Lawyers for Apple Computer argued to a United Kingdom court that the iTunes Music Store is a data-transfer service, not a purely musical endeavor and as a result does not violate a long-standing agreement with the company that handles The Beatles business affairs.
The argument was made during proceedings in a case brought by Apple Corps, which handles The Beatles music licensing and other affairs. Apple Corps claims Apple Computer violated a 1991 agreement — which settled a trademark infringement lawsuit — by moving aggressively into the online music business with the hugely popular iTunes store.
The computer maker’s lawyer, Anthony Grabiner, minced few words in describing what he sees as a clear-cut case in his company’s favor, saying at one point that “even a moron in a hurry” could tell that iTunes is not a record label.
“Data transmission is within our field of use” under the agreement, Grabiner said. “That’s what it says and it is inescapable. It’s obvious that Apple Computer is not the source or origin of the content.”
Both sides had a chance to make arguments before Judge Martin Mann — who has admitted to owning an Apple iPod — in a trial that is expected to stretch into next week. A decision is expected some time later, unless a new settlement between the two Apples is reached beforehand.
That, however, seems unlikely given the stances the two sides have taken. Unlike earlier cases that involved relatively little money — the first standoff between the two was settled with Apple computer paying about US$26 million and agreeing to curtail some music-creation capabilities in its Macintosh computer line — the stakes now are considerably higher.
The iTunes Music Store recently passed 1 billion tracks downloaded since its launch, Apple announced in February. The store has helped fuel the popularity of the iPod, which in turn has helped transform Apple from a computer maker with a strong reputation but marginal market share to a formidable maker of consumer electronics.
Apple Corps lawyer Geoffrey Vos said the 1991 agreement clearly delineated the boundaries within which each party could use the Apple trademark and associated emblems and marks, with Apple Corps agreeing to stay out of data transfer, telecommunications and computing and Apple Computer saying it would not enter the music field.
Vos told the court that describing the iPod and iTunes system as a data download was a “perversion” of the 1991 agreement.
Using the Apple logo while selling music through any means, even as an intermediary, is “flatly contradictory to the provisions of the agreement,” he added.
“They were the people who were supplying computer systems, computer software, computer hardware. That’s what they did,” said Vos. “We were the people supplying the music — and they crossed the dividing line.”
At times, the court proceedings have become something of a circus, as when Vos used a computer to play the disco track “Le Freak” and when the judge cut off Grabiner during an explanation of Apple’s iLife software, saying he was familiar with it from using it. Grabiner responded that he needed to get the explanations on the record in case an appeal was heard by “an older judge.”
Old Store, New Name?
Though no dollar figures have been mentioned in the proceedings, some observers believe a multi-million settlement against Apple would not be out of the question if it is found to be in violation of the agreement.
A larger issue would be if Apple were forced to re-brand the music store in some way, given the years and millions of dollars that have been spent not only marketing the store but linking it to the iPod devices.
The trial comes as Apple marks the 30th anniversary of its founding on Saturday and as analysts say the music store and iPod have become the foundation for a new Apple during the next 30 years.
“The company has changed almost completely,” Gartner analyst Van Baker told the E-Commerce Times. “With Steve Jobs back at the helm and the links to Hollywood, they’re going to be the company to watch in the digital entertainment space for at least a few years to come.”
Baker and many other analysts believe the trademark issues with Apple Corps will be worked out without significant damage to Apple’s image or its financial position.