Ovum Comment: Norway says iTunes is illegal

Norway's consumer ombudsman has ruled that Fairplay, the proprietary digital rights management (DRM) software that Apple uses on downloads from its iTunes store, is illegal. This is based on the fact that songs bought from the iTunes store can only be played on iPods or with the iTunes software, as Apple has refused to license Fairplay to other device manufacturers.

Ovum research analyst Jonathan Arber comments:

This particular storm has been brewing since June last year, when the Norwegian Ombudsman ruled that Apple had to change the EULA (End User License Agreement) for iTunes as it breached the Norwegian Marketing Control Act. However, it also stated at the time that the Fairplay DRM system may breach the act, as it effectively locks consumers into using Apple technology.

This is somewhat different to the situation that arose in France last March, which focused more on the anti-competitive nature of the closed iTunes/iPod ecosystem. The Norwegian decision revolves around the fact that iTunes' use of Fairplay goes against consumer rights, and beyond the reasonable bounds of a DRM system. However, it is definitely part of the same trend - a growing awareness that overly-restrictive DRM is preventing consumers from getting the most out of digital content that they have purchased.

Consumer rights organisations in Germany, France, Finland and Norway are apparently banding together to further fight Apple on this issue. While this decision refers strictly to Norwegian consumer law, so would not have any legal implications in the rest of Europe, it could provide a strong basis for consumer organisations in other countries to challenge Apple over its business practices. While losing its Norwegian business would hardly prove a crushing blow to Apple, if France and Germany follow suit then it may be forced to think twice.

Under the ruling, Apple now has until 1 October to open up Fairplay to its competitors in Norway or face legal action. We think that Apple's best option would be to use Norway as a test market and license Fairplay to other device manufacturers, but not other music download service providers. It already has the device market sewn up - the fact is that most iPod users don't buy iPods because they want to use iTunes, they buy because they like the device - so the risk to its installed base is fairly minimal. The move could generate a huge amount of positive publicity for Apple, and would allow it to pre-empt possible legal action in other territories. The alternatives are fairly unattractive. Is the iTunes/iPod ecosystem really so valuable to Apple that it is willing to shut down its operations on a pan-European scale‾

Jonathan Arber is a research analyst working within Ovum's [email protected] team

 

 

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