Apple Launches Salvo over Real's Harmony Technology

Apple (Nasdaq: AAPL) returned a salvo today in what may become a heated war of words and a potential legal battle over RealNetworks (Nasdaq: RNWK) release of Harmony Technology.

In a statement to the media, the company said: "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 [Digital Millennium Copyright Act] 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."

Real's Harmony Technology creates the ability for consumers to play music purchased at online stores other than Apple's iTunes on the Apple iPod. The company's beta version was released on Tuesday, and executives at Real already have suggested they might license Harmony to other online music stores. The technology purportedly sidesteps Apple's digital-rights management, FairPlay, which protects and enables iTunes Music Store songs to play on the iPod.

The Teeth of the DMCA

The DMCA was signed by President Bill Clinton in October 1998 with the intention of addressing the new world of copyrights in the digital age. According to research at the UCLA Online Institute for Cyberspace Law and Policy, the act has been supported by digital content, hardware and software makers and opposed by the academic and research sectors.

This opposition by academia and researchers is largely due to the fact that most research carried out on technology products of a proprietary nature involves reverse engineering, which can circumvent antipiracy measures built into those products. The DMCA expressly forbids this activity.

Jupiter Vice President and Research Director Michael Gartenberg suggested that rather than getting tangled in an expensive legal proceeding, Apple might very well just disable Harmony with an update to iTunes and the iPod.

"They have done this before, when folks figured out a way around the protection of songs in iTunes and played them on other systems," Gartenberg said.

Double-Edged Sword

Gartenberg cautioned that all involved should not lose sight of the consumer in this scenario. While Apple certainly has a right to protect its products, Gartenberg said he thinks this technology would benefit music buyers.

"It is a bridge to interoperability and would potentially offer music buyers more choice. It just might sell some iPods, too," he added.

Gartenberg's peer, Jupiter senior analyst Joe Wilcox, concurred that Harmony Technology is a move to expand capabilities for the end user. However, he said he believes research shows the online music-buying population is small.

"Our research has shown that the majority of music buyers purchase CD's, rip them legally onto the computer and listen to them on an MP3 player," Wilcox said.

Licensing Digital-Rights Management

Gartenberg advised that Apple's reaction is really about protecting the leadership position they have established in digital music.

"Also remember, at its basic level, the iPod is based on an open standard, MP3, and users can simply get their music into that format and play it -- so Apple has to decide what direction they will take here," Gartenberg said.

For his part, Wilcox said he believes if Apple thought it could sell more iPods by licensing FairPlay, it already would have done that. He also said Real could potentially utilize Harmony for the same purpose with the WMA digital rights management from the Redmond software maker and that could add a different angle to the story at hand.

"Real approached Apple in a friendly way for licensing and were rebuffed. Real obviously took a different approach after that refusal," Wilcox added.

As for the Apple announcement this week of a licensing agreement with Motorola (NYSE: MOT) to enable mobile phones to include a custom iTunes player, Wilcox was unsure about the impact that would have.

"Data I have seen shows people want their mobile phones as phones, not as a music player," he said.