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RAW File Encryption
and Competition Law

by Andrew J. Roman

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By now most readers are familiar with what is currently the most important issue facing photographers this decade. That is – the closed, proprietary, and proliferating number of RAW file formats. Even more distressing is that there are now camera makers who are encrypting some of their RAW data.

An article on this subject and a petition to the camera makers asking them to adopt open standards has been published here and on several other web sites. But, regardless of which side of the debate one is on, there is more to the issue than photographers asking for unfettered access to their own files. There are legal ramifications as well.

In this exclusive article one of Canada's leading competition law lawyers, Andrew J. Roman, takes a look at issues such as Tied Selling, Refusal to Deal, and Abuse of Dominant Position. While these observations pertain to Canadian law in these matters, Mr. Roman makes it clear that most countries have similar laws, and so these practices may well be found to be contrary to laws and regulations in other countries as well. And, unlike much of the posturing and opinions that appear in web commentaries, these are from an experienced litigator who has presented cases to the Supreme Court of Canada.

Camera makers would be advised to take his observations with greater seriousness than they have thus far shown to the concerns of their customers.

Michael Reichmann
May, 2005

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Note:   This article is not a legal opinion or legal advice to anyone.  This article is not intended to be relied upon for any legal conclusions regarding the legal situation of any person or company.  The views and ideas expressed by the author are entirely his own, and not those of his law firm or of any client of his law firm.  As a Canadian lawyer, the focus of the author will be on Canadian competition law, however, because there are substantial similarities between competition laws in many jurisdictions, the ideas expressed in this article can have a broader relevance.

Background

The recent decision by Nikon to encrypt its RAW files for certain of its digital cameras, most notably the D2X, and the response to this decision by Thomas Knoll of Adobe Photoshop fame has ignited significant controversy in various photography web site forums.  Much of this discussion has involved expressions of anger by individual photographers who regard their images as their property, and therefore, believe that they have a right to develop those images as they choose.  Canadian landscape and nature photographer, Michael Reichmann, and others have called for petitions and other forms of encouragement to foster the development of a single RAW software standard to be used by all camera manufacturers and software developers.  All of these expressions of interest and concern involve private rights and private law issues.  As a Canadian competition law lawyer (and avid digital photographer) however, I have also been thinking about some of the public law issues raised by this controversy.

It is important to note that the focus of this article is not Nikon or Adobe, nor any particular camera manufacturer or software developer.  Rather, it is on the scope and limits of the rights of manufacturers of professional quality digital SLR cameras to make it difficult (if not impossible) for independent software developers to develop effective, professionally-useful RAW conversion software lawfully (i.e., without incurring undue risk of lawsuits).  If independent software developers are frustrated in their efforts to do this by the camera manufacturers, it then forces consumers of these cameras to purchase the camera manufacturer’s software, either instead of, or in addition to, an independent developer’s software.  This may have the effect of depriving such consumers of significant product choice in software, or the benefit of lower prices (because they have to purchase two kinds of software rather than one).

Canadian competition laws are enforced by the Competition Bureau, either in the courts (where the activity involves a criminal offence) or before the Competition Tribunal (where the activity involves a reviewable practice that is not a criminal offence).  Other countries have analogous enforcement officials.  For example, U.S., the antitrust laws are enforced by the Department of Justice and the Federal Trade Commission.  Under the fact scenario I will assume for my analysis, none of the camera manufacturers’ activities would be criminal offences; however, they may fall under the rubric of “reviewable practices”.

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The Fact Scenario

While photography forums may be good places to learn about photography, they are inappropriate vehicles to determine what facts would be provable in a competition legal proceeding.  As there has been no such proceeding, I do not know what the real facts are, and therefore, will have to assume a fact scenario, which may or may not be accurate, but will certainly be plausible.  The hypothetical fact scenario I will use is as follows.

–  Cankon Camera Corporation (“CCC”) is a leading global manufacturer and vendor of digital SLR cameras, lenses, dedicated electronic flashes, and other branded accessories sold under the name CCC.

–   Many professional photographers use CCC’s products, have a considerable investment in CCC camera bodies, lenses and other CCC equipment, and have spent many years learning how to use this portfolio of products.

–  In the last five years, many professional photographers have switched to a largely or entirely digital workflow, using CCC hardware to capture their images, but non-CCC software to develop and manipulate these images to a final digital file that can be printed or used on the Internet.

–   In the last two or three years, the RAW format has become the “gold standard” for digital capture because of its superior quality and flexibility.  Unfortunately, this format requires software conversion to other formats for further processing into the final images.

–  Although CCC has developed and sold its own RAW conversion software, it is not a recognized leader in this field, and its software is fairly rudimentary in comparison to the highly efficient software created by Dynamic Digital Developers Inc. (“DDD”), a European software developer whose software supports RAW conversion and post-conversion processing for most popular makes of cameras.

