Copy Protection Group Sues Kaleidescape

The legal action being taken by the DVD Copy Control Association against video server manufacturer Kaleidescape raises many questions about the product category. Among those questions: Is its future in jeopardy?


Since it rolled out a video server in 2003, Kaleidescape has loudly proclaimed its adherence to copy protection strictures, including those embodied by the Digital Millennium Copyright Act (DMCA) and the DVD Copy Control Association (DVD CCA). The DVD CCA licenses the Content Scramble System (CSS), an encoding scheme used by DVD makers to thwart the use of DVDs by anything other than a DVD playback product with (licensed) CSS decoding software.

Kaleidescape has a license from the DVD CCA to employ CSS decoding in its media servers, which it does.

Now, DVD CCA is suing Kaleidescape for breach of contract, claiming, “[W]hile Kaleidescape obtained a license to use CSS, the company has built a system to do precisely what the license and CSS are designed to prevent … the wholesale copying of protected DVDs,” said William Coats, the lead litigation counsel for DVD CCA, in a statement announcing the suit.

DVD CCA filed the suit (case #1-04-CV-031829) on Dec. 7, 2004, in the California Superior Court, Santa Clara County. The Kaleidescape system allows users to copy their DVDs onto the server for instant access via any connected television on the home network. Kaleidescape's scheme disallows the distribution of DVDs on the server to any device not connected to an in-home Kaleidescape client.

But that's not good enough for the DVD CCA, which claims in the lawsuit, “Kaleidescape is required to prevent the creation of persistent digital copies of DVD content and is required to implement architectures that prevent such copying.”

Stated more clearly in the suit, “Kaleidescape is required to implement architectures in which the user must have the physical DVD disc in the drive during authentication and playback.”

In other words, the suit charges that, after a user copies a DVD onto the Kaleidescape server, he can pass it along to a friend to copy, who can pass it to another friend, and so on.

In an interview with CE Pro, Kaleidescape CEO Michael Malcolm claimed, first of all, that the terms of the license alleged in the lawsuit, “simply are not there [in the DVD CCA license agreement]. I've personally read it cover to cover. Their claims are bizarre.”

In any case, Kaleidescape has implemented other rules, if not technological, to ensure that users physically own and retain any DVD copied onto a Kaleidescape server. “We require users to continue to own the DVD, and reserve the right to shut off the system if they violate that rule,” he says. (See the user agreement)

Is Hollywood behind the suit?

While the bulk of news stories blame Hollywood for the Kaleidescape mess, Malcolm believes the movie Mecca may not be the instigator of this action. “We've had very friendly dealings with most of the Hollywood studios,” says Malcolm. “Some of their executives have purchased Kaleidescape for their homes.”

Besides, says Malcolm, “Major studios are selling hundreds of DVDs when someone buys our system.” In fact, movie makers represent only one-third of the DVD CCA board, the remainder comprised of consumer electronics and computer manufacturers. Malcolm wonders if would-be competitors in the CE and IT space are behind the suit. “There are members of the DVD CCA who would like to be making a product like ours,” he says. “They don't want to see a new CE vendor emerge.”

One impartial attorney, who is unaffiliated with the Kaleidescape case but understands the inner workings of the DVD CCA, sees it differently. While it is quite possible that the CE/IT members of the DVD CCA could be behind the Kaleidescape lawsuit, the attorney, who asked not to be identified, suggests that such members would probably be driven more by legal, rather than market, concerns: “It seems more likely that they believed the interpretation of the license implied by the product in question was not one that content owners would support, especially if applied to less expensive and more generally available products.”

In other words, Kaleidescape's implementation might invite challenges from Hollywood, thereby hampering the development of the video server category, which has huge potential for the mass market. Basically: Don't blow it for the rest of us.

So what's the solution?

It appears that Kaleidescape did everything by the literal rules. Given today's nascent technology, how could the company implement “architectures in which the user must have the physical DVD disc in the drive …”, which the DVD CCA claims is implied by the licensing agreement? Of course, requiring the presence of the physical disc wholly defeats the purpose of the Kaleidescape product.

What else can Kaleidescape and competitors do but make their ultra-wealthy clients swear to the rules, and threaten to take away their expensive toys if they cheat?

Malcolm has at least one suggestion: “Let customers buy movies from us, then we could destroy the DVD or put it in escrow, so there's no way to copy it. But we don't have the right to do this.”

Malcolm has broached this subject in the past. “The problem is, there's no 'them' to talk to,” he says. Little is known about the DVD CCA. While not confidential, the membership roster is not readily available. The license agreements are confidential. Check the Website — there's no contact name, phone number or any other way to contact the powerful organization other than by applying online for a license. (See related editorial)

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.”

About the Author

Julie Jacobson
Julie Jacobson:

Julie Jacobson is founding editor of CE Pro, the leading media brand for the home-technology channel. She has covered the smart-home industry since 1994, long before there was much of an Internet, let alone an Internet of things. Currently she studies, speaks, writes and rabble-rouses in the areas of home automation, security, networked A/V, wellness-related technology, biophilic design, and the business of home technology. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, and earned an MBA from the University of Texas at Austin. She is a recipient of the annual CTA TechHome Leadership Award, and a CEDIA Fellows honoree. A washed-up Ultimate Frisbee player, Julie currently resides in San Antonio, Texas and sometimes St. Paul, Minn. Follow on Twitter: @juliejacobson




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