Zediva is a startup movie streaming service that makes available to consumers a range of newly released DVDs for their home viewing. The company’s rental service emerged from beta testing last month, and early indications are that it has already attracted a significant number of viewers. The Zediva website currently states that “registration is currently closed while we’re building more capacity” but offers to put visitors on a waiting list so that they can use the service in the future. The company advertises that customers can watch new releases before they are able to do so using Netflix or Redbox. The reason is that Zediva has not entered into licensing deals with the major Hollywood movie studios to stream their movies.

The studios’ reaction has been predictable enough: They have sued. On April 4, the studios–Warner Bros., Columbia Pictures, Disney, Paramount, Twentieth Century Fox, and Universal City Studios–jointly filed their lawsuit against Zediva and its founder and CEO, Venky Srinivasan. A copy of the complaint filed in the Zediva lawsuit is available here. The studios seek an injunction that will shutter Zediva’s operations, and damages of up to $150,000 for each act of alleged copyright infringement by Zediva.

Readers of this article who are hoping to read that Zediva’s business model is on sound legal footing, and that it will emerge victorious in this lawsuit, are going to be disappointed. After having looked at the relevant case law, the studios understand that they are almost certainly going to win the Zediva lawsuit. Both prior case law involving movie rental stores and hotels, as well as a potentially crucial, recent Second Circuit decision in which the studios actually lost, all favor the studios in this case.

How Zediva Supplies Movies to Its Customers

The manner in which the movies are made available to customers that subscribe to the Zediva service is central to the legal issues in the Zediva lawsuit. Unlike Netflix and Amazon, which stream raw digital files to the end user, Zediva streams content from a physical copy of a DVD that it has purchased. Zediva thus advertises that it is in the business of renting out DVDs and DVD players that are located at its Silicon Valley facilility. Zediva argues that it is really akin to a brick and mortar movie rental store. Like those stores, it rents out DVDs that it has lawfully acquired, and like those stores, its delivery method ensures that only one customer at any point in time may view a disc.

Customers are able to control the playback of the DVDs via the device on which they are watching a movie. Zediva is compatible with PC and Mac computers, phones that use version 2.1 or higher of the Android operating sytem, and Google TV.

The Studios’ Legal Argument

The studios argue that Zediva’s portrayal of itself as a modern-day video rental store is entirely misplaced. In their complaint, they write: “Defendants’ comparison of the Zediva service to a rental store is disingenuous, and Defendants are attempting to rely on technical gimmicks in an effort to avoid complying with U.S. Copyright Law.” What the Zediva lawsuit is all about is the studios’ claim that, unlike brick and mortar stores, Zediva is engaged in an unauthorized “public performance” of copyrighted works.

The studios cite to Section 106(4) of the Copyright Act in support of their copyright infringement claim. That section states that, among the exclusive rights that copyright holders enjoy, is “in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly.” (Emphasis added). The words “perform” and “publicly” are defined separately in Section 101 of the Act. To “perform” means “in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.” I expect Zediva’s lawyers to concede that it is engaged in a performance of the videos it offers, based on that definition. I think it is indisputable that, at the very least, Zediva’s streaming technology makes the movies both visible and audible to consumers.

What the Zediva lawsuit turns on is whether the performance that Zediva offers customers is done publicly. Section 101 defines the term publicly, and the second clause in the definition–the “transmit” clause–is what will decide the case:

To perform or display a work “publicly” means—

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

While the performance in the Zediva lawsuit is not being done at a public place, which is what clause 1 is about, the studios will argue that Zediva is engaged in a performance “to the public” that is being done “in separate places” and “at different times,” as clause 2 says may be the case with a public performance.

The Development of Case Law

An early case testing the meaning of “public performance,” and one that figures to be cited in the Zediva lawsuit, turned on the analogy to a traditional movie theater. The case, Columbia Pictures Industries, Inc. v. Redd Horne, Inc., 749 F.2d 154 (3d Cir. 1984), involved a movie rental store named Maxwell’s Video Showcase. In addition to renting out movies for its customers to take home and watch, Maxwell’s rented out small booths in its stores in which patrons could pay to watch movies individually or in small groups of up to four people on televisions placed inside the booths. Patrons selected the films they wanted to watch, and an employee would place the video into a cassette machine, from which the movie was transmitted to a screen in one of the booths. Maxwell’s also offered its customers popcorn and sodas, no doubt hoping to simulate a traditional movie theater-going experience.

