Zediva’s service is both simple and legally fascinating. The company buys new release DVDs, puts them in DVD players in a server room, and rents the device and movie to its customers for $1.99. The playback streams across the net to a user’s computer. Unlike, Netflix, Apple or iTunes, Zediva does not make a digital copy of the movie — and has no licensing deals with the studios. (By contrast, Netflix is constantly negotiating deals for streaming rights, and to land them, has agreed to not even rent DVDs by mail from some studios until a month after they go on sale to the public.)
Instead, Zediva says it operates much like real-world rental stores, which are allowed to rent movies without permission thanks to the “first-sale” doctrine of copyright law, which gives a buyer a set of rights to the item they purchased — including re-selling it or renting it out.
A few weeks after the company’s big public launch on March 16, Hollywood studios filed suit against the Sunnyvale, California-based start-up, alleging that the company was violating their rights as copyright holders to have exclusive control over “public performances” of their movies. The studios, including Fox, Warner Bros., Disney, Twentieth Century Fox, Paramount and Universal, are asking a federal court in California to issue an immediate injunction to shut down Zediva until the suit is finished, saying their businesses would be irreparably damaged if Zediva was allowed to continue operating.
Zediva, represented by respected copyright attorney Mark Lemley, told the court on June 17 in a court filing (.pdf) that the studios failed the tests necessary to get that order.
The company argues that the studios have long, and unsuccessfully, tried to make renting videos illegal.
The Studios lost. It is not illegal to rent movies to others without the copyright holder’s permission. Blockbuster is free to rent the same movie to many different customers in its stores. Netflix is free to mail DVDs to its rental customers. They must buy the DVDs from the Studios, but once they do, the Studios have been paid, and they have no right to demand a share of the rental fee.
Only if a company goes beyond renting the disc they purchased, and actually broadcasts its one lawful copy to the public at large (by showing it on television, for instance), does the copyright owner have the right to be paid a second time.
That is the law, but the Studios would prefer it otherwise. They have built a business model based on “windowing” the release of their films in a particular sequence, and complain that Zediva’s business model is at odds with their own. Perhaps. But a business model, no matter how large and powerful the business, cannot substitute for or alter the law. And when that business model demands that the business be paid twice for a product it sells once, it must yield to the law.
And as for the injunction?
Zediva argues that the studios claim that they would be irreparably harmed if Zediva continued operation is false, since it’s not hard to put a price on a video rental. Apple pays the studios about $2.80 for every $3.99 rental through iTunes. So if indeed a court found Zediva guilty of infringement, the studios would only need to multiply the number of Zediva rentals times $2.80 to come up with a monetary damages figure.
Secondly, Zediva argues that one of the conditions for getting an injunction is that there needs to be a sense of urgency — something it says the studios haven’t shown. For instance, the suit filed against Zediva came weeks after its public launch, and months after Zediva was open to users in a beta.
And the studios knew about the beta as early as November 2010, the company argues, citing a number of IP addresses belonging to the studios from its 2010 server logs.
In fact, Zediva claims that “an IP address belonging to Disney watched a movie using the Zediva service on November 30, 2010.” Furthermore, the company says that someone using the e-mail address of Lawrence Jacobs, the general counsel for News Corporation, the parent company of Twentieth Century Fox, signed up for an account on December 10.
“When companies face urgent problems necessitating immediate relief to avoid irreparable harm, they do not sit silent for months before even broaching the issue,” Zediva’s filing says. “The Studios’ delay confirms that their claim does not justify drastic, preliminary relief, but instead can be adjudicated in an orderly fashion…”
Zediva argues that it’s service is legal. They argue that recent court decisions that have gone against the studios (such as the legality of a cloud-based DVR in the Cablevision case) support their reading of copyright law.
Read more at Wired
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