Case 2:17-cv-08655-DDP-AGR Document 43 Filed 01/23/18 Page 1 of 32 Page ID #:929

1 GLENN D. POMERANTZ (State Bar No. 112503)
glenn.pomerantz@mto.com
2 ROSE LEDA EHLER (State Bar No. 296523)
rose.ehler@mto.com
3 MUNGER, TOLLES & OLSON LLP
350 South Grand Avenue, 50th Floor
4 Los Angeles, California 90071-3426
Telephone: (213) 683-9100
5 Facsimile: (213) 687-3702
6 KELLY M. KLAUS (State Bar No. 161091)
kelly.klaus@mto.com
7 CAROLYN HOECKER LUEDTKE (State Bar No. 207976)
carolyn.luedtke@mto.com
8 STEPHANIE GOLDFARB HERRERA (State Bar No. 313887)
stephanie.herrera@mto.com
9 MUNGER, TOLLES & OLSON LLP
560 Mission Street, 27th Floor
10 San Francisco, California 94105-2907
Telephone: (415) 512-4000
11 Facsimile:
(415) 512-4077
12 Attorneys for Plaintiffs
13
14

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

15
16 DISNEY ENTERPRISES, INC., et al.
17
Plaintiffs,
18

vs.

19 REDBOX AUTOMATED RETAIL,
20 LLC,
Defendant.
21
22
23

Case No. 2:17-cv-08655-DDP (AGRx)
REDACTED VERSION OF
DOCUMENT PROPOSED TO BE
FILED UNDER SEAL
PLAINTIFFS’ REPLY IN SUPPORT
OF MOTION FOR PRELIMINARY
INJUNCTION
Judge:
Date:
Time:
Ctrm:

Hon. Dean D. Pregerson
February 5, 2018
10:00 a.m.
9C

27

Filed concurrently herewith:
(1) Declaration of Jason Curtis and
exhibit thereto;
(2) Supplemental Declaration of Janice
Marinelli; and
(3) Supplemental Declaration of Rose
Leda Ehler and exhibits thereto.

28

Trial Date:

24
25
26

None Set
REPLY ISO MOT. FOR PRELIM. INJ.
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TABLE OF CONTENTS

1

Page

2

3 INTRODUCTION ....................................................................................................... 1
4 ARGUMENT ............................................................................................................... 3
5 I.
6

REDBOX’S FIRST-SALE AND COPYRIGHT MISUSE DEFENSES
FIND NO SUPPORT IN THE LAW ................................................................ 3
A.

The First-Sale Defense Does Not Apply Because Codes Are Not
“Copies” Of Movies ................................................................................ 3

8

B.

Redbox’s Copyright Misuse Arguments Are Baseless ........................... 5

9 II.

REDBOX FAILS TO COUNTER DISNEY’S SHOWING OF
LIKELY SUCCESS .......................................................................................... 7

7

10

A.

Redbox Is Bound By And Has Violated The Terms Of Disney’s
Box-Top Contracts Prohibiting The Sale Of Codes ............................... 7

B.

Redbox Is Contributorily Liable For Its Customers’
Unauthorized Copying ............................................................................ 9

C.

14

Redbox Misconstrues Disney’s State-Law False Advertising
Claims And Misunderstands The Applicable Law ............................... 13

15

1.

The Deceptive Advertising Claims Are Not Preempted Or
Subject To A “Safe Harbor” ....................................................... 13

2.

Disney Has Standing To Seek Relief Under The UCL And
FAL Because Redbox Is Harming Disney’s Goodwill .............. 14

3.

The UCL And FAL Claims Do Not Require
Extraterritorial Application Because There Is A Sufficient
Nexus Between Redbox’s Misrepresentations And
California .................................................................................... 14

11
12
13

16
17
18
19
20

D.

Disney Will Succeed On Its Tortious Interference Claim Because
Redbox Interferes With Contracts That Disney Already Has With
Its Customers......................................................................................... 15

E.

Disney Is Likely To Succeed On Its UCL “Unlawful” Claim
Because Redbox Violates State Law .................................................... 16

21
22
23
24 III.
25
26
27

REDBOX IGNORES OR DOWNPLAYS THE CLEAR EVIDENCE
THAT ITS ILLEGAL CONDUCT IS IRREPARABLY HARMING
DISNEY’S RELATIONSHIPS WITH LICENSEES AND
CUSTOMERS ................................................................................................. 16
A.

The Harm To Disney’s Relationships With Licensees And
Customers Is Imminent And Real, Not Speculative ............................. 16

28
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TABLE OF CONTENTS
(continued)

1
2
3
4
5
6
7
8
9

Page

1.

Redbox’s Illegal Conduct Threatens Disney’s Goodwill
And Relationships With Its Licensees ........................................ 16

2.

Redbox Ignores Record Evidence Of Consumer Confusion ...... 18

3.

Redbox Cherry Picks Evidence In Arguing That Its Sale
Of Codes Is Not Hurting Disney’s Business .............................. 19

B.

Redbox’s Claim That Its Illegal Conduct “Benefits” Disney Is
Wrong And Disingenuous At Best ....................................................... 20

C.

Contrary To Redbox’s Claim, The Harms To Disney Are Neither
Easily Quantified Nor Remedied With Monetary Damages ................ 22

10 IV.

REDBOX’S CLAIMED HARDSHIP IS LEGALLY IRRELVANT ............. 23

11 V.

REDBOX GETS THE PUBLIC INTEREST BACKWARDS ....................... 24

12 CONCLUSION.......................................................................................................... 25
13
14
15
16
17
18
19
20
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1

TABLE OF AUTHORITIES
Page(s)

2
3 FEDERAL CASES

4 A&M Records, Inc. v. Napster, Inc.,
239 F.3d 1004 (9th Cir. 2001) ................................................................... 2, passim
5
6 Apple Inc. v. Psystar Corp.,
658 F.3d 1150 (9th Cir. 2011) ...................................................................... 6, 7, 24
7
8 Apple Inc. v. Psystar Corp.,
673 F. Supp. 2d 943 (N.D. Cal. 2009).................................................................. 24
9
Ariz. Cartridge Remanufacturers Ass’n v. Lexmark Int’l Inc.,
10
421 F.3d 981 (9th Cir. 2005) ............................................................................ 9, 13
11
Bobbs-Merrill Co. v. Straus,
12
210 U.S. 339 (1908) ............................................................................................... 4
13
Burke & Van Heusen, Inc. v. Arrow Drug, Inc.,
14
233 F. Supp. 881 (E.D. Pa. 1964)........................................................................... 4
15 Capitol Records, LLC v. ReDigi Inc.,
934 F. Supp. 2d 640 (S.D.N.Y. 2013) .................................................................... 4
16
17 Disney Enters., Inc. v. VidAngel Inc.,
869 F.3d 848 (9th Cir. 2017) ......................................................................... passim
18
19 Disney Enters., Inc. v. VidAngel,
No. 2:16-cv-04109-AB-PLA (C.D. Cal. Aug. 10, 2017) ....................................... 5
20
21 DSC Commc’ns Corp. v. DGI Techs., Inc.,
81 F.3d 597 (5th Cir. 1996) .................................................................................... 7
22
Ehret v. Uber Techs., Inc.,
23
68 F. Supp. 3d 1121 (N.D. Cal. 2014).................................................................. 14
24
Herb Reed Enters., LLC v. Fla. Entm’t Mgmt., Inc.,
25
736 F.3d 1239 (9th Cir. 2013) .............................................................................. 22
26 Klamath Water Users Protective Ass’n v. Patterson,
204 F.3d 1206 (9th Cir. 1999) .............................................................................. 11
27
28
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1

TABLE OF AUTHORITIES
(continued)

2

Page(s)

