Yup, nothing on Ukraine from this blog, or the Blunkett ‘scandal’. Its another Apple related post but for once it has something to do with law (the thing that occupies so much of my life right now).
The Office of Fair trading has decided that the matter of the current iTMS pricing fiasco is to be passed onto the EC. Now we enter that glorious period of time when laypersons start pontificating on the merits of the case. This is horrifically dangerous and almost always results in something that makes me want to force my copy of Steiner & Woods, EC Law down the relevant pundit’s throat.
Let’s break it down simply:
The relationship between record labels and the iTunes Music Store is vertical, they operate on different tiers in the great ladder of commerce namely, the Labels are for the purposes of this example distributor and the iTMS is retail. The agreements between the parties are therefore Vertical Agreements.
Generally speaking such agreements are subject to Article 81 which deals with anti-competitive agreements.
Now, there may be an issue that there is a breach of Article 81, however it is not concerning Apple’s conduct refusing sale to residents of other member states, it concerns the clauses that are the labels’ bread and butter.
Agreements for rights to the distribution of music within a territory are entered into by the labels and Apple, they stipulate at the behest of the record companies, that Apple (like just about every retailer under the sun in the Music Industry) is given only the right to distribute the music in one territory. The clause which expressly grants Apple rights to retail only in one territory is known as a territorial protection clause and this is, under Article 81, illegal (highlighted in Transocean Marine Paint Association).
The agreement however has two primary means by which it can salvage legitimacy in the eyes of the Article, either by coming within a Block Exemption (it probably won’t qualify under the Vertical Agreements Block Exemption Reg 2790/1999 because of the iTunes Music Store’s massive market share, irrespective of whether the agreement is detrimental to the undertaking) or under 81(3) where Article 81 may be declared inapplicable to the decision between the undertakings (legalese for Agreement between Apple and Music Label) if it is one;
“… which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing customers a fair share of the resulting benefit and which does not:
a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question”
So put simply, most of the ‘defenses’ offered for Apple (even though they really don’t have much to gain from defending the agreement) by some pundits are conjecture based on an incomplete knowledge of European Community Competition Law and more particularly fail to actually look at what the law will allow.
Whether the record labels can prove that the agreements are exempt under 81(3) is another matter, my feeling is that they’re case as regards a) is either strong or horribly compromised depending on the Commission’s thinking on music distribution (lumbering and monolithic or forward thinking and progressive, respectively) and that b) is probably watertight on the grounds that such agreements are such a mainstay of music distribution that they result in a sort of equity by ubiquity (although there might be case law to the contrary, I’d expect not).
So there you have it, anyone who’s still awake I applaud heartily, anyone who’s a sad sack like me and actually enjoyed that little sortie into the world of European Community Law, I would recommend a career in Law to.
Later
John
Posted by John Swaine at December 5, 2004 03:07 PM | TrackBack