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Startups get millions of dollars in venture capital in hopes of making it big. But sometimes a bulk of those millions will be spent on legal fees when General Counsels find their new businesses are sued for millions.
Six major Hollywood studios have sued Internet-movie company Zediva, claiming the start-up violates copyright law with its system for showing new movies online for $1 or $2.
The "DVD-rental" company doesn't send DVDs to customers through the mail, like Netflix. Instead, Zediva's discs sit in banks of players at a Silicon Valley data center, Bloomberg reports.
Hollywood's heavy hitters aren't too keen on this little startup and has called out the legal guns.
The Motion Picture Association of America filed a copyright infringement lawsuit against the operators of the movie-streaming service Zediva, PC Mag reports.
Zediva illegally streams movies to its customers without obtaining required licenses from the movie studios, in violation of the studios' right to "publicly perform" their works, the MPAA said in an e-mailed statement.
Zediva made headlines for offering 14 rentals of new-release DVDs for $2 per movie, or $1 when ordering 10 films. That undercuts what cable companies charge for on-demand and is less than the $3 that Time Warner began charging in a test of 24-hour rentals on Facebook. Zediva, based in Sunnyvale, Calif., likens the service to those offered by DVD retailers.
"Zediva's mischaracterization of itself is a gimmick it hopes will enable it to evade the law and stream movies in violation of the studios' exclusive rights," Dan Robbins, the MPAA's associate general counsel, said in the statement. "Courts have repeatedly seen through the façade of this type of copyright-avoidance scheme, and we are confident they will in this case too."
The company can offer low prices because it doesn't pay studios to license their films, Venky Srinivasan, chief executive officer of Zediva, told Bloomberg in an interview last month. Zediva purchases DVDs as consumers do, and loads them into hundreds of DVD players in a central office. The service offers "long-distance rentals" of both the movie and DVD player, he said.
The studios seek unspecified damages and Zediva's profits from infringing their copyrighted works, or statutory damages of $150,000 per violation, and a court order stopping Zediva from further infringement, Bloomberg reports.