Zediva.com: First-sale Protection or Public Performance?

By Eric Gerson

A new video-on-demand (VOD) service has been making big waves across the internet recently, and may soon be stirring things up in the California District Court as well. This service—called Zediva—offers a unique spin on the normal VOD business model. [1] Whereas services like Netflix, iTunes, and Amazon allow an unlimited number of users to “rent” movies by streaming digital video files over the internet, Zedvia’s service is a decidedly more “analogue” experience. When you rent a movie from Zediva, you are not provided access to a digital file. [2] Instead, you rent a physical DVD and DVD player which you alone have access to for four hours. [3] This hardware is housed in Zediva’s “data center,” and you are able to watch what is being played and control it remotely from your computer. [4] In other words, for every one person watching a movie through Zediva, there is one dedicated DVD player and one dedicated disc spinning at Zediva’s headquarters. [5]

On the surface, these differences may seem inconsequential. After all, the end user is still receiving what is essentially the same service: streaming video they can rent and watch on their computer. However, the legal implications of these differences are significant, and really quite novel. On the one hand, the digital movie files utilized by services like Netflix and iTunes are licensed directly from the rights owners—film companies like 20th Century Fox, Warner Bros. Entertainment, Columbia Pictures, Paramount Pictures, and so forth. [6] These licenses grant the VOD providers the right to publicly perform the associated works by transferring them over the internet to the end-user [7] — a right otherwise exclusively reserved to the rights owner by the Copyright Act. [8] Zediva, on the other hand, obtains no such license. Instead, Zediva purchases physical DVD copies of the movies in question and rents them out to users one-by-one, just like the brick-and-mortar rental stores of yore. [9] Under the first-sale doctrine, such post-purchase rentals do not require subsequent licenses from the rights owners. [10] However, this theory gets a bit hairy once Zediva transfers the movie stream over the internet. If such a transfer is a “public performance” as defined by the Copyright Act, [11] Zediva would technically be liable for copyright infringement.

This is the precise theory the Motion Picture Association of America and some of its member studios are asserting against Zediva in the United States District Court for the Central District of California. The studios filed their complaint on April 4th, 2011. [12] In it, they allege that Zediva’s service is identical in practice to that of other licensed VOD providers, and the comparison of their service to that of a movie rental store is “disingenuous” and a “gimmick in an effort to avoid complying with U.S. Copyright Law.” [13] The studios further assert that Zediva’s “flagrant violation of [the rights-owners’] rights directly undermines [their] present and continuing development of a legitimate market” for such properly licensed VOD services. [14] The studios attached a list of more than 50 different movies which they allege Zediva has infringed, and if their theory holds water, they would be entitled to damages on each and every one of these works. [15]

While we won’t know how the court will rule on this issue for quite some time, the policy debate at play here is very interesting, as it highlights the tensions between the first-sale doctrine and the public performance right. The first-sale doctrine focuses on the differences between a “copy” of a work and the underlying “copyright.” Under its principles, the purchaser of a lawfully made copy of a copyrighted work can transfer that copy to others without needing the permission of the original rights owner. [16] To that end, someone who buys a lawfully made DVD copy of a movie can then sell, lend, trade, or give away that DVD completely free from the control of the movie studio who owns the rights to the underlying work. This is how normal video rental stores operate: they purchase the DVDs they rent out, thus eliminating the need to obtain any sort of license from the movie studios. Zedvia contends that their service works in a similar manner, and in some respects it seems their argument holds water. They are, after all, renting out the physical DVDs they have lawfully purchased on a one-to-one basis—an action that is theoretically protected by the first-sale doctrine.

