Disney's Stupid Lawsuit Against Redbox Results In Judge Saying Disney Is Engaged In Copyright Misuse

from the blowback dept

Thu, Feb 22nd 2018 10:42am — Mike Masnick

Well, well. For the past few months I've been meaning to write about Disney's silly lawsuit against Redbox, but other stuff kept coming up, and now a judge has ruled against Disney and said that Disney appears to be engaged in copyright misuse. This is in a case that Disney brought -- and it appears to be backfiring badly. Redbox, as you probably know, has kiosks where you can rent DVDs relatively cheaply. It's managed to stay alive despite the traditional DVD rental business disappearing most everywhere else. About a decade ago, Hollywood fought vigorously against Redbox, but the company survived (though being taken over by a private equity firm in 2016), relying heavily on first sale rights, enabling it to legally purchase DVDs and then rent them out.

Back in December, however, Disney sued Redbox over taking its business to the next level and including download codes that could be purchased at a Redbox kiosk. Though it took them basically forever, Hollywood studios have finally realized that offering online access with the purchase of movies is a good idea, but they only want the end consumer who is buying a DVD to get access to them. So, Redbox would buy the Disney "Combo Packs" that offered the DVD and a download code, and the would offer the paper codes in kiosks to let renters watch the movie online. They weren't just copying the code and letting anyone use it -- it was still a one-to-one limitation with the purchase in that they would buy the DVD with a paper code on it, and then stuff that paper code into their kiosk delivery pods. Disney argued that this was contributory copyright infringement, even though the code pointed to a legitimate/authorized version of the movie and was legitimately purchased.

Redbox hit back by arguing that the First Sale doctrine protected it (as it did with the physical rentals) and that it is free to use the codes in this manner as the legal purchaser. Disney's response to that was that First Sale does not apply to the download code because it's not the copyright-covered work.

But Redbox also hit back with a separate punch against Disney, arguing that it was engaged in copyright misuse, a concept we've discussed in the past, but that rarely shows up in cases these days (even though we've argued it should be used more often). The basic argument was that Disney was over-claiming what copyright allowed it to exclude in order to stamp out competition. And, (somewhat surprisingly), in the process of denying Disney's demand for a preliminary injunction, the court agrees that Disney is engaged in copyright misuse because it is using its copyright in the movies to restrict what happens to purchases.

Combo Pack purchasers cannot access digital movie content, for which they have already paid, without exceeding the scope of the license agreement unless they forego their statutorily-guaranteed right to distribute their physical copies of that same movie as they see fit. 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.

Because of this, the court finds that Disney has little chance of prevailing on its contributory copyright infringement claims and denies the injunction request.

The court then notes that it doesn't even need to get into the First Sale issues, but then suggests Redbox would have difficulty winning on a pure first sale argument, mainly because of the ReDigi decision that said you can't sell "used" MP3s. And then concludes that First Sale doesn't really come into play since it's the code that's at issue, rather than the copyright-covered content:

Notwithstanding ReDigi, the plain language of the statutes, and the important policy considerations described by the Copyright Office, 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. Even assuming that the transfer is a sale and not a license, and putting aside what Disney’s representations on the box may suggest about whether or not a “copy” is being transferred, this court cannot agree that a “particular material object” can be said to exist, let alone 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, 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 first sale doctrine is inapplicable to this case.

There's a separate issue around whether or not Redbox's actions constituted a "breach of contract," and again the court is unimpressed. The key question is whether or not the text that Disney prints on its box about how "codes are not for sale or transfer" represents a contract. The court easily concludes that it does not:

The phrase “Codes are not for sale or transfer” cannot constitute a shrink wrap contract because, like the box at issue in Norcia, Disney’s Combo Pack box makes no suggestion that opening the box constitutes acceptance of any further license restrictions.... Although Disney seeks to analogize its Combo Pack packaging and language to the packaging and terms in Lexmark, the comparison is inapt. The thorough boxtop license language in Lexmark not only provided consumers with specific notice of the existence of a license and explicitly stated that opening the package would constitute acceptance, but also set forth the full terms of the agreement, including the nature of the consideration provided, and described a post-purchase mechanism for rejecting the license. Here, in contrast, Disney relies solely upon the phrase “Codes are not for sale or transfer” to carry all of that weight. Unlike the box-top language in Lexmark, Disney’s phrase does not identify the existence of a license offer in the first instance, let alone identify the nature of any consideration, specify any means of acceptance, or indicate that the consumer’s decision to open the box will constitute assent. In the absence of any such indications that an offer was being made, Redbox’s silence cannot reasonably be interpreted as assent to a restrictive license.

Of course, this almost certainly means that Disney is quickly reprinting the packaging on all its Combo Pack DVDs to make this language more legalistic to match the Lexmark standard.

