Re: [dvd-discuss] Implied License to Watch the Movie

["Douglas Hudson" <patentbuster(at)home.com>]

908 F.2d 555, *; 1990 U.S. App. LEXIS 12121, **;
15 U.S.P.Q.2D (BNA) 1559; Copy. L. Rep. (CCH) P26,605


Effects Associates, Inc., Plaintiff-counter-defendant-Appellant, v. Larry
Cohen; Larco Productions, Inc.; New World Entertainment,
Defendants-counter-claimants-Appellees


No. 88-6455


UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT


908 F.2d 555; 1990 U.S. App. LEXIS 12121; 15 U.S.P.Q.2D (BNA) 1559; Copy. L.
Rep. (CCH) P26,605



March 7, 1990, Argued and Submitted, Pasadena, California
July 20, 1990, Filed

PRIOR HISTORY:  [**1]

Appeal from the United States District Court for the Central District of
California; D.C. No. CV-86-1114-RG; Richard A. Gadbois, Jr., District Judge,
Presiding.


CASE SUMMARY

PROCEDURAL POSTURE: Plaintiff, the creator of special effects footage for a
horror movie, sought review of summary judgment granted to defendants by the
United States District Court for the Central District of California which
held that defendant movie producers had not infringed a copyright because
they had been given an implied license.

OVERVIEW: Plaintiff, who produced special effects footage for a movie,
brought a copyright infringement suit against defendants, the producers of
the movie. The lower court granted summary judgment, holding that plaintiff
had given an implied license for the footage to be used in the movie. The
court noted that 17 U.S.C.S. § 204(a) invalidated the transfer of ownership
of a copyright unless it was in writing but that there was a narrow
exception for implied licenses. The court agreed with the judgment below
that plaintiff had given defendants an implied nonexclusive license to use
the special effects footage. Although defendants had not paid in full, the
court stated this was not a condition precedent to the finding of an implied
license. Therefore the court affirmed the grant of summary judgment by the
federal court but noted that plaintiff was free to bring a state law claim
for breach of contract.

OUTCOME: Grant of summary judgment affirmed because the court agreed with
the decision below that plaintiff had given defendants an implied license
for the use of the movie footage in question.

CORE TERMS: footage, license, ownership, writing requirement, copyright
infringement, implied license, moviemakers, shot, film, nonexclusive,
manuscript, Copyright Act, written agreement, factory, movie, partnership,
copyrighted, distribute, publisher, impliedly, creator, writer, hire,
summary judgment, license to use, motion picture, yogurt, transfer of
ownership, condition precedent, pre-existing


CORE CONCEPTS - Hide Concepts

Civil Procedure : Appeals : Standards of Review : De Novo Review
     The court reviews the district court's grant of summary judgment de
novo.


Copyright Law : Rights : Reproduction Rights
Copyright Law : Rights : Distribution Rights
Copyright Law : Rights : Display Rights
     The copyright owner of a motion picture or other audiovisual work has
the exclusive rights to copy, distribute or display the copyrighted work
publicly, 17 U.S.C.S. § 106.


Copyright Law : Ownership
     While the copyright owner can sell or license his rights to someone
else, the Copyright Act, 17 U.S.C.S. § 204(a), invalidates a purported
transfer of ownership unless it is in writing.


Copyright Law : Ownership : Initial Ownership
     The term employee is to be defined according to general agency
principles. Where a non-employee contributes to a book or movie, the
exclusive rights of copyright ownership vest in the creator of the
contribution, unless there is a written agreement to the contrary.


Copyright Law : Ownership : Initial Ownership
     Absent an express transfer of ownership, a contributor who is not an
employee retains ownership of his copyright.


Copyright Law : Ownership
Copyright Law : Infringement : Defenses Generally
     There is a narrow exception to the writing requirement of 17 U.S.C.S. §
204 which provides that all transfers of copyright ownership must be in
writing; 17 U.S.C.S. § 101 defines transfers of ownership broadly, but
expressly removes from the scope of § 204 a "nonexclusive license."


Copyright Law : Infringement : Defenses Generally
     A nonexclusive license may be granted orally, or may even be implied
from conduct.


Copyright Law : Infringement : Defenses Generally
     Payment in full is not a condition precedent to implying a license.
Conditions precedent are disfavored and will not be read into a contract
unless required by plain, unambiguous language.



