Zediva is a new streaming-video startup with a copyright-dodging angle. Users pay $2 for a two-week digital streaming rental of new-to-DVD movies. The movies, like The Fighter and Megamind, are the ones that the studios are deliberately holding back from other streaming services, like Netflix, in order to preserve the shrinking DVD window. Zediva, though, has figured out a legal hack. As explained by Wired:

Quite simply — the company literally rents you a DVD and a DVD player, with your computer, tablet or Google TV as the remote control. Unlike the other streaming movie services, Zediva doesn’t turn a movie into a file on its servers that it can serve to as many users as care to see it at once.

Instead, Zediva’s servers have DVD drives and actual DVDs. So when you rent a movie, that disc goes out of circulation until you release it back to the company, just like in one of those increasingly rare real-world video stores.

And like those video stores, Zediva doesn’t need to get permission from the studios to rent out discs, since once they buy the DVD they are free to rent it out or re-sell it, thanks to the first-sale doctrine in U.S. copyright law.

Clever twists on the law ordinarily make me happy. But it makes me sad when entrepreneurs sink their time and money into a business that basic due diligence should have told them is all but doomed from the start. Zediva’s supposed “loophole” in copyright law doesn’t exist. Zediva is about to get pounded by the movie studios, and hard.

Zediva’s theory is that the “rental” of the DVD and player mean that the customer is streaming her video to herself. Under what I assume is Zediva’s interpretation of copyright law, that fact makes it a private performance of the movie. The Copyright Act, however, only gives copyright owners the right to control “public” performances. Q.E.D., right?

Not so fast. There’s offline caselaw almost directly on point. It’s not so good for Zediva. In Columbia Pictures Industries v. Redd Horne, for example, the defendant was a video store named Maxwell’s. It rented videotapes to customers, along with private 4’x6’ exhibition booths in the rear of the store. You’d rent a tape and reserve a room, buy some popcorn, and go take a seat in the booth. ($5.00, plus $1.00 for each additional person.) Then, a Maxwell’s employee would put the tape in a VCR connected to your booth, hit play, and the movie would show up on the TV in your booth.

The court in Redd Horne had no difficulty finding that this was a public performance that the movie-studio copyright owners had every right to prohibit:

On the composition of the audience, the district court noted that “the showcasing operation is not distinguishable in any significant manner from the exhibition of films at a conventional movie theater.” Any member of the public can view a motion picture by paying the appropriate fee. The services provided by Maxwell’s are essentially the same as a movie theatre, with the additional feature of privacy. The relevant “place” within the meaning of section 101 is each of Maxwell’s two stores, not each individual booth within each store. Simply because the cassettes can be viewed in private does not mitigate the essential fact that Maxwell’s is unquestionably open to the public.

Or, as the court explained later on:

Professor Nimmer’s examination of this definition is particularly pertinent: “if the same copy … of a given work is repeatedly played (i.e., ‘performed’) by different members of the public, albeit at different times, this constitutes a `public’ performance.” Indeed, Professor Nimmer would seem to have envisaged Maxwell’s when he wrote:

one may anticipate the possibility of theaters in which patrons occupy separate screening rooms, for greater privacy, and in order not to have to await a given hour for commencement of a given film. These too should obviously be regarded as public performances within the underlying rationale of the Copyright Act.

Although Maxwell’s has only one copy of each film, it shows each copy repeatedly to different members of the public. This constitutes a public performance.

What about Zediva’s first sale argument? Well, for one thing, first sale is a defense only to the distribution and display rights, so it’s entirely irrelevant in a lawsuit based on the performance right. And, for another, Redd Horne directly considered a similar argument, and rejected it:

In essence, the defendants’ “first sale” argument is merely another aspect of their argument that their activities are not public performances. For the defendants’ argument to succeed, we would have to adopt their characterization of the “showcasing” transaction or activity as an “in-store rental.” The facts do not permit such a finding or conclusion. The record clearly demonstrates that showcasing a video cassette at Maxwell’s is a significantly different transaction than leasing a tape for home use. Maxwell’s never disposed of the tapes in its showcasing operations, nor did the tapes ever leave the store. At all times, Maxwell’s maintained physical dominion and control over the tapes. Its employees actually played the cassettes on its machines. The charges or fees received for viewing the cassettes at Maxwell’s facilities are analytically indistinguishable from admission fees paid by patrons to gain admission to any public theater. Plainly, in their showcasing operation, the appellants do not sell, rent, or otherwise dispose of the video cassette. On the facts presented, Maxwell’s “showcasing” operation is a public performance, which, as a matter of law, constitutes a copyright infringement.

