Universal's War On Redbox Continues

from the innovation?-attack! dept

Fri, Dec 12th 2008 4:19pm — Carlo Longino

You'd think that movie companies would like it when people want to rent and watch their movies -- but surprise, surprise, only if it's on their terms. Universal has been fighting, for some time, with Redbox, the company whose kiosks rent DVDs for $1 per night, trying to get the company to sign a contract that would hamper its business model, while working on rental kiosks of its own. The WSJ is reporting that Universal asked a court to toss out Redbox's lawsuit over the contract last week, and that Redbox had to resort to "new acquisition strategies" in order to get a hold of the recent Universal release Wanted. Redbox wouldn't elaborate on those strategies, but it sounds as if Universal and its distributors cut the company off, as the studio had threatened. So once again, we're left with a company that's innovated in the movie space and delivered a product to consumers in a way they like, at a price they love. But since it didn't come from a movie studio, Universal wants to cut the company off. Once again, it's puzzling exactly how Universal can think that keeping people from seeing its movies can be good for its business.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: competition, dvd, kiosks, lawsuits
Companies: redbox, universal

26 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Michael B, 12 Dec 2008 @ 4:30pm

Anti-Competitive
I would think that Redbox could sue UHE under anti-competition statutes, especially if they can prove that UHE either has plans to launch their own rental kiosks or, more likely, a chain like Blockbuster has colluded with UHE to stop Redbox. It sounds shady.
[ link to this | view in chronology ]
Anonymous Coward, 12 Dec 2008 @ 8:27pm

Assuming that the "first sale" doctrine does not come into play, under CSU, LLC v. Xerox (CAFC 2000, cert. denied 2001) it is not per se unlawful under US antitrust law for a copyright holder to refuse to deal with another party.

Whether or not Universal's refusing to deal with Redbox makes business sense is a separate issue.

It is useful to note that Universal has a raft of legal options available to it to restrict what Redbox can do with content subject to Universal's copyrights.

Again, whether or not these other options make any business sense is a separate issue.
[ link to this | view in chronology ]
- Anonymous Coward, 12 Dec 2008 @ 10:23pm
  
  Re:
  Assuming that the "first sale" doctrine does not come into play...
  
  Why assume that? That's like saying "assuming that pigs can fly...".
  [ link to this | view in chronology ]
  - Anonymous Coward, 13 Dec 2008 @ 7:56am
    
    Re: Re:
    "Why assume that?"
    
    I have to assume that because it is likely that Redbox's alternate strategy involved obtaining copies of blockbusters from distributors, the copies of which are almost certainly governed by the first sale doctrine limiting the options available to a copyright holder. This is, however, a "loophole" that is easily closed by a few minor changes to the Terms of Sale between content providers holding copyright and their first tier distributors. With such minor changes the first sale doctrine is quickly removed from further consideration, in which case judicial decisions like the first one I noted become the governing law that allows rights holder to refuse to deal, or to require its first line distributores to withhold dealing, with companies like Redbox.
    
    Moreover, since the movie rental market would likely be recognized as a legitimate market under antitrust law, I would expect vertical price restraints to enter into the calculus of business approaches considered by content providers who are also the rights holders.
    [ link to this | view in chronology ]
    - Anonymous Coward, 13 Dec 2008 @ 4:06pm
      
      Re: Re: Re:
      This is, however, a "loophole" that is easily closed by a few minor changes to the Terms of Sale between content providers holding copyright and their first tier distributors. With such minor changes the first sale doctrine is quickly removed from further consideration, in which case judicial decisions like the first one I noted become the governing law that allows rights holder to refuse to deal, or to require its first line distributores to withhold dealing, with companies like Redbox.
      Bzzzt. Such actions would run afoul of 15 U.S.C. § 12–27, 29 U.S.C. § 52–53 which prohibits discrimination in favor of one purchaser against another purchaser if it substantially lessens competition.
      [ link to this | view in chronology ]
      - Anonymous Coward, 13 Dec 2008 @ 4:36pm
        
        Re: Re: Re: Re:
        "Bzzzt."
        
        It is not clear to me what point you are trying to make.
        
        Mine is a simple observation that first sale issues upon which Redbox thus far relies are easily addressed by language in the licenses with first tier distributors ensuring that the first sale doctrine does not apply.
        
        Can Redbox get around this? Maybe. Can it be done with ease? Certainly not.
        [ link to this | view in chronology ]
        
        Anonymous Coward, 13 Dec 2008 @ 7:25pm
        
        Re: Re: Re: Re: Re:
        It's not so "easy" if those licenses run afoul of federal statutes.
        [ link to this | view in chronology ]
        
        ChadL, 22 Dec 2008 @ 3:16am
        
        Re: Re: Re: Re: Re:
        Anonymous Coward,
        
        Can you explain how this run-around the first sale doctrine works? You say that it is accomplished with language between the rights holder and first tier distributors. Are you saying that privity extends done the rest of the chain? How does some agreement between those two parties extend down to an ultimate retail purchaser? If it works so well, why isn't it done for every DVD, book, textbook, etc - in order to kill off the rental/used market for all of these items?
        
