Going, going . . . 321, gone

“321 Studios regrets to inform you that it has ceased business operations. . . . Despite 321 Studios’ best efforts to remain in business, injunctions entered against 321 Studios by three U.S. federal courts earlier this year has resulted in 321 Studios no longer being able to continue operating the business. . . . The employees and those associated with 321 Studios sincerely appreciate your support of our company and products over the last couple of years.”– The home page of 321 Studios (www.321studios.com), Aug. 4, 2004

How do you kill off a company of 400 employees and projected earnings of more than $150 million in a few months? Easy, sic the dark forces of the entertainment industry and their cohorts on them.

In just a few months the financial damage caused by fighting the deep legal pockets of the Motion Picture Association of America (MPAA) in the guise of the Paramount and Fox movie studios in collaboration with computer games publishers Atari, Electronic Arts and Vivendi Universal Games, and aided and abetted by Macrovision, a purveyor of digital rights management and software licensing systems, managed to strangle the life out of 321 Studios, the publisher of a DVD cloning utility.

In effect, Goliath beat David to a pulp. Why would this have happened?

The complainants contended that 321’s DVD copying software violated the ill-conceived 1998 Digital Millennium Copyright Act (DMCA). The DMCA prohibits attempts to circumvent any anti-piracy systems used to protect digital content. To copy a DVD requires copying the encrypted content, so gotcha! But 321 argued that to prohibit the sale of its utility would be to say, in effect, that consumers had no right of “fair use.”

Fair use is an important concept in this argument. According to the Electronic Frontier Foundation: “The Copyright Act gives copyright holders the exclusive right to reproduce works for a limited time period. Fair use is a limitation on this right. . . . Fair use allows consumers to make a copy of part or all of a copyrighted work, even where the copyright holder has not given permission or objects to your use of the work.”

In other words, fair use says you can make back-up and archive copies of copyrighted material for your personal use or change the format of the contents for personal use. But the DMCA says you can’t do any of this if the content is locked down by an anti-piracy system.

While the conflict between the DMCA and the copyright act is worrying, killing off 321 was simply ridiculous. Dozens of publishers offer nearly identical tools for both fee and free.

Mind you, this kind of insane and reckless power wielding by the entertainment companies isn’t unusual. Hank Barry and John Hummer, general partners in Hummer Winblad Venture Partners, are still being personally sued by Universal Music and EMI for their investments in Napster in early 2000! Again, what’s the point?

Fred von Lohmann, senior intellectual property attorney at the Electronic Frontier Foundation, agreed there is no apparent point other than keeping lawyers employed and suggested there is another objective: “These lawsuits are about one thing: keeping innovators intimidated in an effort to chill the development of disruptive digital technologies.”

This means the course of our industry can be changed and the employment of thousands of people affected not because some great wrong is being righted but because some lawyers need employment. Is peer-to-peer file sharing still around? Absolutely. Can you still get a DVD cloning tool? No problem. But Napster and 321 are history. Well done, all you corporate lawyers.

What can we do about this? We’ll discuss that next week. Lawyer jokes to backspin@gibbs.com.