Ex©lusive Rights

RealNetworks, Inc. v. DVD Copy Control Association, Inc., 08-04548 MHP (N.D. Cal. 2009)

The story

RealNetworks distributed the software RealDVD which, among other things, would play a DVD and store a copy of it to a hard drive to be played at a later time. RealNetworks obtained a license to use CSS, the industry standard DRM encryption technology, at the not inconsequential price of $30k. When RealDVD saved a DVD to a users hard drive, it saved the content along with CSS and its own proprietary DRM. The protection measures were set to limit the playback of ripped DVDs to five hard drives. RealNetworks also required an end-user agreement that made users verify  that they would only rip copies of DVDs that they owned, not rented, and that they would limit their use of the saved copies to personal use.

Breach of the licensing agreement

The CSS licensing agreement required that “video content or keys initially encrypted using CSS not be carried on a user accessible bus.”  RealNetworks argued that it was not in breach of the provision because its own DRM limited access to CSS and content saved on a user hard drive. The Court disagreed, noting that Real’s own layer of protection was “inconsequential” for interpreting the licensing agreement. The Court also found that RealNetworks had breached its covenant of good faith and fair dealing.

DMCA Violation under 17 U.S.C. 1201(a)

Section 1201(a) provides that “[n]o person shall . . . offer to the public . . . any technology . . . that (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access” to a work protected under copyright. RealNetworks argued that since CSS has been cracked, it did not “effectively” control access for purposes of the Section. The Court rejected the argument, citing 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp.2d 1085, 1095 (N.D. Cal. 2004) (Illston, J.) for the proposition that that CSS technology still effectively controls access to DVD content for the “ordinary customer.”

Fair Use

RealNetworks argued that it could not be held liable for a DMCA violation because the user copying made possible by its technology was shielded from liability as a non-infringing fair use. In making this argument, RealNetworks relied on 17 U.S.C. 1201(c) which states, in part, that nothing in the DMCA should be read to “limit defenses to copyright infringement, including fair-use.” The Court rejected this argument finding that “[f]air use is not a defense to trafficking in products used to circumvent effective technological measures that prevent unauthorized access to, or unauthorized copying of, a copyrighted work under sections 1201(a) or (b).” The Court noted that fair use only “enters into the picture in the context of the act of circumvention itself.”

The standard for a preliminary injunction

The Court applied the Ninth Circuit’s pre-Ebay v. MercExchange, pre-Winter v. Nat’l Res. Def. Concil, pre-American Trucking Ass’ns Inc. v. City of Los. Angeles test for obtaining injunction relief, stating that a preliminary injunction is available to “a party who demonstrates either (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardships tips in its favor.”  On page 40 of the 58 page decision, however, outside of the section in which the Court outlined the standard it applied for determining whether to grant a preliminary injunction, the Court stated the following:

The court is nonetheless mindful that it “must consider the public interest as a factor in balancing the hardships when the public interest may be affected.” Caribbean Marine Servs. Co., Inc. v. Baldrige, 844 F.2d 668, 674 (9th Cir. 1988). Whether the public interest would best be served by continuing to enjoin Real from making its products available to consumers, and protect the Studios’ rights at the expense of the consumers’ rights, to engage in legal downstream use of the Studios’ copyrighted material is an excellent question. It is also one the court does not and will not reach, because the statutory structure of the DMCA leaves no room for ambiguity. By making it a DMCA violation to distribute products that enable consumers to override copyright owner preferences against unauthorized copying, Congress determined that the public interest is best served by outlawing such products. “Policy considerations cannot override our interpretation of the text and structure of [a statute], except to the extent that they may help to show that adherence to the text and structure would lead to a result so bizarre that Congress could not have intended it.” Central Bank, N.A. v. First Interstate Bank, N.A., 511 U.S. 164, 188 (1994).

This interesting passage would seem to place the Court’s decision almost directly in opposition with  eBay v. MercExchange and Winter v. Nat’l Res. Def. Council. The remedies provision of the DMCA, similarly to the remedies provision of the Patent Act and the Copyright Act’s infringement section, state that a court “may” grant temporary and permanent injunctions to prevent a transgression of the statute. See 17 U.S.C. 1203(b)(1); 17 U.S.C. 502(a); 35 U.S.C. 283. The Supreme Court in eBay v. MercExchange noted that courts can not automatically award injunctive relief under this operative language in the Copyright Act’s infringement section and the Patent Act.  (“Like the Patent Act, the Copyright Act provides that courts “may” grant injunctive relief “on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.” 17 U. S. C. §502(a). And as in our decision today, this Court has consistently rejected invitations to replace traditional equitable considerations with a rule that an injunction automatically follows a determination that a copyright has been infringed.”)

The Court in RealNetworks further presumed irreperable harm upon finding that DVD Copy Control was likely to succeed upon the merits of the case. This would seem to be at odds with the Supreme Court’s pronouncement in Winter v. Nat’l Res. Def. Council that a plaintiff is required to “demonstrate that irreparable injury is likely in the absence of an injunction.”