Redbox Says Disney is Restraining Competition to Protect Coming Streaming Service

Redbox wants to turn a legal dispute over its sale of digital movie codes into a competition issue. The retailer is now defending itself from a lawsuit brought by Disney, and the first thing a California judge must decide is whether the Mickey Mouse giant is entitled to a preliminary injunction.

On Tuesday, Redbox suggested in court that Disney is engaged in copyright misuse and seeks “to stifle competition to more smoothly launch Disney’s own digital content streaming service, maximize the price other services like iTunes and Amazon (and their customers) pay for Disney movies, and secure a greater market share for Hulu — the viewing service Disney will control as part of its $52 billion acquisition of 21st Century Fox.”

Disney sells a number of “combo packs”, collections including a Blu-ray disc, DVD, and digital download code. The download code, marked “not for sale or transfer,” allows purchasers to redeem digital downloads of Disney content from authorized outlets and is the primary reason for the suit.

Disney objects to how Redbox disassembles “combo packs,” which include a Blu-ray disc, a DVD and a code that can be redeemed through authorized digital outlets and is marked “not for sale or transfer.” In Disney’s eyes, this amounts to a breach of contract on the terms in which such “combo packs” are sold as well as contributory copyright infringement. The latter claim essentially posits that customers who acquire movie download codes from Redbox and then redeem them are committing an unlawful act.

The defense notes Disney’s competitive intentions numerous times, and cites previous attempts at limiting Redbox’s success:

“Years ago, the movie studios attempted to quash competition by suing movie rental companies to prevent them from renting and reselling videocassettes. The courts rejected those efforts and held movie rental companies had the right to rent and sell the movies they purchased under the first sale doctrine.”

“Redbox would suffer significant financial harm and a loss of goodwill if its efforts were wasted because it was required to abruptly stop doing so. An injunction that removes Redbox from the digital download market when the technology is emerging is also likely to cause permanent and unquantifiable harm to its ability to participate in that market—a harm that is amplified by Disney’s impending launch of its own streaming service.”

“Redbox previously attempted to negotiate a vendor agreement with Disney. However, it demanded terms that would delay Redbox’s distribution of Disney new releases for so long as to seriously impede Redbox’s ability to rent and sell those titles when people want them most. As a result, Redbox turned to buying DVDs from retailers. Disney responded by prohibiting at least one retailer from selling to Redbox.”

 The case is being heard in the United States District Court, Central District of California, Western Division by Judge Dean D. Pregerson. The hearing date is set for February 5th.

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