Earlier this week NTIA petitioned the FCC to adopt a rule requiring wireless carriers to unlock the cell phones of customers and former customers who request it, and today the New York Times editorialized in support. While such a rule would solve the immediate problem of cell phone unlocking, it would be a band-aid solution that avoids dealing with the real problem: the DMCA’s anti-circumvention provisions.

As I’ve explained before, the cell phone unlocking issue is just one symptom of a greater problem, namely that it is illegal for you or any third party you contract to unlock content that you own. This affects not just phones, but also e-readers, music and video players, and even garage door openers and printer cartridges in the view of some. So I have to disagree with CDT when it says, “Perhaps the best feature of the NTIA’s approach is that it skips the absurd debate over copyright and DMCA exemptions and treats phone unlocking as what it is – a telecom issue.”

Cell phone unlocking, despite what the name might lead you to think, is not a telecom issue; it’s a DMCA issue. You can see this if you think about all the restrictions that remain in place even if the FCC were to adopt the NTIA’s proposed rule. For example, the rule forces carriers to unlock your phone at your request, but it would still be illegal for you to unlock your own phone, or to have a third party (such as a competing carrier that wants your business) unlock your phone.

Bottom line: It’s really strange to solve a problem created by Section 1201 of the DMCA by turning to the FCC to force carriers to give up their rights under the DMCA. Indeed, it removes a contractual possibility from the market because under the rule a carrier could no longer contract with a consumer to keep the phone unlocked for the duration of the contract. That’s an option that should be available to carriers and consumers. Any fix to this DMCA-created problem must leave the freedom to contract alone. The better way to address cell phone unlocking is to have the FCC stay out of what is an issue that Congress needs to address. Rep. Lofgren’s Unlocking Technology Act, for example, does just that.

Sherwin Siy, Vice President of Legal Affairs at Public Knowledge, discusses emerging issues in digital copyright policy. He addresses the Department of Commerce’s recent green paper on digital copyright, including the need to reform copyright laws in light of new technologies. This podcast also covers the DMCA, online streaming, piracy, cell phone unlocking, fair use recognition, digital ownership, and what we’ve learned about copyright policy from the SOPA debate.

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Related Links

• Sherwin Siy, Public Knowledge
• What the DMCA cell phone unlock ban means to you, Reardon
• Why The Library Of Congress Has A Lock On Your Phone, Henn

Earlier this year, Ryan Radia and I spilled a lot of ink on these pages critiquing the various “cell phone unlocking” bills that were introduced in reaction to a successful White House petition. Our assessment of these bills was that they ranged from timid to unhelpful. Their biggest vice was that they were generally band-aids and temporary fixes aimed solely at cell phones and not the underlying problem of the DMCA’s anti-circumvention provision.

Today, I’m happy to see Rep. Zoe Lofgren introduced a bill that would not only fix cell phone unlocking, but also goes a long way in addressing the DMCA Section 1201’s fundamental problems. Quite simply, the Unlocking Technology Act of 2013 makes the DMCA’s anti-circumvention provisions applicable only in cases where the person circumvents a digital lock in order to infringe copyright. So, ripping a DVD in order to distribute a film without permission on BitTorrent would still be illegal, but ripping the same DVD in order to watch the film on your iPad would be OK. This is good sense and good policy.

The bill also would allow the manufacture, sale, and import of anti-circumvention tools now prohibited under DMCA 1201. Sounds nefarious, but in reality what this means is that, for example, Linux users may for the first time get a legal way to play DVDs on their computers. And making tools that help the blind read ebooks won’t get you in trouble with the FBI.

Finally, the bill requires NTIA to conduct a study and publish a report looking at whether the economic impact of the DMCA’s anti-circumvention provisions, and to look at whether Section 1201 should be further amended or even repealed. Yes folks, this bill uses the word “repeal” in its text.

Congrats to Rep. Lofgren and her bi-partisan co-sponsors, Reps. Massie, Eshoo, and Polis, for showing that common sense still has a shot on the Hill.

In the past couple weeks, three bills addressing the legality of cell phone unlocking have been introduced in the Senate:

• Sens. Leahy, Grassley, Franken, and Hatch’s “Unlocking Consumer Choice and Wireless Competition Act” (S.517)
• Sen. Ron Wyden’s “Wireless Device Independence Act” (S.467)
• Sen. Amy Klobuchar’s “Wireless Consumer Choice Act” (S.481)

This essay will explain how these bills would affect users’ ability to lawfully unlock their cell phones.

Background

If you buy a new cell phone from a U.S. wireless carrier and sign a multi-year service contract, chances are your phone is “locked” to your carrier. This means if you want to switch carriers, you’ll first need to unlock your phone. Your original carrier may well be happy to lend you a helping hand—but, if not, unlocking your phone may violate federal law.

The last few months have seen an explosion of public outcry over this issue, with a recent White House “We the People” petition calling for the legalization of cell phone unlocking garnering over 114,000 signatures—and a favorable response from the Obama administration. The controversy was sparked in October 2012, when a governmental ruling (PDF) announced that unlocking cell phones purchased after January 26, 2013 would violate a 1998 federal law known as the Digital Millennium Copyright Act (the “DMCA”).

Under this law’s “anti-circumvention” provisions (17 U.S.C. §§ 1201-05), it is generally illegal to “circumvent a technological measure” that protects a copyrighted work. Violators are subject to civil penalties and, in serious cases, criminal prosecution.

However, the law includes an escape valve: it empowers the Librarian of Congress, in consultation with the Register of Copyrights, to periodically determine if any users’ “ability to make noninfringing uses . . . of a particular class of copyrighted works” is adversely affected by the DMCA’s prohibition of tools that circumvent access controls. Based on these determinations, the Librarian may promulgate rules exempting categories of circumvention tools from the DMCA’s ban.

One such exemption, originally granted in 2006 and renewed in 2010, permits users to unlock their cell phones without their carrier’s permission. (You may be wondering why phone unlocking is considered an access control circumvention—it’s because unlocking requires the circumvention of limits on user access to a mobile phone’s bootloader or operating system, both of which are usually copyrighted.)

But late last year (2012), when the phone unlocking exemption came up for its triennial review, the landscape had evolved regarding a crucial legal question: do cell phone owners  own a copy of the operating system software installed on their phone, or are they merely licensees of the software?

Until a few years ago, the leading authority on what it means to own a copy of a computer program was the 2nd Circuit’s 2005 opinion in Krause v. Titleserv, Inc., 402 F.3d 119. There, the court held that a person owns a copy of software if he “exercises sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy . . . .” As the Copyright Office noted in its 2012 recommendation to the Librarian of Congress, the 2006 and 2010 rules exempting cell phone unlocking from the DMCA reflected an understanding, based in part on the holding in Krause, that a typical cell phone owner exercises a level of dominion over her device (and its digital contents) more akin to traditional property ownership than the licensed use of property owned by another.

But in 2010, the 9th Circuit took a very different approach in  Vernor v. Autodesk, Inc., 621 F.3d 1102, in which the court held that a “software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” Because a typical cell phone owner is bound by a “click-wrap” agreement that significantly restricts her ownership rights in her phone’s operating system, she’s arguably a licensee of the software—not an owner of a copy—according to Vernor.

In light of the  Vernor-Krause circuit split, combined with pronounced trend toward more permissive carrier unlocking policies in recent years, the Librarian of Congress substantially curtailed the exemption for cell phone unlocking for all new phones purchased after January 26, 2013. Today, an owner of a new phone may unlock it only if “the operator of the wireless communications network to which the handset is locked has failed to unlock it within a reasonable period of time following a request by the owner of the wireless telephone handset, and when circumvention is initiated by the owner, an individual consumer, who is also the owner of the copy of the computer program in such wireless telephone handset . . . .”

So it is that cell phone unlocking is now in many cases a violation of federal law. (For more background, check out the writings of Timothy Lee at Ars Technica, Derek Khanna at The Atlantic, and Mike Masnick at Techdirt.)

How would the bills recently introduced in Congress address the cell phone unlocking issue? Let’s take a look at each bill.

