Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_08-cv-04719/USCOURTS-cand-3_08-cv-04719-3/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 28:1338 Copyright Infringement

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

REALNETWORKS, INC., et al.,

Plaintiffs and CounterDefendants,

 v.

DVD COPY CONTROL ASSOCIATION,

INC., et al.,

Defendants and CounterComplainants. /

UNIVERSAL CITY STUDIOS

PRODUCTIONS L.L.L.P., et al.,

Plaintiffs,

 v.

REALNETWORKS, INC., et al.,

Defendants. /

No. C 08-4548 MHP

OPINION

Re: Motions to Dismiss Plaintiffs’/CounterDefendants’ Antitrust Claims

No. C 08-4719 MHP

 RealNetworks, Inc., and RealNetworks Home Entertainment, Inc., (collectively “Real”)

have amended their declaratory judgment complaint to allege that the DVD Copy Control

Association, Inc., (“DVD CCA”) and several major motion picture studios (collectively “the

Studios”) have violated the antitrust laws. The DVD CCA and the Studios now move the court to

dismiss Real’s antitrust claims. Having considered the parties’ arguments and submissions, and for

the reasons discussed below, the court enters the following order. 

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BACKGROUND1

I. Parties

RealNetworks, Inc., is a corporation engaged in the business of developing, manufacturing

and selling platforms for the delivery of digital media. Its subsidiary, RealNetworks Home

Entertainment, Inc., developed and distributed products called “Vegas” and “Facet,” collectively

referred to as “RealDVD.” 

The DVD CCA is a joint venture trade association responsible for developing, evaluating and

licensing copy control and related technologies to participants at various levels in the DVD2

industry. The DVD CCA licenses Content Scramble System (“CSS”) technologies to: companies

that manufacture hardware and software products that play CSS-protected DVDs; motion picture

studios that use CSS to encrypt their copyrighted audio-visual works distributed on DVDs; and

others. The stated purpose of the DVD CCA is to prevent illegal duplication of movies, thus

protecting the intellectual property of the manufacturers, producers and writers from theft. 

The Studio parties to this action comprise Disney Enterprises, Inc., Paramount Pictures

Corp., Sony Pictures Entertainment, Inc., Twentieth Century Fox Film Corp., NBC Universal, Inc.,

Warner Bros. Entertainment, Inc., and Viacom, Inc. Each is engaged in the business of making

motion pictures. The Studios are members of the DVD CCA, as are many consumer electronics

companies and computer manufacturers. There are twelve seats on the DVD CCA’s board of

directors; six of them are held by representatives of various motion picture studios.

II. RealDVD, the DVD CCA and the Studios

Beginning in 2007, Real sought to develop technology that would enable consumers to save

a secure copy of their DVDs to a hard drive for safekeeping, portability, easy retrieval and playback. 

Real entered into a CSS license agreement with the DVD CCA on or about August 13, 2007, for the

purpose of obtaining the technology needed to enable its RealDVD product to play back encrypted

DVD content on personal computers. RealDVD could save, play and manage backup copies of

DVDs owned by consumers. Before Real released the first RealDVD product, Vegas, Real

approached various motion picture studios to notify them of the product and to explore mutual

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marketing opportunities. Negotiations ensued with two studios, Fox and Paramount. Ultimately,

Real was unable to come to an agreement with any motion picture studio. According to a studio

representative, the Studios have never licensed any third party to offer a lawful product that would

allow the copying of DVDs onto hard drives. The DVD CCA and the Studios assert that the CSS

license agreement, to which the Studios are signatories, prevents the Studios from entering into

individual licenses granting the right to make digital copies of DVDs. 

The decision to develop RealDVD was based in part on a California trial court’s ruling that

another provider of DVD management technology, Kaleidescape, Inc., did not violate the CSS

license agreement by marketing a product that stored DVD content on its servers.3 Unlike the highend Kaleidescape system, which could cost a consumer $10,000, Real intended to sell its Vegas

software for $50 (with an introductory price of $29.99). The Studios had themselves been working

to develop a product that would allow consumers to manage digital copies of DVDs they purchased. 

