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SCEA Files Motion to Dismiss Class Action Again, More Discovery Disputes, Plus a Revealing Transcript Surfaces - Update
Sunday, April 03 2011 @ 11:44 AM EDT

There's news from the class action litigation, In re Sony PS3 'Other OS' Litigation, where the plaintiffs are suing Sony Computer Entertainment America for removing OtherOS from Playstation 3s. SCEA has filed another motion to dismiss [PDF] the class action case, once again saying that the plaintiffs' newly filed First Amended Complaint is insufficient to state a claim. The original complaint's claims, except for one, were dismissed, with the judge giving the plaintiffs a chance to refile. Now that they have, SCEA says this refiled complaint should be tossed out also. There will be a hearing on all this on May 12th.

And the class action plaintiffs are asking the judge [PDF] to help them get discovery that SCEA is, they claim, reluctant to provide. Role reversal. In the SCEA v. Hotz litigation, SCEA is all about discovery, all they can get. Here, it's the opposite.

There is a transcript from a February 9th hearing in the Sony class action attached as an exhibit to the plaintiffs' letter to the judge in the case, and I think you'll be amazed. Would you like to know what SCEA's lawyers think of customers who use Linux? We get to find out, because the hearing begins with SCEA asking the judge for access to the plaintiffs' hard drives. Why would you want that, the judge asks? These are not defendants accused of anything, remember. Sony is the one in the hot seat, but here is the incredible answer: because, says their attorney, these plaintiffs say they used Linux, so SCEA suspects they were part of a hacking conspiracy, and they'd like to check. There's more, and I'll tell you all about it.

And SCEA claims in the transcript that it wasn't the entity that decided to drop OtherOS. It says in this courtroom that Sony Computer Entertainment Inc. is responsible for that decision. In Hotz, SCEA says it is responsible for pretty much everything to do with PS3s in the US, or at least I got that impression. SCEA also tells the judge at the hearing that there's been a change in the corporate setup. SCEI isn't the parent of SCEA any more. So I did a little research on that. Who are they then? And how were they related? I have found some press releases that clarify very nicely.

Here are the filings first, so you can follow along:

03/28/2011 - 168 - MOTION to Dismiss filed by Sony Computer Entertainment America LLC. Motion Hearing set for 5/12/2011 01:30 PM before Hon. Richard Seeborg. (Sacks, Luanne) (Filed on 3/28/2011) (Entered: 03/28/2011)

04/01/2011 - 169 - Letter from Plaintiffs to Magistrate Judge Chen. (Attachments: # 1 Exhibit Exhibits 1 to 3, # 2 Exhibit Exhibits 4-6, # 3 Proof of Service)(Coll, Rebecca) (Filed on 4/1/2011) (Entered: 04/01/2011)

Here it is, a snip from the transcript, and let's see how SCEA views us if we use Linux:
THE COURT: So give me an example of what you would find that would be relevant to either the merits or class certification on one of the named plaintiffs' PS3 hard drive beyond that which would be revealed by their proposal.

MS. SACKS: Well, certainly one thing we might find is whether or not any of them are engaged in the hacking that we now know was a widespread effort.

Obviously, the people in this class are the people who downloaded, or claim they downloaded the Linux operating system onto their other OS. It is beyond dispute now that there in is an ongoing effort to hack the PS3. In fact, most recently, there was an effort to hack around for update 3.21.

And these people, as members of the class, are engaged in activity that is not only prohibited under Sony's agreements, but is illegal. So if, in fact, some of these very sophisticated users, who are included in the five named plaintiffs, are engaged in the hacking, we certainly have the opportunity to find that out.

THE COURT: What's the legal implication if you were to find that?

MS. SACKS: I'm sorry?

THE COURT: What the legal implication to this lawsuit?

MS. SACKS: Oh. First of all, certainly, someone who is engaged in a violation of the terms of service and the licensing agreement would not be an adequate class representative. Also, someone who is engaging in activity that is injurious to Sony COmputer that is literally invading its intellectual property rights would not be common with the rest of the class.

THE COURT: Is everyone going to be damned by the defense that might be applicable to one of the individuals because of hacking?

Is that a substantive defense?

MS. SACKS: Is that a substantive defense: Yes, Your Honor, it is a substantive defense because the terms of service and the license agreement specificaly allow Sony to take action when someone has engaged in improper activity with regard to its intellectual property.

THE COURT: But how is it a substantive defense if the challenges to the overall decision, not an individualized decision, but an overall decision to implement -- update 3.21, how is it a defense?

Does it mean if they actually prevail on a class basis, then an individual would be barred from participating in any class settlement because they hacked? What's the nexus? I'm not sure I understand.

MS. SACKS: Well, part of the nexus is how can you come in and ask for damages for a property that you have basically violated? You don't have an ownership right in the software that Sony Computer allows you to use. That's it the whole point of the license agreement, it's not an ownership interest, it is a privilege that Sony conveys on them. And if these people violate the terms of that licensing agreement, they have no entitlement to continued use of a software.

Plaintiffs also claim, for instance, that they can no longer get their prepaid Netflix subscriptions, they can no longer participate in the Playstation network games. Well if, in fact, someone has used this most recent hack, which allows you to circumvent 3.21, how would we know that without an examination of their hard drive? And if, in fact, they have circumvented update 3.21, how are they damaged? Because they are still running Linux.

Get the picture, all you sophisticated Linux users? I take her words to mean that SCEA despises us, and it thinks we just might be dirty rotten hackers, violating their Most Holy IP. Or most holey.

Here we have plaintiffs upset because they lost functionality they paid for, and Sony's response is not to fix the problem but to demonize the plaintiffs, insult them, and ask a judge to let them paw through their personal stuff, to try to see if they are criminal hackers.

Cluebat to SCEA. Most hackers of the criminal bent use Windows, last I checked. And they attack it too, because it's easy. Linux is not your main problem. Just explaining.

