Judge Susan Illston ruled in San Francisco that software made by Chesterfield, Mo.-based 321 Studios violates the 1998 Digital Millennium Copyright Act, which prohibits the circumvention of anti-piracy measures such as the Content Scramble System protecting movies on DVDs.
The judge ordered the company to cease making or distributing such software within seven days of her order.
The company said it would appeal the ruling and ask for a stay during the process.
"Despite today's ruling, 321 stands firm in our vow to fight the Hollywood studios in their effort to take away our customers' digital rights," said Robert Moore, president of 321 Studios.
The software company had argued that its products merely give consumers fair use of the movies they've purchased - backing up expensive copies of children's movies in case the originals get scratched or copying snippets of films for educational and journalistic use.
But the studios said the software unfairly uses unauthorized keys to unlock the copy protection software built into the DVDs - the same keys that duly authorized DVD players use to play the movies.
In her ruling, Illston agreed with the studios that the software violates the Digital Millennium Copyright Act and that the law does not violate the right to free speech or interfere with the fair use rights of consumers.
"While 321's software does use the authorized key to access the DVD, it does not have authority to use this key, as licensed DVD players do, and it therefore avoids and bypasses (the Content Scramble System)," the judge wrote Friday.
The Motion Picture Association of America, which represents the studios named in 321's lawsuit, praised the ruling.
"Today's ruling sends a clear message that it is essential for corporations to protect copyrighted works while facilitating the enjoyment of entertainment offerings through new digital technologies," MPAA President Jack Valenti said.
Groups that had joined the lawsuit in support of 321 said the ruling hurts the legitimate rights of consumers to make backup copies of DVDs they buy legally and urged reforms to the existing law.
"In passing the (Digital Millennium Copyright Act), Congress certainly did not intend to eliminate all consumer copying," said Cindy Cohn, legal director of the Electronic Frontier Foundation. "This court's reading of the statute in the 321 Studios case allows a ban on any tool that enables consumers to copy their DVDs."