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

Filing 97

Answer to Amended Complaint of Declaratory Judgment byDisney Enterprises, Inc., Paramount Pictures Corp., Sony Pictures Entertainment Inc., Twentieth Century Fox Film Corporation, NBC Universal, Inc., Warner Bros. Entertainment, Inc., Viacom, Inc.. (Lynch, Rebecca) (Filed on 1/12/2009)

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

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GLENN D. POMERANTZ (SBN 112503) [e-mail] BART H. WILLIAMS (SBN 134009) [e-mail] KELLY M. KLAUS (SBN 161091) [e-mail] MUNGER, TOLLES & OLSON LLP 355 South Grand Avenue, 35th Floor Los Angeles, CA 90071-1560 Tel: [phone]; Fax: [phone] GREGORY P. GOECKNER (SBN 103693) [e-mail] DANIEL B. ROBBINS (SBN 156934) [e-mail] 15301 Ventura Boulevard, Building E Sherman Oaks, California 91403-3102 Tel: [phone]; Fax: [phone]

ROBERT H. ROTSTEIN (SBN 72452) [e-mail] ERIC J. GERMAN (SBN 224557) [e-mail] MITCHELL SILBERBERG & KNUPP LLP 11377 West Olympic Boulevard Los Angeles, California 90064-1683 Tel: [phone]; Fax: [phone]

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Attorneys for Defendants/Counterclaim-Plaintiffs/Plaintiffs COLUMBIA PICTURES INDUSTRIES, INC., DISNEY ENTERPRISES, INC., PARAMOUNT PICTURES CORP., SONY PICTURES ENTERTAINMENT, INC., SONY PICTURES TELEVISION iNC., TWENTIETH CENTURY FOX FILM CORP., NBC UNIVERSAL, INC., WALT DISNEY PICTURES, WARNER BROS. ENTERTAINMENT, INC., UNIVERSAL CITY STUDIOS PRODUCTIONS LLLP, UNIVERSAL CITY STUDIOS LLLP, AND VIACOM, INC.
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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA REALNETWORKS, INC., et al., Plaintiffs, CASE NO. C 08-4548-MHP Consolidated with Case No. C 08-0471 9-MHP ANSWER OF STUDIO DEFENDANTS TO AMENDED COMPLAINT OF DECLARATORY JUDGMENT PLAINTIFFS AND COUNTERCLAIM-DEFENDANTS REALNETWORKS, INC. AND REALNETWORKS HOME ENTERTAINMENT, INC.

DVD COPY CONTROL ASSOCIATION, INC., et a!. Defendants.

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AND CONSOLIDATED ACTIONS.
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Disney Enterprises, Inc. ("DEl"), Paramount Pictures Corporation (erroneously named in the Complaint as "Paramount Pictures Corp.") ("Paramount"), Sony Pictures Entertainment Inc. (erroneously named in the Complaint as Sony Pictures Entertainment, Inc.) ("Sony Pictures"), Twentieth Century Fox Film Corporation (erroneously named in the Complaint as Twentieth Century Fox Film Corp.) ("Fox"), NBC Universal, Inc. ("NBC Universal"), Warner Bros. Entertainment Inc. (erroneously named in the Complaint as Warner Bros. Entertainment, Inc.) ("Warner Bros."), and Viacom Inc. (erroneously named in the Complaint as Viacom, Inc.) ("Viacom") (collectively, the "Studios") hereby answer the allegations of Declaratory Judgment Plaintiffs and Counterclaim-Defendants RealNetworks, Inc. and RealNetworks Home Entertainment, Inc. (jointly, "Real") contained in their Amended Complaint for Declaratory Relief ("Complaint") as follows: 1. The Studios admit that the Complaint purports to institute a declaratory judgment

action and that the allegations of the Complaint speak for themselves. Except as specifically admitted, the Studios deny the allegations of Paragraph 1. NATURE OF ACTION 2. The Studios admit and allege that the product marketed by Real as "Rea1DVD" is

used to circumvent the access- and copy-control technological measures on DVDs protected by Copy Scramble System ("CSS") or other technologies in order to make permanent, playable copies on hard drives. The Studios admit and allege that the product referred to by Real as the "New Platform" (the "New Platform") is designed to circumvent the access- and copy-control technological measures on DVDs protected by CSS or other technologies in order to make permanent, playable copies on hard drives. Except as specifically admitted, the Studios are without knowledge or information sufficient to form a belief as to the truth of the allegations in Paragraph 2 of the Complaint and on that basis deny them. 3. 4. The Studios deny the allegations of Paragraph 3 of the Complaint. The Studios admit that Walt Disney Pictures, Paramount, Sony Pictures, Fox,

