[DMCA-Activists] Copyright Versus Consumers' Rights

[Seth Johnson]

(Forwarded from DMCA Discussion list)

-------- Original Message --------
Subject: [DMCA_Discuss] Copyright Versus Consumers' Rights
Date: Mon, 31 Mar 2003 14:18:45 +0400
From: Vladimir Katalov <address@hidden>
To: address@hidden

Copyright Versus Consumers' Rights:
How Companies are Using the Digital Millennium Copyright Act to Thwart
Competition
By CHRIS SPRIGMAN 
Tuesday, Mar. 25, 2003

http://writ.news.findlaw.com/commentary/20030325_sprigman.html

Back in 1998, Congress rewrote copyright law to address the entertainment
industry's concern that digital piracy would destroy the ability of content
owners to profit from copyrighted books, films and music. The statute that
Congress passed, the Digital Millenium Copyright Act (DMCA), makes illegal
both the circumvention of technical measures that control access to
copyrighted material, and "trafficking in" any tools or technology that can
be used in the process of circumvention.

The DMCA immediately became controversial - in part because its broad
language swept in even the limited forms of copying (for example, for
comment, criticism, or parody) that have traditionally been allowed as fair
use.

Early DMCA cases were also controversial. They targeted the circumvention of
access and copy controls in various media, from streaming audio, to DVD
films, to computer games, to e-books. Like the statute itself, the results
in these cases arguably trampled fair use, and inhibited innovation.
Nonetheless, in all of these cases the claims were at least related to
Congress's intent in enacting the DMCA - the protection of independently
marketed copyrighted works against digital piracy.

Recently, however, Lexmark - the Lexington, Kentucky company that is the
world's second largest manufacturer of computer printers and printer
supplies - filed a new kind of DMCA case that arguably does not track
Congress's intent.

Unlike in prior DMCA disputes, the object of Lexmark's DMCA claim is not to
prevent piracy of a copyrighted work. Instead, it is to prevent rivals from
offering cheaper cartridges for Lexmark's printers. This is not copyright
protection, but profit protection.

Looking at the DMCA's legislative history, it's easy to see what Congress
had in mind - protecting Hollywood's profits from pirates. Unfortunately,
the text of the statute is so broadly drawn that all sorts of companies will
be tempted to use suits like Lexmark's to shut out legitimate competitors.

The Basis for Lexmark's DMCA Suit

In Kentucky federal court, Lexmark has sued Static Control Corp. - a North
Carolina firm that makes over 3,000 parts for 70 models of printer
cartridges, so that other companies can recycle used cartridges and sell
them at substantially discounted prices. Lexmark asserts in its suit that
Static Control has infringed Lexmark's copyrights, and violated the DMCA.

To understand the conflict, a bit of background on the economics of the
printer business is necessary. Printer manufacturers sell their machines on
the cheap. They make most of their profits selling the replacement ink and
toner. (It's somewhat like the razor industry, which makes its money off
expensive razor blades, not relatively cheap shaver handles.)

Lexmark itself is no exception: Its sale of printer supplies grew 19 percent
last year, and accounted for more than half of the company's $4.4 billion in
sales. In contrast, revenue from its printers rose less than 1 percent.

Predictably, however, high prices for printer ink and toner led to a huge
business opportunity for firms that collect used printer cartridges;
refurbish and refill them; and sell them at steep discounts.

Here's what I mean by "steep": Suppose you have a Lexmark Optra T622 laser
printer. A Lexmark printer cartridge for that model costs about $375. A
remanufactured cartridge costs about $165--yet is basically the same in
terms of both longevity and print quality. Obviously, no one in their right
mind would buy the $375 cartridge.

Sensing doom, Lexmark responded this way: It installed tiny computer chips
on its printer cartridges. And it designed its printers to function only if
they complete an authentication sequence - also known as an "electronic
handshake" - with a program residing on the chip.

(The program on the Lexmark chip also tells the printer when toner is
running low. Interestingly, Lexmark also sells a version of its cartridges
that does not use a chip - and can therefore be remanufactured - but charges
an additional $20 to $50 per cartridge.)

In response, Static Control designed its own "Smartek" chip that allows
remanufactured cartridges to work in some of Lexmark's printers.

Lexmark sued, bringing both copyright infringement and DMCA claims. Soon, it
moved for a preliminary injunction, and won its motion.

Lexmark's Initial Win: The Preliminary Injunction

A "preliminary injunction" is a temporary injunction that commands the
defendant to do, or desist from doing something, for the remainder of the
case. It requires proof both of likelihood of success on the merits - that
is, proof the defendant is likely to win at trial - and proof of irreparable
harm - that is, harm money damages cannot fully compensate.

Finding that Lexmark has proven both points, the Kentucky federal court
granted the injunction, ordering Static Control to cease making and selling
its Smartek chip. In so doing, it made a number of important findings of
fact.

First, on the copyright claim, it found that that Static Control had copied
wholesale the programs stored on the Lexmark chip - rather than reverse
engineering them as it had claimed. (Indeed, embarrassingly for Static
Control, its code even contained a non-functional ASCII code sequence
spelling out Lexmark's stock market ticker symbol!) That, the court held,
suggested Static Control had likely violated the copyright laws.

