Disney Enters., Inc. v. VidAngel, Inc., Case No. 2:16–cv–04109–AB (PLAx)

• Court: United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
• Writing for the Court: HONORABLE ANDRÉ BIROTTE JR., UNITED STATES DISTRICT COURT JUDGE
• Citation: 224 F.Supp.3d 957
• Parties: DISNEY ENTERPRISES, INC.; Lucasfilm Ltd. LLC; Twentieth Century Fox Film Corporation and Warner Bros. Entertainment, Inc., Plaintiff, v. VIDANGEL, INC., Defendant.
• Docket Number: Case No. 2:16–cv–04109–AB (PLAx)
• Decision Date: 12 December 2016

224 F.Supp.3d 957

DISNEY ENTERPRISES, INC.; Lucasfilm Ltd. LLC; Twentieth Century Fox Film Corporation and Warner Bros. Entertainment, Inc., Plaintiff,
v.
VIDANGEL, INC., Defendant.

Case No. 2:16–cv–04109–AB (PLAx)

United States District Court, C.D. California.

Signed December 12, 2016

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Allyson Bennett, Glenn D. Pomerantz, Rose Leda Ehler, Kelly M. Klaus, Munger Tolles and Olson LLP, Los Angeles, CA, for Plaintiff.

Brian T. Grace, Ryan G. Baker, Scott Matthew Malzahn, Jaime W. Marquart, Baker Marquart LLP, Donald R. Pepperman, Maxwell M. Blecher, Taylor Chase–Wagniere, Blecher Collins Pepperman and Joye PC, Brendan Stephen Maher, Daniel L. Geyser, Elizabeth Rogers Brannen, Peter K. Stris, Stris and Maher LLP, Los Angeles, CA, David W. Quinto, VidAngel Inc., Beverly Hills, CA, for Defendant.

ORDER GRANTING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

HONORABLE ANDRÉ BIROTTE JR., UNITED STATES DISTRICT COURT JUDGE

Pending before the Court is Plaintiffs' Disney Enterprises, Inc., Lucasfilm Ltd. LLC, Twentieth Century Fox Film Corporation, and Warner Bros. Entertainment Inc. ("Plaintiffs") Motion for Preliminary Injunction. ("Mot." Dkt. No. 26–1.) Plaintiffs seek to enjoin Defendant VidAngel Inc. ("VidAngel") from [1] violating Plaintiffs' rights pursuant to § 1201(a) of the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 1201(a), by circumventing technological measures that effectively control access to Plaintiffs' copyrighted works on DVDs and Blu-ray discs; and [2] infringing by any means, directly or indirectly, Plaintiffs' exclusive rights under § 106 of the Copyright Act, id. § 106, including by reproducing or publicly performing Plaintiffs' copyrighted works.

Plaintiffs bring this motion on the grounds that they are likely to succeed on the merits of their claims and that they will suffer irreparable harm, absent an injunction. Plaintiffs contend that the balance of equities tips decidedly in their favor, and an injunction is in the public interest. Furthermore, Plaintiffs contend that VidAngel's defenses to violating Plaintiff's rights are meritless and thus Plaintiffs are entitled to a preliminary injunction against Defendants. VidAngel filed an opposition and the Plaintiffs filed their reply. The Court heard oral arguments from the parties on November 14, 2016 and took the matter under submission. Upon consideration

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of the parties' arguments, papers and the case file, the court hereby GRANTS the motion for preliminary injunction.

I. BACKGROUND

a. Factual and Procedural Background

i. Plaintiffs and Their Copyrighted Works

Plaintiffs are in the business of producing and distributing motion pictures and television programs. ("Compl." Dkt. No 1 ¶ 19.) Plaintiffs invest considerable effort and resources each year to develop, produce, distribute and publicly perform their Copyrighted Works. (Id. at ¶ 25.) Plaintiffs own and have the exclusive U.S. rights to reproduce and publicly perform their Copyrighted Works, including by means of streaming those works over the internet to the public. (Id. at ¶ 25.) Plaintiffs distribute and license their content for home entertainment across a number of channels. (Id. at ¶ 27.) These include, among others: (1) physical Discs; (2) digital download through services like iTunes, VUDU or Amazon Video; (3) on-demand streaming for short-term viewing on a per transaction fee (e.g., iTunes Store or Google Play Store); or (4) subscription on-demand streaming (e.g., Netflix or Hulu). (Cittadine Decl. ¶ 9.)

