Northern California Judge Gives Green Light to Monopolization Suit Against Apple


apple video ipodWith all the hoopla of the video iPod and speculation that Apple was going to release a media center-style PC and switch to Intel chips, it seems that the media last September inadvertently – or knowingly – forgot to post the news (via Tera Patricks) that Judge James Ware, of the U.S. District Court of Northern California, has found the plaintiff, Thomas Slattery, as having “met all requirements for asserting [Apple's iTunes + iPod] tying claim… noting that the complaint alleges Apple has an 80 percent share of the market for legal digital music files and more than 90 percent of the market for portable hard-drive digital music players.” Moreover, Judge Ware has given the green light to Slattery to proceed with his monopolization claim under the federal Sherman Antitrust Act.

As some of you know we’ve been having some thoughtful discussions on Apple, iPod, and its DRM in the forums (here and here), but I don’t think any of us knew that the numbers were as high as the judge found the evidence to be. Also of interest was that Judge Ware specifically rejected Apple’s argument that tying doesn’t apply since consumers can buy iTunes music for playback on their computers without having to own an iPod. I’m sure some will say that this is not a monopoly, but ask yourself: What other online music services, other than the iTunes Music Store, offers Apple’s Fairplay DRM wrapped music for you to purchase for your iPod? That’s right, exactly zero. So unless you own a physical CD and have ripped the tracks to MP3 or AAC, there’s no other way to add music to the device other than by way of iTunes. (OK, there are two non-traditional exceptions: 1) Services like eMusic that sell DRM-free MP3s, and 2) Real’s Harmony software that can convert their copy protected music to a compatible format for the iPod – Note that Apple threatened Real with a lawsuit for providing this feature.)

On the flipside, if you’ve purchase DRM wrapped music from services like Napster or Yahoo! Music, you will be denied access to those files since Apple doesn’t feel compelled to license Windows Media DRM (not that Microsoft hasn’t offered). So you see, being the leader of “closed system,” even if you’re a small company, can get you into trouble when you have the majority of the market locked down and are unwilling to loosen your restrictions on allowing your player to work with other services and codecs.

* If anyone has more details on the proceeding of this case, please comment.

Related: A Possible Solution to Our DRM Conundrum





Filed in: Industry Buzz


  • http://net-K.us/blog kaseiffert

    Apple has plenty of competitors, its not their fault that they make the best product. The product that the consumers have chose to buy the most. Apple has done nothing to stop other competors from competing.

  • David Walker

    kaseiffert said: Apple has plenty of competitors, its not their fault that they make the best product. The product that the consumers have chose to buy the most. Apple has done nothing to stop other competors from competing.

    Microsoft also has plenty of competitors that are “competing.” However, whether or not Apple has “done nothing” is very debatable. Apple HAS NOT licensed it’s DRM to other companies nor has it allowed other MP3 players compatibility with iTunes or the iTunes music store. Since these are the dominant technologies in their respective categories, at the least, Apple has engaged in practices that could be deemed to be anti-competitive and thus, anti-consumer. It would seem, though, that it is now in the hands of our Judicial system.

  • CyclotronX

    This is retarded.

    1. You can get music from a variery of f sourcess.
    2. You dont need to buy music from Apple to use either the iPod or th iTunes
    3. You dont need to uses iTunes to play music on your computer
    4. You can import music from CDs, Cassettes, or any audio format to iTunes
    5. You can export your Apple DRM protected music by buburning it to CD and the re-importing as MP3
    6. You dont need the iPod to use iTuness.
    7. Thanks to 3rd party software you dont need iTunes to load the iPOd hitw music.
    8. The iPod can play musci from apple or from any other source of music.

  • CyclotronX

    David Walker said: Microsoft also has plenty of competitors that are “competing.” However, whether or not Apple has “done nothing” is very debatable. Apple HAS NOT licensed it’s DRM to other companies nor has it allowed other MP3 players compatibility with iTunes or the iTunes music store. Since these are the dominant technologies in their respective categories, at the least, Apple has engaged in practices that could be deemed to be anti-competitive and thus, anti-consumer. It would seem, though, that it is now in the hands of our Judicial system.

