History of Manual Re-editing
In response to consumer demand, families began to re-edit purchased VHS tapes literally by making cuts and splices to the tape. A hotbed for this activity has been Utah with its conservative and entrepreneurial population. When Titanic was released on VHS, a video store owner in Utah began offering to re-edit purchased copies of the film for a $5 service fee. The service became very popular. Before long, several video rental businesses purchased VHS tapes and had them re-edited for their rental club/co-op members to watch.
When DVD technology emerged, the re-editing industry began offering for sale or rental a disabled DVD accompanied by a re-edited version of the film on a coupled DVD-R. Several companies attempted this business. First, some tried to do it via physical brick and mortar stores, the most successful being the deal model and proprietary stores owned by CleanFlicks, Inc. of Utah. Clean Films later became the largest and most successful company in the business by employing an online rental model (similar to Netflix) and avoiding any physical stores. CleanFlicks and CleanFilms were sued with several others and a federal judge in Colorado ruled that the companies were violating copyright. Those named in the lawsuit ceased renting and selling edited films. The legal argument was that the editing resulted in a derivation on a fixed media. At all times, for instance, CleanFilms sold edited films with a legitimately purchased original copy. Furthermore, every rented unit in edited format had a corresponding original copy that was purchased at retail. The judge ruled that the fixed media caused the violation. ClearPlay was not affected by this ruling.
The lawsuit started because a CleanFlicks franchisee in Colorado pre-emptively sued major directors. The franchisee feared the directors were going to sue because the DGA's website said as much. The Directors Guild of America and the Motion Picture Association of America counter-sued and also included several edited film companies for copyright infringement and claims regarding derivative works. In 2006, Judge Richard P. Matsch of the United States District Court for the District of Colorado ruled that it was a copyright violation to distribute re-edited films without the consent from the film studios (key was the fixed media aspect of the businesses).
In an odd twist, despite Judge Matsch's decision and order to the re-editing companies to destroy all their re-edited inventory, shortly after the studios' victory in the Denver court, the lawyers for the studios negotiated with lawyers for the re-editing companies allowing for the sale of existing inventory. One of the companies in the first three days of a "going out of business sale" generated more than a quarter of a million dollars in revenue and eventually sold enough re-edited movies to provide original investors a 5X or better return on investment. This is an unexpected investor outcome given the loss of a major infringement case.
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