Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 1 of 26 Page ID #:1670

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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DISNEY ENTERPRISES, INC.;
BUENA VISTA HOME
ENTERTAINMENT, INC.;
LUCASFILM LTD., LLC, MVL
FILM FINANCE LLC,

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Plaintiff,

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v.
REDBOX AUTOMATED RETAIL,
LLC,

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Defendants.
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___________________________

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Case No. CV 17-08655 DDP (AGRx)

ORDER DENYING PLAINTIFFS’ MOTION
FOR PRELIMINARY INJUNCTION

[Dkt. 13]

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Presently before the court is Plaintiffs Disney Enterprises,

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Inc., Buena Vista Home Entertainment, Inc., Lucasfilm Ltd., LLC,

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and MVL Film Finance LLC (collectively, “Disney”)’s Motion for

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Preliminary Injunction.

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parties, the court denies the motion and adopts the following

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Order.

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I.

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Having considered the submissions of the

Background
Disney owns the copyrights to several well-known movies,

including Beauty and the Beast, Frozen, Star Wars: Episode VII -

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 2 of 26 Page ID #:1671

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The Force Awakens, Rogue One: A Star Wars Story, and Guardians of

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the Galaxy Vol. 2.

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20; Exs. B, E, P, Q, S.)

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formats through a variety of channels, including DVD and Blu-ray

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disc sales, on-demand streaming services such as iTunes and Google

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Play, and subscription streaming services such as Netflix and

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Hulu.1

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offerings are “Combo Packs.”

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Pack boxes feature large-type text reading, “Blu-Ray + DVD +

(Declaration of Rosa Leda Ehler ¶¶ 3, 6, 17-18,
Disney distributes its films in multiple

(Declaration of Janice Marinelli ¶ 7.)

Among Disney’s

(Marinelli Decl., ¶ 8, Ex. A.)

Combo

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Digital HD,” and include a Blu-ray disc, a digital versatile disc

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(“DVD”), and a piece of paper containing an alphanumeric code.

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(Marinelli Decl., Ex. A.)

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redeemed at RedeemDigitalMovies.com or DisneyMoviesAnywhere.com to

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allow a user to “instantly stream and download with digital HD.”

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(Id.)

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smaller print near the bottom third of the box, that “Codes are not

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for sale or transfer.”

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boxes indicates, with respect to “Digital HD,” that “Terms and

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Conditions apply.”2

The alphanumeric code can be inputted or

The exteriors of the Combo Pack boxes state, in somewhat

(Id.)

Very fine print at the bottom of the

(Id.)

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Disney does not sell standalone digital downloads directly
to consumers, but does make standalone downloads available through
Disney licensees. (Marinelli Decl., ¶ 10.)
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Although Disney describes its Beauty and the Beast (2017)
packaging as a representative sample of the twenty Combo Packs
identified in the Complaint, that does not appear to be the case.
(Marinelli Decl., Ex. 10.) For example, the “Codes are not for
sale or transfer” language appears only on Combo Packs released
after June 2017. (Supplemental Declaration of Kelly Klaus ¶ 3.)
Similarly, the “Blu-Ray + DVD + Digital HD” language only appears
on a small number of Combo Packs, while the packaging of other
works named in the Complaint contain different descriptions, such
as “Digital Copy.” (Supplemental Klaus Decl., Ex. KK.)
Nevertheless, for purposes of determining whether any injunction
(continued...)
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The download code insert within the Combo Pack box instructs

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consumers to (1) visit RedeemDigitalMovie.com or Disney Movies

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Anywhere, (2) enter the alphanumeric code printed on the insert,

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and (3) “enjoy your movie.”

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like the exterior of the Combo Pack packaging, also states, “Codes

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are not for sale or transfer.”

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(Marinelli Decl., Ex. B.)

The insert,

(Id.)

The RedeemDigitalMovies and Disney Movies Anywhere web pages

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each set forth additional terms and conditions of use.

The former

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states that Plaintiff Buena Vista Home Entertainment, Inc. retains

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ownership of the codes and authorizes only their conditional use.3

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The page also states that by redeeming a code, the user “represents

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that [he] is the owner of the physical product that accompanied the

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digital code at the time of purchase.

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code sold or transferred separate from the original physical

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product is prohibited.”

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more substantial Movies Anywhere click-wrap terms of use provide

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that only members with registered Movies Anywhere accounts, who

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have by definition agreed to Movies Anywhere’s terms of use, can

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take advantage of the Movies Anywhere service.

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at 11.)

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code redemption, which provide that a consumer “can enter

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authorized . . . Digital Copy codes from a Digital Copy enabled . .

The redemption of a digital

(Declaration of Kelly Klaus, Ex. A.)

The

(Klaus Decl., Ex. B

Among the terms of use are terms concerning digital copy

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(...continued)
should issue, this court will analyze the “best case scenario”-type
language included on the Beauty and the Beast packaging.
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The pop-up “terms and conditions” dialog window refers to
“these terms and conditions” in several places, but does not appear
to include all terms and conditions. Instead, “all applicable
terms and conditions” are accessible via a separate link outside
the dialog box. (Declaration of Kelly Klaus, Ex. A.)
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. physical product that is owned by [that consumer].”

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The terms further state that the “sale, distribution, purchase, or

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transfer of Digital Copy codes . . . is strictly prohibited.”

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(Id.)

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Anywhere grants the registered member “a limited, personal use,

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non-transferable, non-assignable, revocable non-exclusive and non-

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sublicensable right” to stream or download movies and to use the

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service.

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users’ right to copy the copyrighted works, except in accordance

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(Id. at 15.)

The Movies Anywhere terms of use also state that Movies

(Id. at 12.)

