• by Wendy Davis  @wendyndavis, August 2, 2011

Handing Hollywood a victory against an online startup, a federal judge has ordered streaming video company Zediva to stop offering online movies.

"As the copyright holders, plaintiffs have the exclusive right to decide when, where, to whom, and for how much they will authorize transmission of their copyrighted works to the public," U.S. District Judge John Walter wrote in a 12-page ruling granting the Motion Picture Association of America an injunction against Zediva.

Walter rejected Zediva's argument that it operated a rental service and, therefore, need not obtain licenses from the studios.

"Defendants are clearly transmitting performances of plaintiffs' copyrighted works," he wrote. Walter added that Zediva transmits the movies "to the public" even though users tend to stream the films at home. "The relationship between Defendants -- as the transmitter of the performance -- and the audience -- which in this case consists of their customers -- is a commercial, 'public' relationship regardless of where the viewing takes place," he wrote.

The judge gave Zediva and the MPAA until next week to agree on the wording of an injunction.

Zediva says it will appeal the decision, which it called "a setback for the hundreds of thousands of consumers looking for an alternative to Hollywood-controlled online movie services."

MPAA Senior Vice President Dan Robbins praised the ruling. He said in a blog post that the decision was "a great victory for the more than 2 million American men and women whose livelihoods depend on a thriving film and television industry."

Zediva, which charges consumers $2 to stream a movie, says it rents the films to Web users. Unlike Netflix and Redbox, which impose a 28-day wait for new releases, Zediva offers users streams of films as soon as they are available for sale. The company says that because it purchased the films it streams, it's allowed to rent or resell them.

But the MPAA successfully countered that Zediva is not a rental company, but a video-on-demand service that publicly performs movies. In addition, the MPAA asserted, Zediva harms companies that have obtained licenses, like iTunes and Amazon, by luring away their customers.

In granting the injunction, Walter found the studios were at risk of "irreparable harm" by Zediva for several reasons, including that its service could "jeopardize the continued existence" of lawful licensees.

In addition, Walter wrote, Zediva threatens the development of a lawful video-on-demand service by "offering a sub-optimal customer experience and, thus, tarnishing customers' perception of video on demand."

Walter concluded the service was sub-optimal because Zediva received complaints about quality, and because there were "a lot" of times when the company wasn't able to offer movies to all users. "The message that a particular copyrighted work is unavailable or 'out of stock' is totally inconsistent with the concept of 'video on demand,' which means it is always available, and creates a significant risk of damaging customer goodwill as customers become disillusioned, frustrated, and confused about the video on demand market in general," he wrote.

Copyright expert and New York Law School professor James Grimmelmann tells Online Media Daily that Walter's reasoning for ruling that Zediva transmitted movies to the public "is pretty much as expected."

Grimmelmann previously predicted that Zediva would have a hard time prevailing on its theory that it was a rental company. He noted that brick-and-mortar stores that allowed consumers to rent video cassettes and watch them on the premises have been found to infringe copyright by performing the movies.