Why Hollywood Hates RealDVD

Why does Hollywood hate RealDVD so much? Here's a hint: it has nothing to do with piracy and everything to do with controlling innovation.

Earlier this week, a district court in San Francisco extended the temporary restraining order (TRO) blocking RealNetworks' distribution of its RealDVD software, at least until a full-dress preliminary injunction hearing can be held sometime in late November. Although reporters have done a good job reporting on the hearing, they have not answered a more basic question: why does Hollywood care so much about RealDVD in the first place?

It's not about piracy. After all, those who want to copy DVDs have plenty of free, widely available, easy-to-use software to choose from (e.g., Handbrake, DVD Shrink, Mac The Ripper). And those who want to skip the tedium of DVD ripping altogether can easily download movies from unauthorized sources like The Pirate Bay. In short, Hollywood can't possibly believe that the $30, DRM-hobbled RealDVD software represents a piracy threat in an environment rife with easier options.

So why unleash all the expensive lawyers to kill RealDVD? Answer: to send a message about what happens to those who innovate without permission in a post-DMCA world.

As we've said for years, DRM systems like the Content Scramble System (CSS) used on DVDs are not principally about preventing piracy. Rather, DRM is the legal "hook" that forces technology companies to enter into license agreements before they build products that can play movies (Hollywood lawyers candidly admit this "hook IP" strategy). Those license agreements, in turn, define what the devices can and can't do, thereby protecting Hollywood business models from disruptive innovation.

This arrangement reverses the previous innovation status quo. Where non-DRM'd content (e.g., books, broadcast TV, the CD) is concerned, innovators do not have to ask permission before building new products that can copy and play copyrighted works (e.g., the photocopier, the VCR, the iPod). But where DRM'd content like DVDs are concerned, Hollywood intended the DMCA's anti-circumvention provisions to slam the door on that kind of disruptive innovation. After the DMCA, technology vendors would have to ask permission, sign licenses, and make concessions, if they were going to build things to play DRM'd Hollywood movies.

So it's not that Hollywood implacably hates personal use format-shifting and space-shifting -- rather, Hollywood wants to make sure those new features happen on Hollywood's terms ("pay us again"), on Hollywood's timetable ("later"), and only after valuable concessions have been wrung from technology companies ("watermark detection, compliance & robustness requirements, down-rezzing").

That's why RealDVD is such a threat. By reading the existing CSS license carefully, Real (and Kaleidescape before it) found a way to create a new product category without first getting permission from (and paying obeisance to) the Hollywood studios. Real's defection represents a threat to several schemes that Hollywood has been working on for throttling DVD innovation over the next several years. For example:

• Managed Copy: Hollywood has been negotiating for years with technology companies over "Managed Copy," a mechanism that will allow limited copying of DVD and Bluray discs onto PCs and portable devices. "Managed Copy" has been promised for years, yet has not materialized, thanks to power struggles inside the organizations that run the relevant DRM licenses (DVD-CCA for DVDs, AACS-LA for Bluray). In the course of these negotiations, Hollywood has managed to wrest several important concessions from technology vendors (including requiring that computers do watermark detection to spot pirated copies when reading data from Bluray discs, and imposing DRM on resulting copies). If those technology companies can build things like RealDVD and Kaleidescape under the terms of the existing contract, then the prospect of more negotiations and concessions for Managed Copy suddenly seems much less appealing.
• Digital Copy: Hollywood has begun selling DVDs that come with a second disc that permits the making of a copy on a PC. The catch? You have to pay extra for the right to make this personal use copy -- in other words, Hollywood is stealing your fair use rights and selling them back to you piecemeal.
• Internet Download Services: you already bought it on DVD, but now Hollywood wants you to buy it a second time from iTunes, Amazon, or MovieLink if you want to watch the same movie on a PC or iPod.

So that's the real story here. It's not about piracy. It's about Real defecting from the DRM licensing cartel, building what consumers want now instead of negotiating endlessly for a spot in Hollywood's next Five Year Plan for the DVD format.

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Why MPAA Should Lose Against RealDVD

Earlier this week, the motion picture industry sued RealNetworks over its RealDVD software. The MPAA companies also asked for an immediate temporary restraining order (TRO) to block Real from distributing the product, which allows consumers to copy their DVDs onto their personal computers for later playback.

