When Sony BMG snuck restrictive contractual terms and digital rights management technologies onto tens of millions of CDs in 2006, the strategy backfired by alienating consumers as well as artists and leading to class action litigation against the company. My article explains, “How Restrictive Terms and Technologies Backfired on Sony BMG Music.”
I argue that the root of the problem was the major record labels’ fundamental distrust and disrespect for the fans of the artists on their roster. Those fans are music consumers who want to obtain music in novel and convenient ways on fair and flexible terms, and whose property and civil rights are casualties of Sony BMG’s war on piracy. The issues are discussed mainly from a Canadian perspective. Part I provides an overview of the factual and technical background to this story. Part II contains an analysis of the legal consequences of Sony BMG’s actions, and offers some insights as to the policy implications for consumer protection, contract and copyright laws.
The article was published in the Febraury and March issues of Internet and E-Commerce Law in Canada. It originally appeared in two parts, but the complete version is available here. You can also stream an audio recording of me presenting the paper as part of an invited lecture series at uOttawa.
In 2003 Sony BMG had become the second largest player in the global recorded music business. And by 2006 they had alienated consumers and artists through their restrictive contractual terms and offensive digital rights management (DRM) technologies.
At least 22 million Sony BMG music CDs included software laced with DRM that installed a ‘rootkit’ program on consumers’ computers. This program interfered with normal system operations, caused serious security vulnerabilities, surreptitiously transmitted information and was practically impossible to uninstall. Furthermore, any CD purchaser had to click to agree to misleading terms and conditions in order to access their music.
When the public became alerted, the backlash was severe, complete with legal implications and a huge hit to Sony BMG’s sales. The criticism in this article aims to use Sony BMG as an example of the dangers of DRM systems.
Sony used two major programs: XCP and MediaMax. Both MediaMax and XCP, which stands for “extended copyright protection,” are designed to limit the way consumers used the music on the CD. For example, there are limits on the creation of backup copies, and restrict compatibility to non-Sony products. When the disc is inserted into a computer’s drive, the user was prompted to agree to an End User License Agreement (EULA). In the case of XCP software, the installation would begin at this point. Notably however, with MediaMax technology, the root kit was installed automatically, regardless of agreement to the EULA.
CDs with these programs embedded were prevented from playing without the additional installations. This interfered with a computer’s normal functions and led to system vulnerabilities. Of further concern was the fact that XCP and MediaMax “phoned home” to Sony BMG, establishing a link and secretly transmiting information from the user’s computer.
When a user purchased and used Sony BMG CDs, they were essentially agreeing to two different contracts. First is the purchase and sale agreement relating the physical product which, in very complicated language, prompts the user to agree to the vast restrictions on the product’s playability. Second, the EULA that appears on computers prior to accessing the music offered users a ‘take it or leave it’ choice whereby they must agree in order to access the music. While it explained that a protection software would be installed, it did not advise users of the security risks, surveillance activity, or the impossibility of installing the software. Even if consumers decided that they do not wish to consent to the conditions, they will likely be unable to acquire a refund from retailers because the package would have already been opened.
Consumers and artists alike were outraged when the activities became public knowledge. Public interest advocacy groups like the Electronic Frontier Foundation (EFF) became involved and many artists spoke out against the activity in solidarity with fans. Sony BMG’s voluntary responses to the described problems were not viewed as satisfactory.
This controversy resulted in several law suits and forced Sony BMG to recall the XCP CDs, declare a two-year moratorium on the use of MediaMax, and to promise independent third-party verification and testing of its DRM practices. Sony BMG’s actions raised many legal and policy concerns.
Experts have commented that Sony BMG has likely run afoul of the Competition Act, which provides for a private right of action in respect of material false or misleading representations made to the public for the purpose of promoting a product or a business interest.
Also, consumer protection law in Ontario provides remedies for breach of implied warrants and misrepresentation. It also prohibits unfair practices, such as deceptive or unconscionable representations.
It is fairly straightforward that Sony BMG’s activities fell into these categories. In addition to these allegations, the activities could also have violated privacy law and fall under both intentional and negligent tort law.
Sony BMG is not the only media company using such DRM systems. Restrictive contractual terms and DRM technologies are commonplace within the digital media industry. The analysis shows that a number of laws might apply in cases such as this, and that there are significant policy concerns with the use of DRM and restrictive conditions.
The Sony BMG story suggested that law makers and policy makers should adopt a balanced and informed approach to addressing all aspects of DRM. Unfortunately, with the passage of reforms through the Copyright Modernization Act, Canada’s copyright law became more locked and loaded than ever. I explain how in an interview with CBC television conducted several years after my article was published.