Copyright Office Says Current Law Addresses Concerns about Software-Enabled Consumer Products

In December, the United States Copyright Office released a report on software-enabled consumer products. Prepared pursuant to a request from Senate Judiciary Committee members Chuck Grassley (R-IA) and Patrick Leahy (D-VT), the report clarifies how existing copyright law applies to everyday consumer items, from cameras to pickup trucks, that are sold pre-loaded with software essential to their operation. Copyright is not the only area of law implicated by now-ubiquitous software, and simultaneous work is being undertaken by the FTC, Department of Homeland Security, and the Department of Commerce.

Copyright protection over such software calls into question the legality of things consumers have been doing without a second thought. Under laws applicable to personal property, activities like resale, repair, and tinkering are unquestionably kosher. But the presence of software – and therefore of copyright law –introduces new questions not previously asked about dishwashers and the like: can I bootstrap a way to turn it on with my smartphone after I leave the house? Resell it on Craigslist if I decide to renovate? Copyright also impacts research and development with downstream impacts on consumers, notably in the areas of security and interoperability. With the prospect of copyright infringement suits looming improbably over quotidian activities, Grassley and Leahy noted, “[t]he public is rightly seeking clarity.”

Following a long look at these questions (the 69-page report is the result of nearly 14 months of study), the Copyright Office came to the conclusion that that what clarity we can get, we already have. Its report serves as a comprehensive summary of the areas of concern, but it treads lightly as it nears real-world solutions. The Office found that consumers’ and researchers’ resale, repair, tinkering, security research, and interoperability activities are likely within the bounds of the Copyright Act as it presently stands. It argued that proper application by the courts a number of copyright doctrines – including first sale, fair use, the idea/expression dichotomy, merger, and scènes à faire, in addition to the software-related provisions of Section 117 of the Copyright Act and exceptions granted to the anti-circumvention rules under Section 1201 of the DMCA – should allow consumers to use, dispose of, and research a software-enabled product as they would any other.

• The Copyright Office minimized concerns about resale, noting that it lacked evidence that copyright holders were preventing consumers from reselling devices, while acknowledging this was happening at the enterprise level. Certain explicit statutory protections protect resellers (the generally applicable principle of first sale, and Section 117(b) which allows for the resale or lease of software specifically), but only apply to the extent that the consumer owns the device. Ownership is a more complicated question than the uninitiated might think. The Second and Ninth Circuits have different tests for determining whether a consumer is an owner, depending to varying degrees on the terms of the license agreement (EULA), if one is provided. The implications of EULAs on software-enabled consumer products are deeply significant; we discuss them more fully below.
• Tinkering and repair implicate a number of the exclusive rights granted to copyright owners: reproduction and derivative works by necessity, and, to the extent the consumer wants to resell a modified device or share her solutions with others, also distribution and public display. The Copyright Office took the position that tinkering and repair are likely a fair use. The second and fourth factors, properly understood, favor this conclusion. Most significantly, there is no impact on the market for the product itself: while manufacturers have striven to use copyright to control secondary markets including repair, the law does not grant them this right. Furthermore, the nature of the copyrighted work is, in this context, functional since the tinkerer’s aim is to change how the device works, not benefit from the expressive elements of the code that operates it. However, a finding of fair use is by no means guaranteed, especially where a repair is undertaken as a commercial enterprise. While the Copyright Office cites to consumer pressure around the right to repair as a corrective to industry overreach, it’s worth noting that no state has yet passed a right to repair bill.
• The Copyright Office reiterated that much security research is a fair use, the position it had taken in the last Section 1201 rulemaking. In spite of the likely permissibility of these activities under copyright law, the Office acknowledged a body of evidence that rights holders are attempting to curtail it through DMCA take-down notices and license terms.
• Interoperability and competition were acknowledged by the Copyright Office as key policy goals, and even though the case law in this area is favorable, the Office took the position that a new statutory framework could reduce uncertainty. However, the Office refused to recommend legislative action on the grounds that the pace of technological change limits its usefulness.
• The Office also took up the key issue of end-user license agreements, or EULAs, which are increasingly attached to software-enabled consumer products, as they have been to digital goods such as MP3 downloads and ebooks. EULAs exist at the intersection of copyright and state contract law, and generally carve out a narrower range of rights for device owners than they would otherwise have. Under the terms of a EULA, the owner of the device does not own the copy of the software sold with it – she is merely a licensee. Licensees aren’t protected by the first sale doctrine or the provisions of Section 117, which the Copyright Office acknowledges as significant in many of the areas studied. The report points out that some courts have refused to enforce EULAs, either on the grounds that they are unconscionably one-sided or because state law requirements for contract formation are not met by a “clickwrap” or “shrinkwrap” license, but as many or more cases have gone the other way. When EULAs are enforced, it’s licensors, and not the representatives of the American people, who determine what rights consumers can exercise with respect to software-enabled products. While it acknowledged this important policy concern, the Copyright Office judged the question of whether the Copyright Act might preempt some license agreements to be outside the scope of this report, just as it did in 2001 when it acknowledged the same issue in the context of its report on DMCA Section 104. The issue of ownership versus licensing is one of the most important facing copyright consumers and users, and we at the Cyberlaw Clinic are following it closely in the work of academics like Aaron Perzanowski and Jason Schultz, who take up the issue in their new book The End of Ownership (MIT Press, 2016) and advocacy organizations including the Electronic Frontier Foundation. The Copyright Office’s work and mission are deeply implicated by the question of preemption, and we look forward to their finding an opportunity to make a substantive contribution in this area.

In relying on the current provisions of the Copyright Act for solutions, the Copyright Office missed an opportunity. Certainly formulating a legislative solution would have been a challenge: few claim to know the perfect means of balancing manufacturers’ and consumers’ rights in the face of rapid evolving technology. However, the assertion (however indirect) that the federal courts are well positioned to offer a better solution is, at best, questionable. It calls to mind a classic curse: “May you win all of your lawsuits.”

The report catalogs the exclusive rights implicated by the activities discussed, each one a possible cause of action against a consumer defendant. Even if that defendant is well-positioned to make and win a defense of, for example, fair use, to do so she’ll need to go to court. That introduces significant costs in money and time. The American Intellectual Property Law Association’s 2015 Report of the Economic Survey found that even where the amount in controversy is below one million dollars, the total cost of a copyright infringement suit averages $250,000, and the figure is about the same for defendants as for plaintiffs. This amount is all the more staggering when you consider that many potential defendants are individuals, and their allegedly infringing activity isn’t a commercial enterprise but off-hours monkeying around with their smartphones or fixing a household appliance. The Copyright Office failed to engage with the potentially significant chilling effects of the threat of such litigation.

Another shortcoming of the report is the abbreviated discussion of the impact of Section 1201 of the DMCA on software-enabled devices. This law prohibits efforts to circumvent technical protection measures. While it applies to all copyrighted material and has implications far outside this particular study, in this context it stops consumers, repair technicians, researches and others from getting around restrictions put in place by device manufacturers to limit access to pre-loaded code. Exceptions to this prohibition are granted by the Copyright Office, but only once every three years and, as we have previously noted, at tremendous expense. As a result, any comfort offered to consumers and researchers by the 1201 rulemaking process is just as cold as that from the prospect of federal litigation.

While the Copyright Office did not lay a clear path forward with this report, its study of Section 1201 is still ongoing, and its substantive treatment of the real issues facing consumers and those representing their interests could form a foundation to build toward change. If you’re an individual or mission-driven organization with legal questions relating to software-enabled consumer products, consider filling out our intake form.