The “Licensing” Loophole

A lot of products you buy come with a “software licensing agreement,” typically stating something like…

“The software that is part of this product is licensed to you, not sold.”

and further, something along the lines of…

“We reserve the right to modify this licensing agreement at any time with or without notice.”

Why this is an issue

What’s the purpose of a clause like this? Does it protect copyright?

Software, like other parts of a product, are already protected by copyright law. I can sell an embedded system that includes software without any additional contract (except the implied purchase contract) and, governed by law, you couldn’t distribute the software without my consent.

Corporate lawyers might make you believe otherwise, stating that software is a special case that needs special treatment — this seemed to even convince politicians to pass the infamous DMCA, around 20 years ago. Maybe it’s because nobody knew how this magic called Software worked.

But software isn’t some arcane thing that needs special treatment for copyright purposes (sorry, fellow engineers and developers). The software that controls a smart device isn’t different from, say, the arrangement of gearwheels in a mechanical watch or the text in a book. When buying a mechanical watch, a clause like “the arrangement of gearwheels is licensed to you, not sold” is absurd. Imagine buying a car with the clause “the valve timing is licensed to you, not sold.” It’s not about how the instructions are stored. Since per definition, all Turing Machines can emulate each other, you could theoretically use a mechanical computer and a huge amount of punched parts to emulate the software of a modern smart device. Processing instructions at inconceivable speeds using devices smaller than what you can see even with a magnifying glass doesn’t make it magic. In the end, it’s all just a lot of gearwheels and punch cards or the electronic equivalent. 

So if software is already protected by copyright law and anything could be considered software (even holes in a punch card), why do we need a special clause in user agreements to “protect” it?

We don’t.

These clauses aren’t there to protect anything. They’re there to incapacitate the customers under the cloak of copyright protection.

If you buy a consumer product, its copyright is exhausted to an extent. You still may not make unlicensed copies of it, but you may sell it, repair it, lend it and use it in any way you like (commercially and non-commercially, for example).

Smart device and software companies are trying to work around this by stating that technically, you’re not buying a part of their product, but licensing it, thus working around copyright exhaustion that usually occurs when you buy something. These clauses are put into place for software, because, in DMCA, software got special treatment regarding the circumvention of DRM measures or distribution of software tools that circumvent DRM measures. If someone would say that the arrangement of gearwheels in your mechanical watch is only licensed to you, you would still be able to find out how it works and repair it. But with software, according to DMCA, this is not the case (at least that’s how corporate lawyers would like to interpret it).

The combination of the two clauses above gives software companies (and hardware companies that use embedded software as a loophole) a lot of power. The two statements above are basically saying “you don’t own the product you bought and we can do whatever we want with it.” Companies could simply decide to, any time after you purchased the product, shut it down to force you to buy a replacement — or start charging a fee the wasn’t part of the initial terms for continued use.

  • They could remotely shut down the product to make you buy a replacement.
  • They could modify the product and strip it of features.
  • They could start collecting your personal data.
  • They could prevent you from modifying your product for compatibility purposes.
  • They could start charging money for the product you already own.

Once the terms have changed or you got your unwanted “update”, any attempt to restore the product from your side would be a copyright violation due to the licensing loophole. A car company could start collecting your driving related data as a condition of using their driver assistance systems. A smart device company could shut down a device or begin charging you for using their devices.

The recent example of Wink starting to charge customers for using a device that used to have zero monthly fees shows that these concerns are not only theoretical.

The Solution

This needs to be stopped. Laws need to be put in place that forbid depriving consumers of their rights to a purchased product under the pretext of “protection” for software.

We need changes to the rules that prevent abuse of this loophole in the future:

  • Any clause about after-purchase changes to the terms of service for any purchased product should be automatically invalidated on the corporation’s side while maintaining consumer rights.
  • Licensing contracts should be identified as such. When a purchase is initialized through a “buy” (or similar) button, all limitations to consumer rights and copyright exhaustion in the agreement should be void.
  • “Cloud services” are not an excuse. Making hardware or, in many cases, software that depends on cloud connectivity is often only a way to open up the DMCA loophole and enable companies to shut down their products at any time to promote their newer products. In order to get approval to sell a product, all APIs should be open and documented, to allow users to use the products in case the OEM cancels their cloud services or modifies them in a way to no longer offer support for it.
  • If a company provides cloud-based DRM measures or services the product relies on, there should be mandatory insurance in place that compensates consumers. If the product loses functionality or becomes unusable, users will be compensated through this insurance.

We need to stop creating more electronic waste and strengthen consumer’s rights to the products they bought.


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