Scrubber of Nudity, Profanity From Movies Says Studios Colluded

By Anandashankar Mazumdar

A company that removed profanity and nudity from films that it streamed to its subscribers wants a federal appeals court to revive its complaint that major movie studios are colluding against it.

VidAngel Inc.—which filed for bankruptcy after facing a copyright infringement lawsuit from Disney Enterprises Inc., Twentieth Century Fox Film Corp., and Warner Bros. Entertainment Inc.—will try to persuade the U.S. Court of Appeals for the Ninth Circuit in an Aug. 9 oral argument to reinstate its antitrust claims against the studios.

Agreements between the studios and the Directors Guild of America give final say over editing to film directors, which VidAngel says amounts to collusion that restrains trade. If the Ninth Circuit overturns the trial court’s dismissal of VidAngel’s claim, agreements between movie producers and creative unions could be open to future lawsuits.

VidAngel faces an uphill battle, lawyers not associated with the case told Bloomberg Law. Copyright owners generally have wide latitude to deny others permission to use their works. Editing a movie amounts to creating a derivative work, something well within the control of a copyright holder.

“Those kinds of claims have always failed,” Washington-based copyright lawyer Jonathan Band said. “For them to say, ‘They must allow me to copy their work so that I could make an edited version,’ it’s very hard for me to see that that claim can succeed.”

Boycotting Streaming Services

Embedded in the case is a question: how much freedom do copyright owners have in controlling their intellectual property?

“Movie and television producers have often threatened to stop working with particular digital services and technologies,” the Electronic Frontier Foundation’s Mitch Stoltz told Bloomberg Law. “If they make those threats as a group, rather than individually, they could be violating antitrust law.”

Four brothers, who developed the Squatty Potty, Poo-Pourri, and other viral products, created VidAngel to offer family-friendly versions of movies over streaming video. An older service, ClearPlay, scrubbed profanity and nudity from movies in real time by allowing customers to watch DVDs on players hosting ClearPlay software.

ClearPlay was sued for copyright infringement, but Congress’s Family Home Movie Act of 2005 rescued ClearPlay from litigation. VidAngel entered the filtering market in 2013 with a streaming service that didn’t require the user to insert DVDs into a filtering device. The three studios sued VidAngel in 2016.

The U.S. District Court for the Central District of California granted the studios a preliminary injunction, shutting down VidAngel’s service in late 2016. VidAngel partially relaunched a few months later with a technology it said would avoid any legal violations. But the Ninth Circuit in August 2017 affirmed the trial court’s preliminary finding that the studios were likely to win their copyright claims against the original service.

VidAngel declared bankruptcy around that same time, and the copyright case was put on hold. VidAngel also lost its counterclaim that the studios were using their copyright control over their movies in a way that violated federal antitrust law by collectively stopping VidAngel from getting permission to stream cleaned-up versions of movies.

Union Agreement Attacked

VidAngel said it started contacting the studios in 2015, offering to make a licensing deal so it could stream filtered movies with permission, but no studio agreed to discuss terms. According to VidAngel, the failure of any of the studios to grant a license indicated that they were working in concert.

And, VidAngel said, the studio’s identical contracts with the directors guild was proof of coordinated action. The studios rejected the idea that their union agreement is evidence of collusion.

The agreement “has existed in materially the same form since 1978, long before VidAngel or any other filtering service came into being,” according to the studios’ brief to the appeals court. “And its provisions do not even mention filtering, much less ban it.”

The three studios also said they each had good reason to refuse to negotiate with VidAngel for a license.

“By the time VidAngel announced itself to plaintiffs, it was blatantly infringing plaintiffs’ copyrights,” according to the brief. “To state the obvious, no conspiracy was necessary to encourage each plaintiff to decline to deal with an illegal service that was stealing its content.”

Antitrust law prohibits from companies in the same business from getting together to interfere with competition. VidAngel’s counterclaim said the studios’ agreements with the directors guild is written proof of that kind of collusion.

VidAngel argued that, at the very least, it should be allowed to prove its case at atrial.

Studio Coordination, a Cartel?

VidAngel could test whether copyright ownership protects a seemingly coordinated action by movie studies at a trial, Stolz said.

“If the court agrees that the studios acted as a cartel here, then we’ll see whether a fear of copyright infringement can justify a group boycott of filtering companies like VidAngel,” he said.

This argument is “stretching the facts to the breaking point,” copyright lawyer James Burger of Thompson Coburn LLP, Washington, told Bloomberg Law.

Burger, who said he has worked with the directors’ agreement in the past, said that the agreement says nothing about licensing third parties such as VidAngel to filter movies.

Given the studio’s success in getting a preliminary injunction, a win for VidAngel would be surprising, antitrust lawyer David Kesselman of Kesselman Brantly Stockinger LLP, Manhattan Beach, Calif., told Bloomberg Law. However, he said the California-based appeals court generally allows a litigant to amend a weak antitrust claim.

“There is a basis to say to the Ninth Circuit, ‘Even if we have a deficiency now, we should at least have the chance to take it back and have another shot,’” Kesselman said.

VidAngel declined to comment. The studios’ lawyers didn’t immediately respond to a Bloomberg Law request for comment.

Munger, Tolles & Olson LLP represented the movie studios. Baker Marquart LLP and STris & Maher LLP represent VidAngel.