OAKLAND — After a decade of legal warfare, it took only about three hours of deliberations for a federal jury to hand Apple a decisive victory Tuesday in a suit that claimed the company used a major update of iTunes to orchestrate an illegal monopoly in the market for digital music.
Plaintiffs representing an estimated 8 million iPod owners threatened Apple with a $1 billion bill as they argued that the Cupertino-based company sought to protect its market share for iPods by releasing iTunes 7.0 in 2006 and trying to sideline competitors. But they suffered several missteps at trial, and the eight-member jury unanimously accepted Apple’s argument that the software was a meaningful improvement over previous versions.
The closely watched case highlights the courts’ wariness to hobble innovation as they set the ground rules for how far companies can go when updating their products before risking antitrust violations, said George Hay, a law professor at Cornell University
The plaintiffs’ bid to prove that a software redesign violated antitrust laws was an uphill battle from the beginning, legal experts said.
The 9th U.S. Circuit Court of Appeals, which oversees California and other Western states, has held that a company’s product update generally cannot be an antitrust violation unless it was released solely to hobble a competitor, said Herbert Hovenkamp, a law professor at the University of Iowa.
“That’s a pretty tough hurdle,” he said. “There are very few product changes that don’t do anything positive.”
That’s why many of these cases end early. The iPod trial, which unfolded over the past two weeks in a federal courtroom in Oakland, appears to mark the first time that a jury has decided whether a product update was a bona fide improvement, legal experts say.
Plaintiffs’ lawyer Patrick Coughlin said his team wanted jurors to evaluate only the new security codes that limited downloads to the iTunes store, effectively blocking competing programs like RealNetworks’ Harmony. But instead, jurors considered whether those features, taken together with other new offerings in iTunes 7.0 such as games and movies, improved the user experience, making the plaintiffs’ case a tougher sell, Coughlin said.
He vowed to appeal the case.
“There is some uncertainty in the law, but I think companies know when they are reaching out to slap an upstart competitor,” he said.
Jurors declined to comment on their decision as they filed out of the courtroom Tuesday, as did lawyers for Apple. The company cheered the outcome of the case and stressed that its product updates are well intentioned.
“We created iPod and iTunes to give our customers the world’s best way to listen to music,” an Apple spokeswoman said in a statement. “Every time we’ve updated those products — and every Apple product over the years — we’ve done it to make the user experience even better.”
At trial, Apple’s legal team argued that iTunes 7.0 brought users many key features and also noted that iPod prices fell from 2006 to 2009, the period covered by the case, undercutting theories of a monopoly.
The long-running case hearkens back to a time before music streaming services gained popularity, when Apple had a near-stranglehold on the market for digital music. To compensate consumers for inflated iPod prices, plaintiffs sought about $350 million in damages, which could have been tripled under antitrust laws.
Despite the prospect of a $1 billion verdict, plaintiffs were left flat-footed by several setbacks at trial.
After Apple revealed that the two named class representatives had not bought iPods covered by the case, plaintiffs were forced to launch a nationwide search for a class representative mid-trial, ultimately flying out an amateur ice dancer from Massachusetts to take their place.
U.S. District Judge Yvonne Gonzalez Rogers also deprived the plaintiffs of some ammunition, removing another software update from the case after an expert for the plaintiffs conceded he had not studied it.
During his closing argument Monday, Apple lawyer William Isaacson stressed that plaintiffs had not shown that any users were actually harmed by software updates restricting music downloads to the iTunes store. “There’s not one piece of evidence of a single individual who lost a single song, not even a complaint about it,” said Isaacson, Apple’s lead lawyer in the case. “This is all made up at this point. It’s a lawyer argument.”
Although a few Apple executives took the stand, Steve Jobs was the trial’s star witness. Plaintiffs played a video deposition taken of the company’s late CEO shortly before his death in 2011.
Contact Julia Love at 408-920-5536. Follow her at Twitter.com/byJuliaLove.
