Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 1 of 23 Page ID #:634

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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REDBOX AUTOMATED RETAIL,
LLC,

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Plaintiff,
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v.
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BUENA VISTA
HOMEENERTAINMENT, INC.,
DISNEY ENTERPRISES, INC.,
LUCASFILM LTD, LLC, MVL FILM
FINANCE LLC, AND MOVIES
ANYWHERE LLC,
Defendants.
__________________________

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Case No. CV 18-00677 DDP (AGRx)

ORDER RE: DEFENDANTS’ MOTION TO
DISMISS

[Dkt 58]

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Presently before the court is Defendants Buena Vista Home

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Entertainment, Inc., Disney Enterprises, Inc., Lucasfilm Ltd. LLC,

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MVL Film Finance LLC, and Movies Anywhere, LLC (collectively,

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“Disney”)’s Motion to Dismiss Plaintiff’s First Amended Complaint

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(“FAC”).

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heard oral argument, the court grants the motion in part, denies

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the motion in part, and adopts the following Order.

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I.

Having considered the submissions of the parties and

Background1

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1

The general factual background underlying this dispute is
(continued...)

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Disney is a major movie production studio.

(FAC ¶ 34.)

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Disney’s market share of movies rented or sold for home

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entertainment is greater than 50%.

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Plaintiff Redbox Automated Retail, LLC (“Redbox”) rents and sells

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movies on DVD and Blu-Ray discs via automated self-service kiosks,

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which are located in grocery stores, fast-food restaurants, and

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other locations throughout the country.

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generally acquires its stock of Disney movies by purchasing them at

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retail outlets such as big-box stores and grocery stores.

(Id. at ¶¶ 34-35.)

(Id. at ¶¶ 25-29.)

Redbox

(Id. at

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¶ 45.)

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Pack,” which includes a DVD, a Blu-ray disc, and a digital movie

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that can be accessed with a code contained within the Combo Pack.

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(Id. at ¶ 46.)

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through one of two Disney websites (the “redemption websites”).

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(Id. at ¶ 47.)

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Redbox often bought Disney movies as part of a “Combo

Each digital movie code can only be redeemed once,

In summer 2017, Redbox began selling the digital movie codes

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from its kiosks.

(Id.)

Soon after, Redbox alleges, Disney began

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pressuring distributors into refusing to sell retail copies of

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Disney titles to Redbox.

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statements on Combo Pack packaging and on the digital movie codes

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representing that the components of Combo Packs cannot be rented or

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transferred separately.

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also represent that Disney owns “[a]ll digital movie codes,” which

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can only be redeemed by a person (or family member) who obtains the

(Id. at ¶¶ 49-56.)

(Id. at ¶ 60.)

Disney also includes

The redemption websites

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(...continued)
laid out in more detail in this Court’s orders in a closely related
case before this Court, Disney Enterprises, Inc., et al. v. Redbox
Automated Retail, CV 17-08655 DDP (“Redbox I”). The relatively
brief recitation of the facts herein is based upon Redbox’s FAC in
this case.
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code as part of a Combo Pack, and that the codes may not be sold

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separately.

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representations are false because, as a purchaser of a Disney Combo

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Pack, Redbox has an unfettered right to dispose of the DVDs, Blu-

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rays, and digital movie codes contained within the Combo Packs.

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(Id. at ¶¶ 64-65.)

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(Id. at ¶¶ 61-62.)

Redbox alleges that these

Redbox alleges that Disney’s actions and misrepresentations

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have stifled competition and dissuade consumers from purchasing

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digital movies from Redbox.

(FAC ¶¶ 92, 94.)

The FAC alleges

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causes of action for declaratory relief, copyright misuse, tortious

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interference with prospective economic advantage, false advertising

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under both state and federal law, unfair competition, and state and

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federal antitrust violations.

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claims.

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II.

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Disney now moves to dismiss all

Legal Standard
A complaint will survive a motion to dismiss when it

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“contain[s] sufficient factual matter, accepted as true, to state a

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claim to relief that is plausible on its face.”

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556 U.S. 662, 678 (2009)(quoting Bell Atl. Corp. v. Twombly, 550

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U.S. 544, 570 (2007)).

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court must “accept as true all allegations of material fact and

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must construe those facts in the light most favorable to the

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plaintiff.”

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Although a complaint need not include “detailed factual

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allegations,” it must offer “more than an unadorned,

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the-defendant-unlawfully-harmed-me accusation.”

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678.

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statement of a legal conclusion “are not entitled to the assumption

Ashcroft v. Iqbal,

When considering a Rule 12(b)(6) motion, a

Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000).

Iqbal,556 U.S. at

Conclusory allegations or allegations that are no more than a

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of truth.”

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offers “labels and conclusions,” a “formulaic recitation of the

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elements,” or “naked assertions” will not be sufficient to state a

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claim upon which relief can be granted. Id. at 678 (citations and

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internal quotation marks omitted).

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Id. at 679. In other words, a pleading that merely

“When there are well-pleaded factual allegations, a court

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement of relief.”

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Plaintiffs must allege “plausible grounds to infer” that their

Id. at 1950.

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claims rise “above the speculative level.”