The Third Circuit, in reviewing the case, concluded that Maxwell’s was legally indistinguishable from a movie theater insofar as it was offering up public performances of movies to its customers. The Court’s opinion states:

“The services provided by Maxwell’s are essentially the same as a movie theatre, with the additional feature of privacy. The relevant “place” within the meaning of section 101 is each of Maxwell’s two stores, not each individual booth within each store. Simply because the cassettes can be viewed in private does not mitigate the essential fact that Maxwell’s is unquestionably open to the public.”

In the Zediva lawsuit, the movie studios will argue that the Redd Horne case is squarely on point, and that its business model is legally indistinguishable from that of Zediva. As in Redd Horne, the physical copies of the videos remain at all times physically located within Zediva’s facility. And, just as a Maxwell’s employee would load a cassette into a cassette player, here a Zediva employee loads a DVD into a DVD player prior to the DVD being made available to users for their viewing. Put more directly, it is Zediva and its employees who are directly responsible for facilitating the public performance.

True, one might argue that whereas Maxwell’s customers viewed movies in booths located in stores that themselves were open to the public, the Zediva lawsuit concerns a situations in which the company’s customers view movies in the confines of their private homes. The Third Circuit in Redd Horne certainly placed great importance on the fact that the booths, however private they seemed, were located in stores that were open to the general public. In addition, Zediva can argue that its users have a greater ability to control the playback of the video that they are watching.

I do not think that these distinctions will make any difference with respect to the outcome of the Zediva lawsuit. The language of the transmit clause contemplates that a performance that is transmitted to private residences, even if done at different times, is still a public performance. In fact, Redd Horne could have reached the same result by simply focusing on the fact the same copy of the cassette was being transmitted over and over again to members of the public without focusing in such great detail on whether the relevant “place” for analytical purposes was the movie store or the booth in which patrons viewed movies.

In addition, it is ultimately a Zediva-owned device, located in Zediva’s facility, that transmits a movie to customers, clearly a type of situation that falls within the broad sweep of the language that transmissions done “by means of any device or process” are covered by the transmit statute. Thus, the argument that it is the end user that is directing the performance simply will not go anywhere in the Zediva lawsuit since Zediva is the one that supplies the process and devices that enable all of the transmissions.

In arguing that its business approximates that of a brick and mortar store, Zediva will be able to cite an earlier decision from the Ninth Circuit, Columbia Pictures Industries, Inc. v. Professional Real Estate Investors, Inc., 866 F.2d 278 (9th Cir. 1989). There, La Mancha, a hotel, rented out videodiscs to its customers, and the customers would take the discs to their hotel rooms to watch using equipment provided by the hotel. The Ninth Circuit held that the hotel was not publicly performing the studios works, but its holding was dependent on its reading of the definition of a public place. It had no occasion to consider the scope of the transmit clause that is at issue in the Zediva lawsuit.

Shortly on the heels of Professional Real Estate Developers, a case involving transmission of movies at a hotel arose, raising the issue unanswered in the earlier case as to whether the same model could be done at a hotel via transmission technology that wired movies to individual hotel rooms from a centralized location. The case, On Command Video Corp. v. Columbia Pictures Industries, 777 F. Supp. 787 (N.D. Cal. 1991), provides an interpretation of the transmit clause that is very favorable to the studios. In many respects, the facts of the case are indistinguishable from the facts giving rise to the Zediva lawsuit. The reviewing district court described the system as follows:

“A hotel guest operates the system from his or her room by remote control. After the television is turned on, the screen lists a menu of available movies. The guest selects a movie by entering the appropriate code on the remote control. Once a particular video is selected, that video selection disappears from the menu of available videos displayed on all other television sets in the hotel. The video is seen only in the room where it was selected by the guest. It cannot be seen in any other guest room or in any other location in the hotel. The viewer cannot pause, rewind, or fast-forward the video. When the movie ends, it is automatically rewound and then immediately available for viewing by another hotel guest.”

The District Court held that the transmissions to hotel guests were made to members of the public. The Court reasoned that “whether the number of hotel guests viewing an On Command transmission is one or one hundred, and whether these guests view the transmission simultaneously or sequentially, the transmission is still a public performance since it goes to members of the public.” In so holding, the District Court gave a broad definition of “public performance.” According to the On CommandCourt,  given that the transmitter and the hotel guests had a commercial relationship, the relationship necessarily involved members of the public, and its holding that there was a public performance followed.

