Real Networks has admitted its move to make tracks acquired through its US-only Rhapsody music service puts the company at risk of a legal suit by Apple.

In the company's Securities and Exchange report on its financial performance which was filed yesterday, the company warns: "If Apple decides to commence litigation against us in order to prevent interoperation with its products, we may be forced to spend money defending their legal challenge, which could harm our operating results."

Real created its digital rights management translation technology, which it calls Harmony to enable consumers to securely transfer purchased music to digital music devices, including iPods and Windows Media-protected devices.

"Harmony is designed to enable consumers to transfer music purchased from our RealPlayer Music Store to a wide variety of portable music," the company said.

The management report confirms a risk that: "Apple will continue to modify its technology to "break" the interoperability that Harmony provides to consumers, which Apple has done in connection with the release of certain new products. If Apple chooses to continue this course of action, Harmony may no longer work with Apple's products, which could harm our business and reputation, or we may be forced to incur additional development costs to refine Harmony to make it interoperate again."

Real adds, "although we believe our Harmony technology is legal, there is no assurance that a court would agree with our position."

Real revealed it expects to spend $16 million this year in its litigation against Microsoft, which it accuses of using its OS dominance to promote its rival media software, Windows Media. It spent $11 million on the case last year.