Real admits risk of Apple lawsuit

Real Network's decision to allow tracks purchased from its Rhapsody music service to play on iPods through a software hack called Harmony puts it at risk to a lawsuit from Apple, the company said this week.

As noted by Macworld UK, Real in its latest Q10 filing with the Securities and Exchange Commission warned investors: "If Apple decides to commence litigation against us in order to prevent interoperation with its products, we may be forced to spend money defending their legal challenge, which could harm our operating results."

In developing Harmony, RealNetworks reverse engineered a way to translate tracks downloaded in its proprietary Helix DRM scheme to an equivalent of Apple's FairPlay DRM, allowing millions of iPod and iTunes users to alternatively shop at its Rhapsody music service.

"Our Harmony technology enables consumers to securely transfer purchased music to digital music devices, including certain versions of the market leading iPod line of digital music players made by Apple Computer, as well as certain devices that use Microsoft Windows Media DRM," the company said.

Real also admitted there are additional risks associated with Harmony, "including the risk that Apple will continue to modify its technology to â€œbreakâ€ the interoperability that Harmony provides to consumers, which Apple has done in connection with the release of certain new products. If Apple chooses to continue this course of action, Harmony may no longer work with Appleâ€™s products, which could harm our business and reputation, or we may be forced to incur additional development costs to refine Harmony to make it interoperate again."

Apple last year openly expressed its frustration with Real's Harmony hack in a public statement, saying: "We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod, and we are investigating the implications of their actions under the DMCA and other laws. We strongly caution Real and their customers that when we update our iPod software from time to time it is highly likely that Real's Harmony technology will cease to work with current and future iPods."

In the SEC filing, Real further admits that while it believes its Harmony technology is legal, "there is no assurance that a court would agree with our position."

Real this week also said it expects to spend $16 million this year fighting Microsoft, which it sued in 2003, accusing the software giant of using its market dominance in operating systems to promote its rival Windows Media Player software.