The market for consumer devices connected to the internet has ballooned in recent years, and many household products, ranging from washing machines to light bulbs, are being adapted with software to enable connectivity. While the opportunity to creatively harness the data produced by connected consumer devices has generated perhaps the most interest among companies, the increasing prevalence of copyrighted software in these devices also presents companies with the ability to create after-sale value using post-sale controls. The software powering connected devices can be sold subject to an End User License Agreement (“EULA”), allowing companies to, amongst other things, offer lower prices and reach a wider market by including field-of-use restrictions. Device software can also include technical measures to prevent third parties from accessing the device software, which can help companies compete in the aftermarket for service and repair of their devices. However, while these post-sale controls can create value, the restrictions companies put in place can have unforeseen implications, such as making it more difficult for customers to repair the products they have purchased.
Failing to anticipate how post-sale controls will impact customers’ ability to repair their devices can be costly for companies, as John Deere recently experienced. Farmers in Nebraska made headlines when they spoke out against the company over a software licensing policy that restricted the farmers’ ability to repair their own tractors. Like many modern devices, John Deere tractors rely heavily on copyrighted software subject to an EULA,2 and repairing a physical device increasingly also requires access to the device’s software.1 A farmer might be able to replace a faulty part on their own, but under John Deere’s EULA, a technician equipped with proprietary diagnostic tools might need to authorize the new part in the tractor’s software before the machine runs properly.3 This policy led to expensive delays for customers, since the inherently rural nature of farming means the nearest technician could be miles away.4 And as a result, a number of John Deere owners turned to illegally “cracked” software to make their own repairs, and some joined with lobbying groups to advocate for “right-to-repair” legislation in Nebraska.5 While the ability to repair a farm tractor relied upon for one’s livelihood is of particular importance, companies selling connected devices could face similar consumer backlash if they implement policies that make it overly difficult for customers to repair their devices.
The possibility of a future where individuals will increasingly be unable to repair their devices has worried some consumer advocates, as companies have a number of tools that can, often inadvertently, make repair more difficult for consumers. Devices can be sold with technical measures that prevent consumers from accessing the software imbedded in the device, and the Digital Millennium Copyright Act (“DMCA”) imposes civil and criminal penalties on those who circumvent these measures.6 Additionally, the software on connected devices can be sold subject to EULAs that prevent ownership of the software from ever transferring to the customer, allowing companies to largely bypass the first-sale provisions of copyright law.7 While these tools have the potential to add value, in some cases, they can deter customers from repairing or modifying their devices and prevent third parties from developing diagnostic equipment that might enable customers to fix their own devices.8 Consumer advocates fear that, with others largely unable to perform repairs, some companies might monopolize the repair market for their respective devices.9 And while at one time it looked as if antitrust law would constrain this practice, that has largely not been the case,10 leaving companies with more discretion to implement restrictive policies.
In response to these concerns, groups have formed in the U.S. and Europe to push for legislation that would require companies to support their customers’ right to repair their devices. Domestically, a group called The Repair Association has lobbied for DMCA exemptions for device repair and helped get right-to-repair legislation introduced in several states, including Massachusetts, Nebraska, and New York.11 The group’s proposed legislation is modeled off a Massachusetts law targeting the automotive industry that passed in 2012 with overwhelming support,12 and ultimately led to a national understanding with automakers.13 The Repair Association hopes for similar national success, and if its proposals get passed, companies selling connected consumer devices would need to make proprietary diagnostic software and information available so that consumers could make repairs.14 Similarly, the European Parliament recently passed a motion calling for regulations to improve consumer repair options, citing a study in which 77% of respondents indicated they would rather repair a device than replace it.15
In addition to these legislative efforts, the courts might also address repair concerns by making it harder for companies to impose post-sale restrictions using EULAs. Several courts of appeal have accepted the idea that a device powered by copyrighted software can be sold with the seller retaining ownership of the copy of software on the device, although courts have arrived at this conclusion using different reasoning.16 However, this doctrine has numerous critics, because it allows sellers to largely side-step the first sale provisions of copyright law.17 While the Supreme Court denied a petition for certiorari on this issue in 2011,18 the Court has since decided two cases on the first-sale doctrine, with both decisions indicating a strong disapproval of post-sale restrictions.19 As the prevalence of connected consumer devices subject to EULAs increases, the issue might be presented to the Court again, and given recent precedent, the current practice of post-sale restrictions could face heavy scrutiny.
Companies entering the growing market for connected consumer devices should stay apprised of these developments and consider them when developing sales policies. Properly implemented post-sale restrictions can add value for companies and customers alike. However, failing to consider the implications these controls have on device repair could lead to customer backlash, which can adversely impact sales, and perhaps of more concern for companies, increase the potential for legislative change.