DVD Copy Control Ass'n, Inc. v. Kaleidescape, Inc.

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DVD Copy Control Association, Inc. v. Kaleidescape, Inc.
Supremecourtofcaliforniamaincourthouse.jpg
Court California Courts of Appeal
Decided Aug. 12, 2009
Citation(s) 176 Cal. App. 4th 697 , 97 Cal. Rptr. 3d 856
Court membership
Judge(s) sitting Conrad L. Rushing, Eugene M. Premo, Franklin D. Elia
Keywords
Digital rights management, DMCA

DVD Copy Control Association, Inc. v. Kaleidescape, Inc., 176 Cal. App. 4th 697 is a legal case heard by the California Court of Appeal concerning breach of contract and breach of the implied covenant of good faith and fair dealing. It discusses incorporation by reference regarding a supplemental document that was not part of the written license agreement between the parties. The Court of Appeal reversed the trial court's judgment and ruled in favor of the plaintiff (DVD Copy Control Association), finding that defendant was bound to the entire contract, including the supplemental document.

The DVD Copy Control Association is an organization primarily responsible for the copy protection of DVDs. The Content Scramble System (CSS) was devised for this purpose to make copyright infringement difficult, but also presents obstacles to some legitimate uses of the media. The association is also responsible for the controversial Regional Playback Control (RPC), the region encoding scheme which gives movie studios geographic control over DVD distribution.

Kaleidescape American home streaming media system designer

Kaleidescape, Inc. is a Sunnyvale, California-based private company, founded in 2001, which designs multi-room home entertainment server systems that store and stream video and audio content to "player" appliances connected to televisions. The company began marketing its products in 2003. Research and development is carried out partly by Kaleidescape Canada based in Waterloo, Ontario.

Breach of contract

Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. Breach occurs when a party to a contract fails to fulfill its obligation(s) as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract. Where there is breach of contract, the resulting damages will have to be paid by the party breaching the contract to the aggrieved party.

Contents

This case is also of interest in the realm of copyright law due to its tangential relationship to the issues of fair use and the Digital Millennium Copyright Act.

Fair use is a doctrine in the law of the United States that permits limited use of copyrighted material without having to first acquire permission from the copyright holder. Fair use is one of the limitations to copyright intended to balance the interests of copyright holders with the public interest in the wider distribution and use of creative works by allowing as a defense to copyright infringement claims certain limited uses that might otherwise be considered infringement.

Digital Millennium Copyright Act copyright law in the United States of America

The Digital Millennium Copyright Act (DMCA) is a 1998 United States copyright law that implements two 1996 treaties of the World Intellectual Property Organization (WIPO). It criminalizes production and dissemination of technology, devices, or services intended to circumvent measures that control access to copyrighted works. It also criminalizes the act of circumventing an access control, whether or not there is actual infringement of copyright itself. In addition, the DMCA heightens the penalties for copyright infringement on the Internet. Passed on October 12, 1998, by a unanimous vote in the United States Senate and signed into law by President Bill Clinton on October 28, 1998, the DMCA amended Title 17 of the United States Code to extend the reach of copyright, while limiting the liability of the providers of online services for copyright infringement by their users.

Background

Kaleidescape, Inc., licensed the motion picture industry-supported digital rights management system, Content Scramble System (CSS), from the DVD Copy Control Association (DVD CCA) in order to provide a home entertainment server system that would allow a user to copy physical DVDs to a single persistent storage device. Once in the Kaleidescape system, the DVD content could be stored, organized, and played back at any time, without requiring access to the original DVDs. It would also allow users to make permanent copies of borrowed or rented DVDs.

Digital rights management (DRM) is a set of access control technologies for restricting the use of proprietary hardware and copyrighted works. DRM technologies try to control the use, modification, and distribution of copyrighted works, as well as systems within devices that enforce these policies.

The Content Scramble System (CSS) is a digital rights management (DRM) and encryption system employed on many commercially produced DVD-Video discs. CSS utilizes a proprietary 40-bit stream cipher algorithm. The system was introduced around 1996 and was first compromised in 1999.

In particular, the Kaleidescape system would copy the CSS-encrypted files in their entirety from the DVDs using a "reader", which would then save the encrypted files to the "server". Playback would only be allowed via a licensed Kaleidescape "player".

Trial Court Proceedings

In 2004, DVD CCA sued Kaleidescape for breach of contract and breach of the implied covenant of good faith and fair dealing. DVD CCA alleged that because the Kaleidescape system allowed its users to play previously-copied content without requiring the DVD to be in the machine at the time of playback, Kaleidescape violated the "CSS General Specifications" section of the license agreement. [1]

Under this particular licensing scheme, the licensee must sign a standard agreement to maintain confidentiality of the CSS technology. At the time of signing, the licensee is not aware of the particular specifications to which the licensee must comply (such as the specification that the original DVD must be inserted into the player at the time of playback). It is only after noting the "membership category", executing the agreement, and paying the required fees, will the licensee receive the "CSS General Specifications".

