After years of motions, complaints, and the recusal of a judge, the trial for a class action lawsuit brought against Apple over its now-discontinued music digital rights management (DRM) practices is finally underway this week in an Oakland, California courtroom. It’s a fascinating look into the early days of the iPod revolution, because the balance of power between Apple and record labels — a balance that has shifted over the years — factors prominently into the case.
Two plaintiffs, Marianna Rosen and Melanie (Tucker) Wilson, brought the lawsuit against Apple with nearly 8 million affected people claiming the company used its DRM system, FairPlay, to block competing digital music services from putting their music on iPods. The suit also alleges that Apple kept music purchased on iTunes from working on non-Apple music players.
The plaintiffs’ lawyers claim updates to iTunes — specifically iTunes 4.7, iTunes 7.0, and iTunes 7.4 — were created not for genuine product improvement, but to implement FairPlay updates on the iPod and music sold on iTunes. Apple used its monopoly in the digital music space (Apple had more than 80 percent market share in 2003) and FairPlay to stifle competition in both the digital music and portable music player market, and by doing so locked in consumers, causing them to spend more money if they wanted to move away from iTunes, or use existing songs purchased from another digital library, according to the plaintiffs’ lawyers.
The case will rest upon whether the jury believes iTunes 7.0 and 7.4 constitute a "genuine product update," a declaration already granted to iTunes 4.7 by the presiding judge. The jury has been ordered by the judge to focus on iTunes 7.0 and 7.4 and decide whether they were legitimate updates and not simply a cover for Apple to implement more rigorous FairPlay technology.
"Why is Steve afraid of opening up the iPod?"
The case has been more than a decade in the making, stretching back to the early years of Apple’s dominance in digital music. In April 2004, Rob Glaser, the founder and CEO of RealNetworks — creator of RealPlayer — emailed Steve Jobs to ask if Apple was willing to license its FairPlay technology. In exchange, Glaser said, RealNetworks would make the iPod the primary device for its music store and services. Instead of a direct response from Jobs, the email was leaked to The New York Times by someone "close to Apple." "Why is Steve afraid of opening up the iPod?" Glaser said to The Times in a telephone interview, referring to Apple CEO Steve Jobs. "Steve is showing a high level of fear that I don't understand."
Three months later, RealNetworks announced a new technology called Harmony, which could essentially mimic Apple’s FairPlay. This allowed music purchased from the RealPlayer Music Store — which was selling songs for as low as $0.49 compared to the $0.99 iTunes sold songs for at that time — to work with iPods, giving users an option other than iTunes or uploading their own CDs to add music to their devices. Three days later on July 29th, 2004, Apple responded, stating that RealNetworks had "adopted the tactics and ethics of a hacker to break into the iPod," and cautioned consumers to avoid purchasing music from RealNetworks. "When we update our iPod software from time to time it is highly likely that Real’s Harmony technology will cease to work with current and future iPods," Apple said in a statement.
Apple kept its word, and in October 2004 released iTunes 4.7, which blocked songs purchased from every other digital music store from working on iPods. Locking down the iPod and iTunes Store forced consumers to stay within Apple’s ecosystem, making them purchase more music from Apple, or lose all of the money they had invested in an iPod and any music they had already purchased, according to the lawsuit.
For the additional money Apple’s actions allegedly forced the nearly 8 million consumers to spend, the plaintiffs’ lawyers are asking for $350 million in compensation from Apple.
Apple says it built FairPlay in reaction to demand from the record labels
In a response to the case, Apple said it was required by major record labels Sony, BMG, EMI, Columbia, and Universal — who own the rights to the music sold through its iTunes Stores — to use an encryption-based "security system" approved by the labels. Apple says it built FairPlay in reaction to demand from the record labels.
After FairPlay-cracking programs like PlayFair and JHymn came about, Apple issued updates in iTunes 7.0 and 7.4 that reinforced FairPlay and its blocks against unauthorized playback. In court this week, Apple painted the picture that any changes to the FairPlay DRM were the same basic defense mechanism they’d use to thwart hackers. In testimony, Augustin Farrugia, a senior director of internet security and DRM at Apple, said that "the system had flaws everywhere," and that "it was easy to steal content from the iTunes Store" when he joined the company in early 2005. One of his first jobs at Apple was to pore over its product security, which eventually led to the more stringent control measures.
After the plaintiffs’ lawyers told jurors Apple deleted music purchased through competing digital stores off iPods between 2007 and 2009, Farrugia copped to the claim, but didn’t expand on it, saying, "We don’t need to give users too much information."
"We don’t need to give users too much information."
During that time period, if you tried to sync an iPod that contained music from another digital store, an error message would pop up telling you to restore your iPod to factory settings. After restoring your iPod, any music from competing services would be gone.
During his testimony today, Apple executive Eddy Cue said the company "thought about licensing the DRM from beginning," but it "couldn’t find a way to do that and have it work reliably." Phil Schiller is also expected to testify today.
Thanks to a deposition in April 2011, Steve Jobs will also make a video appearance during the trial. In the deposition, Jobs was questioned about Apple’s blocking of RealNetworks’ Harmony software. But because the blocking of Harmony happened with the release of iTunes 4.7 — a version the judge has declared a "genuine product update," not just a release designed to strengthen DRM — the jury has been instructed not to consider it, rendering a portion of Jobs’ testimony essentially useless to the plaintiffs’ lawyers. Jobs did speak directly to DRM in general, which the jury will take into account.
"I like likening them to hackers," Schiller wrote back.
Emails sent by Jobs will also be fair game. It was Jobs who suggested calling RealNetworks’ attempts to make the iPod work with its services a hack, writing to Schiller, "How's this? 'We are stunned that Real is adopting the tactics and ethics of a hacker and breaking into the iPod.’"
"I like likening them to hackers," Schiller wrote back.
Apple stopped using FairPlay on music sold through iTunes in early 2009, but the technology is still used on movies, books, television shows, and apps sold in the App Store.
Apple already has a tentative settlement for $450 million in an ongoing case about ebook price fixing if it can’t get the verdict overturned, which means losing this case would have the company shelling out nearly $1 billion. Despite the $155 billion in cash Apple is currently sitting on, the company doesn’t want to make losing class action lawsuits a habit. The trial is slated to last six more days, wrapping up at the end of next week.