IP Law Daily Redbox preliminarily enjoined against selling Disney movie download codes
Thursday, August 30, 2018

Redbox preliminarily enjoined against selling Disney movie download codes

By Thomas Long, J.D.

On their second attempt, Disney Enterprises, Inc., and related companies have successfully obtained a preliminary injunction barring video rental service operator Redbox from selling or transferring digital download codes that allowed customers to download digital copies of Disney movies. In February 2018, the federal district court in Los Angeles denied Disney’s first request for an injunction, determining that Disney appeared to have engaged in copyright misuse by improperly restricting purchasers of DVDs and Blu-ray discs of selling or transferring the products, as the purchasers were permitted to do freely under Section 109(a) of the Copyright Act. After changing the language on its product packaging and the terms of use of its download sites, and amending its complaint, Disney was now likely to succeed on the merits of its claim for contributory copyright infringement, in the court’s view. The new language was sufficient to create a contract between Disney and disc purchasers at the point of sale, which amounted to an enforceable restrictive license. Redbox knew of the terms of this license, and knew that its customers would violate the license by using the codes provided by Redbox. Moreover, the new terms did not encroach on purchasers’ alienation rights, according to the court. Disney showed that it would sustain irreparable harm to its relationships with licensees of its copyrighted content (Disney Enterprises, Inc. v. Redbox Automated Retail, LLC, August 29, 2018, Pregerson, D.).

Plaintiffs Disney Enterprises, Inc.; Buena Vista Home Entertainment, Inc.; Lucasfilm Ltd., LLC; and MVL Film Finance LLC (collectively, "Disney") owned the copyrights to numerous well-known movies, including "Beauty and the Beast," "Frozen," and "Star Wars: Episode VII -The Force Awakens." Disney distributed its films in multiple formats through a variety of channels, including "Combo Packs," which bundled a DVD, a Blu-ray disc, and a piece of paper containing an alphanumeric code that could be inputted or redeemed at Disney’s websites RedeemDigitalMovies.com or DisneyMoviesAnywhere.com to allow a user to stream or download high-definition digital versions of the films. The exteriors of the Combo Pack boxes stated that "Codes are not for sale or transfer." The RedeemDigitalMovies and Disney Movies Anywhere websites set forth additional terms and conditions of use, purporting to prohibit consumers from redeeming digital codes that were sold or transferred separate from the original physical products.

Defendant Redbox Automated Retail, LLC ("Redbox") rented and sold movies to consumers via automated kiosks that dispensed DVD and Blu-ray discs. Redbox also offered a "Redbox on Demand" service that allowed consumers to stream or download movies owned by studios other than Disney. More recently, Redbox had begun to offer digital downloads of Disney movies in the form of download codes. Redbox did not have a vendor agreement with Disney. It obtained the download codes by purchasing Disney Combo Packs at retail stores and removing the piece of paper bearing the download code from Disney’s packaging. Redbox then placed that piece of paper into its own Redbox packaging and offered the code for sale at a Redbox kiosk.

Disney filed suit against Redbox, asserting that Redbox’s resale of Combo Pack digital download codes constituted contributory copyright infringement, was a breach of the contract that Redbox had entered into with Buena Vista when Redbox purchased Combo Packs, interfered with Disney’s contracts with RedeemDigitalMovie.com users, and violated California false advertising laws. Disney moved for a preliminary injunction enjoining Redbox from, among other things, selling or transferring Disney digital download codes.

In its February order, the court denied Disney’s motion for a preliminary injunction, concluding that, in light of the specific language printed upon Combo Pack boxes and used within the redemption sites’ Terms of Use, Disney could not show a likelihood of success on the merits of its breach of contract or contributory copyright infringement claims. Disney subsequently changed the language on its Combo Pack boxes, changed the download sites’ Terms of Use, and amended its complaint. The revised packaging placed an asterisk next to the phrase, in large type, "Digital Code Included," with the asterisk directing the reader to a text box stating, "Digital code redemption requires prior acceptance of license terms and conditions. Codes only for personal use by recipient of this combination package or family member." The text box also specified an expiration date for the code. Smaller type elsewhere on the packaging read, "The digital code contained in this package may not be sold separately and may be redeemed only by the recipient of this combination package or a family member." In addition, the paper insert inside the Combo Pack contained a similar statement limiting the rights of the purchaser and explaining that the code was not to be sold separately. Disney’s download website also contained language limiting the permitted uses of the digital codes. The amended complaint contained a single count for contributory copyright infringement. Disney renewed its motion for a preliminary injunction.

