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
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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
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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"?
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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"
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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