Real Worried About Apple Lawsuits

sebFlyte writes "silicon.com is reporting that Real is very worried that Apple will sue it over its Harmony technology that 'breaks' iTunes' FairPlay DRM to allow its music to play on the iPod. They acknowledged in an SEC filing that a lawsuit from Apple would potentially be very damaging to the company's bottom line, as it accepts that a court might not agree that the reverse-engineering is legal."

Comments

wow....

[enrico_suave]

is this the first time I'll be rooting FOR Real?

(not to spite apple, but to support reverse engineering of course!)

Re:wow....

[badasscat]

is this the first time I'll be rooting FOR Real?

Neither side is acting in particularly good faith on this issue.

BUT, before all of Slashdot flies off the handle on this "story", I think it's worth pointing out that this is an SEC filing, and it is every company's responsibility, in fact under the law, to state all possibilities that may negatively affect a business, however remote those possibilities may be. I don't think it's any secret to anybody that Apple could sue Real, and that there is at least a chance that Apple would win (because you just never know what can happen in the courts). Given that, Real must disclose this information to investors.

The news here seems to be that Real is "admitting" to something that seems to be common sense. But Real has to admit that they're at risk of a lawsuit, and that there's a chance that they would lose - to do otherwise would be fraud. It would be withholding information in order that people would continue buying their stock.

If you are not used to reading these SEC filings, even the healthiest of companies can seem to be in pretty dire straits once you get to the "risks" section. These are worst-case scenarios, presented basically to cover the company's ass from class action lawsuits and SEC investigations should the unthinkable happen. That doesn't mean anything listed as a risk will happen, or even has a good chance of happening. It's kind of the same as putting a warning label on a 9 volt battery that says "warning! eating this battery may cause injury!" I mean, duh. But they have to put that label on there or you just know that one idiot who eats that battery and gets sick is going to sue.

Reverse-engineering

[Valiss]

Is reverse-engineering software necessarily illegal? Has a precedent been set in the software world that would apply to this? Is there a lawyer in the house (or a law student with too much time)?

Re:Reverse-engineering

[pauljlucas]

Is reverse-engineering software necessarily illegal?

No, it isn't. The story submitter is confused. The last line of the summary should have read something like:

... as it accepts that a court might find that Real violated the DMCA.

I.e., Real cracked the DRM. How they did it is irrelevant be it reverse-engineering or reading tea leaves.

Re:Reverse-engineering

[mnemonic_]

Is reverse-engineering software necessarily illegal?

I doubt it, since SAMBA, linux's NTFS support, countless device drivers and many other hacking efforts have involved reverse engineering software. Those projects still thrive, so either corporate lawyers are being nice (hah!), or it's completely legal.

Re:Reverse-engineering

[slashjames]

The courts recently ruled that reverse-engineering hardware (Lexmark printer catridges, garage door openers) is legal and the DMCA doesn't apply for purposes of interopability. If you approach the potential case of Real getting sued by Apple about Rhapsody, it's the same concept: reverse engineering software (vs hardware) for purposes of interopability. Should be cut-and-dried, but who knows which way the courts will go.

Re:Reverse-engineering

[oliverthered]

There's a legal process called Abstraction,
Filtration, Comparison that happens when someone claims that reverse engineering violates copyright.

The process is basically as follows:

For a copyright violation someone must have copied to code, so the source code is the only thing that relates to reverse-engineering and copyright.

First of all all trivial bits of the code are ignored
The two code bases are then checked for common areas of code.
Then the code in the common areas that is their due to necessisity is removed.
and the code that's left is used as the basis of the copyright infringement.

It's also a good argument for GPL not being able to prevent dynamic runtime linking. (Since GPL is based on copyright)

Re:Reverse-engineering

[oliverthered]

Have real really broken DRM i.e. all files are clean, or have they just implemented the same DRM in a different way? If your still leaving exactly the same restrictions that were there in the firstplace then your not providing software to crack anything. I should imagine this would make a huge difference to a possible DMCA violation.

Re:Reverse-engineering

[Hope Thelps]

I.e., Real cracked the DRM. How they did it is irrelevant be it reverse-engineering or reading tea leaves.