–  Most photographers, including those owning CCC equipment, use DDD software almost exclusively for RAW conversion and post-conversion processing.

–  Recently, CCC announced that it would be introducing a new professional digital camera with RAW files that had the auto white balance code encrypted, meaning that DDD and other software developers would be unable to modify or adapt their software to process these new RAW files without either breaking the encryption code or finding some other way to evade CCC’s clear intention to keep its auto white balance software code to itself.

– DDD and other large developers have received legal advice that, if they evaded CCC’s encryption code rather than obtaining the code from CCC (either for free, or for a modest but affordable licensing fee), they might be sued successfully by CCC under a variety of laws in a variety of countries.

–  CCC is unwilling to provide the key to the code to DDD and others, either free or for a modest licence fee, and therefore, neither DDD, nor other software developers with substantial business assets, are willing to provide an auto white balance component to their RAW conversion software to accommodate the new RAW files used in CCC’s new digital camera.

–  The practical effect on professional photographers who owned CCC hardware and needed to upgrade to the new digital camera would be quite significant because:

o      white balance is the important first component of RAW conversion (clients will not purchase images with incorrect or inappropriate colour casts);

o      there is no reason to use anything but auto white balance for RAW files because it makes no difference to these files;

o      professional photographers must often batch process hundreds of images daily, each with correct white balance, through a smooth and efficient workflow;

o      currently, professionals do this using DDD’s software (or that of one of its competitors) almost exclusively, because it is inefficient to process the same batch of images twice using two different kinds of software, and may even result in image degradation;

o      CCC’s software runs slowly, and is not particularly suited to batch processing or other forms of user-designed actions which automate image processing, particularly when altering only part of the image rather than all of it;

o      despite this weakness in CCC’s software, because professionals need to white balance their images, the purchasers of the new camera will be required, out of practical necessity, to purchase CCC’s software as well as that of DDD, and therefore to double-process their images; and

o      if CCC goes out of the software business or ceases to support its current software, the potentially thousands of RAW images taken with the new CCC camera by any photographer may no longer be able to the processed again using any new software that may be developed in future by DDD or others.

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The Competition Law View of These Facts

Under Canadian competition law, there are three generic kinds of reviewable practices that the activities of CCC in this assumed fact situation may fall under: Tied Selling, Refusal to Deal, and Abuse of Dominant Position.  Each of these will be considered in turn.

Tied Selling

Although there are various possible definitions of “tied selling”, a convenient short description would be any practice whereby a supplier of a product, as a condition of supplying the products to a customer, requires that customer to acquire any other product from the supplier or the supplier’s retailer.  Let us consider whether the fact situation assumed above would constitute tied selling.

The first product would be the camera; the second product the RAW conversion software supplied by CCC or its retailers.  Under the above fact scenario, CCC is not being so coercive as to refuse to sell the camera to anyone who does not also purchase its RAW software.  The two items are not sold in the same box as one indivisible set.  Nor is it impossible to purchase the camera and not purchase the software.  Therefore, on a purely literal interpretation of the law, CCC would not be engaged in tied selling.  However, statutory interpretation is not that simple.

Because tied selling in Canada is a reviewable practice rather than a criminal offence, it is unnecessary to “prove guilt beyond a reasonable doubt”.  Similarly, literal interpretations of legislation are not the only relevant ones: in many cases, the intention of the legislators must also be considered.

Purchasers of the new camera may not, literally, be legally required to purchase the software, but they may be required to do so as a practical matter because, without it, they cannot properly and efficiently white balance the RAW images taken with this camera.  Thus, if a proceeding involving such a fact situation was brought for review by the Competition Tribunal, there is a reasonable possibility that the Tribunal would favour the practical rather than the literal approach, and would find that CCC was engaging in the practice of tied selling.  Once tied selling is found, the inquiry would move to consider a second issue.

Tied selling is not per se unlawful under Canadian law.  It is only to be prohibited if the Tribunal finds that, because it is engaged in by a major supplier of a product in a market, it is likely to have some sort of exclusionary effect in the market, resulting in a substantial lessening of competition.  If the Tribunal were to find that DDD and its competitors were substantially less able to compete in their sales of software with CCC as a result of the alleged tied selling, and that CCC was a major supplier of professional digital SLRs in that market, the Tribunal could issue an order to prohibit CCC from continuing to engage in this practice of tied selling.

Refusal to Deal

The definition and treatment of a refusal to deal is detailed and complex, but for our purposes, it can be summarized as:

Where a person is “substantially affected in his business”... due to his inability to obtain adequate supplies of a product anywhere in a market on usual trade terms... because of insufficient competition among suppliers of the product in the market,... the Tribunal may order that one or more suppliers of the product accept the person as a customer within a specified time on usual trade terms... .

