Redbox Settles With Disney, Agrees Not to Sell Digital Codes

Disney and Redbox have settled their two-year-old lawsuit, with the kiosk company agreeing to never sell digital codes.

The codes offering access to a digital movie copy are contained in disc combo packs that Redbox purchases so it can rent out the discs from its kiosks. Unlike other studios, Disney does not have a rental agreement with Redbox. The kiosk company, which purchases Disney titles at retail, had been splitting up the content of the combo packs, renting the discs and selling the codes.

U.S. District Court judge Dean D. Pregerson Nov. 14 filed a proposed stipulated consent judgment and permanent injunction based on a Nov. 12 settlement between the parties.

Redbox is “permanently restrained and enjoined from selling, offering, distributing, marketing or promoting (including entering into any contract providing for the sale, offer, distribution, marketing, or promotion) of codes,” read the filing.

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Disney Files Amended Redbox Complaint

The Walt Disney Co. and subsidiaries Lucasfilm and Marvel Studios have filed an amended complaint against Redbox, claiming the kiosk vendor infringes copyright law by selling digital codes to its movies.

The complaint, filed April 9 in U.S. District in Los Angeles, alleges Redbox continues to sell separately digital codes included in Disney movie “combo packs,” featuring the DVD, Blu-ray and/or 4K/UHD disc to a particular title.

Disney claims Redbox sells the codes without authorization and in violation of applicable license agreements included in writing with every packaged media release.

“Redbox will continue to knowingly and materially contribute to the infringement of the copyrighted works unless and until ordered to stop doing so,” read the complaint.

The media company last November filed suit against Redbox, seeking to prohibit it from selling codes to titles such as Rogue One: A Star Wars Story and Moana at a discount to what digital copies sell for on Amazon or iTunes.

A planned hearing scheduled last month on a motion by Redbox to dismiss the lawsuit was postponed.

Disney contends Redbox sells codes to the following titles: Coco (2017), Pirates of the Caribbean: Dead Men Tell No Tales (2017), Beauty and the Beast (2017), Finding Dory (2016), The Jungle Book (2016), Moana (2016), and Inside Out (2015).

Lucasfilm titles include Star Wars: The Last Jedi (2017), Rogue One: A Star Wars Story (2016), and Star Wars: Episode VII – The Force Awakens (2015).

Marvel copyrights include Doctor Strange (2017), Guardians of the Galaxy Vol. 2 (2017), Thor: Ragnarok (2017), and Iron Man 3 (2013).

More importantly, Marvel’s Black Panther, the top box office movie of the year, is slated to release into retail channels shortly.

Disney now wants to jumpstart legal proceedings.

“The obvious consequence of Redbox undercutting of licensee prices is that licensees will likely sell fewer digital downloads of Disney movies and Disney will earn less revenue,” Janice Marinelli, president of Disney/ABC Home Entertainment, said in the compliant.

A Redbox representative was not immediately available for comment.

Court Denies Disney Injunction Against Redbox

In what Redbox ‎director of marketing communications Kate Brennan calls “great momentum” for the kiosk disc rental operator, a federal court in Los Angeles on Feb. 20 rejected the Walt Disney Co.’s motion for a preliminary injunction to stop selling movie download codes.

Disney is the only studio that won’t sell product to Redbox. As a result, Redbox staffers buy Disney DVDs and Blu-ray Discs at retail, and then rent the discs while selling the codes – included in Blu-ray Disc combo packs – separately.

Last November, Disney filed suit, seeking to prohibit Redbox from selling codes to titles such as like Rogue One: A Star Wars Story and Moana at a discount to what digital copies sell for on Amazon or iTunes.

Disney argues that the sale of download codes violates copyright law. Disney includes a warning on combo packs that “codes are not for sale or transfer” – a warning underscored in the terms of use, which say the “sale, distribution, purchase, or transfer of digital copy codes …  is strictly prohibited.”

The judge, however, ruled that the warning does not constitute a contract restricting what a consumer can do with product purchased at retail.

