Digital Media

A federal court has found enough evidence to decide that RealDVD, the software that enables users to copy DVDs and store digital duplicates on a hard drive, violates U.S. copyright law.

Facet, the DVD player that copied and stored digital movies, will not be hitting store shelves anytime soon.

(Credit: Greg Sandoval/CNET)

U.S. District Court Judge Marilyn Patel on Tuesday issued a preliminary injunction that will prevent RealNetworks from selling the $30 software until a jury can decide the issue. That will undoubtedly keep RealDVD and Facet, Real's prototype DVD player, off store shelves for an indefinite period. Facet also makes digital copies and stores them to a built in hard drive.

The decision represents a major victory for the film studios, which had accused Real of violating the Digital Millennium Copyright Act (DMCA) and breach of contract in a lawsuit filed last fall. Had the decision gone against the film studios and its trade group, the Motion Picture Association of America (MPAA), it would have been an affirmation that consumers have the right to copy their DVDs for personal use. Right now, when a DVD owner loses or breaks a disc, they conceivably must purchase another copy. RealDVD and Facet eliminate the need for discs once copies are made.

But the MPAA argued that Facet and RealDVD are pirate tools that enabled users to copy and redistribute movies and could cost the industry billions. The MPAA has maintained that under the DMCA, consumers do not have the right to copy films--ever.

"We are very pleased with the court's decision," MPAA Chairman and CEO Dan Glickman said in a statement. "This is a victory for the creators and producers of motion pictures and television shows and for the rule of law in our digital economy. Judge Patel's ruling affirms what we have known all along: Real took a license to build a DVD-player and instead made an illegal DVD-copier."

Bart Williams, attorney who argued case for the studios.

(Credit: Munger, Tolles & Olson)

"We are disappointed that a preliminary injunction has been placed on the sale of RealDVD," Real said in a statement. The company that makes entertainment software said it would have more to say after it had reviewed Patel's decision.

The big question for Real is whether it has the stomach to continue the fight. The legal fees have already set Real back more than $6 million.

"RealDVD makes a permanent copy of copyrighted DVD content," Patel wrote in her decision, "and by doing so breaches its (Content Scramble System) License Agreement with the (DVD Copy Control Association, the group that oversees the protection of DVDs for the major Hollywood studios) and circumvents a technological measure that effectively controls access to or copying of the Studios' copyrighted content on DVDs."

In her decision, Patel made a play on words using Vegas--Real's code name for RealDVD--to illustrate how the software could lead to the mass pirating of movies.

"Had Real's products been manufactured differently, i.e., if what happened in Vegas really did stay in Vegas," Patel continued, "this might have been a different case. But, it is what it is. Once the distributive nature of the copying process takes hold, like the spread of gossip after a weekend in Vegas, what's done cannot be undone."

Patel's decision is unlikely to surprise anyone who followed the case. During last year's hearings on a temporary injunction and last spring's proceedings on the preliminary injunction, Patel appeared highly skeptical of Real's arguments.

In her questions to both sides' attorneys, Patel seemed concerned about the potential for people to use RealDVD and Facet, to copy rented discs without compensating the creators, a practice known as "rent, rip, and return."

One glaring hole in Real's argument was its assertions that RealDVD didn't circumvent ARccOS and RipGuard because they really aren't anticopying software; and that Real had licensed CSS, the technology designed to prevent unauthorized copying of DVDs, so it was essentially authorized to do what it wanted with it.

The MPAA crushed these arguments in proceedings. The studios showed that both ARccOS and RipGuard are anticopying technologies used by some of the major film studios as a layer of piracy protection in addition to CSS. The studios' lawyers produced documents that revealed ARccOS and RipGuard were effective enough copy protections to stymie Real's engineers, as well as a group of "Ukranian hackers," from cracking them.

One other important detail: ARccOS and RipGuard are not included in the CSS license. By circumventing the technology, Real had risked violating the DMCA, which prohibits the cracking of antipiracy technologies. And that's exactly what happened.

