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`ORIGINAL
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF DELAWARE
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`JURY TRIAL DEMANDED
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`) ) )) )
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`) )
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`) )
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`REDBOX AUTOMATEDRETAIL, LLC,
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`Plaintiff,
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`VS.
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`WARNER HOMEVIDEO, a division of
`WARNER BROS. HOME
`ENTERTAINMENT,INC.
`
`Defendant.
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`
`
`COMPLAINT
`Plaintiff Redbox Automated Retail, LLC (“Redbox”) makes the following allegStion’
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`against Defendant Warner Home Video, a division of Warner Bros. Home Entertainment, Inc.
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`(““Warner” or ““Defendant”):
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`OVERVIEW
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`1.
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`Warner is the largest distributor of filmed entertainment in the world. Warner
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`distributes digital video discs (“DVDs”) for home video use. These DVDs contain filmed
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`entertainment product produced or otherwise acquired by the various content-producing
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`subsidiaries and divisions of Warner’s ultimate parent, Time-Warner, Inc. These subsidiaries and
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`affiliates include Warner Bros. Pictures, Warner Bros. Television, New Line, Home Box Office
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`and Turner Broadcasting System.
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`2.
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`Redbox is the nation’s leading, low-cost alternative for consumers to rent DVDs
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`for home entertainment. Redbox rents and sells DVDs to consumers through innovative,
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`consumer-friendly means:
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`automated, self-service kiosks located at various retail outlets.
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`Consumer demand for Redbox has exploded since the company’s inception in 2002, primarily
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`due to Redbox’s efficient means of providing consumers with low-cost, easily accessible DVD
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`releases on the day those new-release DVDs becomeavailable to the general public.
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`3.
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`Historically, the movie industry has weathered recessions — and even a depression
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`— better than most other sectors of the economy. People simply need some form of release from
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`their financial pressures, even if just for a couple of hours, during tough economic times.
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`Redbox offers that release to millions of consumer across America through a simple, “Dollar-
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`Per-Night” value proposition. Despite clear consumer preference for
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`this
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`lower-priced
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`alternative, Warner seeks to strangle that alternative to prop up an artificially high pricing
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`scheme. Warner’s tactics — cutting off Redbox’s sources of supply unless Redbox acquiescesto a
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`business-killing “blackout period” — hearkens back to the days when Warner and other studios
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`controlled the entire distribution chain under the old “studio system,” when they sought to choke
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`off the supply of content to the new television medium during its infancy, and later, when they
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`fought the introduction of the VCR in the 1980s. Now, despite the fact that consumers are being
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`battered by one of the toughest recessions in history, Warner again wants to restrict supply and
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`imposehigherprices.
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`4,
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`Warner seeks to eliminate consumers’ ability to enjoy low-cost new-release DVD
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`rentals from Redbox. Specifically, on August 13, 2009, Warner informed its wholesalers that it
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`would no longer permit them to sell its DVDs to kiosk rental companies, like Redbox, thereby
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`effectively prohibiting long-time wholesale distributors such as Ingram Entertainment,
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`Inc.
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`(“Ingram’’) and Video Product Distribution (“VPD”) from selling to Redbox. Warneralso stated
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`that it will enforce a 28-day blackout period respecting the provision of its DVDs to kiosk rental
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`companies, effectively forcing consumers to rent these DVDs only through more expensive
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`channels.
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`5.
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`Consumer demand for a DVDisat its highest immediately after its release and
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`declines substantially within a period of weeks thereafter. Warner’s unlawful actions harm
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`consumers by decreasing the available supply of copyrighted new-release DVDs, reducing
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`consumerchoice in the marketplace and increasing the prices that consumers must pay. Warner
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`seeks to unlawfully eliminate the popular and growing kiosk distribution channel, which
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`provides low-cost, highly-convenient new-release DVD rental. Warner seeks to eliminate
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`consumers’ ability to enjoy Redbox’s “Dollar-Per-Night” rental rate for new-release DVDs.
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`6.
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`Warner’s actions constitute copyright misuse, violate the antitrust
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`laws and
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`tortiously interfere with Redbox’s existing supply contracts with its distributors. Redbox seeks
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`the following relief against Warner:
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`(1) declaratory relief;
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`(2) injunctive relief;
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`(3) money
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`damages; (4) attorneys’ fees and costs; and (5) such further relief as this Court deems just and
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`appropriate.
