FALL 2010
Cyberlaw
Course No.: 9200-710 (& 810)-001
Course ID:  85723 & 85725
Time: M, W 4:45-6:15 p.m.
Room TBD
Professor Jay Dratler, Jr.
Across from Room 231D (IP Alcove)
Home: 330-835-4537
Copyright © 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2008, 2010  Jay Dratler, Jr.  
For permission, see CMI.

RealNetworks, Inc. v. Streambox, Inc.

2000 U.S. Dist. LEXIS 1889 (W.D. Wash. Jan. 18, 2000)

Marsha J. Pechman, United States District Judge. [*1]

ORDER ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

INTRODUCTION
    [This case involved three products of defendant Streambox— the Streambox "VCR," "Ferret," and "Ripper."  At issue was their interaction with plaintiff's products, the "RealServer" and "RealPlayer."
    Plaintiff had developed a proprietary file format for storing and transmitting digital audio and audiovisual files.  Its "RealServer" was a Web-based file server system.  This system provided access, over the World Wide Web, to files stored in plaintiff's proprietary format.  Plaintiff's "RealPlayer" was a proprietary software program, which users installed in their personal computers, to access, store and play digital files in the proprietary format.
    Plaintiff's RealServer and RealPlayer interacted to provide two important security features.  First, both systems used a "Secret Handshake" protocol designed to prevent the RealServer from transmitting digital files to any program other than a Real Player.  Second, a "Copy Switch" hidden in each digital file allowed the content provider (copyright owner) to specify whether users of that file could "download" (store) the file or just "stream" it to their computers (play and listen or watch, without storing).  If the Copy Switch was "on," users could download the file to their hard drives and thereafter make unlimited digital copies without further permission.  If the Copy Switch was "off," users could only listen or watch to the content as the file "streamed" into their computers but could not store the file or make copies.
    The RealPlayer also had another feature—a search engine that could find audio and audiovisual files in response to users' search requests.  The search engine was a product of another company, Snap! LLC ("Snap"), with which RealNetworks had a business relationship.  Snap's name and logo appeared on the title bar for the search engine in the RealPlayer window and on a co-branded Website to which users of the search engine were referred.   Snap compensated RealNetworks for the promotional value of each use of the search engine and had paid "several million dollars" by the time of the preliminary injunction hearing.
    Although RealNetworks' proprietary file format could be used on any Web server, and was used on some unprotected servers, most third-party content providers restricted their distribution of audio and audiovisual files to plaintiff's RealServer.  They liked the security it provided, and several testified that they would not provide their copyrighted material over the Web without that protection.
    The defendant's three products interacted with RealNetworks' products in the following ways.  The Streambox VCR duplicated plaintiff's "Secret Handshake," thereby simulating a RealPlayer and allowing users to stream and download files from the RealServer without regard to whether the Copy Switch was "on" or "off."  The Ferret did not interact directly with either the RealServer or RealPlayer, but simply converted digital files in RealNetworks' proprietary file format to other file formats, such as .WAV, .RMA, and MP3, so that those files could be played by other software, including Microsoft's rival media player.  The Ripper allowed users to modify the RealPlayer's on-screen appearance to add a button linking to defendant's own proprietary search engine.  In some cases the modifications caused on-screen replacement of the Snap logo with defendant's own logo.]

Plaintiff RealNetworks, Inc. ("RealNetworks") filed this action on December 21, 1999. RealNetworks claims that Defendant Streambox has violated provisions of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 1201 et seq. . . .

* * *

[*3] FINDINGS OF FACT * * * [*11]

26.  The only reason for the Streambox VCR to circumvent the Secret Handshake and interact with a RealServer is to allow an end-user to access and make copies of content that a copyright holder has placed on a RealServer in order to secure it against unauthorized copying.  In this way, the Streambox VCR acts like a "black box" which descrambles cable or satellite broadcasts so that [*12] viewers can watch pay programming for free.  Like the cable and satellite companies that scramble their video signals to control access to their programs, RealNetworks has employed technological measures to ensure that only users of the RealPlayer can access RealMedia content placed on a RealServer.  RealNetworks has gone one step further than the cable and satellite companies, not only controlling access, but also allowing copyright owners to specify whether or not their works can be copied by end-users, even if access is permitted.  The Streambox VCR circumvents both the access control and copy protection measures.