There are many obvious reasons why this is a short-sighted and futile gesture by the studios (as Jon Healey of the L.A. Times points out), but let's focus just on the fatal flaws in their legal theory. (We've posted the key legal documents, including TRO briefs, for those who want to read them and form their own opinions.)

In order to obtain a TRO or preliminary injunction, the studios have to demonstrate both (1) a likelihood of prevailing on the merits of the case and (2) irreparable harm if they don't get an immediate order blocking distribution of RealDVD. They fail on both counts.

Irreparable Harm ... Not

Let's take "irreparable harm" first. The studios claim that if consumers get the power to copy DVDs (gasp!), it will be a catastrophe for Hollywood's DVD, VOD, and digital download businesses. I'm not sure what alternate version of reality the MPAA is living in, but consumers have been able to copy DVDs for a long time, thanks to free, widely available DVD rippers like Handbrake, DVD Shrink, and MacTheRipper. And, as we pointed out back in 2006 in a filing with the Copyright Office, this isn't a fringe activity only for hacker super-users. DVD rippers are in wide circulation and have been routinely reviewed in the mainstream press (like the Fort Worth Star-Telegram, PC World and MacWorld, not to mention Lifehacker). In fact, most of us were wondering how RealDVD was going to compete with Handbrake, particularly since RealDVD costs more ($30 v. free) and does less (Windows only v. multi-platform, DRM restrictions v. no restrictions).

So if DVD copiers are already in the hands of millions of consumers, how does the introduction of RealDVD threaten "irreparable harm" to Hollywood? Answer: it doesn't.

Hollywood also argues that "Real's (false) prophesies of legality have the likely potential of altering consumer attitudes towards DVD-copying and, accordingly, consumer behavior." That's absurd. If the distribution of RealDVD does not threaten irreparable harm (because it's just one more DVD ripper), then Real's public statements about their legal position (all protected by the First Amendment) certainly can't tip the balance. After all, the MPAA's litigation, legislation, and public education efforts have already reached far more consumers than Real could ever hope to. Plus, there are those FBI warnings in every DVD, as the studios tout in the first line of their TRO brief: "Anyone who has ever watched a popular movie on a DVD knows from the opening frames that copying the content of the DVD is strictly prohibited."

[Aside for law nerds: The studios also make a half-hearted claim that they are entitled to a presumption of irreparable harm because that's the norm in intellectual property cases. That argument died two years ago, with the Supreme Court's 2006 ruling in eBay v. MercExchange rejecting those "presumptions." In fact, these same movie studios lost this same argument in front of the district court judge in MGM v. Grokster last year. See 518 F.Supp.2d 1197, 1212-14 (C.D. Cal. 2007).]

DMCA Violation ... Not

Nor are the studios likely to prevail on the merits of their DMCA claim. According to the studios, RealDVD "circumvents" the CSS encryption system that protects DVDs. The problem with that argument is that Real has a license from DVD-CCA to decrypt DVD movies, and the DVD-CCA v. Kaleidescape case tells us that the license does not prohibit making bit-for-bit digital copies of DVDs, so long as you keep them secure and play them in a software player that complies with the license requirements. This brings us to the heart of the studio's argument:

Although Real has authorization under the CSS license to use the decryption keys and licensed technology to play content on DVDs, Real does not have authority to use that technology to make a permanent, playable copy of DVD content. By using authorized technology for an unauthorized purpose, Real "avoid[s]," "bypass[es]" and "impair[s]" those very measures. In short, RealDVD circumvents CSS's access- and copy-control protections.

The trouble with this line of argument is that two courts have ruled that "using authorized technology for an unauthorized purpose" does not violate the DMCA. According to those courts, if someone gives you a password, and then you use it in an unauthorized way, there's no DMCA "circumvention." Here, the "password" would be the CSS keys to decrypt DVDs, which Real received as a DVD-CCA licensee. So using those keys for an "unauthorized purpose" is no DMCA violation. And, since the studios are seeking their TRO based solely on the DMCA, that should be the end of that.

[Aside for copyright nerds: if you believe the MPAA that the DVD-CCA license does not authorize "copying," but only "playback" of DVDs, then what about all the temporary RAM copies that are made by all licensed DVD players? The MPAA just got done arguing strenuously in the Cablevision case that all those RAM copies count as copies, no matter how short-lived. Have they changed their minds and embraced the Second Circuit's contrary ruling?]

