Realnetworks, Inc. et al v. DVD Copy Control Association, Inc. et al

Filing 325

NOTICE by Realnetworks, Inc., Realnetworks Home Entertainment, Inc. re 324 MOTION for Leave to File SECOND AMENDED COMPLAINT OF ERRATA REGARDING EXHIBIT A TO PLAINTIFFS' MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT FOR DECLARATORY RELIEF AND VIOLATION OF SHERMAN ACT AND STATE LAW (Attachments: # 1 Exhibit 1)(Cunningham, Leo) (Filed on 5/14/2009)

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JAMES A. DiBOISE, State Bar No. 83296 Email: [e-mail] LEO CUNNINGHAM, State Bar No. 121605 Email: [e-mail] COLLEEN BAL, State Bar No. 167637 Email: [e-mail] MICHAEL A. BERTA, State Bar No. 194650 Email: [e-mail] TRACY TOSH LANE, State Bar No. 184666 Email: [e-mail] WILSON SONSINI GOODRICH & ROSATI Professional Corporation One Market Street Spear Tower, Suite 3300 San Francisco, CA 94105 Attorneys for Plaintiffs REALNETWORKS, INC. and REALNETWORKS HOME ENTERTAINMENT, INC. (additional counsel listed on following page) UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA REALNETWORKS, INC., a Washington Corporation; and REALNETWORKS HOME ENTERTAINMENT, INC., a Delaware corporation, Plaintiffs, v. DVD COPY CONTROL ASSOCIATION, INC., a Delaware nonprofit corporation, DISNEY ENTERPRISES, INC., a Delaware corporation; PARAMOUNT PICTURES CORP., a Delaware corporation; SONY PICTURES ENTER., INC., a Delaware corporation; TWENTIETH CENTURY FOX FILM CORP., a Delaware corporation; NBC UNIVERSAL, INC., a Delaware corporation; WARNER BROS. ENTER. INC., a Delaware corporation; and VIACOM, Inc., a Delaware Corporation, Defendants. AND RELATED CASES Case Nos. C08 04548 MHP; C08 04719 MHP [PROPOSED] SECOND AMENDED COMPLAINT FOR DECLARATORY RELIEF AND VIOLATION OF SHERMAN ACT AND STATE LAW JURY TRIAL DEMANDED

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DONALD E. SCOTT, (Admitted Pro Hac Vice) Email: [e-mail] MARK S. OUWELEEN, (Admitted Pro Hac Vice) Email: [e-mail] KARMA M. GIULIANELLI, State Bar No. 184175 Email: [e-mail] BARTLIT BECK HERMAN PALENCHAR & SCOTT LLP 1899 Wynkoop Street, 8th Floor Denver, CO 80202

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1.

This is an action for (1) a declaratory judgment pursuant to 28 U.S.C. § 2201 and

28 U.S.C. § 2202, brought by RealNetworks, Inc. ("RealNetworks") and RealNetworks Home Entertainment, Inc. ("RealNetworks Home") (together, "Plaintiffs") by and through counsel, against defendants Disney Enterprises, Inc., Paramount Pictures Corp., Sony Pictures Entertainment, Inc., Twentieth Century Fox Film Corp., NBC Universal, Inc., Warner Bros. Entertainment, Inc., Viacom, Inc. (collectively the "Studio Defendants") and DVD Copy Control Association ("DVD CCA") (where the Studio Defendants and the DVD CCA shall be referred to collectively as "Defendants") for the purpose of determining a question of actual controversy and the rights and obligations between the parties ("Declaratory Relief"); and (2) a judgment against Defendants for violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, the California Cartwright Act, Bus. & Prof. Code § 16700 et seq., and the California Unfair Competition Law, Bus. & Prof. Code § 17200 et seq. ("Antitrust Claims"), as follows: JURISDICTION ,VENUE AND INTERSTATE COMMERCE 2. This court has jurisdiction over the claims asserted for declaratory relief because

the underlying action concerns a federal question. The Defendants in this matter would be filing a claim against one or more of Plaintiffs under the DMCA. Because the crux of this matter involves a federal right, this court properly maintains jurisdiction over this action for declaratory relief under the DMCA under 28 U.S.C. § 1331. This court has jurisdiction over the claims for violation of Section 1 of the Sherman Act under 28 U.S.C. § 1331 and 1337(a). This court has supplemental jurisdiction of all other claims under 28 U.S.C. § 1367. 3. Venue is proper in this court pursuant to 28 U.S.C. § 1391(a)(2), because a

substantial part of the events or omissions giving rise to the claims occurred in this District. Additionally, pursuant to § 10.4 of the CSS License Agreement, exclusive jurisdiction and venue over any dispute arising out of the agreement exists in the federal and state courts of Santa Clara County, California. 4. commerce. The actions complained of have occurred in and substantially affect interstate

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INTRADISTRICT ASSIGNMENT Pursuant to Civil Local Rule 3-2(c), this action may be assigned on a district-wide

THE PARTIES RealNetworks is a Washington corporation with its principal place of business in

Seattle, Washington. It is engaged in the business of, among other things, developing, manufacturing, and selling platforms for the delivery of digital media. Consumers use RealNetwork's services and software to find, play, purchase and manage free and premium digital content, including music, games and video. Broadcasters, network operators, media companies and enterprises use RealNetwork's products and services to create and deliver digital media to PCs, mobile phones and other consumer electronics devices. RealNetwork's RealPlayer product is an innovative award-winning technology that was one of the first media players capable of streaming media over the Internet. 7. RealNetworks Home Entertainment, Inc. is a Delaware corporation with its

principal place of business in Seattle, Washington. It is a subsidiary of RealNetworks, and it is the entity that distributes the RealDVD product, also known as Vegas, and is developing and will distribute the New Platform, also known as Facet. 8. The DVD CCA is a Delaware nonprofit corporation, having offices located in

Morgan Hill, California. According to the allegations of its Amended Answer and Counterclaims, the DVD CCA is responsible for developing, evaluating and licensing copy control and related technologies to participants at various levels in the DVD industry. DVD CCA is the licensor of the Content Scramble System. DVD CCA licenses the Content Scramble System technologies to companies that manufacture hardware and software products that play back to viewers CSSprotected DVDs, recordable discs and related products, and to motion picture studios and other companies whose audio-visual works are encrypted using the Content Scramble System. DVD CCA granted a license in the CSS technology to RealNetworks in the form of a written CSS License Agreement. The Studio Defendants are members of the DVD CCA. Upon information and belief, the other members of the DVD CCA are consumer electronics companies and

