Apple Wins $1 Billion iTunes Antitrust Case
After only three-hours, the jury in a 10 year old dispute reached a verdict favoring Apple. The federal jury found that Apple’s iTunes 7.0 software was a technological improvement for iPods rather than an attempt to monopolize digital music.
Along with improvements such as the addition of games and movies to iPods, iTunes 7.0 included FairPlay. FairPlay was a digital rights protection system that only permitted songs purchased through iTunes or on CDs to play on iPods. Songs purchased from competitors would not work. In fact, after syncing or updating an iPod with a computer, iTunes would require users to restore their iPods which deleted music from other sources.
The development of FairPlay dates back to 2004 when RealNetworks, an internet media company, found a workaround so its songs could be played on iPods. Apple’s response included a warning that later software may prevent such actions. Through FairPlay, Apple did just that. However, the protection system has not been used since 2009.
A class action was filed on behalf of 8 million persons and entities which purchased iPods between September 2006 and March 2009. Seeking $350 million in damages, the plaintiffs contended Apple’s use of FairPlay violated antitrust law by locking buyers into purchasing iPods rather than cheaper alternatives. Because it was an antitrust case, Apple could have been penalized with treble damages bringing the case over $1 billion.
Apple argued that iTunes 7.0, including FairPlay, was a software improvement for older iPods. It enhanced security and offered other improvements. Speaking through a deposition recorded shortly before his death, late Apple CEO Steve Jobs said the protection system was used to protect from hackers. Apple was concerned with hackers originating attacks through other music files that could hack through iTunes security or initiate cyber-attacks on the company. According to Jobs, such hacks would have subjected Apple to contract violations with music companies resulting in them pulling their music. The jury unanimously agreed the added security measures were product improvements despite their effect of blocking competitors.
Apple’s victory is no surprise given the interesting hurtles the plaintiffs faced during the case. The suit went through many changes over the years including dropping charges brought under a different version of iTunes. After the plaintiffs’ economist testified that he had not assessed any impact by the other software version, the judge dismissed those claims.
Also, late in the case, Apple discovered that two of the named plaintiffs did not actually purchase an iPod during the time period in dispute. Those plaintiffs were removed and a new plaintiff was appointed just before closing arguments. The new plaintiff did not testify.
Apple is obviously pleased with the results. In a statement the company said,
“We thank the jury for their service and we applaud their verdict. We created iPod and iTunes to give our customers the world’s best way to listen to music. Every time we’ve updated those products – and every Apple product over the years – we’ve done it to make the user experience even better.”
The attorney for the plaintiffs said he was planning an appeal. Admitting it was a tough case, the attorney said
“at least we got a chance to get in front of a jury, and that’s all you can ask.”