3 Lasercomb America, Inc. v. Reynolds,
911 F.2d 970 (4th Cir. 1990) .................................................................................. 7
4
5 London-Sire Records, Inc. v. Doe 1,
542 F. Supp. 2d 153 (D. Mass. 2008)..................................................................... 5
6
MDY Indus., LLC v. Blizzard Entm’t, Inc.,
7
629 F.3d 928 (9th Cir. 2010) ................................................................................ 15
8
Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.,
9
454 F. Supp. 2d 966 (C.D. Cal. 2006) .................................................................... 5
10
Nicole, Inc. v. B.L.K. Int’l, Inc.,
11
No. CV 15-01892-RGK (Ex), 2015 WL 12826459 (C.D. Cal. June
25, 2015) ............................................................................................................... 13
12
13 Norcia v. Samsung Telecommunications America, LLC,
845 F.3d 1279 (9th Cir. 2017) ................................................................................ 8
14
Obesity Research Inst., LLC v. Fiber Research Int’l, LLC,
15
165 F. Supp. 3d 937 (S.D. Cal. 2016) .................................................................. 14
16
Omega S.A. v. Cosco Wholesale Corp.,
17
776 F.3d 692 (9th Cir. 2015) .................................................................................. 7
18
Oracle USA, Inc. v. Rimini Street, Inc.,
19
Nos. 16-16832, 16-16905, 2018 WL 315568 (9th Cir. Jan. 8, 2018) ................ 2, 6
20 Pendleton Woolen Mills, Inc. v. Kraff’s Men’s Wear Co., Inc.,
No. 3:14-CV-628-PK, 2014 WL 7777762 (D. Or. Nov. 21, 2014) ....................... 5
21
22 Perfect 10, Inc. v. Amazon.com, Inc.,
508 F.3d 1146 (9th Cir. 2007) ................................................................................ 6
23
24 Practice Mgmt. Info. Corp. v. Am. Med. Ass’n,
121 F.3d 516 (9th Cir. 1997) .............................................................................. 6, 7
25
26 In re Qualcomm Litig.,
No. 17-CV-00108-GPC-MDD, 2017 WL 5985598 (S.D. Cal. Nov.
27
8, 2017) ................................................................................................................. 14
28
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1
2

TABLE OF AUTHORITIES
(continued)

Page(s)

3 Red Baron-Franklin Park, Inc. v. Taito Corp.,
883 F.2d 275 (4th Cir. 1989) .................................................................................. 3
4
5 Softman Prods. Co. v. Adobe Systems Inc.
171 F. Supp. 2d 1075 (C.D. Cal. 2001) .................................................................. 4
6
Triad Sys. Corp. v. Se. Express Co.,
7
64 F.3d 1330 (9th Cir. 1995) ................................................................................ 23
8
Ulti-Mate Connectors, Inc. v. Am. Gen. Life Ins.,
9
No. SACV 14-1051-JLS, 2015 WL 12734007 (C.D. Cal. Mar. 27,
2015) ..................................................................................................................... 15
10
11 UMG Recordings, Inc. v. Augusto,
628 F.3d 1175 (9th Cir. 2011) ................................................................................ 4
12
13 United States v. Colgate & Co.,
250 U.S. 300 (1919) ............................................................................................... 6
14
United States v. Wise,
15
550 F.2d 1180 (9th Cir. 1977) ................................................................................ 5
16
Valente-Kritzer Video v. Pinckney,
17
881 F.2d 772 (9th Cir. 1989) ................................................................................ 13
18
Variant Displays, Inc. v. Absolute Exhibits, Inc.,
19
SACV 15-01685-CJC (JCGx), 2016 WL 7486282 (C.D. Cal. May
31, 2016) ............................................................................................................... 13
20
21 Vernor v. Autodesk, Inc.,
621 F.3d 1102 (9th Cir. 2010) .............................................................................. 12
22
23 Warner Bros. Entm’t v. WTV Sys., Inc.,
824 F. Supp. 2d 1003 (C.D. Cal. 2011) ................................................................ 17
24
Winter v. Nat. Res. Defense Council, Inc.,
25
555 U.S. 7 (2008) ................................................................................................. 18
26
STATE CASES
27
Day v. AT&T Corp.,
28
63 Cal. App. 4th 325 (1998) ................................................................................. 13
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1

TABLE OF AUTHORITIES
(continued)

2

Page(s)

3 Golden Eagle Ins. v. Foremost Ins.,
20 Cal. App. 4th 1372 (1993) ................................................................................. 8
4
5 Lazar v. Hertz Corp.,
69 Cal. App. 4th 1494 (1999) ............................................................................... 14
6
FEDERAL STATUTES
7
8 17 U.S.C. § 101........................................................................................................ 1, 3
9 17 U.S.C. § 109(a) ............................................................................................... 1, 3, 4
10 17 U.S.C. § 301(a) ..................................................................................................... 13
11
STATE STATUTES
12
Cal. Civ. Code § 1589.................................................................................................. 8
13
OTHER AUTHORITIES
14
15 Lauren Gensler, Redbox Parent To Be Taken Private for $1.6 Billion,
Forbes (Jul. 25, 2016, 9:14 AM)
16
https://www.forbes.com/sites/laurengensler/2016/07/25/redboxcoinstar-outerwall-acquisition-apollo-1-6-billion/#40938fb46c45 ...................... 23
17
18
19
20
21
22
23
24
25
26
27
28
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1
2

INTRODUCTION
This case has nothing to do with “stifl[ing] competition,” imposing “after-the-

3 fact licenses,” or “requir[ing] consumers to pay higher prices.” Opp. at 1–2. This
4 case is about Redbox flouting the law, interfering with Disney’s relationships with
5 customers and law-abiding content distributors, and misappropriating Disney’s
6 content to boost Redbox’s bottom line. Redbox’s claim that the Court can do
7 nothing to stop it distorts the law and the facts.
8

Redbox grounds most of its opposition on a single defense—“first sale” under

9 § 109(a) of the Copyright Act. That defense applies only to the ability of an owner
10 of “a particular copy” of a work to further distribute that copy after the copyright
11 owner has disposed of it. 17 U.S.C. § 109(a). The Copyright Act defines “cop[y]”
12 as a “material object … in which the work is fixed,” i.e., “embodi[ed].” Id. § 101.
13 A Code is none of these things. It is an alphanumeric passcode printed on a piece of
14 paper that, as Redbox puts it, is merely a “key to unlock the movie that’s stored”
15 elsewhere. Supplemental Declaration of Rose Leda Ehler (“Suppl. Ehler Decl.”)
16 Ex. U, Chamberlain Dep. 77:2–5. As Redbox readily admits, “[t]here’s no movie on
17 the piece of paper.” Id. Ex. W, Smith Dep. 47:4; see also id. Ex. U, Chamberlain
18 Dep. 77:6–16.
19

Redbox is liable for breach of contract because Redbox knows and accepts

20 when it buys Blu-ray/DVD/Digital HD combination packages (“Combo Packs”) that
21 “Codes are not for sale or transfer.” Declaration of Kelly M. Klaus (Dkt. 15)
22 (“Klaus Decl.”) Ex. C. Redbox tries to dismiss this (and other iterations of the same
23 prohibition) as “cryptic and ambiguous words,” Opp. at 1, but no Redbox witness
24 will say under oath that Redbox did not understand the prohibition against selling
25 Codes when it bought Combo Packs. As the testimony of Redbox’s witnesses
26 makes clear, Redbox simply chose to ignore that language believing it could hide
27 behind its first-sale defense. See, e.g., Suppl. Ehler Decl. Ex. W, Smith Dep.
28 103:16–21. In any event, Redbox knows what the language means now, and has
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1 avowed that it will continue buying Combo Packs and selling Codes indefinitely,
2 unless and until it is enjoined by the Court.
3

Redbox is liable for copyright infringement because it encourages and

4 materially contributes to its customers’ unauthorized copying when they download a
5 digital copy of a movie in violation of the condition that the person redeeming the
6 Code also own the physical discs that were part of the Combo Pack. This is not an
7 “after-the-fact” condition, Opp. at 11, but one the redeemer must satisfy to be
8 entitled to make the downloaded copy. Without the necessary authorization,
9 Redbox’s customers violate Disney’s reproduction right, and Redbox is
10 contributorily liable for that infringement.
11

Redbox’s final liability defense is the last redoubt of all mass pirates:

12 copyright misuse. Redbox claims the Combo Pack prohibitions and redemption-site
13 terms are “unduly burdensome” and attempts “to fix prices.” Opp. at 15, 17.
14 Nonsense. It is not misuse for Disney, the copyright owner, to license the use of its
15 works “only on terms [it] finds acceptable,” A&M Records, Inc. v. Napster, Inc.
16 (Napster), 239 F.3d 1004, 1027 (9th Cir. 2001) (citation omitted), or to use
17 “conditions to control use of copyrighted material,” Oracle USA, Inc. v. Rimini
18 Street, Inc., Nos. 16-16832, 16-16905, 2018 WL 315568, at *7 (9th Cir. Jan. 8,
19 2018) (citation omitted). Redbox has not come close to raising a misuse issue.
20

Redbox’s efforts to trivialize the harms of its conduct to Disney likewise fail.

