Redbox Lawsuit Threatens DVD/Blu Ray Future Viability

I don't know if anyone has been following this but Redbox is embroiled in a lawsuit that it has filed against movie studios over its $1 DVD rental kiosks that have been seen in retails such as Walmarts:

There's a major battle being waged in the courts over Redbox, which operates DVD Rental Kiosks at national retailers throughout North America. The complaint stems from the fact that Universal and 20th Century Fox have ordered their distributors to stop selling their DVD's to Redbox.

Redbox fired back and filed separate lawsuits against Universal Home Video and Fox Home Video for refusing to sell them DVD's for their kiosks. IN their lawsuit, they claim that Universal and Fox are in violation of the Sherman Antitrust Act which prevent companies from maintaining a monopoly in an area of the market (there's more to Sherman Act, check out Wikipedia for details).

The problem is that Redfox is using a broad interpretation of the act by stating that they are entitled to the "Fair Use" provision of copyright law that allows Redbox to use the DVD's as they see fit. Redbox has stated that if they are forced to, they will purchase DVD's from the retail market. However, Redbox may be in violation with copyright laws because each DVD comes with an FBI warning that informs the consumer about piracy laws, copyright laws and what the consumer can use that DVD for.

Video rental stores such as Blockbuster, Family Video, Hollywood Video and many others sign agreements with movie studios where the video rental stores share revenue with the movie studios for each movie that is rented out. Redbox claims that they will not share any revenue with these studios and they also claim that movie studios are sticking consumers for higher rpices on video rentals. However, movie studios argue that Redbox is undercutting the video rental stores as well as retail stores because who would want to buy a DVD for $10 or $15 when you can rent one for $1. Redbox seeks to disrupt the DVD market by undercutting traditional rental stores and retailers and this could cause movie studios millions upon millions of dollars in lost revenue.

Many think that Universal will prevail because wheat Redbox is attempting to pull is basically price fixing by undercutting the retail industry which is against Federal law. There are protections in place for consumers that prevent retails for offering certain merchandise far below fair market value and the concern is that Redbox is threatening that business model.

Hopefully, Universal will prevail because if they don't, then, the retail DVD market and video rental stores will be doomed and millions of dollars in lost revenue will threaten the home video industry. What I think is strange is that Sony hasn't allied themselves with these movie studios because this would also affect blu ray sales, handing the High Def format a major defeat.


Many websites are reporting on this but I first heard about this issue over at Techdirt.com 

I personally hope Redbox wins this one...

Sam, I actually hope they lose the lawsuit. Redbox is currently in the wrong. Running a rental store requires licensing agreements with movie studios. DVD's state that the purchase is limited to private viewing and that you cannot rent that DVD out. IN order to get around that, you have to get permission from the studio.

The problem is that Redbox is undercutting video stores and video rental stores, which is against the law. There are Federal and state laws that prevent companies or business from drastically undercutting prices in an effort to shut those businesses out and Redbox could find itself under the gun of a Federal lawsuit if that's the case.

There's no law against undercutting the competition. There's a law against selling (er, renting) at a loss in order to drive your competition under, but if you can show your costs are less than your prices then you're not breaking the law.

This doesn't address the real issue, which is whether RedBox can legally rent out retail DVDs. Which relates to the issue of whether its legal to resell your used CDs or DVDs, and the big picture of whether you have any real ownership of the discs you buy.

I suspect that legally RedBox cannot get away with defying the movie studios, but my sympathy is with them -- I certainly feel that I have the right to do whatever I like with the content I purchased, be it resell it or rip it to my portable devices or loan it to a friend, but the studios would prefer that I not do any of those. They'd prefer the person I would sell it to or my friend buy license a new copy, and they'd prefer I buy license a second copy and 3rd of the same content iPod and my PSP.

This.  This is why I hope they win.  If this kills the rental places or forces them to adapt like everyone else has to the digital age, I can live with that.

So, you have a second agenda.
You want Redbox to be able to force third parties to adapt something you personally favour?

