Disney, Redbox Wrangle Over Contract Terms for Digital Codes

LOS ANGELES (CN) – The feud between Redbox and Disney over Redbox’s practice of selling download codes to digital copies of Disney movies continued in Los Angeles federal court Wednesday and centered on what constitutes a contract.

Disney sued Redbox this past November seeking to stop movie-rental giant from selling digital-access codes to its customers, calling the practice a violation of copyright law.

Redbox countersued with claims of copyright misuse, tortious interference with prospective economic advantage, false advertising under state and federal law and unfair competition.

The company known for its rental kiosks sought to dismiss Disney’s complaint, saying the House of Mouse engages in anticompetitive, anti-consumer behavior and has created restrictions on its media content that amount to copyright misuse.

Glenn Pomerantz, an attorney for Disney and their film branch Buena Vista Home Entertainment, argued Wednesday that because Redbox is “not a direct competitor” to Disney it can’t claim that the Burbank, California-based media giant engages in unfair practices to gain market advantage.

U.S. District Judge Dean Pregerson asked Pomerantz whether his “analysis would change if Redbox was a direct competitor” of Disney.

“Disney can still choose who to sell to and we have a right to tell distributors not to sell sideways to other retailers,” Pomerantz said.

Redbox attorney Michael Geibelson said Disney has used “aggressive” efforts to prevent Redbox from purchasing Disney “combo packs” that contain a DVD, a high-definition Blu-ray disc and a download code. Pomerantz disagreed

“They use terms like ‘coerce’ and ‘aggressive’ but we entered into an agreement and enforced that agreement,” Pomerantz said. “That is totally lawful in any competitive agreement.”

Disney says in its complaint that Redbox’s sale of those codes constituted “tortious inference” with the relationship between Disney, its customers and the licensees of those download codes.

But Redbox argues that under standards laid out in Proposition 64 – an amendment to the state’s business and professions code – Disney failed to adequately explain the terms and conditions on the combo packs.

The proposition requires that “all advertisements and marketing shall accurately and legibly identify the licensee responsible for its content.”

Again, Pomerantz struck back at the argument.

“[Redbox] can’t plead that they were harmed by false ads,” Pomerantz said. “The Redbox customer who buys the code never knows it came from a combo pack so they couldn’t have known the terms.”

Pregerson asked attorneys for Disney and Buena Vista whether download codes purchased by customers come with “personal identifiers” and clear explanations of the terms. He also asked if a purchase includes a clause granting customers a “right to return” the product to the store if they don’t agree to those terms.

Kelly Klaus, an attorney for Disney, said return rights are part of the agreement. Terms, however, depend on the plan customers select on Disney’s streaming site Movies Anywhere.

Some plans allow for downloads across three or four devices, he said, though customers generally receive a non-transferable license.

Geibelson said that “instead of putting animated spandex on the back DVD covers” – ostensibly a reference to a packaging gimmick for a recent release – Disney should consider printing terms and conditions of the licensing agreements on the back of DVD cases so customers understand the contract they’re entering into with their purchase.

Pregurson asked if Geibelson was suggesting that Disney “print out 37-page terms and conditions contracts” and slap them on the back of DVD cases.

“That would be a first step,” Geibelson said, adding: “Putting it on the back of the package is not [customer] acceptance. No contract has been formed.”

Pregerson then asked if retailers should follow a model that asks customers to sign a series of boxes on a digital screen that explains the full terms.

“It’s done every day in retail stores,” Geibelson said. “There is no additional burden.”

Geibelson said the idea of a right to return would require Redbox to put the combo packs back together. The burden would then fall on retailers to decide whether a customer’s disagreement with licensing terms is justification enough for a return, he said.

But Klaus noted Redbox customers never see the packaging of the DVD they’re renting, which he said is proof that there is no “unfair surprise” from Disney regarding licensing terms.

And Pomerantz called Redbox’s concerns about customers seeing the licensing terms a “smokescreen.”

“The only relevant contract is the one that customers click on when they visit the download website,” Pomerantz said. “If customers are confused about the terms, Redbox should settle that, since they have the combo packs.”

Redbox attorney Michael Keeley, with the firm Axinn Veltrop and Harkrider, said Disney wants to limit price competition as it prepares to roll out its own streaming service and distribute its digital content through retailers like iTunes and Google.

“Disney is acting on its own interest and Redbox is acting on the interest of offering customers low-cost access to content,” Keeley said.

Attorneys for Disney and Buena Vista did not respond to a request for comment on Keeley’s statement by press time.

In February, Pregerson denied Disney’s request to bar Redbox from selling download codes found in movie combo packs by Disney, Lucasfilm and Marvel Film.

“The phrase “codes are not for sale or transfer” cannot constitute a shrink wrap contract because Disney’s combo-pack box makes no suggestion that opening the box constitutes acceptance of any further license restrictions,” Pregerson wrote.

Disney’s claims include copyright infringement, breach of contract, tortious interference with contract, false advertising and unfair competition.

Pregerson gave Redbox attorneys until June 11 to respond to new exhibits submitted in the case. He also asked both parties if there were any efforts made to “resolve matters.”

Geibelson acknowledged “ongoing conversations” between Redbox and Disney.

Also on Wednesday, the Justice Department cleared Disney’s $71 billion bid for 21st Century Fox on the condition Disney sells off Fox regional sports networks since it already owns ESPN.

The bid approval gives Disney an advantage over Comcast, which is also bidding to buy Fox.

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