Laurie Baddon writes:

It has been a tough couple of weeks for Sinclair Broadcast Group, Inc. First, news broke that its anchors were required to read an identical script cautioning viewers about “fake news” and questioning the integrity of media organizations. Now, reports claim that Sinclair’s employee agreements may make it too expensive for these anchors to quit due to liquidated damages provisions in their contracts. While we have not reviewed the alleged Sinclair employee agreements, the news raises some important issues for employers to keep in mind when creating employment agreements, especially in California.

Some reports indicate that the Sinclair agreements allegedly require employees to pay as much as 40% of their annual compensation to the company in liquidated damages for leaving before the term of their contract expires. While employers may protect themselves from the costs associated with an employee voluntarily leaving their employment prior to the expiration of the contract term, it is rare for liquidated damages to be so high. When employment agreements include liquidated damages for an employee voluntarily quitting prior to the expiration of the contract term, the parties will agree on an amount related to the employer’s cost to recruit and train a replacement. Requiring an employee to pay 40% of their annual compensation in liquidated damages is steep and sounds more like a penalty, which courts would likely disfavor.

The agreements also allegedly contain a clause that Sinclair may fire an anchor who suffers a disability. At first glance, without more context, this looks to be problematic as well. Although it is not unheard of for employee agreements for high-level executives (or in this case for anchors) to include a clause that the employment relationship may be terminated due to the employee being “permanently” or “totally” disabled; this usually means that the employee is unable to perform the essential functions of the position, even with reasonable accommodations, for a specified period, such as 90 consecutive days or 180 days in any 365-day period. Nevertheless, it is extremely important that employers consult with counsel and are cautious when including these clauses to not conflict with state and federal law.

Additionally, the Sinclair agreements allegedly contain non-compete clauses. While non-competes may be enforceable in other states, they are likely to be void in California. This should serve as a reminder of how imperative it is for employers to tailor agreements and policies to the specific jurisdictions in which employees work.

It is important to keep in mind that the issues raised by the Sinclair agreements are rare. The vast majority of employees in California will likely never see an employment agreement like the Sinclair agreements because most employees are “at-will” meaning they can terminate their employment for any reason at any time just as the employer can terminate the employment relationship for any non-discriminatory reason at any time.

In any event, with Sinclair looking to acquire some additional 215 stations across the country, there may be a whole lot more new employees reviewing, scrutinizing, and publicizing the Sinclair agreements. It will be interesting to see how much push back Sinclair will get.

Laurie Baddon is an associate in the firm’s Labor & Employment Department, based in its Los Angeles office.

After Netflix negotiated mega raises for the main actors of its hit program “Stranger Things” in March of this year, short-film producer Charlie Kessler wants a piece of the pie.  Kessler filed an action in Los Angeles County Superior Court last week for breach of an implied contract against “Stranger Things” creators Matt and Ross Duffer who he claims heard his pitch for a science fiction show at a film festival in 2014 and ran with it without his consent and without providing him just compensation.

Watching streaming television with a cup of tea with inscription "Just One More Episode"“Stranger Things” debuted in July of 2016 and received eighteen Emmy nominations last year.  According to The Hollywood Reporter, Netflix is now paying lead actors Winona Ryder (Joyce Byers) and David Harbour (Jim Hopper) a whopping $350,000 per episode, and up to $250,000 an episode for its young adult stars.

Kessler alleges he discussed the short film he created entitled “Montauk” with the Duffer brothers at the Tribeca Films Festival in 2014, which is a science fiction work set in Montauk, New York.  Montauk is home to an abandoned military base that is rumored to be haunted.  Kessler contends the Duffer brothers misappropriated the concept of “Montauk” to produce “Stranger Things” without Kessler’s permission. Kessler also alleges “Stranger Things” was originally titled “The Montauk Project” and took place in New York, but was later renamed and set in the fictional town of Hawkins, Indiana. The Duffers’ attorney Alex Kohner issued a statement that the Duffers never saw “Montauk” and never discussed a project with Kessler. Kohner called Kessler’s complaint “completely meritless” and “an attempt to profit from other people’s creative and hard work.”