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computer manufacturers. Upon information and belief, there are twelve seats on the DVD CCA's board of directors and the Studio Defendants hold six of them. The remaining seats are held by representatives of the computer electronics industries and computer companies. 9. Disney Enterprises, Inc. is a Delaware corporation with its principal place of

business in Los Angeles, California. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA. 10. Paramount Pictures Corp. is a Delaware corporation with its principal place of

business in Los Angeles, California. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA. 11. Sony Pictures Entertainment, Inc. is a Delaware corporation with its principal place

of business in Culver City, California. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA. 12. Twentieth Century Fox Film Corp. is a Delaware corporation with its principal

place of business in Los Angeles, California. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA. 13. NBC Universal, Inc., is a Delaware corporation with its principal place of business

in Universal City, California. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA. 14. Warner Bros. Entertainment, Inc. is a Delaware corporation, with its principal place

of business in Los Angeles, California. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA. 15. Viacom, Inc. is a Delaware corporation, with its principal place of business in

New York, New York. It is engaged in the business of, among other things, making motion pictures. It is a member of the DVD CCA.

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DECLARATORY RELIEF CLAIMS NATURE OF CLAIMS FOR DECLARATORY RELIEF Plaintiffs' claims for declaratory relief arise as a result of a legal dispute between

Plaintiffs and Defendants relating to two of Plaintiffs' innovative new products: a new software product known as Vegas and marketed as "RealDVD," and a yet-to-be-named product in the final stages of development that Plaintiffs herein refer to as the "New Platform" or "Facet." The two products are collectively referred to hereafter as "RealDVD." Vegas has a variety of different functions, including the playback of DVDs placed into a computer's DVD drive, looking up information about the DVD from Internet databases, providing links to various information websites relevant to the chosen DVD, and storing an image of the copy-protected DVD to a computer hard drive for safekeeping and later playback purposes. Facet has similar planned functionality. 17. When Vegas and Facet are used to make a personal copy of a DVD, they not only

preserve the Content Scramble System ("CSS") encryption the Studio Defendants use to encrypt DVDs, but also incorporate an additional level of protection. 18. The Studio Defendants are members of the DVD Copy Control Association, a not-

for-profit association that licenses the CSS technology to, among others, manufacturers of DVD hardware and software, such as RealNetworks, pursuant to a standard license agreement ("CSS License Agreement"). The Studio Defendants assert that the CSS License Agreement grants the Studio Defendants, as third-party beneficiaries, the right to enforce its terms against licensees, and in particular the right to prohibit the sale of Vegas and products with similar functionality such as Facet. See CSS License Agreement § 9.5. 19. Despite the fact that a California court concluded over a year ago that the same type

of copying methodology employed by RealDVD do not violate the CSS License Agreement (see DVD Copy Control Association, Inc. vs. Kaleidescape, Inc., Superior Court Santa Clara County (No. 1:04 CV 031829), Judgment dated Apr. 13, 2007), the Studio Defendants, on their own behalf and on behalf of the DVD CCA, nonetheless have asserted that products with functionality like that in the RealDVD products violate the CSS License Agreement and the anti-circumvention

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provisions of the Digital Millennium Copyright Act ("DMCA"). On information and belief, the DVD CCA has asserted similarly. 20. Accordingly, there exists an actual and justiciable controversy between Plaintiffs

and the Defendants relating to their respective rights and legal duties under the CSS License Agreement and the DMCA. Plaintiffs seek a judgment declaring, among other things, that the CSS License Agreement permits Plaintiffs to manufacture and offer for sale the RealDVD products and that the Plaintiffs do not violate the DMCA. FACTUAL ALLEGATIONS FOR DECLARATORY RELIEF CLAIMS A. 21. The CSS License Agreement and The DVD CCA The Studio Defendants sell DVD discs that contain movies, and such discs use the

CSS technology to encrypt the content on the DVDs. Consequently, the content must be decrypted before the movie can be displayed. Thus, the manufacturers of hardware and software that permit DVD movies to be used (the consumer electronics and computer industries) must likewise have access to the CSS technology. 22. To facilitate their mutual interests in the use of the CSS technology, the motion

picture, consumer electronics, and computer industries formed the DVD CCA. The DVD CCA licenses the CSS technology to, among others, manufacturers of devices and software used to decrypt images on DVDs pursuant to a standard form CSS License Agreement (a copy of which is attached hereto as Exhibit 1). 23. The CSS License Agreement imposes certain restrictions on its licensees, including

the requirement that the licensees "comply with the version of the CSS Specifications which is in effect at the time such DVD Product is manufactured . . . ." CSS License Agreement § 4.2. The Studio Defendants assert that the CSS License Agreement grants them the right to enforce certain of its provisions, including Section 4.2. See CSS License Agreement § 9.5. 24. On or about August 13, 2007, RealNetworks signed the CSS License Agreement.

It is thereby entitled to use the CSS technology under the terms of that Agreement.

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B. 25.

Development of the RealDVD Products Both Vegas and Facet provide DVD users with, among other things, the ability to

save a personal copy of a DVD they own on a secure hard drive for their own personal use. The copy preserves the CSS encryption. The RealDVD products thus protect the user from, among other things, damage or loss of a DVD, while ensuring that the encryption protection in the original DVD is maintained. Further, Vegas and Facet enhance the original protection by incorporating an additional layer of protection at a level beyond that required by the CSS License Agreement. The RealDVD products also provide a number of other desirable features, such as parental controls that ensure children access only entertainment that is appropriate for their age, central storage that permits users to keep all the motion pictures they own in one easily accessible location, and the capability for users to watch their movies on a variety of devices they own for greater ease of use and convenience. 26. Plaintiffs made known to the Defendants that Vegas would be released on

September 30, 2008. By October 20, 2008 or earlier, Plaintiffs made known to the Defendants the fact of the existence of Facet and that it would be brought to market shortly. C. 27. The Legal Dispute with the Studio Defendants The Studio Defendants, on their own behalf and on behalf of the DVD CCA of

which they are members, have advised Plaintiffs that they believed that products with functionality like that in the RealDVD products violate the CSS License in that neither product conforms to the CSS Specifications. The Defendants further claimed that products with functionality like that in the RealDVD products violate the anti-circumvention provisions of the DMCA. 28. Plaintiffs do not believe that the RealDVD products violate the CSS License

Agreement or the DMCA or any rights of the Defendants, and have so advised the Studio Defendants. 29. Efforts to resolve this dispute have failed.

