Apple’s Jobs Must Answer Questions in ITunes Antitrust Suit

Apple Inc. (AAPL) Chief Executive Officer Steve Jobs was ordered to answer questions in an antitrust lawsuit alleging the company operated a music-downloading monopoly.

Lawyers for consumers who filed the 2005 complaint won permission to conduct limited questioning of Jobs, under an order issued yesterday by U.S. Magistrate Judge Howard R. Lloyd in San Jose, California. The deposition can’t exceed two hours and the only topic allowed is changes Apple made to its software in October 2004 that rendered digital music files engineered by RealNetworks Inc. (RNWK) inoperable with Apple’s iPod music player.

“The court finds that Jobs has unique, non-repetitive, firsthand knowledge about the issues at the center of the dispute over RealNetworks software,” Lloyd wrote.

ITunes customer Thomas Slattery sued Apple in 2005 seeking class-action status on behalf of consumers claiming the company illegally limited consumer choice by linking the iPod to its iTunes music store.

Kristin Huguet, a spokeswoman for Cupertino, California- based Apple, declined to comment.

In 2008, Apple agreed to lower prices on iTunes tracks sold in the U.K. as a result of a European Union Competition Commission inquiry begun in 2005. Apple faced inquiries from regulators in Norway, Sweden and Denmark over complaints that songs sold on iTunes were incompatible with music players other than the iPod.

In May 2010, the U.S. Justice Department’s antitrust division was making preliminary inquiries into Apple’s business practices regarding iTunes, two people familiar with the matter said at the time.

Biggest Music Retailer

Apple surpassed Wal-Mart Stores Inc. (WMT) as the biggest music retailer in April 2008. Apple offers more than 14 million songs through the iTunes store, which it opened in April 2003.

Slattery asserted antitrust claims allegedly arising from Apple encoding its digital music files with proprietary software called FairPlay. This allowed music files purchased from the iTunes Store to be played only on iPods, and not using products by other manufacturers. FairPlay also prevented digital music sold by other companies’ online stores from being played on iPods, according to the complaint.

RealNetworks, Harmony

RealNetworks, a Seattle-based competitor in the digital- music market, announced July 24, 2004, that it would sell music from its online store that could be played on iPods on a technology it called Harmony. Just five days later, Apple announced software updates to its iPod FairPlay software that would render RealNetworks’ Harmony product again inoperable on iPods, according to Lloyd’s order.

By October 2004, when users were forced to update their iTunes applications and iPods, the digital-music files from RealNetworks’ online store were no longer usable with Apple’s iPods, Lloyd wrote.

By March 2009, all digital music files sold on iTunes were sold without proprietary software, according to a footnote in the court order.

Lloyd rejected plaintiff requests to allow broader questioning of Jobs about Apple’s refusal to license FairPlay technology to other companies or its decision to use the technology on music purchased from iTunes and the iPod.

‘Remaining Claims’

Both of those issues were dismissed from the litigation in December 2009 by U.S. District Judge James Ware, Lloyd said.

“Plaintiffs remaining claims rely on the allegation that Apple attempted to maintain a monopoly in the audio download and portable music player markets by issuing updates to FairPlay, Apple’s proprietary digital rights management software,” David Kiernan, an attorney for Apple, wrote in a December court filing.

Kiernan also argued that “any deposition of Mr. Jobs would be repetitive, at best.”

Jobs took a medical leave from the company starting Jan. 17. The 56-year-old CEO, who has battled a rare form of cancer, has taken time off for medical reasons three times in the past seven years.

“We have not yet scheduled a deposition,” Bonny E. Sweeney, a San Diego lawyer representing plaintiffs in the case, said today in a phone interview.

Motion to Dismiss

A hearing on Apple’s motion to dismiss the case is scheduled for April 18, she said. Case filings over the last two weeks related to that motion are sealed from public view, according to an electronic docket.

Sweeney confirmed that while portions of the case have been dismissed, there are still active claims by consumers and business purchasers of iPods alleging that Apple maintained a monopoly on music download capabilities for the iPod from October 2004 to March 2009.

“In 2004 Apple took steps that excluded potential rivals from the market and that served to maintain its monopoly in the digital portable player market,” Sweeney said.

Apple rose $1.50 to $340.80 at 3:12 p.m. in Nasdaq stock market trading in New York.

The case is Apple iPod, iTunes Antitrust Litigation, C05- 0037JW, U.S. District Court, Northern District of California (San Jose).

To contact the reporters on this story: Pamela MacLean in U.S. District Court, Northern District of California in San Francisco; Karen Gullo in San Francisco at kgullo@bloomberg.net.

To contact the editor responsible for this story: David Rovella at drovella@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.