Digital downloads of movie create copyright complications – Disney v. Redbox

Copyright law grants a copyright holder the exclusive right to make and distribute copies of their original works. A copyrighted work can be a photograph or a movie. When someone other than the copyright holder of a movie makes a copy of the movie that is considered copyright infringement. The copyright holder can sue a copyright infringer to stop the infringing activity and to get money damages. There is an exception to copyright law called the first sale doctrine. The first sale doctrine, codified at 17 U.S.C. § 109, provides that an individual who knowingly purchases a copy of a copyrighted work from the copyright holder receives the right to sell, display or otherwise dispose of that particular copy, notwithstanding the interests of the copyright holder. This means that consumers that lawfully purchase a copy of a movie are free to resell their copy of the movie.

The advancement of technology has created some ambiguities in copyright law. Copyright law in the United States was written long before computers and the internet were common household tools. In the past to purchase a movie you needed to purchase a physical object that contained the movie. But the internet allows consumers to download digital copies of movies. These digital downloads are not physical objects. In the past it would be clear that a consumer could resell their physical copy of a movie, but copyright law is unclear on how digital downloads are treated. Can a digital download be resold without infringing on the rights of a copyright holder?

A case which deals with this issue is Disney Enterprises, Inc. v. Redbox Automated Retail, LLC (2:17-cv-08655). Disney is a major entertainment company with a large portfolio of copyrighted movies. Disney has been selling DVD versions of its movies along with a code which allows consumers to download a digital copy of the movie they have purchased. Redbox is a vending machine company that allows consumers to rent or purchase movies from their automated kiosks. Redbox has distribution agreements with most major movie studios to purchase copies of movies directly from the movie studio. Disney has refused to allow Redbox to distribute their movies. To get around Disney’s refusal, Redbox has purchased Disney movies from other authorized distributors or retail stores. When Redbox gets a Disney movie that includes a digital download code, Redbox will sell that download code to customers in a separate package. Disney sued Redbox alleging that selling the code for a digital download was copyright infringement. Disney argues that the digital download code was not a sale of a copyrighted movie, it was a license to download a digital version of the movie.

The judge in the case sided with Redbox. The judge held that the language on the Disney retail packaging does not create an enforceable contract and that Disney has not demonstrated that its breach of contract argument is likely to succeed on the merits. The judge also agreed with Redbox’s assertion that Disney was misusing its copyrights by trying to restrict the reselling of digital downloads of its movies after a retail sale. However, the judge did not hold that the practice of reselling codes for digital download was protected by the First Sale Doctrine. The judge ruled that the first sale doctrine doesn’t apply because no copy of the movie exists when Redbox buys the retail package which contains a digital download code.

So, the judge has setup a peculiar situation. Digital downloads are not protected by the first sale doctrine, but restricting the resale legitimately purchased digital downloads may be copyright misuse. Hopefully the judge will issue a ruling that helps clarify this point. Redbox has filed a motion to dismiss the case, it is likely that this case will be appealed.

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