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FIRST CAUSE OF ACTION (Declaratory Relief under Contract Claim) Plaintiffs reallege and incorporate by reference the allegations contained in

Paragraphs 1 through 29 as if fully set forth herein. 31. There is an actual and justiciable controversy relating to the legal rights and duties

of Plaintiffs and Defendants under the CSS License Agreement in that the Defendants have advised Plaintiffs that they believe that products with functionality like that in the RealDVD Products violate the CSS License Agreement. This controversy is of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. 32. Thus, a declaration of Plaintiffs' rights under the CSS License Agreement is

necessary to protect Plaintiffs from uncertainty and insecurity, which is causing Plaintiffs injury by, among other things, damaging its goodwill and disrupting its business. Without the requested declaration of its rights, the Defendants will continue to jeopardize Plaintiffs' interests. SECOND CAUSE OF ACTION (Declaratory Relief under the Digital Millennium Copyright Act, 17 U.S.C. § 1201) 33. Plaintiffs reallege and incorporate by reference the allegations contained in

Paragraphs 1 through 32 as if fully set forth herein. 34. RealNetworks is a licensee of CSS technology, and the RealDVD products were

designed to conform to the CSS Specifications. As a result, the RealDVD products are authorized by the Defendants to utilize CSS technology to access the content of DVDs to which the Studio Defendants own the copyrights. 35. Neither Vegas nor Facet is primarily designed or produced for the purpose of

circumventing a technological measure that effectively controls access to a copyrighted work, or that protects the right of a copyright owner. Rather, both of the RealDVD products ensure that the encryption protection in the original DVD is maintained and enhanced by incorporating an additional layer of protection at a level beyond that required by the CSS License Agreement. 36. Both the RealDVD products have commercially significant purposes and uses other

than to circumvent a technological measure that effectively controls access to a copyrighted work,

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or that protects the right of a copyright owner. By way of example only, the RealDVD products provide the owners of DVDs with the ability to save a personal copy of a DVD on a secure hard drive for private use, and protect the DVD owner against damage or loss of a DVD that he or she has obtained through legitimate means. 37. Neither Vegas nor Facet has been marketed for use in circumventing a

technological measure that effectively controls access to a copyrighted work, or that protects the right of a copyright owner. Rather, Vegas has been marketed as licensed software that "saves a secure copy of a DVD to the hard drive without removing or altering the CSS encryption." Facet will be marketed similarly upon release. 38. Plaintiffs request a judicial determination and declaration as to whether the

RealDVD products violate the provisions of 17 U.S.C. § 1201. Such a judicial determination and declaration is necessary to protect Plaintiffs from uncertainty and insecurity, which is causing Plaintiffs injury by, among other things, damaging its goodwill and disrupting its business. Without the requested declaration of its rights, the Defendants will continue to jeopardize Plaintiffs' interests. ANTITRUST CLAIMS INTRODUCTION 39. The Studio Defendants and the DVD CCA have sought to enjoin RealNetworks

from distributing products that provide the technology to add features to DVD content by saving the content to a personal hard drive. RealNetworks' technology products compete with products offered by the Studios. The position of the DVD CCA and the Studios about the CSS License Agreement was confirmed during the hearing on the preliminary injunction motion. They acknowledge that the CSS License Agreement results from collective action by the Studios through the DVD CCA to prohibit all copying to a hard drive unless the Studios jointly authorize the making of such a copy. Pursuant to their interpretation of the CSS License Agreement, each Studio has ceded its individual authority to authorize the use of its movie content through individual copyright licenses in favor of a joint agreement to grant or withhold the use of such content­ the CSS License Agreement.

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40.

If true, this is an antitrust violation for two reasons: (1) As described below,

because of their interpretation of the CSS License Agreement, no individual Studio can authorize the use of its own content consistent with the claimed provisions of the CSS Agreement; (2) the CSS Agreement is being used to extend a legally granted monopoly over content into separate markets ­ to prevent competition from technologies that would allow a copy of content for fair use purposes. But the making of a copy of a Studio DVD is authorized fair use under the Copyright Act, so the Studios have no "authority" to grant or withhold with respect to that content. Nevertheless, the DVD CCA and the Studios claim that the CSS Agreement grants such authority, and that anyone seeking to compete with them in that separate market violates not only the CSS Agreement, but is also subject to criminal penalties under the Digital Millenium Copyright Act ("DMCA"). 41. The average consumer owns over 75 DVDs. DVDs cost approximately $10 -

$15. Thus the average household may have an investment of well over $1,000 in its DVD collection. 42. Market research shows that consumers' main complaints about DVDs are

twofold: (1) they get damaged; and (2) they get lost. It is common to open the DVD case of a favorite video only to find an empty slot; the wrong DVD in the case; or a DVD covered with scratches or gunk. 43. In 2007, RealNetworks sought to meet strong consumer demand among DVD

owners for technology that would enable them to save a secure copy of their DVDs to a hard drive for safekeeping, portability, easy retrieval, and later playback. It developed two innovative products ­ a software product code-named "Vegas" and a device code-named "Facet." Both products will be referred to hereafter as "RealDVD." RealDVD allows users to save and play a secure backup copy of the DVDs they own and to organize their favorite movies, TV shows, scenes and actors so that they are all just a click away. 44. There were good reasons the Studio Defendants should have been excited about

RealDVD: products that make DVDs easier for consumers to use make DVDs more valuable to their owners, and so are likely to increase the number of DVDs that consumers want to buy.

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RealNetwork's innovative products thus stood to benefit everyone: consumers, who would get more value out of the DVDs they own; the Studio Defendants, who would sell more DVDs; and RealNetworks, from the sale of its new products. 45. Before RealNetworks released Vegas, RealNetworks approached the Studio

Defendants to notify them of the product, and to explore mutual marketing opportunities. RealNetworks answered detailed questions about its product and the extensive safeguards it provided against piracy. Negotiations ensued with two of the Studios, Fox and Paramount. 46. Underlying the negotiations between RealNetworks and the Studio Defendants

was the question of whether a consumer who had purchased a DVD had a fair-use right to make a secure copy of the DVD on his computer hard drive. RealNetworks believed then, as it does now, that a consumer who has purchased, for example, an Iron Man DVD, does not need further permission from Paramount to copy that DVD onto her hard drive so as to get the benefit of additional features that can only be provided by the saving to a hard drive. Those features include the protection of DVD content, the ability to automatically organize and search DVD content, bookmarking and parental control features, and the benefits of efficient portability for an individual's DVD collection. Nonetheless, RealNetworks was eager to negotiate these issues with the Studio Defendants, in the expectation it would be possible to reach marketing agreements that would benefit all of the parties. 47. Ultimately RealNetworks was unable to conclude a deal with any of the Studios.