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`In particular, Redbox is entitled to a declaration that Defendant’s conduct renders
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`its copyrights unenforceable so long as Warner continues to engage in its inequitable andillegal
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`conduct.
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`THE PARTIES
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`7.
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`Redbox is a Delaware limited liability company with its principal place of
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`business in OakbrookTerrace,Illinois.
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`8.
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`Warner is a Delaware limited liability corporation with its principal place of
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`business in New York, New York. Warner is one of the world’s leading distributors of motion
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`pictures. Warner is a subsidiary of Warner Bros. Entertainment, Inc., which in turn is a
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`subsidiary of Time Warner, Inc. Time Warner, Inc.’s other subsidiaries include AOL, New Line
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`Cinema, Time Inc., HBO, Turner Broadcasting System, The CW Television Network,
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`TheWB.com, Kids’ WB, The CW4Kids, Cartoon Network, Adult Swim, CNN, DC Comics, and
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`Warner Bros. Games.
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`9.
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`Warner currently distributes DVDs by and through various distributors, including
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`Ingram and VPD, both of which, in the absence of Warner’s illegal and tortious behavior, would
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`continue to sell Warner DVDs to Redbox as they have donefor years.
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`10.|Non-party Ingram is a Tennessee corporation with its principal place of business
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`in La Vergne, Tennessee. Ingram is a wholesale distributor of DVDs.
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`11.
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`Non-party VPD is a California corporation with its principal place of business in
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`Folsom, California. VPD is a wholesale distributor of DVDs.
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`JURISDICTION AND VENUE
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`12.
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`Subject matter jurisdiction exists over Counts I, II, UI, [V and V of this action
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`pursuant to 28 U.S.C. § 1331, 17 U.S.C. §§ 101, et seg. (Copyright Act) and 15 U.S.C. §§ 1, et
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`seg.
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`(Sherman Antitrust Act), and 28 U.S.C. §§ 1337, 1338. Supplemental subject matter
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`Jurisdiction over Count VI exists pursuant to 28 § U.S.C. 1367. Pursuant to 28 U.S.C. §§ 2201-
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`02, this Court may declare the rights and other legal relations of the parties because there exists
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`an actual controversy between them.
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`13.
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`Personal jurisdiction exists over Warner because it does business and resides in
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`the State of Delaware. Venue is proper pursuant to 28 U.S.C. § 1391 because Warner is
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`organized under the laws of the State of Delaware and thus “resides” for purposes of § 1391
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`within that state.
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`FACTUAL ALLEGATIONS
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`Redbox’s Consumer-Friendly Business Model
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`Since the introduction of DVDs into the marketplace, the DVD has becomethe
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`A.
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`14.
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`dominant medium for the distribution of movies for home viewing.
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`15.|Redbox was founded in July 2002, when the company deployed DVD rental
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`kiosks in a “test market” in Washington, D.C. After initial success in that market, Redbox chose
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`Las Vegas, Nevada, as a second “test market” in 2003. These test markets established that
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`consumers would enthusiastically turn to this convenient, low-cost source for new-release DVD
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`rentals and sales, and the company expanded.
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`16.
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`Redbox is an innovator. It has developed a highly-convenient, yet low-cost option
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`for consumers wishing to obtain DVDs. Redbox provides DVDs to consumers through a
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`nationwide network of over 17,000 self-service kiosks. Each kiosk features an interactive touch
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`screen and sign, a robotic disk array system and a web-linked electronic communications system
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`that allows customers to rent or buy DVDs. Kiosks typically hold up to 700 DVDs comprising
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`70-200 individual titles. The kiosks are updated weekly with a supply of new-release DVDs. A
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`single kiosk may hold up to as manyas forty-five (45) copies of a popular new-release DVD.
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`17.
`
`Consumers use credit cards to rent or purchase DVDs from Redbox. They can
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`also search for and reserve DVDsonline through Redbox’s website. Consumers enjoy theability
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`to rent DVDsat one location and return them at any other Redbox location, thanks to Redbox’s
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`patented rent and return system. For instance, a family can rent the latest Disney movie at a
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`McDonald’s restaurant on Friday night, and return it
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`to their neighborhood Albertson’s
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`supermarket when shopping the next day.