The terms of service expressly restrict

with the Movies Anywhere terms of service.

(Id.)

Defendant Redbox Automated Retail, LLC (“Redbox”) rents and

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sells movies to consumers via tens of thousands of automated kiosks

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that dispense DVD and Blu-ray discs.

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¶¶ 4,6; Declaration of Richard Chamberlain ¶¶ 2,4.)

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offers a “Redbox on Demand” service that allows consumers to stream

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or download movies owned by studios other than Disney.

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Decl. ¶ 4.)

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downloads of Disney movies in the form of download codes.

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(Chamberlain Decl. ¶ 7, Smith Decl. ¶ 17.)

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have a vendor agreement with Disney, Redbox acquires Disney films

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by purchasing copies at retail outlets such as electronics stores,

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grocery stores, and the like.

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Redbox purchases standalone Blu-rays and DVDs as well as Disney’s

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Combo Packs.

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for Disney movies by purchasing Combo Packs and removing the piece

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of paper bearing the download code from Disney’s packaging.

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at ¶ 7.)

(Declaration of Galen Smith
Redbox also

(Smith

More recently, Redbox has begun to offer digital

(Id. at ¶ 4.)

Because Redbox does not

(Chamblerlain Decl. ¶¶ 3, 5.)

Redbox obtains digital download codes

(Id.

Redbox then places the piece of paper bearing the code

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into its own Redbox packaging and offers the code for sale at a

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Redbox kiosk.

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(Id.)

Disney’s Complaint alleges that Redbox’s resale of Combo Pack

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digital download codes (1) constitutes contributory copyright

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infringement, insofar as it encourages end users to make

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unauthorized reproductions of Disney’s copyrighted works, (2) is a

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breach of the contract Redbox enters into with Buena Vista when

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Redbox purchases Combo Packs, (3) interferes with Disney’s

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contracts with RedeemDigitalMovie.com users, and (4) violates

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California false advertising and unfair competition laws.

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now moves for a preliminary injunction enjoining Redbox from, among

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other things, selling or transferring Disney digital download

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codes.

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II.

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Disney

Legal Standard
A private party seeking a preliminary injunction must show

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that: (i) it is likely to succeed on the merits; (ii) it will

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suffer irreparable harm in the absence of preliminary relief; (iii)

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the balancing of the equities between the parties that would result

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from the issuance or denial of the injunction tips in its favor;

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and (iv) an injunction will be in the public interest.

Winter v.

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Natural Resources Def. Council, 555 U.S. 7, 20 (2008).

Preliminary

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relief may be warranted where a party: (i) shows a combination of

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probable success on the merits and the possibility of irreparable

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harm; or (ii) raises serious questions on such matters and shows

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that the balance of hardships tips in favor of an injunction.

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Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th

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Cir. 1987). “These two formulations represent two points on a

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sliding scale in which the required degree of irreparable harm
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See

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increases as the probability of success decreases.”

Id.

Under

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both formulations, the party must demonstrate a “fair chance of

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success on the merits” and a “significant threat of irreparable

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injury” absent the issuance of the requested injunctive relief.4

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Id.

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III. Discussion

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A.

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Disney contends that Redbox entered into a contract with

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Breach of Contract

Disney when Redbox purchased and opened Disney Combo Packs that

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included, on the outside of the packaging, the phrase “Codes are

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not for sale or transfer.”

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breach of contract claim are (1) the existence of a contract, (2)

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performance or excuse for nonperformance, (3) defendant’s breach,

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and (4) damages.

Oasis West Realty, LLC v. Goldman, 51 Cal. 4th

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811, 821 (2011).

A valid contract requires capable, consenting

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parties, a lawful object, and sufficient cause or consideration.

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Cal. Civ. Code § 1550;

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Supp. 2d 1181, 1186 (E.D. Cal. 1998).

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for sale of goods may be made in any manner sufficient to show

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agreement, including conduct by both parties which recognizes the

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existence of such a contract.”

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general, “silence or inaction does not constitute acceptance of an

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offer.”

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(9th Cir. 2017) (quoting Golden Eagle Ins. Co. v. Foremost Ins.

(Motion at 9.)

The elements of a

Janda v. Madera Community Hosp., 16 F.
In California, “[a] contract

Cal. Com. Code § 2204(1).

In

Norcia v. Samsung Telecomm. Am., LLC, 845 F.3d 1279, 1284

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Even under the “serious interests” sliding scale test, a
plaintiff must satisfy the four Winter factors and demonstrate
“that there is a likelihood of irreparable injury and that the
injunction is in the public interest.” Alliance for the Wild
Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. 2011).
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Co., 20 Cal. App. 4th 1372, 1385 (1993).

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voluntary acceptance of the benefit of an offer may constitute

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consent to a contract.

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party that has accepted an offered benefit cannot be deemed to have

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accepted a contract if the offeree did not have reasonable notice

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that an offer had been made.

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Collins & Aikman Corp., 25 Cal. App. 3d 987, 993 (1972)).

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Id.

Nevertheless, a party’s

At the same time, however, even a

Id. (citing Windsor Mills, Inc. v.

In Norcia, the defendant sought to enforce the terms of an

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arbitration agreement set forth within a brochure that was located

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inside a product box, and which therefore could not be accessed or

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viewed by the consumer without opening the product packaging after

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purchase.

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the plaintiff had consented to the arbitration terms because,

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notwithstanding the absence of any terms on the outside of the

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packaging, the brochure was analogous to a “shrink-wrap license,”

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which states on the outside of a product package that the user

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agrees to further, as-yet undisclosed license terms by opening up

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the packaging.5

Norcia, 845 F.3d at 1286.

Id.