"Real was aware of ARccOS and RipGuard during the development of the RealDVD products," Patel wrote in her 58-page decision. "Real software engineers identified ARccOS and RipGuard as both copy protection systems and barriers to their development of a DVD copying device from the outset of the RealDVD project."

While the courtroom showdown was first billed as a fight over RealDVD, it soon became clear that what was really at stake for Real was Facet.

Real CEO Rob Glaser demonstrated the device in court last spring and showed how an owner could move between films--it holds more than 70--in a way similar to how someone scrolls through an iTunes playlist. I wrote that the device could have helped spur flagging DVD sales and given DVD collectors, such as myself, a way to revitalize their movie collections.

Hollywood, however, is working on its own programs to give consumers access to digital copies after buying a CD. But the studios typically want additional money for the digital copy.

So, now we wait to hear whether Real will carry on the fight. However it turns out, the company has earned kudos from anticopyright proponents for waging the campaign. The question is whether carrying the flag for the free-content crowd is enough of a payoff.

The film industry fired another legal broadside at RealNetworks and RealDVD.

Real's Facet DVD player

(Credit: Greg Sandoval/CNET Networks)

The Motion Picture Association of America has accused Real of misleading the court about the company's attempts to circumvent ARccOS and RipGuard and about whether the technologies are true copy-protection measures.

Real wrote in patent applications filed with the Patent and Trademark Office in 2007 and 2008 that the two software were indeed copy protections, despite arguing the opposite in court, the MPAA alleged in a document filed with the court on Wednesday. The patent applications were published by the patent office two weeks ago.

The MPAA has taken Real to court to try to stop the company from selling RealDVD, a software that enables users to copy DVDs to a hard drive, as well as Facet, a DVD player that can also create digital copies of DVDs and store them as well. U.S. District Judge Marilyn Patel is due soon to decide whether to continue banning sales of RealDVD until a full trial decides whether the technology violates copyright law.

A Real spokesperson was not immediately available for comment Thursday morning.

An important point of contention in the case is whether RealDVD circumvents copy protections placed on DVDs. If Patel decides it does, then Real is violating the Digital Millennium Copyright Act, which outlaws the circumvention of anti-piracy measures.

Real maintains it has a license with the DVD Copy Control Association, the group that oversees DVD security, to use the copy protections the studios place on DVDs, so there's no circumvention. As for ARccos and RipGuard, technologies that are not included under the DVD-CCA licensing, Real has argued throughout the court fight that these aren't security measures.

"Real and its witnesses have told the court that ARccOS and RipGuard are not copy protection technologies and that Real's engineers did not know how ARccOS and RipGuard worked," wrote MPAA lawyers in documents filed with U.S. District Court in San Francisco. "Yet Real simultaneously has told the PTO that RipGuard' and ArccOS are 'copy protection mechanisms' and then described specific techniques used by ARccOS and RipGuard."

The MPAA attorneys also said "Real has told the court, through witnesses and proposed findings, that ARccOS and RipGuard can only delay but cannot prevent a 'linear copy' of DVDs. But Real is insisting to the (patent office) that ARccOS and RipGuard can 'cause an archiving process to fail' or 'never complete'--exactly contrary to its representations to this court."

The studios asked Patel to consider the three patent applications before making her decision. While it's late to be entering evidence, the MPAA alleges that it has the right to do it because Real did not turn over the patent applications in discovery.

"Judicial notice is warranted here because the applications have been in Real's possession and control but unavailable to the studios," the MPAA said in its court filing, "(And) because the applications so directly contradict Real's contentions before this court."

The language in the patent applications does appear to contradict what Real's lawyers and witnesses have said in court.

Nonetheless, the motion filed by the MPAA may be overkill. Real's story about ARccos and RipGuard was already the weakest part of its case. Real has alleged that the two software types were ineffective in securing DVD content, yet the MPAA produced documents that show Real's attempt to crack them failed. The company then tried to hire an outside firm, which the MPAA alleges is a group of Ukrainian hackers, and they couldn't do it either.