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`In 2007, readers of “SelfServiceWorld” magazine
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`ranked Redbox as the No.
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`1 self-service application, besting other kiosks deployed by NCR,
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`IBM,Kodak and Starbucks, among others.
`
`18.
`
`Consumers love Redbox. Consumer demand for Redbox rentals and sales has
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`grown substantially in the last five years. Redbox had 125 kiosks in 2004, had nearly 6500 by
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`the end of 2007 and had over 12,000 kiosks nationwide at the end of 2008. Consumer demand
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`has enabled Redbox to surpass Blockbuster, Inc. Redbox now has nearly four times the number
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`of DVD rental locations in the United States that Blockbuster has. To date, consumers have
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`rented nearly 500 million DVDs from Redbox. Consumers average approximately 50 DVD
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`rentals per day per kiosk, and in the first half of 2009, Redbox rented an average of 27 million
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`DVDs per month.
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`Indeed, consumer demand has supported Redbox’s expansion such that
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`Redbox installed a new kiosk, on average, every 58 minutes somewherein the United States this
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`year. Aspart of this expansion, Redbox hired over 600 new employees duringthe past year.
`
`B.
`
`The Market For Redbox DVD Rental
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`19.
`
`Consumers currently find Redbox kiosks located in retail outlets such as
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`McDonald’s restaurants, Walmart stores, grocery stores such as Albertson’s, Kroger, Stop &
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`Shop, Harris Teeter, and Meijer’s, convenience stores like 7-Eleven, drug stores such as
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`Walgreen’s, and Navy and Marine bases throughout the continental United States and Puerto
`
`Rico. Redbox has contracts for these placements. Much of Redbox’s success depends on
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`maintaining a business model
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`that satisfies the expectations of its retail outlets, as well as
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`consumers.
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`20.
`
`Consumerpreference for Redbox rentals can largely be attributed to its ability to
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`conveniently provide consumers with low-cost rentals on or soon after the day that a DVD is
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`released by a studio and made available for home viewing. This release date is known as the
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`“street date.” By industry convention, the “street date” for nearly every new-release DVDis on
`
`Tuesday of the week ofits release. Consumer demand for a new-release DVDis the highest
`
`during the weekend immediately after its street date and declines substantially thereafter. Over
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`thirty percent of a new-release DVD’s revenue is generated during the first two weeks of its
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`release. More than sixty percent of the rental demand for a particular title occurs within forty-
`
`five days of the street date.
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`In this Complaint, a “new-release” DVDrefers to those DVDsthat
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`are within 28 daysoftheir street date.
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`21.
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`The primary reason that consumers prefer using Redbox, rather than alternative
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`means such as brick and mortar stores, is Redbox’s low cost. Whereas consumers can rent from
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`Redbox for $1 per night, the average price that consumers pay to rent a movie from outlets such
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`as Blockbuster is approximately $4.00. Through convenient and lowercost rental, Redbox saves
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`consumers a total of more than $38 million per month. The result of Redbox’s moreefficient
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`distribution of new-release DVDs is not just lower prices. Redbox customers report that they
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`watch 20% morefilms because of Redbox’s low-cost, consumer-fnendly model.
`
`Cc,
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`22.
`
`The New-Release DVD Industry And Market
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`New-release DVDs for rental or resale are perishable goods, like milk or fruit;
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`their value drops rapidly and materially almost from the first date they appear ontheshelf.
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`23.|Consumer demand for a new-release DVDis different from consumer demand for
`
`back-catalog DVDs,
`
`i.e., DVDs that have been on the market for longer periods. Like the
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`difference between fresh produce and canned goods,or the difference betweenfirst-run theatrical
`
`films and older films that are displayed in smaller theaters and at lower prices, new-release
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`DVDs constitute a separate market.
`
`In economic terms, the cross-elasticity of demand between
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`new-release DVDs and back catalog items is low. This is reflected, among other ways, by
`
`different pricing and different marketing for new-release DVDs, as opposed to older, back-
`
`catalog DVDs. The demand for new-release DVDsis price inelastic due to the monopoly power
`
`arising from Warner’s government-granted copyright.