The Studio Defendants recognized that consumers would value the DVD playback and storage capability. The Studios, however, wanted their customers to pay substantial sums to the Studios themselves for this functionality. In essence, the Studio Defendants wanted to charge consumers who have already purchased the DVDs for their exercise of their fair-use rights to make a second backup copy. 48. Any individual Studio could have decided not to enter into an agreement with

RealNetworks and to sue to prevent its customers from using RealDVD to make copies of that Studio's titles. Doing so individually, however, risked the possibility that another Studio might reach an agreement with RealNetworks to promote its titles in connection with the release of a

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popular new product. The litigating Studio then would face what could be a legal and public relations nightmare. 49. The Studio Defendants agreed that they would claim that they cannot enter into

individual agreements with RealNetworks ­ in other words, they agreed collectively not to deal with RealNetworks. So, for example, they claim that, because of the CSS Agreement, Paramount cannot grant a license to make an archival copy of its own Iron Man DVD without the permission of Fox, Disney, and the rest. This is a horizontal group boycott, and it is a horizontal group boycott even though the Studios in fact have no right to grant or withhold authority to make fair use copies and RealNetworks does not need their consent. 50. According to the Studios, this boycott is required by the terms of a license issued

through an entity that they effectively control called the DVD CCA. The DVD CCA was created to license the encryption technology (CSS) that any company needs in order to make products to play a DVD. According to the Studios, under the CSS license, unless amended (which requires their collective approval through DVD CCA), they are prevented from individually granting RealNetworks a license that would make clear that customers of any particular Studio can make an archival copy of that Studio's DVDs (as long as the customer owns the DVD). 51. Testimony at the preliminary injunction hearing confirmed that the Studios

entered into this collective agreement that, according to their interpretation, prohibits any individual studio, without the action of the group, from authorizing any copies of their content (for fair use or otherwise). Ms. King, a former Studio lawyer characterized by the Studios' outside counsel as "a framer" of the CSS license (Tr. 19:9-17), unequivocally testified that the motion picture studios got together as a group to determine the terms of the CSS license. (Tr. 74:1-12; 76:14-19; 83:14-84:6; 110:19-111:10). Their concerted action is illegal because they agreed that there would be "no copies at all" of each individual Studio's content made without the authority of the group acting in concert. According to Ms. King, this agreement is memorialized in the CSS License Agreement. (Tr. 74:1-12; 79:22-80:3). According to Ms. King, the right of the Studios to authorize the use of their content flows through the CSS License

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Agreement, which allows only what the Studios "authorized could be done." (Tr. 87:16-88:4; 98:10-23; 111:22-112:5). 52. Testimony from the expert from the DVD CCA, Dr. Kelly, further made clear that

the Studios and the DVD CCA intend the CSS agreement to prohibit any copies of DVD content to a hard drive without the authority of the Studios. (Tr. 152:20-153:8). Dr. Kelly's theory is that the CSS agreement, by its terms, requires that a physical DVD disc be in a drive during playback. (Tr. 149:10-23). According to this interpretation, no individual studio could possibly give authority to create a product allowing for the copying of the individual studio's content without having that product run afoul of the group CSS Agreement. In other words, in order for an individual studio to grant such authority, the group acting as a whole through the DVD CCA would need to amend their agreement. The CSS Agreement, which is a product of the joint conduct of the DVD CCA and the Studios, therefore memorializes the illegal horizontal agreement to boycott any potential competitor. 53. Consistent with their agreement, the Studios have never authorized anyone to

make a playable copy of their content. (Tr. 100:14-20). Mr. Dunn, speaking for 20th Century Fox Entertainment, confirmed the same thing: "The Studios have never licensed any third party to offer a lawful product that would allow the copying of DVDs onto hard drives (and to my understanding, the encryption technology we use on our DVDs does not even permit for such a license)." (Dunn Decl., ¶ 28.) 54. Consumers are directly harmed by the Studio Defendants' and the DVD CCA's

conduct. The risk the Studio Defendants faced ­ that some one of them would do a deal with RealNetworks or any other of their potential competitors ­ is the risk created by a competitive marketplace. Consumers would have obtained a new technology to gain more value from their DVDs, without having to pay again for a backup copy of the DVDs they had already purchased. The Studio Defendants decided to short-circuit this outcome so that they could appropriate all of the extra value themselves, through the means of a group boycott. The DVD CCA is the instrumentality that they used to effectuate the boycott. A group boycott is, indeed, a very

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effective means of achieving this objective. Not coincidentally, that is also why it is per se illegal under the antitrust laws. NATURE OF ANTITRUST CLAIMS A. 55. The RealDVD Products The RealDVD products give consumers the ability to save DVDs they own to

their computers or, in the case of Facet, a separate hardware box, where the DVDs are catalogued in a library that displays covers of the DVDs so that they are easily retrievable for playback. A user's screen in the Vegas product will look like this:

56.

Once the DVDs are stored in RealDVD, they can be retrieved for playback at the

user's convenience, without having to search for the physical copy of the DVD. 57. RealDVD offers many features that consumers want, including: · · The ability to keep consumers' DVDs safe, without scratches, gunk, skips, blips, or lost titles. Through the Vegas product, the ability to take an owner's DVD collection on the road to view from a hard drive. Many consumers watch the DVDs they -15-

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own from their personal computer on airplanes and during vacations, but do not want to carry along multiple DVDs from their collection. RealDVD remembers where the consumer is in the movie, so he can stop, shut down and come back later without losing his spot. RealDVD provides additional features, such as detailed plot synopses and cast lists for the movies; parental controls; and the ability to browse the collection by cover art, genre, title, rating, or actor.