The “digital copy” that would be offered by a studio would take the form either of a separate, nonCSS encrypted disk that could be copied or of delivery of a digital copy over the internet. 

Real initially planned to launch Vegas upon the announcement of the product at a September

8, 2008, technology conference. It made an ambitious and expensive public relations and

advertising effort to prepare for the launch. Real subsequently delayed launch of Vegas to

September 30, 2008, while it attempted to address the Studios’ concerns about the product. It was

not as successful re-creating an atmosphere of public interest for the delayed launch. On September

30, having failed to come to any agreement with any motion picture studio, Real launched Vegas. 

 III. Procedural History

On September 30, 2008, Real brought an action in this court against the DVD CCA and the

Studios seeking a declaratory judgment that Real neither violated the Digital Millennium Copyright

Act, 17 U.S.C. §§ 1201 et seq., (“DMCA”) nor breached its CSS license agreement with the DVD

CCA by manufacturing and distributing its RealDVD product. On the same day, the Studios brought

an action in the United States District Court for the Central District of California to enjoin Real from

manufacturing, distributing or otherwise trafficking in RealDVD. The Studios alleged violation of

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the DMCA and breach of contract. The Central District case was transferred to this court where the

cases were related and consolidated. 

Following an October 3, 2008, hearing, the court granted the Studios’ requested Temporary

Restraining Order (“TRO”) to restrain and enjoin Real from manufacturing, distributing or otherwise

trafficking in RealDVD or any substantially similar product. Following stipulated extensions of the

TRO, the court held preliminary injunction hearings over five days in April and May 2009. 

Numerous witnesses, including Real’s CEO, Rob Glaser, testified. On August 11, 2009, the court

entered a preliminarily injunction against RealDVD. Docket No. 448 (“P.I. Order”).4

 The court

found, inter alia, that the Studios and the DVD CCA had demonstrated a strong likelihood of

success on their claims. In the meantime, on May 14, 2009, Real filed a proposed Second Amended

Complaint (“SAC”) that includes four new claims (collectively “the antitrust claims”): two claims of

a group boycott in violation of Section 1 of the Sherman Act; violation of California’s Cartwright

Act; and violation of California’s Unfair Competition Law based on antitrust violations.5 The

Studios and the DVD CCA now move the court to dismiss the antitrust claims.

LEGAL STANDARD

A motion to dismiss filed under Federal Rule of Civil Procedure 12(b)(6) “tests the legal

sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Since Rule 12(b)(6) is

concerned with a claim’s sufficiency rather than its substantive merits, when faced with a motion to

dismiss, courts typically courts “look only at the face of the complaint.” Van Buskirk v. Cable News

Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). Allegations of material fact are taken as true and

construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80

F.3d 336, 337-38 (9th Cir. 1996). The court need not, however, accept as true allegations that are

conclusory, legal conclusions, unwarranted deductions of fact or unreasonable inferences. See

Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Clegg v. Cult Awareness

Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Nor must the court accept as true allegations that

contradict matters properly subject to judicial notice. Sprewell, 266 F.3d at 988.

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A court will grant a motion to dismiss if the plaintiff fails to plead “enough facts to state a

claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 

A plaintiff’s complaint may be dismissed either for failing to articulate a cognizable legal theory or

for not alleging sufficient facts under a cognizable legal theory. Balistreri v. Pacifica Police Dep’t.,

901 F.2d 696, 699 (9th Cir. 1990). In Ashcroft v. Iqbal, ___U.S. ___, ___, 129 S.Ct. 1937, 1950

(2009), the U.S. Supreme Court held that a court can “begin by identifying pleadings that, because

they are no more than conclusions, are not entitled to the assumption of truth. While legal

conclusions can provide the framework of a complaint, they must be supported by factual

allegations. When there are well-pleaded factual allegations, a court should assume their veracity

and then determine whether they plausibly give rise to an entitlement to relief.” Id.

