|
...parts. Part examines the intellectual property laws relating to digital rights management technologies. It explores the history of so-called 'anti-circumvention' laws nationally and internationally, as well as important precedents. Part III examines whether Australian competition law is equipped to address any anti-competitive conduct facilitated by technological protection measures, which can be used to lock in consumers and lock out competitors. Important US precedents including Lexmark International Inc v Static Control Components Inc and Chamberlain Group Inc v Skylink Technologies Inc are analysed under Australian law, both before and after the full implementation of the Australia-United States Free Trade Agreement, including an examination of relevant provisions of Part IV of the Trade Practices Act 1974 (Cth), especially the intellectual property exception in s 51(3).]
CONTENTS I Introduction II Digital Rights Management and the Law A Overview 1 The Origins of DRM 2 DRM and Business Models B The History of Anti-Circumvention Laws 1 The WIPO 'Internet Treaties'. 2 The DMCA 3 Digital Agenda Amendments C Stevens v Sony 1 First Instance 2 Appeal D The A USFTA 1 The Phillips Fox Review 2 The Reaction to the A USFTA E Anti-Circumvention Litigation in the United States 1 Chamberlain 2 Lexmark 3 StorageTek 4 The bnetd Case F Comparative Copyright Law Analysis 1 The Standard of Originality and the Protection of Functional Elements 2 The Scope of Fair Use/Dealing Exceptions 3 The Interoperability Exception--Section 47D 4 Contractual Restrictions on the Use of Interoperable Products 5 Circumventing TPMs To Produce Interoperable Products 6 Interoperable Products May Be Prohibited as 'Circumvention Devices'. 7 Circumvention Devices May Only Be Made for Limited Purposes 8 Circumvention Devices May Only Be Supplied to Limited Persons 9 Excludability of Circumvention Device Exceptions 10 Summary III Competition Law and Anti-Circumvention Law A Market Definition: Separate Markets or One Cluster Market? B DRM Technology as a Separate Market C Supply Subject to Restrictive Conditions--Section 47(2) D Does the Condition Have the Purpose, or Likely Effect, of Substantially Lessening Competition? E Supply Subject Only to Technical Restrictions, or Refusal To Supply--Section 46(1) F Does Ownership of IP Rights Confer Market Power? G The 'Taking Advantage' Element 1 Counterfactual Test--Consumer Lock-In 2 Counterfactual Test--Refusal To License 3 Summary H Proscribed Purpose I Conclusion 1 Section 51(3) 2 Resale Price Maintenance 3 Refusal To License 4 Types of IP Not Covered 5 Application to Copyright 6 Future Reform of Section 51(3) 7 Effect of the Proposed Amendments IV Conclusions
I INTRODUCTION
The debate over the underlying policy objectives of intellectual property ('IP') law and competition law (and, indeed, the appropriate relationship or 'interface' between the two) has a long history. In the middle of the 20th century, the Austrian economist, Joseph Schumpeter, recognised the important pro-competitive effects of invention and innovation. He described competition in terms of a dynamic process of rivalry in which entrepreneurs and innovators constantly seek to discover new profit opportunities. This dynamic competition for profits produces 'the new commodity, the new technology, the new source of supply, the new type of organisation'. (1) All firms are subject to a 'perennial gale of creative destruction' (2) in which new markets are created and old ones are destroyed.
At the beginning of the 21st century, this process of 'creative destruction' has increased dramatically. Invention and innovation are increasingly driving the so-called 'new' economy. New and better high technology products are constantly being released in areas as diverse as entertainment, telecommunications, media, computers and health care. These new technologies displace successful incumbents. Competition in the new economy is being driven by a 'winner takes all' game to capture the 'transient monopolies' that are necessary to provide incentives to make investments. (3)
IP laws have a crucial role to play in this process as they are necessary to prevent market failure arising from 'free-riding' (copying by others without payment). (4) Invention and innovation have the properties of a 'public good': once they are in the public domain it is difficult to prevent their use by others unless they are protected by IP laws. Without some form of statutory protection there would be little or no incentive to innovate.
The exclusive property rights granted by IP statutes were once regarded with a high degree of suspicion by regulators entrusted with the enforcement of competition laws. However, their role is now better understood and they are seen, for the most part, as pro-competitive. (5)
First, IP rights provide their owners with limited monopoly rights which they themselves can exploit through manufacture and marketing or through licensing others to do so. These limited monopoly rights serve as an incentive to innovate--innovation is the process by which new products are developed based on inventions. Second, licensing is often the best way of ensuring that IP rights find their way into the hands of the most efficient producers and distributors so that the final products incorporating the IP rights can be produced and distributed most efficiently.
