Apple versus RealNetworks: A lawyer's perspective

Will Apple Computer Inc.'s dispute with RealNetworks Inc. over RealNetworks' new Harmony technology have to be settled in court? One lawyer said that Apple has available several legal avenues, each with potential risks for Apple and the burgeoning digital music market.

RealNetworks last week introduced Harmony, a technology that allows users of the Real Music Store to download their files onto an Apple iPod, a space Apple has strongly defended for its own music store files. Apple responded, saying that Real's efforts were the "tactics and ethics of a hacker."

Apple also cautioned Real that they were investigating the ramifications of the software under the Digital Millennium Copyright Act (DMCA), legislation enacted in 1998 that extended American copyright law to cover digital content. Real claims that they did not violate any laws under the DMCA and said, "consumers, and not Apple, should be the ones choosing what music goes on their iPod."

"What they [RealNetworks] are doing is a huge risk, there is no doubt about that," Scott Culpepper, a partner at Atlanta-based law firm Thomas, Kayden, Horstemeyer & Risley, told MacCentral. "I would suspect Apple will file some type of legal action against them -- I'd be very surprised if they don't.

"It depends on what [RealNetworks] did -- there are several avenues that Apple may have," said Culpepper. The DMCA, general copyright law, and Apple's own license for iTunes all come into play.

DMCA not a sure thing for Apple

Culpepper, who specializes in copyright, patent and DMCA law says that the DMCA provides a prohibition against attempts to circumvent Digital Rights Management (DRM) software. This could be an avenue for Apple, but it depends on how RealNetworks managed to get their software to work with the Apple's DRM.

"If in the process of developing their system RealNetworks actually circumvented the [DRM] scheme, then perhaps there is some remedy for Apple under the DMCA," said Culpepper.

There are provisions under the DMCA that allow software developers to make sure their products are interoperable with others' software. This, according to Culpepper, is one way that Real could potentially win if Apple uses the DMCA in a lawsuit.

"There may be some outs for RealNetworks under the DMCA," said Culpepper. "If they went in and reverse engineered Apple's DRM, [RealNetworks] could argue that they did that to make sure their own software is compatible with Apple's. And that is a valid argument. Now, is that going to fly under the DMCA? We just don't know."

However, RealNetworks has publicly stated that they did not reverse engineer FairPlay, Apple's Digital Rights Management system.

"What we did was not reverse engineering. ... We looked at publicly available data moving between the user and the iPod," Sean Ryan, RealNetworks' vice president of Music Services, said at the Jupiter Plug.IN Conference last week in New York.

Copyright and contract infringement

Culpepper also sees a traditional copyright infringement case that Apple could use against Real, but it depends on the court's definition of FairPlay as software.

"I could see an argument that Apple could make that they have copyrights in the DRM itself," said Culpepper. "They could make the argument that the DRM is a piece of software and what RealNetworks software is basically doing when they perform that DRM translation, is making a copy of Apple's DRM software code. It all depends on how RealNetworks software works and how Apple has implemented their DRM."

The other avenue that Apple may have open to it is a contract claim that RealNetworks violated its software license.

"... when you download iTunes from Apple's site, you are required to execute a click license; as part of that license you agree that you're not going to reverse engineer the software," said Culpepper. "Again, we don't know what Real did, but it seems like they would have to reverse engineer something -- by doing that they would have violated the contract they signed [click license] with Apple, so I think Apple may have some contract cause of action."

The ramifications: What if Apple wins?

That Apple will try legal means to stop RealNetworks -- and potentially others -- from breaking into the iPod and making their songs work is almost a certainty. But what are the ramifications of a win for Apple on the consumer and the industry as a whole?

"There will be an injunction issued against them [RealNetworks] if they lose and there will also be damages, although those probably won't be substantial. If they pursue a traditional copyright claim on their DRM, there may be eligibility for statutory damages under the copyright law," said Culpepper.

The damages would not be that significant at this point because the software has not been available for a long time, therefore the perceived damage would be less. What a win for Apple would do in the industry is solidify the "solution model" of a company or group of companies offering songs and a music player.

"This effectively sets up a scheme in the industry where you are locked in -- if you buy an iPod, you are going to buy iTunes. This will make that system a way of life," said Culpepper.

The ramifications: What if Apple loses?

A potential loss for Apple would not only change the way the industry works, but Culpepper suggests companies would then take advantage of the ruling to effectively become music and DRM clearing houses.

"If Apple wins you will have a hardware and software source and those two are matched, but if Real wins that is no more," said Culpepper. "All of a sudden you could have inexpensive music clearing houses on the Internet with a particular DRM and they will sell a piece of software that converts their DRM into whatever DRM your player uses."

Software makers have used reverse engineering for years to make sure their software is interoperable with other software on the market, but the term is becoming more of a "dirty word" these days. To make matters worse, the laws did not have cases like this in mind when they were made and the ones that did, for the most part, have not been tested.

"Our intellectual property system is not designed to deal with some of these new technologies. As we start to patch those holes we are going to run into problems like this."

The ramifications: Digital Millennium Copyright Act (DMCA)

The DMCA's provisions for not circumventing DRM schemes notwithstanding, the Act allows companies to continue to make their software interoperable. It may be this line of reasoning RealNetworks is following when they said last week that their software "follows in a well-established tradition of fully legal, independently developed paths to achieve compatibility."

This case may be a testing ground for the DMCA and may be longer ranging than just Apple and Real.

"In my mind, this is not so much about Apple and Real -- this goes to the heart of the DMCA and using DRM to restrict the use of individual pieces of software, including audio files," said Culpepper.

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