DISCUSSION

The Studios and the DVD CCA argue that Real’s antitrust claims must be dismissed because

(1) Real fails to allege any anticompetitive conduct that is the cause-in-fact of an injury to Real, and

(2) Real’s allegations of an antitrust conspiracy fail to meet the pleading requirements of Federal

Rule of Civil Procedure 8 as articulated in Twombly and Iqbal.

6

 Real contends that its complaint

more than adequately alleges an actionable antitrust conspiracy. 

I. Materials Upon Which the Court May Rely in Deciding This Rule 12(b)(6) Motion

Real asserts that the court should restrict the present inquiry to the face of Real’s complaint,

contending that the Studios’ motion relies upon materials outside the proper scope of inquiry on a

Rule 12 motion. A motion to dismiss is typically filed before discovery has taken place. In the case

at bar, however, the parties have taken scores of depositions and filed myriad declarations. The

court conducted a bench trial involving numerous exhibits and fact and expert witnesses for the

purpose of determining whether a preliminary injunction should issue. The court’s preliminary

injunction order included over nineteen pages of factual findings.

A court deciding a Rule 12(b)(6) motion can take judicial notice of matters of public record. 

See Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995); see generally Fed. R. Evid. 201. Such

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public records include admissions made by a party in the record of a related proceeding such as a

preliminary injunction proceeding. See In re Am. Continental Corp./Lincoln Sav. & Loan Sec.

Litig., 102 F.3d 1524, 1537 (9th Cir. 1996), rev’d on other grounds by, Lexecon Inc. v. Milberg

Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). To the extent Real objects to the Studios’

references to admissions made at trial and duly recorded in the public record, or uncontested

declarations, Real’s objection is spurious.7 On the other hand, a party might in some cases object to

a court’s reliance upon its own findings of fact, as such, made in connection with a preliminary

injunction order where those findings have determined only probabilities that the necessary facts can

be proved. See Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1423 (9th Cir. 1984)

(“[T]he injunction is not a preliminary adjudication on the ultimate merits: it is an equitable device

for preserving rights pending final resolution of the dispute. The district court is not required to

make any binding findings of fact; it need only find probabilities that the necessary facts can be

proved.”). On the instant Rule 12(b)(6) motion, the court does not rely upon its findings of fact from

the preliminary injunction hearing, as such, as it is unnecessary to do so. The court will take judicial

notice of admissions and concessions already made in this action; no rule of procedure requires a

court to pretend these do not exist. 

II. Failure to Allege an Injury Caused by Anticompetitive Behavior

The Studios argue that any injury to Real has been caused by Real’s own illegal behavior and

the court’s resulting injunction, rather than any anticompetitive behavior. Section 4 of the Clayton

Act authorizes suits by a private individual to enforce the Sherman Act where such individual has

been “injured in his business or property by reason of anything forbidden in the antitrust laws.” 

15 U.S.C. § 15(a). A private plaintiff must have “antitrust standing,” which requires, among other

things, “a showing of antitrust injury, i.e., injury of the type the antitrust laws were intended to

prevent and that flows from that which makes defendants’ acts unlawful.” Knevelbaard Dairies v.

Kraft Foods, Inc., 232 F.3d 979, 987 (9th Cir. 2000) (quoting Atl. Richfield Co. v. USA Petroleum

Co., 495 U.S. 328, 334 (1990)) (internal quotation marks omitted). The only harm alleged by Real is

the delay of its product launch. See Docket No. 325-1 (“SAC”) ¶¶ 110-12. Real initially planned to

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launch its Vegas product on September 8, 2008. Id. ¶ 110. Real decided to delay the launch of the

product until September 30, 2008, “while it attempted to address the Studio Defendants’ concerns

regarding the product[.]” Id. The product was launched on September 30, but the sale and

distribution of RealDVD was enjoined days later by the court’s TRO. 