COUNSEL: John Blair Overton, Sausalito, California, for the
Plaintiff-Counter-Defendant-Appellant.

Vincent Cox, Leopold, Petrich & Smith, Los Angeles, California, for the
Defendants-Counter-Claimants-Appellees.

JUDGES: William C. Canby, Jr., Alex Kozinski and Edward Leavy, Circuit
Judges. Opinion by Judge Kozinski.

OPINIONBY: KOZINSKI

OPINION:  [*555]  KOZINSKI, Circuit Judge.

What we have here is a failure to compensate. Larry Cohen, a low-budget
horror movie mogul, paid less than the agreed price for special effects
footage he had commissioned from Effects Associates. Cohen then used this
footage without first obtaining a written license or assignment of the
copyright; Effects sued for copyright infringement. We consider whether a
transfer of copyright without a written agreement, an arrangement apparently
not uncommon in the motion picture industry, conforms with the requirements
of the Copyright Act.

Facts

This started out as a run-of-the-mill Hollywood squabble. Defendant Larry
Cohen wrote, directed and executive  [**2]  produced "The Stuff," a horror
movie with a dash of social satire: Earth is invaded by an alien  [*556]
life form that looks (and tastes) like frozen yogurt but, alas, has some
unfortunate side effects - it's addictive and takes over the mind of anyone
who eats it. Marketed by an unscrupulous entrepreneur, the Stuff becomes a
big hit. An industrial spy hired by ice cream manufacturers eventually
uncovers the terrible truth; he alerts the American people and blows up the
yogurt factory, making the world safe once again for lovers of frozen
confections.

In cooking up this gustatory melodrama, Cohen asked Effects Associates, a
small special effects company, to create footage to enhance certain action
sequences in the film. In a short letter dated October 29, 1984, Effects
offered to prepare seven shots, n1 the most dramatic of which would depict
the climactic explosion of the Stuff factory. Cohen agreed to the deal
orally, but no one said anything about who would own the copyright in the
footage.

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n1 The price originally agreed to was $ 62,335; in an invoice dated January
10, 1985, Effects adjusted this amount upward to $ 64,033.92, because of
additional expenses incurred in creating the shots.

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Footnotes- - - - - - - - - - - - - - - - -  [**3]

Cohen was unhappy with the factory explosion Effects created, and he
expressed his dissatisfaction by paying Effects only half the promised
amount for that shot. Effects made several demands for the rest of the money
(a little over $ 8,000), but Cohen refused. Nevertheless, Cohen incorporated
Effects's footage into the film and turned it over to New World
Entertainment for distribution. Effects then brought this copyright
infringement action, claiming that Cohen (along with his production company
and New World) had no right to use the special effects footage unless he
paid Effects the full contract price. Effects also brought pendent state law
claims for fraud and conspiracy to infringe copyright.

The district court initially dismissed the suit, holding that it was
primarily a contract dispute and, as such, did not arise under federal law.
In an opinion remarkable for its lucidity, we reversed and remanded,
concluding that plaintiff was "master of his claim" and could opt to pursue
the copyright infringement action instead of suing on the contract. Effects
Assocs., Inc. v. Cohen, 817 F.2d 72, 73 (9th Cir. 1987). We recognized that
the issue on remand would be  [**4]  whether Effects had transferred to
Cohen the right to use the footage. Id. at 73 & n. 1, 74.

On remand, the district court granted summary judgment to Cohen on the
infringement claim, holding that Effects had granted Cohen an implied
license to use the shots. Accordingly, the court dismissed the remaining
state law claims, allowing Effects to pursue them in state court. We review
the district court's grant of summary judgment de novo.

Discussion

A. Transfer of Copyright Ownership

The law couldn't be clearer: The copyright owner of "a motion picture or
other audiovisual work" has the exclusive rights to copy, distribute or
display the copyrighted work publicly. 17 U.S.C. § 106 (1988). While the
copyright owner can sell or license his rights to someone else, section 204
of the Copyright Act invalidates a purported transfer of ownership unless it
is in writing.  [**5]  17 U.S.C. § 204(a) (1988). n2 Here, no one disputes
that Effects is the copyright owner of the special effects footage used in
"The Stuff," n3 and that defendants copied, distributed and publicly
displayed this footage without written authorization.