Twombly, 550 U.S. at

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555-56.

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for relief” is “a context-specific task that requires the reviewing

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court to draw on its judicial experience and common sense.”

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556 U.S. at 679.

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III. Discussion

“Determining whether a complaint states a plausible claim

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A.

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Disney argues that Redbox has not adequately alleged an

Iqbal,

Antitrust Claims

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antitrust violation.

Section 1 of the Sherman Antitrust Act

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prohibits contracts, combinations, and conspiracies that

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unreasonably restrain trade. 2

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Universal, Inc., 675 F.3d 1192, 1197 (9th Cir. 2012).

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restraints, typically horizontal agreements between competitors,

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are unreasonable per se.

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2284 (2018).

15 U.S.C. § 1; Brantley v. NBC
Some

Ohio v. Am. Express Co., 138 S. Ct. 2274,

All other restraints must be analyzed under the “rule

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The parties agree that federal cases interpreting the
Sherman Act are applicable to claims under California’s Cartwright
Act. See, e.g. Pecover v. Elecs. Arts Inc., 633 F. Supp. 2d 976,
984 (N.D. Cal. 2009); Marin Cty. Bd. of Realtors, Inc. v. Palsson,
16 Cal. 3d 920, 925 (1976).
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of reason.”

Id.; Brantley, 675 F.3d at 1197.

“In its design and

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function the rule distinguishes between restraints with

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anticompetitive effect that are harmful to the consumer and

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restraints stimulating competition that are in the consumer’s best

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interest.”

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U.S. 877, 886 (2007).

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rule of reason, a plaintiff must allege (1) an agreement,

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conspiracy, or combination between two or more entities that

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(2) the entities intend to harm or restrain trade and (3)

Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551

To state a Section 1 claim under the

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actually injures competition with (4) resulting “antitrust

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injury” to the plaintiff.

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Sound Inc. v. Audiovox Elec. Corp., No. 12-762, 2012 WL

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12892938, at *3 (C.D. Cal. Dec. 3, 2012).

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1.

Brantley, 675 F.3d at 1197.; Auto.

Relevant Market

Generally, to demonstrate injury to competition, a plaintiff

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“must delineate a relevant market and show that the defendant plays

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enough of a role in that market to impair competition

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significantly.”

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Cir. 1991).

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to measure the defendant’s ability to lessen or destroy

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competition.”

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and quotation marks omitted).

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effective competition,” including, where applicable, different

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products or services that serve as substitutes for each other.

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Id.; Oltz v. St. Peter's Cmty. Hosp., 861 F.2d 1440, 1446 (9th Cir.

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1988) (“The product market includes the pool of goods or services

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that enjoy reasonable interchangeability of use and

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cross-elasticity of demand.”).

Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413 (9th

“Without a definition of the market, there is no way

Am. Express, 138 S.Ct. at 2285 (internal alteration
The relevant market is the “area of

The market, which must include a
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geographical component, must also be a product market, and cannot

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be defined by reference to consumers.

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Office Sol., 513 F.3d 1038, 1045 (9th Cir. 2008).

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validity of an alleged market may present issues of fact, courts

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may dismiss antitrust complaints if the relevant market definition

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alleged is “facially unsustainable.”

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Newcal Indus., Inc. v. Ikon
Although the

Newcal, 513 F.3d at 1038.

The instant complaint alleges that Disney is restraining trade

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in “the nationwide market for rentals and sales of movies on DVD,

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Blu-ray and digital platforms for home entertainment” (the “home

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movie” market).

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facially implausible because it fails to include economic

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substitutes, including cable television, digital streaming services

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such as Netflix, content platforms such as YouTube, and special

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events, such as the Olympics.

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argues that the FAC fails to allege why such alternatives are not

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adequate substitutes for home movies.

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(FAC ¶ 29.)

Disney argues that this definition is

(Motion at 10.)

Disney further

(Id.)

Although the issue is a close one, this Court concludes that

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the alleged market is not so facially implausible as to warrant

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dismissal at the pleading stage.

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judgment, be able to demonstrate that cable tv, streaming services,

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and the like are reasonably interchangeable with home movies, in

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the court’s experience, that is not necessarily so.

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example, can be viewed with little more than an inexpensive disc

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player and a video screen.

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Disney, in contrast, generally require additional equipment, such

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as a cable box or receiver, some sort of internet capability and

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equipment, such as a modem or router, or, in the case of broadcast

Although Disney may, on summary

A DVD, for

The supposed substitutes proposed by

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television, a digital tuner.3

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the alleged market, the proposed alternatives appear to require

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some sort of monthly or ongoing subscription, such as in the case

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of Netflix or cable television, or must be viewed at set times, as

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in the case of live sports or special events like the Olympics.4

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Although the FAC does not explain why specific alternatives such as

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cable tv and Netflix are not reasonable substitutes for home