The product designers at RealNetworks saw the potential demand for products

like RealDVD based partly on the popularity of a product from a company named Kaleidescape. As described on the Kaleidescape website, "The Kaleidescape System simplifies the way you collect, manage and enjoy movies and music. Once your personal entertainment collection is stored on the Kaleidescape System's fault-tolerant Servers, you can say goodbye to DVD and CD clutter and the frustration of storing and organizing your movies and music." 59. With a price tag that can reach over $ 10,000, however, Kaleidescape is not

accessible to the general public. Kaleidescape makes the point quite well: "the Kaleidescape System, is an entertainment server that has changed the way movies and music are collected and enjoyed in a home, yacht or private jet." See http://www.kaleidescape.com/news/. 60. The DVD CCA sued Kaleidescape on the ground that Kaleidescape was barred by

the terms of its license agreement to DVD encryption technology (the CSS license) to provide consumers with technology that would allow them to make personal copies of the DVDs they own. 61. The DVD CCA lost that case. Thereafter, RealNetworks determined that it could

make products that provided this capability while complying with the CSS agreement and the law. 62. RealNetworks wanted to make a product with similar functionality that could be

used by the average DVD customer. The price tag for the Vegas software, for example, is $50.00 (and was offered at an introductory price of $29.99).

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B. 63.

The Studio Defendants Seek to Maintain the Profits from the Fair Use Copy The Studio Defendants themselves have been attempting to develop a product that

would allow consumers to make a copy of the DVDs they purchase for use on a personal computer or portable video player like an iPod. The Studio Defendants call this "digital copy", "managed copy," and "second session copy." "Digital copy" is a separate disc that allows for the making of a copy of the content on a DVD onto a consumer's computer hard drive. The copy may be made directly from a DVD or could be delivered over the Internet as a download. Upon information and belief, one or more of the Studio Defendants have approached a company called Sonic to help them build a product with functionality similar to RealDVD. 64. The critical difference between RealDVD and the Studios' plan for "digital" and

"managed copy" is that the Studios intend to charge DVD purchasers an additional sum for the "managed copy" of each and every DVD they have purchased. Having already purchased the digital content on their DVDs, however, DVD owners have the fair-use right to make a backup copy for these purposes without buying the content a second time. In fact, average consumers have over 75 DVDs that they have already purchased and for which they already own the rights to make a fair use copy without making an additional payment to the Studios. The Studio Defendants are motivated by their own financial gain. Indeed, the longer that they are able to hinder the development and release of products that provide consumers with the ability to make fair-use copies of DVDs that they own, the Studios' own ability to market such a product is aided. The illegal scheme thus delays competitors while leaving the Studio Defendants free to market their own products and to charge consumers for the fair-use copy that the law already gives consumers the right to make. 65. Consumers are harmed by this conduct. To start, charging consumers to exercise

their fair-use rights, as the Studio Defendants would like to do, reduces the value of the DVDs consumers already own or would buy and improperly extends the narrow exclusivity that the copyright laws provide to a content owner (here, the Studio Defendants). The effect is the same as if the Studios had agreed to increase the prices of the DVDs themselves. RealNetwork's

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products threaten the Studio Defendants' attempts to monetize the non-infringing digital copies consumers already are entitled to create. 66. But whether or not a consumer has a fair-use right to make backup copies of the

DVDs they already have purchased, the Studios' collective agreement not to negotiate individual licenses for their content with RealNetworks or any other potential competitor is nothing more than an illegal scheme between horizontal competitors to eliminate a competitive threat and to charge higher prices. The harm to consumers from such a scheme is obvious--they will pay higher prices for the privilege of making digital copies of their DVDs. 67. The Studio Defendants' and the DVD CCA's unlawful conduct ensures that ­

until they are stopped by a court ­ the Studios will be free from competition in the market for technology that enables a consumer to make a secure backup copy of a DVD that she already owns. Competition and consumers alike will suffer as a result of this unlawful conduct. C. 68. RealDVD's Protection Against Unauthorized Copying RealNetworks has put into place significant protections against unauthorized

copying, including: · · RealDVD stores DVD content securely on a hard drive in the original CSS encrypted form. RealDVD adds a layer of security to the CSS protection by further encrypting the CSS encrypted content and the keys to unlock the content with AES encryption. AES encryption is a quintillion times more secure than the CSS encryption. It is the encryption system used by the U.S. Government for classified information. RealDVD is a "closed system" that does not allow DVD content to be sent through a network or uploaded to an Internet site and viewed by any other person. The backup copy made by RealDVD cannot be copied in playable form to any other hard drive or other device as a result of the AES encryption. The backup copy made by RealDVD cannot be played from any storage device other than the storage device onto which it was originally copied. It is impossible to transfer playable DVD content onto a device like an iPod or to "burn" a new playable DVD disc using RealDVD. RealDVD cannot be used to create pirate or counterfeit DVDs. When Facet saves a DVD to its hard drive, that DVD is locked to that hard drive and may only played on the Facet machine that saved the copy. -18-

·

·

·

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· ·

Facet does not allow a user to do anything with the saved DVD other than play it. It cannot be sent over the Internet or even over a home network. Vegas prevents making a copy of the DVDs that are on the computer hard drive. A user can make a copy only from the physical DVD. The user cannot then make a copy of the copy. Vegas allows the playback of the saved DVD on only five registered playback devices. The intended and probable use is for sharing of a single archival hard drive among a family's multiple computers (e.g., within a house or on vacation). The playback is accomplished by taking the single physical hard drive on which the DVDs are saved and plugging it in one at a time into one of five registered devices. In order to play the DVDs, the hard drive needs to be present. Thus with the removable hard drive, a family can view their saved DVDs on television (so long as it is attached to hard drive on which the saved DVDs are located); a laptop in the bedroom if the television is being used by other members of the family; a laptop during travel; or a personal computer located, for example, in the kitchen.