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`24.|Warnerrecruits new audiencesfor each ofits theatrical films by advertising on its
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`television and cable networks, and then attempting to ensure that the audience will not defect to
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`another film by scheduling, or rescheduling, the release date of its film to a date whenthere will
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`be no competition. For instance, the National Research Group — which has been described as a
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`“secretive research group that helps run the movie business” - supplies a “Competitive
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`Positioning” report to major studios. The NRG polls likely moviegoers to project how well
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`upcoming movies will do against each other in each audience quadrant (males under 25, males
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`over 25, females under 25, females over 25) should they be released during the sametimeperiod.
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`A “losing” studio will reschedule the release of a film to a different time period, evenif it is less
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`advantageous (i.e. not
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`the summer and not
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`the holidays). Warner avoided head-to-head
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`competition with Fox’s “Fantastic Four’ by releasing “Batman Begins” in mid-June — a few
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`weeksbefore the Fox release. Similarly, Fox avoided head-to-head competition with “War ofthe
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`Worlds” during a coveted Fourth of July weekendbyreleasing its “Fantastic Four” a weeklater.
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`As a result all three films won their weekend box office and could advertise themselves, as
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`Fantastic Four did, as “America's No.
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`1 hit.” On information and belief, the studios apply
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`similar approach to avoiding competition through the scheduling of street dates for their new-
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`release DVDs.
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`25.
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`Because of this industry practice, a particular new-release DVD is generally not
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`an acceptable substitute for another new-release DVD. Studios work hard to ensure that a
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`release in a particular category, or genre, does not share its street date with anotherrelease in the
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`same category or genre. Moreover, consumers seeking to rent a new-release DVD generally
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`search bytitle, or by genre. Video rental stores are laid out this way. So are video rental
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`websites and so, too, are the menus of Redbox DVDrental kiosks. This is because consumers
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`seeking a family-oriented new-release DVD will not often rent a new-release action DVD
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`instead. Accordingly, Redbox, like others in the new-release DVD rental business, categorizes
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`DVDsbytitle, by release date and also by their genre. Each category, or genre, constitutes a
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`distinct submarket within the overall new-release DVD market. Commoncategories, or genres,
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`include:
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`action/adventure, comedy, drama, family and kids, horror and sci-fi, suspense and
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`others. There is low cross-elasticity of demand among consumers for new-release DVDs of
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`different genres. Consumers who want to see a movie in the “Harry Potter” series would not be
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`likely to accept “/7 Again” as a substitute for that film.
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`26.
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`Release dates for new-release DVDsare timed so that a particular new-release
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`DVDtitle will face as little competition as possible with other new-release DVDs in the same
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`genre. Thus, for example, the Warner DVD teen comedy “/7 Again,” was released on Tuesday,
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`August 11, 2009, whenit directly competed with few,if any, other comedy DVDs.
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`27.
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`There are relatively few major releases in a given month, contrary to popular
`
`belief. Over the past three years, on average, only about five movies are released each month
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`which earned $50 million or more at the box office. Their street dates are coordinated to avoid
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`competition with other new-release DVDsin the samegenre.
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`28.|Because of the inelastic demand for each particular new-release DVD, Warner
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`possesses significant market power for a particular new-release DVD and, in the alternative,
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`within a specific category or genre during the weeks immediately following the street date.
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`Consumers have few, if any, acceptable substitutes for a particular new-release DVD in a
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`particular category or genre during the relevant time period.
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`29.
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`Because demand peaks for a new-release DVD im the first weekend followingits
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`release, consumersalso value Redbox’sability to stock multiple copies (as stated above, as many
`
`as 45 copies per kiosk in someinstances) of popular, high-demand new-release DVDs.
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`D.
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`Warner’s Decision To Tortiously Interfere With Redbox’s Relationships With
`Ingram and VPD And To Shut Off Redbox’s Supply Of Warner New-Release
`DVDs
`
`30.
