I. INTRODUCTION
For many music consumers, the ideal medium for music is digital. It offers many advantages over CDs, including easier distribution, decreased physical size, greater choice in the medium of sound reproduction, and the ability to include digital data such as artistic information and graphic artwork.i Online music stores offer more variety than consumers would get in a brick-and-mortar store, including reviews, recommendations, and other interactive features which increase the choices for consumers.ii The advantages of digital music, coupled with the efficiency of online purchasing, have helped online music stores such as Apple’s iTunes Store become the most prevalent form of commercial music distribution.iii However, online music piracy has been harming the music industry via lost CD sales even before commercial distribution of music over the Internet became prevalent. As online music firms attempt to tackle online music piracy, both antitrust enforcement agencies and private plaintiffs have raised concerns. Some of the solutions implemented by online music firms appear to promote competition by protecting intellectual property rights. However, others require closer scrutinybecause some actions taken to protect these intellectual property rights have been, at times, abusive.
The tactics used by Apple to combat digital piracy have drawn legal scrutiny from a number of sources in recent years.ivantitrustlawsuitvviviiviiito remove DRM restrictionsix
Apple’s digital music business has important ramifications for antitrust law that this Note explores. Apple’s digital music business practices with particular emphasis on the manner in which Apple combines products and services.
II. IPOD, ITUNES AND ITUNES STORE
xxidigital music download retail marketxii
III. ANTITRUST ANALYSIS WITH AN EYE TOWARD THE MARKET STRUCTURE OF THE MUSIC INDUSTRY
A. The Equilibrium
major labels licensed their music to a broader array of third-party music services that compete on price and features
The entrance of a radically efficient product model, the iTunes-iPod combination, coupled with the shared interest of Apple and Major Labels in eliminating online music piracy, promoted competition, lowered costs, improved services, and increased overall economic efficiency in the music industry.
thwart the development of the online music market despite the fact that customers preferred music downloads. Major Labels thought the rising of the online music market and the new business models for delivering music would deprive them of their control over the market. But when they realized they were not able to stop the development of online music distribution, they attempted to control the pace and the manner of development of online music.xxxvii
Apple’s business model combines pricing, ease of use, and technical prohibition in a way that significantly decreases the incentives for customers to choose pirated music. However, it remains to be seen whether the appearance of powerful market participant such as Apple will eventually create a more competitive environment, bring down the costs of online music, and terminate online music piracy. Therefore, the courts and the antitrust enforcement agencies should understand the equilibrium between the music industry’s interest in controlling mechanisms of distribution, the threat of online music piracy, online music vendors’ interest in lowering licensing costs, and the consumers’ interest in innovative and effective access to music. The courts could consider refraining from imposing direct legal action against online music vendors such as Apple. History has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology is a player piano, a copier, a tape recorder, a video recorder, a personal computer, or a MP3 player.
B. The Alleged “Tying Arrangement” of iPod, iTunes Music Store, And iTunes Software
“Tying” occurs when a seller insists that the buyer take a second, or “tied”, product as a condition of obtaining the seller’s initial “tying” product.xxxviii Tying arrangements can be condemned either as contracts in restraint of trade under section 1 of the Sherman Act, or else under the more explicit provisions of section 3 of the Clayton Act.xxxix
C. Refusal To License FairPlay Patent
Apple used its FairPlay digital rights management system to require owners of iPods to purchase digital music from iTunes Store. Apple refused to license its patented FairPlay technology to other portable media player manufacturers such as Microsoft and declined to support alternative digital rights management systems such as RealNetworks’ Harmony technology that circumvented Apple’s FairPlay system. Generally, the owner of an intellectual property right does not have a duty to deal with a competitor, even if the owner refusing to deal is a monopolist, as long as there are valid business reasons for refusing to deal. In CUS, L.L.C. v. Xerox Corp., the Federal Circuit held that a “patent holder may enforce the statutory right to exclude others free from liability under the antitrust laws” in the “absence of an indication of illegal tying, fraud in the Patent and Trademark Office, or sham litigation.”xlix In addition, t
i Willow Noonan, Antitrust, Intellectual Property, and the Itunes Ecosystem: A Study of the Antitrust Implications of Apple's Fairplay Technology with A Nod to the Peculiarities of Intellectual Property, 50 IDEA 533, 534 (2010) citing Brendan M. Schulman, The Song Heard ‘Round the world’: The Copyright Implications of MP3s and the Future of Digital Music, 12 HARV. J.L. & TECH. 589, 626-27 (1999).
ii Press Release, NDP Group, Amazon Ties Wal-Mart as Second-Ranked U.S. Music Retailer, Behind Industry-Leader iTunes, May 26, 2010, available at http://www.npd.com/press/releases/press_100526.html.
iii Press Release, Apple, Inc., iTunes Store Top Music Retailer in the U.S., Apr. 3, 2008, available athttp://www.apple.com/pr/
iv Thomas Crampton, Apple Faces Fresh Legal Attacks in Europe, New York Times, June 6, 2006, available at http://www.nytimes.com/2006/06/09/technology/08cnd-apple.html.
