321 Studios is best known for its DVD-copying software that circumvents anti-copying features in DVDs and lets consumers make backup copies.
Recognising that circumvention of the copy protection was not likely to be welcomed by the film industry, 321 Studios took pre-emptive action in April 2002, filing a suit that asked the court to declare that its software did not infringe on the intellectual property rights of the film industry.
In December 2002, before the court could rule on the matter, the industry, in the form of the MPAA, sued.
The case forced the court to decide on the scope of the controversial 1998 Digital Millennium Copyright Act (DMCA), which prohibits people from using or distributing devices that can bypass copyrights and copy prevention measures. The UK has similar provisions, which came into force late last year.
In court, 321 argued that the software merely allowed people to make fair use of their DVDs, making backup copies in case the original was destroyed or damaged. The MPAA countered with the argument that the software allowed people to use unauthorised versions of the encryption keys.
The San Francisco district court issued its ruling in February, stating that the software was in violation of the DMCA, and granting an injunction against 321. The software company appealed.
By June this year the company was the subject of three injunctions in connection with its DVD copying software, and was forbidden from selling or distributing its DVD Copy Plus and DVD-X COPY software.
In late July, Atari, Electronic Arts and Vivendi succeeded in obtaining another worldwide injunction against 321 – relating this time to the company's Games X Copy software. A few days later 321 announced that it had ceased trading.
According to reports the company has now agreed not to sell its software anywhere in the world and will make a financial settlement with the movie industry - the terms of which remain confidential.
Jack Valenti, the MPAA's president and CEO told the Associated Press, "Now that the company's illegal copying software is off of store shelves worldwide, we have moved to settle the case".
"This is not the end of the story in our massive fight against piracy," he added.
321's founder, Robert Moore, told the AP that the agreement had not yet been signed, but did not comment further.