The FTC on DRM: Fighting for Consumers or Making Toothless Threats?

The moment digital media consumers have long waited for finally came this week as the FTC held a Town Hall meeting to discuss issues surrounding the use of DRM technologies.

From the beginning it was clear the FTC has heard consumer complaints about DRM related issues and takes the matter seriously. What wasn’t clear is what, exactly, the FTC is prepared to do to ensure that consumers get what they pay for when they purchase digital media products.

Mary K. Engle, Acting Deputy Directory for the Bureau of Consumer Protections, opened the workshop with some tough words for companies selling DRM protected media products, warning, “If your advertising giveth and your EULA taketh away, don’t be surprised if the FTC comes calling.” Further, Engle noted that consumer distrust over DRM makes for an unhealthy marketplace.

Competing DRM Agendas

With over two dozen panelists participating in five separate panels there was no lack of competing agendas.

The pro-DRM panelists generally argued that DRM is an enabling technology that creates an avalanche of choices for consumers, while the anti-DRM panelists countered by noting that DRM also creates an avalanche of headaches and potential risks for consumers.

Fritz Attaway of the MPAA spoke about the new business models DRM enables, claiming those new business models offer consumers more choices in how they can use content. Based on Attaway’s comments, it’s clear that the MPAA views DRM as an opportunity to turn each possible usage into a separate sale.

While the MPAA would like to sell consumers a DVD, a mobile video, and streaming video, consumers reasonably expect to purchase the DVD and convert it for personal use on a range of devices. For consumers, enabling additional ways to sell content while limiting the utility of legally purchased content is hardly a breakthrough.

For all of the disagreement between competing factions, I came away from the workshop struck by the similarity between the arguments for and against DRM. Both sides are essentially arguing for the same outcome — consumers should be able to access whatever content they want, wherever they want it, on whatever device they want it. While both sides have essentially the same goals, their approaches to achieving those goals couldn’t be more different.

Solving Consumers’ DRM Problems

Throughout the day there were plenty of solutions offered by consumer advocates. Predictably, each possible solution was met with resistance from the content industries and DRM providers.

Proposals included mandatory disclosure of DRM with standardized labeling, modifications to the DMCA that would allow for circumvention of DRM for lawful uses, and having the FTC hold DRM source code and authentication keys in escrow to prevent a possible business model failure from keeping consumers from accessing their legally purchased content.

In nearly all cases those speaking on behalf of DRM opposed every proposed solution.

Patrick Ross of the Copyright Alliance mocked mandatory government warnings as ineffective and confusing. To demonstrate his point he pulled a pharmaceutical warning out of a package of cough medicine, read briefly from the jargon filled disclosure, then crumbled the paper up and threw it at the audience.

While Ross’s histrionics may have amused his peers they also demonstrated a certain degree of arrogance and narrow thinking. DRM disclosure doesn’t have to be complicated. There are only so many possible limitations that need to be disclosed. In fact, an excellent example of an elegant approach to DRM disclosure was available for review in the lobby throughout the day long workshop.

What might consumers expect from all of this?

Despite Engle’s early tough warnings, by the end of the day the FTC staff members in attendance were talking more about using carrots rather than sticks. Consumer advocates expecting bold new protection rules from the FTC will very likely be disappointed. Instead, the FTC staff signaled that the agency will probably take a hands-off approach that involves a combination of consumer education, voluntary disclosure, and efforts to encourage the various content industries to self-police the marketplace for DRM restricted content.

In the words of Richard A. Quaresima, FTC Assistant Director, Division of Advertising Practices, “it’s unlikely the FTC will regulate specific rules regarding DRM lacking an act of congress.” Instead, we can expect the agency to be aggressive about prosecuting specific egregious violations of consumer rights on a case by case basis.

While it’s great that the FTC is on the lookout for the most egregious violations of consumer rights, it’s the less egregious violations that are somehow more insidious. It’s a given that the FTC should be prosecuting obvious violations of the law.

More troubling is how DRM is being used to chip away at rights consumers have traditional enjoyed. As we move to a world of entirely digital media, content producers are increasingly using DRM as a tool to circumvent consumers’ fair use and first sales rights. It’s clear from the FTC’s comments that the agency isn’t likely to address the loss of those rights.

Also troubling is the manner in which DRM shapes the marketplace for digital content, and the impact that a near monopoly on DRM can have on competition in the marketplace. This is not an insubstantial issue. It impacts not only consumers, but copyright holders as well.

The issue of DRM monopolies is of particular interest because it has an adverse impact on the parties that generally support DRM.

At one point during the closing Q&A session, Christopher Levy of BuyDRM stepped up to ask the FTC panelists what the agency could do to force a company like Apple to license its FairPlay DRM to third party vendors. Levy rightly noted that Apple’s stranglehold on DRM for digital music ultimately lead the recording industry to abandon DRM entirely.

Tellingly, the FTC panelists mostly shrugged and couldn’t offer much in the way of comment. It clearly wasn’t an issue they were prepared to address.

When DRM vendors start asking the FTC for help that’s a sign that more action is needed.

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