The digital media era, software contracts, and DRM have spawned another first sale lawsuit, this one between Disney and disc-rental kiosk Redbox. And this case has potential implications for book-and-ebook bundling.
As large numbers of people have turned to their tablets and phones for viewing media, a number of major studios (especially Disney) have tried to keep people buying physical discs by bundling download codes into their retail DVDs and Blu-rays that provide access to DRM-locked downloadable or streaming digital versions of the movies.
All this is necessary, of course, because the DRM studios have saddled movie discs with gets in the way of consumers ripping the movies themselves the way they can do for music. Nonetheless, I suppose the fact that studios were quick to implement some sort of bundling for movies while book publishers continue to struggle with the idea shows just how much more money is to be made with video media than print.
Meanwhile, many major motion picture studios have a long-running enmity with Redbox, feeling that their ubiquitous disc rentals depress new movie sales. A number of movie studios (including Disney) don’t have licensing deals with Redbox to provide it with rental editions of movie discs. Hence, Redbox has had to turn to retail purchase to feed its automated disc-rental kiosks. And those retail Disney movies include the aforementioned digital download codes—which Redbox has apparently started selling separately while it rents the discs.
Unsurprisingly, Disney is unhappy about this, and has filed suit to stop the practice. And this is where those potential implications come in.
Ordinarily, this would seem to be an open-and-shut first sale case. If someone sells you physical products bundled together, once you’ve forked over your hard-earned cash those products are yours to do with as you please—including reselling them separately. Such bundled physical products might include, for example, a plastic disc and a slip of paper with a digital download code on it.
But since digital movies are treated as software, complete with restrictive shrinkwrap licenses, it’s no longer that simple. The bundled digital movies feature license terms requiring that they be provided only to the purchaser of the physical disc, and not be resold by said people. (You can even see it in the photo above, of the digital code card bundled in my copy of Zootopia. The fine print at the bottom says “Magic codes are not for sale or transfer.”) And that’s where Disney’s lawsuit comes in.
The matter brings to mind another prominent digital first sale case of the last few years—Vernor v. Autodesk, in which a software dealer obtained shrinkwrapped copies of Autodesk software in an office liquidation sale, but was blocked by Autodesk from reselling them. It turned out that the software had been licensed to that office for its use, but the terms of the license forbid its resale even as unopened physical boxes. Since the office couldn’t legally resell the licensed software, Vernor couldn’t resell it either—even though he’d never opened the boxes or read the licenses himself.
The parallels are pretty obvious here: even though Redbox is reselling the physical slip of paper that includes the digital download code, it’s abrogating the terms of the license under which that digitally downloaded software is provided. Vernor v. Autodesk is only binding precedent in the 9th Circuit, but even if this case ends up in another circuit the legal reasoning seems fairly clear.
On the other hand, digital media is a different kind of thing than business software. People are more used to watching movies how and as they like. Will a court find that difference persuasive?
If Redbox should prevail, it could potentially chill the idea of bundling for movies, and possibly other media such as ebooks—at least if the bundle is provided by means of a physical item bearing the access code. On the other hand, bundling service Shelfie worked by tying redemption of the ebook to indelibly marking the physical book so it couldn’t be redeemed again, so that sort of bundle would probably not be affected.
And, of course, the whole sordid mess traces back to studios’ decision to put DRM on DVDs and Blu-rays, and make it illegal to crack that DRM. If people could rip movies as easily as they can rip music, it wouldn’t even be worth worrying about. But studios feared that would lead to widespread piracy, and that’s how we ended up where we are today—with Blu-ray DRM so restrictive that it intentionally breaks compatibility of existing players with new discs every few months.
The ironic thing is, people can rip movies as easily as they can rip music, albeit illegally. Tools such as AnyDVD and Handbrake mean that even Blu-rays can be converted to mobile-compatible digital files in the space of just a few hours. It’s just illegal to do in the USA—not that this stops anyone, since there’s practically no risk of getting caught at it as long as you do it in the privacy of your own home.
It will be interesting to see how this case goes—will the courts continue to honor restrictive shrinkwrap licenses on software even when that software is digital media, or will they strike a blow in favor of first sale instead? I will look forward to finding that out.