April 9, 2006

Ouvrez la pomme

By: Tim Lee

The French parliament made headlines around the world last month when its lower house passed legislation intended to promote competition among digital media devices by mandating that devices be interoperable. Critics of the legislation charged that France was stealing Apple’s intellectual property by forcing it to open its iTunes music platform to competitors. The law’s supporters countered that the law was pro-competitive and pro-consumer. They said consumers should have the freedom to use their legally purchased music on the device of their choice.

Fundamentally, the two sides have differing visions about the nature of competition. Supporters of the French law emphasize the need for intra-platform competition–that is, competition among devices that are interoperable. They charge that closed proprietary platforms stifle innovation by locking in consumers and locking out competitors.

Opponents counter that inter-platform competition is more important to high-tech innovation. They point to competition with rival music download services that use Microsoft’s copy protection technology. And in any event, they argue that Apple has the right to do as it pleases with the technology it develops.

So who’s right? What’s more vital to innovation, competition within a platform or competition between them? The answer is that both sides are wrong. As in many hot button political arguments, each side is intent on enlisting the coercive power of the state to bring about their preferred result: open or closed platforms, respectively. But the right approach is for the state to remain neutral, neither forcing companies to open their proprietary technologies to others, nor preventing rivals from building compatible devices if they can figure out how to do so without the incumbent’s help.

The French legislature made a mistake, but other European countries, as well as the United States, have made the opposite mistake. In 2001, the European Union passed a copyright directive modeled on the American Digital Millennium Copyright Act. The DMCA, which Congress passed in 1998, prohibits the distribution of “circumvention devices”–that is, unauthorized hardware or software that accesses copy-protected content.

For example, music downloaded from the iTunes Music Store is scrambled using a copy protection scheme called FairPlay intended to prevent consumers from making illegal copies. It is a crime in the United States–and in Eurpoean nations that have incorporated the EUCD into their laws–for anyone to unscramble the music without Apple’s consent, even for purposes that are otherwise perfectly legal.

The law was billed as an anti-piracy measure, but the DMCA’s piracy-fighting record has been weak. Rather, the law’s primary effect has been to give technology incumbents such as Apple a powerful legal weapon against would-be competitors. As I documented in a recent Cato Policy Analysis, incumbents never enjoyed the power to lock competitors out of their technology platforms prior to the DMCA’s enactment. To the contrary, the pre-DMCA courts consistently defended the rights of competitors to reverse-engineer incumbents’ products in order to build competing products.

The most famous example of this may be the birth of competition within the “IBM compatible” market, which occurred when a small company reverse engineered the IBM PC to create a chip that allowed others to build “IBM clones.” That produced an explosion of competition that changed the face of the computer industry.

French legislators were rightly concerned that enacting the EUCD into French law would stifle such intra-platform competition in the market for digital media devices, just as many charge has occurred in the United States. But in stereotypical French fashion, the legislature overreached. The legislation does much more than permit reverse engineering; it requires companies to share the technical details of their software with competitors and vests the French courts with the power to prod recalcitrant companies into disclosing the workings of their software. Such a mandate is likely to have unintended consequences, as the French courts could end up second-guessing the design of Apple’s products. And the rule is also likely to be abused by competitors seeking confidential information about their competitors’ products that isn’t necessary for interoperability.

Indeed, the best solution would be for the French legislature to leave well enough alone. Unfortunately, France is required to implement the EUCD or face fines under EU rules. A good solution would be to allow the circumvention of copy protection measures in order to make noninfringing use of a work. That would safeguard competition and strengthen the rights of consumers without needlessly involving the courts in technological decisions. And it would likely satisfy the EUCD’s requirements while avoiding its anticompetitive effects.

Libertarians envision the state in the role of an impartial referee. On social issues such as contraceptive sales or the teaching of evolution, liberals and conservatives commonly urge the state to impose their social agenda on society. But libertarians insist that the state ought to remain strictly neutral. The same logic applies in this case. The state ought not to take sides in the debate between open and closed systems. Instead, permit both proprietary technologies and reverse engineering, and let consumers–not judges or bureaucrats–decide which is superior.

Tim Lee is the science and technology editor of Brainwash and the editor at the Show-Me Institute, a Missouri think tank. His website is www.binarybits.org.

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