The defendant contended that

Accepting the analogy for the sake of

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Plaintiff asserts that the instant case is distinguishable
because “Norcia deals with ‘shrink wrap’ licenses, the terms of
which are found inside the box or when software is booted up.”
(Reply at 8:19-20.) The Norcia court defined a shrink-wrap license
as “a form on the packing or on the outside of [a] CD-ROM
containing [] software which states that by opening the packaging
or CD-ROM wrapper, the user agrees to the terms of the license.”
Norcia, 845 F.3d at 1286 (quoting Wall Data Inc. v. Los Angeles
County Sheriff’s Dep’t, 447 F.3d 769, 782 n.4 (9th Cir. 2006); see
also Arizona Cartridge Remanufacturers Ass’n v. Lexmark Int'l,
Inc., 421 F.3d 981, 987 n.6 (9th Cir. 2005) (defining shrink-wrap
license as one that “impose[s] restrictions that a consumer may
discover only after opening and installing the software.” (emphasis
original); Tompkins v. 23andMe,Inc., No. 5:13-CV-05682-LHK, 2014 WL
2903752 at *5 (N.D. Cal. June 25, 2014) (“A shrinkwrap agreement
generally refers to a situation where a customer buys and receives
a product, the written agreement is presented with the product
(continued...)
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argument, the court nevertheless rejected the defendant’s position.

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Id.

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enforceable under California law, the court held that the

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plaintiff’s silence could not be deemed acceptance where there was

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no indication on the outside of the packaging that opening the box

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would constitute acceptance of further terms set forth inside the

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box.

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analogized to a brochure that contains contractual terms, the

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outside of the Galaxy S4 box did not notify the consumer that

Although acknowledging that a shrink wrap license might be

Id. at 1287 (“Even if a license to copy software could be

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opening the box would be considered acceptance to the terms set

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forth in the brochure.” (emphasis added)); see also Marshall &

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Swift/Boeckh, LLC v. URS Corp., No. CV-0804375-GAF, 2009 WL

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10668449, at *17 (C.D. Cal. Aug. 26, 2009) (explaining that a

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shrink-wrap license, even though it is a contract of adhesion, is

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“fully enforceable unless certain other factors are present which,

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under established legal rules – legislative or judicial – operate

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to render it otherwise.” (quoting DVD Copy Control Ass’n v.

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(...continued)
after purchase, and the customer implicitly accepts by opening and
keeping the product.”). Here, Norcia is distinguishable only to
the extent that Disney contends that a single phrase on the
exterior of its Combo Pack packaging itself constitutes a “box-top”
license agreement, to which Redbox consented when it opened the
Combo Pack, as opposed to shrink wrap notice of further license
restrictions stated elsewhere, such as within the box or on the
redemption service portals. The court notes that although the box
tops also contain “Terms and Conditions Apply” fine print, Disney’s
breach of contract arguments do not rely upon that shrink wrap
license-type language and, as noted above, Disney disclaims the
existence of any shrink wrap license. In any event, the issue in
Norcia, as here, was whether external packaging put the offeree on
notice that he was accepting a contract by opening the box. See
Norcia, 845 F.3d at 1287).
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Kaleidescape, Inc., 176 Cal. App. 4th 697, 716 (2009)) (internal

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quotation marks omitted).

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Disney argues that the circumstances here are more similar to

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those before the court in Arizona Cartridge Remanufacturers

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Association, Inc. v. Lexmark International, Inc., 421 F.3d 981 (9th

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Cir. 2005).

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unfair competition claims based upon an allegation that the

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defendant was misleading customers into thinking that contractual

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terms printed upon the outside of a printer cartridge box were

There, the plaintiff brought false advertising and

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enforceable.

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license terms ostensibly printed in their entirety on the outside

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of the product packaging, the court distinguished shrink wrap

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license disputes and other cases involving lack of notice at the

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time of purchase that additional terms applied.

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With that understanding, the court analyzed the following “box-top

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license” language:

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Lexmark, 421 F.3d at 983.

Because the case involved

Id. at 987 n.6.

Please read before opening. Opening of this package or
using the patented cartridge inside confirms your
acceptance of the following license agreement. The patented
cartridge is sold at a special price subject to a
restriction that it may be used only once. Following this
initial use, you agree to return the empty cartridge only
to Lexmark for remanufacturing and recycling. If you don't
accept these terms, return the unopened package to your
point of purchase. A regular price cartridge without these
terms is available.

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Id. at 983-984.
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The court rejected the plaintiff’s argument, holding that the
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box-top language was sufficient to constitute an enforceable
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contract that consumers accepted by opening the box.

Id. at 987.

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The court explained that the contract was enforceable because, by
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its own terms, it gave notice of the existence of a license, set
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forth the conditions of sale of that license, afforded the consumer

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the opportunity to read the terms of the contract before deciding

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whether to accept them, and provided consideration in the form of a

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reduced price, thus supporting the conclusion that a consumer who

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opened the box accepted the terms printed upon it.

Id. at 987-88.

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The question before this Court, then, is whether language on

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the Combo Packs stating that “Codes are not for sale or transfer”

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is, like the box-top license in Lexmark, an enforceable license,

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and whether Redbox’s decision to open the Combo Pack packaging

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notwithstanding that language constitutes acceptance of that

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license.

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language as a shrink wrap or as a box-top license, Disney has not

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demonstrated a likelihood of success on the merits of that

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question.

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At this stage, whether considering the Combo Pack

The phrase “Codes are not for sale or transfer” cannot

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constitute a shrink wrap contract because, like the box at issue in

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Norcia, Disney’s Combo Pack box makes no suggestion that opening

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the box constitutes acceptance of any further license restrictions.