This article is concerned with amendments to the Copyright Act 1968 (Cth) which provide for technological protection measures ('TPMs'). While the underlying policy objective to prevent copying can be justified as pro-competitive, we believe that TPMs may be used for anti-competitive purposes. They can deny access to copyright, as well as prevent copying, and thereby prevent interoperability with other products. In this way, markets can be protected from competition and market power can be lifted from one market to another in an anti-competitive way. This article explains how TPMs can be used in an anti-competitive manner and considers whether the competition provisions of the Trade Practices Act 1974 (Cth) ('TPA') are adequate to deal with the problem.
II DIGITAL RIGHTS MANAGEMENT AND THE LAW
A Overview
1 The Origins of DRM
All analogue technologies, such as audio tapes, video cassette recorders ('VCRs'), vinyl records and printed books, suffer from a common flaw--only imperfect copying of analogue material is possible. Such copying necessarily involves a loss of quality, the effect of which is cumulative--a copy of a copy of a copy of analogue material is often of such a low quality that it is unsuitable for many purposes. This effect has acted as a natural disincentive to wide scale copying of material that infringes copyright. Nevertheless, large copyright holders greeted new developments in analogue technology (including cable television, audio tapes and VCRs) with trepidation. Amid predictions of market destruction and bankruptcy in the entertainment industries, early attempts by copyright lobbyists to secure legislative protection, or to suppress new technologies through litigation, (6) typically failed.
As a result, copyright holders turned to self-help, in the form of embryonic 'rights management' methods more commonly known (at the time) as 'copy-protection'. Copy-protection typically operated by attempting to degrade artificially the quality of any copies made. However, copy-protection had no legal protection and could be freely circumvented.
Digital technologies, (7) unlike analogue, allow perfect reproduction of material. In a digital environment, a copy of a copy of a copy of a copy is identical to the original, and digital information is ideally suited for transmission over long distances with no loss of quality.
In the early 1980s, the spread of digital technology into the home entertainment market caused even greater concern to copyright holders. Over time, methods of technological self-help evolved into what is now known as digital rights management ('DRM'). Paradoxically, while the digital environment is more susceptible to infringing copying and distribution of copyright material, it also has a much greater potential to prevent such infringing activity. This is because digital technology lends itself to the creation and enforcement of sophisticated DRM systems, which, using encryption and other means, control not only potentially infringing copying of material, but also access to the material itself.
Initially, these DRM systems did not enjoy any legal status or protection. Arguing that 'digital is different', groups representing the interests of copyright holders lobbied at both national and international levels for legal protection of their DRM systems to prevent 'piracy' allegedly facilitated by the digital revolution. (8) Such lobbying was partially successful. In 1992, the United States passed the Audio Home Recording Act of 1992 ('AHRA'), (9) which required all digital audio recording devices manufactured, imported or distributed within the United States to use a DRM system known as the 'Serial Copy Management System'. (10) This primarily affected the then newly released DAT and minidisc formats, which, as it turned out, were less than commercially successful--possibly due in part to consumer dissatisfaction with the restrictive Serial Copy Management System they were required to contain.
In markets, DRM technology effectively creates a technology bottleneck that resembles an 'essential facility'. By denying access to the DRM technology the owner can effectively preclude competition in dependent markets. (11) Anti-circumvention laws therefore give copyright owners the legal power to create closed technology platforms which exclude competitors from interoperating with them.
To illustrate the nature of the problem, consider that DRM technology is used in connection with music sold over the internet. The major record companies are the owners of the copyright in the music. (12) They agree to allow the music to be sold only on the condition that the downloaded music is protected by a DRM technology. The music can be played on a buyer's PC, but only using software produced by licensees of the DRM technology. Other software will be unable to read or play the downloaded music files. Likewise, if the buyer wishes to use the songs on a portable player such as a Walkman or iPod, they can only do so using a portable player which implements the DRM technology. Competition in the downstream market for compatible portable players and PC software is precluded. (13)
DRM technology can thus be seen to lock in the consumer who downloads music under one DRM technology to using a portable player (such as an iPod) which employs a compatible DRM technology. Simultaneously, it can be seen to lock out competitors who cannot get a licence for the use of the DRM technology to produce competing compatible products.
