MPAA Sues DVD Chipmakers On License Accusations
The MPAA is extending to hardware its crackdown on products it says violate DVD technology licenses. The MPAA sued Sigma Designs and MediaTek in Cal. Superior Court, L.A., alleging the companies sold DVD player chips to companies who products have features not allowed under the general DVD technology license.
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The lawsuit is the 2nd to target chip suppliers and comes as the MPAA moves to short-circuit the spread of DVD players that deviate from copy protection rules established by the DVD Copy Control Assn. (DCCA). The suits are based on Sigma Designs’ and MediaTek’s alleged breach of contracts with the DCCA. The new drive follows the MPAA’s establishment of an in-house lab to review and disassemble DVD hardware. “Responsible corporate citizens honor the contracts they sign,” MPAA Chief Technology Counsel Dan Robbins said in a statement: “There is no leniency for irresponsible companies that seek to circumvent the system and operate outside of the law.”
Unlike earlier lawsuits that the MPAA filed against DVD- copying software developers, most notably 321 Studios, the cases involving chips are tied to contracts signed with DCCA rather than to copyright law. Chipmakers that want the right to decrypt the digital locks on DVDs must sign contracts approved by the major studios. The agreements require that chipmakers ensure that output plugs that carry a signal from a DVD player to a TV are protected, so high-quality copies can’t be made. The MPAA’s lab found that unprotected plugs in some players included chips from Sigma Designs and MediaTek, a spokeswoman said. Sigma and MediaTek officials weren’t immediately available for comment. Sigma Designs media processors have been included in a variety of DVD players, including those marketed by Apex, Kiss Technology and V Inc.
In July, the MPAA was granted a preliminary injunction against ESS Technology, accused of selling DVD chips to a company making a DVD copying device. The MPAA filed suit against ESS in Cal. Superior Court, L.A., in April. ESS said in an SEC filing that settlement discussions are underway, but if an agreement isn’t reached it has “meritorious defenses” against the MPAA’s claims.
ESS also disclosed that it had increased its stake in Best Elite, a British Virgin Islands-based investment vehicle formed to establish a foundry in China. Despite acquiring 4.5 million shares earlier this year for $5 million, ESS said its investment represents less than a 1.3% equity interest in Best Elite. ESS initially purchased 4.5 million shares of Series B shares in Best Elite in Jan. 2003.
ESS also said that in July the expiration date for its $10 million unsecured credit line was extended one year to June 5, 2007. During the 2nd quarter ended June 30, distributor Dynax Electronics accounted for 55% of ESS’s $76.8 million revenue. DVD overall represented 55% of ESS’ 2nd-quarter revenue, up from 44% from a year earlier, followed by video CD (VCD), 29% (46%); digital imaging, 5% (1%); royalties, 6% (0%); and recordable products, 2%, (1%). During the quarter, net income declined to $6.4 million from $13.7 million, as ESS shut down its digital imaging business.