Settlement Reached in Video Piracy Case

The Hollywood studios, which maintain that the industry loses more than a billion dollars a year worldwide to video piracy, have driven one top manufacturer of video descrambling devices out of business.

VSA Ltd., an Oregon company, has agreed to halt production of its “movie stabilizer,” which is capable of defeating the anti-copy code used on prerecorded tapes. In an out-of-court settlement, the company will also pay $2.5 million in damages.

Attorneys for the plaintiffs expect a U.S. District Court judge to approve the agreement soon. Universal City Studios Inc. brought the case against VSA, but the entire motion picture industry is actively behind efforts to drive such companies out of business.

Charles Morgan, a senior vice president at Universal, said VSA is the largest nationwide distributor of stabilizing devices, which are capable of defeating the electronic picture scrambler used on videocassettes of most major movies as a way to discourage illegal copying.

VSA had held that the device simply improves picture quality on many rental films. But Universal said VSA’s so-called black boxes had slipped into the hands of thousands of professional video pirates who used the boxes to make illegal copies of films that were later sold or rented to the general public.

“They sent out tens of thousands of these devices,” Morgan said. “And they sold them to retailers almost exclusively. There were mom-and-pop operations all around the U.S.”

The agreement prohibits VSA and its subsidiaries from selling or promoting any device that is capable of defeating the copyguard placed on prerecorded cassettes by Macrovision, the company whose copyright-protection process is used by most major film studios. VSA is also barred from producing any future device that removes the anti-copying protection on prerecorded tapes.

Attorneys for VSA could not be reached for comment Monday. In an earlier interview, attorney Gerri Sue Lant said VSA was the innocent victim of a malicious and unfounded lawsuit.

The motion picture industry, however, insists that piracy is among its biggest problems. Mark Harrad, a spokesman for the Motion Picture Assn. of America, said there are hundreds of lawsuits pending against people suspected of contributing to the piracy problem. Piracy is particularly common in foreign countries such as Thailand, where copyright laws are relatively lax.

Morgan called the VSA case an important victory but added that Hollywood is still fighting a losing battle. He said 10% of all videotapes available in retail stores are pirated. Morgan also said industry investigators are on the trail of a Los Angeles woman who is reportedly selling thousands of illegal tapes to retailers out of the trunk of her car.

“This (lawsuit) is just one of many things we have to do out of due diligence,” Morgan said. “The VSA case is not a major breakthrough. What we’re really doing is running around sticking our fingers in a whole lot of dikes.”