Leading French lawmakers voted on Thursday to water down a draft copyright law that could force Apple Computer Inc to make its iPod music player and iTunes online store compatible with rivals' offerings.
Currently, music bought on Apple iTunes can be played only on iPods, and an iPod cannot play songs purchased from rival stores, such as Sony Corp's Connect. Critics have called the restrictions anti-competitive and anti-consumer, but the lock-in is a key part of the companies' business models.
The National Assembly, France's lower house, voted in March to force companies like Apple and Sony to abandon their closed approaches and hand over exclusive copy-protection technologies to any rival that wants to offer compatible music players and online stores.
While the compromise adopted on Thursday still asserts that companies should share the technical data essential to such "interoperability," it tones down many of the tougher measures backed by the lower house.
It also maintains a loophole introduced last month by senators, which could allow Apple and others to dodge data-sharing demands by striking new deals with record labels and artists.
But the changes may not go far enough to satisfy Apple. A statement issued by the company appeared to suggest that the legislation could ultimately affect its presence on the French market, some observers said.
"We are awaiting the final result of France's legislative process, and hope they let the extremely competitive marketplace driven by customer choice decide which music players and online music stores are offered to consumers," Apple's statement said.
Spokeswoman Natalie Kerris said Apple had "nothing further to add," when asked if the company was considering pulling out of the music download business in France -- a move that could leave hundreds of thousands of French iPod users unable to purchase new music from iTunes.
"I think it's a hint," said Phil Leigh, an analyst with US market research firm Inside Digital Media.
"I think what they're saying is, `We think France is a capitalistic market and the market's telling us we have the best product as it is right now. But if you interfere with the principle of market selection, we would have to give long and serious consideration as to whether or not we would want to participate in the market,'" Leigh said.
IDC analyst Sue Kevorkian said Apple executives appeared to be "keeping their options open pending more information" and the law's final implementation.
"Withdrawal from the French market is one of several choices Apple could make, but in our view it would likely be a shortsighted one," she added, citing moves under way in several other European states to force Apple to open iTunes to rivals' players.
In a joint letter this month, consumer agencies in Norway, Sweden and Denmark accused Apple of violating contract and copyright laws.
The French compromise text, approved on Thursday by a joint committee of senators and Assembly members, is subject to a final vote this month in the two chambers, both controlled by the governing Union for a Popular Movement. Only the government can introduce further amendments.
The bill will establish a new regulatory authority that can order companies to license their exclusive file formats to rivals -- but only if the restrictions they impose are "additional to, or independent of, those explicitly decided by the copyright holders."
Lawyers say this means Apple and Sony could avoid sharing their FairPlay and ATRAC3 formats, providing they obtained permission from the artists whose music they sell.
Consumer organizations argue that musicians confronted with the market power of iTunes -- Apple claims 80 percent of legal US downloads but publishes no figures for individual European markets -- would be unable to refuse such a condition.
"The consumer's right to interoperability has been rendered unenforceable on the pretext of defending copyright," said Cedric Musso, a spokesman for consumer group UFC-Que Choisir, which campaigned for a watertight compatibility requirement.
Christian Vanneste, the governing party deputy who presented the bill to the Assembly, defended the compromise against heavy criticism from consumer groups and left-wing lawmakers, who walked out of Thursday's session.
"It's perfectly legitimate that the artist should decide the potential limitations on the use of his work," Vanneste said in an interview with ahead of the vote.
The increased say for artists could strengthen the hand of recording companies as they seek more flexible pricing on iTunes -- currently the same for every track -- in tense negotiations with Apple.
IFPI, the recording industry's main global body, said the sector "fully supports interoperability" but declined to comment on whether recording companies might resist attempts to secure rights owners' backing for compatibility restrictions.
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