Real admits risk of Apple lawsuit

[AppleInsider]

Real Network's decision to allow tracks purchased from its Rhapsody music service to play on iPods through a software hack called Harmony puts it at risk to a lawsuit from Apple, the company said this week.

As noted by Macworld UK, Real in its latest Q10 filing with the Securities and Exchange Commission warned investors: "If Apple decides to commence litigation against us in order to prevent interoperation with its products, we may be forced to spend money defending their legal challenge, which could harm our operating results."

In developing Harmony, RealNetworks reverse engineered a way to translate tracks downloaded in its proprietary Helix DRM scheme to an equivalent of Apple's FairPlay DRM, allowing millions of iPod and iTunes users to alternatively shop at its Rhapsody music service.

"Our Harmony technology enables consumers to securely transfer purchased music to digital music devices, including certain versions of the market leading iPod line of digital music players made by Apple Computer, as well as certain devices that use Microsoft Windows Media DRM," the company said.

Real also admitted there are additional risks associated with Harmony, "including the risk that Apple will continue to modify its technology to “break” the interoperability that Harmony provides to consumers, which Apple has done in connection with the release of certain new products. If Apple chooses to continue this course of action, Harmony may no longer work with Apple’s products, which could harm our business and reputation, or we may be forced to incur additional development costs to refine Harmony to make it interoperate again."

Apple last year openly expressed its frustration with Real's Harmony hack in a public statement, saying: "We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod, and we are investigating the implications of their actions under the DMCA and other laws. We strongly caution Real and their customers that when we update our iPod software from time to time it is highly likely that Real's Harmony technology will cease to work with current and future iPods."

In the SEC filing, Real further admits that while it believes its Harmony technology is legal, "there is no assurance that a court would agree with our position."

Real this week also said it expects to spend $16 million this year fighting Microsoft, which it sued in 2003, accusing the software giant of using its market dominance in operating systems to promote its rival Windows Media Player software.

[ View this article at AppleInsider.com ]

[Aquatic]

Why the shit does Apple block Harmony et al!!!!????? I thought they did NOT profit on the iTMS, but the iPods, as usual, since they are a "hardware company."

[rok]

If Apple chooses to continue this course of action, Harmony may no longer work with Apple’s products, which could harm our business and reputation, or we may be forced to incur additional development costs to refine Harmony to make it interoperate again.

isn't this almost verbatim what apple warned about when real first released harmony?

[geekdreams]

I hate Real and their shitty, shitty products, but I do think it would be good for the iPod to accept other DRM schemes like Helix and Janus. Doing that would sell more iPods because customers wouldn't have to buy a Creative/Rio player to use services like Napster, Yahoo, etc.

More iPods sold would eventually mean more tracks sold at the iTMS, anyway, since users would still be using iTunes to load their iPods.

Edit: Real's reverse-engineering of FairPlay is pretty shady, though, for a mainstream company. It's cool when it comes from the users (i.e. Hymn), but not from competitors.

[Hiro]

Originally posted by Aquatic
Why the shit does Apple block Harmony et al!!!!????? I thought they did NOT profit on the iTMS, but the iPods, as usual, since they are a "hardware company."

Harmony is a honeypot that can also support other MP3 players. It would likely die the same death as most other legal download sites without iPod support. So if it cannot survive without iPod support, it indirectly reduces potential iPod hardware competition by making it less easy to buy legal tracks for non-iPod players.

[melgross]

Originally posted by Aquatic
Why the shit does Apple block Harmony et al!!!!????? I thought they did NOT profit on the iTMS, but the iPods, as usual, since they are a "hardware company."

If you follow the news and Apple's financial statements you would know that they do make a profit on iTunes sales. Not a large one, but a profit nevertheless.

Even if Apple only broke even, anything that would lessen the sales would lessen Apple's chance to do better. Apple is most likely the only company making a profit on song sales because of their volume. The others make some profit on their subscriptions but not on song sales.