27.  The Streambox VCR can be distinguished from a third-party product sold by RealNetworks called GetRight.  GetRight enables end-users to download RealAudio files that have been placed on a web server, but not RealAudio files placed on a RealServer.

28.  A copyright owner that places a RealMedia file onto a web server instead of a RealServer does not make use of protections offered by the RealNetworks security system.  Thus, when GetRight is used to obtain such a file, it need not and does not circumvent RealNetworks' access control and copyright protection measures.  GetRight [*13] cannot access materials available from a RealServer because it cannot perform the requisite Secret Handshake.  Unlike GetRight, the Streambox VCR circumvents the Secret Handshake and enables users to make digital copies of content that the copyright owner has indicated that it should not be copied.

29.  Once an unauthorized, digital copy of a RealMedia file is created it can be redistributed to others at the touch of a button.

30.  Streambox's marketing of the VCR notes that end-users can "download RealAudio and RealMedia files as easily as you would any other file, then reap the benefits of clean, unclogged streams straight from your hard drive" and that the product can be used by "savvy surfers who enjoy taking control of their favorite Internet music/video clips."

31.  The Streambox VCR poses a threat to RealNetworks' relationships with existing and potential customers who wish to secure their content for transmission over the Internet and must decide whether to purchase and use RealNetworks' technology.  If the Streambox VCR remains available, these customers may opt not to utilize RealNetworks' technology, believing that it would not protect their content against unauthorized copying. [*14]

Streambox Ripper

32. * * * The Ripper is a file conversion application that allows conversion (adaptation) of files from RealMedia format to other formats such as .WAV, .RMA, and MP3.  The Ripper also permits conversion of files between each of these formats, i.e., .WAV to .WMA and .WAV to MP3.

33.  The Ripper operates on files which are already resident on the hard disk of the user's computer.  The Ripper permits users to convert files that they have already created or obtained (presumably through legitimate means) from one format to another.

34.  Streambox has proferred evidence that one potential use of the Ripper would be to permit copyright owners to translate their content directly from the RealMedia format into other formats that they may wish to utilize for their own work.  Streambox has provided examples of various content owner[s] who need a way to convert their own RealMedia files into different formats, such as .WAV for editing, or .WMA to accommodate those users who wish to access the content with a Windows Media Player instead of a RealPlayer.  In addition, content which is freely available, [*15] such as public domain material and material which users are invited and even encouraged to access and copy, may be converted by the Ripper into a different file format for listening at a location other than the user's computer.

* * * [*15]

CONCLUSIONS OF LAW

* * * [*16] * * *

Preliminary Injunction Standard

3.  To obtain a preliminary injunction, a party must show either (1) a combination of probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are raised and the balance of hardships tips in its favor.   Apple Computer v. Formula Int'l, Inc., 725 F.2d 521, 523 (9th Cir. 1984).  These are not separate tests, but rather opposite ends of a single continuum in which the required showing of harm varies inversely with the required showing of meritoriousness. . . .

4.  RealNetworks argues that a plaintiff who demonstrates a reasonable likelihood of success on claims under section 1201 of the DMCA is entitled to a presumption of irreparable harm.  In support of this argument, RealNetworks cites cases in which such a presumption was [*17] afforded to plaintiffs who brought copyright infringement claims. See Cadence Design Sys., Inc. v. Avant! Corp., 125 F.3d 824, 827 (9th Cir. 1997), cert. denied, 118 S. Ct. 1795, and Triad Sys. Corp. v. Southeastern Express, 64 F.3d 1330, 1335 (9th Cir. 1995).

5.  RealNetworks' claims against the Streambox VCR and the Ripper, by contrast, arise under section 1201 of the DMCA, and thus do not constitute copyright "infringement" claims. . . .  Because the DMCA is a recently-enacted statute, there appears to be no authority holding that a plaintiff seeking a preliminary injunction who shows a reasonable likelihood of success on a claim arising under section 1201 of the DMCA is entitled to a presumption of irreparable harm.