Furthermore, unlike the products in

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Cases like Flash Elecs., Inc. v. Universal Music & Video
Distribution Corp. and Redbox Automated Retail LLC v. Universal
City Studios LLLP found markets such as “the whole distribution
market for ‘sell-through’ and rental movie videos and DVDS” and
“the market for new release DVDs,” respectively, to be facially
plausible. Flash, 312 F. Supp. 2d 379, 392 (E.D.N.Y. 2004);
Universal City Studios, No. CIV. 08-766RBK, 2009 WL 2588748, at *1
(D. Del. Aug. 17, 2009). These cases, which were decided a decade
or more ago, are not particularly instructive in this era of
“smart” devices, particularly in light of Redbox’s inclusion of
“digital platforms” in the alleged relevant market. Indeed, with
the increased prevalence of connected TVs and other devices, even
the hardware distinctions discussed above may become decreasingly
relevant. Whether that is already the case, however, or whether
“digital platforms” are part of the same market as DVDs and Blu-ray
discs in the first instance, are questions best resolved at the
summary judgment stage.
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It bears noting that the cost of certain of the proposed
alternatives, such as premium cable tv, may significantly exceed
the cost of home movies. Granted, “the scope of the relevant
market is not governed by the presence of a price differential
between competing products.” Twin City Sportservice, Inc. v.
Charles O. Finley & Co., 512 F.2d 1264, 1274 (9th Cir. 1975) This
is not to say, however, that price is necessarily completely
irrelevant. Even where two products serve the same function, the
price differential may be so great that the “commercial reality” is
that the products do not share a cross-elasticity of demand or
compete with each other. See Int'l Boxing Club of N. Y., Inc. v.
United States, 358 U.S. 242, 250 (1959) (quoting United States v.
E. I. du Pont de Nemours & Co., 351 U.S. 377, 404 (1956) (“[The
relevant] market is composed of products that have reasonable
interchangeability for the purposes for which they are
produced—price, use and qualities considered.”)); Thurman Indus.,
Inc. v. Pay 'N Pak Stores, Inc., 875 F.2d 1369, 1376 (9th Cir.
1989) (20 percent price differential demonstrates low crosselasticity of demand) (discussing Photovest Corp. v. Fotomat Corp.,
606 F.2d 704, 713 (7th Cir. 1979).

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movies, it does allege that DVDs, Blu-rays, and “digital movies

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generally require or can be used with equipment different from that

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needed for games, books, and other forms of home entertainment,”

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and that there is no cross-elasticity of demand between the

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identified products and “games, books, and other forms of home

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entertainment.”

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No. CV04-1137-JFW FMOX, 2004 WL 5458426, at *4 (C.D. Cal. Oct. 1,

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2004) (finding inadequately pleaded market where plaintiff made no

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allegations or arguments as to why potential alternatives were not

(FAC ¶ 31.)

Compare UGG Holdings, Inc. v. Severn,

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substitutes and failed to allege lack of cross-elasticity of

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demand).

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survive a motion to dismiss.

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The relevant market allegations here are sufficient to

2.

Market Power

Disney also argues that Redbox’s claims fail because Redbox

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has failed to allege that Disney possesses market power in the

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market for home movies.

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effect in a relevant market either through direct proof of actual

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adverse effects or indirectly, through “proof of ‘market power’

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plus some evidence that the challenged restraint harms

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competition.”

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Fed’n of Dentists, 476 U.S. 447, 460–61 (1986) (“Since the purpose

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of the inquiries into market definition and market power is to

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determine whether an arrangement has the potential for genuine

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adverse effects on competition, proof of actual detrimental

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effects, such as a reduction of output, can obviate the need for an

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inquiry into market power, which is but a surrogate for detrimental

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effects.”) (internal quotations omitted); Oltz v. St. Peter's Cmty.

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Hosp., 861 F.2d 1440, 1448 (9th Cir. 1988) (“Because market

A plaintiff can show anticompetitive

Am. Express, 138 S.Ct. at 2284; F.T.C. v. Indiana

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definition and market power are merely tools designed to uncover

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competitive harm, proof of ‘actual detrimental effects, such as a

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reduction of output, can obviate the need ... [for] elaborate

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market analysis.’”) (quoting Indiana Fed’n of Dentists, 476 U.S. at

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460-61).5

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Market share is the starting point for assessing market power.

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Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 925 (9th

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Cir. 1980).

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defendant controls sixty five percent of the relevant market is

The Ninth Circuit has found that an allegation that a

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sufficient to allege market power.

Id.; see also Image Tech.

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Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1206 (9th Cir.

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1997) (“Courts generally require a 65% market share to establish a

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prima facie case of market power.”); Lucas v. Citizens Commc'ns

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Co., 409 F. Supp. 2d 1206, 1220 (D. Haw. 2005).6

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alleges that Disney’s share of the home movies market is something

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“greater” than fifty percent.

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however, that fact is not sufficient to establish Disney’s market

(FAC ¶¶ 34-35.)

