I wasn't aware of this, but I don't agree with your assertion that it is illegal. A district court judge wrote what appears to be a very poorly considered decision in the process of issuing an injunction, and Zediva didn't have the resources to keep fighting. I expect that this would have been reversed on appeal because this service was almost exactly the same as that provided by Netflix when they mail you a DVD; the only difference is that you take physical possession of the disk for a period of time with Netflix and you did not with Zediva. In neither case was the performance "public" in the sense that unrelated parties were permitted to view the video at the same time as the renter.