There’s talk out there about being able to use HTML5 to get around Apple’s App Store ban on charging for in-app purchases.  In other words (I think), somehow HTML5 allows content producers to get around this problem by making apps (and other things) downloadable directly through web browsers.  So … how is it that HTML5 allows getting around this issue?

Some background: Apple announced a policy change earlier this year, specifically in Section 11.14 of its App Store guidelines, prohibiting charging fees for in-app sales of content:

Apps can read or play approved content (specifically magazines, newspapers, books, audio, music, and video) that is subscribed to or purchased outside of the app, as long as there is no button or external link in the app to purchase the approved content. Apple will not receive any portion of the revenues for approved content that is subscribed to or purchased outside of the app.

(See Wired’s discussion of these changes here).  “In-app sales” means just that: Sales or subscriptions for content or services from within an app, typically via use of external links taking a user to a purchase screen on the publisher’s website.  Apple takes a cut of revenues from subscription sales, but only for in-app sales.  Publishers had been directing traffic for premium services via links – within their apps – to the publisher’s transactional pages outside of the apps.  Apple now takes the position that any such transactional sales traffic originating from within the app remains an “in-app” sale.

My question to Steininger involved understanding the growing use of HTML5 as a method – intended or not – to circumvent this restriction.  But first I wanted to understand what exactly was “restricted” by this restriction.

Used to be – and perhaps often still is – that Apple could enforce this ban through its control of the apps themselves: In-app purchases of premium services and content simply couldn’t be made other than through additional access through the App Store.  Further, mobile platforms didn’t support any ability to download, install, and run a fully loaded application that was self-contained.  That was the state of technology until somewhat recently.

So first question … why (or how) was that so?  Or in other words, what capability does Apple’s App Store make possible that – previously – browsers by themselves could not do?

Further background: Through Apple’s open source Webkit project, the mobile browsers Safari and later Chromium were developed to offer application cache.  Or as Steininger put it, “when you load the app once, all the files necessary are going to be in a special place on your computer” – device-based local storage, permitting interactive and engaging user interface without needing any page loads.

“Rather than buying an app in the app store, you just go to a URL [READ: not Apple’s App Store] and you’ve got an app ready to go.  For example, once you load [a book] on the iPad, you’re good to go if you lose connection – even if you close the browser, reboot the iPad and go to the same URL without a connection.”

And so that is what the Financial Times recently did.  As MacWorld reported in June,

In recent months, [the FT has] been directing its subscribers to an iOS-specific, HTML5-based Web app that it’s developed. The Web app provides an iOS-like interface, with the ability to tap on articles to view them, adjust text sizes, and even share content via email, Twitter, and Facebook. The publication is also making video content available in its app, and it even prompts users to place a shortcut on their Home screen; that allows the app to run full-screen without Safari’s interface. And, of course, content can be locked down to just subscribers and registered users.

What changed recently?  HTML5, with its (now) robust ability to “build interactive engaging UI without needing any page load” – as Steininger described it – using JavaScript in its now revitalized (or vitalize) application-building fullest form.  As Steininger explained, “Now … the browser in effect replaces the platform.  Or the browser IS the platform.”

Second question, what does it mean to say – and what significance – that the browser supplants the platform, or that a browser now facilitates local storage on the device?  “No longer iOS, Android, etc.  The [WebKit-based] browser is the platform:

• Storing all necessary files needed to run the application in “application cache”
• Storing arbitrary data off-line – there is no “local storage”, “webSQL” and other less widely implemented storage mechanism like indexdb.

What does this do for the FT or for Amazon?  Users technically don’t need to go to Apple’s App Store to download an app, buy subscriptions, buy premium content and so forth.  And publishers aren’t therefore limited in any way by Apple’s subscription rules, or revenue sharing.  And if that much is true, as MacWorld noted, Apple cannot claim any interest in subscriber data, the big plumb for many publishers.

This raises obvious questions, not the least of which is how has Apple reacted to the move by Amazon and others away from the App Store?  How have other major publishers reacted, and what should we expect to see?  Answers to these questions may be more nuanced than might seem warranted at first glance.  More on that separately.

Apple’s App Store is full of subscription-based content providers. Whether you’re watching a movie on the Netflix app, reading a book through the Kindle app or streaming a TV show using the Hulu Premium app, you’re probably used to paying for the app and then paying more for the content.

But that’s changing, thanks to Apple’s new policy, which will prohibit developers from requiring users to make a second purchase to access content once they have purchased the app itself.

Apple rumor website MacWorld reported earlier this summer that Apple was planning on this new policy. The article quoted Section 11.14 of Apple’s App Store guidelines:

Apps can read or play approved content (specifically magazines, newspapers, books, audio, music, and video) that is subscribed to or purchased outside of the app, as long as there is no button or external link in the app to purchase the approved content. Apple will not receive any portion of the revenues for approved content that is subscribed to or purchased outside of the app.

