When Netflix's DVD Giveaway Became a Legal Cliffhanger: An Entertainment Lawyer Weighs In

NOTE: This Post has been updated as of October 22, 2023.

Since publishing my post, I have learned that licensing agreements between Netflix and film producers have allowed Netflix to own the DVDs, free and clear and in perpetuity, and have given Netflix the right to assign or exploit the DVDs freely, subject to the license requirement that the DVDs be used on the Netflix service. However, now that the DVD rental service is shuttering, is Netflix free to give them away?

It's complicated. But assuming with the shuttering of Netflix's DVD service, Netflix has that right, did they give them away?

What rights do subscribers have in the DVDs recently given away?

If they were a gift, subscribers would have the right to resell, lend, gift, or destroy them under a legal doctrine known as the "first-sale doctrine." They would only be prohibited from making copies.

However, Netflix's pronouncements were never clear. It did not say, "We are giving these DVDs away --- they are yours." Instead, it originally stipulated that the DVDs had to be returned. Even days later, when Netflix announced that subscribers could keep the DVDs "for as long as they liked," the language was vague. It would be similar to having a farmer who had regularly rented his tractor to a neighbor suddenly offer it to him, saying, "Here, enjoy it as long as you'd like." Would that mean that the neighbor had the right to sell it?

And will the recipients of the DVDs no longer be bound by Netflix's terms of use agreement? The terms of use agreement prohibits subscribers from reselling, copying, and commercially exploiting the DVDs. This may be a non-issue given the likelihood that the agreement will not survive the shuttering of Netflix's DVD service.

Why the confusion, then?

So, assuming Netflix does own the DVDs and has the authority to give them away, why didn't it announce a free DVD giveaway without conditions and be done with it? I'm unsure, but something made Netflix reticent. Perhaps the rights issues were unclear, or they had reservations about the impact flooding the market would have on films still trying to eke out revenue in the marketplace. The reason remains a mystery. Nevertheless, I am sure they would have preferred to have made a simple announcement of an outright gift, which would have had the desired public relations effect and avoided confusing their DVD subscribers.

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Original Post:

Today, I'm diving deep into Netflix's DVD Giveaway fiasco—a classic tale of good intentions mired in legal ambiguities. The story unfolds like a thrilling courtroom drama, featuring a clash between intellectual property law and public relations. Let's dive right in.

The Plot Thickens

Netflix, in a move to commemorate the end of an era—the discontinuation of its DVD Distribution Service—decided to give away 10 DVDs to random subscribers. Sounds like a feel-good finale, right? Except there was a plot twist: the announcement left everyone wondering whether these DVDs had to be returned. As an entertainment lawyer, I was captivated by how quickly this public relations victory became a legal quagmire.

The Conflicting Narratives

Articles and blogs erupted on the internet like popcorn, questioning the true nature of this "giveaway." Was it a gift or just a long-term rental? Netflix's terms of service only allow subscribers access to up to three DVDs at a time, depending on the subscription level. So, offering a stack of 10 seemed like a generous parting gift to soothe the disappointment over the service's termination. However, the ambiguity in the announcement led to public confusion instead of gratitude.

The Legal Underbelly of Netflix DVDs

Here's where the plot gets juicier. NPR's "Morning Edition" and The Washington Post contacted me for legal clarity. You see, Netflix's DVDs aren't precisely theirs to give away. Netflix has a license from studios and filmmakers to distribute these DVDs but doesn't own the underlying intellectual property --- the film. Under its license, Netflix may give subscribers access to DVDs for personal use but is prohibited from selling or otherwise giving them ownership. To give away the DVDs outright without any licensing restrictions would be like handing over mini-goldmines of copyrighted material, potentially opening Netflix up to lawsuits from rights holders. That kind of intellectual property intricacy makes an entertainment lawyer's heart race!

Navigating the Legal Minefield

If Netflix demanded the return of these DVDs, could they enforce it, especially with the DVD service soon to be extinct? Its website's Terms of Use are straightforward: DVDs must be returned if the service is canceled. However, pursuing customers legally could be a PR disaster, yet ignoring the issue might irk studios and filmmakers.

The Ambiguous Ending

Netflix finally settled on a cliffhanger ending: On its website, Netflix announced that subscribers could "enjoy" the DVDs for as long as they liked and that they wouldn't be charged for unreturned DVDs, even if kept beyond September 29, the date Netflix ceases its DVD operations. That careful wording means subscribers will not own the DVDs but will be forever bound by the license terms within the Terms of Use now on the website, which prohibits copying, selling, or commercializing the DVDs. Whether Netflix's resolution here will trigger legal action from the rights holders, Netflix seems to be betting against it.

The Moral of the Story

Things can get tricky when businesses try to balance keeping consumers happy and navigating the complexities of intellectual property. Netflix could have avoided these hiccups if it had taken more time to analyze and understand the rights issues before launching its PR campaign.

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The information provided in this article is for general informational purposes only and should not be construed as legal advice or opinion. Readers are advised to consult with their legal counsel for specific advice.