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Zediva: Streaming Through a Copyright Loophole in the Digital Domain?

12 Apr

Recently, an online movie rental service called Zediva launched to some interesting controversy.  Basically, Zediva allows a registered user to rent and view movies online as soon as they’re available on DVD.  Take that, Amazon, Netflix and iTunes…right?  Well, not exactly.  As reported at Wired.com, Zediva is offering movies not yet available for rental through other online sources such as Amazon, iTunes or Netflix –  as a purchaser of the DVDs, Zediva is relying upon an interpretation of the first sale doctrine to allow its registered users to access the DVD content, unconstrained by the licensing agreements entered between its competitors and the studios that require the rental provider to delay offering DVD titles for rent after initial commercial release (see here).  More importantly, it is doing so without “ripping” the DVDs onto networked servers from which multiple customers may view the specific title.  Instead, Zediva is purchasing the DVDs and placing them into a physical DVD drive in Zediva’s possession for viewing – once selected by a customer for viewing, that specific DVD is then reserved to that specific customer for viewing over a specified period.   Sounds a little “kludgy”, but for a very good reason – by doing so, Zediva believes it is not otherwise required to pay the movie studios a license fee for streaming of the movie.  Unfortunately for Zediva, the “Big Six” studio members the Motion Picture Association of America (MPAA) do not share that belief…and promptly sued Zediva for copyright infringement. Kudos to James Grimmelman and Adam Urban for engaging the differing views on the subject.

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It is understandable that the MPAA is offended by Zediva’s business model.  Under U.S. copyright law, a copyright owner enjoys certain exclusive rights to its copyrighted work, including the right to publicly perform the work.  Failure to obtain a license from the studios for such public performance (much like what is done by movie theaters and, yes, other online services for streaming of DVDs) is the underlying basis for the MPAA lawsuit.  Zediva, however, maintains that the structure of its service circumvents the need for a license from the copyright owner, relying on an interpretation of the first sale doctrine that, by extension, allegedly supports a “private” rather than public performance.  Perhaps Zediva feels that its legal purchase of volumes of DVDs (and commensurate millions of dollars paid to the studios for them) is enough to hold the studios at bay – that and a not-so-streamlined method for providing rental movies to its customers.  There is definitely some outside the box thinking here, but enough to operate as the foundation for a viable, ongoing, online business model?

Awkward scalability questions aside (ever increasing numbers of DVD players in its data facility, managing how new DVDs are into and out of them, etc. – Zediva has already experienced some technical problems here), from this author’s perspective, Zediva’s position seems to rely not so much on a mechanical application of the first sale doctrine, but rather, on an interpretation of the public performance right that is banking on the customer’s remote control over the DVD and DVD player for private in-home viewing as seminal factors making the streaming anything but “public”.   Generally, the first sale (or exhaustion) doctrine permits the purchaser to transfer its rights in a lawfully made copy without permission (i.e. the resale of DVDs to subsequent purchasers), which includes rental or lease.  This exception allowed NetFlix to essentially create the market for DVD mail-order rentals because Netflix purchases the DVDs and then physically sends them out to subscribers for in-home viewing.  The problem, however, is that digital streaming rights are not subject to the first sale doctrine because there is no sale.  Zediva basically considers such internet streaming to be analogous to a “really long cable” between a Zediva DVD player and the subscriber’s PC for a specific DVD viewing.  Still, it does not address the public performance rights to the DVD content that remain held by the copyright owner.  The more interesting approach is the one initially debated between Grimmelman and Urban – not just whether the “public performance” right covers the viewing of the DVD content in a private setting, but whether there is even a public performance at all.  Zediva appears to be banking on the position that keeping the DVD (and its attendant player) reserved to a customer for the viewing period for private online streaming is akin to the customer viewing the DVD on a player at home.  No public performance, ergo, no issue.

From this commentator’s perspective, I remain highly skeptical of Zediva’s position (let alone its business model).  Don’t get me wrong – I applaud Zediva’s gumption in entering a highly competitive marketplace with such an innovative solution (although I am still on the fence regarding long term scalability issues).  There is a huge difference in margin for Netflix between its mail-order DVD rental business and its streaming business, so Zediva’s attempts at a workaround are admirable, if not a bit academic.  My hesitation stems from the fact that Zediva maintains possession of the DVDs and ultimately polices their transmission – unlike cases that have held no infringement for viewing of videos in hotel rooms on individual VCRs (Columbia Pictures Industries, Inc. v. Professional Real Estate Investors, Inc.)) or the streaming of motion picture content from remote DVRs for personal viewing (Cartoon Network LP, LLLP v. CSC Holdings, Inc.), Zediva’s continued possession of the DVDs for streaming to many different customers (albeit sequentially) does not limit the overall potential audience of the transmission.  There may be a limitation on who can watch a single DVD at a time, but there is no limitation on how many different customers can ultimately view a transmission of the DVD over the lifetime of Zediva’s ownership of the lawfully made copy – something that sure seems to fit within the definitions of displaying or performing a work “publicly” under the Copyright Act. But that’s just my take…

Needless to say, there are differing opinions on the matter…but don’t bank on a clarification being streamed into your living room anytime soon. Unfortunately for Zediva, this author thinks the scalability issues will resolve this issue long before the courts do…

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