Summary:

When the Zediva DVD-streaming service popped up earlier this year, its novel legal strategy immediately became a subject of debate among law…

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photo: Zediva

When the Zediva DVD-streaming service popped up earlier this year, its novel legal strategy immediately became a subject of debate among law school professors and digital copyright pundits. Whatever the bounds of copyright are in the digital age, Zediva now appears to be outside them. A Los Angeles federal judge has hit the service with an injunction that will force Zediva to stop streaming very soon.

Zediva hoped to preserve its business with a legal argument that it wasn’t so different from a bricks-and-mortar DVD shop; Zediva was simply “place-shifting” the physical DVD rental, making the internet into essentially a “cord” from a user’s computer to a DVD player borrowed from Zediva. Unlike services like Netflix (NSDQ: NFLX) or digital rentals like those available on iTunes and Amazon (NSDQ: AMZN), Zediva never made a digital copy. It simply put a physical DVD into a DVD player located in its Silicon Valley data center and streamed the movie online to its customers.

It’s now clear that strategy, described by some as a “loophole,” isn’t going to work so easily. Zediva was hit with a lawsuit by the Motion Picture Association of America back in April, and although the small company lawyered up and vigorously defended itself, it’s now lost a key battle.

While the case isn’t over, this is a huge setback for Zediva. It can appeal this case to the 9th Circuit, but it will likely have to shut down while the case moves forward; in addition, this injunction order shows that the judge overseeing the case sees the studios’ case favorably.

The timing of yesterday’s ruling [PDF] by U.S. District Judge John Walter came as something of a surprise, since a motion hearing on the issue was scheduled for Aug. 8.

In a blog post, MPAA Vice President Dan Robbins said: “Judge Walter’s decision is a great victory for the more than two million American men and women whose livelihoods depend on a thriving film and television industry. Judge Walter rejected Zediva’s argument that it was ‘renting’ movies to its users, and ruled, by contrast, that Zediva violated the studios’ exclusive rights to publicly perform their movies, such as through authorized video-on-demand services.”

Walter also found that an injunction was appropriate because Zediva was putting the studios’ business in danger. “[B]ecause Defendants are exploiting Plaintiffs’ Copyrighted Works without paying the normal licensing fees, they deprive Plaintiffs of revenue, and even jeopardize the continued existence of Plaintiffs’ licensees’ businesses,” wrote Walter. He added that Zediva also “threatens the development of a successful and lawful video on demand market and, in particular, the growing internet-based video on demand market.

A Zediva spokesman said via e-mail: “Today’s ruling represents a setback for the hundreds of thousands of consumers looking for an alternative to Hollywood-controlled online movie services. Zediva intends to appeal, and will keep fighting for consumers’ right to watch a DVD they’ve rented, whether that rental is at the corner store or by mail or over the Internet.”

Zediva was hoping that it would be aided by an important legal precedent created when Cablevision (NYSE: CVC) beat the entertainment industry back in 2008. In that case, an appeals court ruled that Cablevision’s remote-DVR service was legal and not a public performance. But the Zediva judge said that case was different, because the copy being stored and transmitted by Cablevision was “a copy made by that subscriber.”

If you’ve got Zediva credits left-use them quick. Lawyers from the two sides are supposed to meet up within the next week, and agree on the injunction provisions by August 10.

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