Digital Millennium Copyright Act Hinders Innovation

And exasperates consumers

March 20, 2006

Media Contact: (202) 789-5200

WASHINGTON — Why won’t iTunes play on Rio MP3 players? Why are viewers forced to sit through previews on some DVDs when they could have fast-forwarded through them on video? Why is it impossible to cut and paste text on Adobe eBook? In a just released study for the Cato Institute, Tim Lee, a policy analyst at the Show-Me Institute, answers these questions and more.

The problem at the root of all of these annoyances, writes Lee in “Circumventing Competition: The Perverse Consequences of the Digital Millennium Copyright Act,” is Congressional interference in the market for digital rights management technologies.

The courts have historically done a good job of protecting copyright without stifling innovation. For example, in 1984 the Supreme Court rejected Hollywood’s argument that the VCR should be outlawed as a piracy device. But the 1998 Digital Millennium Copyright Act (DMCA) changed all that. It tied the courts’ hands by outlawing all devices that tamper with copy protection technologies.

Congress intended to shore up the rights of copyright holders, but Lee shows how the primary beneficiaries of the DMCA have been technology companies such as Apple, Real Networks, and TiVo. They have used the DMCA to exclude competitors from building products compatible with their own.

According to Lee, the greatest victims of the DMCA’s restrictions are likely to be hobbyists and small startups that lack the clout to negotiate with incumbent technology companies for permission to build compatible products. That, he warns, will make it difficult for innovative new companies to compete effectively with entrenched incumbents.

Lee has a solution: Congress should undo the damage it did with the DMCA and leave the courts to deal with the issue. Judges are better able to apply the principles of intellectual property in a rapidly changing technological environment, he concludes.

Policy Analysis 564.