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n2 The Copyright Act defines "transfer of copyright ownership" as an
"assignment, mortgage, exclusive license, or any other conveyance,
alienation, or hypothecation of a copyright or of any of the exclusive
rights comprised in a copyright . . . but not including a nonexclusive
license." 17 U.S.C. § 101.

n3 Cohen concedes that he licensed Effects to prepare the footage as a
derivative work incorporating other shots from "The Stuff," and that Effects
has a valid copyright in this footage. Appellees' Brief at 25 n. 3.

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Cohen suggests that section 204's writing requirement does not apply to this
situation, advancing an argument that might be summarized, tongue in cheek,
as: Moviemakers do lunch, not contracts.  [**6]  Cohen concedes that "in the
best of all possible legal worlds" parties would obey the writing
requirement, but contends that moviemakers are too absorbed in developing
"joint creative endeavors" to "focus upon the legal niceties of copyright
licenses." Appellees' Brief at 16, 18. Thus, Cohen  [*557]  suggests that we
hold section 204's writing requirement inapplicable here because "it is
customary in the motion picture industry . . . not to have written
licenses." Id. at 18. To the extent that Cohen's argument amounts to a plea
to exempt moviemakers from the normal operation of section 204 by making
implied transfers of copyrights "the rule, not the exception," id., we
reject his argument.

Common sense tells us that agreements should routinely be put in writing.
This simple practice prevents misunderstandings by spelling out the terms of
a deal in black and white, forces parties to clarify their thinking and
consider problems that could potentially arise, and encourages them to take
their promises seriously because it's harder to backtrack on a written
contract than on an oral one. Copyright law dovetails nicely with common
sense by requiring that a transfer of copyright  [**7]  ownership be in
writing. Section 204 ensures that the creator of a work will not give away
his copyright inadvertently and forces a party who wants to use the
copyrighted work to negotiate with the creator to determine precisely what
rights are being transferred and at what price. Cf. Community for Creative
Non-Violence v. Reid, 490 U.S. 730, 109 S. Ct. 2166, 2177-78, 104 L. Ed. 2d
811 (1989) (describing purpose of writing requirement for works made for
hire). Most importantly, section 204 enhances predictability and certainty
of copyright ownership - "Congress' paramount goal" when it revised the Act
in 1976. Community for Creative Non-Violence, 109 S. Ct. at 2177; see also
Dumas v. Gommerman, 865 F.2d 1093, 1103-04 (9th Cir. 1989). Rather than look
to the courts every time they disagree as to whether a particular use of the
work violates their mutual understanding, parties need only look to the
writing that sets out their respective rights.

Section 204's writing requirement is not unduly burdensome; it necessitates
neither protracted negotiations nor substantial expense. The rule is really
quite simple: If the copyright holder  [**8]  agrees to transfer ownership
to another party, that party must get the copyright holder to sign a piece
of paper saying so. It doesn't have to be the Magna Charta; a one-line pro
forma statement will do.

Cohen's attempt to exempt moviemakers from the requirements of the Copyright
Act is largely precluded by recent Supreme Court and circuit authority
construing the work-for-hire doctrine. n4 Section 101 of the Act defines, in
relevant part, a work made for hire as "a work prepared by an employee
within the scope of his or her employment." 17 U.S.C. § 101 (1988). Section
201(b) provides that the copyright in such a work is presumed to vest in the
employer, not the employee. 17 U.S.C. § 201(b) (1988). Prior to the Supreme
Court's decision in Community for Creative Non-Violence, some circuits had
broadly construed section 101's use of the term employee, holding a work to
have been prepared by an employee whenever the hiring party controlled, or
had the right to control, the product. See Community for Creative
Non-Violence, 109 S. Ct. at 2172. This broad definition encompassed
virtually all contributions to books and  [**9]  movies because, as the
Court recognized, such contributions are "usually prepared at the instance,
direction, and risk of a publisher or producer." Id. at 2173. The Court
rejected this rule as inconsistent with both the language and purpose of the
Copyright Act. Id. at 2172-74, 2177-78. It held instead that the term
employee was to be defined according to general agency principles, id. at
2173, 2178; where a non-employee contributes to a book or movie, as Effects
did here, the exclusive rights of copyright ownership vest in the creator of
the contribution, unless there is a written agreement to the contrary. See
id. at 2173.

