Apple’s DRM on iTunes was not an illegal monopoly, court confirms

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Apple, which has been hammered by a New York judge over its ebook pricing practices, got some good news this week when a California appeals court ruled that a music rights management system known as FairPlay did not break antitrust laws.

The ruling comes in response to a long-running class action suit that claimed Apple’s iTunes store was an illegal monopoly because songs bought in the store could only be played on Apple’s iPod music player. After Apple imposed the digital rights management system, its share of the digital music and player market rose to 99 percent by 2004, according to the decision.

Despite the commanding market share, a three-judge panel affirmed that Apple did not break antitrust laws, in part because it maintained prices at 99 cents even after its DRM system gave it dominant market power in 2004. The court also noted that Apple maintained its 99 cent price point even after Amazon entered the market with DRM-free music, and after Apple itself dropped the FairPlay encryption system in 2009.

The court was likewise not persuaded by arguments that Apple changed its software to prevent companies like Real Network, which sold music for 49 cents a track, from operating on its devices.

Meanwhile, in New York, Apple and the Justice Department continue to spar over a proposed remedy for what the court declared to be price-fixing. Apple is also facing ongoing investigations in France into alleged illegal “lock-in” policies in relation to its app store.

Correction: this story was updated at 16h55ET to say that the court found Apple did not raise prices even after gaining dominant market power in 2004; an earlier version suggested the Apple had sold songs without FairPlay at one point (FairPlay was introduced at iTunes inception in 2003). Thanks to Kevin Edwards in the comments for flagging. 

Here’s the California decision, which was reported by Bloomberg:

App Store Monopoly Ruling 9th Circuit

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