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From Antitrust Law Daily, December 16, 2014

Apple emerges victorious in iPod iTunes music monopoly suit

By Greg Hammond, J.D.

In the trial of claims that Apple engaged in monopolistic conduct by making some iPods incapable of playing digital songs downloaded from competing online stores, a jury returned a verdict that Apple’s iTunes updates were genuine product improvements rather than methods for maintaining a monopoly. The verdict, returned in the federal district court in Oakland, California, concludes the plaintiffs’ bid for over $350 million in damages (The Apple iPod iTunes Antitrust Litigation, Case No. 05-CV-0037 YGR).

During the class period between September 2006 and March 2009, Apple provided the software program iTunes to iPod owners, containing the company’s digital rights management system called “FairPlay.” FairPlay allegedly made certain iPods incapable of playing digital songs downloaded from online music stores other than iTunes.

In September 2006, Apple released iTunes 7.0, which—among other updates—allegedly disabled competitors from mimicking FairPlay and allowing iPods to play music from competing online music stores. Plaintiffs filed suit, alleging that Apple unlawfully maintained its monopoly power by releasing its iTunes 7.0 firmware and software update, in violation of the Sherman Act.

The district court previously determined that there was a triable issue of fact as to whether iTunes 7.0 was a genuine product improvement so as to not be anticompetitive.

Apple moved for judgment as a matter of law last week, arguing that its decision to design the iPod to work exclusively with iTunes, instead of interoperating with other software, was lawful and that it had no duty to deal with others in enabling or maintaining interoperability with the iPod. The company contended that the Supreme Court has clearly stated that Apple, like all firms, enjoys the long-recognized right of a trader or manufacturer engaged in an entirely private business, freely to exercise its own independent discretion as to parties with whom it will deal. Further, Apple argued that “a contrary rule would facilitate collusion among competitors, stifle investment in new products and innovation, and would be unadministrable, requiring courts to act as ‘central planners’ for the economy, setting the price and terms of compelled sharing.”

Apple also asserted that its iTunes updates were genuine product improvements, noting that courts have recognized a wide range of cognizable product improvements that immunize product designs from antitrust scrutiny. Specifically, the company presented evidence that its iTunes updates were product improvements that enhanced the security and reliability of the software.

Attorneys: Andrew S. Friedman (Bonnett Fairbourn Friedman & Balint, PC) for Melanie Tucker. William A. Isaacson (Boies Schiller & Flexner) for Apple Inc.

Companies: Apple Inc.

MainStory: TopStory Antitrust CaliforniaNews

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