It's also questionable as to whether what Real is doing is legal. The DCMA allows reverse engineering to make a product compatible, but it doesn't allow it for the purpose of circumventing a DRM. Those two things are incompatible.

Another example is that while you are allowed to make a copy of something for a backup, if you own or license it, you are not allowed to break the DRM to do it. It's already been ruled at least once that the DRM takes precedence.

[bobbagum]

If they really have balls they should sell un-DRMed mp3 or aac, that'll work with the ipod allright, no need to reverse engineer shit.

[melgross]

Originally posted by bobbagum
If they really have balls they should sell un-DRMed mp3 or aac, that'll work with the ipod allright, no need to reverse engineer shit.

You should know better than that. It's not a matter of balls. It's a matter of them being able to sell anything other than unknown bands or a few indie labels.

When the law is clear cut, there is no point in flouting it. They would be out of business in a week. This isn't an illegal Russian site.

[Louzer]

Originally posted by Aquatic
Why the shit does Apple block Harmony et al!!!!????? I thought they did NOT profit on the iTMS, but the iPods, as usual, since they are a "hardware company."

Yeah, but its apple's MO. They like to control the whole thing, not just a piece of it. Why else do you think they're making their own scroll wheel for the ipod, instead of using the one from a third-party? And people talk about how OS X is so good and compatible with Mac hardware because Apple makes the whole widget.

Apple wants you to buy an iPod from them, use itunes to buy music from them, then use iTunes to install music onto said iPod. By controlling it all, they keep all the money. If they added support for Real and MS formats, then they lose profit, plus increase support costs (esp. when MS starts adding new features that they need to support and all).

And right now, with Apple having such large shares of both markets, they can act indifferent to the others, as well as ignore the calls for more features (and fix what some would call the glaring holes/bugs) for the iPod. For example, the iPod still reportedly has issues skipping some songs. And you still can't after 4 generations, play any music skipless, even though you can in iTunes (so don't be spouting the "MP3 files always have some space at the front/back" crap, since if it works in iTunes, then it apparently must not be there for that music! And its not because they're loading the next song from disk, because my iPod loads from disk some 30 seconds before the song ends.)

[BlindingForce]

Originally posted by Louzer
Yeah, but its apple's MO. They like to control the whole thing, not just a piece of it. Why else do you think they're making their own scroll wheel for the ipod, instead of using the one from a third-party? And people talk about how OS X is so good and compatible with Mac hardware because Apple makes the whole widget.

Apple wants you to buy an iPod from them, use itunes to buy music from them, then use iTunes to install music onto said iPod. By controlling it all, they keep all the money. If they added support for Real and MS formats, then they lose profit, plus increase support costs (esp. when MS starts adding new features that they need to support and all).

And this is bad in what way? Think of it this way. If you had a product wouldn't you want to make money off of it? If other people were hacking into your work would it be right? If you weren't happy with how a person was contributing to your product, you knew you could do it better, wouldn't you do that? And this could go for anything from electronics to publishing and or automotive. And in the end yeah you would make more money off of it. I can't understand how this bad unless they've personally scorned you in some way.

Don't get me wrong. I know it's a money thing, and I know Apple isn't a saintly company but I've used other services and they're crap compared to iTMS. I own an iPod 4G and I'm happy with it.

Hell my own ISP doesn't even support Mac with their music service and even trying to trouble shoot my Airport Express. (comcast)

I was a PC user up until 3 or so years ago. Give or take. Do you know why? Because all of apple's hardware, and software just works. I got that Airport talking to my mac in under 5 mins. The problem was my ISP's cable modem. The apple tec who originally installed it had no idea even what a mac looked like let alone trying to figure out where to plug the jack in. I did the install too and I got the fee waved (I did ask for a mac tech). I could go on and on.

So if they want to corner the market with service and products that work. Well I can't see how that's a problem. I've had problems but I could count them on one hand as opposed to having my PC crash every half hour or so wth a modem you had to reboot daily. No thanks.

