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Independent Rentailers File Complaint Against the Weinstein Co.

12 Dec, 2006 By: Jessica Wolf

The National Entertainment Buying Group (NEBG) has filed a complaint in the superior court of Massachusetts against the Weinstein Company.

The filing is an effort to stop the independent film studio from labeling DVD releases that fall under the Weinstein's new exclusive rental agreement with Blockbuster with language that implies renting such titles from anyone other than Blockbuster Inc. is wrongful.

The NEBG, which represents 300 independent video rental dealers across the country, argues in the complaint that such labeling, “by implying illegal activity defames and damages the businesses of other retailers and will cause the financial loss and irreparable harm.”

The filing follows comments by Trevor Drinkwater, president and CEO of Genius Products (which distributes Weinstein Co. product), made to the effect that the company would be labeling sellthrough copies of the Blockbuster-exclusive titles and embedding a 1-800 number for people to call if they have rented the title via any other retailer.

Sideways buying, where independents would pick up DVD product at mass merchants and then turn around and rent it, is not illegal. The First Sale Doctrine states “the distribution rights of a copyright holder end on that particular copy once the copy is sold.”

The claim cites the Weinstein Company on five counts: unfair competition, unfair or deceptive acts and practices, untrue and misleading advertisements, negligent misrepresentation and tortious interference with advantageous business relations.

With the street date for the first title quickly arriving January 16, the NEBG pushed for an early court date and the case will be heard January 5.

"We jumped before anything actually came out in order to try to stop this before the product hits," said Todd Zaganiacz, NEBG president who is listed as a plaintiff in the claim. "Once the damage is done the damage is done."

That potential damage comes on several fronts, Zaganiacz said. There is the damage to retailers who could lose business because of advertising that will lead renters to believe that Blockbuster is the only location to rent the Weinstein titles. Then there is the potential damage to reputation and loss of business a retailer other than Blockbuster could incur if that retailer exercises the right to purchase Weinstein titles via other methods and rent it out, which is legal under the first sale doctrine, Zaganiacz pointed out.

"Even if we try to educate them in the store that we are not doing anything illegal, there is a chance once they get home and see a forced message like that, that they will think we've done something that's against the law and we haven't," he said.

And, though there has been no indication of exactly what the materials the Weinstein Company intends to include on product will look like, the company's message is misleading to the consumer, Zaganiacz said. Courts do tend to err on the side of protecting the consumer from misleading or fraudulent information such as what the Weinstein Co. may employ, which could work in favor of the NEBG claim, he noted.

Since news broke of the NEBG's claim, the group has gotten initial widespread support from fellow retailers, though the group did not reach out to bigger players Netflix and Movie Gallery to throw their weight in on the claim.

"You could call this the initial stage it would be nice if this was the beginning and the end in our favor, but it probably is just the beginning," Zaganiacz said.

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