Copy Protection Group Sues Kaleidescape

Why Kaleidescape?

By any account, Kaleidescape is a niche player, with servers starting at about $30,000 for a bare-bones system. Only about 300 systems have shipped, and some of those went to dealers for demo purposes. Even those relatively small numbers, though, may put Kaleidescape on top of the nascent video server category. But there are at least five competitors. Only two of those competitors, AMX and Molino Networks, have a CSS license through the DVD CCA.

Molino Networks, launched with much fanfare in March, 2004, seems to have exited the video server business, indeed, business period.

AMX, whose MAX server is similar to Kaleidescape's, declined to comment about anything related to the Kaleidescape complaint, or its implications for AMX. One individual outside of AMX suggests that the company has escaped the scrutiny of the DVD CCA because the MAX product is largely aimed at the commercial sector, especially for digital signage. Kaleidescape, on the other hand, aims squarely at the residential market, selling products for the purpose of copying DVDs (not all of which are copy protected) onto a server for seamless playback.

Then there are those who skirt the DVD CCA altogether, lest they be vulnerable to the vagaries of that organization's rules.

Axonix, for example, does not have an agreement with the DVD CCA. The company ships its MediaMax video servers without a DVD decrypter.

Likewise, Xperinet publicly pits its MIRV video server against Kaleidescape's, yet MIRV does not contain any software to decrypt (play or copy) copyrighted DVDs. "We don't provide the [DVD] decrypter," says CEO John Cox. "They [dealers] would have to go out and find one."

That's an easy task for anyone who can type "Google" into a Web browser.

As the Kaleidescape suit shows, "Shipping the decrypter as part of the product is legally problematic," says Cox. Xperinet rival Aegis Systems likewise has chosen to skirt the CSS licensing agreement rather than subject itself to the DVD CCA. Unlike Xperinet, however, Aegis does ship a decrypter with its Bluephire server. "We have third-party software built into the unit itself," says marketing manager Paul Garcia, who declined to name the software provider.

Garcia says he is "not too concerned" about copyright infringement claims, indicating that any such claims would have to be taken up with the decryption software provider. The real contract, he says, is between the consumer and the content provider. "You are bound to the terms of the DVDs that you purchased. You can only use them in your household. ... Our main concern is making sure you can't copy DVDs in the server to other DVDs."

While Xperinet, Aegis and Axonix are immune to suits from the DVD CCA since they do not have a contract with the organization, the companies could face flak from Hollywood studios via the Motion Picture Association of America. The MPAA, however, is too busy chasing the hundreds, if not thousands of purveyors of DVD decryption software, like Studio 321, which closed shop last year under the weight of MPAA legal challenges.

What's a dealer to do?

"Keep selling the product," advises Kaleidescape's Michael Malcolm. "We're going to be around for a long time. We're confident that we're right about this. We're not going to slow down or miss a beat. We're still hiring staff. Our manufacturing department is struggling to keep up with demand."

Kaleidescape plans to fight the DVD CCA and possibly file a countersuit of its own.

As for Xperinet, "We're going to stay the course," says Cox. The Kaleidescape suit, he adds, "does put a chill in the industry, especially for raising capital. No one is going to get money for DVD server technology. I really want Kaleidescape to stay alive. It would be very bad for all of us if something happened to them."

He Said, He Said

Through general counsel William Coats, the DVD CCA maintains that the rules of the organization’s licensing agreement are clear. Kaleidescape CEO Michael Malcolm, on the other hand, claims that is simply not the case.

Coats: "The specification is not that complicated. Their [Kaleidescape’s] issue is they didn’t want to follow the spec. They knew what they were supposed to do, they just didn’t do it."

Malcolm: "The CSS license agreement, which incorporates both procedural and technical specifications, is long and complicated. Over the past four years we have spent a lot of time studying this agreement in great detail. We have gone to considerable effort and expense to follow the specifications and to comply with the license agreement in every respect. We even filed a patent application on the method we use to comply with the CSS license agreement."

Coats: "They had an ombudsman [from DVD CCA]. ... They would have to redesign their [product] specs, and they didn’t want to do it."

Malcolm: "The DVD CCA appointed an ombudsman earlier this year, as provided by their own bylaws and license agreement. We cooperated fully with the process, providing all the information requested by the ombudsman. He reported back to the DVD CCA, and that is as far as the process went. Neither the ombudsman nor the DVD CCA ever suggested that we would have to redesign our products. We never had that conversation. The only feedback we got from the DVD CCA was when we were served with this complaint."

Coats: "Kaleidescape makes a permanent copy. ... The spec actually says you can’t make a permanent copy."

Malcolm: "The DVD CCA and their attorney are relying on the fact that it is difficult to prove a negative, particularly when the DVD CCA makes it difficult for people to see the agreement and its specifications. If the agreement actually said that you can't make a permanent copy, it would be easy for them to quote from their own documents, and the agreement would speak for itself. They don't quote the agreement because the truth is that the agreement does not say this. Why doesn’t Bill Coats point to a specific provision in the license agreement that states that you cannot make a permanent copy to a hard drive? To date, he has not cited a single provision of the agreement that would support his claims. To me, that speaks volumes."