Likelihood of success. Disney alleged that Redbox customers who purchase a Disney code from Redbox violate Disney’s copyright when they redeem the code because Redbox customers must represent, as a condition of obtaining a license to download the movie, that they did not obtain the code separately from the Combo Pack. Any such representation by a Redbox customer, Disney asserted, was necessarily false, resulting in an unauthorized download. According to Disney, Redbox was contributorily liable for that infringement because it knew that customers will make unauthorized downloads, and it contributed to those improper downloads by selling codes and instructing Redbox customers to redeem them.

The court agreed with Disney that the revised packaging and Terms of Use language created a contractual agreement between Disney and purchasers of the Combo Packs at the point of sale. Further, it was undisputed that Redbox had actual knowledge of the redemption sites’ clickwrap terms, which appeared to create a restrictive license. The terms presented on the packaging and on the download sites—which had the characteristics of clickwrap and shrinkwrap agreements, the court said—were enforceable because the packaging made it clear that rights associated with the digital download codes were limited, and the specific terms of the download permission was available for viewing by consumers prior to making a purchase. Post-purchase, the redemption sites presented the terms and required an affirmative manifestation of assent in the form of a button click. In addition, Disney represented to the court that purchasers who declined to accept the terms of the digital license were allowed to return Combo Packs to the retailer. The right to such a return was critically important, the court said. Regardless of how the restrictive language was characterized—as a clickwrap, shrinkwrap, or other type of license—it was clear, according to the court, that Redbox knew it was not obtaining an ownership right to any digital content when it purchased Combo Packs. Therefore, Disney was likely to succeed on the merits of its contributory copyright infringement claim.

Copyright misuse; first sale doctrine. Redbox raised defenses of copyright misuse and the first sale doctrine, as it had done in response to Disney’s first attempt to get an injunction. However, the court said, because no particular fixed copy of a copyrighted work yet existed at the time Redbox purchased or sold a code, the first sale doctrine was inapplicable to this case. The court also disagreed with Redbox’s contention that the changes to the terms of use did not cure Disney’s copyright misuse. Unlike the prior terms, the current terms did not require downloaders to affirm that they possessed the physical discs, to which first sale rights would apply. The current terms stated only that digital download codes may not be sold separately and could be redeemed only "by an individual who obtains the code" in a Combo Pack. Requiring the downloader to affirm that he or she obtained the code in an original package and that the code was not purchased separately did not encroach upon disc owners’ alienation rights or improperly expand Disney’s power beyond the sphere of copyright. Under the revised terms, Combo Pack purchasers and recipients continued to enjoy digital access regardless whether they kept or disposed of the physical discs, the court explained.

Remaining factors. With respect to irreparable harm, Disney presented extensive evidence that Redbox’s code sales were damaging Disney’s relationships with its licensees. This evidence was sufficient to warrant injunctive relief, the court held. Redbox identified no compelling interests that would tilt the balance of equities in its favor. Accordingly, Disney’s motion for a preliminary injunction was granted.

This case is No. 2:17-cv-08655-DDP-AGR.

Attorneys: Carolyn H. Luedtke (Munger Tolles and Olson LLP) for Disney Enterprises, Inc., Lucasfilm Ltd. LLC and MVL Film Finance LLC. Kelly M. Klaus (Munger Tolles and Olson LLP) for Buena Vista Home Entertainment, Inc. Breton A. Bocchieri (Robins Kaplan LLP) for Redbox Automated Retail, LLC.

Companies: Disney Enterprises Inc.; Lucasfilm Ltd. LLC; MVL Film Finance LLC; Buena Vista Home Entertainment, Inc.; Redbox Automated Retail, LLC

MainStory: TopStory Copyright TechnologyInternet CaliforniaNews

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