[MacGraham]

As far as I'm concerned Real can go take a running jump anyway. For a company that seems to update its software every few months you would have thought by now that they could get it to work properly. I have never had a good user experience with RealPlayer. Even Windows Media Player is better than RealPlayer and thats saying something. How Real can see itself as a future player with such shoddy software I don't know. Flash and Shockwave plug-ins just work and make the whole media experience seemless, RealPlayer always seems to get in my way when I use it rather than just work as a technology. I only use it cause I have to, when given the choice though I'll go for the WMP streaming option everytime. Wish Quicktime could get a better hold in the streaming markets.

[kenaustus]

Apple has every right to protect their intellectual property. They invested a hell of a lot of money to bring the iPod, iTunes and the iTunes Store to the market. It's their property and I would have no problem if they made Real pay a few legal bills over the situation.

Now that the iTunes Store is making a bit of a profit Apple can add part of that profit into continual development of the iPod/iTunes division. We are starting to see some of the benefits in the latest version of iTunes and there is sure to be more to come. Fact is that the more profit Apple makes the more they will release new products (hardware and software) that we'll be drooling over.

[w_parietti22]

Good idea Real... tell Apple to sue you and now you probably will get sued.

[kwsanders]

Originally posted by w_parietti22
Good idea Real... tell Apple to sue you and now you probably will get sued.

This is actually a good move on Real's part. If they get it out into the world first and spin it the way that they want, which people hear first, they might position it in such a way to make Apple look bad if they do sue them.

Something like the big bad machine taking down the little old sound company.

[AquaMac]

Originally posted by kwsanders
This is actually a good move on Real's part. If they get it out into the world first and spin it the way that they want, which people hear first, they might position it in such a way to make Apple look bad if they do sue them.
Something like the big bad machine taking down the little old sound company.

Since Apple only has 4% of the market there hardly the big bad company.

[melgross]

You know, it's all really very sad about Real.

Many of you may not be old enough to remember, but Real was first with streaming. Real Music was available in the dawn of the internet. Even though dial-up would cause the stream to go to lower bit-rates and sound bad, or distorted, or to even stop for a while, it was exciting at the time. The high quality version was 64Kb/sec. I got that with my ISDN connection where it worked very well. With dial-up you could get 32Kb/sec.

RealVideo was also one of the first. At one time it was thought that Apple might buy Real, but as usual, they went their own way.

[Engine Joe]

Originally posted by kwsanders
This is actually a good move on Real's part. If they get it out into the world first and spin it the way that they want, which people hear first, they might position it in such a way to make Apple look bad if they do sue them.

Something like the big bad machine taking down the little old sound company.

Well, really this is a required disclosure in their SEC filings. Real has to report all litigation - pending and highly foreseeable - that would have a material effect. Since Apple has maade threats with respect to Harmony, Real has to report this information and the possible impact such litigation could have on Real.

Aside from which, reading the text of Real's disclosure, it hardly sounds like spin to make Apple look bad. The attempt to make Apple look bad came last year when Real did it's whole Harmony marketing campaign...

[melgross]

Originally posted by AquaMac
Since Apple only has 4% of the market there hardly the big bad company.

As a $13 billion company vs. a $500 million company they are.

As a company with 82% of music download sales in this country vs. 5% of sales they are.

[w_parietti22]

Originally posted by AquaMac
Since Apple only has 4% of the market there hardly the big bad company.

4% of the computer market share. but not the digital music player market share and music sales.

[kwsanders]

Originally posted by AquaMac
Since Apple only has 4% of the market there hardly the big bad company.

Apple might only have 4% of the computer market, but they have a much larger share of the portable music player market. You missed my point entirely.

[Kolchak]

It wouldn't be any skin off my nose if Real were to go belly up. Then maybe content creators would get wise and select a streaming media format that's actually good, namely Quicktime.

[UnnDunn]

Originally posted by Kolchak
It wouldn't be any skin off my nose if Real were to go belly up. Then maybe content creators would get wise and select a streaming media format that's actually good, namely Quicktime.

I'm sorry, but did you just characterize Quicktime as a good streaming format?



