Coinstar, proudly suing people for their movies since 2008

August 12, 2009

My loyal reader(s) who have been following this blog may recall that I called Coinstar a candidate for shorting . At the time it was at 25.91, and it is now at 36.15. So, that’s probably not my best work, although I maintain that the company’s return on its investments is too low to justify its prices. Anyone can spend 97 cents to earn a dollar; if they can do it with 87 cents I’m satisfied and if they can do it with 77 I’m intrigued.

Part of the runup was from the announcement that they reached an agreement to spend 80 million a year on Sony DVDs, and had a promising-looking earning announcement. A similar deal from Lions Gate films announced yesterday, though, failed to excite investors.

However, when Coinstar can’t reach an agreement they are perfectly willing to sue. They announced this morning that they were suing 20th Century Fox for not allowing their distributors to sell new releases to them for 30 days after they come out. This suit parallels an existing one against Universal Studios that was filed five months ago. The grounds for the suit is violation of antitrust law, which, although a lawyer, I’m not an expert in. Much of the law about trusts and monopolistic behavior is fairly nebulous and open to clever argument, but at least in the intellectual property field there seems to be enough articulated law to guide the investor.

teddy rooseveltAntitrust laws in the US forbid generally any attempt to monopolize, and this includes attempting to maintain a monopoly by any means other than competition on the merits, including a refusal to deal with competitors.  Assuming that some clever economist expert witness can conclude that this denial will harm competition, 20th Century Fox can still easily claim that they have the legitimate business reason of protecting the perceived value of their own products in the marketplace.  There is broad support for the view that antitrust law permits holders of intellectual property to unilaterally refuse to license it. After all, the Constitution provides for temporary monopolies for patents and copyrights, and although this does not provide a blanket immunity for antitrust actions (just ask Microsoft), most legal commentators allow them to retain that monopoly as long as they do not try to leverage it into a non-monopolistic area, although the 9th Circuit has ruled that even this is permissible unless the owner is “not actually motivated by protecting its IP rights.” Since they have a legitimate business reason, which they seem to, they should be in a fine position for this suit. There is caselaw to suggest that there is a heightened standard for situations where a monopolist refuses to sell a product to one competitor that it makes available to others, or has done business with a competitor and then stops, but this seems to be more of an indicator of monopolistic action than anything imposing a higher legal standard, and a legitimate business reason will still defeat it. There is also case law to the effect that there is no difference between selectively granting a license and refusing to grant it all, so no worries to Fox and Universal on that front.

So, it would appear that Coinstar is facing an uphill battle in this area, and will probably have to deal with Universal and 20th Century Fox on their terms. And, now that those companies and the rest of the market know that Coinstar will go whining to the courts whenever it doesn’t get its way, one can imagine those terms will end up more restrictive than bargaining from a clean slate.

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