Pavlovich v DVD CCA Case Brief

DVD Copy Control Association (DVD CCA) is a nonprofit trade association organized in Delaware with its primary place of business in California. Its purpose is to license Content Scrambling System (CSS) technology. CSS technology prevents the playing or copying of copyrighted DVD movies.

Matthew Pavlovich is a Texas resident living and working in Texas. While a student in Indiana, Pavlovich founded LiVid, a website designed to “to improve video and DVD support for Linux”. The website provided information, but did not provide for the interactive exchange of information. The project sought to defeat the CSS technology and enable the decryption and copying of DVD’s. LiVid posted the source code of a program named DeCSS on its Web site which allows users to decrypt data contained on DVD’s and place decrypted data on computer hard drives or other storage media. Pavlovich knew that DeCSS “was derived from CSS algorithms” and that “reverse engineering these algorithms was probably illegal”. Pavlovich heard that “there was an organization which you had to file for or apply for a license” to the CSS technology but did not know DVD CCA had its principal place of business in California until after DVD CCA filed the action.

DVD CCA alleged that Pavlovich misappropriated its trade secrets by posting the DeCSS program on the LiVid web site and sought injunctive relief without seeking damages. Pavlovich filed a motion to void the service of process, contending that California lacked jurisdiction over his person. The motion was denied and Pavlovich petitioned the Court of Appeal for a writ of mandate. The Court of Appeal summarily denied the petition. California Supreme Court transferred the matter back to the Court of Appeal with directions to vacate its denial order and issue an order to show cause. Court of Appeal then issued a published opinion denying the petition. California Supreme Court granted review to determine whether the trial court properly exercised jurisdiction over Pavlovich based solely on the posting of the DeCSS source code on the LiVid web site.

The issue is whether California courts can exercise personal jurisdiction over a nonresident defendant based on material posted to a website without violating notions of fair play and substantial justice. In order to determine personal jurisdiction, the court must decide whether Pavlovich “purposefully availed himself of forum benefits”.

The Court of Appeal based its decision on jurisdiction because “the reach of the Internet is also the reach of the extension of the poster’s presence”. The Supreme Court did not agree. In order for special jurisdiction to exist, the defendant must “purposefully avail himself of forum benefits”. The Calder test is used to determine whether the defendant purposefully aimed his actions towards a specific forum. The court declared that the defendant’s knowledge alone is not sufficient to establish aiming of his actions towards California. Therefore, California cannot exercise personal jurisdiction. The California Supreme Court reversed the Court of Appeal decision.

Linux and Intellectual Property in China – Licensing

What will happen to the GNU GPL if Chinese Linux developers decide someday years from now that they want to keep some of their source code proprietary? The GNU GPL states that any software created as a modification of the Linux kernel must be covered under the GNU GPL. This means that the jointly developed Asianux kernel, which most Chinese Linux companies are using, is covered under the GNU GPL. Some embedded Linux developers such as TiVo have circumvented this issue by making their proprietary module load after the Linux kernel has loaded. The original developer and license holder of the Linux kernel, Linus Torvalds, has said that modules are acceptable if they are not derivative works. The definition of “derivative work” has not been tested under the GPL and Torvalds has indicated that he will not sue. The terms of the GPL state that any violation results in the termination of the license. The future of the GPL may be in jeopardy if Chinese software companies someday decide to make their code proprietary. (Michaelson)

China’s lack of political transparency means that we may never know if other operating systems such as NetBSD were considered with an IP perspective. From both legal and economic perspectives, the BSD license would allow greater freedom for a developing software industry to organize by giving each firm the option of making some code proprietary and other code public. This would also allow companies to be rewarded in the market by being the first firm to develop a new technology even if the firm later decided to make the source code public. Both GPL and BSD licenses will allow China’s developing software industry to influence worldwide technical standards for years to come despite the IP regulatory and enforcement environment. The most substantial benefit to China in adopting its own standards is freedom from perpetual dependency on developed country technology. The licensing of foreign proprietary technology represents a tax on economic development that must be paid until a strong domestic software industry is developed.

Linux and Intellectual Property in China – Literature Review

Critiques of Linux in China have changed considerably over the past six years mainly in response to government backing of Linux and the success of the Red Flag distribution. In 2000, Salon.com reported that the benefits offered by Linux did not matter in China due to the lack of IP enforcement. Despite the central government’s efforts to link Linux with freedom from foreign influence, Linux remained a tool of system administrators looking for ways to cut costs (Greenburg). While server and desktop distributions may not have quite taken off yet, embedded Linux had already established a foothold due to the large manufacturing base in the electronics sector. By the end of 2000, sales of embedded Linux were over 8 million USD (Ostrem and Wang). By 2003, the MII announced that it would “…invest in developing a domestic software industry based around Linux…” (Berniker) This statement was supported earlier by the MII purchasing a controlling interest in Red Flag Software. In September 2003, IBM formed a partnership with Red Flag Software to promote Linux-based DB2 solutions in China. This move coincides with IBM’s goal of forming partnerships with Linux developers against Microsoft.