It's about the reverse engineering exception under the DMCA. This concerns why it was done (interoperability) not how it was done.

DMCA 1201 (f) (1) provides:

(f) Reverse Engineering. -
        * (1) Notwithstanding the provisions of subsection (a)(1)(A), a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title.

This would appear to permit circumvention of a technological measure that effectively controls access to a copyrighted work for the purposes of achieving interoperability (such circumvention otherwise being banned by secion 1201 (a)(1)(A)). That appears to be what Real have done. So it IS about the legality of reverse engineering in this particular scenario.

Note: I'm not saying that they are legally in the clear, just that reverse engineering (as the term is used in the DMCA) IS what they are talking about.

Re:Reverse-engineering

[k98sven]

Is reverse-engineering software necessarily illegal?

No. Reverse-engineering is legal. But not as legal as it once was, since the DMCA bans the circumvention of copyright protection devices, except for interoperability purposes.

Has a precedent been set in the software world that would apply to this?

Yes and no. There is a good amount of legal precedent from before, e.g. Vault Corp. v. Quaid Software Ltd, which held that reverse-engineering was legal, even though there was an EULA prohibiting it. This was even for a copyright-protection circumvention device. (a program which would copy copy-protected floppies)

But that ruling is from before the DMCA, and probably isn't as relevant anymore.

The thing is, the DMCA is rather new, so there isn't a lot of precedent defining exactly what qualifies as 'interoperability purposes'. Nor is the idea of a 'copyright protection device' very well defined yet. Which is why there are lots of eager lawsuits trying to strech this to cover everything.

I think Real could probably make a good argument that it's for interoperability purposes. But since it's not well-defined, they're right to be cautious.

In Europe, things are somewhat clearer. Council directive 91/250/EEC, article 6 also allows reverse-engineering for interoperability purposes, and defines those purposes somewhat better than US law.

It's worth mentioning that stopping reverse-engineering through copyright law is only possible if the subject material is copyrightable to begin with. And people tend to overestimate how much of a program is copyrightable. For instance, an API is either not in itself copyrightable (Computer Associates v. Altai) or, duplicating it is allowed through fair-use (Sega v. Accolade).

IANAL.

Re:Reverse-engineering

[Hope Thelps]

Real has not obtained, lawfully or otherwise, a the right to use a copy of the computer program Apple uses to implement their DRM. Hence, the entire DMCA subsection does not apply.

The section only says that theyhave to have legally obtained a copy of the program that they are circumventing. That they will have done if they purchased an iPod for this purpose. I suspect they did.

This cited subsection of the DMCA provides for an individual person

Not just wrong, but laughable. The word "individual" is one you added on your own. The word used in the Act is "person". Legally a company is, of course, a person.

Said person could not distribute, sell, or profit from said reverse-engineering.

Again, this is something dredged up from your own fevered imagination.

There are very good arguments for saying that this section will not help Real, but not the nonsense you're producing here.

Regardless, the point of my post was that, contrary to what you originally said, they are indeed talking about the legality of reverse engineering. Again, as noted in my original post, that does not mean that they are legally in the clear.

Marketing Speak

[pete-classic]

Harmony brings discord, Fair Play accused of playing unfair. We're adrift in a sea of marketing.

-Peter

Why the DMCA sucks so badly

[El Cubano]

as it accepts that a court might not agree that the reverse-engineering is legal.

Real makes a competing product. They want to be able to interoperate with the songs sold on iTunes. This should be an open and shut case. I cringe to think what sort of legal wrangling will go on.

I know that Real is no great champion, but we should support them if there is a possibility it will help to preserve what little bit of fair use we still have left.

Real

[oudzeeman]

Well, I think that Appl...BUFFERING [12%]...

We're worried

[ackthpt]

Dear SEC: "We're worried that the shot we fired across their bow will be interpreted the wrong way."

What? This is a page out of the SCO play-book? Rambus play-book?

"Hello, Bernie Ebbers? You busy? We'd like some ideas on how to run our business."

and Apple should be worried about the Beatles

[Anonymous Coward]

Breaking 20 year old contracts binding you not to get involved in music won't be good for the bottom line either

but hey lawsuits is what America likes doing !, the legal industry is the biggest cash contributers in the world to American politics so nothing is going to change until everyone is either dead or in court

see you in court or hell !

