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Scholars from Northwestern University have released research on legal frameworks with which to analyze Apple's DRM and file format business strategies- Nicola Sharpe and Olufunmilayo Arewa, Is Apple Playing Fair? Navigating the iPod FairPlay DRM Controversy, 5 Nw. J. of Tech. & Intell. Prop. 332 (2007). The research addresses consumer welfare in light of controversies surrounding interoperability and Apple's business models. It proposes ways in which regulators may analyze the iPod/iTunes network in the context of the broader digital media market. The article concludes that Apple would be wise to encourage more third party interoperability with the iPod/iTunes network, for both legal and business reasons.
This is definitely not the first time Apple has been scrutinized for its non-"openness." However, I was impressed by the researchers' comprehensiveness in their discussion of antitrust, network effects and interoperability.
On dominent firm antitrust analysis, Sharpe-Olufunmilayo write- Antitrust laws seek to protect consumer welfare by preventing anticompetitive practices, such as the illegal use or maintenance of monopoly power. A firm, however, does not necessarily violate the antitrust laws when the monopoly power it possesses is “a consequence of a superior product, business acumen, or historic accident.” For many firms, the chance to extract monopoly rents may provide an incentive to innovate and take risks that stimulate economic development. Accordingly, the SCOTUS has noted that “[t]he mere possession of monopoly power and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system.” On competitive landscapes in network intensive markets, where mere market share is often conflated with the results of anticompetitive actions-Networks have the potential to both enhance and inhibit competition. A successful network may increase the number of choices available to a consumer. At the same time, one company’s proprietary network may produce products that are not interoperable with technology from rivals, or it could exclude competitors entirely. Ultimately, either scenario reduces consumers’ choices. Consequently, networks present unique challenges to antitrust laws. Behaviors that are traditionally viewed as anticompetitive – such as tying, predatory pricing and exclusive dealing – may have persuasive precompetitive justifications when considered from a network perspective. On how limiting interopablity may further consumer welfare in some instances-Proprietary technologies that limit interoperability to products within a network exclude technology from rivals, and may result in a wider range of choices for customers by spurring innovation as competitors develop their own proprietary technologies. In this instance, each player may seek to establish a de facto industry standard and thus is “competing for the market.” The above considerations should inform scrutiny by regulators, as well as commentary by consumer advocates- both of whom I find are too often trigger happy in criticizing the very commercial entities that have raised consumer welfare and driven innovation.
posted by Noel Le @ 6:21 AM | DRM & Watermarks, etc., Markets: Business, Investment & Innovation
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