OK, that's a clear opinion.

And if this "win" would also happen to kill sales of DVDs and/or Blu-rays in practice, that's something you strive for too? (I'm not saying that it will, just curious about your motivations.)


Cees

I oppose the DMCA.
I oppose manufacturers belief that they can control their products past the first sale.
I oppose DRM in all it's forms.

I understand these are not popular views in the midst of content producers. But I believe that only by fully abandoning these dead ends can we fully embrace all that the digital future has in store for us.

This does not make me a pirate, merely an idealist.
Edited by Sam Posten - 8/21/09 at 5:26pm

 I'm no expert on this, but it seems like all this has been covered before-back in the eighties.

At that time Studio's did their best to stop video store rentals altogether, in essence saying that because of copyright laws stores were not allowed to rent movies.  Eventually the courts put the kabash on that idea and we ended up with the First Sale Doctrine.  So, if Redbox is willing to pay the price, then they are entitled to rent the DVD's out.  But that's not the problem.  The problem is that it puts them at a significant disadvantage over retailers such as Blockbuster.

When the Studios found out they couldn't beat the video stores, they joined them.  They did this by making back door deals with the big chains such as Blockbuster and some others, who would give the studios a percentage of the rentals in exchange for a much lower cost on tapes to stock their shelves.   This had the effect of shutting out and putting all of the "mom and pop" video stores out of business who could not compete because they often had to pay upwards to $100 dollars or sometimes more to stock  a single copy of a film and they were not privy to the same deals.  It also had the effect of jacking up rental prices once competition in an area was eliminatated.  (This was before the days of sell through, which is why renting became so popular.)  

Flash forward to now and the Redbox suit.  By shutting Redobox and perhaps Netflix out of paying the same price as someone like Blockbuster, they are in effect in collusion once again by trying to force Redbox to pay more than it's competitors simply because they offer ther movies at a lower price.  Yes, Redbox can rent whatever it wants to, they'll just have to pay more than Blockbuster and some others thus possibly making their business model too cost prohibitive to compete.  But make no mistake about it.  They can do it quite legally.

Don't forget that Weinstein Company signed an exclusive contract with Blockbuster for rentals as well.  But that hasn't stopped Netflix from offering those same movies up for rental.  So I'm with Redbox on this one and have no love for corporations like Sony once again colluding to shut out competition.  And somehow, you can almost see Blockbusters fine hand in this mess some where although it would take the courts to uncover it just like it did to reveal their previous exclusive dealins with the studios in the 80's.






Edited by Clyde's Place - 8/22/09 at 6:53pm

This is absolutely untrue.  http://en.wikipedia.org/wiki/First-sale_doctrine
Stores have the right to rent out discs they buy.  There is an exception carved out in the law prohibiting the rental of music CDs/tapes, but no such exception exists for DVDs/Blu-rays.  That's why Fox tried to go to their distributors to force them not to sell to Redbox for that window they wanted.  If Redbox was breaking the law, Fox would simply sue them.

Netflix & Blockbuster did this (bought retail DVDs, rented) until they entered revenue sharing agreements.  Video stores do revenue sharing so that they can obtain discs at more favorable prices from the studios than wholesale purchase, in exchange for a cut of the rental fee and requirements to return/destroy discs later.  They want to have more at the peak demand period & not be stuck with having to sell excess used discs.  Redbox does revenue share as well, with other studios (e.g. Sony), but apparently couldn't come to mutually agreeable terms with Fox hence this tussle.

http://blogmaverick.com/2009/08/22/the-irony-of-the-video-business/

I hope Redbox wins this one--big time.

I recently discovered Redbox in Sacramento, and I love them!  It costs me a buck and nine cents to see a much awaited "hot" movie or an oldie but goodie; I can reserve my choice selections(s) online, pick them up at my nearby supermarket; get rental receipt and return confirmation via email; and, get this, I can return DVDs to any Redbox kiosk.