Plaintiffs strategically release their content across different distribution channels and to different licensees over time, a process called "windowing." (Id. ) The value and price for each offering is tailored to the willingness of customers (and licensees) to pay for those offerings. (Id. ) Plaintiffs often negotiate higher licensing fees in exchange for granting a licensee the exclusive right to perform a movie or television show during a particular time period. (Id. ) Plaintiffs assert that online and digital distribution channels have become increasingly important revenue sources. (Id. ¶ 10.)

ii. VidAngel's Service

VidAngel offers more than 2,500 movies and television episodes for purchase on its website. Answer/Counterclaim ("CC," Dkt. No. 77 ¶ 59.) VidAngel purchases physical copies of each of these titles in DVD format. (Id. ) VidAngel enters each DVD it has purchased into an inventory management application database and assigns a unique barcode to each physical disc case. (Id. at ¶ 60.) VidAngel then uses a commercially available software program to decrypt a copy of each individual title. (Meldal Dec., ¶ 37(ii).) After decryption, VidAngel creates "intermediate" files. (Oppo. at 17.) VidAngel tags the files for over 80 types of potentially objectionable content. (Meldal Dec., ¶¶ 33–38.)

Before watching a particular movie or television episode, a customer must purchase a physical DVD containing the title from VidAngel. (CC ¶ 63.) The purchase price for each DVD is $20. (Id. ¶ 64.) To purchase a disc, users must logon to the VidAngel website. First-time users are required to provide an email address to establish a unique user ID and create a password. (Id. ) Once a purchase transaction has occurred, the disc is removed from available inventory and the title is transferred to that customer's unique user ID. (Id. at 65.) VidAngel typically maintains possession of the physical DVD on behalf of the purchasers, but purchasers may request that the DVD be sent to them or retrieve the DVD from VidAngel's offices. (Id. ¶ 63.)

After a customer purchases a physical DVD they are shown a listing of the various types of potentially objectionable content identified in the purchased work, as well as the number of occurrences of each such type of content within the work. (Id.

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¶ 62.) The user then selects the types of content he or she wishes to have silenced or deleted. (Id. ) Each user must apply at least one filter in order to view a video. (Id. ¶ 30.) After selecting filters, a subscriber is able to view the stream instantaneously on any VidAngel-supported device, including Roku, Apple TV, Smart TV, Amazon Fire TV, Android, Chromecast, iPad/iPhone and desktop or laptop computers. (Id. ¶ 66.)

Once a user has viewed a stream, the user may re-sell the DVD back to VidAngel for a partial credit of the $20 purchase price. (Id. ¶ 68.) The sellback price decreases $1 per night for standard definition (SD) purchases and $2 per night for high-definition (HD) purchases. (Id. ) Once a user sells the movie back to VidAngel, the user's access to the title is terminated and the remaining balance is credited back to the user's VidAngel account. (Id. ) For example: A $20 SD disk is owned for 2 nights at $1 per night and sold back for $18 in sell-back credit. (Id. ) If a VidAngel customer keeps a DVD for more than 20 days, he or she can either view it through the VidAngel platform in perpetuity, sell it back for $1 or $2 in credit, or VidAngel will send the DVD to the customer, if requested. (Id. )

At the time of this motion, VidAngel offered over 80 of Plaintiff's copyrighted works on their website. (Compl. Ex. A.; Ehler Decl. Ex. EE at Tr. 27:19–29:14.) Plaintiffs have not provided authorization, permission or consent to VidAngel to copy or publicly perform the Copyrighted Works, or to exercise any other rights affecting their copyrights with respect to the Copyrighted Works. (Compl. ¶ 29.)

On June 9, 2016, Plaintiffs commenced this action by filing a complaint against Defendants. (Complaint, Dkt. No. 1.) On July 5, 2016, Defendants filed an answer and counterclaim. (Dkt. No. 11.) On August 22, 2016, Plaintiffs filed a Motion for Preliminary Injunction. (Dkt. No. 27) On September 16, 2016, Defendants filed an Amended Answer and Affirmative Defenses, as well as First Amended Counterclaims. (Dkt. No. 77.)

II. LEGAL STANDARD

Injunctive relief is "an extraordinary remedy that may only be issued upon a clear showing that plaintiff is entitled to such relief." Winter v. Natural Resources Defense Council , 555 U.S. 7, 129 S.Ct. 365, 376, 172 L.Ed.2d 249 (2008). The purpose of a preliminary injunction is to preserve the status quo and the rights of the parties until a final judgment on the merits can be rendered. U.S. Philips Corp. v. KBC Bank N.V. , 590 F.3d 1091, 1094 (9th Cir. 2010). A party seeking preliminary injunctive relief must establish that they are (1) likely to succeed on the merits; (2) that they are likely to suffer irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in their favor and (4) that an injunction is in the public interest. Am. Trucking Ass'n, Inc. v. City of Los Angeles , 559 F.3d 1046, 1052 (9th Cir. 2009).

Alternatively, " ‘serious questions going to the merits' and a hardship balance that tips sharply toward the plaintiff can support the issuance of an injunction," provided that the plaintiff also shows irreparable harm and that the injunction is in the public interest. Alliance for the Wild Rockies...