        If I understand you correctly... If I were to buy a book from Borders, but the language you mention were in place between the rights holder and either Borders (or some party upstream), then I would be in violation of copyright, if - for example - I gave the book to a friend.
        [ link to this | view in chronology ]
- kirillian (profile), 13 Dec 2008 @ 8:53am
  
  Re:
  @Anonymous Coward - Actually, I think that the options making no business sense is actually the point that Mike is trying to make. If I recall correctly, there was a posting a couple weeks ago about the business/legal ramifications of Universal's attempts to stifle Redbox...I agree that Universal DOES have the ability to legally stifle Redbox, but, as Michael B has so kindly pointed out, Redbox COULD sue Universal over anti-competitive laws...if Universal is trying to create their own kiosk empire, then their moves become obvious vertical integration. If Universal contracts the kiosks out, then we have another Intel on our hands...
  
  Seriously, though...I think I have to stand back like Mike is and shake my head at the blatent stupidity and lack of common sense of the people who are running these corporations...What are they thinking? That they might get lucky and escape getting sued? Doesn't ANYONE think about the long-term anymore? Or has our long-term just become the quarterly report to the investors?
  [ link to this | view in chronology ]
  - Anonymous Coward, 13 Dec 2008 @ 3:00pm
    
    Re: Re:
    "Redbox COULD sue Universal over anti-competitive laws"
    
    The point I made was responsive to the first post. Yes, Redbox could sue, but the governing law strongly supports Universal.
    [ link to this | view in chronology ]
- hegemon13, 15 Dec 2008 @ 7:00am
  
  Re:
  Yes an no. When Universal provides a product on the market, then provides it to distributors to resell (such as Redbox's suppliers), they do not have the right to dictate to whom those distributors resell their products. To then cut off all distributors who supply a specific company, one who just happens to be in the same business the Universal is preparing to launch, reeks of antitrust. I believe (hope) that Universal will get slapped hard for this. Unfortunately, they own more judges and politicians than Redbox, so it is unlikely.
  [ link to this | view in chronology ]
Rose M. Welch, 12 Dec 2008 @ 10:20pm

I wondered why...
...the art for Wanted wasn't shown on the kiosk. The name was shown but the movie poster (which is usually reduced in size and placed on the kiosk along with thirty or so other movies) wasn't there. In it's place as a red note saying 'Wanted'.
[ link to this | view in chronology ]
TJ the Coward, 12 Dec 2008 @ 11:20pm

Hi There!
Leave it to Universal/NBC/MSNBC to step on their meat again.

Q: What's the difference between Olbermann & Maddow?

A: Maddow may actually have balls...hehe
[ link to this | view in chronology ]
TJ the Coward, 13 Dec 2008 @ 12:09am

Hi There!
Leave it to Universal/NBC/MSNBC to step on their meat again.

Q: What's the difference between Olbermann & Maddow?

A: Maddow may actually have balls...hehe
[ link to this | view in chronology ]
- Anonymous Coward, 13 Dec 2008 @ 2:23am
  
  Re: Hi There!
  We heard you the first time, TJ. We're just ignoring you.
  [ link to this | view in chronology ]
TJ the Coward, 13 Dec 2008 @ 7:29am

Still ignoring me?
Leave it to Universal/NBC/MSNBC to step on their meat again.

Q: What's the difference between Olbermann & Maddow?

A: Maddow may actually have balls...hehe
[ link to this | view in chronology ]
RD, 13 Dec 2008 @ 4:12pm

Wow, just....wow
I dont know who is more stupid in this thread: Universal or the comments. Its really very simple. You go to Wal Mart, buy a DVD, put it in your store, rent it. There is NOTHING ON THIS EARTH that can stop someone from doing that. Sorry, there is no "universal has the right" or "contracts state" in this idea. So, you can rent movies, at the very least, this way. Redbox, of course, operates on a larger scale, and therefore would try to get DVD's cheaper than retail. This is the ONLY thing that Universal can try to do to make it more EXPENSIVE for RedBox to get their movies, like trying to limit distributors. But then, it would apply to ANYONE who is running a rental business, and if they try that, they are going to have thousands of rental outlets screaming bloody murder. And if they try to just limit that to Redbox accounts, thats unfair business practices. Universal has NO RIGHT to tell someone what they can do with a DVD they buy, PERIOD. Right of first sale applies, and if they try to change it or go around it, someone is going to sue them, and win. That is, until the laws change and there is no more first sale or fair use or anything that benefits the consumer. I'm sure this will happen eventually, because we live in a world of greed and avarice, and the rampant corruption in our lawmakers will eventually serve the ends of the rich and powerful, at the expense of everyone else.
[ link to this | view in chronology ]
RD, 13 Dec 2008 @ 5:55pm

