Thursday, May 7, 2009

RealNetworks sanctioned for spoliation of notebooks

Video Business is reporting that a federal judge has sanctioned RealNetworks for destroying the notebooks of Nicole Hamilton, a former Real employee involved in creating the "RealDVD" ripping software that the major movie studios and DVDCCA are attempting to get the court to ban:

In granting part of the motion filed by the major studios, Marilyn Hall Patel on Tuesday ordered RealNetworks to pay studio legal fees related to its claims that RealNetworks destroyed the notebooks of one of its former program managers. The notebooks contain a timeline and details of RealNetworks' plans for the DVD-ripping software and Facets, a DVD player that would allow consumers to rip movies from discs and save them to the player’s hard drive for later playback.

Background here. I'll try to obtain additional information.

UPDATE: I've uploaded the order here. The court actually bought much of Real's argument that it wasn't on notice of potential litigation until September 2008, and thus under no obligation to preserve documents before then. Here's the meat of the order:
Defendants’ motions are granted insofar as: (1) the court instructs the parties to negotiate and file a stipulated proposed Preservation Order for all existing and future documents relating to all products at issue in this litigation, including RealDVD, or Vegas, and Facet; (2) the court imposes monetary sanctions for Real’s failure to preserve Hamilton’s notebooks; (3) the court awards reasonable attorneys’ fees and related costs for pursuing the evidence of spoliation of Hamilton’s notebooks and for bringing this part of the sanctions motion; (4) the court will draw an adverse inference as to Real’s knowledge of ARccOS and Ripguard.

Defendants’ remaining motions for sanctions are denied.

Defendants are granted leave to file an application and declaration(s) for a monetary award(and a proposed order) including attorneys’ fees and costs in accordance with the preceding paragraph within thirty (30) days of the filing of this order. Real may respond as to reasonableness of the fees only and shall do so within thirty (30) days of the filing of the application.
RealDVD Spoliation Order

1 comment:

  1. I was struck by several points in the court's order:

    1. The contract of adhesion. Real has argued that the CSS license agreement was a contract of adhesion and and that any ambiguity should be resolved in their favor. DVD CCA disagrees that it's an adhesion contract but argues that even if it is, there is still an implied covenant of good faith. In particular, they argue that when Real entered the agreement, they knew that DVD CCA's position was that the license required that a conforming implementation could play but not copy a DVD. True. I was the contact person at Real charged with arranging the license and was instructed not to disclose that we were building a ripper, precisely because we expected that if DVD CCA knew what we intended, they would not issue the license.

    Real initially motioned for a dismissal of DVD CCA's counterclaim based on the implied covenant of good faith, then withdrew it. But in this order, the court has decided to address the issue anyway. I thought that was significant and was struck by the court's statement that "The purpose of the CSS Licensing Agreement is to 'prevent casual consumers from making unauthorized copies of the DVD content.'" I suspect this should put Real on notice right here that they are not going to win in front of this judge.

    2. Non-CSS technologies. Real sought to preclude consideration in the preliminary injunction procedings of whether it circumvented certain non-CSS copy protection technologies, namely, ARccOS and RipGuard, arguing that it hadn't had time for complete discovery. The DMCA allows fair use but not if it means circumventing any "effective" copy protection. There is little dispute that RealDVD does try (with mixed success) to copy ARccOS and RipGuard DVDs. It's also pretty obvious that if Real wants to sell a DVD player, it needs to play all the popular DVDs, some of which will use ARccOS and RipGuard. But Real argues that ARccOS and RipGuard aren't "effective" because all they do is introduce bad sectors and bad data into parts of the disc that an ordinary player would not try to read. Naive rippers that try copying track-by-track fail because the hardware retries slow the process past the point of practicality (on the order of 24 hours versus 20 minutes to make the copy) and beat the drive to death in the process. But a smart ripper could fully emulate a licensed player, only visiting valid sectors. To be effective, and thus protected under DMCA, Real argues that copy protection should employ stronger technology, e.g., encryption. (On Thursday, Real put a paid expert on the stand to repeat that argument, that ARccOS and RipGuard are not copy protection. Too bad for Real, that individual's own website says different.)