What's not to love?

In an economy where thousands are unemployed--with entire families out of work (as I am, after 29 years working for the same employer), Redbox is a welcome break. 

A dollar per movie from the red kiosk means I can still enjoy movies on my 2 year-old 60" HD plasma,  6 year-old 42" Fujitsu, 3 year-old HP laptop. Sure I could previously fork over $5 a disc from BB (no problem), or $10 for a trip to the local century theatre (and spend twice for snacks) --these days, I just can't. Netflix downgraded my over 10 year subscription from 4 to 2 movies per month at my current rate.  Not much of break there either.

If not for Redbox, I would rent movies not at all, I think.  At $1 per, I continue to be part of the movie-watching multitude. 

Yea for the Red!












Edited by mjdinsacto - 8/23/09 at 8:31am

As so often happens with this type of legal situation, my gut tells me there are some patently wrong statements being made.  Things like rental venues being required to profit share and the illegality of undercutting the competition sound suspicious to me.  For one thing, I rent from NetFlix for virtually $1 per title (quite literally only a few cents more than RedBox costs), never have to get or return the titles (I mean, drive or walk anywhere beyond my front door) and have infinitely more titles to choose from, so that whole "undercutting the competition" argument would seem to be completely unfounded.  Plus, there are (at least the few remaining) local rental outlets who often have $1 rentals.  There is one just a couple blocks from my work who offers ALL titles for $1/day Tuesday-Thursday.

I have a suspicion this has a lot to do with BlockBuster, who strikes me as a company that has so completely priced themselves out of existence they resent the growing number of competitors who are now starting to bury them.  Honestly, renting a DVD for $5 that wholesales for less then $10 is not a viable business model.  Bring on the competition.  Then we get to the catalog titles.  Half of them can be purchased for slightly more, or even less than BB rents them for.  Undercut them?  Hell YES!

I have yet to rent from Redbox, mainly because I would much rather browse the video store and rent BDs, $5 for 7 days. Redbox can kiss it on that account. I also want video stores to stick around and I absolutely refute the download/rental model. The movies would have to be so heavily compressed for most broadband markets they would be unenjoyable to watch, and impossible for dial-up users to get.

I watched The International on PSN last night in High Definition.  10 minutes after I ordered it we began watching it and it only caught up to buffer once the whole time watching it.  The quality was unbelievable, I'd say 200% the quality of a SD DVD and 85%+ the quality of a BluRay.

Between Apple, PSN, Xbox and Netflix Consider me sold on download/stream to rent.

There are errors with everyone's statements regarding this issue:

First, don't trust anything you read on Wikipedia. There are countless number of times where I've found entries on Wikipedia to be blatantly misleading, inaccurate and false.

Secondly, the studios aren't in collusion to keep Redbox and Netflix out of the business. They are merely asking for Redbox and Netflix to adjust their prices so that they are more in line with video rental stores like Hollywood Video and Blockbuster. The entertainment industry set the standards for video rentals: $3-5 for a one-week rental. Now given that that has been the average mean price for video rentals, when you have a company who comes along and offers the same deal but for only $1, that is, no matter hwo you look at it, drastically undercutting the market prices.

Not only that, but Redbox might unintentionally force these movies studios to get Congress to adjust copyright law where it concerns DVD sales and rental agreements. I'm also suspecting that the movie studios could add a special warning to each DVD which would require a rental retailer to enter into agreements with the movie studio and charge what the market currently charges for rentals.

Finally, Redbox could unintentionally cause movie piracy to reach exorbitant levels than before. If I were a movie pirate who distributed movies online, paying $1 rental and renting 20-30 new movies each week would allow me to distribute a massive number of new films, causing the online movie piracy to increase by an exorbitant number.

If a movie pirate wants to pirate movies, why not go to the local blockbuster and get the 2 at a time deal for $30 a month.  They could easily pirate 60-100 movies each month for less than $1 a piece.

So the studios are price fixing???

The main errors are the ones stated by you.

