While 2002 may be a watershed year for CD protection, the majors still face an uphill battle, both on the legal front and from skeptical consumers. BMG, which released Natalie Imbruglia's latest CD "White Lilies Island" last month, recently announced it would issue replacement non copy-protected CDs in response to complaints of technical difficulties by British consumers. The Imbruglia CD used Midbar Tech's Cactus Data Shield technology.

A research report "Have CD Music Sales Peaked?" released by Raymond James & Associates illustrates the major technical challenges faced by copy-protection system: backward compatibility. "Specifically, the placement of a copy-prevention signal in a new CD may mean that some versions of CD players in use by consumers today will not play them. At least two labels have attempted to market such CDs, and we're disappointed with the results because too may CD players were not able to use them."

Legal uncertainties regarding labeling and privacy may also slow the spread of copy-protected CDs. On March 8, 2001, Fahrenheit Entertainment and Sunncomm were sued for violating privacy rights and business practices under California State law. The suit specifically alleges that Fahrenheit

- failed to disclose that unlike standard CDs, the "Charley Pride - A Tribute to Jim Reeves" will not work on standard PC equipped audio CD players

- included proprietary in conjunction with Sunncomm technology that "tracks, stores, and disseminates specific consumer personal identifying information, listening data, and downloading habits to entities beyond the control of the consumer," without an opt-out option.

The growing controversy around copy-protected CDs brought the British Phonographic Industry (BPI), which represents the interests of British record companies, to issue guidelines on the adoption of copy-protected CDs to its members. The association warns members that inadequate labeling could lead to complaints to "Trading Standards who could take the view that trades descriptions legislation has been breached." Specifically, the Trade Descriptions Act of 1968 provides "that it is an offence for any person, in the course of a trade or business, to apply false trade description to any goods; or to supply, or offer to supply any goods to which a false trade description is applied."

"The potential problem is that the music CD purchaser is entitled to assume that the CD will play on any equipment that plays unprotected CDs, unless labelled otherwise. The failure to label a CD amounts to ... an 'indirect indication' that the CD is 'fit for the purpose' of playing on any equipment. The failure to make it clear if there are any exceptions could amount to a false trade description."