NEW YORK—The nation's biggest movie studios have won a copyright infringement lawsuit against video-streaming startup Zediva Inc.
Zediva's founders thought they had discovered a legal loophole for online viewing of movies by having customers rent DVDs physically located in the Silicon Valley. That way, Zediva wouldn't have to wait for licensing deals with studios, which often withhold newer movies.
U.S. District Judge John Walter in Los Angeles disagreed. He issued a permanent injunction Friday prohibiting the company from continuing its service. The Motion Picture Association of America said that Zediva's operators agreed to pay the studios $1.8 million.
Zediva did not have an immediate comment on the ruling when contacted on Monday.
Companies are allowed to rent physical copies of DVDs without permission from the movie studios, the way libraries are allowed to freely lend out books. But Internet streaming rights generally require separate payments, and studios have typically been reluctant to license newer movies for fear that would cut into DVD sales. That's one reason Netflix Inc.'s streaming library isn't as extensive as its DVD offerings.
Zediva's creators thought they could circumvent that by tying Internet streaming to a physical DVD kept at the company's data centers.
The MPAA, representing Hollywood studios, sued Zediva's parent company WTV Systems and founder and CEO Venkatesh Srinivasan in April.
The studios, including Time Warner Inc.'s Warner Bros. Entertainment Inc., Sony Corp.'s Columbia Pictures and The Walt Disney Co.'s Disney Enterprises Inc., had argued that Zediva's technology meant it was publicly performing movies, violating copyright law.
Zediva, which charged $1.99 to rent movies, spent two years developing its technology.