Is Real's 'hacking' of iPod legal?

Code-crackers risk fines and prison time when they defeat copy-protection technology, but such draconian rules likely don't apply in the case of RealNetworks and its iPod "hack," legal experts said.

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What's new:
RealNetworks recently reverse engineered--or, as Apple has it, "hacked"--Apple's Fairplay software. Fairplay prevents illegal copying of songs, but it also ensures that songs must be purchased through Apple's iTunes music store in order to be playable on the company's market-dominating iPod player.

Bottom line:
Despite Apple's take on Real's move, legal experts say such reverse engineering is common to achieve compatibility between technologies. The Digital Millennium Copyright Act even includes an exception for such practices. Still, rulings in various cases have gone both ways.

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Efforts by both code-crackers and Real could undermine Apple Computer's plans for its popular digital music player and its iTunes Music Store, which together have put Apple so far ahead of the competition that companies such as Real appear ready to do virtually anything to catch up.

In a move Apple said reflected the "tactics and ethics of a hacker," RealNetworks this week essentially replicated Apple's proprietary digital rights management software. Known as Fairplay, the software prevents consumers from making unlimited copies of songs and ensures that the iPod doesn't work with any other kinds of copy-protected formats. As a result, songs purchased on Real's music download service will now play on the iPod--something Apple contends may be illegal.

But legal experts say there's a big difference between RealNetworks' product and the work of code-crackers who have helped break through DVD copy protection, or who have previously helped strip FairPlay protection from iTunes songs.

Those underground programmers, at least in the United States, risk running into the Digital Millennium Copyright Act, which bars "circumvention" of digital copy protection. By contrast, legal experts note that RealNetworks is "hacking" Apple's technology in order to protect music in its own way, not to pirate or otherwise copy it without permission. This kind of reverse engineering for compatibility purposes happens routinely in corporate America, and is allowed as long as competitors aren't actually using copyrighted code, attorneys say.

"What the DMCA was meant to protect wasn't this," said Ken Dort, an intellectual-property attorney with Gordon & Glickson in Chicago. "In fact what (RealNetworks) has done is what people do all the time. They buy the latest, greatest widget of a competitor and take it apart."

Some attorneys have said Apple might have a better case under traditional contract or copyright law. The iPod comes with a license agreement that bars reverse engineering, and if Apple can argue that RealNetworks violated that agreement, the company might have a stronger case.

"There's a question as to whether those agreements are enforceable," said Bruce Sunstein, a Boston patent attorney. "It is an area of uncertainty."

Apple 'stunned'
The spat between RealNetworks and Apple could be a critical element in the evolution of digital music. Record labels and consumers have pushed for interoperability between digital music services like Apple's iTunes and Napster. But today, songs purchased from specific stores will only work with specific players.

Because it has the largest market share, Apple has been at the center of this interoperability debate. The company has declined to license its FairPlay digital rights management software to rivals, or to support any other copy-protection software on the iPod. As a result, songs sold by Napster, RealNetworks and other stores have been unable to play directly on the iPod.

RealNetworks' release of its Harmony software this week has changed that. The company has simulated the FairPlay software well enough that songs from its own store can now be played on the iPod.

After several days of silence, Apple said Thursday that it was "stunned" at the move.

"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," Apple said in a statement. "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."

The DMCA, passed in 1998, was largely meant to protect digital media against piracy. The law forbids people from "circumvent(ing) a technological measure that effectively controls access to a work." It also blocks people from selling or "trafficking" in devices or software that are primarily aimed at breaking through copy-protection technology.

It also contains an exemption for people who are reverse engineering "for the sole purpose of identifying and analyzing those elements of the program that are necessary to achieve interoperability" with that program.

But judges have ruled inconsistently on nontraditional DMCA cases in the past.

Last year, a Kentucky judge barred a Lexmark rival from selling a printer cartridge that was compatible with Lexmark printers. Lexmark had invoked the DMCA to say that its own cartridge system was copyrighted, and rival Static Control Components had broken through the copyright protection.

That case is now on appeal, and the U.S. Copyright Office has weighed in on the side of Static Control.

However, later in 2003, an Illinois federal court dismissed a similar DMCA-based lawsuit by a maker of garage door openers against a rival that had made a compatible product.

Reverse engineering
In order to support unlicensed formats, RealNetworks has been forced to rely on reverse engineering, a technique of analyzing and reproducing code under strictly controlled methods that aim to ensure the target's intellectual-property rights are respected.

