After losing on its first attempt, the Walt Disney Company managed to turn the tables on Redbox to obtain a preliminary injunction against Redbox’s sale of movie download codes.
The case arose out of Disney’s marketing of “Combo Packs” of Disney movies, which include a DVD, Blu-Ray disc and digital download code. Redbox was legally purchasing the Combo Packs, then opening the packages and selling the download codes on its website separately from the physical discs. 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 only to the owners of the discs.
Disney applied for a preliminary injunction in February of this year. The motion was denied, but on surprising grounds. Both parties focused their arguments on the first sale doctrine, which they expected would be dispositive. The first sale doctrine provides that once a copyright owners permits the sale of a copy of its work, it cannot prohibit subsequent sales or transfers. Both sides agreed that this doctrine permitted Redbox to sell or rent the DVD and Blu-Ray discs without restriction. Redbox asserted that the paper slips containing the download codes were legally indistinguishable from physical discs. Disney’s response was that the codes were not equivalent to copies of the movies, but only keys to permit consumers to create copies on their own computers.
As I discussed in a previous blog, this decision offered Disney the simple recourse of redrafting the license terms on Combo Pack boxes and download sites. The studio did so, beginning with the Black Panther Combo Pack, and renewed its quest for a preliminary injunction. The new language does not condition download rights on ownership of the discs, but states, “Digital code redemption requires prior acceptance of license terms and conditions,” and further, that “The digital code contained in this package may not be sold separately.” Judge Pregerson found that these changes were sufficient to overcome Redbox’s claims of copyright misuse: “Under the old terms, a Combo Pack owner who disposed of the discs was indeed left with a worthless code because continued possession of the discs was a condition of digital access. Now, however, digital access is conditioned not on possession of the discs, but on the manner of Code acquisition. A Combo Pack owner who disposes of the discs is left with the same digital access rights he or she always possessed.”
Although Redbox can continue to sell codes subject to the old licenses, this decision will presumably shut down future sales. More importantly, the case establishes a precedent under the first sale doctrine that will certainly be welcome to content owners seeking to control their digital rights.