Although purely abstract ideas cannot be copyrighted, California does afford some protection to show pitches through contract law. To prevail, a plaintiff must establish that he or she prepared the work being pitched, disclosed it to the defendant, and had a reasonable expectation of payment in exchange for pitching the work which can be implied from the circumstances.

Whether Kessler will be able to demonstrate these elements remains to be seen. The Duffers’ response to the complaint will be due in early May. Kessler seeks monetary damages, injunctive relief, and punitive sanctions.

The digitization of content is forcing courts to take a fresh look at basic copyright concepts. The Disney v. Redbox case that I’ve recently blogged on addressed whether a digital download code is a “copy” of a work. Now a New York District Court has taken up the meaning of “display” in a case that could have big consequences for the way news outlets do business.

A photographer named Justin Goldman snapped a candid photo of New England Patriots quarterback Tom Brady with Boston Celtics general manager Danny Ainge. Goldman posted the photo on Snapchat, whence it went viral, including on Twitter. The defendant news outlets, including Breitbart, Time and the Boston Globe, embedded the tweets together with the photo in stories concerning whether Brady was assisting the Celtics to recruit a player named Kevin Durant. Goldman sued for copyright infringement. The defendants moved for summary judgment on the ground that they had merely linked to an image hosted on Twitter’s servers and did not themselves maintain copies.

Judge Katherine Forrest rejected this position. In her view, the location of the server on which an image is stored is merely a technical distinction that is not relevant to whether the copyright owner’s display right was infringed. Judge Forrest acknowledged that this view is contrary to the position of the 9th Circuit, but held that it is supported by Supreme Court precedent and the language and legislative history of the Copyright Act.

This decision does not necessarily mark the end of the road for the news organizations, however, In response to their plea that a loss would “cause a tremendous chilling effect on the core functionality of the web,” the judge stressed that they still have strong affirmative defenses. A fair use argument is always available, particularly to straight news organizations. The judge also raised the possibility that Goldman had released the photo into the public domain by posting it to Snapchat in the first place.

There’s a certain logic to Judge Forrest’s conclusion that the viewer’s experience of a photo is the same whether the defendant has copied it to its own server or linked to someone else’s. On the other hand, a central feature of Twitter and other social media platforms is that posts can be readily shared. The ecosystems of these platforms could be seriously disrupted if every shared post is regarded as a new publication for copyright purposes. Courts and possibly Congress will be working for the next several years to draw the appropriate lines.

California’s Actor-Age Censorship Law (AB 1687), which would have required IMDb.com to remove age-related information from its web pages, was declared unconstitutional by a district court last month on free speech grounds.

75365726 – IMDb biography profile of actress Meryl Streep.

SAG-AFTRA vigorously campaigned for the law, which it claimed would mitigate age discrimination in Hollywood.  Within two months of the law taking effect in 2017, IMDb obtained a preliminary injunction and later filed for summary judgment claiming the legislation impermissibly restricted its First Amendment rights.  Judge Vince Chhabria of the Northern District of California agreed.

Although Chhabria acknowledged the law may be well-intentioned, he applied strict scrutiny and found the law is not narrowly tailored to eliminate age discrimination in the industry.

The law is under-inclusive, Chhabria determined, because it targets solely IMDb rather than other online sources which would remain free to broadcast an actor’s age.  The law also required IMDb to remove age-related information of an actor only if he or she requests the information be removed, yet the site would remain free to publish the birthdates of non-subscribers and, in theory, leave those individuals vulnerable to potential discrimination.

Chhabria found the law to be over-inclusive because it requires IMDb to remove ages of all requesting subscribers, including those under 40 who are not protected by the state’s anti-discrimination laws.