·

The Studio Defendants' Rejection of Efforts to Implement Further Technical Controls Against Unauthorized Copying Before RealNetworks released Vegas, it approached the Studio Defendants to

notify them of the product, to answer any questions they had regarding the product's piracy safeguards, and to explore mutual marketing opportunities. 70. During these talks, two of the Studios, Fox and Paramount, expressed concern

over the potential problem of people renting DVDs, copying them, and then returning them ­ socalled "rent, rip, & return." The Studios do not currently mark rental DVDs in any way that would make it possible for RealDVD to distinguish them from purchased DVDs. 71. During their talks with Real, the Studios acknowledged that it was solely within

their power to prevent "rent rip & return" by marking rental DVDs with, for instance, certain watermarks. The Studios currently mark their rental DVDs in Europe and could do so in the United States as well. RealNetworks indicated that it would do anything it could to ensure that the RealDVD product could not be used to save DVDs with such markings. 72. The Studios also discussed the concept of providing a unique mark for each DVD

sold, so that they could track how many copies were made of that DVD. Again, RealNetworks

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agreed that it would support any industry standard way to prevent its product from being used to save DVDs that had been copied too many times. 73. RealNetworks delayed its long-planned and scheduled product release to try to

reach an accommodation with the Studios to address their concerns. E. 74. The Studio Defendants' Decision to Engage in an Illegal Cartel The negotiations for a potential solution and a business deal went the furthest with

Paramount. RealNetworks and Paramount exchanged numerous term sheets, and had even agreed upon preliminary dollar amounts to enter into a marketing arrangement whereby Paramount would include Vegas on its DVDs and receive some payment in return. At the last minute, however, Paramount indicated that it was not prepared to break with the Studio cartel without substantial compensation for doing so. The compensation demanded by Paramount was an exorbitant sum, not at all tethered to the business value of the deal under negotiation. 75. The importance of a deal with one Studio, such as Paramount, cannot be

overstated. Whether or not there is a fair-use right for consumers to make secure backup copies of DVDs that they own, any Studio should have the unilateral ability to agree to allow its customers to use RealNetworks to make such copies. In fact, that is precisely what RealNetworks was attempting to procure, and what some of the Studio Defendants were involved in negotiating, so as to avoid the legal controversy over infringement versus fair use. If one major Studio had entered into a deal with Real, legitimizing the product and allowing the product to be used to copy that Studio's content, it would have made it difficult for the rest of the Studios to charge consumers supra-competitive prices for their own "managed copy" products, and so eventually many would likely have entered into their own agreements with Real. Such a deal also would have demonstrated the clear lack of irreparable harm required for an injunction. 76. Because of the significance of one Studio entering into a deal with Real, the

Studios decided that they could not break ranks. Instead, hiding under the umbrella of an organization that they control ­ the DVD CCA ­ the Studio Defendants jointly campaigned to eliminate the possibility of any entity other than themselves competing in this market. They also agreed collectively to refuse to enter into individual licenses with Real.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 77.

1.

The Studio Defendants' and the DVD CCA's Use of the CSS License Agreement to Prevent Competition

Defendant DVD CCA is a joint venture trade association. Its member movie

Studios compete against one another and others in the industry to provide content to users in various formats. As a joint venture of horizontal competitors, the DVD CCA must have circumscribed powers necessary to achieving a lawful purpose. 78. The stated purpose of the DVD CCA is to license the Content Scramble System

(CSS) to manufacturers of DVD hardware, discs and related products. As described by Defendant DVD CCA, "CSS prevents movies from being illegally duplicated, protecting the intellectual property of the manufacturers, producers and writers from theft." (Emphasis added). Indeed, the DVD CCA has represented to the United States government in connection with its application under the National Cooperative Research and Production Act (NCRPA) that "[t]he nature and objectives of the venture are to provide an encryption technology designed to prevent unlawful or unauthorized copying by encrypting digital files that can be decrypted only on licensed equipment. DVD CCA also intends to research, evaluate, adopt and license related technologies designed to protect CSS against unauthorized or unlawful copying and to prevent the unauthorized or unlawful copying and playback of DVD discs." (Fed. Reg. Vol. 66, No. 150, at 40729 (8/3/2001).) 79. The DVD owner's ability to save his/her own DVDs for storage and later

playback, however, is neither illegal duplication nor theft, but the exercise of his/her legitimate fair-use rights with respect to a product already purchased. 80. Whether or not the DVD owner already has this fair-use right, a Studio Defendant

could license the ability to make such copies. Achieving any limited legitimate purpose of the DVD CCA does not require a licensing agreement that prohibits individual Studios from granting licenses to copy their content from DVDs. Yet this is exactly what the DVD CCA and the Studio Defendants claim that the CSS License prohibits. As such, the legitimate purpose of the DVD CCA has been subverted to serve as a means through which the Studio Defendants act

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as, and enforce, a cartel with respect to the licensing of their content by different, lawful copying technologies. 81. Indeed, the CSS License specifically contemplates with respect to "secure

managed recording" (essentially, burn-to-DVD), another type of copying technology, that collective action is not required for a license to a given Studio's content (assuming such a license is necessary at all). The Studios' approach to "secure managed recording" illustrates that the terms under which a particular movie or television program can be licensed for the creation of a digital copy is (at most) a matter for negotiation with the individual Studio. 82. Nonetheless, the DVD CCA and the Studio Defendants claim that the CSS

Agreement prevents the Studios from entering into individual licenses granting the right to make digital copies of DVDs previously purchased by customers. To try to enforce the illegal and unjustified terms in the CSS License Agreement, they demand that in order to license the CSS technology, RealNetworks and other potential competitors to the Studio Defendants must agree not to compete in the provision of technology that would enable DVD owners to create and store a secure digital copy of DVDs that they own. 83. If the DVD CCA and the Studio Defendants are right in their collective

interpretation of the CSS License Agreement -- that the agreement conditions access to the CSS technology on a promise not to enable DVD owners to create and store a secure copy of DVDs that they own, except upon terms collectively dictated by the Studio Defendants and the DVD CCA -- then the agreement itself is illegal and would have been illegal since its inception. It would simply function as the vehicle by which the Studio Defendants unlawfully extend the narrow monopoly afforded to them by the copyright laws. 84. If the Studio Defendants and the DVD CCA are wrong in their interpretation of

the CSS License, then their attempt to use the License to impose post-hoc terms that were not included in the License amounts to an illegal group boycott. 85. The Noerr Pennington doctrine does not insulate their collective agreement to

interpret the CSS License in this manner. It is not the litigation through which the Studio Defendants and the DVD CCA seek to persuade a court to adopt their interpretation of the CSS

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License Agreement that has the anti-competitive effect. Rather, it is the interpretation of the Agreement in the manner advocated by the Studio Defendants and the DVD CCA that causes the harm, by turning the CSS Agreement into an exclusionary agreement that requires anyone who executes it to give up the right to compete with the Studio Defendants. It is thus the CSS License Agreement itself, or the Studio Defendants' and the DVD CCA's collective interpretation of it, that violates Section 1. Litigation is merely a manifestation of their illegal agreement. 2. 86. The Studios' Collective Refusal to Deal

