Judge Denies Universal’s Motion To Dismiss Redbox’s Antitrust Claim
A U.S. District Court judge in Delaware Monday denied Universal Studios Home Entertainment’s motion to dismiss the antitrust claim made against it by Coinstar’s Redbox subsidiary in a recent suit. But Judge Robert Kugler granted Universal’s motion to dismiss two other claims included in Redbox’s suit.
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Redbox had claimed Universal demanded that the DVD rental kiosk company sign a revenue sharing deal that would restrain the supply and price of Universal DVDs. When Redbox refused to sign the deal, it claimed, Universal orchestrated a boycott of Redbox by distributors Ingram, VPD and others, as well as retailers including Best Buy and Wal-Mart.
Redbox “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,” Kugler said in his ruling.
That 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,” Redbox President Mitch Lowe said. Universal wasn’t immediately available for comment on the ruling. Lowe didn’t comment on Kugler’s decision on the other two claims in the suit. Redbox sidestepped our specific question seeking comment about that. A Redbox spokesman said only that the company was “pleased with the decision and looks forward to pursuing the antitrust claim.”
Kugler ruled that Redbox can’t claim Universal engaged in copyright misuse and violated the first sale doctrine of the Copyright Act. He called the claim irrelevant “to the current dispute.” The Court of Appeals in Kugler’s circuit “has not addressed the issue of whether plaintiffs may raise copyright misuse as an affirmative cause of action, as opposed to a defense,” he said.
The judge also ruled that Redbox can’t pursue the claim that Universal engaged in tortious interference with contract. Redbox claimed that Universal interfered with the distributors’ contractual obligations to sell Universal DVDs to Redbox, but the contract that Redbox presented as evidence to the court “belies the claim as asserted,” Kugler said. The contract doesn’t “obligate Ingram unconditionally to deliver Universal, or any, DVDs to Redbox,” and the distributor’s decision to not supply Redbox with Universal DVDs “is not a breach of the agreement between Redbox and Ingram,” he said. Universal “had a legally protected interest” regarding the distribution of its DVDs, he said.
Pali Research analyst Richard Greenfield Tuesday predicted Redbox will next sue Warner Bros., after filing a suit against Fox Home Entertainment last week in Delaware that’s similar to the one against Universal (CED Aug 13 p8). Warner said it’s implementing a 28-day window under which kiosk companies must hold off on making new Warner DVD releases available to consumers. Unlike the Fox and Universal initiatives, however, Warner also included Netflix and other mail order rental services in its new requirement.
Greenfield predicted the Redbox-Universal case will go to trial, but “take a very long time” to resolve. Redbox “will need to employ workarounds for nearly 60 percent of major studio DVD output” because of the new rules by Fox, Universal and Warner, he said. That “raises the critical question of whether Redbox’s economic model can survive (albeit at lower margins) buying the majority of its DVDs via workarounds,” such as sending employees into Wal-Mart to buy DVDs at retail price to stock kiosks, and “whether Wal-Mart and other retailers will continue to allow Redbox to buy a mass number of DVDs in their stores on new release Tuesdays,” he said.
Netflix will have to decide if it will accept a 28-day window from Warner Bros. instead of a longer time period of revenue sharing for day-and-date new DVD availability, Greenfield said. He predicted Netflix “will choose the window” because its “primary focus is catalog” rentals, not new releases.
Netflix “has had a direct relationship with Warner Bros. for 10 years and we have purchased from them under a variety of programs and business terms,” said Steve Swasey, vice president of Netflix corporate communications. “We'll evaluate the current proposal and discuss it with the studio -- just as we always have,” he said.