The jury hears closing arguments in a class action case about the decisions made almost a decade ago to limit competitors' access to Apple's iPod.
OAKLAND, Calif. -- Apple revolutionized the digital music business with its iPod media player -- and eight jurors now get to decide whether the company was a champion or a bully.
A two-week-long legal battle over the meteoric rise of the iPod and iTunes music store heads to a close here Monday after lawyers presented closing arguments in a class action antitrust case. Plaintiffs, who spoke to the jury first, are resting the heart of their case on a central complaint that Apple has fought in the past -- that the Cupertino, Calif.-based company exerted too much control over the consumer experience and potentially acted anti-competitively in the process. Apple counters those claims, saying it worked to deliver the best user experience with its influential hardware and software.
"They [Apple] don't believe that you own that iPod," Patrick Coughlin, an attorney for the plaintiffs, said in court today. "They believe that they still have the right to choose for you what third-party player can play on a device that you bought and you own." Coughlin says Apple believed it had the right to "degrade your experience from a song you can play one day ... to one you can't play the next" when it shut out competing stores' MP3 files.
Apple's defense? Those claims are more or less nonsense. "This is all made up. It's lawyer argument," said Bill Isaacson, Apple's lead attorney. "No evidence this ever happened ... there's no consumers, no iPod users, no surveys, no Apple business documents." Isaacson ended Apple's arguments with a plea, that the jury not "hold a great company liable and tell them to stop innovating -- to stop innovating based on nonsense."
The case, which has bounced around courts for almost a decade, rests on a 2005 claim that Apple abused a monopolistic position in the market, which led to artificially high iPod prices. In 2006, Apple released an iTunes software update numbered 7.0 that introduced video for the iPod among other features. But it also kept songs from competing music stores from playing on the iPod.
In a later 2007 iTunes update, Apple implemented technology that stopped the iPod from functioning if it detected songs not purchased from iTunes. Users could only fix the issue if they plugged the device into iTunes and erased all its contents, effectively removing songs purchased from rival music stores. Apple claims it never received any complaints about this.
The civil trial began on December 2 in the Northern District Court of California under Judge Yvonne Gonzalez Rogers. More than 8 million customers of select iPod models purchased between September 12, 2006, and March 31, 2009, and hundreds of small and large retailers, including Best Buy and Walmart, are included in the class and may receive a slice of the $350 million in sought damages. Under US antitrust law, that amount may triple to $1 billion if Apple loses.
Yet beyond monetary damages, the case has zero bearing on the modern technology industry, as both the MP3 music file format and the iPod itself have waned in popularity, and the restrictions in question over where and how media can be played have long since been lifted.
Testimony throughout the trial has tried to clarify complex questions about Apple's intentions a decade ago, and included an appearance via video deposition by former CEO Steve Jobs, who died in 2011. Plaintiffs argue that Apple's dominance with the iPod and iTunes came only after it blocked other music stores from becoming large-enough competitors to force Apple to lower iPod prices. In quashing rivals, Apple harmed the consumer experience, they say, by disallowing songs from companies like RealNetworks from playing on its device.
RealNetworks sold licensed music from record labels with its a digital rights management (DRM) technology called Helix. But it also developed a technology called Harmony that reverse-engineered Apple's own FairPlay DRM to let RealNetworks music files play on the iPod. Apple considered that a hack, but never pursued legal action. Through iTunes updates, Apple broke Harmony's technology and maintained its grip on the market, plaintiffs told the court.
Apple turned the iPod into something "worse than a paperweight," Coughlin argued, saying that Apple "blew up" consumers' iPods with its software updates if they strayed from iTunes. "You're not told what will happen to you ... there are no more choices at that time. Your choices are over."
The iPod maker, meanwhile, says it didn't use iTunes updates to harm competitors or keep users locked into its product ecosystem, as the plaintiffs allege. Instead, it tried to protect itself from an onslaught of hackers and preserve the quality that it argued made the iPod and iTunes successful in the first place.
Apple also says it worked hard to maintain the terms of its record label contracts, according to testimony from Apple executives such as iTunes chief Eddy Cue and head of marketing Phil Schiller. By reverse-engineering FairPlay, Apple says, competitors were risking Apple's contracts, even as those same record labels were urging Apple to license out DRM to increase music sales.
