Have Consumers gone Spineless? Part 1 January 21, 2002 Paul Sullivan

Introduction

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Snake Oil Stories

The story is nothing new. For thousands of years, there have been people who are easily swayed into following the masses if for no other reason than a lack of confidence of their own beliefs. And for thousands of years there have been people who’s destiny seems to be to take advantage of these potentially gullible people. It is a kind of social Darwinism where the “weak” are preyed upon by the “strong”.

Think of a snake charmer. The snake is potentially one of the strongest, most confident, most formidable creatures on the face of the earth, yet frail villagers are able to turn them into playthings for their own amusement by distracting and confusing them while sitting only a few inches directly in front of them. They toy with them for the amusement of others even though these venomous creatures are capable of killing them with a single bite from their poisonous, razor sharp fangs.

The handler knows this of course, yet they also know that if they can keep the snake distracted and focused on something other than the obvious, they are likely to get away with whatever they want. Sure, someday they may get caught and the snake may bite them, but they are willing to take the risk. Why? Perhaps because they like the feeling of having power over the snake, or because they get a thrill from living on the edge or taking chances. It also may be because they can endure the bite, take anti-venom and pop up somewhere else to do it all again.

They can make money from the masses who pay to watch and who marvel at the show with glistening, entranced eyes. Oh yes, the show may be good, but with today’s snake charmers, the audience is getting a lot more than they bargained for. That, ladies and gentlemen, is our premise, and the pages beyond will take a look at this phenomenon in a bit more detail about the practices involved. In our next article, we’ll take a closer look at why these companies can get away with what they do, and why we as consumers allow them to do so.

Case In Point: Licensing Restrictions

One of the most overlooked items in computing has been the End User License Agreements, or EULA’s. Over the years companies have taken it upon themselves to sneak more and more restrictive language into them. Some web designer software actually made claims of ownership for anything produced by the program. Some coding software put restrictions on distribution, believe it or not! How horrible would it be to work on an application in your favorite programming language only to find that each person who uses it has to pay a fee? Sounds lame, but they have actually been put in print.

One of the most annoying EULA changes in recent years has been the limit that Microsoft has placed on peer-to-peer connectivity. We are not talking client/server here, but setting up things like LAN parties or small offices that do not have a central server. Why should you not be able to hook ten, twenty or even thirty computers together in a peer to peer configuration for whatever purpose you want? What basis do they have to limit the amount of connections to five or ten at a time? For that matter, why should you have to pay for client access to a server anyway? You get Windows 2000 Server, setup shared partitions and printing devices and have to pay for each client that accesses those shared items? Why should we have to pay for that? You go out and buy a Linksys router and 253 people can get on the net without paying an extra dime. Why should software be any different?

With operating systems like Linux, you have no licensing fees at all, at least in theory. You can set one machine up as a server, have fifty machines accessing it and not pay a dime in licensing fees. It certainly sounds reasonable to me. You don’t have to pay client fees for remote access, web transactions, application hosting, file downloads, etc. No limits on how you can use your own software. You can edit and recompile the kernel, choose which applications to install or not install, you don’t have to worry about audits, you don’t have to worry about much of anything at all. Just install the operating system where you want, when you want and how many times you want and be done with it. Why users would settle for anything less is baffling to me. At the very least you could have a Linux server and Windows clients that you’ve already paid for.

SIDEBAR: People may complain about the cost of software, but old timers like me remember when individual applications retailed for $495 and ended up costing us about $350 each. To build up the apps that comprise the modern Office package, we’d be out some $1,000 per seat. All that cash for a few 5.25” floppy disks. Wow.

More Computing

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Bundling Practices

Another annoying limitation on Windows operating software and other Microsoft products like Office is that they try to restrict transfer rights when they are bundled in OEM (Original Equipment Manufacturer) configurations. As many of us know, Microsoft has built its monopoly in part because of the heinous licensing restrictions they have put on the OEM market. If you are an OEM and you want to include Microsoft software as one of your options, there are some serious limitations on what you can and cannot do. Microsoft has included language in large contracts that gives you price breaks if and only if you agree to include Windows with every single machine you ship out the door. The price breaks were massive, but technically, the decision was not forced, it was an option. But if you did agree, Microsoft wanted to ensure that you played ball, so they actually set up a system where people could turn you in if you failed to follow the agreement to the letter. Even if a client wanted no operating system at all on a computer, they OEM was obligated to bundle it and charge for it or they would be in violation.