Since it was found that the General Specifications were not clearly mentioned in the license, the trial court found that those terms were not properly incorporated by reference into the agreement. Thus, in the March 29, 2007 ruling for the case DVD Copy Control Association, Inc. v. Kaleidescape, Inc., No. 1-04-CV031829, (Superior Court of California, Santa Clara County), Judge Leslie C. Nichols ruled in favor of Kaleidescape, finding that Kaleidescape was in full compliance with the DVD CCA's CSS licensing scheme. In particular, it was found that the "CSS General Specifications" were not technically included as part of the license agreement. [2] [3]

Incorporation by reference

Incorporation by reference is the act of including a second document within another document by only mentioning the second document. This act, if properly done, makes the entire second document a part of the main document. Incorporation by reference is often done in creating laws as well as in contract law and trust and estate law.

Although this case only addressed breach of contract and was not a copyright case, it was considered by some to be an important recent test of fair use precedent, since it circles the question of whether a consumer who has legally purchased a DVD can copy or backup that DVD to whatever end the consumer desires. [4] [5] [6]

Copyright is a legal right, existing in many countries, that grants the creator of an original work exclusive rights to determine whether, and under what conditions, this original work may be used by others. This is usually only for a limited time. Copyright is one of two types of intellectual property rights, the other is industrial property rights. The exclusive rights are not absolute but limited by limitations and exceptions to copyright law, including fair use. A major limitation on copyright on ideas is that copyright protects only the original expression of ideas, and not the underlying ideas themselves.

Ruling of the Court of Appeal

DVD CCA filed its opening brief in December 2007, appealing the lower court decision to the 6th District Court of Appeal. In August 2009, the Court of Appeal reversed the lower court decision, ruling that the "CSS General Specifications" were a part of the contract. The Court of Appeal did not decide whether Kaleidescape complied with them and instead ordered the trial court to determine any breach of contract. In March 2012, the trial court ruled that Kaleidescape had violated the terms of the contract, and an injunction was issued prohibiting them from selling or supporting the products in question. [7]

Discussions of Fair Use

There were some fair use comments worthy of note in this case. Considered in the case were memos written by Kaleidescape's founders, including the reflection that enabling consumers to make permanent backups of DVDs would become "a value--loss proposition for content owners and rental businesses because there is no repeat business ever if everyone were to own [home video library] product. Rental business will die, and retail business will suffer because borrowing once to have a permanent copy forever seems too good to forego for the average consumer.” [8]

All three judges concurred, with Judge Rushing offering a separate opinion that addressed a bit more in the realm of fair use. Judge Rushing stated, "In my view, its product was clearly not designed or intended to facilitate the theft of intellectual property; nobody buys it for that purpose; and if it has that incidental effect, it is no worse in most respects--and better in others--than an ordinary personal computer with freely available DVD-copying software." He further commented that, "The disk-in-machine clause is at most a contract term. It is not a moral imperative," referencing the concern that such a system would enable a user to build an entire DVD library by merely copying rented or borrowed DVDs. [8]

Judge Rushing also noted that the features provided by the Kaleidescape system has "no more tendency to permit 'casual users' to engage in 'unauthorized copying'" than a (far less expensive) personal computer. Additionally, the Kaleidescape system only makes one copy to be stored within the system, and does not enable further duplications of that copy. He contrasted this with the capabilities of an equivalent system built on a personal computer, remarking that such a capability for collecting copies of DVDs had been around for years prior to the development of the Kaleidescape system. [8]

Subsequent History

A review was denied on October 22, 2009.

Court documents

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References

  1. ↑ Wong, May (2004-12-08). "Film industry group sues DVD jukebox maker". USA Today. Retrieved 2010-03-10.
  2. ↑ Merritt, Rick (2007-03-29). "Judge Rules Against DVD Consortium". InformationWeek. Retrieved 2010-03-10.
  3. ↑ "Kaleidescape prevails over the DVD Copy Control Association". Kaleidescape Press Release. Retrieved 2010-03-10.
  4. ↑ Hachman, Mark (2007-03-25). "Can You Legally Rip a DVD? Trial to Test 'Fair Use'". The Industry Standard. Retrieved 2010-03-10.
  5. ↑ Merritt, Rick (2007-03-16). "Trial Could Test Digital Media Rights". InformationWeek. Retrieved 2010-03-10.
  6. ↑ "Criminalising the Consumer". Economist.com. 2007-04-27. Retrieved 2010-03-10.
  7. ↑ Monahan, William J. (2012-03-08), DVD Copy Control Association v. Kaleidescape, Inc., Case No. 1-04-CV-031829, Permanent Injuction Order (PDF), Superior Court of the State of California, Santa Clara County, retrieved 2012-03-13
  8. 1 2 3 "DVD Copy Control Association, Inc. v. Kaleidescape, Inc. CA Court of Appeal opinion" (PDF).
  9. ↑ Kravets, David (2009-08-12). "Another Court Deals Major Blow to DVD Copying". Wired. Retrieved 2010-03-10.
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