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Norcia, 845 F.3d at 1287; see also SoftMan Prod. Co. v. Adobe Sys.,

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Inc., 171 F. Supp. 2d 1075, 1087 (C.D. Cal. 2001) (finding a

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consumer’s decision to open a software box bearing language

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stating, “NOTICE TO USERS: This product is offered subject to the

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license agreement included with the media” insufficient to

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constitute assent to a license).

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analogize its Combo Pack packaging and language to the packaging

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and terms in Lexmark, the comparison is inapt.

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top license language in Lexmark not only provided consumers with

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specific notice of the existence of a license and explicitly stated

Although Disney seeks to

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The thorough box-

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that opening the package would constitute acceptance, but also set

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forth the full terms of the agreement, including the nature of the

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consideration provided, and described a post-purchase mechanism for

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rejecting the license.

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upon the phrase “Codes are not for sale or transfer” to carry all

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of that weight.6

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phrase does not identify the existence of a license offer in the

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first instance, let alone identify the nature of any consideration,

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specify any means of acceptance, or indicate that the consumer’s

Here, in contrast, Disney relies solely

Unlike the box-top language in Lexmark, Disney’s

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decision to open the box will constitute assent.

In the absence of

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any such indications that an offer was being made, Redbox’s silence

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cannot reasonably be interpreted as assent to a restrictive

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license.7

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Disney also suggests that Redbox accepted license terms
because it purchased and opened many Combo Packs. This argument is
not persuasive. See, e.g., In re CFLC, Inc., 209 B.R. 508, 514
(B.A.P. 9th Cir. 1997) (“[T]he repetitive use of a standard form by
one party, without a meeting of the minds or express agreement, is
insufficient to establish a course of dealing.”) (citing Step-Saver
Data Sys., Inc. v. Wyse Tech., 939 F.2d 91, 104 (3d Cir. 1991)).
Disney’s argument that Redbox understands that “Not for Sale or
Transfer” indicates the existence of a license because Redbox also
uses those terms is also unpersuasive. (Mot. at 10:14-20.) Disney
ignores the fact that Redbox’s statements do not appear in
isolation, and are accompanied by language far closer to that in
Lexmark. (Klaus Decl., Exs. I, J.) Furthermore, particularly in
the absence of any evidence that particular terms have a particular
meaning in the relevant industries, this Court cannot ascribe to
any party knowledge of some special or coded definition of “Not for
Sale or Transfer,” or any other phrase.
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Suppose, for example, that a bulk package of pencils stated,
“Individual pencils not for re-sale,” but that a bulk package
pencil purchaser nevertheless re-sold a single pencil. It is
doubtful that the manufacturer would be able to state a colorable
claim for breach of contract or credibly argue that the consumer
assented to a license. Although the distinction between physical
goods like pencils and arguably intangible products like a digital
download code may be relevant in other contexts, no party has
suggested that the nature of the product has any effect on notice
(continued...)
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Indeed, the presence of other, similarly assertive but

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unquestionably non-binding language on the Combo Pack boxes casts

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further doubt upon the argument that the phrase “Not For Sale or

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Transfer” communicates the terms or existence of a valid offer.

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The packaging also states, for example, that “This product . . .

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cannot be resold or rented individually.”

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A.)

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it pertains to the Blu-ray disc and DVD portions of the Combo

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Pack.8

(Marinelli Decl., Ex.

This prescription is demonstrably false, at least insofar as

The Copyright Act explicitly provides that the owner of a

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particular copy “is entitled, without the authority of the

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copyright owner, to sell or otherwise dispose of the possession of

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that copy.”

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628 F.3d 1175, 1180 (9th Cir. 2011) (discussing first sale

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doctrine).

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individually” language conveys nothing so much as Disney’s

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preference about consumers’ future behavior, rather than the

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existence of a binding agreement.

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the accompanying “Not For Sale or Transfer” language plays a

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similar role.9

17 U.S.C. § 109(a); UMG Recordings, Inc. v. Augusto,

Thus, the clearly unenforceable “cannot be resold

At this stage, it appears that

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(...continued)
requirements or other traditional elements of contract formation.

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Any suggestion that “this product” refers to the Combo Pack
as a whole, and not to the physical discs, is belied by the
inclusion of the word “individually.”
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Although Disney concedes that any attempt to curtail the
secondary distribution of Blu-rays and DVDs would not be
successful, Disney maintains that any transfer of a Combo Pack in
its entirety would necessarily violate the supposed contract
because the download code portion of the Combo Pack is nontransferable. Thus, under Disney’s interpretation of the contract,
a consumer who purchases a Combo Pack for his child or relative and
(continued...)
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Accordingly, Disney has failed to meet its burden to

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demonstrate a likelihood of success on the merits of its breach of

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contract claim.

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B.

Contributory Copyright Infringement

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Disney’s First Cause of Action alleges that Redbox

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contributorily infringes upon Disney’s copyrights by enabling and

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encouraging individual consumers to violate the RedeemDigitalMovies

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and Disney Movies Anywhere use licenses, and in the process create

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unauthorized reproductions of Disney’s copyrighted works.

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A copyright owner has the exclusive right to reproduce the

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copyrighted work.

17 U.S.C. § 106.

“To establish copyright

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infringement, a plaintiff must prove two elements: ‘(1) ownership

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of a valid copyright, and (2) copying of constituent elements of

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the work that are original.’”

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Aeropostale, Inc., 676 F.3d 841, 846 (9th Cir. 2012) (citing Feist

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Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361, (1991)).

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A defendant is contributorily liable for copyright infringement if

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he has “intentionally induced or encouraged direct infringement.”

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MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 937 (9th

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Cir. 2010) (internal alterations and quotation marks omitted).

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copyright licensee infringes upon a copyright if he exceeds the

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scope of his license.