These are class plaintiffs, representing all such folks, meaning it is CERTAIN that some did lose functionality, some did lose the ability to play games, etc. Sony knows they did, because they announced it themselves, that you had to pick one or the other, stay with Linux or play network games. But the issue SCEA raises is whether or not the plaintiffs personally experienced these things, because if not, they can't represent that class. It's actually a valid issue, and the judge wrestles with it, because there are privacy issues too, and he tries to strike a balance.

Here they are asking the plaintiffs to prove that they individually experience these things and that they are not criminals who are allegedly not entitled to be reimbursed for the lost functionality they paid actual money for. And SCEA is asking for unfettered access to the PS3s in order to determine these matters, much like the RIAA might be able to do in a case about file sharing, minus the neutral third party. SCEA wants to do the checking personally.

The judge grants SCEA's request to allow searching of the PS3s, subject to a protective order, a draft of which you can read as Exhibit 1 attached to the letter to the judge, probably because he doesn't yet fully understand that PS3s with OtherOS, Linux, *are* computers. Exhibit 5 lists the three main disagreements the parties still have about the protective order. The judge at the hearing doesn't let SCEA have access to other computers the plaintiffs own or any peripheral devices, just the PS3s, because he sees the problem with privacy, but he doesn't understand that any plaintiffs who put OtherOS on their PS3 did so because it made it a computer. So they may have done email and surfed and saved documents and everything you might do on your computer you wouldn't want strangers to look through. In fact, if you look at Exhibit 5, you'll see one of the plaintiffs says he has family photos he wants kept out of any copy made of the hard drive. Another plaintiff got so upset about the invasion of his privacy he has withdrawn as a plaintiff. Now SCEA wants his hard drive anyway. There will be motions on that to come.

SCEA, after the court hearing, then told the plaintiffs that they want each plaintiff to demonstrate his PS3 at depositions. That isn't what they told the judge, and so the plaintiffs do not accept that request. And SCEA is fighting to keep its then-employee, Geoffrey Levand's deposition scheduled for after the plaintiffs', and plaintiffs object to that as well. But SCEA may get what it wants through a back door. There will have to be a motion to compel, which the plaintiffs say they will file, because SCEA says Levand doesn't have time to produce all the documents requested by the date scheduled for the deposition.

The judge also didn't order the plaintiffs to turn over their "pseudonyms", another amazingly paranoid SCEA request. The judge did say that the plaintiffs can tell them about things that are private that they want left alone, but this is SCEA.

The SCEI documents

Another interesting thing is that the SCEA lawyer calls Sony Computer Entertainment Inc. "a former Japanese parent of Sony Computer." And if you recall, the complaint [PDF] in the Hotz case said the same, that there has been a reorganization and SCEA isn't under SCEI any more. SCEA argues that it shouldn't have to turn over documents created by SCEI, because SCEA isn't responsible for the decision to drop OtherOS.

Wait. In SCEA v. Hotz, they told the court that they were responsible for PS3s in the US, did they not, that SCEI pretty much had no role at all?

Yet follow along beginning on page 66 as this discovery dispute is handled by the judge:

THE COURT:... Now I need to turn, with the time we have left, to the other motion. With respect to documents in the possession of SCEA, I've read the cases. And I understand that in some situations it's sort of obvious that, you know, both the parent and the subsidiaries would have possession of certain documents. But here it's not just the operative documents implementation of the firmware, or the update. It sounds like some of what is being sought are kind of the upper level strategic documents, why they decided to do this in the first place.

So it's not apparent to me why there is an a priori reason to believe that the subsidiary would have access, or would have these in their possession as opposed to the implementation.

MR. FIZZIRUSSO: Well, first of all, the subsidiary SCEA, S-C-E-A, has admitted it has some of those documents in its possession for the first time in its briefing. In our meet and confers, it first told us, we didn't make this decision, we don't have those documents, sorry, but we are going to make a defense that we were justified in doing this because of purported security reasons.

So our position is, how can you make that defense? How can you say that this was done by your parent, SCEI, for purported security reasons if you don't have those documents in your possession?

So then they came back, and they said, well, we do have some of those documents in our possession. And this leads us to the next issue: We have no idea what those documents are, because they haven't produced anything other than publicly available documents for five months, despite our stipulation that we would treat anything as attorneys' eyes only until the protective orders issue was resolved. They said, no, we are not going to give you anything. And they didn't even file a protective order, they made us file a motion to compel.

So it does not make any sense that Sony -- or that SCeA could forward this defense but not have access and the documents that would support it. And if they are going to make that defense, then they should give us the documents. But they shouldn't just give us hand-picked documents that support them, we should be able to see the other documents that relate to this issue because we don't think that it had to do with security reasons, we think it had everything to do with money. And so we want to see those discussions.

THE COURT: All right. So first of all --

MR. FIZZIRUSSO: We want -- sorry.

THE COURT: So first of all, there are documents that have yet to be produced that are admittedly in possession of SCEI, right?

MR. FIZZIRUSSO: SCEA.

(Laughter)

THE COURT: SCEA. I got it backwards, here.

MR. FIZZIRUSSO: Sorry, it is confusing. SCEA.

THE COURT: SCEA.

MR. FIZZIRUSSO: SCEA, S-C-E-A, has said it has SCEI documents in its possession.

THE COURT: Right.

MR. FIZZIRUSSO: So clearly, there are some documents. And they have come back to us with a proposal that said, we will give you the other documents so they can clearly have access to them, but you have to agree to never name SCEI as a defendant.

THE COURT: With respect to the ones that they admitted they have, I'm assuming, once you have a protective order in place, those will be produced.

MS. SACKS: Yes, Your Honor.

THE COURT: All right.

MS. SACK: And just to clarify, we have always acknowledged that we would produce any documents that we had received relevant to these issues from SCEI. So if SCEI communicated something to SCEA, that would be produced.

Plaintiffs aren't talking about that. Plaintiffs want SCEA to be ordered to basically have its parent open its kimono; in other words, things that were never shared with SCEA by SCEI in the ordinary course of business plaintiffs are demanding somehow be produced. And that is just completely violative of the case law. We don't have legal control over those documents.