As part of their collective response to RealNetworks, the Studio Defendants have

also agreed not to enter into individual business deals with RealNetworks regarding the marketing or release of RealNetwork's products. 87. When RealNetworks came close to such a deal with Paramount, Paramount at the

last minute indicated that it would require a substantial payment to break ranks and do a deal with RealNetworks individually. There is no place under the antitrust laws of the United States for competitors to agree with one another that they will not enter into individual business deals with another potential competitor, for fear that such a deal would undermine their collective position in the Courts or in the marketplace. Such an agreement constitutes a group boycott, and is illegal under Section 1 of the Sherman Act. 88. The collective agreement is further evidenced by the fact that none of the Studios

would individually enter into a tolling agreement with RealNetworks, allowing for time to negotiate before litigation was commenced. Instead, the Studios insisted on a group agreement. There is no place under the antitrust laws of the United States for competitors to agree with one another that they will only negotiate with a potential competitor as a group. Such an agreement constitutes a group boycott, and is illegal under Section 1 of the Sherman Act. 89. There is nothing about the CSS technology that requires the Studio Defendants to

act collectively with respect to the terms on which they will grant to RealNetworks the additional rights they claim are required for RealNetworks to enable consumers to make a digital backup copy of a DVD purchased from a particular studio.

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90.

Indeed, some of the Studio Defendants already independently have begun to

compete with RealNetworks by selling "new" (and more expensive) versions of DVDs that include a second disc from which the consumer can copy the movie onto a computer's hard drive. The price the Studios can charge for these discs, however, would drop quickly if one or more of the other Studios negotiated a license with RealNetworks that would confirm the right of consumers to make digital copies of that Studios' movies without having to pay an exorbitant sum to buy a second disc. F. 91. Harm to Consumers from the Studio Defendants' Illegal Cartel In making these agreements, the Studio Defendants are motivated by their own

financial gain. There are two distinct ways, both illegal, in which the Studios hope to profit from their illegal scheme. Consumers will be harmed in either event. 92. To begin with, despite the fact that their customers have a fair-use right to make

backup copies of the DVDs they already have purchased, the Studios would like to force DVD owners to pay a second time to obtain that copy. In other words, the Studios want to charge consumers to exercise their fair-use rights. If the Studio Defendants and the DVD CCA succeed in imposing this illegal surcharge, they will have reduced the value of the DVDs consumers already own or would buy. Consumers will get less value for the same price. 93. The Studio Defendants perceive the new products developed by RealNetworks as

a significant threat to their ability to monetize the non-infringing digital copies consumers already are entitled to create, a stream of revenue to which the Studio Defendants purport they are entitled but as to which the copyright laws, in fact, give them no right. 94. Moreover, whether or not customers have a fair-use right to make backup copies

of the DVDs they already have purchased, the Studios' collective agreement not to negotiate individual licenses for their content with RealNetworks, under the guise that the CSS Agreement would preclude such deals anyway, is nothing more than an illegal price fixing scheme between horizontal competitors. The harm to consumers from such a scheme is obvious--they will pay higher prices for the privilege of making digital copies of their DVDs.

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95.

By their illegal agreement, the Studio Defendants have ensured that ­ unless a

court intervenes ­ they will face no competition in the market for technology that enables a consumer to make a secure backup copy of a DVD that she already owns. With no competitors to challenge them, the Studios will face less pressure to make the technology available to consumers sooner rather than later, or to develop consumer-friendly features. Competition and consumers alike will suffer as a result of this unlawful conduct. FACTUAL ALLEGATIONS FOR ANTITRUST CLAIMS RealNetwork's CSS License and the Introduction of the RealDVD Product 96. RealNetworks entered into a CSS License Agreement with DVD CCA on or

about August 13, 2007, for the purpose of obtaining the technology needed for its RealDVD product to play back encrypted DVD content on personal computers. RealNetworks is therefore entitled to use the CSS technology under the terms of that Agreement. 97. In September, 2008, RealNetworks informed the DVD CCA and the Studio

Defendants that its RealDVD technology would be released to the public on September 30, 2008. After unsuccessful attempts to resolve the ensuing dispute between RealNetworks and the DVD CCA and the Studio Defendants, described above, RealNetworks sued both the DVD CCA and the Studio Defendants in this Court on September 30, 2008. RealNetwork's complaint seeks a declaration that RealNetworks has neither breached the terms of its CSS License nor engaged in conduct in violation of the DMCA. At the same time, in the Central District of California, the Studio Defendants filed their own Complaint, together with an ex parte application for a temporary restraining order and an order to show cause why a preliminary injunction should not issue to prevent RealNetworks from marketing or selling its RealDVD product. 98. Following transfer of the Studio Defendants' Complaint and pending TRO motion

to the Northern District of California, this Court granted the Studio Defendants' renewed request for a temporary restraining order barring the sale of RealDVD on October 7, 2008. On November 10, 2008, the DVD CCA filed Counterclaims against RealNetworks, including a claim that RealNetworks has breached the CSS License Agreement by developing and distributing RealDVD, accompanied by DVD CCA's own motion for preliminary injunction.

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RealNetworks moved for and was granted leave to amend its Complaint to include Facet on December 23, 2008. The DVD CCA has subsequently amended its Counterclaims to allege that RealNetworks' development of Facet also constitutes a breach of the CSS License Agreement. The Relevant Market 99. The relevant product market is the provision of technology that enables

consumers to (a) create or otherwise obtain digital copies of movies and TV shows that they own on DVDs and (b) store and manage those copies electronically (e.g., on a hard drive) for subsequent playback. Only firms that enable consumers to obtain digital copies of movies and TV shows that they own and to store them electronically for subsequent playback have the ability to take significant amounts of business away from each other. A hypothetical monopolist of such technology would be able profitably to impose a small but significant and nontransitory increase in price. Manufacturers of conventional DVD players do not compete in this market, in that they do not constrain pricing by firms in the relevant market, but they do lose sales and income to firms that succeed in the relevant market. 100. 101. The relevant geographic market is the United States. The principal competitors in the relevant market are RealNetworks, AMX,

