cyckV4

6 THE THEORIES BEHIND INTELLECTUAL PROPERTY
There the answer is less certain. In the United States, there are exceptions for reverse
engineering, but the European copyright directive bobbled the issue badly, and
some of the efforts at national implementation have the same problem. In the legitimate
attempt to protect an existing legal monopoly over copyrighted content, these “technological
measure” provisions run the risk of giving device and software manufacturers an
entirely new legal monopoly over tied products, undercutting the EU’s software directive
and its competition policy in the process. Pity the poor razor manufacturers. Stuck in the
analogue world, they will still have to compete to make a living, unable to make claims
that the generic sellers are “breaking into our razors”.
Though this is an entirely unnecessary, legally created mess there is one nicely
ironic note. About 20 years ago, a stylish technology company with a clearly superior
hardware and software system had to choose whether to make its hardware platform
open, and sell more of its superior software, or whether to make it closed, and tie the two
tightly together. It chose closed. Its name: Apple. Its market share, now? About 5 per
cent. Of course, back then competition was legal. One wishes that the new generation of
copyright laws made it clearer that it still is.
Thomas Hazlett, Code Breakers
Financial Times, August 12, 2004
Professor Boyle has delivered a provocative account of the Apple-RealNetworks feud.
He is to be commended for presenting an episode so rich in its implications and ironies.
One lesson Prof Boyle reads is that the folks at Apple never seem to learn. This
implicitly highlights the genius of Microsoft, which always seems to learn. The key lesson
that Gates & Co. grasped early on was that vertical integration—doing the whole
hardware/software thing yourself—was often unwise. Apple, not wanting to share its excellent
software by licensing it to other computer makers, saw its market shrivel. Microsoft,
by working with hardware and software makers, established its operating system
as central to each of them.
But is Apple, in seeking to maintain integrated control over iPod, still spinning its
wheels on a learning curve it can’t seem to scale? Or is it adroitly protecting its intellectual
property? The answer cannot be provided by the demonstration that RealNetworks
reverse engineered the iPod with relative ease or that iPods work fine without iTunes.
While the legal rights of Apple are for courts to determine, the relevant policy question
concerns dynamic market process. Will consumers ultimately benefit from Apple’s ownership
and control of iPod?
Apple’s innovation—and the iPod is clearly that—was driven by the profit motive.
The corporate profit strategy, in turn, revolves around a bundled package. Apple realizes a
dual revenue stream—$300 for the player and 99¢ per song. Along comes RealPlayer, which
advertises: “49¢ songs . . . Transfer to over 100 secure portable devices including the iPod.”
It is not illegal for Real to disrupt Apple’s business plans by offering competing
services, and it appears to do so on at least “100 secure portable devices.” But it could
well be illegal to appropriate Apple’s technology. And it is certain that without protection
from such actions, Apple changes its strategy. iPods will be priced higher. The company,
and its rivals, invest less to produce the next killer app.