Of Liberty and License

On Nov. 13, the folks at Microsoft headquarters in Redmond, Wash. announced the latest result of their ceaseless efforts at "innovation." When the version of Microsoft Office now code-named "Office 10" arrives in late 2001, not only will consumers be able to buy the software, they'll be also able to buy an annual subscription. In other words, they pay Microsoft now, and if they don't pay again in a year to renew the subscription, their copy of Office stops working. A glowing Microsoft press release described the deal as an "exciting new opportunity" to receive the same version of Office for "an annual fee." Who imagined that consumers could reap such benefits!

Of course, the overall cost (which includes upgrades) might be reasonable. Yet what's worrisome is that there's no reason why Microsoft needs to continue offering the product for sale. As long as the price of renewing Office is less than the cost of buying a different product and converting all the old files and documents to the new format, customers will continue to renew their subscriptions, year after year--not a bad deal for the folks in Redmond.

Unfortunately, Microsoft isn't alone in the pursuit of regular license fees instead of one-shot sales. As the technologies and legal systems governing electronic commerce begin to solidify, we are witnessing the emergence of a class of digital rent-seekers--a group of businesses and industry associations that use the tools of encryption and a favorable legal environment to change the source of their income from occasional sales to regular monthly or annual fees. A consumer who buys a product is far less vulnerable than one who merely rents or licenses a product--and what business wouldn't want to retain that kind of control? And as license agreements proliferate and electronic goods play an ever greater role in our lives, the impact on society of this transfer in control will be profound.

Consider the electronic book, long heralded as an Information Age replacement for the antiquated stack of paper. Earlier this year, the New York University College of Dentistry announced that members of the Class of 2005 would be required to purchase a VitalBook, a DVD containing the textbooks for a full four-year dental program. Unlike books made of bound paper, though, you don't actually buy the VitalBook; you only purchase a license to it, and if you don't renew the license after the first year, the software stops working. In addition, giving the DVD to a friend to read on his computer violates the license agreement, and you can't legally transfer the license by selling the DVD to someone else, thus eliminating any market in used VitalBooks.

These developments are great for the publishing industry, but they're not always beneficial to consumers. Publishers of paper books would love to get rid of the used-book market--after all, the sales bring them no revenue, and a cheap market in used books lowers the demand for new books. Current publishers aren't able to wrap their books in a license agreement and prevent you from selling them after you're finished reading; with a friendly law code and the increasing penetration of electronic books into the marketplace, this could easily change. Remember those licensing requirements every time you hear someone sing the praises of e-books or of a digital library--and imagine a book that won't let you keep reading unless you put another quarter in.

And the license agreements wouldn't be limited only to books. Purchasing and using a DVD player already involves assent to a license agreement, and DVDs already contain "country codes" to prevent you from listening to a cheaper foreign DVD on an American player. Similarly, the recording industry is furiously pursuing the "Secure Digital Music Initiative," which would enable them to control the conditions under which music is transferred after the first sale. Such moves make perfect sense to the industries: they make more money from books you need a license to read, movies you need a license to watch, or music you need a license to hear. And these licenses don't just represent cash sales; they also represent an additional source of market power.

How far these licenses might go is still unclear. One proposal pushed by the software industry and under consideration in several state legislatures would also allow software companies to wait until after the sale is complete to reveal additional information about the license, or even to change the license conditions after the sale and then disable your programs if you refused to abide by the new conditions. Such laws undercut the basic consumer protections that have developed over the last century for familiar "brick-and-mortar" goods--and given that products from microwaves to cars now contain software, who knows how far these industry-friendly laws might reach.

Unfortunately, legislatures caught up in the novelty of the electronic age have forgotten that the old-economy principles of fairness still apply--and that the public interest still has a role to play in preserving liberty in the face of license.


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