Friday, June 01, 2007

Raising (Citizen) Kane

It appears from an opinion issued by the Ninth Circuit on Wednesday, Welles v. Turner Entertainment Company, 2007 WL 1544576 (9th Cir. May 30, 2007), that Orson Welles made only $30,000 from the exploitation of his famous movie “Citizen Kane.” His daughter, Beatrice, unhappy about this, sued Turner stating various copyright and state claims. The district court granted summary judgment to Turner and Beatrice appealed. The court of appeals affirmed in part and remanded in part. The case goes back for a determination of whether an agreement between Welles’ production company (Mercury) and RKO (Turner’s predecessor) could be construed to include home video rights. If so, Beatrice is out of luck; if not, she may see some money.

The issue of whether a given contract conveys rights to future means of exploitation is hardly new: the issue arose, for example, in the switch from silent movies to talkies. The issue arose again with the introduction of television, and then home video. Unlike some European countries (most notably Germany and to a lesser extent France), which do not permit authors to convey rights to exploit works by technologies not in existence at the time of the contract), in the U.S., a copyright owner can convey away future exploitation rights, say by language such as “by all means now known or hereafter developed.” But few contracts in the early part of the 20th century had such broad language and instead used more specific language, leading to interpretive questions decades later, usually in suits involving heirs or successors of the original author, and technologies not in existence at the time of the original grant.

There are some basic flashpoints in such disputes. One is whether to apply federal law or state law. Outside of the formalities of conveyance in chapter 2 of title 17, there is no federal contract law on conveyances of copyright interests, although in the case of conveyance of renewal rights, federal courts read in a requirement that the renewal right be expressly conveyed in order to protect a perceived federal policy of protecting authors from assigning away that right. A similar policy belief motivated some courts and commentators in the early home video cases, where it was argued that a federal objective of protecting authors required that ambiguities in contracts be interpreted in authors’ favor. Where the contract was drafted by the transferee, the old saw that contracts will be construed against the party who drafted the agreement also came into play.

In Boosey & Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481, 487 (2d Cir. 1998), Judge Leval, relying on “neutral principles of contract interpretation rather than solicitude for either party,” parted from company with the Ninth and Third Circuits, which had held that “[s]uch doubt as there is should be resolved in favor of the composer.” While Judge Leval’s approach is fair enough, it does not address the difficult situations, those where the contract is ambiguous, evenly balanced between the parties' interpretation, or simply silent on the issue. In such situations, courts will—consciously or not—avail themselves of either a policy preference or—what may be the same thing—a canon of contract construction that places the burden on one of the parties.

In Random House, Inc. v. Rosetta Books LLC, 283 F.3d 490 (2d Cir. 2002), involving the question of whether an eBook was a “book” within the meaning of a contract, said that New York applied to such disputes. In the same year, the New York Court of Appeals, in Greenfield v. Phillies Records, Inc. N.Y.2d 562, 750 N.Y.S.2d 565, 780 N.E.2d 166 (2002), reversed a lower appellate court which, while noting Judge Leval's “neutral” approach in Boosey & Hawkes, nevertheless followed the First and Ninth Circuit's pro-author approaches. Greenfield also overruled another lower appellate court's holding in Caldwell v. ABKCO Music Records that limited rights granted to “core” rights, reserving to the grantor rights not specifically granted.

Returning to the Citizen Kane dispute, the Ninth Circuit found that New York law applied under a choice of law agreement and that the contract was ambiguous, leading to vacation of the summary judgment grant to Turner, and a battle in the new York courts abut the meaning of "television" in 1939 when the grant was made.


Zohar Efroni said...

I would like to underscore the current debate in Germany about the provision concerning “new types of use.” Indeed, current section 31(4) of the German Copyright Act stipulates a rather harsh and unequivocal rule. The law simply declares that the transfer of “use rights” concerning ”not-yet-known types of use” shall be void. [The text reads: “Die Einräumung von Nutzungsrechten für noch nicht bekannte Nutzungsarten sowie Verpflichtungen hierzu sind unwirksam.”]

So, for example, courts had to (rather arbitrarily) determine when a certain new mode of exploitation, say television, became “known” (in the case of television, the High Federal Court pointed at the year 1939). The obvious problem with the rule is how and according to which criteria should the court reach the factual finding about the economic significance of a certain use. For instance, there is no consensus when reproduction and distribution of video tapes of films became a "known" type of exploitation.

The term “Nutzungsrechte” has a unique meaning in German copyright law, but the original idea is quite simple. The legislature sought to protect authors (which are always, by definition, human creators) who often find themselves depended on, but in an inferior bargaining position vis-à-vis derivative exploiters such as publishers and employers. (By the way, there is no work-made-for-hire rule in German law). The provision's sparse language produced uncertainties and provoked calls for shedding more light on the concept of “know-ness” by amending the statutory text. The recent discussion surrounding the “second bundle” of amendment to the German copyright law reflects a tendency to strike out this rule, at least in its current form.

In the U.S., the problem relates mostly to interpretation of old contracts, as noted in the post, and whether author protection considerations should guide the contract interpretation craftsmanship. In Germany, the debate places a long-standing, authors-protective rule under scrutiny. The policy consideration guiding courts and legislatures in both countries are not that dissimilar. It issue boils down to whether, and in how far, could and should the law interfere with the freedom of contract between creators and publishers negotiating the transfer of rights secured under copyright.

The “hands off” approach - a trend which penetrated also the discourse in a personhood jurisdiction such as Germany - would let markets operate as freely as possible, touting the holy trio of property, contract and markets. But the dilemma remains viable. On the one side you have human creators that would sign anything in order to get published, even highly oppressive terms formulated by experienced lawyers. On the other side you have the concentrated power of media conglomerates. Should not the law of copyright do something to correct this apparent distortion? This leads rather quickly to framework questions about copyright’s purpose and justification. No doubt, the question how a utilitarian system can pointedly secure the economic interests of human creators is a difficult riddle. Maybe it should not bother in the first place, should it?

William Patry said...

Thanks so much for your extensive comment Zohar. In Guiseppina D'Agostino's 2002 article, "Copyright Treatment of Freelance Work in the Digital Era," 19 Santa Clara Computer & High Technology Law Journal 37, the situation on Germany is discussed, in particular the relationship between the Article 31(4) of the German Copyright Act and the 1901 German Publishing Act, especially as it played out in Frelens v. Der Spiegel, 308 O. 284/96 (Regional Court of Hamburg 1997), translated in 22 Columbia VLA J.L. & Arts 178 (1998).