Still, the court also notes that Disney makes other claims on the box that are clearly not true, which further undermine the claim that random sentences on the box represent a contract:

Indeed, the presence of other, similarly assertive but unquestionably non-binding language on the Combo Pack boxes casts further doubt upon the argument that the phrase “Not For Sale or Transfer” communicates the terms or existence of a valid offer. The packaging also states, for example, that “This product . . . cannot be resold or rented individually.”... This prescription is demonstrably false, at least insofar as it pertains to the Blu-ray disc and DVD portions of the Combo Pack.8 The Copyright Act explicitly provides that the owner of a particular copy “is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.” ... Thus, the clearly unenforceable “cannot be resold individually” language conveys nothing so much as Disney’s preference about consumers’ future behavior, rather than the existence of a binding agreement. At this stage, it appears that the accompanying “Not For Sale or Transfer” language plays a similar role.

While it's a bit disappointing to see the court buy into the ReDigi reasoning on First Sale, it's good to see it not buy the language on the box representing a contract and to call out the company for copyright misuse in leveraging copyrights to stifle other lawful activity. This case is likely far from over, though, so we'll see how things progress.

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Filed Under: copyright misuse, digital downloads, first sale, rental kiosks
Companies: disney, redbox

36 Comments

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Reader Comments

The First Word

“

Re: Re: why cant i resell used mp3s

Actually the first sale doctrine is perfectly designed for the digital age. If you look at the court case that first established it, what was at issue was a EULA. Sure, it was on a book rather than a piece of software, and the term EULA hadn't been invented yet, but that's exactly what it was: a "contract of adhesion" that attempted to abuse copyright and turn it into a usage-right, dictating what people can and cannot do with property they legally purchased. And the court looked at it and said "no, you can't do that."

This is perfect for the digital world. Unfortunately, the courts have been highly inconsistent in applying this simple, clear principle to digital technology.

—Mason Wheeler

”

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DONT BE STUPID BE EDUCATED, 22 Feb 2018 @ 11:05am

why cant i resell used mp3s
if you get a copy and i delete my copy its not different then you getting visual studio with serial and then installing then later selling it to me with that serial and then removing your copy....and us law is retarded then cause in canada ths is way it is and i even had someone fired for accusing me falsely of illegal software when MS doesn't even require you to register the resold software as a new person...as long as you got all the cdrs and packaging like the serial etc.
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Anonymous Coward, 22 Feb 2018 @ 11:14am

Yay! Now Disney will stop offering digital downloads and consumers will get less value for their money. Hooray!! We did it!!!
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crade (profile), 22 Feb 2018 @ 11:36am

Hold on.. you can force agreement to a contract just by claiming it is so if someone opens a package? That's a thing?
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An Onymous Coward (profile), 22 Feb 2018 @ 11:46am

Re:
If the claim is obvious to the user prior to performing the action that binds said agreement, yes. This is known as implied consent.
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Michael, 22 Feb 2018 @ 11:48am

Re: why cant i resell used mp3s
The first sale doctrine is not well designed for the digital age. If you guy a physical object, you have the right to sell it to someone else. That is easy to understand with a physical object.

Not that I agree this is how it should be, there is logic that it is different:

With digital goods, the only way to sell "your" copy, you would need to sell the physical device your copy is on. So, you can load up an MP3 player with legal files and then sell the player and you have sold your copy. Making a copy onto a new device and deleting the file did actually make a new copy - and you do not have a right to make another digital copy of something for the purpose of resale.

As far as moving software (MS Office) from one device to another, the software company has probably explicitly allowed you to do this. It was not that long ago that many software companies did not.
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Anonymous Coward, 22 Feb 2018 @ 11:50am

Re:
Yeah, that's definitely the takeaway. Definitely.
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Los Angeles, 22 Feb 2018 @ 12:01pm

alternate path perhaps
Disney could have taken an alternate path with a possible win-win solution. It is, again, a fear based push and shove. The industry is losing revenue and their grip on what was once called business-as-usual. I admire Redboxs' stance on the matter, however in the long-run both companies are facing a great deal of new and unpredictable verticals that will reshape the media industry. Fighting now for that which will soon to become obsolete, is pointless in my opinion.
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Anonymous Coward, 22 Feb 2018 @ 12:06pm

Attention consumers!
Disney may well start modifying boxes to fall within Lexmark, but it can work both ways. When paying a bill, do so with money in an envelope. On the outside of the envelope, have a full printed, binding contract (e.g. sending money to a bank, include a clause that if the bank fraudulently opens another account, they commit to paying a million dollars plus losses)
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Mike Masnick (profile), 22 Feb 2018 @ 12:57pm

Re: why cant i resell used mp3s
if you get a copy and i delete my copy its not different then you getting visual studio with serial and then installing then later selling it to me with that serial and then removing your copy....

