Remember the case I covered in December, about Disney suing Redbox for breaking up retail Star Wars DVDs and selling the bundled digital copy codes separately while it rented the discs? The separate sales violated the shrink-wrap license of the digital copies, which were intended to be tied to ownership of the disc versions with which they were sold. However, Redbox contended that this bundling violated first sale rights, which permitted customers to dispose of purchased items how they wished.
To the profound surprise of industry observers, the low court has found in favor of Redbox—and as I noted in that earlier article, this decision could have profound implications for the future of bundling if it survives appeal.
The deciding factor for Judge Dean Pregerson was first sale, but not in a way I had expected. Pregerson found that, in requiring that customers own the physical disc in order to continue to use the non-transferable bundled digital copy, Disney was effectively using the shrinkwrap license on the bundled copy to stifle customers’ first sale right to dispose of the physical disc as they please. This constitutes “copyright abuse”—using a copyright to impose restrictions beyond what copyright law allows.
If this copyright abuse finding stands, it could have implications beyond merely allowing Redbox to sell digital movie codes separately. Ars Technica cites Cornell Law School copyright scholar James Grimmelmann to point out that such a ruling would mean that as long as Disney abuses its copyrights in that way, it can’t enforce those copyrights at all.
“You could start screening Frozen in a movie theater and charging admission,” Grimmelmann told us. “You could film a $150 million prequel and release it commercially.” You could make copies of Frozen DVDs and sell them in convenience stores.
“Misuse is such an atomic bomb of a finding,” Grimmelmann says.
Grimmelmann doubts that an appeals court will be willing to let that can of worms stay open. But if the decision should stand up on appeal, it seems highly likely that movie studios will stop bundling free digital codes with their movies. It could also lead to video game companies ceasing bundling download codes with their games, and have similar implications for embedded software which is often tied to the physical device with which it was sold. And, needless to say, it could also make it harder to bundle ebooks with paper books.
This actually puts me in mind of another first sale-related issue. Although shrinkwrap licenses weren’t involved, the fair use doctrine that permits people to make backup copies of media has always meant (in the USA, at least) that any time someone rips a CD to MP3s, they then they are legally required either to keep the CD or to delete those MP3 copies when they pass the CD on. (Or transfer the copies along with the original.) But how many people do you suppose have actually ever bothered to follow the law that rigidly?
And a key difference between the two scenarios is that music CDs don’t have the restrictive DRM which Hollywood puts on its discs and digital movies. People actually could delete or transfer their digital copies of music and stay within the law if they wanted to—but Hollywood certainly doesn’t have any interest in letting people transfer ownership of their digital movies when they transfer the discs. Or in doing anything else to promote or enable used media sales, for that matter.
If the decision does hold up on appeal, will Hollywood respond by killing off bundled digital copies? Or will it shrug and put up with unbundling antics like Redbox’s for the sake of boosting waning disc sales? I suppose it could go either way, but I still suspect Hollywood would rather stop giving away the free digital copies rather than see their separated resale potentially depress disc sales further.
Not that it necessarily really matters too much. As ineffective as movie DRM is, and as restrictive as the digital movie services that host the free copies are, bundled free digital copies almost aren’t necessary at all—anyone with a computer and a little ingenuity (and a little money) can make their own rips of DVDs or Blu-rays, which they can transfer to their own mobile devices or cloud storage drives for watching whenever and however they please.
In any case, if this court decision stands, it will be a pretty serious blow to the idea of bundling. As long as there’s money to be made in unbundling arbitrage, media publishers are going to be reluctant to make bundles available so someone else can profit at their expense.