Ninety Years of New Uses and Conflicting Rights

by Stanley Rothenberg

Many of the new technology productions call for the use of existing copyrighted works of literature, art, music and film. However, before you can ask the owner for a license you must know whom to ask. Frequently, ownership of a work does not rest entirely in the hands of one party. Often there is more than one potential owner of the new technology rights which you wish to acquire. How do you, as a potential licensee, determine with whom to deal? On the other hand, if you are an owner of rights in a work, how sure can you be that you own the specific rights for use by the particular new technology?

New technology lawsuits involving contracts covering the use of a copyright, or the services of a performer, are not a new species of litigation. I think you may find it informative to learn how the courts have treated such disputes between rival claimants for control over the privilege of using particular works in connection with future technology.

So let’s take a look backward to try to obtain some insight into how ownership disputes involving interactive CD ROMs, video on demand, electronic publishing and other new technologies may be decided in the future. This backward glance may also provide some insight into how tomorrow’s new agreements might read so as to minimize the likelihood of someone claiming that your standard form agreement did not buy you the protection that you and your organization need to continue to operate, today, and into the twenty-first century.

Consider the theatrical producer, who, at the turn of the century, acquired an exclusive license to dramatic rights in a novel. Did the theatrical producer acquire the right to dramatize the work for a photoplay a dozen years later? Although the Copyright Act was not amended until 1912 to include motion pictures as copyrightable subject matter, this legislative time lag did not prevent a U.S. Court of Appeals in 1903 from finding that inventor Thomas Edison had a copyright in his motion picture about Kaiser Wilhelm’s yacht, and thus his copyright had been infringed by the defendant’s use of a portion of the motion picture. The court held that the copyrightability of photographs was broad enough to include the new species, motion pictures.

Somewhat similarly, the Supreme Court, in 1911, held that an unauthorized film version of General Lew Wallace’s best-selling novel, Ben Hur, was an infringement of the right of dramatization under copyright. Thus, prior to the expansion of the Copyright Act to include motion pictures as copyrightable subject matter, as between the copyright owner and a stranger; the owner’s dramatic rights in a novel included the new use—motion pictures. But what about a dispute between the copyright owner and that owner’s exclusive licensee of dramatic rights?

In a New York case in 1914, the playwright and the theatrical producer, Charles Frohman, had entered into their contract in the year 1900, the playwright granting the producer the exclusive right to produce the play, Captain Jinks of the Horse Marines. The court found that the grant was made at a time when neither of the parties contemplated production of the play by means of moving pictures. Nonetheless, the court said that the exclusive right was intended to protect the producer in the property which he had purchased; that subsequent to the execution of the contract, science had made it possible to produce the play in some manner not then contemplated; however, that did not give the playwright the right to destroy the theatrical producer’s property or diminish the value of what he purchased. Thus the court enjoined the playwright from producing the play by means of moving pictures.

Two years later the contract in dispute was a grant, jointly made in 1899, by the author and his publisher to a theatrical producer of the exclusive right to produce a dramatic version on the stage of the previously mentioned novel, Ben Hur. For 14 years the play was produced with actors speaking on the stage. Then it occurred to both grantors and grantee that the public may be growing tired of the play, and that a photoplay might reach a new audience; thus each contracting party claimed possession of the photoplay rights. The federal district court analyzed the agreement made in 1899, stating that the contract prohibited any changes in the manner of performance, or any changes in the text, was limited to cities of a certain size, and contained provisions as to royalties and their computation not suitable to any method of producing photoplays then in commercial use. Thus, the court concluded that this differentiated the case from the New York case and therefore the defendant-grantees had to be enjoined. Now for a surprise. The court said plaintiffs assert, and almost assume, that since defendants cannot make a "movie" out of Ben Hur, and such right must exist somewhere, it must belong to the plaintiffs, as being an unconveyed portion of the copyright. The court went on to say that it does not always follow that, because one owns a certain thing, he might use it to the detriment of another, especially if the owner is under contractual obligations to such other. In the judge’s opinion there was implied a negative covenant on the part of the grantors not to use the ungranted portion of the copyright to the detriment, if not destruction, of the licensees’ rights. This resulted in the plaintiffs taking an injunction against the defendants, and the defendants receiving the same relief against the plaintiffs. The meaning of such double injunction is that, as long as the contract of 1899 existed, neither party to the contract could produce a photoplay of Ben Hur except by bargain with the other.

For those among you who may not put great store in a district court opinion from 1916, please note that four years later the Supreme Court heard a very similar case involving the stage play, Peg O’ My Heart. In a brief majority opinion, Justice Oliver Wendell Holmes, Jr., cited and quoted but a single authority, the district court opinion. The remedy varied somewhat. The Supreme Court did not issue reciprocal injunctions, but rather the injunction was conditioned on plaintiff not exercising the moving picture right, so that the injunction against the defendant would be dissolved if plaintiff issued a license to a third party.