Further, Chhabria viewed the law as a direct restriction on speech prohibiting IMDb from publishing truthful information that is often supplied by the public because of speculation that a third party might use the information for unlawful purposes.  “There is no support in controlling case law for the proposition that a state may ban publication of facts to impede a third party’s possible reliance on those facts to engage in discrimination,” Chhabria found.

Supporters of the law argued it regulates commercial speech and honors the contract between subscribers and IMDb who, by subscribing to the database, can select what information about them is displayed to the public.  Chhabria was not persuaded.  “The speech at issue is factual information about entertainment professionals, conveyed… in a manner unconnected to any commercial transaction,” he wrote.  Further, the law requires IMDb to remove age-related information from its website regardless of the source of the information and, accordingly, “expressly contemplates that it will impact not just information obtained pursuant to a contractual relationship, but also information provided by members of the public,” Chhabria wrote.

In dicta, Chhabria observed the law’s legislative materials repeatedly cite an article discussing sex discrimination in the entertainment industry and opined that, although the law facially targets age discrimination in Hollywood, the actual purpose of the law is to combat sexism.  “The defendants barely acknowledge this,” Chhabria noted, “much less explain how a law preventing one company from posting age-related information on one website could discourage the entertainment industry from continuing to objectify and devalue women.”

SAG-AFTRA’s general counsel Duncan Crabtree-Ireland stated the union is “extremely disappointed with [the] ruling.”  He added, “the Court unfortunately fails to understand or recognize the massive impact gender and age discrimination has on all working performers.  That discrimination is facilitated by IMDb’s insistence on publishing performers’ age information without their consent…”.

SAG-AFTRA and the State of California are expected to appeal this decision to the Ninth Circuit.

In a closely watched copyright lawsuit, the Second Circuit reversed the District Court’s finding of “fair use” and upheld Fox News’ claim that the TVEyes service infringed its copyrights. This decision has broad implications for the manner in which video clips and text summaries are used in today’s fast-paced and interconnected digital media.

Illustration of scissors on video player, symbolizing video editing icon/clipsIn brief, TVEyes operates a comprehensive subscription-based media-monitoring service that (i) records essentially all television broadcasts on 1,400 channels on a 24/7 basis, (ii) copies the closed-captioned content that accompanies the recorded broadcasts, and (iii) uses that content to make a text-searchable database. TVEyes subscribers can run searches that return a list of video clips containing the searched terms. Each clip runs for 10 minutes and begins shortly before the search term appears in the clip. Thus, a TVEyes’ subscriber can search for a particular product, political candidate, hot-button issue (e.g., the NRA), etc. and retrieve all clips that mention the product, individual or issue that is the subject of the search.

Fox News sued TVEyes for direct copyright infringement based upon its copying and distributing Fox’s copyrighted content without a license. Because the recorded broadcasts were indisputably copyrighted and unlicensed, TVEyes’ defense turned on application of the four-factor “fair use” defense codified in Section 107 of the Copyright Act. Under this test, the following factors are considered individually and collectively in determining if the use is fair: (i) the purpose and character of the use, (ii) the nature of the copyrighted work, (iii) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and (iv) the effect of the use upon the potential market for the copyrighted work.

The first factor typically turns on whether the challenged use somehow transforms the copyrighted work. In a ruling that met with sharp disagreement in a concurring opinion, the majority ruled that the TVEyes service was “at least somewhat transformative” because it enabled its clients (i) to view all Fox programming over the prior 32-day period that concerned the topic of their search without needing to watch Fox on a 24/7 basis for the entire period, and (ii) to watch the video clips at a time and place that was convenient for them, and not when they aired on Fox. Unfortunately for TVEyes, this is the only fair use factor found to work in its favor.

After noting that the second factor (“the nature of the copyrighted work”) rarely plays a significant role in fair use determinations, the Second Circuit ruled that it played “no significant role here.” The Second Circuit then turned to the third and fourth factors.