The court should deny the TRO (and any subsequent preliminary injunction). Let the MPAA try to prove its case in court. In the meantime, let Real distribute RealDVD into the crowded market of PC-based DVD rippers and hard-drive based DVD jukeboxes. After all, Handbrake is more likely to kill off RealDVD than Hollywood is.

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Tell the FCC to Open Up White Spaces!

Last week, we sent out a call to action over the “white spaces” issue soon to be addressed by the FCC. Let’s take a closer look at why this issue matters.

It ought to be a no-brainer to say that the airwaves belong to everyone. We use the airwaves to carry TV and radio signals, for our cellphones and cordless phones, even for garage door openers and baby monitors. And while corporations are given license to use limited slices of the spectrum for radio and TV, the airwaves remain public property, a treasure we hold in common.

The FCC’s job is to regulate this valuable resource in the public interest. Later this fall, the FCC is expected to decide what should be done with “white spaces,” the unused areas of the spectrum that lie between channels licensed by TV and radio broadcasters. These white spaces amount to vast, unused real estate in the spectrum, a territory that will only increase in February 2009 with the discontinuation of analog TV signals.

Should these spare airwaves be auctioned to the highest bidder, or should they be preserved as open space that can be used by anyone? EFF is joining other groups, including Public Knowledge and Google’s Free the Airwaves campaign, in calling on the FCC to allow this unused spectrum to be left open and unlicensed. Our hope is that this will allow more people than ever before to use these resources, which were once the exclusive monopoly of private industry.

This would mean the airwaves could be used to deliver high-speed broadband wireless Internet access — an Internet with the same reach as broadcast radio and television. The public would be able to get online from almost any public or private space, untethered to wired connections or Wi-Fi hotspots. Accessing the Internet would be as easy as picking up a radio frequency. Low-income neighborhoods and rural areas where fiber-optic wires prove too expensive to lay down could enjoy the same fast connection speeds as dense urban neighborhoods.

The promise of wireless broadband would also allow an increase in the number of ISPs offering Internet access, delivering a challenge to the near monopolies held by cable and broadband providers in most areas. Increased competition among ISPs should drive down prices and potentially increase pressure on ISPs to maintain net neutrality and other desirable network policies (i.e. no 250GB caps).

Developers would also be free to use this spectrum to experiment with new devices that take advantage of the newly available spectrum. When the Internet is everywhere, cheap and easy to access, new devices will spring up to make use of it, promising a revolution in wireless technology that will likely bring changes we can only now imagine.

It wouldn't be an absolute free-for-all: companies using the space would have to use systems that would prevent them interfering with other spectrum users, just as airplanes have to obey air traffic control to fly in our skies.

But TV and radio broadcasters and other industries are defending their traditionally exclusive grip on the radio frequencies. They say external use of white spaces might interfere with their analog TV signals or with wireless mics used in concerts and sport events — even before the FCC is done testing prototype devices designed to avoid interference. Moreover, fears about interference begin to sound a bit stale in the face of new technology that allows white space devices to co-operate in sharing their common bandwidth while keeping them out of the way of the sprawling analog TV signals.

EFF encourages the public to make its voice heard in this vital debate about the future of the radio spectrum and the Internet. Public resources should be used in the public interest, and what better way to do that than to bring the communications medium of our time to a wider audience than ever, at greater speed, and lower cost?

Take action now. Tell the FCC to open up the airwaves!

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Order Against Comcast Issued, FCC Credits EFF

The FCC has finally published its order (adopted on August 1) directing Comcast to stop blocking BitTorrent traffic. The 34-page ruling makes for surprisingly enjoyable reading, at least as FCC publications go. The order follows the basic outline that was explained by Chairman Martin in his statement on August 1, 2008. But there are some interesting additional tidbits:

