Redbox's Workaround for Stocking Disney Movies Backfires with Lawsuit | Hacker News Reader

Redbox's Workaround for Stocking Disney Movies Backfires with Lawsuit

gizmodo.com

84 pointsuladzislau81 comments

Although the digital download portion muddies the water, this seems to fall clearly under the first sale doctrine. As mentioned in the article, the seemingly applicable case of digital downloads getting exempted from first sale was only applies because the downloaded music was already downloaded once and sending it to someone else constituted copying which I assume falls under dmca.

I predict Disney will lose.

Big textbook publishers have been trying to pull this crap for years and were finally trounced in the Supreme Court when it was ruled that once a textbook is sold to someone, you don't get to dictate whether and where it can be resold.

Disney is selling a code for a one time download. Once you purchase it, and you haven't used it yet, you should have the right to do whatever you want with it.

They aren't selling a code for the download, though. They are selling you physical movie that comes with code to enjoy a digital copy. It's a bundled service, and I'm not sure first sale allows resellers to strip that and sell for profit, any more than Wal-Mart could order blu-rays that come with a DVD, open them up, and sell both separately.

Or open up a PS4 with a code for a free game in it, and sell the game.

Wait, why couldn't Walmart do that?

I'm not sure. I was arguing that if it's feasible, they probably would be doing it by now. My guess is either the UCC or walmart's contract with Disney prevents the breaking apart or reselling of bundled services.

Because Walmart has to play nice with the studios to keep their supply of wholesale movies coming.

The difference is, in this case at least, RedBox is buying their movies retail. So Redbox buys Disney movies just like you and I do, from a store shelf.

This case is exactly asking whether someone can “order blu-rays that come with a DVD, open them up, and sell both separately.” Intuitively first sale doctrine should imply you can: I can buy a bunch of packs of trading cards, open them up, then sell the cards individually. Likewise I should be able to buy a book, tear it apart and sell one chapter of it at a time. Or buy a gallon of flour and split it into 12-oz containers to sell. This question is the crux of the case, though, so it will be very interesting to see what legal arguments are offered, and what precedent applies.

Back in the late 1980s and early 1990s games would come with a disk for an IBM-compatible and a disk for an Apple II in the box.

That's plenty of precedent.

that's not a precedent unless there was a court ruling based on it.

And...?

How did the courts rule on reselling the disks separately?

Actually there have been court rulings that ripping a book apart creates derivative works (what is a single chapter if not an abridged version of the original?), so you can't do that. Although other courts have ruled you can.

Interesting. Got a cite for the book-ripping case?

http://www.ogdenglazer.com/intellectual-property/this-split-... or http://digitalcommons.law.wne.edu/cgi/viewcontent.cgi?articl... are places to start.

Thanks! To be fair, it doesn't look like that particular situation is settled law yet.

I find the (established?) grammar quite peculiar. Arguments are offered, passively, but precedent actively applies - itself, seemingly - as to distract from any subjectivity because, nobody should doubt, a high court's opinion always applied even before any decision was met.

edit: not sure whether this were "established".

Wal-Mart absolutely could do that, but the studios would probably stop selling bundled media directly to them. Wal-Mart is going to have a much harder time stocking their stores by buying from other retailers than Redbox has stocking kiosks by shopping at retailers.

> I predict Disney will lose.

Yeah well, I said the same thing about copyright extension and the DMCA... Disney doesn't lose these kinds of battles very often. They've paid a lot of politicians a lot of money to keep getting their way...

I just read an article related to that the other day, it's a good read:

https://priceonomics.com/how-mickey-mouse-evades-the-public-...

> Big textbook publishers have been trying to pull this crap for years and were finally trounced in the Supreme Court when it was ruled that once a textbook is sold to someone, you don't get to dictate whether and where it can be resold.

Cue the rise of one-time-use codes in text books to register required software used for homework. I get that they need to make money, but by God they don't have to be scum while doing it.

I saw that while I was in college circa 2001; I was able to make an account with a used book and an example code shown in documentation -- but they cut it off midterm, so I stopped doing homework. :(

did this in college. If the one time use were consumed, you'd have to buy a new code from the publisher iirc

you would think! but the first sale doctrine gets weird where the following are concerned: - copyright - a terms of service violation (here, as governs the licensure of the code and computer system accessed)

(disclosure: not legal advice, these things are complex, etc; contributed work on an appellate brief on a related matter)

> these things are arbitrary

fixed that for you

ok!

I am wondering, if they lose what is stopping from Disney saying - well, we are no longer giving away digital codes along with the DVDs? Can court stop them from doing that?

No, that would be fine. They can do that even if they don't lose.

