Redbox v. Universal Home Studios: Copyright Misuse?

According to the EFF, DVD rental kiosk company Redbox is suing Universal Studios Home Entertainment and several affiliates.

Redbox has an innovative business model based on DVD rental kiosks.  These kiosks are often located in high traffic areas (grocery stores, for example) and vend DVDs for $1 / night.  Customers simply use the touch screen interface to select a DVD and then swipe their credit or debit card to pay (no membership required).  DVD return at kiosks is also a snap.  As reported in the Washington Post in 2007, this model has been successful. Redbox had, at that time, more than 3000 kiosks across the United States.  My experience mirrors that of others.  The ubiquitous kiosks are a convenient and efficient way to rent movies.   

As a loyal customer, I was eager to see what this lawsuit is all about.  According to a Redbox press release, the lawsuit is based on new distribution terms proposed by Universal Studios Home Entertainment (“USHE”).  EFF has posted the complaint here. 

Essentially, the complaint alleges that USHE threatened to stop supplying Redbox’s DVD suppliers (VPD and Ingram) if Redbox did not agree to the USHE’s terms.  As discussed by the EFF, these terms include provisions requiring: Redbox to share revenue with USHE, stop its practice of selling used DVDs, and waiting for 45 days after new releases are available to stock their kiosks with these DVDs.

One of the interesting aspects of the complaint is Redbox’s allegation of “copyright misuse” on the part of USHE.  Based on the complaint, Redbox alleges copyright misuse because USHE’s “attempts to thwart the first sale doctrine of Section 109(a) of the Copyright Act violate the public policy embodied in the grant of copyright, and constitute copyright misuse.”  What I find interesting about this argument is that USHE did not assert a claim of copyright infringement.  They threatened to stop selling DVDs to Redbox’s suppliers.  The complaint also alleges that USHE has the contractual right to stop selling DVDs to Redbox’s suppliers at will.  In my opinion, this complicates the misuse argument.  Presumably, USHE negotiated this right well before this dispute with Redbox.  Is the fact that USHE is exploiting this contractual term to their advantage in their dealings with Redbox a misuse of their copyright?  Or is this just a case of tough tactics? 

While USHE’s conduct, as alleged and characterized by Redbox, seems troubling, Redbox’s business model apparently relies on VPD and Ingram for an uninterrupted supply of DVDs. Ordinarily, the possibility of a seller breaching a contractual obligation is something that would be anticipated and contracted for by sophisticated parties such as Redbox, VPD, and Ingram.  Should this case be any different?

One possible difference is found in Redbox’s argument that USHE is interfering with VPD and Ingram’s rights under the “first sale doctrine” to dispose of the DVDs they purchase as they see fit.  The problem with this argument is that the first sale doctrine doesn’t require that the copyright owner sell the work in the first place.  The copyright owner has the exclusive right to decide whether to sell copies of the work.  However, once they sell a copy the first sale doctrine limits their right to further control the distribution of that copy.  Also, the first sale doctrine is a limitation on the copyright owner’s exclusive rights.  USHE is not asserting these rights by threatening to sue Ingram and VPD for copyright infringement because they distribute DVDs to Redbox.  They are threatening to exercise an option they negotiated to terminate VPD and Ingram’s contracts.