21 Disney’s licensees did not simply ask “questions” about Redbox’s illegal offering.
22 Opp. at 24. They brought to Disney’s attention the unfairness of competing against
23 someone selling Codes to access digital content which the licensees offer only
24 pursuant to contract. Declaration of Michael Geibelson (“Geibelson Decl.”) (Dkt.
25 36, Sealed Exhibits) Exs. B, C; Suppl. Ehler Decl. Ex. X, Marinelli Dep. 25:16–
26 27:16. The absence of licensee complaints after Disney “commenced this lawsuit,”
27 Opp. at 24, owes to the fact that Disney took the action licensees expected to
28 address Redbox’s unauthorized and illegal conduct. Suppl. Ehler Decl. Ex X,
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1 Marinelli Dep. 171:13–22, 172:23–173:5. And, Redbox is not doing Disney or
2 consumers any favors. Redbox’s supposed “meticulous” repackaging of the Codes,
3 Opp. at 19, omits key information that consumers would want to know, such as
4 whether the ultimate download will be standard or high definition and whether the
5 consumer can download the movie to any device. See Suppl. Ehler Decl. Ex. AA.
6

Disney respectfully submits its motion should be granted.

7
8 I.
9
10
11

ARGUMENT
REDBOX’S FIRST-SALE AND COPYRIGHT MISUSE DEFENSES
FIND NO SUPPORT IN THE LAW
A.

The First-Sale Defense Does Not Apply Because Codes Are Not
“Copies” Of Movies

Redbox treats “first sale” as a silver-bullet defense to “all of Plaintiffs’

12 claims.” Opp. at 2. That defense is irrelevant here.
13

The Copyright Act defines the first-sale defense as limiting the copyright

14 owner’s exclusive distribution right by excluding from that right the right to
15 authorize the further distribution of a “particular copy” of a work once the owner
16 has disposed of that copy. 17 U.S.C. § 109(a). Redbox confuses the underlying act
17 of infringement by arguing that this is a claim about distribution. Opp. at 2.
18 Redbox’s copyright liability, however, arises because of its customers’ unauthorized
19 exercise of Disney’s reproduction right when they download movies. Because
20 Plaintiffs allege that Redbox violates the reproduction right, the first sale defense is
21 inapplicable. See Red Baron-Franklin Park, Inc. v. Taito Corp., 883 F.2d 275, 280–
22 81 (4th Cir. 1989) (“[T]he first sale doctrine has no application to the rights of the
23 owner of a copyright guaranteed by § 106, except the right of distribution.”).
24

The first sale defense is inapplicable for another, equally fundamental, reason:

25 The Codes are not copies. “‘Copies’ are material objects … in which a work is
26 fixed ….” 17 U.S.C. § 101 (emphasis added). To be “fixed,” a work must be
27 “embodi[ed]” in the material object. Id. The Codes are numbers and letters printed
28 on package inserts. Although a piece of paper is a “material object,” the “work”
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1 (i.e., the Disney movie) is not “fixed” “in” that object. Id. The Code is, in the
2 words of Redbox’s executives, merely “a key to open up a copy.” Suppl. Ehler
3 Decl. Ex. W, Smith Dep. 31:16–18; id. Ex. U, Chamberlain Dep. 77:2–5, 77:19–22.
4 The first-sale cases that Redbox cites are inapposite, Opp. at 6–10, because all of
5 them involved the distribution of copies. 1 This case does not.
Redbox does not even cite the Act’s definition of “copies.” Redbox instead

6

7 argues that the Court should treat the sale of a Code as the equivalent of “Redbox
8 using the code to download the digital copy onto a portable memory device and
9 reselling that device itself.” Opp. at 14. But Redbox is not downloading the digital
10 copies onto physical media and then selling the portable memory devices. If
11 Redbox were distributing devices, the customers would be acquiring copies. Here,
12 the Codes may enable end-users to make copies but they are not copies themselves.
13 Section 109(a) is “not [] ambiguous. The statute plainly applies to the lawful
14 owner’s ‘particular’ [copy].” Capitol Records, LLC v. ReDigi Inc., 934 F. Supp. 2d
15 640, 655 (S.D.N.Y. 2013).
Redbox also argues the Court should treat the Code as “a particular copy” of a

16

17 movie because the Code “authenticates the delivery of a single digital copy of the
18 movie.” Opp. at 7 (emphasis added). That argument is factually baseless. There is
19 no “particular” digital copy of a movie that is sitting on a server, corresponding to,
20 e.g., the Code “KMPW8WJ7YW6.” Marinelli Decl. Ex. B. Nor does a Code limit
21 the user to a single digital copy. Depending on the license terms of a specific
22 download service or a particular subscription plan, an end-user is often able to make
23 multiple copies of the underlying content on different devices. For example, the
24 iTunes terms provide that authorized users may download content to as many as 10
25
26

1

See Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908) (book); UMG Recordings,
Inc. v. Augusto, 628 F.3d 1175 (9th Cir. 2011) (promotional CD); Softman Prods.
27 Co. v. Adobe Systems Inc. 171 F. Supp. 2d 1075, 1080 n.2 (C.D. Cal. 2001) (“sets of
28 individual Adobe products . . . on separate CD’s”); Burke & Van Heusen, Inc. v.
Arrow Drug, Inc., 233 F. Supp. 881 (E.D. Pa. 1964) (records).
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1 devices logged in with the same Apple ID; each of those downloads involve the
2 creation of a separate copy. Suppl. Ehler Decl. Ex. Y at 100. If a family owns a
3 Combo Pack and shares an iTunes family plan, multiple members of that family
4 may make different downloaded copies. Id. at 101. A Code cannot represent “a
5 particular copy” when it may be redeemed to make multiple copies, on different
6 devices and even by different end-users.
Finally, Redbox is also wrong that the first-sale defense bars Disney’s state-

7

8 law claims. Opp. at 10. See United States v. Wise, 550 F.2d 1180, 1187 & n.10 (9th
9 Cir. 1977) (first sale does not apply to a contract claim); London-Sire Records, Inc.
10 v. Doe 1, 542 F. Supp. 2d 153, 174 (D. Mass. 2008) (same); Pendleton Woolen
11 Mills, Inc. v. Kraff’s Men’s Wear Co., Inc., No. 3:14-CV-628-PK, 2014 WL
12 7777762, at *8 (D. Or. Nov. 21, 2014) (defense did not reach state-law trademark,
13 unfair competition, or intentional interference claims).
14

B.

Redbox’s Copyright Misuse Arguments Are Baseless

15

Redbox, like other copyright pirates, relies on baseless rhetoric claiming price

16 fixing and other “anti-competitive” behavior. Opp. at 1, 14–17. Such
17 unsubstantiated allegations provide Redbox no cover.2 Disney does not set the
18 prices its retailers charge for downloads. Suppl. Ehler Decl. Ex. X, Marinelli Dep.
19 160:25–161:2 (“[T]he retailer decides how they’re going to ultimately set a retail
20 price.”). Nor does Disney restrict the unauthorized sale of Codes to harm
21 consumers. Disney offers Combo Packs so consumers who want the flexibility of a
22
23
24
25
26
27
28

2

Vague allegations of antitrust violations and the defense of copyright misuse have
become standard for parties that contribute to mass copyright infringement. See,
e.g., Napster, 239 F.3d at 1026-27 (rejecting copyright misuse defense as ground for
denying preliminary injunction); Order Granting Pls.’ Mot. to Dismiss, Disney
Enters., Inc. v. VidAngel, No. 2:16-cv-04109-AB-PLA (C.D. Cal. Aug. 10, 2017),
ECF No. 199 (dismissing antitrust counterclaim and striking copyright misuse
defense); Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 454 F. Supp. 2d
966, 995–98 (C.D. Cal. 2006) (striking copyright misuse defense).
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1 DVD, Blu-ray disc, and Code may benefit if, as is generally true, retailers pass along
2 the wholesale savings Combo Packs provide. Marinelli Decl. ¶ 9.
The Ninth Circuit construes copyright misuse narrowly and applies it

3

4 “sparingly.” Oracle USA, 2018 WL 315568, at *7 (citation omitted). The Ninth
5 Circuit has found misuse in just one case, where a copyright holder required its
6 licensee’s “promise not to use competitors’ products.” Practice Mgmt. Info. Corp.
7 v. Am. Med. Ass’n, 121 F.3d 516, 521 (9th Cir. 1997). It is not misuse for a
8 copyright owner to “refus[e] to license a copyrighted work” or to license “only on
9 terms the copyright owner finds acceptable,” 3 Napster, 239 F.3d at 1027 (citation
10 omitted), or to use “conditions to control use of copyrighted material,” Oracle USA,
11 2018 WL 315568, at *7 (citation omitted).
Moreover, copyright misuse is an affirmative defense and the burden is on