There's a good chance Disney will win without having to pay off any politicians.

In a nutshell: first sale doctrine applies to physical goods, i.e., the DVD purchased by Redbox. It doesn't apply to non-tangible goods (specifically, the code that accompanies the DVD) because intangible goods are licensed, not sold. So, Redbox while Redbox can sell the DVDs it purchases without restraint, it has to abide by the terms of the license if it wants to sell the download code.

So, they can sell the slip of paper that Disney printed the code on, but not the code itself?

I’m not sure why you think that first sale doctrine doesn’t apply to intangible goods. There are some court cases to say it does apply to software, (verner v Autodesk, https://www.techdirt.com/articles/20080522/0016171201.shtml).

Companies definitely want to exempt digital goods from first sale, but there’s no logical reason to do so. Hopefully this case helps establish precedent.

That ruling was overturned because it was simply wrong as a matter of law. Intangible goods are licensed, not sold. Will explain in follow up when I get to a computer. https://en.m.wikipedia.org/wiki/Vernor_v._Autodesk,_Inc.

Basically, under US and Western law, an intangible good is only "sold" when all of the relevant right to it are sold. If you only sell copies, you are only selling a right to use the copy, which the law calls a license. (The copy doesn't actually exist, by the way, it's just a legal construct, as downloading actually creates a new set of bits.) Since the license is trivially copied, the owner of the good is allowed to control how the license is used.

How western is EU?

https://en.wikipedia.org/wiki/UsedSoft#ECJ_ruling

But its not applicable in this case, same German court rejected resale of used games on account of identifying them as art and not software.

It sounds like you're making the argument that was successful against digital downloads, but I think here there's a case to made that download codes are indeed rivalrous.

This is how Redbox always plays hardball with the studios; don’t want to negotiate a fair deal for us to stock your movies? Fine, we’ll give our employees credit cards, send them to Best Buy, and have them buy 10 DVDs. Then we’ll have a pizza party, unwrap all the shrinkwrap, and then ship them out to all the field workers who stock the kiosks.

How is this any different, except with digital downloads codes instead of physical discs?

FWIW, I worked at Redbox back in the day as the company’s social media manager. The process I described is exactly what happened when the studio that owned the Twilight movies refused an agreement that would let Redbox stock “Breaking Dawn (Part 1)” earlier than 54 days. Fun times.

Of course, it was all fun until we discovered that we’d sent out disc 2 (special features) instead of disc 1 (the movie) by mistake to about 80% of the kiosks. The Twitter shitstorm from angry suburban moms was ... not fun.

Looking the arguments here I can see things going either way

Way #1 first sale doctrine. You sold me a box + dvd + code. I can sell the box, dvd, and code separately. I can use the box for other things. I can build art from the DVDs. I can sell the code

Way #2 license doctrine. You sold me a license to me specifically. That license is non transferable. The first thing that came to mind for me is plane tickets. Some company's websites even say if the name you register doesn't match your ID you have to buy a new ticket, no exceptions. No idea if that's legal or not, just repeating what the site (Expedia) said when I bought tickets last week. I'm sure there are better examples. Paying for gym membership. You could argue I pay $XX a month for ~720hrs of access. I should be able to re-sell every hour of access.

How do you decide which it is? It seems like First Sale doctrine comes down to selling physical things? IIRC you can't resell iOS apps, Steam apps, etc... I guess the difference is you register for iOS, plane tickets, Steam.

Well most of the time the license is about permission to use software.

It doesn't matter if you have the Windows 98 disk, if you don't have a license you're committing copyright infringement to use it. So you could sell the paper code, but the recipient doesn't have the right to use it.

I'm actually unsure of what legal mechanism is used for enforcing software licenses though... is it an implicit contract when buying the DVD for example?

Well most of the time the license is about permission to use software.

It doesn't matter if you have the Windows 98 disk, if you don't have a license you're committing copyright infringement to use it.

I don't think this is entirely decided yet. IIRC GPLv2 did not include a specific license to use the software, since the right to use a legally obtained copy was believed to be implied. Some downloads of drivers and applications don't include any EULA; it would be absurd to think that those downloads are unusable even when the owner of the copyright is the one distributing the software.

As for specific applications that do include an EULA, as I understand it some countries don't recognize any agreement that was not available for reading at the time of purchase.

Not in Europe. https://en.wikipedia.org/wiki/UsedSoft#ECJ_ruling

It seems arbitrary is what it is. Sure, you can try to shoehorn laws and rulings post-facto and try to imagine that the spirit of the law always would have intended this or that interpretation. But it's all really just a huge tug of war about who's the bigger stick, so to speak.

There's always objection, i.e.: if it's not physical, what is it - imaginary?

