The case, which will be heard in U.S. District Court for the Northern District of California, tests the limits of 1998's controversial Digital Millennium Copyright Act, lawyers said.

The studios claim 321's software violates a portion of the act that makes it illegal for anyone to sell software used to break or bypass digital encryption codes. But 321 argues that the DMCA allows software owners to get around encryption when copies are made for an owner's sole use.

"This is a very interesting, cutting-edge case," said 321's San Francisco-based attorney Daralyn Durie. "The first issue is what does the DMCA mean, and does it prohibit all circumvention of encryption, or does it only prohibit the circumvention when it's being done to engage in copyright infringement."

Durie contends that copying DVDs, for example, to use excerpts in critical reviews or by a teacher in a presentation to students, falls under the legal concept of protected "fair use." 321's software, called DVD Copy Plus and DVD X Copy, aids in the "fair use" of copyrighted content, she said.

Not so, say the studios. "321 isn't making any fair use. They are stripping my copy protection," said Russell Frackman, the attorney for the Motion Picture Association of America, which represents Hollywood's major film studios. "The law has never provided you have the right to get two-for-one" when you buy a DVD, Frackman said.