Previously, developers could charge one price for the app and then offer more content for a second price within the app. Unlike purchases made through the app store, where Apple receives 30 percent of the profit, profits made from purchases within the app itself would go entirely to the developer. In eliminating the possibility for in-app purchases, Apple is ensuring that it retains its 30 percent.

But developers are looking to find ways around this policy. According to MacWorld, Netflix has found a loophole in instructing users to “visit Netflix.com” without providing a button for users to do so.

Others are turning to the much anticipated HTML5. According to Piotr Steininger, co-founder of Tapangi Consulting [http://tapangi.com/] based in Washington, DC, HTML5 may open floodgates for apps that are accessed through a device’s web browser rather than through an app store.  Or in other words, “Rather than buying an app in the app store you just go to a URL and you’ve got an app to go,” Steininger says. “You load it once on the iPad and download a book locally, and you’re good to go.”

Amazon has already unveiled an HTML5-based Kindle app that works within a device’s browser, including on the iPad. The app synchronizes with a user’s Kindle library, and users can shop for Kindle content within the app. According to many reports, other content providers, including Wal-Mart, are similarly attempting to use HTML5-based apps to avoid the Apple App Store and its rules and fees.

I am joined today by my colleague Thomas Yarnell.

In a series of cases starting around 2002 (a case called Kelly v. ArribaSoft) and accelerating in 2007 (a series of cases involving Google and Amazon and a photography database called “Perfect 10”), web hosting companies, search engines and sites like Amazon were accused of copyright infringement when they used thumbnail images of copyrighted works for their search or catalog results.  So for example, Google Images routinely shows images from copyrighted works in search results.  Google (based on the Kelly case and subsequent caselaw) argued that the use of the images was a “fair use”, in that the search engine’s cataloguing of images was a “transformative” type of use that should be protected under copyright’s fair use doctrine.

In the more recent cases involving Perfect 10, Google (and Amazon) were initially successful in arguing that their use of copyrighted images wasn’t copyright infringement at all – making a fair use defense unnecessary.  Those cases were appealed and reversed, but only partially.  The big point that was upheld was that a search web user’s (Google, Amazon, or anybody else for that matter) embedding of inline links would not constitute direct copyright infringement.

Please click the audio player below for the podcast.

Here’s an interesting dilemma for a potentially dominant technology or communications platform: Early Twentieth Century Supreme Court cases found a “public” (and therefore “government” and therefore subject to regulation) role of company towns and their attempts to enforce “private” laws through company-supported police powers.

What happens if Apple’s shiny new iPad gizmo becomes the de facto town square?  Or put more succinctly: What happens when newspapers, magazines and speech generally – presumably limitless and unfettered in the age of the internet – become practically available only on a receiving device available only (or largely) through Apple?

I suspect that antitrust law would be invoked and could sort this out, but that usually happens way down the pike and well after the market – and its implications and winners and losers – has fairly settled out.

But if the case involving Apple’s rejection of cartoonist Mark Fiore’s iPhone app – at least, its rejection before he won the Pulitzer Prize last week – demonstrates anything, it may be nothing new at all.  After all, Apple never pretended to be anything but discriminatory in its editorial control of its “App Store”.  Apple’s same license language quoted by Chittum in the CJR (“Applications may be rejected if they contain content or materials of any kind … that in Apple’s reasonable judgement may be found objectionable, for example, materials that may be considered obscene, pornographic, or defamatory”) is no more or less restrictive or arbitrarily discriminatory than similar language found in Terms of Service found on the most established websites.  Here, then, from the Terms of Service for the New York Times website:

You acknowledge that any submissions you make to the Service …. may be edited, removed, modified, published, transmitted, and displayed by The New York Times Company and you waive any rights you may have in having the material altered or changed in a manner not agreeable to you” (emphasis added).

And these restrictions don’t even bother qualifying themselves with the gratuitous “reasonable judgement” conceded by Apple.

Could this really be more about control of distribution on the Internet?  Or about … control of the Internet?  Apple’s success in transforming music distribution with its ubiquitous iPod (yes, iPod with an “o”) seemingly resulted from simply building a better design than.  While Apple’s limitations in transforming music distribution seemingly resulted solely from Apple’s inability to cut deals with all music labels.

Why should textual content distribution really be any different?  Last fall, Rupert Murdoch’s News Corporation threatened to limit the availability of its content through Google and other search.

Presumably, the New York Times or CJR could do the same through the iPad, Kindle, Sony Reader or Barnes & Noble Nook.

(Although the telling takeaway from the News Corp. experience may be Google’s proverbial shrug in response.)

