321: Countdown to Court Date for DVD X Copy Vendor
Posted Mar 1, 2003

April 25, 2003 marks the first court date for St. Louis-based 321 Studios, which will attempt to defend the legality of its software, DVD Copy Plus and DVD X Copy. The software allows consumers to make back-up copies of their DVD collections using a DVD-R or DVD-RW drive.  

Specifically, 321 sells two products. First is DVD Copy Plus, which allows its users to take any DVD and make backup copies onto a CD. With this product, users can expect a loss in quality because video material is compressed from DVD-compatible MPEG-2 to VideoCD-compatible MPEG-1. The second, DVD X Copy, allows a perfect DVD backup. Federal disclaimers and watermarks are incorporated, however. It does not limit the amount of copies made from the original disc, but copies cannot be made from a copy. 321 insists that the key selling point for the product is the fragility of DVDs, which necessitates backing them up because once they are scratched they won't play. What's more, they say DVD X Copy will still let a user back up a scratched DVD and put a blip where the information is lost so the copy will still be viewable. Thus far, the combined sales figure for the two products is close to 170,000 copies.

In April 2002, 321 filed a lawsuit against nine major motion picture studios in an effort to prevent the studios from filing suit against them. The complaint names MGM Studios, Tristar Pictures, Columbia Pictures, Time Warner Entertainment, Disney Enterprises, Universal City Studios, Sony Pictures Entertainment, and The Saul Zaentz Company. Pixar Corporation was originally named, but has since been dropped from the suit.

321's complaint was filed in the Northern District of California, and it challenges the constitutionality of the Digital Millennium Copyright Act. 321 asks the court to rule that the sale of their software does not violate provisions of the DMCA or unlawfully aid consumers in infringing copyright privileges associated with material stored in the DVD format. 321's complaint seeks no damages.

The attempt to prove the product legal before the studios could protest didn't work. On December 19, 2002, The Motion Picture Association of America (MPAA) filed a counter complaint on behalf of seven studios (Sony has dropped off the counter suit). "The movie studios were asking for dismissal for a long time. Then the day they were supposed to file the dismissal brief, they actually filed a counter claim," says Elizabeth Sedlock, 321's chief marketing officer. "They claim we have caused them irreparable damage and they ask for all profits from the software," she explains. "They are asking the judge to rule that there is no dispute of the facts and that we are in violation of the DMCA. They want to shut us down."

"No Pirate Is Ever Going to Use Our Software"
Interestingly, no documented case of piracy using 321's software has been cited in the complaint. "No pirate is ever going to use our software," says Sedlock. "It takes 45 minutes to make a backup copy. And you also have to split the film onto two discs. Most movies are DVD-9 and only DVD-5s are burnable. However, if there ever were a pirate disc found, we could track down that pirate and turn off the license to our software and find this information. The watermark makes an impression of the PC it is used on. It doesn't violate privacy unless someone is doing something illegal."

321's main legal argument revolves around the issue of Fair Use. "Consumers have an expectation that they should be able to do what they want with the things they buy," says Sedlock. The Digital Choice and Freedom Act, an attempt to clarify the Digital Millennium Copyright Act on this point sponsored by Congressmen Rick Boucher (D-VA) and John Doolittle (R-CA), uses similar reasoning. "No one wants to change the DMCA. It was never meant to limit fair use. However, the DMCA is vague and needs to be more articulate. Intellectual property rights have changed because the digital age calls for a totally new way of saving data. Laws need to be clarified as such," Sedlock adds. Lawrence Hertz, partner in Hall, Dickler, Kent, Goldstein, and Wood, says preserving 321's product will be tough. "I do think the product violates the DMCA, which clearly prohibits trafficking in tools and

 technology that defeat access controls," Hertz says. "The DMCA also prohibits trafficking in tools and technology that defeat use restrictions imposed by copyright owners." Although the DMCA does contain several exemptions including investigative activities by law enforcement officials and use by not-for-profit libraries and educational institutions, none of these exemptions applies in this situation.