Sure, it can be inaccurate on some topics, given its vast breadth. But not on this topic (legality of rental of DVDs purchased at wholesale).  It's backed up by large numbers of other sites and you can go back to original court decisions etc.  So instead we are just supposed to accept your declaration that it is illegal, based on nothing but your say so? Are you some Fox shill or something?


And this is wrong, why?  This is capitalism at work.  As a consumer, I'm in favor of this.  Why would I want to spend more for movies?  IMO if the studios want more profits, they should focus on making better movies with better scripts, and less money on advertising campaigns & shelling out big salaries for movie stars who haven't shown they can pull in big numbers consistently.  Less mega-blockbuster copycat mentality & spread risk over more projects.

But the point is they do have to get congress to change the copyright law, before it actually reads the way you say it is.

That's ridiculous.  Cost of obtaining the discs is not a major factor to the pirate.  If anything low rental prices discourage piracy, since as a consumer why do I want to break the law if a legal copy is readily available and cheap?

Redbox charges $1 per day for rentals, not just $1. Is that really that out of line once you move past Blockbuster's ridiculous 2-day new release prices?

All it does is keep the need for inventory lower, which is probably what the studios are really fighting. When people rent from Blockbuster, they tend to watch the movie right away and then return it just before it's due. With pay-by-the-day rentals, turnover is much higher.

Besides, the only differences between the two is that the storefront rental places have a larger selection compared to kiosks, but the kiosks are self-serve and don't require 2-5 employees earning an hourly wage and a storefront rental.

You guys are missing the point. Redbox will eventually lose their lawsuit and will probably be forced to pay millions of dollars in fines to the studios for all of these DVD rentals.

The point is that Redbox is undercutting the market. Video rentals have sold for $2-5 for a multi-day rental, generally about three days. That revenue is also shared with movie studios through various contract agreements. Redbox is attempting to undercut that market and has steadfast refused to sign any agreement on revenue sharing with the studios.

Hate to say this but you cannot make a profit off of work created from someone else.

I still fail to see on what grounds they are going to lose. Did you actually read and understand everyone else's comments?

You make it sound like Redbox is going to win. Trust me, they aren't going to win.

Redbox is basically using the DVD's from these studios in a way that they aren't permitted to. Fair Use (under Copyright Law) is extremely limited to what you can do with it. DVD's sold in stores cannot be purchased and then be turned around to rent out to make money (profit) from that DVD.

When all is said and done, Redbox will eventually lose their case against Universal, 20th Century Fox and now Warner Brothers.

Red Box is claiming Fair Use as a defense for purchasing and then renting out those DVD's. This defense is faulty because Fair Use is extremely limited to what you can do with something that is protected under Copyright Law: Fair Use.

The fact is that Redbox did not sign a license agreement with these studios to rent these DVD's out, and in the end, if Redbox wants to continue renting out these studio's DVD's and blu ray disks, then I suspect that they will end up signing some kind of licensing / revenue sharing agreement with the studios.

Redbox's whole argument is that they are entitled to rent out those DVD's through Fair Use and I seriously doubt that Redbox read the section of U.S. Copyright Law that deals with Fair Use. The fact is that Washington has been sympathetic to the entertainment industry and Redbox, if they end up winning, could force Congress and the Senate to add even more protections to Copyright Law regarding Sound and Video recordings and what a consumer or retailer can do with that product.

This is actually brought up in NEBG, LLC v. Weinstein Company Holdings, LLC, 2007 WL 1454460 (D. Mass. May 18, 2007)

Buyers of retail DVDs in the United States are free to sell or exchange them, and rent and lend them to others. There's no copyright prohibition nor doctrine of first sale exception except in regards to computer programs and phonorecords.

And just because there's an FBI warning on the screen or some text on the box doesn't mean it accurately reflects the consumer's legal rights accurately. It's not uncommon for the copyright owner to overstate their rights and restrictions on consumers.