12

13 Redbox to show the defense applies. See Apple Inc. v. Psystar Corp., 658 F.3d
14 1150, 1157 (9th Cir. 2011); Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146,
15 1158 (9th Cir. 2007) (defendant bears burden of showing likely success on defense
16 to oppose motion for preliminary injunction). Redbox falls far short of meeting its
17 burden.
Redbox complains that Disney is imposing terms on the alleged

18

19 “downstream” use of its copyrighted works. Opp. at 14–17. But, the only facts that
20 Redbox points to are (a) Disney bars the sale of Codes separate from the DVD and
21 Blu-ray disc copies of the underlying copyrighted work in the Combo Packs; and
22 (b) the redemption sites condition the exercise of the right to make downloads on the
23 end-user having possession of the discs in the Combo Pack. Redbox does not allege
24 that Disney is trying to extend its copyright over the underlying movies to other,
25 non-copyrighted products. All of the Combo Pack components either contain a
26
27

3

This principle extends well beyond the copyright context—it is axiomatic that
28 manufacturers are free to decide with whom they will deal and on what terms. E.g.,
United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
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1 copy of (the discs) or allow access to (the Code) the same copyrighted work (e.g.,
2 Beauty and the Beast). Disney is not “seeking to extend a copyright monopoly to
3 other products or works,” but rather to protect the very copyrights in issue. Psystar,
4 658 F.3d at 1157–58 (rejecting misuse based on first sale arguments involving
5 licensed software); Napster, 239 F.3d at 1026.
Redbox’s cases, by contrast, all involved allegations of copyright owners

6

7 trying to extend their copyrights to products other than the copyrighted works.
8 Omega S.A. v. Cosco Wholesale Corp., 776 F.3d 692 (9th Cir. 2015) (Wardlaw, J.
9 concurring) (Omega used copyright for a “Globe Design” to improperly control the
10 distribution of watches); Practice Mgmt., 121 F.3d 516 (AMA used license for its
11 code system to restrict licensees’ ability to use competing system); DSC Commc’ns
12 Corp. v. DGI Techs., Inc., 81 F.3d 597 (5th Cir. 1996) (DSC used its copyright
13 operating system to control unpatented microprocessor cards); Lasercomb America,
14 Inc. v. Reynolds, 911 F.2d 970, 978 (4th Cir. 1990) (license restrictions restricted
15 licensees’ ability to develop competing products).
16 II.
17

REDBOX FAILS TO COUNTER DISNEY’S SHOWING OF LIKELY
SUCCESS
A.

18

Redbox Is Bound By And Has Violated The Terms Of Disney’s
Box-Top Contracts Prohibiting The Sale Of Codes

Box-top contracts bar Redbox from selling Codes. Mot. at 9–11. None of

19

20 Redbox’s excuses provides a defense to its breach.
Redbox complains about the font size and packaging used prior to June

21

22 2017. 4 Opp. at 6–8. Those complaints are irrelevant to Redbox’s liability; Redbox
23
24
25
26
27
28

4

Each of Disney’s Combo Packs released since June 2017 has the language “Codes
are not for sale or transfer” printed on the outside of the Combo Pack. Suppl. Klaus
Decl. at Ex. S at 10, Ex. T at 17, Ex. DD at 77, Ex. JJ at 112; see also Suppl. Ehler
Decl. Ex. X, Marinelli Dep. 210:9–13 (the same language will appear on all future
Combo Packs). Redbox did not start selling Codes until several months after the
change. Suppl. Ehler Decl. Ex. W, Smith Dep. 6:16–17 (“We started selling codes
sometime in Q4 of 2017.”); id. Ex. U, Chamberlain Dep. 7:20–23 (same). All 20
titles on Disney’s Exhibit A have the following language on the outside of the
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1 does not deny that it understood full well the contractual limitations when it
2 purchased tens of thousands of Combo Packs.5 Nor would any such denial be
3 credible for a corporate entity that has supposedly spent $700,000 and launched a
4 highly publicized campaign to sell Codes. See Declaration of Galen Smith (“Smith
5 Decl.”) (Dkt. 31) ¶ 18; Suppl. Ehler Decl. Ex. U, Chamberlain Dep. 9:20–10:15
6 (asserting privilege over whether Redbox’s leadership team discussed legality of
7 selling Codes before launching the business), 124:16–125:5 (same with respect to
8 whether they discussed “Codes are not for sale or transfer” language).
9

Redbox knew and understood the terms on the outside of the Combo Packs.

10 When it purchased the Combo Packs, Redbox accepted those terms and the benefits
11 of the transaction. No more is required for the formation of a box-top contract.
12 Golden Eagle Ins. v. Foremost Ins., 20 Cal. App. 4th 1372, 1387 (1993) (“[A]
13 voluntary acceptance of the benefit of a transaction is equivalent to a consent to all
14 obligations arising from it, so far as the facts are known, or ought to be known, to
15 the person accepting.” (quoting Cal. Civ. Code § 1589) (emphasis added)).
16

Redbox says that Norcia v. Samsung Telecommunications America, LLC, 845

17 F.3d 1279 (9th Cir. 2017), holds that the packaging must contain “an express
18 notification to the customer that opening the package constitutes acceptance of the
19 terms and conditions.” Opp. at 10. That is wrong. Norcia deals with “shrink wrap”
20 licenses, the terms of which are found inside the box or when software is booted up.
21 That is not the case with Redbox. The box-top contract concerns the terms on the
22
23 Combo Packs: “This product is authorized for private use only. It is prohibited for
any other use and cannot be resold or rented individually.” Suppl. Klaus Decl. ¶ 4.
24 5 Redbox’s observations about the information included on Disney’s web page, see
25 Supplemental Declaration of Michael Chamberlain (“Suppl. Chamberlain Decl.”)
(Dkt. 40) ¶ 4 & Ex. D, are similarly irrelevant. Redbox did not buy Combo Packs
26 from Disney’s web page, and no Redbox witness testified under oath to doing so.
Redbox buys Disney’s Combo Packs in retail stores. See, e.g., Suppl. Ehler Decl.
27 Ex. W, Smith Dep. 86:9–12; id. Ex. U, Chamberlain Dep. 46:23–24, 47:7–48:18.
28 Redbox then manually disassembles and repackages thousands of Codes, each of
which bears language prohibiting resale. See, e.g., Suppl. Klaus Decl. Exs. R–KK.
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1 outside of the Combo Pack. See Ariz. Cartridge Remanufacturers Ass’n v. Lexmark
2 Int’l Inc., 421 F.3d 981, 987–88 (9th Cir. 2005) (consumers entered into enforceable
3 contract by buying and opening cartridge packages and were bound by terms printed
4 on outside packaging). Redbox’s argument that the box-top terms are cryptic or
5 hard to read is disingenuous given that Redbox buys thousands of Combo Packs and
6 has full knowledge of the contract terms. Suppl. Ehler Decl. Ex. U, Chamberlain
7 Dep. 21:10 (

), 86:15–87:3,

8 127:16–19 (Redbox reviews other contract terms like expiration dates).
9

In all events, Redbox knows what the language means now, and

10 notwithstanding that, Redbox intends to continue buying Combo Packs and selling
11 Codes indefinitely, unless the Court enjoins it. Id. 20:7–9; see also id. Ex. W, Smith
12 Dep. 145:3–23.
B.

13
14
15
16
17
18
19
20
21
22
23
24

Redbox Is Contributorily Liable For Its Customers’ Unauthorized
Copying

Redbox is liable for contributory copyright infringement because (1) its
customers infringe when they use Codes without authorization to download copies
of Disney’s movies; (2) Redbox knows its customers are infringing because Redbox
knows (or willfully blinds itself to) the online terms of use that condition the right to
copy on simultaneous ownership of the accompanying discs; and (3) Redbox
materially contributes to that infringement by selling Codes and encouraging
customers to use them to download movies. Mot. at 11–16.
Redbox does not contest either its knowledge of or contribution to the
infringing activity. 6 Redbox instead argues that its customers are not infringing
Disney’s copyrights. Opp. at 13–14. Its arguments are meritless.