This means that a consumer must buy a multitude of different devices, each supporting different but incompatible standards and DRM technologies, or resort to a potentially illegal circumvention of the DRM to 'format-shift' their legally purchased content. (14)
2 DRM and Business Models
Taking console games platforms (such as the Sony PlayStation, or the Microsoft Xbox) as an example, it is likely that the use of DRM systems in such platforms is motivated by more than merely a desire to prevent or deter the infringement of copyright. Peter L Higgs identifies three motives:
* to prevent the unauthorised manufacture or casual duplication by others of software that the company has the rights to publish and to distribute;
* to ensure that hardware produced by the company can only run software authorised or published by the company; and
* to enforce distribution channel and format segmentation strategies. (15)
To this list can be added:
* to ensure that software designed to be used on hardware produced by the company can only be used on hardware produced by the company. This creates a platform lock-in by imposing significant 'switching costs' upon users--a user with a significant investment in games in a format compatible with Platform A would have to repurchase those games in a format compatible with Platform B in order to switch platforms; (16)
* to restrict or prohibit the resale or transfer of legitimately manufactured and purchased software after their initial purchase. Such controls contribute significantly to platform lock-in because they raise switching costs--if a user cannot resell or transfer their purchased software, switching platforms would require them to write off their investment in that software;
* to prevent arbitrage and facilitate geographical price discrimination--that is, selling products at different price points in different countries. Apple Computer Inc is currently under investigation by the European Commission for alleged violations of EU competition law for engaging in such conduct; (17)
* to restrict or prevent the production of 'unauthorised' accessories--that is, third-party add-ons or other products which must interoperate with company-produced 'authorised' hardware and/or software; and
* to restrict or prevent a company's products from being serviced by 'unauthorised' service agents.
While the first of these motives (preventing infringing copying) is relatively uncontroversial, (18) the use of DRM to create and enforce the other controls identified above has been widely condemned, (19) and has been the subject of recent litigation in the United States. (20)
B The History of Anti-Circumvention Laws
1 The WIPO 'Internet Treaties'
The WIPO Copyright Treaty (21) and the WIPO Performances and Phonograms Treaty (22) resulted from the 1996 World Intellectual Property Organization ('WIPO') Diplomatic Conference on Certain Copyright and Related Rights Questions. They took effect in 2002 after each received the required 30 country notifications. (23) Collectively and informally known as the 'Internet Treaties', the WCT and WPPT constitute the first international attempt to prescribe minimum standards of legal protection for DRM technologies. Their approach differs from that of the AHRA, in that they seek to prevent the circumvention of DRM systems, not mandate the inclusion of DRM in particular classes of technology. Article 11 of the WCT provides:
Contracting Parties shall provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures that are used by authors in connection with the exercise of their rights under this Treaty or the Berne Convention and that restrict acts, in respect of their works, which are not authorized by the authors concerned or permitted by law. (24)
The terms of this provision are quite broad and leave substantial latitude to states in their implementation of the provision. The term 'effective technological measures' is not further defined, creating some uncertainty.
Notably, the Internet Treaties only require that adequate protection and effective remedies be provided against 'the circumvention of effective technological measures'--that is, the act of circumvention itself. Strictly construed, the Internet Treaties do not require restrictions on devices and technology which might be used to perform the circumvention.
2 The DMCA
The US implemented art 11 of the WCT by amendments contained in Title I of the Digital Millennium Copyright Act of 1998 ('DMCA'). (25) Subject to narrow exceptions, the amendments prohibit the circumvention of 'a technological measure that effectively controls access to a work protected under this title', (26) and commercial dealings with tools capable of circumventing protection measures ('circumvention devices'). (27)
The anti-circumvention provisions of the DMCA arguably go beyond the requirements of the Internet Treaties. (28) Some commentators have suggested that US copyright lobbyists sought the implementation of a stronger level of protection in the hope that other countries would model their implementation of the Internet Treaties on the DMCA. (29)
3 Digital Agenda Amendments
Australia's decision in mid-1998 to relax controls on parallel importation (30) did not go unnoticed by the US, and attracted significant criticism. Australia's system of IP protections, which had been described by the US from 1995 to 1998 as providing, '[w]ith a few exceptions ... world class intellectual property protection' (31) was described in 2000 as providing merely '[i]n general ... sound intellectual property protection'. (32)
The US was also 'concerned with the recent Australian minimalist approach towards intellectual property protection in several important areas' and 'made these concerns known to the Australian Government on numerous occasions.' (33)
During the 1990s, the US placed Australia on a statutory 'watch list' of countries with inadequate protection for IP rights in eight out of 10 years, (34) because of concerns over Australia's plan to remove controls on parallel importation. (35)
Australia participated in the drafting of the WIPO Internet Treaties, but is not yet a signatory to them. (36) Nonetheless, the Australian Government legislated to implement the Internet Treaties to bring Australian copyright law into the 21st century and maintain the balance between the rights of copyright owners and copyright users in the digital environment. (37) The Copyright Amendment (Digital Agenda) Act 2000 (Cth) ('Digital Agenda Amendments') was an independent implementation of the Internet Treaties, one which adhered more closely to the letter of the Internet Treaties than the DMCA.
