Blizzard and Arizona Cartridge

By Mark McKenna

There are several thoughtful posts on other blogs criticizing 8th and 9th Circuits’ recent decisions in Davidson & Associates (d/b/a Blizzard) v. Jung and Arizona Cartridge Remanufacturers Ass’n Inc. v. Lexmark International respectively. See here and here for two good examples.

From what I can tell, the IP community (at least those in academia) pretty much uniformly thinks the decisions were terrible. I don’t have much of a beef with that point of view [full disclosure - I signed a law professors' amicus brief in the Blizzard case that argued for protection of reverse engineering done with the purpose of creating interoperability and that the EULA should be preempted by copyright law].

I want to make a related point about the markets for copyrightable products.

Most of the arguments against the enforceability of EULAs, particuarly when they eviscerate protections under copyright law, are based on the assumption that purchasers don’t really assent to the EULA’s provisions, and if they do, they don’t have much choice but to agree to the terms. That’s not a new objection to standard form contracts – it’s been around for a long time. See Carnival Cruise Lines v. Shute. The argument now is routinely rejected in just about every context in which it arises. It’s the “triumph” of law & economics.

But this argument against form contracts really has two components. The first is that consumers don’t read/understand the terms and have no idea what they’re agreeing to. The second is that, even if consumers understand precisely what they’re agreeing to, they don’t have a choice but to accept those terms.

Mike Madison focuses on the former when he suggests that it might be okay if customers’ user rights were wiped out by contract if it was clear that the customers understood that before they bought the product and could change their behavior accordingly. That’s precisely why Arizona Cartridge bothers him – the case seems to say that Lexmark can’t offer “one use” products at lower prices even when they make clear to consumers that the product is for one use and consumers seem to want that.

While I think Mike’s right that Lexmark’s ability to contract for different numbers of uses of a product might enhance welfare, I think that may be a function of the particular market for Lexmark’s product. I’m not sure I agree that, as a general rule, it would be okay to contract away all the protection of copyright law as long as consumers clearly understood that. In other words, I think we need to focus more on the second aspect of the objection to form contracts.

In many cases (software comes to mind) there’s a good argument that consumers don’t have that much choice about what products to use. I don’t recall being given much choice about what software to use when I was at my firm. How many clients were willing to accept files in anything other than Word form? But I don’t think that’s even the most serious concern. The bigger problem is that sellers are likely to put terms in their EULA’s that are good for them but not good for innovation. It is not in Blizzard’s interest to allow anyone to reverse engineer their game so that they can create interoperable (and at least to some extent competitive) products.

But we have made a policy decision that reverse engineering is good in some circumstances for society generally. How will it ever happen if the sellers all prohibit it by contract? One possibility is that, if there really are people who want games that can be reverse engineered, someone will recognize that market opportunity and offer those types of games (a la the open source movement). I doubt that effect would be particularly significant as an empirical matter, at least for products directed at the general user population. [As an aside, that’s why I doubt the open source movement will ever really affect the software industry much – I understand it will make some headway at the server level and in niche markets with very savvy computer users, but my mom (and there are lots of people like my mom) will never use an open source program.

But even if it were true that companies could offer software with the “feel free to reverse engineer me” term, should that make us doubt the potential value of allowing reverse engineering of the products whose owners lock them up? Aren’t there strong reasons to allow interoperability with pieces of software where users experience path dependence?

Update: Mike Madison articulates well the reason why Lexmark’s attempts to offer “one use” and “multiple use” cartridges probably is benign. I’ll only highlight his caveat that the risk is low “so long as the cartridges are otherwise functionally indistinguishable.” That, to me, is the key point of the case. Lexmark makes cartridges for printers. I’m not aware of any reason why consumers would be particularly tied to Lexmark cartridges, but I’m aware of lots of reasons why consumers are tied to Microsoft Word.