In a New York Times story last week about the Pulitzer cartoon incident, cartoonist Fiore waxes philosophic: “Sure, mine [iPad app] might get approved, but what about someone who hasn’t won a Pulitzer and who is maybe making a better political app than mine?  Do you need some media frenzy to get an app approved that has political material?”  Well, not necessarily, and it does seem kind of silly that Steve Jobs would now personally reach out to Fiore.  But then again, why would Apple not want to grant a popular political cartoonist a presence on its popular reading tablet?  And why shouldn’t Apple be able to simply make a business decision that some sort of threshold public interest in the application need be attained to merits Apple’s attention?  The alternative presumably would require that Apple embrace all political speech and all potential demands for its desktop space.

We’ve seen this before in other areas of the law.  An example is the perpetually swinging pendulum of 1st Amendment Establishment Clause governance, where on the one hand government must permit and not inhibit all religious comers, or then affirmatively not allow anybody to do anything.

But back to the original question (or back to our question of original intent?): Why should Apple – a private company with a private commercial product – be required to conform with either view of an “open” forum of speech?

From this perspective, a more alarming (from the publishing industry’s perspective) competitive threat on the market today is the low-cost pricing of hardcover books (including current bestsellers) at places like Target, Costco and Walmart.  The fact that Amazon agrees to raise the basic Kindle book price helps alleviate publishers’ pain only so long as the electronic book market seriously impacts the book purchase market and – which is nowhere near the case – and only so long as Amazon (and a very few smaller competitors) dominate electronic retail – which they do.

And this is precisely the point book industry veteran Jason Epstein makes in his March 11th essay in The New York Review of Books, “Publishing: The Revolutionary Future.”  For the book publishing industry has been reeling since well before the appearance of the Kindle or Sony Reader or, for that matter, since well before the digital migration.  Admits Epstein, “This historic shift” of digitalization “will radically transform worldwide book publishing, the cultures it affects and on which it depends.”  However, why the shift remains so difficult for traditional book publishers has much to do with decades-old trends:

“Meanwhile, for quite different reasons, the genteel book business that I joined more than a half-century ago is already on edge, suffering from a gambler’s unbreakable addiction to risky, seasonal best sellers, many of which don’t recoup their costs, and the simultaneous deterioration of backlist, the vital annuity on which book publishers had in better days relied for year-to-year stability through bad times and good.  … The resistance today by publishers to the onrushing digital future [arises] from the understandable fear of their own obsolescence and the complexity of the digital transformation that awaits them, one in which much of their traditional infrastructure and perhaps they too will be redundant.”

Epstein thoughtfully weighs consumer misperceptions about e-books with the publishers’ dilemma.  Consumers, not surprisingly nor unreasonably, might think that electronic book pricing should benefit from the avoidance of the physical costs of publishing, most obviously inventory, manufacturing, paper and distribution.  Of course the industry wants to maintain or even increase profits, which includes covering losses from poor sellers in both print and electronic.  Whether true or not, it is not the whole story.  The reality of publishing still very much involves the huge majority of bookselling in print, via physical retail stores or online sellers.  Put another way, one great obstacle to the evolution of publishing is the lack of evolution in the buying market.

As Epstein later told NPR for its story, “One thing that publishers do have to consider in thinking of pricing is that they don’t want to liquidate their existing retail structure by making it so inexpensive to get an e-book that people won’t go to bookstores at all and then publishers will have no place to sell the 90 percent of the books they do create in the physical form.”

On the other hand, Epstein’s own writing on the subject – a much broader futurism on the limitless possibilities of a digital publishing landscape – seems quite a bit more sanguine about publishing’s future than might be gleaned from the quotes in his subsequent interview for NPR’s story.

Nonetheless, his sympathies obviously lie with a stodgy but (in his view) celebrated industry generally apoplectic about both present and future.  He doesn’t seem to lack any confidence that the industry can survive and thrive (“The more adaptable of today’s general publishers will survive the redundancy of their traditional infrastructure but digitization has already begun to spawn specialized publishers occupying a variety of niches staffed by small groups of like-minded editors ….”).  But he offers compelling economic and cultural arguments for why the market publishers currently resist basement-rate pricing for e-books as well as why, inevitably (if not immediately) the market will absorb and reflect the business reality “with or without the cooperation of [publishing’s] current executives”.

In 2008, New York State enacted legislation which may still be the broadest attempt yet to collect sales taxes from out-of-state vendors, basing its legal argument on the networking, linking and affiliate relationships common to many online vendors and particularly, to Amazon.com.

The states may very well be reacting to Amazon’s own aggressive tactics.  In “Sorry, Shoppers, but Why Can’t Amazon Collect More Tax?” (NY Times, 12/26/09), Randall Stross argued that Amazon exploits a tax technique called “entity isolation” to avoid having to collect sales tax in all but 5 of the 18 or more states in which it (and, importantly, its subsidiaries and affiliates) does business through a physical presence such as a warehouse, distribution center, administrative office, or call center.

