News : Apple may be chilling iTunes competition

By David Lawsky

SAN FRANCISCO (Reuters) - Apple might be unfairly blocking rival software makers who want to sell music for its iPhone, according to some rivals and a technology rights group.

The iTunes store accounts for four out of five songs sold on the Internet in the United States and is becoming more important as CDs fade. A milestone was reached last month when Atlantic Records announced digital sales had surpassed CD sales.

Everyone agrees Apple achieved its dominance in music downloads and players with good products and marketing, which makes it entirely legal. Apple is not a monopoly because there are hardware competitors such as Microsoft Corp's Zune.

Nonetheless, rivals and a technology rights group are concerned Apple is overly aggressive.

Apple declined to comment, but its lawyer wrote a competitor and said the company is defending its rights under copyright law.

Apple's music business operates in three parts. First there is the hardware, an iPod or iPhone. Second, iTunes software on computers manages music on the hardware. Finally, there is the iTunes store, which sells music. The whole process is easy but importing music from competitors is more difficult, the critics say.

But Susan Kevorkian of IDC reports more vigorous competition, saying Amazon.com Inc has ramped up usage of its service in a scant 10 months and Wal-Mart Stores Inc has also captured some market share.

Apple has a few small rivals for iTunes. They include WinAmp, gtkpod for the alternate operating system Linux and Songbird.

"We love Apple's products," said Rob Lord, chief executive of Songbird.

His for-profit company makes software designed to run on iPods, or any other music player.

USER CHOICE

"Users should have the choice of the iTunes store or somebody else's store," Lord said, adding consumers should be able to switch to Nokia, Blackberry In Motion Ltd or MP3 players without having to dump their entire music library.

Analysts do not believe companies such as Lord's pose a real threat to Apple's exclusive approach to music marketing.

"This may not be a big deal in the long run. Most people who go to alternatives probably wouldn't have bought songs from iTunes in the first place," said Michael Gartenberg with Jupiter Media.

But it is a big enough deal that Apple felt compelled to act last month, out of concern its copyright was violated.

Apple told the operator of website bluwiki.com to remove postings that talked about ways to work around a special Apple file, known as iTunesDB. Apple said copyright law prohibited such talk.

People such as Lord need to use iTunesDB for their software to work properly with the iPhone and iPod touch, both of which have protected versions of iTunesDB.

Sam Odio, operator of bluwiki, disliked the Apple notice, but did what it demanded, removing several postings.

"When a lawyer calls you up and implicitly threatens litigation that would bankrupt your little project you obviously have no choice but to comply," he said.

The technology rights group Electronic Frontier Foundation has taken on Odio as a nonpaying client to see if it can protect his freedom to post.

"This is a pure attack on interoperability," said Fred von Lohmann, a lawyer for the Foundation.

He said that, until a year ago, iPods worked well with many kinds of music software.

"In October of last year, they added (software) which has no purpose other than to prevent applications other than iTunes from working," he added.

Von Lohmann said court precedents make it clear others have a right to write software for iPods and iPhones.

(Editing by Andre Grenon)