Monday, December 03, 2007

Call me Mr. Loaf

A recent decision by the Sixth Circuit, Popovich v. Sony Music Entertainment, Inc., 2007 WL 4123509 (6th Cir. Nov. 21, 2007), has been reported in the press for its upholding of a $5.6 million jury breach of contract award for Sony’s failure to affix an independent record label’s logo to four albums by the gregarious performer Michael Lee Aday, known professionally as “Meat Loaf.” Plaintiff is Stephen Popovich, and his company was called Cleveland Entertainment Company. As the court explained:

In August 1977, Popovich signed a promotional contract with … Meat Loaf. Meat Loaf had recorded his first solo album-“Bat Out of Hell”-but no record label was willing to distribute the album. Popovich submitted “Bat Out of Hell” to CBS, which agreed to distribute it under its “Epic” label. “Bat Out of Hell” was released in 1977 and has since sold over 30 million copies worldwide. Between 1981 and 1984, CBS released three more Meat Loaf albums-“Dead Ringer,” “Midnight at the Lost and Found,” and “Hits Out of Hell,” a compilation of greatest hits from Meat Loaf's first three albums. The parties do not dispute that these albums are covered by the 1977 Agreement.
The part of the opinion that interests me is a different one from the rags focused on: the court’s discussion of new uses. Debates about whether contracts cover new uses have flourished since at least the time movies switched from talkies to speakies. The debate has continued through the introduction of television, cable, audio tapes, video tapes, CDs, and DVDs. It was only a matter of time until Internet use was raised, and it was in this case, but in the most bizarre way. Plaintiff was arguing that Sony had a duty to affix his logo on Internet downloads because of language in the settlement that imposed the obligation on “all forms and configurations ... manufactured by Sony.” Sony took the entirely reasonable position that Internet downloads are not manufactured; the district court agreed as did the court of appeals:

Popovich appeals the district court's decision on summary judgment finding that the 1998 Agreement unambiguously did not cover internet downloads. The district court held that the language “manufactured by Sony Music after September 1, 1998” precludes items not “manufactured” by Sony. In the words of the district court, “while Sony ‘manufactures' albums, CDs, and cassettes, asserting that Sony ‘manufactures' Internet downloads or streaming audio requires a liberal interpretation of ‘manufacture.’ Such an interpretation is simply too great a stretch for this court to conclude that there is ambiguity in the language.” Popovich contends that the “all forms and configurations” language was intended to cover future music formats such as internet downloads, and the “manufactured by Sony Music after September 1, 1998” language merely provides Sony a grace period to comply with its obligations. The relevant question for this Court is whether the sentence “all forms and configurations ... manufactured by Sony” includes internet downloads. Neither party has cited to, nor have we been able to find, a case holding that internet downloads may be “manufactured.” As the district court noted, had the parties included the words “distributed by,” the agreement would have lent itself to the interpretation that internet downloads were meant to be included in the logo obligation. As a result, we do not believe the district court erred in its holding that it is an unreasonable interpretation of the language of the agreement to conclude it covers internet downloads. Popovich raises the doctrine of “new use” in his appeal. According to Popovich, New York courts have held that where one party wants contractual language governing a work's distribution to be broadly construed to govern use in a new medium, and the other party attempts to limit the application of the agreement, the burden of excluding the right to the new use will rest with the party attempting to limit the application, in his case, Sony. The Second Circuit applied the new-use doctrine in Boosey & Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481, 486-87 (2d Cir .1998). In doing so, the court stated that the words of the contract govern, and a court should not favor one party over the other. “If the contract is more reasonably read to convey one meaning, the party benefitted by that reading should be able to rely on it; the party seeking exception or deviation from the meaning reasonably conveyed by the words of the contract should bear the burden of negotiating for language that would express the limitation or deviation. This principle favors neither licensors nor licensees. It follows simply from the words of the contract.” Id. at 487. The New York Court of Appeals affirmed the Second Circuit's reasoning in Greenfield v. Philles Records, Inc., 98 N.Y.2d 562 (N.Y. 2002). The New York court held that the reasonable interpretation of the contract governs. It is important to remember that the new-use doctrine has only been applied in the licensing arena and has not been applied to the factual situation in the present case. Regardless, taking into account the new-use doctrine's requirement that the language of the contract must be more reasonably read to include the new-use being proposed-here, internet downloads-the language “all forms and configurations ... manufactured by Sony” is not more reasonably read to include internet downloads than to exclude internet downloads. Based on the above, the district court's decision that the 1998 Agreement unambiguously does not include internet downloads should be affirmed.
I don’t agree with the court’s characterization of New York law which I think departed significantly from Boosey (see chapter 5, section 5:115, pages 229-230 of my treatise), and even Boosey missed the real question: what default rule do courts apply when the contract cannot be read to address the question at all; that is, when the contract cannot be read reasonably one way or the other? My question in the Popovich case is not the default rule since his construction of the contract appears to me absurd, but rather Sony’s position has relevance in label-artist disputes, something outside my expertise. I am curious to hear what others with that expertise think.

No comments: