Hollywood attack on digital recorders may result in more sales. (Media & Technology).

Hollywood, never bashful about remaking old films, wants to rework an 18-year-old Supreme Court ruling that holds manufacturers of electronic devices harmless for the recording of copyrighted material from commercially sponsored television.

The old case centered on Sony Corp.'s Betamax videotape recorder. The new drama features SonicBlue Inc.'s Replay TV 4000 digital video recorder, built to capture high-quality images on hard drives instead of tape.

Replay TV 4000 offers two fresh options: automatic deletion of commercials from recorded programs, and e-mailing of copies over the Internet to others who own the recorder.

In Hollywood's view, those features could shake the timbers of ad-supported television. Twenty-eight entertainment companies sued SonicBlue in U.S. District Court in Los Angeles for alleged copyright infringement in October and November, before the product even began shipping.

Now, as in the Betamax case, the entertainment companies want to nip the problem by suing the manufacturer, not consumers. But Hollywood lawyers touched off a firestorm when they demanded--and briefly won--the right to examine data about individual viewing habits.

Alarmed by the potential invasion of privacy, consumer advocacy groups generated headlines and legal briefs as they rushed to support SonicBlue. On May 15, U.S. District Court Judge Florence-Marie Cooper issued a stay until this week, when she will conduct a hearing on whether the company must record and share data with the plaintiffs.

Unwittingly, Hollywood may have touched off consumer forces that prolong the case and enhance the future of SonicBlue, which has seen its stock decline 64 percent this year, to $1.45.

Chairman and Chief Executive Kenneth Potashner said he might announce the formation of a legal defense fund, with outside contributors, to defend SonicBlue against the likes of Viacom Inc., Walt Disney Co., AOL Time Warner Inc. and Vivendi Universal SA.

In the Betamax case, also filed in Los Angeles, the trial court ruled in Sony's favor in 1979. Two years later, the U.S. Court of Appeals for the Ninth Circuit reversed that decision.

The U.S. Supreme Court finally decided the case--formally known as Sony Corp. of America v. Universal City Studios Inc.--with a 5-4 ruling in 1984.

Viacom, Disney and General Electric Co.'s NBC insist in the SonicBlue lawsuit that they aren't challenging the use of video-tape recorders or "ordinary" digital video recorders. But it's hard to see how they can defeat the company without tweaking the old ruling.

Thorny copyright issues weren't adequately resolved by the Betamax decision, said Sid Sheinberg, who spearheaded that case for Universal as president of MCA Inc., then the studio's parent.

Studios feared a loss of control over copyrighted programs if consumers were free to record off the air, Sheinberg said. The emergence of digital video recorders raises that issue again.

Still small

SonicBlue won't divulge the number of Replay TV 4000 units shipped, other than to say "several thousand" were sold in the fourth quarter of 2001. The company expects to double Replay TV shipments in each quarter of 2002 and become profitable by the end of the year. It posted a first quarter net loss of $16.6 million on $65.1 million in revenue.

The company remains a small player in a nascent industry. Only 1.1 million digital video recorders have been installed in three years, according to Adi Kishore, an analyst at Yankee Group, a market research firm. EchoStar Communications Corp. and Tivo Corp. account for most recorder sales. They have escaped Hollywood's wrath by not flouting the ability of their products to skip commercials.

Giant media companies don't hesitate to use litigation to attack small companies, as demonstrated by their suits against Internet file-swapping services.

Napster Inc. was brought to its knees without even going to trial. It agreed last month to sell its assets for a mere $8 million to Bertelsmann AG, one of the companies that sued in 1999 to halt its free service for music lovers.

Kazaa NV, another file-sharing company, threw in the towel after being sued for copyright infringement by seven major Hollywood studios and five major record companies.

The SonicBlue case goes much farther, because the plaintiffs' lawyers are asking the court to find it unlawful to eliminate all commercials from a taped television transmission.

Even Sheinberg, the studios' champion in the Betamax case, has succumbed to the pleasures of owning a Tivo recorder. Does he watch the commercials?

"No," he said. "Why would anybody watch the commercials? You'd have to be crazy."