The two sides to Apple's iTunes antitrust case have finished presenting their closing arguments. Both have left it to an eight-member jury to decide whether Apple practiced anti-competitive measures and harmed consumers by pushing an iTunes update that barred iPod users from playing songs from other online music stores.
At the heart of the issue and key to the jurors' decision is whether Apple, in using FairPlay digital rights management (DRM), simply wanted to improve the iPod experience or if it was a disguise intended to block out competitors, such as RealNetworks, from selling music to iPod owners and artificially inflate the price of the music player.
"You will be asked to determine whether the firmware and software updates in iTunes 7.0 were genuine product improvements," Judge Yvonne Gonzales Rogers of the Northern District Court of California instructed the jury. "A company has no general legal duty to assist its competitors, including by making products interoperable, licensing its competitors or sharing information to competitors."
If the jury rules the iTunes 7.0 update, which came with major improvements including album cover, higher-resolution videos and support for movies and video games, is a true product improvement, Apple will not have to pay the $350 million in damages being demanded by the plaintiffs. Under federal antitrust laws, the amount could balloon three times its size to $1 billion.
However, if the jury finds that Apple had anti-competitive intentions, it will still have to determine whether actual anti-competition laws were breached and how much it should pay the 8 million customers who bought an iPod between Sept. 12, 2006 and March 31, 2009, during which iTunes 7.0 was in place.
In his closing argument, plaintiffs' lawyer Patrick Coughlin called iTunes 7.0 a "one-two punch" that "knocked out competitors." The update, which included a security feature that verified Apple's FairPlay in a user's iTunes library, could do a lot of things including, Coughlin said, wiping out the user's entire music library if it detected music purchased from other stores.
"I've been trying to think of an analogy, and I've been living on Snickers bars for the past couple of weeks. Now if the Snickers bar was bigger, or contained more chocolate, that would be better," Coughlin said. "But if that Snickers bar had a preservative in it that was toxic -- that was lethal -- that would not be an improved Snickers bar."
Plaintiffs rely heavily on a series of emails written by Steve Jobs and other top-ranking Apple executives as well as a video deposition of the Apple founder recorded six months before he died. In one of the emails sent to iTunes creator Jeff Robbin, Jobs told him that "we need to change a few things here."
"Guys: we need to make sure that when Music Match launches their download music store they cannot use the iPod," Jobs wrote.
Chief among the competing music stores is RealNetworks, which interestingly isn't part of the lawsuit. Plaintiffs say when RealNetworks developed Harmony, which reverse-engineered iTunes' FairPlay in order to make it compatible with its own DRM music files, Apple issued a scathing statement accusing it of hacking into iTunes, though Cupertino never pursued legal action.
"If you used RealPlayer to put songs on the iPod, that's it," Coughlin said. "Your device is a brick. Your songs are gone. It's worse than a paperweight."
Apple defense lawyer William Isaacson argued, however, that plaintiffs were never able to prove that iTunes 7.0 harmed consumers, saying Apple has not received a single complaint about the update. Isaacson fired back at Coughlin, saying that everything is pure "lawyer argument."
"There's no evidence that a single consumer lost a single song. There's no evidence that people thought burning and ripping was hard. There's no evidence in this case that any Harmony users even used it with the iPod," Isaacson said. "That is all made up, at this point."
Isaacson also maintained Apple's viewpoint that RealNetworks is a hacker taking advantage of a security hole in iTunes, which was later patched by Apple. The lawyer said iTunes 7.0, aside from introducing a host of new features for users, also improved security to prevent hackers from exploiting the system.
Another key contention by Apple is its relationship with major record labels, which insisted Apple use DRM to protect their copyright. Part of the contract, as iTunes chief Eddy Cue testified, required Apple to fix security holes once they were found. Otherwise, Cue said record labels promised to withdraw their support of iTunes unless Apple patched the holes.
Apple has always been vocal about its stance on DRM. In 2007, Jobs published an essay titled "Thoughts on Music" in response to criticism that FairPlay was intended to lock in users to iPod.
"They were saying we wanted this closed environment, but we had wanted DRM-free from day one," Cue said. "We had the best jukebox, we had the best store, and we had the best player. With DRM-free, we'd sell even more."
Apart from the potential $1 billion plaintiffs could receive, the case has no immediate effect on technology consumers and the industry as the iPod has since waned in popularity with the rise of smartphones. Additionally, Apple has removed the restrictions on what content could be played on an iPod.
