NORWAY TAKES A BITE OUT OF APPLE

C O N F I D E N T I A L OSLO 000811 SIPDIS SIPDIS STATE FOR EUR/NB DALLAND; EB/TPP/IPE FOR BSOILA DOC FOR 4212 MAC/EUR/OEURA JUSTICE FOR JOHN ZACHARIA STATE PLS PASS TO USTR FOR JASON BUNTIN AND TANUJA GARDE E.O. 12958: DECL: 06/19/2016 TAGS: ETRD ECON EINV KIPR NO SUBJECT: NORWAY TAKES A BITE OUT OF APPLE Classified By: Acting Pol/Econ Counselor Doug Apostol, Reasons 1.4(b) a nd (d) ¶1. (C) Summary. The Norwegian Consumer Ombudsman recently issued a decision letter against Apple's iTunes Music Store (iTunes),claiming that the music service violates Norwegian consumer laws and contract law principles. Apple has not/not requested Embassy assistance, and its local Norwegian counsel says the company is unlikely to do so. While Apple has yet to officially respond to the allegations, its attorney is confident of legal success should the Ombudsman raise the stakes and pursue direct enforcement action. The Ombudsman has given iTunes an August 1 deadline to respond. The Ombudsman's decision letter could pose serious challenges to U.S. businesses in Norway that utilize Digital Rights Management (DRM) technologies. End summary. Ombudsman Says He'll Hang Apple after a Fair Trial - - - - - - - - - - - - - - - - - - - - - - - - - - ¶2. (C) On June 8 the Norwegian Consumer Ombudsman issued a decision letter to iTunes, claiming that its Fairplay DRM unlawfully prevents users from playing downloaded music on any player except Apple's iPod. The Ombudsman's decision came in response to a complaint from the Consumer Council, an "independent" organization that receives government funding. The Consumer Council's complaint alleges that iTunes' on-line agreements with file purchasers are "unreasonable" and "unbalanced" and therefore violate Norway's vague Marketing Control Act, which bars "unreasonable terms and conditions" in consumer contracts. According to Apple's local attorney, Espen Tondel (please protect),the Council is known for its "way left" approach and is heavily influenced by the internet advocacy group Electronic Frontier, which openly challenges rightsholder protections. According to media reports, Apple's troubles in Norway began when three Consumer Council staffers who download personal music from iTunes were unhappy that they could not play it on media other than their iPods. ¶3. (C) The Ombudsman has given Apple until August 1 to respond. If Apple fails to do so, or refuses to abide by the Ombudsman's decision letter, the Ombudsman may refer the matter to Norway's Marketing Council, a nominally apolitical body of attorneys and others empowered to rule on consumer complaints. If the Marketing Council sides with the Ombudsman, it could order on-line users' agreements between iTunes and its Norwegian customers to be redrawn. Additionally, Apple may be found in violation of the Norwegian Marketing Control Act for ostensibly limiting the consumer's right to select an alternative medium to play iTunes music. If Apple challenges any unfavorable Marketing Council decision, the matter would head to the Norwegian courts for enforcement action. ¶4. (C) Norway's Consumer Ombudsman, Bjorn Erik Thon, is vocal in his opposition to iTunes and seems to have prejudged the issue. Typical of his public comments is this statement to local media: "We are likely to rule against Apple, but it is fair to hear their point of view." Branded by Tondel as a man who "enjoys publicity" and is "politically motivated," the Ombudsman is publicly rallying his colleagues in Sweden and Denmark to take a joint Nordic stand against iTunes. He recently told a local news journal that his phone rings regularly with long-distance calls from Apple's "well-paid lawyers." Apple's Attorney Says Company Can Win if Trial is Fair - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶5. (C) Tondel is cautiously optimistic that iTunes would prevail if the Ombudsman brings the matter to the Market Council or the Norwegian courts. First, he notes that the Market Council is an "apolitical" body, consisting largely of lawyers who will scrupulously review the applicable laws in a balanced manner. Tondel adds that the Ombudsman's powers are limited to consumer matters, so that it cannot lodge complaints against the operability of the DRM system (this authority is exercised by the Norwegian Ministry of Church and Culture, which has oversight of copyright matters). Tondel cautioned that another potential challenge for iTunes could come from the Norwegian Competition Authority (NCA), under the Norwegian Ministry of Government Reform and Administration. The NCA has yet to take a position on the matter, but could conceivably claim that iTunes is abusing its "dominant market position" by making iTunes music playable only on iPods. Time for "Cooling Off"? - - - - - - - - - - - - ¶6. (C) The Ombudsman's letter makes reference to a "cooling off" period. Under Norwegian law, a consumer enjoys a cooling off period after a purchase and, if dissatisfied, may return the merchandise to the vendor for a refund. The Ombudsman suggests that the principle could be applied to music purchases from iTunes, but it is far from clear how a consumer could return a downloaded music file. Ministry of Church and Culture officials tell us they have not seriously considered such a proposal, but Apple lawyer Tondel feels that affected industries will eventually need to address the issue. Tondel suggests that a potential compromise could involve a 14-day "grace period" within which a consumer could return the file for a refund provided it was not opened. Apple's Tune to Embassy a Country and Western Classic: "If your telephone ain't ringin', you'll know it's me" - - - - - - - - - - - - - - - - - - - - - - - - - - - - ¶7. (C) Apple's attorney Tondel told us that the company's "corporate culture and marketing strategy" is to "maintain a low profile" and "not get the U.S. Embassy in Oslo involved." Indeed, Apple's Scandinavian representatives have not returned phone calls from either the Embassy or from the local American Chamber of Commerce chapter. AmCham's local managing director tells us he is concerned that the Ombudsman's action has broader implications for American IPR-based businesses in Norway. If Norway is seen as punishing foreign firms for achieving local success, says AmCham, it could undermine incentives for new American investments in innovative industries. There is much speculation in Oslo that Apple iTunes may, in the end, "go nuclear," and withdraw from the Norwegian and, possibly, broader Nordic market rather than accede to demands to open its Fairplay DRM technology to competitors. Visit Oslo's Classified website: http://www.state.sgov.gov/p/eur/oslo/index.cf m WHITNEY