Reverse engineers must reconstitute code from hints provided by reading data in files and by watching the behavior of the playback applications. These activities must take place in a "clean room" to provide a record of the reconstruction of the code in the event of a legal challenge. In effect, reverse engineers must be able to show that they re-created the target software without knowledge of the underlying source code.

RealNetworks has used reverse engineering techniques before in order to make its products compatible with rival technology without the permission of the technology's owner. In 2002, the company unveiled a streaming server and digital media player with unlicensed support for Microsoft's proprietary Windows Media video streaming format.

Some observers speculated at the time that Microsoft might sue RealNetworks over the move, but the software giant has largely ignored the action so far. In an interview with CNET News.com earlier this year, Microsoft's digital media head, Dave Fester, said his company had no plans to challenge RealNetworks over its use of Windows Media.

In a statement Thursday, RealNetworks said it had taken considerable care to stay within legal lines while making Harmony.

"In fact, the DMCA is not designed to prevent the creation of new methods of locking content and explicitly allows the creation of interoperable software," the company said. "Harmony follows in a well-established tradition of fully legal, independently developed paths to achieve compatibility. There is ample and clear precedent for this activity, for instance, the first IBM compatible PCs from Compaq."

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i thought apple didn't make much from itunes?

my first post didn't seem to work...

I thought they didn't make much money (if any)from actual itunes sales. It is all in the hardware sales. Wouldn't it benefit apple to allow more music formats to work on the ipod so they sell more?

iTunes profitability & vertical integration

I've read analysts' reports that Apple makes about 10 cents gross profit on each iTunes song -- after paying royalties, credit card processing fees, and so on. Their 100 millionth song marked about $10 million gross profit -- as you say, not great.

Paid U.S. song downloads are running around 2.4 million titles per week.

By comparison, roughly 307.5 million CDs were sold in the U.S. in the first half of 2004 -- in other words, about 150 million songs per week on physical CDs, more than 60 times the download rate.

Currently, Apple "controls" about 70% of the download market, which sounds impressive, but amounts to a little over 1% of the entire U.S. music sales, and receives only 10% of that revenue stream.... There's lots of room for them to grow that share.

iPods are more profitable, but competitive pressures have already forced Apple to reduce prices on iPods by 20% or more. Sony's plans to enter the market this fall will likely compress iPod's margins further.

Steve Jobs' gameplan here -- as it was with Lisa, Macintosh, NeXT -- is a vertically integrated monopoly in which Apple controls distribution (iTunes) and the player technology (iPod)... and keeps out competitors. In order for this to succeed, he MUST keep out competitors at all costs.

However, the entertainment industry is far too big (and lucrative) for this strategy to work for long, just as it failed Apple with the Macintosh. Too many big companies -- from Sony to Microsoft to Wal-Mart -- and littler guys, like RealNetworks -- will join the fray. This will severely compress what little margin Apple has, and limit the amount of market share they can grab for themselves.

[Orion Blastar]

No, Apple wants a monopoly

where they control the audio formats used in the iPod so that only music bought from iTunes can be used.

All the more reason for me to boycott Apple and sales of the iPod and the iTunes service.

[kxmmxk]

corporations and the law

So basically, according to this article, it's okay for corporations to break copyright protection, just not individuals. Why does that not surprise me??

We all must be punished to make sure a few can't 'steal' the goods, but corps can steal whatever they want!!!!

corporations vs individuals

It's not really that. As an individual, you have the same right that RealNetworks has.

The issue is instead the intent: Are you breaking the cipher with the intent of copying music or videos illegally, or allowing others to do so? Or, instead, is your intent to allow licensed media to be downloaded, stored, and played, within the scope of the license, on an existing player?

After all, its the record labels and the musicians who own the copyrights -- not Apple. The labels and musicians license their material and want to get the broadest distribution while still getting paid royalties for it. They'll come down squarely on RealNetworks' side -- and they'd come down on your side, too, if you tried to build a better iPod by reverse-engineering Apple's.

[unknown unknown]

I am not a big fan of Real but I do support their actions.

<EOM>

Apple reverse engineering adobes api's

Worth noting, Apple has reverese engineered Apples Photoshop and After Effects plugin Api's in order to take advantage of the massive Adobe plugin market in its own applications.

Adobe does not licence its Api's out - so apple has been doing the same thing to the vendors for a long time in order to take advantage of market share that Real is now doing to them...

What would happen if Adobe were to launch a class action suit against Apple? it would cripple apples DCC products since the users rely on plugins more and more in what is becoming a commoditized industry (DCC applications)

go Real!