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Abusing DMCA and other frivolous litigation (SunnComm)

Posted By Barry Ritholtz On October 9, 2003 @ 7:44 pm In Current Affairs,Music,Web/Tech | Comments Disabled

I just came across the story of Alex Halderman, the Princeton University grad student, who had discovered that SunnComm’s copy protection, MediaMax CD-3 software, could be easily blocked by pressing the shift key over at Prof Dave Farber’s Interesting People [1]. Attorney and Censorware Project [2] cofounder James S. Tyre posted:

“I’m sure you’ll both agree that Alex should be criticized roundly for analyzing only the currently existent technology while utterly failing to laud SunnComm for future improvements that it says it will make.

Amusing tho that was, what really caught my eye was his comments that:

Earlier this week, each of you [Prof Farber & C/Net's Declan McCullagh] had items about Princeton grad student Alex Halderman’s report on SunnComm’s MediaMax CD3 copy protection technology. Subsequently, SunnComm’s stock price has dropped precipitously, and today, SunnComm announced that it will pursue legal action against Halderman

That phrase, “Subsequently, SunnComm’s stock price has dropped precipitously” made me curious. So I did a little homework: Having no previous knowledge of SunnComm or its stock, I pulled up a chart of the company’s historical stock performance. I also looked up what I could on its website [3].

I assumed most people were not aware of some of the specifics of SunnComm (self-described as an OTC stock), prior to the Princeton grad student’s paper kicking up a stir. SunnComm (STEH) is what’s known as a “penny” stock — it trades on the pink sheets [4], which has about as lax reporting requirements [5] as is possible. Indeed, even SunnComm’s own Website has a “we’re on the pink sheets” disclaimer [6].

For nearly all of the prior 3 years, SunnComm traded under 1/4; In fact, it was under a dime for most of that period. See chart at Yahoo Finance [7] or BigCharts [8] (When looking at the 3 year chart on other websites, ignore the temporary spikes from a dime up straight to 90 cents and back. These sort of blips typically reflect trading errors, i.e. 90 cents instead of 9 cents).

I put a much better displayed, 3 year weekly chart from ILX below. Note that in early 1999, the stock hit $2.50, but subsequently slid to about 30 cents later in the year.

But let’s look at the recent activity, especially since the announcements about the copy protection were released. Starting in May 2003, the stock zoomed from 10 cents up to 40 cents. (The stock was under a nickel as late as April 24th); The subsequent “precipitous” drop was nothing more than the stock dropping back to its prior trading range — back under a dime.

double click for bigger chart
STEH D [9]
Source: ILX [10]

What’s so curious about this move in May 2003 is that it occurred in the middle of a long news blackout [11]. That aroused my curiosity, and makes, in my opinion, the activity in this pink sheet stock suspect. So I went back and looked at all the news releases this year. Because there appears that there were no offical news released between April 4th 2003 (“Tattoo Media joins forces with SunnComm Technologies [12]“) and June 2, 2003. (Macrovision, SunnComm Race To Protect Music From Pirates [13]) that could explain the stock’s thrust upwards.

I did, however, notice that sometime in August, the company announced a 2 Million Share buyback [14]. Why a microcap pink sheet company feels the need to buy back stock, I couldn’t possibly tell you.

But if I was advising the Princeton student, I would suggest the first thing he do is have his lawyer find out if any insiders, officers, board members, or major shareholders did any buying during that period.

If any purchases were made in anticipation of material non public information, than who ever did so has much bigger problems than some grad student’s paper . . .

double click for bigger chart
STEH m [15]
Source: ILX [10]

Simple Flaw in CD-Copy Protection System? [16]
(LOS ANGELES (Reuters) – A Princeton graduate student said on Monday that he has figured out a way to defeat new software intended to keep music CDs from being copied on a computer — simply by pressing the Shift-key.)


Legal Threat: SunnComm Says Princeton Report Contains Erroneous Conclusions [17]


Princeton student sued over paper on CD copying [18]


Update 9:22am:
SunnComm is apparently dropping their lawsuit
Threat of lawsuit passes for student [19]


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2003/10/abusing-dmca-and-other-frivolous-litigation-sunncomm/

URLs in this post:

[1] Interesting People: http://www.interesting-people.org/archives/interesting-people/200310/msg00087.html

[2] Censorware Project: http://censorware.net

[3] website: http://www.sunncomm.com/index_flash.html

[4] pink sheets: http://www.pinksheets.com/

[5] lax reporting requirements: http://www.buyside.com/archives/2003/0307/html/0307pink.asp

[6] disclaimer: http://www.sunncomm.com/disclaimer.asp

[7] Yahoo Finance: http://finance.yahoo.com/q/bc?s=STEH.PK&t=2y&l=on&z=m&q=l&c=

[8] BigCharts: http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=steh&sid=0&o_symb=steh&freq=2&time=10&x=50&y=16

[9] Image: http://bigpicture.typepad.com/comments/STEH D1.html

[10] ILX: http://www.thomson.com/common/view_brand_overview.jsp?section=financial&body_include=/financial/brand_overviews/ILX_Workstation&page_mode=full&subsection=null&secondary=null&subnav=prodaz&tertiary=null&product_name=ILX_Workstation_

[11] long news blackout: http://tools.thestreet.com/tsc/quotes.html?pg=headlines&symb=steh&sid=1315737&timer=

[12] Tattoo Media joins forces with SunnComm Technologies: http://www.mi2n.com/press.php3?press_nb=50296

[13] Macrovision, SunnComm Race To Protect Music From Pirates: http://www.sunncomm.com/news/20030601djnewswires.html

[14] 2 Million Share buyback: http://www.eedesign.com/pressreleases/bizwire/91975

[15] Image: http://bigpicture.typepad.com/comments/STEH m.html

[16] Simple Flaw in CD-Copy Protection System?: http://biz.yahoo.com/rb/031007/media_bmg_protection_1.html

[17] SunnComm Says Princeton Report Contains Erroneous Conclusions: http://biz.yahoo.com/bw/031009/95573_1.html

[18] Princeton student sued over paper on CD copying: http://biz.yahoo.com/rc/031009/media_bmg_protection_1.html

[19] Threat of lawsuit passes for student: http://www.dailyprincetonian.com/archives/2003/10/10/news/8797.shtml

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