The reason the iPhone has been a success is as much about it being part of a computing environment and ecosystem as it is the phone itself. There are things that make the iPhone so difficult to compete with.

IP plays a significant role in putting together and protecting Apple’s role within the iPhone product ecosystem. Consider:

• The iPhone requires users download and install iTunes – Apple’s copyrighted software – to manage the device;
• iTunes has its own store and numerous content deals (based on copyright) that allow for iPhone users to access the movies, TV shows, and music in the store on the device;
• Users are restricted by carrier unless they pay full price for the device and unlock it to work with other systems;
• New apps (unless your phone is “jailbroken”) come via the iTunes store, and Apple controls what goes into the store through its agreements with developers;
• Technological measures make it hard for you to unlock or jailbreak your phone to get apps from other than the iTunes store. These technological measures not only are digital locks that can be difficult as a practical matter to go around, but can also be protected through civil and criminal law; and
• Certain features only (AFAIK) work only with other Apple products, such as the “locate my phone” feature which can tell you where your phone is if lost or stolen but requires you to have a MobileMe account.

Apple exudes a sort of paternalism over their ecosystem as well – as in they say things like “we make sure bad apps that do bad things with your data don’t get through”. It reminds me a bit of AOL in the early days – it had no spam problem because all communication on AOL was between AOL users. AOL policed their walled garden well, but eventually had to open it up to the rest of the world and engage in the same kind of anti-spam tactics as everyone else. Building this kind of ecosystem seems pretty linked to providing some other kind of advantage to the user as well (rather than just locking them in), which in the iPhone case is sold as security, reliability, and better integration with other products.

I wonder if in the face of other OS systems such as Android, how long the full iPhone ecosystem can last. But certainly they’ve made a very formidable ring fence around the iPhone by building such a robust ecosystem.

In two earlier posts I noted about the use of DRM/TPMs – Digital Rights Management / Technical Protection Measures – as part of the controls around DVDs and with a clear example from the games sector around the differences in using these strategies in a B2B versus a B2C context.

The twist with the iPhone is that in the United States there is a rulemaking procedure to allow for the Library of Congress to make exemptions to anti-circumvention law (the DMCA for DRM/TPMs) every three years. The 2006 review introduced an exemption to allow mobile phone users to connect to any mobile phone carrier (unlocking your mobile).

While this exemption would work solely to switch carriers, it’s limited to that purpose and doesn’t fit with all the additional application features in smartphones. It’s 2009 and time for another review of the exemptions, and the EFF has submitted for an exemption to allow users to jailbreak their iPhones. Ars Technica covers the dispute in “Apple, MPAA, RIAA attack DRM circumvention requests“, with commentary from Fred von Lohmann:

“Sure, GM might tell us that, for our own safety, all servicing should be done by an authorized GM dealer using only genuine GM parts. Toyota might say that swapping your engine could reduce the reliability of your car. And Mazda could say that those who throw a supercharger on their Miatas frequently exceed the legal speed limit.

“But we’d never accept this corporate paternalism as a justification for welding every car hood shut and imposing legal liability on car buffs tinkering in their garages. After all, the culture of tinkering (or hacking, if you prefer) is an important part of our innovation economy.”

The broader public policy impact is always an important part when thinking about rules such as these and the relationship between IP law as a tool for public policy (and in thinking about some of the drivers behind open source and open innovation). But like Holmes (no, not that Holmes) we must consider the actual rights available as someone examing how to protect their product or service in the marketplace.

In terms of IP strategy, commercial strategy, and DRM, Apple has had to consider:

• The hack-counterhack back and forth with those circumventing the iPhone DRM (the “jailbreakers”) and updating the iPhone firmware to prevent jailbreak;
• Consumer reaction to App store choice. Essentially how well do the allowed applications meet consumer demand and whether there are more desirable Apps only available via jailbroken iPhone. If consumers are demanding “forbidden” programs and can’t have them, that leads to anger and frustration at Apple’s DRM. This seems to me to be of primary concern to the power users / alpha geeks out there, but these are an important userbase;
• Consumer reaction to Apple’s arguments in the DMCA exception process, which has placed them in a similar position to the MPAA and RIAA and so might lead to a negative reaction among a segment of their user base;
• The DMCA procedure itself and how that impacts the long term outlook for using DRM as part of their strategy to protect their product (such as realising the potential time limits built into that approach);
• How if losing the DMCA exception review (thus circumvention would be allowed) impacts both the iPhone and other Apple products (the “slippery slope” argument that MPAA/RIAA make on allowing any circumvention).

Of course globally, Apple may be able to pursue a DRM strategy in other markets without fear of a review procedure such as the one in place in the US, though obviously the US is a major market for Apple.

What do you think?

The short version of the Spore story is that Electronic Arts (EA) spent tons of money and used game designer hotshot Will Wright (The Sims) for a new highly-anticipated massive online game: Spore. The game shipped with DRM technology that limited it to three installs, which could cause problems for users who have hardware failures or regularly wipe and install on their machines.  There was a backlash and EA has since changed around the settings and increased the install limit (though apparently not before a class action lawsuit over the DRM).

A comment yesterday from Will Wright (via Kotaku) about the decision to use DRM in Spore got me thinking further about DRM and strategy:

It was something I probably should have tuned into more. It was a corporate decision to go with DRM on Spore.

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I think it’s an interim solution to an interim problem. … I think we’re in this uncomfortable spot in going from what’s primarily a brick and mortar shrink-wrapped product to what eventually will become more of an online monetization model.