Zediva can take solace, if only a little bit, that this was a District Court opinion. It is at least possible that the Ninth Circuit could decline to follow the holding of the District Court with respect to the District Court’s very broad definition of “public performance” based on the commercial nature of the relationship between transmitter and audience. The only problem is that the more recent definition of public performance, as articulated by the Second Circuit, even if narrower, still is favorable to the studios in the Zediva lawsuit.

Cartoon Network: The Second Circuit’s Recent Interpretation of “Public Performance”

The Second Circuit has recently had a chance to put its gloss on the transmit clause. In Cartoon Network L.P. v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008), the studios filed a lawsuit against Cablevision upon learning of Cablevision’s plans to implement DVR technology that would enable customers to record shows of their choosing on equipment housed in Cablevision’s facility. Although part of the case centered on whether Cablevision was directly liable for making copies of the programs that lasted in duration up to 1.2 seconds prior to deletion (the Court said that it was not), the relevant portion of the opinion as it relates to the claim against Zediva deals with the question of whether Cablevision was liable for delivering public performances to its customers.

The Court held that Cablevision delivered private performances and was not liable, but the Court’s reasoning favors the studios in the Zediva lawsuit. The Court rejected the analysis cited above from On Command as being too broad in scope. Instead, the Court focused on the potential members of the public that were capable of viewing a performance embodied in a unique copy of a copyrighted work. The Court explained why the focus on whether the performance derives from a unique copy of the work makes sense:

[N]o transmission of an audiovisual work can be made, we assume, without using a copy of that work: to transmit a performance of a movie, for example, the transmitter generally must obtain a copy of that movie. As a result, in the context of movies, television programs, and other audiovisual works, the right of reproduction can reinforce and protect the right of public performance. If the owner of a copyright believes he is injured by a particular transmission of a performance of his work, he may be able to seek redress not only for the infringing transmission, but also for the underlying copying that facilitated the transmission. Given this interplay between the various rights in this context, it seems quite consistent with the Act to treat a transmission made using Copy A as distinct from one made using Copy B, just as we would treat a transmission made by Cablevision as distinct from an otherwise identical transmission made by Comcast.

The reason that Cablevision was found not to have engaged in a public performance was that the Second Circuit held that any given customer that watched prerecorded programming would be doing so from a unique copy, which the customer directed be made at Cablevision’s facility. The potential number of viewers of any of the unique copies was only the customer authorized by Cablevision to view that recording. Because the audience was limited in this way, the Court treated each viewing of each unique copy as being private performances.

The Court found the earlier holdings in both Redd Horne and On Command to be distinguishable in that successive showings of the same performance from a single video occurred in both cases. Because the number of people who might view a showing of a video was unlimited, the Court viewed the earlier judgments that both situations involved public performances as correct, even though its definition of public performance was narrower than that given in On Command. Of On Command, the Court said that a finding that it was engaged in a public performance followed from the fact that “at the moment of transmission, any of the hotel’s guests was capable of receiving a transmission made using a single copy of a given movie.”

In the Zediva lawsuit, the courts are likely to find that Zediva’s model is clearly analogous to that at issue in On Command. To be sure, the Second Circuit’s holding indicates that a commercial relationship alone does not mean that a transmission is to the public. But, in Zediva’s case, although it may house multiple copies of the DVDs it makes available to customers, multiple customers are offered the opportunity to watch the same DVD. Indeed, Zediva’s concept is that the DVDs are “returned” and then rented out again. Unfortunately, because they are rented out via transmission, and not the method of physical delivery employed by traditional brick and mortar stores, Zediva is not in compliance with the Copyright Act under the case law as it has developed to this point.

Conclusion

The movie studios would be quite happy if the Ninth Circuit were to reject the Cartoon Network analysis in favor of making the reasoning in On Command official Ninth Circuit precedent. But even if the Ninth Circuit applies Cartoon Network to the facts of this case, the studios will win. While one might have expected Zediva to anticipate this lawsuit, it has scant precedent that it can cite to rebut the studios’ argument that its business model involves public performances of the studios’ works. The result of the Zediva lawsuit, unless the courts put forth a very different concept of public performance than has developed to this point, will be a win for the studios.