As time went on, other methods of ‘coercion’ were used. If you wanted to qualify for pre-retail access to the latest version of Windows, you had to be in full compliance. If you wanted to be able to offer Microsoft Office as an option, you would have to exclude all other office suite bundling options, such as Smart Suite or Corel Office.

Your Rights As A Buyer

Perhaps the most annoying for me, and many others, has been how they word the EULAs that come with these bundles. They state that the OEM, not Microsoft is responsible for all software support, and that the agreement you have is with the OEM only. Further, even though you purchase the system and the software, Microsoft states that you do not have the right to transfer the licenses to another computer you may own if you decide to sell or dispose of that particular system. Confusing? I think so. In 98 SE, they throw in language like the following:

“The SOFTWARE PRODUCT is protected by copyright laws and international copyright treaties, as well as other intellectual property laws and treaties. The SOFTWARE PRODUCT is licensed, not sold. The term "COMPUTER" as used herein shall mean the HARDWARE, if the HARDWARE is a single computer system, or shall mean the computer system with which the HARDWARE operates, if the HARDWARE is a computer system component.”

“Single COMPUTER. The SOFTWARE PRODUCT is licensed with the HARDWARE as a single integrated product. The SOFTWARE PRODUCT may only be used with the HARDWARE as set forth in this EULA.”

“Software Product Transfer. You may permanently transfer all of your rights under this EULA only as part of a permanent sale or transfer of the HARDWARE, provided you retain no copies, you transfer all of the SOFTWARE PRODUCT (including all component parts, the media and printed materials, any upgrades, this EULA and, if applicable, the Certificate(s) of Authenticity), and the recipient agrees to the terms of this EULA. If the SOFTWARE PRODUCT is an upgrade, any transfer must also include all prior versions of the SOFTWARE PRODUCT.”

“Termination. Without prejudice to any other rights, Manufacturer or MS may terminate this EULA if you fail to comply with the terms and conditions of this EULA. In such event, you must destroy all copies of the SOFTWARE PRODUCT and all of its component parts.”

Seeking Answers

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Trying To Understand

Believe it or not, the whole thing sounds pretty unclear and contradictory to me. First, if the agreement is between the OEM and me, who is Microsoft to say what we can and cannot agree on? For instance, I’ve called up Dell and other OEM’s, both local and remote, to discuss the issue. I’ve even called Microsoft numerous times to go over the details and what they really mean. In almost every single case, the answers I got were different from one another.

After all of those hours of research, there were some areas of agreement. For instance, there was a general consensus that the definition for the term “Hardware” is up to each OEM. Therefore, each OEM is free to bundle the software any which way they choose. The “Hardware” might be defined by one OEM as an entire computer, for instance. Or, another OEM may decide that the license is tied to the primary boot drive instead. Some vendors simplify things further, by stating that the license is actually tied to a bundle consisting of a genuine Microsoft mouse, the manual for the mouse and the disk and license for the software. As you can see, the thing is getting messy from the very start.

Gray Areas

There are a number of areas of conflict and disagreement concerning the language and enforceability of EULA’s. They are often so general and so vague that they end up yielding more questions than answers. How so? For example, let’s assume that you buy a system from Dell with bundled software and you decide to upgrade the machine. Is the software tied to the entire machine or a particular piece of hardware? You call up Dell and they tell you that you are good to go and still legal. What if you end up replacing the hard drive, video card and CD-ROM drives at the same time? Are you still legal? Dell says yes. What if you decide to move all of your new parts to a new case with a 300 watt power supply that happens not to be a Dell case? Do you still have rights to use the software? After all, the only thing original in the case was the floppy drive and the cables, and all you did was move those components to a case that could handle the load. What would the answer be then?

