Opposition Brief — P. C. Films Corp. v. MGM/UA Home Video Inc.

Supreme Court brief1998

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ou) FILED

No. 98-496 OCT 26 1998

CLERK

cFice OF THE

In The coment couRT, U.S.

Supreme Court of the bts States

October Term, 19°8

7 \

P.C. FILMS CORP.,

Petitioner,

VS.

MGM/UA HOME VIDEO INC.,

MGM/UA COMMUNICATIONS CoO.,

WARNER HOME VIDEO, INC. and

TURNER ENTERTAINMENT CO.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Second Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

STEPHEN F. HUFF

Counsel of Record

TOM J. FERBER

PAIGE A. MOORE

PRYOR CASHMAN SHERMAN

& FLYNN LLP

Attorneys for Respondents

410 Park Avenue

New York, New York 10022

(212) 421-4100

149283 @ Counsel! Press LLC

FORMERLY LUTZ APPELLATE SERVICES

(800) 274-3321 * (800) 359-6859

STATEMENT PURSUANT TO RULE 29.6

Pursuant to Rule 29.6, corporate respondents list the

following as their parent companies and nonwholly owned

subsidiaries:

(i) with respect to Turner Entertainment Co.: Time-

Warner, Inc.;

(ii) with respect to Warner Home Video, Inc.: Time-

Warmer, Inc. and MediaOne Group, Inc.;

(iii) with respect to MGM/UA Home Video, Inc. and

MGM/UVUA Communications Co.: Metro-Goldwyn

Mayer, Inc.

TABLE OF CONTENTS

Page

Statement Pursuant to Rule 29.6 .................. i

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Table of Cited Authorities ...................004. iv

PI I nos ecunanansdod Qameueunben l :

IE MINE aie is ua eeepc ee nsemeeemcens 2

i I I en ee 2

ee ee rer oe art 5

pe Te re rey 6 ;

A. The District Court Decision ................ 6

B. The Second Circuit Decision ............... 8 ;

Reasons for Denying the Writ .................... 11

I. This Court Need Not Address The Constitutional

Issues Raised Prematurely By Petitioner ..... 11

II. MGM’s Distribution Right Is A Permissible,

Perpetual Contract Between The Parties Which

Consists Of More Than A “Copyright License”

ili

Contents

A. Petitioner’s Arguments Are Premised Upon

A Mischaracterization of the Basic

Agreement ............e ee eee eee eeees

B. The Basic Agreement Is Not Preempted By

Federal Copyright Law. .............---

C. There Is No Conflict Among The Circuits

Sea OoOeOe SOS SSERSALBAOAS SAAD A DALAOAOAARAAHAARSESS

D. The Basic Agreement Did Not Terminate At

The Expiration Of The Initial Term Of

III. The Distribution Rights Conveyed By The Basic

Agreement Do Not Alter Rights Granted By

Of Copyright Law Or Violate Its Policies ....

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Page

TABLE OF CITED AUTHORITIES

Page

Cases:

Abrams v. Van Schaick, 293 U.S. 188, 55 S. Ct. 135, 79

ee ee erase ye Ae ne er rar ner ent en 12

American Airlines, Inc. v. Wolens, 513 U.S. 219, 115 S.

Ce. BET, TIT TA, BR TAS CIGOS). oan co vcnnnece 17

April Productions, Inc. v. G. Schirmer, Inc., 308 N.Y.

DEF TVE TERETE See TCT ee 20

Ashwander v. Tennessee Valley Authority, 297 U.S. 288,

ee | ee er re ba, 32, 3

Burton v. United States, 196 U.S. 283, 25 S. Ct. 243, 39

Les SE 9b cw See seb a Sark was UE 12

Chen..cal Bank v. Affiliated FM Ins. Co., 815 F. Supp.

RD 2 A eo een a ee 20

Corcovado v. Hollis, 981 F.2d 679 (2d Cir. 1993) .... 20,21

Feist Publications, Inc. v. Rural Telephone Service Co.,

499 U.S. S40, 110 &. Ch, USER GASP A) . «0... 00s- 17

Goldstein v. California, 412 U.S. 546, 93 S. Ct. 2303

(1973), reh’g denied, 414 U.S. 993, 94 S. Ct. 27

CRU SIE ase bish 6 Waid aes Welncn's dite 9 his a aine delta edit act 15

Hendler & Murray v. Lambert, 147 A.D. 2d 444, 537

N.Y.S. 2d 560, 563 (2™ Dept.), app. denied, 74 N.Y.

26 G03, S43 N.Y .S. 26 S96 (I9GS) 2... cnc caunes 24

Table of Cited Authorities

Page

In re Castle Braid Co., 145 F. 224 (S.D.N.Y. 1906) .. 24

In re Kazmierczak, 24 F.3d 1020 (7th Cir. 1994) .... 20

Lasercomb America, Inc. v. Reynolds, 911 F.2d 970 (4"

Co See acids bnndscue Pekhosaheenreueneens 17, 18

Liverpool, N.Y. & Phila. Steamship Co. v. Emigration

Commissioners, 113 U.S. 33, 5 S. Ct. 352, 28 L. Ed.