Let’s see. Zediva never “disposes of” its DVDs, and the DVDs “never leave” Zediva’s facilities. It has “physical dominion and control” and while its employees don’t “actually play” the DVDs, they do load them into the machines. Indeed, the court’s explanation that the “charges or fees received for viewing the cassettes at Maxwell’s facilities are analytically indistinguishable from admission fees paid by patrons to gain admission to any public theater” applies almost as well to Zediva.

A more recent case, Cartoon Network LP, LLLP v. CSC Holdings, Inc seems to offer more hope for Zediva, but I think it will ultimately prove fleeting. There, Cablevision offered its customers DVRs “in the cloud” — they could record TV shows, and then have the recordings beamed to their TVs later on. The court there held that these transmissions of earlier-recorded shows weren’t “public” performances because “the universe of people capable of receiving an RS-DVR transmission is the single subscriber whose self-made copy is used to create that transmission.” Thus, Cablevision’s service wasn’t infringing.

That sounds promising, but Cartoon Network is loaded with other language that suggests Zediva is still in trouble. In particular, the Cartoon Network court emphasized that each customer’s copy of a given program was distinct. If you and I both pushed ‘record’ on American Idol and later watched it, you’d see a version beamed from your copy, and I’d see a version beamed from my copy:

It seems quite consistent with the Act to treat a transmission made using Copy A as distinct from one made using Copy B, just as we would treat a transmission made by Cablevision as distinct from an otherwise identical transmission made by Comcast. Both factors—the identity of the transmitter and the source material of the transmission—limit the potential audience of a transmission in this case and are therefore germane in determining whether that transmission is made “to the public.”

With Zediva, both the transmitter (Zediva) and the copy (the DVD) are the same. Cartoon Network then goes on to discuss Redd Horne — and guess what factor it relies on to explain why the two cases are distinguishable? That’s right — distinct copies:

Unfortunately, neither the Redd Horne court nor Prof. Nimmer explicitly explains why the use of a distinct copy affects the transmit clause inquiry. But our independent analysis confirms the soundness of their intuition: the use of a unique copy may limit the potential audience of a transmission and is therefore relevant to whether that transmission is made “to the public.” Plaintiffs’ unsupported arguments to the contrary are unavailing.

Given that each RS-DVR transmission is made to a given subscriber using a copy made by that subscriber, we conclude that such a transmission is not “to the public,” without analyzing the contours of that phrase in great detail.

Even if you think the legal analysis is genuinely open (I hope we can agree that the caselaw does not clearly require a Zediva verdict), the fact that its operations can be described as a “Copyright Loophole” by Wired should tell you all you need to know about what the courts will do when asked how to resolve it. Cablevision won because of the close analogy to a set-top box, and because the plaintiffs there stipulated some of their best arguments out of the case. Here, the closest analogy is Netflix streaming, which requires licenses from copyright owners, and obtains them. I could see some of the other innovative but edgy business models in the copyright space succeeding with the courts, but not this one.

UPDATE

Here, by the way, are the tl;dr versions of the other major cases that bear on this issue.

On Command Video Corp. v. Columbia Pictures Industries, 777 F. Supp. 787 (N.D. Cal. 1991): Same model as Maxwell’s, except at a hotel, with transmissions from a system behind the front desk to individual rooms. Held: infringing public performance.

Columbia Pictures Industries, Inc. v. Aveco, Inc., 800 F.2d 59 (3rd Cir. 1986): Same model as Maxwell’s, except that the VCRs are inside the individual rooms, and customers carry the tapes into the rooms. Held: infringing public performance.

Columbia Pictures Industries, Inc. v. Professional Real Estate Investors, Inc., 866 F.2d 278 (9th Cir. 1989): Combines the two twists in On Command and Aveco, i.e., same model as Maxwell’s, except at a hotel and the VCRs are inside the individual rooms. Held: not an infringing public performance, because hotel rooms are “places where individuals enjoy a substantial degree of privacy, not unlike their own homes.”

