Russian CEO defends copying rights

The flight came at the end of what the ElcomSoft CEO hopes will be his last trip to the United States for a while. Katalov has spent many months away from his family since last July, when his company found itself on the wrong side of the law as a defendant in the first major test case of the criminal provisions of the Digital Millennium Copyright Act (DMCA).

The Russian company faces charges that it offered technology that can be used to crack protections on Adobe Systems' e-books. ElcomSoft's software, which is no longer available, has placed the company squarely in the cross fire of the controversial DMCA, which prohibits distribution of technology that can circumvent copy protections.

It has also served as a test of the company's resources and reputation. Prosecutors in the case have painted ElcomSoft as a shadowy enterprise, a characterization that Katalov wants to dismiss almost as much as the criminal charges.

During a recent interview in the lobby of a San Francisco hotel, Katalov sipped an Amstel Light and mused on his plight. Sporting a thinning mop of unruly dark hair, the chain-smoking Muscovite looked more like a code jockey who had stayed up all night programming than the head of a software company.

Speaking in a thick Russian accent and occasionally pausing for minutes at a time before answering questions, Katalov said that, most of all, he is confounded by the DMCA--a law, he says, that makes it "illegal to produce legal programs."

The DMCA, passed in 1998, was designed to update copyright law for the digital age and assuage fears that the Internet would encourage rampant piracy. However, some worry that the law goes too far, trampling rights that until now have been protected, such as the ability to reverse-engineer code or make backup copies.

Katalov's saga started last summer, when Russian programmer and ElcomSoft employee Dmitry Sklyarov was arrested during a Las Vegas security convention after giving a speech about the company's new Advanced eBook Processor software.

The arrest aroused scores of protesters, who convinced Adobe to back off the case and join the chorus of voices asking prosecutors to drop the charges against the Russian programmer. Although prosecutors eventually dismissed the case against Sklyarov in exchange for his testimony, ElcomSoft is still charged with violating the DMCA. Katalov, who was also in Las Vegas when Sklyarov was arrested, remained in the United States to fight for his employee's freedom and company's reputation.

These days, the company is hoping for freedom of its own: It's waiting for an important ruling on two motions to drop the charges against it. If ElcomSoft doesn't prevail, a judge likely will set a trial date at a May 6 hearing. The company could face $2.5 million in penalties if it loses the case.

Court of public opinion
Meanwhile, Katalov, his attorney and his publicist are on a crusade to put a friendly face on ElcomSoft and make it more than just some "Russian software company," as it's commonly referred to in stories about the case.

Although he couldn't comment extensively about the case on the advice of his attorneys, Katalov emphasized that his company wasn't founded to help people hack e-books.

ElcomSoft has been around for more than a decade and offers a slew of password recovery programs that help people get in to programs including e-mail application Outlook and instant messaging service ICQ. Some of ElcomSoft's biggest customers are law-enforcement agencies, which use the software to crack passwords in the course of their investigations.

The company was even bestowed with an "honorary sheriff's deputy" certificate by the Fort Bend County, Texas, Sheriff's Department, which caught a murder suspect after using ElcomSoft software to enter a password-protected system and retrieve evidence.

"We really appreciated their work," said Jerry Clements, a captain in the department.

Nevertheless, the company now finds itself on the defendant's side of the table. Katalov bristles at allegations his company was merely trying to make money off helping people hack e-books--or, as the U.S. Attorney's office puts it, was creating software that "would allow anyone to read the e-book on any computer without paying the fee to the bookseller."

"We have never helped people copy books illegally," Katalov said. Instead, he said, the company designed the software to let people exercise their fair-use rights, including moving a book from one device to the other.

Katalov also said he welcomes the testimony of Sklyarov. He said that Sklyarov, who is still working at ElcomSoft, doesn't have anything to say that will damage the company.

The company's Russian roots add another twist to the case. For one thing, Russia doesn't have a DMCA, although that doesn't seem to make a difference in the U.S.-based case. What's more, few Americans have ever heard of ElcomSoft, arguably making the company a better target than an American venture, which would probably have an easier time convincing prosecutors and a judge that it's a legitimate business and not a trafficker of products designed to promote piracy.

E-books stay shelved
Ironically, the product at the heart of the controversy has been a flop so far. The e-book concept has not taken off with consumers--at least when compared with the popularity of digital versions of other material such as music or movies. Research firm Jupiter Media Metrix has predicted that sales of devices known as e-book readers will reach just 1.9 million by 2005. On the other hand, digital music sites already have attracted hundreds of millions of consumers.

Researchers say sales of e-books have been slowed by fears of piracy. But some programmers say that the encryption used to lock down e-books and other digital material is notoriously poor--and that the DMCA protects companies that wrap books in weak encryption because they can sue anyone who attempts to crack the protections or talk about security holes.

Adobe, however, denies those charges, saying it "incorporates sophisticated, industry-standard levels of software encryption to make our products difficult to compromise."

Although it backed off the charges against Sklyarov, Adobe still supports the case against ElcomSoft, saying the company was not trying to expose security holes but instead was creating an "illegal digital lock pick."

"Adobe is not aware of any attempts by ElcomSoft to provide feedback on the security of the Acrobat eBook Reader," the company states on an extensive section of its Web site devoted to the ElcomSoft case.

A representative of the U.S. Attorney's office said he would not comment on pending litigation.

Katalov said the charges have taken their toll on his company, which has spent hundreds of thousands of dollars to defend itself.

"We have spent a lot of time and money on this case, and it has affected our business," he said.

Although ElcomSoft revenue has doubled annually in recent years, it's remained flat since charges were filed. Katalov said the company also has lost corporate customers in the United States.

Across an ocean
In addition, the case has taxed Katalov personally. He's ventured home just a few times since Sklyarov's arrest, missing family functions including his daughter's sixth birthday. Plus, he said he's been forced to put up thousands of dollars worth of deposits on lodging and other necessities in the United States because he doesn't have a credit history here. To make matters worse, he relies on the notoriously poor public transit system in the Silicon Valley to shuttle him to and from meetings because he doesn't have a driver's license.

Cindy Cohn, an attorney with the Electronic Frontier Foundation, which has submitted court filings supporting ElcomSoft, said she respects Katalov for staying in the United States for so long when he didn't have to.

"It would have been quite easy, and in some cases advisable, for him to leave," Cohn said. "He could have left Dmitry (Sklyarov) out to dry."

Cohn said the case has galvanized people around the problems with the DMCA.

"When the DMCA was first passed, we said bad things could happen," she said. "Some people listened to us, but it wasn't until they arrested Dmitry that people in the Silicon Valley started to say, 'Hey, what I do could get me in trouble.'"

During his interview with CNET News.com, Katalov echoed that sentiment. The most frightening outcome of the case so far, Katalov said, is its effect on ElcomSoft's product releases--executives now run future product ideas past lawyers before proceeding with development. "ElcomSoft doesn't want to make anything which adds more problems for us," he said.

Katalov said his plight should send chills through the entire worldwide development community--especially among those who make software designed to test security and crack codes. Such programs could also run afoul of the DMCA, Katalov said.

"I'm sure that in the next case, another type of software, perhaps from an American company, can be charged as illegal," he said.