Redbox Automated Retail LLC v. Universal City Studios LLLP
| Industry | DVD rental and sales |
|---|---|
| Headquarters | United States |
Area served | United States |
| Products | DVD rentals and sales via automated kiosks |
Redbox Automated Retail LLC v. Universal City Studios LLLP, District Court of Delaware, 2009, addressed matters concerning copyright misuse, antitrust violations, and tortious interference with contractual agreements.
Redbox managed a network exceeding 35,900 automated kiosks across the United States, offering DVD rentals and sales in venues such as chain restaurants, grocery outlets, and drugstores. Universal Studios, a prominent film production company, exerted pressure on Redbox’s distributors—VPD and Ingram—to halt DVD shipments unless Redbox agreed to a Revenue Sharing Agreement. This agreement would have limited Redbox to acquiring titles from Universal only after 45 days from their initial release. The intent was to safeguard Universal’s revenue streams; however, since Redbox generated a substantial portion of income from new releases within the first two weeks, they refused to accept these terms.
While the court rejected Redbox’s allegations related to copyright misuse and tortious interference, it permitted the antitrust claim to advance.
Background
Redbox’s operational model depended significantly on prompt access to newly released DVDs, which represented roughly 30% of the revenue generated per title. Universal’s influence over distributors VPD and Ingram to discontinue supplying DVDs without restrictive agreements jeopardized this model. Furthermore, major retailers such as Walmart and Best Buy either limited or declined bulk DVD sales to Redbox, adding further challenges to their supply chain.
Legal action history
Following the proposal of the Revenue Sharing Agreement in October 2008, Redbox filed claims against Universal Studios. Universal responded by seeking dismissal of certain allegations, prompting Redbox to revise its complaint by modifying factual assertions and claims. Universal renewed its motion to dismiss thereafter. The Court mandated mediation efforts that ultimately did not succeed. The Amended Complaint contained six counts: (1) copyright misuse; (2) antitrust violations under the Quick Look Doctrine; (3) antitrust violations evaluated under the Rule of Reason; (4) antitrust conduct amounting to restraint of trade; (5) antitrust violations pursuant to Section 1 of the Sherman Act; and (6) tortious interference with contract.
Copyright misuse
Redbox contended that Universal orchestrated a boycott against DVD sales to Redbox, allegedly infringing upon the first sale doctrine outlined in Section 109(a) of the Copyright Act. The Court dismissed this claim, clarifying that copyright misuse serves as a defense mechanism rather than an independent cause of action available to plaintiffs like Redbox.
Antitrust
The Court determined that Redbox had adequately alleged that Universal breached Section 1 of the Sherman Antitrust Act by encouraging third parties to boycott Redbox in distributing Universal DVDs. This behavior hindered Redbox’s competitive position within the DVD rental and sales market and was deemed anti-competitive.
Tortious interference with contract
The Court rejected Redbox’s assertion that Universal tortiously interfered with agreements between Redbox and its distributors VPD and Ingram. These contracts did not explicitly mandate that suppliers provide Universal DVDs to Redbox but only required Ingram to "order DVD software from the studios at the pricing negotiated by Redbox." Additionally, distributor contracts with Universal prohibited sales to non-retail customers, thereby justifying limitations on distributor sales of Universal DVDs.
Subsequent developments
On March 1, 2012, Redbox revealed an agreement with Universal permitting DVD rentals starting 28 days after their release, a contract set to last until August 2014.
Redbox faced comparable legal challenges and settlements with other major film studios. Some of these negotiations resulted in multimillion-dollar deals allowing Redbox to offer new release DVDs immediately, while discussions with certain studios have yet to reach a conclusion.