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1085 (9th Cir. 1989) (“To prevail on its claim of copyright

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infringement, [the copyright owner] must prove . . . ‘copying’ of

L.A. Printex Indus., Inc.v.

A

S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081,

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(...continued)
proceeds to give that Combo Pack to a family member as a gift has
violated the purchase agreement and is subject to suit for breach
of contract, notwithstanding Disney’s representation that it is
unlikely to ever bring such a claim.
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protectable expression by [the accused infringer] beyond the scope

2

of [the] license.”)

3

A restrictive license exists where the copyright owner “(1)

4

specifies that the user is granted a license; (2) significantly

5

restricts the user’s ability to transfer the software; and (3)

6

imposes notable use restrictions.”

7

F.3d 1102, 1111 (9th Cir. 2010).

8

RedeemDigitalMovies and Movies Anywhere terms of service meet all

9

of these criteria.

Vernor v. Autodesk, Inc., 621
There is little doubt that the

The terms of the RedeemDigitalMovies license

10

state that Plaintiff Buena Vista owns all digital movie codes and

11

that users may only use digital codes as authorized.

12

further require that a user “represent[] that [he] is the owner of

13

the physical product that accompanied the digital code at the time

14

of purchase,” and expressly forbid the “redemption of a digital

15

code sold or transferred separate from the original physical

16

product.”

17

comprise “a license agreement and not an agreement for sale . . .”

18

that creates any ownership interest in licensed content, provide

19

that users can only “enter authorized . . . Digital Copy codes from

20

a Digital Copy enabled . . . physical product that is owned by

21

[that user],” and state that “the purchase of Digital Copy codes

22

. . . is strictly prohibited.”

23

from Redbox and then redeeming that code on the licensed download

24

service portals, end users necessarily violate the terms of the

25

licenses and, Disney contends, therefore infringe upon Disney’s

26

copyrights.

The terms

The Movies Anywhere terms similarly specify that they

By buying a standalone Disney code

See MDY Indus., LLC, 629 F.3d at 939 (explaining that

27
28
14

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 15 of 26 Page ID #:1684

1

violations of license conditions constitute copyright

2

infringement).10

3

Nevertheless, Redbox argues that Disney cannot demonstrate a

4

likelihood of success on the merits of its contributory copyright

5

claim because Disney has engaged in copyright misuse.

6

misuse is an affirmative defense that “prevents copyright holders

7

from leveraging their limited monopoly to allow them control of

8

areas outside the monopoly.”

9

239 F.3d 1004, 1026 (9th Cir. 2001).

Copyright

A&M Records, Inc. v. Napster, Inc.,
Disney responds that it is

10

not guilty of copyright misuse because it is not “trying to extend

11

its copyright over the underlying movies to other, non-copyrighted

12

products.”11

13

copyright misuse defense often applies to situations in which

14

copyright holders attempt to use their copyright to obtain some

15

power over other, non-copyrighted goods or services.

16

Management Information Corporation v. American Medical Association,

17

121 F.3d 516 (9th Cir. 1997), for example, the defendant misused

18

its copyright when it obtained an unfair advantage over its

19

competitors by licensing a copyrighted coding system on the

(Reply at 6:24-25.)

Disney is correct that the

In Practice

20
10

21
22
23
24
25
26
27
28

The court notes that Defendant’s opposition to Plaintiffs’
argument regarding contributory infringement appears to
misunderstand the nature of Plaintiffs’ claim. Defendant argues
that “there is no license and even Plaintiffs do not claim one was
created.” (Opposition at 13:12-13.) Although that statement is
arguably true with respect to the relationship between Disney and
Redbox, Disney’s contributory copyright infringement claim is
predicated not upon that relationship, but rather upon the license
agreement between the end user/downloader and one or both of the
digital download services.
11
Redbox also argues that Disney is engaged in copyright
misuse because it is attempting to “impose an artificial price
floor by eliminating competition.” (Opposition at 17:12-13.)
Although copyright misuse may be rooted in anticompetitive behavior
or public policy considerations, Redbox does not adequately develop
its price-fixing theory.
15

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1

condition that licensees agree not to use the competing systems.

2

Practice Mgmt., 121 F.3d at 521.

3

Corporation, 776 F.3d 692 (9th Cir. 2015), the owner of a

4

copyrighted design sought to use its copyright to restrict sales of

5

otherwise uncopyrightable watches.

6

94.

7

distribution strategy by obtaining genuine watches abroad, then

8

legitimately re-selling them in the United States.

9

attempt to foreclose this practice, the copyright holder began

In Omega S.A. v. Costco Wholesale

Omega, S.A., 776 F.3d at 693-

The watch seller frustrated the plaintiff’s domestic

Id.

In an

10

engraving a “barely perceptible” version of the copyrighted design

11

onto the bottom of the watches, then sued the watch seller for

12

copyright infringement.12

13

the copyright holder misused its copyright “by leveraging its

14

limited monopoly in being able to control the importation of [the

15

copyrighted design] to control the importation of [the] watches.”

16

Id.

17

Id.

The district court concluded that

Here, Disney contends that its actions are distinguishable

18

from those at issue in Practice Management and Omega, S.A. because

19

Disney’s control of and restraints on digital downloads only

20

pertain to the copyrighted work itself, and not to other, non-

21

copyrighted products such as the competitors’ code systems in

22

Practice Management or the watches in Omega, S.A.

23

misuse defense, however, is not so narrow as Disney would have it.

24

Indeed, copyright misuse need not even be grounded in anti-

25

competitive behavior, and extends to any situation implicating “the

26

public policy embodied in the grant of a copyright.”