The end result may in fact that the studios will buy some amendments to certain laws through their congress critters, but Redbox isn't doing anything illegal. They might not prevail in their lawsuit and be forced to continue buying certain studio's discs at retail (until such time as the law does get changed), but I don't see what's wrong with Redbox or their business model.

But collusion and price fixing would be serious accusations if indeed that is what is happening between major studios and large rental corporations.

You keep saying that Redbox's argument is premised on "fair use", which makes me seriously doubt that you have ever actually read any of Redbox's pleadings. They don't talk about "fair use". They talk about the "first sale" doctrine mentioned by others in this thread.

Anyone with experience in complex litigation knows better than to make predictions about who's going to win. Too many things can happen along the way. Besides, most cases settle. That seems especially likely here, where several major studios have already entered into agreements with Redbox.

Michael, stop being so reasonable. This is the Internet.

True story about complex litigation. Not copyright, but it demonstrates how unpredictable things can be, especially when there's lots of money involved. Simplified, and no names:

My old firm was once retained by one of the biggest property managers in America. You might not recognize their name, but you've almost certainly shopped in one of their malls. I'll call them "Big Manager".

Big Manager wasn't happy with a really complicated deal being set up by one of the largest property owners in America (at the time), which I'll call "Big Owner". They came to us at the last minute (and I mean 3 or 4 days before the deal was set to happen) to figure out a claim against the deal. One of the top guys at our firm came up with a creative but untried approach, and a whole team of us worked around the clock to make it happen.

We sued Big Owner. Big Owner sued back. The whole thing resulted in a fierce courtroom battle for about a year and half. The judge we drew was a famously tough, smart, experienced jurist who was impatient with nonsense, and decided we were full of it. He threw out our claims, kept Big Owner's, and started wailing on us. Big Owner's lawyer's licked their chops and poured on the pressure.

Then something happened. In a totally unrelated deal, Big Owner put up a block of properties for auction -- the kind of package that only a handful of bidders could afford to bid on, one of them being Big Manager. But because of the bitter court fight, Big Manager didn't bid. So the guy in charge of the auction at Big Owner -- a middle management fellow -- called up the guy at Big Manager he'd dealt with in the past (another middle management type), and the conversation, as later described to me, went something like this:

Owner Guy: The deadline for bids is almost here, but I haven't gotten yours yet. Is there a problem?

Manager Guy: Sorry, but the word came down from the top. I'm not allowed to bid, because your company is suing mine.

Owner Guy: We're suing you? I don't know anything about it.

Manager Guy: Me neither. But that's what I hear. And I'm not allowed to bid because of it.

Owner Guy: Well, we need you in this auction. Let me get to the bottom of this.

He hangs up, calls his boss, who calls his boss, etc. etc.

The next day -- and I do mean the very next day -- Big Owner withdrew what was left of the lawsuit. The judge was pissed, but couldn't do anything about it. Big Owner's lawyers were really pissed, but had to do as their client instructed. And that's just one example of why it's dangerous to forecast the outcome of a big business lawsuit. Business moves a lot faster than the legal process, and when it comes to the outcome, business usually trumps law.

Mark, you have no bloody clue what you are talking about.  Redbox may or may not win their restraint-of-trade case vs. the studios.  If they lose they will take some hit to their profit margin having to buy retail rather than wholesale.  But they are not going to be paying fines for copyright infringement!  Redbox is suing the studios.  The studios are defendants here, not plaintiffs.  If the studios had any sort of legitimate copyright claim vs. Redbox, don't you think they would have filed a massive lawsuit or counter-suit against them already?  But they don't, because the law has already been established here.

Use some common sense, if you have any.

Copyright law deals with rights to copy.  If Redbox was making copies of the discs, and trying to rent/sell them, then that would be blatantly illegal & they'd be sued to oblivion.  But these are legally bought copies, they have every right to rent them. "Fair use" refers to legal copying of portions of work for certain purposes that are considered non-infringing if they meet various criteria.  Renting of purchased legal copies falls under "first-sale doctrine" which is a different concept than "fair use".

