After Denied Injunction, Disney on Defense in Redbox Dispute
On February 20, a Federal Judge denied Disney’s request to stop Redbox from selling digital download codes associated with Disney content.[1] U.S. District Judge Dean D. Pregerson found that injunctive relief in the requested form was not appropriate at the preliminary stage because Disney failed to demonstrate a “fair chance of success on the merits” in the claims of its case.[2] Although Disney came into this dispute as plaintiff on the offense, Judge Pregerson’s emphatic denial of its motion, along with Redbox’s countersuit for anti-competitive behavior, now put the Burbank, California mass media company in defense mode. A continuance on the hearing was granted on March 5, 2018.[3]
This case elicits issues including copyright infringement, copyright misuse, the “first sale” doctrine’s current inapplicability to digital materials, and contract formation. These issues arise from Redbox’s redistribution of Disney’s “Combo Packs,” which include the Blu-ray disc, DVD, and Digital HD formats of any given movie under this offering.[4] Redbox acquires the packs from retail outlets and repackages the discs and the codes separately, renting the former and selling the latter.[5] This is Redbox’s way of incorporating Disney content into its product selection, in spite of Disney’s refusal to enter into a formal business relationship with Redbox.[6]
Disney claims this scheme results in a host of legal problems for Redbox. It argues that by encouraging end users[7] to reproduce unauthorized digital copies of Disney movies using the digital download codes, Redbox is contributorily infringing Disney copyrights.[8] Disney also alleges Redbox’s tortious interference with contract when a consumer violates Movies Anywhere’s and RedeemDigitalMovies’s terms and conditions by redeeming codes that were purchased from a Redbox kiosk.[9] Next, Disney claims that by purchasing Combo Packs and opening the movie boxes, which on their face contain restrictive licensing terms,[10] Redbox enters into contract with Buena Vista Home Entertainment, Inc., Disney’s distributor.[11] Redbox is said to have breached the restrictive licensing terms printed on the Combo Packs in selling the digital download codes.[12] Disney also alleges that Redbox’s sale of the digital download codes misleads consumers by falsely advertising as legitimate an unauthorized sale.[13] Finally, Disney argues that the Redbox scheme amounts to unfair competition.[14]
As to the infringement and tortious interference claims, Redbox argued that Disney is not likely to prevail on the merits because its stringent policies amount to copyright misuse.[15] Judge Pregerson agreed and rejected Disney’s narrow interpretation of the misuse defense,[16] which would limit misuse to actions grounded in anti-competitive behavior. Because the terms in question broadly interfere with a consumer’s doctrinal “first sale” ownership right,[17] by withholding a component of the overall paid-for product (if the right is exercised), Disney’s power goes beyond the scope of its copyright and results in misuse.[18]
As to the breach of contract claim, the court rejected Disney’s contention that a contract between Disney and Redbox forms from the latter’s mere purchasing and opening of the Combo Packs movie boxes.[19] While acknowledging that “box-top”[20] and “shrink wrap”[21] licenses might be enforceable under California law, the court takes time to distinguish the Combo Packs language from both of those cases, finding in the terms no reasonable basis for either an offer by Disney or an assent by Redbox.[22] And due to “significant questions” related to the “validity and enforceability” of the restrictive terms at issue, the court did not find any likelihood of success on the merits in the remaining state law false advertising and unfair competition claims.[23]
The U.S. District Court for the Central District of California’s Judge, Dean D. Pregerson, delivered a blistering reality check to an entertainment and content mammoth described in the media as having been “especially aggressive with its competition in the last year.”[24] Disney faces a seemingly uphill battle in overcoming the reasoning levied against its claims in this case; Disney’s next hurdles include Redbox’s motion to dismiss and its countersuit for anti-competitive behavior. That is assuming neither party is prepared to “let it go.”
Footnotes