The next case of special interest is a 1936 decision. The plaintiff, which had acquired "exclusive moving picture rights" to the popular novel, Captain January, from its author in 1923, sued a subsequent assignee of sound and talking motion picture rights for infringement. "Talkies" were not commercially known in 1923, but inventors had been experimenting with the idea for some years. The Second Circuit said that, although it did not appear that sound motion pictures were within the author’s contemplation when she executed the 1923 agreement, nevertheless, the court could entertain no doubt that the words used, namely, "the exclusive moving picture rights," were sufficient to embrace not only motion pictures of the sort then known but also such technical improvements in motion pictures as might be developed during the term of the license. The court said "talkies" are but a species of motion pictures; they are employed by the same theaters, enjoyed by the same audiences, and nothing more than a forward step in the same art. In 1911, you will recall, the Supreme Court held that the words, "exclusive right to dramatize," in the copyright statute, though used when motion pictures were unknown, included the right to produce motion pictures when that mechanism was later developed. Hence, according to the Second Circuit, the analogy was perfect, and the fact that in the earlier case the words of a statute were being construed, and here the words of a contract were involved, was irrelevant.

We now skip thirty-two years to the celebrated 1968 case of Bartsch v. M-G-M, once again in the Second Circuit. In 1930, the owners of the copyright in a German play transferred the motion picture rights to Hans Bartsch, a leading theatrical entrepreneur, who in turn transferred the rights to Warner Bros., who in turn transferred the rights to M-G-M, which made and distributed the now classic motion picture, Maytime. The controversy stems from M-G-M’s licensing its motion picture for television exhibition, beginning in 1958. A unanimous court stated, "while New York [state courts] will not charge a grantor with the duty of expressly saving television rights when he could not know of the invention’s existence, we have found no case holding that an experienced businessman like Bartsch is not bound by the natural implications of the language he accepted when he had reason to know of the new medium’s potential." The court went on to say that, in the end, the decision must turn on a choice between a narrow reading of the grant and a more expansive one. "If the words are broad enough to cover the new use, it seems fairer that the burden of framing and negotiating an exception should fall on the grantor.

Interestingly enough, some subsequent cases have cited, with approval, the Second Circuit’s Bartsch case without even discussing the experience of the grantor.

Bartsch stood as a benchmark on the subject of new uses for the next two decades. Then, in 1988, in the Ninth Circuit Court of Appeals, we had a major sign of turbulence on the subject of old licenses and new uses. The plaintiff, in 1969, had licensed defendant (1) to synchronize a musical composition in the motion picture entitled Medium Cool, and (2) to perform the composition as part of the motion picture in motion picture theaters and on television. In the 1980’s, Paramount made and sold videocassettes of its motion picture. Plaintiff sued, alleging copyright infringement. The Ninth Circuit reversed the district court’s decision in favor of defendant, Paramount, primarily because the parties had stipulated that VCRs for home use were not invented or known in 1969. Moreover, the Ninth Circuit ignored the Second Circuit’s Bartsch decision, making no reference to the then 20-year-old landmark.

Five years later, in a case involving the "Curious George" stories, the Court of Appeals for the First Circuit described the approach of the Ninth Circuit as intended to prevent licensees from receiving a windfall associated with the invention of a medium not in existence at the time the underlying agreement was executed. According to the First Circuit, application of the narrow interpretation is appropriate in situations involving overreaching, or exploitation of unequal bargaining by a licensee or, perhaps, where a particular "new use" was completely unforeseeable and therefore could not possibly have formed part of the bargain between the parties. Otherwise, the First Circuit appears to favor what it called the "preferred" method, that is, the expansive interpretation of the Bartsch case here in the Second Circuit. On the other hand, as you might expect, where the granting language included use "by any means now or hereafter known or devised," the courts have had little difficulty in deciding the case in favor of the grantee, finding the grant containing such language to be broad and unambiguous and thus precluding any need in the agreement for an exhaustive list of specific potential uses.

Thus, when you ask yourself whether the party from whom you wish to acquire multimedia rights is the owner of such rights in the previously exploited work, you might conclude that there is not only an issue of ownership of rights to the "new uses," but that there may also be an issue of the privilege of using such rights once you have acquired them, if such use may destroy or diminish values in the "old uses."

Of course, you also now know that the scope of a grant may depend upon the court in which the issue will be litigated. Moreover, even before hearing my remarks, you probably would have asked yourself, "Am I looking for a license or a lawsuit?"

On the other hand, if you are being aggressive because you have an errors-and-omissions or producers’ insurance policy, then certainly review the extent of your coverage. Bear in mind that, generally, in the event of an injunction, insurance coverage does not extend to your lost investment in production costs, or to your advertising and promotion expenses; moreover, the typical policy certainly does not cover loss of your anticipated profits. Furthermore, one of the additional considerations such insurance does not cover is the huge disruption that this kind of litigation generates in-house. Under such circumstances, two conflicting rights holders may find that, as a practical matter; neither one can safely or profitably sell rights, and that unless they join forces the resulting stand-off will waste the value of the rights of each of them, especially since many rights, as you well know, are quite time-sensitive.

Reprinted with permission from Leonardo (MIT Press).