March 22, 2011 at 12:00 pm

DRM Hangover Haunts Apple, Steve Jobs

drm hangover haunts steve job and apple realnetworks harmonyApple stopped wrapping its music downloads in digital rights management (DRM) over two years ago, but its use of the technology to deny the competition access to its market-dominating iPod continues to cause legal problems for Apple.

Apple CEO Steve Jobs has been summoned away from medical leave to testify for up to two hours regarding the company’s allegedly monopolistic behavior against U.S. consumers, according to multiple reports including a Bloomberg article.

At issue: Apple’s sabotage of a RealNetworks’ workaround that enabled it to sell music to iPod owners. This would have made digital music more similar to previous formats like the record, cassette, or CD, which allowed music purchased from one company to play on hardware sold by another. Apple blocked RealNetworks’ workaround in 2004, leading to this week’s ruling in the ongoing class action suit (Case No. 05-00037, U.S. District Court, Northern District of California).

“The court finds that Jobs has unique, non-repetitive, firsthand knowledge about Apple’s software updates in October 2004 that rendered the RealNetworks’s digital music files once again inoperable with iPods,” ruled Judge Howard Lloyd on Monday.

A little back story is in order here. About seven years ago, before smartphone apps made most hardware MP3 players irrelevant, RealNetworks thought it had finally figured out how to open the market for digital music: a “DRM translator” called Harmony. With Harmony, Rhapsody could sell digital music that played on the Apple iPod.

At one point, Apple accused RealNetworks of “adopt[ing] the tactics and ethics of a hacker to break into the iPod.” Steve Jobs seemed to win that chess match against RealNetworks’ Rob Glaser, which involved several dramatic gambits. But now, judge Lloyd says Jobs has knowledge of potentially monopolistic behavior, which if proven in court, could result in Apple writing a hefty check to RealNetworks (still the partial owner of Rhapsody).

Ironically, DRM technologies like those at issue here are not much of an issue for consumers these days, although it is arguably more pervasive. Apple has parlayed the success of its music store into a marketplace for movies, books, and apps, claiming 30 percent of sales revenue in return for securing content and offering a unified storefront.

Single-song downloads purchased from Apple or Rhapsody may no longer be wrapped in DRM, but cloud-based music services, on-demand music players like Spotify and YouTube, and anything else that runs within an app is essentially surrounded by an invisible layer of DRM. Usage rules are baked into the service on web and mobile apps, so consumers don’t have to deal with them actively. In other words, smartphones don’t need DRM because they are DRM.

Regardless, Apple did block RealNetworks from selling music that played on its devices, arguably contributing to its mobile media dominance today. Now Jobs must testify, despite his medical leave, which is most likely related to his bout with pancreatic cancer and subsequent liver transplant.

In Apple’s favor: reverse-engineering digital rights management is illegal under the Digital Millennium Copyright Act. However, Rhapsody maintained that it figured out how to create music files compatible with Apple’s Fairplay DRM without reverse-engineering it.

Image: Flickr/acaben