Redbox Countersuit

Case 2:18-cv-00677 Document 1 Filed 01/26/18 Page 1 of 25 Page ID #:1
1 ROBINS KAPLAN LLP

Roman M. Silberfeld (SBN 62783)
2 RSilberfeld@RobinsKaplan.com
Breton A. Bocchieri (SBN 119459)
3 BBocchieri@RobinsKaplan.com
Michael A. Geibelson (SBN 179970)
4 MGeibelson@RobinsKaplan.com
Daniel L. Allender (SBN 264651)
5 DAllender@RobinsKaplan.com
2049 Century Park East, Suite 3400
6 Los Angeles, CA 90067
Telephone: (310) 552–0130
7 Facsimile: (310) 229–5800
8 AXINN VELTROP & HARKRIDER LLP
Michael L. Keeley (pro hac vice to be filed)
9 mkeeley@axinn.com
Rachel J. Adcox (pro hac vice to be filed)
10 radcox@axinn.com
Jarod G. Taylor (pro hac vice to be filed)
11 jtaylor@axinn.com
950 F Street, NW
12 Washington, D.C. 20004
ROBINS KAPLAN LLP
Telephone: (202) 912–4700

ATTORNEYS AT LAW
13 Facsimile: (202) 912–4701

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14 Attorneys for Plaintiff

Redbox Automated Retail, LLC
15
UNITED STATES DISTRICT COURT
16
CENTRAL DISTRICT OF CALIFORNIA
17
WESTERN DIVISION
18
REDBOX AUTOMATED RETAIL, Case No. 2:18-cv-677
19 LLC
20 COMPLAINT FOR
Plaintiff, DECLARATORY JUDGMENT,
21 v. COPYRIGHT MISUSE, TORTIOUS
22 INTERFERENCE WITH
BUENA VISTA HOME PROSPECTIVE ECONOMIC
23 ENTERTAINMENT, INC., ADVANTAGE, FALSE
DISNEY ENTERPRISES, INC., ADVERTISING, AND UNFAIR
24
LUCASFILM LTD. LLC, COMPETITION
25 MVL FILM FINANCE LLC, AND
26 MOVIES ANYWHERE LLC, DEMAND FOR JURY TRIAL
27 Defendants.
28
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1 Plaintiff Redbox Automated Retail, LLC (“Redbox”) brings this Complaint

2 against Buena Vista Home Entertainment, Inc. (“BVHE”), Disney Enterprises, Inc.
3 (“Disney Enterprises”), Lucasfilm Ltd. LLC (“Lucasfilm”), MVL Film Finance
4 LLC (“Marvel”), and Movies Anywhere LLC (“Movies Anywhere”) (collectively,
5 “Disney” or “Defendants”) seeking a declaratory judgment, and for copyright
6 misuse, tortious interference with prospective economic advantage, false advertising
7 (Cal. Bus. & Prof. Code § 17500 et seq. and 15 U.S.C. § 1125(a)), and unfair
8 competition (Cal. Bus. & Prof. Code § 17200 et seq.). The Court has subject matter
9 jurisdiction under 28 U.S.C. §§ 1331 and 1367 and 15 U.S.C. § 1121.
10 INTRODUCTION
11 1. In 2002, Redbox revolutionized the movie-rental business. Redbox
12 brought rentals to the market for $1 a day, with no late fees and no membership fees,
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13 at a time when the rest of the industry was renting DVDs for $3 or more and selling
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14 them for $16 or more. Redbox was able to do this by offering rentals from a three-
15 by two-foot self-service kiosk placed at grocery stores and other retailers throughout
16 the country, rather than in its own brick-and-mortar stores. This not only provided a
17 lower-price alternative for consumers who were already renting movies, it made
18 rentals possible for a whole new segment of the market—those who could
19 previously afford to rent only rarely, if ever. Consumer demand for Redbox
20 exploded. Redbox now rents approximately 1 million discs per day.
21 2. Some movie studios embraced Redbox and the new consumers it
22 introduced to the entertainment industry. Others, however, initially labeled Redbox
23 a “Red Menace” and sought to eliminate it. Arguing that cheaper rentals must mean
24 less money for Hollywood movie studios, and even that cheaper rentals “devalue the
25 movie experience,” they sought to eliminate Redbox by refusing to offer it new
26 releases until demand for those releases had largely dried up. Since then, Redbox
27 and these studios have entered into partnerships that benefit not only Redbox and its
28
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1 consumers, but also provide the studios with increased sales demand and promotion
2 of their content. Disney is the exception to that rule.
3 3. Then, in 2017, Redbox innovated again. Redbox began adding digital
4 movie downloads to its popular kiosks, allowing customers to buy digital movies at
5 prices lower than those charged by resellers like iTunes or Vudu. Redbox procures
6 digital movie download codes at full retail price (meaning that Disney gets paid) and
7 resells them to customers. This case is about Disney’s unlawful efforts to stifle
8 Redbox’s lawful sales of DVDs, Blu-rays and digital movie codes to Redbox’s
9 customers in an effort to prop up high prices to consumers. Disney wants to
10 eliminate low-cost options like Redbox in order to force consumers to pay as much
11 as possible for Disney’s content, even though Disney is already fully compensated
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12 when it first sells that content to a distributor or retailer.

