Apple strikes deal with EMI but European regulators are not pacified

On the same day that the EMI deal was announced the European Commission issued record labels and Apple with a Statement of Objections, alleging that their business practices are restrictive.

The Statement does not allege that Apple is in a dominant market position and is not about Apple's use of its proprietary Digital Rights Management (DRM) to control usage rights for downloads from the iTunes on-line store.

The Commission said today: "consumers can only buy music from the iTunes' on-line store in their country of residence. Consumers are thus restricted in their choice of where to buy music, and consequently what music is available, and at what price. The Commission alleges in the Statement of Objections that these agreements violate the EC Treaty's rules prohibiting restrictive business practices (Article 81)."

The iTunes service verifies consumers' country of residence through their credit card details, according to the Commission. For example, in order to buy a music download from the iTunes' Belgian online store a consumer must use a credit card issued by a bank with an address in Belgium.

Apple also faces continued pressure in Norway as a deadline remains for it to overhaul the way it sells music there after a ruling by that country's Ombudsman.

Until now all songs sold by the world's biggest download shop have contained technology intended to stop the song being copied. This digital rights management (DRM) software also makes sure that the song cannot be used by devices that rival Apple's iPod in the form in which it is sold.

DRM technology is controversial because it restricts a consumer's use of bought music to a greater degree than records or CDs do. Apple's particular DRM has caused it trouble in Europe where its control of consumers' purchases are seen as a restrictive trade practice.

"Consumers can only buy music from the iTunes online stores in their country of residence and are therefore restricted in their choice of where to buy music, and consequently what music is available and at what price," Jonathan Todd, European Commission spokesman, told news agency Reuters.

Apple said that it wanted to operate a pan-European shop but that record labels had stopped it. The Commission has also sent is objections to record labels.

Apple continues to face objections elsewhere in Europe to iTunes' tie-in with its iPod music players. Norway's consumer council objected to the fact that iTunes-bought tracks cannot be played on any portable device but an iPod and complained to Norway's Consumer Ombudsman. Similar cases were lodged in Denmark and Sweden.

The Ombudsman ruled in January that Apple's Fairplay DRM system did break the law in Norway. It has given the company until September to comply with Norwegian law.

"It's important to note that this move does not take the heat off iTunes for the end of September deadline," said Torgeir Waterhouse, senior adviser at the Norwegian Consumer Council, or Forbrukerradet, welcoming the EMI deal with Apple. "By the end of September Apple need to alter the terms of service and DRM used in the iTunes Music Store to provide a fair deal to the consumers who legally buy music."

"I really hope that all relevant market players now show the determination that we've seen today by EMI and Apple and that today marks the beginning of a new era – an era where the entertainment industry works with the customer and not against them," Waterhouse told OUT-LAW. "As of today we might very well be back on track for a future in a well functioning information society with a focus on access to content and interoperability."

The European Commission action was the result of a complaint by Which? about the fact that UK users of iTunes paid more for songs, 79p, than those in other European countries, which paid €0.99 (approximately 67p).

The EMI deal with Apple sees higher quality versions of songs without DRM on sale for $1.29 rather than $0.99. Previous purchasers of DRM restricted music can upgrade to the non-DRM files for 30 cents, though, and albums will be the same price regardless of the version. The new tracks will be double the file size of the DRM protected ones, which will result in increased sound quality.