Lawsuits May Kill 321 Studios

321 Studios, which sells software to copy DVDs, games, and other content, may go out of business because of yet another lawsuit challenging the legality of one of its products.

"We're finally starting to get the message that somebody wants us dead and they are not going to stop before we are dead," says Robert Moore, 321 Studios founder and president.

With the latest lawsuit, the company is considering filing for bankruptcy protection, a move that would "probably spell the end for our company," he says.

New Litigation

Atari, Electronic Arts, and Vivendi Universal Games have sued 321 Studios over its Games X Copy product, which can be used to copy video games, the Entertainment Software Association said Tuesday. The companies say the product violates U.S. copyright law, and they want it banned.

321 Studios has been struggling since it was ordered to stop selling its flagship DVD X Copy product earlier this year. Judges in San Francisco and New York both ruled the software to be illegal. A replacement product that doesn't include the capability to sidestep copy protection on DVDs never sold well.

As a result of its dwindling business, 321 Studios has had to reduce its headcount from 400 people at the beginning of this year to about 20 today, Moore says. And now, because of the lawsuit over Games X Copy, distributors have stopped carrying the product, he adds. The company's international sales had already been cut off after the DVD X Copy cases were lost, Moore says.

321 Studios is working to find a company to take over its customer base. That company would also handle tech support and outstanding rebate requests for products, Moore says.

Firm Has Fans

321 Studios contends that its products don't violate any laws and that they simply allow consumers to take advantage of their "fair use" rights. It has been backed by civil liberties group Electronic Frontier Foundation, which says it would be sorry to see the company go under.

"It is sad that a company that tried to make products to help consumers is being forced out of business by major Hollywood and entertainment interests," says Wendy Seltzer, an EFF staff attorney. "321 Studios is one of the few commercial enterprises that has been willing to take a stand on behalf of the public."

However, the demise of 321 Studios wouldn't leave consumers without a way to copy their CDs, DVDs, or video games. Copy tools, including a decryption technology called DeCSS, which circumvents the Contents Scrambling System used on most DVDs, are freely available on the Internet, Seltzer notes.

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