End-user Agreements: Competition Law, Innovation Policy and

Individual Autonomy

The Intellectual Property Bargain: Consumer Perspectives in a Global Economy

Osgoode Hall Law School, Sept. 18, 2009

Ariel KatzAssociate Professor

Director, Centre for Innovation Law and PolicyFaculty of Law

University of Toronto

The Phenomenon

The Question:

• Should restrictive license terms be enforced? • Does a breach of those terms constitute

infringement? • Should circumventing such restrictions be

unlawful?

2 simple unsatisfactory answers

• No:– Parliament granted some rights to users; – Decreed that certain subject matter is in the

public domain– Therefore that’s were they belong.

Example:Dear esteemed critic,

I’m an aspiring poet, considering whether I should pursue my passion. Your opinion is very important to me. Please read the enclosed poems and tell me what you think about them. By reading them, however, you agree not to criticize them publicly.

Yours,

Poeticus

Example:

Terms of Use of Website

I’m an aspiring poet, considering whether I should pursue my passion. Your opinion is very important to me. Please read the poems and tell me what you think about them. By downloading them, however, you agree not to criticize them publicly.

Disagree Agree

2 simple unsatisfactory answers

• Yes:– IP law creates only a default allocation of rights;– Contracts ≠ property (in personam vs. in rem);– License terms = product features;– Courts don’t design product features;– Competition between sellers is the best protector

of consumers’ interests.

Can competition law help?

• Not really.• Designed to deal with exceptional cases, not

micromanagement of the economy;• Requires substantial lessening of competition• Elaborate markets and effects analysis;• Standing requirements;• Limited in dealing with effects on future

innovation.

There’s no place for the state in the

bedrooms of the nation

There’s no place for copyright law in the living-rooms of the

nation (sort of). Theberge (2002)

“Insofar as is possible, this Court should adopt an interpretation ... that respects end users’ privacy interests, and should eschew an

interpretation that would encourage the monitoring or

collection of personal data gleaned from Internet-related

activity within the home.” SOCAN v. CAIP (2004)

The exercise of state power to limit

individual liberties should be justified

(sort of).

intrusiveness

Priva

te pe

rform

ance

Time s

hifting

Reve

rse en

ginee

ring

Commercial

piracy

Public perfo

rman

ce

incentive

Private performance

Time shifting

Reverse engineering

Commercial piracy

Public performance

intrusiveness

incentive

Private performanceTime shifting

Reverse engineering

Commercial piracy

Public performance

Selective non-enforceability

• Based on:1. How important is the restriction for incentives to

create;2. How intrusive the restriction is;3. How widespread the restriction is.

Sources of innovation

Manufacture centric User innovation

The Question:

• Should restrictive license terms be enforced? • Does a breach of those terms constitute

infringement? • Should circumventing such restrictions be

unlawful?

The answer

• No categorical answer• A nuanced answer depends on:

1. How important is the restriction for the incentives to create;

2. Vs. how important user freedom is for user- innovation;

3. How intrusive the restriction is upon users’ liberties;

4. How widespread the restriction is.