French Senate Writes Its Own iTunes-Modification Bill

Apple Computer Inc. (AAPL) could negotiate new deals with record labels and artists to sidestep French government plans to open the copy-protection technology of its iTunes music service to rivals, under a draft Senate amendment to be voted on this week.

The amendment, proposed by the Senate Cultural Affairs Committee, softens the terms of a government-backed copyright bill Apple criticized as "state-sponsored piracy" after its first reading in March by lawmakers in France's lower house.

Apple's market-leading iPod, which accounts for about 70 percent of U.S. media player sales, is currently designed to play music only from iTunes, which is also incompatible with rival players.

The bill adopted by the National Assembly included proposals that would force Apple, Sony Corp. (SNE) and others to share their copy-protection technologies, so that competitors could offer music players and online stores that are compatible with theirs.

The measures were demanded by consumer groups and backed by the government.

But the Senate committee's changes could allow Apple to maintain the exclusive link between iTunes and the iPod, lawyers and officials told The Associated Press.

Under the key amendment, compatibility disputes would be taken to a new regulatory authority that would have the power to order exclusive file formats be shared — but only if the obstacles they pose are "additional to, or independent of, those explicitly decided by the copyright holders."

In other words, Apple and Sony could continue to refuse to share their FairPlay and ATRAC3 file formats, provided they obtain the authorization of artists and other copyright holders whose music they sell online, said Valerie Aumage, an online copyright specialist with Paris law firm Dubarry Le Douarin Veil.

"As long as Apple can show that the restrictions conform to the wishes of copyright holders, there would be no case to answer," she said.

While Aumage believes that this is the amendment's most likely consequence, she also stressed that the "highly ambiguous" draft text is open to other interpretations.

If the Senate committee proposal became law, record labels could be asked by Apple to gather the necessary authorizations for music they wanted to offer through iTunes in France.

"If it's the difference between that and not doing business in France, it's probably worth the paperwork," said analyst Roger Kay of Endpoint Technologies Associates, a U.S.-based consulting firm.

The recording industry is seeking more compatibility between formats and hardware as it struggles to claw back some control of online music sales and pricing, but it has so far failed to break away from the iTunes single-pricing model in negotiations with Apple.

Culture Minister Renaud Donnedieu de Vabres has said he is determined to ensure that music downloads are compatible with all music players, to stimulate competition and consumer choice. His spokesman was unavailable for comment Tuesday.

But a government official, who asked not to be named because the Senate vote was still pending, said the minister wants the amendment "clarified" to close the loophole.

"The government's position is to favor interoperability come what may," the official said. "That is not going to depend on deals with iTunes."

The draft amendment follows intensive lobbying by the California-based computer company, which sent representatives, including iTunes designer Bud Tribble, to Paris last month for a series of meetings with senior lawmakers.

The Brussels-based Business Software Alliance, which campaigns on behalf of major software and hardware makers including Apple, Microsoft Corp. (MSFT) and Hewlett Packard Co. (HPQ), has also warned that the draft legislation would harm the fight against piracy and undermine new technologies like high-definition DVDs.

Apple did not respond to repeated requests for comment.

Its March statement predicted that if the National Assembly's bill became law, "legal music sales will plummet just when legitimate alternatives to piracy are winning over customers."

In an earnings conference call last month, Apple said it is working to boost its market share of portable media players in countries outside the United States, including France.

According to Apple, the iPod improved its market share in France from 7 percent in December to 11 percent in February.

As of February, the iPod's market share was 40 percent in the United Kingdom, 54 percent in Japan, 45 percent in Canada and 58 percent in Australia, the company said.

The French Senate is expected to complete its reading of the copyright bill in coming days, after which the legislation passes to a joint committee of Senators and lower-house deputies, charged with hammering out a compromise text.