Universal City Studios LLLP and Warner Bros. (collectively, the "Beneficiary Claim Plaintiffs") are members of the DVD Copy Control Association ("DVD CCA"); that the DVD CCA is a not 1
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Agreement portion of the DVD CCA License Agreement, exclusive jurisdiction and venue over any dispute arising out of that agreement exists in the federal and state courts of Santa Clara County, California. INTRADISTRICT ASSIGNMENT 9. The Studios admit that, for purposes of Civil Local Rule 3-2(c), assignment over

this action and the now-transferred related action filed by the DMCA and Beneficiary Claim Plaintiffs is proper on a District-wide basis. THE PARTIES 10. On information and belief, the Studios admit that RealNetworks, Inc. is a

Washington corporation with its principal offices in Washington. Except as specifically admitted, the Studios are without knowledge or information sufficient to form a belief as to whether RealNetworks, Inc. is a corporation in good standing, or as to the truth of any other allegations in Paragraph 10 of the Complaint and on that basis deny them. 11. On information and belief, the Studios admit that RealNetworks Home

Entertainment, Inc. is a Delaware corporation with its principal offices in Washington. Except as specifically admitted, the Studios are without knowledge or information sufficient to form a belief as to whether RealNetworks Home Entertainment, Inc. is a corporation in good standing, or as to the truth of any other allegations in Paragraph 11 of the Complaint and on that basis deny them. 12. The Studios admit that the DVD CCA is a Delaware not-for-profit corporation that

has offices in Morgan Hill, California. The Studios further admit that Real obtained a DVD CCA License under the pretense of purporting to build a DVD player, when in fact Real used the technology it obtained under that License to build unauthorized DVD copying devices that are used to circumvent CSS's access- and copy-control technological measures. Except as specifically admitted, the Studios deny the allegations in Paragraph 12 of the Complaint. 13. DEl admits that it is a Delaware corporation and that its principal place of business

is in Burbank, California. Except as specifically admitted, DEl denies the allegations in Paragraph 13 of the Complaint.

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for-profit association; and that the DVD CCA licenses CSS technology to various types of entities pursuant to a license agreement whose terms vary depending upon the type of license category the particular entity selects (the "DVD CCA License Agreement"). The Studios further admit that the DVD CCA License Agreement confers third-party beneficiary rights on any "Eligible Content Provider," as defined in Section 9.5 of the document labeled CSS License Agreement portion of the DVD CCA License Agreement, including the Beneficiary Claim Plaintiffs. Except as specifically admitted, the Studios deny the allegations in Paragraph 4 of the Complaint. 5. The Studios admit that the Beneficiary Claim Plaintiffs have filed a Complaint

against Real for breach of contract under the Beneficiary Claim provisions of the DVD CCA License Agreement, and that the allegations of the Beneficiary Claim Plaintiffs' Complaint speak for themselves. The Studios further admit that Universal City Studios Productions LLLP, Paramount, Fox, Sony Pictures Television Inc., Columbia Pictures Industries, Inc., DEl and Warner Bros. (collectively, the "DMCA Plaintiffs") have filed a Complaint against Real for violation of the anti-circumvention provisions of the Digital Millennium Copyright Act ("DMCA"), and that the allegations of the DMCA Plaintiffs' Complaint speak for themselves. The Studios are without knowledge or information sufficient to form a belief as to the truth of the allegation that the DVD CCA "has asserted similarly" against Real and on that basis deny that allegation. Except as specifically admitted, the Studios deny all other allegations in Paragraph 5 of the Complaint. 6. The allegations of Paragraph 6 of the Complaint are legal conclusions to which no

response is required. To the extent that a response is required, the Studios deny the allegations in Paragraph 6 of the Complaint. JURISDICTION AND VENUE 7. action. 8. The Studios deny that venue was proper in this District when Real filed its The Studios deny that Real properly instituted this action as a declaratory judgment

Complaint because Real did not properly institute this action as a declaratory judgment action. The Studios further deny that, pursuant to Section 10.4 of the document labeled CSS License 2
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Paramount admits that it is a Delaware corporation; that its principal place of

business is in Los Angeles, California; that it is in the motion picture business; and that it is a member of the DVD CCA. Except as specifically admitted, Paramount denies the allegations in Paragraph 14 of the Complaint. 15. Sony Pictures admits that it is a Delaware corporation; that its principal place of

business is in Culver City, California; that it is in the motion picture business; and that it is a member of the DVD CCA. Except as specifically admitted, Sony Pictures denies the allegations in Paragraph 15 of the Complaint. 16. Fox admits that it is a Delaware corporation; that its principal place of business is

in Los Angeles, California; that it is in the motion picture business; and that it is a member of the DVD CCA. Except as specifically admitted, Fox denies the allegations in Paragraph 16 of the Complaint. 17. NBC Universal admits that it is a Delaware corporation; that its principal place of