The Unlocking Consumer Choice and Wireless Competition Act

To begin with the simplest of the cell phone unlocking bills, Sens. Leahy, Grassley, Franken, and Hatch’s Unlocking Consumer Choice and Wireless Competition Act (S.517) would simply amend the Code of Federal Regulations, replacing the pertinent paragraph from the Librarian of Congress’s 2012 rulemaking (codified at 37 C.F.R. § 201.40(b)(3)) with its more permissive 2010 analogue. The bill also tasks the Librarian of Congress with determining whether to extend the unlocking exemption to other wireless devices (e.g., mobile broadband-enabled tablets), based on the DMCA’s usual rulemaking criteria.

By restoring the broad DMCA exemption for phone unlocking in force from 2006 to 2012, S.517 addresses the problem at hand without going too far. It neither forces carriers to help users unlock their phones, nor limits carriers’ ability to recover damages from subscribers who breach their contracts. Rather, the bill would simply shield users who unlock their cell phones from the DMCA’s harsh penalties. In striking this balance, S.517 deserves credit for aiming to solve a discrete problem with a narrowly-tailored solution.

But would S.517’s fix last? Given that “[n]othing in [the] Act alters . . . the authority of the Librarian of Congress under [the DMCA],” S.517 would presumably leave unchanged the substantial deference enjoyed by the Librarian regarding his decisions about which circumvention tools to exempt—including cell phone unlocking tools. If, three years from now, the Librarian boldly decides that his 2012 decision to curtail the phone unlocking exemption was correct, and thus restores the language currently in force, Congress will be back at square one.

For a more lasting solution, Congress could act under the Congressional Review Act (“CRA”) to pass a resolution expressing its disapproval of the Librarian’s 2012 rule. If both houses of Congress were to pass such a resolution, and the President were to sign it, the narrow cell phone unlocking rule would be nullified—permanently. And the Librarian couldn’t simply reissue the rule, as a rule nullified under the CRA “may not be reissued in substantially the same form.” 5 U.S.C. § 801(b)(2).

Admittedly, this would be a novel use of the CRA. Congress has historically used the law’s disapproval procedure to review rules promulgated by “ordinary” federal agencies (i.e., agencies that are entirely within the Executive Branch). Nevertheless, the Library of Congress is arguably an “agency” for purposes of the CRA insofar as it promulgates rules of general applicability. As the D.C. Circuit recently held in Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., when the Library of Congress exercises its “powers . . . to promulgate copyright regulations . . . the Library is undoubtedly a ‘component of the Executive Branch.'” 684 F.3d 1332, 1341-42 (D.C. Cir. 2012) (citing Free Enterprise Fund v. Public Company Accounting Oversight Bd., 130 S.Ct. 3138, 3163 (2010)).

The Wireless Device Independence Act

Sen. Ron Wyden’s Wireless Device Independence Act (S.467) is the only cell phone unlocking bill that actually amends the DMCA. It would add to section 1201 a clause specifying that modifying software on a mobile device so that it operates on a different network is exempt from the law. While his colleagues dance around the underlying problem—the DMCA itself—Sen. Wyden tackles it head-on. To his credit, this approach embodies Congress exercising its proper constitutional role. If the legislative branch is dissatisfied with how an agency has exercised its statutorily delegated authority, the legislature ought to respond by amending the agency’s enabling statute.

However, S.467 contains a potentially massive loophole: it only exempts from DMCA liability “user[s] [who] legally own[] a copy of the computer program” installed on their mobile phone. In other words, the bill would do nothing for users who are mere licensees of the software installed on their phone. This may not matter for residents of the three states under the jurisdiction of the Second Circuit, where Krause controls—but for cell phone owners in the Ninth Circuit, where Vernor controls, S.467 is unlikely to offer much relief. Because most mobile operating systems are accompanied by click-wrap contracts that impose significant use and transfer restrictions on users, under Vernor these users are considered licensees, rather than owners of a copy of the operating system.

If the Wireless Device Independence Act were enacted, therefore, most Americans wishing to unlock their cell phones would still face significant legal uncertainty regarding their potential liability under the DMCA. To remedy this, the bill could extend its safe harbor to encompass cell phone unlocking by licensees, as well as owners, of software.

The Wireless Consumer Choice Act

Sen. Amy Klobuchar, along with Sens. Mike Lee and Richard Blumenthal, take a very different approach from their colleagues in their Wireless Consumer Choice Act (S.481). The bill’s full text is worth posting (PDF):

Pursuant to its authorities under title III of the Communications Act of 1934 . . . the [FCC], not later than 180 days after the date of enactment of this Act, shall direct providers of commercial mobile services and commercial mobile data services to permit the subscribers of such services, or the agent of such subscribers, to unlock any type of wireless device used to access such services. Nothing in this Act alters, or shall be construed to alter, the terms of any valid contract between a provider and a subscriber.

Note the absence of any explicit amendments to the DMCA or related regulations, or any mention of circumvention tools. Instead, the bill empowers the FCC to regulate carriers’ unlocking policies, yet leaves the DMCA intact. This drafting decision has led some commentators to pan the legislation, questioning its effectiveness and scope.

While I too have serious concerns about S.481, I think Sina Khanifar (who started the White House petition about cell phone unlocking) may be incorrect to suggest the bill “doesn’t do anything at all.” It seems to me that S.481 would alter the DMCA’s unwritten contours, albeit in narrow ways.

How can a law that doesn’t even mention the DMCA effectively “rewrite” its anti-circumvention provisions? Consider that S.481 and the DMCA’s section 1201 both purport to deal with the subject of cell phone unlocking. To borrow a term from legal Latin, the two laws are in pari materia (“upon the same subject”). While section 1201 focuses on the general issue of circumvention of copyright access controls without mentioning cell phone unlocking, S.481 specifically and exclusively addresses cell phone unlocking.

So how would a court reconcile S.481 with section 1201 if a mobile subscriber were sued for unlocking his cell phone despite his full compliance with the carrier’s service contract? Here’s an excerpt from the leading treatise on statutory interpretation, Sutherland Statutory Construction, summarizing how courts have historically sought to reconcile incompatible statutes:

Where one statute deals with a subject in general terms and another deals with a part of the same subject in a more detailed way, the two should be harmonized if possible. But if two statutes conflict, the general statute must yield to the specific statute involving the same subject . . . .

2B Sutherland Statutory Construction § 51:5 (7th ed.) (internal citations omitted).

The DMCA, it seems, must yield to S.481—at least as far as contractually-authorized cell phone unlocking is concerned. As Sean Flaim points out, if you unlock your phone with help from your carrier, it cannot be said that you’ve “circumvented” a technological measure. Thus, under S.481, carriers would lose their existing ability under the DMCA (17 U.S.C. § 1203) to sue a subscriber who has unlocked his phone without breaching his service contract. Similarly, the law might deny the DMCA’s civil remedies to other rights holders—say, mobile operating system creators—against consumers who unlock their phones without breaching any contractual provisions. S.481 also purports to eliminate criminal liability in such situations; as Sen. Mike Lee explained in a joint statement announcing the bill, “[c]onsumers shouldn’t have to fear criminal charges if they want to unlock their cell phones and switch carriers.”

But courts could just as well construe S.481 to effect none of these changes. There is no such thing as  stare decisis  when it comes to statutory construction. If Congress wanted to alter the DMCA, courts might reason, Congress would have done just that. S.481 simply requires that carriers help off-contract subscribers unlock their phones, so why read into the statute a meaning that conflicts with other laws?

Perhaps there are persuasive reasons for trying to tweak the DMCA without actually amending the law, but I’m not aware of any. Given how widely courts vary in interpreting vague statutes, it’s awfully risky to gamble on judges who review S.481 correctly divining Congress’s intent if it enacts the law.

