Disney Sues Redbox Over Sale of Movie Download Codes

RedBox DVD Rental Kiosks - H - 2009
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In a new lawsuit that could test copyright boundaries, Disney is suing Redbox for allegedly selling digital codes that allow consumers the ability to access digital copies of movies.

Redbox operates DVD rental kiosks in retail stores throughout the nation. The company was once publicly traded and an important distributor for the entertainment industry. In 2016, Redbox's parent company was sold to Apollo Global Management, a private equity fund, for about $1.6 billion.

Now, though, Disney isn't liking what Redbox is doing to its "combo packs," which include a Blu-ray disc, a DVD and a code which can be redeemed through authorized digital outlets and is marked "not for sale or transfer."

According to a complaint filed in California federal court, "Redbox buys and disassembles the Combo Packs, then rents the discs through its kiosks and sells the Codes separately in violation of this prohibition. In addition, Redbox sells the Codes with the intent that its customers download or otherwise access the motion pictures to which the Codes provide access, with full knowledge that doing so violates the terms and conditions of Plaintiffs' copyright licenses governing that access."

Disney says that the codes are offered as a way of providing consumers who utilize physical media the opportunity to access the online entertainment ecosystem. The "combo packs" are discounted for consumers as an incentive to buy both physical and digital, and Disney aims to restrict use through the terms and conditions that govern a purchase.

Of course, Disney is asserting breach of contract by Redbox's alleged violation of these terms and conditions.

But Disney's complaint goes further by also accusing Redbox of contributory copyright infringement.

"When Redbox’s customers download Copyrighted Works using a Code purchased from Redbox, they do so without authorization and in violation of Plaintiffs’ exclusive rights under copyright, including the right of reproduction," states the complaint, prepared by Kelly Klaus at Munger, Tolles & Olson. "Redbox is contributorily liable for copyright infringement because it (a) has knowledge that its customers will be reproducing the Copyrighted Works without authorization when they use the Codes to download copies of those works, and (b) induces, encourages, or materially contributes to the violation of Plaintiffs’ rights through its unlawful resale of the Codes."

Disney also brings a third cause of action for tortious interference.

A subsidiary, it says, "has valid contracts with customers through the RedeemDigitalMovie.com terms of service. These contracts prohibit the redemption fo Codes by customers who do not own the accompanying physical product sold as part of the Combo Pack."

If that's not enough, Disney also asserts that the conduct of selling digital codes without authorization amounts to a violation of California's false advertising law. Here's the full complaint.

Redbox responded, "While we don’t comment on pending litigation, we feel very confident in our pro-consumer position."