Applying this definition to the assumed facts, DDD and its competitors would probably be able to demonstrate that they are substantially affected in their businesses by being unable to obtain, on the usual software licensing terms, the encrypted white balance code that they need to build that element of RAW conversion into their software.  It may seem surprising, but there is case law in both Canada and the U.S. defining a “market” as being as narrow as a single manufacturer’s product.  For example, it has been held in Canada that Chrysler motor vehicle parts constitute a separate market because such parts from other motor vehicle manufacturers are not interchangeable with Chrysler parts in Chrysler vehicles.  In the U.S., it has been held that Kodak photocopiers are a separate market, for largely the same reason.

Thus, CCC’s professional photography equipment could also be held to be a separate market because, once photographers invest many thousands of dollars in the bodies, lenses, flashes, cable releases and other products from CCC, they are “locked” into that system, just as the owner of a Chrysler vehicle or Kodak photocopier would be.  The photographer cannot efficiently switch to a competitor’s line of products by buying a camera body this year and a lens next year, and gradually converting.  The full set of equipment the photographer normally needs would have to be purchased at once as an entire replacement.

More importantly, the encrypted code for white balancing the new CCC camera RAW images would be a separate product because it is the only product that will perform (at least lawfully) the necessary white balancing on CCC RAW files for this new camera.  Because CCC has a monopoly on this software, there would, inevitably, be insufficient competition among suppliers of that product.

Refusal to deal would only arise if DDD had asked CCC to provide it with a key to its encrypted white balance RAW code, to allow DDD to write its own code for its photo editing software product.  If DDD offered to pay a licensing fee for the use of this code and CCC refused to accept this offer on reasonable and normal terms, then the “refusal” part of the refusal to deal would have been completed.

Abuse of Dominant Position

On abuse of dominant position, Canada’s Competition Act states:

Where the Tribunal finds that

(a)            one or more persons substantially … control a class or species of business,

(b)           that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and

(c)            the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market,

the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.

The Tribunal may also order substantial monetary penalties (up to $15 million).

What are “anti-competitive acts”?  The legislation provides a list of examples, but these are not exhaustive, meaning that any commercial acts that are held to be anti-competitive would qualify.

One of the listed anti-competitive acts is the adoption of product specifications that are incompatible with products produced by another person, and are designed to prevent his entry into, or to eliminate him from, a market.  Here, CCC’s adoption of encrypted white balance code for its RAW image files is clearly incompatible with other generic RAW converters, and can only be designed to prevent entry of any other software developer into the CCC RAW market.  It serves no other commercial purpose.  Therefore, because CCC holds a dominant position in the processing software market for these new RAW files, it could be found to have abused its dominant position.

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Conclusion

Competition laws everywhere are intended to preserve and enhance competition in the marketplace.  Competition laws are public laws, which create responsibilities for compliance that are owed to the state, not to private individuals.  For that reason, as with most generally applicable public laws, one cannot avoid responsibility for compliance as one can with privately-established, consensual legal rules.  For example, one cannot contract out of a duty to comply with such legislation.  Similarly, it will not avail to assert that “our RAW format is “proprietary””.  Private property claims are normally trumped by public duties.

If CCC is engaging in any one or more of tied selling, refusal to deal or abuse of dominant position that is determined to be anti-competitive (in that it will substantially lessen competition or have a significant exclusionary effect), CCC could reasonably expect that a complaint brought by one of its customers or competitors to the Competition Bureau in Canada (or to other competition enforcement officials in other countries) may well result in a lengthy and costly investigation, followed by appropriate enforcement action.  Clearly, in light of the competition law consequences, CCC would be well-advised to rethink its exclusionary strategies.

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Andrew J. Roman practices Competition Law with a large Canadian law firm.
He is one of the country's leading authorities in this area, and has argued cases before the Supreme Court of Canada. 
If you wish to comment on his article or communicate with him, he can be reached through Michael Reichmann at mreichmann@rogers.com

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Concepts: Raw image format, Digital camera, Digital single-lens reflex camera, Digital photography, Nikon, Digital Negative, Demosaicing, Camera

Entities: lenses, Cankon Camera Corporation, Dynamic Digital Developers Inc., Adobe, Chrysler, Kodak, Canada, U.S., Competition Tribunal, auto white balance, other software developers, software conversion, software developers, software developers., software developer., software business, software licensing, law firm, batch processing, image processing, Canadian, a major supplier, CCC, Competition Bureau, Supreme Court, Department of Justice, Federal Trade Commission., Michael Reichmann, Michael Reichmann, Andrew J. Roman, Thomas Knoll, SLRs

Tags: software, camera, competition, white balance, competition law, image, RAW conversion, software developer, raw files, RAW conversion software, digital, auto white balance, dominant position, canadian competition law, fact scenario, professional, code, CCC camera, camera manufacturers, market, raw image, tied selling, white balance code, criminal offence, new ccc camera, reviewable practice, digital camera, professional photographers, CCC RAW, legal, camera makers, CCC hardware, CCC equipment, new raw, Michael Reichmann, competition law lawyer, digital slrs, new camera, new raw files, Canada