`
`On August 13, 2009, Mark Horak and Mark Saksa, Warner’s President and Vice
`
`President- New Release Sales, respectively, telephoned Mitch Lowe, Redbox’s President. Horak
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`and Salsa indicated that, for Warner DVDswith release dates beginning in October 2009, Warner
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`would only provide product subject to a 28-day blackout period. Horak stated that Warner would
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`forbid VPD, Ingram and other traditional distributors from distributing new-release Warner
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`DVDs to Redbox. Additionally,
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`these distributors would be prohibited from purchasing
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`previously-viewed Warner DVDsfrom Redbox.
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`E.
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`Redbox’s Relationship With Ingram and VPD
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`31.|Redbox hashistorically been able to meet consumer demand for multiple copies
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`of new-release Warner DVDs for rental on a title’s street date because of its longstanding
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`contractual and business relationships with its distributors, VPD and Ingram. Redbox has
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`historically purchased all, or nearly all, of its supply of new-release Warner DVDs from these
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`distributors, and Redbox had enjoyed long term, mutually beneficial business relationships with
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`VPD and Ingram with respect to purchase of new-release Warner DVDs.
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`32.|Redbox has a supply contract with Ingram (the “Ingram Supply Contract”
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`(attached as Ex. A, redacted so as to protect sensitive commercial
`
`information)) that gives
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`Redbox the right to purchase Warner DVDsfrom Ingram, and similarly obligates Ingram to sell
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`to Redbox, upon Redbox’s request, Warner DVDs. Specifically, the Ingram Supply Contract
`
`requires Ingram to order DVDs from the studios. The term “studios” has,
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`throughout the
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`relationship between Redbox and Ingram, always included Warnerandits affiliates.
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`33.
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`The Ingram Supply Contract also contains a “DVD Buy Back” clause that permits
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`Redbox to sell and obligates Ingram to “repurchase from Redbox (‘Buy Back’) new-release
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`DVDproduct” pursuant to a timeframetied to the title’s street date. Under this arrangement,
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`Ingram purchases back significant amounts of previously-viewed DVDs from Redbox, and in
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`turn sells them to other buyersin the distribution stream.
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`34.|Redbox hasa similar business relationship with VPD, although the agreementis
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`not reflected in a single integrated document. VPD has always permitted Redbox to buy Warner
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`DVDs from VPD and receive these Warner DVDsin advance of their street date. VPD, like
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`Ingram, holdsitself out as having the ability to provide retailers like Redbox accessto all of the
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`titles released by the major Hollywood studios, which includes Warmer. As with Ingram, Redbox
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`is able to sell back significant amounts of previously-viewed DVDs to VPD, which in turn sells
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`them to other buyers in the distribution stream.
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`
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`35.|Notwithstanding these contractual relationships, VPD and Ingram will, by
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`necessity, bow to Warner’s coercion and stop filling Redbox’s orders for Warner DVDs with
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`release dates beginning in October 2009. Thefirst Warnertitle affected by Warner’s edict is The
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`Orphan, which hasa street date of October 27, 2009. Other affected titles include Zerminator
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`Salvation and Harry Potter and the Half Blood Prince, with street dates of December 1, 2009
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`and December8, 2009, respectively. Under the 28-day blackout, neither title would be available
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`for rental during the peak 2009 Holiday Season.
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`36.
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`Absent Warner’s unlawful acts, Redbox would have continued to purchaseall, or
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`nearly all, of its supply of Warner DVDs from VPD and Ingram beyond October 2009 and into
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`the foreseeable future. Warner’s ability to stop Ingram and VPD from selling to Redboxis due to
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`Warner’s dominant market position and monopolistic power within the industry with respect to
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`its unique, new-release DVDs.
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`Because Warner has ordered all of its distributors and
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`wholesalers to stop selling to Redbox, Redbox lacks viable wholesale channels from which to
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`purchase new-release Warner DVDs.
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`F.
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`Warner’s Actions Are Unlawful And Substantially Harm Both Redbox and
`Consumers
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`37.
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`Warner’s actions, if not remedied by this Court, will restrict output, eliminate
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`competition in the rental and sales markets and artificially raise prices to consumers. Warner
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`seeks to restrict output, increase prices andartificially control the market for new-release DVD
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`rentals and re-sales.
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`38.
