Redbox Automated Retail LLC v. Universal City Studios LLLP | |
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Court | United States District Court for the District of Delaware |
Decided | August 17, 2009 |
Docket nos. | 1:08-cv-00766 |
Citation(s) | 2009 WL 2588748 [1] |
Holding | |
The court dismissed Redbox's copyright misuse and tortious interference with contract claims, but allowed the antitrust count to move forward. | |
Court membership | |
Judge(s) sitting | Robert B. Kugler |
Keywords | |
First-sale doctrine, Sherman Antitrust Act, Tortious interference |
Redbox Automated Retail LLC v. Universal City Studios LLLP, Dist. Court, D. Delaware 2009 was a case before Robert B. Kugler concerning copyright misuse, antitrust, and tortious interference with contract.
Redbox rents and sells DVDs through automated retail kiosks, and Universal Studios is a major movie studio. Redbox sued Universal on counts of copyright misuse, antitrust, and tortious interference with contract when Universal pressured Redbox to accept an agreement to only obtain titles from them after 45 days of initial DVD release. Universal pressured Redbox's distributors to stop providing titles to Redbox if Redbox did not accept this agreement. Universal did this to protect their profits, but since Redbox makes a majority of their profits within two weeks of DVD release, Redbox did not accept.
The court dismissed Redbox's copyright misuse and tortious interference with contract claims but allowed the antitrust count to move forward.
Redbox is a company that rents and sells DVDs through over 35,900 automated retail kiosks [2] inside chain restaurants, grocery stores, and drug stores in American cities. [1] Universal Studios is a major movie studio that produces many of the titles that Redbox rents. Universal was concerned that DVD kiosks jeopardize their profits from DVD sales and rentals, so they pressured VPD and Ingram, two of Redbox's major film distributors, to stop distributing to Redbox unless Redbox signs a Revenue Sharing Agreement to only obtain DVDs directly from Universal and only after 45 days of initial DVD release. Since new release DVDs generate 30% of the total revenue for that particular title in Redbox's kiosks, Redbox did not sign the agreement as it would damage their profits. [1]
As a result, Redbox claimed that they could no longer obtain titles through VPD and Ingram. They also claim that they could not obtain these titles through Walmart and Best Buy stores because the stores would either impose a limit on how many DVDs can be purchased at a time, or not sell to Redbox personnel entirely.
In October 2008, two months after the Revenue Sharing Agreement was proposed, Redbox began to raise claims against Universal Studios. In response, Universal motioned to dismiss some complaints. Redbox amended their previous complaint, added and omitted facts, and added more claims against Universal. Universal motioned in favor of their previous motion. The Court ordered mediation, but mediation fails. Eventually, the Amended Complaint sounded in six counts: (1) copyright misuse; (2) antitrust violations under the Quick Look Doctrine; (3) antitrust violations under the Rule of Reason doctrine; (4) antitrust violations amounting to restraint of trade; (5) antitrust violations under Section 1 of the Sherman Act; and (6) tortious interference with contract. [1]
Redbox asserts that Universal staged a boycott of sales of Universal DVDs to Redbox, which violates the first sale doctrine of Section 109(a) of the Copyright Act. The Court dismissed this assertion, because the claim of copyright misuse is unavailable to Redbox and is impertinent to the dispute. The Court claimed that copyright misuse is a defense and not a claim, so Redbox cannot raise such a claim.
The Court ruled that Redbox sufficiently pleaded Universal violated Section 1 of the Sherman Antitrust Act. The Court stated that Universal had convinced others to boycott Redbox in distribution of Universal DVDs, which damaged Redbox's ability to compete in the DVD rental and sales market. The Court was convinced that Universal's actions were anti-competitive in nature, and thus violated the Sherman Antitrust Act.
The Court dismissed Redbox's claim that Universal tortiously interfered with Redbox's contracts with DVD distributors VPD and Ingram. This is because the contracts between Redbox and its suppliers did not explicitly state that the suppliers must provide Universal DVDs to Redbox. The contracts merely obligate Ingram to "order DVD software from the studios at the pricing negotiated by Redbox". [1] Furthermore, Universal's contract with the distributors stated that "Distributor shall not sell to any account other than a retail account as verified by Universal." [1] Therefore, restricting the distributor's sale of Universal DVDs was in Universal's right.
On March 1, 2012, Redbox announced that it had agreed on a deal with Universal to offer DVDs 28 days after its initial release. [3] This deal was good through August 2014.
Redbox has had similar lawsuits and resolutions with other major film studios. Multimillion-dollar deals were signed with some studios that allowed Redbox to rent new release DVDs without delay, while deals with other studios have yet to be settled. [4] [5]
The Sherman Antitrust Act of 1890 is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.
In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These acts serve three major functions. First, Section 1 of the Sherman Act prohibits price fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that may substantially lessen competition or tend to create a monopoly. Third, Section 2 of the Sherman Act prohibits monopolization.
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Redbox Automated Retail, LLC is an American video on-demand streaming and video rental company specializing in DVD, Blu-ray, 4K UHD rentals and purchases and formerly video games via automated retail kiosks and TVOD, AVOD and FAST services via its website, Android and iOS apps and many consumer electronic devices. Redbox kiosks feature the company's signature red color and are located at convenience stores, fast food restaurants, grocery stores, mass retailers, and pharmacies.
In United States patent law, patent misuse is a patent holder's use of a patent to restrain trade beyond enforcing the exclusive rights that a lawfully obtained patent provides. If a court finds that a patent holder committed patent misuse, the court may rule that the patent holder has lost the right to enforce the patent. Patent misuse that restrains economic competition substantially can also violate United States antitrust law.
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The court's ruling was appealed to the United States Court of Appeals for the Ninth Circuit, which reversed the district court in part, upheld in part, and remanded for further proceedings. The Court of Appeals ruled that for a software licensee's violation of a contract to constitute copyright infringement, there must be a nexus between the license condition and the licensor’s exclusive rights of copyright. However, the court also ruled, contrary to Chamberlain v. Skylink, that a finding of circumvention under the Digital Millennium Copyright Act does not require a nexus between circumvention and actual copyright infringement.
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Amaretto Ranch Breedables, LLC v. Ozimals, Inc. was a copyright case in the United States District Court for the Northern District of California involving a DMCA takedown notice dispute between companies that produce virtual animals on Second Life. Ozimals filed a DMCA takedown notice to Linden Research, the makers of Second life, claiming that Amaretto's horse infringed on their bunnies and demanding their removal. Consequently, Amaretto responded with a counter-DMCA notice and applied to the court for a temporary restraining order to forbid Linden Research from removing their virtual horses. This was granted and held in effect as the case proceeded. Amaretto claimed in court that Ozimal's DMCA notice was copyright misuse and asked for a declaration that its horses did not infringe copyright. Ozimals counterclaimed for copyright infringement. The court eventually dismissed both claims.
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