John J. Hoy's Declaration for Plaintiffs, in DVD CCA v. McLaughlin, Bunner, et al.

(Declaration of John J. Hoy [in Support of Application for Temporary Restraining Order and Preliminary Injunction]; Dec. 24, 1999)

[12 pages]

WEIL, GOTSHAL & MANGES LLP
JARED B. BOBROW (State Bar No. 133712)
2882 Sand Hill Road
Menlo Park, CA 94025
Telephone: (650) 926-6200
Facsimile: (650) 854-3713

WEIL, GOTSHAL & MANGES LLP
JEFFREY L. KESSLER*
ROBERT G. SUGARMAN*
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007

Attorneys for Plaintiff
DVD COPY CONTROL ASSOCIATION, INC.

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SANTA CLARA

___________________

*Pro Hac Vice applications being submitted to the Court.

I, JOHN J. HOY, hereby declare and state as follows:

l. I am currently employed as President of plaintiff DVD Copy Control Association, Inc. ("DVD CCA") in the above-captioned matter. I make this Declaration in support of plaintiff's application for a temporary restraining order and for a preliminary iniunction.

2. I have been President of DVD CCA since October 1, 1999. Before holding such position, I was employed by the United States subsidiary of Toshiba Corporation ("Toshiba"), Toshiba America, Inc. ("TAI"), as well as by one of TAI's subsidiaries, as Director of Digital Video Disc ("DVD") Marketing and Director of Strategic Alliances. Toshiba is one of the developers of the proprietary Contents Scramble System ("CSS") at issue in DVD CCA's application.

3. I have been intimately involved in DVD encryption matters -- during my employment with DVD CCA and before then when I was employed by TAI and its subsidiary -- since CSS was invented in July 1996. I have been involved in innumerable meetings among motion picture, computer, and consumer electronic companies concerning the adoption of the DVD video format and the development of, and licensing of, the proprietary technology designed to protect the motion picture companies' copyrighted content on DVD videos.

4. I have been involved in all major drafting and negotiation initiatives concerning DVD adoption and related copy protection issues. Specifically, I have been involved in the drafting and negotiation of the CSS Agreement, discussed further below, and have been involved in all aspects of the implementation and protection of the CSS technology, which is at issue in the instant application for a temporary restraining order and preliminary injunctive relief.

DVD Format and Need for Copy Protection

5. DVD video provides high quality video, for copyrighted content such as motion pictures, digitally formatted on a convenient 5-inch (120 mm) disc that is resistant to wear and damage and allows for many attractive consumer features not presently available in other video formats. DVD video discs containing data comprising motion pictures in encrypted form can be played either on special purpose machines ("DVD Players") or personal computers ("PCs") equipped with DVD drives. Encryption is necessary to prevent copying of the copyrighted material on the DVD disc. In order that the copyrighted motion picture can be played, either form of player device requires the implementation of the CSS algorithrn and "master keys" to carry out the decryption of the data stored on the disc. The implementation software that provides this decryption function is written by licensees of DVD CCA using detailed specifications provided to such licensees.

6. Before allowing their copyrighted motion pictures to be used on the DVD video format, the motion picture companies insisted on a viable copy protection system to prevent users from making copies of the motion pictures. Such protection is necessary to prevent copying from discs that are rented or borrowed and to prevent broader scale piracy through widespread transmission of these motion pictures over the Internet and widespread distribution of "pirated" discs in competition with the authorized prerecorded discs.

7. Without motion picture companies' copyrighted content for DVD video, there would be no viable market for computer DVD drives and DVD players, as well as the related computer chips and software necessary to run these devices and, thus, there would be no DVD video industry.

8. The motion picture companies insisted on a copy protection system because this new digital video format increased the risks of perfect pirated copies of their motion picture copyrights. This was in contrast with the situation in the analog domain, where VHS video cassette copies of video material are noticeably degraded from the original content and subsequent copies are progressively degraded as subsequent generations of copies are made. This natural inhibition to copying is lacking in the digital domain, however, and so the motion picture companies demanded creation of a specific copy protection technology that would be legally required to be observed in relevant devices (e.g. DVD players and DVD drives for PCs).

