After a four-week trial that commenced on November 14, 2011, Judge William J. Monahan of the California Superior Court ruled in favor of the DVD CCA, marking the end of the third chapter of the consortium's legal proceedings against Kaleidescape.
The DVD CCA, a corporation controlled by the six major motion picture studios in concert with the largest consumer electronics and computer companies,
had been accusing Kaleidescape, the developer of the Kaleidescape movie server, for infringing the Content Scramble System (CSS) protection of DVD movies, which is licensed by DVD CCA. Kaleidescape movie server makes digital copies of DVDs and Blu-ray Discs to hard disk drives so users can play back their movies instantly from any room of their home.
In his final statement of decision, Judge William J. Monahan wrote:
"The court concludes that plaintiff DVD CCA performed its obligations under the contract and that defendant Kaleidescape has breached the contract - Kaleidescape's breach has damaged DVD CCA irreparably, so that injunctive relief is warranted."
"... [the agreement] imposes a playback from disc requirement and forecloses copying of CSS-protected content from DVDs onto a hard drive or server for
playback without the physical DVD disc. Kaleidescape has breached Section 2.1.2 of the General Specifications because it is undisputed that the Kaleidescape System uses CSS to create a permanent copy of CSS-protected DVD content on a server for playback without the physical DVD disc."
"The evidence also shows that Kaleidescape rejected proposed alternative products that would have played back DVDs from the physical DVD disc, not because it concluded that the License Agreement would allow the play back of DVDs from permanent copies stored on a server, but rather, because of marketing considerations."
"There is no public policy that is advanced by allowing Kaleidescape to continue in its breach of the License Agreement."
Kaleidescape has filed notice of appeal.
"Kaleidescape operates with a very high degree of integrity, and we work meticulously to comply with each and every agreement that we sign, so this ruling is extremely disappointing," said Michael Malcolm, Kaleidescape's chairman, founder, and CEO. "We have always believed, and continue to believe, that our products comply with the CSS license agreement, and in court we will continue to fight the DVD CCA's allegations to the contrary."
Steven M.Zager of Akin Gump, counsel to the DVD Copy Control Association (DVD CCA), issued the following statement:
"The DVD CCA appreciates Judge William Monahan?s thorough review of the issues in this case and welcomes the decision finding Kaleidescape in breach of its contract with the DVD CCA and imposing a permanent injunction against Kaleidescape. The Court recognized what the DVD CCA has maintained all along: Kaleidescape agreed to a contract that mandated certain requirements with which devices must conform in order to comply with the Content Scramble System (CSS). When it developed and marketed its video server systems, it knowingly violated those requirements."
"The DVD CCA represents the interests of the personal computer, consumer electronics and content industries as well as DVD consumers. It is committed to enabling high quality entertainment to be available for use on DVDs at home and elsewhere. The ability to make that entertainment available depends upon a uniform set of rules upon which all participants in these industries can rely. We believe that this Court's decision in the Kaleidescape matter along with the U.S. District Court's ruling on RealDVD emphasize the importance of those rules
to the benefit of consumers, developers and manufacturers," Zager added.
Kaleidescape claims that it has designed its products to protect the rights of content owners.
"The hard-disk copy of each DVD retains all of the DVD CCA's scrambling and adds more encryption. The Kaleidescape System is a closed system that prevents DVDs from being copied to the Internet, to writable DVDs, or to computers or mobile devices. Furthermore, you cannot download a pirated movie from the Internet to a Kaleidescape System," the company says.
"For the past 8 years, we've been baffled about why this lawsuit ever happened, since our products don't encourage piracy, but do increase sales of movies. Maybe it's because the large CE companies in Japan and the big computer companies in the USA, on the board of the DVD CCA, are afraid that Kaleidescape is building a better way to enjoy DVDs and Blu-ray Discs than they are," observed Malcolm. "Imagine a world where Apple wasn't allowed to build the iPod because Sony wanted a 'level playing field' for the Walkman."
Kaleidescape won its first trial in 2007 when Judge Leslie C. Nichols of the California Superior Court found that Kaleidescape's products comply with the CSS license agreement. The DVD CCA appealed to the California Court of Appeal, who in 2009 sent the matter back to the California Superior Court for a second trial.
Judge Monahan entered his statement of decision and injunction order on March 8, 2012. Kaleidescape filed its appeal on March 9, 2012. Kaleidescape believes that under California law the injunction order should not come into effect unless the California Court of Appeal affirms Judge Monahan's decision. Kaleidescape is confident that when the Court of Appeal reviews the facts of this case, particularly in light of the complete absence of any harm to the DVD CCA or its members, that it will reverse the trial court decision. The appeal process may take one to two years.