The French "iPod law" went into effect yesterday–still with plenty of teeth despite certain sections having been declared unconstitutional and struck down by the French Constitutional Council.
Officially referred to as the DADVSI, the law is France’s implementation of a 2001 EU Directive to harmonize copyright law by implementing rules similar to the U.S. Digital Millennium Copyright Act (DMCA). The EU directive is meant to comply with the World Intellectual Property Organization Copyright Treaty of 1996 (which itself was updated to provide additional protections for copyright deemed necessary due to advances in information technology).
Wikipedia describes DADVSI this way: "At first sight, the DADVSI law was not meant to be a disputed legal text: it deals with fairly technical legal points. It was, however, turned into a political hot topic featured in major newspapers and national television." Well, when a government mandates sharing of proprietary software, that ought to be controversial!
The part of this law that made the news (in the U.S.) is its mandate for interoperability of digital rights management (DRM) systems. It’s obvious that anti-corporate and "consumer rights" rhetoric is far stronger in France than in the U.S. So perhaps we should be relieved that the French didn’t just outlaw DRM. But France did create a DRM registry that will mandate interoperability through compulsory licenses, at prices to be set by the bureaucrats.
Interoperability – Tipping the Balance from IP Protection to Managed Competition
It seems to me that this new French law is attempting to strike a balance between IP protection and competition policy. It’s as if the French government said "yes, we understand that DRM can help curb piracy, so we’ll let you use DRM to protect your creative works but we won’t let you use DRM to protect your dominant position in the marketplace."
What’s interesting about this? The French are engaging in competition stimulation. There’s always a balance between antitrust, which strives to break down barriers to competition, and IP, which provides a monopoly for the rights holder. By attaching competition policy to copyright, I think France is throwing this balance out of whack.
Why? The law creates a DRM Regulation Authority to administer a compulsory licensing scheme and to mandate interoperability with software and hardware. This a priori approach toward interoperability has been used in telecom regulation by Federal and State regulators regarding their interconnection mandates for the Public Switched Telephone Network. Its genesis arises from the AT&T monopoly and the public interest obligations on carriers of last resort. But there is no monopoly in the portable music player market.
Furthermore, interoperability rules – like all regulation – should be sensitive to its impact on the market. Ofcom, the UK communications regulator, has a good statement in this regard:
Requirements for interconnection and interoperability must not work against incentives for operators to develop innovative new services…in order to differentiate their products from those available from other operators.
The statement rightly recognizes the need for companies to differentiate their products. In addition, it stresses that incentives matter for developing new services, and that interoperability mandates can harm these incentives.
The Impact of the New French Law
France’s DADVSI law uses copyright law to mandate interoperability and is a solution in search of a problem. I think the law:
Imposes Government into Private Negotiations. This law inserts a government agency into private negotiations among private companies. In effect, government regulators can force innovators to divulge trade secrets and other proprietary information to competitors.
Unfairly punishes DRM-protected products. As a result, innovators are in a no-win conundrum: if they use DRM, this law hurts them by forcing to share their proprietary code. Innovators that don’t use DRM risk losing the rewards of their innovation to piracy. DRM can allow for content to be packaged and priced in a number of ways that enhance consumer welfare.
Diminishes the Incentives for Content Creation and Distribution. Mandated interoperability destroys the ability of firms to engage in creative pricing strategies and differentiation.
Compulsory licensing schemes are costly and inefficient ways to set prices. An article by Professor Robert Merges at Cal-Berkeley states that compulsory royalties are almost always lower than royalties negotiated voluntarily. But costs saved by a compulsory license in the short run are usually more than offset by the inefficiencies that it causes over time. Markets are the best drivers for creativity and distribution. Compulsory licenses, being creatures of federal statute, are less flexible and more susceptible to political manipulation than market-based transactions.
Furthermore, it appears that software producers cannot, without prior authorization, even develop software that would potentially interact with DRM-encumbered content. As Jean-Baptiste Soufron, a French lawyer and President of the Association of Audionautes (French anti-copyright group) writes
The Court deletes the interoperability exception that was supposed to protect competition and free software developers. Without prior authorization, it will not be possible anymore to develop a software that could interact with DRM-encumbered content. This is true for Free Software developers, but it is also true for start-ups like Archos or Dailymotion.
Did this Law Carve-out a “Safe Harbor”?
Here’s the kicker–the law contains a surprising and confusing “safe harbor” for Apple and other companies that want to use DRM to protect content. Article 14 of the law says that companies only have to share their DRM technologies with competitors if the restrictions they impose are "additional to, or independent of, those explicitly decided by the copyright holders." It would therefore seem that Apple could avoid the interoperability mandate by getting content owners to agree to new contracts that explicitly recognize and authorize DRM. What were the French lawmakers thinking here? Did they intend to create a safe harbor from their —interoperability mandate? Or did they recognize that there are limits to their powers to manage competition?
The devil is in the details, so we will have to wait and see how this law will be implemented. Meanwhile, I just can’t help wondering if, had Apple been a French company, this law would have ever seen the light of day.