27
28

12

See 17 U.S.C. § 602.
16

The copyright

Omega, S.A.,

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 17 of 26 Page ID #:1686

1

776 F.3d at 699-700 (Wardlaw, J. concurring).

2

inquiry, then, is not whether the digital download services’

3

restrictive license terms give Disney power over some entirely

4

unrelated product, but whether those terms improperly grant Disney

5

power beyond the scope of its copyright.

6

F.3d at 102.

7

The pertinent

A&M Records, Inc., 239

The Copyright Act gives copyright owners the exclusive right

8

to distribute copies of the copyrighted work.

17 U.S.C. § 106(3);

9

Adobe Sys., Inc. v. Christenson, 809 F.3d 1071, 1076 (9th Cir.

10

2015).

11

copy of a copyrighted item into the stream of commerce by selling

12

it.

13

1107 (9th Cir. 2010).

14

transfers title to a particular copy of a work, the transferor is

15

powerless to stop the transferee from redistributing that copy as

16

he chooses.

17

That right is exhausted, however, once the owner places a

Id.; 17 U.S.C. § 109(a); Vernor v. Autodesk, 621 F.3d 1102,
In other words, once a copyright owner

UMG Recordings, 628 F.3d at 1180.

There can be no dispute, therefore, that Disney’s copyrights

18

do not give it the power to prevent consumers from selling or

19

otherwise transferring the Blu-ray discs and DVDs contained within

20

Combo Packs.

21

the terms of both digital download services’ license agreements

22

purport to give Disney a power specifically denied to copyright

23

holders by § 109(a).

24

represent that they are currently “the owner of the physical

25

product that accompanied the digital code at the time of purchase,”

26

while the Movies Anywhere terms of use only allow registered

Disney does not contend otherwise.13

RedeemDigitalMovies requires redeemers to

27
28

13

Nevertheless,

See note 9, supra.
17

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 18 of 26 Page ID #:1687

1

members to “enter authorized . . . Digital Copy codes from a

2

Digital Copy enabled . . . physical product that is owned by [that

3

member].”14

4

movie content, for which they have already paid, without exceeding

5

the scope of the license agreement unless they forego their

6

statutorily-guaranteed right to distribute their physical copies of

7

that same movie as they see fit.15

8

Disney’s copyright in the digital content to restrict secondary

9

transfers of physical copies directly implicates and conflicts with

Thus, Combo Pack purchasers cannot access digital

This improper leveraging of

10

public policy enshrined in the Copyright Act, and constitutes

11

copyright misuse.16

12

Accordingly, Disney has not demonstrated a likelihood of

13

success on the merits of its contributory copyright infringement

14

claim.17

15
14

16
17
18
19
20
21
22
23
24
25
26
27
28

Redbox also argues that “physical product” includes the
pieces of paper upon which the digital download code is printed,
and that digital downloaders therefore do not violate any terms of
use even when inputting a code purchased from Redbox. That
argument has no merit. The paper insert, like the alphanumeric
code it bears, has no value separate from the digital content that
the code represents.
15
At argument, Disney suggested that consumers can contract
away their redistribution rights. To the extent Disney suggests
that that occurred here, that argument has no merit, for the
reasons described in the breach of contract discussion, above.
16
Although the court need not and does not address the
remaining Winter factors beyond likelihood of success on the
merits, the court notes that the policy considerations underlying
the copyright misuse defense raise serious questions about Disney’s
ability to demonstrate that an injunction essentially ratifying
Disney’s misuse would nevertheless be in the public interest.
17
As alluded to in the context of the box-top and shrink
wrap license discussion, above, significant questions remain
regarding the representations made to consumers on the Combo Pack
packaging. Disney characterizes the purchase of “Digital HD” as
effectively the purchase of a coupon that will allow consumers to
download digital content only if they agree to the terms of a
license in the future. Although beyond the scope of briefing here,
the question whether the representations made on the box actually
(continued...)
18

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1

C.

First Sale Doctrine

2

Much of the parties’ briefing and argument focuses on Redbox’s

3

contention that Disney’s attempts to prohibit transfer of digital

4

download codes are barred by the first sale doctrine.

5

reasons stated above, the issues presently before the court can be

6

resolved irrespective of the first sale doctrine question.

7

at this stage of proceedings, it appears to the court that the

8

first sale doctrine is not applicable to this case.

9

For the

Indeed,

The first sale doctrine, recognized first by the Supreme Court

10

and later codified, allows the “owner of a particular copy or

11

phonorecord lawfully made under [the Copyright Act] . . . to sell

12

or otherwise dispose of the possession of that copy or

13

phonorecord,” without the permission of the copyright holder.

14

v. Augusto, 628 F.3d 1175, 1180 (9th Cir. 2011) (quoting 17 U.S.C.

15

§ 109(a)); Bobbs-Merrill Co. v. Strauss, 210 U.S. 339, 341 (1908).

16

Thus, as explained above, a copyright owner’s exclusive right to

17

distribute a particular copy of a copyrighted work is exhausted

18

once the owner transfers title to that copy.

19

1071 at 1076 (9th Cir. 2015); Vernor, 621 F.3d at 1107; 17 U.S.C. §

20

106(3).

UMG

Christenson, 809 F.3d

21

Not all transfers of a copy of a copyrighted work constitute a

22

transfer of title sufficient to trigger exhaustion of the copyright

23

holder’s distribution rights.

24

certain conditions, a transferee may be a licensee rather than an

Vernor, 621 F.3d at 1111.

Under

25
26
27
28

17

(...continued)
support Disney’s characterization or give rise to other legal or
equitable defenses to allegations of infringement and other
potential claims casts further doubt upon Disney’s likelihood of
success.
19

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 20 of 26 Page ID #:1689

1

owner, and will not enjoy the protections of the first sale

2

doctrine.

