The Law Behind… iPods

Apples portable digital music player may be small, but its impact is not. More than three million consumers in the UK own an iPod, so it is hardly surprising that the law surrounding this tiny gadget is complex. Lawyers from DLA Piper are here to explain how it all works

APPLE: WHOSE BRAND IS IT ANYWAY?

Apple Computer was recently cleared by the High Court of breaching a co-existence agreement with Apple Corps (The Beatles record company). This is the latest development in a long-running saga of disputes between Apple Computer and Apple Corps over the parties uses of trademarks for the word apple and their stylised apple logos (Apple Corps used a sideways view of a whole apple; Apple Computer used a stylised apple with the bite taken out of it).

In 1991, Apple Computer and Apple Corps entered into a co-existence agreement that defined the goods and services for which each party could use their apple trademarks and logos. Under the agreement, Apple Computer had the exclusive right to use its apple trademarks on or in connection with computer, data processing and telecommunications business including software and data transmission services. Apple Corps had the exclusive right to use its apple trademarks on or in connection with the record business, including any current or future creative works whose principal content was music regardless of the means by which those works were recorded or communicated.

The agreement also specifically stated that where goods and services within Apple Computers field of use were capable of delivering content, Apple Computer would have the exclusive right to use its apple trademarks on or in connection with the services used to deliver that content.

In 2001, Apple Computer launched its iTunes software and iPod player to great commercial success. In April 2003, Apple Computer also announced the launch of its iTunes Music Store, which used Apple Computers apple trademarks in connection with the store where users could download music. Apple Corps complained that such use breached the 1991 co-existence agreement as Apple Computers was not permitted under the agreement to use its apple trademarks on or in connection with musical content.

The judge considered what was meant by use on or in connection with the goods and services falling within each partys permitted field of use. Whereas Apple Corps argued that those words should be given their normal English meaning, Apple Computer argued that what was required to be shown was a use that indicates the source or origin of the rights in, or the right to control the music. Apple Computer claimed that in order for it to cross into Apple Corps territory with its mark, it would have to have indicated that Apple Computer was the source or origin of the music.

The judge noted that the expression on or in connection with was used in the 1991 agreement in relation to trademarks, which limited the words used to the context of trademarks. He held that what is required for use on or in connection with subject matter is a degree to trade connection or association with that subject matter relating to its commercial origin. He also held that Apple Computer was permitted under the terms of the 1991 agreement to use its apple trademarks in connection with a data transmission service transmitting musical content, provided that the use was fair and reasonable. In assessing whether Apple Computer had breached the 1991 agreement, the judge held that it was

necessary to consider how the average consumer would view Apple Computers use of the apple trademarks. He found that users would be familiar with buying recordings of creative works from retailers and with internet download services, and that the presence of a logo which is the logo of the download service would not be likely to be taken by such a user, without more, as a sort of trade association with the content, beyond that of being a retailer. Apple Computers use of its apple marks was use in the context of the service of delivering content, which fell within the ambit of the 1991 agreement.

This case clearly demonstrates how quickly technology has developed since the early 1990s, and reinforces how important it is when drafting any agreement to attempt, so far as is possible, to anticipate technological advances.

Neville Cordell is a partner and Emma Armitage a lawyer at DLA Piper

SHARE AND SHARE ALIKE

Are you tempted to go online to download some of your favourite tunes for your iPod? You are not alone 18 per cent of people aged 12-74 are downloading mp3 files and 92 per cent of those are downloading from illegal peer-to-peer (P2P) networks.

A P2P network (such as www.kazaa.com and www.gnutellaunlimited.com) is created when two or more PCs are connected and share resources without going through a separate server computer. The principle is that users upload files of their own music creating a bank of music that can be accessed by other users in the network.

UK record companies trade association the British Phonographic Industry (BPI) has been cracking down on individuals using P2P networks. First, it has obtained orders against internet service providers requiring them to disclose the names and addresses of individuals involved in file sharing.

Second, it has used the information to bring copyright infringement actions against those who have been identified. The BPI has launched more than 50 copyright infringement actions and has obtained summary judgment in two cases: where the defendants were ordered to make an immediate interim payment of 5,000 and 1,500 respectively, both pending final determination of costs and damages. In one of the cases, Mr Justice Collins confirmed that pursuant to Sections 16(1)(d) and Section 20 of the Copyright Designs & Patents Act 1988, it is the copyright owner that has the exclusive right to communicate the work to the public.

Collins J stated: Connecting a computer to the internet, where the computer is running P2P software, and in which music files containing copies of the claimants copyright works are placed in a shared directory, falls within the infringing act.

This is a primary act of copyright infringement, and it does not matter whether the person knows, or has reason to believe, that what they are doing is an infringement, because innocence or ignorance is no defence. The mere fact that files were present and made available is sufficient for the infringement under Section 20 to have been committed.

So, the message to take from this is be careful. As the message on the www.grokster.com site states: Copying copyrighted motion picture and music files using unauthorised peer-to-peer services is illegal and is prosecuted by copyright owners.

There are legal services for downloading music and movies. This service is not one of them. YOUR IP ADDRESS IS AND HAS BEEN LOGGED. Dont think you cant get caught. You are not anonymous.

You have been warned.

Simon Levine is a partner and Ruth Hoy a lawyer at DLA Piper

COLLECTING SOCIETIES

Each time a piece of music (the notes and lyrics, not the recording) is recorded, played or performed in public, a royalty payment to a music collecting society is usually due. Music usage covers a wide range, from DJs playing tunes in clubs, to radio and TV broadcasts, background music in restaurants, downloading on the internet and on to iPods, podcasting and so on. In the UK, two major societies collect royalty fees arising from the use and exploitation of music and distribute the revenues to the composers and publishers.

