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Antitrust Suit Against Apple Over iPod, iTunes to Proceed

Apple Computer Inc. must face several federal and state antitrust claims arising from the operation of its iTunes online music store and the sale of its iPod digital music players, a federal judge in California has ruled.

Plaintiff Thomas Slattery's lawsuit claims Apple configured the iPod so that it will play only iTunes files and not digital music files from competing vendors of online music. Apple has also encoded its iTunes files so they will only play on the iPod and not any other digital music player, the complaint says.

The suit says another company, RealNetwork, reverse engineered Apple's iTunes format and began selling iPod-compatible music files for 45 cents each, compared with the iTunes price of 99 cents each. Apple quickly changed its software code so that the RealNetwork files would no longer play on the iPod, Slattery says.

The suit, filed in the U.S. District Court for the Northern District of California, seeks certification as a class action.

Apple moved to dismiss all the claims, but U.S. District Judge James Ware rejected the bulk of the motion.

With respect to the "tying" allegations, the judge said Slattery was claiming Apple forces people who own iPods to buy music online only from iTunes and also forces iTunes customers to buy iPods to play the music they purchase.

The plaintiff has met all the requirements for asserting a tying claim, the judge said, noting that the complaint alleges Apple has an 80 percent share of the market for legal digital music files and more than 90 percent of the market for portable hard-drive digital music players.

Judge Ware rejected Apple's argument that the tying allegations must fail because people can buy the iPod and iTunes files separately.

As for the rest of the suit, the judge allowed Slattery to proceed with his monopolization claim under the federal Sherman Antitrust Act and his claims for violation of California's antitrust and unfair-competition laws.

Judge Ware dismissed two claims for attempted monopolization under the Sherman Act, but allowed the plaintiff to amend those claims. Finally, the judge dismissed a claim of unjust enrichment with prejudice.