Most people know Redbox from their red-colored DVD rental kiosks that still litter grocery and pharmacy stores across the country. To some, renting a DVD from Redbox feels like a task from a bygone era; as long as internet bandwidth is available why would we ever drive to store to rent a movie and then have to drive back the next day to return the disc? Redbox understands this, and recently have tried to branch out and offer digital purchasing options as well.
Redbox’s main business model is to use their licensing agreements with major movie studios, like Warner Bros., to purchase physical copies of movies and rent them out to the public multiple times, to make a profit on the initial purchase. Recently, Redbox has been expanding beyond the physical media realm and using these licensing agreements to sell digital download codes that allow users to pay a once and then own a digital copy of the movie forever. While Redbox has variations on their licensing agreements with most movie studios, notably however, they do not have one with Disney. Because Redbox did not have such an agreement with Disney, they are able to sell digital download codes to Disney movies like Star Wars: The Last Jedi, Black Panther, and Coco at a much lower price point than is offered on Amazon or iTunes; both of which have official agreements with Disney to sell movies at a set minimum price. Disney has caught wind of Redbox’s new business model and, sued Redbox in December 2017, asserting that Redbox’s actions were a violation of Disney’s copyright terms.
In February 2018, a California federal judge rejected Disney’s request for an injunction to halt Redbox’s sale of digital downloads. In Disney Enters. V. Redbox Automated Retail, LLC, 2018 U.S. Dist. LEXIS 69103 (C.D. Cal. 2018), Disney asserted that the digital download codes of their movies were protected under the terms and conditions contained in the Disney website that hosts digital downloads. These terms and conditions stated that by redeeming the digital download code, the user “represents that he [or she] is the owner of the physical product that accompanied the digital code at the time of purchase.” The terms also stated that “the redemption of a digital code sold or transferred separate from the original physical product is prohibited.” Under these terms and conditions, Disney sued Redbox stating that Redbox’s business practice of selling the digital download codes without permission was copyright infringement. Redbox, in response, argued that Disney was unable to demonstrate a likelihood of success on the merits of the copyright infringement claim because Disney engaged in copyright misuse by writing the terms and conditions too broadly. The judge held that Disney, had in fact, committed copyright misuse and therefore had not demonstrated a likelihood of success on the merits of its copyright infringement claim. The judge reasoned that Disney’s copyrights did not give it the power to prevent consumers from selling or otherwise transferring the digital download codes as doing so would be exceeding the scope of the Copyright Act (17 U.S.C. § 109). The judge further reasoned that since Disney is prohibited under the Copyright Act and First Sale Doctrine from stopping the purchaser of a physical copy of copyrighted material from reselling that material, Disney should also be prohibited from doing so for a digital copy of a copyrighted material.
Since February, there has been additional movement in this lawsuit on multiple fronts. First, Disney has submitted a new preliminary injunction after they modified the terms and conditions on their digital download website. The terms now read “to redeem a code . . . a user must represent that he or she, or a member of his or her family, obtained the code in an original disc + [digital] code package and the code was not purchased separately.” Disney argues that this change means that a user can now redeem a digital download code without actually possessing the discs that were originally sold and is currently waiting for the judge to rule on this new injunction. Redbox, on the other hand, countersued Disney in March, alleging that Disney was stifling competition in advance of launching its own digital streaming service in 2019. Since March, Redbox has also signed new agreements with Warner Bros. and other movie studios to allow Redbox the option of renting and selling movies on the same day they are released for home video. These agreements indicate that Redbox is trying very hard to break into the movie sale market and will not be going down without a fight anytime soon. For now, the law allows Redbox to offer an affordable way to buy and rent the newest Disney movies. We will all just have to wait and see if this is allowed to last.
Alexander Ronchetti is entering his 2nd year at ASU’s Sandra Day O’Connor College of Law. Alex previously attended American University where he graduated Magna Cum Laude with a Bachelor of Science in Business Administration and International Studies. He grew up in Alaska, is an Eagle Scout, and still uses his scouting skills on his numerous outdoor adventures.