District court grants preliminary injunction barring Redbox from reselling Disney movie download codes from “Combo Packs,” finding that Disney was likely to establish that Redbox’s actions constituted contributory copyright infringement under Disney’s revised terms of use.

Disney distributes its films in multiple formats through a variety of channels, including DVD sales and on-demand and subscription streaming services. Among Disney’s offerings are “Combo Packs,” which are sold in boxes featuring large-type text reading “Blu-ray + DVD + Digital HD,” and include a Blu-ray disc, a DVD and a piece of paper containing an alphanumeric code that can be inputted and redeemed at the websites RedeemDigitalMovie.com and DisneyMoviesAnywhere.com to allow a user to stream and download the film in digital HD.

For many years, defendant Redbox Automated Retail LLC, a company that rents and sells movies to consumers through tens of thousands of automated kiosks, purchased the Combo Packs, disassembled them and then rented and sold the physical discs. In 2017, Redbox, which does not have a vendor agreement with Disney, began selling the individual download codes from the Combo Packs at its kiosks. Disney sued Redbox, alleging that Redbox’s resale of Combo Pack digital download codes constitutes contributory copyright infringement, insofar as it encourages end users to make unauthorized reproductions of Disney’s copyrighted works.

Disney moved for a preliminary injunction enjoining Redbox from selling or transferring the digital download codes, but the district court initially denied the motion, based on Disney’s terms of use on the streaming sites and the specific language printed on the Combo Packs, which stated that only the owner of a physical DVD could use the code. (Read our summary of the court’s decision here). Disney subsequently revised its terms of use and language printed on the Combo Packs, filed an amended complaint, and moved for a preliminary injunction.

This time, the district court granted Disney’s request, finding that Disney’s revised language created a restrictive license because it limited Combo Packs to “personal use” and provided that the codes “may not be sold separately and may be redeemed only by recipient of this combination package or a family member.” The court held that, because Redbox affirmatively instructed customers to purchase and redeem download codes in violation of the terms of use, Disney demonstrated a likelihood of success on the merits of its contributory infringement claim.

Redbox argued that the revised restrictions were unenforceable because Disney did not sufficiently restrict the licenses at the time of the initial sale of the Combo Packs, and therefore customers did not demonstrate the necessary assent to the revised online terms. The court rejected this argument, finding that the revised terms of use were akin to the “money now, terms later” characteristics of shrink-wrap agreements, in which acceptance is demonstrated not by purchase but by post-purchase silence.

The court also rejected Redbox’s argument that the Combo Packs were deficient “box-top” license agreements, because Ninth Circuit precedent holds that a party assents to a license when it opens a package that sets forth sales conditions of a license and provides consideration in the form of a reduced price. Furthermore, customers accepted the revised terms because Disney specifically provided that purchasers had the right to return the packs for a refund if they did not like the terms — a “critically important” factor, according to the court. The court explained that a customer, who is subject to later-disclosed licensing terms, can “meaningfully assent” only when it has the opportunity to reject the terms by returning the product for a refund.

The court also rejected Redbox’s first sale doctrine defense because, at the time Redbox purchases or sells a download code, no particular fixed copy of a copyrighted work yet exists. Therefore, there can be no “first sale.”

In denying Disney’s initial request for a preliminary injunction, the court found that the terms constituted copyright misuse and unenforceable restrictions on alienation of the discs. On the renewed motion, the court found that Disney had cured those defects. By allowing Combo Pack purchasers to enjoy digital access regardless of whether they keep or dispose of the physical discs, the revised language provided for digital access conditioned on whether the code was purchased with the discs — not on physical possession of the discs, as the previous language did.

Last, the court held that Disney showed irreparable harm because Redbox’s code sales were damaging Disney’s relationships with its licensees. Redbox argued that it hadn’t yet sold its revised codes, such as for “Black Panther” and subsequent releases, but the court held that it could not determine Redbox’s motives and therefore Redbox’s “voluntary decision not to sell certain [c]odes at that time, does not demonstrate a lack of irreparable harm.” The court ordered Redbox to stop selling or transferring stand-alone codes originally included in Combo Packs for 90 days, but indicated that the 90-day period could be extended if Disney presented evidence that purchasers who do not agree to license terms may return codes or Combo Packs for a refund.