Beatles' label to appeal iTunes verdict

Out-Law News | 09 May 2006 | 11:33 am | 6 min. read

Apple Corps says it will appeal yesterday's High Court defeat. Mr Justice Mann ruled that Apple Computer did not breach a 1991 agreement between the companies when it launched iTunes Music Store. A download, he reasoned, is not the same as a CD.

The case centred on the agreement which had been drawn up after a previous dispute between the record label of The Beatles and the computer company. It set out how the companies would use their respective similar trade marks.

The 1991 agreement, drawn up in the days before music downloads, set out the 'Field of Use' for each company's mark. Apple Computer's Field of Use included electronic goods, data transmission services ancillary services and more. Apple Corp's Field of Use included musical content.

The agreement included this crucial clause:

4.3 The parties acknowledge that certain goods and services within the Apple Computer Field of Use are capable of delivering content within the Apple Corps Field of Use. In such case, even though Apple Corps shall have the exclusive right to use or authorize others to use the Apple Corps Marks on or in connection with content within subsection 1.3(i) or (ii), Apple Computers shall have the exclusive right to use or authorize others to use the Apple Computer Marks on or in connection with goods or services within subsection 1.2 (such as software, hardware or broadcasting services) used to reproduce, run, play or otherwise deliver such content provided it shall not use or authorize others to use the Apple Computer Marks on or in connection with physical media delivering pre-recorded content within subsection 1.3(i) or (ii) (such as a compact disc of the Rolling Stones music).

In 2001, Apple Computer launched the iTunes software for ripping CDs and then the iPod in 2001. It launched the iTunes Music Store (ITMS) two years later. A prototype had been demonstrated to Apple Corps' sole executive officer, Neil Aspinall, before launch; but because he did not like the appearance, and perhaps the nature, of the product, Apple Corps has never authorised any of its music to be sold through ITMS.

Apple Corps claimed its agreement was breached by ITMS. One of its arguments was that the Apple symbol was visible while ITMS was on screen.

Mr Justice Mann noted: "It is said that its use is a use on or in connection with musical content (i.e. with the creative works whose principal content is music.)" Geoffrey Vos QC, representing Apple Corps, relied on the fact that the Apple logo disappears and is restored when ITMS is being used. This, he argued, emphasises the connection or link with Apple Computer.

But Apple Computer pointed out that the store and the downloaded track contain information making it clear that Apple Computer does not own the rights to any of the music. A click displays details of the album from which the track is taken, including, for example, an album cover and the name of the rights owner.

Apple Computer said its mark "franks" the ITMS software – not the content. Apple Corps disagreed. It alleged numerous other examples of the Computer mark being used on or in connection with musical content. Apple Computer is doing the things that record companies do, it argued: it pays for the recording of exclusive tracks to offer via ITMS;  it offers special playlists selected by artists; it has broadcast adverts featuring U2, Coldplay and Eminem that feature the Apple logo.

Apple Computer said that to cross into Corps' territory with its mark it would have to have indicated, by its use of the mark, that Computer was the source or origin of the music. It argued that it did not do so and has never done so.

Mr Justice Mann considered the wording of the agreement and drew his own conclusions. He decided that "the mere running of a data transmission service, transmitting musical content, under a Computer apple mark would not, of itself, be a breach."

Apple Corps pointed to words in the 1991 agreement which prevent Apple Computer from using its mark "on or in connection with physical media delivering pre-recorded content within subsection 1.3(i) or (ii) (such as a compact disc of the Rolling Stones music)".

Mr Vos argued that this makes it clear that Computer must not use its mark in connection with the sale of music content however sold, and it does not matter that the sale is via a computer connection because of the incorporated cross-reference to intangibility, which preserves it for Corps. Clause 1.3(ii) makes it clear that the words in question are within Corps' exclusive field of use however they are communicated ("whether tangible or intangible"), and they are capable of describing what Computer is doing even though nothing like a CD is delivered. He argued that Computer is confined to the use of its marks on its service and must not trespass in any way into a use in connection with content.

He pointed to comments made by Steve Jobs, Apple's CEO and co-founder, who claimed that permanent downloads are just the next thing on from CDs, or are like CDs, and claims that in ordinary language any reasonable person would regard a permanent download stored on a physical medium, such as a hard drive, as "physical media". Bearing all this in mind, and bearing in mind that the court has to apply this contract to technological developments that were not precisely foreseen, Vos argued that it would be appropriate to regard a permanent download within the definition of "physical media delivering pre-recorded content".

But Mr Justice Mann disagreed.

He wrote: "it would require a serious distortion of fairly plain notions to say that files delivered by ITMS and stored somehow in digital form, and/or the hard disk which stores them, amount to 'physical media' which 'deliver' pre-recorded content. It is true that physical things are involved – servers, communication equipment, wires and hard disks, to name but some, but they do not, in any form of ordinary parlance, amount to 'physical media delivering pre-recorded content'. The hard disk on which downloaded content is stored may in some contexts be regarded as a physical medium, but it does not deliver anything; it stores what is delivered by a means other than a 'physical medium'."

He believed the parties had in mind a physical media like a CD. "The physical medium has to carry the content," he reasoned. "There is no equivalent or analogue in a download service like ITMS."

The reference to intangibility in clause 1.3(ii) did not refer to "content," in Justice Mann's view. Rather, "it refers to the method of recording or communication of works – 'the means by which … works are recorded, or communicated whether tangible or intangible'."

Justice Mann concluded:

"All this does not, as Mr Vos submitted, make nonsense of the exclusive rights given to Corps to apply its marks to musical recordings, including recordings transmitted in intangible form. It still has those rights. Computer has no right to apply its marks to such matters. What Computer does have the right to do is to use its mark in connection with the service which sells content without automatically being in breach of the [trade mark agreement], and to be able to avoid being in breach providing that it is acting fairly and reasonably. Corps retains the exclusive right to apply its marks to the 'creative works', however communicated. I do not see what is nonsensical about the result which I consider to be correct."

There was no breach of the 1991 agreement, he wrote. "The action therefore fails."

Macworld UK quotes Apple Corps' Aspinall vowing to continue the fight: "With great respect to the trial judge, we consider he has reached the wrong conclusion … We will accordingly be filing an appeal."

Lee Curtis, a trade mark attorney with Pinsent Masons, the law firm behind OUT-LAW.COM, said: "The ruling is good news for Steve Jobs, but the fight over the iconic trademark isn’t over yet, and the stakes remain high."

"Justice Mann ruled that Apple Computer didn’t breach the 1991 agreement because it used the brand only in relation to its iTunes store, not on the physical music itself. He ruled that Apple Computers had complied with the agreement because it used the Apple logo in a retail capacity, and did not associate itself with creative musical works per se."

He noted that Apple Corps will now be landed with a bill for both companies' costs – reported to total £2.5 million. Apple Computer's request for its costs to be paid now was denied pending the outcome of the appeal. "The stakes are still high," said Curtis. "If Apple Computer loses this war of words at appeal, it is likely that Apple Corps would obtain significant damages for past iTunes use, plus the legal tab."