Apple and iTunes

By Howard Mintz, San Jose Mercury News

OAKLAND — For millions of iPod lovers, Apple and its iTunes cyberstore are the best thing that ever happened to music.

But as a federal jury here heard Tuesday, there may be evidence of a dark side to Apple’s global grip on the digital music market. 

And that is the billion-dollar question the jurors were handed in the opening of a trial that peels back the curtain on a historic, if somewhat obsolete, chapter in Apple’s existence.

In fact, the star witness in the trial will be late Apple CEO Steve Jobs, who will appear via a video of a deposition taken shortly before his death in 2011 in which he responded to accusations that Apple violated federal antitrust laws.

During opening statements by lawyers on both sides, the jury heard starkly contrasting portraits of a 10-year-old lawsuit that accuses Apple of violating federal antitrust laws through technology that once restricted music downloads for iPods to its iTunes store.

Plaintiffs’ attorneys told jurors Apple’s goal was simple: Squelch competition from rival digital music providers and makers of digital music players other than the iPod.
“This case is about Apple and the steps Apple took to hold on to its monopoly,” said Bonny Sweeney, lead lawyer for an estimated 8 million plaintiffs in the class-action case.

But Apple’s legal team scoffed at the antitrust claims, telling jurors that tweaks to iPod technology through the years were designed to improve security, add innovations such as the ability to download movies and make a better product than competitors. They noted that the cost of iPods dropped dramatically during the case time-frame (2006-2009), undercutting the suggestion Apple’s tactics drove up prices for consumers.

“There are things about the plaintiffs’ case that don’t make sense,” Apple attorney William Isaacson told the jury.

The trial centers on the legal battle over claims that Apple created a monopoly by blocking iPod owners from going to competitors for their music. 

The central issue involves Apple’s “FairPlay,” a so-called digital rights management system, or DRM, that ensured iPod owners could only download songs from the iTunes store.

RealNetworks had established a rival program called Harmony that mimicked FairPlay so iPod owners could get their music elsewhere, but Apple’s FairPlay updates kept disabling Harmony. 

Apple discontinued DRM in 2009, so the trial will not affect future iTunes and iPod technology, but it shines a light on how the company secured and maintained its stronghold on the digital music industry.

Lawyers for consumers and retailers told the jury that Apple should pay $351 million in damages for abusing monopoly powers that forced the public to choose higher-priced iPods when they could have bought cheaper music players. That figure, if adopted by the jury, can be tripled under federal antitrust law.

A key issue for the jury is whether software upgrades for the iPod, notably version 7.0, were designed to thwart the Harmony program, or were “genuine product improvements.” 

U.S. District Judge Yvonne Gonzalez Rogers, who is handling the trial, instructed jurors that they must side with Apple if the software upgrades were such improvements.
Consumer lawyers showed the jury some of Apple’s internal exchanges when Real Networks began to be seen as a threat, including Jobs’ draft of a news release in which he likened Real’s Harmony to “the tactics and ethics of a hacker and breaking into the iPod.”

Jobs’ video testimony will come later, but a transcript shows that when asked about Real Networks in 2011, he replied: “Do they still exist?”

Apple’s Isaacson told the jury that in fact the tech changes were considered groundbreaking and designed to accommodate video on iPods for the first time, as well as add security against hackers. He dismissed the damages estimate as unwarranted.

“There should be no damages here because prices went down and quality went up,” he said.

The trial is expected to last about two and a half weeks.


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