Another worrisome aspect of S.481 is its expansion of the FCC’s regulatory authority to encompass cell phone unlocking. While this grant of authority may seem innocuous, Congress should think twice before involving the FCC in mobile carriers’ decisions about when to permit subscribers to unlock their phones. If the FCC is tasked with policing carriers’ policies regarding cell phone unlocking, the agency might interpret this narrow grant of jurisdiction as a grant of  “ancillary authority” to dictate the contours of mobile service contracts (not that the FCC isn’t already eager to regulate this space). The FCC is notorious for taking an extremely broad view of its own powers; as the Electronic Frontier Foundation has warned, the FCC’s willingness to overreach “raises the specter of discretionary FCC regulation of the Internet not just in the area of net neutrality, but also in a host of other areas.”

Given the FCC’s historically limited understanding of how markets work, unleashing it on the wireless industry is especially unwise. This isn’t a market in need of regulation; in fact, consumers enjoy plenty of choices among devices, carriers, and payment plans. If you want to buy the latest smartphone sans carrier lock, chances are you can order it today and have it on your doorstep tomorrow. If anything, Congress should be exploring ways to shrink  the FCC’s role in the mobile communications space, among others.

Conclusion

Like co-liberator Jerry Brito, I think the ideal public policy approach to cell phone unlocking is fairly straightforward. If I own a cell phone, I should be free to modify its software (or hardware) so that it works on any carrier’s network—unless I’ve agreed in contract not to unlock my phone. If I go ahead and unlock my phone anyway, I owe my carrier compensation for its damages resulting from my breach—which are typically specified in advance in the form of an early termination fee. If the contract doesn’t specify an early termination fee, I owe my carrier damages equal to the amount necessary to put the carrier in the same position it would have ended up had I held up my end of the bargain. This is the common law in action, simple yet elegant.

Notice that the approach I’ve outlined makes no mention of the Copyright Act. That a particular type of wrongful conduct happens to involve a copyrighted work doesn’t necessarily make it proper to invoke the copyright laws. While I support robust copyright protection, tweaking the operating software installed on my own phone so that it will operate on my preferred mobile carrier is a far cry from actionable copyright infringement. The potential market for Apple’s iOS, Google’s Android, or Windows Phone 8 suffers no adverse effect if a user unlocks her smartphone so she can switch carriers. As the Copyright Office explained in 2006:

[T]he access controls do not appear to actually be deployed in order to protect the interests of the copyright owner or the value or integrity of the copyrighted work; rather, they are used by wireless carriers to limit the ability of subscribers to switch to other carriers, a business decision that has nothing whatsoever to do with the interests protected by copyright.

This is not to say that carriers are wrong to limit some subscribers’ ability to switch networks. To the contrary, American consumers enjoy substantial benefits thanks to the availability of carrier-subsidized, locked cell phones, as George Ford, Thomas Koutsky, and Larry Spiwak argue in A Policy and Economic Exploration of Wireless Carterfone Regulation, 25 Santa Clara Computer & High Tech. L.J. 647 (2009). The question is thus not whether consumers should be permitted to unlock their cell phones, but what legal regime(s) should deter wrongful unlocking. As Jerry rightly argues, contract law affords mobile carriers a far more appropriate set of remedies for wrongful unlocking than the Copyright Act does.

Cell phone unlocking may be a fairly clear-cut issue, but the broader debate over whether, and to what extent, federal laws should ban tools that circumvent technological measures protecting copyrighted works is anything but straightforward. Critics of the DMCA’s anti-circumvention provisions offer powerful arguments why Congress shouldn’t be in the business of banning technologies, but there remains a fine line between selling lock picking tools and helping people unlawfully pick locks. In a forthcoming essay, I’ll explore the anti-circumvention debate in greater detail.

For a scholarly treatment of the interplay between the DMCA and cell phone unlocking, check out Daniel J. Corbett’s article,  Would You Like That iPhone Locked or Unlocked?: Reconciling Apple’s Anticircumvention Measures with the DMCA, 8 U. Pitt. J. Tech. L. Pol’y 8 (2008).

Since we last visited the cellphone unlocking question, three bills have been introduced in Congress that address the issue. My sources tell me that forthcoming shortly here on the TLF will be a Ryan Radia patented Radianalysis of the bills. While that’s still cooking, though, I wanted to give you my quick impressions.

The bills range from “meh” to crafty.

In a recent blog post Scott Cleland endorses the Administration’s stance that the DMCA should be reformed to accommodate, as he puts it, “pro-competitive exceptions that consumers who have fully paid for the phone and fulfilled their legal and contractual obligations, of course should be able to use it with other carriers.” As he deftly explains,

In a nutshell, if one has honored one’s legal obligations to others, one should be free to unlock their phone/property because they indeed own the lock and the key. However if one has not honored one’s full-payment and legal obligations to others, one may have the phone in one’s possession, but one does not legally own the key to unlocking all the commercial value in the mobile device. Most everyone understands legally and morally that there is a huge difference between legally acquiring the key to unlock something of value and breaking into property without permission. The core cleave of this cellphone issue is just that simple.

I couldn’t have put it better myself. There is a key distinction to be drawn between two very different conceptions of “cellphone unlocking.”

One is the principled view, based on respect for property rights and contract law. This view opposes the DMCA’s anti-competitive circumvention provisions, but leaves contract and property rights untouched. It respects contract law because it recognizes that even though you may own your cell phone, you must live up to any contractual obligations you have undertaken. It also respects property rights because it recognizes that once you have satisfied your contractual obligations, there should be no additional legal impediment to your full enjoyment of your device. That’s why we need, as Cleland says, “pro-competitive exemptions” to the DMCA. In this he rightly echoes Tim Lee’s excellent 2006 Cato Institute paper.

The other conception of “cell phone unlocking” is a weird one. It’s that consumers should be able to buy a cheap subsidized phone from a carrier, and then have the right to walk away from their contract to go to another carrier without having to face any penalties. It means limiting the kinds of agreements into which consumers and carriers can enter. This is a view of cellphone unlocking that would eviscerate contract law. Such a rule would be not just wrong on principle, but it would also be bad for consumers who would soon find that they no longer had access to subsidized phones.

It’s an especially weird view of cell phone unlocking because, while it seems to be “in the water” in the current debate, I can’t find anyone who has actually made such a proposal. (If you have any such examples, please drop links to them in the comments!) The White House specifically ruled out such a view of cell phone unlocking in their response to the user petition. The bill just introduced by Sen. Wyden seems to just codify the DMCA exemption that was not renewed in January, so it just puts us back to the state of affairs we had a couple of months ago. And here’s how Politico describes the forthcoming bill from Rep. Chaffetz:

The contours of legislation are still being crafted, but the bill could carve out an exemption to the Digital Millennium Copyright Act rules that would make it OK to unlock a cell phone even if the owner is still under a contract with a carrier. Breaking the contract would likely still carry whatever penalty the carrier contract dictates, but the action, if the bill is indeed drafted that way, would no longer be a criminal offense.

The word “likely” in that quotation gives me pause, but I can’t imagine that Rep. Chaffetz intends to upend contract law. So, I think we can chalk that up to early reporting until we see a bill. The rest of the report makes sense. As long as you honor a contract you’ve entered into—either by maintaining service with your carrier or paying the early termination fee—you should be able to unlock your phone at any time so that you can, for example, take it overseas or maintain service on two carriers for redundant coverage. You would not be making the carrier any worse off by your additional use of your phone. And breach of contract should never be a criminal offense.

No one today is seriously making the retrograde and seriously debunked case for “wireless net neutrality.” As I pointed out yesterday, the present debate is not about telecommunications policy, it’s about copyright. We need to be on guard that it stays that way. To underscore the point, the debate should actually be about more than just cell phones. I’d like to see Rep. Chaffetz, Sen. Wyden, and others expand their bills to tackle anti-circumvention more broadly.

Even though in his post he unfortunately makes some characteristically groundless assertions about people and their motives, Cleland is absolutely right to draw this distinction between a right to use one’s property within the confines of contract law, and a right to ignore contracts with others. As we move forward to reform the DMCA, we must make sure that we don’t replace one bad regulation with a worse one, and that we ensure that contractual obligations are always respected.

