Zediva: We’re just like DVD rentals from Netflix

Zediva launched a DVD rental service through which viewers could stream new releases to their web browsers. Not long after, the Hollywood studios sued Zediva for copyright infringement, claiming the startup illegally streams without licensing the content from rights holders. Now Zediva has filed its response against the studios.

In a court document filed late last week, the startup defended its practice of streaming DVD rentals over the Internet, claiming that its service is no different than DVD rental offerings from Blockbuster (s DISH) or Netflix (s NFLX). Furthermore, it compared the major motion picture studios’ efforts to shut down its service with their unsuccessful legal battles against network DVR services that came before it.

Like brick-and-mortar rental outlets such as Blockbuster or DVD-by-mail services like the one Netflix revolutionized, Zediva argues that it purchases physical copies of the DVDs it rents, keeps inventory of those discs and allows viewers to watch those movies for a limited time. For those curious, this is what Zediva’s streaming DVD player racks looks like:

But unlike other services, Zediva’s users never actually take physical possession of the disc or use it on their own equipment. Even so, Zediva argues that the single stream of a single disc to a single viewer that has paid to rent the title doesn’t represent a public broadcast of the movie, and therefore it doesn’t count as copyright infringement. From the filing:

It is not illegal to rent movies to others without the copyright holder’s permission. Blockbuster is free to rent the same movie to many different customers in its stores. Netflix is free to mail DVDs to its rental customers. They must buy the DVDs from the Studios, but once they do, the Studios have been paid, and they have no right to demand a share of the rental fee. Only if a company goes beyond renting the disc they purchased, and actually broadcasts its one lawful copy to the public at large (by showing it on television, for instance), does the copyright owner have the right to be paid a second time.

It’s now up to the court to decide whether it agrees that physically purchasing a DVD and then making it available online constitutes a public viewing. It’s also up to the court to decide whether the first-sale doctrine — which lets companies lend or rent out copies of content that they have purchased — also applies when those copies are being streamed over the Internet.

That said, the same companies that Zediva cites in its filing also take part in the industry-standard practice of licensing content to stream online and to devices like tablets or mobile phones. Of course, those licenses are expensive, which is one reason that Netflix doesn’t have a ton of new release titles available as part of its streaming catalog. But physical DVDs, in contrast, are relatively cheap — which is one reason why Zediva can charge $1.99 a rental for the same new release title that Amazon (s AMZN) charges $4.99 to stream.

In addition to traditional DVD rental services, Zediva also cited Cablevision’s win against Cartoon Network in its network DVR case. That service allowed users to record and play back video stored in cloud servers and streamed back to the user. From the filing:

The system in Cablevision (s CVC) operated, from the user’s perspective, like playing a movie back from a DVR with a very long cable attached. Likewise, the Zediva system operates, from the user’s perspective, like playing back a movie from a DVD with a very long cable attached.

Regardless of the actual legal precedent, Zediva argued that the MPAA’s case is simply one more example of the movie industry mistakenly fighting against new technological capabilities. To back that up, it referenced Hollywood’s crusade against the VCR and also its case against hotels that rented movies to patrons — both of which at the time seemed a threat to Hollywood but ended up providing incremental revenues in the long run.