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n4 Because Effects is not an employee and there is no written agreement
stating that plaintiff's footage is a work made for hire, Cohen can't take
advantage of this doctrine. See pp. 7709-10 infra. In any event, Cohen has
waived this argument by failing to raise it below. See S.O.S., Inc. v.
Payday, Inc., 886 F.2d 1081, 1087 (9th Cir. 1989).

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Footnotes- - - - - - - - - - - - - - - - -  [**10]

This is similar to the conclusion we had reached several months earlier in
Dumas v. Gommerman. We had reasoned that,  [*558]  while many individuals
may contribute to the final product, the Act does no more than give
publishers and producers "statutory permission" to contract with the various
contributors for the rights of authorship. 865 F.2d at 1101 (quoting Easter
Seal Soc'y v. Playboy Enters., 815 F.2d 323, 329 (5th Cir. 1987), cert.
denied 485 U.S. 981, 108 S. Ct. 1280, 99 L. Ed. 2d 491 (1988) (emphasis
original)). Absent an express transfer of ownership, a contributor who is
not an employee retains ownership of his copyright. See id.

Thus, section 101 specifically addresses the movie and book publishing
industries, affording moviemakers a simple, straightforward way of obtaining
ownership of the copyright in a creative contribution -- namely, a written
agreement. The Supreme Court and this circuit, while recognizing the custom
and practice in the industry, have refused to permit moviemakers to sidestep
section 204's  [**11]  writing requirement. Accordingly, we find
unpersuasive Cohen's contention that section 204's writing requirement,
which singles out no particular group, somehow doesn't apply to him. As
section 204 makes no special allowances for the movie industry, neither do
we.

B. Nonexclusive Licenses

Although we reject any suggestion that moviemakers are immune to section
204, we note that there is a narrow exception to the writing requirement
that may apply here. Section 204 provides that all transfers of copyright
ownership must be in writing; section 101 defines transfers of ownership
broadly, but expressly removes from the scope of section 204 a "nonexclusive
license." See note 2 supra. The sole issue that remains, then, is whether
Cohen had a nonexclusive license to use plaintiff's special effects footage.

The leading treatise on copyright law states that "[a] nonexclusive license
may be granted orally, or may even be implied from conduct." 3 M. Nimmer &
D. Nimmer, Nimmer on Copyright  [**12]  § 10.03[A], at 10-36 (1989). Cohen
relies on the latter proposition; he insists that, although Effects never
gave him a written or oral license, Effects's conduct created an implied
license to use the footage in "The Stuff."

Cohen relies largely on our decision in Oddo v. Ries, 743 F.2d 630 (9th Cir.
1984). There, we held that Oddo, the author of a series of articles on how
to restore Ford F-100 pickup trucks, had impliedly granted a limited
non-exclusive license to Ries, a publisher, to use plaintiff's articles in a
book on the same topic. We relied on the fact that Oddo and Ries had formed
a partnership to create and publish the book, with Oddo writing and Ries
providing capital. Id. at 632 & n. 1. Oddo prepared a manuscript consisting
partly of material taken from his prior articles and submitted it to Ries.
Id. at 632. Because the manuscript incorporated pre-existing material, it
was a derivative work; by publishing it, Ries would have necessarily
infringed the copyright in Oddo's articles, unless Oddo had granted him a
license. Id. at 634. We concluded that, in preparing and handing over to
Ries a manuscript  [**13]  intended for publication that, if published,
would infringe Oddo's copyright, Oddo "impliedly gave the partnership a
license to use the articles insofar as they were incorporated in the
manuscript, for without such a license, Oddo's contribution to the
partnership venture would have been of minimal value." Id. n5

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n5 Oddo did nevertheless prevail, but on other grounds. Ries was unhappy
with Oddo's manuscript and hired another writer to do the job right. This
writer added much new material, but also used large chunks of Oddo's
manuscript, thereby incorporating portions of Oddo's pre-existing articles.
743 F.2d at 632. By publishing the other writer's book, Ries exceeded the
scope of his implied license to use Oddo's articles and was liable for
copyright infringement. Id. at 634.

