Apple's iTunes Monopoly Case: Jury Decision Ends Customers' Hopes

Big news this week: a jury in California has sided with Apple in a $351 million trial over the company’s iTunes software update and changes to the way iPods function. Plaintiffs in the case, who hoped to represent more than eight million iPod users, claimed that Apple’s latest update, iTunes 7.0, created an illegal monopoly by preventing music from third-party sellers from working on the Apple devices, while simultaneously preventing music bought via iTunes from being played on other devices. These changes, lawyers claimed, effectively locked Apple Music customers into a “walled garden” where only music bought from Apple – at prices the company could set themselves – was available to iPod owners. Claims were brought under the Sherman Act and, considering the size of Apple’s customer base, potential damages were in the hundreds of millions of dollars. The lawsuit was first filed in 2005, and industry experts have been watching closely to see which way the jury would rule. Well, now we know – and while Apple can breathe a sigh of relief, this may be bad news for music lovers.

So, what did Apple say about the accusations?

Apple has always maintained that the update was only intended to improve user experience and that any effects on third-party retailers were merely unintended byproducts of the company’s innovation. ITunes 7.0 is also the first software release to allow video iPods to play movies and television, meaning – the company says – that the update constitutes a genuine product improvement. This is important because plaintiffs’ lawyers argued at trial that Apple had used the software update as an excuse for bringing about the monopolizing changes. Clearly, the jury wasn’t won over by that claim; they took just four hours to rule that the new software was a legitimate upgrade and didn’t harm iPod users.

I use an iPod – how does this affect me?

The major point of contention in this lawsuit was whether iPod owners were able to listen to music from third-party sellers, such as RealNetworks. The fact is, iTunes 7.0 prevents music bought via other companies from working in iPods – so, if you have any music bought from sites other than iTunes, and have an iPod using iTunes 7.0 software, you’re out of luck. iPod users will now have to buy music exclusively from iTunes – and since music bought from iTunes won’t work on other music players, you’ll also have to make sure you stick with an iPod. Apple’s use of digital rights management – software that means a music track bought from iTunes can’t be played on other music players – also came under attack during the trial, with lawyers claiming that it allowed the company to charge more for iPods and maintain a monopoly. The $351 million sought from Apple was calculated based on the price of iPods (said to be, on average, 2.38% more than competitors’ devices) and the cost to consumers of paying for Apple’s monopoly.

What happens now?

It doesn’t look like there’s going to be any appeal – so the jury’s decision is final. Speaking after the decision, the plaintiffs’ attorney described the suit as a “tough case,” while the jurors declined to comment. As such, Apple’s iTunes 7.0 update is now unchallenged – and iPod users will have to accept the cost of using the device.

Apple monopoly – or pure innovation?

Although the jury has ruled that Apple’s software upgrade was never intended to stop RealNetworks (and others) from selling music to iPod users, it’s hard to see how Apple Music isn’t a monopoly. By making sure all music bought via iTunes must be played on iPods, Apple essentially has a captive audience, and can raise the price of iPods without fear of losing its customer base. Millions of music lovers – who’ve spent years building up their digital music collection – must face the fact that they cannot shift to a new device without potentially losing music they have paid for. Is that not a monopoly? It’s worth remembering that in the end the jury’s decision was based on Apple’s intentions in releasing iTunes 7.0, and did not really address the wider issue of whether users should be able to switch devices.

Imagine for a moment that DVDs were sold that only worked on DVD players manufactured by Panasonic – would customers be willing to accept the limitations? Digital rights management is a helpful way for companies to lock customers in – but it does come at a cost. Apple may claim that iTunes 7.0 strengthened security against hackers, but let’s face reality: by locking others out, Apple’s also locking customers in. It’s possible that other challenges will be brought in the courts in the future – and if they are, it will be worth watching to see how Apple responds.