The MPAA said that Real's patent applications are U.S.Patent Application Publication No. US 2009/0148125 A1 (Watson, Bielman, and Barrett); U.S. Provisional App. No. 61/095,249 (Chasen, Buzzard, et al.); and U.S. Provisional App. No. 61/012,500 (Barrett, Hamilton, et al.).

The future of RealDVD, and possibly a consumer's right to create backup copies of their DVDs, now rests in the hands of Marilyn Hall Patel.

Bart Williams, the attorney who helped lead the MPAA's case.

(Credit: Munger, Tolles & Olson)

On Thursday, the U.S. district judge wrapped up a preliminary injunction hearing in the RealDVD case. Last fall, RealNetworks began selling RealDVD, the software that duplicates DVDs and stores copies to a hard drive. The Motion Picture Association of America, the trade group representing the six largest film studios, filed a lawsuit claiming RealDVD violated copyright law.

In September, Patel placed a temporary restraining order on sales of RealDVD, saying she had serious questions about the software's potential to be used to pirate films. Now, she must decide whether to continue to keep the software off shelves. Even if she does, a final decision about whether RealDVD is legal or not would be decided later by a jury (Here are the reasons I think Patel will rule against Real).

Patel's ruling on the injunction will have serious consequences on the case. Real CEO Rob Glaser testified during the hearing that delaying sales of RealDVD and Facet, the DVD player from Real that copies as well as plays DVDs, could be disastrous for the development of the products. Glaser told Patel that it's very expensive to keep engineering teams together. The company has already spent nearly $6 million, mostly on legal fees, developing the products.

He also noted that it would put Real behind in offering the public a means to backup their DVDs. The studios already offer digital copies of films that they tuck into purchases of DVDs, although consumers must pay extra.

Patel must now determine whether the studios have demonstrated a probability to win in a trial based on the merits of its arguments and has proven the possibility it could suffer irreparable harm. The injunction hearing acts as a preview of the trial. It is possible, however, for one side to lose in the hearing and win the overall trial.

If Real loses, the company can appeal Patel's decision to the U.S Court of Appeals for the Ninth Circuit. That's what the original Napster did when Patel sided with the recording industry in 2000 and placed an injunction on the peer-to-peer service. In that case, the appeals court agreed with Patel and ruled against Napster.

Besides the possible impact to Real's business model, the case could, if Real wins, set a landmark decision that could free consumers to copy their DVDs. Real has said it believes consumers have a fair-use right to backup their movie discs. A Real victory would also enable technology companies to create new DVD copying and storage devices.

Here's what is at stake, according to two well-known attorneys with opposing views:

On the issue of fair use, Fred von Lohmann of the Electronic Frontier Foundation said:

"The important question is will consumers have the same kind of personal use rights that they have had for their compact discs? Will we have the same kind of innovation for DVDs that we've seen for digital music? Obviously, consumers have gotten used to the idea of putting music on computers and listening to it on devices like iPods. Consumers are now facing the possibility that those same kind of actions will be declared illegal if the MPAA has its way."

Ben Sheffner is a former copyright attorney for 20th Century Fox and is an outspoken proponent of copyright. According to him, a loss in this case could deal Hollywood a significant financial setback. He said:

"The studios feel that it's very important to make clear that copying DVDs is not permitted by the law. They believe that's the law now--and judging from how things went at the hearing--it appears that is how the law will remain. If it goes against the studios that would be a major blow and would open up the door to a lot more copying of DVDs and to more products that would facilitate copying. A victory won't really improve their situation but a loss would be very bad."

The good news about all this is that we may not have to wait too long for a ruling. Patel has a reputation for delivering relatively speedy decisions.