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13 4. Why would Disney do this? In part, it is because Disney believes it can

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14 command a higher premium in the short term from its distributors and retailers when
15 they sell at higher prices. But primarily, Disney is laying the groundwork for its
16 own “direct to consumer” model. Disney’s acquisition of a majority interest in
17 digital distributor Hulu as part of its $52 billion acquisition of 21st Century Fox, and
18 its separate plans to launch an additional streaming service in 2019, are major
19 components of that move. Defendant Movies Anywhere, as the successor to Disney
20 Movies Anywhere, also recently launched a digital content service. This explains
21 why Disney wants to keep retail prices for its titles as high as possible. Disney
22 wants to sell its content at the higher prices it is trying to condition consumers to
23 expect, rather than the lower prices they can get from Redbox.
24 5. In the absence of a partnership with Disney, Redbox purchases the vast
25 majority of its Disney titles at retail, like any other consumer. Redbox purchases
26 many of those movies in the form of “Combo Packs,” which generally include a
27 DVD, a Blu-ray disc, and a digital copy of the movie. The digital movie can then be
28 redeemed through a Disney-controlled website (one of which is Movies Anywhere)
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1 using a digital code included in the pack. Also like any other consumer, Redbox
2 obtains the right to do what it wishes with each of the Combo Pack’s components
3 once it buys the pack—including keeping them, reselling them, or giving them away
4 to friends or family members as gifts.
5 6. Redbox rents the DVDs and Blu-ray discs it buys in Combo Packs.
6 Redbox also recently started reselling the digital movies, often for about half or less
7 of what the same digital movies would cost from other retailers.
8 7. But Disney has taken a number of specific—and unlawful—steps to
9 stop Redbox from lawfully selling what Redbox lawfully purchased. First, on
10 information and belief, Disney is effectively orchestrating a campaign to prevent
11 Redbox from purchasing enough Disney titles to meet its consumer demand. For
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12 example, on information and belief, Disney’s own distribution company, Defendant

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13 BVHE, has placed provisions into its contracts with retailers prohibiting them from
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14 selling copies of Disney movies to Redbox. On information and belief, BVHE has
15 also taken the extraordinary step of reducing the number of movie copies it allocates
16 to distributors believed to sell to Redbox to prevent them from fulfilling Redbox’s
17 orders.
18 8. In addition, BVHE and Movies Anywhere have falsely stated or
19 implied on their products, packaging, and websites, as well as to the press, that
20 Redbox’s rental and sale of Disney titles is unlawful. Specifically, BVHE and
21 Movies Anywhere falsely state that a purchaser may not rent or resell the individual
22 components of the Combo Pack—including the discs—and that Redbox’s sales of
23 the digital movies are unauthorized and violate Disney’s contracts and copyrights.
24 On information and belief, for at least the past five years, every Combo Pack
25 distributed by BVHE, including for Beauty and The Beast, Cars 3, and Frozen,
26 contains the following language on the back of the jewel case: “This product is
27 authorized for private use only. It is prohibited for any other use and cannot be
28 resold or rented individually. All other rights reserved. Unless expressly authorized
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1 in writing by the copyright owner, any copying, exhibition, export, distribution or

2 other use of this product or any part of it is prohibited.”
3 9. Disney knows that these representations are false. While the copyright
4 laws protect the rights of copyright owners in their creative works, the “first sale”
5 doctrine limits those rights by protecting the public’s ability to resell or otherwise
6 dispose of copies of those works once the copyright owner has put the copies into
7 the stream of commerce. Disney’s attempt to control the disposition of the Combo
8 Pack components, even after Disney sells the DVD, Blu-ray disc, and digital movie
9 to a Disney-authorized distributor or a retailer, is an illegal abuse of its copyrights
10 and dominant position in the industry.
11 10. These collective actions have harmed Redbox by reducing its sales,
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12 harming its reputation and goodwill, raising its acquisition costs, and causing its
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13 investment in offering Disney digital movies to be lost. Even worse, they are
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14 harming consumers by making them choose between a higher-priced digital movie

15 from a service like iTunes or Vudu or no digital movie at all.
16 11. Redbox therefore brings this action to stop Defendants’ unlawful
17 conduct, seeking a declaration that Defendants cannot enforce their attempts to
18 restrict rental and resale of their products, an injunction, compensation for Redbox’s
19 damages, recoupment of Defendants’ wrongfully-gained profits, punitive damages,
20 and Redbox’s fees and costs incurred in bringing this action.
21 THE PARTIES
22 12. Plaintiff Redbox Automated Retail, LLC is a limited liability company
23 formed under the laws of the State of Delaware with its principal place of business
24 at One Tower Lane, Suite 900, Oakbrook Terrace, Illinois 60181.
25 13. Defendant Buena Vista Home Entertainment, Inc. is a corporation
26 incorporated under the laws of the State of California with its principal place of
27 business in Burbank, California. BVHE is a subsidiary of The Walt Disney
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1 Company responsible for distributing content produced by The Walt Disney

2 Company or its subsidiaries, primarily through third-party distributors and retailers.
3 14. Defendant Disney Enterprises, Inc. is a corporation duly incorporated
4 under the laws of the State of Delaware with its principal place of business in
5 Burbank, California. Disney Enterprises claims to hold the copyright in a number of
6 the titles that are distributed in Combo Packs.
7 15. Defendant Lucasfilm Ltd. LLC is a limited liability company formed
8 under the laws of the State of California with its principal place of business in San
9 Francisco, California. Lucasfilm claims to hold the copyright in a number of the
10 titles that are distributed in Combo Packs.
11 16. Defendant MVL Film Finance LLC is a limited liability company
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13 in Burbank, California. Marvel claims to hold the copyright in a number of the titles
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14 that are distributed in Combo Packs.

15 17. Defendant Movies Anywhere LLC is a limited liability company
17 in Burbank, California. Movies Anywhere operates a “digital locker” service from
18 which consumers can download movies from participating studios purchased from
19 participating digital retailers. The Movies Anywhere service is built upon the same
20 digital rights system architecture, dubbed “Keychest,” that Disney developed for its
21 original “Disney Movies Anywhere” service. Movies Anywhere is staffed by
22 Disney employees who operate out of Disney’s Burbank, California facilities. In its
23 recruitment of employees to work for the Movies Anywhere service, Disney
24 indicates that Movies Anywhere is a “legal entity of the Walt Disney Studios.”
25 18. Collectively, Defendants are each part of the Walt Disney Company
26 conglomerate, which had over $55 billion in revenue in 2017 and includes such
27 properties as the American Broadcasting Company (ABC), ESPN, Pixar, Lucasfilm
28 and Marvel.
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1 JURISDICTION AND VENUE

