The Copyright Act’s Unintended Consequences

Published May 1, 2006

Apple took the next step in the iPod revolution last fall when it unveiled a new generation of its market-leading music players. They promise to do for video what previous generations of iPods did for music and pictures: allow you to put dozens of your favorite movies and TV shows in your pocket, for viewing whenever and wherever you like.

Unfortunately, the video iPod revolution won’t be quite like the MP3 revolution of the 1990s. When the first MP3 players came out, customers who had built up large music libraries could “rip” music from their legally purchased CDs to listen to it on the road. This time it’s different: Transferring your legally purchased DVDs to your iPod is a federal crime.

How could that be? DVDs are encrypted using technology known as “digital rights management,” which is designed to deter unauthorized copying. In 1998, Congress passed the Digital Millennium Copyright Act (DMCA), which included a clause prohibiting the “circumvention” of digital rights management schemes.

Congress hoped to deter piracy. But the practical effect has been rather different. The DMCA gives incumbents a powerful weapon against competitors seeking to build products that are compatible with their own. If they refuse to license their copy protection schemes to competitors, any compatible device a competitor might build is likely to be ruled a “circumvention device” under the DMCA, even if it’s never used for piracy. That allows the platform creator to effectively control who may create devices for that platform.

DVDs aren’t the only culprit. The new music-download services, such as Apple’s iTunes Music Store, are equally restrictive. Unlike CDs, songs purchased from the iTunes Music Store are scrambled using DRM technology. Under the DMCA, competitors aren’t permitted to access iTunes songs without Apple’s permission. And Apple has refused to give any customers permission to build devices to access the content.

A DRM Overreach?

To see how much damage that could do to innovation, we need only look at the modern desktop computer industry. The modern PC has hundreds of individual components, with companies competing fiercely to provide virtually all of them. But that wasn’t always the case. It was only possible because the law was careful not to give companies the legal power to lock out competition using intellectual property law.

The first example was the birth of the “IBM clone” market in the early 1980s. The IBM PC was originally a closed platform controlled by IBM. IBM maintained this dominance through its control of a copyrighted software component called the BIOS, which was necessary to make the PC work.

Unfortunately for IBM, a company called Phoenix Technologies reverse-engineered IBM’s BIOS in order to build a BIOS of its own that provided the same functionality. Because it didn’t use any of IBM’s copyrighted code, IBM couldn’t sue Phoenix for copyright infringement. Phoenix licensed its BIOS to other companies, who began selling “IBM-compatible” computers, marking the birth of the modern PC industry.

Intel, which manufactured the processors at the heart of the first PCs, encountered the same kind of unauthorized competition in its platform in the early 1990s. Several companies, including Advanced Micro Devices, began producing chips that could run software designed for Intel chips. The result has been rapid innovation and constantly falling prices in the market for processors.

In short, intra-platform competition among the likes of Intel and AMD has contributed even more to innovation in the PC industry than inter-platform competition between Windows and Macintosh. The law ought not to stand in the way of analogous competition in the market for digital media devices. An entrepreneur who wants to compete with the iPod by building an MP3 player that works with the iTunes Music Store should not be prevented from doing so by copyright law. Yet that is precisely what the DMCA does.

When a consumer buys content–a CD, a DVD, a song or video from iTunes–that consumer has a reasonable expectation that he will be able to access his purchased content on the device of his choice. The DMCA frustrates that expectation by allowing a technology company to lock him into using only that company’s products. It’s time for Congress to dismantle this unnecessary obstacle to consumer choice and allow technology companies to compete in a truly free market.

Timothy B. Lee ([email protected]) is a policy analyst at the Show-Me Institute and author of the Cato Policy Analysis, “Circumventing Competition: The Perverse Consequences of the Digital Millennium Copyright Act.”