RealNetworks Has Demonstrated a Reasonable Likelihood of Success
on its DMCA Claims With Respect to the Streambox VCR

6.  The DMCA prohibits the manufacture, import, [*18] offer to the public, or trafficking in any technology, product, service, device, component, or part thereof that: (1) is primarily designed or produced for the purpose of circumventing a technological measure that effectively "controls access to" a copyrighted work or "protects a right of a copyright owner;" (2) has only limited commercially significant purpose or use other than to circumvent such technological protection measures; or (3) is marketed for use in circumventing such technological protection measures.  17 U.S.C. § § 1201(a)(2), 1201(b).

Parts of the VCR Are Likely to Violate Sections 1201(a)(2) and 1201(b)

7.  Under the DMCA, the Secret Handshake that must take place between a RealServer and a RealPlayer before the RealServer will begin streaming content to an end-user appears to constitute a "technological measure" that "effectively controls access" to copyrighted works.  See 17 U.S.C. § 1201(a)(3)(B) (measure "effectively controls access" if it "requires the application of information or a process or a treatment, with the authority of the copyright holder, to gain access to the work").  To gain access to a work [*19] protected by the Secret Handshake, a user must employ a RealPlayer, which will supply the requisite information to the RealServer in a proprietary authentication sequence.

8.  In conjunction with the Secret Handshake, the Copy Switch is a "technological measure" that effectively protects the right of a copyright owner to control the unauthorized copying of its work. See 17 U.S.C. § 1201(b)(2)(B) (measure "effectively protects" right of copyright holder if it "prevents, restricts or otherwise limits the exercise of a right of a copyright owner"); 17 U.S.C. § 106(a) (granting copyright holder exclusive right to make copies of its work).  To access a RealMedia file distributed by a RealServer, a user must use a RealPlayer.  The RealPlayer reads the Copy Switch in the file.  If the Copy Switch in the file is turned off, the RealPlayer will not permit the user to record a copy as the file is streamed.  Thus, the Copy Switch may restrict others from exercising a copyright holder's exclusive right to copy its work.

9.  Under the DMCA, a product or part thereof "circumvents" protections afforded a technological measure by "avoiding bypassing, [*20] removing, deactivating or otherwise impairing" the operation of that technological measure.  17 U.S.C. § § 1201(b)(2)(A), 1201(a)(2)(A). Under that definition, at least a part of the Streambox VCR circumvents the technological measures RealNetworks affords to copyright owners. Where a RealMedia file is stored on a RealServer, the VCR "bypasses" the Secret Handshake to gain access to the file.  The VCR then circumvents the Copy Switch, enabling a user to make a copy of a file that the copyright owner has sought to protect.

10.  Given the circumvention capabilities of the Streambox VCR, Streambox violates the DMCA if the product or a part thereof: (i) is primarily designed to serve this function; (ii) has only limited commercially significant purposes beyond the circumvention; or (iii) is marketed as a means of circumvention. 17 U.S.C. § § 1201(a)(2)(A-C), 1201(b)(b)(A-C).  These three tests are disjunctive. Id.  A product that meets only one of the three independent bases for liability is still prohibited.  Here, the VCR meets at least the first two.

11.  The Streambox VCR meets the first test for liability under the DMCA because at least [*21] apart of the Streambox VCR is primarily, if not exclusively, designed to circumvent the access control and copy protection measures that RealNetworks affords to copyright owners.  17 U.S.C. § § 1201(a)(2)(A), 1201(b)(c)(A).

12.  The second basis for liability is met because portion of the VCR that circumvents the Secret Handshake so as to avoid the Copy Switch has no significant commercial purpose other than to enable users to access and record protected content.  17 U.S.C. § 1201(a)(2)(B), 1201(b)(d)(B). There does not appear to be any other commercial value that this capability affords.

13.  Streambox's primary defense to Plaintiff's DMCA claims is that the VCR has legitimate uses.  In particular, Streambox claims that the VCR allows consumers to make "fair use" copies of RealMedia files, notwithstanding the access control and copy protection measures that copyright owner may have placed on that file.

14.  The portions of the VCR that circumvent the secret handshake and copy switch permit consumers to obtain and redistribute perfect digital copies of audio and video files that copyright owners have made clear they do not want copied.  For [*22] this reason, Streambox's VCR is entitled to the same "fair use" protections the Supreme Court afforded to video cassette recorders used for "time-shifting" in Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 78 L. Ed. 2d 574, 104 S. CT 774 (1984).