The Court ruled that the third factor – the amount of the copyrighted work used – “clearly favored” Fox because TVEyes made available “virtually the entirety of the Fox programming that TVEyes viewers want to see and hear.” The Court reasoned that “given the brevity of the average news segment on a particular topic” providing TVEyes users with ten-minute clips likely conveyed to them “the entirety of the message conveyed by Fox to authorized viewers of the original.” The Second Circuit contrasted this to Google’s actions – which were found to constitute fair use – in Authors Guild v. Google, Inc., 804 F.3d 202 (2d Cir. 2015) (“Google Books”). In that case, Google made unlicensed text-searchable copies of millions of books for which searches retrieved “snippets” of the books containing the search terms. Unlike TVEyes’ 10-minute video clips, these “snippets,” according to the Second Circuit, “abbreviated to ensure that it would be nearly impossible for a user to see a meaningful exposition of what the author originally intended to convey to readers.”

Finally, after reaffirming that the fourth fair use factor is the single most important element of the fair use analysis, the Court found that Fox had the “much stronger point.” This factor focuses on whether the challenged work constitutes a competing substitute for the original or its derivative so as to deprive the copyright owner of significant revenues that, instead, flow to the unauthorized copier. The Second Circuit found that TVEyes’ service undercut Fox’s ability to profit from developing and licensing searchable access to its copyrighted broadcasts to third parties. In making this finding, the Court pointed to TVEyes’ success as evidence that the market for searchable clips was worth millions of dollars before concluding that TVEyes was usurping a market that properly belonged to Fox.

The Second Circuit remanded the case to the District Court with instructions to enjoin TVEyes from making available to clients the ability to watch the 10-minute clips retrieved from TVEyes’ client search requests. Significantly, Fox did not challenge and the injunction does not apply to TVEyes’ search database. As such, there may remain an opportunity for TVEyes to combine its database with a retrieval and access component that does not flunk the third and fourth fair use factors. To accomplish this, TVEyes would likely need to construct a system far more like the one that did pass fair use muster in Google Books. However, because the “snippets” approved in Google Books were radically different from the 10-minute clips upon which TVEyes built its business, whether TVEyes would have the interest and ability to pursue such a redesign is far from clear.

Law concept: circuit board with copyright icon, 3d render

In response to the numerous allegations of pervasive sexual harassment in the entertainment industry, SAG-AFTRA, the union representing performers, recently adopted a “Code of Conduct” for handling sexual harassment claims against producers.  As the representative of performers across the country, it is only natural that SAG-AFTRA would seek to address the sexual harassment scandal that has pervaded the industry. The opening of this new front against sexual harassment may provide support for more performers to come forward and bring claims against producers.

Casting call - actors waiting at a casting sessionThe Code of Conduct provides a resource for performers to assist them in filing civil and criminal complaints against their employers, as well as processing claims under the collective bargaining agreements (CBA) between SAG-AFTRA and the Producer’s Alliance.  It also ominously claims that the union is “willing to use the union’s enforcement powers to protect our members, including directing them not to work for employers who will not keep them safe.”

SAG-AFTRA, as a labor union, has certain powers and limitations in advancing the interests of its members.  In terms of legal claims, the union can point performers in the right direction, or possibly pay for legal counsel (which is not mentioned in the Code), but it is unlikely that it could directly bring sexual harassment claims in court on behalf of members. Unions are typically bound by the grievance and arbitration procedures contained in their CBAs. In addition, the union is also subject to conflicts in terms of member-on-member sexual harassment, which could lead to inaction or delays on behalf of the accuser. Finally, like most unions, SAG-AFTRA is bound by a no-strike clause in its CBAs, which would likely limit its ability to carry through on its threat to direct members not to work for certain employers.