Other multinationals have also invested in the Chinese Linux market as well. In 2005 Novell launched OpenSUSE.org.cn, a Chinese language website dedicated to promoting Chinese development on SUSE which is one of the world’s leading Linux distributions (Jaques). Dell has begun packaging Red Flag Linux with their PowerEdge Server line (Kanellos). This is particularly interesting due to the potential conflict of interest for Dell who also bundles Red Hat Linux with its server and desktop lines. Even state owned enterprises such as the Industrial and Commercial Bank of China (ICBC) have begun to switch to Linux. In the summer of 2005, ICBC deployed Turbolinux to all 20,000 of its branches (Trombly). It is important to note that ICBC is not required to purchase domestically produced software and did in fact select a Japanese distribution of Linux. Two other of China’s largest banks, the Agricultural Bank of China and China Construction Bank, also plan on switching to Linux over the next year.

There are three popular licenses under which most software is released. Microsoft Windows is covered under a proprietary closed source license. This means that Microsoft is not required to share Windows source code with anyone and can charge for its use. Linux is developed under the GNU General Public License (GPL) which allows anyone to copy, modify, or redistribute Linux source code while prohibiting any restriction of these rights. Companies may charge users however; the source code must be made available to the public. This usually results in lower costs because the company charges for the convenience of packaging and distribution. The middle ground belongs to the Berkeley Software Distribution (BSD) license and its variants. BSD gives the programmer the option of releasing source code such as the FreeBSD operating system or making the code proprietary such as Apple’s Mac OS X. (Michaelson)

Linux appears to offer a decided advantage over Windows in source code transparency although Microsoft has taken steps to improve transparency by allowing China into its Government Security Program. This would allow eight Chinese government entities including the Source Code Review Lab of the China Information Technology Security Certification Center (CNITSEC) controlled access to Windows source code (Suttmeier and Yao).

Suttmeier and Yao describe China’s technology policies as Neo Techno-Nationalism. They characterize China’s policies as using globalization to promote national interests utilizing both private and government partnership to lead innovation. This will lead to either cooperation or conflict with foreign firms and is situational dependent. Chinese policy makers realize that domestic firms are not mature enough to directly compete with multinational corporations. An alternate to direct competition is the promotion of new standards which can be licensed or used as leverage for promoting partnerships that include technology transfers. While government policies and procurement are insufficient to accomplish this on their own, the promise of access to the Chinese market as well as the competition of multinationals can provide the power necessary to challenge western technology standards.

Shen suggests that China simply faces a decision between a weak or strong IP regime but that the decision is complicated by economic considerations. Some theorists in developed countries argue that a strong IP regime promotes foreign direct investment and encouraging domestic development. Shen argues that a strong IP regime only benefits established multinationals because of the costs associated with research and development as well as the legal costs to combat the violation of IP protection. While this may be true in a free market economy with strong IP enforcement; this is clearly not the situation in China. Whether or not China accepts strong IP regulation is less important than enforcement and the strength of the judicial system. The example of the “four little Asian tigers” shows that economic growth may develop in weak IP environments by allowing technology transfers to occur from foreign multinationals to domestic firms. Developing countries have an interest in maintaining loose IP regulations and enforcement in order to enhance economic growth.

Linux and Intellectual Property in China – Introduction

In 2000, China became the first nation to publicly endorse Linux in a speech delivered by Chen Chong, vice-director of China’s Ministry of Information Industry (MII). This was followed by a 2003 policy mandating that all national government computer systems must run domestically produced software. This effectively made Linux the only authorized operating system for government computers. Linux has been used for some time in various server applications in conjunction with Microsoft Windows. However, it has not gained widespread popularity as a standalone solution for business and government. Some of the challenges that Linux faced in the past were lack of user support, file format compatibility with Microsoft Windows, networking compatibility, hardware support, licensing of proprietary encryption techniques such as Content Scrambling System (CSS), as well as a steep initial learning curve for the average user.

The largest hurdle Linux faces is user education. Now, there are a number of user-friendly desktop distributions which are easier to operate than Microsoft Windows in some ways. However, most people do not even try Linux because their schools and friends use Windows. This problem is due to the lack of marketing towards desktop use by Linux companies. China’s Red Flag Linux has started to change this by offering certification programs and opening training centers in Beijing, Guangzhou, Shanghai, Hong Kong, and Macau. Red Flag is also developing an examination module to be administered through the Chinese Ministry of Education. Intel has also joined the fray with their promotion of the $350 “Farmer PC” aimed at capturing the demand in agricultural regions. They have also reportedly opened 4,000 training centers in rural areas exclusively promoting Linux (Papitas).

While Intellectual Property (IP) rights protection has been controversial with regard to China, adoption of western regulations will not completely solve the problem. China has difficulties enforcing the rule of law in various domains of society and more legislation will not change the behavior of Chinese individuals, businesses, or local governments. Oftentimes, proximity to Beijing combined with local business influence is what determines how local governments enforce IP regulations. This is tied directly to China’s system for political advancement. Local government officials are evaluated by the economic development of their region. As a result, politicians are eager to promote foreign direct investment and are not motivated to enforce regulations which may restrict Chinese businesses from profiting from foreign intellectual property.

