The Walt Disney Co. recently won a court order barring Redbox from reselling digital versions of “Black Panther” and other movies, six months after the same judge refused to grant the Hollywood giant a similar order and criticized it for misusing its copyrights.
The lawsuit began last November when Disney sought to stop Redbox, a company known for renting DVD’s at kiosks, from selling digital-access codes to its customers. Disney called the practice a violation of copyright law. Redbox countersued with claims of copyright misuse, tortious interference with prospective economic advantage, false advertising under state and federal law and unfair competition.
Disney’s primary issue with Redbox was that Redbox would buy Disney “Combo Packs” which is a product that contains a DVD or Blu-ray disc of a given movie, plus a printed code that the buyer can redeem online to download a digital copy of the movie or stream it. Redbox bought the “Combo Pack” and made the discs available for rent in its kiosks. It then sold the download codes separately for $8-$15 each. Disney believed this was a breach of contract and a misuse of their copyright agreement with purchasers. Disney claimed that consumers who buy combo packs are forbidden, by an agreement in the packaging, from transferring ownership of the download codes.
Judge Pregerson initially agreed with Redbox. He ruled that the terms in Disney’s license agreement on the download codes required consumers to “forego their statutorily-guaranteed right to distribute their physical copies of that same movie as they see fit” if they want to “access digital movie content, for which they have already paid,” and “those terms improperly grant Disney power beyond the scope of its copyright.” Thus, Disney was engaging in copyright misuse. Furthermore, the judge held the phrase “Codes are not for sale or transfer” cannot constitute a shrink wrap agreement because, Disney’s Combo Pack box makes no suggestion that opening the box constitutes acceptance of any further license restrictions.
Disney then revised the language of its contract on its Combo Pack boxes. The boxes now say that a code “may not be sold separately” and can be used only “by an individual who obtains the code” in a bundle with the DVD. The paper Code insert within the Combo Pack contains a similar statement and reads, “This digital code is part of a combination package and may not be sold separately,” and “Digital code redemption is subject to prior acceptance of license terms and conditions.”
The same judge that ruled against Redbox changed his tune. “These revised terms do not encroach upon disc owners’ alienation rights or improperly expand Disney’s power beyond the sphere of copyright,” the judge said. “Under the revised terms, combo pack purchasers and recipients continue to enjoy digital access regardless whether they keep or dispose of the physical discs.”
The court issued an injunction that bars Redbox from reselling the codes for “Black Panther” and any other movie “bearing license terms identical or substantially similar” to the ones used for that movie.
On the one hand, this could be viewed as a win for copyright law. This precedent will allow companies to bundle their downloadable content with physical content. Bundles are desirable because they provide a way to offer cross-format content and they help keep physical products relevant in the digital age. Furthermore, companies will be able to license out their downloadable content without fear it will be sold to another person and will be able to price their content accordingly. Consumers also like them because buying the Combo Pack is cheaper than buying the physical and downloadable content separately from the same company.
This case can also be viewed as a loss for competitors trying to gain an edge in the market. Disney’s digital movies traditionally sell for $19.99, making the films a little on the high side price wise compared to many. It’s likely part of the reason why purchasing discounted codes through Redbox was so attractive to consumers, and why Disney wanted to shut it down. It could be viewed that this ruling encourages monopolistic practices and allows Disney to price their downloadable content at higher prices since other retailers cannot buy and resell the content. Disney is really just trying to eliminate competition and low-cost options like Redbox.
In sum, this precedent is a big win for companies like Disney, Apple, Amazon, and any other company that sells downloadable content because it allows them to bundle the content with physical products and retain their copyright on the digital content. On the other hand, it stifles competition and prevents competitors like Redbox from providing lower cost options to consumers.