• The FCC specifically cites and credits EFF's testing in discussing Comcast's BitTorrent blocking activities. And it also relies explicitly on evidence gathered by individual Internet users Adam Lynn, Jeffrey Pearlman, David Gerisch, Dean Fox, and Robert Topolski. The order concludes with this remarkable invitation: "We invite ... members of the public to keep a watchful eye on Comcast." And, as it happens, EFF is building the Switzerland network testing tool to help Internet users to do just that!
• The Commission dismisses Comcast's claim that it was merely "delaying" BitTorrent traffic as "verbal gymnastics," specifically finding that "the company has engaged in blocking." Glad to see we can put that semantic debate to rest.
• The FCC sets out a standard for reviewing discrimination undertaken in the name of "reasonable network management": the "practice should further a critically important interest and be narrowly or carefully tailored to serve that interest." According to the FCC, even if congestion management was "critically important," Comcast's methods were hopelessly over- and under-inclusive. The Commission cited EFF's testing on this point, noting that Comcast admitted to blocking BitTorrent seeding without regard to neighborhood congestion or user-specific bandwidth usage.
• Also in accord with the comments submitted by EFF, the FCC called Comcast out for its failure to disclose its practices to its customers, noting that "Comcast's first reaction to allegations of discriminatory treatment was not honesty, but at best misdirection and obfuscation."
• The FCC spends 12 pages justifying its regulatory authority to issue the order, invoking its Title I "ancillary jurisdiction" to regulate in the name of "national Internet policy" as described in seven statutory provisions, all of which speak in general terms about "promoting deployment," "promoting accessibility," "reducing market entry barriers," and the like. Reading this section of the order, one can't help but feel sympathy for Commissioner McDowell, who in his dissent worries that "under the analysis set forth in the order, the Commission can apparently do anything so long as it frames its actions in terms of promoting the Internet or broadband deployment." If Comcast sues to overturn the order, you can be sure that this is where it will focus its attack.
• And now for the remedy. Quoting Ronald Reagan's mantra, "trust but verify," the Commission has ordered Comcast to do 3 things within 30 days:
  

  (1) disclose to the Commission [but not the public?] the precise contours of the network management practices at issue here, including what equipment has been utilized, when it began to be employed, when and under what circumstances it has been used, how it has been configured, what protocols have been affected, and where it has been deployed;

  (2) submit a compliance plan to the Commission with interim benchmarks that describes how it intends to transition from discriminatory to nondiscriminatory network management practices by the end of the year; and

  (3) disclose to the Commission and the public the details of the network management practices that it intends to deploy following the termination of its current practices, including the thresholds that will trigger any limits on customers’ access to bandwidth.

So, while we continue to be worried about the future risk of regulatory capture of the FCC by large ISPs, and have our doubts about the Commission's authority to regulate the Internet, the order hits the nail on the head when it comes to analyzing what Comcast actually was up to.

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Victory for DVRs in the Cloud

Twenty-four years ago in the Sony Betamax case, the Supreme Court declared that using a VCR to "time-shift" — to record a television program for viewing at a later time — was a fair use. Today, the Second Circuit rejected [PDF] an attempt by the content industry to change the rules of the game if your video recorder is stored "in the cloud" on the Internet.

In March 2006, Cablevision announced that it would be launching a "remote storage" DVR (RS-DVR) system that would operate much like a TiVo, except that the recordings would be stored on hard drives in Cablevision buildings rather than on a box under a consumer's television. A collection of studios and networks sued Cablevision, arguing that RS-DVRs would violate copyright.

Wait, doesn't the Sony Betamax case say that time-shifting is legal? Yes, but that's not what the plaintiffs complained about. Indeed, they carefully avoided attacking what the consumers would be doing. They instead argued that an RS-DVR is different, because Cablevision is making the copy, and that somehow makes all the difference.

Cablevision, supported by EFF and other amici, explained that this was the wrong way to think about things. When a consumer presses the record button on a remote control, it's the consumer who's making the copy, regardless of whether the copy is being stored on a hard drive a few feet away, or in a data center miles away. Although the district court agreed with the plaintiffs, the appellate court today resoundingly sided with Cablevision, EFF, and the other amici that supported Cablevision:

In the case of a VCR, it seems clear . . . that the operator of the VCR, the person who actually presses the button to make the recording, supplies the necessary element of volition, not the person who manufactures, maintains, or, if distinct from the operator, owns the machine. We do not believe that an RS-DVR customer is sufficiently distinguishable from a VCR user to impose liability as a direct infringer on a different party for copies that are made automatically upon that customer’s command.

