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RealNetworks: Movie Studios Violate Federal Antitrust Laws

San Francisco – RealNetworks charged movie studios and the DVD Copy Control Association (CCA) with federal antitrust violations in defending itself against the studios’ lawsuit to keep RealDVD software off the market.

RealDVD copies movie DVDs to a PC’s hard drive or to an external hard drive for storage and playback and locks the content to the hard drive to prevent further copying or sharing over peer-to-peer file-sharing networks. RealNetworks contends such restricted copying is allowable under federal law as a fair use, but the studios contend it violates the Digital Millenium Copyright Act (DMCA). Under the act, copyright owners must authorize what they contend is Real’s “circumvention” of DVD copy-prevention technology, the studios contend. Their argument would also apply to a handful of networked movie servers offered for residential use.

In a complaint filed yesterday in a federal district court here, Real argues that the CCA’s licensing terms represent an “illegal horizontal agreement to boycott any potential competitor.” The studios and the DVD CCA, a spokesman added, “conspired to eliminate the possibility of any entity other than the studios from competing in the market for fair-use copies of DVDs.”

In its filing, Real pointed to the studios’ marketing of Digital Copy versions of DVD movies. Digital Copy discs, bundled with a companion movie DVD, contain a copy-controlled version of a movie. That version can be transferred to a hard drive or to a portable media player (PMP). The bundle adds roughly $4 to a DVD’s retail price, the filing said.

“The critical difference between RealDVD and the studios’ plan for `digital’ and `managed copy’ is that the studios intend to charge DVD purchasers an additional sum for the `managed copy’ of each and every DVD they have purchased,” the complaint said. “Having already purchased the digital content on their DVDs, however, DVD owners have the fair-use right to make a backup copy for these purposes without buying the content a second time.”

“RealNetworks’ entry into the relevant market has been delayed while the studios have remained free to distribute and sell their own `Digital Copy’ products and capture the market for themselves,” Real asserted.

In Real’s interpretation, the studios have asserted in court that a “boycott” is “required by the terms of a license issued through …the DVD CCA,” Real’s filing stated. “The DVD CCA was purportedly created to license the encryption technology (CSS) that any company needs in order to make products to play a DVD.” Unless the CCA’s licensing terms are amended by the collective approval of the studios, Real said of the studios’ position, “they are prevented from individually granting RealNetworks a license that would make clear that customers of any particular studio can make an archival copy of that studio’s DVDs (as long as the customer owns the DVD).”

Through this “illegal agreement,” the studios “have ensured that – unless a court intervenes – they will face no competition in the market for technology that enables a consumer to make a secure backup copy of a DVD that she already owns. With no competitors to challenge them, the studios will face less pressure to make the technology available to consumers sooner rather than later, or to develop consumer-friendly features.” Such features include “the ability to automatically organize and search DVD content, bookmarking and parental control features, and the benefits of efficient portability for an individual’s DVD collection,” the company said.

Real is asking the court to bar the DVD CCA and the studios from engaging in “the anticompetitive activity,” and it seeks monetary damages. Even if the studios’ are unsuccessful in keeping RealDVD off the market, Real said in its filing, “ RealNetworks will most certainly not be able to successfully execute a ‘third’ publicly acclaimed launch of RealDVD after having been tainted with the mislabel of an illegal product following two aborted launches.” The studios’ suit “will foreclose RealNetworks from competing in the market for technology that enables consumers to (a) create or otherwise obtain digital copies of movies and TV shows that they own on DVDs and (b) store and manage those copies electronically (e.g., on a hard drive) for subsequent playback.”

At press time, the Motional Pictures Association of America (MPAA) died not return a request for comment.