At a Glance
eBay fights against closed-loop systems that dramatically reduce competition and unfairly disadvantage consumers.
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It is an unfortunate reality that established industries in many sectors do not welcome the emergence of new business models that encourage competition, introduce transparency, and disrupt the existing value chain.
As a reaction, these established industries often engage in efforts to control prices, limit availability, and curtail secondary markets. Such efforts are wide-spread and range throughout the entire product life-cycle. Examples include distribution contracts prohibiting sales over online marketplaces, refusals to provide spare parts, product monopolies protected by IP law, resale prohibitions imposed on consumers, and prohibitions to re-purpose.
Competition Supports Free and Open Commerce
Traditionally, market competition and consumer welfare have to some extent been protected by the limited control that manufacturers have over their products after their first sale – their monopoly under IP law is lifted (“exhausted”) and they seize to have physical possession of the products, making it more challenging to enforce contractual restrictions.
IP exhaustion operates at every level of our economy. It allows wholesalers to sell products covered by copyright, including products distributed in copyrighted packaging, to retailers without first securing distribution licenses from the manufacturers. It also permits retailers to sell products to consumers without obtaining distribution licenses.
It enables the purchaser of a copyrighted product to transfer that product to other parties by selling, lending, leasing, or giving the product to the parties without obtaining permission from the copyright owner. This supports free and open commerce, moves products from those who value it less to those who value it more, enables innovative rental-based business models, as well as charitable giving.
Competition is Evolving with Technology
Now, the Internet of Things (IoT) is pushing our economic systems into a new paradigm where the value of the product is more than the physical object. The IoT turns consumer products into conduits to services: shoes direct their owners, umbrellas check the local weather and alert their users to rain, toothbrushes supervise their owner’s brushing and team up with their dentist, etc. Very simplified, these are products equipped with actuators, sensors and embedded processing, and serving their users based on remotely generated command.
From a consumer perspective, a central and little talked about consequence of such connected consumer products is the loss of ownership. For example, most vehicles today run on software. While the consumer “owns” the car they bought, the manufacturer retains the right to the computer program running the car. The consumer merely holds an “implied license to operate the vehicle”.
Connectivity and the control over the software therefore gives the manufacturer the ability to downgrade, change, and disable functions of the car. So for instance, when reselling your car, you may discover that it no longer has seat heating. These parameters hold true for all connected devices – ranging from smart phones to smart fridges. This “Internet of Someone Else’s Things” calls for a proper discussion about ownership, incentives, value creation and the implications of turning the consumer into a passive bystander in commerce.
A Circular Economy Should Benefit Consumers
In its efforts to advance the transition to a Circular Economy, the European Commission is currently strengthening consumer guarantee rights, using product and design requirements, and consulting with standardization bodies in order to promote product durability and enable repair and reselling.
Nevertheless, owners cannot actually repair their vehicles because they are not allowed to alter the software. They cannot fully use or reuse products they have acquired, nor can they resell at a price encompassing the upgraded services they have paid the manufacturer for. This is not the foundation for an inclusive circularity where consumers are able to directly contribute to extending a products’ life and share in the extra value it generates.
In contrast, current practices point in the direction of a society of proprietary circular economies where ownership and value remain with each individual manufacturer. For one thing, this limits the circle of potential contributors and service providers that could help extend the life span of products in creative ways.
What About Digital Goods?
An individual who purchases a physical item expects to be able to resell, repair, and reuse it. Naturally, consumers will demand the same rights for digital and connected goods.
In some instances (re-selling a movie, song, an e-book purchased from a downloading service, or an access right), legal uncertainty prevents consumers from reselling or repurposing. In others (e.g. paperless tickets to sports event or concerts) a consumer is often not even technically able to transfer ownership.
In other cases, a consumer may be able to resell an item only via the original retailer. This runs the the risk of dramatically reducing competition by creating closed loop systems whereby the only way to resell a digital good is through a single platform.