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What happens when a law designed to protect copyrighted materials from piracy is used to control aftermarket competition? Two courts and the Copyright Office have recently addressed this issue, each reaching a different conclusion. The issue is important, potentially affecting every industry that has an aftermarket — from toner cartridges to auto parts. The wrong answer (reached by at least one court and currently under review)could seriously harm competition in these markets and certainly represents a classic case of unintended consequences under the Digital Millennium Copyright Act (DMCA). Today, almost all large-scale consumer media is delivered, at least in part, digitally. Music comes on CDs, movies on DVDs, television through digital cable or satellite. Digital radio is on the rise, and even print media are increasingly distributed through Web sites or e-books. Digital delivery offers high efficiency, high quality and low cost — but also a high risk of piracy. Digital works can be copied an unlimited numbers of times without any loss in quality and can be easily distributed over the Internet and in other media. To prevent widespread piracy, copyright holders have increasingly relied on a combination of technological and legal protections designed to reduce unauthorized access to, and copying of, digital content. The technologies used vary widely from one medium to the next, but all involve the same basic principle: The protected content is encrypted before delivery and only authorized users are given the keys necessary to access the content. No encryption scheme is perfect, however, and pirates — and even technically savvy consumers — will inevitably find ways to copy protected content. In an effort to give legal teeth to technological restrictions, Congress crafted the “anti-circumvention” provisions of the DMCA found at � 1201, which prohibit, among other things, circumventing a “technological measure that effectively controls access to a work protected under” the copyright law, as well as trafficking in devices used primarily to circumvent such access control technologies. The DMCA thus adds a new right — the right to control access — to the traditional exclusive rights enumerated in � 106 of the Copyright Law. Section 1201′s language is extremely broad, and the rights it creates arguably are not governed by the statutory limitations to � 106, such as fair use. The 2nd U.S. Circuit Court of Appeals has held, for example, that the concept of fair use codified in � 107 of the copyright law is not a defense to the distribution of technologies designed to aid in circumvention. That is, even though it might be necessary to circumvent encryption to make non-infringing, fair use of the material on a DVD, it is still unlawful to provide the means of doing so. [FOOTNOTE 1] Critics of the DMCA have long noted that the broad scope of the anti-circumvention provisions as drafted might be used not only as Congress intended — as a tool against pirates — but also to lock competitors out of related markets. Although Congress made efforts in the statutory language to avoid that possibility, it became a reality this year in two similar cases with very different results. ‘LEXMARK’ The first such case, Lexmark v. Static Control, involves the market for office printer supplies. Lexmark is the world’s second largest manufacturer of computer printers. A significant portion of its income comes from the “consumables” market — that is, the sale of toner cartridges for its printers. In this case, the numbers are large: The printer and supplies market is $40 billion worldwide according to Business Week, and Lexmark (like most printer companies) makes most of its money on toner and other consumables. To protect this market, Lexmark embeds a microchip in its toner cartridges that prevents unauthorized, refilled or refurbished cartridges from working in Lexmark printers. The printer communicates with the chip on the toner cartridge using a simple code called a “handshake” to ensure the cartridge is Lexmark’s (as opposed to some third-party brand) and has not been refilled or refurbished. Static Control makes parts for printer and cartridge remanufactures — another very large business — and makes a chip that can replace the chip on a Lexmark toner cartridge. The Static Control chip “mimics” the function of the Lexmark chip but has none of its restrictions. Companies in the business of refilling and refurbishing toner cartridges buy the Static Control chip, use it to replace the Lexmark chip, and can then offer refilled or refurbished cartridges that will work in Lexmark printers. The net effect is to create an aftermarket that would not otherwise exist and to save the consumer a large amount of money: an official Lexmark-branded high-yield toner cartridge of the kind at issue in this case costs $395 retail; a remanufactured cartridge using the Static Control chip costs $170. Consumers who might choose the cheaper third-party cartridge, however, have now lost that option due to a surprising reading of �1201 adopted by the Lexmark court. Like all printers, Lexmark’s contain printer control software — computer code embedded in the printer that enables it to function. The chip on the Lexmark cartridge also contains a tiny piece of software, called a toner loading program, that monitors toner levels and makes sure the cartridge has not been refilled or refurbished. The Lexmark court found both of these tiny programs to be protected by copyright — a questionable, but not unsupportable, position. The court further found that the coded “handshake” between the printer control program and the toner loading program effectively controls access to those programs. Thus, the software handshake protects itself and the Static Control chip, by mimicking the handshake, circumvents a technological measure that restricts access to copyrighted content. The Kentucky court therefore granted Lexmark an injunction prohibiting the sale of the Static Control chips under DMCA 1201(a)(2). If this seems counterintuitive and confusing, that’s because it is. The court bent over backwards to reach its result even though the only “access” involved was access to the access control programs themselves. There is no separately copyrightable