MPAA Wins Settlement in RealDVD Case

Earlier this week, RealNetworks settled its litigation with the movie industry over its RealDVD software, which allowed users to make copies of DVD video content onto PCs.  The copies were encrypted with RealNetworks’ DRM, which limited playback to five PCs.  Under the settlement, Real agreed to keep the product off the market, thereby making permanent the injunction that Distict Judge Marilyn Hall Patel issued in October 2008.  Real also agreed to pay the MPAA and the DVD Copy Control Association their litigation costs of US $4.5 Million.

This case had echoes of a previous DVD CCA case against Kaleidescape, a Silicon Valley company that made a hardware device that ingested video from DVDs and stored it on hard disks.  That case turned on the terms of the DVD Copy Control Association’s licensing agreement, and in 2007, Kaleidescape prevailed.  (RealNetworks had a similar hardware device in the works as well.)

This time the movie studios sued on the basis of the Digital Millennium Copyright Act as well as on DVD CCA licensing grounds.  They claimed that Real broke the law by circumventing the CSS encryption used on DVDs. Real argued that users should have the right to keep backup copies and that its DRM was at least as protective of the content as CSS and therefore should not be considered to be circumventing it.

The case settled, so the judge wasn’t able to decide whether to rely on a strict interpretation of the anticircumvention law or to focus on RealDVD users’ rights under copyright law.  Judge Patel’s only meaningful output was her statement that RealDVD was “likely” to be found to violate the DMCA and the DVD CCA license, which she made to justify her preliminary injunction.  Thus this case offers little further clarification of users’ rights to make backups of their legally obtained video content.

DVD players do decrypt the content, under license from the DVD CCA, but that same license restricts what they can do with the content once it’s in the clear.  Real claimed that it observed the DVD CCA license terms — just as Kaleidescape did in the earlier case.

It’s possible that Real might have prevailed if it had kept fighting the case beyond the three years it has gone so far.  The decision to settle most likely reflects the  strategy of Real’s new management, now that Rob Glaser — who decided to provoke the MPAA in the first place by introducing the RealDVD product — was forced out of the CEO’s job by Real’s board.

Glaser’s real loss as RealNetworks’ CEO was the battle of video formats, which the company lost to Microsoft and Apple years ago.  He learned subsequently that it’s very difficult to make money with a digital media platform if you don’t control the format, and owning the DRM is a great way of controlling a media format.

Having lost this battle, Glaser decided to fight to salvage his media platform by creating products that taunted the established order.  Back in 2004, Real released Harmony, a service that sold music in Microsoft’s and Apple’s DRM formats as well as its own — in other words, encrypted music that could play on iPods.  Apple couldn’t find a reason to sue, but it took steps to restrict playback of those files on iPods.  Few consumers cared, and Real discontinued the service.  eMusic, and then Amazon, emerged as the alternatives to iTunes for iPod-playable music… in DRM-less MP3 format.

RealDVD was a bolder gamble, and Real thought it could rely on the Kaleidescape decision to back it up.  But now apparently Real’s new management wants to jettison Glaser’s “rebel outsider” stance toward the media industry and focus on its remaining grab-bag of content services and infrastructure, such as the mobile music service provider WiderThan and the digital gaming service TryMedia, plus content sites like film.com and RollingStone.com.

The historically important RealAudio and RealVideo formats have been reduced to marginalia, and Real is spinning off the Rhapsody subscription music service that it co-owns with Viacom’s MTV networks.  It will be interesting to see how — or if — RealNetworks can recapture the public’s attention again.

5 comments

  1. Hi,

    I think that the overturned of the Kaleidescape case in august of 2009, was a point of pressure for RealNetworks. And is very interesting that maybe the case is related about DMCA, but the central point is how to interpret contracts about TPMs.

    I wrote in spanish an article about this subjects. The abstract maybe show my point:

    The technological protection measures for the contents protected by the intellectual property, and the legal protection that has been offered to them, are an icon of the problem of the right in this new setting of network society and risk society. In this article, seven processes related to the TPMs and the DVD-VIDEO are studied, jurisprudence from USA, France, Norway and Finland, that permit us to observe the multiple implications related to this theme with consumption law, competence law, expression of freedom, access to the culture, confidential information, contractual relations and intellectual property. The jurisprudence and the development of the market of the technological measures of protection, show a lack of balance between the risks they try to contain, which are of exclusive interest to the technological and contents industries, and the risks that the implementation of these measures might produce in collective interests, like the efficiency of the market and the innovation.

    I think that the evolution of RELs can be resolve this problems, and convert TPMs blinds into DRMs Smarts that help to innovation and be friendly with the consumer.

  2. Good point about the Kaleidescape case being overturned last August. However, my understanding is that decision turned on obscure points of contract law rather than on substantial points of the DMCA or even the DVD CCA license agreement. So it’s unlikely to have had that much effect on RealNetworks’ decision to settle their case.

  3. Michael Fricklas · ·

    The Real case ran a little over a year – not three. And Real’s position was highly dependent on Kaleidescape – once established that the license doesn’t permit playing back DVDs without the disc in the tray, there’s not much of an argument that the product isn’t a DMCA violation.

    I strongly disagree that Patel’s opinion wasn’t a strong endorsement of the Studio’s position. Further, the studios concern was largely about the ability of the software to enable – for the masses- “rent rip return” – i.e. making it easy to make copies for users computers or servers of movies that users don’t, in fact, own – which, after all, is the reason that DRM exists.

  4. For those who don’t know, Michael Fricklas is EVP and General Counsel of Viacom. (He’s also the keynote speaker at our upcoming C&T 2010 conference.)

    I stand corrected on the length of the case, which was about a year and a half.

    Mike’s point about “rent, rip, and return” is well taken and is something I covered in an article I wrote when Real first released the RealDVD product, so I decided not to bother reiterating it here. However, I will say this: it’s unfortunate that the studios have had to rely on a DRM system (CSS for DVDs) that does not by itself cover choices of offers allowed under First Sale, such as rentals, and therefore to have to resort to legal backstops (technology licensing agreements and the DMCA) when such offers present themselves in the market. The “reason why DRM exists” should be to offer such choices to consumers — presumably at appropriate price points — while guarding against abuses.

  5. […] the law. Even well-lawyered companies that tried to plead fair use, as RealPlayer did in 2008, have been crushed. What chance does a regular Joe […]

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