Following a similar complaint by France, Norway seems ready to be joined by both Denmark and Sweden in making the case that iTunes needs to be modified in order to do business in those countries. In Norway, the government has demanded that Apple revise its iTunes Terms of Service by August 1 -- an extension from June 21 -- or else face fines and possible prosecution.

While the EU gained notoriety by challenging Microsoft over the legality of tying its Windows Media Player to Windows, European nations have also gained more political clout in forcing companies from other countries to do business on their respective terms. The interesting twist is that Norway is not a member of the European Union, which leaves the Scandinavian nation negotiating with Apple under its own flag.

"There is definitely a feeling so far that markets work themselves out, but that is not the attitude that European legislators are starting to take," said Paul Resnikoff, founder and editor of Digital Music News. "We're talking about different economic systems, which is why most of the action is happening overseas."

The complaint, filed by the Norwegian Consumer Ombudsman, demands that Apple make iTunes content usable by other manufacturers' MP3 players. Apple has yet to officially say what it will do, but experts have warned that this could force the company to pull iTunes from Norway altogether. Representatives for Norway's Consumer Council told PC Magazine that Apple's Norwegian representatives have said that they hope Apple wouldn't have to pull out of the country.

"We have received the letter from the Norwegian Consumer Council and are looking into it," said Tom Neumayr, a spokesperson for Apple. "We're looking forward to resolving this matter."

How, exactly, is the question. According to analysts, Apple is not at liberty to simply lift its Digital Rights Management (DRM) policies and open its content, because the company's licensing agreements with the music industry are binding.

"It's a question of whether Apple created this DRM solution to lock you into using a device, or did they do it because they had to, because otherwise the record labels wouldn't license them the content," said Michael McGuire, a lead analyst with Gartner. "The legitimate online music market is still very, very young, and this isn't just going to be Apple's issue if legislation goes through. It will be anyone who provides DRM content."

One concern is that lifting DRM content would enable users to share music illegally. Research has shown, however, that the majority of music on the average iPod does not originate from iTunes, but from CDs or separate peer-to-peer sites. McGuire said that iTunes has not helped significantly reduce music piracy because "a certain part of the population is always going to want to get something for free."

If Apple cannot find a solution that satisfies both the Norwegian government and the music industry, they will be forced to close up the iTunes shop within Norway, although the company is unlikely to stop sales of its iPod players.

While the Norwegian ombudsman is acting on behalf of Norwegian consumers who want a broader use of the iTunes that they have purchased, Ross Dannenberg, a digital rights attorney with Banner & Witcoff, asks "What is going to upset Norway more: the fact that they're going to be restricted to iPods or losing iTunes altogether?" Continued...

Norway's unique position In part, Norway's perspective is shaped by its unique role within the international community.

Although Norway voted down a proposal to join the European Union in 1994, the country established the European Free Trade Association (EFTA) with Iceland, Lichtenstein, and Switzerland. All four countries established the European Economic Area, a trade agreement between the EFTA and the EU that provides for the so-called "four freedoms" -- free movement of goods, services, capital and persons -- within the treaty boundaries.

The key difference between the EFTA and the EU, however, is that Norway and the other EFTA members declined to limit the status of the sovereign nations to EFTA agencies, as the EU member nations have done. The distinction means that Norway is free to negotiate with Apple directly, rather than through an intermediary.

However, as a Scandinavian country, Norway also shares historical ties with Denmark and Sweden. For that reason, ombudsman from the two other countries will be participating in the actions against Apple, said Torgeir Waterhouse, senior advisor to the Consumer Council of Norway (Forbrukerradet) in an interview. The three countries will likely not co-sign statements, but will reference each other's respective positions in legal documents, he said. Although it is financed by the Norwegian government, Forbrukerradet is a legally independent agency representing the consumer.

According to Forbrukerradet, Apple's operation of iTunes violates several aspects of Norwegian law, Waterhouse said. Many of the points brought up in the original six-page complaint have been upheld by the country's ombudsman, Forbrukerradet officials said.

From a technical perspective, some of Forbrukerradet's arguments are familiar: since iTunes uses FairPlay digital-rights-management software to control access to its licensed music, and since the Apple iPod family is the only one with the legal rights to decode FairPlay's DRM, consumers are unfairly locked into the Apple platform. Norway's Copyright Act, however, provides for a seemingly contradictory set of provisions; consumers are prohibited from circumventing effective digital-rights-management systems, according to Forbrukerradet, but allowed to circumvent DRM to allow legally purchased music to be played on a variety of playback devices.

