Disney Enterprises, Inc. v. VidAngel, Inc.

In unpublished opinion, Ninth Circuit affirms district court’s dismissal without leave to amend of VidAngel’s antitrust and unfair competition counterclaims in copyright infringement action brought by major movie studios against streaming service that allows viewers to filter “objectionable” content out of motion pictures and television programs.

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 granting plaintiffs’ request for a preliminary injunction, the district court dismissed VidAngel’s counterclaims for antitrust violations, intentional interference with prospective economic advantage and unfair competition under California law. VidAngel appealed the dismissal and the Ninth Circuit affirmed.

At the lower court level, VidAngel argued that since the 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, this provision constituted a conspiracy to prohibit filtering services. The lower court disagreed, finding that the provision did not, in fact, prohibit editing of content without director approval and, in any event, it did not address secondary filtering services like VidAngel. The studios’ collective refusal to license content to filtering services could be explained by legal behavior just as easily as an illegal conspiracy. The district court also dismissed VidAngel’s unfair competition claims pursuant to California’s Unfair Competition Law for these same reasons, and rejected the defendant’s counterclaim for intentional interference with prospective economic advantage, based on VidAngel’s failure to sufficiently allege either an economic relationship with third parties or interference by the plaintiffs.

On appeal, the Ninth Circuit held that VidAngel’s factual allegations did not give rise to any plausible claims for relief sufficient to avoid dismissal. With regard to VidAngel’s claim that the 2014 DGA collective bargaining agreement evidenced a horizontal agreement to ban filtering, the Ninth Circuit agreed with the district court that the DGA agreement did not actually prohibit studios from editing or filtering productions. The circuit court panel also rejected VidAngel’s argument that the studios’ collective refusal to license content to filtering services such as itself operated as an unwritten, horizontal conspiracy in restraint of trade. Like the district court, the Ninth Circuit reasoned that it was at least equally as likely that the studios’ behavior was independently motivated by legitimate and rational business reasons as that it was consistent with an illegal agreement, a finding fatal to an antitrust claim brought pursuant to Section 1 of the Sherman Act. The appellate court also rejected out of hand the defendant’s claim that the studios were exploiting their respective market power to enforce a vertical restraint on trade.

VidAngel’s unfair competition claims fared no better. The Ninth Circuit deemed that VidAngel’s claim under the “unlawful” prong of the California statute necessarily failed based on its holding that the defendant had failed to plausibly allege a violation of the federal antitrust laws. VidAngel’s factual allegations were further insufficient to state a claim under the “unfair” prong of the California statute; while VidAngel argued the studios’ behavior was harming the public at large, the court found a demonstration only that some consumers were unable to have their preferences satisfied by the free market. This by itself, the court noted, did not constitute an actual or potential threat to competition.

Finally, the Ninth Circuit panel determined that VidAngel could not make out a claim for intentional interference with prospective economic relations either. VidAngel put forth a violation of California tort law in the studios’ disruption of its prospective relations with Google Play and YouTube (both owned by Google), but the court reasoned that any prospective advantages to VidAngel were purely speculative. The court noted that VidAngel had merely negotiated with Google — the two companies had formed no prior commercial ties, so it could not be reasonably probable that VidAngel’s purported economic advantages would have been realized absent interference by the studios. Overall, the court concluded that the deficiencies in all of VidAngel’s counterclaims could not be cured by additional factual development, and therefore affirmed the lower court’s denial of leave for VidAngel to further amend its already once-amended counter-complaint.

Summary prepared by Jonathan Zavin and Jordan Meddy