I just had a very respectful, reasoned, and, most importantly, informative conversation with Derek Khanna and CTIA on Twitter. It helps clarify a lot about the debate over cellphone unlocking, and I thought I’d share it with you after the jump.

The fact is that carriers today offer a wide range of unlocked devices for sale, so you never have to worry about unlocking or breaking the law. In fact, almost all of the phones Verizon sells are always unlocked. And as far as I can tell, almost all carriers will unlock your phone, once you end your contract, if you just ask. This is all truly great for consumers.

So I don’t understand why carriers should be opposed to an unlocking DMCA exemption. (To be clear, I’m not aware of individual carriers taking positions on the matter, but their trade association did file in the most recent proceeding against the exemption.) It would be better if their customers didn’t have to ask for permission before unlocking a phone that happens to be locked—especially since carriers are willing to give that permission. And if unlocking is no big deal as long as you live up to your contractual obligations, I don’t understand why there should be limits on who can do the unlocking. Here is the exchange:

Conservatives and libertarians believe strongly in property rights and contracts. We also believe that businesses should compete on a level playing field without government tipping the scales for anyone. So, it should be clear that the principled position for conservatives and libertarians is to oppose the DMCA anti-circumvention provisions that arguably prohibit cell phone unlocking.

Indeed it’s no surprise that it is conservatives and libertarians—former RSC staffer Derek Khanna and Rep. Jason Chaffetz (R–Utah)—who are leading the charge to reform the laws.

In it’s response to the petition on cell phone unlocking, the White House got it right when it said: “[I]f you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network.”

Let’s parse that.

If you have paid for your mobile device, it’s yours, and you should be able to do with it whatever you want. That’s the definition of property rights. If I buy a bowling ball at one bowling alley, I don’t need anyone’s permission to use it in another alley. It’s mine.

Here comes the caveat, though. I don’t need anyone’s permission unless I have entered into an agreement to the contrary. If I got a great discount on my bowling ball in exchange for a promise that for the next two years I’d only use it at Donny’s Bowling Alley, then I am bound to that contract and I can’t very well go off and use it at Walter’s Alley. But once those two years are up, the ball is mine alone and I can do with it whatever I want. Again, that’s the definition of property, and the same should be true for cell phones or any other device.

So how is it that after you have paid for a phone, and you no longer have a contractual obligation with a carrier, that they can still prevent you from using it on another network? The answer is that they are manipulating copyright law to gain an unfair advantage.

For one thing, it’s a bit of a farce. In theory the DMCA’s anti-circumvention provisions exist to protect copyrighted works by making it illegal to circumvent a digital lock that limits access to a creative work. That kind of makes sense when it comes to, say, music that is wrapped in DRM (and indeed the DMCA was targeted at piracy). But what is the creative work that is being protected in cell phones? It’s not clear there is any, but ostensibly it’s the phone’s baseband firmware. It doesn’t pass the laugh test to say that Americans are clamoring to unlock their phones in order to pirate the firmware.

No, Americans don’t want to pirate firmware. They simply want to use their phones as they see fit and carriers and phone makers are misusing the DMCA to make out-of-contract and bought-and-paid-for phones less valuable. That’s bad enough, but what should really upset conservatives and libertarians is that they are employing the power of the state to gain this unfair advantage.

If I use my bowling ball at Walter’s Alley while I’m still under contract to Donny’s, the only remedy available to Donny is to sue me for breach. If he was smart, Donny probably included an “early termination” clause in the contract that spelled out the damages. What Donny can’t do is call the police and have me arrested, nor will he have access to outsized statutory damages. Yet that’s what the DMCA affords device makers and carriers. They are using the power of the state to deny the property rights of others and to secure for themselves rights they could not get through contract law.

Where the White House’s response gets it wrong, however, is in involving the FCC and the NTIA. This is not a telecommunications policy issue; it’s a copyright issue. It’s not just cell phone makers and carriers that are misusing the DMCA. Device makers are employing the same technique to garage door openers, printers, and other devices. Yet that’s how it seems the White House is approaching the issue. From their petition response:

The Obama Administration would support a range of approaches to addressing this issue, including narrow legislative fixes in the telecommunications space that make it clear: neither criminal law nor technological locks should prevent consumers from switching carriers when they are no longer bound by a service agreement or other obligation.

If Congress acts to fix this mess, it should not limit itself to just a narrow provision that exempts cell phone unlocking from the DMCA. In fact, this is an opportunity for conservatives and libertarians in Congress to act on principle and propose a comprehensive fix to the DMCA in the name of respecting property rights. I for one would love to see that challenge put the President.

Finally, it should be made clear that contrary to what some folks are suggesting, by involving the FCC the White House is not endorsing a “Carterfone for wireless”—the idea that carriers should not be allowed to limit how consumers can use their devices, even through contract. The White House response was quite clear that agreements that bind consumers to a particular carrier should still be allowed. And it makes perfect sense.

Today Verizon announced that it activated a record 6.2 million iPhones in its fourth quarter. What accounts for this feat? CFO Fran Shammo explains:

This past fourth quarter, you … had really one thing happen that never happened before, especially with Verizon Wireless, and that was for the first time ever, because of the iPhone 5 launch, we had the 4 at free. So it was the first time ever you could get a free iPhone on the Verizon Wireless network.

A free iPhone is a great deal for consumers who can’t or don’t want to pay for the $450 device up front. The only way carriers can make these offers is in exchange for a promise from the consumer to stay with the carrier for a fixed amount of time and to pay a penalty if they don’t. That’s a win-win-win for the consumer, the carrier and the phone maker—and it’s possible just with the contract law we know and love.

There’s a nice piece of reporting from Ian Shapira in today’s Washington Post entitled, “Once the Hobby of Tech Geeks, iPhone Jailbreaking Now a Lucrative Industry.” In the article, Shapira documents the rise of independent, unauthorized Apple apps (especially tethering apps) and points out that what was once a small black market has now turned into a booming, maturing business sector in its own right.  In fact, Sharpia notes, there are already “market leaders” in the field:

At the top of the jailbreaking hierarchy sits Jay Freeman, 29, the founder and operator of Cydia, the biggest unofficial iPhone app store, which offers about 700 paid designs and other modifications out of about 30,000 others that are free. Based out of an office near Santa Barbara, Calif., Freeman said Cydia, launched in 2008, now earns about $250,000 after taxes in profit annually. He just hired his first full-time employee from Delicious, the Yahoo-owned bookmarking site, to improve Cydia’s design. “The whole point is to fight against the corporate overlord,” Freeman said. “This is grass-roots movement, and that’s what makes Cydia so interesting. Apple is this ivory tower, a controlled experience, and the thing that really bought people into jailbreaking is that it makes the experience theirs.”

In another sign this black market is now going mainstream, advertisers are apparently flocking to it:

In what might be the ultimate sign that the jailbreak industry is losing its anti-establishment character, Toyota recently offered a free program on Cydia’s store, promoting the company’s Scion sedan. Once installed, the car is displayed on the background of the iPhone home screen, and the iPhone icons are re-fashioned to look like the emblem on the front grill.

Interestingly, however, some people now complain that Cydia is getting too big for its britches and has come to be “as domineering as Apple is in the non-jailbreak world.”  What delicious irony! Yet, I do not for one minute believe that Cydia has any sort of “lock” on the “unlocking” marketplace. This is an insanely dynamic sector that is subject to near-constant fits of disruptive technological change.

Anyway, I feel a bit vindicated when I read articles like Shapira’s since I have spent the last few years pushing back against the theories set forth by various scholars, such as Jonathan Zittrain and Tim Wu, who claim that online openness or “generativity” are dying.  They often cite Apple as the big, bad boogeyman of closed code and claim that Steve Jobs is hellbent on destroying digital generativity and the open Internet as we know it.

Of course, it is certainly true that Jobs and Apple prefer a more “closed” model that grants them more control over their products, such as the iPhone and iPad. And they make some good arguments why a certain amount of control is a good thing. It helps to have a more standardized platform for developers, for example, by avoiding fragmentation. A certain degree of control can also help to crack down on malicious apps in the App Store. And without a certain amount of control it becomes hard to honor warranties when phones or apps break.