9. Because DVD was a new format, it provided the ideal opportunity to build in copy protection technology. There was no existing installed base of DVD players or DVD drives for personal computers; copy protection therefore could be designed and built into these new devices from the outset.

10. Toshiba and Matsushita Electric Industrial Co., Ltd. developed the Contents Scramble System to provide the protection demanded by the motion picture companies against unauthorized copying of their copyrighted material.

11. Having agreed to use CSS to encrypt video content on DVD discs, the motion picture, computer, and consumer electronics industries then needed to negotiate the terms upon which the content on the discs could be decrypted and played by the consuming public. The negotiations centered on how the content of DVD discs should be treated by playback devices (both consumer electronics and computer devices) once it is decrypted. The industries agreed, in principle, that the video content on DVD discs should not be subject to unauthorized: (i) copying, or (ii) transmission, including making the content available over the Internet.

12. The CSS system is proprietary; DVD CCA's predecessors-in-interest engineered the technology and held certain intellectual property rights, including trade secrets, with respect to it. DVD CCA and its predecessors-in-interest as well as the members of the motion picture, computer, and electronics industries have invested substantial amounts of money and resources in the development of the DVD application and the necessary safeguards, such as the CSS licensing mechanism, to protect the DVD copyrighted content. The CSS license and, in particular, how it protects the DVD technology, is of great commercial importance to DVD CCA and the motion picture, computer, and electronics industries.

13. These intellectual property rights, including trade secrets, concerning the CSS technology are currently licensed by plaintiff DVD CCA as the only duly authorized licensing entity for the CSS technology. Any party that wants to use the CSS technology -- either to encrypt content or decrypt content -- must do so through such CSS licenses.

The CSS Agreement as Mechanism to Protect DVD Encryption Software

14. Beginning on or about October 31, 1996, DVD CCA's predecessor-ininterest began licensing CSS technology pursuant to an agreement that later became the AMENDED AND RESTATED CSS INTERIM LICENSE AGREEMENT, including the related CSS PROCEDURAL AND AMENDED AND RESTATED TECHNICAL SPECIFICATIONS (collectively, the "CSS Agreement"). Since that time, hundreds of licensees have entered into the CSS Agreement. The CSS Agreement sets forth the terms and conditions under which the CSS licensing entity (currently DVD CCA) would grant licenses to, among others, manufacturers of DVD players or DVD drives and related hardware and software. Licensees were granted the right to use the security system on DVD products and agreed to safeguard the CSS technology from public disclosure.

15. The CSS Agreement gives the licensees the right to use the technology, and provides the necessary decscrambling technology and "master keys" to do so. The proprietary technology is not accessible to unlicensed third parties because it is incorporated in hardware devices -- chips -- or made tamper resistant if distributed in the form of actual software. Both forms of distribution are such that the proprietary technology cannot be viewed by non-licensees. Each licensee is assigned a set of "master keys" unique to each licensee. When the DVD system was created, approximately 400 such "master keys" were predesignated, to be assigned to licensees over time, and each DVD disc contains, in a part of the disc not normally read by the player device, a file containing the 400 "master keys." The system will not operate unless the key contained in the licensee's decryption module (a chip or software program) matches one of the "master keys" stored on the DVD disc.

16. The CSS Agreement requires licensees to maintain the confidentiality of certain defined pieces of information, such as the algorithms and "master keys" and, as such, licensees are subject to a very stringent set of rules to ensure the maintenance of confidentiality within the group of licensees.

17. Among the safeguards taken is the requirement that only those licensees that absolutely need to know a particular algorithm and/or key are provided with such inforrnation. For example, a manufacturer of semiconductor chips for descrambling CSS content in stand-alone DVD players is provided with information necessary for manufacturing such chips but not with information concerning the scrarnbling process itself or the authentication between DVD drives and the descrambling module used for computer-based implementations. Companies that merely assemble parts and components produced by others may be required to be licensees in order to purchase such parts and components, but these companies are not provided with the proprietary CSS information at issue.

