Intellectual Property Law

Clash of the Titans

By Michael Scott

As a long-time fan of Apple products (starting with the Apple II in the late 1970s up to today’s latest Mac Pro and iPhone), I was wary of getting an iPad, since I didn?t like the idea of Apple being able to dictate what software I could and could not use on my computer. While an ?app store? might make sense for a cell phone, since software has to be written carefully to run properly on the small screen, small processor device, I felt uneasy about giving one company control of how I used a device that I had bought and paid for and on which I should be able to run any software that I chose.

However, after pressure from my friends and family (all of whom are devoted iPad users), I purchased an iPad for myself last Christmas. While I don?t use it as much as my kids do, or as some of my students do, I have warmed up to the device and have become a regular purchaser from the iPad app store. I use it mainly to do email and read ebooks. That is why I was very distressed to read about an emerging battle between Apple and the e-reader companies (Sony, Amazon and Google) over the nature of the e-reader apps they will be allowed to distribute through the app store in the future. See, e.g., Yukari Iwatani Kane and Stu Woo, “Apple Rejects Sony E-Book App,” Wall. St. j. (Feb. 2 2011).

In general, e-reader apps have been just that. They can be used to read e-books, but if you want to purchase an e-book, you need to go to the applicable website and pay for the e-book there. While it is somewhat inconvenient to have to leave the e-book app to buy a new e-book, it hasn?t been a major issue. At least for e-book readers. Apparently it has been a major issue for Apple, since Apple does not get a cut of the revenues generated by those e-book sales. As Apple stated in a recent press release:

We are now requiring that if an app offers customers the ability to purchase books outside of the app, that the same option is also available to customers from within the app with in-app purchase.

It is reported that Apple has rejected an e-reader app from Sony, demanding that Sony provide the means to purchase their e-books through the iTunes store ? and pay Apple 30% of the revenues generated from such sales. Considering that many e-book sales are made with little or no profit already (various stories assert that Amazon loses money on the e-books it sells for $9.99 or less), having to give Apple 30% of revenues would make most e-book sales unprofitable ? which might require e-book sellers to jack up the price of their titles across the board to cover Apple?s cut.

And there is no reason that Apple won?t expand that policy to other e-commerce areas. As one commentator recently stated:

Now that Apple has changed the business arrangement for e-books, you can bet it’s thinking about the terms for video-streaming apps like Netflix and Hulu Plus and music apps like Pandora, or even more general e-commerce apps like Amazon’s Windowshop. If Apple wants a 30 percent cut of my Kindle book today, I assume it will want a 30 percent cut when I try to buy an actual Kindle tomorrow.

Farhad Manjoo, ?Ditch the App Store,? Slate.com (Feb. 1, 2011).

It will be interesting to see what Sony, Amazon and others do in response to Apple?s changing policies. And whether the FTC or various state attorneys general may get involved as well.

Full post as published by Singularity on February 02, 2011 (boomark / email).