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Kaleidescape doubles down - November 2, 2007

Kaleidescape founder Michael Malcolm is upping the ante in his ongoing legal battle with the studios in DVD-CCA, all but daring them drop the nonsense about the CSS license and charge his company with copyright infringement if they really believe Kaleidescape owners should not be able to play back copies of their own DVDs from a server hard drive.

In a letter being sent to the DVD-CCA board on the eve of its Nov. 7 meeting in Los Angeles, a copy of which was obtained by Media Wonk, Malcolm warns the licensing agency that approval of a pair of proposed amendments to the CSS license would open the organization to "serious and substantial antitrust liability."

The two amendments, both offered by Warner, Disney and Fox, seek to moot the results of DVD-CCA's unsuccessful lawsuit against Kaleidescape for breaching the CSS license and establish a new managed-copy regime for DVDs under the control of DVD-CCA and the studios.

Much of the new letter reiterates and expands on the arguments contained in Malcolm's earlier missive to the group's members warning them off a similar proposed amendment in June. But he adds a new twist this time that would significantly raise the stakes for the studios should they approve the amendment and the case end up in court:

  The proposed amendments also raise significant issues of copyright misuse. The doctrine of copyright misuse prohibits copyright holders from using the economic leverage provided by ownership of copyrights to impair or distort competition in other markets, or to otherwise extend the copyrights beyond their lawful limits. [snip...]

Here, the studios sponsoring these amendments are attempting to wrongfully extend their copyrights beyond what the law grants them in two directions. First, by proposing these amendments, they are attempting to use the combined leverage of their copyrights to restrict innovation and competition in the market for DVD playback devices and technologies. [snip...]

Second, the studios are attempting to remove the ability of consumers to exercise their fair use rights in the DVDs that they purchase. A DVD owner has a fair use right to make a private, persistent, copy of a purchased DVD.

Go ahead with your amendments, in other words, and we'll sue you for copyright misuse (in addition to antitrust violations), forcing a showdown on the question the studios have been manifestly trying to avoid: Do Kaleidescape owners have a fair use right to use their servers as they were designed to be used?

If they do, then the license issue is moot. The studios cannot bar consumers from exercising their fair use right by means of a contract signed by DVD device manufacturers.

Moreover, the legal standing of DVD-CCA itself would be put at risk. What is the purpose of DVD-CCA, after all, other than to regulate the design of DVD players through a licensing regime so as to prevent infringement of the studios' copyrights?

An attempt to use that licensing regime to prohibit the sale of legal devices, designed to allow consumers to make fair use of their DVDs, Malcolm avers, represents and anticompetitive misuse of the studios' statutory copyrights.

At a minimum, Malcolm's gambit pretty much bars any further effort to establish a managed-copy regime under DVD-CCA. Any attempt to do so, it seems clear, would be interpreted as an attempt to use the CSS license to supersede the fair use rights of Kaleidescape owners and would bring litigation.

Malcolm's latest salvo is almost certainly enough to set the consumer electronics and IT companies in DVD-CCA running for cover. It will then be up to the studios to decide whether to cover his bet and go back to court.

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