Video Views, Inc. v. Studio 21, Ltd., 925 F.2d 1010 (7th Cir. 1991): Same model as Maxwell’s, for adult movies viewed in increments of five minutes. Held: infringing public performance.

U.S. v. ASCAP, 485 F. Supp. 2d 438 (S.D.N.Y. 2007): Music downloads (as opposed to streams) are not public performances. The permission of the copyright owner is required, in the form of the reproduction right, not the public performance right. In re Cellco Partnership, 663 F. Supp. 2d 363 (S.D.N.Y. 2009), another case involving ASCAP, is to the same effect: ringtone downloads are not public performances.

I don’t think Zediva can take comfort from this caselaw. It’s true that Professional Real Estate Investors found noninfringement, and homes are even more private spaces than hotel rooms are. If Zediva were pulling a Netflix — physically transferring possession of the DVDs to customers — PREI would be on point. But it isn’t. Zediva is transmitting the video to its customers, which means that On Command and Redd Horne and Cartoon Network are closer analogies. Similarly, the two ASCAP cases both hinged on the distinction between streaming and downloading for later viewing. Only if Zediva were downloading video to customers’ computers, rather than letting them watch live, would these cases help its public-performance-right argument. What’s more, if Zediva downloaded rather than streamed, it would have an even more glaring reproduction-right problem.

And as for fair use? See UMG Recordings, Inc. MP3.com, Inc., 92 F. Supp. 2d 349 (S.D.N.Y. 2000), and wince.

UPDATE 2: I am reliably informed that Zediva has top-notch copyright counsel. This fact doesn’t by itself change my reading of the cases. I remain open, however, to being persuaded to revise my opinion by anyone who can offer a more compelling reading of them.

hi James, In terms of the site of the performance, there seems to be a strong trend (in several cases you’ve identified, esp Professional Real Estate Investors) towards recognizing things that take place in the curtilage of one’s home—or even in one’s home away from home—as something other than “public.” That, combined with the physicality of what’s taking place at Zediva’s hq, which makes it look like the at-home user is commandeering the dvd player and using it as an instrument to show movies within her curtilage to a limited audience (and making sure, in a fairly possession-like way, that no one else can do so at the same time), along with the absence of conventions (popcorn!) that courts have associated with public performance, seems to shift the site of the relevant “performance” here away from the service provider’s facilities and into the user’s private home.

(But maybe the above argument adopts too much of a plain-language approach to the public perf Q?) Nick

Trying to pin down a unique “site” of Internet-based activities is difficult. One can make arguments for multiple different “sites,” and the analysis one needs to to to choose among them isn’t necessarily illuminating. There’s something to your analysis, but note how much it depends on the “physicality” of an object not actually present at the subscriber’s home, a fact that might seem to cut against siting the relevant performance in the home.

It’s for that reason I think the better approach is to focus on the “transmission,” an approach which recognizes that this kind of performance necessarily involves more than one place. It leads one to ask detailed questions about the timing, distribution, multiplexing, buffering, and control of the audiovisual data. This at least fits with the overall tendency in copyright law to look more closely at technical details than at user experience.

Under this approach, Cartoon Network’s language about the audience “capable of receiving” a particular transmission is significant; Zediva would argue that this audience necessarily consists of a single home, just as in Cartoon Network. It’s not a bad point; Cartoon Network does have some good language for Zediva in it. The problem with that argument, as I see it, is that Cartoon Network itself recognizes that prior cases of transmissions to a single person or small group — principally Redd Horne and On Command — found infringement. Its explanation for the difference is that those defendants engaged in “successive transmissions” of a “single copy,” just as Zediva does.

If a circle of people each bought a different DVD and after watching the movie, each of them then passed their physical DVD on to the next member of the circle, and so on, that would be private?

But if they were to use WIFi or whatever to pass it on , strictly, to just one member of the circle at a time, that would be a public performance?

Seems to have implications for lending in a digital age?

John, your first example is “public” but it is not a “performance.” It involves distributions, for which the first sale defense is available.