Reporter's notes: Real has hired some very able attorneys from the firm Wilson Sonsini to represent it. But should it go to trial, Real would do well to hire a lawyer with the same kind of charisma and courtroom presence as Bart Williams. He's the lawyer from Munger, Tolles & Olson who is representing the MPAA. I'm no legal expert, but I've got eyes and the judge appeared to be more engaged when Williams addressed her. He didn't drone on. He was well prepared and he simplified complex issues and technologies. Cases are supposed to be judged on facts but I'm guessing every advantage helps.

Updates are noted at the bottom of this story.

Will RealNetworks CEO Rob Glaser see his company begin selling RealDVD again?

(Credit: RealNetworks)

SAN FRANCISCO--Attorneys for the Motion Picture Association of America attacked fair use during a hearing in the RealDVD case here on Thursday, claiming it is not a defense for violating the Digital Millennium Copyright Act. To prove its point, the MPAA relied on RealNetworks' own testimony in a prior case.

U.S. District Judge Marilyn Patel is due to decide whether Real can once again start selling RealDVD, the software enables users to duplicate DVDs and store copies on their computers. The MPAA filed suit last September and accused Real of violating copyright law and breach of contract. Patel temporarily banned sales until hearing from both sides.

The case potentially could go a long way to determining whether it's lawful for a consumer to make backup copies of their DVDs and is being closely watched by fair use proponents.

Patel raised a crucial question during the MPAA's closing arguments. She asked Bart Williams, one of the MPAA's attorneys, whether a consumer possesses the right to copy a DVD he or she purchased for personal use.

"Not for the purposes under the DMCA," Williams said. "One copy is a violation of the DMCA."

Then Patel tried again. This time she asked about a hypothetical device that sounded very much like Facet, the DVD player that Real is planning to release that copies as well as plays DVDs. Real says that the copies of movies made by Facet are locked in the box and can not be distributed illegally.

"What if Real or someone made a device that allowed for making a copy only to the hard drive that is on that machine?" Patel asked Williams. "And you can't make another copy from that. Would that be circumvention of the DMCA? Would it in fact mean that it really was sufficient fair use under the DMCA?"

"Yes it would be circumvention," Williams replied, "and no it would not be fair use. The only backup copy Congress envisioned was archival, that you would never use until such time when your main computer wasn't working...Congress would not have gone through the process or have this process if you're going to say there is some fair use rights that allows you to circumvent."

Real once argued against fair use
Williams then told the judge that Real had argued against fair use in a legal case the company brought against Streambox nearly 10 years ago. Real filed suit against Streambox for creating the Streambox VCR, a system that enabled users to copy Real's streaming music and video. Streambox argued that users were making fair use copies. Real sought a temporary restraining order, just as the studios have in the current case, which was granted.

"There is no fair use defense (for Streambox against the DMCA)," Real argued in that case, court documents show. "The DMCA does not have a fair use exception allowing individuals to circumvent access and copy protection measures.

"In enacting the DMCA," Real continued, "(Congress) expressly outlawed products such as the (Streambox VCR) that serve to promote the unauthorized copying and distribution of copyrighted works."

For this reason, Williams asked the judge for an estoppel ruling against Real. This is a legal doctrine that would bar Real from arguing for fair use because it had made a counter argument--and prevailed--in a prior case.

Real is vulnerable to DMCA violation claims. The copyright law prohibits anyone from cracking copy protections.

Even if Patel rules that Real did not circumvent Content Scramble System, the studios encryption technology, which the MPAA claims it has, Real has to prove that it did not circumvent ARccOS and RipGuard. These are copy protections measures some of the studios use as an added layer of protection and are not covered in the CSS license Real obtained from the studios.

In previous court proceedings, MPAA lawyers presented e-mails and testimony that showed Real worked hard to find a way to get past ARccOS and RipGuard, including the hiring of an overseas company that the MPAA alleges is run by "Ukranian hackers."

Williams wrapped up and then it was Real's turn.

Case is about stifling competition
Don Scott, one of Real's attorneys told Patel that security wasn't an issue in the case because the copy protection, AES-128, that Real uses to protect the copies RealDVD makes is better than CSS. He said the case was really about the studios' attempt to stifle competition.