As for Fair Use, Hertz says that although a certain amount of direct copying is allowed without the permission of the copyright owner, that only applies to activities such as criticisms, commentary, news reporting, teaching, scholarship, and research. It may apply to additional activities, but those are determined on a case-by-case basis after considering a number of criteria including the amount that is copied and whether the copy is for a commercial purpose or a not-for-profit purpose. "321 is selling the product for profit," he says, and argues that that in and of itself violates the law.

Hertz admits that there's an intuitive sense that once a legitimate copy of something has been purchased, a backup copy should be legal. But Congress has arguably taken that right away with anti-trafficking provisions of the DMCA. "Hollywood has a great lobby," he says.

Putting the DMCA aside, one provision of the Copyright Act Section 117 does allow people to make a backup copy of a computer program. Although DVDs are not mentioned specifically in the Act, the Copyright Act clearly does distinguish computer programs from motion pictures and sound recordings and it does not contain any provision that allows for the creation of backup copies for either motion pictures or sound recordings such as DVDs or CDs. "Even if the DMCA wasn't in place to prohibit the decryption devices, I can't see them being able to successfully claim the backup right," Hertz says. "There have been enough decisions in this area that it is really going to be an uphill battle for 321 if they don't come up with arguments that have not already been tried," Hertz says.

MPAA had little comment about the lawsuit accept to say, "321's fair use argument is not relevant. DMCA is clear in that it considers any product that circumvents copy protection to be illegal," says Marta Grutka, spokesperson.

Alliance Forms to Fight Government Content-Protection Regulation
Hollywood's power and fears of government "over-regulation" have prompted the launch of an alliance that opposes federally mandated technology to solve the problem of digital piracy. The Alliance for Digital Progress (ADP) officially introduced itself in late January, but it has been under development since Senator Fritz Hollings (D-South Carolina) and Senator Ted Stevens (R-Alaska) proposed a bill in 2001 that would have mandated government-designed anti-copy technology.

ADP is headed by attorney Fred McClure, who served as a legislative adviser to the first Bush administration as well as to President Reagan. Since March 2001, McClure has been managing shareholder of the Washington, DC office of Winstead Sechrest & Minick.

What ADP objects to is the "one size fits all" solution that the Hollings bill implies, McClure says. With a brand new solution, all existing content playback devices would become obsolete, and the cost of new equipment would be higher to pay for the solution, he says. McClure also argues that "one solution will make it easier for the pirate. With a static target you can bet a pirate will crack the protection." In its mission statement, ADP says it "supports the protection of all forms of digital content. ADP believes that the best ways to meet consumer expectations and still fight piracy include market-driven efforts to educate consumers, create digital distribution strategies, develop innovative technology, and enforce existing laws…These are the keys to promoting ecommerce and economic growth in the digital age."

ADP reports that, in a nationwide poll conducted in January by The Mellman Group and Fabrizio McLaughlin Associates, 72 percent of respondents said the best way to address digital piracy is through the private sector. Seventy-six percent believe the movie studios should invest in research and new business strategies instead of turning to the government for solutions.

With 27 members thus far, ADP boasts several heavy hitters in the areas of consumer groups, taxpayer organizations, and technology companies. Members include Apple, Business Civil Liberties, Inc., Digital Media Association, Dell Computer, Hewlett-Packard, and the Semiconductor Industry Association.

The ADP plans a national campaign to prevent the adoption of mandates through legislation regulation with the intent to reach out to Capitol Hill, Bush administration officials, and the public to keep government out of the digital content protection solution. "Our purpose will be to explain why we're here, what we're doing, and why our view is accurate, and we need to not move down the path of the government getting into the technology-designing business," says McClure. ADP believes the most effective role of government is to ensure adherence to existing laws and treaties against piracy around the world.