Directors Guild Lawsuit
An announcement of intention to sue on the DGA website caused CleanFlicks to preemptively file in Denver Federal Court in August 2002. Robert Huntsman, an attorney and inventor affiliated with Cleanflicks who had a DVD-editing patent pending, was named as the lead plaintiff, so the original short caption for the case was Huntsman v. Soderbergh. In their suit, Cleanflicks sought a judgment that edited content was legal under federal copyright law. In addition to Steven Soderbergh, named defendants included Steven Spielberg, Robert Redford, Sydney Pollack, Robert Altman, John Landis, and Martin Scorsese. Although the chain had been operating for two years, the issue was brought to the spotlight when MovieMask made a series of demonstrations around Hollywood in March of that year. The directors' counter-suit soon followed, but the legal battle stretched on for years.
On July 6, 2006, a federal judge in Denver ruled that CleanFlicks' editing violated U.S. copyright laws. The judge ordered the company to "stop producing, manufacturing, creating, and renting" edited movies, and to hand all inventory to movie studios within five days of the ruling. The court gave the company more time than the ruling's initial five-day deadline for turning over the stock of edited movies, since CleanFlicks needed more time to receive movies which were still out on rental.
CleanFlicks had planned to appeal the ruling, but informed its customers by email on July 28, 2006:
"It is with great regret that we write to inform you that CleanFlicks is going out of business soon. As you may have heard or read, after three long years of legal struggles, a judge in Colorado has ruled that we cannot sell or rent edited DVDs anymore. While we thought very strongly about appealing the decision, the potential costs and risks to the company, its customers and shareholders was just too great. Accordingly, we have agreed to close our doors after a brief winding-up period.
...We want to offer our sincerest apologies for not being able to provide you with edited DVDs...We appreciate your support of our efforts to provide high-quality, family-friendly movies, and we will try to make this difficult process of closing our operations as painless as we can for all our loyal customers."
The decision not to appeal the ruling became primarily a financial one. Having won the initial court battle, the directors and studios were in a position to collect significant damages for copyright infringement from the editing companies. Although the companies would almost certainly receive a stay of judgment pending appeals, the risk was much higher now. Since the inventory of edited movies had no value to the studios, a deal was offered whereby the companies would be allowed to sell off all of their inventory and keep the profits if they agreed not to appeal the ruling and the studios would not pursue damage claims. Thus, the companies, and their investors, would collect further revenue and be protected from damages and the studios would have a significant court ruling stand and the legal precedent would be set. After discussions with their legal teams and investors, the decision was made to accept the offer. The companies were then given additional time to clear out their inventory but no more films could be edited during that time. All unsold inventory was then sent to the studios as defined by the ruling.
CleanFlicks discontinued offering edited movies on August 31, 2006.
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