Re:If Real is so worried...

[wankledot]

Because (believe it or not) Real wants to provide something for its customers. They want to sell songs, and they want to make them work with the iPod, since there are tons of iPods out there. By supporting a popular product, they expect to sell more songs. QED. (And they should be able to, IMO, and even according to the law. This type of reverse engineering is specifically protected by the DMCA.)

"Can't they find another way to make money?"

Same could be said for Apple. Can't they make money from the iPods and be happy? No company should be kept from selling something legally simply because the competition doesn't want them to.

If it comes to a lawsuit...

[It doesn't come easy]

On one hand, a lawsuit would be helpful in testing the DMCA's reverse engineering rules for their legality in a manner that would not involve a flame war of company against pirate, since the case would be between two well established businesses.

On the other hand, Apple may be afraid to test these waters because if they lose, every hacker and cracker on the planet will get free reign to develop their own reverse engineering project...

Concerns You WON'T Find in Real's 10Q...

[Cr0w T. Trollbot]

...even though you should.

• Every single computer user in the world hates our software. This could negatively impact our profits.
• ...buffering...buffering...buffering...
• At night our engineers have recurring nightmares of carniverous iPod's hunting them down and tearing out their livers. This has harmed employee morale.
• ...buffering...buffering...buffering...
• Every full moon, our Board of Director's is required to pledge fealty to Bill Gates and sacrafice a yak to him. Should we be unable to find a yak one month, Microsoft would be able to crush us beneath their little toes.
• ...buffering...buffering...buffering...
• This form 10Q contains spyware. For a 10Q that doesn't contain spyware, click HERE.
• Did I say "click HERE"? Hahaha, actually I meant click HERE.
• No, HERE
• ...buffering...buffering...buffering...

- Crow T. Trollbot

Plan:

[iamjoltman]

1. Announce could get sued by Apple
2. ???
3. Profit!(?)

Oh boohoo

[mikeophile]

Anyone remember Streambox?

I don't think Real was whining about the DMCA then.

Re:Well, I'm confused..

[gstoddart]

I play non-DRM'ed mp3s on my iPod mini all the time. What am I missing?

According to Real, the ability to play a different form of DRM'd files on the iPod while still keeping it DRM'd.

Non-DRM'd mp3s, as you point out, will just play fine.

Re:No no no, it was *sarcastic*

[jav1231]

Or maybe, "We're Real: Worried about an Apple lawsuit!"

Apple vs Real

[rm999]

I consider what both companies are doing as wrong, so I don't know who to root for.

On one hand, Real is making it easy and accessible to its customers to break Apple's proprietary codec. Apple spent time and money to make the files only play on their players, and Real is trying to use the files without permission. Oh, and I'm still pissed about that who bloated Real Player thing :)

On the other hand, what Apple is doing is very akin to something that M$FT would do. They have a virtual monopoly on music players and online music downloads (to avoid starting an obvious argument, I will stress that I know what Apple has is not an actual monopoly, but imo it basically is. There are alternatives, but many people do not know this.) What Apple is doing is unfairly using this monopoly to sustain the monopoly, something MSFT is notorious for. If I buy a song from iTunes, I should be able to use it on any player. This is a basic sentiment of slashdot - freely using what is yours. Your dollar spent on that song should give you a license to use it however you want to, not a license to go out and buy a 300 dollar iPod just to listen to it.

I think Apple will win this fight and Real was foolish to get into it. Reminds me of MP3.com's downfall.

Re:Apple vs Real

[99BottlesOfBeerInMyF]

What Apple is doing is unfairly using this monopoly to sustain the monopoly, something MSFT is notorious for. If I buy a song from iTunes, I should be able to use it on any player. This is a basic sentiment of slashdot - freely using what is yours. Your dollar spent on that song should give you a license to use it however you want to, not a license to go out and buy a 300 dollar iPod just to listen to it.