"What we've done with DRM, is that we've considered it as part of the terms," Waterhouse said. "We see DRM as a technically enforced terms of service. What we're saying is if I buy music from iTunes, or from any other music store, it's the music I'm paying for. I'm not buying the file."

If Apple licensed FairPlay to other manufacturers, that might satisfy Norway, Waterhouse said. "It could possibly be good," he said. "But it has to be a real alternative."

There is also the issue of sovereignty: although the iTunes Music Store's European headquarters are based in Luxembourg, the iTunes.no site can only be accessed by Norwegians with a Norwegian credit card. The site's terms of service also state that it is bound by English, not Norwegian law, Waterhouse said, a provision Norway stridently objects to.

"Everything is in Norwegian: the site, the currency, support over the phone," Waterhouse said. "Basically they are a Norwegian-based store, as much as the store down the street that sells CDs. And that means that they are subject to Norwegian law. If iTunes in the U.S. had been open to Norwegians, it might be different. But as long as they are doing business in Norway under these conditions, they are Norwegian."

Under Norwegian law, consumers also have the right to a cooling-off period, an opportunity to poke and prod a physical good, test it, and then return it if is defective. Since Apple disclaims liability for a hypothetical scenario in which iTunes or its files could be hacked or infected with a virus, Apple must provide a period in which a song could be "returned," Waterhouse said, which it does not.

Apple's TOS also allows the company to freely modify the terms without the consent of the consumer, which the agency feels could effectively alter the agreement, retroactively. That, Waterhouse said, leaves the iTunes TOS "unbalanced," in favor of the corporation. It might also indicate a possibly illegal breach of Norway's privacy laws, which Forbrukerradet will also investigate, Waterhouse said.

As the dominant supplier of downloadable music in Norway, Apple could represent an illegal monopoly, Waterhouse said. But more importantly, he said, the iTunes issue serves an important test case; Norwegian brick-and-mortar services are preparing their own music download services, and services to legally download movies are also expected.

"It's probably our first try," Waterhouse said, to establish precedent for other transfers of intellectual property, including movies and electronic books.

Continued...

What needs to happen?

According to Derek Slater, an activist with the Electronic Frontier Foundation, some sort of copyright reform is necessary because the current restrictions threaten to stifle creation of new MP3 players. In reality, however, that hasn't happened. Research from iSuppli, a research firm, showed that iPods only accounted for 25 percent of the portable player market in 2005, but dominated the competition. No other player claimed as high as 25 percent of the market.

Norway's complaint comes just months after the French bill, which has yet to be finalized, that would force iTunes and other online music stores to make their content playable on any player.

An American organization, the Free Software Foundation, has also been protesting at Apple stores since early June as part of their Defective by Design campaign, aimed at pressuring distributors such as Apple and Microsoft to reject the DRM restrictions imposed by what they call "Big Media." Richard Neff, an attorney with Greenberg Glusker, doesn't think the movement will go very far on U.S. soil.

"It doesn't surprise me that more and more European countries are jumping on this bandwagon because of a basically different approach that Europeans take towards commerce," Neff said. "Put simply, European regulators don't believe as much as Americans do in free markets and unfettered capitalism. As a consequence, they often try to force regulated results on a manufacturer and provider, whereas US regulators are more likely to allow consumer choice to govern."

Neff said he wonders why European legislators don't make similar demands towards video games that can only play on Sony or Nintendo systems.

The Norwegian complaint also accuses Apple of dividing the European market by country with its price differentials. So far, iTunes downloads cost 99/100 of a particular country's currency -- but 99 cents is certainly not the same as 99 pence, which prompted an ongoing investigation by Britain's Office of Fair Trading last year.

Fixing the legalese within the TOS should be an easier task, however, Resnikoff said. "It's about a user agreement that no one looks at, anyway."

For now, players in the digital music space are on the edge of their seats, waiting to see how Apple responds. The decision will likely set a precedent for other countries and other digital content policies. Chris Crotty, a senior consumer electronics analyst with iSuppli, said that Apple's reaction could have implications for how users consume more than just music.

"Right now the general trend is that people are willing to pay for the same content over and over in different forms," Crotty said. "I might be willing to pay my cable operator to watch Lost, and then I might buy an episode on iTunes, and then I might buy the DVD of the season. In the future that's not going to work. But we haven't gotten there yet. What the Norwegian government is saying is that they want consumers to enjoy content that they've legally purchased on the device of their choice."

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