Law concept: circuit board with copyright icon, 3d renderRedbox scored a win in its copyright dispute with Disney as a federal district court judge refused to award the studio a preliminary injunction against Redbox’s sale of digital download codes.

Disney’s complaint was that Redbox was purchasing “Combo Packs” of Disney movies, which include a DVD, Blu-Ray disc and digital download code, opening the packages and selling its components separately. This, Disney claimed, encouraged consumers to violate the terms of copyright licenses set forth on printed inserts in the Combo Packs and warnings on the download websites Disney Movies Anywhere and RedeemDigitalMovies, which purport to restrict use of the codes to owners of the physical discs.

Redbox had thrown up two defenses to Disney’s copyright claim. First, that the download codes are equivalent to the physical discs under the first sale doctrine. Second, that Disney was guilty of “copyright misuse.”

The parties’ briefing focused primarily on the applicability of the first sale doctrine. This provides that once a copyright owner sells a particular copy of a work, such as a book, it cannot prohibit the buyer from subsequent sales or transfers of that copy. Redbox contended that the paper slip bearing the download code constituted a particular copy of the movie no less than the DVD and Blu-Ray discs in the Combo Packs. Disney conceded that the first sale doctrine applied to the DVD and Blu-Ray discs in the Combo Packs, but maintained that the download codes were not copies of the movies at all, but only keys by which consumers could then create copies of the work on their own computers. The court sided with Disney on this issue, holding that no “copy” existed at all until the consumer activated the code and downloaded the movie.

Somewhat surprisingly, despite the attention paid by the parties to the issue, the court held that the first sale doctrine was not applicable to the case because Disney’s misuse of copyright was sufficient to tip the scales in Redbox’s favor. The copyright misuse doctrine furnishes a defense to an infringement claim when a copyright owner is found to be leveraging its limited monopoly under copyright to obtain benefits outside the scope of the copyright monopoly. In one leading case, for example, the owner of a copyrighted medical coding system attempted obtain an unfair advantage over competitors by conditioning licenses of its system on a promise that the licensees would not use competing systems.

In Disney’s case, the court held that it was a misuse of copyright for it to try to link its legitimate right to restrict transfers of the download codes to a waiver of consumers’ conceded right to transfer the physical discs. The license agreements for digital downloads of the Disney movies on the RedeemDigitalMovies requires redeemers to represent that the are currently “the owner of the physical product that accompanied the digital code at the time of purchase.” Similarly, the terms of use on the Movies Anywhere website only allow registered members to “enter authorized . . . Digital Copy codes from a Digital Copy enabled . . . physical product that is owned by [that member].” The court viewed these conditions as overreaching, stating, “Thus, Combo Pack purchasers cannot access digital movie content, for which they have already paid, . . . unless they forego their statutorily-guaranteed to distribute their physical copies of that same movie as they see fit.”

The court also rejected Disney’s breach of contract claim against Redbox. The outside of the Combo Pack box contained the notice “Codes are not for sale or transfer.” This, Disney claimed, established a binding contractual obligation on Redbox not to resell the download codes. Although the court acknowledged that notices printed on packaging can create enforceable obligations, it held that the notice on the Combo Packs was insufficient to do so.

This case presents an interesting takeaway. Although Disney prevailed on the first sale issue, which both parties apparently believed would be determinative, it lost on more mundane issues going to the wording of its license terms. It’s possible that with clearer and narrower drafting Disney will be able to accomplish its goal of preventing resale of download codes. In the meantime, even without a preliminary injunction in place, Disney could continue to pursue this case to trial.

21575590 – dolphins at sea

The Ninth Circuit issued an opinion last Friday that seems second nature. The court affirmed summary judgment for Wyland Galleries against marine wildlife artist Pieter A. Folkens, who claimed Wyland copied Folkens’s drawing of crossing dolphins in Wyland’s giclée titled “Life in the Living Sea.”  Folkens asserted Wyland created enough of the allegedly infringing prints to net over $4 million in sales.