Stross’s Times colleagues have lampooned Amazon’s policy argument against having to collect state and local taxes on its estimated $22 billion in sales, an argument which might be distilled to “it’s too complicated”.  Wrote Saul Hansell in the “Bits” Blog 2 years ago (“Amazon Plays Dumb in Internet Sales Tax Debate”, NY Times 2/13/08):

“[I]t is certainly an unwieldy mess of rules. But this is the sort of problem that is handled by technology: there is a finite set of variables — location, goods purchased, amount, date, whatever else — and a set of rules to come up with a tax rate. When you look at all the things Amazon does every day — such as the recommendations it offers about goods to buy, or the way it optimizes its warehouse operations — figuring out sales tax looks like a job for the summer intern.”

Stross quotes Amazon founder Jeff Bezos from a 2000 speech, in which Bezos acknowledged the basic premise of state sales tax collection: “You have to charge sales tax to customers who live in any state where you have a business presence.”  Different states charge different rates of sales tax and apply different interpretations (often, widely different) of what is a “business presence”.  Online retailers, too, vary widely in their compliance or more accurately, their view on whether their businesses are subject.

Amazon has, to this point, argued that its sales business directly operates only in 5 states (Washington State and 4 others where it has distribution centers).  So for example, its division which developed and manufactured the Kindle is in California, but structured as a separate legal entity subsidiary with no sales operation.  In Amazon’s view, this “entity isolation” distinguishes it from, say, the online sales of BarnesandNoble.com.  Barnes & Noble collects tax on sales in California and New York and elsewhere based on the physical presence of its stores in those states.

As mentioned above, New York State has taken exception to this argument and is attempting to force Amazon to collect sales tax.  New York argues, essentially, that Amazon’s claim of no business “presence” in New York State is ludicrous in the totality of the circumstances.  In simple terms, New York points to the massive network of “affiliate” sellers of books and other products operating under the Amazon umbrella, many or most of whom sell exclusively or nearly exclusively through Amazon.

Stross reports that Amazon has filed legal challenges to New York and the issue is therefore unsettled.  What is not unsettled is the aggressively upward trajectory of state efforts to collect revenue from online commerce, wherever it is physically located, based on the incidence and (as clearly in the case of Amazon) the volume of traffic in the particular state.

How many businesses can say this, really?  More commonly, a web domain reflects the name of the business or the brand or the celebrity (or whatever), and the “.com” is simply a location finder on the internet.  So, for example, “ExxonMobil.com” is not registered as a trademark.  Nor is Apple.com, even though the brands without the .com are.

The issue is a question of what name you’re trying to protect.  Cybersquatting laws (and some famous cases) prevent certain well-wishers from staking claim to web domains of trademarked terms such as “McDonalds.com” and “Walmart.com”.

Plus, trademark law will frequently allow enforcement rights to an owner against unauthorized uses of a domain.  So, for example, even without trademark rights to “Amazon.com”, Amazon still would have rights to the name “Amazon”.  And, generally, a use of “Amazon.com” would be viewed as an infringement of the trademark rights of “Amazon”, if only for the reason that use of Amazon.com would probably suggest that the source of the use was Amazon itself.

Which of course raises the question of why you would need or want trademark protection for a domain name in the first place.  If you intend to use the full domain in building your brand – inclusive of the .com or .net – that might make sense.  But for an established non-domain trademark, no one would seriously be able to claim rights to peddle their business under a competing and nearly identical web domain anyway.

Well, maybe almost never.  The 2008 cybersquatting case involving The Economist magazine’s failed claims to wrestle “theeconomist.com” web domain might suggest a cautionary lesson.  In that case, litigated under the expedited cybersquatting relief offered through the World Intellectual Property Organization (WIPO).

The Economist had to prove three elements: (1) that the web domain name is identical or confusingly similar to a trademark or service for which The Economist had rights, (2) that the current owner of the domain has no rights or legitimate interests in the name, and (3) that the current owner registered and used the name in bad faith.

The Economist ran into a problem faced by owners of commonly-used terms (like, say, “the economist”) that have nonetheless achieved trademark status, namely the likelihood that somebody has made (or claims to have made) a legitimate domain use of the trademark.  In this case, a Maryland man had purchased the domain “theeconomist.com” in 1996 in order to host a tribute website to former Federal Reserve Chairman Alan Greenspan.   (Seriously.)  The Economist was unable to show – or failed to adequately show to the judges’ satisfaction – that the current owner’s use was illegitimate or, for that matter, registered and used in bad faith.

The Economist may have had a stronger case if its trademark rights extended to use of the name inclusive of the .com appendage.  For the WIPO procedure, however, the proving of trademark rights need be only in the name itself, and the relief available is limited to transfer of the domain – not trademark infringement remedies.  Claims to trademark infringement in the full domain name would have to be pursued in federal court.