2 19. The Court has subject matter jurisdiction over Redbox’s federal claims
3 under 28 U.S.C. § 1331 and 15 U.S.C. § 1121.
4 20. The Court has supplemental jurisdiction over Redbox’s state-law
5 claims under 28 U.S.C. § 1367.
6 21. Venue is proper in this district under 28 U.S.C. § 1391(b)(1) and (2).
7 FACTUAL ALLEGATIONS
8 A. Redbox’s Consumer-Friendly Innovations
9 22. Redbox began in 2002 when McDonald’s tested low-cost rentals from
10 self-service DVD kiosks in its Washington, D.C.-area stores. The idea was to make
11 “dinner and a movie” affordable for middle- and working-class families.
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12 23. Redbox’s operating premise is simple: make movies available through

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13 their efficient kiosks, and pass those savings on directly to the consumer. It is able
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14 to pass those savings on by eliminating overhead and simplifying the rental process.
15 Instead of buying or building, and maintaining and staffing, brick-and-mortar stores
16 like Blockbuster Video of yesteryear, Redbox sells the movies it has purchased
17 through small, fully automated self-service kiosks. In addition to eliminating
18 overhead, this allows Redbox to nimbly relocate to match demand rather than be
19 tied to real estate.
20 24. Each kiosk holds more than 600 jewel cases often representing up to
21 200 different movie titles. A consumer can browse available titles using a video
22 screen in the kiosk, select the desired movie, pay with a credit card at the kiosk, and
23 then receive the jewel case right then and there. Or a consumer can browse for titles
24 online, reserve a movie, and then pick it up at the kiosk. Redbox also sells used
25 discs, again at discounted prices.
26 25. Consumers have proven their love for Redbox. Within two years of its
27 2002 test run, Redbox was renting over 1 million DVDs a month across 800
28 locations. It rented its 1 billionth disc in 2010. Currently, Redbox rents about 1
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1 million discs a day from over 41,000 kiosks nationwide, in locations ranging from
2 big-box stores to grocery stores and fast-food restaurants to dollar stores.
3 B. Redbox’s Mutually Beneficial Partnerships with Major Studios
4 26. A few movie studios immediately embraced Redbox and quickly
5 signed distribution deals, realizing that Redbox provides value to movie studios in a
6 number of ways. Most obviously, Redbox purchases millions of discs, representing
7 substantial direct revenue for those studios. But Redbox does not redirect
8 consumers away from higher-priced retailers and rental outlets—it brings new
9 consumers into the fold. Most consumers who rent or buy Redbox’s discs simply
10 could not afford to regularly pay the high retail prices typically required to buy a
11 new disc or digital movie from another vendor. This is a different group of
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12 consumers than those willing to pay a premium for features that come with, for
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13 example, a subscription service, and who would not want to travel to a kiosk in
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14 order to rent. Redbox’s sales and rentals therefore represent additional customers,
15 and additional dollars, for the movie studios.
16 27. While some of the other major studios did not see that value at first,
17 Redbox ultimately was able to come to agreements with all of them except Disney.
18 Since then, Redbox and the major studios have maintained mutually beneficial
19 partnerships that increase exposure and sales for the studios, a symbiotic
20 relationship that provides more consumers with premium entertainment at a price
21 they can afford.
22 C. Defendants Try to Stop Redbox from Renting
or Selling Disney Products at an Affordable Price
23
24 28. Disney has been the exception to that story. Its distribution subsidiary,
25 Defendant BVHE, has never accepted Redbox’s value proposition. Instead, it views
26 Redbox’s low prices as a threat to its own ability to maintain higher prices. BVHE
27 has in fact admitted to Redbox in the course of ultimately unsuccessful business
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1 negotiations that it believed that Redbox’s rental prices were depressing the prices
2 of video-on-demand purchases of Disney titles.
3 29. Redbox has therefore been unable to obtain a distribution agreement
4 with BVHE, despite its efforts to do so. In 2012-13, Redbox attempted to negotiate
5 a vendor agreement with BVHE. BVHE was not willing to do so unless Redbox
6 agreed that it would not rent or sell new releases until at least 28 days after the
7 initial release date. But agreeing to such a term would have substantially impaired
8 Redbox’s ability to offer new releases of products distributed by BVHE when
9 people want those products the most. BVHE’s proposal thus would have seriously
10 and negatively impaired Redbox’s ability to rent and sell those titles.
11 30. Instead, to ensure that its customers nevertheless continue to have
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12 access to popular Disney titles when they want them, Redbox lawfully purchases
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13 Disney movies from third parties. Redbox buys movies at full price when they are
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14 released for sale to the public and quickly merchandises them for delivery through
15 the Redbox kiosks. Sometimes, and despite Disney’s interference, Redbox has been
16 able to buy Disney titles from distributors. But for the most part, Redbox purchases
17 Disney titles at retail, just like any other consumer. Redbox employees go into a
18 big-box store, grocery store or other establishment, pick copies up off the shelves a
19 few at a time, and check them out at the counter at retail prices.
20 31. The most cost-effective way to purchase a Disney title is by purchasing
21 a “Combo Pack.” Combo Packs generally consist of a DVD, a Blu-ray disc, and a
22 digital movie that can be accessed with a digital code contained in the Combo Pack.
23 For years, and with BVHE’s full knowledge, Redbox has lawfully bought Combo
24 Packs and then rented and sold the DVDs and Blu-ray discs separately.
25 32. In the summer of 2017, Redbox began providing digital movies that it
26 had purchased to its customers for free as a bonus with rentals of certain movies, in
27 a campaign called “Surprise and Delight.” Redbox expanded that initiative at its
28 kiosks in October 2017 when it began selling digital movies from the Combo Packs
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1 separately. Each digital movie code can be redeemed only a single time through
2 either RedeemDigitalMovie.com, a website purportedly controlled by BVHE, or
3 through the website of Defendant Movies Anywhere, a consortium owned and
4 operated by The Walt Disney Company. Redbox often sells these digital movies for
5 under $10, or about half the price of a digital movie bought from a digital retailer.
6 33. Over the course of the past couple of years, however, BVHE has
7 intensified its efforts to stop Redbox from selling Disney titles. First, Redbox is
8 informed and believes that BVHE has pressured both distributors and retailers not to
9 sell Disney titles to Redbox. Redbox at one time procured approximately 50% of its
10 Disney titles through a third-party distributor. In 2016, however, Redbox is
11 informed and believes that BVHE coerced that distributor into disclosing its
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12 customers, including Redbox. On information and belief, BVHE subsequently

