Can Microsoft remotely disable third-party accessories from working with the Xbox 360 and get away with it?

The Redmond, Washington software- and console-maker did just that, and claims copyright law gave it the right. At issue is Microsoft’s 2009 remote disabling of Datel memory cards, which prompted an antitrust lawsuit that lives on today—litigation that has morphed into the latest test of the Digital Millennium Copyright Act.

The 1998 DMCA makes it a crime or civil violation to offer a product or service that circumvents a technological measure designed to protect copyrighted material. Movie studios asserted that part of the law to block RealNetworks from distributing DVD-copying software, and Sony invoked it against PlayStation hacker George Hotz, whose mod allowed the PlayStation game console to play pirated and home-brewed games. The government also cited the law in its criminal prosecution of a California man for running a business modding Xboxes.

Microsoft’s DMCA argument against Datel, though, is more nuanced than the others.

In 2009, Microsoft issued a firmware update that stopped third-party accessory maker Datel’s memory cards from working on Xbox consoles. The cards are used to store game data when gamers play online. Microsoft sells its own cards, and was being undercut by Datel’s offering.

Datel sued, urging US District Judge Elizabeth Laporteto to declare Microsoft’s actions anticompetitive because the disabling of the cards was intended “to perpetuate Microsoft’s market power.” Microsoft countered by claiming that its actions were protected by the DMCA, because Datel’s memory cards are circumventing an Xbox memory card authentication sequence—a sequence that allows limited access to copyright game data.

The Electronic Frontier Foundation and Public Knowledge argued in a federal court filing Wednesday that Microsoft’s disabling of Datel’s devices was questionable, and that its DMCA defense was baseless.

“Microsoft effectively asks this court to grant it exclusive rights to sell any and all Xbox-360-compatible memory cards, controllers, and headsets,” (PDF) the digital rights groups wrote US District Judge Elizabeth Laporte, the judge presiding over the Datel flap in San Francisco.

No trial date has been set, but briefing in the case continues.

No court has imposed DMCA liability on a company for selling a competing durable good.

One of the leading decisions on that point was a 2004 federal appeals court ruling against Lexmark, which had locked its printers so only its own ink cartridges could be used. Citing the DMCA, Lexmark sued chipmaker Static Control Components, which made microchips that unlocked Lexmark printers to enable them to use unauthorized ink cartridges.

But subsequent decisions have swung the pendulum the other way.

A December ruling by the Ninth US Circuit Court of Appeals upheld an injunction barring the distribution of a computer program that automatically plays the lower levels of World of Warcraft. The appeals court said the Glider bot program, which automatically kills enemies and performs other Warcraft functions, was a violation of the DMCA because the bot circumvents a measure that “effectively controls access to a copyrighted work.”

Intellectual property scholars closely watched the case because the appellate court ruled there could be a breach of the DMCA even though the circumvention had no infringing intent or purpose.

“This court may be the first to interpret that opinion in a case involving competitors that market consumer products and, as such, its ruling may significantly impact both the everyday casual users of technology as well as the future developers of consumer electronics and compatible third-party accessories,” the EFF and Public Knowledge wrote Judge Laporte.

That said, Laporte might not have to go there.

Microsoft, in its counterclaim against Datel, hints that the United Kingdom-based electronics concern ripped off Microsoft’s authentication firmware to make its chips work. Microsoft alleges that it has recently discovered “striking similarities (PDF) between Datel’s source code used in its Xbox 360 authentication chip and Microsoft’s source code.”

If the Datel devices are found to be infringing, Microsoft wrote Judge Laporte, “Datel can claim no antitrust injury with respect to them.”

Listing image by Photo by Jeff the Trojan