25
26

6

The Combo Packs that Redbox buys state clearly that “[t]erms and [c]onditions
apply,” see, e.g., Suppl. Klaus Decl. Ex. S at 10, and the Code insert likewise directs
27 the purchaser to the governing terms and conditions on the redemption and
28 download websites. See, e.g., id. at 12. Redbox does not deny it reviewed the
website terms before selling Disney’s Codes.
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1

First, Redbox repeats its first-sale arguments, which are inapposite for reasons

2 discussed, including that Redbox’s customers infringe Disney’s reproduction right,
3 Napster, 239 F.3d at 1014, to which the first-sale defense does not apply.
4

Second, Redbox argues its customers are in fact free to make downloads

5 using Codes sold by Redbox. Opp. at 13. But Redbox’s customers’ downloads are
6 not authorized because the licenses they must enter into to download the movies are
7 conditioned on the end-user owning the discs that were sold along with the Code in
8 the Combo Pack. Redbox asserts that “there is no license and even Plaintiffs do not
9 claim that one was created.” Opp. at 13. But this assertion erroneously presumes
10 that Disney is claiming the end-user downloads are somehow controlled by a license
11 between Disney and Redbox. Disney is not claiming that the packaging and online
12 terms of service create a license between Disney and Redbox controlling the
13 download of a digital copy. Disney’s claim is that the relevant licenses for
14 Redbox’s contributory infringement liability are the licenses entered into by the end15 user redeeming the Code to make a downloaded copy of the movie.
16

Those licenses are found in the online terms of service to which the Code

17 redeemer must agree in order to make the download. Those licenses are conditioned
18 on the end-user owning the discs that were sold along with the Code in the Combo
19 Pack. The paper Code inserts direct end-users to two sites for redeeming the Codes,
20 RedeemDigitalMovie.com or MoviesAnywhere.com (formerly
21 DisneyMoviesAnywhere.com). Supplemental Declaration of Kelly M. Klaus (Dkt.
22 28) (“Suppl. Klaus Decl.”) Exs. R–KK. Redbox’s own FAQ page on its website
23 directs its customers to “Look for the redemption URL on the paper insert you
24 received from Redbox.” Klaus Decl. Ex. M at 77.
25

For RedeemDigitalMovie.com, the website condition requires that the user

26 entering the Code must be “the owner of the physical product that accompanied the
27 digital code at the time of purchase.” Id. Ex. A at 6. The end-user must further
28 agree to the terms of service for either Movies Anywhere (discussed below) or the
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user?s chosen service for downloading movies, such as iTunes. Those services, in
turn, require agreement to licenses that incorporate the terms and conditions for
third-party content (like Disney?s movies). Suppl. Ehler Decl. Ex. at 109.
Redbox claims that RedeemDigitalMoviecom?s reference to ?physical
product? is ambiguous and could mean the paper insert on which the Code is
printed. Opp. at 12. That interpretation is implausible. The ?physical product?
refers to the discs in the Combo Pack; otherwise the remainder of the sentence from
RedeemDigitalMovie.com??that accompanied the digital code at the time of
purchase??would make no sense. Klaus Decl. Ex. A at 6 (emphasis added).7
The Movies Anywhere site contains similar restrictions.8 Id. Ex. at 15.
Because that site enables users both to redeem Codes and store and access
downloaded content, the site has its own terms of service governing use of such

content. Id.

 

7 Redbox cites a line from an FAQ on another website that says ?Note?Redeem
Digital Movie titles do NOT require a disc for Digital Movie redemption.?
Geibelson Decl. Ex. E. That line refers to the fact that someone using the
RedeemDigitalMovie. com site does not have to place the physical discs into a disc-
drive to download the movie. See Curtis Decl. 3? 6. Redbox also IS wrong that
Ms. Marinelli testi?ed that the iece of a er is the 

    

8 Redbox argues that Movies Anywhere IS not a plaintiff and? ?nothing in the Movies
Anywhere terms of service identify Plaintiffs as third-party bene?ciaries or express
any understanding that they are intended to bene?t from its terms? Opp. at 12.
Redbox did not read the terms. Disney is both a licensor to Movies Anywhere and a

?Participating Klaus Decl Ex at 17. Section 2 of those Terms states
that Violations of the Movies Anywhere restrictions? ?is a Violation of the rights of
[Movies Anvwhere? sl licensors.? id. at 13. and that. ?lwlhile accessing or usmg a
Participating Studio? 5 Content? users are ?subiect to that Participating Studio?s
rules and restrictions.? id. at 17. These provisions show the intent that Disnev
bene?t from the terms of use and establish Disnev as a third-Dartv bene?ciarv.
Klamath Water Users Protective Ass ?n v. Patterson. 204 F.3d 1206. 1211 (9th Cir.
1999) (?The intended bene?ciarv need not be speci?callv or individuallv identi?ed
in the contract. but must fall within a class clearly intended by the parties to bene?t
from the contract?). 11

 

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CASE NO. (AGRX)

 

 

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1

Redbox cannot dispute that the terms from RedeemDigitalMovie.com and

2 Movies Anywhere create a license between Disney and the end-user. See Vernor v.
3 Autodesk, Inc., 621 F.3d 1102, 1111 (9th Cir. 2010) (setting forth the three factors
4 that show license). The terms (1) grant the user a license, not ownership of the
5 copy9; (2) restrict the user’s ability to access, download, and transfer copies of the
6 movies 10; and (3) impose other notable use restrictions.11 Id.
Redbox also argues that its customers do not exceed the licenses because the

7

8 copy they make is one that Disney “expect[ed] … would be delivered by electronic
9 download.” Opp. at 13. But the governing terms of service make clear that it is not
10 expected (or permitted) that someone who bought the Code separate from the
11 Combo Pack will be making a copy. See Klaus Decl. Exs. A, B; see also Suppl.
12 Ehler Decl. Ex. X, Marinelli Dep. 218:8–18 (explaining that customers are “honest
13 and [if you] give them a legitimate way to buy content and consume content, that’s
14 what they’re going to do.”). Redbox’s customers act outside the scope of their
15 licenses when they download using a Redbox-sold Code.
16
17
18

9

“You understand and agree that the Content you receive through the Movies
19 Anywhere Service is licensed to you for your personal, noncommercial use . . . .
Movies Anywhere does not transfer any ownership, title, right or interest to or in the
20 Content to you.” Klaus Decl. Ex. B at 20. “All digital movie codes are owned by
21 Buena Vista Home Entertainment, Inc. and you may use such digital movie codes
only as specifically authorized under these terms and conditions.” Id. Ex. A at 7.
22 10 “License. . . . Movies Anywhere grants you a limited . . . non-transferable, non23 assignable, . . . non-sublicensable right to . . . stream or download . . . the movies.”
Klaus Decl. Ex. B at 11–12. For RedeemDigitalMovie.com, “The sale, distribution,
24 purchase or transfer of digital movie codes outside of the methods set forth in these
terms and conditions is unauthorized.” Id. Ex. A at 7.
25 11
“Restrictions on Your Use of the Content.” Klaus Decl. Ex. B at 12. The Movies
26 Anywhere terms likewise prohibits customers from accessing and downloading a
copyrighted work by redeeming a Code that is not “from a Digital Copy enabled and
27 Movies Anywhere-eligible physical product that is owned by you.” Id. at 15.
28 RedeemDigitalMovie.com “prohibit[s]” the “redemption of a digital code sold or
transferred separate from the original physical product.” Id. Ex. A at 6.
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1
2

C.

Redbox Misconstrues Disney’s State-Law False Advertising Claims
And Misunderstands The Applicable Law
1.

3
4

The Deceptive Advertising Claims Are Not Preempted Or
Subject To A “Safe Harbor”

Redbox tries to recast Disney’s UCL and FAL causes of action as mere

5 claims that “Redbox violates the Copyright Act by reselling digital copies of movies
6 it purchases at retail.” Opp. at 17. But Disney’s UCL and FAL claims address
7 Redbox’s deceptive packaging and marketing practices. Specifically, Redbox fails
8 to inform consumers that the Codes were originally sold as part of Combo Packs and
9 that terms and conditions govern the Codes’ use. Redbox also breaks apart the Code
10 inserts, removing portions that reference those terms and conditions and offer other
11 helpful user guidance. See Section III.A.2, infra. By failing to disclose this relevant
12 information, Redbox deceives its customers and engages in actionable false
13 advertising under the UCL and FAL. See Ariz. Cartridge Remanufacturers Ass’n,
14 421 F.3d at 985 (UCL and FAL encompass deception through “failure to disclose
15 other relevant information” (quoting Day v. AT&T Corp., 63 Cal. App. 4th 325,
16 332–33 (1998))).
17

Redbox argues that the Copyright Act, 17 U.S.C. § 301(a), preempts these

18 claims. But § 301(a) preempts only those claims that are “equivalent to any of the
19 exclusive rights within the general scope of copyright.” Valente-Kritzer Video v.
20 Pinckney, 881 F.2d 772, 776 (9th Cir. 1989) (citation omitted). It does not preempt
21 state-law claims that have an “‘extra element’ which changes the nature of the
22 action.” Id. (citation omitted). The UCL and FAL claims each have the “extra
23 element” of a misleading or false statement. Variant Displays, Inc. v. Absolute
24 Exhibits, Inc., SACV 15-01685-CJC (JCGx), 2016 WL 7486282, at *3 (C.D. Cal.
25 May 31, 2016) (UCL claim premised on misrepresentations stated an “extra
26 element”); Nicole, Inc. v. B.L.K. Int’l, Inc., No. CV 15-01892-RGK (Ex), 2015 WL
27 12826459, at *4 (C.D. Cal. June 25, 2015) (UCL claim contains element of
28 “whether members of the public are likely to be deceived” and is not preempted).
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1

Redbox’s reliance on California’s statutory “safe harbor” doctrine fails for

2 similar reasons. Opp. at 17–18. The Copyright Act’s preemption clause does not
3 immunize Redbox’s deceptive advertising practices and neither does the first-sale
4 defense. Redbox’s deceptive advertising practices are thus not “permitted by law,”
5 Lazar v. Hertz Corp., 69 Cal. App. 4th 1494, 1505 (1999), and the safe harbor offers
6 no protection from liability.
2.