THE COURT: Well, okay, there is two routes to get it. One is, you actually have it. There is a presumption that you have it because of the operating nature of the thing, and that is what my first question was.

Your answer, though, goes to the question of whether or not, as a practical matter, which I think you concede as one of the problems, can you obtain these documents in the ordinary course. For instance, whether it's for litigation or for operations or for tax purposes, is this the kind of thing that you could normally get from the parent?

And the suggestion I'm hearing is that, well, you know, once your produced these, if it gives -- if you were able to produce these documents which show some strategic level of decision-making that suggest that either if you don't have it you could have easily gotten it, and how could you litigate this case without getting full access and cooperation from the parent.

MR. FIZZIRUSSO: And that's been their defense, Your Honor. That is our fear: They are going to hand-pick the documents that support their defense, but we're not going to have access to the other documents that might not.

THE COURT: So that's the question I have, is, if you are in a position to say, well, the reason why -- there is a good business reason why we did this for security reasons, et cetera, and here are the documents, and we got these from -- you know normally you wouldn't have this part of your operating daily stuff, but if you got something through the process of litigation, doesn't then that suggest that that third prong of custody, possession, and control, that is practical ability to get it from the parent really does exist here?

MS. SACKS: Two things, Your Honor.

First of all, the Ninth Circuit rejected the practical ability test in the In re: Citric Acid. The Court specifically refused to switch from the legal control test to the party's practical ability.

The facts in that case are exactly the same as they are here. There was the argument that the U.S. sub had the, quote/unquote "practical ability to obtain documents from its Swiss parent because the Swiss parent had voluntarily furnished them with documents and information in the past."

The Court said that's not good enough, there has to be legal control over the parent's documents. We have to be able, as the Camden court said, in effect, to do this on demand. And there is no evidence whatsoever that it on demand.

We will offer the evidence that we have in our possession, SCEI told us it was doing this for security reasons. We will offer what they told us, the plaintiffs will get it, but what we don't have and are not entitled to get is documents that SCEI didn't share with SCEA in the ordinary course of business.

This is not like a service manual for an airplane, this is as Your Honor said, high level, internal strategic information. And basically, parents -- I'm sorry, plaintiffs are attempting to pierce the corporate veil. They are ignoring the corporate separateness.

THE COURT: Now, let me ask you -- it's -- I'm a little puzzled because in your opposition brief you say, quoting from the Pitney Bowes case.

"In a parent subsidiary situation, determination will turn on whether the " -- "relationship establishes some legal right, authority, or ability to obtain requested documents on demand."

And then you look at the closeness of the parties and -- that suggests a practical test.

And then on page 10, now you are saying that In re: Citric Acid has ruled to the contrary.

MS. SACKS: In re: Citric Acid, that's correct, Your Honor, it rejects the practical ability test.

THE COURT: Stop right there.

Let me ask you: Is that legally correct?

MR. FIZZIRUSSO: Well, first of all, no, I don't think that's legally correct. Second of all, I don't think Citric Acid is even close to the facts at hand.

We would argue that Choice-Intersil by Judge Larson, which was decided after Citric Acid in this district is a more relevant case.

In Citric Acid, you were dealing with Coopers & Lybrand Switzerland and Coopers and Lybrand US. And there the Court said that given the unique Swiss corporate status, that it was not a parent/sub relationship. There was no sharing of profits or losses, management, authority, or control over the other firms. There was no relationship between US and the Switzerland parties there.

So, you know, it's not -- I don't think that that is relevant to the situation at hand, where you have SCEA clearly acting as a wholly-owned subsidiary, the U.S. marketing service and distribution arm of its parent company. And it clearly has some of these documents that it gets through the normal course of business. Just because it hasn't asked for the other ones does not mean that we shouldn't be able to get them.

THE COURT: Well, let me ask you this, let me ask Sony this: Has there been a showing that SCEA has asked for documents from SCEI and been refused?

MS. SACKS: Your Honor, let me clarify one thing, and then I'll answer that question, if I may?

SCEI is not currently the parent of SCEA. I don't want the record to be confused on this. We acknowledge that SCEI was the corporate parent at the time that update 3.21 was issued, but it is no longer the corporate parent of SCEA.

THE COURT: What's the structure now?

MS. SACKS: The structure is that Sony -- SCEA is a subsidiary of the domestic Sony here in the U.S. It does not report directly to SCEI --

THE COURT: What is that entity called that it reports to?

MS. SACKS: Sony Corp. America.

THE COURT: And then does Sony Corp. America then answer to SCEI?

MS. SACKS: No, Your Honor, it does not. It answers directly to the ultimate parent holding company. They are like sister corporations as opposed to parent subsidiaries.

THE COURT: So SCEI is a sister of SCEA?

MS. SACKS: I think that's a fair statement. It's very complicated, Your Honor. I don't profess to be a corporate attorney on this, but ultimately, the shares are held by the Japanese ultimate parent.

THE COURT: So there is an ultimate parent somewhere.

MS. SACKS: There is an ultimate parent in Japan, yes, Your Honor.

THE COURT: Good.

Whatever the exact relationship is, obviously, they are cousins, or something, and maybe they are second cousins, or something, has there been a showing that these documents were requested from SCIE, these historic documents?

MS. SACKS: No, Your Honor.

THE COURT: Well, then, how can I -- I mean, isn't that the first step?

MS. SACKS: Well, Your Honor, the difficulty with that is that the plaintiffs are putting us in a position of obtaining evidence that they don't have a right to have. If they want to get documents --

THE COURT: Well, that begs the question, because if it's the kind of thing where you ask for it and they would normally give it, like they have given you documents A and B and you haven't asked for C, to stand here and say, well, we don't have the power to get document C, well, maybe you do and maybe you don't. The fact that you got A and B says something.