The Performing Rights Society (PRS) collects royalties for composers and songwriters in respect of public performance and broadcast of copyright works. Here, the copyright relates to the copyright in the underlying musical works. The Mechanical Copyright Protection Society (MCPS) enters into agreements with those who wish to record or copy musical works on to different formats such as CDs and then collects and distributes among its members the mechanical royalties received. The PRS and MCPS have also set up a joint venture, the Music Alliance, which manages their overlapping activities.

Major companies exploiting music, for example record companies and broadcasters, enter into blanket licences with the relevant collecting societies, allowing them to exploit whatever music they choose, in return for an annual licence fee. New businesses to the music industry, such as online services and mobile music providers, have started to enter into blanket licences as well.

These new web-based services, such as internet radio, podcasting and online music shops such as iTunes, present challenges to the societies and their copyright licensing and monitoring systems. In 2005, the Music Alliance proposed a licence for online and mobile use of musical works known as the Joint Online Licence (JOL). Apple, the BPI and various online music providers and mobile operators referred the licence to the Copyright Tribunal, a body that rules on licence terms proposed by organisations such as collecting societies. The dispute concerns the royalty rates: Apple and others are concerned that the proposed rate of 12 per cent of gross retail revenues to exploit music online is too high and that the rate does not differentiate between different types of online music products. The hearing started on 25 September 2006 and will clarify the appropriate licence terms relating to online exploitation of music. An attempt to fill one of the holes in the JOL was made in May 2006, when the Music Alliance introduced a licence that covers podcasts. This is only the beginning.

Neville Cordell is a partner and Damian Herrington a lawyer at DLA Piper

CONTENT AND CONVERGENCE DRM

For many, music, photos, text, videos and films are now simply content. In digital form content can be copied and used with ever-increasing ease and speed, forming part of a converging media landscape with computing and wired and wireless communications.

Content owners still want to control and be paid for their content whether we are using it on an iPod, Walkman or gramophone. So record labels, film studios and others who license Apple iTunes, or any other online supplier, are keen to support digital rights management (DRM).

DRM has many different aspects. To some it is a technical issue, a question of competing systems with the focus often on ways to lock/unlock content. So content on one device may not play on another. Songs downloaded with Apples proprietary DRM are not compatible with players using Microsoft DRM.

For others it is a shorthand for the new terms on which content will be sold to us. Music used to be based around singles and radio airplay promoting album sales. Now DRM can allow single-track downloads, webcasts, rental and subscription services, track sharing or so-called super-distribution and many other variants.

These issues have led to controversy, which has also made DRM a political issue. Consumer groups, privacy campaigners, free speech activists, and others often talk about DRM in terms of power and control as a battle between potentially dominant owners and suppliers exploiting users and consumers.

Running through all these technical, commercial and political considerations is the law. Copyright is at the heart of things and includes exceptions when copyright works can be used without permission. The big question is how far these exceptions can be respected by DRM implementations.

A linked concern is private copying. In most of the EU, consumers pay for the copies they make through a levy or tax on the equipment or media used. The EC supports the replacement of these levies with DRM, but progress is slow. However, the UK has never had such levies and some think they might be more effective than DRM.

Other legal issues include labelling misrepresentation, privacy and accessibility. Courts in many countries have generally found in favour of unhappy users confused by DRM and stringent EU consumer laws are about to be tightened further so content providers will have to be more careful than ever.

Duncan Calow is a partner at DLA Piper

PATENTS ARE THEY RELEVANT?

Apple aims to protect both the look and feel of the iPod on every front and relies heavily on its patents to gain a competitive advantage over others in the market. Indeed, one of the most iconic elements of the iPod is the click wheel. This wheel, with its touch-sensitive circle and five push buttons, is the subject of one of Apples pending patents.

English patent law is enshrined in the Patents Act 1977. The act sets out the requirements for patent ownership, validity and infringement. A UK patent gives to the patent owner a UK monopoly over the sale, manufacture, use, importation or storage of the inventive product or process claimed in the patent.

Last month saw the publication of Apples latest US patent application. The patent, filed in March 2006, provides for a multi-functional handheld device that has the capabilities of two or more functions in one single device. The patent describes an electronic device that is able to switch easily between multiple operating modes. The device would have a touch-sensitive screen and offer functions such as a mobile phone, video, music and game players, a camera and GPS receiver. Users would be able to select a particular function from a main menu and then switch between functions at their leisure.

It is common for companies such as Apple to file broad-ranging patents that will allow them to choose their preferred functionality to bring to market. As such, there is no guarantee that Apples multi-functional handheld device will ever be produced, never mind include all of the above functions. However, the publication of this patent and its express reference to mobile phones has done little to quieten the rumours in the marketplace surrounding the launch of the much-awaited Apple iPhone. Apple is notoriously secretive about its new product ranges. Until such time as the iPhone or other new devices may be introduced, observers will continue to rely on published patents and applications to give a glimpse into the world of Apples future technology and its numerous applications.

Yet Apple does not solely benefit from patented technology. In August, Apple settled a patent dispute brought against it by Creative Technology, with Apple making an out-of-court payout of $100m (53.82m). Creative had alleged that Apples software infringed its patents for technology used to organise music on its Nomad and Zen media players. As part of the settlement, Creative granted Apple a licence to use its software patent and Apple agreed that Creative will supply accessories for the iPod under Apples Made for iPod programme. While disputes such as these will no doubt continue, they are unlikely to stifle Apple in its pursuit to ensure that the iPod is the consumers portable product of choice.

Neville Cordell is a partner and Katherine Bellau a lawyer at DLA Piper