The ongoing delay in marketing RealDVD results from the TRO and preliminary injunction

entered by this court. Any assertion by Real that the Studios’ refusal to license the copying of

DVDs caused an antitrust injury apart from the delay resulting from the injunctive relief is

contradicted by Real’s assertions that it believed no license was necessary. See SAC ¶ 46

(“RealNetworks believed then, as it does now, that a consumer who had purchased, for example, an

Iron Man DVD, does not need further permission from Paramount to copy that DVD onto her hard

drive so as to get the benefit of additional features that can only be provided by the saving to a hard

drive.”);8

 Hearing Tr. (Glaser) at 472:3-9 (“Q: Did you think you needed Viacom or any other

studios’ permission to launch the product? A: Not the product, the Vegas RealDVD product,

version 1. . . . [T]here would be things that would be useful to work with them collaboratively on,

but not for the basic product, no.”); see also SAC ¶ 81. Indeed, having failed to come to any

arrangement with the Studios, on September 30, 2008, Real simply began selling RealDVD. See id.

¶ 110. Real did not believe a license was required and indeed launched its product without having

obtained any license. The distribution of its product has been disrupted only by the entry of a TRO,

and later a preliminary injunction, by this court. Real’s injury resulted from that relief, which was

necessitated by Real’s own possibly unlawful conduct. To the extent the Studios cooperated with

one another and the DVD CCA to petition this court for relief, such cooperation unambiguously falls

within the Noerr-Pennington exception to liability under the antitrust statutes. See generally Theme

Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1006 (9th Cir. 2008). 

Real does not seriously dispute that the harm it has experienced flows, in the first instance,

from the injunction; however, Real argues that the harm was in some sense caused by the Studios’

collective agreement not to license a technology that would allow the copying of CSS-encrypted

technology. The court understands Real’s argument, stated in its most coherent form, to run as

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follows: (1) there is a “cartel” agreement that is illegal under the antitrust laws and should be held

unenforceable; (2) in the absence of the agreement, RealDVD’s copying of CSS-encrypted DVDs

would not violate the DMCA; (3) if RealDVD did not appear to violate the DMCA, it would not be

subject to a preliminary injunction; (4) the illegal agreement therefore caused injury to Real by

making Real’s activities subject to a preliminary injunction under the DMCA; and (5) accordingly,

Real has antitrust standing to challenge the “cartel” agreement under the antitrust laws. Apart from

the circularity of the argument, there are at least two fatal problems with Real’s position.

Firstly, Real’s argument makes sense only if the relevant market for purposes of the antitrust

analysis is restricted specifically to technologies that copy content from CSS-encrypted disks,

because the alleged anticompetitive agreement does not compel any studio to distribute its content

exclusively on CSS-protected DVDs. Real’s product saves and manages digital copies of movies,

and Real has made no allegation that individual Studios have refused to negotiate individual licenses

for digital copies of their movies. Nor does Real dispute that companies such as Apple and Amazon

have negotiated arrangements with various motion picture studios to distribute copyrighted content

through their services. The “cartel” alleged by Real has purportedly denied Real and consumers

access to an encryption system, CSS, that protects DVDs from copying, but this has nothing to do

with Real’s opportunity to license the Studios’ content. Real attempts to overcome this flaw in its

theory by asserting that its target market is specifically the market for copying CSS-encrypted DVDs

already owned by consumers. Yet this is not what Real’s complaint alleges. According to the

complaint, “The relevant product market is the provision of technology that enables consumers to (a)

create or otherwise obtain digital copies of movies and TV shows that they own on DVDs and (b)

store and manage those copies electronically (e.g., on a hard drive) for subsequent playback.” SAC

¶ 99 (emphasis added). This market definition is not restricted to the market for copying CSSencrypted DVDs. Indeed, Real’s allegations pertaining to the Studios’ anticompetitive conduct

would make no sense were the market definition so limited. Real alleges that the Studios are

capturing the market themselves through distribution of their own “Digital Copy” products. Id.

¶ 112. Yet these are described as products in which a DVD is sold with an additional disk

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containing the content but no CSS encryption. Id. ¶ 103. By the complaint’s own terms, Real’s

target market is not one requiring the copying of CSS-encrypted disks but one allowing consumers

to obtain and manage digital copies. See also Hearing Tr. (Glaser) at 537:5-10 (“So the primary

point isn’t to make an extra copy. The primary point is to get extra value out of that material. . . .