And if you asked for C and they say, go away, forget it, well, then, at least you've got the argument, see, we don't have the power. But on the other hand, if you've never asked, how do --

MS. SACKS: But, Your Honor, that goes right back to the practical ability test. I've got the In re: Citric Acid case in front of me, and it says, specifically, that the Court was asked to reject the legal control test and instead to define control in a manner that focuses on the parties' practical ability to obtain the requested documents." And the Court said, no, we are not going to do that. Unless you have a legal right to those documents, you cannot be held to be in possession, custody, or control of them.

THE COURT: Legal right as opposed to practical right.

MS. SACKS: Yes, Your Honor.

MR. FIZZIRUSSO: Your Honor, the cases that have interpreted legal right, both pre- and post- Citric Acid, both in this district and elsewhere have focused on the prongs that were outlaid by Camden v. New Jersey, as do most of the cases that the defendants cite.

The Camden v. New Jersey factors are: Was there an alter ego? Was the sub an agent of the parent and the transaction giving rise to the suit? Can the sub secure the documents for business needs, and are they helpful in litigation? Does the sub have access to the documents in the ordinary course of business? Was the sub a marketer and servicer of the parent's product?

So whether or not it's called a legal control or practical ability test, the factors that courts look at go to the ability of the -- of the sub to get the documents from the parent. And they generally focus on the nexus of the suit and is it something that would be ordinarily entitled to in the ordinary course of business.

THE COURT: Has the Ninth Circuit spoken on this topic since the 1989 decision?

MR. FIZZIRUSSO: Not that I'm --

THE COURT: Legal versus practical?

MR. FIZZIRUSSO: Not that I'm aware.

I'm not sure if U.S. International Trade is a Ninth Circuit case or not, I would have to go back and look.

What the cases all do conclude is that there actually has to be a nexus between the business of the subsidiary and the nature of the documents that are being requested such that you would expect the subsidiary to receive them, as the Court said, in the normal course of business.

MR. FIZZIRUSSO: We agree with that test a hundred percent.

MS. SACKS: There has been no showing here that SCEI ever provided to SCEA any of its internal strategic internal decision makings about the design of the PS3.

MR. FIZZIRUSSO: SCEA just said that it gets documents from SCEI in the normal course of business about this issue. So and it says it has documents about this issue that it has received in the normal course of business.

The judge decides that this is a key issue, so he decides some focused discovery is appropriate. He tells SCEA to turn over what they have, and the plaintiffs can do some "very focused document requests or interrogatories and perhaps a 30(b)(6) deposition." So he orders the parties to meet and confer and come up with a discovery plan, while he studies up on the Citric Acid test. Then they can argue about specifics after they all get to see what comes out of discovery.

Here's the Citric Acid decision, if you would like to see which lawyer was correct. Hint: both of them, by my reading, at the end when they agreed. Citric Acid was about price fixing and allocating market share among citric acid producers. But the part that matters in this case is Section IV of the ruling, about whether or not certain documents had to be produced.

The documents were by Coopers and Lybrand, who had done some accounting work for a company. But there were two independent units, each calling itself by the brand name, one in the US and one in Switzerland, and here's how independent they were of each other:

C&L-Switzerland and C&L-US are both members of Coopers & Lybrand International (“C&L International”), an association (organized under the laws of Switzerland) consisting of member accounting firms around the world (including C&L-US and C&L-Switzerland).   By virtue of membership in C&L-International, member firms are allowed to utilize the Coopers & Lybrand name.   Although members use the “Coopers & Lybrand” name, each firm is autonomous.   Firms do not share profits or losses, nor do they have any management, authority, or control over other member firms.   In addition, C&L-International does not exercise management, authority, or control over member firms.   Of particular relevance to the case at hand, C&L-US does not have any economic or legal interest in C&L-Switzerland, and C&L-Switzerland has no such interest in C&L-US.

Varni served C&L-US with a subpoena to produce various documents in its possession and in the possession of C&L-Switzerland.   C&L-US produced all the relevant documents in its possession and wrote a letter to C&L-Switzerland asking if it would voluntarily turn over the documents sought by Varni.   C&L-Switzerland declined.   Varni then filed a motion to compel C&L-US to produce C&L-Switzerland's documents.   The magistrate judge ruled that, under Federal Rule of Civil Procedure 45(a), Varni could compel only C&L-US to produce those records in its legal control.   Finding that C&L-US lacked legal control over documents held by C&L-Switzerland, the magistrate denied the motion to compel in an order subsequently adopted by the district court.

Does that sound like SCEA and SCEI to you? Did you notice that the US company did ask the Swiss one for the documents? SCEA doesn't want to even do that. The US entity had zero control over the Swiss and vice versa. So you can't get blood from a stone. The court ruled that the US entity couldn't be compelled to produce what it didn't have and couldn't get, because it had no control and if it demanded the documents, it had no legal right to insist, no recourse legally if turned down.

Here's the part that SCEA loved:

Ordering a party to produce documents that it does not have the legal right to obtain will oftentimes be futile, precisely because the party has no certain way of getting those documents.   Varni claims that C&L-US has the practical ability to obtain documents from C&L-Switzerland because C&L-Switzerland has voluntarily furnished C&L-US with documents and information in the past.   With respect to the ECAMA documents, however, C&L-US asked C&L-Switzerland to produce those documents, but C&L-Switzerland refused.   There is no mechanism for C&L-US to compel C&L-Switzerland to produce those documents, and it is not clear how Varni wants C&L-US to go about getting the ECAMA documents, since C&L-Switzerland could legally-and without breaching any contract-continue to refuse to turn over such documents.   Because C&L-US does not have legal control over C&L-Switzerland's documents, Varni could not compel C&L-US to produce those documents.
So as SCEA was arguing, there has to be legal control or there have to documents that you have or can get. So what exactly is the relationship between SCEA and SCEI, or more exactly, what was it at the time of the decision to remove OtherOS? Might we expect documents to be flowing back and forth? That's where the press releases come in.

For example, look at how SCEI identifies itself in this press release from January 27, 2011, SONY COMPUTER ENTERTAINMENT ANNOUNCES ITS NEXT GENERATION PORTABLE ENTERTAINMENT SYSTEM:

About Sony Computer Entertainment Inc.