Despite those excuses, Apple is still just a bit too domineering for some of us.  I don’t own any of their products.  Never have; never will. If it’s not tinker-friendly right out of the box, it’s just not for me.  I cannot even begin to count how many times I have rooted and installed new ROMs on my Droid OG.  (Thank You CyanogenMod!) And I bricked my last Windows Mobile 6 phone after repeated hacking.

And, yet, Apple is still wildly successful and has millions of extremely happy customers who — for reasons that still boggle my mind — are willing to line up in the wee hours of the cold morning around the block in front Apple Stores to get their hands on the latest goodies the company has to offer.  (Seriously, what is wrong with you people!)

But this gets back to the point I have reiterated in my debates with Zittrain, Wu, and the other “openness evangelicals”: Even if I share their general love of more “open” and “generative” platforms or devices, there’s no reason to be nearly as worried as they are about them “dying.”  And there’s certainly no need for drastic action, especially of a regulatory nature, to work this out.  The market for openness is working marvelously. Innovation continues to unfold rapidly in both directions along the “open” vs. “closed” continuum. Moreover, there certainly isn’t any shortage of digital “generativity” taking place on both open and closed platforms today. Again, even though Jobs and Apple try to control their platform and App Store, some amazingly generative things are happening there every day and consumers absolutely adore their Apple devices.

Anyway, I discussed all these issues in much greater detail in my chapter on “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters,” which was included in the book, The Next Digital Decade: Essays on the Future of the Internet (2011). Simply stated, things are getting more open all the time and there’s just no putting the generativity genie back in the bottle.  Here’s a short section that appears on page 149 of the book related to the issues discussed here:

______________________

Things Are Getting More Open All the Time Anyway

Most corporate attempts to bottle up information or close off their platforms end badly.  The walled gardens of the past failed miserably.  In critiquing Zittrain’s book, Ann Bartow has noted that “if Zittrain is correct that CompuServe and America Online (AOL) exemplify the evils of tethering, it’s pretty clear the market punished those entities pretty harshly without Internet governance-style interventions.”^[1] Indeed, let’s not forget that AOL was the big, bad corporate boogeyman of Lessig’s Code and yet, just a decade later, it has been relegated to an also-ran in the Internet ecosystem.

There are few reasons to believe that today’s efforts to build such walled gardens would end much differently.  Indeed, increasingly when companies or coders erect walls of any sort, holes form quickly. For example, it usually doesn’t take long for a determined group of hackers to find ways around copy/security protections and “root” or “jailbreak” phones and other devices.^[2] Once hacked, users are usually then able to configure their devices or applications however they wish, effectively thumbing their noses at the developers.   This process tends to unfold in a matter of just days, even hours, after the release of a new device or operating system.

Number of Days Before New Devices Were “Rooted” or “Jailbroken” ^[3]

Of course, not every user will make the effort—or take the risk^[4]—to hack their devices in this fashion, even once instructions are widely  available for doing so.  Nonetheless, even if copyright law might sometimes seek to restrict it, the hacking option still exists for those who wish to exercise it.  Moreover, because many manufacturers know their devices are likely to be hacked, they are increasingly willing to make them more “open” right out of the gates or offer more functionality/flexibility to make users happy

[1] Bartow, supra note 17 at 1088, www.michiganlawreview.org/assets/pdfs/108/6/bartow.pdf

[2] “In living proof that as long as there’s a thriving geek fan culture for a device, it will never be long for the new version to be jailbroken: behold iOS 4.1. Most people are perfectly willing to let their devices do the talking for them, accept what’s given, and just run sanctioned software. But there are those intrepid few—who actually make up a fairly notable portion of the market—who want more out of their devices and find ways around the handicaps built into them by the manufacturers.” Kit Dotson, New iOS for Apple TV Firmware Released, Promptly Decrypted, SiliconAngle, Sept. 28, 2010, http://siliconangle.com/blog/2010/09/28/new-ios-for-apple-tv-firmware-released-promptly-decrypted

[3] Original research conducted by author and Adam Marcus based on news reports.

[4] Rooting or jailbreaking a smartphone creates the risk of “bricking” the device—rendering it completely inoperable (and thus no more useful than a brick). Additionally, hacking devices in this fashion typically voids any manufacturer warranty.

I dashed off a piece for CNET today on the Copyright Office’s cell phone “jailbreaking” rulemaking earlier this week.  Though there has already been extensive coverage (including solid pieces in The Washington Post, a New York Times editorial, CNET, and Techdirt), there were a few interesting aspects to the decision I thought were worth highlighting.

Most notably, I was interested that no one had discussed the possibility and process by which Apple or other service providers could appeal the rulemaking.  Ordinarily, parties who object to rules enrolled by administrative agencies can file suit in federal district court under the Administrative Procedures Act.  Such suits are difficult to win, as courts give deference to administrative determinations and review them only for errors of law.  But a win for the agency is by no means guaranteed.

The Appeals Process

What I found in interviewing several leading high tech law scholars and practitioners is that no one was really clear how or even if that process applied to the Copyright Office.  In the twelve years that the Register of Copyrights has been reviewing requests for exemptions, there are no reported cases of efforts to challenge those rules and have them overturned.

With the help of Fred von Lohmann, I was able to obtain copies of briefs in a 2006 lawsuit filed by TracFone Wireless that challenged an exemption (modified and extended in Monday’s rulemaking) allowing cell phone users to unlock their phones from an authorized network in hopes of moving to a different network.  TracFone sued the Register in a Florida federal district court, claiming that both the process and substance of the exemption violated the APA and TracFone’s due process rights under the Fifth Amendment.

But the Justice Department, in defending the Copyright Office, made some interesting arguments.  They claimed, for example, that until TracFone suffered a particular injury as a result of the rulemaking, the company had no standing to sue.  Moreover, the government argued that the Copyright Office is not subject to the APA at all, since it is an organ of Congress and not a regulatory agency.  The briefs hinted at the prospect that rulemakings from the Copyright Office are not subject to judicial review of any kind, even one subject to the highly limited standard of “arbitrary and capricious.”

There was, however, no published opinion in the TracFone case, and EFF’s Jennifer Granick told me yesterday she believes the company simply abandoned the suit.  No opinion means the judge never ruled on any of these arguments, and so there is still no precedent for how a challenge to a DMCA rulemaking would proceed and under what legal standards and jurisdictional requirements.

Should Apple decide to pursue an appeal (an Apple spokesperson “declined to comment” on whether the company was considering such an action, and read me the brief statement the company has given to all journalists this week), it would be plowing virgin fields in federal jurisdiction.  That, as we know, can often lead to surprising results—including, just as an example, a challenge to the Copyright Office’s institutional ability to perform rulemakings of any kind.

The Copyright Office Moves the Fair Use Needle…a Little

A few thoughts on the substance of the rulemaking, especially as it shines light on growing problems in applying copyright law in the digital age.

Since the passage of the 1998 revisions to the Copyright Act known as the Digital Millennium Copyright Act, the Register of Copyrights is required every three years to review requests to create specific classes of exemptions to some of the key provisions of the law, notably the parts that prohibit circumvention of security technologies such as DRM or other forms of copy protection.

The authors of the DMCA with some foresight recognized that the anti-circumvention provisions rode on the delicate and sharp edge where static law meets rapidly-evolving technology and new business innovation.  Congress wanted to make sure there was a process that ensured the anti-circumvention provisions did not lead to unintended consequences that hindered rather than encouraged technological innovation.  So the Copyright Office reviews requests for exemptions with that goal in mind.

In the rulemaking completed on Monday, of course, one important exemption approved by the Register was one proposed by the Electronic Frontier Foundation, which asked for an exemption for “jailbreaking” cell phones, especially iPhones.

Jailbreaking allows the customer to override security features of the iPhone’s firmware that limits which third party applications can be added to the phone.  Apple strictly controls which third party apps can be downloaded to the phone through the App Store, and has used that control to ban apps with, for example, political or sexual content.  Of course the review process also ensures that the apps work are technically compatible with the phone’s other software, don’t unduly harm performance, and aren’t duplicative of other apps already approved.