Folkens published his black and white drawing in 1979, which depicts one dolphin swimming vertically and the other swimming horizontally.  Wyland, best known for its “whaling wall” murals displayed worldwide, created a color print in 2011 depicting three dolphins, aquatic plants, and other wildlife.  Two of the dolphins in Wyland’s work are crossing, but do so at different angles than those in Folkens’s drawing.  Folkens acknowledged the concept of crossing dolphins occurs in nature and cannot qualify for copyright protection.  Dolphin crossing is typical behavior since dolphins are social animals and often travel in groups.  However, Folkens argued his particular expression of the dolphins warranted protection and Wyland’s work was substantially similar to his depiction.

The Eastern District of California had awarded summary judgment for Wyland in 2016, holding natural positioning and physiology of animals are not protectable.  The Ninth Circuit affirmed this decision citing the principles set forth in Satava v. Lowry, which considered whether a life-like jellyfish sculpture in clear glass could be protected.  In that case, the court recognized ideas, “first expressed in nature, are the common heritage of humankind, and no artist may use copyright law to prevent others from depicting them.”  If this were not the case, the Court noted an artist could monopolize images of geese flying in a “V” as they migrate, a mother duck leading ducklings out of a pond, a hummingbird hovering over a flower as it sucks its nectar, bats hanging upside down in cave, and countless other scenes commonly found in nature.

The Court in the instant case acknowledged an artist may receive protection for how a wildlife scene is expressed, such as pose, attitude, gesture, muscle structure, facial expression, coat and texture.  However, any such protection is “thin,” which means the defendant’s work must be virtually identical to be held infringing.  The Court found this not to be the case here where Folkens’s work is a relatively basic drawing in black and white.  Conversely, Wyland’s print is in color and features numerous additional elements.  Wyland’s dolphins also do not have the same texture and skin tone as Folkens’s, which possess distinctive ripples.  That Folkens enlisted animal trainers to create the scene he captured is irrelevant, said the Court, because the scene is merely a recreation of what commonly occurs in nature.

Barring an appeal to the California Supreme Court, the Ninth Circuit’s decision brings this dolphin tale to a close.

Redbox and Disney have filed their briefs in preparation for argument, scheduled for February 5, on Disney’s motion for a preliminary injunction against Redbox’s alleged copyright infringement. The judge’s ruling could make new law on the meaning of a “copy” in the digital age.

The underlying facts are these: Redbox legally purchased “Combo Packs” of Disney movies. These included DVD and Blu-Ray discs as well as a code by which the purchaser could download a copy of the movie. Redbox unbundled the packs and sold the download codes to consumers.

As Disney anticipated in its original motion, Redbox’s principal defense relies on the first sale doctrine under copyright law, which allows someone who lawfully acquires a “copy” of a copyrighted work to sell or dispose of that copy. Redbox claims that a download code is legally indistinguishable from a physical copy such as a DVD. Just as the first sale doctrine permits it to rent DVDs through its ubiquitous red kiosks, it can resell the download codes on its website.

Disney asserts that the codes are not themselves copies of the films but rather keys to open up a copy. Therefore Redbox’s activities do not implicate the distribution right in the movies (which would be permitted under the first sale doctrine), but the reproduction right, which is infringed when Redbox’s customers make unauthorized copies by using the code.

One interesting consequence of Disney’s position is that its claims against Redbox can only be based on contributory rather than direct infringement of Disney’s copyrights. Since Disney’s position is that the codes are not “copies” of the movies (and thus outside the first sale doctrine), it cannot assert that Redbox is distributing or reproducing its copyrighted works. The direct infringers are the Redbox customers who use the codes. Redbox contributes to the infringement by selling the codes. This argument raises the further question whether consumers are, in fact engaged in infringing activity.