Telestream, Kaleidescape, and the Studio Defendants. 102. As elaborated in the declaration of Fox's Michael Dunn, the Studios are actively

working on a number of products designed to provide consumers with the ability to obtain a second digital copy of DVDs that they purchase. The Studio Defendants acknowledge that RealNetworks is a competitor to at least two of these products: "digital copy," which is already available for many movie titles, and so-called "managed copy" -- which the Studios are working to define in the context of a multi-industry agreement. 103. Digital copy is a product that the Studios are marketing where a DVD is sold with

an additional "digital copy" version of the content (a second disc), where the second disc can be copied onto the consumer's computer hard drive (without CSS encryption). As Mr. Dunn declares: "`Digital Copy' versions of DVD movies are sold ­ at a higher cost than the regular version of the same movie ­ with an extra disc containing additional features. One of the

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features of the second disc is the ability to place it in a computer's DVD drive and copy the movie to a computer's hard drive." Mr. Dunn continues: "Digital Copy is particularly relevant because it allows consumers to purchase from the Studios that which RealDVD is trying to sell for its own benefit." (Dunn Decl., para 17.) The cost for this "second disc"? Roughly $4.00 for each individual disc. 104. Managed copy is simply the ability to make a copy of the content on a standard

definition DVD (as opposed to high-definition Blu-ray discs) onto a consumer's computer hard drive. As Mr. Dunn again declares: "This capability, referred to (sic) `Managed Copy' is, once again, similar to RealDVD's functionality, in that it allows consumers to have content both on a DVD and on their computer's hard drive. The critical difference is that (a) Managed Copy will be authorized by the content owners and (b) it will allow the content owners to capture the extra value that it brings to the consumer." (Dunn Decl., para 19.) 105. Mr. Dunn also mentions "Burn-to-DVD," which is another technology that will

allow a consumer to create a DVD after purchasing a download of a movie or television show. (Dunn Decl., para. 18.) The DVD CCA recently approved an amendment to the CSS Specifications that permits each Studio to decide independently whether and whom it will authorize to enable the creation of such DVDs. The Studio Defendants' Market Power 106. The Studio Defendants comprise the largest and most powerful collection of

motion picture companies in the United States and compete with each other in the market for motion picture content. The audio-visual works that the Studio Defendants create and own make up a predominate percentage of the content suitable for family viewing available to consumers on DVD. These competing Studio Defendants dominate the market for copyrighted motion picture content, which is an essential input into not only the RealDVD and the Facet products, but also other products that have similar functionality to RealNetwork's products. The Studio Defendants thus not only compete in the relevant market but also collectively control an element essential to effective competition in the relevant market.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 110. 107.

The Group Boycott: Refusing to Deal with Real The Studio Defendants have entered into a "contract, combination, or

conspiracy," within the meaning of Section 1, among the Studio Defendants. This is so in two respects. 108. First, should the DVD CCA and Studio Defendants' interpretation of the CSS

License Agreement prevail, then the contract stands as a binding (until declared unlawful) agreement among them to boycott RealNetworks until RealNetworks assents to their collectively-imposed terms. If the DVD CCA and the Studio Defendants are incorrect in their interpretation, as RealNetworks submits, their joint attempt to block competition in the market for these "new digital products" by collectively refusing to deal with RealNetworks similarly violates Section 1. 109. Second, as explained in paragraphs 69-76, supra, one Studio Defendant has

represented to RealNetworks that there is an agreement, upon which the Studio Defendants have acted, not to enter into individual business deals with RealNetworks. The Group Boycott Has Harmed RealNetworks RealNetworks initially planned to launch Vegas upon the announcement of the

product at a technology conference on September 8, 2008. RealNetworks made an ambitious and expensive public relations and advertising effort to prepare for the initial launch. When RealNetworks delayed the launch of Vegas to September 30, 2008 while it attempted to address the Studio Defendants' concerns regarding the product, RealNetworks attempted to recreate as much as possible the initial public interest that surrounded the product at the time of the planned initial September 8 launch. However, despite RealNetwork's efforts, many of the publications that had already generated press regarding Vegas were not willing to run second articles on the product. 111. In the event that DVD CCA's and the Studio Defendants' efforts to keep its

products from the market are unsuccessful, RealNetworks will most certainly not be able to successfully execute a "third" publicly acclaimed launch of RealDVD after having been tainted with the mislabel of an illegal product following two aborted launches.

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112.

The collective conduct of the Studio Defendants and the DVD CCA will foreclose

RealNetworks from competing in the market for technology that enables consumers to (a) create or otherwise obtain digital copies of movies and TV shows that they own on DVDs and (b) store and manage those copies electronically (e.g., on a hard drive) for subsequent playback. As a result of the conduct, RealNetworks' entry into the relevant market has been delayed while the Studios have remained free to distribute and sell their own "Digital Copy" products and capture the market for themselves. The Group Boycott Harms Competition 113. The DVD CCA's and the co-conspiring Studio Defendants' group boycott against

RealNetworks harms competition in the relevant market in at least two ways--by increasing prices and by retarding innovation competition. 114. First, consumer welfare is harmed. Curtailing the ability of consumers to enjoy

the capability to make non-infringing uses of the DVDs that they own or would buy--i.e., denying their fair-use right to make a backup copy of those DVDS--reduces the value of these DVDs, functioning in precisely the same manner as a collectively-imposed price increase. If the DVD CCA and the Studio Defendants succeed in their efforts to eliminate competition in the relevant market, a consumer with a DVD will be forced to pay a second time to obtain a "downloadable" digital file of DVD content that he or she already owns. This price increase is a naked exercise of market power, possible only because of the elimination of RealNetworks, a lower-priced competitor. 115. Without this restriction, consumers could lawfully store a movie from a DVD

onto a hard drive without additional charges (or, if a license were necessary, at much lower, individually-negotiated charges). CSS-licensed products like RealDVD facilitate this lawful activity while preserving and enhancing the protections provided by CSS. Thus, by imposing their interpretation of the CSS License Agreement on RealNetworks (and every other firm), the Studio Defendants extract extra dollars from consumers to which they are not entitled while actually reducing the value of the product that they are selling.

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116.

Moreover, whether or not consumers have a fair-use right to make back up copies

of DVDs they already have purchased, by agreeing not to negotiate in good faith individually with RealNetworks (while claiming that they are prohibited from doing so by the CSS Agreement), the Studio Defendants have effectively agreed to fix the price at which they will license their content. As a consequence, consumers will pay more than they otherwise would have to make digital copies of their DVDs. 117. Second, by using the DVD CCA to impede or thwart the efforts of firms like

RealNetworks to develop and distribute products that would permit them to compete in the relevant market, the Studio Defendants have been and will continue to be able to retard the pace at which such products become available to consumers, as well as the feat