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In the wake of a decision by the French National Assembly that would force Apple (Nasdaq: AAPL) 
to give iTunes playlist access to rival MP3 players, the iPod maker has finally broken its silence about the draft law.
France's upper house, the Senate, approved the copyright bill Tuesday, just as legal analysts had predicted, with a vote of 296 to 193. France is concerned about interoperability issues. Apple is concerned about its bottom line. The company sells about 3 million songs a day for 99 US cents each.
"The French implementation of the EU Copyright Directive will result in state-sponsored piracy," said Apple in a statement. "If this happens, legal music sales will plummet just when legitimate alternatives to piracy are winning over customers."
Fair Play?
At issue is FairPlay, Apple's proprietary copyright protection format. Sony (NYSE: SNE) also has its own format, ATRAC3. Currently, the iPod only accepts music downloads purchased from the iTunes Music Store. France is indirectly targeting Apple in efforts to breed interoperability in the digital download market.
The five lawmakers from the governing conservative Union for a Popular Movement that introduced the legislation are concerned that without guaranteed interoperability, there is a major risk of "captive client bases and an anti-competitive situation, with the consumer held hostage as a result."
Au Revoir, France
Speculation is rife that Apple may shut down its iTunes service in France. That could be costly. The iTunes music downloading service sold 800,000 songs in Europe the week it launched there, making it the No. 1 music service in the region. No specific information is available about French iTunes revenues, but Apple did report a $174 million operating profit on sales of $1.2 billion for its European division in the most recent quarter.
"Shutting down iTunes in France is a strong possibility because opening access to other music players is not in line with Apple's strategy," Francois G. Laugier, corporate transactions and international business attorney in the Redwood City, Calif., office of Ropers Majeski Kohn & Bentley, told MacNewsWorld.
"I haven't heard of any other European countries planning to adopt similar legislation," he added. "It could be one of those peculiar things that come up in France."
Yahoo (Nasdaq: YHOO) and Google (Nasdaq: GOOG) have also faced legal challenges in France. Yahoo is still fighting a $15 million fine payable to a Paris court for displaying Nazi memorabilia for sale in an online auction. The sale violated French law. Google has also faced legal questions over ads and trademarks in France.
Apple's Spin
In its public statement, Apple did not comment on whether or not it would shut down iTunes in France, but the company has taken a positive view of the ruling's potential impact on its market dominant MP3 player.
"iPod sales will likely increase as users freely upload their iPods with 'interoperable' music which cannot be adequately protected," the Apple statement continued. "Free movies for iPods should not be far behind."
Let the Lobbying Begin
Now that the bill passed the Assemblee Nationale, there is little doubt that the Senate, traditionally a more conservative group, will also vote in favor of it, Laugier said.
"Apple better get lobbying fast," Laugier noted. "There may be provisions for free commerce and antitrust that would give an angle to Apple to attack this position."
Apple may be in for a long battle that takes an appeal all the way to the European High Court, which has dominion over individual country disputes. The European Commission, however, is already investigating Apple's iTunes business after a British consumer group accused the company of overcharging for its songs.
Apple's stock was down $2.18, more than 3 percent, in early trading Wednesday.
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