Reselling digital download codes seems like a bizarre risk for such a well known established company to take.

Yes, but they both doubled their revenue while undercutting Disney, so the potential payoff was very large. Plus, the stipulation that "codes are not for sale _or transfer_" seems to be a particularly egregious stipulation that may be overly broad, thus arguable.

I don’t see how Disney can arbitrarily put a word on the box that limits your ability to do something with it.

What is they put “not for use as a coaster” and you resell the disc as a coaster? Can they sue you for that?

They can put whatever words they want in the box, probably assuming that few people would have the resources to fight them about it.

Looks like they hit the jackpot.

I’ll say it another way, just because it’s on the box doesn’t mean they can legally limit you. So yeah they can put whatever they want but we’ll see if it holds up.

They can say what they want. The law doesn’t agree. You reply “fuck you, sue me”.

Libraries have been doing what redbox did for a long time. One of the studios sent a local library a nasty letter, and the library replied with a nasty letter. Nothing happened.

How did they "undercut" when they had to pay full price for the first sale?

Distribution deals won't give you the DVD (which is all Redbox really wants) for as cheap as $RETAIL less $DOWNLOAD, which is what RB is effectively paying

RB steered people into renting dvds for $1.50 or purchasing download codes for $7.99 instead of purchasing the movie for $19.99.

Instead of $199.90 for ten sales, the studio got $19.99 and RB got from $15.00 to $79.90. That's definitely undercutting. Whether it is illegal or not is tbd in court.

Why should it be risky, to sell something you bought?

Disney could avoid this issue by printing the download codes onto the discs.

Are you sure? Couldn’t Redbox “dissasemble” the disc by transferring the code to paper and physically removing it from the disk? How would that be different than buying an all-in-one computer, taking it apart and selling each component individually?

Or by simple selling the one-time code before they put the corresponding disc in a vending machine.

Ah, perhaps. I was thinking they'd have to copy the code, which seems harder to get away with.

This seems like it will end as one of those "why we can't have nice things" moments.

I thought it was pretty cool that the kids' new Star Wars disc came with a download code so we didn't have to grab the version we actually watch as a torrent. But after this case, win or lose, really, you know that Disney will stop offering that code.

There is no real upside for them, and people are being dicks about it. So it goes away.

So yeah, cool idea reselling it. But all it does in the end is make the world a little worse for everybody.

"why we can't have nice things" assume good faith on part of large corporations. In reality, they push for shit like this the hardest. They pioneer dickishness.

This is going to be interesting. They're not selling any copyrighted material; just the ability to download the material.

I don't understand one thing, though: why can't Disney make these codes single-use? Or limit them to a handful of uses? Or use some form of customer authentication (like a CC number, or phone number) to limit the access to these codes?

Aren't the codes that came with the DVDs that Netflix is then reselling one-time use? So Netflix doesn't ever use them, just sells them (i.e. the ability to download the material) to someone once. Netflix only has many to sell because they bought so many DVDs. At least that was my understanding, but maybe I'm wrong.

Edit: And by Netflix I mean Redbox, oops.

It's not Netflix (the provider of digital movies and TV shows with a subscription). It's Redbox (a company which specializes in renting movies out using automated kiosks on a per-night basis).

> Netflix (the provider of digital movies and TV shows with a subscription)

Netflix started 20 years ago by mailing rented movies to people, a business they still engage in with millions of customers. https://dvd.netflix.com

Sure, but it's still not Netflix in the article.

Near the end of the article, it's mentioned that they ARE single use: RedBox isn't re-using them, just selling the code that they get out of each retail dvd that they buy, and then renting the physical DVD.

I don't see any legal difference between the content and access to the content because circumventing copy protection is still a copyright violation.

I am curious, however, whether this will be a copyright case or contract case.

There’s nothing being circumvented here. As another member pointed out you should check out how “first-sale” doctrine is used to decide these types of cases. Once Disney sells the DVD to Redbox they lose rights to dictate how further sales work.

My take is that Redbox is totally in the clear, and if Disney has a beef with somebody it’s with the consumer. Usually suing the consumer is bad for business.

It's a bit of an absurd position to take that it's legal to sell the codes but not legal to buy/use them.

It wouldn’t be illegal to buy them either. Disney can make a policy not to honor the codes, but it’s consumers they’re fighting against.

> They're not selling any copyrighted material; just the ability to download the material.

They're selling codes that the DVD box said "aren't for sale". Whether that will hold up in court, I guess we'll see. I don't see why the owner of a thing gets to dictate what I do with the thing after I buy it from them. I bought the DVD with the code, it's mine to resell if I want, even if you didn't want me to when you sold it to me.