    You are just too wrong to go into detail. See my opther comment.

  • klink

    So if i decide to buy a mac, can I sue apple because i can’t run windows software on the computer? isn’t OSX a monopoly. i can only buy software made for mac to run on my mac. whats the difference?

    I guess I can buy virtual PC – but then isn’t the same as just burning your music to DRM free CD and then just loading it on your non-apple player.

    I can somewhat see the legitimicy of this suit, but on further investigation, doesn’t it just fall apart?

  • thru9

    Microsoft hasnt’ updated their windows media player for Mac users since version 9. Microsoft does not make software that would enable Mac users to listen to their DRM laden files. The other 50+ stores on the market that uses Microsofts DRM files have not made their stores compatible with Mac users. How is this a monopoly, and Microsoft isn’t a monopoly in the computer world, where they currently own 94% of the market??? There are almost a 100 different MP3 players on the market, their are online music stores from over a dozen big names. People have options, they have choices, this is not a monopoly, just someone who is bitter.

  • David Walker

    CyclotronX said: This is retarded.

    1. You can get music from a variery of f sourcess.
    2. You dont need to buy music from Apple to use either the iPod or th iTunes
    3. You dont need to uses iTunes to play music on your computer
    4. You can import music from CDs, Cassettes, or any audio format to iTunes
    5. You can export your Apple DRM protected music by buburning it to CD and the re-importing as MP3
    6. You dont need the iPod to use iTuness.
    7. Thanks to 3rd party software you dont need iTunes to load the iPOd hitw music.
    8. The iPod can play musci from apple or from any other source of music.

    First, I never said that Apple was a monopoly. I DID say that Apple’s practices “could be deemed” so by a court.

    Secondly, you’re missing the point. I won’t argue what you’re saying because your points are all valid. The argument is that Apple has unfairly held back competition by preventing other manufacturer’s from competing in the same space with them by not licensing their DRM to other manufacturers or allowing other manufacturers to use the iTunes Music Store. Whether or not you can bypass the DRM is irrelevant to the issue at hand.

    Finally, let me be bluntly clear for those of you who only read into my comments. I am NOT saying that Apple is guilty as charged. I will say, however, that Apple has not made their DRM licensable (like Microsoft HAS with WMA) and that COULD be legal grounds for finding Apple guilty.

  • David Walker

    thru9 said: Microsoft hasnt’ updated their windows media player for Mac users since version 9. Microsoft does not make software that would enable Mac users to listen to their DRM laden files. The other 50+ stores on the market that uses Microsofts DRM files have not made their stores compatible with Mac users. How is this a monopoly, and Microsoft isn’t a monopoly in the computer world, where they currently own 94% of the market??? There are almost a 100 different MP3 players on the market, their are online music stores from over a dozen big names. People have options, they have choices, this is not a monopoly, just someone who is bitter.

    Microsoft has given Apple the option to license their DRM, however. As long as competitor’s are given a fair playing ground to compete on, then it is not a monopoly. The question for courts to decide is whether Apple, through its DRM and dominant position in the market with iTunes, has created an environment in which other manufacturer’s can compete.

    When Microsoft was charged with monopolistic like practices by coupling Internet Explorer with Windows, there were other browsers available, just like there are other MP3 players available other than the iPod. In fact, those other browsers worked in Windows.. However, Microsoft gave itself a clear advantage by including IE in Windows and giving it functionality other browsers didn’t have rights to.

  • ewalet

    Marketshare is measured by sales made in the past. So far Apple sold over 40 million devices and this would make up more than 80 or 90 percent of the music or of all devices doing similar things.
    The US has, what, about 240 million people living there? Which means (if we assume the majority of sales was in the US) that some 200 million still have to decide whether they see buying an iPod as a lock-in. This means that the percentage of market share means very, very little, but is was the key point to allow the case to proceed.
    Take world-wide sales into the picture, the percentage means even less.
    There is enough market potential that an alternative might become the number one player.

