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Kaleidescape Content Management Trial Begins

Oral arguments have begun in the DVD Copy Control Association V. Kaleidescape case taking place in San Jose, CA.

Mountain View, CA–Kaleidescape’s day in the Superior Court of the State of California in Santa Clara County finally arrived, when the trial between the media server manufacturer and the technology licensing association, the DVD CCA got underway.

“We expect the trial to go on for as long as two weeks,” said Michael Malcolm, founder and CEO of Kaleidescape. “It is a breach of contract case, where the DVD CCA is alleging that we are in breach of their CCS license agreement. It is something that we took a great deal of care to comply with when we designed our products back in 2002 and 2003. So, we know that we were in compliance with the agreement, and we know the agreement better than the DVD CCA.”

The DVD CCA’s complaint, original filed in 2004, alleges that Kaleidescape is in breach of its license from the DVD CCA for the Content Scramble System (“CSS”), a method used to encrypt video and audio data on DVDs.

Kaleidescape filed a cross complaint in June 2005, which stated that the DVD CCA breached the CSS license by not allowing the ombudsman process mandated by its own bylaws to be completed, and that the DVD CCA breached the covenant of good faith and fair dealing by making its unreasonable and unsupported allegations against Kaleidescape.

“They want to make us look like a bunch of scofflaws that are selling this Kaleidescape system so that people can use it to rip off DVDs,” said Malcolm. “They would like the court to believe that we are building this so that people can steal content. But it cost about a $100 per DVD to store it on a Kaleidescape system, so it would actually be cheaper to buy a new DVD than steal a ripped one.

“The court is going to have to decide if this is a bunch of big companies that are in a cartel, trying to screw this little company, or is this little company, Kaleidescape, trying to facilitate the stealing of content from studios. We have about 3,000 systems in the field. We have a fantastic list of customers. So, if our customers are doing this, it includes some studio executives themselves, famous producers, directors, actors, actresses, and CEOs of major corporations. I don’t think these people are going out to Blockbuster to rent DVDs and steal them.”

Malcolm believes that the DVD CCA filed the lawsuit in an effort to destroy the U.S.’s fair use rights–which currently allows buyers of various content, including DVDs and CDs, to make copies for in-home use–in order to institute the managed copy system (currently in use for Blu-ray and HD DVD) that would charge for or prevent customers from making copies of purchased content.

If Kaleidescape wins the case, Malcolm predicts doom for the DVD CCA and Royal Licensing, a death that would spark technological innovations, create more competitors in the media server arena, and make the film studios even richer. “When our customers buy the product from us, the first thing they do is go out and buy 200-300 more DVDs,” noted Malcolm. “The studios have always fought any new technology, and then whenever they lose, they end up making a lot of money.”

According to Malcolm, a Kaleidescape loss, however, could promise darker days for the company, a greater stifling of innovation due to studio control of content, as well as deliver a great economic blow to the larger U.S. economy. “Every consumer will not be able to enjoy the kinds of products that everyone has been able to have,” said Malcolm.

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