Limitation of Sales Warranties as an Alternative to Intellectual Property Rights: An Empirical Analysis of iPhone Warranties' Deterrent Impact on Consumers

Abstract

Apple's success with the Apple iPhone has brought with it certain problems. Its success has revealed a community of hackers that have attempted to circumvent the exclusive arrangement that Apple shares with AT&T for cellular telephone service. Unfortunately for Apple (and similarly situated manufacturers), intellectual property doctrines and laws do not prevent consumers from altering their products so as to circumvent relationships that manufacturers may have with others. Manufacturers inevitably lose capacity to control the product as a result of the sale of specific units. The doctrines of first sale in both patent and copyright law prevent manufacturers from controlling consumer manipulation of the object after the sale has been completed. Additionally, the Digital Millennium Copyright Act's anti-circumvention provision does not necessarily apply to prevent consumers from altering firmware within a product. Manufacturers are increasingly turning to alternatives to intellectual property to secure control over the device after the sale. One such alternative is the exclusion of warranty under Article 2 of the Uniform Commercial Code, for aberrant consumers.

This article considers whether limitation of warranties may actually have the deterrence effect on consumers that manufacturers desire; said differently, the article weighs whether manufacturers can achieve their goals of preventing consumers from using their products in an unauthorized manner by removing warranty protections from the consumer. The Article presents a behavioral model based on the Triandis' model of planned behavior and enhances the model by accounting for likely and unlikely benefits and detriments. The model suggests that participants weigh the detrimental impact together with the probability and magnitude of the detriment against the beneficial impact together with the probability and magnitude of the benefit when making the decision to engage in technological piracy. Considering only half of the equation - what deterrents are likely to impact consumer behavior - the Article then reconciles the model to empirical evidence suggesting that Apple's warranty could be a stronger deterrent for consumers than civil liability.

The data collected suggests four observations of the survey pool: (1) known sanctions reduce the preference for engaging in technology piracy; (2) persons surveyed believe they are more likely to lose a warranty than face civil liability for engaging in technological piracy; (3) a better warranty enhances the magnitude of the warranty's benefit, and therefore raises the level of deterrence to nearly equal the deterrence level of civil liability; and (4) the magnitude, probability, and deterrent impact of both deterrents can be enhanced if consumer knowledge is improved. The article concludes that manufacturers can better protect their post-sale investment in property by raising consumer awareness of their warranty's quality and by raising awareness of the consequences for using the product in a way that is outside the terms of the consumers' authorized use.

Keywords: apple, iphone, warranties, intellectual property, consumers, DMCA, article 2, UCC, uniform commercial code