The major film studios have forced Zediva to shut its doors, but the case is far from closed.
A federal court yesterday officially issued a preliminary injunction against Zediva, a start-up video-rental service that made a name for itself last year by employing a legally iffy business model. Earlier this month, a U.S. District judge announced his intention to issue a preliminary injunction but waited for some legal housekeeping chores to be completed before making it official.
Last week, Zediva suspended operations, and now the case moves to the next and very important stage of determining whether the company and founder Venkatesh Srinivasan are liable for copyright infringement, and whether the injunction should become permanent. If Zediva and Srinivasan are found liable, they could be on the hook for potentially big damages.
Zediva did not immediately respond to an interview request.
Filing suits against start-ups that attempt to build unlicensed businesses in the hope that they can exploit a loophole in the law is expensive for the studios as well as the top music labels. Filing copyright suits against the companies as well as the founders seems to be part of a strategy to raise the risk level and discourage others from launching similar businesses.
Zediva argued that the law allowed it to offer a service whereby they would set up DVD players in their facilities that users controlled via the Internet. The company argued that delivering rented movies this way allowed them to operate without obtaining licenses from film studios.
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Many observers noted after the company launched last year that the argument was at best flimsy. Now the company and founder find themselves in a precarious position. The Motion Picture Association of America, the trade group representing the big six Hollywood studios, has hired lawyers with a track record of winning these kinds of cases, garnering large damages.
Glenn Pomerantz of Munger, Tolles & Olson leads the case. He is the same attorney who represented the Recording Industry Association of America in its copyright case against the makers of the LimeWire file-sharing service. That case ended with LimeWire creator Mark Gorton paying the RIAA, the trade group for the large record companies, a $105 million settlement.
Pomerantz worked on the MPAA's successful litigation against RealNetworks and its RealDVD software with fellow Munger lawyer Bart Williams.
One thing working in Srinivasan's favor is that Zediva was operating for much less time than the 10 years LimeWire was allegedly helping users illegally download music. It's highly unlikely that Srinivasan would end up paying anywhere near the sum that Gorton paid.