By upgrading your system, you are only doing what any reasonable owner may do, right? Therefore, there is a “Reasonable Person” standard that may apply. If you replace every part in the system except the case and Dell tells you that you are still legal, would a reasonable person infer that the software license was tied to the case? Then, if the case was damaged and needed to be replaced, would you lose your rights to use the software? A reasonable person might assume not, since you replaced a defective component. What if you had been told that the software was tied to the hard drive, and the hard drive physically failed. Would you have the right to replace it with a third party hard drive and still use the software? What if your software came on a “restore disk” instead of a separated copy? Would the fact that none of the internal components match the system or component serial numbers matter when it came to your rights to use the software?

The courts have been examining some of these questions, and have recently leaned towards the consumer in many of these instances. Some have said that if Microsoft wishes to limit the software to specific hardware, then they must detail which exact hardware and what rights consumers have should that hardware be replaced, either by necessity due to failure, or due to advances in hardware capabilities and the desire of the individual to remain current. Others have stated that if the agreement is specified by Microsoft as being between the OEM and the consumer, then they have no rights of enforcement concerning the consumer, but must instead go through the OEM to correct misunderstandings. Yet others have indicated that Microsoft has no rights to summarily terminate the license at all. A recent case actually stated that consumers can reasonably assume that any software they purchase in a forced system bundle will be bound not by the OEM license, but a typical retail license, because after all, they are purchasing a true retail product, of which the software is just a portion. As you can see, it is still a very murky and difficult situation to get a handle on, and the fact that most of the talking is being done by Microsoft and OEM’s does not benefit the consumer in the least.

SIDEBAR: Microsoft recently got in hot water for telling a charity in Australia that it must pay licensing fees for each donated computer with Microsoft software. This was odd given that many of these donated computers came with an OEM EULA stating that the software was supposed to travel with the computers... Double-Dipping?

Conclusions

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Part 1: Closing Thoughts

One thing that seems to be readily apparent is that many of these EULA’s are making declarations that cannot be legally enforced in all states and territories. Some of them are so absurd that they boggle the mind, yet these companies claim they are indeed enforceable because consumers approve them. However, some courts are ruling that no such wording and consequently tacit approval can be effective in terminating the legal rights of consumers. In other words, just because a EULA says so, doesn’t make it true.

In some ways, this discussion is related to a previous article, Playing Loose With Fair Use that we posted a while back. There are rights and expectations on both sides, but the law is somewhat caught in the middle. Copyright Laws and Patents, for example, were never designed to tackle such complex technological issues. Many of the things we are involved in now were never conceived of back in the day, and as a result, we find there are people taking advantage of things in a very unsavory way.

Just because we consumers have taken certain rights for granted in the past does not mean that they actually apply to modern technologies. Companies are making the case that somehow these new breakthroughs in technology give them rights they never had before. Because it is easier to copy and transfer things, they should have the right to limit consumer actions for the good of the industry.

That is a pretty scary stance when you thing about it, and what we’ve talked about here is only the tip of the iceberg. It is almost like this digital frontier is facing a land rush, and the strong and powerful, those with money and connections, are trying to keep the common folk from having a say ought to be done.

What's Next?

In part two of this article, I plan on taking a look into the consumer entertainment market in addition to some computer related topics not covered here. I’ll give some thoughts on why consumers put up with this treatment and some opinions on what we may be able to do about it if we get off our tails and get involved.

There is much to cover, from product activation and copy protection to limiting our choice for cable and Internet providers. So much is happening so fast that it is hard to get a handle on it all, but hopefully by the end of part two we can bring some of these issues to light and perhaps even get some good ideas of how to fix things.

As always, give us as much feedback as you care to muster, with as much good information you can put together, and we’ll try to address those issues in future articles.


SIDEBAR: Are you worried about End User License Agreements in the slightest? Or do you think it is Much Ado About Nothing? Do you even bother to read and try to adhere to the bundling agreements that come with systems you end up buying?

Please take a little time and let us know your thoughts in our Comments Section.