The copying is a side effect of what we have to do in order to add value.”);9

 Docket No. 449 (Opp. to

DVD CCA’s Mot.) at 4:11-13 (“RealNetworks alleges that the DVD CCA and its Studio members

have conspired to deprive RealNetworks of an input (copyrighted content) essential to competition

in the relevant market[.]”). There is no allegation that Real is not at full liberty to negotiate

individual agreements with motion picture studios to license their content in the form of non-CSS

encrypted digital copies. 

Secondly, the court has found the Studios likely to prevail on their claim that RealDVD

circumvents ARccOS or RipGuard, non-CSS copy control measures used on DVDs, in violation of

the DMCA’s copy control section. See P.I. Order ¶ 111. Even if Real had an unlimited right to

circumvent CSS encryption, the sale of its product would nevertheless be enjoined because of the

circumvention of ARccOS and/or RipGuard. Real’s purported injury stems from its own decision to

manufacture and traffic in a device that is almost certainly illegal under the DMCA. 

Real relies upon Memorex Corp. v. International Business Machines, 555 F.2d 1379 (9th Cir.

1977), for the proposition that illegality is not a defense to an antitrust claim. In that case, the court

held that a party who stole trade secrets could nevertheless maintain an antitrust cause of action. Id.

at 1382-83. This court need not here reconcile Memorex and the authorities cited by the Studios for

the proposition that illegality is a defense to antitrust claims. See, e.g., Modesto Irrigation Dist. v.

Pac. Gas & Elec. Co., 309 F. Supp. 2d 1156 (N.D. Cal. 2004) (Patel, J.), aff’d, 158 Fed. Appx. 807;

Pearl Music Co., Inc. v. Recording Indus. Ass’n of Am., 460 F. Supp. 1060 (C.D. Cal. 1978). The

court does not here hold that Real is barred from maintaining an antitrust claim because it has

engaged in illegal activity; rather, the court holds that Real has failed to allege a plausible antitrust

injury. Even if Real were free to circumvent CSS technology, RealDVD would have been enjoined

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due to its circumvention of non-CSS encryption devices.10 Real alleges no viable antitrust injury and

therefore does not have standing to bring a private claim under the Sherman Act.11

III. Failure to Plead a Plausible Antitrust Conspiracy

Even if Real had antitrust standing, its complaint would be dismissed because Real has failed

to meet the Rule 8 notice pleading standard. It is important first to note what Real does not allege or

contest. Real declines to directly challenge the creation and operation of the DVD CCA or the

existence of the CSS license as such. Nor does Real dispute the Studios’ contention that the CSS

system was developed for the legitimate purpose of protecting each content-provider’s copyrighted

content. See 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1095 (N.D.

Cal. 2004) (Illston, J.) (“It is evident to this Court, as it has been to previous courts, that CSS is a

technological measure that both effectively controls access to DVDs and effectively protects the

right of a copyright holder.”); Universal City Studios, Inc. v. Corley, 273 F.3d 429, 436-37 (2d Cir.

2001) (discussing development of CSS in context of initial marketing of DVDs). Nor does Real

make any allegation that the Studios rejected any realistic and more competition-enhancing

alternative system to pursue the legitimate goal of preventing unauthorized copying. Nor does Real

allege that any of the Studios actually possessed the right to license to anyone a right to copy CSSencrypted DVDs.12 Nor, critically, does Real allege that the CSS license agreement, or any other

agreement, compels a studio to distribute its content on CSS-protected DVDs, as noted above.13 

Some of the missing allegations listed above simply cannot be made without contradicting

admissions already on the record in this case. Whatever the reason for failing to connect the dots,

Real’s complaint does not meet the pleading standard articulated in Twombly and subsequent cases. 

A necessary element of a “restraint of trade” claim under Section 1 of the Sherman Act is the

existence of a contract, combination or conspiracy. William O. Gilley Enter., Inc. v. Atl. Richfield

Co., 561 F.3d 1004, 1010 (9th Cir. 2009). The Studios trade in movies, not encryption software. 

