BY:
Michael I. Rudell(Originally published in the Entertainment Law column in the New York Law Journal, February 27, 1998.)
A federal court has concluded that the license of perpetual distribution rights to the motion picture “King of Kings” did not terminate on expiration of the film’s initial copyright term.1 It reached this decision after reviewing the language contained in the distribution agreement, the testimony of a motion picture executive and industry standards.
In 1960, Samuel Bronston Products, Inc. and Metro-Goldwyn Mayer, Inc. entered into a 163-page agreement (the “Agreement”) concerning the production, financing and distribution of “King of Kings” (the “Picture”).
Under the Agreement, MGM paid approximately $5 million to obtain exclusive distribution rights to the Picture. Paragraph 8 of the Agreement provided that MGM “shall retain in perpetuity the exclusive right to distribute the said motion picture throughout the world except in Spain, Portugal, Germany, France, Belgium, Holland and Luxemburg …”
Paragraph 11 of the Agreement provided that MGM “shall be vested with the perpetual and exclusive right to distribute said motion picture ‘King of Kings’ throughout the territories in which [MGM] acquires rights hereunder …”
Benjamin Melniker (“Melniker”), who was Vice President and General Counsel of MGM and the only individual known by the parties to be available to testify and who had personal knowledge of the circumstances surrounding the negotiation of the Agreement, testified that he thought “King of Kings” was an extraordinary picture. He further testified that MGM would not have financed the Picture if it did not have a perpetual distribution term.
The occurred Picture was first exhibited on or about October 30, 1961. On October 15, 1962, the copyright office approved an application to register the copyright of the Picture.
As a result of a 1967 bankruptcy proceeding, Bronston assigned its interest in the Agreement and the copyright of the Picture to plaintiff. Through a series of mergers and name changes, defendant Turner became the successor to MGM’s distribution license and licensed to defendant Warner Home Video the right to distribute the Picture in the home video market.
Plaintiff renewed the copyright in the Picture effective December 18, 1989. In September 1990, it advised defendants that the distribution license period under the Agreement had terminated December 31, 1989.
In March of 1991, plaintiff filed this suit. Although the complaint specifies six claims for relief, the parties proceeded to trial on stipulated facts on the first claim only, which seeks a declaratory judgment that (i) the distribution license granted in the Agreement terminated on December 31, 1989, and (ii) defendants have no further distribution rights with respect to the Picture.
Plaintiff claims that the perpetual distribution given in the Agreement endures, in fact, only for 28 years, the initial federal statutory copyright term. Any other interpretation would violate the Copyright Act of 1909 (the “1909 Act”),2 Supreme Court precedent and public policy.
The essence of plaintiff’s argument lies in the contention that the 1909 Act should preempt basic contract principles in the interpretation of the license of distribution rights under the Agreement.
The Court notes, however, that plaintiff has not pointed to any case holding that a contract expressly providing for a perpetual license incident to a copyright must be limited to the initial term of the copyright. Plaintiff does cite precedent dictating that when a contract is silent as to the duration of licensed rights, such rights continue until the expiration of the initial copyright term.
In strong contrast to this is a stream of cases involving perpetual license rights in which courts interpreting such licenses have not even discussed whether any constitutional limitations inhere from the copyright clause of the Constitution. Courts routinely have recognized the right to enter into perpetual licenses incident to copyrighted material. Further Nimmer on Copyright is in conformity with these decisions. It states, “the vast bulk of copyright contractual issues must be resolved under state law, given the silence of the Copyright Act in addressing such issues as … how to construe ambiguous contractual language.”3
Further, giving effect to perpetual license rights does no harm to copyright principles that seek to protect the public’s interest in copyrighted material after the statutorily granted monopoly period. Noting decisions relating to the patent laws, the Court indicates that the public has invested in the free use of inventions by the grant of a monopoly to the patentee for a limited time. Any attempted reservation or continuation of a patent monopoly after the patent expires runs counter to the policy and purpose of the patent laws.
In the instant case, defendants seek no unlawful extension of copyright monopoly through exercise of their distribution rights. Plaintiff renewed its copyright and, as such, defendants continue to exercise their license during the statutorily granted period. More importantly, the Agreement merely is a contract between two private parties under which the plaintiff promises that its distribution of the Picture will be exclusively through the defendants. The Agreement neither affects the process by which the Picture will fall into the public domain at the expiration of the renewal term, nor prevents others from distributing the Picture at that time.
The Court notes that clearly a copyright is different from a distribution license.
The 1909 Act implicitly made that distinction. Accordingly, under the 1909 Act, analysis of a copyright’s duration should not necessarily apply when considering the duration of a distribution license.
Plaintiff points to the well-established presumption against finding a conveyance of rights for the renewal period. It then asserts that defendants’ distribution rights do not extend beyond the initial copyright term because defendants did not specifically include the phrase “renewal term” in the relevant provisions of the Agreement.
The Court states, however, that inclusion of the precise phrase “renewal term” is not required to find a conveyance of rights beyond the initial term. In a footnote, it indicates that “judicial discussion of renewal rights has hinged on contractual intent, and not on limitations inherent in the Copyright Clause.”
Against this background, the Court discusses the provisions of the Agreement. It notes that the duration of the licensed distribution rights are “perpetual” and are given “in perpetuity.” These terms are unambiguous and convey a plain, ordinary meaning.
Even if some ambiguity could be found in these terms, the deposition of Melniker is persuasive in indicating that MGM was to have the distribution rights in the Picture forever. His statements indicate that discussion pertaining to distribution rights occurred separately from that regarding the underlying copyright retained by plaintiff’s predecessor.
Finally, the Court notes that any other result would work an injustice, not only to the parties, but more generally to those contracting in the film distribution and financing industry. The Court cites various treatises which advise that distribution rights can be treated distinctly from the copyright ownership in a picture and that in a commonly used arrangement “the financier/distributor will want the sole and exclusive right to distribute the picture by any and all media throughout the world in perpetuity.”4 Plaintiff’s argument would call such standard contracts into question, thereby undercutting normal commercial transactions in the film industry.
For these reasons, the Court concludes that the distribution rights of defendants were not coterminous with the initial copyright term of the Picture. It finds for the defendants and denies the request by the plaintiff for declaratory relief.
1 P.C. Films Corp. v. Turner et al., 954 F. Supp. 711 U.S.D.C., Southern District N.Y. (1997).
2 In 1976, the 1909 Act was substantially revised.
3 3 Melville B. Nimmer and David Nimmer, Nimmer on Copyright, § 1.01[B][3][a](1992).
4 1 Donald Farber, Entertainment Industry Contracts, 15-51 (1994).