Recognized as the global leader and company responsible for the progression of consumer-based computer entertainment, Sony Computer Entertainment Inc. (SCEI) manufactures, distributes and markets the PlayStation® game console, the PlayStation®2 computer entertainment system, the PSP® (PlayStation®Portable) handheld entertainment system and the PlayStation®3 (PS3®) system. PlayStation has revolutionized home entertainment by introducing advanced 3D graphic processing, and PlayStation 2 further enhances the PlayStation legacy as the core of home networked entertainment. PSP is a handheld entertainment system that allows users to enjoy 3D games with high-quality full-motion video and high- fidelity stereo audio. PS3 is an advanced computer system, incorporating the state-of-the-art Cell processor with super computer like power. SCEI, along with its subsidiary divisions Sony Computer Entertainment America LLC., Sony Computer Entertainment Europe Ltd., and Sony Computer Entertainment Korea Inc. develops, publishes, markets and distributes software and manages the third party licensing programs for these platforms in the respective markets worldwide. Headquartered in Tokyo, Japan, SCEI is an independent business unit of the Sony Group.

And you can file this under OMG, a press release from 2009 where SCEI announces a licensing program for manufacturers of peripherals. Yup. SCEI, not SCEA:
Sony Computer Entertainment Inc. (SCE) today announced the expansion of the "Official License Program" to peripheral manufacturers in Japan, Asia, North America and Europe/ PAL territories to further enhance the PlayStation peripheral and accessory line-ups and offer richer entertainment experience on the PlayStation platform.
SCEA does marketing, as you can see in this press release, also from 2009, and it seems to run the Playstation Network judging from the copyright on this page, handles service plans, and publishes and distributes software, and here's how it describes itself in the press releases:
About Sony Computer Entertainment America Inc.

Sony Computer Entertainment America Inc. continues to redefine the entertainment lifestyle with its PlayStation® and PS one® game console, the PlayStation®2 computer entertainment system, the PSP® (PlayStation®Portable) handheld entertainment system, the ground-breaking PlayStation®3 (PS3™) computer entertainment system and its online and network services the PlayStation®Network and PlayStation®Store.

Recognized as the undisputed industry leader, Sony Computer Entertainment America Inc. markets the PlayStation® family of products and develops, publishes, markets, and distributes software for the PS one, PlayStation®2, PSP® and PS3™ systems for the North American market. Based in Foster City, Calif. Sony Computer Entertainment America, Inc. serves as headquarters for all North American operations and is a wholly owned subsidiary of Sony Computer Entertainment Inc.

"PlayStation", "PSP™", and "PS one" are registered trademarks and "PS3™" and "XMB" are trademarks of Sony Computer Entertainment Inc.

Notice who owns the trademarks. And when it was time to announce the Playstation 3 lights in 2009, it wasn't SCEA announcing it. It was SCEI:
Sony Computer Entertainment Inc. (SCE) today unveiled the new PlayStation®3 (CECH-2000A) (body color: charcoal black) computer entertainment system, featuring an extremely streamlined form factor with a 120GB Hard Disk Drive (HDD). The new PlayStation®3 (PS3®) system will become available in stores from September 1, 2009, in North America, Europe/ PAL territories and Asian countries and regions at a very attractive recommended retail price (RRP) of US$299 and €299, respectively. The system will become available in Japan on September 3, 2009, at a RRP of 29,980 yen (including tax). With the introduction of the new PS3™ system, SCE will also reduce the price of the current PS3™ with 80GB HDD to a RRP of US$299 from August 18 and €299 from August 19. Also in North America, the price of PS3™ with 160GB HDD will be reduced to a RRP of US$399 from August 18. By launching a vast library of exciting and attractive software titles for PS3™ this holiday season and offering customers a line-up of hardware models and pricing to match their preference, SCE will build on the momentum and further accelerate the expansion of the PS3™ platform. The internal design architecture of the new PS3™ system, from the main semiconductors and power supply unit to the cooling mechanism, has been completely redesigned, achieving a much slimmer and lighter body. Compared to the very first PS3™ model with 60GB HDD, the internal volume as well as its thickness and weight are trimmed down to approximately two-thirds. Furthermore, power consumption is also cut to two-thirds, helping to reduce fan noise. While inheriting the sleek curved body design of the original model, the form factor of the new PS3™ system features a new meticulous design with textured surface finish, giving an all new impression and a casual look. With the compact body and casual appearance, the newly introduced model will appeal to a wider audience who are looking to buy the best entertainment system for their home.

Concurrently with the release of the new PS3™ system, SCE will modify the PS3™ brand name from "PLAYSTATION 3" to "PlayStation 3", and introduce a new " PS3 Logo " logo, which is engraved on the surface of the new PS3™ system. By unifying under the familiar "PlayStation®" name, which represents the entire PlayStation family, PS3™ together with PlayStation®2 and PSP® (PlayStation®Portable) will further expand the PlayStation business, and will continue to enhance the entertainment experience along with the ever-growing PlayStation®Network.

Etc. Amazing, is it not, considering what SCEA has been telling the court in SCEA v. Hotz, how Hotz had to know he was dealing with SCEA in California and all that rot. No one would have thought that from these press releases, unless they were buying Gran Turismo or some such, because it clearly states that "Sony Computer Entertainment Inc. (SCEI) manufacturers, distributes and markets the PlayStation® game console, the PlayStation®2 computer entertainment system, the PSP® (PlayStation®Portable) handheld entertainment system and the PlayStation®3 (PS3®) system." I believe SCEA has claimed to be solely responsible for some of the above. Wow. And yet today's About SCEA page tells us:
Sony Computer Entertainment America LLC (SCEA) is responsible for keeping PlayStation® growing and thriving in the United States, Canada and Latin America. Based in Foster City, California, SCEA serves as headquarters for all North American operations and is a wholly owned subsidiary of Sony Corporation of America Inc.

We make advanced hardware that enables the most talented developers to produce vanguard titles and set new standards in interactive entertainment.

