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[Federal Register Volume 72, Number 54 (Wednesday, March 21, 2007)]
[Notices]
[Pages 13286-13288]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-1403]

[[Page 13286]]

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FEDERAL TRADE COMMISSION

[File No. 062 3019]

Sony BMG Music Entertainment; Analysis of Proposed Consent Order 
To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments in response to this notice must be received on or 
before March 23, 2007.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Sony BMG Music, File No. 062 3019,'' to 
facilitate the organization of comments. A comment filed in paper form 
should include this reference both in the text and on the envelope, and 
should be mailed or delivered to the following address: Federal Trade 
Commission, Office of the Secretary, Room 135-H, 600 Pennsylvania 
Avenue, NW., Washington, DC 20580. Comments containing confidential 
material must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with Commission Rule 4.9(c). 16 CFR 
4.9(c) (2005).\1\ The FTC is requesting that any comment filed in paper 
form be sent by courier or overnight service, if possible, because U.S. 
postal mail in the Washington area and at the Commission is subject to 
delay due to heightened security precautions. Comments that do not 
contain any nonpublic information may instead be filed in electronic 
form as part of or as an attachment to e-mail messages directed to the 
following e-mail box: [email protected].
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Matthew Daynard (202/326-3291), Bureau 
of Consumer Protection, 600 Pennsylvania Avenue, NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for January 30, 2007), on the World Wide Web, at http://www.ftc.gov/os/2007/01/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement containing a consent order from Sony BMG Music 
Entertainment (``Sony BMG'' or ``respondent'').
    The proposed consent order has been placed on the public record for 
thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    This matter involves respondent's use of content protection 
software, also known as Digital Rights Management (DRM) software, 
embedded on its music CDs and the use of a proprietary media player on 
many of these CDs that must be used to listen to them. When played on a 
Windows-based computer, Sony BMG's DRM software is installed on 
consumers' computers and restricts the use of the audio files and other 
digital material on the CDs. In addition, the ``XCP'' and ``MediaMax 
5.0'' versions of respondent's DRM software create security 
vulnerabilities on consumers' computers, and, when consumers' computers 
are connected to the Internet, the media player monitors users' 
listening habits and sends back relevant advertisements.
    According to the FTC complaint, Sony BMG engaged in unfair and 
deceptive practices in distributing its content-protected CDs. The 
complaint contains two unfairness charges. The first count alleges that 
it was unfair for respondent to cause its DRM software, which exposed 
consumers' to security risks, to be installed on consumers' computers 
without adequate notification and consent. As alleged in the complaint, 
respondent's ``XCP'' DRM software contains cloaking technology that 
hides the existence of the software from the Windows Operating System. 
The cloaking technology creates a security vulnerability because 
malicious software that enters users' computers can exploit the 
cloaking technology to conceal itself from the computers' security 
software. In addition, respondent's ``MediaMax 5.0'' DRM software 
creates a ``privilege escalation vulnerability'' that could allow third 
parties who gain physical access to the computer but who have lower-
privilege access to exercise full control over a consumer's computer 
running the Windows Operating System. Consumers could not reasonably 
prevent this injury because they did not know of the DRM software's 
existence or its harmful effects. The complaint therefore alleges that 
respondent's practices caused, or were likely to cause, substantial 
consumer injury that consumers could not reasonably avoid and which was 
not outweighed by countervailing benefits to consumers or competition.
    The complaint further alleges as unfair respondent's practices in 
causing its DRM software that made computers insecure to be installed 
without providing a reasonable means to locate and/or remove it. As 
alleged in the

[[Page 13287]]

