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A Proposed Settlement in NY Class Action Sony Litigation
Thursday, December 29 2005 @ 09:06 PM EST

Alex Eckelberry and Michael Geist are both reporting a proposed settlement [PDF] in one of the Sony XCP/MediaMax lawsuits, In re SONY BMG CD Technologies Litigation. Geist writes this:
While the settlement still requires court approval, it makes for an interesting read since it may provide the starting point for a future statute that protects against the misuse of digital rights management technologies....

The settlement has two broad goals: compensate consumers for the harm they suffered from both the XCP and Media Max DRM software and place limits on Sony's use of DRM. The compensation for XCP purchasers includes the replacement of the CD with a version without copy-protection and the choice of either (i) US$7.50 plus one free album download or (ii) three free album downloads (Sony will select at least 200 eligible titles). The compensation for Media Max offers fewer free album downloads. The most notable aspect of this part of the settlement is that Sony will undertake to provide the free downloads from at least three music download services including Apple iTunes. The irony of Sony being forced to offer Apple iTunes downloads when a prime reason for inserting the DRM software was to combat Apple iTunes should not be lost on anyone.

More interestingly (at least to non-class action lawyers) is the undertakings on Sony's future DRM use.

Of course, I ran to Gerard Gibbs' web site to see what I could find out for us. Gerard Gibbs is one of the attorneys representing the proposed class. He's also the attorney representing the plaintiffs in the Apple iPod battery class action litigation and the one against MCI for improper billing. If you are interested, here is a list of other cases handled by the firm.

Sure enough, he has information on his web site regarding the proposed settlement, including a summary of the settlement terms, and the Settlement Agreement [PDF] itself, referenced in the proposed settlement, titledPlaintiff's Application for Preliminary Approval of Class Action Settlement [PDF], filed with the US District Court for the Southern District of New York. The affidavits, with the proposed order attached and the proposed notices, can be obtained from SonySuit.com.

Here's what Gibbs' site tells us:

SONY BMG Music Entertainment, SunnComm International, Inc. and First 4 Internet, Ltd. have agreed to settle a nationwide class action lawsuit involving security flaws in the digital rights management software contained on millions of SONY BMG music CDs.

Girard Gibbs achieved the proposed settlement in its capacity as court-appointed Plaintiffs’ Co-Lead Counsel in the class action lawsuit, In re SONY BMG CD Technologies Litigation, Case No. 1:05-cv-9575-NRB, pending in the United States District Court for the Southern District of New York.

The settlement, if approved, will resolve claims that SONY BMG, SunnComm and First 4 Internet engaged in deceptive conduct in designing, manufacturing and selling CDs containing Extended Copy Protection (“XCP”) and MediaMax software without adequately disclosing the limitations the software imposes on the use of the CDs and the security vulnerabilities the software creates.

The summary of settlement benefits page adds this:

Under the settlement, anyone in possession of an XCP CD can exchange it for a replacement CD, an MP3 download of the same album, and either (a) a cash payment of $7.50 and one free album download, or (b) three free album downloads. Purchasers of CDs containing MediaMax 5.0 software will receive a free MP3 download of the same album and one additional free album download. Purchasers of CDs containing MediaMax 3.0 software will receive a free MP3 download of the same album.

Here are some highlights from the proposed settlement:

*************************

I. INTRODUCTION

Plaintiffs submit this application for preliminary approval of a proposed settlement in this consumer class action brought on behalf of people who purchased, received, possessed or used a compact disc (“CD”) containing SONY BMG Music Entertainment’s content protection software known as Extended Copy Protection (“XCP”) or MediaMax. Plaintiffs assert claims against Defendants SONY BMG Music Entertainment (“SONY BMG”), First 4 Internet, Ltd. (“F4I”), SunnComm International Inc. (“SunnComm”). The settlement will resolve all claims before this Court and all claims in related actions nationwide.

Under the terms of the settlement, Defendants agree to:

• stop manufacturing SONY BMG CDs with XCP software (“XCP CDs”) and SONY BMG CDs with MediaMax software (“MediaMax CDs”);

• immediately recall all XCP CDs;

• provide software to update and uninstall XCP and MediaMax content protection software from consumers’ computers;

• ensure that ongoing fixes to all SONY BMG content protection software are readily available to consumers;

• implement consumer-oriented changes in operating practices with respect to all CDs with content protection software that SONY BMG manufactures in the next two years;

• waive specified provisions currently contained in XCP and MediaMax software End-User Licensing Agreements (“EULAs”);

• refrain from collecting personal information about users of XCP CDs or MediaMax CDs without their affirmative consent; and

• provide additional settlement benefits to Settlement Class Members including cash payments, “clean” replacement CDs without content protection software, and free music downloads.

....7. Injunctive Relief Required By The Settlement Will Effectuate Changes In Defendants’ Use Of Content Protection Software

SONY BMG has agreed to implement the following changes in operating practices and procedures with respect to XCP, MediaMax, and any and all future content protection software technologies that SONY BMG may use on CDs that it manufactures or issues, from the present to 2008. (¶¶ II.D., IV.B.) These changes will be enforceable either through an agreement with state and/or federal government authorities or by an injunction from this Court. (¶¶ IV.A., B.)

