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April 2013

De-Kindling Competition: Is Amazon Using DRM to Close the Book on Brick-and-Mortar Shops?

On February 15, 2013, three independent bookstores filed a class-action lawsuit against Amazon.com, Inc. (“Amazon”) and the largest US book publishers, the so-called Big Six (Hachette, HarperCollins, Macmillan, Penguin, Random House, and Simon & Schuster). The complaint? That Amazon uses its proprietary digital rights management controls (“DRM”) to create a monopoly with the Big Six.

The complaint alleges that Amazon violated antitrust laws when it entered confidential contracts with the Big Six for the exclusive rights to publish electronic versions of their books (“e-books”). Because of the DRM controls Amazon places on them, Amazon’s e-books can only be accessed on its Kindle, a series of electronic book readers. Thus, when a consumer purchases, for example, “War Brides” by Helen Bryan as an e-book for her Kindle, she cannot access this file (i.e. read the book) on her Barnes and Noble Nook or Kobo e-readers, or other device unless it is loaded with a Kindle software application. And because Amazon is alleged as having entered into exclusive contracts with the Big Six, a consumer cannot purchase an e-book version of “War Brides” in any other format or with any other e-reader. Most importantly, however, is that Amazon’s very large list of exclusive titles can only be purchased from Amazon.

This poses a problem because of the unique positions of Amazon and the Big Six in their respective markets. Amazon is alleged to have over 60% of the market share in the e-book industry. Similarly, the Big Six hold the lion’s share of the book publishing industry, generating in the aggregate 60% of the total market and 85% of the titles on the NY Times Bestseller’s List. Thus, any exclusive agreement between such market leviathans is likely to raise antitrust eyebrows. But here, the purported agreements are facilitated—and enforced against the consumer—by Amazon’s DRM. The effect, in the words of the complaint, is that “the vast majority of readers who wish to read an e-book published by the Big Six will purchase the e-book from Amazon. . . . Thus, our brick-and-mortar plaintiffs have no way of selling e-book versions of the Big Six publications.”

There is little new about DRM and DRM-based litigation. In general, DRM describes a technology that controls how consumers use digital content. Generally imbedded in the work and accompanying it to the consumer, it controls access to, tracks, and limits uses of digital works. In this way, DRM implements content protection. That is, it can prevent rampant copyright-violative sharing of downloaded files between users (à la Napster, the early days). At least at heart, that doesn’t seem like a bad thing.

But DRM systems are intended to operate after a purchaser has obtained the work. This “downstream” hobbling of legitimately-acquired works has drawn fierce criticism from many sides. Commentators argue that DRM limits the “first sale” doctrine of copyright law and that its universal application prevents some users (universities, for example) from exercising otherwise legitimate “fair uses” of the digital works.

Further, DRM has been used to go beyond content protection to create platform protection. Famously in 2003, Apple began protecting its music files for sale on iTunes with DRM. But Apple’s DRM also contained platform protection, making it impossible to play the files on non-Apple products. Public criticism and lawsuits abounded, and in 2009 Apple announced that all music files it sells on iTunes would henceforth be DRM-free (though video and other files may still be encumbered with DRM). Thus, when a consumer purchases his favorite Rihanna or Coldplay song from iTunes, he can also play it on his Windows computer or Android device.

And at the end of the day, that is all the plaintiff-booksellers want.1 According to plaintiffs’ attorney, “We are seeking relief for independent brick-and-mortar bookstores so that they would be able to sell [e-books] that could be used on the Kindle or other electronic e-readers.” But it is no surprise that plaintiffs have taken the antitrust route rather than attacking Amazon’s DRM on copyright or other grounds. Their complaint comes weeks after the final settlement of an antitrust suit brought by the Department of Justice against five of the Big Six asserting collusion with Apple to fix prices of e-books. And it was an antitrust suit that helped convince Apple to become DRM-free in 2009. Time will tell whether the same theory will be successful against Amazon in favor of independent and smaller brick-and-mortar book sellers.

In the meantime, DRM will continue to kindle heated debate and much frustration. Copyright concerns pertaining to first sale, fair use, and legitimate circumvention of DRM controls will likely remain unresolved for the near future, maintaining the somewhat hemmed parameters of use for legitimate purchasers of digital media.

Intellectual Property



Intellectual Property

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