A federal court disagreed with Zediva’s interpretation of DVD rental regulations and issued a preliminary injunction against the Santa Clara–based discount movie streaming service Monday.

The company was sued less than a month after its March launch. Warner Bros., Columbia Pictures, Disney Enterprises, Paramount, 20th Century Fox and Universal, supported by the MPAA, filed a copyright infringement suit against WTV Systems, Zediva’s parent company, and its CEO Venkatesh Srinivasan.

Zedeva essentially takes the position that it is not a streaming service. When a customer pays to watch a movie, the company rents both the DVD and a DVD player in its data center, blocking their use by any other person. The company contends that the service is merely renting the DVD to an individual who happens to be watching it from another building, and therefore qualifies under the technical definition of a “private exhibition” license.

By doing this, Zediva can offer new titles as soon as they become available on DVD, which typically is several weeks earlier than the streaming services are allowed to under terms of their licenses. It also can undercut the streaming rentals on price. Rentals from Zediva are ten movies for $10, or single rentals for $1.99, less than half that charged by the streaming rental companies.

U.S. District Judge John Walter agreed with the studios that Zediva relied on “technical gimmickry” and granted the injunction. He also dismissed Zediva’s contention that its service is similar to Cablevision’s network DVR service, which in 2008 was ruled legal in a landmark suit filed by the Cartoon Network.

In granting the injunction against Zedeva, the court wrote, “Defendants interfere with Plaintiffs’ grants of exclusivity to their licensees, Plaintiffs’ ability to negotiate similar agreements in the future (because potential licensees will not be willing to pay a premium for a non-exclusive period), Plaintiffs’ relationships, including the goodwill developed with their licensees, and Plaintiffs’ overall ability to control the use and transmission of their Copyrighted Works.”

Zediva released a statement regarding its future plans. “Today’s ruling represents a setback for the hundreds of thousands of consumers looking for an alternative to Hollywood-controlled online movie services,” it said. “Zediva intends to appeal, and will keep fighting for consumers’ right to watch a DVD they’ve rented, whether that rental is at the corner store or by mail or over the Internet.”

Related Links:

Injunction, courtesy of GigaOm (PDF) –

The Hollywood Reporter post –

GigaOm post –