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Apple: RealNetworks hacked iPod
iPod maker alleges Real violated its music player, says new software will not support its products.
July 29, 2004: 3:09 PM EDT
By Andrew Stein, CNN/Money staff writer

NEW YORK (CNN/Money) - Apple Computer accused RealNetworks Thursday of adopting the tactics of a hacker and breaking into the technology behind its popular iPod music player.

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Apple's real problem

RealNetworks (RNWK: down $0.10 to $5.48, Research, Estimates), whose shares fell about 1.5 percent Thursday, unveiled a new product Monday called Harmony that allows users to download music from its online music store and use it on any portable music player, including Apple's iPod.

"We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod," Apple said in a release.

Apple (AAPL: up $0.34 to $32.61, Research, Estimates) has seen sales of iPod boost its bottom line over the past several quarters and has unveiled a smaller, lower-cost version.

Real's Harmony creates an issue for Apple because previously iPod only accepted legally-downloaded songs from its own music store iTunes. Those legally-downloaded songs are encrypted, but iPod also plays un-encrypted music files that may have been illegally downloaded.

Apple said Thursday it is looking into Real's actions under various laws, including the Digital Copyright Millennium Act (DMCA), which prohibits the manufacture, sale or distribution of code-breaking devices used to illegally copy software.

RealNetworks, which provides media playback technology to CNN and CNN/Money, issued a response to Apple Thursday.

"We remain fully committed to Harmony and to giving millions of consumers who own portable music devices, including the Apple iPod, choice and compatibility," the statement said. "Consumers, and not Apple, should be the ones choosing what music goes on their iPod."

Real said Monday its engineers worked out a way for its files to be compatible with iPod solely through analysis of publicly-available information.

Apple's options

Apple has a variety of legal steps it could take to slow down Real, according to Ernest Miller, a fellow at the Information Society Project at Yale Law School. These include lawsuits alleging patent infringements, copyright violations and violation of the DMCA.

"However, the law here is very fact-specific and quite complicated," he wrote in an e-mail to CNN/Money. "At the very least, Apple has the opportunity to tie up Real in some expensive litigation."

An Apple spokeswoman said Thursday she could not comment on any possible legal action the company might take against RealNetworks.

Despite the alleged intrusion on iPod, the issue may become more of a problem for RealNetworks than Apple, according to Michael Goodman, analyst with research firm the Yankee Group.

"For Apple, I think it's a simple fix to make a patch that will disable Harmony," he said. "That's going to mean more work for RealNetworks to keep pace because they will always be in a reactionary stance."

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Indeed, in its statement, Apple said that it would "strongly caution" Real and its customers that when iPod software is updated, Harmony will stop working with "current and future" iPods.

Yale's Miller added "if I were advising Apple, I think there is a strong case to be made that Apple should take action against Real."

"The reason would not be because Real is a threat (they aren't), but because of the precedent it sets," he added in the e-mail. "Microsoft will be coming out with their own online music shop this fall, and they will be a threat. Better to nip such competition in the bud."  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.