business is in New York, New York; and that certain of its subsidiaries (including without limitation Universal City Studios Productions LLLP and Universal City Studios LLLP) are in the motion picture business. Except as specifically admitted, NBC Universal denies the allegations in Paragraph 17 of the Complaint. 18. Warner Bros. admits that it is a Delaware corporation; that its principal place of

business is in Burbank, California; that it is in the motion picture business; and that it is a member of the DVD CCA. Except as specifically admitted, Warner Bros. denies the allegations in Paragraph 18 of the Complaint. 19. Viacom admits that it is a Delaware corporation; that its principal place of business

is in New York, New York; and that it participates, directly or indirectly, in the motion picture business. Except as specifically admitted, Viacom denies the allegations in Paragraph 19 of the Complaint. FACTS 20. The Studios admit that they or their subsidiaries distribute movies on DVDs; that

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the Studios or their subsidiaries use CSS to provide access- and copy-control technological
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measures to safeguard against unauthorized access to and reproduction of their movies released on DVDs; arid that manufacturers of authorized DVD player devices utilize technology obtained pursuant to the DVD CCA License Agreement to build licensed player devices. Except as specifically admitted, the Studios deny the allegations of Paragraph 20 of the Complaint. 21. The Studios admit that the DVD CCA's membership includes representatives of the

motion picture, consumer electronics and computer (hardware and software) industries; that the DVD CCA licenses CSS technology directly or indirectly pursuant to the DVD CCA License Agreement, the complete contents of which vary depending upon the category selected by the licensee; and that Exhibit 1 to the Complaint is a portion of the DVD CCA License Agreement that Real entered into. Except as specifically admitted, the Studios deny the allegations of Paragraph 21 of the Complaint. 22. The Studios admit that the DVD CCA License Agreement is the best evidence of

its contents, including without limitation the Beneficiary Claim Plaintiffs' rights under Section 9.5 of the document labeled CSS License Agreement portion of the DVD CCA License Agreement. Except as specifically admitted, the Studios deny the allegations in Paragraph 22 of the Complaint. 23. The Studios admit that, on or about August 13, 2007, RealNetworks, Inc. executed

the portion of the DVD CCA License Agreement referenced in Paragraph 21 above. The remaining allegations of Paragraph 23 of the Complaint are conclusions of law to which no response is required. To the extent a response is required, the Studios deny the remaining allegations in Paragraph 23 of the Complaint. 24. The Studios admit and allege that Rea1DVD is used to circumvent the access- and

copy-control technological measures on DVDs protected by CSS or other technologies in order to make permanent, playable copies on hard drives. The Studios admit and allege that the New Platform is designed to circumvent the access- and copy-control technological measures on DVDs protected by CSS or other technologies in order to make permanent, playable copies on hard drives. The Studios deny that Rea1DVD and the New Platform preserve the CSS encryption of copied CSS-protected DVDs or enhance the original protections. Except as specifically admitted

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or denied, the Studios are without knowledge or information sufficient to form a belief as to the truth of the allegations in Paragraph 24 of the Complaint and on that basis deny them. 25. The Studios admit that in the first half of September 2008, Real announced its

intention to release Rea1DVD by the end of the month of September 2008. The Studios admit that on October 20, 2008, Plaintiffs informed Studios' counsel that Plaintiffs were contemplating an attempt to add an unidentified "second product" as a subject of this litigation. Except as specifically admitted, the Studios deny the allegations of Paragraph 25 of the Complaint. 26. The Studios admit that, prior to Real's filing of the Complaint, counsel for the

DMCA Plaintiffs and the Beneficiary Claim Plaintiffs advised Real's counsel that his clients intended to file a Complaint against Real in the United States District Court for the Central District of California on September 30, 2008. The Studios further allege that Rea1DVD and the New Platform are designed to circumvent the access- and copy-control technological measures on DVDs protected by CSS or other technologies in order to make permanent, playable copies on hard drives. Except as specifically admitted, the Studios deny the allegations of Paragraph 26 of the Complaint. 27. The Studios are without knowledge or information sufficient to form a belief as to

what Real believes and on that basis deny Real's allegation about what it believes. The Studios admit that Real has asserted as its litigating position before this Court that Real does not believe Rea1DVD or the New Platform violate either the DMCA or the DVD CCA License Agreement. Except as specifically admitted, the Studios deny the allegations of Paragraph 27 of the Complaint. 28. The Studios admit that there has been no resolution of the disagreements between

the DMCA Plaintiffs and the Beneficiary Claim Plaintiffs, on the one hand, and Real, on the other. Except as specifically admitted, the Studios deny the allegations of Paragraph 28 of the Complaint. FIRST CAUSE OF ACTION 29. The Studios repeat and incorporate their responses to the allegations contained in