15.  The Sony decision turned in large part on a finding that substantial numbers of copyright holders who broadcast their works either had authorized or would not object to having their works time-shifted by private viewers.  See Sony, 464 U.S. at 443, 446.  Here, by contrast, copyright owners have specifically chosen to prevent the copying enabled by the Streambox VCR putting their content on RealServers and leaving the Copy Switch off.

16.  Moreover, the Sony decision did not involve interpretation of the DMCA.  Under the DMCA, product developers do not have the right to distribute products that circumvent technological measures that prevent consumers from gaining unauthorized access to or making unauthorized copies of works protected by the Copyright Act.  Instead, Congress specifically prohibited the distribution of the tools by which such circumvention could be accomplished.  The portion [*23] of the Streambox VCR that circumvents the technological measures that prevent unauthorized access to and duplication of audio and video content therefore runs afoul of the DMCA.

17.  This point is underscored by the leading treatise on copyright, which observes that the enactment of the DMCA means that "those who manufacture equipment and products generally can no longer gauge their conduct as permitted or forbidden by reference to the Sony doctrine. For a given piece of machinery might qualify as a stable item of commerce, with a substantial noninfringing use, and hence be immune from attack under Sony's construction of the Copyright Act- but nonetheless still be subject to suppression under Section 1201."  1 Nimmer on Copyright (1999 Supp.), § 12A.18[B].  As such, "equipment manufacturers in the twenty-first century will need to vet their products for compliance with Section 1201 in order to avoid a circumvention claim, rather than under Sony to negate a copyright claim."  Id.

18.  Streambox also argues that the VCR does not violate the DMCA because the Copy Switch that it avoids does not "effectively protect" against the unauthorized copying of copyrighted works [*24] as required by § 1201(a)(3)(B).  Streambox claims this "effective" protection is lacking because an enterprising end-user could potentially use other means to record streaming audio content as it is played by the end-user's computer speakers.  This argument fails because the Copy Switch, in the ordinary course of its operation when it is on, restricts and limits the ability of people to make perfect digital copies of a copyrighted work.  The Copy Switch therefore constitutes a technological measure that effectively protects a copyright owner's rights under section. 1201(a)(3)(B).

19.  In addition, the argument ignores the fact that before the Copy Switch is even implicated, the Streambox VCR has already circumvented the Secret Handshake to gain access to a unauthorized RealMedia file.  That alone is sufficient for liability under the DMCA. See 17 U.S.C. § 1201(i)(e).

20.  Streambox's last defense to liability for the VCR rests on Section 1201(c)(3) of the DMCA which it cites for the proposition that the VCR is not required to respond to the Copy Switch.  Again, this argument fails to address the VCR's circumvention of the Secret Handshake, which is enough, [*25] by itself, to create liability under Section 1201(a)(2).

21.  Moreover, Section 1201(c)(3) states that "nothing in this section shall require . . . a response to any particular technological measure, so long as . . . the product . . . does not otherwise fall within the prohibitions of subsections (a)(2) or (b)(1)."  17 U.S.C. § 1201(c)(3).  As the remainder of the statute and the leading copyright commentator make clear, Section 1201(c)(3) does not provide immunity for products that circumvent technological measures in violation of Sections 1201(a)(2) or (b)(1). See 17 U.S.C. § 1201(c)(3) (a product need not respond to a particular measure "so long as such . . . product . . . does not otherwise fall within the prohibitions of subsections (a)(2) or (b)(1)." (emphasis added); 1 Nimmer on Copyright (1999 Supp.), § 12A.05[C].  If the statute meant what Streambox suggests, any manufacturer of circumvention tools could avoid DMCA liability simply by claiming it chose not to respond to the particular protection that its tool circumvents.

22.  As set forth above, the Streambox VCR falls within the prohibitions of sections 1201(a)(2) [*26] and 1201(b)(1). Accordingly, Section 1201(c)(3) affords Streambox no defense.