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13 reduced that distributor’s allocation of Disney titles, and Redbox is now unable to
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14 procure Disney titles through that distributor. Redbox has similarly been unable to
15 procure Disney titles from other distributors since that time as well.
16 34. Disney’s actions raise Redbox’s costs by preventing it from obtaining
17 volume discounts and by requiring it to assign staff to manually purchase product
18 from retail outlets. Procuring from distributors rather than retailers would also
19 allow Redbox to receive product on or before the release date, enabling Redbox to
20 stock the movies sooner and thus obtain additional rentals. Most importantly,
21 Disney’s actions prevent Redbox from obtaining enough copies to meet consumer
22 demand.
23 35. But BVHE did not stop there. In October of 2017, a local retailer told
24 Redbox, “It is actually in our contract agreement with Disney that we do NOT sell
25 to Redbox vendors . . . .”
26 36. Second, on information and belief, BVHE, in conjunction with
27 Defendants Disney, Marvel and Lucasfilm, falsely states on certain of the packaging
28 for Combo Packs, as well on the digital movie codes, that the individual components
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1 of the Combo Packs may not be rented, resold or transferred separately. On

2 information and belief, BVHE falsely states on the RedeemDigitalMovie.com
3 website that consumers, including Redbox, may not resell as they wish the digital
4 movie codes, and thus the digital movies, they have bought and paid for. And
5 Movies Anywhere’s terms and conditions for the Movies Anywhere website falsely
6 state that (1) it or its affiliates or other studios own the digital movie codes and (2)
7 the digital movie codes may not be sold or transferred. On information and belief,
8 BVHE and Movies Anywhere make these false statements to prevent retailers like
9 Redbox from buying or selling Disney titles and to intimidate consumers who
10 lawfully attempt to redeem the digital movies purchased from Redbox.
11 37. Defendants know or should know that their statements are false.
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12 Defendants know that Redbox buys the Combo Packs outright, paying Disney and
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13 its retailers and distributors their full due. Redbox therefore owns the DVDs, Blu-
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14 ray discs and digital movies that are included in the Combo Packs. As the lawful
15 owner, Redbox may dispose of each component of the Combo Packs as it pleases,
16 just like any other consumer.
17 38. That is the very essence of the “first sale doctrine,” despite Disney’s
18 false statements to the contrary. The first sale doctrine is a legal principle that
19 allows the owner of a copy of a copyrighted work to resell or otherwise dispose of
20 the copy. The first sale doctrine applies not only to the resale of discs from Combo
21 Packs, but applies with equal force to the digital movies sold with the Combo Packs.
22 Thus, Redbox is fully entitled to resell the digital movies as well as the discs. By
23 claiming otherwise, Disney is attempting to expand Defendants’ right to control
24 distribution of Disney titles beyond that granted by the Copyright Act.
25 39. Defendants BVHE, Disney, Lucasfilm and Marvel nevertheless filed a
26 lawsuit against Redbox on November 30, 2017. Defendants sought to enforce their
27 purported prohibitions on transferring the individual components of the Combo
28 Packs as a binding contract formed between BVHE and every purchaser of a Combo
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1 Pack. Defendants also argue that consumers who use the digital codes without
2 owning the other components of the Combo Pack violate the Copyright Act. Disney
3 followed this action with further false statements in the press that Redbox’s sales are
4 unlawful and unauthorized.
5 40. Those Defendants filed their lawsuit against Redbox simply because
6 they do not want Redbox to sell Disney titles at a low price. In a declaration
7 submitted in that action by BVHE’s president, BVHE contends that a “consequence
8 of Redbox’s undercutting of [Disney’s] licensee prices is that [the more expensive]
9 licensees will likely sell fewer digital downloads of Disney movies and Disney will
10 earn less revenue.” BVHE also complains that if Redbox offers low prices,
11 consumers may come to expect low prices, which Disney apparently seeks to avoid:
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12 If consumers come to expect that they can buy

unauthorized digital downloads for below market prices,
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13 this could have a permanent and irreparable negative

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14 impact on consumers’ expectations and relationships

with both Disney and its authorized licensees.
15 Consumers will come to believe that below market
pricing for a digital copy of a movie from an
16 unauthorized service is legitimate, adversely affecting
consumers’ perception of authorized services.
17
18 41. Remarkably, BVHE even complains, “The low price may lead
19 consumers to believe that Disney’s online content is somehow inferior to that of
20 other studios.”
21 42. Disney’s push for higher prices is part and parcel of its push to move
22 away from distributing its content through third parties and towards providing
23 content “direct-to-consumer.” Disney is seeking to expand its role in the
24 distribution market itself as a competitor to retailers like Redbox and Netflix, and to
25 eventually remove third-party retailers from the distribution chain altogether.
26 Disney wants consumers to be inured to higher prices so that they will not object to
27 them once Disney expands in that market.
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1 43. Disney is moving direct-to-consumer in part through its acquisition of