See SAC ¶¶ 9-15. Where there is no allegation that the Studios have entered into an exclusive

agreement to distribute their movies only on CSS-encrypted DVDs, the CSS license cannot plausibly

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be an illegal restraint of trade.14 See Columbia Broad. Sys., Inc. v. Am. Soc’y of Composers, Authors

& Publishers, 620 F.2d 930, 935-36 (2d Cir. 1980) (holding opportunity to pool rights to musical

pieces not an illegal restraint of trade where alternative opportunities to acquire individual rights is

fully available). 

Nor does the complaint allege enough specific facts to state a claim for a Section 1 violation

under a group boycott theory. The complaint’s antitrust allegations consist largely of conclusory

assertions and legal conclusions. Offering a conclusory assertion that a conspiracy existed is

insufficient; a party must allege enough facts to nudge its claim across the line from conceivable to

plausible. See Twombly, 550 U.S. at 570; accord Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1048

(9th Cir. 2008) (“There are no facts alleged to support [the conclusion that a conspiracy existed]. 

Even after the depositions taken, the complaint does not answer the basic questions: who, did what,

to whom (or with whom), where, and when?”) (internal citation omitted). Real hangs its hat on

exactly one allegation:

The negotiations for a potential solution and a business deal went the furthest with

Paramount. RealNetworks and Paramount exchanged numerous term sheets, and had

even agreed upon preliminary dollar amounts to enter into a marketing arrangement

whereby Paramount would include Vegas on its DVDs and receive some payment in

return. At the last minute, however, Paramount indicated that it was not prepared to

break with the Studio cartel without substantial compensation for doing so. The

compensation demanded by Paramount was an exorbitant sum, not at all tethered to

the business value of the deal under negotiation.

SAC ¶ 74. According to Real, the “specifics” contained in this allegation nudge the complaint over

the line from conceivable to plausible.15 Real errs. As to the “exorbitant sum” allegedly demanded

by Paramount, this allegation suggests a dispute over (some unspecified) price but does not plausibly

give rise to an inference of an antitrust conspiracy. As to the reference to “the Studio cartel,” Real

fails to allege any facts that would turn this legal conclusion into a plausible factual allegation. 

Notably, the word “cartel” is not in quotation marks in the complaint and is not alleged to have

actually been uttered by any person alleged to have been an agent of Paramount.16 Construing the

complaint’s allegation in the light most favorable to Real, the court cannot find that Real’s vague

statements and legal conclusions amount to a plausible antitrust claim.

IV. Leave to Amend

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The complaint will be dismissed.17 Real has requested leave to amend in the event that the

motions to dismiss are granted. The court should freely give leave to amend pleadings when justice

so requires. Fed. R. Civ. P. 15(a)(2). In assessing the propriety of a motion for leave to amend, the

court considers five factors: (1) bad faith; (2) undue delay; (3) prejudice to the opposing party;

(4) futility of amendment; and (5) whether the plaintiffs have previously amended their pleading. 

Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2004) (citing Bonin v. Calderon, 59 F.3d 815, 845

(9th Cir. 1995)). Although the policy of freely granting leave to amend is to be applied with extreme

liberality, Eminence Capital LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (citation

omitted), futility alone can justify the denial of a motion for leave to amend, Nunes, 375 F.3d at 808. 

In this case, granting leave to amend would sanction an exercise in futility. Even if Real could,

consistent with Federal Rule of Civil Procedure 11, allege additional facts to support its conspiracy

allegations, the lack of an actionable antitrust injury dooms Real’s antitrust claims. The only injury

Real has suffered in connection with its RealDVD product is the delay in the product’s release and

accompanying lost profits. This delay is a result of this court’s decision to enjoin the distribution of

a product which the court has found likely to violate federal law and to breach the terms of Real’s

license agreement with the DVD CCA. Moreover, even if Real had the unimpeded right to copy

CSS-protected DVDs, its product would nevertheless be subject to an injunction because it

circumvents non-CSS copyright protection technologies. In the circumstances of this case, there is

no allegation Real could make that would give it antitrust standing even if it could otherwise plead a

plausible claim under Rule 8. 

