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DRM, Disclosure, and Marketplace Preferences

EA PR Team Hard at Work

A recent Forbes column pointed to several gamers’ petitions to the Federal Trade Commission (FTC) regarding Electronic Arts’ (EA) botched launch of the video game SimCity.  The ill-fated game contained Digital Rights Management (DRM) protection that required online authentication in order to start.  On launch, EA’s servers could not bear the load of its own customers, and collapsed under the equivalent of a DDoS attack of EA’s own making.  The result was that consumers were left with software they could not use, or at best, could only use intermittently.  (The resignation of EA’s CEO soon thereafter was attributed to poor financial performance.)

While EA was late to put out these fires, the extent of any FTC liability remains to be seen.  The product’s End-User License Agreement (EULA) was undoubtedly written with this risk in mind.  A beta version here states that EA and its licensors “DO NOT MAKE, AND HEREBY DISCLAIM, ANY AND ALL EXPRESS, IMPLIED OR STATUTORY WARRANTIES, INCLUDING IMPLIED WARRANTIES OF CONDITION, UNINTERRUPTED USE, MERCHANTABILITY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE…”  (Lawyers and Internet trolls: the last bastions of Caps Lock abusers.)

The EULA also emphasizes that the game is being “licensed, and not sold.”  This is something that the software industry has generally been clear about: software is licensed.  When vendors use words like “buy,” and “own,” by contrast, they leave consumers with the impression that their purchase produces ownership rights.  EA’s customers accepted an agreement indicating that their access to the game could be circumscribed; the question is whether EA might have led customers to believe otherwise, and whether the product failure circumscribed user access beyond what was reasonable.

Indeed, much of the computer gaming market has moved toward more online-oriented features.  This has been an innovative response to piracy: developers offer services in addition to the software that unauthorized users cannot utilize without a valid license.  The result is that the product begins to blur into a service.  Yet the SimCity debacle shows that this transition can be rocky, particularly when developers attempt to force it, as EA has done here.

In short, this may be a contract issue between EA and its reasonably disgruntled customers, but it is not necessarily clear that this is an FTC issue.  While launching a bad product can be added to EA’s list of self-inflicted wounds – the FTC’s jurisdiction to police against unfair and deceptive business practices does not extend to every bad product on the marketplace.

In contrast to software and modern games, consumers’ expectations with other digital media may be closer to a “product” experience.  Most other types of entertainment content tend to more clearly distinguish between ‘sale’ and ‘access’ models, and it is here that consumers are likelier to be confused or even misled by a vendor’s representations.  Take, for example, the impending shutdown of an online comic-vending service called JManga, whose termination threatens to take consumers’ paid purchases with it.  Consumers will, it appears, lose access to content for which they have paid.

Were JManga’s Terms of Service drafted with the same foresight as SimCity’s?  Perhaps: the document reserves “THE RIGHT TO REMOVE AND PERMANENTLY DELETE ANY CONTENT FROM THE SITES, APPS OR SERVICES WITHOUT NOTICE, AND FOR ANY REASON JMANGA DEEMS SUFFICIENT”.

But were consumers expecting this?  At least one critic predicted this outcome, but many consumers arguably did not.  The site encouraged customers to “buy” comics, not “rent” them.

As an FTC official commented several years ago in a forum on FTC compliance and DRM: “if your marketing giveth and your EULA taketh away, don’t be surprised if the FTC comes calling.”  A vendor cannot create the impression it is offering clear title to a product, and then contradict that impression in the fine print.

As CCIA’s comments in that forum argued, problems associated with DRM often manifest these sorts of disclosure-related characteristics.  That is, consumers think they’re getting one thing: the marketing.  Yet they actually get something else: what’s described in the EULA.  This asymmetry is problematic because the market cannot make informed decisions without sound information.  This is why the FTC – specifically, its authority to police unfair and deceptive practices under Section 5 of the FTC Act –  is important in the DRM context.  Provided a buyer knows what he or she is getting, the marketplace can determine where and when DRM is appropriate.  The market has accepted DRM on some products, such as games, movies and streaming services, while moving away from it elsewhere, such as downloaded music.  But if buyers are misled about whether they are buying or renting, they may not make good decisions, and the products and services available will not reflect consumers’ actual preferences.


Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.