Who's 'we'? Who makes the hardware? Here's what that same page looked like in 2009, if you are curious:
Sony Computer Entertainment America Inc. (SCEA) is responsible for the continued growth of the PlayStation® market in the United States and Canada. Based in Foster City, California, SCEA serves as headquarters for all North American operations and is a wholly owned subsidiary of Sony Computer Entertainment Inc. (SCE) that reports directly back to SCE in Japan.

SCEA's advanced hardware technology enables the most talented developers to produce vanguard titles, setting new standards in interactive entertainment. The PlayStation® family of products has taken home entertainment to never before imagined heights - whatever your interests, the PlayStation® entertainment products have something for you.

What SCEA does is service plans, publish and license software, and handle the Playstation Network gaming, judging from the press releases. Yet even so, that last press release repeats that "Recognized as the undisputed industry leader, Sony Computer Entertainment America LLC. markets the PlayStation family of products and develops, publishes, markets and distributes software for the PS one, PlayStation 2, PSP and PS3 systems for the North American market." SCEA is all about content, entertainment, I gather. SCEI is about everything, hardware too. The trademarks are SCEI's: " “PlayStation,” and “PSP” are registered trademarks and “PS3” is a trademark of Sony Computer Entertainment Inc."

If SCEI was the parent of SCEA back then, in the kind of relationship described in the press releases, how much would you believe it if SCEA said they had no relevant documents? The press releases say SCEI does marketing too. Clearly there was a great deal of coordination and working together. And where you are working together, there typically would have to be legal bonds as well. We'd have to see the corporate documents to know who was promised what, and I would assume the plaintiffs will be asking to see those foundational documents, and contracts regarding PS3s. I mean, if SCEA messed up, did SCEI have an obligation to defend them in court? Who pays?

Remember the list of what to look for in deciding the issue of whether a subsidiary has control that plaintiffs mentioned? Here's a case [PDF], International Trade mentioned by SCEA's lawyer at the hearing, a D.C. case, that quotes it:

Camden Iron indicates that courts have concluded that a subsidiary corporation, like ASAT, Inc., has the requisite control of documents that are in a parent company’s possession where:
(1) the alter ego doctrine . . . warranted ‘piercing the corporate veil’;

(2) the subsidiary was an agent of the parent in the transaction giving rise to the lawsuit;

(3) [t]he relationship is such that the agent-subsidiary can secure documents of the principal-parent to meet its own business needs and documents helpful for use in litigation;

(4) [t]here is access to documents when the need arises in the ordinary course of business; and

(5) [the] subsidiary was [a] marketer and servicer of the parent’s product (aircraft) in the United States.

How are any of these *not* applicable to SCEA and SCEI? Maybe you could argue about number 1 on the list.

Here's an article, though, on the other side, where some lawyers explain a New Jersey case that held that a subsidiary should not have the burden of proving that it doesn't have control; rather the one seeking the documents needs to prove that it does. I would think, frankly, that the press releases would so indicate, but we'll see what the judge decides. I think you can see, though, why he wants to know more from limited discovery before he decides this very complex issue.

I did some digging to try to figure out the new corporate arrangement, frankly because I started wondering if there is a litigation-related purpose to it. Here's the Sony Japan 6K where it reports on the rearrangement of subsidiaries to the SEC as of December 31, 2010, and the only realignment mentioned is in the UK and Europe back in April of 2010. But then in March of 2011, Sony Japan reported on major realignment to enable Howard Stringer to implement his vision for the global company. Or something like that. I don't speak Corporate. But here's the change that relates, I assume, to Playstation 3s:

Under Mr. Stringer, Sony will realign its core electronics and networked service operations into two key business groups. After the realignment, all of Sony’s consumer electronics and networked service functions will reside in one group, named the “Consumer Products & Services Group”, and the growing B2B, component and semiconductor businesses will form the second group, the “Professional & Device Solutions Group”.

Kazuo Hirai, currently Corporate Executive Officer and Executive Vice President, will be named Representative Corporate Executive Officer and Executive Deputy President, Sony Corporation, and will be responsible for the Consumer Products & Services Group, which will include all of Sony’s consumer electronics businesses -- including TV, Home Video, Home Audio, Digital Imaging, PC, Game and Mobile products -- as well as the networked service businesses. Mr. Hirai will also oversee Sony’s horizontal global sales and marketing, and common software platforms, as well as the Company’s design operations. These are all core functions that primarily support the Company’s consumer products and service businesses. In his current role, Mr. Hirai has successfully led the turnaround of the games business, expanded the PlayStation® Network – which now boasts more than 74 million registered accounts worldwide (as of March 9, 2011) -- and directed the launch of Sony’s new networked service platform. In his expanded role, Mr. Hirai will extend his focus to developing a new generation of compelling products, through which Sony plans to deliver seamless and compelling entertainment experiences to consumers in both the home and mobile spaces.

Maybe reading so much about Sony has me as paranoid as they clearly are, but I have put a Post-it note to remember all this, in case it comes up down the road, as to who is responsible for what and who should sue and be sued. I mean, if it was SCEI that made the decision to drop OtherOS, why is it SCEA being sued here? I did notice that SCEA in the hearing offered the documents they had, according to plaintiffs' lawyer, if the plaintiffs would promise not to sue SCEI. SCEA's lawyer then said otherwise, that they had said they would give them documents they had in hand that related directly to OtherOS only. But why make that request, if they did make it? And why make sure the judge knows that there's been a change? I sense foreshadowing here, and I'll be watching.

The plaintiffs argued that the real reason that Sony removed OtherOS was financial, not security-related. It could be both, I'm thinking. They are clearly going slightly mad, in the Othello sense, over hackers. And I understand that. If they feel they've created a beautiful product after years of R&D and money spent and effort, it probably does feel awful to them to see people so determinedly trying to change their work in ways they hate. I totally get that, actually. I had to endure a long stretch where people tried to ruin Groklaw, as I saw it, and it does. It feels awful. Now, I have a sense of humor and fairly low expectations, after doing Groklaw, when it comes to the human race, so I just moved along and figured it would all work out somehow, which it did. But I do feel empathy for Sony. I do.

