Redbox Agrees to Never Again Sell Disney's Movie Download Codes

Redbox Kiosk Chicago - H 2014
AP Images

Redbox Kiosk Chicago - H 2014

On Thursday, Disney and Redbox informed a California federal judge that it had come to a settlement to end a two-year-old lawsuit that raised novel issues regarding sales and licensing restrictions in the digital age.

The case began when Redbox got a hold of Disney's "combo packs," comprising a Blu-ray disc, a DVD and a digital code. Redbox's traditional business has been renting kiosks in  in retail stores throughout the nation. Streaming services like Netflix and Hulu have disrupted that business. To compete, Redbox disassembled the "combo packs" and sold the download codes cheaply and separately.

Disney claimed this was a copyright violation.

Redbox responded that Disney was engaged in anticompetitive behavior by misusing copyrights to protect the coming launch of Disney+. Redbox argued that  it was allowed to resell the movie codes because of the first sale doctrine, which provides that someone who lawfully acquires a copyrighted work is entitled to sell or dispose of their copy. Redbox even demanded that Disney lose its right to enforce its copyrights.

The first round went to Redbox after U.S. District Court Judge Dean Pregerson saw merit in the copyright misuse defense and denied a preliminary injunction. The judge didn't like license agreements that purported to stop consumers from downloading movies without foregoing their statutorily guaranteed right to distribute their physical copies of that same movie.

But Disney revised the terms of the "combo packs," and on its second try, did convince the judge to issue an injunction.

"Under the old terms, a Combo Pack owner who disposed of the discs was indeed left with a worthless code because continued possession of the discs was a condition of digital access," wrote the judge. "Now, however, digital access is conditioned not on possession of the discs, but on the manner of Code acquisition."

Redbox, he added, had knowledge of clickwrap terms when acquiring the "combo packs" for disassembly and then sale.

On its counterclaims, Redbox then lost all but the claim that Disney had engaged in false advertising.

Rather than move forward, both sides are calling it quits.

Redbox has agreed to a permanent injunction against selling download codes. The court gets to retain jurisdiction to enforce the consent judgment.