`
`Warner has nolegally valid right to restrict or govern how or to whom VPD and
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`Ingram resell Warner DVDs that they have purchased. But because of Warner’s monopoly
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`power derived from its government-granted copyrights, and its position within the industry,
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`Warner has the power to unlawfully coerce VPD and Ingram to not sell new-release Warner
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`DVDsto Redbox. Faced with the prospect of being denied access to new-release Warner DVDs,
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`VPDandIngram have had no choice but to acquiesce to Warner’s demands, and accordingly will
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`refuse to fill Redbox’s orders for Warner DVDs beginning in October 2009 — even though
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`Redbox is entitled to have these orders filled pursuant to its supply contracts with VPD and
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`Ingram. A list of Warnertitles that will be affected by the boycott appears at Exhibit B. Thus, as
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`a result of Warner’s unlawful acts, Redbox will no longer have access to new-release Warner
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`DVDsthrough its normal wholesale channels.
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`39.
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`Warner’s actions, if allowed to stand unchecked, will artificially constrain output
`
`by preventing consumers from renting new-release Warner DVDs from Redbox and other kiosk
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`rental outlets. Warner’s true purpose in demanding that VPD and Ingram stop selling to Redbox
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`is to eliminate the independent kiosk as a low-cost consumer choice and thereby create an
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`artificial shortage of product with a correspondingly high artificial price for rental or re-sale of
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`new-release Warner DVDs. Warnerseeks to eliminate the low-cost, highly-convenient and fast-
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`growing Redbox channel, because (1) Redbox (and other independent kiosk vendors) threaten to
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`undercut the artificial pricing of the distribution structure that Warner seeks to establish; and
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`(2) by virtue of its monopoly power, Warner seeks to capture excess revenue from artificially
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`high prices for new-release DVDrentals and re-sales.
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`779212.5
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`COUNT I
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`DECLARATORY RELIEF: COPYRIGHT MISUSE
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`40.|Redbox incorporates the allegations set forth in paragraphs 1 through 39, above,
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`as if fully set forth herein.
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`Al,
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`Copyright law provides copyright holders only a limited monopoly in order to
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`enhance retail competition and maximize dissemination of copyrighted works to the general
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`public. The first-sale doctrine prevents copyright holders from extending the monopoly beyond
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`the initial sale of the copyrighted work. Thus, Congress expressly provided that “[T]he owner of
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`a particular copy... lawfully made under [Title 17 of the United States Code]... is entitled,
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`without the authority of the copyright owner, to sell or otherwise dispose of the possession of
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`that copy...” 17 U.S.C. § 109(a).
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`42.
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`The public policy behind copyright
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`law favors the enhancement of retail
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`competition and the maximization of dissemination of copyrighted works. Anti-competitive
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`agreements or anti-competitive behavior, such as an unlawful group boycott, conflicts with this
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`public policy, subverts the goals of copyright law and constitutes “copyright misuse.” The
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`doctrine of copyright misuse prevents copyright holders from using their copyright to extend
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`their government-sanctioned monopoly beyond its proper scope. The existence of such anti-
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`competitive agreements or unlawful activity precludes the enforcement of the copyright during
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`the period of copyright misuse.
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`43.
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`Warner’s actions with respect to VPD and Ingram are unlawful, contrary to and
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`violative of, the first sale doctrine. Warner has improperly restricted the statutory right of VPD,
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`Ingram and other wholesalers to sell or otherwise dispose of the Warner DVDsthat they have
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`purchased. Defendant’s attempts to thwart the first sale doctrine of Section 109(a) of the
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`779212.5
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`Copyright Act violate the public policy embodied in the grant of copyright, and constitute
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`copyright misuse.
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`44.
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`Thereis an actual controversy over Warner’s copyright misuse because it has now
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`cut off Redbox’s wholesale supply sources. Consumers and Redbox will suffer harm as a result
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`of Wamer’s coercion of VPD, Ingram, and other sources to cease selling Warner DVDs to
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`Redbox.
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`45,
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`Redbox is entitled to a declaration that Warner’s actions constitute copyright
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`misuse and that Warner is precluded from enforcing copyrights for new-release Warner DVDs.
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`Further, Redbox is entitled to a declaration that so long as Warner continues to engage in its
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`inequitable conduct, Redbox may lawfully reproduce and sell copies of copyrighted Warner
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`DVDswithout incurring any liability pursuant to copyright law.
