Copyright and the DMCA: Market Locks and Technological Contracts
37 Pages Posted: 25 Mar 2005
Copyright has emerged as a pliable tool, to be bent and shaped by firms and frequently with an eye towards disadvantaging competitors through the erection of entry barriers. The easy manner in which copyright arises makes it possible for firms to get copyrights and threaten competitors with costly infringement actions. This is the use of copyright as more than just defining property rights, the use of copyright in creating market locks. But we would paint with too broad a brush were we to condemn all of these market locks.
Market locks facilitate product differentiation and that may expand the range of ways that fixed costs can be recovered in a competitive industry. This can be useful and can improve outcomes for consumers. We should think this pattern to arise most plausibly in industries with foremarkets and aftermarkets. These would include original equipment markets and repair parts, printers and toner cartridges and garage door openers and would encompass a series of important cases, including Chamberlain, Kodak, Lexmark and Toro. Market locks in these settings may appropriately limit partial entry, as when an entrant wants only to supply replacement parts. In these settings, contractual product degradation - typically a license limiting permitted uses of the product - will make it possible to offer different products to different consumers. We should not routinely condemn market locks in these situations and should be troubled if we shape copyright law in a way that prevents these market locks from operating.
At the same time, we should be troubled by market locks that create entry barriers for an entrant willing to enter on the same scale as the incumbent, for an entrant willing to undertake full rather than partial entry. These will frequently be situations characterized by high switching costs, where the incumbent's advantage may arise from the simple fact of being first. In these cases, copyright law can make entry barriers concrete and we should be concerned if copyright law works to disadvantage full entry. This pattern matches well with cases such as IMS, Lotus and Southco, though courts have done reasonably well in making possible entry, even if the courts have only glimpsed the full competitive issues at stake.
Finally, the Digital Millennium Copyright Act has emerged to play a central role in these cases. Firms looking to limit use naturally move from weakly-enforceable paper contracts to self-enforcing technological contracts in the form of lock-out chips and the like. But the heart of the DMCA is technological controls for copyrighted works and the DMCA does not implement a pure regime of technological contracts. It is hardly surprising that firms in cases such as Chamberlain and Lexmark have tried to squeeze within the DMCA and no less expected that the courts have refused to expand its scope. That reluctance, though, tells us little about the real merits of technological contracting or about the true copyright protection scheme erected by the DMCA.
Keywords: copyright, DMCA, after-markets
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