7
8
9
10
11
12
13
14
15
16
17
18
19

Redbox argues that Disney lacks standing to assert UCL and FAL claims
because it has not presented “evidence of even a single digital code being purchased
from Redbox instead of one of [its] licensees.” Opp. at 19. But Redbox’s conduct
almost certainly has caused Disney to lose sales, and that conduct is harming
Disney’s goodwill with its licensees. See Section III, infra. These harms satisfy the
economic injury requirement for UCL and FAL standing. In re Qualcomm Litig.,
No. 17-CV-00108-GPC-MDD, 2017 WL 5985598, at *5 (S.D. Cal. Nov. 8, 2017)
(finding standing where plaintiff alleged “lost customers, goodwill, and the loss of
business relationships”); Obesity Research Inst., LLC v. Fiber Research Int’l, LLC,
165 F. Supp. 3d 937, 948 & n.1 (S.D. Cal. 2016) (finding standing where plaintiff
alleged lost sales, market share, and good will).
3.

20
21
22
23
24
25
26
27
28

Disney Has Standing To Seek Relief Under The UCL And
FAL Because Redbox Is Harming Disney’s Goodwill

The UCL And FAL Claims Do Not Require Extraterritorial
Application Because There Is A Sufficient Nexus Between
Redbox’s Misrepresentations And California

Redbox’s argument that Disney’s UCL and FAL claims assert extraterritorial
control, Opp. at 21, reflects a fundamental misunderstanding of the extraterritoriality
doctrine.
Extraterritoriality is not an issue if there is a “nexus between California and
the misrepresentations which form the basis of [the plaintiff’s] claims.” Ehret v.
Uber Techs., Inc., 68 F. Supp. 3d 1121, 1132 (N.D. Cal. 2014). Here, there plainly
is such a nexus. Each plaintiff is either a California corporation or entity with its
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1 principal place of business in California. See Ulti-Mate Connectors, Inc. v. Am.
2 Gen. Life Ins., No. SACV 14-1051-JLS (JPRx), 2015 WL 12734007, at *9 (C.D.
3 Cal. Mar. 27, 2015) (“Plaintiffs are not attempting to apply California’s UCL
4 extraterritorially because all Plaintiffs are either a California corporation with
5 principle place of business in California or are individual residents of California.”).
6 Further, Redbox maintains multiple warehouses in California to service several
7 Redbox-identified “markets” here; retains California-based field staff that purchase
8 Combo Packs in California and disassemble the Combo Packs and repackage the
9 Codes in warehouses here for in-state distribution; operates numerous kiosks
10 throughout California through which it sells the deceptively packaged Codes; and
11 makes Codes available for sale online to consumers located in California through its
12 website, which includes misleading marketing messages. Suppl. Ehler Decl. Ex. U,
13 Chamberlain Dep. 73:12–75:15.
14
15
16

D.

Disney Will Succeed On Its Tortious Interference Claim Because
Redbox Interferes With Contracts That Disney Already Has With
Its Customers

Redbox argues it cannot interfere with contracts between Disney and its

17 customers because when Redbox sells the Code, there is no contract between the
18 customer and Disney. Opp. at 21. Redbox ignores the fact that any consumer who
19 had used RedeemDigitalMovie.com or the Movies Anywhere service before
20 purchasing a Code from Redbox had already agreed to the terms of service to access
21 those sites. Those consumers thereby entered into enforceable contracts. See MDY
22 Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 955 (9th Cir. 2010) (holding
23 “operative EULA and ToU” (terms of service) were “a valid contractual
24 relationship” between copyright owner and its customers). Those terms bind the
25 customer when they first use RedeemDigitalMovie.com or Movies Anywhere and
26 govern the customers’ prospective use. See Suppl. Ehler Decl. Ex. Z at 112-13
27 (RedeemDigitalMovie.com: “Contract between You and Us. . . . You must read and
28 agree to these terms before using the Disney Services.”); Klaus Decl. Ex. B at 9
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1 (Movies Anywhere: “You agree to these Movies Anywhere Terms of Use by
2 clicking the checkbox, ‘I Agree’ . . . or by your use of any aspect of the Movies
3 Anywhere Service.”). Disney is a party to or an intended third-party beneficiary of
4 those agreements. See n.8, supra. Hence, some Redbox customers (especially
5 repeat Code purchasers) will have existing contractual arrangements with Disney
6 when they buy Codes. Redbox admits that it does not know what percentage of its
7 customers already had RedeemDigitalMovie.com or Movies Anywhere accounts
8 before purchasing a Code from Redbox, Suppl. Ehler Decl. Ex. W, Smith Dep.
9 113:12–25, 124:24–125:11; id. Ex. U, Chamberlain Dep. 174:9–20, and it knows
10 that such services are subject to terms of use.
E.

11
12
13
14
15
16
17
18

Disney Is Likely To Succeed On Its UCL “Unlawful” Claim
Because Redbox Violates State Law

Redbox’s cursory response to Disney’s UCL “unlawful” conduct claim
incorporates its meritless challenges to Disney’s other state-law claims. Opp. at 22–
23. Redbox’s false advertising and tortious interference are “unlawful” business
practices under the UCL. See Mot. at 18–19.
III.

REDBOX IGNORES OR DOWNPLAYS THE CLEAR EVIDENCE
THAT ITS ILLEGAL CONDUCT IS IRREPARABLY HARMING
DISNEY’S RELATIONSHIPS WITH LICENSEES AND CUSTOMERS

19

The Harm To Disney’s Relationships With Licensees And
Customers Is Imminent And Real, Not Speculative

20

1.

21
22
23
24
25
26
27
28

A.

Redbox’s Illegal Conduct Threatens Disney’s Goodwill And
Relationships With Its Licensees

Redbox concedes that “loss of goodwill” or “negotiating leverage” establishes
irreparable harm, but claims Disney has “no evidence” of licensee complaints or any
effect on its “customer base.” Opp. at 23–24. Redbox’s contention ignores or
mischaracterizes the record.
The same day that Deadline Hollywood reported on Redbox selling Codes,
two of Disney’s licensees,

, forwarded the article and asked

Disney how it would respond. Geibelson Decl. Exs. B, C. One of those emails
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1 explicitly asked

. Id. Ex. B. Both

2 emails prompted follow-up telephone conversations. Suppl. Ehler Decl. Ex. X,
3 Marinelli Dep. 34:12–23, 35:16–36:2. A third licensee,

, also expressed

4 concern regarding Redbox’s actions by telephone, both to Ms. Marinelli directly and
5 to another member of her team. Id. at 25:16–27:16.
6

Redbox mischaracterizes these emails as merely posing “questions,” and it

7 ignores the phone conversations altogether. Opp. at 24. Ms. Marinelli testified that
8 she was

and was certain that more

9 licensees would reach out if Redbox’s conduct continued unabated. Suppl. Ehler
10 Decl. Ex. X, Marinelli Dep. 163:5–19, 164:8–19. Disney depends on the goodwill it
11 has with licensees to promote the sale of Disney’s products. As Ms. Marinelli
12 explained, if iTunes and other licensees are “concerned with us because Redbox is
13 undercutting them in price in the marketplace, they’re not incent[iviz]ed to go and
14 promote [Disney] movie[s].” Id. 162:5–9. This is exactly the type of harm to
15 licensee goodwill that courts have repeatedly said justifies injunctive relief. See
16 Disney Enters., Inc. v. VidAngel Inc., 869 F.3d 848, 866 (9th Cir. 2017) (affirming
17 preliminary injunction and rejecting argument that harm to licensee goodwill based
18 on declaration from studio executive was “vague and speculative”); Warner Bros.
19 Entm’t v. WTV Sys., Inc., 824 F. Supp. 2d 1003, 1012 (C.D. Cal. 2011) (infringing
20 service caused irreparable harm to “Plaintiffs’ relationships, including the goodwill
21 developed with their licensees”).
22

Redbox also claims that Ms. Marinelli admitted that negotiations “have not

23 been affected by Redbox’s behavior.” Opp. at 24. In fact, Ms. Marinelli testified
24 that
25
26

, and that
. Suppl.

