A closer look at Sunncomm's lawsuit threat

A closer look at Sunncomm's lawsuit threat

Sunncomm Technologies (STEH) was in trouble long before a Princeton student explained how to circumvent their anti-piracy technology.

From the article: The damage to SunnComm's reputation, while not necessarily permanent, was quickly seen in a drop in its market value, totaling close to $10 million over several days, Jacobs said.

Okay...the article has actually helped us figure out how big Suncomm really is. Sunncomm is a penny stock; the stock appears to have gone from about 17 cents a share before Halderman's revelation, to 11 two days later. This probably gives them a market cap of about $30 million (if trading at $.17). SCOX, for comparision, would have that market cap if it was trading at about $2. Small company.

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Some research on their recent press releases reveals why this was damaging to them. Why did their stock price fall?

August 27: SunnComm's MediaMax CD-3 Technology passes international test with 'flying colors'; a test center in Belgium says, "'The SunnComm MediaMax CD3 Technology was a very compelling test for us. It achieved a very high level of playability combined with an incredible level of security for the music.' ... The testing results were able to verify playability on consumer electronic devices, stability of the product on computers and robustness of the security features to protect content against unauthorized copying when used with CD ripper programs."

September 16: SunnComm's MediaMax CD Copy Management Technology Chosen For BMG's First Commercial Release in the U.S.. We already know about this one; this is what Halderman used to figure out his circumvention. The technology begins to gain visibility.

September 25: Independent Record Label, Razor & Tie, Selects SunnComm's MediaMax CD-3 Copy Management Technology for Commercial Release in the U.S. Market.

September 26: SunnComm Technologies Lands Additional Revenue Deals with More Independent Record Labels Who Will Utilize MediaMax CD-3 Copy Management Technology

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Why is all this important? Sunncomm's stock price soars to as high as 25 cents in late August, and maintains itself above 15 cents right up to October 7, the day of Halderman's revelation. Then it plummets to 10.

Sunncomm's fall in stock price is not the fault of John Halderman. The reason the stock price fell is that Sunncomm's security software obviously isn't living up to expectations. If software can be as easily avoided as Halderman shows, obviously something was wrong with the tests performed in late August that show that the security software meets the 'highest standards', causing a stock peak. There's a fairly direct relationship here between the inherent security of MediaMax CD-3 and the stock price of STEH.

Halderman may be sued by Sunncomm, but there should be no question of why Sunncomm finds themselves on the defensive. They set expecations with their investors that have not been met, because the simplest of workarounds to it has surfaced. Microsoft tells us how to do this, too: Turn Off Autoplay for Program CDs. Someone may well perform this task because they find the auto-playing of, say, the 'Adaptec EZ CD Creator 5' disc to be an irritant. It's in Microsoft's 'Tips Archive'.

Now, the $64,000 question: has Microsoft inadvertently violated the DMCA by providing this tip to its users? It is functionally identical to that which Halderman proposed. Here, it's probably safe to argue that Microsoft could not have known this tip would be problematic - so now we are forced to consider DMCA violations in context. If someone follows Microsoft's directions in the tips archive, that person won't even know they've circumvented the MediaMax technology. The more people that follow this tip for a completely irrelevant reason, the weaker MediaMax technology is, because its 'installed base' is lower.

One can argue that Halderman's solution is not circumvention at all; it is simply the act of not installing software. A [shift] override is a standard Windows feature to prevent CDs from running Autoplay when a disc is inserted. A user does not have to install the MediaMax software as a prerequisite to play a MediaMax secured disc, and Halderman's solution proves it.

The trouble with a compact disc is that it must be able to play in a device created in 1985 while not being allowed to be ripped by one made in 2003. This is a difficult proposition -- and Sunncomm is being dealt the brunt of the fact.