Monday, December 15, 2014

$AAPL - IPod Antitrust Case Against Apple Turns on 2006 Software Update

A decade-long battle over whether Apple violated antitrust laws has come down to a question of whether iTunes 7.0 was a product improvement or a clever attempt to suppress competition for its iPod music players. 

Lawyers for Apple and iPod buyers focused on that issue as they offered closing arguments Monday to an eight-person jury in U.S. District Court in Oakland, Calif. 

Plaintiffs, representing an alleged eight million harmed consumers, argued that Apple altered iTunes so that iPods would not operate with other companies' products, driving up the cost of the devices. They are seeking $350 million in damages, which could be tripled under antitrust laws. 

Apple countered that it made genuine improvements with iTunes 7.0, released in 2006, and the additional security features that disabled rivals' software were necessary. 

Apple's lawyers told jurors they only need determine whether that version of iTunes was an improvement from earlier versions, not the impact on competitors. In that update, Apple added the ability to play movies on iTunes and scan through album art with Cover Flow. 

"Don't tell Apple to stop innovating," said William Isaacson, Apple's lead attorney, in his closing argument. "The overwhelming evidence here is that it was a genuine product improvement." 

Plaintiffs said that Apple's changes were not improvements, and those changes made all other improvements irrelevant. 

"You couldn't use the third-party player of your choice on an iPod. That's what Apple did at this time," said Patrick Coughlin, an attorney for the plaintiffs. "The users are going to lose choice." 

The closing arguments are one of the final chapters of a 10-year legal battle over the iPod, a breakthrough portable music player when it was introduced that has been cannibalized by smartphones in recent years. 

The trial has been marked by several odd moments. The two class representatives both left the case, after Apple discovered they did not buy the iPod models at issue. An amateur ice dancer from the Boston area was later named the face of the case and told the court how iPods helped her skate backwards. 

The trial also included a previously unseen video of Apple's late co-founder, Steve Jobs, from a deposition in April 2011, about six months before he died. Jobs argued that Apple was scared of iTunes hackers and needed to add security features to appease record labels concerned about piracy. 

By Daisuke Wakabayashi 

Access Investor Kit for Apple, Inc.