In the 2007 trial, the DVD CCA claimed that Kaleidescape breached the CSS License Agreement and in particular, that Kaleidescape did not comply with a document called the “General Specifications.” Kaleidescape successfully argued at trial that the General Specifications document was not a part of the original contract since it was never referenced in the CSS License and was not provided to Kaleidescape until after the contract had been entered into. In addition, Kaleidescape presented evidence at trial that its products fully comply with the General Specifications anyway. In 2007, the trial court agreed with Kaleidescape that the General Specifications are not a part of the original contract. Because of this, the trial court did not clearly rule on whether Kaleidescape complies with the General Specifications. The Court of Appeal has now ruled that the General Specifications are a part of the contract, but did not decide whether or not Kaleidescape complies with them. The Court of Appeal has sent this back to the trial court to decide.

The new proceedings by the trial court will likely take place in a year or two, unless the California Supreme Court agrees to review the Court of Appeal’s decision. Kaleidescape will continue to fight, and we expect to prevail. However, it may take many years for this issue to be fully and finally resolved.

In the meantime, Kaleidescape Systems remain 100% licensed and legal. We will continue selling Kaleidescape Systems, developing innovative products and technologies, and providing excellent service to our customers, including the Movie Guide, the Music Guide, automatic software updates, and automatic service alerts. The Blue-Laser Player is still on schedule for release in 2009.