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David v. Goliath: Redbox Sues Universal Studios Home Entertainment

Redbox Automated Retail, LLC (Redbox) has built a growing business renting DVDs for only $1 per day from their bright red kiosks. In the lawsuit filed in Federal Court on October 10, Redbox claims that Universal Studios Home Entertainment (USHE) and 3 subsidiaries are trying to force changes that will constrain Redbox and its business model.

redbox.jpgIn a meeting on August 26, USHE gave Redbox until close of business on August 27, 2008 to agree to the following:

Redbox is immediatedly prohibited from renting any DVDs for 45 days after the public release date

Redbox must limit the number of copies of USHE DVDs in any particular kiosk

Redbox is prohibited from selling any USHE DVDs and must destroy all previously rented copies

Under the currently successful Redbox business model, Redbox stocks new release DVDs in kiosks on the date of public release, in large quantities and sells previously viewed DVDs for $7 as early as 12 days after release.

This model is in large part responsible for the growth of Redbox from 125 kiosks in 2004 to over 6500 at the end of 2007. The projections for 2008 call for 12,000 kiosks.

Putting teeth in their “my way or the hi-way” proposal, USHE stated it will terminate relationship with both Redbox DVD distributors; VPD and Ingram.

Instead of agreeing to the new terms, Redbox filed suit in Federal Court. In the suit, Redbox is claiming that UHSE and subsidiaries have violated the Sherman Antitrust Act and are misusing copyright laws.

Redbox is asking for the court to award the following relief:

a. A declaration that Defendants’ conduct constitutes copyright misuse, and
thereby renders copyrights for Universal DVDs – however marketed, sold
or distributed – unenforceable during the period of misconduct;
b. Injunctive relief prohibiting USHE from engaging in any efforts to limit
the supply of Universal DVDs to Redbox;
c. A declaration that the Revenue Sharing Agreement and USHE’s
threatened action against VPD and Ingram violate the Sherman Antitrust
Act;
d. Damages to the full extent permitted by law;
e. Attorneys’ fees and costs; and
f. Such further relief as this Court deems just and appropriate.