When the DVD Copy Control Association (DVD-CCA) issued RealNetworks Inc. a license agreement authorizing it to create DVD player software, it never imagined RealNetworks would one day create a product that also copies DVDs. According to the seven major movie studios now suing RealNetworks over its RealDVD software, the license agreement does not allow the company to make a tool that allows consumers to copy a DVD onto a computer’s hard drive.

The studios filed a lawsuit Sept. 30 in Federal District Court for the Central District of California, alleging RealDVD violates the Digital Millennium Copyright Act (DMCA) because it illegally bypasses the copyright protection built into DVDs that protects movies against theft. They also allege that creating a tool that makes copies of DVDs is an unauthorized function of the Content Scramble System (CSS), which is the DVD encryption technology the DVD-CCA License Agreement provides to licensees.

The studios–Universal City Studios Productions, Paramount Pictures Corp., Twentieth Century Fox Film Corp., Sony Pictures Television Inc., Columbia Pictures Industries Inc., Disney Enterprises Inc. and Warner Bros. Entertainment Inc.–asked for injunctive relief, claiming RealDVD threatens to cause their industry irreparable harm by encouraging consumers to “rent, rip and return” movies.

On Oct. 2 Judge Marilyn Patel issued a temporary restraining order that forced the company to stop selling RealDVD, and on Oct.7 she issued an injunction until a hearing set for Nov. 17.

RealNetworks, which filed its own lawsuit against the studios asking for declaratory judgment, maintains the software is legal because it is intended to make legitimate copies of DVDs consumers already own. But Patel refused to lift the Oct. 2 order, saying there are serious questions about whether the software violates copyright law. She added she’s worried about whether people would make unauthorized copies of DVDs. “It’s impossible to bring back copies once they’re out in the market,” she said.

“The key issue here is whether the CSS License gives RealNetworks the right to use the CSS technology to make and sell the duplication software,” says Chris Renk, a shareholder at Chicago-based Banner and Witcoff. “It will be interesting to see the extent to which the CSS contract can be used as a free pass
on DMCA claims.”

If RealNetworks wins its case, it would open the door for other CSS licensees to escape copyright infringement charges in similar situations.

Already Decided

The studios argue that in manufacturing and selling RealDVD, RealNetworks has circumvented the CSS protections built into DVDs that prevent unauthorized reproduction and distribution of copyrighted material, and the CSS license was never intended to authorize such a product. RealNetworks argues the license gives it the right to use and implement the intellectual property of the CSS; therefore it is not circumventing any technological measures and is not violating the DMCA.

RealNetworks’ defense is relying on a similar case. Kaleidescape Inc. also obtained a CSS license from the DVD-CCA and used it to create a product that copies DVDs. In the 2007 decision in DVD Copy Control Association Inc. v. Kaleidescape Inc. the Superior Court in Santa Clara County, Calif., found that Kaleidescape did not violate the license agreement. The Kaleidescape case turned on the licensing process.

After a company signs the license agreement with the DVD-CCA, it receives the specifications on how the technology is to be used–and not used. The specifications are not publicly available and the licensees are not allowed to see the specifications until they sign the agreement.

In Kaleidescape the studios argued the agreement did not allow Kaleidescape to create a tool that copies movies from DVDs to a hard drive. But Kaleidescape argued that the terms of the contract they initially signed were not properly incorporated into the technical specifications of the license agreement.
The judge agreed.

“What RealNetworks argues, and to some extent so did Kaleidescape, is that there’s truly a loophole in the license because the DVD-CCA certainly did not intend for their [anti-copying specifications] to be unclear,” says Mark Litvack, a partner at Reed Smith.

The DVD-CCA contends its license agreement is clear, and it is appealing the Kaleidescape decision–with the eventual outcome remaining unpredictable to outsiders. “Because the specifications are not publicly available, it’s hard to see how clear or unclear they are, making it harder to actually predict which way the appeals court will go,” Litvack says.

Hail Mary

If the Kaleidescape defense fails, RealNetworks has a backup plan. Among other things, the company argues that if the license doesn’t give the right to offer a DVD copier, consumers have a right under the fair use doctrine to copy DVDs they have purchased and “space shift” them, i.e., move the content to another location (see “Space Shifting”).

However, this argument may backfire. “Most of the space-shifting fair use defenses have not met with success because a lot of the technology in question was used in the open network environment where people can share information,” Renk says.

In those situations there’s no control over whether people were space shifting or actually were sharing unlawful, unauthorized copies of music that they got from someone else–as Judge Patel found was the case in A&M Records Inc. v. Napster Inc.

“From here it’s a matter of wait-and-see,” Renk says.