RealNetworks is Likely to Suffer Irreparable Harm With Respect to the VCR

23.  RealNetworks argues that because it has demonstrated a reasonable likelihood of success on its DMCA claims concerning the VCR, it is entitled to a presumption of irreparable harm.  As noted above, however, this point is not settled.

24.  Assuming that a plaintiff who demonstrates a reasonable likelihood of success with respect to claims arising under section 1201 of the DMCA is entitled to a presumption of irreparable harm, RealNetworks would be entitled to such a presumption.

25.  In the event that such a presumption is not applicable, RealNetworks has demonstrated that it would likely suffer irreparable harm if the Streambox VCR is distributed.  The VCR circumvents RealNetworks' security measures, and will necessarily undermine the confidence that RealNetworks' existing and potential customers have in those measures.  It would not be possible to determine how many of RealNetworks' existing or potential customers declined to use the company's products because of the perceived security problems created by the VCR's ability [*27] to circumvent RealNetworks' security measures.

26.  An injunction against the VCR also would serve the public interest because the VCR's ability to circumvent RealNetworks' security measures would likely reduce the willingness of copyright owners to make their audio and video works accessible to the public over the Internet.

RealNetworks Has Not Demonstrated that It Is Reasonably Likely to Succeed on its DMCA Claim With Respect to the Ripper.


27.  RealNetworks also alleges that Streambox's marketing and distribution of the Ripper violates section 1201(b) (but not section 1201(a)(2)) of the DMCA.

28.  RealNetworks maintains that the primary purpose and only commercially significant use for the Ripper would be to enable consumers to prepare unauthorized "derivatives" of copyrighted audio or video content in the RealMedia format in violation of 17 U.S.C. § 106(2).

29.  The Ripper has legitimate purposes and commercially significant uses.  For example, the Ripper may be used by content owners, including copyright holders, to convert their content from the RealMedia format to other formats.  Streambox has submitted evidence that at least some content [*28] owners would use the Ripper for this legitimate purpose.  The Ripper may also be used by consumers to convert audio and video files that they acquired with the content owner's permission from RealMedia to other formats.  RealNetworks has not demonstrated that it is likely to succeed on its claims that the Ripper violates sections 1201(b)(1)(A) or (B) of the DMCA.

30.  RealNetworks' DMCA claims with respect to the Ripper rely largely on its argument that the proprietary RealMedia format constitutes a technological measure that effectively protects a right of a copyright owner because it prevents end-users from making derivative works based on audio or video content that a consumer obtains in RealMedia format.  RealNetworks did not offer this argument in any detail in its opening memorandum.

31.  There is little evidence that content owners use the RealMedia format as a "technological measure" to prevent end-users from making derivative works.  In any case, RealNetworks has not introduced evidence that a substantial number of content owners would object to having end-users convert RealMedia files that they legitimately obtain into other formats.

32.  Similarly, RealNetworks has not submitted [*29] substantial evidence that the Ripper's alleged violations of section 1201(b) will cause RealNetworks injury.  None of the numerous declarations submitted by RealNetworks' customers or recording industry employees express concern that the Ripper will permit RealMedia files to be converted to other formats.  Instead, persons who submitted these declarations indicate that they are concerned that unnamed Streambox products will permit consumers to acquire unauthorized copies of copyrighted works that are made available only in the streaming format.  These concerns appear to relate to the functions of the Streambox VCR, not to the functions of the Ripper.  The Ripper functions as a "converter," not as a copier.  As such, these declarations do not suggest that the Ripper's alleged violations of section 1201(b) will result in any injury to RealNetworks in the form of lost customers or business.

33.  RN further alleges that Streambox's marketing of the Ripper violates section 1201(b)(1)(C) of the DMCA.  The brief quotes from Streambox's promotional materials that RealNetworks references do not appear to urge consumers to buy the Ripper in order to create derivative works in violation of the Copyright [*30] Act.  The evidence submitted by RealNetworks is not sufficient to show a reasonable likelihood of success on its claims under section 1201(b)(1)(C).

34.  In light of Streambox's demonstration that the Ripper has legitimate and commercially significant uses, RealNetworks has not shown that it is likely to succeed on its DMCA claims with respect to the product.

