Caveat Venditor: Technologically Protected Subsidized Goods and the Customers Who Hack Them

Abstract:     
This paper explores the issues surrounding the subsidization of a technology based durable good and on the delicate dance between the producer trying to protect their profit, competitors trying to to create and sell aftermarket goods, and innovative customers who attempt to use the goods in completely unplanned, and unprofitable ways. A number of case studies are presented that highlighted the ease with which customers can tinker with subsidized products. These include Microsoft's Xbox, Netpliances' i-Opener, the Sony AIBO, and the general problems of the prepaid phone industry. A number of legal cases are also presented, although these focus more on the issue of other firms attempting to make competing aftermarket products for subsidized primary goods. The difficult question of "What can a company do" is explored. The question of who the company can go after for infringement, be it the reverse engineering programmer, or the college student sharing such information on her homepage, is also examined. Finally, this paper examines the moral issues involved when consumers hack these items.

Keywords: digital rights management, subsidized goods, DMCA, reverse engineering

Working Paper Series