Here, the FAC

Even if true,

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Although the Ninth Circuit stated in Newcal that “a
plaintiff must allege that the defendant has market power within a
relevant market,” the court made no mention of Oltz, nor suggested
that a plaintiff must allege market power even in the face of
direct evidence of anticompetitive effect. The Ninth Circuit’s
reasoning in Oltz is consistent with the Supreme Court’s recent
decision in American Express and earlier decision in Indiana
Federation of Dentists. An entity that lacks market power cannot
act with anticompetitive effect. Proof of such effect demonstrates
that the entity possessed the requisite power in the first
instance. See, e.g., Todd v. Exxon Corp., 275 F.3d 191, 206 (2d
Cir. 2001) (explaining that actual evidence of adverse effects on
competition is a “strong indicator” of market power that renders
any further showing of market power unnecessary).
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The Ninth Circuit has also suggested that, in the context of
an attempted monopolization claim under Section 2 of the Sherman
Act, a lower market share may, depending on other factors, suffice.
Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1438 (9th Cir.
1995) (finding 44 percent share sufficient).
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power in the home movies market.

Image Tech. Servs., 125 F.3d at

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1206.

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has “a dominant position” in the home movies market due to the

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“unique strength of the Disney brand.”

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conclusory assertions, however, are not entitled to a presumption

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of truth.

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aware of, any authority for the proposition that general brand

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strength demonstrates market power in a particular market.7

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Although brand strength may be relevant in certain cases where a

Redbox nevertheless argues, as the FAC alleges, that Disney

(FAC ¶¶ 36-37.)

Such

Furthermore, Redbox does not cite, and this court is not

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single-brand market is alleged, that is not the case here, as

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Redbox emphatically points out.8

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Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 974, 986

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(N.D. Cal. 2010).

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adequately allege that Disney possesses market power in the home

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movies market.

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3.

See Newcal, 513 F.3d at 1046;

The court therefore agrees that the FAC does not

Anticompetitive Effect

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Some courts have discussed brand strength as a potential
barrier to entry in the context of monopolization claims, separate
and apart from market power. See, e.g., Intergraph Corp. v. Intel
Corp., 3 F. Supp. 2d 1255, 1276 (N.D. Ala. 1998) (vacated on other
grounds, 195 F.3d 1346, 1363 (Fed. Cir. 1999)); Com. of Pa. v.
Russell Stover Candies, Inc., No. CIV. 93-1972, 1993 WL 145264, at
*15 (E.D. Pa. May 6, 1993); cf. Rebel Oil, 51 F.3d at 1439-41.
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Redbox does not allege a relevant market in either Disneybranded products or Disney-branded movies. Indeed, Redbox takes
exception to Disney’s effort, such as it is, to characterize
Redbox’s FAC as alleging any single-branded market. (Opp. at 20 n.
9.) Claims based upon the existence of any such market would
likely be difficult to sustain. See Streamcast Networks, Inc. v.
Skype Techs., S.A., 547 F. Supp. 2d 1086, 1094 (C.D. Cal. 2007)
(“Courts have consistently refused to consider one brand to be a
relevant market of its own when the brand competes with other
potential substitutes.” (internal quotation omitted)).
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The question remains, however, whether Redbox has sufficiently

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alleged actual anticompetitive effects.9

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indications of market power may not be required.

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Dentists, 476 U.S. at 460-61; Oltz, 861 F.2d at 1448; Todd, 275

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F.3d at 206.

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alleges that Disney’s misconduct “harms other rental outlets that

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provide a less expensive alternative for viewing Disney content,”

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“directly affects other low-cost rental options[, . . . and]

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reduces output and raises prices for consumers,” and that Disney’s

If so, further
Indiana Fed’n of

With respect to anticompetitive effects, the FAC

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“limitation on the numbers of copies available for purchase will

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hurt ‘Mom and Pop rental companies’ as well.”

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Redbox also alleges that, as a result of Disney’s actions, many

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Redbox customers “are unable to turn to other retailers for Disney

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titles.”

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“Redbox’s inability to purchase adequate numbers of Disney movies

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therefore represents an absolute reduction in output in this

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market.”

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(FAC ¶ 77 (emphasis added).)

(FAC ¶¶ 6, 80, 58.)

The FAC further states that

(FAC ¶ 78 (emphasis added).)

As discussed above, however, anticompetitive effects can only

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be measured by reference to a particular market.

Am. Express, 138

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S.Ct. at 2285.

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above, is the home movie market for “rentals and sales of movies on

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DVD, Blu-ray and digital platforms.”

The relevant market at issue here, as discussed

Redbox’s allegations

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Disney’s arguments, like some of the cases in this subject
area, appear to conflate injury to competition with antitrust
injury. (See, e.g., Mot. at 8:22; Reply at 2:27-28 (quoting In re
Webkinz Antitrust Litig., 695 F. Supp. 2d 987, 997 (N.D. Cal.
2010)).) “[I]n order to state a claim successfully, plaintiffs
must allege both that defendant's behavior is anticompetitive and
that plaintiff has been injured by an anti-competitive aspect of
the practice under scrutiny.” Brantley, 675 F.3d at 1200 (internal
quotations omitted). The latter element is referred to as
“antitrust injury” or “antitrust standing.” Id. at 1197.
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regarding anticompetitive effects in the market for “Disney titles”

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are therefore irrelevant.

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anticomptetitive effects in the relevant, broader market for home

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movies generally.10

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conclusory allegations about how retailers other than Redbox are

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harmed by Disney’s refusal to deal with Redbox.

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F.3d at 1198 (“[P]laintiffs must plead an injury to competition

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beyond the impact on the plaintiffs themselves.”).

