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Wednesday, November 07, 2007, 07:00 am PT (10:00 am ET)

Class-action charges Apple with illegally tying iPods to iTunes

Apple Inc. in a new class-action lawsuit is charged with illegally tying iPods to its iTunes Store in order to forge a monopoly over the digital media market so it can inflate prices, exclude competition, and force consumers to continue to buy into its closed ecosystem.

The 19-page formal complaint, originally filed in a Florida circuit court back in August, has since made its way through a Florida district court to the U.S. District Court for the Southern District of California upon Apple's request, as similar cases have been pending before a judge in that court for over two years.

The suit was brought about by Florida resident Frederick Black on behalf of all Florida residents who have purchased an iPod or downloaded media from iTunes and faced restrictions, such that they cannot transfer content purchased from iTunes to a non iPod digital music player, nor can they download digital content from other online vendors to their iPods.

Those limitations are not only frustrating, but unreasonable and illegal under Florida's antitrust and unfair trade laws, Black alleges, as consumers who may lose or break their iPod are unable to transfer songs purchased from iTunes to a different brand of player. Therefore they are forced to either purchase another iPod or forgo their right to use content already purchased from the iTunes service.

Music and video content purchased from iTunes comes wrapped in Apple's copy protection layer dubbed Fairplay, which precludes its use on non-Apple hardware products. Although Apple could license the technology to other hardware manufacturers, it chooses not to so that it can continue to limit competition and maintain its monopolistic share of the digital media market, Black alleges.

Similarly, he says, Apple could have licensed the right to use Microsoft's widely deployed Windows Media format or negotiate inter-cooperative agreements to use a copy protection system that is industry-wide, but instead chooses to limit competition and maintain its dominant market share.

Black also charges Apple with intentionally disabling built-in support for the rival Windows Media format from chips used in its earlier iPod models — such as those from PortalPlayer and SigmaTel — in order to control what content is available to consumers. The Cupertino-based company's "sufficient economic power" also allows it to "influence the third-party companies who provide the digital content to the online retailers," he adds.

"[Apple], by controlling such a large part of the portable digital media player market, the online music market and the online video market, maintains sufficient economic power in these markets to control consumer pricing in these markets, which has resulted in consumers paying higher prices," Black's attorneys at Tripp Scott wrote in the complaint.

Apple is specifically charged with three formal counts, which include violations of the Florida Deceptive and Unfair Trade Practice Act, attempted monopolization in violation of the Florida Antitrust Act, and monopolization in violation of the Florida Antitrust Act.

Apple is "in possesion of monopoly power in the portable digital media player market, the online music market and the online video market and has the power to control prices in these respective markets and has been able to exclude competition from these respective markets," the suit claims. "Through its tying practices, Apple has conducted itself through unfair methods of competition, anticompetitive conduct, unconscionable acts or practices, and unfair or deceptive acts or practices in conduct of trade or commerce."

The suit adds that Apple has done all this with "the purpose of eliminating competition" and that its actions are "not for legitimate business purpose."

Black is seeking damages in excess of $15,000, a court order awarding treble those damages, attorneys' fees, and any further relief the Court may deem proper. He's demanding a trial by jury.