A California judge ruled last week that Kaleidescape, the company behind a line of high-end home media servers, violated the terms of its DVD licensing agreement by allowing consumers to rip DVDs.

The DVD Copy Control Association sets rules that all manufacturers of DVD players must follow. The organization objected to the DVD-ripping functionality of Kaleidescape's products and went to court to force them off the market. On Thursday, Judge William Monahan issued a broad injuncton barring Kaleidescape from selling its DVD-streaming products.

The case is a useful reminder that, thanks to the Digital Millennium Copyright Act, major content companies continue to enjoy veto power over the design of digital media devices. Include a digital lock in your spec and the DMCA keeps anyone from bypassing it, even if the intended use might well be legal. Hollywood is using this power to prevent "DVD jukebox" products from reaching consumers.

Just as iTunes allows users to rip their CDs to their hard drives for later playback on a variety of devices, so Kaleidescape's DVD products allow users to rip their DVD collections and later stream them to a variety of devices around their homes. But Kaleidescape faces a challenge Apple did not: DVDs are encrypted and the DMCA, passed in 1998, gives Hollywood the legal power to prohibit firms from "circumventing" copy protection. The DVD CCA, which is run by a coalition of Hollywood studios and major technology companies, uses this power to control the manufacturing of DVD players.

To get permission, firms must comply with an elaborate set of technical requirements. The exact rules are secret, but the licensing regime likely explains the widespread adoption of misfeatures like region coding and unskippable commercials. Anyone who makes a DVD player without the DVD CCA's blessing to decrypt the discs (and, therefore, without following its many rules) could be found guilty of "trafficking" in a circumvention device, a felony that can lead to fines of up to a million dollars and up to 10 years in prison.

Irreparable harm

Kaleidescape says it has tried to follow the rules, signing the DVD CCA's licensing agreement and complying with at least the spirit (and, they've claimed, the letter) of the rules. Ripped content is stored in an encrypted format on the Kaleidescape hard drive to prevent further copying. Kaleidescape products don't allow users to download infringing content from the Internet, and they attempt to detect rented DVDs and block them from being copied.

Indeed, the DVD CCA conceded at trial that it "does not possess knowledge of evidence of any harm that any movie studio, content provider, or other person or entity has suffered or may suffer" from the manufacture of Kaleidescape's products.

Nevertheless, Judge Monahan ruled that Kaleidescape had failed to follow the rules of the DVD CCA's licensing regime, and as a consequence had done irreparable harm to the integrity of that regime.

"An unaddressed breach of the License Agreement would likely beget follow-on breaches," he wrote. This would undermine "'the very reason' for DVD CCA's existence, which is to ensure that every CSS licensee plays by uniform rules." In other words, allowing Kaleidescape to innovate would be unfair to other licensees that produce spec-compliant DVD players.

Kaleidescape isn't the only DVD jukebox product that has been forced off the market by the DVD CCA. In 2009, RealNetworks lost a court battle against the DVD CCA, which forced Real to scrap its RealDVD software. Judge Monahan cited the Real case as a precedent in his opinion.

Level playing field

The contrast between the evolution of the music and movie markets is striking. In 1997, the recording industry tried to stop the release of the the Diamond Rio, one of the first MP3 players. But because the DMCA wasn't yet on the books, and because CDs didn't contain copy protection, the industry didn't have a legal leg to stand on. (They sued under a law that only applied to "recording devices"; the Rio could not record.) Diamond was allowed to bring the Rio to market, and the case paved the way for the iPod to transform the music marketplace.

Today, firms that produce digital music devices have broad freedom to add new features without getting the approval of the recording industry. In contrast, Hollywood tightly controls the design of digital video devices. The Blu-ray version of Kaleidescape's product is designed to include a "disc vault" that can hold 320 discs at a time, but thanks to Hollywood's concerns, it won't play a disc unless the disc is physically in the machine. That's better than nothing, but it makes Kaleidescape-type products unnecessarily expensive, and it precludes useful functions like the ability to sync video with mobile devices.

Kaleidescape CEO Michael Malcolm speculates that the DVD CCA's hostility to his product is due to the fact that "large consumer electronics 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. Imagine a world where Apple wasn't allowed to build the iPod because Sony wanted a 'level playing field' for the Walkman."