    But from all those 40 million buyers there is exactly one (as in 1) that goes to court (and he might not even own an iPod). Now, that is a percentage that I find tells a story.

    Some time ago, I read an article (give your senator an iPod) about how some people decide on something they haven’t even used. I think that in this case, the judge needs access to an iPod and the iTunes music store for a while and he will just see how silly the whole case is.

    I think, however, that what we are experiencing here is that the law always lags reality. The digital age has changed how contents can be used. The content providers *want* a DRM. Apple provides an infrastructure that content providers can live with (though some would like to see more money). The content providers can go to any other company that provides some infrastructure and offer similar or better deals. They can even decide to withdraw their contents because of the tying to a single device.
    The tying between iTunes and iPod is only a small facet of the whole digital experience and we are only just starting to digital age: music seems well established and can be well integrated in our daily lives, video is in an experimental stage but still lacks integration.

    The whole situation, is that the judge thinks that theorectically the plaintiff could have a case and all that is decided is that this man may consume more time from the systen to continue his crusade. A small step, but a big deal. That this give a completely wrong signal about justice in general seems to account for nothing.

    Whether or not the plaintiff has a case isn’t what annoys me most. What this man wants, when he wins this case, is, apart from an amount of money, a percentage of all sales related to iPod and iTMS. So, this man goes onto a crusade because he feels there is something wrong and if he is found to be right, he is awarded a piece of the pie he is fighting against. This makes me feel that there is something fishy about the case.

  • David Walker

    ewalet said: Marketshare is measured by sales made in the past. So far Apple sold over 40 million devices and this would make up more than 80 or 90 percent of the music or of all devices doing similar things.
    The US has, what, about 240 million people living there? Which means (if we assume the majority of sales was in the US) that some 200 million still have to decide whether they see buying an iPod as a lock-in. This means that the percentage of market share means very, very little, but is was the key point to allow the case to proceed.
    Take world-wide sales into the picture, the percentage means even less.
    There is enough market potential that an alternative might become the number one player.

    But from all those 40 million buyers there is exactly one (as in 1) that goes to court (and he might not even own an iPod). Now, that is a percentage that I find tells a story.

    Some time ago, I read an article (give your senator an iPod) about how some people decide on something they haven’t even used. I think that in this case, the judge needs access to an iPod and the iTunes music store for a while and he will just see how silly the whole case is.

    I think, however, that what we are experiencing here is that the law always lags reality. The digital age has changed how contents can be used. The content providers *want* a DRM. Apple provides an infrastructure that content providers can live with (though some would like to see more money). The content providers can go to any other company that provides some infrastructure and offer similar or better deals. They can even decide to withdraw their contents because of the tying to a single device.
    The tying between iTunes and iPod is only a small facet of the whole digital experience and we are only just starting to digital age: music seems well established and can be well integrated in our daily lives, video is in an experimental stage but still lacks integration.

    The whole situation, is that the judge thinks that theorectically the plaintiff could have a case and all that is decided is that this man may consume more time from the systen to continue his crusade. A small step, but a big deal. That this give a completely wrong signal about justice in general seems to account for nothing.

    Whether or not the plaintiff has a case isn’t what annoys me most. What this man wants, when he wins this case, is, apart from an amount of money, a percentage of all sales related to iPod and iTMS. So, this man goes onto a crusade because he feels there is something wrong and if he is found to be right, he is awarded a piece of the pie he is fighting against. This makes me feel that there is something fishy about the case.

    Excellent post! There are some very valid points, here. I’ve not made up my mind one way or the other. However, like Alexander, I do wish that companies like Apple, Microsoft, Sony and others would get together to establish a sort of “governance board” that could establish fair and consistent standards for DRM practices across the board. This would give consumers a central authority that could determine whether member companies are acting contrary to consumer rights without having to get lawyers and judges involved.

