Update: According to Mashable – the MPAA has filed a complaint against Zediva.

Startup Zediva uses an interesting twist to differentiate itself from other online streaming companies. These other companies such as Netflix have made deals with studios to hold off on streaming movies online until a certain time after the DVD is released. In contrast, Zediva rents their customers the DVD and a DVD player at Zediva’s data center. This allows the customer to stream the movie online sooner than Zediva’s competitors. Think of a giant center with multiple juke box players, all hooked up and accessible online. Problems?

Tonya Gisselberg, author of the Seattle Copyright Watch blog takes a look at the arguments made by James Grimmelman of the Laboratorium blog. Grimmelman argues that the first sale doctrine that Zedvia is relying on does not apply to performances. He provides summaries of case law that distinguish between public and private performances and concludes that Zedvia’s service will constitute a public performance.

Gisselberg observes that Zediva’s services may be distinguishable because the copy of the DVD that one customer rents is unavailable to another customer until the rental period ends. Gisselberg also notes that Zediva may not have done enough to prevent unlawful public performances of the movies.

Lastly, in an update to Grimmelman’s blog post, he notes that although Zediva has “top notch copyright counsel,” Grimmelman is skeptical of whether Zediva can differentiate itself from previous cases.

Source: SeattleCopyrightWatch.com – Zediva DVD Streaming Service Infringing or Not and The Laboratorium – That Zediva Thing Its So Not Going to Work

Also see: Ryan Single’s article on Wired for a more detailed description of how Zediva works.