Is Apple in Danger of Anti-Trust Proceedings ?

*I just learned that Apple dropped all DRM – and the two-tiered system… which completely invalidates my arguments below. So… nevermind!*

Apple just blocked the Palm Pre’s ability to interface with iTunes, as reported in [Information Week ](

Granted – Palm’s interfacing with iTunes was questionable and a hack — it basically emulated being an iPod to trick the software into compatibility. Apple’s reasoning for the update is that it “addresses an issue with verification of Apple devices”, which would often be fair for most companies and software makers…

However one needs to think about Apple’s market share and new positioning as a vertical mobile provider. Not only is Apple the dominant player in the marketplace, but they’ve fixtured themselves into the entire chain and locking out competition at every step — they’ve become the a primary force that is controlling the Hardware and Retail of music devices, the Software to install on them, and even the music distribution.

Sound familiar? Just a few years ago, the US and the EU took Microsoft to task for something similar — bundling and tying the Windows & IE browser together, and then into PC’s at reduced rates to block out competitive operating systems and browsers.

Palm’s approach was largely unethical in many ways and definitely a dirty hack. It’s also something that can — and will — probably be re-introduced as developers play cat&mouse with Apple to work-around device ID hacks , just as others have been re-enabling jailbreaks to the iPhone on every OS update.

But Palm’s recent situation brings into light some larger questions — through iTunes, Apple bundles the following things together: iPhone / IPod support and management, music purchasing, music management.

By integrating all those things together, Apple has created what is essentially not only a distinct market advantage, but an anti-competitive practice :

– users can not put the songs purchased through Apple on a non-Apple device , unless they pay for a premium for DRM free content
– users need to run additional software in order to install non-Apple procured music from their library onto a non-Apple device
– owners of non-Apple devices are obviously penalized for owning their device — through needing to handle countless workarounds , paying more for content — and are given incentives to abandon their current setups for a complete Apple solution

While Palm’s approach to the situation is largely questionable, Apple’s handling of it is illustrating a lot of the same parallels to what forced Microsoft to unbundle its software… and I’d wager that Apple may very well have ‘shot themselves in the foot’ with this, since few people knew/thought/cared about it before today.

Within the context of US and EU anti-trust laws — and not thinking about ‘fairness’ to Apple… it seems to me like Palm could push the Justice Department for Anti-Trust measures against Apple — and that could affect not just the iTunes support of devices, but the entirety of Apple’s music retail business.

I’m not a lawyer – nor do I pretend to be one. But this seems to have little to do with interpretations of US statutes and laws than it does referencing history and case law. A good lawyer may very well be able to give Apple a free pass on this — but you don’t need to be a lawyer to see that there is more than enough correlations between this situation and successfully prosecuted anti-competitive practices for this to make it to the courts.

For more info on US anti-trust practices, check out this interesting article on the tying/bundling distinctions and applicabilities — with some great case studies on what is considered illegally Anti-Competitive and what is not [Antitrust In Distribution – Tying, Bundling and Loyalty Discounts, Resale Pricing Restraints, Price Discrimination – Part I](