27 Ehler Decl. Ex. X, Marinelli Dep. 42:12–20, 47:9–15. As for the other licensees,
28 Ms. Marinelli testified that she believed they had not complained since the filing of
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1 this lawsuit because Disney is “tak[ing] action against Redbox.” Id. 171:13–22,
2 172:23–173:5. But Ms. Marinelli also testified that she believed Redbox’s conduct
3 would make it “[m]ore difficult” to negotiate with those licensees in the future. Id.
4 172:9–12. And if Ms. Marinelli’s testimony—based on 32 years of experience with
5 Disney and in the business—left any doubt, one of the licensee emails explicitly
6 asks if Disney
. See Geibelson Decl. Ex. B. Courts grant preliminary

7

8 injunctive relief to prevent irreparable harm, which Disney faces imminently if
9 Redbox is permitted to continue violating Disney’s rights. See VidAngel, 869 F.3d
10 at 865 (Disney need only establish that “irreparable injury is likely in the absence of
11 an injunction.” (quoting Winter v. Nat. Res. Defense Council, Inc., 555 U.S. 7, 22
12 (2008)) (emphasis in original)).
13
14

2.

Redbox Ignores Record Evidence Of Consumer Confusion

Redbox’s claim that there is no evidence Disney’s “customer base has been

15 affected by Redbox’s digital [Code] sales,” Opp. at 23–24, again ignores the record
16 and the fact that, without an injunction, Disney will suffer even more harm to these
17 relationships.
18

Redbox is not placing the entire Code insert, much less the entire Combo

19 Pack packaging, in the Redbox “jewel case.” Instead, Redbox separates the portion
20 bearing the alphanumeric Code from the rest of the insert—sometimes even tearing
21 the paper insert in half and delivering only that part of the insert that has the
22 alphanumeric Code printed on it. See Suppl. Ehler Decl. Ex. U, Chamberlain Dep.
23 98:11–15, 103:16–22, 113:23–114:6; compare id. ¶ 3 & Ex. V (images of Redbox
24 inserts for Frozen, Guardians of the Galaxy Vol. 2, and Moana) and Klaus Decl. Ex.
25 C (same for Beauty and the Beast), with Suppl. Klaus Decl. Exs. S at 11–14, V at
26 30–32, AA at 60–63, JJ at 113–16 (images of the original Disney inserts for Beauty
27 and the Beast, Frozen, Guardians of the Galaxy Vol. 2, and Moana). As a result of
28 Redbox’s repackaging, important information intended for consumers may very well
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1 be ending up in Redbox’s trash can—rather than in consumers’ hands. 12 Suppl.
2 Ehler Decl. Ex. U, Chamberlain Dep. 114:7–12.
Redbox’s witnesses say they are unaware whether Redbox has received

3

4 complaints from its Code purchasers. Declaration of Michael Chamberlain (Dkt.
5 32) ¶ 10; Suppl. Ehler Decl. Ex. U, Chamberlain Dep. 152:21–154:18. That is
6 exactly the point. The customers who buy Codes and have issues contact Disney,
7 not Redbox, when their experience of using the Codes does not match their
8 expectations, Marinelli Decl. ¶ 17, because Redbox has taken it upon itself to omit
9 information that Disney provided with the Combo Pack. Disney, however, has
10 produced evidence demonstrating consumer confusion and corresponding harm to
11 Disney’s relationship with those consumers. 13
3.

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

Redbox Cherry Picks Evidence In Arguing That Its Sale Of
Codes Is Not Hurting Disney’s Business

Redbox makes the specious argument that its sales of Codes at prices
substantially below those charged by licensed digital services will not cause Disney
harm. Opp. at 4. As support, Redbox provides incomplete pricing information for
exactly one title out of the 20 identified in the complaint: Cars 3. Redbox claims
that, since November 17, 2017, it has sold Codes for Cars 3 for $14.99, which is the
same price that Amazon and Vudu currently charge for a digital download of that
12

Redbox concedes as much through eleventh-hour “modifications” to its webpage
and kiosks to begin disclosing Code expiration dates for the first time. Suppl.
Chamberlain Decl. ¶¶ 2–4. These changes only confirm Redbox’s failure to
disclose to its customers that the Codes are subject to certain terms and conditions,
which has caused and will continue to cause consumer confusion. Marinelli Decl.
¶ 17. Redbox’s late change will not affect the
sales Redbox has already
made to customers or ameliorate Redbox’s omission of other information regarding
Code use.
13
Customers have complained that they cannot tell whether the Codes Redbox sold
them may be redeemed for digital downloads in standard definition (“SD”) or high
definition (“HD”) format. See Suppl. Ehler Decl. Ex. AA at 123-24, 132-33.
Redbox’s conduct also means that customers are not getting important information
on the packaging regarding the restrictions or limitations that the downloading
service may impose on their license to download the movie. This, too, has caused
confusion. See id. at 125-31.
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1 title in SD format. Id.; Smith Decl. ¶ 15. Redbox insists that, because the licensed
2 services started selling those downloads two weeks before customers “were aware”
3 Redbox was selling Codes for the same title, and Redbox sold 200 Codes at the
4 $14.99 price point, this proves that Redbox’s sales will not displace the licensed
5 services’ sale of downloads. Opp. at 4. Redbox’s reliance on its recent pricing of
6 the Code for Cars 3 is misleading. End-users who purchased a Code from Redbox
7 could use it to obtain Cars 3 in HD format; Amazon and Vudu sell the HD digital
8 download for $19.99.
9

Redbox cherry picked the sale of 200 Codes for Cars 3 as their example.

10 There are 19 other titles for which Redbox has sold Codes and Redbox has sold
11 approximately

. Suppl. Ehler. Decl. Ex. U, Chamberlain Dep.

12 21:10. Publicly available documents show that Redbox typically offers a 60%-80%
13 discount from the iTunes price, and Cars 3 is the only title that Redbox prices over
14 $10. Klaus Ex. H at 45 (compiling prices as of Dec. 7, 2017). Redbox’s own
15 witness explained that undercutting other retailer’s prices drives the demand for
16 Redbox’s service. Smith Decl. ¶¶ 5–6. As Ms. Marinelli explained, customers
17 “may forego buying a digital download of that movie through a Disney licensee,
18 negatively impacting their sales and revenue.” Marinelli Decl. ¶ 12. In short,
19 Redbox is displacing sales of digital downloads by Disney’s licensees. That is the
20 entire point of Redbox’s offering and it is harming those licensees and Disney.
21
22
23
24
25
26
27
28

B.

Redbox’s Claim That Its Illegal Conduct “Benefits” Disney Is
Wrong And Disingenuous At Best

Redbox cynically tries to minimize the harms by claiming that Redbox’s
illegal sales of Codes actually benefits Disney. Opp. at 3, 24; Smith Decl. ¶¶ 6, 10–
13. For example, Redbox claims that its purchases of Combo Packs benefit Disney
because they supposedly “fulfill[] . . . revenue expectations . . . from those sales.”
Opp. at 24; Smith Decl. ¶ 9. Redbox does not account for the negative impact on
sales of digital downloads for those same titles. Suppl. Ehler Decl. Ex. X, Marinelli
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1 Dep. 178:3–5 (“Disney is not earning any revenue from the sale of the digital code
2 so that undermines the revenue that Disney earns.”), 184:13–17 (“[I]t is a lost sale
3 opportunity because that consumer now has a digital download of a movie that we
4 did not benefit nor did our licensees and our partners benefit from.”); Suppl.
5 Marinelli Decl.¶ 3. Nor does Redbox account for the potential lost sales of Combo
6 Packs. Marinelli Decl. ¶ 16; Suppl. Marinelli Decl. ¶ 3. Regardless, “[a]ny positive
7 impact of defendant’s activities on plaintiffs” is not relevant. See VidAngel, 869
8 F.3d at 861 (rejecting purported benefits to copyright owner in discussing impact on
9 the market factor of fair use analysis (quoting Napster, 239 F.3d at 1017)). To the
10 extent Redbox makes large-volume purchases, Redbox’s purchase of Combo Packs
11 may actually lead to the retailer running out of stock, which frustrates the ability of
12 Disney and its retailers to fulfill legitimate customer demand. Suppl. Marinelli
13 Decl.¶ 3. Further, Mr. Smith admitted at his deposition that he knows nothing about
14 how Disney and its retailers work together to allocate volume to retail stores. Suppl.
15 Ehler Decl. Ex. W, Smith Dep. 109:9–12.
16

