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Well Open Source DRM schemes have been proposed and so I'm inclined to think it's not impossible. It's not so much that the algorithm must be kept secret (so-called "security through obscurity" is not considered strong) as the key must be kept from the end-user. So Open Source encryption like PGP can encrypt a message so that only the person with the key can decrypt it and no-one else. The problem with DRM is that "the person with the key" needs to be the device and "anyone else" includes the owner/user of that device. So any Open Source DRM would need to have a way of hiding the key from the user. Not sure how you'd do that but the people who proposed these schemes must have thought of that.
Anyway the "Open Source" part of this isn't the main thing really. What they're really asking for is 3rd party, interoperable DRM - think Adobe but perhaps not even controlled by a single company, perhaps a licensing/standards body (something equvalent to the DVDCCA). The point is it needs to be a system that different ebook vendors can use.
I like the idea of this suit - it separates Amazon the bookseller from Amazon the device seller - but I'm thinking it won't succeed. Similar things were tried against Apple (although I think they were willing to license their DRM but for exorbitant fees) though that became moot when they went DRM free.
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