Disney Enterprises, Inc. v. VidAngel, Inc.

In copyright infringement action brought by major movie studios against service that allows viewers to filter “objectionable” content out of motion pictures and television programs, district court dismisses antitrust counterclaims and strikes service’s copyright misuse defense.

Movie studios Disney Enterprises Inc., Lucasfilm Ltd. LLC, Twentieth Century Fox Film Corp. and Warner Bros. Entertainment Inc. sued VidAngel Inc., an unlicensed video-on-demand streaming service that allows customers to filter out “objectionable” content from movies and television shows. The studios claimed VidAngel infringed their copyrights and violated the anti-circumvention prohibitions of § 1201(a) of the Digital Millennium Copyright Act. After the court granted plaintiffs’ preliminary injunction motion (read our summary of the court’s decision here, the studios moved to dismiss VidAngel’s counterclaims for antitrust violations, intentional interference with prospective economic advantage and unfair competition under California law, and to strike VidAngel’s copyright misuse defense.

VidAngel’s antitrust counterclaim alleged horizontal and vertical conspiracy under § 1 of the Sherman Act. Plaintiffs, along with other studios, had signed a contract with the Director’s Guild of America in 2014 that included a provision requiring studios to consult with directors before editing their motion pictures. VidAngel argued that this provision barred any editing of a motion picture without the director’s approval, and that by agreeing to this provision, plaintiffs had engaged in a conspiracy to prohibit filtering services such as VidAngel. The district court disagreed, finding that the subject provision did not, in fact, prohibit editing content without director approval and, in any event, it did not address secondary filtering services such as those provided by VidAngel.

VidAngel also contended that the studios had entered an unwritten agreement to apply the DGA Agreement in a manner that would prohibit them from licensing filtering services. In support, VidAngel alleged that nonparty Lionsgate Entertainment Inc. had told VidAngel that it would not license movies for filtered streaming unless VidAngel received permission from the DGA. The court explained that an antitrust violation cannot be premised on “allegations that an anticompetitive agreement is a secret term of an otherwise public agreement” or on facts that could be explained by legal behavior just as easily as an illegal conspiracy. Applying these principles, the court found that the plain language of the DGA Agreement did not bar filtering services, and that Lionsgate could have plausibly required VidAngel to obtain DGA permission for legitimate business reasons — namely, a desire not to upset directors — rather than as the result of an anticompetitive agreement. 

The court also found that VidAngel’s antitrust claims were not supported by communications it allegedly had with third parties. Although VidAngel claimed that Google had told VidAngel that the DGA Agreement caused Google to “block” filtering technology, Google had, in fact, stated only that the studios’ agreements with directors “may not allow” Google to license to VidAngel. VidAngel also alleged that nonparty Sony refused to enter a licensing agreement with VidAngel, but VidAngel failed to allege that Sony’s refusal was based on the DGA Agreement or some “unstated agreement between the studios.” The court noted that, while VidAngel alleged Google had stated that other studios would not allow Google to partner with VidAngel, VidAngel had not cited any meetings during which it sought license agreements with other studios. 

VidAngel attempted to support its theory of horizontal conspiracy based on plaintiffs’ refusal to enter licensing agreements with, or sell DVDs directly to, VidAngel, allegedly against plaintiffs’ economic self-interest. The district court concluded, however, that plaintiffs’ refusal to enter a license agreement with VidAngel was a rational business decision, given that VidAngel only sought a license after plaintiffs filed their copyright infringement action. In addition, plaintiffs could reasonably conclude that selling DVDs directly to VidAngel would harm their economic interests, given VidAngel’s practice of reselling each DVD multiple times without any profit to plaintiffs. The court likewise rejected VidAngel’s claims that plaintiffs pressured content distributors such as Google Play, Netflix, Amazon and Hulu to not support VidAngel, finding that VidAngel had failed to provide details to plausibly support those allegations.

The court explained that, in order to establish a vertical antitrust conspiracy, VidAngel was required to allege that plaintiffs controlled a “dominant share” of the relevant market. However, plaintiffs’ respective market share — Fox’s 14.1 percent, Warner Brothers’ 16.5 percent and Disney’s 26.2 percent — were insufficient to constitute a dominant share. The court also rejected VidAngel’s argument that the studio’s percentages should be aggregated, as VidAngel had failed to allege any improper agreement between the studios to not license VidAngel.

The court granted plaintiffs’ motion to strike VidAngel’s defense of copyright misuse, which requires allegations of “restraining development of competing products,” because VidAngel’s filtering service is not in competition with the studios’ products, and because VidAngel failed to sufficiently allege that the studios were attempting to “control an area outside of [their] copyrighted works.”

VidAngel also asserted a counterclaim for intentional interference with prospective economic advantage, but the court found that VidAngel did not sufficiently allege an economic relationship with third parties such as Google, and that, in any event, VidAngel had not adequately alleged that plaintiffs interfered with any such relationship with Google. The court also dismissed VidAngel’s claim under California’s Unfair Competition Law for the same reasons it rejected VidAngel’s antitrust claim.

Finally, the court dismissed VidAngel’s counterclaim for a declaration that it was not liable under the Digital Millennium Copyright Act’s anti-circumvention provisions, because those issues would be resolved through the studios’ infringement claims or VidAngel’s affirmative defenses.

Summary prepared by Tal Dickstein and Joel Ernst