2 Fox, which will give Disney a majority stake in the streaming movie service Hulu.
3 Disney also plans to launch a separate streaming service in 2019.
4 44. That is why Disney terminated its distribution deal with Netflix in
5 August 2017. Disney’s President Bob Iger has stated that he is also considering
6 ending licensing deals with Netflix, as well as with other distributors:
7 [Fox has] a relationship with Netflix as well. But again,
we will be looking at more direct to consumer
8 opportunities for our company and if that requires us to
9 wean the businesses and relationships with other
distributors, then that’s what we will do, just as we did
10 with Netflix.
11 Natalie Jarvey, Georg Szalai, “How Disney Will Benefit From Becoming Hulu’s
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12 Majority Owner Via Its Fox Deal,” Hollywood Reporter (Dec. 14, 2017),
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13 https://www.hollywoodreporter.com/news/how-disney-will-benefit-becoming-
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14 hulus-majority-owner-fox-deal-1067567.
15 45. And while Disney ramps up its move further into the post-theatrical
16 distribution space, it will have even greater ability to pressure distributors and
17 eliminate low-cost options in that industry in the meantime. The combined entity
18 will approach a market share of 40% at the box office, dwarfing that of the other
19 major studios. As one industry publication has noted:
20 The joint forces between Disney and 20th Century Fox,
Fox 2000 and Fox Searchlight are the closest we’ve
21 seen to a monopoly in Hollywood, and puts the studio
22 in a position to expand its shelf space across all
entertainment ancillaries, not just at the box office but
23 also at Walmart and other retailers selling DVDs and
24 merchandise, in international TV deals (as existing
Disney and Fox deals expire), and premium pricing
25 across all distribution channels. It will be daunting for
rivals to compete.
26
27 Anthony D’Alessandro, “How the Overwhelming Disney-Fox Movie Lineup Will
28 Impact Rivals And Exhibitors,” deadline.com (Dec. 14, 2017)
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1 http://deadline.com/2017/12/disney-fox-merger-exhibitors-movie-theaters-
2 combined-release-schedule-marvel-star-wars-pixar-1202221594/.
3 D. Defendants’ Actions Are Harming Redbox and Its Customers
4 46. Defendants’ actions are harming Redbox’s lawful sales of Disney
5 digital movies. And the impact of that harm is not limited to the reduced revenue
6 from those lost sales. Redbox’s entry into the digital market is being harmed as
7 well. Because Disney is impeding Redbox’s ability to sell Redbox’s lawfully
8 acquired Disney digital movies, consumers are being dissuaded from looking to
9 Redbox as a source of titles that are in high demand. Compared to DVDs and Blu-
10 ray discs, digital downloads are a relatively new technology. However, the
11 popularity of digital downloads is growing, and Redbox’s inability to offer Disney
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12 digital movies during this phase of growth, particularly when Disney is launching its
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13 own streaming service, will permanently harm Redbox’s ability to participate in the
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14 digital download market.

15 47. Redbox has also been unable to recoup its investment in Disney digital
16 movie sales. Substantial time and effort has been spent over the last year preparing
17 the computer systems, product databases, kiosks, and staff necessary for Redbox to
18 be able to merchandise, advertise, and fulfill sales of Disney digital movies.
19 Approximately $700,000 has been spent in this effort.
20 48. On information and belief, Disney’s accusations in a number of public
21 forums that Redbox has engaged in unlawful conduct, and Redbox’s inability to
22 meet its customers’ demand for Disney titles, is also irreparably harming Redbox’s
23 reputation and goodwill with its customers.
24 * * *
25 49. In short, Disney baldly seeks to stifle competition and eliminate low-
26 cost options in order to maximize the prices it and its retailers charge consumers.
27 Stopping Redbox’s sale of Disney products is a means to that end, which is an
28 unhappy one for consumers.
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1 CAUSES OF ACTION
2 First Cause of Action: for Declaratory Judgment
(Against all Defendants)
3
4 50. Redbox incorporates by reference the allegations in paragraphs 1-49
5 above as if set forth fully herein.

6 51. Redbox brings this claim for declaratory judgment under Federal Rule
7 of Civil Procedure 57 and 28 U.S.C. §§ 2201 and 2202.

8 52. Throughout its history, Redbox has purchased, rented, and resold
9 movies, including tens of millions of Disney movies.

10 53. Among its purchases have been millions of Combo Packs for Disney
11 titles. Redbox is informed and believes that tens of millions of Combo Packs
12 containing Disney movies have been sold to other consumers.
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13 54. The Combo Packs contain language on their packaging that is largely
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14 illegible, irrelevant to the terms of Redbox’s and other consumers’ purchases from
15 retailers, and unenforceable, including the following:
16 a. “This product is authorized for private use only. It is prohibited for any
17 other use and cannot be resold or rented individually. All other rights
18 reserved. Unless expressly authorized in writing by the copyright
19 owner, any copying, exhibition, export, distribution or other use of this
20 product or any part of it is prohibited.”
21 b. “Codes are not for sale or transfer.”
22 55. Websites purportedly operated by Defendants BVHE and Movies
23 Anywhere contain similarly unenforceable language, including the following:

24 a. “All digital movie codes are owned by Buena Vista Home
25 Entertainment, Inc. and you may use such digital movie codes only as
26 specifically authorized under these terms and conditions. The sale,
27 distribution, purchase or transfer of digital movie codes outside of the
28 methods set forth in these terms and conditions is unauthorized.”
-14- COMPLAINT
88701113.2
1 b. “You will not transfer, sell, or rent (or offer to transfer, sell, or rent)
2 any Digital Copy codes. All Digital Copy codes are owned by Movies
3 Anywhere, its affiliates, Participating Studios and/or other licensors
4 and you may only use Digital Copy codes as specifically authorized
5 under these Movies Anywhere Term of Use and the terms and
6 conditions of the applicable issuer of each Digital Copy code that you
7 use. The sale, distribution, purchase or transfer of Digital Copy codes
8 outside the methods set forth in such terms and conditions is strictly
9 prohibited.”
10 56. Notwithstanding the well-settled unenforceability of these terms,
11 Disney does not disclose the unenforceability of these terms, nor does it disclose the
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12 existence, much less the unenforceability, of these terms to consumers in its own
ATTORNEYS AT LAW
13 online store.
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14 57. Additionally, Redbox is informed and believes that Disney does not
15 have agreements with its distributors and retailers that require them to disclose to
16 Redbox and other consumers the terms that Defendants contend apply to the
17 purchase of the Combo Packs or to obtain assent to those terms from them.
18 58. Defendants have nevertheless sought to enforce the above terms as
19 binding contracts.
20 59. Based upon the foregoing, a present and actual controversy exists
21 between Redbox and Disney concerning the enforceability of those terms, the
22 propriety of the terms’ presence on the packaging of the Combo Packs, and Disney’s
23 failure to adequately disclose and obtain assent to those terms from Redbox and
24 consumers.
25 60. Accordingly, Redbox seeks a declaration and order that:
26 a. The sum and substance of the terms listed above in paragraphs 54-55
27 are unenforceable and shall not appear on the packaging of any Combo
28 Packs that Defendants or anyone acting on their behalf manufacture,
-15- COMPLAINT
88701113.2
1 distribute, or sell in the future;