Copyright Law is not simply limited to "copying." If you believe that, then you have a very narrow view of what Copyright Law is all about.

First Sale Doctrine grants you the right to resell that DVD you purchase, provided it's a legalized copy. It does not grant you license to "rent" out that DVD in an effort to build your business around it. This has been established through consumers purchases of DVD's, CD's, books and whatnot.

First Sale Doctrine doesn't mean that Redbox can do whatever they want with it. Purchasing a DVD means that you're buying it for personal use, not to center your business around it.

It's like if I decided to buy a retail copy of Windows 7 to upgrade all of the computers in my business. Just because I purchased that software doesn't mean that I have the right to upgrade every machine. I would be in violation of the agreement for using that software. The same is with DVD's.

When you buy a DVD, you're not buying the movie. You're actually paying for a license to be able to watch that movie in your own home. You're not paying for the right to rent that DVD out in order to make a profit from it. In effect, Redbox is violating Copyright Law because what they're doing is in violation of the "Performance Law" provision written in the U.S. Copyright Law.

It has been pointed out numerous times in the thread, that you are simply flat out wrong about this.  The case that reaffirmed this right, NEBG v Weinstein, has been referenced.  You provide absolutely nothing to support your statement, no cases, no articles, no links, nothing besides your opinion, which is just wrong.  It also flies in the face of logic, since if this were truly the case, the studios would be suing Redbox, not Redbox suing the studios.  You are totally unable to explain this.

Rental of *CDs* is prohibited, by a special carve out exception for music recordings and computer programs.  Does not apply to DVDs.


No, it's *nothing* like this.  You are making extra copies of the software you haven't bought licenses for.  Redbox is buying multiple copies, legally.  The studio got compensated for each of these copies.  If they feel that "their product is being undervalued", as the Fox people say, then they should have simply raised the wholesale price! 

Redbox then has the right to resell or rent them.  They just don't have the right to make extra copies from these copies.


You are buying *that one physical copy of the movie*.  You *do* have the right to rent it to someone else for private use or sell it.  You *do not* have the right to exhibit it publicly, or to make copies of it.  Copyright law leaves those latter rights with the holder, but does *not* prohibit you from renting that one physical copy.


1. They aren't.  2. If they were, explain why no lawsuit against them.

You aren't going to win any arguments by just repeating the same statements without anything to back them up, and ignoring facts that directly contradict your hypothesis.

http://www.videobusiness.com/article/CA6398859.html

In response to the lawsuit, they specifically *stopped* putting warnings about rentals on DVDs.  In fact if you look at the overwhelming majority of DVDs and Blu-rays today and the past, the warnings say *nothing* about rentals, because it is clearly legal.

http://www.videobusiness.com/article/CA6461951.html?nid=2705

Explain to us why we should believe your declarations vs. a zillion other web sites, court cases, and a video business news publication?

The problem you guys are missing is that the only reason Redbox filed against Universal, Fox and Warner Brothers is the fact that these studios ordered their distributors to stop providing their DVD's to Redbox. To make matters worse, Redbox signed revenue sharing agreements with some studios while refusing to sign similar agreements with Universal, Fox and Warners.

Redbox, in the only remaining claim that the court allowed, is claiming anti-trust violations. However, they will have a hard time proving this since the studios are not preventing Redbox from buying DVD's from retailers. They are merely refusing to allow their distributors from selling DVD's to Redbox.

Every business, retailer, corporation has the right to refuse to do business with anyone for any reason. It happens on a daily basis and more often than you think. Redbox will eventually end up losing their lawsuit against these studios. If they happen to win, expect the entertainment industry to lobby Congress and the Senate to take up legislation supporting the movie studios.

Mark, speaking only for myself: I'm not "missing" anything. I merely pointed out that you either haven't read, or have grossly misstated, the applicable pleadings in this case.

As for the rest, I have no interest in discussing this, or any other issue, with you.