Kaleidescape Fights for Survival

The leading maker of movie home networking systems continues to fight for its survival. Kaleidescape won another battle last month, convincing the DVD Copy Control Association to postpone a vote that would have banned storage of movies on a home server and thus put the company out of business. But the story is far from over.

When we last checked on the Kaleidescape legal saga, the company had just dodged a bullet with a ruling in California superior court. The CCA had argued that Kaleidescape violated the licensing agreement for the digital rights management scheme associated with DVD by de-encrypting it to store movies on a hard drive. The judge threw out the CCA licensing agreement on a technicality but never explicitly recognized the legal validity of home video networking.

And so a CCA committee prepared to amend its bylaws to plug the legal loophole. But the scheduled June 20 vote never took place. Instead it was postponed following a threatening June 15 letter from Kaleidescape CEO Michael Malcolm, raising antitrust issues.

The letter was sent to CCA with copies to Congress, various federal agencies, and the European Union. In it, Malcolm pointed out that his company is a member of CCA, reiterated his assertion that Kaleidescape has not violated its CCA license, and charged that the amendment of CCA rules to kill his company's product would violate federal and California state antitrust rules:

"There is no valid business justification for this amendment.... You should be aware before you vote on the proposed amendment that you expose yourself, your employer, and the DVD CCA to serious and substantial antitrust liability.... When members of a standards-setting organization like the DVD CCA set standards for the purpose of excluding a competitor from a market, they commit an antitrust violation."

He concluded that the directors of CCA "are in a unique position to collude to promote an anti-innovation agenda on behalf of their corporate employers and to restrain competition and innovation within the consumer electronics and computer industries. That is exactly what the proposed amendment is intended to accomplish by putting Kaleidescape out of business and deterring other innovative companies from entering the market. The proposed amendment will harm consumers by denying them access to new and innovative products like the Kaleidescape System and by obstructing their ability to make fair use of the DVD movie discs that they own."

The next steps include both further CCA deliberations and further court action. According to a CCA-connected studio source quoted by ContentAgenda, "the next meeting will be the 'what now?' meeting."

Failing to enact the amendment would weaken CCA's position in future court actions. Then again, enacting the amendment might do exactly the same thing. ContentAgenda's Paul Sweeting notes: "The problem for DVD-CCA is that the amendment stands as a tacit acknowledgment that the license agreement signed by Kaleidescape does not in fact proscribe persistent [i.e. server-stored] copies."