Keurig Adds DRM

Keurig recently announced a decision to add a form of digital rights management (DRM) like restrictions on their future coffee makers (http://www.canadianbusiness.com/companies-and-industries/keurig-2-single-serve-coffee-pod-drm/).  Basically, the next set of Keurigs will include certain hardware preventing people from brewing generic “K-Cups” (the single serve packs you pop into a Keurig to brew the coffee).  Green Mountain Foods (the owner of Keurig) previously held a patent on the K-Cup design that allowed them to exclude competitors.  That patent expired in 2012 (http://blogs.wsj.com/corporate-intelligence/2012/11/28/the-k-cup-patent-is-dead-long-live-the-k-cup/), opening up use of the K-Cup design to other companies.  Other companies quickly capitalized, typically selling below what Green Mountain charged for official K-Cups.  Green Mountain still controls a great deal of the K-Cup marketplace, despite the availability of generic options.

I know a number of people who love these machines, but these behavior smacks of trying to lock out the competition.  Previously, the patent allowed Green Mountain to maintain a monopoly on who could and could not use the K-Cups.  Green Mountain took advantage of that, particularly by licensing the use of K-Cups to various companies when they deemed it in their interest to do so.  Starbucks is an obvious example of a K-Cup licensee.  Now that the patent has expired, Green Mountain can no longer exclude their generic competition.  This competition includes other K-Cup options, such as reusable K-Cups (http://www.reuters.com/article/2012/02/03/us-coffee-idUSTRE81203720120203).

The K-Cup patent serves as a good reminder as to why the patent system exists, and why the government grants companies the right to exclude competition.  Basically, a patent tries to allow an inventor to benefit from its research and development.  The inventor has to file copies and descriptions of their design.  These designs get released to the public, with the full intention of allowing for other people to use them after the patent expires (usually after 20 years).  The logic is that the state gives that inventor a period of time with which to benefit from creating something new and innovative.  After that time runs out, the inventor has to allow the public at large to benefit from the new and innovative design.  The patent, as a result, acts as a kind of negotiated bargain that tries to promote the creation of innovative technology by giving the inventor a financial incentive to invent (and preventing other entities from simply piggybacking on their design for a period of time).  The anti-competitive nature of patents is often seen as a necessary, and temporary, evil.

There is no benefit, however, to trying to exclude competitors further.  A number of the above sources mention that, like printers, the real money comes from selling the coffee maker at a low cost and making the real money on the refills.  Green Mountain does, as a result, have a financial reason to want to exclude their competition.  That doesn’t excuse them actually taking measures to lock out competitors.

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