Consolidation in the manufacturing sector was predictable with the massive drop in sales following the digital conversion boom. The largest of M&A activities in this sector was that of Dolby and Doremi. After years of failing to establish its own footprint of servers and media blocks, Dolby’s acquisition was necessary to claim market share, giving it claim to over 60% of the worldwide cinema market. At the time of acquisition, concern was raised that Dolby, a company whose early success in cinema was built on a monopoly in noise reduction and matrix decoding, would abuse its new market power through what can be politely termed its “culturally monopolistic behavior.” This month, GDC Technology, Dolby’s largest competitor in cinema media blocks and servers, filed a complaint in US District Court against Dolby for an improper claim of copyright protection on the API of Dolby’s media block. GDC may have reason to engage in a dispute, but it appears to have picked the wrong one.
Core to GDC’s complaint is the practice of sharing product application programming interfaces (APIs) to encourage interoperability. Cinema technology infrastructure is more complex with the introduction of digital cinema. Digital technology enables deeper control and monitoring of systems, but also introduces new complexities previously unknown to cinema, such as the management of security keys along with multi-filed and multiple types of content. An ecosystem of competitive product exists to service these needs, which continues to evolve. That ecosystem includes theatre management systems (TMS), library servers, security key management systems, point-of-sale systems, and different flavors of monitoring and control systems. These services work together through the sharing of APIs.
In the software world, the sharing of APIs is commonplace. Who hasn’t seen a website with icon-links to social networks such as Facebook and Twitter? The chances are that the website owner didn’t enter into a contract with Facebook and Twitter to provide this service. Use of the service is encouraged through open source policies and open source licensing of APIs. It’s the open nature of APIs that fuels the growth of much of the Internet economy. Similarly, open APIs fuel innovation in cinema technology, leading to lower cost, and more efficient, services and products.
The core of GDC’s dispute is that Dolby illegally claims copyright on its APIs, using its copyright claim to refrain from sharing newer versions of its media block API with GDC. It’s the focus on copyright that weakens GDC’s case. Copyright is a claim to the artistic expression of a work. For example, one cannot copyright a language, whether intended for human communication or machine communication (such as software languages). But an expression of words (such as this report) or, similarly, an expression of code, can be copyrighted. As will be explained further on in this article, case law is already on Dolby’s side as far as copyright goes.
When discussing intellectual property, it’s important to not confuse the purpose of copyright with the purpose of patents. Copyrights are for protecting artistic expression, and patents are for protecting innovation. Copyright as applied to an API is not a claim to the innovative and novel nature of the work. Instead, it is a claim to the unique expression of the work. The reason copyright exists is to enable the sharing of unique expression without loss of ownership. The dispute between GDC and Dolby may be over intellectual property, but only with reference to copyright, and not patents.
The right to copyright an API is supported in law. Most famously, in Oracle v Google, the US Court of Appeals decided in 2014 in favor of Oracle’s right to copyright its Java API. (Oracle acquired Java with its acquisition of Sun Microsystems in 2010.) Oracle offers access to Java under three different classes of license. However, Google chose not to license Java, instead, opting to copy the detailed expression of the Java API for use by Android application developers. The Java API has thousands of unique expressions, which are well-known in the programming community. By equipping Android with a well-known API, Google removed a major hurdle for rapid development of new applications for its operating system. The success of Android is testimony to its strategy. However, in doing so, Google is found to be in violation of Oracle’s copyright. Oracle v Google is still active in lower court, but only the matter of fair use is at trial, not copyright.
A better area where GDC could focus is restraint of trade. Both Dolby and GDC sell media blocks and TMS software. As digital projection equipment nears end-of-life, sales of replacement gear will ramp. Capital may not exist to carry out wholesale replacement, making piecemeal replacement over time the more likely scenario. In addition, the TMS will also be up for replacement, as a number of TMS installations today are tied to virtual print fee (VPF) deals and expensive software licenses. In a piecemeal replacement sales cycle, where new equipment and old equipment will exist side-by-side, a manufacturer of media blocks can be placed at considerable disadvantage if it cannot also bundle a TMS that is interoperable with competing product. Dolby’s withholding of its media block API from GDC could place GDC at just such a disadvantage.
There is nothing wrong, per se, in developing products and services that uniquely work together to drive customer loyalty. Apple comes to mind. But cracks will appear with the exceptions, where a sale requires disclosure of an otherwise closely-held API, or a sale requires interoperability with a competitor’s product that might otherwise be withheld, or where the closely-held API is given to the providers of TMS software that do not also compete with Dolby’s media blocks. It is in the exceptions where restraint of trade may be most easy to recognize.
There is no doubt that the withholding by Dolby of its API from competitors will give Dolby, already with 60% market share, an advantage that is not available to others. The question is whether this behavior can be claimed as restraint of trade. GDC’s complaint in court is a first step towards putting up a fight. But, unfortunately, the fight that GDC has picked is not the fight it’s likely to win.
