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Disney Accused of Cutthroat Tactics in Redbox Dispute

Redbox went on offense against Disney on Friday, filing a federal suit accusing the world’s leading movie studio of engaging in anti-competitive behavior.

Disney sued Redbox back in December, arguing that the movie-rental kiosk company was violating its copyrights by selling digital download codes. On Friday, Redbox filed a motion to dismiss Disney’s suit and a separate lawsuit in which it contends that Disney has interfered with its relationships with DVD suppliers.

The Redbox complaint delves into the contentious history between the two firms, which began long before Redbox began offering digital download codes to Disney films in October. According to Redbox, the studio’s history of “threats and other misconduct towards Redbox’s suppliers involve intimidation and coercion, as well as abuse of its dominant industry position… All of these actions were taken by Defendants in order to wrongfully eliminate competition and prop up prices for their own products.”

Disney issued a statement calling the new suit “nothing more than Redbox’s attempt to distract attention from its unauthorized sale of our digital codes as we have set forth in our lawsuit. We are confident in our position and, unlike Redbox, want the court to resolve this matter quickly.”

In the complaint, Redbox portrays itself as offering a discount movie rental option for working-class families. Over the years, it has struck distribution agreements with every major studio except Disney, allowing it to buy DVD’s at bulk rates.

To obtain Disney DVD’s, however, Redbox must seek out third-party suppliers or buy them at full price, and in small numbers, at retail locations. In recent years, Redbox alleges that Disney has put pressure on suppliers not to sell to Redbox in an orchestrated campaign to drive up prices.

At one time, Redbox received about half of all its Disney DVDs from a single supplier. But in 2016, Redbox states that Buena Vista Home Entertainment, Disney’s distribution arm, “coerced that distributor into disclosing its customers, including Redbox… BVHE subsequently reduced that distributor’s allocation of Disney titles, and Redbox is now unable to procure Disney titles through that distributor. Redbox has similarly been unable to procure Disney titles from other distributors since that time as well.”

Last October, Redbox says that one DVD retailer informed the company that a provision of its contract with Disney barred it from re-selling DVD’s to Redbox. According to Redbox, the effect has been to drive up Redbox’s costs, delay the appearance of Disney titles in its kiosks, and prevent Redbox from having enough DVD copies to meet customer demand.

Redbox alleges that Disney — which is preparing to launch its own streaming platform — is attempting to stamp out low-cost competition in the digital download market. It notes that the Disney-Fox merger will give Disney majority control over Hulu. It also quotes a Deadline column that warned that the Fox merger would make Disney “the closest we’ve seen to a monopoly in Hollywood.”

“Disney wants to sell its content at the higher prices it is trying to condition consumers to expect, rather than the lower prices they can get from Redbox,” the suit alleges.

In the copyright suit, Disney alleges that Redbox is infringing on its copyrights by removing download codes from DVD and Blu-ray “combo packs,” and selling the codes separately. Redbox argues that it is entitled to do this the under long-established “first sale doctrine,” which holds that a copyright owner cannot bar a purchaser from reselling an individual copy of a work. Redbox argues that the download codes should be treated no differently than the physical discs that are rented in its kiosks.

“This case is not about Disney losing sales due to unlawful copying,” the company states. “Disney has lost no sales. This case is about Disney’s illegal attempt to prevent Redbox from reselling digital movies it bought at retail to price-sensitive consumers who will benefit from lower prices.”

That case is set for a hearing on March 5. Disney has asked the court for an injunction to stop Redbox from distributing download codes, which is currently set for a hearing on Feb. 5. Redbox is seeking to postpone the hearing to March 5 and consolidate it with the motion to dismiss.

Redbox Countersuit by gmaddaus on Scribd

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