The digital download is a license though. They can stipulate that the person with the code bought it with the DVD. Though practically I can’t see how they can enforce it.

They can deny service to the person if they didn't buy it with the DVD, but they can't sue the seller, no?

Yes they can deny service. It will be interesting if they stick it to the end consumer.

They can sue all they want, but I can’t see how they win. The seller here hasn’t broken a law or violated license terms which they would be bound to. I don’t know what’s on the box, but I’d have a hard time believing when I buy a DVD from Walmart that I have entered into an agreement with Disney.

When I go to use the code and download the movie, that’s when license terms and conditions and agreement between parties comes into play. But that should be between the holder of the code and Disney. Disney can say the holder must have come across the code by some way Disney likes but this to me is where enforcement gets tricky without implementing some kind of DVD verification or something.

Obvious precedent: bulk food items, also usually marked "not for resale." I presume that that wording has no legal impact; I've definitely seen various convenience stores selling the "not for resale" food portions.

I always thought this had more to do with the fact that bulk items usually don't have nutrition information on them.

And they are priced differently.

The not having nutrition info on it could be a problem for the seller (since you need to have it) but I can’t imagine Costco having a leg to stand on suing the convienence store.

I've heard that's a CYA thing (for the food manufacturers), because a lot of the time the smaller objects won't have legally required nutrition facts on them. If someone resells it, the manufacturer can say "Well we told them not to!" instead of having to argue against a food reseller that they (the manufacturer) have an obligation to print nutrition information on the smaller objects because they (the reseller) assumed the food was eligible for reselling (the manufacturer would probably still win anyway but this cements their victory).

I've noticed that when this (selling "not for resale" items) is done as part of an import business, the importer will print and stick their own nutrition label onto the item. Which doesn't usually add that much more work, because often they're already re-labelling the item to add a translation of the item's name.

I've noticed that too. Imported stuff at City Shop in Shanghai has Chinese nutrition information stickered over the original English nutrition information.

I wish they would have put the sticker anywhere except covering the same information in English. City Shop is specifically targeted at foreigners. That sticker is mostly just preventing me from reading the nutrition info it is purportedly there to provide.

This struck a thought: how does the vending machine industry get around this requirement? I.e. sure they have the mandated labels on them, but as a consumer I can’t see them until after I purchase. Off to researching I go!

It has legal effect because it simply identifies that the individual items do not have the legally required labels for individual commercial sale of food items; that is, the “not for sale” label doesn't make them illegal to sell, the absence of legally required labeling does, the “not for sale” label just assured you can't complain that you weren't informed.

>bulk food items, also usually marked "not for resale."

If you're referring to items marked "Not labeled for individual sale", that means literally that the items do not have the legally required labels (e.g., nutritional information) for individual sale. All that a reseller would need to do would be to create and affix such labels.

They are single use. But they're selling each code they get once.

Yeah, you know what? Fuck redbox on this one.

Selling the digital codes separately, while renting the physical item? That sounds like kind of ridiculous behavior, considering you’d imagine them to have a wholesale side-channel for their operation. Do they have unskilled workers acquiring optical disks via retail, over the counter, and then shucking them out of the consumer product package, and sleeving them for rental operations?

But, still, fuck Disney too. It is completely irrational that they insist on operating as this elitist, vertically integrated smoke stack that issues forth a plume of animated gruel intended to placate sheltered infants, piped in by a specially insulated A/V channel for two hours at a time, at like $40 bucks a go.

Both of them suck, but if the game is cricket, the rules are stacked in Disney’s favor in this instance.

> Do they have unskilled workers acquiring optical disks via retail, over the counter, and then shucking them out of the consumer product package, and sleeving them for rental operations?

Yes, that's what the article said they do. That is perfectly legal with the DVDs. You are allowed to resell things you buy, that's the first sale doctrine, and it's why you can sell a used book or DVD without paying a licensing fee. But it's unclear if it applies to the download code.

This is literally what the article was about.

> Selling the digital codes separately, while renting the physical item? That sounds like kind of ridiculous behavior

Why?

If Disney sold a DVD with a bundled toy, and Redbox wanted to rent out the DVD and sell the toy separately, would that be "kind of ridiculous behaviour"?

They bought the DVD+toy fair and square, I don't see an issue here.

Imagine instead if it were a DVD+Blueray set. Would you be ok with selling (or renting) the DVD and the Blueray separate? If I buy the DVD+Blueray set and I only own a Blueray player why shouldn't I sell the DVD?

TFA indicates that, yes, these are retail items, at least for Disney movies. Meaning they have people buying them at retail stores. I'm not sure why you find this so shocking.

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