When DRM starts to get genuinely in the way of the user experience is when companies should strongly think about how the legal and commercial strategy fit together.

In this case, it’s a question of managing expectations on the part of consumers: trying to lock users down to specific limits versus the expectations around ownership after purchase. EA had restrictions that didn’t meet customer expectations and so their product launch was marred by some controversy.

What I think is really interesting is to compare the experience of EA and Spore with the Real DVD / DVD-CCA situation. The DVD Copy Control Association isn’t directly consumer facing – it targets manufacturers and developers around DVDs.  As a result it can act with less consumer outcry because its restrictions happen across an entire platform (DVDs) versus EA and Spore. Spore is one specific type of product out of a sea of other products and platforms (one game among many different games on different hardware with different DRM models).

It is far less noticeable from a consumer point of view when an entire media set such as DVD and DVD players all have the same restrictions (such as Regional Playback limiting use to specific geographical areas) no matter what product you buy from any manufacturer.

Both decisions to use DRM however were tied to preserving a business model in light of ongoing innovation. One was tied to a specific product (Spore) and the other tied into setting standards for an entire market (DVD-CCA).

All of the commentary above does however sets aside some of the larger issues around DRM, including whether the arms race against hackers makes it ultimately a worthwhile pursuit, as well as legal and policy issues surrounding fair use / fair dealing and DRM / TPMs that restrict these rights.

But those discussions will have to be for another post.

The case involves software that creates a back up copy of a DVD onto a hard drive for later playback. DVDs are protected by an encryption framework called CSS, or “Content Scramble System” (and not Cascading Style Sheet). This is a kind of Digital Rights Management (DRM) or Techincal Protection Measure (TPM), and circumvention of these kinds of technical restrictions is protected by laws such as the DMCA (in the US), the EU Copyright Directive, and the WIPO Copyright Treaty.

CSS has been hacked (DeCSS) and so there is no shortage of decryption/ripping software available online (for example Mac the Ripper and Handbrake) that allows for copying a DVD to a hard drive. CSS is thus hackable with ripping software freely available, but in the US under the Digital Millennium Copyright Act (DMCA) there are court cases that say this kind of circumvention of a DVD’s CSS encryption (to make a personal back up copy) is against the law.

The DVD Copy Control Association (DVD-CCA) officially controls descrambling CSS through licensing the CSS technology. DVD manufacturers (and software developers) must agree to the DVD-CCA’s terms to make DVD players – which incidentally include Regional Playback Control (RPC). RPC is the reason why your US DVDs won’t play in your UK DVD player. So if you create and distribute an unlicensed DVD decryption tool, you risk a lawsuit from the DVD-CCA and if you get a licence from DVD-CCA, you have to agree to all the terms that they impose, which include restrictions on other ways a DVD can be used (such as playing a British DVD in America).

RealDVD, a product of Real Networks, copies a DVD’s contents to your hard drive (while you keep the DVD itself) to allow for convenience of playback off your computer or other device. RealDVD is licensed by the DVD-CCA for the CSS decryption elements, so it’s a consortia member. So the set up from a wider market/legal perspective is:

• People can freely, easily, (and illegally) download movies from places like The Pirate Bay over the internet [a big source of copying and infringement for content creators];
• People can freely, easily, (and potentially illegally) obtain software that decodes CSS and rips DVDs to their hard drives (using programs such as Handbrake) [also a big source of copying - though not always infringing];
• A DVD-CCA licensee (RealDVD) is making a program that allows users to copy DVDs that they own to their hard drive (format shifting) for convenience (which is likely fair use in the US).

Even though RealDVD has a licence, the DVD-CCA views the licence as requiring the physical DVD to be present on playback (thus the lawsuit and RealDVD being taken offline). Real disagrees and believes that the DVD-CCA agreement allows for their product. Fred von Lohman thus asks the question, in light of widespread piracy and infringement in other areas:

Why does Hollywood [DVD-CCA] care so much about RealDVD in the first place?

Fred’s answer (emphasis mine):

DRM systems like [CSS] used on DVDs are not principally about preventing piracy. Rather, DRM is the legal “hook” that forces technology companies to enter into license agreements before they build products that can play movies (Hollywood lawyers candidly admit this “hook IP” strategy). Those license agreements, in turn, define what the devices can and can’t do, thereby protecting Hollywood business models from disruptive innovation.

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So that’s the real story here. It’s not about piracy. It’s about Real defecting from the DRM licensing cartel, building what consumers want now instead of negotiating endlessly for a spot in Hollywood’s next Five Year Plan for the DVD format.

So DRM weaves a web of legal protection that guides hardware manufacturers and software developers in the DVD space to sign on to a set of restrictions (the DVD-CCA licence) on how they innovate. This system is backed up through litigation against those that develop without a licence and those with a licence but try to develop “off plan”.

From a strategy standpoint, I’m wondering:

• How well does this strategy work with if you have less emphasis and less resources on litigation? Generally the US content industry has been very litigious, which can be very resource intensive and can have negative consequences in other areas (such as PR and customer relations).
• Related to above, how well does the litigation component – which funnels innovators and manufacturers into the consortia – work outside of the United States? The United Kingdom, for example, does not have civil statutory damages for copyright infringement, which is a big weapon in the US when threatening a copyright lawsuit.
• If Real wins, what options do DVD-CCA have for maintaining their position?

What do you think?