Apple's Closed DRM Unlawful? Analyst Says No

Appleis refusal to license its FairPlay digital rights management (DRM) software does not violate European antitrust laws, according to an analysis by the London consultancy firm Reckon LLP. In examining the relevant aspects of EC competition law, the firm says that it is unlikely those laws could be used to force Apple to license FairPlay to other music download services.

The firm released its opinion in the wake of the French arm of Virgin Mega making a formal complaint to the French Competition Council claiming that Appleis refusal to license FairPlay to other services was anticompetitive. That refusal makes downloads from Virgin Mega and other online music retailer not playable on Appleis iPod, which has a majority market share in music players.

The firm notes:

The recent judgment by the European Court of Justice in the IMS case provides some guidance on the “exceptional circumstances” under which a dominant firm may have an obligation to provide a third party with a access to copyright-protected material. Refusing to licence “a copyright to give access to a product or service which is indispensable for carrying on a particular business” is considered abusive behaviour if:

(a) the refusal precludes all competition in a related secondary market;
(b) the refusal prevents the emergence of a new product for which there is potential consumer demand; and
(c) the refusal is not objectively justified.

It is clear that while competition law respects copyright and other IP rights, this does not give a dominant undertaking carte blanche to engage in conduct which threatens competition in areas ancillary to its dominance.

At the same time, the conditions under which licensing becomes compulsory are stringent. An access seeker must prove that failure to licence precludes competition, not that it merely impedes or lessens it; and that the new product and objective justification tests are met.

According to Reckon, it will be difficult to show that Appleis decision not to license FairPlay meets the appropriate tests under EC law to be considered anticompetitive.

Ironically, Reckon points to RealNetworksi Harmony software that converts its DRM-controlled downloads to something that the iPod can play and recognize. Apple responded to the release of Harmony by accusing RealNetworks of adopting "the tactics and ethics of a hacker to break into the iPod."

Though Apple may not care for Harmony, Reckon reckons that it may act as a shield for Apple. Reckonis report says "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 firm also notes that if Apple is able to successfully prevent Harmony from working on the iPod, either through technological or legal means, it would take away this shield, establishing the indispensability of a FairPlay license for compatibility.

Even if such a license were considered indispensable, however, there are still many other barriers that would make it difficult for the courts to find it necessary to force Apple to grant those licenses. CD markets (including mail order CDs, as from retailing giant Amazon), the presence of competing services and music players, and other factors all stand in the face of Appleis dominance being found to be anticompetitive.

Brad Gibson assisted with this article.