February 18, 2010 | By Fred von Lohmann

Redbox, Movie Studios, and Subversion of First Sale

As we've explained before, a number of Hollywood movie studios have been on the war path against Redbox, the kiosk-based DVD rental operation, because Redbox offers DVD new releases for rent at 99 cents per night. Thanks to the first sale doctrine in copyright law, Redbox's business is completely legal—the company buys legitimate DVDs to stock their kiosks. Great for consumers, and a great alternative for those who might otherwise opt for an unauthorized alternative online.

But Hollywood wasn't pleased, and took a number of steps to interfere with Redbox's business, which in turn led to lawsuits. Earlier this week, Redbox and Warner Brothers settled their litigation, with Redbox promising not to offer Warner DVDs until 28 days after the DVD goes on sale. In other words, no more Warner new releases in the Redbox kiosks. Analysts predict this will be a blueprint for similar settlements with other Hollywood studios.

The Media Wonk has published a great recap of what happened, detailing how the movie studios put pressure on distributors and retailers and ultimately succeeded in subverting the first sale doctrine:

I’m assuming the studios’ were well-advised in their campaign against Redbox, and managed to strong-arm the wholesalers and big-box retailers without actually violating antitrust laws. But it’s still worth noting, I think, the extraordinary lengths to which they were willing to go to thwart the plain language and intent of an inconvenient portion of copyright law.

The First Sale Doctrine was promulgated–first by courts and later by Congress–precisely to deny publishers control over the secondary market in copies of works. It evolved to ensure that the practical application of the copyright statute would not be inconsistent with the Constitutional purpose of copyright itself: “To promote the progress of science and useful arts.” It does that by encouraging a robust and innovative market in copies, including a robust secondary market.

Through their many Redbox machinations, the studios have found a way around the plain purpose of the First Sale Doctrine by effectively (if not quite illegally) fixing the price of DVDs in the secondary market.

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