He said Real needs to make a copy to the hard drive in order for consumers to enjoy the many features that RealDVD and Facet offer.

As for the studios' claims that RealDVD and Facet can be used to copy rented or borrowed films without compensating the studios, Scott said Real could block copying of rentals if the studios cooperated by including some kind of identifying marks or "serial number" on the discs, but Hollywood has refused.

As for fair use, Scott said the MPAA was wrong.

"We believe the buyer has that right to play a DVD as many times as they want," Scott told Patel. "We think he also has the right to make a copy, this fair use copy."

Scott compared DVDs to music and pointed out that the music industry allows users to make copies. "This is the experience that has been recognized as lawful fair use," Scott said. "These same studios have talked about CDs. A purchased CD can be copied to a computer and then transferred to an iPod without any charge to the consumer."

Before breaking for lunch, Patel wanted to discuss Real's request to hear testimony from Peter Biddle, a former Microsoft employee who helped draft the CSS license and who came forward on Wednesday evening, after the court had finished hearing witness testimony.

Real told Patel that they were unable to find Biddle, who if allowed to testify would contradict the studios claim that the CSS license was intended to always forbid the copying of DVDs.

Patel denied Real's request. "Your inability to find him I find inexplicable," she told Real's lawyers. "I found him on Google in three minutes. I don't buy it."

Both sides completed their closing arguments and the hearing adjourned without any decision from Patel. There is no telling how long she will take to issue a ruling.

Update 12:50 p.m. PDT: To include more on MPAA's request that Real be barred from arguing for fair use.

Update 1:20 p.m. PDT: To include Real's arguments about fair use.

Update 3:11 p.m. PDT: To include Patel's denial of a request to hear testimony from Peter Biddle.

RealNetworks, the company behind the Real media player and Rhapsody music service, could this week become the latest courtroom conquest of the entertainment industry's fierce efforts to protect copyrights.

On Thursday, U.S. District Judge Marilyn Patel is expected to hear closing arguments in proceedings that will determine whether to remove a ban on the sale of RealDVD. The $30 software enables users to create and store copies of DVDs to their computer hard drives.

The Motion Picture Association of America (MPAA), the trade group representing the six largest film studios, filed suit last September to stop the sale of RealDVD and accused Real of copyright infringement and breach of contract. RealDVD and Facet, a proposed DVD player that can copy and store films, would hand users the ability to copy rented discs without paying a cent for them. The practice is known as "rent, rip, and return."

Real attorneys argued in court that the company operated within the law and that consumers have the legal right to backup copies of their media. Hollywood disagrees. "Fair use" proponents have kept a close eye on the case because a favorable decision for Real might bolster consumer rights.

But they're likely to be disappointed. Four days of testimony in a San Francisco federal court showed Real's case is trudging on very shaky legal ground. In addition to offering little evidence that it did not violate the Digital Millennium Copyright Act, Real's arguments that it obtained a license to use the studio's encryption technology and therefore owned the right to copy DVDs appeared to be overwhelmed by the MPAA's evidence to the contrary.

What might be most important about this case, a courtroom victory for the MPAA could put the kibosh on Facet, the device Real hopes is representative of the next-generation DVD player. Facet, which relies on the RealDVD software to make copies, can store up to 70 movies and would retail for about $300. In court, Real CEO Rob Glaser demonstrated the device and it hops between movies and television shows as easy as an iPod flips between songs.

Facet provides the kind of functionality that consumers want and could help rejuvenate slumping DVD sales, some observers say. The device, however, may never be sold in your local Best Buy for five reasons:

The rear view of Facet, a DVD-copying disc player that Hollywood says would cost it millions in pirated movies.

(Credit: Greg Sandoval/CNET Networks)

Not licensed to copy DVDs: In court, Real argued that the MPAA's breach of contract claims are baseless because the DVD Copy Protection Association, a group that includes film studios and DVD makers created to protect discs from piracy, issued it a license to use the organization's DVD Content Scramble System (CSS). This is the studio's encryption technology designed to prevent piracy.