Quicktime is possibly the worst streaming format known to man! It's even worse than RealPlayer. There is a reason no-one except Apple uses Quicktime to stream video. It's slow, it's overly glitchy and prone to that horrible green-mosaic effect and the player is crap. At least RealPlayer can maintain some sort of stream without degenerating into a mess of green blocks when two or three packets get dropped.

[UnnDunn]

As far as Real's disclosures go, those are standard, SEC-mandated disclosures that any publicly-traded company is required to make.

The problem Apple has now is that it is number one in this space, and everyone is gunning for them. If some company were to come out today and engineer some technology that allows Protected WMA tracks to play on iPods, there wouldn't be much Apple could do about it except try to block it.

Well... unless that company were Microsoft, in which case Apple would sue and the Anti-Microsoft legal system would find in their favor.

[mike518]

Originally posted by geekdreams
I hate Real and their shitty, shitty products, but I do think it would be good for the iPod to accept other DRM schemes like Helix and Janus. Doing that would sell more iPods because customers wouldn't have to buy a Creative/Rio player to use services like Napster, Yahoo, etc.

More iPods sold would eventually mean more tracks sold at the iTMS, anyway, since users would still be using iTunes to load their iPods.

Edit: Real's reverse-engineering of FairPlay is pretty shady, though, for a mainstream company. It's cool when it comes from the users (i.e. Hymn), but not from competitors.

with all due respect. i think apple knows what they are doing in regards to mp3 plays -- just a hunch. Also there is a reason why you cant find the name "real" or "real networks" anywhere on the rhapsody website. Its becuase people hate real, they have for awhile. when people figure out that rhapsody = real, it will be all even further downhill for them.

message to REAL NETWORKS: you make shitty products, your proprietary real format is no longer used or useful. You use adware and spyware and charge money for what other companies provide for free. Whats more, you do illegal things, that you know are illegal. Comments like "we think we are legit, but the courts might not" prove this point.

message to REAL NETWORKS stockholders: Throw out the Real Executives and either turn your company around by making new solid and "original" products OR liquidate your company.

[SpamSandwich]

Screw Real. They suck. Their software sucks. Their format sucks. Ptooey!

[melgross]

Originally posted by mike518
with all due respect. i think apple knows what they are doing in regards to mp3 plays -- just a hunch. Also there is a reason why you cant find the name "real" or "real networks" anywhere on the rhapsody website. Its becuase people hate real, they have for awhile. when people figure out that rhapsody = real, it will be all even further downhill for them.

message to REAL NETWORKS: you make shitty products, your proprietary real format is no longer used or useful. You use adware and spyware and charge money for what other companies provide for free. Whats more, you do illegal things, that you know are illegal. Comments like "we think we are legit, but the courts might not" prove this point.

message to REAL NETWORKS stockholders: Throw out the Real Executives and either turn your company around by making new solid and "original" products OR liquidate your company.

That's what Michael Dell said about Apple three or so years ago!

[shetline]

Originally posted by geekdreams
Edit: Real's reverse-engineering of FairPlay is pretty shady, though, for a mainstream company. It's cool when it comes from the users (i.e. Hymn), but not from competitors.

I'm happy to see Apple doing well with iTunes and iTMS, but I hate DRM and the attack on traditional fair use rights it represents.

If I were going to concede any legitimacy to DRM at all, it would be for its role in content protection -- protecting content and content only from infringing uses.

It's clear, however, that Apple and others want to use DRM for something else entirely -- market lock-in and protecting their own business models. That goes well beyond any conceivable proper DRM content protection purpose.

The DMCA contains some narrow provisions allowing reverse engineering of DRM for "interoperability". Of course, those provisions didn't stop the Justice Department for going after a Russian PhD student (Dmitri Sklyarov) for working on breaking Adobe's eBook DRM -- to help the blind read legitimately purchased eBooks!

That case never came to trial, however, so the validity of the law and the strength of an interoperability defense have never been really put to the test. (Sklyarov was eventually permitted to return to Russia, but he's technically still subject to prosecution if he ever returns to the US.)

