DRM interoperability under French competition law

20 January 2005

Henri Leben

VirginMega brought a complaint against Apple for an alleged abuse of a dominant position following Apple’s refusal to allow access to its digital rights management (DRM) solution standard. According to VirginMega, Apple holds a dominant position both on the market of secured digital hard disk mp3 players and on the market of online music download platforms. The Council held in a decision dated 9 November 2004, that in spite of its potential dominant position, Apple had no obligation to grant access to its FairPlay DRM solution since FairPlay is not essential for the development of legal online music download platforms.

The Competition Council stated in a recent decision (the “NMPP decision”), that an undertaking abuses its dominant position by prohibiting its competitors access to a piece of software, insofar as the software is an essential facility. The VirginMega decision clarifies the Competition Council’s position and must be assessed in light of the Microsoft decision recently rendered by the European Commission. It emphasises that the definition of standards by an undertaking does not automatically imply an abuse of the undertaking’s dominant position.

VirginMega offers the possibility for customers to download music from its Internet platform. Its customers are however unable to transfer the downloaded music directly to the iPod mp3 players manufactured and marketed by Apple. Direct transfer of music files to the iPod would require an access to the FairPlay DRM system owned by Apple, who refused to grant a licence to VirginMega. The Council had to decide whether Apple had a dominant position and to what extent its DRM solution could be assessed as an essential facility.

DRM systems are intended to protect the content owner’s rights and to prevent illegal use or reproduction of downloaded music. Apple set up its own DRM standard (“the FairPlay DRM”) which is only compatible with its internet platform (The iTunes Music Store). The Council considered that even though the Apple standard prevents its competitors from having direct access to the iPod, the FairPlay DRM is not an essential facility. The decision lists three reasons: 1) the practice of transferring music from a download platform to an mp3 player is not widespread, 2) users may always burn CDs when their mp3 player is not compatible with the internet platform, 3) many digital secured hard disk mp3 players are compatible with the VirginMega platform. The Council held consequently that the refusal of Apple to grant a licence to its competitors could not prevent the development of competition and is not, per se, an abuse of a dominant position.

It may be implied from that decision that the owner of intellectual property rights has no general obligation to grant a licence to its competitors even if these intellectual property rights may confer a dominant position on the concerned operator. Competition law can limit the exercise of intellectual property rights only where such exercise prevents the development of competition between undertakings. When these intellectual property rights are not essential to access the relevant market, their owner, even if in a dominant position, remains free to refuse to grant a licence.

Source: http://www.conseil-concurrence.fr/pdf/avis/04d54.pdf