18. The CSS Agreement mandates that licensees only provide the proprietary CSS technology at issue to the strictest minimum number of licensee's employees who require access to the information, beginning with only three employees and expanding beyond three only upon notification to the licensor of the names of the additional employees. Licensees who violate these requirements are subject to liquidated damages in the amount of $1 million per violation (with a cap based on profits made from the sale of licensed products).

19. Additionally, licensees implementing authentication and descrambling functions in software are required to do so only in a manner that obscures the proprietary CSS technology at issue, so as to effectively frustrate anyone seeking to obtain such proprietary information. Specific means of accomplishing this protection requirement are provided to licensees to illustrate the types of measures to be taken and the level of technical skill that must be employed to defeat any such measures. Failure to abide by these operating restrictions can subject the licensee to injunctions prohibiting the sale of the product in which the failure occurs, through actions brought either by the licensor or by third party beneficiary content owners (motion picture companies that are licensees under the CSS Agreement and have made copyrighted content available on DVD discs encrypted using CSS technology).

Creation of DVD CCA

20. DVD CCA's predecessor-in-interest began the process of licensing companies to use the technology pursuant to copy protection rules contained in the "procedural specifications" associated with the CSS Agreement. However, the companies in the DVD video business (motion picture, computer, and consumer electronics companies) recognized that the licensing of CSS technology, which is and was critical to the adoption of the DVD video format, ought to be controlled and administered by the companies in the three industries together and that the costs associated with such critical intellectual property protection should be borne by the hundreds of companies involved in the DVD video business.

21. The DVD industry agreed that the best solution would be the creation of a licensing entity owned and controlled by the licensees of the technology, pursuant to governance rules that balanced the interests of the three industries involved.

22. The DVD Copy Control Association, Inc. was, therefore, formed in December 1998 as a Delaware not-for-profit trade association.

23. The transition to have DVD CCA become this tri-industry licensing entity which would grant licenses to CSS began some time ago. In September 1999, DVD CCA hired its first staff and occupied offices in Morgan Hill, California. Following staff training, working with its predecessor's personnel who have administered the interim licensing, in early December 1999, DVD CCA and its predecessor signed an agreement, whereby DVD CCA began itself to handle the day-to-day licensing tasks pursuant to the CSS Agreement.

24. In mid-December 1999, DVD CCA's predecessor-in-interest assigned its licensing interests under the CSS Agreement making DVD CCA the sole licensing entity which grants licenses to the CSS technology in the DVD video format. As the duly authorized licensing entity controlling the CSS proprietary technology, DVD CCA, has been granted the right to enforce the CSS Agreement and related specification requirements.

The "Hack" of the CSS Technology

25. As early as October 25, 1999, the source code of a program named DeCSS was posted on the Internet by Jon Johansen, an individual residing in Norway, on the web site mmadb.no/hwplus/Software/DeCSS/decss.html. The DeCSS program which appeared on this web site embodies, uses, and/or is a substantial derivation of confidential proprietary information which DVD CCA licenses pursuant to the CSS Agreement. The DeCSS program and links to other sites with the DeCSS program were removed from the web site on or around November 8, 1999. The program was removed by Mr. Johansen after a demand to remove the infringing information was sent to him by an attorney from Simsonsen & Musaeus, a Norwegian law firm. A link to the DeCSS program reappeared on the site on December 11, 1999. It is not clear who is responsible for posting the link. The web site operator is named as Doe defendant 70 in the DVD CCA's Complaint.

26. On information and belief, the DeCSS program first appeared in the United States, as early as October 25, 1999, on a web site operated by defendant Pavolich addressed as www.livid.on.openprojects.net.

27. On information and belief, this proprietary information was obtained by willfully "hacking" and/or improperly reverse engineering software created by CSS licensee Xing Technology Corporation ("Xing"). Xing's software is and was licensed to users under a license agreement which specifically prohibits reverse engineering.