v In re Apple iPod iTunes Antitrust Litig., C05-00037 JW, 2009 WL 249234 (N.D. Cal. Jan. 15, 2009).
vi Id.
vii Brad Stone, Apple Is Said To Face Inquiry About Online Music, New York Times (May 25, 2010), available at http://www.businessweek.com/news/2010-05-26/justice-department-said-to-start-apple-itunes-inquiry-update2-.html.
viii Press Release, Apple, Inc., Changes Coming To The iTunes Store (Jan. 6, 2009), available at http://www.apple.com/pr/libarary/2009/01/06itunes.html.
ix See NDP Group Press Release, supra note 2.
x See Apple Press Release, supra note 3.
xi Press Release, Apple, Inc., iTunes Store Tops 10 Billion Songs Sold (Feb. 25, 2010), available at http://www.apple.com/pr/library/2010/02/25itunes.html.
xii See NDP Group Press Release, supra note 2.
xiii Jessica Hodgson, Leap Year Trips Zune in Black Eye for Microsoft, WALL ST. J. (Jan. 2, 2009), at A9, available at http://online.wsj.com/article/SB123074469238845927.html.
xiv Real Reveals Real Apple Legal Threat, MACWORLD(Aug. 10, 2005), available at http://www.macworld.co.uk/news/index.cfm?Rss&NewsID =12310.
xv In re Time Warner et al., F.T.C. File No.971-0070 (2000) (Statement of Chairman Robert Pitofsky and Commissioners Shelia F. Anthony, Mozelle W. Thompson, Orson Swindle, and Thomas B. Leary), available at http://www.ftc.gov/opa/2000/05/cdpres.shtm.
xvi Greg Kot, Are We Finally Buying It?: New Model Will Change the Way Musicians Approach Craft, Chicago Tribune, May 11, 2003, § 7, at 1.
xvii See FTC Press Release, supra note 15.
xviii Matthew Fagin et al., Beyond Napster: Using Antitrust Law to Advance and Enhance Online Music Distribution, 8 B.U. J. Sci. & Tech. L. 451, 457 (2002).
xix Anthony Maul, Are the Major Labels Sandbagging Online Music? An Antitrust Analysis of Strategic Licensing Practices, 7 N.Y.U. J. Legis. & Pub. Pol'y 365, 373-75 (2004).
xx Id.
xxi Id.
xxii Id.
xxiii Id. at 373-74.
xxiv Herbert Hovenkamp et al., Antitrust Law, Policy and Procedure: Cases, Materials, Problems 290-96 (6th ed., 2009).
xxv Sarah McBride & Ethan Smith, Music Industry to Abandon Mass Suits, WALL ST. J. (Dec. 19, 2008), available at http://online.wsj.com/article/SB122966038836021137.html.
xxvi Id.
xxvii Id.
xxviii See Maul, supra note 19.
xxix Id.
xxx Id.
xxxi Id.
xxxii Id.
xxxiii Statement by Assistant Attorney General R. Hewitt Pate, Regarding the Closing of the Digital Music Investigation, (Dec. 23, 2003) available at http://www.usdoj.gov/atr/public/press_releases/2003/201946.htm.
xxxiv See Maul, supra note 19.
xxxv Id.
xxxvi See NDP Group Press Release, supra note 2.
xxxvii See Maul, supra note 19.
xxxviii N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5-6 (1958); Willow Noonan, Antitrust, Intellectual Property, and the Itunes Ecosystem: A Study of the Antitrust Implications of Apple's Fairplay Technology with A Nod to the Peculiarities of Intellectual Property, 50 IDEA 533, 543 (2010).
xxxix Id.
xl Id.
xli Cabrice Corp. v. American Patents Development Corp., 283 U.S. 27, 31-32 (1931).
xlii Herbert Hovenkamp, The Antitrust Enterprise: Principle and Execution 261 (1st ed., 2005).
xliii Id. at 263.
xliv Id.
xlv United States v. Microsoft Corp., 253 F.3d 34, 84-90 (D.C. Cir.), cert. denied, 534 U.S. 952 (2001).
xlvi Id.
xlvii Hovenkamp, supra note 42, at 265.
xlviii Id.
xlix CSU, L.L.C. v. Xerox Corp., 203 F.3d 1322, 1328 (Fed. Cir. 2000).
l Hovenkamp, supra note 42, at 265.
li 35 U.S.C
liii Id.
liv Id. at 1218-1219.
lv Id.
lvi Hovenkamp, supra note 42, at 269.
lvii Id. at 270.
lviii Id. at 272.
lix 35 U.S.C. § 271(d).
lx Hovenkamp, supra note 42, at 274.
lxiv Id. at 275.
lxv Id.
lxvi See Microsoft, supra note 45.
lxvii Hovenkamp, supra note 42, at 276.
lxviii Id.