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DVD-copying firm mulls bankruptcy

/ Source: The Associated Press

A Missouri maker of software that has enabled users to copy DVDs and computer games soon could fold under the mounting weight of lawsuits by deep-pocketed movie studios and others, the company's chief said.

Robert Moore said Wednesday that he'll decide within weeks whether his 321 Studios Inc. would seek federal bankruptcy protection to free itself of copyright-related lawsuits by Hollywood and makers of computer games.

Moore long had cast his crusade as a David-and-Goliath struggle, insisting his suburban St. Louis company's software was meant to let consumers innocently make backup copies of their DVDs and computer games.

Hollywood and three leading makers of video games argued otherwise, accusing 321 of violating the 1998 Digital Millennium Copyright Act. That law bars circumvention of anti-piracy measures used to protect DVDs and other technology.

Federal judges in New York and California have barred 321 from marketing the questioned DVD-cloning software. Since those rulings, 321 has shipped retooled versions of its DVD-copying products, removing the software component required to descramble movies.

But the legal feuding has taken its toll on Moore's "magnificent venture." In three months, he said, the St. Charles-based company has gone from having nearly 400 employees and expectations of doing $150 million to $200 million in sales this year to about two dozen workers and less than $400,000 in monthly income.

Last month, Moore told a congressional panel the court rulings in Hollywood's favor have put his company "on the brink of annihilation."

"That's the decision and crossroads we're at," Moore, 321's founder and president, said of prospects of bankruptcy because of the latest lawsuit and "mounting pressure on us as a company to sustain ourselves."

"I think bankruptcy protection would probably spell the end for our company," though such legal action essentially would stay all of the litigation, Moore told reporters during a conference call. "The variables will play out over the next few weeks."

Even in possible bankruptcy, Moore said, 321 would make good with creditors, satisfy customers seeking rebates and press its case against Hollywood that consumers "should have the right to make copies of their own legally obtained digital materials."

Despite the legal setbacks in recent months, "we believed all along that we would be able to prevail," Moore said. "This is by no means the end of fair use and by no means the end of the battle for the digital playground; there is a tension here that is going to have to be relieved."

In announcing Tuesday's lawsuit by computer game-making Atari Inc., Electronic Arts Inc. and Vivendi Universal Games Inc., Entertainment Software Association chief Doug Lowenstein said "what's at stake here is a rather important legal principle _ that products with no purpose other than to circumvent copyright protection are illegal" under federal copyright law.

Doug Lowenstein, whose trade group represents U.S. publishers of computer and video games, called 321's questioned Games X Copy piracy-easing software "masquerading as a consumer-friendly tool."

The lawsuit seeks a court order blocking 321's further production and sales of Games X Copy, which fetches $60 and lets users make what 321's Web site calls "a PERFECT backup copy of virtually any PC game."

Moore said those suing 321 "clearly want to drive a nail through our heart and make us dead."

"I wish we could get justice," he said. "I don't know where it is."