SONY BMG will not manufacture or distribute XCP CDs. (¶ IV.B.1.) SONY BMG also will not manufacture MediaMax 3.0 CDs or MediaMax 5.0 CDs. (¶ IV.B.2.)

In addition, before manufacturing and issuing any CDs with content protection software at any time until 2008, SONY BMG will: (1) ensure that the content protection software that is contained on any such CDs will not be installed on a user’s computer, unless and until the user affirmatively accepts the EULA; (2) ensure that an uninstaller for the content protection software is made readily available to consumers; (3) ensure that the functionality of any updates and/or material changes in the functionality of the copy protection software that is used on any such CDs is adequately disclosed; (4) ensure that the EULA associated with the content protection software used on any such CDs accurately describes the nature and function of the software in plain English; (5) obtain comments about the EULA associated with the content protection software contained on any such CDs from an independent third-party designated jointly by the parties; (6) obtain an opinion from at least one qualified, independent third-party that the content protection software used on any such CDs is effective and would not create any known securities vulnerabilities; (7) ensure that SONY BMG will only be able to collect limited information from the CD user necessary to provide enhanced functionality to any such CDs, namely album title, artist, the computer user’s IP address, and certain non-personally identifiable information, without the user’s express consent ; (8) include on the jewel case a written disclosure in plain English that the CD contains content protection software and a brief description of the software; and (9) fix security vulnerabilities discovered in the content protection software contained on any such CDs through software updates verified as secure by a computer security expert. (¶¶ IV.B. 3(a)-(h).) ...

3. The Settlement Falls Within The Range Of Possible Approval

As explained above, the proposed Settlement was reached only after protracted arm’slength negotiations between the parties and Plaintiffs’ Co-Lead Counsel’s thorough consideration of the advantages and disadvantages of continued litigation. Plaintiffs’ Co-Lead Counsel believe this settlement achieves all of the objectives of the litigation, namely removing harmful XCP software from the market, stopping the continued release of MediaMax CDs, compensating people who unknowingly installed the software on their computers, fixing security vulnerabilities in XCP, MediaMax and SONY BMG’s future copy protection software, and ensuring that SONY BMG will provide complete and accurate disclosures in its EULAs for future content protection software. Plaintiffs’ Co-Lead Counsel, law firms with a great deal of experience in the prosecution and resolution of class actions and complex consumer litigation, have carefully evaluated the merits of this case and the proposed settlement. Even if the matter were to proceed to trial, Plaintiffs’ Co-Lead Counsel acknowledge, based on past, real-world experience, that the apparent strength of a plaintiff’s case is no guarantee against a defense verdict. Furthermore, even if a judgment were obtained against Defendants at trial, the relief might be no greater, and indeed might be less, than that provided by the proposed Settlement.

Under the Settlement, SONY BMG will be enjoined from using XCP and MediaMax software on audio CDs they manufacture. SONY BMG will implement several changes to its policies and procedures concerning content protection software and the EULAs associated with that software. These changes will ensure that the content protection software will not be installed without the user’s express consent, will be removable from the user’s computer, and will not render the user’s computers vulnerable to known security risks. In addition, the EULA’s will be written in plain English and will accurately describe the nature and function of the content protection software.

The XCP Exchange Program is designed to ensure that the XCP CDs are removed from the market as soon as possible and to provide consumers with replacement CDs as well as downloadable music files. The MediaMax compensation will also provide benefits to consumers who unknowingly installed such software on their computers and exposed their systems to security vulnerabilities. In addition, Defendants will continue to make available software utilities that will update and remove the XCP and MediaMax software from a user’s computer.

Defendants have committed that the do not and will not collect, aggregate or retain certain personal information on the computer users who listen to SONY BMG CDs without the express consent of those users. Under the settlement, Defendants will be required to engage an independent expert to verify their practices with respect to collection of personal information.

Defendants have agreed to waive certain of their rights under the XCP and MediaMax EULAs. These waivers will allow consumers to remove the XCP and/or MediaMax software from their computers, listen to the audio files across all file formats and in all portable music players, and choose not to download future updates of the XCP or MediaMax software. Once these provisions are waived, consumers will not have to be in possession of the SONY BMG CD to hold a license for the audio files, will not be precluded from copying music files and other digital content on the CDs, will be allowed to resell the CDs, and will not lose their licenses for the software if they file for bankruptcy protection or are declared insolvent. Also, Defendants waive their rights to be indemnified by users of the XCP or MediaMax software for harm arising from their use of the software.

Finally, the settlement operates as a floor, not a ceiling, on benefits available to Settlement Class Members. Accordingly, if SONY BMG enters into other agreements with state and/or federal government authorities that provide additional benefits to certain consumers, SONY BMG will offer those same benefits to all Settlement Class Members. All of these measures are of particular value to Settlement Class Members.

In light of the above considerations, the proposed settlement as a whole falls within the range of possible final approval. The Court should therefore grant preliminary approval of the settlement and direct that notice of it be given to the Settlement Class.


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