Legal News

Movie Studios See Red

By Brian Harris

Several years ago, I moved into a new home and I set out for a walk.  I quickly discovered, just two blocks away, a large self-service vending machine on a street corner.  The machine seemed to have everything I could ever need and obviated the need for any last-minute runs to a convenience store or minimart.  On one side of the machine were $1 DVD rentals.  On another side was what seemed like a full convenience store, with milk, detergent, bath products and the obligatory snacks.  The machine was a ?Redbox.?  Unfortunately, the convenience store part of it vanished after only a few months, but the DVD-rental part of the machine persisted for several years before finally closing up shop. 

So it was with some nostalgia recently that I learned about the antitrust lawsuits pending in federal court in Delaware about Redbox movie rental machines.  It seems that, my experience notwithstanding, the movie-rental portion of Redbox ? which is owned by Coinstar ? is alive and well.  Not only that, but Redbox has movie studios seeing red because it employs a distribution system that allocates less revenue to the studios than when consumers buy or rent DVDs from other sources. 

As Redbox cut into its profits, Universal Studios decided to take action.  According to Redbox, Universal pressured two distributors from which Redbox sourced its DVDs to stop selling Redbox new-release Universal DVDs.  Redbox also claims that Universal went one step further and enlisted other players in the market for DVD sales, such as Wal-Mart, also to refuse to sell to Redbox.  So, Redbox did what any red-blooded American would do ? it sued. 

Specifically, Redbox filed a lawsuit in Delaware alleging that Universal?s conduct violates copyright and antitrust law, among other things.  On Aug. 17, Judge Robert Kugler dismissed the copyright misuse claims.  He did, however, let the antitrust claims go forward.  Of note, the court held that Redbox had sufficiently alleged that Universal induced or convinced others to boycott Redbox in distribution of Universal DVDs and that that conduct had an anti-competitive effect by limiting Redbox?s ability to compete in the DVD rental and sales market for Universal DVDs. 

Nor is this the end of the story.  Recently, 20th Century Fox said that it, too, would instruct its wholesale distributors to stop supplying new-release movies to Redbox.  As was to be expected, Redbox filed another suit, also in Delaware, making similar allegations against Fox.  It?s not yet clear how this will all play out, or if any of this will matter by the time the case is done.  By then, we could all be downloading or streaming our movie rentals anyway. 

One side note to all of this.  Kugler?s opinion follows a model set by Judge Alex Kozinski of the 9th U.S. Circuit Court of Appeals nearly 20 years ago in United States v. Syufy Enterprises.  In his opinion in that case, about alleged antitrust violations by an owner of movie theaters, Kozinski embedded the names of hundreds of movie titles.  Kugler could not muster quite as many, but give him credit for effort.  He managed to work in 16 movie references in four-and-half pages of factual background ? without a single red herring.   

Joshua D. Wolson is a member of the litigation department at Dilworth Paxson.  He can be reached at 215-575-7295 or jwolson@dilworthlaw.com.  This posting is for informational purposes only and should not be construed or interpreted as legal advice on any matter.

Full post as published by The Legal Intelligencer Blog on August 20, 2009 (boomark / email).