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Judge Throws Out Some Redbox Claims in Universal Suit

17 Aug, 2009 By: Chris Tribbey

The United States District Court judge in Redbox’s long-running suit vs. Universal Studios Home Entertainment threw out some of Redbox’s claims Aug. 17 but denied the studio’s motion to dismiss Redbox’s allegations of antitrust violations.

“The court is convinced that plantiff sufficiently pleaded that Universal has induced or otherwise convinced others to boycott Redbox in distribution of Universal DVDs, producing anti-competitive effects, specifically Redbox’s inability to compete in the DVD rental and sales markets of Universal DVDs,” the opinion reads. “Further, the court finds that plantiff has sufficiently pleaded the illegality of Universal’s actions … and its antitrust claim will not be dismissed.”

Redbox president Mitch Lowe marked the judge’s decision to let the antitrust claims go forward as a victory for his company.

“The federal court’s decision marks an important step forward in our effort to protect consumers’ right to convenient, affordable access to new release DVDs at Redbox locations nationwide,” he said. “We appreciate the court’s thoughtful review of this issue and look forward to pursuing our claim and protecting our consumers’ rights.”

Universal also issued a statement about the ruling:

"Universal is pleased that the Court today dismissed two of the three claims asserted by Redbox and appreciates that the claims made by Redbox are now reduced significantly. As was the case prior to the Court’s ruling, Universal maintains that its actions have been consistently lawful, and will vigorously defend the remaining claim in this case."

In his opinion, laced with references to films (“Consumers, apparently, have Great Expectations about the availability of new release films”), Judge Robert Kugler granted the studio’s motion to dismiss Redbox’s claims of copyright misuse, writing that, “Copyright misuse is not a claim but a defense, and Redbox may not create a justifiable claim for copyright misuse in this jurisdiction by labeling [copyright misuse] as one seeking declaratory relief. Furthermore, the court is not convinced that plantiff’s case raises questions of copyright law.”

Redbox’s claims that the studio had interfered with its contracts with VPD and Ingram also were dismissed, since Redbox’s contracts with the wholesalers did not include guaranteed access to Universal DVDs. Judge Kugler also noted the studio’s contracts with VPD and Ingram included the provision “Distributor shall not sell to any account other than a retail account as verified by Universal.”

Redbox first sued Universal in October 2008, after the studio presented the DVD rental kiosk operator with new revenue-sharing terms that would have limited the number of Universal DVDs that could be stocked and would have kept new releases out of the kiosks for 45 days after street date. When Redbox refused the terms, the studio ordered distributors VPD and Ingram not to sell to Redbox. Redbox filed a similar suit against 20th Century Fox Home Entertainment Aug. 11 after Fox sought a 30-day delay and also told VPD and Ingram to stop selling to Redbox.

On Aug. 13 Warner Home Video said that starting in October it would seek a 28-day delay for new releases in DVD rental kiosks.

Sony Pictures Home Entertainment and Lionsgate, however, have both signed multiyear deals with Redbox, with Redbox buying DVDs directly from the studio on the promise that none of the DVDs are sold as used once their rental life is up.

Pali Capital analyst Richard Greenfield wrote in a Aug. 18 that the judge’s decision leaves Redbox on one “shaky” legal leg.

“While Redbox is now suing Fox and a similar lawsuit against Warner Bros. appears imminent, nowhere does the judge mention concerns about a horizontal, industry-wide effort to hurt/destroy Redbox,” he wrote. “We believe this would be difficult for Redbox to claim now as all studios were selling product to Redbox when Universal first made its decision (in addition, there is case law related to this topic when independent video retailers tried to sue Blockbuster and the movie studios [claimed] anti-trust violations).”

Eric Wold, analyst with Merriman Curhan Ford, wrote in an Aug. 18 research note that the judge’s decision may prompt Redbox to head back to the negotiating table with Universal and others.

“Now that the court is allowing Redbox’s anti-trust claims against Universal to continue, we would not be surprised to see an agreement with Universal (and then Fox and Warner) be announced prior to any court ruling,” Wold wrote. “We believe it would be in Universal’s best interest to return to the table and negotiate a distribution deal with Redbox — similar to the ones recently signed with and Lionsgate — as opposed to continuing the legal fight and potentially losing an anti-trust claim.”

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