  • melvin

    The way I see it, when you break this down it comes down to a simple question. Can a company sell two separate products that have an exclusive relationship to each other? Do you have to make that relationship open to competitors?

    For example, does Nintendo have to make a version of Donkey Kong for my xbox? Does HP have to let Epson make print cartridges for an HP printer? Does Eureka need to let Hoover make replacement filters for a Eureka vacuum?

    Perhaps there are some criteria that has to go along with it all. Does marketshare really matter? Do you have let consumers aware that the exclusive relationship exists? What if the relationship is a technology you invented? Perhaps you can have the exclusive relationship for a time period?

    Personally I don’t know what to think about it. If I had to guess, I’d say Apple hasn’t done anything wrong. But if the market gets to the point where the market for digital music and/or digital music players can’t compete because of the exclusive relationship, then you have to kill the relationship. It’s not there now, and it may never be.

    Xbox sells just fine without Donkey Kong and Epson and Hoover do just fine as well.

  • saurus

    David Walker said: Finally, let me be bluntly clear for those of you who only read into my comments. I am NOT saying that Apple is guilty as charged. I will say, however, that Apple has not made their DRM licensable (like Microsoft HAS with WMA) and that COULD be legal grounds for finding Apple guilty.

    Sorry but Apple did license their DRM. It’s called a ROKR and a SLVR from Motorola. And I honestly believe the main reason these products exist is to kill this lawsuit (much like the “HP” iPod that existed before), by removing the monopoly product/service tie in.

    If Apple brings out the Recording Labels agreements outlining their obligations, then you know this lawsuit hasn’t got a chance of making a dent in the DRM issue, because the RIAA will kill it, since ultimately the RIAA controls DRM, not Apple or Microsoft. This begs the question of if the FBI gets involved???

    If I was to predict the future however, I’d say Apple will license it’s DRM because to be blatently honest, the war against WMA is over, and that will do what? Oh yeah sell even more iPods, and iTunes media.

  • http://net-K.us/blog kaseiffert

    If Mr. Walker was correct, the the sony PSP would be in violation too…. well anything that uses proprietary software to work would be a monopoly….. you just can’t be more wrong.

  • David Walker

    kaseiffert said: If Mr. Walker was correct, the the sony PSP would be in violation too…. well anything that uses proprietary software to work would be a monopoly….. you just can’t be more wrong.

    You really just don’t get it, do you?

    I’m not even going to bother explaining it, because it’s obvious the educational system has greatly failed you. Take Economics 101 to learn about what a monopoly is and realize that I NEVER said that Apple was a monopoly.

    You can learn more about economics here.
    You can find out what monopoly means here.

  • aristotles

    David Walker said: Microsoft also has plenty of competitors that are “competing.” However, whether or not Apple has “done nothing” is very debatable. Apple HAS NOT licensed it’s DRM to other companies nor has it allowed other MP3 players compatibility with iTunes or the iTunes music store. Since these are the dominant technologies in their respective categories, at the least, Apple has engaged in practices that could be deemed to be anti-competitive and thus, anti-consumer. It would seem, though, that it is now in the hands of our Judicial system.

    I’m afraid that you do not understand. It is not up to Apple to support competing standards but it is rather up to MSFT to provide support for their DRM on all platforms iPod users use. Apple could easily support unDRM-ed WMA if they so chose to but that would still prevent mac users from purchasing music from stores or accessing subscriptions without using a windows PC. Why is it so damn hard for people like you to understand that we do not want to have a PC at home. I am a switcher and I participated in the XP beta but I have no interest in windows anymore.
    :rolleyes:
    Until MSFT supplies a WMP on OS X which supports the WMA stores, there is no need talking about Apple licensing support for the DRM on their iPods as Apple already provides a cross-platform solution for both mac and windows users.