First I don't buy your argument that Apple has a monopoly (virtual or otherwise) on digital music players. They have about a 70% share. Given that, you might say that Apple is unfairly using it's near monopoly to tie the itunes music store to the ipod and leverage that near monopoly. Now take a look at their competition. It is made up of a dozen manufacturers who are selling mp3/wma players all of which equally tie the user into using a different player, a player bundled with basically every computer sold due to a real monopoly (legally found to be such and legally found to be abusing that monopoly). Yeah, yeah two wrongs don't make a right, but you have to admit, Apple doesn't have a lot of choice if they want to survive in the market.

Finally, you claim that if you buy a song you should be able to play it on any player, not just the ipod. The thing is, you can. Apple's DRM has a legal way to export to cd, which then plays in any cd player and which can them be re-encoded into another format for another player. They make it annoying, but legal. Neither Real nor Microsoft have that same feature on their DRM, as far as I know.

Mind you this whole piece is FUD trying to gain sympathy for a dying company after Apple has basically ignored them and done nothing about their weird hack, even though it violates the license agreement each user has with apple and it has a competitor using Apple's own servers to authenticate a for-profit enterprise that competes with them. Apple has really taken the high road here and deserve some credit for it.

Re:Apple vs Real

[Mr2001]

On one hand, Real is making it easy and accessible to its customers to break Apple's proprietary codec. Apple spent time and money to make the files only play on their players, and Real is trying to use the files without permission.

You've got it backwards. Real wants to make files from their own store play on Apple's player, by converting them to Apple style DRM files (instead of unrestricted MP3s, which is what they'd do if they really cared about their customers.. but I digress).

Also, don't forget that just because a company spends time and money to keep you from doing something, that doesn't mean you shouldn't be able to do it anyway. For example, if Ford spent months engineering a specially shaped gas tank opening to force customers to buy gas from Ford-owned stations, you'd still have every right to file it open and buy gas from the corner store - it's your car, and you should be able to fill it up however you like.

Similarly, it's your iPod, and you should be able to fill it with music from anyone who can supply it to you. If Apple wants you to come back to them for a "refill" of music, they can compete fairly by providing a better selection or lower prices... and if they can't compete fairly, they deserve to fail as their customers switch to other music stores.

The funny thing about this

[Kelson]

Harmony makes it possible for Real to sell tracks online that are compatible with the iPod. It competes with the iTunes Store, but the end result is more music available for the iPod, which increases the iPod's value. Meanwhile, Apple has admitted that they don't make much money off of the iTunes store, but it does help push iPod sales (by making it more useful).

So at least in the short term, this should positively impact Apple's business by improving iPod sales.

Long term, though, it reduces vendor lock-in. If you ultimately have lots of Real tracks on your old iPod, and they're compatible with both iPods and some other player (or at the very least, you can re-download the tracks in the appropriate format without buying them all over again), you're just as likely to buy that other player as a new iPod.

You've got to be kidding

[geekee]

"Apple built a product (iTunes + iPod) that a lot of consumers love (marketshare speaks much louder than OGG support, open-ness, etc.), and Real wants a piece of that because very few are using their service. Why is it that we think just because it involves a computer or teh intarweb that it should all be fair game (or fair play, to pull a pun)?"

So then you must agree that it's good for Microsoft to use closed file formats for Office and that Lexmark should be able to sue competitors for refilling their ink cartridges. Also, cracking the DVD encrpytion scheme to make a Linux DVD player must be wrong too.

"If I create a product that is easier to use, looks good, and appeals to more consumers than everyone else's product, why should I have to share? I mean, if in the mean time I was running around telling the music companies that they could only use my service or could get some sort of incentive to not allow other services (i.e., the allegations behind much of the Wintel monopoly) that'd be one thing, but it appears that nothing of that sort happened."

Apple shouldn't be required to share, but if someone reverse engineers their product to make something that is compatible, do you really believe Apple should have legal grounds to sue?

Clippy Rides Again

[Doc Ruby]

In other news, I got a cease & desist letter from Apple today for leaving a straightened paperclip in the "eject" pinhole of my Mac floppy drive. Clear violation of the DMCA, reverse engineering, and aftermarketing. I'm a hacker terrorist! Stop me before I eject again!

Analysis of DMCA and Real's Harmony

[Landaras]

Back in July of 2004 I wrote up an analysis of Apple's DMCA claim against Real. The full article is available here. Here's the last part of it (after I give definitions and background).

