Companies selling DVD-copying software received a legal blow on Thursday when a judge hearing Hollywood's case against one firm said she is "substantially persuaded" by previous cases that the software violates the US Digital Millennium Copyright Act. The case against 321 Studios is being heard in San Francisco by District Judge Susan Ilston, who said she aims to make her ruling quickly. A consortium of movie studies, including MGM, Tristar, Columbia, Disney and Universal, want an injunction to bar 321 from selling its product.

321 has been selling its DVD Xcopy software since the end of 2002, for $100. It allows a DVD movie disc to be copied to a blank DVD, even though the compressed MPEG code on the disc is usually digitally encrypted using the Content Scrambling System. CSS makes conventional copies unplayable.

But Xcopy does not hack the CSS protection, which would explicitly break copyright laws. Instead it uses a conventional DVD ROM player to unscramble the MPEG code for legitimate playback, and then sends it to a temporary cache file on the PC's hard drive. From there Xcopy copies the unscrambled MPEG code onto a blank DVD using a conventional DVD burner.

The software enables people to make perfect digital copies of films. The movie studios argue this permits illegal copies to be made and circulated, infringing their copyright. 321 says the software allows people to make back-up copies of DVDs they have already paid for, and want the case to go to trial.The legal arguments filed by 321 fill 50 pages. They claim "DVDs are fragile and easily damaged," and that movie studios "require customers who scratch a disc or experience degradation to purchase a replacement at full cost". This, argues 321, is why "fair use" should allow people to make personal "back up" copies of DVDs. The latest Xcopy software requires the user to click a declaration that the original movie is not borrowed or hired.

In a possible glimmer of hope for 321, Judge Ilston was clearly troubled by one legal point. If the DMCA stops people circumventing all copy protection, what will happen in the future when copyright on a movie expires, but the discs are still protected?

Wendy Seltzer, staff attorney for the digital rights pressure group, the Electronic Freedom Foundation, said: "Fair use and the DMCA have been on a collision course since 1998. The judge's ruling in this case will tell whether fair use survives the crash."