2 b. Defendants shall take reasonable steps to provide corrective advertising
3 to each of the distributors and retailers with physical inventory of
4 Disney products, which shall be used to cover over or otherwise correct
5 and eliminate the unenforceable terms from the packaging.
6 Second Cause of Action: Copyright Misuse
7 (Against Disney Enterprises, Lucasfilm and Marvel)
10 62. Disney Enterprises, Lucasfilm and Marvel claim to hold copyrights in
11 the movies that are distributed through sales of Disney Combo Packs.
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12 63. Disney Enterprises, Lucasfilm and Marvel have used and continue to
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13 misuse those copyrights to illegally expand the monopoly that the Copyright Act
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14 grants in their copyrighted works and to violate the public policies underlying the
15 copyright laws.
16 64. The Copyright Act provides that owners of a copy of a copyrighted
17 work are entitled to rent, resell or otherwise dispose of that copy.
18 65. By attempting to prohibit purchasers of DVDs, Blu-ray discs and
19 digital movies in Combo Packs from renting, reselling or otherwise disposing of
20 those copies as they desire, Disney Enterprises, Lucasfilm and Marvel, through their
21 distribution agents BVHE and Movies Anywhere, violate the Copyright Act’s first
22 sale doctrine.
23 66. Defendants’ purported restrictions, if enforced, also would illegally
24 expand Defendants’ control over each of the DVDs, Blu-ray discs and digital
25 movies, as none, according to Defendants, could be transferred (whether by sale,
26 purchase, gift, or otherwise) without transferring both of the others.
27 67. On information and belief, BVHE passes title to the Combo Packs to its
28 distributors and retailers. BVHE’s coercion and threats to prevent them from selling
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88701113.2
1 Combo Packs to Redbox is therefore also beyond the scope of Defendants’

2 copyrights and are acts of copyright misuse.
3 68. Redbox therefore seeks a declaration that Defendants may not enforce
4 their copyrights until their misuse ends.
5 Third Cause of Action: Tortious Interference with Prospective Economic Advantage
6 (Against BVHE)
9 70. For years, Redbox has continuously purchased Disney titles from
10 numerous retailers and third-party distributors. Other distributors and retailers sell
11 Disney titles on the open market and, on information and belief, would sell to
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12 Redbox as well if not for BVHE’s threats and other intentional misconduct. A
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13 stable source of fairly-priced supply is critical to Redbox’s business.

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14 71. On information and belief, BVHE is aware of Redbox’s business

15 relationships with its retailers and its distributors.
16 72. BVHE has intentionally and wrongfully disrupted Redbox’s
17 relationships with Redbox’s supply vendors, including by conditioning the sale of
18 goods on forbearance from exercising rights provided by the Copyright Act, by
19 effectively orchestrating a boycott by its distributors against Redbox, and by
20 inserting provisions into merchandising and other materials included in the sale of
21 Combo Packs that are illegal and unenforceable.
22 73. On information and belief, BVHE has threatened at least one retailer to
23 prevent it from selling to Redbox. BVHE has also, on information and belief,
24 reduced the supply of Disney movies to distributors who sell to Redbox in order to
25 prevent Redbox from obtaining copies. Further, on information and belief, BVHE
26 has included language in its contracts with retailers unlawfully forbidding them
27 from selling Disney titles to Redbox.
28
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88701113.2
1 74. BVHE has also falsely stated that Redbox’s rental and sale of products
2 included in Disney Combo packs, and in particular the digital movie codes, are
3 unauthorized and illegal, further damaging Redbox’s relationships with its supply
4 vendors.
5 75. As a result of BVHE’s misconduct, Redbox has been unable to procure
6 Disney titles from distributors and from at least one retailer.
7 76. But for BVHE’s intentional misconduct, Redbox’s relationships would
8 continue to benefit Redbox economically in the future, as the distributor and
9 retailers were previously willing to meet Redbox’s need for titles.
10 77. BVHE’s intentional misconduct is wrongful independent of the
11 interference with Redbox’s business relationships. BVHE’s threats and other
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12 misconduct towards Redbox’s suppliers involve intimidation and coercion, as well

ATTORNEYS AT LAW
13 as abuse of its dominant industry position. They also involve violation of the
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14 Copyright Act and copyright misuse, as well as false advertising and unfair
15 competition. All of these actions were taken by Defendants in order to wrongfully
16 eliminate competition and prop up prices for their own products.
17 78. BVHE’s intentional misconduct has damaged Redbox by stopping
18 Redbox from obtaining supply sufficient to meet its consumer demand, raising its
19 procurement costs, and by harming its reputation and goodwill. Redbox is also
20 threatened with continuing substantial and irreparable injury for which there is no
21 adequate remedy at law entitling Redbox to injunctive relief.
22 79. On information and belief, BVHE’s actions were done with malice,
23 oppression, and fraud and in wanton disregard for Redbox’s rights. Redbox is
24 therefore entitled to punitive damages under California Civil Code § 3294 to punish
25 BVHE and to deter it from engaging in similar conduct in the future.
26
27
28
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88701113.2
1 Fourth Cause of Action: False Advertising Under the Lanham Act