*****

As mentioned above, Real has claimed that, with their Harmony software, downloads from the Real music store will now be usable by the iPod. Real accomplished this by reverse-engineering FairPlay, so that Real can now create a level of DRM that is indistinguishable from FairPlay by the iPod. Until a few days ago, only music purchased from iTMS could have any form of DRM on it and be playable on the iPod. With the creation of Harmony, the iPod will no longer be able to lock out Real's DRM'd music, creating (something resembling) a true competitor to iTMS in the form of Real's store.

Realizing this, Apple has quickly and angrily accused Real of using the "tactics and ethics of a hacker" in creating Harmony.

Apple's statement should be summarily ignored. They are using ad hominem attacks with terms that carry misleading connotations. It could be argued that Real "cracked" the FairPlay DRM, but even that is misleading. The right to reverse-engineer is protected by law, and as such what Real did is legal.

Or rather, would have been definitively legal several years ago, before the passage of the DMCA. In fact, "Apple said it is investigating the implications of Real's software strategy under the Digital Millennium Copyright Act" (news.com article).

Now that statement by Apple is worth investigating. What does the DMCA say as to Real's reverse-engineering of FairPlay?

The sections that pertain to this case are Sec. 1201 (a)(1)(A), Sec. 1201 (a)(2)(A), and Sec. 1201 (f)(1). These sections are somewhat long and legal, but I will quote only what is necessary and break the verbage down into "normal english." Their relevant parts are, respectively

• No person shall circumvent a technological measure that effectively controls access to a work protected under this title.
• 
  and
• No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title.
• 
  and
• Notwithstanding the provisions of subsection (a)(1)(A), a person who has lawfully obtained the right to use a copy of a computer program may circumvent a technological measure that effectively controls access to a particular portion of that program for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability of an independently created computer program with other programs, and that have not previously been readily available to the person engaging in the circumvention, to the extent any such acts of identification and analysis do not constitute infringement under this title.

The first excerpt says that if there is some "technological measure that effectively controls access to a work", it is now illegal to circumvent that measure. To borrow from the Fair Use example above, if someone purchased a music compact disc that had some technological measure on it that kept them from copying it to their hard drive as mp3s, it would now be illegal for them to circumvent that technological measure.

The second excerpt says that you cannot create or distribute tools or software that allows circumvention of technological anti-copying measures. To continue the Fair Use example, it is illegal for someone else to create a method to turn a protected purchased disc into mp3s, or to give that method to others.

The third excerpt

So what, its just an SEC filing

[dysk]

Companies try to make as exhaustive a list of risks as they can when compiling their SEC filings, as that ensures that investors won't sue the execs for not disclosing the risks.

To put it into perspective, their "worry" about being sued by Apple is one paragraph in 15 pages of disclosures, including entries like "Our mobile products will not be successful if consumers do not use mobile devices to access digital media." and "Any development delays or cost overruns may affect our operating results."

Re:Apple is isolating itself...

[Kelson]

Mainly, Apple's DRM is a lot less stringent than others have tehnded to be (assuming, of course, you have an iPod). They actually look like they made an effort to compromise between music publishers that don't want you to do anything but play the track on one computer (and maybe a player), and consumers who want to be able to burn mix CDs, play tracks on more than one computer, etc.

If you consider any form of DRM to be oppressive, then there isn't much difference between FairPlay and anything else. If you want choice in players, it won't work for you either. But it's a compromise that works for a lot of people.

Re:Apple is isolating itself...

[joelsanda]

I just don't understand why everyone rally's behind Apple with their iPod and the fact that people are forced to use iTune's. I like Apple's product line, but it will be a cold day in hell before I buy an iPod.

There is no forcing anyone to use iTunes. You don't have to wait for hell to freeze over to learn about the product, however. The restriction is on music purchased from iTunes, not on must loaded on to the iPod. Don't like the DRM on iTunes? Don't buy the music - copy it over from CD or another source without DRM.

Re:wow....Wrong statement of law ... Asteroids

[ziani]

" . . . it is every company's responsibility, in fact under the law, to state all possibilities that may negatively affect a business, however remote those possibilities may be."

