Apple Wins Unanimous Jury Verdict in iPod Antitrust Suit

By David Needle  |  Posted 2014-12-16 Print this article Print
iPod Verdict

A jury unanimously found that Apple didn't violate federal antitrust law when it released a software update for the iPod that blocked competing music services.

In a closely watched trial that included a video deposition by late Apple CEO Steve Jobs, a jury Tuesday unanimously found Apple didn't try to create a monopoly by blocking other music services from playing on its best-selling iPod.

In taking only three hours of deliberation to issue its verdict, the jury ended a complex case that alleged violations of federal antitrust law that started about 10 years ago and had made its way to Federal District Court in Oakland earlier this month.

The central issue in the case was whether Apple violated antitrust laws with changes it made to its iTunes software back in 2006 to 2009 that prevented other music services from playing on the iPod. The jury agreed with Apple's argument that changes made in iTunes 7.0 were designed to bring new features to the iPod and reinforced copyright protections demanded by music publishers.

Had it lost, Apple could have been held liable for as much as a $1 billion. By keeping a lock on the market for music players, plaintiffs in the case had argued that Apple was able to sell iPods at inflated prices, pocketing $350 million more than it should have. Had the jury found for the plaintiff, Apple would have been subject to triple damages under federal antitrust law. The plaintiffs represented a class of 8 million consumers allegedly harmed by Apple.

But the jury sided with Apple attorney William Isaacson, who argued that the iTunes 7.0 software at issue in the case was primarily designed to improve the music playing experience for consumers by improving security, and adding movies, games and other features.

Among other arguments, plaintiffs were banking on testimony by former Apple engineer Rod Schultz who, according to the San Jose Mercury News, testified Dec. 12 that he worked on a project meant to “block 100 percent of non-iTunes clients.” But in his arguments, Apple's Isaacson pointed out that Schultz conceded the software contained meaningful new features.

There were several points of drama in the case including a video deposition by Jobs taken six months before his death in October 2011. Jobs said Apple was “very scared" that hackers could break Apple's security system. "There are a lot of hackers trying to hack into these things so they can do things that would put us in non-compliance with the contracts we have with the music companies,” Jobs said.

The plaintiff specifically argued Apple sought to keep RealNetworks Harmony software from playing on the iPod. Harmony was designed to let RealNetworks music service run on various music players including the iPod. While it worked initially, the iTunes 7.0 release and a subsequent update prevented it from playing on the iPod.

But in closing arguments Friday, Apple lawyer Karen Dunn questioned why Apple would have gone after RealNetworks—a relatively small player at the time—if its aim was to choke off competition—rather than Amazon. She argued the issue was the loopholes in iTunes that RealNetworks exploited.

Earlier in the trial, plaintiffs presented the draft of a news release in which Jobs compared Harmony to "the tactics and ethics of a hacker to break into the iPod." RealNetworks did not participate in the case.

Tim Bajarin, president of computer industry analyst firm Creative Strategies, told eWEEK he wasn't surprised Apple won the case. "Apple wouldn't have had the success it did with the iPod without putting the DRM [Digital Rights Management] in that Hollywood insisted on and it had to protect that," Bajarin said. "Apple was clear that was part of the iPod architecture. Also, consumers had other options [besides the iPod] for music players and Real had other partners."

In a statement issued after the jury verdict, a spokeswoman 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 these products—and every Apple product over the years—we've done it to make the user experience even better."


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