(Against BVHE and Movies Anywhere)
2
3 80 Redbox incorporates by reference the allegations in paragraphs 1-79
5 81. BVHE and Movies Anywhere distribute Disney movie content,
6 including Combo Packs and digital movies, throughout the United States, and thus
7 the packaging and other commercial promotion are distributed within interstate
8 commerce.
9 82. BVHE falsely states that the components of Disney Combo Packs may
10 not be rented, resold or otherwise transferred separately.
11 83. BVHE falsely states on the RedeemDigitalMovie.com website that it
12 owns the digital movie codes for the movies it sells and that purchasers of the digital
ROBINS KAPLAN LLP
ATTORNEYS AT LAW
13 movie codes are not free to resell those codes. Movies Anywhere falsely states (1)
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14 that it or its affiliates or other studios own the digital movie codes for the digital
15 movies Disney sells and (2) that the codes, and thus the movies, may not be sold or
16 transferred.
17 84. On information and belief, BVHE and Movies Anywhere make these
18 false statements on the packaging for or otherwise in connection with advertising
19 and commercial promotion for Disney Combo Packs and digital movies to attempt
20 to divert sales away from Redbox and towards higher-priced distributors and
21 retailers selected by Disney.
22 85. BVHE has also falsely stated in the press that Redbox’s sales of digital
23 movie codes are unauthorized and unlawful.
24 86. On information and belief, BVHE made that statement to attempt to
25 increase its sales of and the price for Combo Packs and digital movies.
26 87. On information and belief, BVHE’s and Movies Anywhere’s false
27 statements have a tendency to deceive a substantial segment of consumers of Disney
28 movie products. This deception has a material impact on consumers. Consumers
-19- COMPLAINT
88701113.2
1 are likely to be deceived into believing that Redbox does not have title to the
2 components of Combo Packs it has purchased and therefore that consumers may not
3 lawfully purchase those components from Redbox. That is false.
4 88. On information and belief, BVHE’s and Movies Anywhere’s
5 intentional misconduct has damaged Redbox by reducing its sales, harming its
6 reputation and goodwill, causing its investment in offering digital movie codes to be
7 lost, and inhibiting Redbox’s ability to recoup the costs of acquiring Disney movies.
8 Redbox is also threatened with continuing substantial and irreparable injury for
9 which there is no adequate remedy at law, entitling Redbox to injunctive relief.
10 Fifth Cause of Action: False Advertising Under California False Advertising Law
11 (Against BVHE and Movies Anywhere)
ROBINS KAPLAN LLP

ATTORNEYS AT LAW

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14 90. California Business and Professions Code § 17500 et seq. prohibits

15 false advertising.
16 91. BVHE and Movies Anywhere have falsely stated that the components
17 of Disney Combo Packs may not be sold or transferred separately.
18 92. BVHE falsely states on the RedeemDigitalMovie.com website that it
19 owns the digital movie codes for the movies it sells and that purchasers of the digital
20 movie codes are not free to resell those codes. Movies Anywhere falsely states (1)
21 that it or its affiliates or other studios own the digital movie codes for the digital
22 movies it sells and (2) that the codes, and thus the movies, may not be sold or
23 transferred.
24 93. BVHE and Movies Anywhere make these false statements on the
25 packaging for and otherwise in connection with the disposition of Disney Combo
26 Packs and digital movies. On information and belief, their purpose in making these
27 statements is to cause consumers to stop renting and purchasing from Redbox, to
28 illegally interfere with purchasers’ rights to rent or resell the digital movies, and to
-20- COMPLAINT
88701113.2
1 induce consumers to use higher-priced alternatives selected by BVHE and Movies

2 Anywhere instead.
3 94. BVHE has also falsely stated in the press that Redbox’s sales of digital
4 movie codes are unauthorized and unlawful.
5 95. BVHE and Movies Anywhere know or should know that Redbox and
6 other consumers have full title to each component of every Combo Pack it buys and
7 may therefore rent, resell or otherwise dispose of those components as it sees fit.
8 96. On information and belief, BVHE’s and Movies Anywhere’s
9 intentional misconduct has damaged Redbox by reducing its sales, harming its
10 reputation and goodwill, causing its investment in offering digital movies to be lost,
11 and impeding Redbox’s ability to recoup the cost of acquiring Disney movies.
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12 97. Redbox is entitled to injunctive relief and restitution under California

ATTORNEYS AT LAW
13 Business and Professions Code § 17535.

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14 Sixth Cause of Action: Unfair Competition (Against All Defendants)

17 99. California Business and Professions Code § 17200 et seq. (the Unfair
18 Competition Law) prohibits unfair competition; that is, unlawful, unfair or
19 fraudulent business acts or practices.
20 100. As described above, Defendants engage in unfair competition by
21 coercing distributors and retailers not to do business with Redbox and by falsely
22 stating that Redbox may not individually rent or sell DVDs, Blu-ray discs or digital
23 movie codes that it buys in Combo Packs.
24 101. Defendants’ misconduct is unlawful because it violates the Lanham
25 Act, California’s False Advertising Law, the Copyright Act and constitutes tortious
26 interference with prospective economic advantage.
27 102. Defendants’ misconduct is unfair because it is contrary to legislatively
28 declared policies, including those expressed in the Copyright Act, Lanham Act and
-21- COMPLAINT
88701113.2
1 California’s False Advertising Law. In addition, it constitutes copyright misuse and

2 tortious interference with prospective economic advantage.
3 103. Furthermore, the harm to Redbox from Defendants’ misconduct
4 outweighs the utility of that misconduct. As alleged above, Defendants’ misconduct
5 has damaged Redbox by reducing its sales, harming its reputation and goodwill,
6 causing its investment in offering digital movie codes to be lost, and impeding
7 Redbox’s ability to recoup the cost of acquiring Disney movies. Consumers would
8 also be hurt by the elimination of Redbox’s low-price offerings.
9 104. Defendants’ misconduct has very little utility, however. First, Redbox
10 serves a customer base that would not otherwise be able to purchase Disney content,
11 and Redbox pays full price for the Disney products that it rents and sells to those
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12 customers. Redbox’s purchases from retailers help them sell all the Disney
ATTORNEYS AT LAW
13 inventory they purchase. If Redbox did not purchase the Disney Combo Packs,
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14 Disney’s sales to those retailers would undoubtedly be substantially lower. In each