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`COUNTIT
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`VIOLATION OF SHERMAN ANTITRUST ACT: QUICK LOOK DOCTRINE
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`46.
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`Redbox incorporates the allegations set forth in paragraphs 1 through 45, above,
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`as if fully set forth herein.
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`47.
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`Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1) states that “Every contract,
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`combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce
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`among the several States, or with foreign nations, is declared to be illegal.”
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`48.
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`The boycott of Redbox orchestrated by Warner constitutes a naked restraint of
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`trade that will decrease the supply of new-release Warner DVDs in many,orall genres, reduce
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`consumerchoice in the various submarkets in the new-release DVD marketplace andartificially
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`increase prices that consumers will have to pay to rent or buy new-release DVDs in those
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`submarkets, thereby negatively affecting consumer welfare.
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`In simple terms, because of the
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`restraint, there are consumers who wantto renttitles like “Terminator Salvation” from Redbox
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`779212.5
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`for $1 per-night, but will be unable to do so because of the boycott. These consumers will now
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`either have to pay more elsewhere or do without.
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`49.
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`Warner’s actions are intended to unlawfully eliminate consumers’ ability to enjoy
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`new-release Warner DVDsfor a Dollar-Per-Night, and to eliminate Redbox’s ability to rent or re-
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`sell new-release Warner DVDs. Warner’s actions have no pro-competitive effect that would
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`enhance inter-brand or intra-brand competition with rentals or resales through other channels,
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`such as brick-and-mortar stores. Warner’s actions nakedly reduce output and increaseprices paid
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`by consumers for Warner DVDs. Warner’s scheme does not enhance competition with new-
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`release DVDs released by other copyright holders. Warner’s actions are so plainly anti-
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`competitive that even a “cursory exam” demonstrates that they constitute unlawful and illegal
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`restraint of trade in violation of Section 1 of the Sherman Act.
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`COUNTHil
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`VIOLATION OF SHERMAN ANTITRUST ACT;
`MISUSE OF COPYRIGHT
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`50.|Redbox incorporates the allegations set forth in paragraphs 1 through 49, above,
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`as if fully set forth herein.
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`51.
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`Each copyrighted work recorded on DVD constitutes an individual product
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`market. Each copyrighted work is unique, and each such unique work hasbeen granted a limited
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`governmental monopoly. The geographic market for each such copyrighted work is nationwide.
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`52.|Acopyright holder enjoys a “distribution right” and mayinitially sell, or not sell,
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`copies of a copyrighted work to others on such terms as he or she sees fit. However, the
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`copyright holder’s distribution right is limited to the first sale of the copyrighted item. Under the
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`“first sale” doctrine, codified at 17 U.S.C. § 109(a) “the distribution right may be exercised
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`779212.5
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`solely with respect to the initial disposition of copies of a work, not to prevent or restrict the
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`resale or other further transfer of possession of such copies.”
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`53.
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`Warner’s right to control distribution of copyrighted new-release Warner DVDs
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`ends once the DVD has been sold. The distribution nght may not lawfully be exercised after the
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`initial sale, “to preventor restrict the resale or further transfer of possession of such copies.”
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`54.
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`Warner’s boycott of Redbox exceeds the scope of the government-granted
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`distribution right, and violates the antitrust laws as an illegal restraint oftrade.
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`55.
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`As such, Warner has violated Section 1 of the Sherman Act and unlawfully
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`entered into agreements with VPD andIngram to restrain commerce within the United States.
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`COUNT IV
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`VIOLATION OF SHERMAN ANTITRUST ACT:
`UNREASONABLE RESTRAINT OF TRADE
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`56.|Redbox incorporates the allegations set forth in paragraphs 1 through 55, above,
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`as if fully set forth herein, and pleads, as an alternative to CountIII, as follows.
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`57.
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`Section 1 of the Sherman Antitrust Act
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`(15 U.S.C. §1) states that, “Every
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`contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or
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`commerce amongthe several States, or with foreign nations, is declared to be illegal.”
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`58.|New-release DVDsare introduced to the nationwide marketplace on a weekly
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`basis. Within the new-release market, a particular new-release DVD competes with another only
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`to the extent that consumers view oneas a reasonable substitute for another. As described above,
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`each DVD category,o