Of course, the public performance argument muddies the water a bit, as the first-sale doctrine does not protect against copyright infringements, even if the copy used is lawfully obtained. But at its most basic, the fact that Zediva spins the physical discs in their “data center” and then remotely shoots the A/V data to users isn’t immediately troubling. Imagine a scenario in which your next-door neighbor doesn’t own a DVD player. Being a keen businessman, you decide to string a cable from the DVD player in your home, across your lawn, through the fence, and into the television in your neighbor’s living room. You then allow your neighbor to periodically rent some time to utilize your DVD player and the movies in your library for a small price so he can watch them in his own living room. That’s one DVD, one DVD player, one viewing device, and a decidedly private performance that seems beyond the reach of the protections afforded by the Copyright Act. This scenario, however, is a gross oversimplification of the Zediva business model in two important regards. First, Zediva isn’t using mere A/V cables to transmit the movies to a television, but are instead streaming the data over the internet to a computer. [17] Second, and as a result thereof, Zediva is not servicing one hapless next-door neighbor, but has the capacity to stream their DVDs to thousands of customers across the globe. [18] Thus, regardless of whether Zediva’s service fits perfectly within the Act’s definition of a public performance, it could have a significant negative impact on the market for other lawfully-licensed VOD providers. As Zediva grows and their capacity expands, it stands to reason that it could damn such other services to complete obsolescence, especially considering that Zediva can provide access to films the day they hit store shelves (studios generally don’t license such streaming rental right for their newest releases). [19] And in essence, isn’t that what US Copyright Law is all about: protecting the commercial value of your original works of authorship and their respective markets?

Unfortunately, these questions and concerns won’t be answered until this case works its way through California’s District Court system. Here’s hoping that the parties don’t settle out of court and we see this one run its course—these are questions with big implications, and are deserved of outright answers. In the meantime, you can get more details about Zediva’s service from their website, and can find a copy of the MPAA’s full complaint here.

[1] See Zediva Homepage, http://www.zediva.com
[2] See Zediva FAQ, http://www.zediva.com/faq
[3] Id.
[4] Id.
[5] Id.
[6] See Ryan Singel, Movie studios sue DVD streaming site Zediva, ARS TECHNICA, April 5, 2011, http://arstechnica.com/tech-policy/news/2011/04/movie-studios-sue-dvd-streaming-site-zediva.ars
[7] Id.
[8] 17 U.S.C. §§ 101, 106(4).
[9] See Zediva FAQ, http://www.zediva.com/faq
[10] 17 U.S.C. §§ 109 (“[T]he owner of a particular copy . . . lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy[.]”).
[11] 17 U.S.C. §§ 101
[12] Complaint, Warner Bros. Ent., et al v. WTV Systems, Inc., CV11-02817 (Cent. Dist. Cal) (filed April 4th, 2011).
[13] Id. at 2.
[14] Id.
[15]Id. at Exhibit A.
[16] 17 U.S.C. §§ 109.
[17] See Zediva FAQ, http://www.zediva.com/faq
[18] Id. It is worth noting, however, that many journalists doubt Zediva’s ability to scale their service due to the incredible amounts of hardware and software needed, a fact that may weigh in Zediva’s favor as it lessens their service’s potential impact on the market for such rentals. See Chris Nuttall, Zediva movie service flops on debut, FT TECH HUB, March 17, 2011, http://blogs.ft.com/fttechhub/2011/03/zediva-movie-service-flops-on-debut/; Ryan Singel, Is Zediva’s New-Release Movie Streaming Service Legal?, WIRED, March 23, 2011, http://www.wired.com/threatlevel/2011/03/zediva-copyright/ (quoting Jason Schultz, an associate professor at Berkeley Law School).
[19] See Ryan Singel, Movie studios sue DVD streaming site Zediva, ARS TECHNICA, April 5, 2011, http://arstechnica.com/tech-policy/news/2011/04/movie-studios-sue-dvd-streaming-site-zediva.ars (“Competing services like Amazon, Netflix, and iTunes all negotiate rights to stream movies online . . . . [b]ut Hollywood studios hold off on releasing those rights for new movies until after the first month or so of their release on DVD in order to maximize DVD sales.”)