AC (who apparently cant read)
Ok once again for the cheap seats (this means you "first sale doctrine does not apply" morons)

FIRST SALE DOCTRINE IS A FEDERAL CONSUMER LAW, it superceeds ANY contracts or agreements. You cannot make someone sign an agreement that contravenes a federal law. Thank you. You may now resume your idiotic and big-media apologist comments.
[ link to this | view in chronology ]
- Anonymous Coward, 13 Dec 2008 @ 7:08pm
  
  Re: AC (who apparently cant read)
  "FIRST SALE DOCTRINE IS A FEDERAL CONSUMER LAW, it superceeds ANY contracts or agreements. You cannot make someone sign an agreement that contravenes a federal law."
  
  If you say so then it must be so. Be careful, though. If you give the above answer on an exam concerning copyright law I hope you are earning good grades in your other courses to keep your GPA from falling.
  [ link to this | view in chronology ]
RD, 14 Dec 2008 @ 9:44am

Re: AC (who apparently cant read)
"If you say so then it must be so. Be careful, though. If you give the above answer on an exam concerning copyright law I hope you are earning good grades in your other courses to keep your GPA from falling."

*I* dont say so, federal law says so, as does consumer protection law, contract law, and a few others. Go look them up and stop being an apologist troll for Universal. They are wrong, you are wrong, get over it.
[ link to this | view in chronology ]
- Anonymous Coward, 14 Dec 2008 @ 11:02am
  
  Re: Re: AC (who apparently cant read)
  ...federal law says so, as does consumer protection law, contract law, and a few others.
  
  ...and that federal law is? Certainly not Title 17 that merely codifies the judicially created First Sale Doctrine.
  
  ...and the consumer protection law is? Certainly not antitrust except in particularly egregious situations where even deference accorded under the "rule of reason" is manifestly unwarranted.
  
  ...and the contract law is? Certainly not the UCC. Certainly not state common law.
  
  ...and the few others are? The lack of specificity precludes a response.
  [ link to this | view in chronology ]
Javarod, 15 Dec 2008 @ 4:40am

I wonder why they're targetting Red Box. Out here in Phoenix, we've also got Movie Cube, though Red Box is far more common (they've a genius franchisee out here), which offers the same $1 movie pricing. I wonder ifn there's something more behind this, after all, you'd expect Universal to go after everyone in this market.
[ link to this | view in chronology ]
- hegemon13, 15 Dec 2008 @ 7:12am
  
  Re:
  They're going after the big guys. If they get through this lawsuit with Redbox unscathed, expect them to shove similar contracts down the throats of all the smaller fish. I have now stricken Universal from the list of companies with which I will do business. No purchases, no rentals, no downloads, no nothing. Good thing Heroes sucks now, because that's the only NBC show I watched. Too bad, though, because I do like some of the movies they have put out recently. They will never be in my collection, though, as long as Universal keeps up their unfair, anti-competitive, anti-consumer trade practices. Screw Universal. Boycott!
  [ link to this | view in chronology ]
TPBer, 15 Dec 2008 @ 10:13am

You all have plenty of time to waste...
Talking about this nonsense and legal strategy, who cares. Go download, there are obviously too many people who do not realize that Wanted has been on the torrent sites for months and months. These video rental places are dinosaurs, and those who frequent are even more so.
[ link to this | view in chronology ]
Stephen Fegel, 15 Mar 2009 @ 8:51am

Universal
Lets start a Boycot of Universal Movies and see how they like it. They are Greedy capitalists to the mox. Hate to take away some of that cocain money from some of their stars.
[ link to this | view in chronology ]
Two Cents, 22 May 2009 @ 10:04am

First Sale vs Distribution Leverage
Not sure if anyone is still reading this thread, but as I understand the issue Redbox has two key needs: to acquire large amounts of new release DVDs as cheaply as possible, and to efficiently unload the DVDs a month or two after they are released (and replace them with new DVDs).

First sale certainly does apply once Redbox acquires the DVD. So if Redbox, or you or I want to walk into Walmart and buy 50 copies of a DVD and then rent them, we obviously can.

But Universal is probably able to direct its distributors not to deal with Redbox. By doing this, they can make it difficult/ incrementally more expensive for RB to acquire DVDs, and they can make it extremely difficult for RB to profitably unload the used DVDs (which are typically sold in bargain bins at drugstores, supermarkets etc). By prohibiting distributors from dealing w Redbox, Universal can ruin the economics of the Redbox Kiosk, limit their growth, and stop new entry in the market. Redbox operates on a 15-20% operating margin, if they have to spend $2 more per DVD, plus time and effort, and they cant get the $4-7 on the back end, the business might not make any sense. Or they have to raise price.

Interested in anyone's thoughts.
[ link to this | view in chronology ]