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.
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.