When RealDVD copies movies, it never cracks the encryption, according to experts called to testify by Real. The MPAA's witnesses argued that the CSS license gives Real permission only to playback DVDs, not to copy them. Marsha King, a retired vice president at Warner Bros., testified that the whole purpose of the DVD-CCA licensing was to prevent consumer copying. "The studios were adamant that no copy be placed on the (computer) hard drive," she told the court.

Cracking ARccOS and RipGuard violates DMCA: Perhaps the weakest area of Real's defense is the circumvention of ARccOS (Advanced Regional Copy Control Operating Solution) and RipGuard.

The MPAA says these are anticopying technologies used by some of the major film studios as another layer of piracy protection in addition to CSS. They're not included in the CSS license. This means that even if the CSS license gave Real permission to copy, it wouldn't protect Real's cracking of ARccOS and RipGuard. Circumvention of copy protections violates the DMCA.

Real denied ARccOS or RipGuard are copy-protection measures. Douglas Dixon, one of Real's technology experts, testified both technologies are ineffective. This was one of the reasons the studios rarely used them, he said.

To illustrate his point, Dixon said Sony Pictures used ARccOS or RipGuard on just four film titles last year. Real's argument was this: if a copy protection isn't effective then it isn't really protecting anything and is not covered by the DMCA.

The irony is that Arccos and RipGuard were effective enough to foil Real's months-long attempt to crack them--starting in 2007--court documents showed. The copy protections even stumped Rocket Division, a company hired by Real to decrypt ArccOS and RipGuard, and a group the MPAA calls a "Ukranian hackers."

"Been...fighting with it for two weeks and no big success yet," wrote one of Rocket Division's managers in an e-mail to a Real executive. "With Arccoss the task appeared to be a little bit -- a little harder than we thought."

The studios told Patel that Real's argument that a copy protection needs to be impossible to break for it to be covered by the DMCA isn't logical. Why would unbreakable encryption need a law banning circumvention? The DMCA's anti-circumvention provisions are designed to cover all copy protections, MPAA lawyers said.

Studios could lose millions: Claims by the MPAA that RealDVD could cause significant financial harm were less convincing when the case was just about the software. With scores of similar products that cost nothing and were readily available online, why would anyone pay $30 for technology that were restricted by copy controls? RealDVD allows a user to watch a copied movie on five individual devices while copies made from software such as HandBrake are free of such limitations.

Then, Real's efforts to develop Facet surfaced and that changed the picture.

RealDVD was only one part of Real's DVD-copying strategy. The prize for Real was selling a box that copied and stored movies. Glaser acknowledged during the hearing that Facet offers no protection against piracy other than presenting a notice urging users not to copy movies they don't own.

Judge appears skeptical: Judge Patel has indicated several times that she isn't buying Real's story.

After Glaser outlined his company's attempts to stop Facet users from pirating films with little more than strong language, Patel hurumphed "Do you think this will be more effective than 'Just Say No?" This was a reference to the anti-drug campaign launched by the Reagan administration that was derided by critics for being naive and ineffective.

Last fall, when Patel halted sales of RealDVD, she told lawyers from both sides that she had questions about whether the software could enable mass copyright infringement. During opening arguments in the injunction hearing, one of Real's lawyers suggested that the company was in the right because it helped consumers backup their films.

"It's even more attractive to consumers to get everything for free," Patel said, in a seemingly sarcastic remark.

Real is grasping at legal straws: By accusing the studios of antitrust violations late in the process, Real is signaling that the company is less than confidant in it's case. In what appears to be a "Hail Mary" legal maneuver, Real claimed last week in a court filing that the studios are a cartel and that the CSS licensing agreement is proof they are guilty of boycotting Real.

This is a little late for Real to be raising these issues. The company could have made the claims at any time since September. Neither the CSS license, nor the studios relationship to it, is new.

