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The French Competition Council has rejected a claim that Apple Computer Inc.s refusal to license its FairPlay DRM (digital rights management) system is an anti-competitive act. FairPlay is the only system of copy protection support supported by the iPod, which accounts for more than 87 percent of all hard drive-based digital music players sold.
The case was brought by VirginMega, a joint online music venture between the Virgin Group and Lagardère, which said it had approached Apple in an effort to license the technology earlier this year, prior to the launch of Apples own stores in Europe. When this attempt was rebuffed, the company accused Apple of abusing its dominant market position and asked the courts to force the PC maker to license the technology. VirginMega now users Windows Media for its download service instead of AAC and FairPlay.
However, the court overwhelmingly rejected this claim. Although it noted that Apple was in a dominant position in the market for portable music players, it said that use of FairPlay was not essential in order for a company to be successful in the online music market, nor was it essential for the software to be licensed to others in order for the overall market to grow.
The council also noted that, even if a song was sold using the rival Windows Media DRM system, it could still be played on the iPod if consumers burned it on to a CD and re-encoded it in unprotected MP3 format.
This victory may not be the end of Apples European problems over the market for personal music players. A recent report by Reckon LLP, a London-based consultancy specializing in competition law in the media and technology markets, claimed the company could face potential action in the future under European Union competition law.
The report, entitled “The iTunes Music Store: Does competition law hold the key to a closed shop?” notes that European competition law holds that a company in a dominant position has “a special responsibility not to allow its conduct to impair undistorted competition,” something that may include providing a rival with access to copyrighted materials such as DRM software. However, this is only the case if the copyright materials are “indispensable” to carrying on a business—in this case, the business of selling music online.
As the report said, “if direct transfer of secured music content to the iPod requires content to be secured through Apples FairPlay technology, there may be grounds to believe that Apple has control over a service that is indispensable.”
Ironically, the report goes on to claim that the existence of Harmony, RealNetworks Inc.s software that allows protected songs from its music store to play on the iPod, and which prompted Apple to accuse Real of “hacker tactics and ethics,” may demonstrate that FairPlay is not, in fact, indispensable. “It would be difficult to argue that a license from Apple is indispensable if another firm, acting independently, could legitimately develop technology to render its downloadable content compatible with the iPod,” the report said.
However, despite this, the report sounded a note of caution should Apple attempt to prevent Harmony from working: “If Apple is able to prevent RealNetworks and others from developing technology that can bypass the FairPlay technology bottleneck—whether through IP law, through changes to future generations of the iPod or through iPod software updates—then the indispensability of FairPlay would be established.” Because of Apples dominant position in the music player market, this could then lead to it being forced to license FairPlay to other music stores.