28. Defendants knew or should have known when they posted or provided "links" to the DeCSS program on their web sites that it was created through the unauthorized use of proprietary CSS information, which was illegally "hacked."

29. Defendants knew or should have known when they posted or provided "links" to the DeCSS program on their web sites that they were misusing proprietary confidential information gained through improper means because the DeCSS program was designed with the specific purpose, and has the ability, to defeat DVD encryption software. As a result, the DeCSS program allows users illegally to pirate the copyrighted motion pictures contained on DVD videos -- activity which is devastating to the DVD video format, the motion picture industry, and the hundreds of computer and consumer electronics companies whose businesses rely on the viability of this digital format.

30. Since the October 25, 1999 appearance of DeCSSs proprietary CSS information has been displayed on web sites (or by web sites "linking" to other web sites which display the information) in at least 11 states and 11 countries throughout the world. Extensive investigative efforts were immediately undertaken by DVD CCA and the Motion Picture Association's ("MPA") anti-piracy task force, to locate web sites which were posting and/or "linking" to other sites posting the proprietary information, and Internet service providers which were hosting such sites. The MPA sent notices to 66 web sites and Internet service providers demanding that this information be removed immediately. After receiving such notice, approximately 25 of these web sites and Internet service providers voluntarily removed the proprietary information or "links" to the information at issue. On information and belief, all named defendants (with the exception of defendant Hanson) and Does 1, 8, 10 through 14, 16, 26, 28, 31, 32, 33, 35, 48 through 54, and 62 through 72 have received notice through the MPA and refused to remove the inforrnation at issue.

DVD CCA as well as the Motion Picture, Consumer Electronics and Computer Industries Face Irreparable Harm if Defendants' are not Enjoined

31. DVD encryption technology was (and is) critical to the adoption and utilization of the DVD format. Without such copy protection, the motion picture companies would not have allowed their copyrighted motion pictures to be available in this new digital video format. Without motion picture content, there would be no viable market for computer DVD drives and DVD players, as well as the related computer chips and software necessary to run these devices. Accordingly, the Defendants' continued misappropriation of proprietary CSS technology will have a devastating effect on DVD CCA and many other California businesses in the motion picture, computer, and consumer electronics industries, who have invested substantial amounts of money and resources in the development of the DVD video format.

32. The sole business purpose and reason for the existence of DVD CCA. a trade association headquartered in Morgan Hill, California, is to be the tri-industry licensing entity and administrator of the CSS technology. Defendants' continued misappropriation and dissemination of proprietary CSS technology threatens the existence of the DVD format and, thus, the very existence of DVD CCA and the DVD businesses of hundreds of companies involved in the DVD industry. If the proprietary nature of the CSS technology is compromised, it will likely mean the end of this California business.

33. The effect of the unlawful activities of the Defendants on the motion picture industry, centered in California -- as well as on the nurnerous California computer and consumer electronics businesses, including 73 companies in California of which there are 42 in Santa Clara County and an additional 17 in other Bay area locations -- is immeasurable. Apart from the substantial resources that these industries have invested in the adoption of the DVD format, the wholesale copying and distribution of copyrighted motion pictures destroys the motion picture industry's ability to protect its intellectual property and destroys the market for the computer and consumer electronics industries' DVD-based products.

34. In addition to the irnmediate consequence that copyrighted motion pictures have been pirated, the "hack" and disclosure of the CSS proprietary information has already had a very serious adverse effect on consumers, in California and elsewhere, in that the introduction of a related product -- DVD audio -- has been delayed. The major music companies have indicated that they are not prepared to use a "compromised" system to protect their content and have insisted on the creation of a new encryption technology to protect the DVD audio system. The launch of DVD audio products, planned for December 1999, has, thus, been postponed for at least six months while new copy protection technology is developed, agreed upon, and implemented.

I hereby declare under penalty of perjury that the foregoing is true and correct.

[Signature]
John J. Hoy

Dated: December 24, 1999

Morgan Hill, California

[End]

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