At any rate, Real could well try to claim interoperability -- so this might not be so "shady" as it seems. I like Apple as a company much more than Real, but I don't fault Real for Harmony and I wish them luck with it.

[melgross]

Originally posted by shetline
I'm happy to see Apple doing well with iTunes and iTMS, but I hate DRM and the attack on traditional fair use rights it represents.

If I were going to concede any legitimacy to DRM at all, it would be for its role in content protection -- protecting content and content only from infringing uses.

It's clear, however, that Apple and others want to use DRM for something else entirely -- market lock-in and protecting their own business models. That goes well beyond any conceivable proper DRM content protection purpose.

The DMCA contains some narrow provisions allowing reverse engineering of DRM for "interoperability". Of course, those provisions didn't stop the Justice Department for going after a Russian PhD student (Dmitri Sklyarov) for working on breaking Adobe's eBook DRM -- to help the blind read legitimately purchased eBooks!

That case never came to trial, however, so the validity of the law and the strength of an interoperability defense have never been really put to the test. (Sklyarov was eventually permitted to return to Russia, but he's technically still subject to prosecution if he ever returns to the US.)

At any rate, Real could well try to claim interoperability -- so this might not be so "shady" as it seems. I like Apple as a company much more than Real, but I don't fault Real for Harmony and I wish them luck with it.

The provision must be understood first. Here's the part regarding reverse engineering;

2. Reverse engineering (section 1201(f)). This exception permits circumvention, and the development of technological means for such circumvention, by a person who has lawfully obtained a right to use a copy of a computer program for the sole purpose of identifying and analyzing elements of the program necessary to achieve interoperability with other programs, to the extent that such acts are permitted under copyright law.

Essentially, this means that permission must be received from the holder of the copyrighted program to do so.

An infringing use is any use that the copyholder says that the licensee can't do.

Edit: There are a few fair use exceptions. But obtaining some of them is prohibited. Funky, huh?

[ajmas]

Reading a lot of the posts, most of them are based on "Real sucks". What Real did is probably not very professional, but I like to see options, even if they are not necessarily the best. Had Microsoft been in the position of Apple everyone would have been screaming monopoly or antitrust. This whole issue of DRM is a real problem, since on the one hand it limits the options of users and on the other provides the company holding the keys a large amount of potentially anti-competitive control.

As a user I should be able to buy my music where I want and play it how I want. This is not the case with music with DRM and until the industry as a whole is forced to share solutions or come up with a universal one, we are all screwed. If you don't mind being locked in fair enough, but we don't all like being so.

I own an iPod and will not buy music from the iTunes store because of its monopoly position on the player, because of the DRM limiting what I can do (I know its fairly lax compared to some) and because the audio is provided in a lossy format. Until the industry can sort this out I am sticking to buying CDs, and then only those which have not been corrupted by some sort of "copy-protection".

[Louzer]

Originally posted by melgross
The provision must be understood first. Here's the part regarding reverse engineering;

2. Reverse engineering (section 1201(f)). This exception permits circumvention, and the development of technological means for such circumvention, by a person who has lawfully obtained a right to use a copy of a computer program for the sole purpose of identifying and analyzing elements of the program necessary to achieve interoperability with other programs, to the extent that such acts are permitted under copyright law.

Essentially, this means that permission must be received from the holder of the copyrighted program to do so.

An infringing use is any use that the copyholder says that the licensee can't do.

Edit: There are a few fair use exceptions. But obtaining some of them is prohibited. Funky, huh?

Actually, there's nothing there that say you need to get the permission from the holder. It just says you need to have obtained a right to use the program. I read the 'for the sole purpose' as discussing what and for what purpose you're allowed to reverse engineer.

To me, if you needed to get the permission of the copyright holder, then there's no need for this provision, since the copyright holder would have grant you the right, and such then you have an agreement and contract that allowed you to do this, so there'd be no violation.

Although, I guess it could be a matter of semantics, the lack of a comma after "computer program" irritates me and makes it confusing.