This departure from the 'precedent' of the DMCA generated significant controversy amongst copyright holders. The US reported that 'US copyright interests have stressed deep concern about the [draft] digital agenda legislation' (38) and that
[t]he [copyright] industry is concerned that the legislation ... would allow for unfettered worldwide trafficking in devices and services aimed at hacking through encryption, password protection and other technologies copyright owners use to manage access to and use of their works. (39)
On the issue of TPMs, the House of Representatives Standing Committee on Legal and Constitutional Affairs' Advisory Report on the Copyright Amendment (Digital Agenda) Bill 1999 observed:
At their most extreme positions, the copyright owners wish to manage all access to copyrighted material, both lawful and unlawful, apart from access for a few enumerated, legitimate purposes. Conversely, the copyright users wish to have uncontrolled access to all copyrighted material, and leave the copyright owners to obtain redress for any consequent infringement of their copyright through infringement actions. (40)
The Digital Agenda Amendments to the Copyright Act 1968 (Cth) define a 'technological protection measure' as:
a device or product, or a component incorporated into a process, that is designed, in the ordinary course of its operation, to prevent or inhibit the infringement of copyright in a work or other subject-matter by either or both of the following means:
(a) by ensuring that access to the work or other subject matter is available solely by use of an access code or process (including decryption, unscrambling or other transformation of the work or other subject-matter) with the authority of the owner or licensee of the copyright;
(b) through a copy control mechanism. (41)
The Act then defines a 'circumvention device' as:
a device (including a computer program) having only a limited commercially significant purpose or use, or no such purpose or use, other than the circumvention, or facilitating the circumvention, of an [sic] technological protection measure. (42)
Subject to narrow exceptions (which are nonetheless broader than those contained in the DMCA), the Digital Agenda Amendments prohibit a wide range of dealings with circumvention devices. (43) However, unlike the DMCA, the amendments do not prohibit the use of a circumvention device. The Government's rationale for banning the manufacture of, and commercial dealings with, circumvention devices (as opposed to their use) was that 'the most significant threat to copyright owners' rights lies in preparatory acts for circumvention, such as manufacture, importation, making available online and sale of devices, rather than individual acts of circumvention.' (44)
The exceptions allowed by the Digital Agenda Amendments do not include many existing exceptions to copyright generally, such as fair dealing, and making backup copies of computer software.
C Stevens v Sony
The Digital Agenda Amendments anti-circumvention provisions were considered by the High Court in Stevens v Kabushiki Kaisha Sony Computer Entertainment. (45)
1 First Instance
Sony PlayStation games consoles contained a proprietary DRM system developed by Sony. Similar to the region-coding system for DVDs, PlayStations were programmed on a regional basis such that a PlayStation console in one region would not play PlayStation games from any other region. Genuine PlayStation discs contained an 'access code' which corresponded to the geographical area in which the disc was intended to be used. The access code was embedded in the disc in such a way that any attempt to copy the disc (that is, the PlayStation game and the associated access code) would result in the game being copied, but not the access code.
When a disc was inserted into a PlayStation console, the console checked for the presence of the access code on the disc, and unless the disc contained an access code which matched the region-coding of the console, the console would refuse to play the disc.
The effect of this system was twofold. First, copies--including backup copies legally made under Copyright Act 1968 (Cth) s 47C--of PlayStation games would not work on an unmodified PlayStation console, because they lacked the necessary access code. Second, original PlayStation games which were imported from overseas would not work on an unmodified PlayStation console, because the access code they contained was from the wrong geographical area.
Eddy Stevens sold and installed so-called 'mod chips' which modified PlayStation consoles so they would play games without requiring the presence of the correct access code on the disc. A group of Sony corporations filed suit against Stevens in 2001, (46) alleging inter alia that he had unlawfully sold circumvention devices contrary to s 116A of the Copyright Act 1968 (Cth). (47) Whether the mod chips were a circumvention device turned upon whether Sony's access code DRM system was a TPM within the meaning of s 10(1) of the Copyright Act 1968 (Cth).
At first instance, Sackville J held that because the access code DRM did not prevent the making of a copy of a PlayStation game (which would infringe the copyright subsisting in the game as a computer program), but instead rendered the copy unusable on an unmodified PlayStation, the DRM was designed merely to deter or discourage the infringement of copyright in PlayStation games, not prevent it. (48) On this construction, the access code DRM system did not constitute a 'technological protection measure' within s 10(1) of the Copyright Act 1968 (Cth).