Regardless of where Real's claims go, antitrust cases take years to litigate and will be unlikely to help RealDVD or Facet reach the market any time soon.

RealNetworks has accused the major film studios of antitrust violations in documents filed Wednesday with a federal court.

RealNetworks CEO Rob Glaser

(Credit: RealNetworks)

Real, a software company known best for the company's video and music player, has asked U.S. District Judge Marilyn Patel for permission to file an amended second complaint against the six largest film studios as well as Viacom, the entertainment conglomerate and parent company of Parmount Pictures.

Real has been involved in a legal conflict with Hollywood over its release last year of RealDVD, a software that duplicates DVDs and stores the copies on a computer hard drive. The Motion Picture Association of America claims that RealDVD violates copyright law. The two sides have met in court this month so Patel could determine whether to remove an injunction placed on the sale of RealDVD. She halted sales last September, days after the software first went on sale.

An MPAA representative was not immediately available and a Real spokesman declined to comment.

In the latest filing, Real accuses the studios as well as the DVD Copy Control Association, a group dedicated to protecting DVDs from piracy, of violating the Sherman Antitrust Act, the federal statute designed to limit cartels and monopolies.

"RealNetworks has become aware of facts demonstrating that the DVD CCA and the Studio Defendants have engaged in both a horizontal group boycott of RealNetworks," Real said in it's filing. "The testimony of the Studio Defendants during the preliminary injunction hearing further confirmed the existence of a horizontal conspiracy."

Real alleged in the document that the studios were guilty of anti-competitive practices when they agreed to block anyone from making copies of DVDs without their say so.

"(The witnesses) unambiguously," Real said in the court filing,"confirmed the Studios' position that the (Content Scrambling System) License Agreement (which is needed to legally make copies of DVDs) resulted from a joint agreement among the Studios to prohibit all copies of DVD content unless the Studios jointly authorize the making of such a copy."

More to come

The job ad RealNetworks posted last week for a Facet engineer.

(Credit: Craigslist.com)

RealNetworks continues to hire engineers to work on Facet, a DVD player that copies and stores film discs despite allegations by Hollywood that the device violates copyright.

Real has posted a job ad on Craigslist asking for qualified Linux engineers to apply.

"The Facet team is creating a rich set of consumer media experiences that will make the consumer electronics industry stand up and take notice," Real said in the job posting, first reported by Video Business Online.

But studio executives have already taken notice and they haven't liked what they see. Real's hopes of offering consumers a means to backup their movies face a serious legal challenge from the Motion Picture Association of America, the trade group for the six largest film studios.

The Facet DVD Player by Realnetworks.

(Credit: Greg Sandoval/CNET Networks)

The MPAA filed a lawsuit last fall and a U.S. District judge blocked further sales of RealDVD, a software that enables users to copy DVDs and store the duplicates on a computer hard drive. RealDVD is really the spearhead in Real's DVD-copying strategy. The MPAA alleges that RealDVD violates copyright law. Hollywood says the $30 software and Facet, a DVD player that can copy and store about 70 films, are nothing more than pirating tools.

On May 21, attorneys for Real and the MPAA will make their closing arguments for a hearing on whether the injunction on RealDVD sales should be lifted. By continuing to develop Facet amid a potentially technology-killing court fight, is Real being overconfident? After all, the public company has spent the majority of RealDVD's $6 million development costs on litigation.

"If the court keeps the injunction in place we will not bring Facet to market as it exists today," said Bill Hankes, a Real spokesman. "Nobody should infer too much from the job posting."

An MPAA spokeswoman declined comment.

RealNetworks, best known for its RealPlayer software, saw weaker results for the first quarter of 2009, the digital entertainment company said Thursday.

Net loss for the quarter ended March 31 was $12.1 million, or a loss of 10 cents a share, versus net income of $2.4 million, or 2 cents per diluted share, in the first quarter of 2008. Revenue was $140.8 million, down 5 percent from $147.6 million a year ago. Results were below estimates from analysts polled by Thomson Reuters, who expected a loss of only 6 cents a share.