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The district court agreed with Cohen, and we agree with the district court:
Oddo controls here. Like the plaintiff in Oddo, Effects created a work at
defendant's request and handed it over,  [**14]  intending that defendant
copy and distribute it. n6  [*559]  To hold that Effects did not at the same
time convey a license to use the footage in "The Stuff" would mean that
plaintiff's contribution to the film was "of minimal value," a conclusion
that can't be squared with the fact that Cohen paid Effects almost $ 56,000
for this footage. Accordingly, we conclude that Effects impliedly granted
nonexclusive licenses to Cohen and his production company to incorporate the
special effects footage into "The Stuff" and to New World Entertainment to
distribute the film. n7

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n6 As the district court found, "every objective fact concerning the
transaction at issue supports a finding that an implied license existed."
Order Granting Summary Judgment (Aug. 26, 1988) at 2. Effects's copyright
registration certificate states that the footage is to be used in "The
Stuff," so does the letter agreement of October 29, 1984, and Effects's
President James Danforth agreed at his deposition that this was his
understanding. CR 24 at 11. Also, Effects delivered the film negatives to
Cohen, never warning him that cutting the negatives into the film would
constitute copyright infringement. CR 24 at 29. While delivery of a copy
"does not of itself convey any rights in the copyrighted work," 17 U.S.C. §
202 (1988) (emphasis added), it is one factor that may be relied upon in
determining that an implied license has been granted.  [**15]

n7 Plaintiff argues that an implied license is an equitable remedy, akin to
estoppel, for which Cohen does not qualify because he hasn't paid in full
the agreed-to price for the footage. We reject this argument. Plaintiff
cites no authority for the proposition that an implied license is equitable
in nature; it seems to us to be a creature of law, much like any other
implied-in-fact contract. See, e.g., Landsberg v. Scrabble Crossword Game
Players, Inc., 802 F.2d 1193, 1199 (9th Cir. 1986). In any event, it is
unclear that a balancing of equities would favor plaintiff, who has been
paid almost $ 56,000 for footage that is worthless to Cohen should plaintiff
prevail.

Nor can we construe payment in full as a condition precedent to implying a
license. Conditions precedent are disfavored and will not be read into a
contract unless required by plain, unambiguous language. Sulmeyer v. United
States (In re Bubble Up Delaware, Inc.), 684 F.2d 1259, 1264 (9th Cir.
1982). The language of the October 29, 1984, agreement doesn't support a
conclusion that full payment was a condition precedent to Cohen's use of the
footage. Moreover, Effects's president conceded at his deposition that he
never told Cohen that a failure to pay would be viewed as copyright
infringement. CR 24 at 29.

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Conclusion

We affirm the district court's grant of summary judgment in favor of Cohen
and the other defendants. We note, however, that plaintiff doesn't leave
this court empty-handed. Copyright ownership is comprised of a bundle of
rights; in granting a nonexclusive license to Cohen, Effects has given up
only one stick from that bundle -- the right to sue Cohen for copyright
infringement. It retains the right to sue him in state court on a variety of
other grounds, including breach of contract. Additionally, Effects may
license, sell or give away for nothing its remaining rights in the special
effects footage. Those rights may not be particularly valuable, of course:
"The Stuff" was something less than a blockbuster, and it remains to be seen
whether there's a market for shots featuring great gobs of alien yogurt
oozing out of a defunct factory. On the other hand, the shots may have much
potential for use in music videos. See generally Kozinski & Banner, Who's
Afraid of Commercial Speech?, 76 Va. L. Rev. 627, 641 (1990). In any event,
whatever Effects chooses to do with the footage, Cohen will have no basis
for complaining. And that's an important lesson  [**17]  that licensees of
more versatile film properties may want to take to heart.



----- Original Message -----
From: "Bryan Taylor" <bryan_w_taylor@yahoo.com>
To: "dvd-discuss" <dvd-discuss@eon.law.harvard.edu>
Sent: Friday, November 02, 2001 9:37 PM
Subject: [dvd-discuss] Implied License to Watch the Movie


> I was reading a recent court decision and came across a citation to the
> following case which was interpreted as quoted:
>
> Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir. 1990)
>
> "Effects Associates stands for the principle that a seller grants a buyer
an
> implied license to use a product for the purpose for which the seller sold
it
> to the buyer."
>
> First, can somebody with Lexis/Westlaw access grab this case and email it
to
> me.
>
> Second, this may be a great case to add support to our authorization
argument.
> DVD's typically say "for home viewing only", this case would support an
implied
> license to access the work for that purpose. This is a pseudo first-sale
> principle as well.
>
> __________________________________________________
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