complaint, Sony BMG's use of cloaking technology and the failure of the 
``XCP'' and ``MediaMax 5.0'' software to appear in the Windows ``Add/
Remove'' utility hid the existence of the software from consumers and 
their operating systems. In addition, respondent failed to make an 
uninstall tool readily available. The complaint alleges that, as a 
result, consumers incurred substantial costs in locating and removing 
the DRM software from their computers and in stopping its harmful 
effects. Thus, the complaint alleges that respondent's practices in 
failing to provide a reasonable means to locate and remove its DRM 
software caused, or were likely to cause, substantial consumer injury 
that could not be reasonably avoided by consumers and did not provide 
countervailing benefits to consumers or competition.
    In addition, the complaint challenges, as deceptive, Sony BMG's 
failure to disclose adequately that its music CDs install onto 
computers software that materially limits their use by limiting the 
number of disc-to-disc copies that consumers can make, and by 
restricting consumers'' ability to transfer to and play music on 
digital playback devices other than Sony BMG and Microsoft devices. 
Finally, the proposed complaint alleges as deceptive respondent's 
undisclosed inclusion of its media player, which monitors the artists 
that consumers listen to on their computers and displays advertising.
    The proposed consent order contains provisions designed to enhance 
and expand upon respondent's programs to provide refunds to consumers 
and includes injunctive relief to protect against future consumer 
injury from similar acts and practices.
    Part I of the proposed order requires Sony BMG to include on the 
front cover of the packaging for any content-protected CD a clear and 
prominent disclosure that important consumer information regarding 
limits on copying and use can be found on the rear of the product 
packaging. This provision also requires respondent to disclose more 
fully on the back cover that the CD will install software, if that is 
the case; has copying limits; and can only be used on certain playback 
devices. Part II bars Sony BMG from installing content protection 
software from a CD without consumers' authorization. Specifically, 
before such software can be installed, respondent must disclose on the 
consumer's computer screen the information required by Part I and the 
consumer must have signaled her consent by clicking on a properly 
labeled button or taking a similar action. Further, in cases where Sony 
BMG conditions consumers' use of its CDs on their installing content 
protection software onto their computers, Part III requires that 
respondent clearly and prominently disclose this requirement on the 
product packaging.
    Regarding ``enhanced connectivity'' CDs (CDs containing 
respondent's proprietary media player that transmits non-personally 
identifiable information from consumers' computers to respondent and 
displays promotional messages on consumers' computers), Part IV of the 
proposed order, which applies to enhanced connectivity CDs that Sony 
BMG sells prior to the date that this order becomes final, prohibits 
respondent from using any information it collects through enhanced 
connectivity CDs for any marketing purpose and requires respondent to 
destroy such information within three days of receipt. Part IV also 
prohibits Sony BMG from using any such information to deliver 
advertising or marketing messages. Part V, which applies to enhanced 
connectivity CDs that Sony BMG sells after the order becomes final, 
requires that if, to use a CD on a computer, consumers must agree to 
have information collected about them, Sony BMG must disclose this 
condition clearly and prominently on the product packaging. Further, 
Part V prohibits Sony BMG from collecting any information using its 
enhanced connectivity CDs, unless it first discloses that the CD will 
collect information and/or send back advertising to the computer and 
obtains consumers' consent to do so.
    In connection with the marketing, advertising, or distributing of 
any CD, Part VI prohibits Sony BMG from installing content protection 
software that prevents consumers from readily locating or removing the 
software from the computer. This prohibition includes, but is not 
limited to, hiding, cloaking, using misleading or random names for, and 
misrepresenting the purpose or effects of any file, folder, or 
directory associated with such software.
    Part VII requires that respondent provide a reasonable and 
effective means to uninstall its content protection software. Part VII 
also provides that Sony BMG is not required to uninstall the 
``counter'' file of its software that determines whether the consumer 
has exceeded the permitted number of copies on the computer, as long as 
respondent discloses on consumers' computer screens, prior to 
installing the content protection software, that this file will not be 
removed and the file does not impair, hinder, or otherwise adversely 
affect the computer's operation. Part VII further requires that Sony 
BMG, for a period of two years from the date that the order becomes 
final, continue to provide free uninstall tools and patches for XCP and 
MediaMax 5.0 and to disclose the existence of these tools on its Web 
site. In addition, Part VII of the order requires that Sony BMG notify 
consumers of the XCP and MediaMax 5.0 vulnerabilities and how to fix 
their computers, by extending its existing program of purchasing key 
words on search engines to one year after the date the order becomes 
final, and also by publishing a notice through its Web site.
    Part VIII of the proposed order makes clear that all purchasers, 
prior to December 31, 2006, of XCP and MediaMax CDs are eligible to 
participate in its ongoing compensation program. Part VIII also 
requires Sony BMG to extend the period for accepting exchanges to six 
months after December 31, 2006. Further, Part VIII of the order 
requires that Sony BMG reimburse consumers up to $150 of their costs to 
repair computer damage resulting from their attempts to remove the XCP 
content protection software before respondent made an uninstall tool 
readily available. Finally, Part VIII requires Sony BMG to publish 
notices on its Web site informing consumers about the extended period 
for exchanging CDs and the ``repair reimbursement'' program.
    Part IX of the proposed order requires that, before selling 
MediaMax CDs from its inventory, Sony BMG must make applicable 
disclosures about copying and use restrictions on the product 
packaging. In the case of MediaMax 5.0 CDs, Sony BMG also must disclose 
on the packaging that, if used on a computer, these CDs will create 
security vulnerabilities that consumers can eliminate with a patch that 
they can download, free of charge, from respondent's Web site, and 
establish an Internet connection through which Sony BMG will collect 
information from, and send back advertising to, the computer. Also, 
with respect to MediaMax 5.0 CDs that Sony BMG has sold to retailers, 
Part IX requires that it offer retailers the same financial incentives 
to return these CDs as those for XCP CDs. Further, Sony BMG must offer 
these incentives for two years after the date the order becomes final.
    Parts X through XIII of the proposed order are record-keeping and 
reporting provisions. Part XIV provides that the order will terminate 
after twenty (20) years under certain circumstances.
    The purpose of this analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of

[[Page 13288]]

the agreement and proposed order or to modify in any way their terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.
 [FR Doc. 07-1403 Filed 3-20-07; 8:45 am]
BILLING CODE 6750-01-P
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