China is also working to develop its domestic market by linking academic research to industry. Special industrial zones such as the Song Shan Lake Science and Technology district in Dongguan City seek to capitalize on foreign trained Chinese developers by providing the resources necessary to keep Chinese scientists from working abroad for foreign firms. Another example is the Xi’an High-Tech Industrial Development Zone that recently purchased Sybase Adaptive Server Enterprise for Linux (Forsyth). Chinese scientists now rank fifth in producing papers for the world’s science and engineering journals. While taking into account purchasing power parity (PPP), China ranks third in research and development spending (Suttmeier and Yao). The software environments of research and development sites in Xi’an and Dongguan may also create a demand for Linux education.

China is in a unique position to affect world technology standards by developing domestic standards with the confidence that foreign firms will follow in order to access China’s large market. One example comes from the 2003 case of Wi-Fi encryption standards. China had proposed a new set of wireless encryption algorithms that differed substantially from the internationally recognized standards. This would create additional costs for foreign firms by forcing them to manufacture a different type of device to sell to the Chinese market as one option while the other option would violate IP rights by requiring foreign firms to provide technical specifications to potential competitors. China claims the new standards are exempt from WTO regulations because they pertain to national security. This issue was never fully explored because China has postponed the adoption of the standards indefinitely and the United States has not brought the issue before the WTO.

When China joined the World Trade Organization (WTO) in 2002, it announced its intention to sign the Government Procurement Agreement which would require open bids on software contracts with the Chinese government. To date, China has not signed the agreement therefore a Linux based e-government initiative does not violate current WTO obligations. In 2002, government procurement accounted for 9.64 percent of GDP from 0.04 percent in 1998 (Suttmeier and Yao). This growth has allowed the government to use procurement as a means of setting policy.

Day trip to Dongguan 13 June 2006

We met at 7:30 this morning to eat breakfast at the cafeteria at Zhongshan University. The sky was a dreary gray as we piled into our tiny 28 passenger minivan to travel to Dongguan City. An hour and a half’s drive took us out of the smog and soot of Guangdong into the vast industrial park of the largest manufacturing base in China. Signs proclaiming harmonious living with nature adorned the largely empty four line boulevard passing through the center of Dongguan and the sky took on a decidedly blue tint rarely seen throughout our stay in China. All of the heavy polluting industries had been moved out of the area in order to make Dongguan more attractive to foreigners. The entire city was planned and built in only fifteen years.

The air was heavy as we fell out of the bus into an empty exhibition center. Thankfully, the enormous glass structure was air conditioned. The exhibition center is used to show off Dongguan’s development to government and business leaders in a two story museum presentation. The exhibit captions extolled the virtues of foreign investment in producing an area deemed to have more growth potential than any other area in China. Solid facts on the current economic and social situation in Dongguan were less common than the optimistic comments containing varying degrees of propaganda. Following the tour, we proceeded to the local government office in Liao Bu. Our hosts were alumni on Zhongshan University and treated us extremely well. Liao Bu is a small section in the center of Dongguan City. It is the lowest level of government in the area and is responsible for the Dongguan area. Our hosts treated us to a massive feast including fresh water eels and lichi for desert. Lichi is a grape like fruit covered in a hard shell which must be peeled before eating. After thanking our hosts, we hastily left leaving Annie Liang behind frantically calling mobile phones to get one of us to answer. Finally, we realized what had happened and returned for Ms Liang. We drove for another half hour to the Song Shan lake Science and Technology district where the director explained how Dongguan was attracting foreign investment as well as linking academic research to business needs. Once again we piled into our van to travel to the Kingway Beer’s manufacturing plant where we learned the history of beer and conducted quality control.

On the way, we learned about the farmers who had to give up their land to make room for the massive industrial park. We also saw the buildings were many of the maintenance workers stayed in poor living conditions. Dongguan does not have bus service or many private cars because all the workers live in dormitories at the factory. The newly built dorms were in excellent conditions however we could not see the interior. After leaving Kingway, we visited the Ability Company digital camera manufacturing facility. AB Co prides itself on adherence to cleanliness and intellectual property regulations. The group was required to don hats and booties to prevent dirt from getting into the electronics. This seemed to be precautionary but ineffective given the lack of air filtering and the lobby being open to the outside. The presentation was led by a knowledgeable employee making a valiant attempt at speaking English. We learned that the company not only acted as an Original Equipment Manufacturer but also an Original Design Manufacturer designing, manufacturing, and exporting cameras for Microsoft, Samsung, and others. We also learned about how they protected intellectual property by assigning different design teams to separate companies. AB Company is based in Taiwan and is currently working to move all its manufacturing to Dongguan. We quickly said our goodbyes and headed back to Zhongshan for dinner followed by World Cup soccer on TV.