Movie rental business hit with $62.4 million judgement for copyright infringement. DISNEY v. VIDANGEL

A copyright is a set of exclusive rights granted to the creator of a new expressive work. Works such as photographs, music and movies are all protected by copyright law. Copyright law grants the creator of a new work the exclusive right to reproduce, distribute, perform, display, transmit and create derivative works based on the original. If someone other than the copyright owner attempts to exercise one of these exclusive rights that can be considered copyright infringement. A copyright owner can combat copyright infringement in the United States by filing a lawsuit in federal district court.

17 U.S. Code § 106 (3) details the exclusive right to distribute a copyrighted work. That section states: the owner of copyright under this title has the exclusive rights to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending. The exclusive right to distribute is cut off when the copyright owner sells a copy of their work, with respect to that specific copy of the work. 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 owner. The right to distribute ends, however, once the owner has sold that particular copy. The first sale doctrine never protects a defendant who makes unauthorized reproductions of a copyrighted work, the first sale doctrine does not authorize infringing reproductions.

As technology progresses there are always companies that push the limit of what the law allows. A case that invovles the first sale doctrine being pushed to the limit is DISNEY ENTERPRISES, INC. et al v. VIDANGEL INC., 16-cv-0410 (C.D.CA 2019). The defendant in this case is an online streaming service that lets users rent movies and filter objectionable content from the movies. Defendant would purchase multiple physical discs containing a copyrighted movie, and then decrypt each disc to create a digital copy on a computer so that the movie could be tagged for 80 types of inappropriate content, including nudity, profanity, drug use, sex, and violence. Defendant would then upload the tagged copy to cloud storage in segments, and permit customers to purchase that particular copy from Defendant’s inventory. The customer could then select at least one type of filter to apply, and stream the filtered movie to a customer’s device. The defendant claimed that they were selling one the discs legitimately purchased by the defendant to their customers and allowing the customer the convenience of streaming the contents of the disc with the objectionable content filtered out. The physical disc never left the possession of the defendant. Customers could sell their “discs” back to the defendant, which would yield them store credit equal to the purchase price of their disc less $1 per day for each day of ownership. Thus, most customers would “rent” their copy for $1 per day.

The plaintiffs in this case are the movie studios whose discs the defendant purchased. The plaintiffs sued the defendant for copyright infringement. Specifically, the plaintiffs alleged that the defendant, violated the Digital Millennium Copyright Act by decrypting DVDs for internet streaming, was selling unauthorized reproductions of the movies, and that the filtered versions of the movies constituted derivative works. The defendant claimed that their activity was protected by the first sale doctrine and that the filtered version of the movies were a fair use.

The plaintiffs requested a preliminary injunction to prevent the defendant from continuing to stream movies owned by the plaintiffs. The trial court granted the injunction. The defendant appealed to the Court of Appeals for the Ninth Circuit. The Ninth Circuit held that the defendant was not protected by fair use because removing objectionable content “does not necessarily add something new or change the expression, meaning, or message of the film,” and is “not transformative.” The Ninth Circuit also held that the defendant’s streaming service was not protected by the first sale doctrine. Lawful owners “of a particular copy” of a copyrighted work are only entitled to “sell or otherwise dispose of the possession of that copy,” not to reproduce the work. By copying the disc to a computer hard drive for streaming, the defendant was reproducing the work.

After the appeal process concluded the trial court proceedings continued. The jury found in favor of the plaintiffs and issued a judgement of $62.4 million. The defendant has vowed to appeal the verdict, however given the size of the judgement it is difficult to see how the defendant will stay in business long term. It would have been easier for them to get a license from the copyright owners from the beginning rather than based their business model on legal theory.

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