Jailbreaking the phone allows the customer to add whatever apps they want, including those rejected by or simply never submitted to Apple in the first place, for whatever reason.

In approving the exemption, the Copyright Office noted that jailbreaking probably does involve copyright infringement.  The firmware must be altered as part of the process, and that alteration violates Apple’s legal monopoly on derivative or adapted works.  But the Register found that such alteration was de minimis and approved the exemption based on the concept of “fair use.”

Fair use, codified in Section 107 of the Copyright Act, holds that certain uses of a copyrighted work that would otherwise be reserved to the rights holder are not considered infringement.  These include uses that have positive social benefits but which the rights holder as a monopolist might be averse to permitting under any terms, such as quotations in a potentially-negative review.

EFF had argued initially that jailbreaking was not infringement at all, but the Register rejected that argument.  Fair use is a much weaker rationale, as it begins by acknowledging a violation, though one excused by law.  The law of fair use, as I note in the piece, has also been in considerable disarray since the 1980’s, when courts began to focus almost exclusively on whether the use (technically, fair use is an affirmative defense to a claim of infringement) harmed the potential commercial prospects for the work.

Courts are notoriously bad at evaluating product markets, let alone future markets.  So copyright holders now simply argue that future markets, thanks to changing technology, could include anything, and that therefore any use has the potential to harm the commercial prospects of their work.  So even noncommercial uses by people who have no intention of “competing” with the market for the work are found to have infringed, fair use notwithstanding.

But in granting the jailbreaking exemption, the Copyright Office made the interesting and important distinction between the market for the work and the market for the product or service in which the work is embedded.

Jailbreaking, of course, has the potential to seriously undermine the business strategy Apple has carefully designed for the iPhone and, indeed, for all of its products, which is to tightly control the ecosystem of uses for that product.

This ensures product quality, on the one hand, but it also means Apple is there to extract fees and tolls from pretty much any third party they want to, on technical and economic terms they can dictate.  Despite its hip reputation, Apple’s technical environment is more “closed” than Microsoft’s.  (The open source world of Linux being on the other end of the spectrum.)

In granting the exemption, the Copyright Office rejected Apple’s claim that jailbreaking harmed the market for the iPhone.  The fair use analysis, the Register said, focuses on the market for the protected work, which in this case is the iPhone’s firmware.  Since the modifications needed to jailbreak the firmware don’t harm the market for the firmware itself, the infringing use is fair and legally excused.   It doesn’t matter, in other words, that jailbreaking has a potentially big commercial impact on the iPhone service.

That distinction is the notable feature of this decision in terms of copyright law.  Courts, and now the Copyright Office, are well aware that technology companies try to leverage the monopoly rights granted by copyright to create legal monopolies on uses of their products or services.  In essence, they build technical controls into the copyrighted work that limits who and how the product or service can be used, than claim their intentional incompatibilities are protected by law.

A line of cases involving video game consoles, printer cartridges and software applications generally has been understandably skeptical of efforts to use copyright in this manner, which quickly begins to smell of antitrust.  Copyright is a monopoly—that is, a trust.  So it’s not surprising that its application can leak into concerns over antitrust.  The law strives to balance the need for the undesirable monopoly (incentives for authors) with the risks to related markets (restraint of trade).

As Anthony Falzone put it in a blog post at the Stanford Center for Internet and Society, “The Library went on to conclude there is no basis for Apple to use copyright law to ‘protect[] its restrictive business model’ and the concerns Apple articulated about the integrity of the iPhone’s ‘ecosystem’ are simply not harms that would tilt the fair use analysis Apple’s way.”

The exemption granted this week follows the theory that protecting the work itself is what matters, not the controlled market that ownership of the work allows the rights holder to create.

The bottom line here:  messing with the firmware is a fair use because it doesn’t damage the market for the firmware, regardless of (or perhaps especially because of) its impact on the market for the iPhone service as Apple has designed it.  That decision is largely consistent with case law evaluating other forms of technical lockout devices.

The net result is that it becomes harder for companies to use copyright as a legal mechanism to fend off third parties who offer replacement parts, add-ons, or other features that require jailbreaking to ensure compatibility.

Which is not to say that Apple or anyone else trying to control the environment around copyright-protected software is out of luck.  As I note in the CNET piece, the DMCA is just one, and perhaps the weakest arrow in Apple’s quiver here.  Just because jailbreaking has now been deemed a fair use does not mean Apple is forced to accommodate any third party app.  Not by a long shot.

Jailbreaking the iPhone remains a breach of the user agreement for both the device and the service.  It still voids the warranty and still exposes the customer to action, including cancelling the service or early termination penalties, that Apple can legally take to enforce the agreement.  Apple can also still take technical measures, such as refusing to update or upgrade jailbroken phones, to keep out unapproved apps.

Contrary to what many comments have said in some of the articles noted above, the DMCA exemption does not constitute a “get out of jail free” card for users.

It’s true that Apple can no longer rely on the DMCA (and the possibility of criminal enforcement by the government) to protect the closed environment of the iPhone.  But consumers can still waive legal rights—including the right to fair use—in agreeing to a contract, license agreement, or service agreement.  (In some sense that’s what a contract is, after all—agreement by two parties to waive various rights in the interest of a mutual bargain.)

Ownership Rights to Software Remain a Mystery

A third interesting aspect to the Copyright Office’s rulemaking has to do with the highly-confused question of software ownership. For largely technical reasons, software has moved from intangible programs that must of necessity be copied to physical media (tapes, disks, cartridges) in order to be distributed to intangible programs distributed electronically (software as a service, cloud computing, etc.).  That technical evolution has made the tricky problem of ownership has gotten even trickier.

Under copyright law, the owner of a “copy” of a work has certain rights, including the right to resell their copy.  The so-called “first sale doctrine” makes legal the secondary market for copies, including used book and record stores, and much of what gets interesting on Antiques Roadshow.

But the right to resell a copy of the work does not affect the rights holders’ ability to limit the creation of new copies, or of derivative or adapted works based on the original.  For example, I own several pages of original artwork used in 1960’s comic books drawn by Jack Kirby, Steve Ditko, and Gene Colan.

While Marvel still owns the copyright to the pages, I own the artifacts—the pages themselves.  I can resell the pages or otherwise display the artifact, but I have no right until copyright expires to use the art to produce and sell copies or adaptations, any more than the owner of a licensed Mickey Mouse t-shirt can make Mickey Mouse cartoons.

(Mike Masnick the other day had an interesting post about a man who claims to have found unpublished lost negatives made by famed photographer Ansel Adams.  Assuming the negatives are authentic and there’s no evidence they were stolen at some point, the owner has the right to sell the negatives.  But copyright may still prohibit him from using the negatives to make or sell prints of any kind.)

Software manufacturers and distributors are increasingly trying to make the case that their customers no longer receive copies of software but rather licenses to use software owned by the companies.  A license is a limited right to make use of someone else’s property, such as a seat in a movie theater or permission to drive a car.

As software is increasingly disconnected from embodiment in physical media, the legal argument for license versus sale gets stronger, and it may be over time that this debate will be settled in favor of the license model, which comes with different and more limited rights for the licensee than the sale of a copy.  (There is no “first sale” doctrine for licenses.  They can be canceled under terms agreed to in advance by the parties.)

For now, however, debate rages as to whether and under what conditions the use of software constitutes the sale of a copy versus a license to use.  That issue was raised in this week’s rulemaking several times, notably in a second exemption dealing with unlocking phones from a particular network.

Under Section 117 of the Copyright Act, the “owner of a copy” of a computer program has certain special rights, including the right to make a copy of the software (e.g. for backup purposes, or to move it from inert media to RAM) or modify it when doing so is “essential” to make use of the copy.

Unlocking a phone to move it to another network, particularly a used phone being recycled, necessarily requires at least minor modification, and the question becomes whether the recycler or anyone lawfully in possession of a cell phone “owns a copy” of the firmware.