15 of the transactions where Redbox bought Disney Combo Packs, it paid what the
16 retailers charged for those goods, and thereby fulfilled the revenue expectations the
17 retailer and Disney necessarily had from those sales.
18 105. Redbox’s business also provides additional business to Defendants
19 because Redbox’s low prices reduce incentives to pirate and redistribute content for
20 free.
21 106. Further, when Redbox customers download movies using codes for
22 digital copies of movies through one of Disney’s download sites, Disney acquires
23 valuable Redbox customer information that it would not receive if those customers
24 had not purchased a digital copy of a movie for download.
25 107. Defendants’ misconduct is fraudulent because it is likely to mislead
26 customers into wrongly believing that Redbox’s sales of digital codes are unlawful.
27 108. Redbox is entitled to injunctive relief and restitution under California
28 Business and Professions Code § 17203.
-22- COMPLAINT
88701113.2
1 PRAYER FOR RELIEF

2 WHEREFORE, Redbox prays for judgment against Defendants for the
3 following relief:
4 1. For an order enjoining Defendants and any person acting on their
5 behalf or in concert with them from falsely stating that they own digital movies
6 and/or codes purchased by Redbox or that a purchaser of Combo Packs may not
7 separately sell the individual components, including digital movies; from attempting
8 to prohibit distributors or retailers from selling Combo Packs or other Disney titles
9 to Redbox or otherwise interfering with Redbox’s business relationships with its
10 supply vendors and customers; and from unlawfully, unfairly or fraudulently
11 competing by falsely stating that Redbox may not resell the components of Combo
12 Packs or by interfering with Redbox’s relationships with its supply vendors and
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ATTORNEYS AT LAW
13 customers.
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14 2. For a declaration (i) that Defendants may not enforce any copyright in a
15 motion picture while illegally purporting to prohibit resale or rental of copies of
16 those works or by interfering with supply vendors’ ability to sell copies of those
17 works to Redbox and/or other resell or rental outlets; and (ii) that the misleading
18 statements from Defendants’ packaging and websites outlined above are
19 unenforceable and shall not be included on Defendants’ packaging.
20 3. For Redbox’s damages and Defendants’ profits in such amount as the
21 Court or a jury may find; such additional recovery as the Court shall find to be
22 necessary, up to three times the amount of Redbox’s actual damages; corrective
23 advertising; and such additional award as the Court finds to be just pursuant to 15
24 U.S.C. § 1117.
25 4. For Redbox’s damages and restitution to the fullest extent allowed
26 pursuant to the common law and Cal. Bus. & Prof. Code § 17203.
27 5. For an award of punitive damages pursuant to Cal. Civ. Code § 3294.
28 6. For prejudgment interest pursuant to Cal. Civ. Code § 3287.
-23- COMPLAINT
88701113.2
1 7. For Redbox’s attorneys’ fees and costs incurred in this action under 15
2 U.S.C. § 1117 and any other applicable law.
3 8. For all such further relief to which Redbox may be entitled or which the
4 Court deems just and proper.
5 DEMAND FOR JURY TRIAL
6 Redbox demands a trial by jury on all issues triable by a jury.
7
8 DATED: January 26, 2018 ROBINS KAPLAN LLP
9
10 BY: /s/ Roman M. Silberfeld
Roman M. Silberfeld
11
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12 Attorneys for Plaintiff

Redbox Automated Retail, LLC
ATTORNEYS AT LAW
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-24- COMPLAINT
88701113.2

Redbox Countersuit

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Case 2:18-cv-00677 Document 1 Filed 01/26/18 Page 1 of 25 Page ID #:1

1 ROBINS KAPLAN LLP

Telephone: (202) 912–4700

13 Facsimile: (202) 912–4701

14 Attorneys for Plaintiff

1 Plaintiff Redbox Automated Retail, LLC (“Redbox”) brings this Complaint

12 when it first sells that content to a distributor or retailer.

13 4. Why would Disney do this? In part, it is because Disney believes it can

12 example, on information and belief, Disney’s own distribution company, Defendant

1 in writing by the copyright owner, any copying, exhibition, export, distribution or

14 harming consumers by making them choose between a higher-priced digital movie

1 Company responsible for distributing content produced by The Walt Disney

14 that are distributed in Combo Packs.

1 JURISDICTION AND VENUE

12 23. Redbox’s operating premise is simple: make movies available through

12 customers, including Redbox. On information and belief, BVHE subsequently

1 of the Combo Packs may not be rented, resold or transferred separately. On

12 If consumers come to expect that they can buy

13 this could have a permanent and irreparable negative

14 impact on consumers’ expectations and relationships

1 43. Disney is moving direct-to-consumer in part through its acquisition of

14 digital download market.

5 above as if set forth fully herein.

7 of Civil Procedure 57 and 28 U.S.C. §§ 2201 and 2202.

9 movies, including tens of millions of Disney movies.

18 reserved. Unless expressly authorized in writing by the copyright

19 owner, any copying, exhibition, export, distribution or other use of this

20 product or any part of it is prohibited.”

21 b. “Codes are not for sale or transfer.”

22 55. Websites purportedly operated by Defendants BVHE and Movies

23 Anywhere contain similarly unenforceable language, including the following:

26 specifically authorized under these terms and conditions. The sale,

27 distribution, purchase or transfer of digital movie codes outside of the

28 methods set forth in these terms and conditions is unauthorized.”

1 distribute, or sell in the future;

1 Combo Packs to Redbox is therefore also beyond the scope of Defendants’

13 stable source of fairly-priced supply is critical to Redbox’s business.

14 71. On information and belief, BVHE is aware of Redbox’s business

12 misconduct towards Redbox’s suppliers involve intimidation and coercion, as well

1 Fourth Cause of Action: False Advertising Under the Lanham Act

12 89. Redbox incorporates by reference the allegations in paragraphs 1-88

13 above as if set forth fully herein.

14 90. California Business and Professions Code § 17500 et seq. prohibits

1 induce consumers to use higher-priced alternatives selected by BVHE and Movies

12 97. Redbox is entitled to injunctive relief and restitution under California

13 Business and Professions Code § 17535.

14 Sixth Cause of Action: Unfair Competition (Against All Defendants)

1 California’s False Advertising Law. In addition, it constitutes copyright misuse and

14 Disney’s sales to those retailers would undoubtedly be substantially lower. In each

1 PRAYER FOR RELIEF

12 Attorneys for Plaintiff

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