Sony submitted that the definition of 'technological protection measure' should be construed broadly so as to include a device which had the practical effect of discouraging infringement of copyright (the 'practical effect argument'). (49) However, Sackville J ultimately adopted a narrower construction, holding that to 'prevent or inhibit the infringement of copyright in a work', a TPM must physically prevent acts of infringement, and that merely having a 'general deterrent or discouraging effect' was insufficient. (50) It followed that if the only way in which the DRM 'inhibited' infringement of copyright in PlayStation games was by discouraging the copying of them, the DRM system was not a TPM within the meaning of the Copyright Act 1968 (Cth). (51)
In the alternative, Sony argued that the access code DRM prevented users of an infringing copy of a game (a computer program) from reproducing a substantial part of the computer program in the random access memory ('RAM') of the PlayStation console by playing it (the 'reproduction in RAM argument'). (52) This reproduction would only infringe copyright in the game if it reproduced a substantial part of the game in a 'material form' as defined in s 10(1) of the Copyright Act 1968 (Cth). (53)
The definition of 'material form', as it then stood, (54) included 'any form (whether visible or not) of storage from which the work or adaptation, or a substantial part of the work or adaptation, can be reproduced.' (55) Sackville J held that a reproduction could only be 'in material form' if it was amenable to further reproduction, and that, because it was not possible to replicate the information stored in the RAM of the PlayStation console, it was not 'in material form'. The reproduction in RAM argument therefore failed. (56)
In a late amendment to their pleadings, Sony advanced a further alternative argument: that PlayStation games embodied cinematograph films, and that their DRM prevented their infringing reproduction in the RAM of the console (the 'cinematograph film argument'). (57) On the 'very sketchy' (58) evidence led in support of this argument, his Honour was unable to conclude that the alleged copying constituted the making of a copy of a cinematograph film for the purposes of s 86(a) of the Copyright Act 1968 (Cth). (59)
Since Sony failed to make out any of their alternative arguments, it followed that the rood chips which Stevens was alleged to have distributed were not circumvention devices and Sony's claim under s 116A of the Copyright Act 1968 (Cth) failed. (60)
However, Sackville J noted in obiter dicta that, on the evidence before him, if the access code DRM had been a TPM, he would have found that the mod chips were circumvention devices. (61)
2 Appeal
Sony appealed to the Full Federal Court. (62) The decision of the Full Federal Court in July 2003, while acknowledging that the construction issue was finely balanced, and the definition ambiguous, (63) unanimously preferred a wider definition of 'technological protection measure' which included DRM systems that deterred or discouraged infringement. (64) French J noted that issues of competition policy had been pressed upon the Court, but considered that it was the role of Parliament to address any competition issues arising from these laws. (65)
The Full Federal Court (Finkelstein J dissenting) went on to reject Sony's reproduction in RAM argument, (66) and rejected the cinematograph film argument. (67)
Stevens appealed to the High Court. In October 2005, the High Court unanimously agreed with the reasoning and conclusions of Sackville J and overturned the decision of the Full Federal Court. (68) Kirby J noted, in passing, that Sony's DRM systems,
[i]n effect, and apparently intentionally ... reduce global market competition. They inhibit rights ordinarily acquired by Australian owners of chattels to use and adapt the same, once acquired, to their advantage and for their use as they see fit. (69)
Kirby J found that one of the purposes of Sony's regional access code was non-copyright related, namely, to enforce 'global market price differentiation'. (70) His Honour went on to say that
where a choice of interpretation has to be made, the existence of the additional non-copyright purpose...
NOTE: All illustrations and photos
have been removed from this article.
More articles from Melbourne University Law Review
Removing the government's immunity from suit in federal cases.(Private..., December 01, 2006
Legislating with urgency - the enactment of the Anti-Terrorism Act (No..., December 01, 2006
Competition law, adjudication and the High Court., December 01, 2006
The role of damages in regulating horizontal price-fixing: comparing t..., December 01, 2006
The Victorian Charter of Human Rights and responsibilities: origins an..., December 01, 2006
Looking for additional articles?
Search our database of over 3 million articles.
Looking for more in-depth information on this industry?
Search our complete database of Industry & Market reports by text, subject, publication
name or publication date.
About Goliath
Whether you're looking for sales prospects, competitive information, company
analysis or best practices in managing your organization,
Goliath can help you meet your business needs.
Our extensive business information databases empower business
professionals with both the breadth and depth of credible,
authoritative information they need to support their business
goals. Whether it be strategic planning, sales prospecting,
company research or defining management best practices -
Goliath is your leading source for accurate information.
|