    I think Real is very exposed on this issue. While Real argues quite loudly that RealDVD is a "licensed" implementation, its license is only to CSS; Real has certainly has not licensed any rights whatsoever with regard to ARccOS and RipGuard. DVD CCA makes what I think is a compelling argument, citing previous court decisions, that it makes no sense to expect that the law should only protect copy protection methods that cannot be broken by any means (and thus don't need legal protection) and not protect methods that might be broken by determined attacks by resourceful professionals with unlimited resources. But more to the point, ARccOS and RipGuard certainly look to me to be effective: During the time I was at Real, our engineers worked on trying to rip ARccOS discs for months on end but never got it working completely. And from press reports of trial testimony, apparently nothing's changed: RealDVD can still only read some ARccOS discs but not all of them. Similarly, there's a lot of (obviously misinformed) talk in the press about free rippers like HandBrake that lots of reporters seem to believe can read anything. Perhaps they should try it! They don't work on ARccOS and RipGuard either. In technology, it's one thing to say it can be done and another to actually do it.

    It seems pretty likely that if Real keeps working at it long enough, they will eventually figure out how to read ARccOS and RipGuard discs. They spent $6M in legal fees last quarter on RealDVD and if it were spent instead on engineers, that would buy a lot of engineers. So it's pretty clear that Real needs to establish that it's okay to circumvent ARccOS and RipGuard or they don't have a product. This first attempt didn't work, and in fact, the court did take an adverse inference that Real did try to purchase technologies to to circumvent ARccOS and RipGuard. This has to hurt them.

    3. Spoliation. The order cites my deposition testimony that I "was told within hours of being hired in July 2007 that there would be litigation and that the idea of litigation over RealDVD was drummed into the team on a daily basis" and that a slide deck from April 2007 "indicates knowledge of probable litigation with DVD CCA." But the court reasoned that litigation is "a possibility with many new products" and found that Real was not under an obligation to preserve evidence "until a potential claim was identified or future litigation was probable" or "until there was an actual threat or notice of a lawsuit" and that this did not happen until September 2008, when Real began discussions with the studios.

    Because I was there and I know what actually happened, I think Real did have an obligation from the very beginning but the court's decision is perhaps understandable. At my deposition (and I assume this happened at every deposition and in the production of documents as well), Real's attorney consistently insisted that I could not answer any questions about our expectations regarding the likelihood of any litigation based on privilege even if no attorney was present. Real's position was that even if no attorney was present, it was still privileged because, he claimed, we must have been discussing advice of counsel. So that didn't leave the studios much to work with and frankly, I find it somewhat remarkable the studios were able to get me on record saying much of anything about our anticipation of being sued.

    Still, I thought it should have been clear enough that Real did expect they would be sued and I wondered if this part of the decision might reflect a basic human practicality on the part of the court: Judges are human and they don't like to be overturned. If Judge Patel expects Real is going to lose anyway -- and based on the arguments and evidence presented so far, I think that looks likely -- she might not want to give Real any an unnecessary reasons to appeal.

    Based on the court's decision that Real was not under any obligation to preserve documents until September 2008, it's also not surprising that the only spoliation the court found was with regard to my notebooks. Real quibbled about whether it was one notebook or more and whether they were all that significant but the court (I think correctly) found that Real did have an obligation to preserve them no matter what and they failed in that obligation. The court did, however, decide that this spoliation should not preclude Real from impeaching my testimony, mostly based on the argument that my notebooks are not likely to be unique sources of information. I thought that was reasonable.

    The court also gave the studios another chance to depose Phil Barrett, who ran the Facet project and hired me as the program manager and who I had testified had instructed me to delete emails. With Phil, you never know what he'll say, so this could be a big opportunity for the studios.


Comments here are moderated. I appreciate substantive comments, whether or not they agree with what I've written. Stay on topic, and be civil. Comments that contain name-calling, personal attacks, or the like will be rejected. If you want to rant about how evil the RIAA and MPAA are, and how entertainment companies' employees and attorneys are bad people, there are plenty of other places for you to go.