Though this issue gave the Copyright Office great pause and lots of pages of analysis, ultimately they sensibly hedged on the question of copy versus license.  The Register did note, however, that Apple’s license agreement was “not a model of clarity.”

In the interests of time, let me just say here that this is an issue that will continue to plague the software industry for some time to come.  It is a great example of how innovation continues to outpace law, with unhappy and unintended consequences.  For more on that subject, see Law Seven (copyright) and Law Nine (software) of “The Laws of Disruption.”

The Digital Millenium Copyright Act makes it a crime to circumvent digital rights management technologies but allows the Librarian of Congress to exempt certain classes of works from this prohibition.

The Copyright Office just released a new rulemaking on this issue in which it allows people to “unlock” their cell phones so they can be used on other networks and “jailbreak” closed mobile phone operating systems like the iOS operating system on Apple’s iPhones so that they will run unapproved third-party software.

This is arguably good news for consumers: Those willing to void their warranties so they can teach their phone some new tricks no longer have to fear having their phone confiscated, being sued, or being imprisoned. (The civil and criminal penalties are described in 17 USC 1203 and 17 USC 1204.) Although the new exemption does not protect those who distribute unlocking and/or jailbreaking software (which would be classified under 17 USC 1201(b), and thus outside the exemption of 17 USC 1201(a)), the cases discussed below could mean that jailbreaking phones simply falls outside of the scope of all of the DMCA’s anti-circumvention provisions.

Apple opposed this idea when it was initially proposed by the Electronic Frontier Foundation, arguing that legalizing jailbreaking constituted a forced restructuring of its business model that would result in “significant functional problems” for consumers that could include “security holes and malware, as well as possible physical damage.” But who beyond a small number of geeks brave enough to give up their warranties and risk bricking their devices, is really going to attempt jailbreaking? One survey found that only 10% of iPhone users have jailbroken their phones, and the majority are in China, where the iPhone was not available legally until recently. Is it really likely that giving the tinkering minority the legal right to void their product warranties would cause any harm to the non-tinkering majority that will likely choose to instead remain within a manufacturer’s “walled garden“? I don’t think so. If, as a result of this ruling, large numbers of consumers jailbreak their phones and install pirated software, the Copyright Office can easily reconsider the exemption in its next Triennial Rulemaking.

While the ruling is heartening, it is not surprising. In Chamberlain Group, Inc. v. Skylink Techs., Inc.,  the United States Court of Appeals for the Federal Circuit held that trafficking in a circumvention device violates Section 1201(a)(2) only if the circumvention enables access that “infringes or facilitates infringing a right protected by the Copyright Act.” The Chamberlain case involved unlicensed third-party garage door opener remotes. The Sixth Circuit came to a similar decision in Lexmark International, Inc. v. Static Control Components, Inc., a case involving a software “handshake” between Lexmark printers and Lexmark-branded toner cartridges meant to keep third-party replacement toner cartridges off the market. The Copyright Office’s ruling is just another example of policymakers recognizing that Copyright law exists only to protect copyrighted works, not business models based on excluding access.

But self-help is a two-way street: Companies are, and should be, free to continue using their own “self-help” technical protection measures to prevent (or merely discourage) customers from reverse-engineering their products. This highlights what Larry Lessig describes as the distinction between East Coast Code (laws) and West Coast Code (software). It makes perfect sense for companies to avail themselves of all possible methods (software and laws) to protect their revenue streams, but lawbreakers, by definition, don’t respect laws. Although most technical protection measures have been woefully inadequate to date (see, e.g., 1, 2, 3, 4, 5, to name a few), cryptographically-secure code is much more likely to be effective in the long-term than laws.

While this decision probably doesn’t matter much for the average, non-tinkering consumer, tinkerers will be comforted by the fact that their hobby is no longer a crime, and without the threat of criminal sanctions, there should be more publicization of what the new mobile phones are really capable of. That, in turn, should put additional pressure on phone manufacturers to take off the training wheels and be a bit more open about what apps they allow on their devices.

While Apple is correct in pointing out that some users with jailbroken phones still call Apple’s technical support lines, it is quite impossible to accidentally jailbreak your phone and all of the websites with instructions on how to do so have extensive disclaimers warning about the possible consequences. At some point, consumers should be responsible for their own actions. The Librarian of Congress is willing to give them that responsibility. And whether they want to or not, phone manufacturers will to.

I’m looking for examples of effective tech lobbyists. We’ve seen a lot of people moving from the Valley to the Hill lately. Microsoft has gone from “Jack and His Jeep ” to a giant lobbying shop. Google learned from Microsoft’s mistakes and now has a couple floors down on New York Ave. These guys are making an impact in Washington, but what are the best Baptist and Bootleggers scenarios?

Bruce Yandle was the first to put this name to the common two-man play in Washington. It involves a moral authority and an underwriter with deep pockets to fund a lobbying effort. He used Baptists and bootleggers as the most clear example of this. Baptists called for temperance and prohibition because they genuinely believed that alcohol was a great evil. This provided moral authority. The bootleggers didn’t care much about morals, but they knew they’d get rich if legitimate breweries and distilleries were made illegal.

The same thing seems to be going on now. “Lobbying 2.0” features moral crusaders fighting for net neutrality, the unlocking of cell phones, the unbundling of any service that dare be bundled and other such tech-morality causes. Meanwhile, the real beneficiaries of any regulation to come out of this are big tech companies trying to gain an advantage on one another through regulation rather than through competition and innovation.

So, by “best” stories I mean classic examples of businesses lobbying in favor of regulation as opposed to defending themselves against regulation. Who’s most guilty of being a bootlegger? What individual crusader or group is playing the role of the Baptists?

Your comments are appreciated. Also, be sure to check out this Onion discussion on lobbyists.

Over at Ars Nate Anderson makes an important point that hadn’t occurred to me: The cell phone unlocking exception I mentioned in my last post applies only to the act of circumvention, not to trafficking in circumvention devices. That means that you’re safe if you unlock your own iPhone, but if you develop software or hardware to help others do so, you could wind up in legal hot water under the DMCA.

Of course, that depends on whether unlocking your cell phone is an act of circumvention in the first place. It’s not obvious that cell phone locks “effectively controls access” to a copyrighted work. Perhaps AT&T could argue that unlocking your phone is the first step toward pirating ringtones, but it should be possible to develop a hacking tool that enables carrier-switching without enabling ring-tone piracy.

In any event, this is almost certainly not the sort of situation Congress had in mind when they passed the DMCA.

I was going to elaborate on Cord’s post, but as luck would have it other people have beaten me to it. First, Tom Lee points out that phone unlocking is one of the DMCA exemptions granted by the Library of Congress in its triennial review process. So iPhone hackers are safe from the DMCA. However, there are other potential issues:

Apple may still have some claim against the iPhone hackers. That’s because circumvention devices typically employ code that’s the property of the device designer. Unless I’m mistaken, the DMCA exemption doesn’t grant anyone the right to use or redistribute others’ code. It’s also possible that circumventing the protection may necessitate the violation of patents held by the device designer. A similar situation exists in the world of Xbox modding. Until recently it was easy to buy a modchip online. Properly installed, this allows you to turn your Xbox into a device that can run Linux, emulate older consoles, or act as a media center (and, yes, you can play pirated games, too).

But you can’t do this with the chip when it first arrives in the mail. Although the device is (or was) legal on its own terms, it couldn’t unlock the full potential of the Xbox without running custom firmware — firmware that was based on code to which Microsoft owns the copyright. Consequently most modchips shipped with a firmware based on Linux called Cromwell. This was built without using copyrighted code and could be legally distributed. But it wasn’t capable of doing much besides booting Linux and replacing itself with new firmware loaded from a burned CD. If a modchip user wanted to use his or her Xbox for other applications they’d have to hunt through the wilds of IRC to obtain the forbidden firmware. In fact, the chips would ship with detailed instructions about soldering and firmware replacement. But when you got to the part about finding alternate firmware, the manual would adopt a “you didn’t hear it from us” sort of tone and direct the user to various websites and chatrooms that the chip manufacturer insisted weren’t at all affiliated with their operation.

