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Kaleidescape CEO ‘Shocked’ at Extreme Injunction Against DVD Movie Servers

DVD CCA surprises Kaleidescape with severe injunction order, CEO Michael Malcolm tells CE Pro. He believes stay will be granted until appeal is exhausted.


Kaleidescape CEO Michael Malcolm and his team was “pretty shocked” by the injunction order just issued against the company in its seven-year-old lawsuit with the DVD Copy Control Association (DVD CCA).

Judge William J. Monahan of the Superior Court of California, Santa Clara, published the injunction last week.

The DVD CCA, which licenses the Content Scramble System (CSS) copy-protection scheme for DVD players, has enjoined Kaleidescape from selling its flagship DVD movie servers because they do not require a physical disc to be present at playback – a requirement of the CSS licensing agreement, according to the DVD CCA and the courts.

After the DVD CCA prevailed in a temporary judgment issued by Monahan in January, Kaleidescape expected an injunction order, but did not expect it to be so severe, said Malcolm in an interview with CE Pro.

All indications from the court trial (no jury) were that Kaleidescape would be required to come into compliance with the CSS licensing agreement -- if the court determined it was not in compliance to begin with -- not eliminate the product category altogether, according to Malcolm, who has maintained all along that Kaleidescape DVD servers do comply with the agreement.

“In opening comments, the DVD CCA attorney stated quite clearly that all they wanted us to do is to treat DVDs like we do Blu-rays so it wouldn’t put us out of business and it wouldn’t take a lot of time,” says Malcolm.

Related: Walmart, Vudu Ripping DVDs to the Cloud

In the Kaleidescape movie servers, Blu-ray titles must reside at all times in a carousel connected to the server. DVDs, on the other hand, may be copied to the servers and removed from the device.

“Based on that assumption -- that that’s all they wanted for the injunction -- we testified it would take four to eight months to bring us into compliance [with an injunction order]," Malcolm says.

He says that the injunction does nothing to protect studios against unauthorized copying: “There could be no unauthorized copying if the DVD were present in the vault, and we’ve been prepared to do that. If we were to just do that, I think the market would accept it.”

RELATED: Order of Permanent Injunction

Kaleidescape had no reason to believe that the DVD CCA would not present this option in the injunction; therefore, the company did not feel the need to object to such extreme measures.

“We would have had more evidence at trial if we knew what the DVD CCA really wanted,” Malcolm says.

Specifically, he explains, Kaleidescape would have testified about the devastating impact of a permanent injunction on the company. In addition, Kaleidescape would have presented more emphatically the non-effect of Kaleidescape’s product on the DVD CCA and the studios that own the content.

It was stipulated by the DVD CCA that Kaleidescape products do not negatively impact content owners. The DVD CCA, however, says the products undermine its credibility with studios.

The Effects of Injunction on Product Support


CE Pro reported initially that Kaleidescape would no longer be able to offer product support for its existing DVD servers.

DVD RIPPING: THE LATEST ON THE LEGAL FRONT
The DVD CCA's original lawsuit against Kaleidescape in 2004 was followed by a lawsuit against Real Networks' RealDVD ripping software. CE Pro maintains this timeline of activities (and opinions) related to the legality of DVD ripping and other fair-use issues from 2004 until today.
Malcolm says that is not entirely correct. He says the injunction applies only to support related to CSS.

“You have to trace back the definitions in the injunction,” he explains. “We are permitted to provide hardware and software upgrades and service to existing customers as long as those things don’t include prohibited technology.”

Kaleidescape is only enjoined from offering support “with respect to CSS,” Malcolm says, adding, “There is no hardware that contains the prohibited technology."

Kaleidescape puts CSS technology in a “separate software module on the server,” Malcolm explains. “We can upgrade and change all of the software without touching the CSS module. Thank goodness it was designed that way.”

Kaleidescape, he continues, “can still provide warranty service except if the CSS module breaks or something.”

When questioned if the DVD CCA would agree with that interpretation of the injunction, Malcolm noted, “It was very clear from the testimony on record by the DVD CCA that that’s what the injunction was.”