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CONCLUSION

For the foregoing reasons, defendants’/counter-complainants’ motions to dismiss are

GRANTED. Declaratory judgment plaintiff’s claims for violations of the federal Sherman Act, the

California Cartwright Act and the California Unfair Competition Law are DISMISSED WITH

PREJUDICE. 

IT IS SO ORDERED.

Dated: January 6, 2010 

MARILYN HALL PATEL

United States District Court Judge

Northern District of California

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1. Unless otherwise indicated, the background facts derive from the allegations of Real’s Second

Amended Complaint. See Docket No. 325-1 (“SAC”).

2. “DVD” stands for “Digital Versatile Disk.” These five-inch disks store data in digital form and

are commonly used to record full-length movies. DVD Copy Control Ass’n, Inc. v. Bunner, 116 Cal.

App. 4th 241, 245 (2004). 

3. In the meantime, the California Court of Appeal has reversed the trial court’s decision. DVD

Copy Control Ass’n, Inc. v. Kaleidescape, Inc., 176 Cal. App. 4th 697 (2009).

4. Unless otherwise indicated, citations to docket entries in this order refer to the docket in the

declaratory judgment action brought by Real, Case No. C 08-4548.

5. Real asserted its antitrust claims both in its Second Amended Complaint and as “counterclaims

to the counterclaims” of the DVD CCA, a defendant in the declaratory judgment action. See Docket

No. 323 (Answer and Counterclaims to Counterclaims). For the purposes of this motion, the court

considers the later-filed Second Amended Complaint, which contains the same antitrust claims, to be

the operative pleading of Real’s antitrust claims against the Studios and the DVD CCA.

6. Defendants also invoke the Noerr-Pennington doctrine, arguing that all of the alleged

cooperation among the Studios, including the alleged “collective refusal to deal” prior to the filing of

litigation, comprised protected petitioning activity. Because the court rules on other grounds, it is

unnecessary to reach the issue of the precise extent to which the specific pre-litigation conduct alleged

in the complaint constituted protected petitioning activity. 

7. Notably, Real’s complaint itself references testimony from the preliminary injunction trial. See

SAC ¶¶ 51-53. Pursuant to the doctrine of incorporation, a district court may consider documents

“whose contents are alleged in a complaint and whose authenticity no party questions, but which are not

physically attached to the plaintiff’s pleading.” In re Silicon Graphics Sec. Litig., 183 F.3d 970, 986

(9th Cir. 1999) (quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994)). Even if the trial transcript

were not judicially noticeable under Federal Rule of Evidence 201, Real’s citations to it arguably

incorporate it by reference. 

8. Although Real couches the issue as an abstract question of a consumer’s right to make a fair use

copy, the allegations of the complaint pertain specifically to the use of RealDVD. To be clear, the

question of whether a consumer has a right to make a fair use copy of a DVD she has purchased—

whatever the legality of trafficking in a device that would help her to do so—is not presented on this

motion and is not addressed by the court. 

9. The court notes that this response was elicited in cross examination, not direct examination as

the Studios’ papers assert. See Docket No. 477 (Studios’ Reply) at 3. 

10. The case of PrimeTime 24 Joint Venture v. National Broadcasting Co., Inc., 219 F.3d 92 (2d Cir.

2000), to which Real cites, is inapposite. In PrimeTime, a provider of satellite television services

alleged that broadcasters engaged in a concerted refusal to license copyrighted content. Id. at 103. In

this case, there is no allegation that the individual motion picture studios have refused to license their

content to Real. There is also no allegation that CSS encryption technology is copyrighted content of

the Studios.

11. The court rejects any suggestion that Real’s voluntary delay in launching its product from

September 8, 2008, to September 30, 2008, constitutes an antitrust injury separate from the delay caused

by this court’s injunctive relief. First, Real voluntarily made the decision to delay the product for three

ENDNOTES

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weeks. Second, Real maintains it believed no license from the Studios was necessary to launch

RealDVD and, indeed, simply launched the product on September 30 without any license. Third,

RealDVD would just as surely have been subject to an injunction if launched on September 8 as it was

when launched on September 30. 

