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For those of you who don't remember, Zediva lets users access DVDs and DVD players in its facilities over the Internet. The company faced questions about the legality of its service from the start, and launched its service it said it was assured that it wasn’t violating copyright law because it functions as a rental service. But Zediva co-founder Venky Srinivasan said at launch that he didn’t anticipate facing problems over the right to play the movies online, in a March interview with Faster Forward. The model, he said, allowed for Zediva to get movies faster than Netflix because the company could purchase on the day they hit store shelves.

When asked for the basis of that legal interpretation, Srinivasan cited the doctrine of first sale, which allows brick-and-mortar rental stores to lend out physical copies of movies. Customers weren’t viewing digital copies of movies, he said, but rather the actual DVD copies of movies being controlled onsite at Zediva’s Silicon Valley facilities.

But the Motion Picture Association of America clearly didn’t agree with that interpretation of the doctrine of first sale.The organization sued Zediva in April, less than a month after it launched, complaining that its identification as a DVD rental store was a “sham.”

“Unlike Netflix and other licensed online services, Defendants’ business is based on infringing Plaintiffs’ rights. Defendants transmit performances of Plaintiffs’ copyrighted works to members of the public without Plaintiffs' authorization,” read the organization’s original court filing.

Zediva intends to appeal the court’s decision, the report said. “Today's ruling represents a setback for the hundreds of thousands of consumers looking for an alternative to Hollywood-controlled online movie services,” the company said in a statement.

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