Second, I agree with Ed Felten on the policy question:

It seems to me that regardless of what the law does say, it ought to say that iPhone unlocking is fine. For starters, the law should hesitate to micromanage what people do with the devices they own. If you want to run different software on your phone, or if you want to use one cell provider rather than another, why should the government interfere? I’ll grant that AT&T would prefer that you buy their service. Exxon would prefer that you be required to buy gasoline from them, but the government (rightly) doesn’t try to stop you from filling up elsewhere. The question is not what benefits AT&T or Exxon, but what benefits society as a whole. And the strong presumption is that letting the free market operate — letting customers decide which product to buy — is the best and most efficient policy. Absent some compelling argument that iPhone lock-in is actually necessary for the market to operate efficiently, government should let customers choose their cell operator. Indeed, government policy already tries to foster choice of carriers, for example by requiring phone number portability.

Is it even possible for companies to strike exclusive deals when teams of nerds across the country have been at work on hacking the iPhone since it’s release in late June? Engadget declared the Apple/AT&T exclusivity deal dead at noon on Friday, so sorry if this story is a little old, but now that media outlets like Wired, BusinessWeek, and CNN are covering the story, I thought that TLF should also weigh in.

I don’t know if I should view this as good news, bad news, or just another lesson in the folly of trying to lock-out the tech set from something as desirable as the iPhone. Exclusivity deals, from a policy standpoint, are like most any other private, legal arrangement to me–they’re perfectly fine. However, the corporate managers of the world may want to start reconsidering exclusivity arrangements that rely on hack-proof tech. Why? Because no such thing exists.

AT&T and Apple have so far ignored this story publicly, but privately both have to be fuming. AT&T was obviously banking on the iPhone subscription rates and activation fees, but Apple was also getting a cut of both charges. So, every iPhone that uses the new software hack and goes to T-Mobile (the only compatible U.S. carrier) loses money for Ma Bell and Mr. Jobs.

Does AT&T, Apple, or both companies have a legal case to bring against the hackers? Likely. But will pursuing this in court really amount to anything? Other than shutting down a few websites, no. There should be new aphorism in the digital world: once there’s a hack, you can’t go back. Then again, most consumers will probably stick with activating the old fashioned way.

One more thing to consider: how will this affect U.S. cellular phone business models? If exclusivity becomes impossible, networks will become less device driven and more data-rate driven. This might be a very good thing–making networks one layer of competition and devices another, separate layer. However, technologies like Visual Voicemail (not available with T-Mobile service hack), that involve network or server-side changes, will be harder for device makers to pursue without the leverage of exclusivity. Visual Voicemail is rather simple and likely not all that costly, but future techs that rely on carrier compatibility may need the financial boost that exclusivity provides.

While I acknowledge that device locking and exclusivity can be annoying, should we celebrate its demise or mourn its passing?

It hasn’t even been a week since Tim Wu made such a splash with his “Wireless Net Neutrality” proposal and already a major corporation has run to the FCC asking for it to be implemented into law! (Tim, my old friend and occasional nemesis, you know how to get results!)

Today, Internet phone giant Skype filed a petition with the Federal Communications Commission “to confirm a consumer’s right to use Internet communications software and attach devices to wireless networks.” The 32-page filing repeats many of the arguments Tim Wu made in his paper about the supposed need for regulators to step in and impose Bell System-era device attachment rules to modern cell phone operators. Specifically, Skype wants the FCC “to create an industry-led mechanism to ensure the openness of wireless networks.” I’m not sure what that means but I am certain that entire forests will fall as the paperwork flies at the FCC in an attempt to interpret and implement these new regulations.

I disagree on so many levels with the Skype petition that I don’t know exactly where to begin, but luckily I don’t have to say much. I just need to point to the excellent critiques that my TLF colleagues and current and former PFF colleagues published last week in response to the Wu paper. Here’s a sampling:

• Jerry Brito – “Carterfone for Wireless“
• Hance Haney – “Tim Wu and Wireless Net Neutrality Regulation“
• James Gattuso – “Playing Chicken with Consumers“
• Tim Lee – “Do Wireless Tubes Need to be Neutral Too?”
• Scott Wallsten – “Wireless Net Neutrality“
• Randy May – “Back to 1968? No Way“

There are many common themes in these essays. In a nutshell, I think the primary reason that we’re all so uncomfortable with the Wu proposal and Skype’s call for such regulations is that Carterfone-like rules and corresponding FCC interconnection/attachment mandates are completely inappropriate for competitive markets. Those rules were handed down in an era of government-protected monopoly for telecommunications. But there are no longer any protected monopolies in this marketplace.

Rules structured for an environment of government-sanctioned monopoly are unnecessary in an environment characterized by open markets, competition, property rights, and freedom of contract. For example, there are no such “device attachment” regulations for the automotive industry or even the computer software sector. In those and countless other capitalist industries, competition, market negotiations, contracts and the common law–not preemptive government regulation–are left to sort out these matters.

In an environment free of government restraints on entry and characterized by rivalry and innovation that was almost unimaginable in past decades, there is no need for Carterfone-like mandates. Carterfone rules were thought to be necessary in the era of black rotary-dial telephones only because competition was thought to be impossible. In today’s modern marketplace, constant technological change and the threat of new entry provides the most important safeguards against the threat of consumer abuse.

Skype seems to think consumers are suffering from great harm, however, because there are some limits imposed on the use of the (heavily subsidized) cell phones that subscribers are given. For example, many cell phones are “locked” by carriers to ensure they are only used with their service. People aren’t exactly rioting in the streets to have their phones unlocked, but I can see how some people might want them unlocked at some point. Well, if your’re one of those people, then go get one! As my PFF colleague Scott Wallsten points out, Amazon.com has a page explaining how to use unlocked GSM phones and apparently offers 163 different phones for this purpose. (You can always pay a premium to unlock most phones, so I can believe that number). Also, just for kicks, type the phrase “unlocking your cell phone” into Google. When you get done reading through those 1.4 million webpages explaining how to do so, get back to me and let me know what the problem is here again.

Regardless, even if some phones are locked, I’m not sure why we need FCC bureaucrats imposing rules mandating that all phones work exactly the same way in light of the fact that consumers have options. What’s wrong with a mix of open and closed systems? Isn’t experimentation with different business models a good thing? Moreover, because many (most?) cell phones are heavily subsidized, consumers typically burn through their phones fairly quickly and upgrade to hip new models to make sure they’re not seen carrying yesterday’s clunker of phone around.

OK, but what about other attachments? Shouldn’t we as consumers have the unfettered right to access anything we want with our cell phones? We’re slowly getting to that point through market competition anyway, but I don’t see anything wrong with mobile operators striking exclusive partnerships with certain vendors or media providers for certain types of services. As service speeds continue to increase, service options will multiply and we’ll gain access to more and more stuff. I already get more sites and services through Verizon’s “EV-DO” service than I know what to do with. I have an LG “Chocolate” phone and can use it to access a huge amount of material from a wide variety of providers. So, again, I just don’t see the problem here.

And, by the way, there are some benefits to having a semi-walled garden approach. Right now, for example, I don’t get any spam on my mobile devices. That’s partially a function of a semi-walled garden approach to websurfing and device attachment. Moreover, many parents will shudder at the idea of everything on the Web being perfectly accessible from Junior’s phone in the name of cell phone “openness.” A semi-walled garden can make it easier for parents to limit a child’s access to objectionable materials. (Of course, many savvy kids will evade those walled gardens and find a way onto the Internet anyway!)

I’ll just conclude with a snippet from the Skype filing that I found particularly interesting. On page 6 of the filing, the company notes that “Skype recognizes that software applications such as Skype are part of an interdependent ecosystem of wireless carriers, mobile operating system developers and device manufacturers. These relationships are fast-moving and multi-dimensional.” I think that nicely captures just how dynamic this marketplace is today. But if this “interdependent ecosystem” is encumbered with meddlesome federal regulations, then I think we’ve seen the end of the “fast-moving and multi-dimensional” nature of this sector.