VidAngel Struggling to Stay in Business Amid Accusation of Defying Injunction

DVD Packing Factory - H 2012
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DVD Packing Factory - H 2012

More than a week ago, a federal judge issued an injunction against VidAngel, a streaming service that allows its users the ability to filter out nudity, language and other objectionable content. A judge agreed with Warner Bros, Disney and 20th Century Fox that VidAngel was likely violating copyright law by breaking the encryption on DVDs and Blu-Rays to stream digital content of hit movies and television shows. Despite the ruling, VidAngel touted its financial resources and pledged to aggressively pursue an appeal.

But the road ahead might not be so easy for the upstart.

On Tuesday, the studios' lawyer told the judge that despite the injunction, VidAngel refused to remove copyrighted works from the service, and moreover, it had added new content including Sully, Storks and Miss Peregrine's Home for Peculiar Children.

"VidAngel’s defiance of the Preliminary Injunction is flagrant," stated a declaration from attorney Kelly Klaus. "If VidAngel will not comply with the Preliminary Injunction immediately, Plaintiffs will have no option other than to move ex parte for an order to show cause why VidAngel should not be held in contempt."

On Wednesday night, VidAngel filed its response and outlined the nightmare at hand. The company is pushing the judge to hold off on the injunction pending an appeal to the 9th Circuit, and if U.S. District Judge Andre Birotte Jr. refuses, VidAngel could have an extremely serious problem at hand.

"When I learned of the injunction of the preliminary injunction the night of December 12, 2016, I immediately began to investigate how VidAngel could comply with the injunction without going out of business completely and without causing unintended problems for our customers," states VidAngel CEO Neal Harmon in his own declaration.

Harmon points some of the blame at app stores such as Roku, Apple, Google Play and Amazon Fire TV.

"To avoid risking disruptions to their users' experience during a critical time of the year, the Apple and Roku stores do not permit modifications to their applications during the holiday season," he states.

As a result, he says, pulling specific titles isn't possible.

"To immediately shutdown, we would have to block access to all titles," he tells the judge.

Harmon seems to think it's unfair that VidAngel be forced to pull titles it has licensed, like Excel Entertainment's The Last Descent, or maybe even the titles from the three major studios — Universal, Paramount and Sony — that weren't plaintiffs. He also tells the judge that since the injunction issued, VidAngel has contacted over 125 studios or distributors to let them know that if it can't stay the injunction pending appeal, absent a covenant not to sue, it will cease filtering and streaming their works.

"To date, one such company — MGM — has rejected our request for a covenant not to sue and we have yet to hear from many others," he says.

That's only the beginning of VidAngel's problems.

The tech service has touted a unique business model — "You buy a movie for 20 dollars," it tells customers. "Don't worry, it ends up being one dollar. Since you own the movie, you can legally set your filters. Now watch your movie. Then, with the click of a button, sell it back to us for 19 dollars of credit. That means each movie is only one dollar. It's that simple."

It is hardly simple. First, the judge in his opinion distinguished between authorization to view a DVD and authorization to view decrypted digital content on an alternative platform. Now, the specter of telling all its customers they won't be able to watch what was advertised as being sold to them amounts to one hell of a headache.

"To immediately block access to all (or all of plaintiffs') existing titles, would cause a customer-relations nightmare to address the problem of customers who permanently owned discs that they now could not watch, with no explanation," states Harmon in his declaration.

That might be underselling the problem, too. Could any of its users sue? Would sending customers physical DVDs avoid liability? Those are questions for another day.

In the meantime, there is yet one more problem that VidAngel's business is suddenly facing.

According to Harmon, "VidAngel today learned that its payment processing company has indicated that, absent a stay, it might sever relations with VidAngel as early as next week."