content involved here, no risk of piracy, no copying. In fact, there is not even any use of the purportedly copyrighted material. The only reason Static Control makes chips that circumvent Lexmark’s handshake is to permit third-party cartridges to interoperate with the Lexmark printer — an activity that was perfectly legal (and was the basis for a billion-dollar industry) up until passage of � 1201 of the DMCA. Naturally, Static Control is fighting the decision: It has appealed to the 6th Circuit, filed an antitrust suit against Lexmark and had the legislature of its home state of North Carolina pass a law effectively invalidating the decision for cartridges sold there. Static Control also applied for an exemption under DMCA � 1201(a)(1)(C), which requires the Copyright Office to determine, once every three years, whether any “persons” should be exempt from the anti-circumvention provisions of the DMCA because they have been “adversely affected … in their ability to make noninfringing uses under this title of a particular class of copyrighted works.” Static Control’s application was largely symbolic, because exemptions under �1201(a)(1)(C) apply only to circumvention, not to trafficking in circumvention technology. Had Static Control won its exemption it thus still would not have had the right to sell its chips. But Static Control did not win its exemption. Instead, on Oct. 28, the Copyright Office denied the exemption, noting that “an existing exemption in section 1201(f) addresses the concerns of remanufacturers.” [FOOTNOTE 2] Section 1201(f) is an exemption that permits circumvention and trafficking in circumvention devices “for the purpose of enabling interoperability of an independently created computer program with other programs.” Such reverse engineering has always been considered a non-infringing use under traditional copyright law, and it appears that the Copyright Office believes it should provide a defense to DMCA circumvention claims such as Lexmark’s. This result has generally been reported as a victory for Static Control even though it did not get its exemption. Certainly, it shows that the Copyright Office agrees with Static Control — and the great majority of commentators — that the DMCA was never intended to lock out aftermarket competition. This is little comfort to Static Control however, which presented � 1201(f) as a defense in Lexmark, but the court rejected it. Although the Copyright Office rulemaking casts doubt on that view, it is essentially dicta and is not binding on the 6th U.S. Circuit Court of Appeals. Static Control thus may or may not get the benefit of this validation of its legal theory. ‘CHAMBERLAIN’ In the aftermath of Lexmark, many commentators feared the worst. Almost any product can be tagged with a chip, effectively destroying the aftermarket for that product. What began with office toner cartridges could easily spread to consumer products like automobile oil filters or universal remote controls. In fact, the next — and most recent — case to take up the issue involved garage door openers. In Chamberlain Group, Inc. v. Skylink Technologies, Inc., a manufacturer of garage door openers sued a competitor for making a universal replacement remote that would open its garage doors. In general, a garage door opener remote sends a coded signal to the receiver inside the garage to cause the door to open; this signal can be recorded by thieves using a radio-frequency receiver (called a “code grabber”) and later played back to cause the door to open. Chamberlain uses a separate security system in addition to the coded signal, called a “rolling code,” to avoid this problem. The rolling code prevents a code grabber from opening the door, but it can be bypassed. Skylink, a competitor of Chamberlain, makes a universal replacement remote that exploits the bypass feature to open the door without the rolling code. A customer who chooses to use the Skylink remote must first program it, using the remote that came with his Chamberlain system, but after that the Skylink remote functions independently. Chamberlain sued Skylink, claiming that its remote violated �1201 because it bypassed the rolling code to gain access to the program used to open the garage door. The court disagreed, and last month granted Skylink’s motion for summary judgment. The court found that customers who buy garage door openers have an expectation that they will be allowed to buy replacement remotes, and that Chamberlain had not prohibited its customers from doing so. Reasoning that Chamberlain’s customers were therefore authorized to buy and use a third-party remote, and that they passed on that authorization to Skylink by purchasing and programming the Skylink product, the court found that Skylink’s circumvention could not be “without the authority of the copyright owner” as required by �1201′s definition of circumvention. Although this is a somewhat convoluted analysis, it reaches the right conclusion, as the Copyright Office has recently reiterated: the DMCA is designed to protect copyrightable digital content, not to squash aftermarket competition. CONCLUSION Though Lexmark appeared, earlier this year, to be a dangerous precedent it seems unlikely that it will have much life in the future. The Copyright Office rulemaking will certainly be persuasive evidence of congressional intent in future cases, and the Chamberlain reasoning, under which customers may pass on their implied authority to circumvent to manufacturers, offers another route to the same result. Whether or not Congress decides to clarify �1201 — and several pending bills suggest that it may — this particular case of unintended consequences appears to be on its way to the history books. ::::FOOTNOTES:::: FN1Universal City Studios, Inc. v. Corley, 273 F.3d 429, 459 (2d Cir. 2001). FN2Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, 68 Fed. Reg. 62011-01, 62018 (Oct. 28, 2003); See also Recommendation of the Register of Copyrights, pp. 172-183, available at http://www.copyright.gov/1201/ Stephen M. Kramarsky is a member of Dewey Pegno & Kramarsky specializing in part on complex intellectual property litigation. If you are interested in submitting an article to law.com, please click here for our submission guidelines.

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