MPAA vs. RealNetworks: Five reasons why Hollywood will win

RealNetworks, the company behind the Real media player and Rhapsody music service, could this week become the latest courtroom conquest of the entertainment industry's fierce efforts to protect copyrights.

On Thursday, U.S. District Judge Marilyn Patel is expected to hear closing arguments in proceedings that will determine whether to remove a ban on the sale of RealDVD. The $30 software enables users to create and store copies of DVDs to their computer hard drives.

The Motion Picture Association of America (MPAA), the trade group representing the six largest film studios, filed suit last September to stop the sale of RealDVD and accused Real of copyright infringement and breach of contract. RealDVD and Facet, a proposed DVD player that can copy and store films, would hand users the ability to copy rented discs without paying a cent for them. The practice is known as "rent, rip, and return."

Real attorneys argued in court that the company operated within the law and that consumers have the legal right to backup copies of their media. Hollywood disagrees. "Fair use" proponents have kept a close eye on the case because a favorable decision for Real might bolster consumer rights.

But they're likely to be disappointed. Four days of testimony in a San Francisco federal court showed Real's case is trudging on very shaky legal ground. In addition to offering little evidence that it did not violate the Digital Millennium Copyright Act, Real's arguments that it obtained a license to use the studio's encryption technology and therefore owned the right to copy DVDs appeared to be overwhelmed by the MPAA's evidence to the contrary.

What might be most important about this case, a courtroom victory for the MPAA could put the kibosh on Facet, the device Real hopes is representative of the next-generation DVD player. Facet, which relies on the RealDVD software to make copies, can store up to 70 movies and would retail for about $300. In court, Real CEO Rob Glaser demonstrated the device and it hops between movies and television shows as easy as an iPod flips between songs.

Facet provides the kind of functionality that consumers want and could help rejuvenate slumping DVD sales, some observers say. The device, however, may never be sold in your local Best Buy for five reasons:

Not licensed to copy DVDs: In court, Real argued that the MPAA's breach of contract claims are baseless because the DVD Copy Protection Association, a group that includes film studios and DVD makers created to protect discs from piracy, issued it a license to use the organization's DVD Content Scramble System (CSS). This is the studio's encryption technology designed to prevent piracy.

When RealDVD copies movies, it never cracks the encryption, according to experts called to testify by Real. The MPAA's witnesses argued that the CSS license gives Real permission only to playback DVDs, not to copy them. Marsha King, a retired vice president at Warner Bros., testified that the whole purpose of the DVD-CCA licensing was to prevent consumer copying. "The studios were adamant that no copy be placed on the (computer) hard drive," she told the court.

Cracking ARccOS and RipGuard violates DMCA: Perhaps the weakest area of Real's defense is the circumvention of ARccOS (Advanced Regional Copy Control Operating Solution) and RipGuard.

The MPAA says these are anticopying technologies used by some of the major film studios as another layer of piracy protection in addition to CSS. They're not included in the CSS license. This means that even if the CSS license gave Real permission to copy, it wouldn't protect Real's cracking of ARccOS and RipGuard. Circumvention of copy protections violates the DMCA.

Real denied ARccOS or RipGuard are copy-protection measures. Douglas Dixon, one of Real's technology experts, testified both technologies are ineffective. This was one of the reasons the studios rarely used them, he said.

To illustrate his point, Dixon said Sony Pictures used ARccOS or RipGuard on just four film titles last year. Real's argument was this: if a copy protection isn't effective then it isn't really protecting anything and is not covered by the DMCA.

The irony is that Arccos and RipGuard were effective enough to foil Real's months-long attempt to crack them--starting in 2007--court documents showed. The copy protections even stumped Rocket Division, a company hired by Real to decrypt ArccOS and RipGuard, and a group the MPAA calls a "Ukranian hackers."

"Been...fighting with it for two weeks and no big success yet," wrote one of Rocket Division's managers in an e-mail to a Real executive. "With Arccoss the task appeared to be a little bit -- a little harder than we thought."

The studios told Patel that Real's argument that a copy protection needs to be impossible to break for it to be covered by the DMCA isn't logical. Why would unbreakable encryption need a law banning circumvention? The DMCA's anti-circumvention provisions are designed to cover all copy protections, MPAA lawyers said.

Studios could lose millions: Claims by the MPAA that RealDVD could cause significant financial harm were less convincing when the case was just about the software. With scores of similar products that cost nothing and were readily available online, why would anyone pay $30 for technology that were restricted by copy controls? RealDVD allows a user to watch a copied movie on five individual devices while copies made from software such as HandBrake are free of such limitations.

Then, Real's efforts to develop Facet surfaced and that changed the picture.

RealDVD was only one part of Real's DVD-copying strategy. The prize for Real was selling a box that copied and stored movies. Glaser acknowledged during the hearing that Facet offers no protection against piracy other than presenting a notice urging users not to copy movies they don't own.

Judge appears skeptical: Judge Patel has indicated several times that she isn't buying Real's story.

After Glaser outlined his company's attempts to stop Facet users from pirating films with little more than strong language, Patel hurumphed "Do you think this will be more effective than 'Just Say No?" This was a reference to the anti-drug campaign launched by the Reagan administration that was derided by critics for being naive and ineffective.

Last fall, when Patel halted sales of RealDVD, she told lawyers from both sides that she had questions about whether the software could enable mass copyright infringement. During opening arguments in the injunction hearing, one of Real's lawyers suggested that the company was in the right because it helped consumers backup their films.

"It's even more attractive to consumers to get everything for free," Patel said, in a seemingly sarcastic remark.

Real is grasping at legal straws: By accusing the studios of antitrust violations late in the process, Real is signaling that the company is less than confidant in it's case. In what appears to be a "Hail Mary" legal maneuver, Real claimed last week in a court filing that the studios are a cartel and that the CSS licensing agreement is proof they are guilty of boycotting Real.

This is a little late for Real to be raising these issues. The company could have made the claims at any time since September. Neither the CSS license, nor the studios relationship to it, is new.

Regardless of where Real's claims go, antitrust cases take years to litigate and will be unlikely to help RealDVD or Facet reach the market any time soon.