In order to establish this, Disney relies on the “shrink wrap license” that governs its sale of the codes. The Combo Packs are packaged and priced to be sold as a unit. The outside packaging of the Combo Packs states that “codes are not for sale or transfer”; similar language appears on the package insert containing the code. A consumer redeeming the codes on the Disney portal is likewise required to represent that he or she is “the owner of the physical product that accompanied the digital code at the time of purchase.” A customer buying a code would not see the first two of these warnings. Redbox used this fact to argue that Disney was trying to impose the terms of a license between Disney and Redbox on to its customers. Disney’s response is that the license terms to which customers agree before downloading a movie from the Disney portal are sufficient to create the underlying infringement on which Redbox’s contributory liability rests.

This lawsuit is one of a number of recent cases testing the status of links and download codes under copyright law. Playboy Entertainment Group has commenced litigation against a website that posted links to a third party site displaying every Playmate photo ever published. Although the content of the copyrights at issue in that case could not be more different from the family-friendly content of the movies at issue in the Disney-Redbox litigation, they both address the problem of defining what constitutes digital copying and distribution of copyrighted works.

Law concept: circuit board with copyright icon, 3d renderIn November of last year, a division of Walt Disney Company brought a lawsuit against Redbox. The Mouse now has kicked it up a notch by moving for a preliminary injunction.

One of the ways in which Disney markets its movies is in Combo Packs. These are bundles that include DVD and Blu-ray discs as well as digital download codes. The Combo Packs are packaged and priced to be sold as a unit. The outside packaging of the Combo Packs states that “codes are not for sale or transfer”; similar language appears on the package insert containing the code. A consumer redeeming the codes on the Disney portal is likewise required to represent that he or she is “the owner of the physical product that accompanied the digital code at the time of purchase.”

Redbox is best known for its automated cut-rate video rental kiosks outside drugstores and supermarkets. The lawsuit alleges that Redbox has purchased Disney Combo Packs, disassembled them and sold the digital download codes through its kiosks and directly on its website. The business issue this raises for Disney is that because Disney discounts the price of the code when sold in a Combo Pack, Redbox can resell the codes for less than the price of a digital download on iTunes or a similar site. In an effort to shut down Redbox’s practice, Disney has asserted claims for breach of contract and copyright infringement.

The breach of contract claim is predicated on the contention that Redbox accepted the prohibition on sale or transfer of the codes when it purchased and opened the Combo Packs. To this end, Disney cites numerous cases upholding the validity of “shrink-wrap licenses.”

The sale of the codes does not in itself infringe on the rights protected under copyright law; the actual infringement alleged by Disney occurs when the Redbox customer downloads and views the movie. But under the doctrine of contributory infringement, Redbox could be held liable if it knowingly induced or materially contributed to its customer’s infringing activities. To establish this point, Disney cites not only the sales themselves, but that they were promoted heavily by Redbox as “cheap” and a “smart buy.”

Interestingly, Disney’s preliminary injunction motion attempts to answer what it anticipates will be Redbox’s principal defense. Redbox carries on its main disc rental business under the “first sale” provisions of copyright law. The first sale defense provides that the lawful owner of a copy of a work may sell or otherwise dispose of its possession. This is why you can sell your secondhand books, CDs and DVDs without fear of liability, and why Redbox contends that it has unlimited rights to rent DVDs lawfully purchased from their copyright owners.

Disney argues that the first sale defense is inapplicable to resale of the download codes. That defense, it contends, applies only to the distribution of lawfully obtained copies of copyrighted works, whereas a digital download constitutes a reproduction of the work. Likewise, a download code is not a copy at all, merely a code permitting a user to download a copy subject to the posted terms of use.

Disney’s motion will prevail if the judge agrees that sales of the codes are causing it irreparable harm, and that it is likely to succeed on the merits. If the preliminary injunction is granted, it will bring an immediate halt to Redbox’s sales of the unbundled codes and likely lead to a quick resolution to the lawsuit as a whole.

You can read Disney’s full motion here.