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manufacturer may choose those with whom it wishes to deal and

The FAC includes no allegations about

Neither does the FAC allege any concrete, non-

See Brantley, 675

Indeed, “[a]

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unilaterally may refuse to deal with a distributor or customer for

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business reasons without running afoul of the antitrust laws.”11

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Dimidowich v. Bell & Howell, 803 F.2d 1473, 1478 (9th Cir. 1986).

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Because Redbox has not adequately alleged either that Disney

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possesses market power in the market for home movies or that

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Disney’s actions have had actual anticompetitive effects in that

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market, its antitrust claims are dismissed, with leave to amend.

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B.

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The FAC’s first cause of action for “Declaratory Relief” seeks

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Declaratory Relief

a declaration that certain language on Disney’s Combo Pack

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Even assuming the reference to reduced output and higher
consumer prices refers to that broader market, “allegations that an
agreement has the effect of reducing consumers’ choices or
increasing prices to consumers does not sufficiently allege an
injury to competition.” Brantley, 675 F.3d at 1202.

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The Ninth Circuit did recognize, however, that a vertical
combination might violate antitrust laws where a manufacturer
coerces a distributor into adhering to resale restraints.
Dimidowich, 803 F.3d at 1478. Although the FAC here does make
several conclusory references to coercive conduct, it provides no
specifics as to how Disney coerced distributors into involuntarily
refusing to sell to Redbox, notwithstanding allegations that Disney
harassed Redbox itself.
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packaging and websites is unenforceable.

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Specifically, the FAC identifies terms stating that Disney owns

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“all digital movie codes,” that codes “are not for sale or

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transfer, and that “digital codes are authorized for redemption

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only by an individual who obtains the code as part of a

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combinations disc + code package . . ., or by a family member of

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that individual.”

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of action does not itself specify why these terms are allegedly

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unenforceable, the declaratory relief claim appears to be based

(FAC ¶¶ 61, 99, 100.)

(FAC ¶¶ 105.)

Although the first cause

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upon allegations that the terms are unconscionable.

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70.)

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nevertheless fails to allege the elements of an unconscionability

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defense.

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(FAC ¶¶ 65,

Disney argues that, assuming that to be the case, the FAC

Under California law, a contract is invalid if it is both

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procedurally and substantively unconscionable.

Armendariz v.

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Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 114 (2000).

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Procedural unconscionability “concerns the manner in which the

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contract was negotiated and the respective circumstances of the

19

parties at that time.”

20

Inc., 298 F.3d 778, 783 (9th Cir. 2002).

21

unconscionability analysis looks to two factors:(1) oppression,

22

which focuses on bargaining power disparity and the resulting

23

absence of meaningful choice, and (2) surprise, which turns on

24

whether operative terms are hidden in lengthy forms drafted by the

25

party seeking to enforce the contract.

26

substantively unconscionable when it is so unjustifiably one-sided

27

that it ‘shock[s] the conscience.’”

Ferguson v. Countrywide Credit Indus.,

28
13

A procedural

Id.

“A contract is

Chavarria v. Ralphs Grocery

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 14 of 23 Page ID #:647

1

Co., 733 F.3d 916, 923 (9th Cir. 2013) (quoting Parada v. Superior

2

Court, 176 Cal. App. 4th 1554, 1573 (2009)).

3

Notwithstanding conclusory allegations that “the contract

4

terms” are unconscionable, the FAC here does not adequately allege

5

procedural or substantive unconscionability.

6

makes no explicit mention of procedural unconscionability, it does

7

allege that contractual terms restricting the transfer of digital

8

codes only arise after consumers have already purchased the codes.

9

(FAC ¶ 110.)

Although the FAC

This allegation of surprise, Redbox argues, is

10

sufficient to satisfy the procedural unconscionability element of

11

the defense.

12

Combo Pack boxes, which consumers encounter before they ever reach

13

the websites, state that “codes are not for sale or transfer.”

14

(FAC ¶ 99.)

15

surprised when they see similar terms on the redemption websites.

16

Redbox’s argument regarding substantive unconscionability is

The court disagrees.

As the FAC acknowledges, the

It is not plausible, therefore, that consumers are

17

also unavailing.

Redbox contends that the website terms are

18

substantively unconscionable because, by requiring “consumers to

19

certify that they did not purchase the codes separately, even if

20

they had already done so,” the terms “effectively result[] in a

21

forfeiture because consumers cannot redeem the Code without making

22

a false certification.”

23

FAC, however, that allegation is simply untrue, at least as it

24

applies to purchasers of Combo Packs, whose certifications would be

25

accurate and truthful.

26

customers, or other purchasers of standalone codes, Redbox cannot

27

plausibly seek to lay any lack of prior disclosure, or resulting

28

“forfeiture,” at Disney’s feet.

(Opp. at 8:19.)

Even on the face of the

Insofar as Redbox refers to its own

The website terms are consistent
14

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 15 of 23 Page ID #:648

1

with the box-top disclosure that “codes are not for sale or

2

transfer.”

3

theme does not appear to require any consumer to forfeit any right

4

he or she possessed, let alone shocks the conscience.