Cue explained how the music labels "wanted to have their cake and eat it too," and iTunes vice president Jeffrey Robbin said the labels were consistently questioning the security of FairPlay.
Companies like RealNetworks were offloading the responsibility of making its product work on Apple, the company said. "If you have a problem, what Real [Networks] tells you to do is call Apple technical support," Karen Dunn, another Apple attorney, argued in closing. Apple executives argued that same point, including Jobs, whose video deposition was filmed six months before his death.
"We were very concerned with somebody like Real [Networks] promising customers that they would have compatibility, when in the future they might not," Jobs said in the 30-minute video, edited down from two hours for the court. "That's not something we could guarantee. So we could get sued by all these people."
RealNetworks isn't named in the suit and none of its executives appeared in court.
Ultimately, Apple's defense rests on the architecture of its product ecosystem and lack of evidence for the plaintiffs' argument. "The best way to provide quality products was iPod and iTunes," said Isaacson, Apple's attorney. He cited Schiller's testimony that Apple's success rested on the iPod-iTunes pairing and that opening up the iPod would be like giving consumers a car with two steering wheels. Customers who thought otherwise were "trying to put a VHS tape in a DVD player," using Schiller's language.
"Plaintiffs don't understand the technology in this case," Dunn said at the end of her arguments. She crossed off numerous use cases in which someone may been affected by the database-exploding scenario plaintiffs allege harmed consumers and stifled competition. She also reintroduced Apple's oft-repeated defense throughout the trial that any user could legally strip DRM from any music stores' songs by burning them to a CD and uploading them back to iTunes.
Apple has said that, from day one, it has advocated for DRM-free music, only buckling to record companies' demands to get into the business in 2001. Amazon in 2007 introduced DRM-free music that coincided with a famous open letter from Jobs titled, "Thoughts On Music," that advocated for dropping DRM. In 2009, all of Apple's music catalog left the restrictions behind.
As for those who refused to do burn songs onto discs and were harmed by iTunes 7.0, Dunn reiterated, "there is no evidence any such people even existed."
Now the jury must decide a few things: Did Apple indeed have a monopoly on the digital music business? Was Apple protecting itself from hackers and preserving contracts, or using its FairPlay DRM as a weapon against competitors? Were iPod prices artificially high because of Apple's alleged lock-in strategy?
"You will be asked to determine whether the firmware and software updates in iTunes 7.0 were genuine product improvements," Judge Gonzalez Rogers said in instructing the jury. Under the Sherman Antitrust Act, a so-called genuine product improvement cannot be considered anticompetitive, even if it disrupts a competitor's products. "A company has no general legal duty to assist its competitors, including by making products interoperable, licensing to competitors or sharing information to competitors," she added.
The arguments in the case have included accusing Apple of misleading customers and using lock-strategy to accusations it struck a deal with Amazon. Jurors have to decipher technical lingo like "keybags," a phrase for the technology used to secure DRM-protected music files, as well as mentions of firmware updates with names like database verification code and keybag integrity check.
The case has also has its fair share of controversy, from missing plaintiffs to an ongoing back-and-forth battle between media organizations and Apple over the release of never-before-seen video deposition of Jobs, which was filmed six months prior to his death.
Apple discovered that Marianna Rosen, the final remaining plaintiff in the case last week after two others were withdrawn, didn't purchase an iPod that fell in the requisite class period. Instead of throwing out the case after it was determined that Rosen didn't in fact qualify, the judge asked the plaintiffs to substitute in a new plaintiff. The next day, an ice dancer from Massachusetts, Barbara Bennett, showed up in court and was qualified to act as the representative for the more than 8 million iPod owners in the class.
Media organizations are still fighting to have Jobs' deposition released to the public. Apple filed a motion on Sunday reaffirming its stance that his appearance in court via video monitor should be treated like standard testimony. "What they they want is a dead man, and they want to show him to the rest of the world," Apple attorney Jonathan Sherman said Friday. The decision over whether the Jobs' video will be made public is up to Gonzalez Rogers.
The jury is expected to reach a decision on the merits of the case sometime this week.
Update at 5:37 p.m. PT: An earlier version of this article incorrectly stated the start date of the trial. It began on December 2, not December 9.