Social Costs of Technological Protection Measures
40 Pages Posted: 30 Jul 2007 Last revised: 13 May 2014
The anticircumvention rules, enacted as part of the Digital Millennium Copyright Act in 1998, promote the use of technological protection measures (TPMs) by publishers of copyrighted materials in digital formats. Many types of works incorporate some type of TPM. For example, the Content Scramble System, which is implemented on commercially released movie DVDs, makes it impossible to copy such a movie without the use of some technology that circumvents the TPM. Tethering technologies prevent Windows XP from being installed on more than one computer, and prevent playing an .mp3 music file downloaded from iTunes on more than five computers.
In this Article I argue that publishers' use of TPMs gives rise to negative externalities, imposing costs on those who are not parties to the transaction in which the TPM-protected good is sold. Therefore, as is generally the case with technologies that yield negative externalities, in the absence of any regulatory limits on the use of TPMs profit-maximizing publishers will implement TPMs at an inefficiently high level. Regulatory action aimed at making publishers take into account some of the externalized harms caused by TPMs is justified on the basis of two analogies. First, public policy as embodied in the legal regimes of intellectual property protection allows authors, inventors, and producers generally to internalize some of the positive externalities resulting from their efforts; requiring publishers to internalize some of the negative externalities of TPMs seems equally justified. Second, public policy requires other classes of entities generating negative externalities - in particular, polluters - to internalize some of the resulting costs; consistency calls for placing the same requirement on publishers.
I consider four possible regulatory responses to the problem I have identified. These are traditional command-and-control regulation, Coasean bargaining, Pigouvian taxes, and cap-and-trade allowances. I find that traditional command-and-control regulation is not the best choice because it fails to take advantage of information held by market participants, and Coasean bargaining is impractical due to the large number of interested parties and consequent high bargaining costs. Pigouvian taxes and cap-and-trade both do a better job of incorporating marketplace intelligence, and there is no clear basis for preferring one over the other. In the absence of any more definitive criterion, I propose a cap-and-trade program as the more market-oriented of the two.
Keywords: copyright, technological protection measures, TPMs, DRMS, externalities, public goods, cap and trade
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