Earlier this month I posted Part 1 of “What is region coding?”, which described the technology, commercial rationale, and economic effects of this system. This posting is Part 2, and considers the legal implications of region coding, with a focus on developments in the United States and Australia.

CSS litigation

Before considering the legal implications of region coding per se, it is worthwhile considering the issues raised by the content scrambling system (“CSS”) that encrypts the content on DVDs. CSS provides both a copy control mechanism and contains the regional coding system.

Decrypting CSS allows the copying of DVDs without the copy control coding, and thus without regional coding as well. In October 1999, DeCSS, a program capable of decrypting DVDs encoded with CSS, was released.

The distribution via the Internet of DeCSS resulted in the first test of the United States Digital Millennium Copyright Act (the “DMCA”), the amendment that introduced anti-circumvention provisions to the Copyright Act of 1976. The Motion Picture Association of America (“MPAA”) took action against Eric Corley, the publisher of 2600, a well-known website covering news of interest to hackers. The Second Circuit Court of Appeals applied the provisions of the DMCA to prevent Corley from either posting DeCSS or linking to websites that did: Universal City Studios, Inc v Corley273 F3d 429 (2nd Cir 2001), and noted that doing so did not infringe upon Corley’s First Amendment rights.

In 2002 and 2003, Økokrim (a Norwegian crime unit) prosecuted Jon Johansen, the alleged creator of DeCSS, for computer hacking, in response to complaints from the MPAA and the DVD Copy Control Association. Johansen was acquitted in both instances.

DeCSS is widely available over the Internet.

Legal issues raised by region coding

To date, the only litigation relating to region coding is the Australian case of Kabushiki Kaisha Sony Computer Entertainment v Stevens, which concerned regional coding used in Sony PlayStation consoles and game software. That case, which considered whether modifying PlayStation consoles to be compatible with games from any region, is considered further below.

The legal issues raised by region coding are not limited to the anti-circumvention provisions of copyright law, however. The main issue raised by region coding is whether the practice is a valid application of the power conferred by the CSS patent, or is in fact anti-competitive. Although a bit dated now, it is worth referring to a speech made by the former Chairman of the ACCC, Professor Allan Fels, in April 2001 in which he made some strong statements about region coding:

Australian consumers are currently suffering from an international cartel that restricts their access to digital versatile discs (DVDs). The cartel, headed by major film studios in agreement with the manufacturers of DVD players, has divided the world into regions. This ensures that DVDs on sale in Australia will only function on a DVD player licensed for region 4 that includes Australia. The stated aim is to protect cinema ticket sales by preventing people viewing movies on DVDs in their homes before distribution to cinemas. The Australian subsidiaries of US film companies have been requested by the Commission to explain their actions. It will then decide what action can be taken.

And in May 2001, by Commissioner Ross Jones:

…in the Commission’s view, there is an attempt to use copyright laws for a purpose related to areas beyond their real purpose. This coding system is a mechanism to allow price discrimination, not to protect the inherent rights of Intellectual Property owners.

The tension between competition/antitrust and intellectual property laws is clear.

However, despite the ACCC’s opposition to the practice, it is unclear whether region coding violates any Australian competition laws. The following is a summary of the possible applications of Australia’s competition law statute, the Trade Practices Act 1974 (Cth), to the issue:

— Section 45 prohibits an agreement that has the purpose or effect of substantially lessening competition. The argument here is that non-Region 4 DVDs would likely be supplied or acquired in any market (in Australia), but for the CSS Licence Agreement, and that the licence agreement itself creates a barrier to trade. It is, however, unclear whether the provision would apply to DVD manufacturers that make players outside of Australia for use there. In addition, the operation of section 51(3) of the Act, which provides an exception to section 45 where licence restrictions clearly relate to the subject matter of the licence (ie, the patent itself).

— Section 46 of the Act prohibits the misuse of market power (which is not necessarily the same as having a monopoly). The parties to the CSS License Agreement certainly have market power over the CSS patent. Moreover, the statutory exception from trade practices laws created by section 51(3) of the Act doe not apply to behaviour covered by section 46. However, it is unclear who has been deterred from entry, if indeed market power has been “used”: manufacturers of regionless DVDs do not exist (except for pirates); and DVD players enabled to play DVDs from any region exist, but are made “regionless” by retailers and not manufacturers.

Responses and implications

While no claims under the Trade Practices Act have been brought based on the practice of region coding, commercial practices and legal responses based on copyright law have emerged.

The primary commercial response to region coding has been alluded to above: the modification of chips contained in DVD players and Sony PlayStation consoles to play back movies or games purchased in any region. Many consumers, primarily outside the United States, own DVD players that have been mod-chipped in this way. (In addition, it is possible to purchase DVD players from other regions, although this practice is not as widespread.)

The recent Australian High Court decision in Sony v Stevens has indirectly affirmed the ability of consumers to mod-chip players legally. While not explicitly condoning mod-chipping activities, the Court gave implicit support for consumers working around the artificial restrictions imposed by regional coding systems as applied to Sony PlayStation consoles. In addition, the High Court clarified that the “lock” created by software on the PlayStation game and hardware in the console was not a “technological protection measure” under the anti-circumvention provisions of Australian copyright law, and so Stevens’ mod-chipping activities did not infringe copyright in the underlying movies and games.

It is important to remember that retailers of DVD players are not bound by the terms of the CSS licence and the accompanying technical specifications, which means that mod-chipping will continue so long as it is not prohibited by the anti-circumvention provisions of copyright law. However, it should be noted that the substitution of a modified chip into a DVD player may void the manufacturer’s warranty, and so may not always be a desirable option.

Despite the changes in recent years to the movie industry, and in particular the drop in theatre revenues, DVDs continue to be produced coded for particular regions. This continued inclusion of the regional coding system in CSS strikes me as somewhat odd, particularly as it can be more efficient not to have multiple regions. The DVD manufacturers, who are not bound by the CSS license conditions, have discovered this fact; often a single DVD will be coded for both Region 2 (Europe, including the United Kingdom) and Region 4 (Australia/NZ). This combination allows the same product to serve two English-speaking audiences (which both use the PAL television format) simultaneously, reducing the manufaturer’s costs. It is difficult to understand why the same product is not adapted for use in Region 1 as well – or vice versa.