This is exactly the right result. As we pointed out in our amicus brief, a rule holding Cablevision liable merely because it housed and maintained the servers in this case could imperil a wide variety of innovative business models that rely on the use of remote computing, ranging from examples like Internet-enabled self-service photo processing and printing, to cloud computing services offered by companies like Amazon, Apple and Google.

That's not all there was to cheer in the Cablevision decision. The court also reminded everyone that in order to be a "copy" for purposes of copyright law, a work must be "sufficiently permanent or stable to permit it to be . . . reproduced . . . for a period of more than transitory duration" (here, the court concluded that data in temporary buffers in the Cablevision system that would be overwritten in, at the longest, 1.2 seconds were of transitory duration). In the digital age, where routers and caches often make fleeting copies of bytes in the ordinary course, this was welcome news.

And, finally, the court rejected the plaintiffs' argument that Cablevision was engaging in unauthorized public performances. The way the Cablevision system was designed, every time a consumer decided to record a given show, Cablevision would store a separate copy of that program, and each of those copies could be played back only by the consumer who recorded it. The plaintiffs urged the court to hold that if 1000 copies of the season finale of Desperate Housewives are played back in 1000 households, that's a public performance. The court instead correctly concluded that each of those copies is playable in only one household, which means that we're talking about 1000 private viewings, not a public performance.

Just three years ago, in MGM v. Grokster, the Supreme Court proclaimed that copyright law should "leave breathing room for innovation and vigorous commerce," and today the Second Circuit has done just that.

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Wanted: Prior Art to Bust Firepond/Polaris Patent

The Patent Busting Project fights back against bogus patents by filing requests for reexamination against the worst offenders. We've successfully pushed the Patent and Trademark Office to reexamine four of the ten patents on our Most Wanted list, and now we need your help to bust another.

A company called Polaris has a patent on a method for telling whether or not an incoming message (e.g., an email) is a simple, standard request that can be answered automatically, and, if so, for answering it. The method processes incoming messages by consulting two databases: a database of IF-THEN rules, and another database of previously classified messages (cases). In other words, Polaris claims to have invented the basic concept of almost any technology that is used to determine whether the message can be answered automatically or must instead be forwarded to a human being.

To bust this overly broad patent, we need to find prior art that describes a product made before 1997 in this way. Take a look at the description and please forward it to anyone you know who might have special knowledge related to natural language processing. Prior Art can be submitted here.

We anticipate that a lot of useful prior art will lie in the area of helpdesk automation or customer service automation or in server software. Consider specifically:

• Helpdesk automation systems that automatically respond to user queries or
• Systems that help customer service operatives identify solutions to user problems by means of both rule and case databases.

Where to send information on prior art:
Email: priorart@eff.org
Web submissions: http://w2.eff.org/patent/wanted/contribute.php?p=firepond

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EFF to FCC: "Reasonable Network Management" Requires Transparency

In response to the FCC's inquiry into Comcast's interference with BitTorrent traffic, EFF filed comments yesterday urging the FCC to make it clear that ISPs must, at a minimum, adequately disclose their "network management" practices before they can hide behind the excuse of "reasonable network management."

The FCC has invited public comments regarding the Comcast BitTorrent blocking affair in response to two petitions: one filed by Vuze (formerly Azureus) and another filed by the Media Access Project, FreePress and Public Knowledge. (The recent public hearing in Boston, in which Comcast paid people to fill seats, was also part of this same proceeding.)

The central question in the proceeding is whether Comcast has violated the four neutrality principles set out in the FCC's Internet Policy Statement. It seems clear that Comcast's protocol-specific interference with BitTorrent traffic violates those neutrality principles. In response, Comcast (and other ISPs) have offered the excuse that it was all "reasonable network management" -- a catch-all exception to the FCC's neutrality principles.

In its comments to the FCC, EFF urges the agency to clarify that the "reasonable network management" exception to its neutrality principles should only apply where an ISP has adequately disclosed the existence and likely consequence to customers of its discriminatory practices. After all, if we believe that market forces are our first line of defense against unreasonable ISP behavior, those forces can only work if customers, competitors, innovators, and policy-makers know what the ISPs are up to. On that score, Comcast has obviously fallen short, issuing a series of denials, evasions, and half-truths for 10 months after its own customers caught them interfering with BitTorrent traffic. The FCC needs to send a message to Comcast and other ISPs that this is unacceptable.

