The Digital Millennium Copyright Act (DMCA) prohibits technological devices that assist in the circumvention of copyright access controls. This “anti-circumvention” prohibition was enacted to prevent the manufacture of devices that could be used to circumvent “digital locks” on copyrighted materials such as books, films and music that are sold in digital form. However, a case decided early this year raises significant concerns about the ability of companies to use the DMCA not just to prevent the copying of music or other copyrighted media, but to use technology to lock-in consumers in order to prevent aftermarket competition.
In the case, Lexmark International, Inc. v. Static Control Components, Inc. (SCC), Lexmark used the DMCA and copyright laws to obtain a preliminary injunction, preventing SCC from selling less expensive toner cartridges for use with Lexmark’s printers.
The Lexmark case is based on the economics of the low-end printer industry. Like video console manufacturers, the base equipment is sold at a very low price, perhaps even at a loss. But just as game cartridges are the profit center for console makers, toner cartridges are the profit center for printer companies.
Simplified somewhat, the facts of the Lexmark case are as follows. Lexmark printers and toner cartridges are manufactured in such a way that a software-based “authentication sequence” is resident on the toner cartridge. This sequence requires the toner to send an encrypted code to the Lexmark printer before the printer will work with the toner. SCC, a competitor in the toner market, reverse engineered the system to gain access to the authentication sequence, and copied the sequence onto a microchip embedded in its own cartridges. SCC advertised the fact that its microchip circumvented Lexmark’s “secret code” and sent “the right messages” to Lexmark printers. Lexmark sued for violation of the DMCA and copyright infringement, seeking a preliminary injunction.
In addition to the unusual fact that the court found copyright infringement based on very minimal copying (approximately 50 bytes – this finding alone may be the basis for a successful appeal), the court’s application of the DMCA is of great interest. The DMCA claim was based on the fact that the microchip embedded in the SCC toner cartridge was designed to circumvent the secret code that restricted access to the software loaded on the Lexmark printer. The court held that by creating a microchip that circumvented Lexmark’s authentication sequence, SCC had violated the DMCA, which bans such circumvention devices. Moreover, the DMCA’s “interoperability” exemption for reverse engineering was not available to SCC, since it had copied software contained on Lexmark’s toner cartridge.
The implications of Lexmark may be far-reaching. Given the amount of embedded software in devices, it could provide new levels of protection for all sorts of aftermarket repair, accessory and replacement industries. We can foresee a variety of products, from electronic auto repair equipment (forcing consumers to use only authorized repair shops) to household appliances that utilize replacement components, being outfitted with conventional hardware/software or even encrypted radio frequency identification (RFID) chips to prevent the use of unauthorized aftermarket components. In the software industry, operating system manufacturers could put software locks on their systems, requiring licenses from application developers. The interoperability exemption, while in theory a way around these issues, may prove difficult and expensive to take advantage of in practice, due to the complexity of the technology involved and the ability of manufacturers to hide or disguise their locks.
TLB Comment: In the case of manufacturers with monopoly power, these types of practices may lead to antitrust challenges, but monopoly power is rare, and most firms might be unaffected by antitrust concerns. While Lexmark is one of the first cases of this sort to reach the courts, in the absence of a congressional amendment to the DMCA we expect significant litigation in this area in coming years.