Disney Wants ‘Genie Back in the Bottle’ for Download Codes, Redbox Says

LOS ANGELES (CN) – Disney asked a federal judge Monday to stop movie-rental giant Redbox from selling digital-access codes to its customers, calling the practice a violation of copyright law and arguing Redbox should know better being in the digital-media business.

But Redbox says it is like any other consumer of Disney products, having legally purchased combo packages with DVDs, Blu-Ray discs and download codes, and it reserves the right to sell those codes.

Attorney for Disney Enterprises, Kelly Klaus with Munger Toles, called Redbox a “sophisticated consumer” that should be aware of the terms and conditions when selling digital-download codes that were bundled with physical DVDs and Blu-Ray discs from Disney.

“You have a company that bought a million codes and used similar wording on their own site,” said Klaus.

“Redbox’s primary argument is not that we didn’t understand, but instead they’ve said they are entitled to ignore the prescription.”

The wording Klaus referred to was “Codes not for sale or transfer” found on DVD packages. In its countersuit, Redbox said it “procures digital movie download codes at full retail price (meaning that Disney gets paid) and resells them to customers.”

U.S. District Judge Dean Pregerson asked if a consumer who buys a combo pack that included a DVD and download code is allowed to transfer the code to a family member.

“Our position would be that would be a violation to the purchase agreement,” said Klaus. “But we would not bring a federal suit.”

In its federal complaint, Disney says Redbox “buys and disassembles the combo packs, then rents the discs through its kiosks and sells the codes separately in violation of this prohibition.”

That eats into sales for all properties distributed by Buena Vista Home Entertainment, including co-plaintiffs Lucasfilm, Disney and Marvel Comics’ film arm MVL Film Finance, according to the lawsuit.

Represented by Michael Geibelson with Robins Kaplan on Monday, Redbox argues there is different language found on the DVD jewel cases, the actual DVD discs, the paper where the codes are found and what is given to the consumer. When a consumer is holding a physical copy at a store the language is clear, said Geibelson.

“’Your digital copy is waiting.’ When you look at those papers, with the codes, it tells you more about a digital copy. Not a license of a digital copy,” Geibelson said.

What Disney wants to do is change the language on all of those after the fact and try “to put the genie back into the bottle,” Geibelson said.

Disney says Redbox is breaking the law with the sale of the download codes. Language on the packaging says the items are for “private use,” but the entertainment giant says Redbox did not buy directly from it.

In its countersuit filed earlier this month, Redbox says Disney wants to “eliminate low-cost options like Redbox in order to force consumers to pay as much as possible for Disney’s content,” and is laying the groundwork for a “direct to consumer” model. That plan includes purchasing a majority interest in the streaming service Hulu and plans to launch a streaming service with Disney content.

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

Redbox’s counterclaims include copyright misuse, tortious interference with prospective economic advantage, false advertising under state and federal law and unfair competition.

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