12. The Studios are themselves CSS licensees. Undisputed evidence in the record shows that

Matsushita Electrical Industrial Company Ltd. and Toshiba Corporation owned the underlying

intellectual property for CSS and granted a royalty-free license to the DVD CCA to be the sole licensor

and administrator of CSS technology. See Hearing Tr. (King) at 86:12-87:7; 89:9-90:1; 98:10-99:17;

Docket No. 199-5 (Pak Dec.), Exh J. Like Real, the owners of content distributed on CSS-encrypted

DVDs are CSS licensees. Pak Dec. ¶ 2. 

13. Indeed, the Studios receive revenues of hundreds of millions of dollars each year through

dissemination of their content via internet downloads and video-on-demand and pay-per-view services.

See Case No. C 08-4719, Docket No. 6 (Dunn Dec.) ¶¶ 14-16.

14. Real’s first “group boycott” cause of action is subtitled “Construction of the CSS License

Agreement” and suggests that the Studios’ and DVD CCA’s purportedly incorrect interpretation of the

licensing agreement amounted to a group boycott. See SAC ¶ 128. Real appears to have abandoned

this theory, presumably in light of court’s intervening preliminary injunction order. 

15. Real audaciously asserts in the alternative that it need not meet the Rule 8 pleading requirement

as articulated in Twombly and Iqbal because its allegation of Paramount’s reference to “the Studio

cartel,” if true, provides direct evidence of a conspiracy. Real relies on the pre-Twombly case of

Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 594-95 (1988), and

subsequent pre-Twombly Ninth Circuit cases for the proposition that the plausibility of its allegations

is irrelevant if it alleges direct, as opposed to circumstantial, evidence of a conspiracy. Real is incorrect.

First, a perusal of the cases reveals that this is not their holding. Second, there is no authority for the

proposition that Rule 8, as interpreted in Twombly and Iqbal, applies to every other litigant in the federal

courts, but not Real. 

16. Real misleadingly writes in its opposition brief: “RealNetworks alleges specifically that a major

motion picture studio (Paramount) said that it would break with a ‘cartel’ that included the other Studio

defendants only if RealNetworks paid it an exorbitant sum to do so. SAC ¶ 74.” Opp. to Studios’ Mot.

at 16:13-15. By placing the word “cartel” in quotation marks, Real suggests that it alleged someone

specifically used that term. In fact, Real was only quoting itself. It chose to use the world “cartel”

(without quotation marks) in its complaint. Without any reference to actual words spoken by an actual

speaker, the use of the word can only be construed as a legal conclusion, not a factual allegation. 

When pressed on this point at oral argument, Jonathan M. Jacobson, counsel for Real, stated:

“I’m telling you right now in open court that the phrase used by the Paramount representative was quote

‘I’ll require blood money to break the cartel.’ All right. If we have to file amended pleading we can

put that quotation in, but I’m telling you right now it’s not a paraphrase, it’s not an inference, it’s direct

evidence . . . .” Docket No. 482 (MTD Hearing Tr.) at 36:6-11. Even if an amendment of Real’s

pleading to include specifics concerning such a quotation could enable Real to plead a plausible antitrust

conspiracy, which the court doubts, the amendment would not cure Real’s lack of an antitrust injury.

17. The parties are in agreement that Real’s state law claims survive or fall with the federal Sherman

Act claims. See Opp. to Studios’ Mot. at 24:15-18. The four antitrust claims are dismissed as to both

the Studios and the DVD CCA, because the court’s discussion applies with equal force to the DVD CCA

as to the Studios. Nothing in the complaint alleges actions by the DVD CCA inconsistent with its role

as the licensor of CSS encryption technology. The complaint alleges that the Studios “us[e] the DVD

CCA to impede or thwart the efforts of firms like RealNetworks to develop and distribute products that

would permit them to compete in the relevant market,” SAC ¶ 117, but the complaint does not allege

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any specific action taken by the DVD CCA other than administering the CSS licensing agreement,

which Real does not directly challenge. Notably, when Real applied to the DVD CCA for a CSS

license, a license was granted. Id. ¶ 24.

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