To follow up a story we two previous blogs (here and here), Redbox and Disney have settled their lawsuit over Redbox’s sale of download codes from Disney “combo packs.”
Combo packs were sets that Disney sold comprising a Blu-Ray and DVD of a movie plus a code that the purchaser could use to download a digital copy. Redbox bought combo packs at retail, broke them apart and sold the download codes separately from the physical discs.
Disney sought a preliminary injunction based on copyright infringement in February of 2018. Both parties’ arguments relied heavily on conflicting interpretations of the first sale doctrine, which states that once a person lawfully acquires a copy of a copyrighted work, she may then freely transfer it to others. There was no dispute that this doctrine permitted Redbox to sell or rent the Blu-Ray and DVD copies it acquired, but they differed on its applicability to the download codes. Redbox asserted that the paper slips containing the download codes were legally indistinguishable from the physical discs, while Disney’s position was that the codes were not themselves copies but only keys to permit consumers to create copies on their own computers.
The District Court agreed with Disney on the first sale issue, but interestingly, did not grant the preliminary injunction because it found that the terms of Disney’s license agreements for the download codes constituted misuse of copyright. The court found that under those agreements, the movies could only be downloaded by persons currently in possession of the discs with which they had been packaged. This meant that Disney was leveraging its copyrights to force consumers to sacrifice the free right to dispose of the physical discs that would otherwise be clearly permitted under the first sale doctrine.
After suffering such a narrow loss, it was a simple matter for Disney to revise the license terms for its download codes to say simply that the codes could not be sold separately. This was sufficient to overcome the copyright misuse argument, and Disney got its preliminary injunction in September 2018.
Although a preliminary injunction frequently brings an end to copyright litigation, Redbox fought on for another year. It continued to press its first sale arguments and attempted to bolster its allegations of copyright misuse by claiming that Disney was engaging in anticompetitive behavior to protect the launch of the Disney+ streaming service. Finally, however, in mid-November of this year the parties called it a day. Redbox agreed to a permanent injunction against selling download codes and gave the District Court continued jurisdiction to enforce its terms.
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