Apple Sued for Providing Integrated Music Solution

In a legal system with more than enough stupid lawsuits, Thomas Slattery's suit against Apple is one of the dumbest.

For those who haven't been paying attention or believed this had to be from of The Onion or Weekly World News, the truth is that Slattery has initiated a class action suit against Apple, claiming that the company is "unjustly enriched" by an iPod/iTunes/iTMS monopoly.

Monopoly, as in the only game in town - or at least something that dominates the market as strongly as Windows does operating systems, Word does word processing, and Excel does spreadsheets.

Slattery contends that Apple restricts iPod owners to using the iTunes Music Store, using their exclusive FairPlay DRM and near monopoly power to prevent iPodders from using alternative online music services.

The Facts

The market loves iPods. Apple has sold, what, 30 million of the portable digital music players, and that accounts for about 75-80% of the market. Apple definitely dominates that market, but there are plenty of other MP3 players on the market - many of which use Microsoft's DRM system, which is incompatible with the iPod.

A lot of people love iTunes. Mac users. Windows users. iPod users. People who don't use iPods. Like the iPod, iTunes works with protected content purchased from the iTunes Music Store (iTMS). Like the iPod, iTunes also works with MP3 and unprotected AAC files.

Apple designed iTunes and the iPod to work together seamlessly, but iTunes is much more than a front end for the iPod. iTunes lets you organize your existing MP3 collection, rip your CDs to MP3 or AAC format, play your tracks, create playlists and burn CDs, synchronize your music library with your iPod, and buy tracks from Apple's iTunes Music Store.

The iPod dominates the player market. iTMS dominates the music download market. FairPlay protected content only works on one line of MP3 players - Apple's iPods. iPod owners and iTunes users have only one online source for buying DRM-protected content.

That said, there's a difference between being dominant within a market by providing an integrated solution and using monopoly powers to control the market.

Standard Oil

It was a monopoly when Standard Oil virtually owned the US oil industry (at 90%, a smaller portion of its market than Microsoft has in operating systems and word processing). The US government broke Standard Oil into 34 pieces in 1911 - including 11 regional oil companies. Brands descended from the Standard Oil monopoly include Mobil, Esso, Humble, Sohio, Sinclair, Conoco, Chevron, Texaco, Amoco, Arco, Marathon, and Exxon.

By 1941, mergers had turned the 11 "baby Standards" into 7, but only Esso had attempted to expand its market beyond its geographic base. Twenty years later, mergers had reduced these 7 brands to 5, and Esso had further expanded into the South.

With continued mergers, the "baby Standards" turned into Exxon-Mobil, Chevron, and Amoco, which merged with BP (British Petroleum) so you now buy Amoco fuels at BP gas stations.

AT&T

The biggest monopoly breakup in recent decades came when the US government broke up "Ma Bell" into six regional phone companies and one long distance company, which retained the AT&T name. Twenty years later, several of these have merged - the same thing that happened to the "baby Standards" over the years.

But there was a bigger change. With the AT&T breakup, the "baby Bells" began to face competition from other companies offering local phone service. And then came cell phones, which completely changed the infrastructure. Today the traditional phone companies are fighting a holding action as more and more Americans switch to mobile phones.

The pattern there has been familiar - from many competitors come mergers, and with mergers come companies with broader, wider, deeper markets. Cingular and Sprint/Nextel seem to dominate today, and Centennial wireless appears to be seeking suitors. The small companies can only survive by merging into larger ones.

Microsoft

More recently, the US government and the EU have declared Microsoft a monopoly, but for some reason the "trust busters" didn't bust up Microsoft's monopoly. To this day Microsoft Windows controls about 95% of the operating system market, Microsoft Word has a virtual lock on the word processing market, Microsoft Excel is far and away the dominant spreadsheet, PowerPoint means digital slide shows, and Internet Explorer is the vector of choice for malware coders.

Microsoft unfairly leveraged their dominance in one market to take over other markets, killing off Netscape Navigator by giving away Internet Explorer with every copy of Windows (not to mention the Mac OS!). And they used their dominance in word processing and spreadsheets to market their Office suite, making PowerPoint and Access essentially free to those who might have bought Word and Excel separately.

iPod, iTunes, and iTMS

The iPod doesn't have a monopoly. Not even close. Some brands have fallen by the wayside, but Microsoft is pushing their alternative DRM scheme and Sony is trying to establish their digital Walkman line (probably too little, too late). There is competition, although the market has made the iPod their top choice.

Like Microsoft's does with Internet Explorer, Apple gives away iTunes for free. Most who have used it find it the best solution for ripping CDs, managing their music libraries, and burning mix CDs. Again, some competitive products have fallen by the wayside, but there are plenty of alternatives - including Microsoft's Windows Media Player (even available in a Mac version).

Apple's iTunes Music Store doesn't have a monopoly, although it definitely dominates its market. iTunes is the easiest way to manage the iPod. iTMS is the only online music service that integrates with iTunes, and its FairPlay protected content can only be played on iTunes or an iPod.

That's what Slattery seems to object to. While the iPod has competition, iTunes has competition, and iTMS has competition, he views the integration of iPod, iTunes, and iTMS as an injustice. I'm not sure just what he wants - besides notoriety and money.

Does he want the iPod to work with Microsoft's protected content? Does he want to be able to buy from iTMS and play it on a non-Apple MP3 player? Is he upset that Apple doesn't rent music?

Microsoft's Solution Is Equally Integrated

Apple has an integrated system that works, but nobody is forced to use it. Microsoft has an equally integrated solution - "Plays for Sure" MP3 players, "Plays for Sure" digital restrictions management, and "Plays for Sure" online music services. This is a less popular choice by far, but it is a real alternative.

In fact, for those who want to rent music rather than buy it, it's the only choice. Apple doesn't play that game.

To win his ludicrous case against Apple, Slattery has to prove damage. Is Apple using its market domination to overprice iTMS content? No, there are several alternative services. Is Apple using its market dominance to unfairly undercut competitors? No, there are less costly services.

Is Apple using its market domination to overprice the iPod? Or is Apple using its market dominance to unfairly undercut competitors? Again, the answer is no. The iPod is fairly priced, and many iPod competitors offer features the iPod doesn't, such as FM radio and the ability to record audio.

Choice Means Limits

The simple truth is that when one chooses an iPod or a "Plays for Sure" MP3 player, that decision limits future choices. iPods don't work with Windows Media files. "Plays for Sure" players don't work with FairPlay files.

And neither choice prevents the use of existing MP3 files or ripping your CD library.

Let's look at some analogies to show how silly Slattery's class action suit it. It's like a Betamax owner suing because he can't play VHS tapes, a Nikon owner suing because she can't use Canon lenses, or a car owner suing because his new car comes with a stereo that uses CDs and not his old cassette tapes.

Choices have consequences, and Microsoft's "Plays for Sure" and Apple's iPod/iTunes/iTMS are mutually exclusive choices. Neither is any more unjust or unfair than not being able to play 8-track tapes in a cassette player or put Compact Flash memory cards in a digicam designed for SD or xD memory cards.

The judge in this case seems to understand that logic - but he's given Slattery and his lawyers another month to restate their case.

• Link: Apple Fails to Get iTMS Monopoly Suit Dismissed, Infinite Loop, ars technica
• Link: Why Monopolies Are Bad, Jeff Adkins, Mac Lab Report
• Link: The Case Against Microsoft, Steve Watkins, The Practical Mac
• Link: Whatever Happened to Standard Oil, R. V. Droz, U. S. Highways