Case Western Reserve University School of Law Scholarly Commons Faculty Publications 2019 The Tethered Economy Aaron K. Perzanowski Case Western University School of Law, [email protected] Chris Jay Hoofnagle Aniket Kesari Follow this and additional works at: https://scholarlycommons.law.case.edu/faculty_publications Part of the Antitrust and Trade Regulation Commons, Consumer Protection Law Commons, and the Intellectual Property Law Commons Repository Citation Perzanowski, Aaron K.; Hoofnagle, Chris Jay; and Kesari, Aniket, "The Tethered Economy" (2019). Faculty Publications. 2053. https://scholarlycommons.law.case.edu/faculty_publications/2053 This Article is brought to you for free and open access by Case Western Reserve University School of Law Scholarly Commons. It has been accepted for inclusion in Faculty Publications by an authorized administrator of Case Western Reserve University School of Law Scholarly Commons. \\jciprod01\productn\G\GWN\87-4\GWN401.txt unknown Seq: 1 25-SEP-19 13:30 The Tethered Economy Chris Jay Hoofnagle,* Aniket Kesari** & Aaron Perzanowski*** ABSTRACT Imagine a future in which every purchase decision is as complex as choosing a mobile phone. What will ongoing service cost? Is it compatible with other devices you use? Can you move data and applications across de- vices? Can you switch providers? These are just some of the questions one must consider when a product is “tethered” or persistently linked to the seller. The Internet of Things, but more broadly, consumer products with embedded software, are already tethered. While tethered products bring the benefits of connection, they also carry its pathologies. As sellers blend hardware and software—as well as product and service—tethers yoke the consumer to a continuous post-transaction rela- tionship with the seller. The consequences of that dynamic will be felt both at the level of individual consumer harms and on the scale of broader, economy- wide effects. These consumer and market-level harms, while distinct, reinforce and amplify one another in troubling ways. Seller contracts have long sought to shape consumers’ legal rights. But in a tethered environment, these rights may become nonexistent as legal processes are replaced with automated technological enforcement. In such an environment, the consumer-seller relationship becomes extractive, more akin to consumers captive in an amusement park than to a competitive marketplace in which many sellers strive to offer the best product for the lowest price. At the highest level, consumer protection law is concerned with promot- ing functioning free markets and insulating consumers from harms stemming from information asymmetries. We conclude by exploring legal options to re- duce the pathologies of the tethered economy. * Adjunct Full Professor of Information and of Law, University of California, Berkeley. ** J.D. Candidate, Yale University; Ph.D. Candidate, Jurisprudence & Social Policy, Uni- versity of California, Berkeley. *** Professor of Law and Oliver C. Schroeder Jr. Distinguished Research Scholar, Case Western Reserve University. For their thoughtful comments on prior drafts, we owe thanks to Shazeda Ahmed, Michael Buckland, Qiuyu Chen, Rebecca Crootof, Ankur Dave, Timo Fritz Honsel, Heather Hudson, Marten Lohstroh, Clifford Lynch, Blake Meredith, Helen Nissen- baum, Blake Reid, Pam Samuelson, Carina Sauter, Jennifer Sturiale, Peter Swire, Rory Van Loo, and Ari Waldman; participants in the Chicago-Kent workshop, particularly, Lori Andrews and Richard Warner, the (Im)Perfect Enforcement Conference at Yale Law School, and the Govern- ance of Emerging Technologies Conference at Arizona State University; and students in the Berkeley Law Spring 2018 Law and Technology Scholarship Seminar. July 2019 Vol. 87 No. 4 783 \\jciprod01\productn\G\GWN\87-4\GWN401.txt unknown Seq: 2 25-SEP-19 13:30 784 THE GEORGE WASHINGTON LAW REVIEW [Vol. 87:783 TABLE OF CONTENTS INTRODUCTION ................................................. 785 R I. TOOLS FOR TETHERING ................................. 787 R A. Tethering Through Design .......................... 788 R B. Tethering Through Law ............................. 795 R 1. Contract ........................................ 795 R 2. Copyright ....................................... 797 R 3. Anticircumvention .............................. 798 R 4. Patents.......................................... 801 R II. THE MERITS OF TETHERING ............................ 802 R III. CONSUMER HARMS OF TETHERING ..................... 809 R A. Functionality and Durability ........................ 810 R 1. Bricking ........................................ 811 R 2. Feature Reduction .............................. 814 R 3. Changing the Terms of the Bargain ............. 