The Seattle-based company blamed the weaker results on two key factors. First, the ups and downs of foreign currency exchange rates hurt the bottom line. Excluding rate changes, revenue climbed 1 percent over the previous year's quarter.

Legal fees also took a major toll. Since late last year, RealNetworks has been embroiled in a legal battle over its RealDVD software, which can rip a digital copy of commercial DVDs onto a personal computer. Hollywood, courtesy of the Motion Picture Association of America (MPAA), has sued RealNetworks to prevent the company from selling the program. Since 2008 RealNetworks has shelled out $6 million in legal fees and associated costs to defend RealDVD.

Some of RealNetworks' business segments showed revenue growth. Music sales climbed 16 percent to $44.1 million, while sales of games eked out a 3 percent gain. This was offset by a 15 percent decrease in revenue from technology products and a 23 percent drop in sales of media software to $20.3 million. CEO Rob Glaser said the company showed "resilience amid the deepest recession in decades."

RealNetworks was cautious in its report about the outlook for 2009 due to weak consumer spending and foreign exchange rates. The company views the year ahead as a challenge for consumer spending, online advertising, and corporate spending. For the second quarter, RealNetworks sees a sales decline from the year-ago quarter and expects foreign currency rates to continue dragging down results.

On other news, John Chapple has been appointed to RealNetworks' board of directors. Chapple brings to the table experience with telecom companies, including Nextel Partners, where he was CEO for eight years.

"Hollywood should be embracing us," said Real CEO Rob Glaser.

(Credit: Greg Sandoval/CNET Networks)

SAN FRANCISCO--Hollywood is missing out on a marvelous opportunity, says RealNetworks' CEO Rob Glaser.

Real has presented the film industry with a means to inject renewed interest in DVDs, which is waning, Glaser said minutes after testifying at a hearing in federal court on Wednesday. Real has developed two different kinds of software, RealDVD and Facet, that it says streamlines the movie-viewing experience by enabling owners to duplicate DVDs and store the copies on hard drives.

But the studios, much like they've done since the Sony Betamax case, are resisting technological advancement and have rejected the opportunity Real offers, Glaser said. He thinks he knows why.

"Some of the studios are very progressive," said Glaser, who founded the public company in 1994. "Some of them are scared. It's been my experience that often the scared voices overwhelm the progressive voices."

Glaser's assessment of film industry CEOs couldn't be further from the truth, said Elizabeth Kaltman, a spokeswoman from the Motion Picture Association of America, the lobbying group of the six largest movie studios.

"These (film) companies have embraced innovation and collaborate with the technology community to deliver content in a myriad of ways," Kaltman said. "The studios are working daily to license movies and TV shows for online distribution to give consumers the flexibility they desire."

Fear of technology is only one of the reasons that Real says it has come under fire from the MPAA. The film industry filed a lawsuit last September that accused Real of violating copyright and breach of contract. The studios claim that RealDVD violates the Digital Millennium Copyright Act by circumventing the copy protections on DVDs. Real's software also doesn't comply with the license granted by the DVD Copy Control Association, the group formed to protect DVDs, according to lawyers representing the studios.

In an interview with CNET, Glaser denied the charges.

At Glaser's side, Bill Way, RealNetworks' deputy general counsel, called the allegations that Real breached its contract flat wrong.

"The notion that we are guilty of circumvention when we have a license is crazy," Way said. "There is no cases that show that if you have a license you can be found guilty of circumventing encryption."

On Tuesday, Glaser demonstrated for the court a prototype of Real's new DVD player called Facet. The software within not only copies and stores DVDs but allows users to hop around instantly between movies or TV episodes. The device has been called a Tivo for DVDs. Glaser said the machine offers the kind of convenience that consumers demand but Hollywood refuses to listen.

"They should be embracing us," Glaser said. "If all you do is fight your customer, you drive the mainstream market underground. This is a huge strategy mistake...The big picture view is that they can make a lot more money with us than fighting against us."