In a critical finding, Judge Dean Pregerson ruled that “this improper leveraging of Disney’s copyright in the digital content to restrict secondary transfers of physical copies directly implicates and conflicts with public policy enshrined in the Copyright Act, and constitutes copyright misuse.”

The preliminary injunction was granted because the court agreed with Redbox’s contention that Disney was unlikely to prevail on its case.  According to the ruling, “Disney has not demonstrated a likelihood of success on the merits of its contributory copyright infringement claim.”

“From Redbox’s perspective, the court’s decision was a common-sense application of the law of contracts to the unenforceable fine print on the outside of Disney’s combo packs,” Brennan said.

However, the court did rule that “at this stage of proceedings, it appears to the court that the First Sale Doctrine is not applicable to this case” – a critical cog in Redbox’s January countersuit against Disney, in which the kiosk operator maintains Disney digital codes should not be treated any differently than physical discs that it is legally entitled to rent.

The First Sale Doctrine, which video retailers used in the early 1980s to establish their right to rent videocassettes over strong studio opposition, says a copyright owner cannot prohibit a purchaser from reselling a copy of a work, such as DVD.

According to Pregerson’s ruling, “Redbox urges this court to conclude that Disney’s sale of a download code is indistinguishable from the sale of a tangible, physical, particular copy of a copyrighted work that has simply not yet been delivered.”

Specifically, the judge said that regardless what Disney’s representations on the disc case may suggest about whether or not a ‘copy’ is being transferred, he disagreed that a ‘particular material object’ exists, let alone could be transferred, prior to the time that a download code is redeemed and the copyrighted work is fixed onto the downloader’s physical hard drive.

Instead, Pregerson contends Disney appears to have sold something akin to an option to create a physical copy at some point in the future. Because no particular, fixed copy of a copyrighted work yet existed at the time Redbox purchased, or sold, a digital download code, the judge ruled the First Sale Doctrine inapplicable in the case.

The two parties will again square off in court on March 5, in a hearing on Redbox’s motion to dismiss the case.

Redbox Ups Disney Legal Challenge

Redbox is doubling down on its legal fight with The Walt Disney Co.

The kiosk vendor Jan. 26 filed litigation against Disney companies, including Buena Vista Home Entertainment, Lucasfilm, and Disney-owned “Movies Anywhere” digital movie service.

The suit – filed in U.S. District Court in Los Angeles – alleges Disney is trying to eliminate third-party home entertainment options for its own much-publicized direct-to-consumer streaming strategy.

Redbox says Disney plans to launch a streaming service in 2019, and its majority interest in Hulu as part of the $52 billion acquisition of select 21st Century Fox assets, is driving an “illegal” campaign to prevent it from reselling digital copies of movies contained in Disney combo packs purchased at retail.

Redbox last year began selling digital codes to select Disney movies. Disney in November filed suit seeking an injunction prohibiting Redbox from selling codes to titles such as like Rogue One: A Star Wars Story and Moana at a discount to what digital copies sell for on Amazon or iTunes.

Redbox, in its filing, accuses Disney of abusing its dominant market position and violating the First Sale Doctrine with statements on packaging claiming its digital codes “cannot be resold or rented individually.”

First Sale Doctrine, which video retailers used in the early 1980s to establish their right to rent videocassettes over strong studio opposition, says a copyright owner cannot prohibit a purchaser from reselling a copy of a work, such as DVD.

Redbox maintains the terms on Disney’s packaging are unenforceable, and that it is engaging in copyright misuse and violating California’s unfair competition law.

The kiosk vendor is asking Disney to issue corrective advertising on all existing inventory. It seeks compensatory and punitive damages, in addition to legal fees and costs.

The suit is the latest chapter in Redbox’s tumultuous relationship with Disney. The studio stopped selling its titles to Redbox in 2012, and while other studios have had a change of heart, Disney hasn’t, prompting Redbox to acquire Disney product through retail channels.

Redbox earlier this month filed a countersuit, saying Disney digital codes should not be treated any differently than physical discs that it is legally entitled to rent. It filed a separate motion Jan. 25 asking the court to dismiss Disney’s suit.