Paragraphs 1 through 28 of the Complaint, as if fully set forth herein. 6
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The Studios admit that the Beneficiary Claim Plaintiffs have filed a Complaint for

breach of contract against Real and that the allegations of the Complaint speak for themselves. Except as specifically admitted, the Studios deny the allegations in Paragraph 30 of the Complaint. 31. The Studios deny the allegations in Paragraph 31 of the Complaint. SECOND CAUSE OF ACTION 32. The Studios repeat and incorporate their responses to the allegations contained in

Paragraphs 1 through 31 of the Complaint, as if fully set forth herein. 33. The Studios admit that Real is a party to a DVD CCA License Agreement. Except

as specifically admitted, the Studios deny the allegations in Paragraph 33 of the Complaint. 34. 35. 36. 37. The Studios deny the allegations of Paragraph 34 of the Complaint. The Studios deny the allegations of Paragraph 35 of the Complaint. The Studios deny the allegations of Paragraph 36 of the Complaint. The Studios admit that Real seeks a declaratory judgment through its Complaint.

Except as specifically admitted, the Studios deny the allegations of Paragraph 37 of the Complaint. AFFIRMATIVE DEFENSES First Affirmative Defense (Unclean Hands) As an affirmative defense to both causes of action in the Complaint, and without admitting that Real properly instituted the Complaint as a declaratory judgment action, the Studios aver that Real's causes of action are barred in whole or in part by the doctrine of unclean hands. Among other things, Real obtained access to the CSS technology based on the pretense that it intended to use that technology to build a DVD player. Real instead used that technology to build DVD copiers, which are used to avoid, bypass, remove, deactivate or otherwise impair access- and copycontrol technological measures on DVDs protected by CSS or other technologies.

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(Waiver) As an affirmative defense to both causes of action in the Complaint, and without admitting that Real properly instituted the Complaint as a declaratory judgment action, the Studios aver that Real's causes of action are barred in whole or in part by the doctrine of waiver. Among other things, Real obtained access to the CSS technology based on the pretense that it intended to use that technology to build a DVD player. Real instead used that technology to build DVD copiers, which are used to avoid, bypass, remove, deactivate or otherwise impair access- and copy-control technological measures on DVDs protected by CSS or other technologies.
Third Affirmative Defense

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(Estoppel) As an affirmative defense to both causes of action in the Complaint, and without admitting that Real properly instituted the Complaint as a declaratory judgment action, the Studios aver that Real's causes of action are barred in whole or in part by the doctrine of estoppel. Among other things, Real obtained access to the CSS technology based on the pretense that it intended to use that technology to build a DVD player. Real instead used that technology to build DVD copiers, which are used to avoid, bypass, remove, deactivate or otherwise impair access- and copy-control technological measures on DVDs protected by CSS or other technologies.
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(Judicial Estoppel) As an affirmative defense to the second cause of action in the Complaint, and without admitting that Real properly instituted the Complaint as a declaratory judgment action, the Studios aver that Real is judicially estopped from claiming that Rea1DVD and the New Platform do not circumvent access- and copy-control technological measures that are protected pursuant to the DMCA. The positions that Real takes in its second cause of action regarding the application of the DMCA to Rea1DVD and the New Platform are inconsistent with positions that Real took in RealNetworks, Inc. v. Streambox, Inc., No. 2:99-C V-02070 (W.D. Wash.). For example, in RealNetworks, Inc. v. Streambox, Real took the position that "[u]nder the DMCA, where content
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owners use measures to prevent the copying or modification of their works, it is unlawful to distribute products that enable end-users to override the content owners' preferences." Based on its contentions in RealNetworks, Inc. v. Streambox, Real obtained favorable judicial rulings, in the form of a temporary restraining order and a preliminary injunction. See 2000 WL 127311 (W.D. Wash. 2000). In this case, however, Real takes the position that Rea1DVD and the New Platform are not circumvention devices, even though content owners (including the Studios or their subsidiaries) use CSS and other technologies to prevent the unauthorized copying or modification of their works, and both Rea1DVD and the New Platform enable end-users to override the content owners' preferences.
PRAYER FOR RELIEF

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WHEREFORE, the Studios pray for judgment: 1. 2. Dismissing with prejudice Real's Complaint in its entirety; Awarding the Studios their costs, disbursements and reasonable attorney's fees

incurred in defending against the Complaint plus interest on any sums awarded thereunder; and 3. Awarding the Studios such other and further relief as this Court deems just and

proper, including but not limited to the relief sought in the Counter-Complaint filed in this Court on October 3, 2008 and in the related Complaint filed in the Central District of California and transferred to this Court on October 3, 2008, Case No. C 08-4719 MHP.

Dated: January 12, 2009

MITCHELL SILBERBERG & KNUPP LLP

By:

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Robert H. Rotstein Attorneys for Studio Defendants

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