Specifically, the injunction order prohibits Kaleidescape and its agents from:

directly or indirectly making, having made, selling, offering to sell, marketing, importing or otherwise transferring any DVD Playback Product unless such DVD Playback Product:
a. obtains the Disc Key and Title Key(s) from a DVD Disc each time one or more Titles is to be played back;
b. ensures that the DVD Disc is physically present in the DVD Playback Product when playback of one or more Titles from such DVD Disc is occurring;
c. does not make a persistent copy of any encrypted or unencrypted Disc Key or Title Key(s); and
d. does not make any persistent playable copy of any Title.

Impact on Dealers and the Future of Kaleidescape DVD Movie Servers


The injunction prohibits the sale and marketing of DVD servers by “agents, servants, directors, officers, principals, employees, representatives, assigns, franchisees, and those acting in concert with them or at their direction.”

But those parties are not enjoined from supporting the affected products, Malcolm says: "I don’t think anyone would interpret it that it extends to any third party.”

Kaleidescape has appealed the injunction, and Malcolm believes the company will enjoy an automatic stay from the injunction until the appeal is exhausted. That could take two years, he says.

There are two types of injunctions, he explains. A prohibitory injunction is one that prevents a party from doing something potentially damaging, such as publishing an objectionable book.

A mandatory injunction is one that requires a party to do something specific, such as (in the case of Kaleidescape) ceasing to make products or providing support.

RELATED OPINION: What the ruling means for innovation and future of media servers

As Malcolm puts it, “A mandatory injunction is something that requires some time and effort to implement, and it changes the status quo.”

He characterizes the DVD CCA injunction as mandatory, which usually carries with it an automatic stay if appealed, Malcolm says.

“The status quo right now is that Kaleidescape is shipping products and dealers are installing them,” he says. “To change the products to comply with the injunction would take a year or more and would change the way they work. We would have to stop shipping them in the meantime or ship something that can’t do anything with DVDs. That’s why we believe it’s a mandatory injunction.”

Even though it is common for a judge to issue an automatic stay in such cases, Malcolm says, he cannot say for sure how this particular judge will react, nor what DVD CCA might recommend.

In any case, Kaleidescape is likely to find out “soon” whether a stay – or what kind of stay – is granted.

Grounds for Appeal


Malcolm says there are several grounds for appeal, but “probably the most significant one is that they [DVD CCA] have admitted there has not been any monetary damage to them or any of their members [including content owners] as a result of Kaleidescape. And damage is a necessary element for breach of contract.”

Monahan and earlier courts have maintained that content holders are not parties in this case, “and so any harm to them is irrelevant.”

The judge has ruled, “Rather, the harm is to DVD CCA itself from the undermining of those industries’ trust and confidence in the License Agreement, and thus in DVD CCA, if a breach by a licensee were to go unaddressed.”

Today, says Malcolm, Kaleidescape is still shipping DVD movie servers. “We’re assuming it’s a mandatory injunction and there’s an automatic stay, and so far no one has suggested otherwise.”

If the injunction sticks, it would not mean the end of Kaleidescape movie servers -- just the ability for new servers to copy CSS-encrypted DVDs. Blu-rays, which use a different encryption scheme (AACS) would not be affected.




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Article Topics

News · Product News · Video · Digital Media · Media Servers · Legal · Kaleidescape · Dvd Cca · Drm · All topics

About the Author

Julie Jacobson, Co-Founder, EH Publishing / Editor-at-large, CE Pro
Julie Jacobson, recipient of the 2014 CEA TechHome Leadership Award, is co-founder of EH Publishing, producer of CE Pro, Electronic House, Commercial Integrator, Security Sales and other leading technology publications. She currently spends most of her time writing for CE Pro in the areas of home automation, security, networked A/V and the business of home systems integration. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, earned an MBA from the University of Texas at Austin, and has never taken a journalism class in her life. She's a washed-up Ultimate Frisbee player currently residing in Carlsbad, Calif. Follow her on Twitter @juliejacobson. [More by Julie Jacobson]

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