5

extent standalone code purchasers, who never have any interaction

6

with Disney or exposure to Disney packaging at the point of

7

purchase, are frustrated in their efforts to redeem the purchased

8

code, that frustration would appear to be a product of Redbox’s

9

packaging decisions and the nature of Redbox’s characterization of

The redemption websites’ subsequent elaboration on that

10

the rights being conveyed.12

11

therefore, dismissed, with leave to amend.

To the

Redbox’s declaratory relief claim is,

12

C.

Copyright Misuse

13

Disney also argues that Count Two of the FAC, which alleges

14

copyright misuse, must be dismissed.

As an initial matter, courts

15

are split on the question whether copyright misuse may be brought

16

as an affirmative claim, as opposed to as a defense.

17

Amaretto Ranch Breedables, LLC v. Ozimals, Inc., 790 F. Supp. 2d

18

1024, 1033 (N.D. Cal. 2011); KTS Karaoke, Inc. v. Sony/ATV Music

19

Publ'g LLC, No. CV1200014MWF, 2014 WL 12567169, at *3 (C.D. Cal.

20

Jan. 14, 2014).

21

because even assuming that copyright misuse can be brought as an

22

affirmative claim, Redbox does not sufficiently allege misuse.

See, e.g.,

This court need not address the split, however,

23
24
12

25
26
27
28

Redbox’s substantive unconscionability argument does not
discuss first sale doctrine issues, but appears to rely upon them,
at least implicitly. If the first sale doctrine guaranteed Redbox
the right to transfer digital codes, Redbox would certainly have a
stronger claim of substantive unconscionability. As explained
below, however, and in great detail in the related Redbox I case,
the first sale doctrine is not applicable here. See Section III(C)
and note 13, infra; Redbox I, Dkt. 74, 120.
15

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 16 of 23 Page ID #:649

1

This Court addressed the copyright misuse issue in great

2

detail in two orders in the related case, and will not re-hash that

3

entire discussion here.

4

copyright misuse is an affirmative defense that “prevents copyright

5

holders from leveraging their limited monopoly to allow them

6

control of areas outside the monopoly,” and extends to any

7

situation implicating “the public policy embodied in the grant of a

8

copyright.”

9

1026 (9th Cir. 2001).

(Redbox I, Dkt. 74, 120.)

In short,

A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004,
Redbox alleges that Disney engaged in

10

copyright misuse by (1) burdening consumers’ ability to sell the

11

physical movie disc components of Combo Packs by imposing

12

restrictive license terms on the download codes, (2) impinging upon

13

distributors’ first-sale rights by preventing downstream sales to

14

Redbox, and (3) restricting the resale of digital codes without

15

purchasers’ assent.

16

viable.

17

(FAC ¶¶ 109-112.)

None of these theories is

First, the license terms applicable to download codes allow

18

Combo Pack purchasers and recipients to enjoy digital access

19

regardless whether they keep or dispose of the physical discs.

20

Digital access is conditioned not on possession of physical discs,

21

but on the manner in which the redeemer acquired the download code.

22

A Combo Pack owner who disposes of the discs is left with the same

23

digital access rights he or she always enjoyed.

24

who wishes to access a digital Disney movie required to purchase

25

discs.

26

digitally through services such as iTunes.

27
28

Nor is a consumer

As the FAC acknowledges, consumers can access movies
(FAC ¶ 10.)

Second, an agreement between Disney and its distributors to
forbid downstream sales to Redbox does not infringe upon the
16

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 17 of 23 Page ID #:650

1

distributors’ first sale rights.13

2

copyrighted goods can agree to limit their commercial conduct

3

through contract is undeniable.”

4

Inc., 178 F. Supp. 3d 974, 983 (C.D. Cal. 2016), reversed in part

5

on other grounds by Close v. Sotheby's, Inc., 894 F.3d 1061 (9th

6

Cir. 2018), (citing United States v. Wise, 550 F.2d 1180, 1187 n.

7

10 (1977) (“If the vendee breaches an agreement not to sell [a]

8

copy, he may be liable for the breach but he is not guilty of

9

infringement.”)); see also Metro-Goldwyn-Mayer Studios, Inc. v.

10

Grokster, Ltd., 454 F. Supp. 2d 966, 997 (C.D. Cal. 2006) (“The

11

right to exclude is inherent in the grant of a copyright; a

12

copyright is not improperly expanded simply because the owner has

13

exercised his or her power to exclude.”).

14

“That the purchasers of

Estate of Graham v. Sotheby's,

Lastly, Redbox’s argument that the restrictions on the sale of

15

re-sale codes are imposed without the assent of purchasers appears

16

to rely upon the first sale doctrine.14

17

however, the first sale doctrine is inapplicable to digital codes.

18

The first sale doctrine applies to “particular” copies that exist

19

in the material world.

20

19-24.

