Website Zediva allows subscribers to stream movies

The studios’ battle against copyright theft often gets compared to fighting a hydra-headed monster.

The same may be true for their pursuit of the next big revenue source. The moment they think they’re on to something good, some startup comes along and threatens to undercut them.

The latest menace is a company called Zediva, which has seemingly threaded a needle through a copyright loophole in a way that undermines the windows that Hollywood has set in place to reap big returns from licensing movies to streaming sites.

Here’s how Zediva works: A customer signs up to the site online, picks a recently released DVD movie, and gets the movie streamed from one of many of the company’s players. In other words, the customer rents the DVD, controls such things as stop, start and pause, but it’s the company machines that are playing the disc. The company does all this without permission of the studios, which it says is akin to what those brick-and-mortar video stores do. “It is exactly the same as if you are at home watching with your own DVD player,” says company CEO and co-founder Venky Srinivasan.

Yes, it is somewhat low-tech, and a wave of publicity in recent weeks has forced the company to close registration as it builds out. Save for underestimating initial demand, “we are quite optimistic we can keep up with capacity,” Srinivasan says.

Execs are certain they can keep up. What is not certain is whether it is legal.

Neither Zediva nor the MPAA is commenting, but they each have sent curious reporters to a list of experts. So it can’t come as much of a surprise that some believe they are on sound legal footing and others believe they are not, which seem like just the ingredients for litigation.

The argument against Zediva centers on the idea that what it is doing is transmitting a “public performance,” a right reserved for the copyright owner of the title.

Among the opinions cited is a 1984 3rd Circuit Court of Appeals decision having to do with a video store that set up a series of exhibition booths where customers could watch movies in the store.

It is hard to fathom that there was a time when there actually was a business in such in-store exhibition, but it was enough of a concern of studios to want to shut it down. And that the court did, finding that even though the video store had only one copy of each film, “it shows each copy repeatedly to different members of the public.”

Attorney Robert Garrett of Arnold & Porter in Washington sees parallels in Zediva’s situation. “The bottom line is, I don’t think this is legal. Don’t think they can do this without the consent of the copyright owner,” he said.

The “first sale” doctrine in copyright law gives the company the ability to rent out these movies without studio permission. Jason Schultz, assistant clinical professor of law at Berkeley, cites a 1987 9th Circuit decision involving a hotel that provided videos for viewing in rooms with hotel-provided equipment. While the studios argued that the hotel rooms were “public,” the court, admitting that “technology has often leapfrogged statutory schemes,” disagreed.

But there’s also the more recent 2008 Cablevision case, in which the 2nd Circuit ruled that Cablevision didn’t violate copyright with its remote storage systems. Instead of a set-top DVR, the company operated them from a remote location. The court ruled on several factors, but among them was that Cablevision’s technology did not create a public performance because it only makes “transmissions to one subscriber using a copy made by that subscriber.”

“I think (Zediva) is in a gray zone,” Schultz says. “I think that they have good arguments that what they are doing is legal, and I would bet that they would end up winning in the end, but it is a close call.”

If studios sue and win, they also could savor in victory, but they’d yet again be in the position of trying to shut down a tech upstart. And just like piracy, they can be sure that it won’t be too long before there’s another beast to slay.

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