A federal judge in California has rejected Disney's effort to stop Redbox from reselling download codes of popular Disney titles like Frozen, Beauty and the Beast, and the latest Star Wars movies.

Judge Dean Pregerson's Tuesday ruling invoked the little-used doctrine of copyright misuse, which holds that a copyright holder loses the right to enforce a copyright if the copyright is being abused. Pregerson faulted Disney for tying digital download codes to physical ownership of discs, a practice that he argued ran afoul of copyright's first sale doctrine, which guarantees customers the right to resell used DVDs.

If the ruling were upheld on appeal, it would have sweeping implications. It could potentially force Hollywood studios to stop bundling digital download codes with physical DVDs and force video game companies to rethink their own practices.

But James Grimmelmann, a copyright scholar at Cornell Law School, is skeptical that the ruling will survive an inevitable appeal from Disney.

"I don't see this one sticking," Grimmelmann told Ars. Copyright misuse has such sweeping legal implications that an appeals court will be reluctant to apply it to a common movie industry practice.

Disney sued to stop Redbox's sale of download codes

When you buy a Disney DVD or Blu-ray disc, it will often come bundled with a special code that can be used at one of two Disney-sponsored websites, RedeemDigitalMovies and Disney Movies Anywhere (recently superceded by the multi-studio Movies Anywhere), to obtain a digital copy that can be viewed on PCs and mobile devices. Disney didn't view the DVD and the download code as two separate products. Instead, Disney views them as a customer convenience—a way to allow a single customer to watch the one movie they've purchased on a wide range of devices.

But Redbox had a different interpretation. Redbox is in the business of buying DVDs and renting them out to customers. And it saw an opportunity to make some extra money from Disney's download codes. The company started buying DVD-plus-download-code bundles at ordinary retail locations and breaking the bundles apart. Redbox rented out the DVDs and Blu-Ray discs as it always has. But it also began selling the download codes to customers, allowing them to gain a digital copy of a movie for a fraction of the cost of purchasing a digital download directly from Disney.

Disney sued, arguing that Redbox was violating the licensing terms that came with the bundle. The Disney DVDs came bundled with a notice that says "codes are not for sale or transfer." Disney argued that Redbox had to accept this condition in order to open the package and gain access to the download code.

Disney also argued Redbox was encouraging customers to infringe its copyrights, which could make Redbox liable under the doctrine of contributory infringement. In order to use the download code, Disney requires a customer to "represent" that he or she is the owner of the physical DVD that came with the download. In Disney's view, downloading a movie without owning the associated DVD isn't authorized by Disney's licensing terms and is therefore copyright infringement.

The judge didn’t buy Disney’s argument

Judge Pregerson ruled that merely slapping "codes are not for sale or transfer" on a DVD box isn't enough to create a binding contract. Disney's DVDs also said, "this product cannot be resold or rented individually." But Pregerson noted that isn't true: copyright law's first sale doctrine gives customers the right to resell DVDs whether the publishers wants them to or not. So, Pregerson concluded, there's no reason to treat a one-sentence notice on the outside of a box as a legally binding contract.

As for claims that Redbox contributed to users' copyright infringement, Pregerson faulted Disney for attempting to tie download codes to physical media in the first place.

"Disney's copyrights do not give it the power to prevent consumers from selling or otherwise transferring the Blu-ray discs or DVDs contained within Combo Packs," Pregerson wrote.

Disney's requirement that users have a copy of the physical DVD in order to use the download code means that "Combo Pack" customers can't access digital movie content they've paid for unless they give up the right to resell the DVD they've also paid for. And in Pregerson's view, that constitutes misuse of Disney's copyright—an attempt to use copyright to place restrictions on customers beyond the rights granted by copyright law.

“An atomic bomb of a finding”

Some copyright skeptics and fans of resale rights will doubtless applaud the ruling. But Grimmelmann believes that the ruling could have such sweeping consequences that the courts are unlikely to accept it.

Grimmelmann told us that a finding of misuse prevents any enforcement of a copyright as long as the misuse continues. If restricting resale of Frozen download codes is copyright misuse, that doesn't just mean that Redbox can re-sell download codes. As long as Disney's misuse continues, Disney can't enforce its Frozen copyright at all.

"You could start screening Frozen in a movie theater and charging admission," Grimmelmann told us. "You could film a $150 million prequel and release it commercially." You could make copies of Frozen DVDs and sell them in convenience stores.

"Misuse is such an atomic bomb of a finding," Grimmelmann says.

If the ruling were upheld, it would amount to a de facto ban on tying download codes to physical DVDs. In that case, it's almost certain that Disney and other movie studios would stop offering download codes altogether to prevent the development of a broad market in resold download codes.

And that would have implications far beyond the movie business. Grimmelmann points out that video game publishers sometimes bundle download codes with games they sell; the ruling would force them to stop doing that.

The ruling could even have implications for embedded software. Many mobile and "Internet of Things" devices tie copyrighted software to the physical device with which it was sold. The Pregerson ruling implies that device manufacturers could no longer do this, forcing a broad re-think of how device makers write software licenses.

"I don't know if the court realizes how big of a genie it has potentially let out of a bottle," Grimmelmann said. "Redbox is going to push for a declaration of unenforceability. That's when stakes become clear."

He predicts that Judge Pregerson might change his mind once the sweeping implications of his ruling become clear. And if he doesn't, Disney will inevitably appeal the case, giving the Ninth Circuit Court of Appeals a chance to weigh in.