21

is transferred, or prior to the time that that code is redeemed and

22

the copyrighted work is fixed onto the downloader’s physical hard

As explained in Redbox I,

See 17 U.S.C. § 101; Redbox I, Dkt. 74 at

Here, no such physical object exists when a standalone code

23
24
25
26
27
28

13

The first sale doctrine allows the “owner of a particular
copy or phonorecord lawfully made under [the Copyright Act] . . .
to sell or otherwise dispose of the possession of that copy or
phonorecord,” without the permission of the copyright holder. UMG
v. Augusto, 628 F.3d 1175, 1180 (9th Cir. 2011) (quoting 17 U.S.C.
§ 109(a)); Bobbs-Merrill Co. v. Strauss, 210 U.S. 339, 341 (1908).
14

See note 13, above.
17

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 18 of 23 Page ID #:651

1

drive.

Restrictions on resales of digital codes do not, therefore,

2

face the same first sale doctrine obstacles that would apply to

3

similar restrictions on physical discs.

4

copyright misuse claim is dismissed, with leave to amend.15

Accordingly, Redbox’s

5

D.

Tortious Interference

6

Disney also seeks to dismiss Redbox’s claim for tortious

7

interference with prospective economic advantage.

An intentional

8

interference with prospective economic relations claim requires (1)

9

an economic relationship between plaintiff and a third party with

10

the probability of future economic benefit to the plaintiff, (2)

11

defendant’s knowledge of that relationship, (3) defendant’s

12

intentional, independently wrongful act to disrupt the

13

relationship, (4) actual disruption, and (5) economic harm to the

14

plaintiff.

15

Cal.App.4th 480, 504 (2011) (citing Korea Supply v. Lockheed Martin

16

Corp., 29 Cal.4th 1134, 1153 (2003)).

17

that Redbox has not alleged any wrongful acts.

18

Marsh v. Anesthesia Serv. Med. Group. Inc., 200

Disney argues, essentially,

Redbox alleges that Disney has harassed Redbox employees in

19

retail stores and “coerced” distributors into refusing to sell to

20

Redbox, including by stating, falsely, that Redbox cannot legally

21

resell download codes.16

22

above, however, there is nothing inherently improper with Disney

23

entering into restrictive agreements with its distributors.

(FAC ¶ 50, 52-56, 119.)

As discussed

24
15

25
26
27
28

Redbox’s position regarding standing to assert a copyright
misuse claim also appears to be rooted in the first sale doctrine.
16

Redbox’s argument with respect to Disney’s statements
regarding the legality of Redbox’s business model is largely
premised on the same arguments Redbox raises in support of its
copyright misuse claim. That claim, however, is not viable, as
discussed above.
18

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 19 of 23 Page ID #:652

1

Dimidowich, 803 F.3d at 1478; Estate of Graham, 178 F. Supp. 3d at

2

983.

3

distributors into entering into restrictive agreements, those

4

allegations are conclusory.

5

“harassment.”

6

such as “confronting” Redbox employees in retail stores, the FAC

7

does not allege how such conduct was unlawful.

8
9

Although the FAC does allege that Disney “coerced” its

So too are Redbox’s allegations of

Although the FAC does allege some specific conduct,

Redbox also premises its interference claims upon Disney’s
allegedly false statements, namely Disney’s assertions “that

10

Redbox’s rental and sale of products included in Disney Combo

11

Packs, and in particular the digital movie codes, are unauthorized

12

and illegal.”

13

however, parties are immune from liability for claims, including

14

state law tort claims, related to litigation conduct.

15

Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1006-07 (9th

16

Cir. 2008).

17

lawsuit” or “ancillary to litigation.”

18

Hous. Auth. of Cty. of Los Angeles, No. CV04-6970 MMM (RCX), 2005

19

WL 6136440, at *12 (C.D. Cal. June 3, 2005); see also EcoDisc Tech.

20

AG v. DVD Format/Logo Licensing Corp., 711 F. Supp. 2d 1074, 1082

21

(C.D. Cal. 2010) (finding website announcements and communications

22

with licensees within the ambit of Noerr-Pennington protection).

23

The statements alleged here are no more than a recitation to Disney

24

distributors and website viewers of Disney’s litigation position

25

here and in Redbox I.

26

any wrongful acts, Redbox’s tortious interference claim are

27

dismissed, with leave to amend.

28

E.

(FAC ¶ 119.)

Under the Noerr-Pennington doctrine,

Theme

That privilege extends to “conduct incidental to a
Id. at 1006; Thomas v.

Because the FAC does not adequately allege

False Advertising
19

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 20 of 23 Page ID #:653

1

Disney also contends that Redbox has not sufficiently alleged

2

claims for false advertising premised upon either (1) Disney’s

3

litigation-related statements or (2) the terms stated on Combo Pack

4

boxes and Disney’s websites.

5

parties’ discussion is duplicative of the Noerr-Pennington issue

6

discussed above, and Redbox’s false advertising claims fail for the

7

reasons stated above.

8

lacks statutory standing to assert false advertising claims on the

9

basis of any of the alleged misrepresentations on Combo Pack boxes

10

With respect to the former, the

As to the latter, Disney argues that Redbox

or Disney websites.

11

Standing under California’s False Advertising law is limited

12

to “any person who has suffered injury in fact and has lost money

13

or property as a result of” a defendant’s alleged

14

misrepresentations.

15

310, 321 (2011) (quoting California Business & Professions Code §

16

17535).

17

language to require that Plaintiffs “allege their own reliance on

18

the alleged misrepresentations, rather than the reliance of third

19

parties.”