James hypothetically , if in the second example only one person at a time had access to viewing the DVD , what is the effective difference?

Have you ever seen “Misleading Cases” with the wonderful Alistair Sims and Roy Dotrice? Sort of reminded of the case involving the Question - Is a cow (that climbed a stair case and then fell on to a car) a wild or domestic animal?

Am I missing something about The Zediva model???

How many copies of each movie are they going to have available at any one time? Audiences ‘clump’- most tend to all want much the same as their piers , if Zediva had 100 individual DVDs of 100 different films available at anyone time, for 100 individual viewers , it is likely that there will be 50+ viewers who all want to see the same top ten DVDs . Will they have to wait their turn?

Your quote from Mr Nimmer : “if the same copy … of a given work is repeatedly played (i.e., ‘performed’) by different members of the public, albeit at different times, this constitutes a `public’ performance.”

If true then why is the first example- “not a “performance.” ?

Should have read—

Hypothetically , if in the second example only one person at a time had access to viewing the DVD , what is the effective difference ( to any other sort of lending library)?

Probably two factors. First, the loan in the social-circle case involves an actual transfer of possession of the DVD; Zediva’s DVD stays exactly where it is. Second, and relatedly, there is no “transmission” in the social-circle case, and the Copyright Act’s definitions distinguish transmissions from other kinds of performances.

I wonder if Zediva got the idea from the Internet Archives? GBS: Internet Archive Starts Lending In-Copyright E-Books

As the linkage of a recording to ‘a’ unique physical object gets weaker, the distinction between, transmission between individuals by hand to hand and “transmission” by ‘wireless’??.. must get harder to define , no?

Ps Why would you want to go to a ‘video shop’ and watch a movie in a private booth- were they the sort of movies you don’t want to share with everybody back home?

@johnwalker — The case about rental booths date back to the 80s, when not everyone had a VHS player. These kinds of places are also common in Taiwan — where they are called MTVs — and are popular with teens and young adults who live with their parents and like a space where they can cuddle on a date in privacy. They were also fun because they have relatively big screens and loud music — which is cool if you don’t have a massive home theater setup.

James,

Given Redd Horne, I’m afraid you might be right, but I think Redd Horne is wrong. To me, there are a few ways Maxwell’s and Zediva differ from a movie theater. First (like in Cablevision) is agency—who initiates the transmission. At a theater, they decide what to play and when to play it — I just show up and join in. At Maxwell’s, the patrons initiated private performances in the booths. Despite the store being open to the public, the performances themselves were quite private. To me this is true whether the playback system involves driving home, putting the tape in a player, and pushing play; or signing up, entering a room, and signaling that play should be pushed.

Secondly, I think the court put too much emphasis on physical control over the tapes. It sounds to me like physical control is a proxy for what really matters, which is exclusive functional or logical control over the copy. If no one else can watch the copy I’ve rented, why should that be any different from having the copy in my home?

Also, Cablevision’s reliance on multiple copies for multiple users has always troubled me. If Cablevision had instead designed the remote DVR to store only one copy, then controlled which customers could view that show through some sort of permissions process based on who had opted to “record” the show, I would still think Cablevision should not be liable for the resulting private performances. (Quoting what you quote above) What matters is “limit[ing] the potential audience of a transmission,” right? Keeping a distinct copy for each customer who elects to time-shift is one way to do that, but it’s not the only way.

If read this way (is 1984 too long ago to overturn Redd Horne? :), I think it’s possible Zediva has a chance, but like you I’m not so optimistic.

The interesting part in Zediva is the question where the “showing” occurs. Is that where the DVD player is, or is that where the screen is? It stands to reason that viewing is done with the eyes, thus requiring “photons instead of electrons”. This would mean the performance would take place in people’s homes, which are not public places.

Andrew, if we were writing on a blank slate, I would agree. If it were just a matter of crossing Redd Horne off the books, I would say that Zediva would have a decent argument. The problem is that all of the cases, taken together, add up to a single, coherent line. It’s not a compelling line, and it’s not the one I’d have chosen, but Cablevision chose to distinguish and harmonize, rather than traverse. I’m not optimistic about a legal strategy that depends first on using Cablevision to call the older cases into question, and then on distinguishing Cablevision’s own explanation of its reasoning.