3

Disney’s transfer of a digital code in a Combo Pack does not bear

4

the indicia of a license, and therefore should be considered a

5

transfer of title to a particular copy.

6

thrust of Disney’s position regarding the first sale doctrine.

7

Disney does not argue that it transferred a restrictive license

8

rather than title to a digital copy, but rather that the first sale

9

doctrine does not apply here for the fundamental reason that the

Id.

Redbox spends much of its opposition arguing that

This argument misses the

10

digital download codes are not “copies” in the first instance, let

11

alone “particular copies.”

12

material objects, other than phonorecords, in which a work is fixed

13

by any method now known or later developed, and from which the work

14

can be perceived, reproduced, or otherwise communicated, either

15

directly or with the aid of a machine or device.”

16

By Disney’s reading, no “copy” exists until a copyrighted work is

17

fixed onto a downloader’s hard drive, and Redbox’s purchase of a

18

download code therefore cannot possibly involve a “particular copy”

19

to which a first sale defense could apply.

20

this case is solely about the exclusive right to reproduce a

21

copyrighted work, and has nothing to do with the right of

22

distribution or, by extension, the first sale doctrine’s limitation

23

on that exclusive right.

24

For copyright purposes, “‘[c]opies’ are

17 U.S.C. § 101.

Thus, Disney contends,

One court that addressed a similar issue applied logic similar

25

to that Disney puts forth here.

In Capitol Records, LLC v. ReDigi

26

Inc., 934 F. Supp. 2d 640 (S.D.N.Y. 2013), the defendant attempted

27

to create a marketplace for used digital music downloads by

28

devising a technology that “migrated” a seller’s digital music file
20

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 21 of 26 Page ID #:1690

1

from the seller’s computer, data packet by data packet, onto the

2

defendant’s server, from whence it could then again be migrated to

3

a secondary purchaser’s computer without any bit of data ever

4

existing in any two places at the same time.

5

Supp. 2d at 645.

6

defendant’s first sale doctrine defense.18

7

of the defendant’s claim that no datum existed in two places at the

8

same time, the court observed, the digital files at issue could not

9

be re-sold without a “new” version first being created on the

ReDigi Inc., 934 F.

On summary judgment, the court rejected the
Regardless

10

defendant’s physical server.

11

new version was not the same “particular copy,” but rather an

12

unauthorized reproduction of a copyrighted work.19

13

another way, the first sale defense is limited to material items,

14

like records, that the copyright owner put into the stream of

15

commerce.”

16
17

Id.

Id. at 655.

Thus, the court concluded, the

Id.

“Put

Id.

Policy considerations also supported the ReDigi court’s
conclusion.

In 2001, the United States Copyright Office, at

18
19
20
21
22
23
24
25
26
27

18

With respect to the right of reproduction, the ReDigi court
rejected the first sale defense out of hand as inapplicable.
ReDigi, 934 F.Supp.2d at 655.
19
The ReDigi court’s discussion of the first sale defense
concerned the plaintiff’s exclusive distribution right, which
applies only to “copies or phonorecords.” 17 U.S.C. § 106; ReDigi,
934 F.Supp.2d at 655. “Phonorecords,” like “copies,” are defined
as “material objects.” 17 U.S.C. § 101. Nevertheless, no party
disputed that an electronic transfer of a copyrighted work
constitutes a distribution for copyright purposes. ReDigi, 934
F.Supp.2d at 651. One court, in determining that electronic files
qualify as phonorecords, has stated that “Electronic Files Are
Material Objects.” London-Sire Records, Inc. v. Doe 1, 542 F.
Supp. 2d 153, 170 (D. Mass. 2008). As the London-Sire court
elaborated, however, “more accurately, the appropriate segment of
the hard disk[] is . . . a ‘phonorecord’ within the meaning of the
statute.” Id. at 171 (emphasis added).

28
21

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 22 of 26 Page ID #:1691

1

Congress’ command, prepared a report on, among other things, the

2

effect of emerging technologies on copyright law.

3

Cong., DMCA Section 104 Report (2001) (“USCO Report”); Digital

4

Millennium Copyright Act of 1998, § 104, Pub. L. No. 105-304, 112

5

Stat. 2860, 2876.

6

discussion of the first sale doctrine, including the rationales

7

underpinning the doctrine as it relates to tangible goods in the

8

physical world.

9

specifically addressed the potential implications of expressly

USCO, Library of

The Copyright Office engaged in a lengthy

USCO Report at 74-101. The Copyright Office

10

expanding the first sale doctrine “to permit the transmission of a

11

digital work by the owner of a lawful copy of that work, so long as

12

that copy is destroyed.”

13

USCO recommended that the first sale doctrine not be explicitly

14

expanded to include digital transmission.

15

explained:

16
17
18
19
20
21
22
23
24
25
26
27
28

USCO Report at 80-81.

Ultimately, the

As the USCO report

Physical copies of works degrade with time and use, making
used copies less desirable than new ones. Digital
information does not degrade, and can be reproduced
perfectly on a recipient’s computer. The “used” copy is
just as desirable as (in fact, is indistinguishable from)
a new copy of the same work. Time, space, effort and cost
no longer act as barriers to the movement of copies, since
digital copies can be transmitted nearly instantaneously
anywhere in the world with minimal effort and negligible
cost. The need to transport physical copies of works, which
acts as a natural brake on the effect of resales on the
copyright owner’s market, no longer exists in the realm of
digital transmissions. The ability of such “used” copies to
compete for market share with new copies is thus far
greater in the digital world.
Even the “lending” of a
fairly small number of copies of a work by digital
transmission could substitute for a large number of
purchases. For example, one could devise an aggregation
site on the Internet that stores (or, in a peer-to-peer
model, points to) multiple copies of an electronic book. A
user can “borrow” a copy of the book for as long as he is
actually reading it.
Once the book is “closed,” it is
“returned” into circulation. Unlike a typical lending
library, where the book, once lent to a patron, is out of
circulation for days or weeks at a time, the electronic
22