I'm not saying they are right, by the way, just that when I read the SCEA lawyer expressing so much paranoia, I have a part of me that feels empathy and recognition. But what about the plaintiffs' theory, about wanting to get rid of OtherOS because of financial concerns?

Here's a PDF all about earnings from various divisions in the third quarter of 2010 (Sony Japan uses a year that ends in March), which I found on this 6K filed back in February, and in neither document could I find SCEA even referenced, but it's clear that PlayStations were not lighting up the sky financially. To find SCEA, I had to go to the last Annual Report and here are the "significant subsidiaries owned, directly or indirectly, by Sony Corporation" as of March of 2010. Both SCEA, incorporated in the US, and SCEI, incorporated in Japan, are listed as 100% owned, directly or indirectly, by Sony Corporation. The USA subs are Sony Americas Holding Inc., Sony Corporation of America, Sony Electronics Inc., Sony Computer Entertainment America LLC, and Sony Pictures Entertainment Inc., all listed as 100% owned directly or indirectly by Sony Corporation. But is that the American company, or Sony Japan? Like SCEA's lawyer said, it's complicated. I'd want to see those documents too, before I could say exactly what the relationship was. But this doesn't seem to match anything SCEA has said. On page 86, it speaks about SCEA and the realignment in April of 2010, and it mentions losses:

As a result of losses incurred in recent years, Sony Computer Entertainment America Inc. (“SCEA”), Sony Computer Entertainment Europe Limited (“SCEE”) and Sony United Kingdom Ltd. (“SUKL”) are each in a three year cumulative pre-tax loss position. On April 1, 2010, as a part of the business restructuring and formation of a new business unit, Sony Computer Entertainment Inc. (“SCEI”) contributed its game business to a new company and SCEI which operates the network business which had not been contributed, was merged into Sony Corporation after the change of its trade name. Immediately following the Japan restructuring, SCEA was merged into a new entity, a subsidiary of Sony’s U.S. holding company, Sony Americas Holding Inc. (“SAHI”). As a consequence of these reorganizations, the deferred tax assets of SCEI and SCEA are evaluated in the context of the new structure. A cumulative loss position is considered significant negative evidence in assessing the realizability of a deferred tax asset. Sony has concluded that there is sufficient positive evidence to overcome this negative evidence when considering both the reorganization on April 1, 2010 and the use of tax planning strategies. The tax planning strategies include transactions among certain businesses with historically strong earnings and the loss businesses as well as the sales of certain assets that could realize the excess of appreciated value over the tax basis of those assets. Sony believes that the tax planning strategies coupled with future earnings forecasts of the historically profitable entities would produce sufficient taxable income in the legal entities in the future to fully realize the deferred tax assets as of March 31, 2010 (in the U.S., the U.K. and Japan), notwithstanding that some of the expected profitable businesses incurred losses in the fiscal year ended March 31, 2010 , as a result of the dramatic changes in worldwide economic conditions, the strengthening of the yen, and restructuring actions undertaken by Sony. Accordingly, no valuation allowance has been recorded for these entities as of March 31, 2010.

Notwithstanding the above, the amount of the deferred tax asset considered realizable could be significantly reduced in the future if estimates of future taxable income from the tax planning strategies and forecasted earnings during the tax loss carryforward period are significantly lower than currently estimated due to deterioration in economic conditions or Sony’s failure to achieve its restructuring objectives.

The amount of the deferred tax assets considered realizable as it relates to SCEA, SCEE and SUKL take into account the uncertain tax positions related to the more likely than not adjustments for Sony’s intercompany transfer pricing. Such transfer pricing is currently under review by the relevant governments as a result of a competent authority request and applications for Bilateral Advance Pricing Agreements (“APAs”) filed in the U.S., the U.K. and Japan. Sony is required to estimate the final outcome of those government to government negotiations in recording its tax positions, including the allocation and amount of deferred tax assets among the various legal entities as of March 31, 2010. It is possible that the advance pricing agreement negotiations could result in a different allocation of profits and losses than those estimated by management, and that such allocation could have an adverse impact on the realizability of Sony’s deferred tax assets. Sony may record adjustments to its provision for uncertain tax positions, and, accordingly, its valuation allowance assessments, as additional evidence becomes available.

The estimate for the valuation of deferred tax assets, which is based on current tax laws and rates in effect as of March 31, 2010, reflects management’s judgment and best estimate of the likely future tax consequences of events that have been recognized in Sony’s financial statements and tax returns, the ability to implement various tax planning strategies and, in certain cases, future forecasts, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results, and market or economic deterioration or failure of management to achieve its restructuring objectives could affect future business results, either of which could affect the valuation of deferred tax assets over time. If future results are less than projected, if APA negotiations result in a different allocation of profits and losses than currently anticipated, if tax planning alternatives are no longer viable, or if there is no excess appreciated asset value over the tax basis of the assets contemplated for sale, further valuation allowance may be required in the future to reduce the deferred tax assets to their net realizable value. These factors and other changes that are not anticipated in current estimates could have a material impact on Sony’s earnings or financial condition in the period or periods in which they are recorded.

So that does seem to match more closely the plaintiffs' claim that there are financial issues in this picture. However, the section on Playstations also mentions piracy in the Risks section, so that matches SCEA's position, but as you'll see it also mentions money troubles surrounding Playstation 3s, "significant operating losses in the NPS segment" as it calls it, due to underpricing to the point it didn't cover production costs, so that would buttress the plaintiffs' theory:
The large-scale investment required during the development and introductory period of a new gaming platform may not be fully recovered.

Within Sony’s game business, developing and providing products that maintain competitiveness over an extended life-cycle require large-scale investment relating to research and development, particularly during the development and introductory period of a new platform. In the past, large-scale investment relating to capital expenditures and research and development for the development and manufacture of key components, including semiconductors supplied for PlayStation®3 (“PS3”), was recorded within the CPD segment. Moreover, it is particularly important in the game business that these products are provided to consumers at competitive prices with compelling game software and network services to ensure favorable market penetration of the platform. Should the platform fail to achieve such favorable market penetration, there is a risk that this investment, or a part thereof, will not be recouped, resulting in a negative impact on Sony’s profitability. In addition, even if the platform is ultimately successful and Sony is able to sufficiently recoup its investment, this may take longer than expected, resulting in a negative impact on Sony’s profitability.

