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Using DCMA to crush your competition



Competition in court

Globe and Mail Update

I always get worried when the most excitement a business can generate comes from its legal department.

Not only does it signal a crisis of imagination, but also a loss of faith in the free market. When production, marketing and sales all fail, the courts are asked to enforce profits.

Such an attitude seems to be reigning supreme at Lexmark, the No. 2 printer maker (after Hewlett Packard).

Lexmark headed to the U.S. courts Jan. 9 to demand the judges do something about an outfit called Static Control. The defendant makes a microchip called Smartek and sells it to companies that refill toner cartridges. The chip mimics the authentication sequence used by Lexmark's chips, making the printer think a genuine Lexmark toner or ink cartridge has been placed in it. Without authentication, the printer rejects the cartridge even if it is the right shape and would otherwise work properly.

Slapping the Smartek chip on cartridges means that third-party manufacturers can make a working toner cartridge for Lexmark printers, and they often come in cheaper than the ones sold by Lexmark.

A few years ago this case would never have made it past the court clerk. But that changed with the arrival of the U.S. Digital Millennium Copyright Act in 1998, which protects intellectual property. The toner-cartridge after-market, Lexmark is arguing, is violating the printer-maker's intellectual property when it installs technology that bypasses Lexmark's method of rejecting non-Lexmark products.

Put another way, Lexmark is not asking the court to crush the competition; it's asking the court to declare that the technology designed by Lexmark to crush the competition is legally protected by intellectual-property law.

Why is this so important? Because the marketing strategy adopted by the printer industry does nothing less than make the printer an addendum to the sale of ink and toner. Printers are of little financial consequence these days; manufacturers see their machines as basically a way to ensure their customers are tied to certain cartridges.

This isn't new; it's been happening in the shaving industry for years. A razor bundled with five blades costs less than a package of five new blades without the razor itself. And those blades are designed to fit on only one razor. New razors are designed when third-party manufacturers start encroaching on the blade business.

The printer industry has only itself to blame for the situation; no one forced it to embrace a strategy of relying on toner and ink cartridges for its profits.

U.S. Legal observers are shaking their heads over Lexmark's petition, saying they've been warning everybody that it was just a matter of time before the DMCA was used as an anticompetitive tool.

Should the U.S. court agree with Lexmark, it's also just a matter of time before other industries follow suit. All they would have to do is create some silly copy-protection scheme, wrap it up tightly with copyright laws, and use the courts to crush any acne-ridden hacker who managed to crack the mechanism between gulps of Jolt Cola.

Think this is outrageous?

The copyright defence is picking up steam. Just the other day the U.S. Supreme Court ruled against Web site owner Eric Eldred, who objected to lengthier copyrights protecting songs, books and cartoon characters. He wanted to post things like the 1928 Mickey Mouse talkie, Steamboat Willie, on his Web site when its copyright ran out in 1998. Disney freaked; and retired crooner Sonny Bono, who became a U.S. Congressman before his career was stopped abruptly by a tree on a ski hill, steered his fellow lawmakers into extending copyright another 20 years.

Which means that Disney can continue to reap profits from Steamboat Willie until 2018, instead of the pre-Bono deadline of 1998. And the Bono of contention covers a lot more than a bunch of three-minute cartoons.

The win is sure to embolden such people as Intuit, the company that holds a near-monopoly on financial-management software, and displays much of the arrogant mentality that accompanies monopolies. Canadians have been too nice to object to Intuit Canada's attempt force the market to buy updated software by disabling its ability to download bank statements after a certain time, but Americans weren't so nice. Recently, they objected violently to Intuit's complicated product-activation scheme, which will not allow Intuit's TurboTax users to print or file a tax return digitally if the program has been loaded on another machine.

So far, the debate is circulating around a consumer revolt, as it should be; but I'm waiting for a crack that will circumvent Intuit's copy-protection scheme, and Intuit's subsequent claim that the crack violates Intuit's intellectual property.

And the Eldred decision has already spooked Congressmen Rick Boucher and John Doolittle, who are terrified the entertainment industry is going to use copyright to lock up just about anything that can be recorded digitally — be it music, text or art — in a way that far exceeds the fair-use provisions of previous copyright language. So they have introduced the Digital Media Consumers Rights bill, which seeks to preserve "fair use" of digital content; under its wording, consumers would be permitted to bypass copy-protection schemes for certain fair-use purposes.

Yes, the Lexmark case is a slippery slope. If the printer maker wins, a precedent will have been set that could have effects around the world, and copyright will cease being a way to protect artists' rights and become a club for corporations large enough to drag violators to court.

It's always ironic when high-tech companies, which especially embrace the libertarian philosophy of getting government get off the backs of business, are so quick to call upon the very mechanisms they denounce when the going gets rough.



Can't believe that they would use this DCMA to wipe out the competition. But then again, when it comes to business, there is no such thing as business ethics. It comes down to the bottom line which is profits.

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