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Real Expands Studio Suit with Antitrust Allegation

14 May, 2009 By: Erik Gruenwedel

With the future of its RealDVD copying software in the hands of a federal judge, RealNetworks filed a motion to enter a second amended complaint against the studios and DVD Copy Control Association (DVD CCA) alleging antitrust violations.

In the new complaint, filed May 13 in U.S. District Court in San Francisco, Real claimed the studios with the DVD CCA formed a “group boycott” against it by refusing to separately deal with the Seattle-based technology company and its procured CSS license agreements to launch RealDVD and Facet. The latter, a reported $300 hardware device powered by Linux software would allow users to store, archive and retrieve movie DVDs similar to the way TiVo operates with TV programming.

The complaint said that instead of individual studios authorizing or withholding copyright licenses, they opted for a joint agreement denying Real use of the CSS license. The company said the studios were using the license agreement to extend a legally granted monopoly over their content into separate markets.

“The DVD CCA and its co-conspirators’ unlawful contract, combination, conspiracy and agreement is unreasonable restraint of interstate trade and commerce, and constitutes a violation of the Sherman Act,” the complaint said.

Real said it became aware of the violations during the discovery phase in the RealDVD litigation. The amended complaint, for which a jury trial is requested, is slated to begin June 22. Closing arguments in the RealDVD injunction case are expected May 21.

Last week, Real founder and CEO Rob Glaser remained optimistic the media company could later this year begin manufacturing Facet. The unit, which Glaser said would be a successor to the current DVD player, is patterned after the Kaleidescape media system studios unsuccessfully attempted to shutter in 2007 due to concerns about DVD playback (without the disc) and a limited managed copy provision allowing for the making of digital copies.

Glaser, in court testimony, said he conceived the idea for Facet after purchasing the $10,000 Kaleidescape system for his bedridden pregnant wife.

Among issues in the RealDVD trial, which began April 24, is whether the software could differentiate between a rented or purchased DVD, thereby opening the door for “rent, rip and return” abuses, according to the studios.

Judge Marilyn Hall Patel agreed, issuing a temporary injunction against the software last October.

Real also contends the studios want to control dissemination of digital copies of DVD movies purchased by consumers. Citing testimony from Mike Dunn, president of 20th Century Fox Home Entertainment, Real said the studios consider the software a competitor to their commercial interests regarding digital copy. Fox has aggressively marketed digital copy with standard DVD and Blu-ray Disc releases.

According to the complaint, Dunn said, “Digital copy is particularly relevant because it allows consumers to purchase from the studios that which RealDVD is trying to sell for its own benefit.”

Real says consumers have a “fair use” right to make digital copies of DVDs they legally purchased.

“Our legal team is working incredibly hard to put on the strongest possible case we can,” Glaser said May 7 in an analyst call, in which he confirmed the company had spent more than $6 million in legal fees on the case.

Richard Doherty, technology analyst with The Envisioneering Group, said consumer rights to repurpose legally acquired entertainment should supersede the rights of studios to eternally control their content.

“Do [movies] become more secure than nuclear weapons?” Doherty asked. “To stop a new tool from being delivered because it might be misused against someone is a convolution of modern justice.”

Indeed, Real spokesperson Bill Hankes told CNET that if Judge Patel kept the injunction in place, the company would not bring Facet to market in its current form.

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