815 R 4. Firm Failure .................................... 816 R 5. Repair .......................................... 817 R 6. Physical Harm .................................. 821 R B. Information Risks ................................... 821 R 1. Privacy .......................................... 822 R 2. Security ......................................... 824 R 3. Harassment and Abuse ......................... 828 R C. Consumer Decision Making and Autonomy Interferences ........................................ 829 R 1. Transfer ......................................... 829 R 2. User Innovation ................................ 830 R 3. Speech .......................................... 832 R D. Consumer Harms and Tradeoffs .................... 834 R IV. MARKET HARMS OF TETHERING ........................ 836 R A. Tethered Products as Bundled Offerings ............ 836 R B. Switching Costs and Lock-In ........................ 839 R C. Platform Power, Market Manipulation, and Price Discrimination ...................................... 843 R D. Quality and Quantity of Competition ............... 845 R E. The Vicious Circle of Consumer and Market-Level Harms .............................................. 848 R V. APPROACHES TO LEGAL INTERVENTION ................ 849 R A. Private Law ......................................... 850 R 1. Contract ........................................ 850 R 2. Tort ............................................. 855 R B. Public Law ......................................... 858 R \\jciprod01\productn\G\GWN\87-4\GWN401.txt unknown Seq: 3 25-SEP-19 13:30 2019] THE TETHERED ECONOMY 785 1. Antitrust ........................................ 858 R 2. Consumer Protection ........................... 862 R a. Repair and Repurposing .................... 864 R b. Obsolescence ................................ 866 R c. A Kill Switch ............................... 868 R d. Privacy Guarantees ......................... 868 R e. Microservices Switch Over .................. 869 R C. Combining Private and Consumer Law Approaches ......................................... 870 R CONCLUSION ................................................... 873 R INTRODUCTION Voice assistants like Google Home and Amazon Alexa, smart kitchen appliances, new cars, and a range of Internet of Things (“IoT”) devices share a central trait: they are “tethered.”1 We define “tethering” as the strategy of maintaining an ongoing connection be- tween a consumer good and its seller that often renders that good in some way dependent on the seller for its ordinary operation. Such products present as physical goods but often function as vessels for the delivery of services. Consumers want tethered goods because of their obvious poten- tial advantages: automation, remote control, new functionality, and the other benefits of interconnection and data collection.2 These de- vices are trending towards ubiquity. Yet, their design and economic rationale have consequences. Consumers are likely to acquire multiple generations of incompatible tethered goods, from providers that may come and go.3 In a worst-case scenario, tethering could produce an environment similar to Terry Gilliam’s Brazil—a world of homes fil- led with technology that, for reasons of both complexity and of law, is 1 See JONATHAN ZITTRAIN, THE FUTURE OF THE INTERNET AND HOW TO STOP IT 106 (2008) (“Tethered appliances belong to a new class of technology. They are appliances in that they are easy to use, while not easy to tinker with. They are tethered because it is easy for their vendors to change them from afar, long after the devices have left warehouses and show- rooms.”). We are indebted to Zittrain’s early spade work in defining tethered appliances and use his terminology. This Article leans on Zittrain’s framing, but elucidates a series of concerns that have arisen since his 2008 book. 2 See Chuck Martin, 83% See a Benefit of Smart Home Voice Assistants, MEDIAPOST (Apr. 5, 2017), https://www.mediapost.com/publications/article/298589/83-see-a-benefit-of-smart- home-voice-assistants.html [https://perma.cc/NKD4-K6MY]. 3 See Kyle Wiens, Apple’s Diabolical Plan to Screw Your iPhone, IFIXIT (Jan. 20, 2011), https://www.ifixit.com/blog/2011/01/20/apples-diabolical-plan-to-screw-your-iphone/ [https:// perma.cc/EMT2-B6MJ]. \\jciprod01\productn\G\GWN\87-4\GWN401.txt unknown Seq: 4 25-SEP-19 13:30 786 THE GEORGE WASHINGTON LAW REVIEW [Vol. 87:783 outside of individual consumer control.4 A best-case scenario, on the other hand, could result in a consumer utopia, with tethered goods constantly improving, adapting, and surprising us with new, personal- ized utility. At present, the former seems considerably more likely than the latter. The fate of the social robot Jibo, for example, could have