20

3d 852, 866-67 (N.D. Cal. 2015).

21

it relied upon any of the terms displayed on Disney Combo Pack

22

boxes or websites.

23

otherwise have purchased download codes from Redbox saw Disney’s

24

misrepresentations and then refrained from purchasing codes from

25

Redbox on the basis of those misrepresentations.

26

reliance, absent Redbox’s own actual reliance, is insufficient to

27

confer statutory standing under California’s false advertising law.

Kwikset Corp. v. Superior Court, 51 Cal. 4th

Most courts have interpreted the FAL’s “as a result of”

L.A. Taxi Coop., Inc. v. Uber Techs., Inc., 114 F. Supp.
Here, Redbox does not allege that

Rather, Redbox alleges that consumers who might

28
20

Such consumer

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 21 of 23 Page ID #:654

1

See Youngevity Int’l, Corp. v. Smith, 224 F. Supp. 3d 1022, 1031

2

(S.D. Cal. 2016).

3

Statutory standing under the Lanham Act, however, is broader.

4

The Lanham Acts permits suits “by ‘any person who believes that he

5

or she is likely to be damaged’ by a defendant’s false

6

advertising.”

7

Inc., 572 U.S. 118, 129 (2014) (quoting 15 U.S.C. § 1125(a)).

8

Lanham Act plaintiff need only show that (1) his interests fall

9

within the “zone of interests” protected by the statute and (2) his

Lexmark Int’l, Inc. v. Static Control Components,
A

10

injuries are proximately caused by a violation of the statute.

11

at 129, 132; Obesity Research Inst., LLC v. Fiber Research Int’l,

12

LLC, 165 F. Supp. 3d 937, 946 (S.D. Cal. 2016).

13

the FAC fails to allege the latter of these elements.

14

Id.

Disney argues that

The FAC alleges that Disney falsely states that Disney owns

15

all download codes, which can only be redeemed by recipients of

16

Combo Packs and cannot be transferred separately.

17

99-100, 127-128.)

18

deceive consumers “into believing that Redbox does not have title

19

to the components of Combo Packs it has purchased and therefore

20

that consumers may not lawfully purchase those components from

21

Redbox.”17

22

consumers who purchase a standalone download code from Redbox ever

23

see Disney’s original Combo Pack packaging or know that Redbox

24

obtains its code products from Disney Combo packs.

(FAC ¶¶ 60-62,

These misrepresentations, Redbox alleges,

(FAC ¶132.)

Nowhere, however, does the FAC allege that

The court

25
26
27
28

17

These allegations are sufficient to satisfy the
particularity requirement of Federal Rule of Civil Procedure 9(b).
See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir.
2003); Bobbleheads.com, LLC v. Wright Bros., Inc., 259 F. Supp. 3d
1087, 1095 (S.D. Cal. 2017).
21

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 22 of 23 Page ID #:655

1

therefore agrees that, to the extent Redbox’s Lanham Act standing

2

is predicated upon Disney’s Combo Pack statements, Redbox has not

3

adequately alleged that those statements proximately cause Redbox’s

4

loss of sales.

5

The issue is closer, however, with respect to alleged

6

misrepresentations made on Disney websites.

Although Redbox

7

consumers do not ever encounter Disney’s Combo Pack packaging, code

8

purchasers cannot redeem download codes without viewing Disney’s

9

redemption website terms, including representations that Disney

10

owns the download codes and that codes cannot be redeemed by

11

standalone purchasers.

12

representations cannot lead to lost sales for Redbox unless a

13

consumer “determines that Redbox is engaged in unlawful conduct . .

14

. and decides not to buy additional Codes from Redbox . . . .”

15

(Reply at 24:24-25.)

16

Redbox alleges.

17

deceived into believing that Redbox does not have title to the

18

[download codes] it has purchased and therefore that consumers may

19

not lawfully purchase those components from Redbox.”) Redbox has,

20

therefore, alleged statutory standing under the Lanham Act.

21

IV.

22

(FAC ¶ 100.)

Disney argues that these

That appears, however, to be precisely what

(See FAC ¶ 132 (“Consumers are likely to be

Conclusion
For the reasons stated above, Disney’s Motion to Dismiss is

23

GRANTED, in part and DENIED, in part.

The motion is denied with

24

respect to the Fourth and Sixth Causes of Action.18

25

granted with respect to all other claims.

The motion is

Accordingly, the First,

26
18

27
28

Disney acknowledges that Redbox’s Sixth Cause of Action for
unfair competition rises or falls with the remainder of Redbox’s
claims. Because Redbox’s Lanham Act claim survives, so too does
its unfair competition claim under California Business .
22

 Case 2:18-cv-00677-DDP-AGR Document 106 Filed 07/17/19 Page 23 of 23 Page ID #:656

1

Second, Third, Fifth, Seventh, and Eighth Causes of Action are

2

DISMISSED, with leave to amend.

3

filed with twenty one days of the date of this Order.

Any amended complaint shall be

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

IT IS SO ORDERED.

20
21
22

Dated: July 17, 2019
DEAN D. PREGERSON
United States District Judge

23
24
25
26
27
28
23