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Disney has stumbled at the first hurdle in its bid to stop kiosk rental company Redbox from selling digital codes found in Disney Blu-ray combo packs.

Failing to come to a distribution agreement with Disney, Redbox had been buying Disney combo packs (featuring the Blu-ray, DVD and Digital copies of a film) at retail, and then separating the discs and digital codes for rental/sale. This, in particular the "resale" of the digital codes, has caught the ire of Disney and the studio sued Redbox in December of last year.

Disney had asked for a preliminary injunction to stop Redbox from engaging in what the studio called "contributory copyright infringement" and a "breach of contract", but today, a Californian federal judge denied Disney's request on the ground that Disney was overreaching when it comes to exercising their copyright control.

U.S. District Court Judge Dean Pregerson agreed with Redbox's argument that Disney was engaging in "copyright misuse". 

Disney's licensing terms for the digital copy states that the user must be in ownership of the Blu-ray/DVD disc when redeeming the digital code. This would mean that someone who buys the combo pack and sells the physical discs that comes with it, which is their legal right, they would no longer be able to redeem the digital copy. Judge Pregerson found this to be beyond the scope of Disney's copyright.

"This improper leveraging of Disney's copyright in the digital content to restrict secondary transfers of physical copies directly implicates and conflicts with public policy enshrined in the Copyright Act, and constitutes copyright misuse," wrote Pregerson in his decision.

In addition, Pregerson found that in the language of "Codes are not for sale or transfer" condition printed on Disney's combo pack packaging did not specifically suggest that opening the box would be an acceptance of the contract (which may lead to Disney changing the language of the condition in future disc packaging).

Redbox did find a few of its argument rebutted by Judge Pregerson. Redbox had argued that the digital copy should enjoy the protection of the First Sale Doctrine, which guarantees the resale rights of the original buyer. However, Judge Pregerson found that at the time of sale, no digital copy of the movie actually exists until the buyer redeems the code, and as a result, no "first sale" has actually occurred yet.

"Instead, Disney appears to have sold something akin to an option to create a physical copy at some point in the future. Because no particular, fixed copy of a copyrighted work yet existed at the time Redbox purchased, or sold, a digital download code, the first sale doctrine is inapplicable to this case," wrote Pregerson.

Redbox has filed a motion to the court to dismiss Disney's lawsuit. A hearing on this is scheduled for March 5.

Earlier this month, Redbox filed its own lawsuit against Disney, also citing copyright misuse.

[via The Verge, The Hollywood Reporter]