Many people agree with you. The court in the ReDigi case did not. The court claimed that you can resell the PHYSICAL MEDIA on which the files reside (i.e., the hard drive with the content), but not just the content.
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Anonymous Coward, 22 Feb 2018 @ 2:15pm

Mike Masnick: Instead of your silly crusade against a cartoon mouse that kids love, shouldn’t you be trying to spin this disaster?

https://www.cnbc.com/2018/02/22/youtube-trending-algorithm-needs-reform.html
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Anonymous Coward, 22 Feb 2018 @ 2:22pm

Re:
I see that you are one of those people who think that they are a better editor than the blog editor, but I bet you do not have your own blog to prove that you are.
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crade (profile), 22 Feb 2018 @ 2:28pm

Re: Re:
Hilarious! I'm going to go get myself a shrink wrap machine and a label gun now
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blademan9999 (profile), 22 Feb 2018 @ 2:35pm

He Masnick you might want to loo at this.
https://www.reddit.com/r/flightsim/comments/7yh4zu/fslabs_a320_installer_seems_to_include_a_chrome/? utm_content=comments&utm_medium=hot&utm_source=reddit&utm_name=flightsim

Here FSlabs hid a password extracted in the game so they could "go after pirates."
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crade (profile), 22 Feb 2018 @ 2:45pm

Re: Re:
implied consent is well and good and all, but
entering a contract should probably require actual consent.

Plus, where is the implied consent that you agree to read the packaging before purchasing or even before opening? There isn't even a requirement (implied or otherwise) that you speak english when you bought the thing, let alone that you read and understand this "contract".

I don't get how just because they claim I automatically enter a contract as a side effect of something I want to do anyway makes it so. I didn't open the package because I agree to your contract, I opened it because I wanted to open the package and you have no right to prevent me from doing so since I bought it and it's mine.
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orbitalinsertion (profile), 22 Feb 2018 @ 3:23pm

Re:
Ah hahaha. The crusade regarding the mouse has always been to free him from his evil stepmother. People are upset with the witch's special magically growing privileges, they love the mouse.

Techdirt writes plenty on YouTube, heck, a post on that subject might even be in the publishing queue. Good way to suggest a topic and make your stupid implications.
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Mason Wheeler (profile), 22 Feb 2018 @ 3:52pm

Re: Re: why cant i resell used mp3s
Actually the first sale doctrine is perfectly designed for the digital age. If you look at the court case that first established it, what was at issue was a EULA. Sure, it was on a book rather than a piece of software, and the term EULA hadn't been invented yet, but that's exactly what it was: a "contract of adhesion" that attempted to abuse copyright and turn it into a usage-right, dictating what people can and cannot do with property they legally purchased. And the court looked at it and said "no, you can't do that."

This is perfect for the digital world. Unfortunately, the courts have been highly inconsistent in applying this simple, clear principle to digital technology.
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Mason Wheeler (profile), 22 Feb 2018 @ 3:54pm

the court agrees that Disney is engaged in copyright misuse because it is using its copyright in the movies to restrict what happens to purchases.

Wow. How big of a precedent does this set, and how broadly can it be applied? If it's finally been (correctly!) recognized by the courts that attempting to turn a copy-right into a usage-right is copyright misuse, that has potentially massive implications!
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Anonymous Coward, 22 Feb 2018 @ 5:19pm

Software is not sold but is rented.

Thus, how can the first sale doctrine apply to a rental?

Since when does one acquire ownership rights in rentals?
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Anonymous Coward, 22 Feb 2018 @ 5:39pm

A judge saying Disney is engaged in copyright misuse? Blue's really not going to like this.
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Anonymous Coward, 22 Feb 2018 @ 5:55pm

Disney's most blatant example of copyright misuse: Mickey Mouse Protection Act.
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Anonymous Coward, 22 Feb 2018 @ 5:59pm

Re: Re:
I guess you haven't thought about how this decision will affect Creative Commons licenses. Don't worry. Mike didn't consider that either. He was too busy gloating.
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DONT BE STUPID BE EDUCATED, 22 Feb 2018 @ 9:28pm

@mike
replying to some stuff

in canada they agreed with me such that a professor that wrongly accused me of piracy got fired
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DONT BE STUPID BE EDUCATED, 22 Feb 2018 @ 9:34pm

software is BOUGHT
I pay for it and the use of it to make your own stuff and YOU 100% OWN what you make with said item...