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 23 of 26 Page ID #:1692

1
2
3
4
5
6
7
8
9
10
11
12

book in this scenario is available to other readers at any
moment that it is not actually being read. Since, at any
given time, only a limited number of readers will actually
be reading the book, a small number of copies can supply
the demand of a much larger audience. The effect of this
activity on the copyright owner’s market for the work is
far greater than the effect of the analogous activity in
the non-digital world.
***
[T]hese differences between circulation of tangible and
intangible copies is directly relevant to the balance
between copyright owners and users in section 109. In
weighing the detrimental effect of a digital first sale
doctrine on copyright owners’ markets against the
furtherance of the policies behind the first sale doctrine
it must be acknowledged that the detrimental effect
increases significantly in the online environment.
***
In the final analysis, the concerns about expanding first
sale to limit the reproduction right, harm to the market as
a result of the ease of distribution, and the lessened
deterrent effect of the law that could promote piracy,
outweigh the pro-competitive gains that might be realized
from the creation of a digital first sale doctrine.

13
14
15

USCO Report at 82-83, 85, 100.
Notwithstanding ReDigi, the plain language of the statutes,

16

and the important policy considerations described by the Copyright

17

Office, Redbox urges this court to conclude that Disney’s sale of

18

a download code is indistinguishable from the sale of a tangible,

19

physical, particular copy of a copyrighted work that has simply

20

not yet been delivered.

21

and not a license, and putting aside what Disney’s representations

22

on the box may suggest about whether or not a “copy” is being

23

transferred, this court cannot agree that a “particular material

24

object” can be said to exist, let alone be transferred, prior to

25

the time that a download code is redeemed and the copyrighted work

26

is fixed onto the downloader’s physical hard drive.

27

Disney appears to have sold something akin to an option to create

Even assuming that the transfer is a sale

28
23

Instead,

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 24 of 26 Page ID #:1693

1

a physical copy at some point in the future.20

2

particular, fixed copy of a copyrighted work yet existed at the

3

time Redbox purchased, or sold, a digital download code, the first

4

sale doctrine is inapplicable to this case.

Because no

5

D.

Additional Claims

6

Disney also alleges that Redbox’s sale of digital download

7

codes constitutes “tortious interference” with the contractual

8

relationship formed between Disney’s and downloaders when the

9

latter agree to the digital download services’ terms of use.

10

plaintiff alleging intentional interference with an existing

11

contractual relationship must show “(1) a valid contract between

12

plaintiff and a third party; (2) defendant’s knowledge of this

13

contract; (3) defendant’s intentional acts designed to induce a

14

breach or disruption of the contractual relationship; (4) actual

15

breach or disruption of the contractual relationship; and (5)

16

resulting damage.”

17

19 Cal. 4th 26, 55 (1998) (quoting Pac. Gas & Elec. Co. v. Bear

18

Stearns & Co.), 50 Cal. 3d 1118, 1126 (1990).

19

A

Quelimane Co. v. Stewart Title Guaranty Co.,

The parties’ discussion of Disney’s intentional interference

20

claims are relatively undeveloped, and largely derivative of other

21

arguments.

22

beneficiary of the contracts between the online redemption

23

services and their users, Plaintiffs have submitted no evidence of

24

pre-existing contracts between the redemption services and any

Furthermore, even assuming that Disney is a

25
26
27
28

20

Again, whether that fact is adequately communicated to
purchasers, whether purchasers are ultimately able to enjoy that
benefit, and whether the answers to those questions give rise to
potential defenses or affirmative claims are all separate issues.
See note 14, supra.
24

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 25 of 26 Page ID #:1694

1

user who subsequently purchased a download code from Redbox.

2

these reasons, and for the reasons stated above, Disney has not

3

met its burden to show a likelihood of the success on the merits

4

of its intentional interference claim, and particularly the first,

5

second, and third elements of that claim.

6

For

Nor, at this stage, has Disney demonstrated a likelihood of

7

success on the merits of its state law false advertising and

8

unfair competition claims.21

9

misleads customers by omitting details about license restrictions

Although Disney alleges that Redbox

10

Disney imposes upon digital downloaders, as noted above,

11

significant questions remain about the validity and enforceability

12

of those restrictions.

13

sufficiently demonstrated, at this stage, that it has standing to

14

assert false advertising claims in the absence of its own reliance

15

upon Redbox’s statements.

16

224 F.Supp.3d 1022, 1031 (S.D. Cal. 2016); L.A. Taxi Cooperative,

17

Inc. v. Uber Technologies, Inc., 114 F.Supp.3d 852, 866 (S.D. Cal.

18

2015).

19

IV.

20

See note 14, supra.

Nor has Disney

See Youngevity Int’l Corp. v. Smith,

Conclusion
For the reasons stated above, Disney has failed to

21

demonstrate a likelihood of success on the merits of its claims.

22

The court need not, therefore, address the remaining preliminary

23

//

24

//

25
26
27
28

21

Plaintiffs’ unfair competition claim under California
Business & Professions Code § 17200 is predicated upon Plaintiffs’
other claims.
25

 Case 2:17-cv-08655-DDP-AGR Document 74 Filed 02/20/18 Page 26 of 26 Page ID #:1695

1

injunction factors.

2

is DENIED.

Plaintiffs’ Motion for Preliminary Injunction

3
4
5

IT IS SO ORDERED.

6
7

Dated: February 20, 2018
DEAN D. PREGERSON
United States District Judge

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