Not quite. It is every company's responsibility to state all facts that a reasonable investor might consider important in deciding whether to invest.

The required level of disclosure is certainly something less than "all possibilities . . . however remote [they] may be." Under this type of standard, a company would have to disclose the possibility of an asteroid hitting the corporate headquarters, or the possibility of the CEO's having a heart attack and an infinite number of other "possibilities".

To be fair (and at the risk of stating the obvious), Real's disclosure is right on the money. Given the current state of the law and the spectre of even a threatened DMCA action, any new technology that requires reverse engineering (especially one that goes straight for Apple's market) makes its author vulnerable, and disclosure in this case is warranted.

They're not very worried.

[tqbf]

If they were, they wouldn't have done it.

The fact is that Real's move garnered them lots of press attention, and in light of that, they are now obliged to disclaim the possibility of a lawsuit in their filings.

It's probably not that they think Apple is going to sue them out of existence. It's that, if they DIDN'T disclose that, even a minor legal tussle with Apple could be the basis for a shareholders lawsuit.

Re:If Real is so worried...

[wankledot]

"So then Real broke the law because they didn't get what they wanted. Boo hoo for Real."

What law has Real broken? The DRM has been reverse engineered expressly for interoperability. There is no law being broken here. And the DRM wasn't even reverse engineered to break a copyright at all! In fact, it was reverse engineered for the purposes of CREATING DRM, not breaking it. (or at least, the appearance of it.)

"That's irrelevant to the news story at hand which is only about Real basing their business model on a very-likely illegal strategy."

You seem stuck on the fact that Real broke a law (although I see you are now qualifying it as "likely"), care to tell me which one? They didn't "break" FairPlay for the purposes of getting around a copyright. In fact, Nothing Real is doing breaks anyone's copyright. Apple did not patent all DRM on all portable devices. Because Real's implementation of FairPlay is cleanroomed, Apple (or whoever they license FairPlay from) has no claim that their copyright was violated. "The iPod was designed to play encrypted music only if it was encrypted by Apple. Real is free to negotiate with Apple for the legal right to use their DRM" Oh, this is fucking rich. You're actually saying that when you buy an iPod, you agree to only play encrypted music from Apple? Where did I agree to that? And what legal basis to Apple has to limit how its product is used. You're barking up the wrong tree here, the iPod's ability to play DRM'd music from another source is not limited by any law or contract that any user agrees to. Do I have to ask Apple to put a file on the iPod with a format it was not designed for? No. Does Real? No.

Answer this: If I can flip one bit of a protected WMA file in order to make it work on my iPod, can Apple sue me for playing it on my iPod? Can they sue me for "breaking" WMA's DRM? Can Microsoft?

So again, which law has Real broken? You'll notice from this story and many others that almost everyone who knows what they are talking about agrees that Real is pretty much in the clear on this one.

"In all my posts on this, I haven't said or even hinted at whether I think Apple is right or wrong."

You've said repeatedly that Real is doing something illegal. (Implying that suing Real would be OK since they are breaking the law.) So I'll ask you straight up: Does Apple have the right to sue Real.

Re:If Real is so worried...

[ArbitraryConstant]

"The difference that sets Apple apart is that when they get into something, they're not just another "me too" company with some crappy product that is barely distinguishable from all the others that are already on the market.

Other music players are crap compared to the iPod"

Are they? Depends on your criteria. Other music players variously cost less, have support for more formats, have a better battery life, and so on.

"other music stores are crap compared to the iTMS"

Again, depends on your criteria. Allofmp3 gives you a choice of format, gives you better quality (including lossless), doesn't have DRM etc. That puts it ahead in my books.

"OS X is Unix, yes, but the UI is so far ahead of what Linux desktop have been trying to do for years."

But it is behind in many other ways. It has poor performance compared to Linux, in particular Linux has better responsiveness on single-CPU systems and that significantly impacts usability. Linux also, dare I say it, runs on generic hardware. That is an issue that impacts usability because some options are not affordable with MacOS X (eg you must buy a second CPU to get a second display).

Apple is only special if we define the terms of the comparison to favor Apple. Otherwise, they are exactly like everyone else: good at some things, bad at others.