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Barracuda Networks Asks For Help in Defending Free and Open Source Patent Claim

Barracuda Networks Inc. today announced that it plans "to defend itself, the open source community and the free and open source Clam AntiVirus software from a patent by Trend Micro."

The patent at issue in the litigation is U.S. Patent Number 5,623,600 and is directed generally to virus detection and removal apparatus for computer networks.

Basically Trend Micro's claim is that Barracuda infringed its patent by incorporating into its products the free and open source Clam AntiVirus software, which scans for viruses at the mail gateway. EFF has long worried that bogus patent claims could threaten the free and open source software community, and we'll be watching this case closely. While this claim was made against a company using the tool, if it's successful the same argument could be targeted at a university or even an individual, so it's important to pay attention at the early stages.

Barracuda has asked for help from the community in seeking prior art for the patent, much as EFF does in its Patent Busting Project. As FSF's Eben Moglen says, "[c]ollective defense from software patents is a shared responsibility for everyone in the free software ecosystem.”

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Latest Test for DMCA Safe Harbors: Warner Sues SeeqPod

Warner Music Group has sued SeeqPod (complaint, 500k PDF), a "Web 2.0" music search engine (combined with embedable playlists, etc, etc) that has been gaining in popularity in recent months.

This is the latest in a string of lawsuits against Web 2.0 companies. Together, the suits represent an attack by the entertainment industry on the DMCA safe harbors that protect hosting services and search engines. Other similar cases have been filed against YouTube, MP3Tunes.com, Veoh, PornoTube, and Divx/Stage 6.

The SeeqPod case is different, however, because it is among the first that directly tests how copyright law applies to search engines. Despite the success of search engines like Yahoo and Google, there has been remarkably little case law developed on the copyright front. Part of the reason is because Congress stepped in with the DMCA safe harbors in 1998, creating some degree of certainty where the background legal concepts (e.g., contributory infringement) did not. In addition, by endorsing a notice-and-takedown regime, the DMCA safe harbors created a solution for many copyright owners that is cheaper than litigation.

But now, as search engines become more specialized and capable, certain copyright owners have become increasingly dissatisfied with the notice-and-takedown bargain struck in the DMCA. That's what these lawsuits are really about -- the defendants are complying with the letter of the law, but copyright owners are now trying to change the rules in court.

Of course, the SeeqPod case may settle (as a similar case brought by Warner against iMeem did). But the copyright issues will not be going away anytime soon (in particular, keep your eye on the remand in the Perfect 10 v. Google case, where the DMCA safe harbor issues may take center stage).

UPDATE: LA Times reporter Jon Healey has an interesting post about the case over at his Bit Player blog, suggesting that SeeqPod is unfairly trying to evade royalty obligations that its competitors must pay. We spar more over this in the comments over there.

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Does Peace with UMG Mean Downgrade for XM Subscribers?

XM and Universal Music Group (UMG) have apparently settled their lawsuit over XM's Inno (we explained the details in a May 2006 post when the suit was filed), the little receiver/recorder that promised to be like a TiVo for your satellite radio subscription. Early reports only speculate about the terms of the settlement, suggesting that XM is probably paying a royalty to UMG for every Inno sold.

That's bad enough, as it sets a precedent that record labels can effectively tax innovators for building new technologies (UMG also pressured Microsoft into paying a royalty on every Zune). But the real question is whether XM will "downgrade" the features that the record labels object to -- like the Inno's ability to record only artists you specify and randomly access individual tracks (the record labels complain that this makes the Inno too much like an iPod, and that copyright law is somehow responsible for policing the boundaries between iPods and radios and computers and ... and...). Many will recall that the RIAA has been pushing for new laws like the PERFORM Act and FCC regulations that would prohibit these features, leaving us in a world where digital audio recorders are artificially left less capable than even the original TiVo video recorders.

So, any of you who own an XM Inno, please let us know if you get a mandatory "upgrade" that downgrades your device.

UPDATE: a helpful Inno owner tells us: "The firmware on the Inno apparently can only be changed via a USB cable using special software on your PC. They've gone through several versions including the famous 1.05 where the illegally high powered FM modulator could be enabled at any time. Later versions turned off this feature, but many people still cling to their 1.05 version Innos in spite of the bugs." So it appears that Inno owners may be protected from mandatory "downgrades," but at the expense of not getting other new features.

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