Redbox also argues that its sale of Codes furthers Disney’s “goal of

17 introducing viewers to digital movies and migrating them away from physical
18 discs.” Opp. at 3. Redbox overlooks the fact that it discards promotional and
19 informational material in Combo Packs that Disney uses to connect with customers,
20 many of whom may already be download customers. Suppl. Marinelli Decl. ¶ 4.
21 Mr. Smith also admitted that he knows nothing about how many consumers who
22 purchase Redbox Codes are first-time digital movie watchers or users of Disney’s
23 redemption sites, and he was not aware of any effort by Redbox to find out that
24 information. Suppl. Ehler Decl. Ex. W, Smith Dep. 113:12–114:5.
25

Redbox also claims that it provides Disney with customer information, the

26 “value” of which “certainly exceeds the cost of a single movie” because it ultimately
27 “cut[s] out the revenue shares paid to other vendors who currently provide Disney’s
28 content to customers, such as Amazon, iTunes, and Vudu.” Smith Decl. ¶¶ 10, 11.
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1 As Ms. Marinelli testified, driving consumers away from Disney’s licensees does
2 not help those licensees or Disney because Disney ultimately benefits from its
3 licensees’ relationships with their customers. Suppl. Marinelli Decl. ¶ 5. And,
4 Redbox’s unauthorized sale of Codes deprives both Disney and its licensees of
5 revenue from the licensed downloads. Id. Mr. Smith admitted that he could not
6 even identify what “valuable” consumer information he claims redounds to Disney
7 as a result of Redbox’s unauthorized sales—let alone confirm whether Disney
8 collects any information from services like Movies Anywhere or whether it would
9 consider such data “valuable.” See Suppl. Ehler Decl. Ex. W, Smith Dep. 120:3–
10 122:7.
11

Redbox’s unsupported argument that its sale of Codes for below market

12 prices “discourages piracy” (which typically involves no payments) ignores that
13 Redbox, like other pirates, is exploiting Disney’s rights without authorization.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

C.

Contrary To Redbox’s Claim, The Harms To Disney Are Neither
Easily Quantified Nor Remedied With Monetary Damages

Redbox claims that Disney’s “indubitably meticulous” record of sales and
licensing fees can be used to total up the harm to Disney, by which Redbox means
only lost sales. Opp. at 24.
Even if lost sales to Combo Packs and digital downloads could be quantified,
and they cannot be, those lost sales are not the only harm. Redbox is also harming
Disney’s goodwill and relationships with licensees and customers. The cases are
clear that these latter harms cannot be easily quantified. See VidAngel, 869 F.3d at
866 (rejecting argument “that damages could be calculated based on licensing fees”
because “loss of goodwill, negotiating leverage, and non-monetary terms in the
Studios’ licenses cannot readily be remedied with damages.” (citing Herb Reed
Enters., LLC v. Fla. Entm't Mgmt., Inc., 736 F.3d 1239, 1250 (9th Cir. 2013)
(“Evidence of loss of control over business reputation and damage to goodwill could
constitute irreparable harm.”))).
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1

Moreover, Redbox’s supposition that lost sales are easy to quantify is

2 contrary to the record. See Marinelli Decl. ¶¶ 15, 16 (explaining lost sales cannot be
3 easily quantified). Ms. Marinelli testified that it is “very, very hard to quantify [lost
4 sales] because you don’t know what lever got the consumer to buy. . . . Was it
5 price? Was it marketing? Was it placement? Was it the competition?” Suppl.
6 Ehler Decl. Ex. X, Marinelli Dep. 179:6–19; see also id. 186:10–19.
7 IV.

REDBOX’S CLAIMED HARDSHIP IS LEGALLY IRRELVANT

8

Redbox claims the balance of hardships “sharply” favors it because it claims

9 to have invested $700,000 in selling Disney’s Codes. Opp. at 25. Redbox does not
10 say how much, if any, of that amount would be lost if it is temporarily enjoined but
11 permitted to operate later—only that that is what it claims to have spent.
12 Regardless, Redbox took a gamble by deciding to violate Disney’s rights in clear
13 violation of the prohibition against selling Codes. It is a “long-settled principle that
14 harm caused by illegal conduct does not merit significant equitable protection.”
15 VidAngel, 869 F.3d at 867; see also Triad Sys. Corp. v. Se. Express Co., 64 F.3d
16 1330, 1338 (9th Cir. 1995) (“lost profits from an activity which has been shown
17 likely to be infringing ... ‘merits little equitable consideration’” (citations omitted)).
18

Redbox is no startup and any financial harm as a result of this injunction will

19 not imperil Redbox’s financial health. Redbox’s parent corporation, Outerwall, was
20 acquired by a hedge fund in 2016 for $1.6 billion.14 Redbox had
—a “billion dollar

21

22 plus business.” Suppl. Ehler Decl. Ex. W, Smith Dep. 158:13–17, 68:14–15. Until
23 Redbox launched its sale of Codes in late 2017, the Codes were sitting in a
24 warehouse in empty Combo Packs, unused for years. Id. Ex. U, Chamberlain Dep.
25 11:24–13:14, 16:7–21. Courts have granted injunctions when the stakes are much
26
27

14

Lauren Gensler, Redbox Parent To Be Taken Private for $1.6 Billion, Forbes (Jul.
28 25, 2016, 9:14 AM) https://www.forbes.com/sites/laurengensler/2016/07/25/redboxcoinstar-outerwall-acquisition-apollo-1-6-billion/#40938fb46c45.
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1 higher for the defendant, including when a startup is threatened with going out of
2 business. Apple Inc. v. Psystar Corp., 673 F. Supp. 2d 943, 950 (N.D. Cal. 2009)
3 (where small start-up defendant could not “claim any legitimate hardships as a result
4 of being enjoined from committing unlawful activities, and Apple would suffer
5 irreparable and immeasurable harms if an injunction were not issued, this factor
6 weighs strongly in favor of Apple’s motion”) aff’d, 658 F.3d at 1160–61.
7

Redbox’s claim that an injunction will “delay” its alleged “entry into the

8 market for selling digital downloads,” Opp. at 25, is contradicted by its own conduct
9 and testimony. Redbox is not selling digital downloads of Disney movies; it is
10 selling Codes.
.

11

12 Smith Decl. ¶ 4; Suppl. Ehler Decl. Ex. W, Smith Dep. 89:1–6. Redbox’s CEO
13 admits that selling Disney’s Codes does not add any content to Redbox’s download
14 library, Suppl. Ehler Decl. Ex. W, Smith Dep. 90:1–4; that Redbox plans to continue
15 offering Redbox On Demand regardless of what happens in this lawsuit, id. 159:5–
16 9; and that he believes Redbox On Demand can be successful without Disney
17 content

, id.

18 78:17–21, 94:9–11.
19 V.

REDBOX GETS THE PUBLIC INTEREST BACKWARDS

20

Redbox claims the public would prefer to pay less for Codes from Redbox

21 than the prices charged by authorized licensees. Opp. at 25. By that logic, an
22 injunction restraining copyright infringement or contract breaches that cause
23 irreparable harm would never be in the public interest, because the infringer/violator
24 could always price its unlawful offering below licensed offerings. The law is to the
25 contrary. See VidAngel, 869 F.3d at 867 (“‘[T]he public has a compelling interest in
26 protecting copyright owners’ marketable rights to their work and the economic
27 incentive to continue creating television programming’ and motion pictures.”
28 (citations omitted)); see generally Mot. at 23–24.
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1

Redbox mischaracterizes Ms. Marinelli’s testimony as “admit[ting] that the

2 goal of this lawsuit is to is to increase” prices for digital downloads. Opp. at 25.
3 What Ms. Marinelli actually said was: “If consumers come to expect that they can
4 buy unauthorized digital downloads for below market prices, this could have a
5 permanent and irreparable negative impact on consumers’ expectations and
6 relationships with both Disney and its authorized licensees. Consumers will come
7 to believe that below market pricing for a digital copy of a movie from an
8 unauthorized service is legitimate, adversely affecting consumers’ perception of
9 authorized services.” Marinelli Decl. ¶ 19.
10

Allowing Redbox to continue flouting the law is not in the public interest.

11
12
13
14

CONCLUSION
The Court should grant Disney’s motion for a preliminary injunction.
DATED: January 23, 2018

MUNGER, TOLLES & OLSON LLP

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By:

/s/ Kelly M. Klaus
KELLY M. KLAUS
Attorneys for Plaintiffs

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