Second, on the DMCA claim, the court found that the Smartek chip was an
illegal "circumvention device" because it effectively mimicked the Lexmark
authentication procedure - giving the very same handshake the Lexmark chip
gave.

The DMCA has a specific exception for reverse engineering. (As I detailed in
an earlier column, reverse engineering - here, using programming methods to
reconstruct an approximation of the underlying source code of the Lexmark
chips - can sometimes be legal as "fair use" under copyright law.) To fit
within the DMCA's exception, the reverse engineering must be geared to
achieve interoperability, by way of an "independently created computer
program." But, the court held, Static Control's copied program was plainly
not an independently created one. Thus, it did not qualify for the DMCA's
reverse engineering exception.

Back to the Drawing Board for Static Control? 

How great a loss was the preliminary injunction ruling for Static Control,
from a business standpoint? Interestingly, not as great as it might seem.

The court made a specific finding that Static Control could have figured out
by reverse engineering how to write a different program that passed the
authentication test. So if Static Control now does so in a "clean room"
environment - that is, one where none of Static Control's engineers ever see
Lexmark's source code - the resulting chip may be perfectly legal.

In sum, the problem, the court suggested, was not Static Control's result,
but its process. If a reverse engineering process produces the same result -
the same kind of chip as the Smartek chip - that's fine from a legal
standpoint.

Meanwhile, for now, Hewlett-Packard, the world's largest printer
manufacturer, has refused to follow Lexmark's lead. And the European
Parliament, which is concerned about the amount of "electroscrap" - that is,
computer-related waste - headed to landfills, recently approved a law that
is likely to promote third-party remanufacturers of printer cartridges.

The Chips in Your Future: Other Industries the Ruling May Affect

What's the larger relevance of the suit? If Lexmark is successful, the suit
may cause a significant shift in the balance between intellectual property
rights, and free and open competition. Not only the printer industry, but
others, may be profoundly affected.

Consider the multi-billion dollar U.S. market for car parts. About 75
percent of cars with expired warranties are repaired by independent repair
shops that regularly use cut-rate parts manufactured by aftermarket firms.
Many of these parts - for example, antilock brakes, ignition systems,
airbags, emissions sensors - contain microchips. Car manufacturers could
re-design these parts, and others like them, to contain DMCA-protected
software programs that interact with a car's on-board computers to allow
only manufacturer-approved parts to be used.

If car manufacturers followed that route, price competition from independent
repair shops and parts manufacturers could vanish - at least until the
independents figured out a way to reverse engineer the necessary "electronic
handshake" to get the cars to accept their parts, too.

The computer industry, too, could take a similar course, with even more
damaging results. The near ubiquity of computers and the Internet have given
rise to an overwhelming need for interconnection between different elements
of computer systems.

If hardware or software companies can add access controls to their
interfaces - as Lexmark did with its printers - then those companies will be
able, in effect, to determine which products made by other firms could
interoperate with their products.

If a dominant company or group of companies uses access controls to limit
interoperability, competition and innovation may be seriously harmed. Even
the temporary delays caused by the need for reverse engineering to occur
could be very harmful to competitors; by the time reverse engineering is
complete, the dominant company may have moved on to next year's model - and
another, harder-to-reverse-engineer chip.

The DMCA could also cause mischief in the markets for consumer electronics
by limiting the availability of both replacement parts and third-party
accessories. One might imagine, for example, a cell phone manufacturer
applying technological measures to exclude competition in replacement
batteries.

Or consider a case that has already arisen, involving remote control
garage-door openers. Chamberlain is a manufacturer of both doors and remote
control openers for them; its openers have a feature that guarantees that
they work only when certain software codes are received. It has sued
Skylink, a company that makes universal remote controls that circumvent this
feature, under the DMCA.

Static Control Seeks a DMCA Exemption

What should be done to protect competition? Static Control has already begun
to explore one possibility.

In passing the DMCA, Congress adopted a safeguard provision directing the
United States Copyright Office to undertake a triennial review relating to
the statute. The purpose of the review is to exempt from the statute's
anticircumvention provisions classes of works where the Copyright Office
found that technological protection measures had impeded lawful uses.

Static Control has filed a petition with the Copyright Office asking for an
exemption that would cover its Smartek chip. Specifically, it has asked the
Copyright Office to exempt from the DMCA small, embedded computer programs
that "do not otherwise control the performance, display or reproduction of
copyrighted works that have an independent economic significance."

Put more simply, if Static Control gets its wish, only circumvention done
for the purpose of copying an independently valuable piece of expression
like a book or a film would still come within the DMCA. That makes perfect
sense: Indeed, it would mean that the DMCA would be restored to its original
purpose.

Twisting the statute beyond Congress's intent works to no one's advantage,
except that of corporations who seek to squelch competitors. Static
Control's request should be granted. If it isn't, consumers will predictably
suffer.

_______________________________________________


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