‘DVD Rental’ Service Zediva Hit with Injunction for Illicit Streaming

By structuring its service so that one customer at a time “rents” any given DVD through its website, Zediva gives itself several advantages over similar licensed on-demand providers, Walter said in his ruling, which preempted an Aug. 8 hearing. Zediva lets users stream a particular DVD for up to four hours, including up to one hour paused, and gives the customer 14 days to view it. Other services typically have restrictions built into their licensing agreements on the viewing window, such as 48-hour availability, and can’t give on-demand access during “exclusivity periods” assigned to other services that are charging more for the videos, Walter said. At $1.99 per movie or $10 for 10 movies, Zediva also undercuts the pricing of licensed services, typically $3.99 to $5.99, that may have restrictions built into their licensing deals that Zediva doesn’t labor under, he said.

Zediva’s service is clearly a public performance of movies, requiring it to license them from the studios, Walter said. It’s similar to an earlier service, On Command Video, that unsuccessfully argued 20 years ago that its transmission of movies from a central hotel console to guests’ rooms was simply an “electronic rental” similar to the physical rental of videotapes, he said. Congress also made clear in the Copyright Act, and a 1967 House report prepared ahead of the law, that a performance is public regardless of whether it was made at different times to different customers, the judge said.

Walter made much of the fact that Zediva retains control over the DVD at all times: The customer can’t play the extras on a DVD and, if they pause the video, the movie may restart on a different DVD in a different player. In a lengthy footnote, Walter responded to Zediva’s contention that its service is similar to Cablevision’s remote DVR. The 2nd Circuit approved the service because “each … playback transmission is made to a singe subscriber using a single unique copy produced by that subscriber,” rather than “the public” at large. Zediva’s system doesn’t work that way, since the same physical DVD can be viewed by many subscribers, Walter said. He also declined to adopt Zediva’s request that the court adopt the 2nd Circuit’s “volitional conduct requirement,” which would absolve it of direct liability, because the 9th Circuit in San Francisco hasn’t provided “clear instruction” on that requirement.

The studios are likely to prevail on the merits of the case and to suffer “irreparable harm” without an injunction, Walter said. In another lengthy footnote, he said courts hearing copyright cases have been put on notice from higher rulings, such as the Supreme Court’s eBay v. MercExchange case, not to give plaintiffs a “presumption” of irreparable harm. But the studios have demonstrated irreparable harm, he said: Because Zediva’s not operating under a license and its attendant restrictions, the service is interfering with the studios’ exclusivity arrangements, their ability to negotiate similar agreements in the future, and their ability to protect their works from piracy through “necessary security measures.”

Under Zediva’s own admission that its service is “scalable … to support millions of customers,” it’s already depriving the studios and its licensed partners of “significant” revenue and that “will continue to increase,” Walter said. Zediva also “threatens to confuse consumers” about the nature of the on-demand market, and create “incorrect but lasting impressions” about what’s lawful, he said. And without a license, Zediva isn’t bound to honor the studios’ conditions for a “high quality movie-watching experience,” which may tarnish the reputation of the whole on-demand industry, the judge said: Zediva has acknowledged receiving complaints about its service from customers and that “a lot” of time it can’t stream a particular DVD on demand to customers requesting it. Telling customers a particular title is “out of stock” is “totally inconsistent with the concept of ‘video on demand,'” Walter said.

Though Zediva hasn’t offered any evidence for its claim that an injunction will “significantly harm, if not destroy, their business,” Walter required the studios in Warner Bros. Entertainment v. WTV Systems to post a bond of $50,000 to cover Zediva’s costs and damages if it’s found to have been “wrongfully enjoined.”

The MPAA exulted in the judge’s ruling. Dan Robbins, senior vice president and associate general counsel, seized on Walter’s language about Zediva’s service threatening the development of the on-demand market and the prospects for wide consumer adoption of licensed services such as iTunes, Netflix, Amazon, Vudu, Hulu, and cable and satellite VOD offerings. “Movie fans today have more on-demand options than ever for watching films at home,” he said. The MPAA in its statement didn’t note the peculiarities of Zediva’s service -- its one-DVD-at-a-time delivery architecture -- and simply referred to it as an unlicensed on-demand service that “streams movies over the Internet from its Silicon Valley data center,” similar to one of the many so-called tube sites the studios have sued over the years. A Zediva spokesman told us the ruling was a “setback for the hundreds of thousands of consumers looking for an alternative to Hollywood-controlled online movie services.” It intends to appeal and will “keep fighting for consumers’ right to watch a DVD they've rented,” he said.