  • melvin

    I think your mixing issues here. If microsoft doesn’t allow wma to play on other OS’s, then that’s a problem (I hadn’t heard that before). I don’t see that as something Apple would want to fight though. Allowing wma on OSX would allow their customers to buy from someplace other then itunes and strengthen the wma format over mp3. Maybe in a different market they would sacrifice their itunes business for selling more macs, but not right now.

    As for Apple’s fairplay only working on iPods and a handfull of other devices, that definitely works to Apple advantage over other mp3 players, and indirectly Microsoft.

    Right now, since microsoft has an advantage with the OS and ecosystem primed and ready to go, having everything open is an advantage for them. For Apple, with their market share of the digital audio part of the market, keeping things closed works to their advantage…and hopefully gives them a chance to catch up in other markets.

  • http://net-K.us/blog kaseiffert

    good post .

  • lumpynose

    David Walker said: You really just don’t get it, do you?

    I’m not even going to bother explaining it, because it’s obvious the educational system has greatly failed you. Take Economics 101 to learn about what a monopoly is and realize that I NEVER said that Apple was a monopoly.

    You can learn more about economics here.
    You can find out what monopoly means here.

    Try this for the monopoly lesson:
    http://en.wikipedia.org/wiki/Monopoly

  • fawlty111

    Compare the iTunes/iPod issue to cars (got it, boys?) Ford designs a new car. New chassis design, tweaked the 302 to use use a gasoline/ethanol fuel mix.

    Can Ford maintain exclusive rights to its design? Yes. Can it tell you what fuel mix to use, where to get and how much to pay? No. Can it enforce a policy of demanding that all replacement parts (eg oil fiters, fan belts, etc) be purchased only from Ford or a company it designates? No. Can it keep you from tricking out yout ride? Hardly.

    This is established case law-in this area, Apple’s a sure loser. Apple’s free to do it’s thing, but once you purchse a product, it can’t limit your ability to use it in a manner that doesn’t infringe on it’s intellectual copyright.

    If you all don’t get it, then you need serious help. This is why Microsoft is in serious crap with the EU and had to remove WMP from it’s OS.

  • ewalet

    A point I was trying to make in my earlier post is that, in a big way, Apple isn’t selling music at all: it buys music, puts it in a DRM package and sells it in a convenient way.

    Those whom Apple is buying the music from, can go anywhere else and let others repackage the same music in a different DRM or, like Sony, try to come up with something themselves. Why isn’t this happening (at a bigger scale)? Perhaps supply and demand: there is a demand (otherwise we wouldn’t hear the complaints), but as things look, there just is not enough to see supply growing.

    Apple isn’t monopolizing the digital music industry because it wants to (although it is probably enjoying it), but it is simply the first and still only shop that seems to be attractive to the majority of the buyers. There is enough room for the market to grow (another point I was trying to make), so thing might look different in a year or two.

  • melvin

    fawlty111 said: Compare the iTunes/iPod issue to cars (got it, boys?) Ford designs a new car. New chassis design, tweaked the 302 to use use a gasoline/ethanol fuel mix.

    Can Ford maintain exclusive rights to its design? Yes. Can it tell you what fuel mix to use, where to get and how much to pay? No. Can it enforce a policy of demanding that all replacement parts (eg oil fiters, fan belts, etc) be purchased only from Ford or a company it designates? No. Can it keep you from tricking out yout ride? Hardly.

    This is established case law-in this area, Apple’s a sure loser. Apple’s free to do it’s thing, but once you purchse a product, it can’t limit your ability to use it in a manner that doesn’t infringe on it’s intellectual copyright.

    If you all don’t get it, then you need serious help. This is why Microsoft is in serious crap with the EU and had to remove WMP from it’s OS.

    Cars and music are very different products.

    You can’t copy a car, atleast not without spending a furtune in parts. It’s probably cheaper to buy another car then copy one. Not so with music.

    Cars depreciate, while music does not as far as consumer ownership.

    With cars, the ownership is the physical product, while music is more of a license to intellectual property.

    Given these difference, it makes sense that the rules could differ since how you could realisticlly exploit the product is much different.