An example of a negative impact on profitability within the game business is PS3-related charges that in the past resulted in significant operating losses in the NPS segment. These losses arose mainly from the strategic pricing of PS3 hardware at points lower than its production cost.

Sony’s consumer-use products are particularly sensitive to year-end holiday season demand.

Since Sony’s game business offers a relatively small range of hardware products, including PlayStation®2, PSP® (PlayStation®Portable), and PS3, and a significant portion of overall demand is weighted towards the year-end holiday season, factors such as changes in the competitive environment, changes in market conditions, delays in the release of highly anticipated software titles and insufficient supply of hardware during the year-end holiday season can adversely impact Sony’s operating results. Sony’s other consumer-use products are also dependent upon year-end holiday season demand and, to a lesser extent than the game business, are susceptible to weak sales as well as supply shortages that may prevent Sony from meeting demand for its products during this season.

The sales and profitability of Sony’s game business depend on the penetration of its gaming platforms, including network services, which is sensitive to software line-ups, including software produced by third party developers and publishers.

In Sony’s game business, the penetration of gaming platforms is a significant factor driving sales and profitability, which may be affected by the ability to provide customers with sufficient software line-ups, including software produced by third party developers and publishers and network services. Software line-ups and network services affect not only software sales and profitability, as in many other content businesses, but also affect the penetration of gaming platforms, which can affect hardware sales and profitability. There is no assurance that game software developers and publishers will continue to develop and release software regularly or at all, and discontinuance or delay of software development may adversely affect Sony’s operating results.

Sony’s content businesses, including the Pictures and Music segments and the game business, are subject to digital piracy and illegal downloading, which have become increasingly prevalent with the development of new technologies and the availability of broadband Internet connections.

The development and declining prices of digital technology along with the increased penetration and speed of broadband Internet connections and the availability of content in digital formats have created risks with respect to Sony’s ability to protect the copyrighted content of the Pictures and Music segments and the game business from digital piracy and counterfeiting. In particular, advances in software and technology that enable the duplication, transfer or downloading of digital audio and video files from the Internet and other sources without authorization from the owners of the rights to such content threaten the conventional copyright-based business model by making it easier to create, transmit, and redistribute high quality, unauthorized audio and video files. These advances include, for example, digital devices such as hard disk drive video and audio recorders, CD, DVD, and Blu-ray Disctm recorders, file compression algorithms, and peer-to-peer digital distribution services. The availability of unauthorized content contributes to a decrease in legitimate product sales and puts pressure on the price of legitimate product sales, which may adversely affect Sony’s operating results. Sony has incurred and will continue to incur expenses to ensure adequate copyright protection, to develop new services for the authorized digital distribution of music, motion pictures, television programs and video games, and to combat unauthorized digital distribution of its copyrighted content. These initiatives will increase Sony’s near-term expenses and may not achieve their intended result.

See why I think it might be both?

If you look at Exhibit 4 to the plaintiffs' letter to the judge, you'll see the keywords that SCEA came up with to do the search on the Playstation 3s:

"Linux"
"Operating System"
"Other OS"
"Update" within 5 of 3.21
Then they provide a list of "additional keywords":
Hotz
Geohot* OR "Geo Hot*"
Levand AND (PS3 OR "PS 3" OR
PlayStation* OR "Play Station*" OR Linux)
Jailbreak* OR ("jail break*")
Jailbroken OR ("jail broken")
Hack* AND (PS3 OR "PS 3" OR
PlayStation* OR "Play Station*" OR OS)....
Well, it goes on and on for miles like that, searching for words like homebrew and piracy and disable and hackathon and, believe it or not, Air Force. They also want to search for the keyword "Immigration" or "ICE". That makes me wonder if there's more to this than we have been told. Why would that last be relevant? I am remembering I got an email from someone with an NSA address asking what I thought of this case, back when this all began, which I thought was a spoof, so I ignored it. Might it be that the functionality that the Air Force revealed worries someone and that's what this is also all about? I have no idea. As I say, I ignored the email, assuming at the time it was phony. I get a lot of phony emails. I remember one years ago from Canopy Group's servers, pretending to be a paralegal student asking for advice and asking where I went to school. Heh heh. I don't answer emails that seem phony to me after so many years of receiving them.

But all I'm saying is that this is a very, very strange keyword list indeed for a case about Sony removing functionality people had paid for.

Update: An astute member, bugstomper, searched Google for the keywords SCEA wants to search the PS3s for, 'ice ps3 immigration', and what you get is a long list of articles on how the Department of Homeland Security uses PS3s to catch criminals, for example, by brute forcing encrypted passwords:

"Bad guys are encrypting their stuff now, so we need a methodology of hacking on that to try to break passwords," said Claude E. Davenport, a senior special agent at the U.S. Immigration and Customs Enforcement Cyber Crimes Center, known as C3. "The Playstation 3 - its processing component - is perfect for large-scale library attacks."...

After securing a warrant, agents can seize and search a suspect's computer, but the Fourth Amendment prevents authorities from forcing suspects to surrender their passwords, Davenport said.

So that is likely the explanation for these keywords. - End Update.]

Finally, there is still an unresolved dispute between the parties as to what format documents should be produced in. Plaintiffs want "native format", meaning with the metadata, they explain. That will teach SCEA to use Microsoft products. SCEA wants to put it all into "searchable" TIFF format, which would remove all the metadata. It looks from the exhibit that Plaintiffs are willing to compromise. I think they shouldn't, though, in that metadata could reveal the author of a document, which might be useful in showing which entity it originated from.

So, that's all the news from the class action litigation, which more and more looks like it's got layers and layers that we have not yet begun to understand.


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