35.  Even if RealNetworks had raised a "serious question" about the Ripper's alleged violation of the DMCA, RealNetworks has not demonstrated that the balance of hardships tips sharply in its favor.  As noted above, RealNetworks has not submitted evidence that the sale of the Ripper would cause it to lose customers or goodwill.  By contrast, enjoining the Ripper would deprive Streambox of the ability to market a potentially valuable product with legitimate uses.

RealNetworks Has Demonstrated that It Is Entitled to a Preliminary Injunction with Respect to the Ferret

36.  Finally, RealNetworks claims that Streambox commits contributory and/or vicarious copyright infringement by distributing the Ferret product to the public.  In order to prevail on such claims, RealNetworks must demonstrate that consumers who use the [*31] Ferret as a plug-in to the RealPlayer infringe RealNetworks' rights as a copyright owner.  RealNetworks alleges that consumers who install the Ferret as a plug-in application to a RealPlayer create an unauthorized derivative of the RealPlayer, thus violating RealNetwork's rights under 17 U.S.C. § 106(2).

37.  RealNetworks holds a valid copyright registration for version 7 of the RealPlayer, which constitutes prima facie evidence that RealNetworks is the owner of the copyright to the program. See Apple Computer, Inc. v. Formula Int'l, Inc., 725 F.2d 521, 523 (9th Cir. 1984).

* * * [*32] * * *
    [Because precedent is insufficient, the court decides that plaintiff is not likely to succeed on its claim that the Ferret produces unauthorized derivatives of RealPlayer.]
41.  Nonetheless, the Court concludes that RealNetworks has raised serious questions going [*33] to the merits of its claim.  It is undisputed that consumers who install the Ferret as a plug-in application to the RealPlayer cause the graphical interface of the RealPlayer to be modified, arguably creating a derivative work under 17 U.S.C. § 106(2) without the copyright owner's authorization.  In addition, RealNetworks has proferred evidence that end, users who install the Ferret are violating a license agreement with RealNetworks.

42.  A plaintiff seeking a preliminary injunction who raises serious questions going to the merits of its claim is entitled to an injunction if the balance of hardships tips sharply in its favor. See Micro Star v. Formgen, Inc., 154 F.3d 1107, 1109 (9th Cir. 1998).

43.  The balance of hardships here clearly favors RealNetworks.  The Ferret's ability to permit consumers to modify the RealPlayer jeopardizes RealNetworks' exclusive relationship with Snap.  In addition, each time a consumer opts to use the Streambox search engine that is present on a modified RealPlayer rather than the Snap search engine that is present on an unmodified RealPlayer costs RealNetworks royalty payments from Snap, and it would be difficult [*34] if not impossible to calculate the lost revenue to RealNetworks.

44.  By contrast, the hardship that Streambox would experience if an injunction issued against the product would not be nearly as severe.  The Ferret plug-in simply provides consumers with a way to access the Streambox search engine through the RealPlayer.  The Streambox search engine is already accessible to consumers in other places.  If the Ferret is not available for distribution as a plug-in to the RealPlayer, consumers will still have the ability to conveniently access and use the Streambox search engine.

CONCLUSION

Consistent with the findings of fact and conclusions of law above, the Court hereby ORDERS that:

During the pendency of this action, Defendant Streambox, Inc. and its officers, agents, servants, employees and attorneys, and those persons in active concert and participation with Streambox, Inc. who receive actual notice of this Preliminary Injunction, are restrained and enjoined from manufacturing, importing, licensing, offering to the public, or offering for sale:
    a) versions of the Streambox VCR or similar products that circumvent or attempt to circumvent RealNetworks' technological security [*35] measures, and from participating or assisting in any such activity;
    b) versions of the Streambox Ferret or similar products that modify RealNetworks' RealPlayer program, including its interface, its source code, or its object code, and from participating or assisting in any such activity.

Plaintiff's motion for a preliminary injunction with respect to the Streambox Ripper is DENIED.

This Order shall be effective immediately, on the condition that RealNetworks continues to maintain security with the Clerk in the amount of $ 1,000,000 for the payment of such costs and damages as may be incurred by Streambox if it is found that Streambox was wrongfully enjoined by this Order.

The TRO entered by Judge Coughenour on December 23, 1999, and extended by the Court until 5:00 p.m. on January 18, 2000, is hereby VACATED by this Order. * * *

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