Also, I doubt that Zediva will get to pick its forum. The movie studios will strike like ninjas: moving stealthily until they act with extreme violence on ground of their own choosing. (The point is to avoid creating grounds for a declaratory judgment action until it’s too late, and thereby to select a favorable jurisdiction by filing first.)

Byte, your theory that the place of the “showing” should control whether the performance is “public” or not is straightforward and defensible. But, as the cases illustrate, courts have decided that this fact alone doesn’t determine the outcome. Indeed, the Copyright Act itself says that a performance could be “public” even if it is only seen by people in their homes (look at the second clause of the definition of “publicly”). As often happens, the law uses tests that aren’t as simple, intuitive, or rigorous as what you or I might come up with on our own.

What I find interesting about the Cartoon Networks decision is how it runs totally counter to modern filesystem technology using data deduplication to more efficiently utilize storage capacity. Is the court’s decision dependent on the two clients’ copies being stored as two totally independent physical copies on the disk(s), or is it sufficient that they are logically independent on the filesystem level?

When reading Nimmer’s definition of public performance, the question comes to my mind: does this mean that public libraries need special licensing arrangements if they lend out audio or video recordings? As far as I know, they don’t need special licensing for books, even books with illustrations or photographs. So where exactly would that leave a book which is actually a flip-page animation —- you know, a book whose pages are a series of images and they can be animated by flipping the pages rapidly?

Ron, I cant imagine how anyone with a rudimentary knowledge of such things would be able to insist on a “physical” copy on disk instead of a logical.

Lets say you use NTFS, with truecrypt, to store your movie. The movie does not “physically” reside on disk; it only exists logically within the context of the filesystem, and the sub-filesystem (truecrypt). Or for another example, if you were to use RAID5, the file would once again only exist within the “logical” RAID5 array, not at all within the physical disk. I fail to see how deduplication, or different (lossless, ie gzip) compression methods, would be different.

IANAL, of course, and existing rulings might say that everything Ive said is irrelevant.

James, as I argue in my response to you here

http://appleguru.org/blog/2011/04/05/zediva-movie-studios-and-copyright/

Redd Horne differs from Zediva in two important ways:

1) Red Horne’s stores, the location where the movies were being performed in that case, were public places. Consumer’s homes, where movies are being performed in Zediva’s case, are decidedly private places.

2) Red Horne’s employee’s were the ones pressing play, and therefore the ones performing the work in that case. In Zediva’s case, the end user is the one pressing play and performing the work (privately, for their own use, just as if they rented the DVD).

I think it’s important to note that in the Redd Horne case the company made an explicit reference to multiple viewers. If the offer was simply one person in one booth I think it would’ve been easier to defend their practice. Though I do wonder why they couldn’t defend it as similar to renting a house (but instead a booth) where the “family” (or business) leaves DVDs. Zediva, however, is a more compelling case for the reason you described yourself. The system is very similar to a set-top box. You are renting a single DVD and it is playing in a single DVD player. As a matter of fact the service allows you to have the DVDs sent to you so you can “shorten the cord”, as the Zediva lawyers would like you to say, and play it in your own DVD player. I don’t find that same similarity to the Netflix watch instantly where you are one of multiple users streaming from one virtual copy. Unlike Netflix’s watch instantly you are purchasing each and every movie you rent. Watch instantly is a subscription service where you pay one fee and get tons of movies. Zediva is a one to one ratio. Yes, there is a 10 for 10 deal, but that is broken down as 1 dollar for each movie. Therefore I do believe that it more similarly follows the movie rental store model than the netflix model. You are renting a single movie that is being played in a single DVD player for a single price and, while you are playing that movie, it is yours and only yours.

On completely different note, is it therefore illegal that college libraries place certain DVDs on “Closed Reserve” where they are only allowed to be watched in predetermined viewing rooms provided by that same library? Important to note that these services are open to not only students of the college but also members of the public that register with the library.

If Zediva sold the physical DVD & Player to the customer, but provided the service of storing them at their facility and allowing the customer to stream the DVD over the internet from their player, would that still be considered a “public performance”? If not, what if Zediva offered to buy-back the DVD after being viewed?