MS has ZERO RIGHTS TO ANYTHING I MAKE WITH THE TOOLS I BUY

its like you buy a hammer, you might not own the patent to make that hammer BUT what i build with it is mine and when i resell it i have to give the hammer to its new owner...quit trying to say no one owns anything MS tried it years back that they would own the api and all made from that very same package i had....and they lost
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Anonymous Coward, 22 Feb 2018 @ 9:47pm

Re: Re: why cant i resell used mp3s
> can resell the PHYSICAL MEDIA on which the files reside

How long after selling it would they have to reside there? And could I, after they are no longer there, buy my media back? Hell, I could give buyer a discount, so that we would not have to transfer the money back and forth... Or the disk, for that matter...
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Anonymous Coward, 23 Feb 2018 @ 1:13am

Re: Re: Re:
Imagine, how your life would look like if you had to sign each contract you enter. Like buying bread. Using public transport. Buying movie ticket.

Pen producers would be happy, though...
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PaulT (profile), 23 Feb 2018 @ 2:12am

Re: Re: Re:
But... you won't bother to tell anyone why he's wrong about something outside of the scope of the article, you just try to pretend you're superior despite there being no evidence of such.
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PaulT (profile), 23 Feb 2018 @ 2:14am

Re: Re:
It's his usual schtick - if he can't whine about something in the article and can't find a way to personally attack the author, he'll whine that something irrelevant hasn't been covered yet. Then whine it took so long if they later post an article about it.
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Anonymous Coward, 23 Feb 2018 @ 2:59am

Re:
So where is your awesome blog we can all run over to and fawn over your great ideas? Don’t have one... just leaching off of someone else’s success are you? How not surprising at all.
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Toom1275 (profile), 23 Feb 2018 @ 8:06am

Re:
Or at least make the codes one-use-only like license keys.
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Chip, 23 Feb 2018 @ 8:15am

Re: software is BOUGHT
I really can't Tell if your'e a "joke" account or Not!

Every Nation eats the Paint chips it Deserves!
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Not an Electronic Rodent (profile), 23 Feb 2018 @ 8:46am

Re: Re: Re: Re:

Like buying bread. Using public transport. Buying movie ticket.

Yeah, last time I checked bakers don't try and insist that by buying bread you are agreeing that you are only allowed to eat said bread yourself and only in a private residence where no-one else can see you eat it.

Trains rarely insist that your first class ticket pre-purchased becomes null-and-void because you showed up at the station wearing an ugly plaid shirt.

Movie theatres do not try and insist that purchasing a ticket restricts you from using other cinema chains at a later date.

The "implied contract" on these things tend to be relatively obvious and usually limited to the actual act of purchase or direct use of the purchase while on someone else's premises and rarely, if ever, try to set limits on future behaviour.
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Not an Electronic Rodent (profile), 23 Feb 2018 @ 8:49am

Re:
Trying to work out if this is sarcasm or not....
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crade (profile), 23 Feb 2018 @ 9:18am

Re: Re: Re: Re: Re:
When you buy something, both sides explicitly consent to the transaction. If there is a misunderstanding about what is included in the transaction, you fall back to the law. No one gets to whip out some hidden agreement and claim that you agreed to it implicitly as part of the transaction.
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JEDDIDIAH, 23 Feb 2018 @ 10:08am

Been there. Done that. Not sure you have.
Those stupid code coupons expire. If you aren't buying something as a new release, chances are that the "digital copy" is completely worthless.

Although the one time I did use one of those download codes, I was not impressed. The encrypted download in question became unusable when there were network problems.

You're better off just making your own "digital copy" from the physical media. It will be more robust.
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YatOG, 23 Feb 2018 @ 5:57pm

Re:
Uhhh... No.

That is NOT the takeaway.
The takeaway is that Disney didn't want to sell RedBox DVDs/Blu-Rays that were stripped of the digital download bundling, ie - vendor type sales, like all the other distributors have done for Red-Box/Video Stores over the ages.
Disney just got bitch-slapped for saying they couldn't use the codes that Disney forced on Red-Box by charging them more for purchasing end-user versions of their product.

Go Red-Box... Bitch-slap em again and again.
Disney - You can't have your cake and eat it to - 'nuff said.
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YaTOG, 23 Feb 2018 @ 6:04pm

Re: alternate path perhaps
You really don't understand the issue at hand.
All Disney had to do was offer Red-Box a Rental purchase license, where the disc is sold cheaper, without any fancy extras, no digitial-download codes, no spamvertizing, just the movie itself.
But no, Disney, in all of its Grubby, Greedy, Scummy, Scammy, Scuzzy, Fuzzy (fungal type fuzzy, not teddy-bear fuzzy) ways, decided that they couldn't afford to sell RedBox a stripped down version for less.

RedBox, made its decision to buy the more expensive home version so that they could "rent" the discs out to their devoted customer base.

RedBox, not needing the pieces of paper with the download codes made a wise decision to help offset Disleezeny's greed and sell what they didn't need.

This would be no different than any other person who purchases the physical media and sells the code (which a LOT of people do).

So, Disney can go fuck themselves as they created the problem themselves, because of their fucking Greed.
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