Intellectual Property Law

Another Court Deals Major Blow to DVD Copying

By David Kravets

A California appeals court on Wednesday overturned a lower court ruling that had paved the way for a $10,000 DVD copying system called Kaleidescape and other products from the company with the same name.

The 6th District Court of Appeal in San Jose, California, was the second court in two days to rule that companies are bound (.pdf) by the entire Content Scramble System licensing regime, which prevents duplicating DVDs.

A San Francisco federal judge ruled late Tuesday that RealNetworks’ DVD-copying software was a breach of the Content Scramble System license, which is required for DVDs and computers to play DVDs. The license allows DVD players to descramble the encrypted code on a DVD, but the license prohibits the duplication of a DVD. Both RealNetworks and Kaleidescape claimed a loophole in the CSS license allowed the copying of DVDs.

In both cases, Kaleidescape of Sunnyvale, California, and RealNetworks, of Seattle, claim that the CSS license issued by a partner of the motion picture studios — the DVD Copy Control Association — did not require, as the studios alleged, that a DVD be in the machine to play back the movie. Hence, a copy could be made, they claimed.

Michael Malcolm, Kaleidescape’s chief executive, said in a telephone interview that the company would ask the California Supreme Court to review the decision.

“This seems to be a change in the law,” he said. “Other than that, it is going to be business as usual and we will be selling and supporting Kaleidescape systems as always.”

The DVD Copy Control Association, which brought the case on behalf of the motion picture studios, said the decision means that Kaleidescape cannot produce DVD-copying machines. “We look forward to returning to the trial court to obtain an injunction requiring Kaleidescape to comply with its contractual obligations under the CSS license agreement and specifications,” the group said in a statement.

The cases were being closely followed by the content and electronics industries. If decided differently, they could have opened the door for a host of electronics companies to produce DVD copying machines — which would be a blow to Hollywood’s control of the encrypted DVD. Still, both cases could make their way up the appellate ladder, and the final outcome might not be known for years.

The lawsuits represented Hollywood?s worries that RealNetworks’ RealDVD, Kaleidescape and other fledgling DVD-copying services might ruin the market for DVDs. The studios were fighting to keep from going the way of the music industry, which years ago lost much control of the unencrypted CD to peer-to-peer file-sharing services.

Consumers may place the content of their CDs into their iPods, but both new decisions remain unsettled whether the same is true for the DVD — although producing DVD-ripping services was found to be illegal in Tuesday’s federal court decision and in previous decisions.

Wednesday’s state-appeals-court decision did not immediately block Kaleidescape from marketing its wares. Instead, it ordered a lower court to review the entire CSS contract to determine whether Kaleidescape’s DVD-copying machines are in breach of contract.

A lower state court had ruled that, because some of the terms of the contract were forwarded to Kaleidescape after the deal was signed years ago, the company was not obliged to follow them ? including specifications that the DVD be in the machine during playback.

The state appeals court noted that Kaleidescape knew full well that other terms of the contract were forthcoming. And no other electronics concern had ever made such an argument before, until RealNetworks followed Kaleidescape’s tactics and made similar arguments in a federal court.

“We conclude that the mutual intent of the parties at the time the license agreement was signed was that the DVDCCA would grant Kaleidescape permission to use CSS in exchange for the payment of an administrative fee and Kaleidescape’s promise to build its system according to specifications that DVDCCA would later provide,” the appeals court ruled. “This promise is express and complete on the face of the license agreement.”

In the RealNetworks case, U.S. District Judge Marilyn Hall Patel on Tuesday said RealNetworks could not market RealDVD because it was in violation of the CSS license, the same one that Kaleidescape acquired.

Patel, however, took an additional step, ruling that the RealNetworks’ software violated the Digital Millennium Copyright Act of 1998. That federal law prohibits the trafficking of devices that circumvent encryption technology designed to prevent duplication ? in this instance the DVD.

The Kaleidescape case dealt almost exclusively with California contract law. A ruling in favor of Kaleidescape likely would have presented a showdown between prevailing interests — California contract law and the DMCA.

See Also:

• Hollywood Control of DVD-Copying at Crossroads
• MPAA, RealNetworks Wage Court Battle Over DVD-Copying Software …
• RealNetworks: ‘We Didn’t Think’ MPAA Would Sue Over DVD Copying …
• MPAA-RealDVD Trial Portends Legality of DVD Copying
• Got a Cool Home Theater Set-up? Submit Photos to Wired News …
• MPAA Pounds RealNetworks’ Glaser on Witness Stand ? Update …

Full post as published by Threat Level on August 12, 2009 (boomark / email).