As Disney is gearing up to establish its own streaming service, it has started cracking down on unauthorized digital downloads of its works. In November 2017, Disney sued the video rental company Redbox for breaching the terms and conditions of their licensing agreement as well as violating Disney’s copyrights in their motion pictures. In the complaint, Disney alleges that Redbox disassembled “combo packs”, which include a Blu-ray disc, a DVD and a digital download code of a particular film, and rents out the Blu-ray discs and DVDs, while separately selling the digital download codes to customers. The digital download codes are marked “not for sale or transfer.”
Redbox responded last week that the first sale doctrine, which states that someone who lawfully acquires a copyrighted work is entitled to sell or dispose of their copy in any way they see fit, should protect the company’s actions. Redbox argues that because they properly purchased combo packs that included the digital download code, these codes should also be protected under the first sale doctrine. Just as Redbox is allowed to rent or sell the Blue-ray discs and DVDs under the first sale doctrine, the company argues that they should be allowed to sell the digital download codes.
Disney preempted this argument in their original filing, arguing that the digital download codes did not constitute a copy of the original work, but rather represented only a way for an authorized user of the digital download code to obtain a digital download of the work. Because these codes do not represent a copy of a copyrighted work, their sale is prohibited by Redbox. Disney argues that Redbox, in selling these codes, is contributorily liable for their customers because Redbox is essentially encouraging the purchasers of the codes to make infringing downloads. The terms of service for these digital downloads require that customers who access digital copies of these works have the physical discs that come with the combo packs. These codes, Disney argues, are only meant to be available to customers who have purchased the combo packs.
Redbox also argues that Disney is abusing their copyright protection by using it to vastly diminish competition. Because Disney does not sell digital codes as freestanding products, Disney’s suit against Redbox is solely an attempt to prohibit the downstream resale or transfer of their products. Indeed, Disney argues that the harm from Redbox selling these digital download codes include the loss of sales that they suffer because customers buy fewer combo packs when they can independently buy these digital download codes. Redbox accuses Disney of attempting to limit the resale of physical DVD and Blu-ray discs because they are requiring consumers to retain them to access digital movies. Redbox argues that because they are able to offer these digital codes cheaply, Disney is misusing the limited monopoly in copyright by trying to unfairly restrain competition.