BTW, the courts recently ruled against Lexmark, I believe (might have been Brother) over using DCMA to protect a market. There, the printer company had computer chip they placed on a toner cartridge, which the printer checked for to see if it was a 'valid' cartridge. Someone reverse engineered the chip and was sued, the argument being they violated the DCMA. The courts ruled you can't use the DCMA in this way (although it might be under appeal, probably, knowing lawyers and the money-thieving printer companies and their overpriced cartridges).

Oh, and the thing about Real and harmony is that they aren't reverse engineering Fairplay to break the DRM (a violation), but in order to put the DRM on their music so they can play on the iPod.

[MacGregor]

Originally posted by melgross
You know, it's all really very sad about Real.

Many of you may not be old enough to remember, but Real was first with streaming. Real Music was available in the dawn of the internet. Even though dial-up would cause the stream to go to lower bit-rates and sound bad, or distorted, or to even stop for a while, it was exciting at the time. The high quality version was 64Kb/sec. I got that with my ISDN connection where it worked very well. With dial-up you could get 32Kb/sec.

RealVideo was also one of the first. At one time it was thought that Apple might buy Real, but as usual, they went their own way.

As Real goes down in price... SOON will be the time for Apple to buy them. I think this would be an inexpensive way for Apple to get on all of those sites that only take wmp and RealPlayer. I agree with someone above that Real actually started out pretty good, but it fell to the MS Beast like all of the other companies that tried to compete between MS ubiquity and Apple pulchritude.

Real has got tons of servers that could be reconfigured for video streaming and downloads and there are a lot of good engineers that would probably give their eyeteeth to work on improving iPods and QT codecs. It would also be a good fortress near the heart of Redmond!

[melgross]

Originally posted by Louzer
Actually, there's nothing there that say you need to get the permission from the holder. It just says you need to have obtained a right to use the program. I read the 'for the sole purpose' as discussing what and for what purpose you're allowed to reverse engineer.

To me, if you needed to get the permission of the copyright holder, then there's no need for this provision, since the copyright holder would have grant you the right, and such then you have an agreement and contract that allowed you to do this, so there'd be no violation.

Although, I guess it could be a matter of semantics, the lack of a comma after "computer program" irritates me and makes it confusing.

BTW, the courts recently ruled against Lexmark, I believe (might have been Brother) over using DCMA to protect a market. There, the printer company had computer chip they placed on a toner cartridge, which the printer checked for to see if it was a 'valid' cartridge. Someone reverse engineered the chip and was sued, the argument being they violated the DCMA. The courts ruled you can't use the DCMA in this way (although it might be under appeal, probably, knowing lawyers and the money-thieving printer companies and their overpriced cartridges).

Oh, and the thing about Real and harmony is that they aren't reverse engineering Fairplay to break the DRM (a violation), but in order to put the DRM on their music so they can play on the iPod.

I can't help how you respond to it, but that's what it means. Legal documents don't always sound logical and clear to the uninitiated. They can't break the DRM. That's clear and simple. The difficulty at this time is that it's all too new. It's "unsettled" law.

You can always get a contract. That 's what the copyright is for; to require a contract and permission. DRM is given a position higher than other rights. It's complex, but the Lexmark case is different. That involves two pieces of hardware. A printer and supplies. This is very different. Apple has legal contracts with the music suppliers to sell and put their music on iPods, and other devices that they and Apple have agreed upon. Real has contracts to sell music and put it on devices that they and Real have agreed upon. Real does NOT have contracts to put their music on Apple's devices, etc. The DRM is there to enforce the contracts. Music companies, like any other merchant has the right to make and demand enforcement of contracts.

It's always back to the same thing. If people didn't infringe the copyrights, there wouldn't be a need for this. People really don't understand how it works. You don't buy the music; you buy the medium upon which it's delivered, and license the music for your own use. You don't have the right to give copies away, or to recieve them. Before digital, it was tough to do that, and now it's not, so people think it's ok. If they didn't, we wouldn't need DRM.

As I say, it's very different.