BO couscndiscensenes caked ee 12

Mendelsohn v. A & D Catering Corp., 119 Misc. 2d 581,

464 N.Y.S. 2d 331 (Sup. Ct. Kings Cty. 1983), aff'd,

100 A.D. 2d 209, 437 N.Y.S. 2d 481 (2° Dept. 1984)

a nbd wb ee chalet wka bees delle cade as tas eee 24

Mulligan v. Fioravera, 228 A.D. 270, 239 N.Y.S. 438

(1* Dept.), aff'd, 255 N.Y. 539 (1930) ........... 24

P.C. Films Corp. v. Turner Entertainment Co., 954 F.

Sem: TAF GEA. SEED vc ees eke 7, 8, 11, 14, 19, 22

ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7" Cir.

SOUR cine Siucdcnuteawedenkeew sea eaebn etn 16, 17

Rano v. Sipa Press, Inc., 987 F.2d 580 (9" Cir. 1993)

oe Cs wi pra eea le wikia eae ee ae ee 16

Shedlinsky v. Budweiser Brewing Co., 163 N.Y. 437, 57

SR fk ee pe pee Pyrat ye 9, 24, 25

Table of Cited Authorities

Siegel v. National Periodical Publications, Inc., 364 F.

Supp. 1032 (S.D.N.Y. 1973), aff'd, 508 F.2d 909 (2d

Ce TP ie ives eee oe oes Sen

S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081 (9" Cir.

BINED viv vixsws gue twotnns sé ke biees rae eee

Terrace Sav. & Loan Ass'n v. Martin, 236 N.Y.S. 2d 674

ic Na. TN SAS. SPOS hk aden ksh aaecevess

Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255 (5*

Ge SOE) sd irae Cisse oneiewenld canescens

Warner-Lambert Pharmaceutical Company, Inc. v. John

J. Reynolds, Inc., 178 F. Supp. 655 (S.D.N.Y. 1959),

aff'd, 280 F.2d 197 (2d Cir. 1960) ..............

Weil v. Neary, 22 F.2d 893, 895 (2d Cir. 1927), rev'd on

other grounds, 278 U.S. 160, 49 S. Ct. 144 (1929)

oo 8 6a 6 Oo OS ¢ 6 86 610 6 O0'O 6¢ OS 28.9 & 6'OS' SSC e @*O OS B-A-S OOS

Western Union Tel. Co. v. American Communications

py ROS! Me. DO eo So. | rs

Wilshire Oil Co. v. United States, 295 U.S. 100, 55 S. Ct.

re Se Ms RE as Ac hs oe ae ea wR

Page

9, 21

vii

Table of Cited Authorities

Page

Statute:

ge Geer ere rene eae pee a 15

Other Authorities:

“Copyright Term Extension Act of 1997,” H.R. 604. . 12

Boog ¢ 8 FT PTT TICLe Cee TEU ee Tee 18

Webster’s Third New International Dictionary (1981) |

]

PRELIMINARY STATEMENT

Respondents Turner Entertainment Co. (“Turner”), Metro-

Goldwyn-Mayer, Inc. (the “New MGM”),' MGM-UA Home

Video, Inc. and Warner Home Video, Inc. (collectively referred

to as “Respondents”) hereby submit their brief in opposition to

P.C. Films Corp.’s Petition For A Writ Of Certiorari dated

September 22, 1998 (the “Petition”).? The Petition seeks this

Court’s review of the Judgment of the United States Court of

Appeals for the Second Circuit (the “Second Circuit”) affirming

the Judgment of the United States District Court for the

Southern District of New York (the “District Court”) holding

that Respondents’ distribution rights in the film “King of

Kings,” as set forth in the subject financing and distribution

agreement, was not coterminous with the film’s initial 28 year

for declaratory relief.‘

1. New MGM was named in the caption as “MGM/UA

Communications Co.,” its name at the time.

2. The Petition was docketed with this Court on September 24,

1998.

3. Petitioner had appealed from the opinion and judgment of the

District Court (per the Honorable Barbara S. Jones) dated January 30,

1997 and February 18, 1997, respectively. The District Court entered

an additional judgment on March 18, 1997, dismissing all of the

remaining claims and counterclaims, based on the prior opinion and

judgment and the parties’ stipulation.

4. The issue on appeal to the Second Circuit was whether

Respondents’ “perpetual” right to distribute the subject film in the

licensed territories, as agreed to by the parties’ predecessors in a 1960

contract, continues in effect, or whether such distribution right terminated

and reverted to Petitioner at the end of the film’s initial 28 year copyright

term.

STATEMENT OF THE CASE

This case involves the interpretation of a motion picture

production, financing and distribution agreement which was

negotiated and entered into in 1960. Petitioner P.C. Films is

the assignee of the rights of producer Samuel Bronston

Productions, Inc. (“Bronston”) in the motion picture “King of

Kings” (the “Film”). Defendant Turner is the successor in

interest to the rights of the original Metro-Goldwyn-Mayer

(“MGM7”),° which had contracted with Bronston for perpetual

distribution rights to the Film in exchange for providing most

of the financing for the Film’s expensive production budget.

The gravamen of Petitioner’s claim is that Respondents’

distribution rights under the 1960 contract, which were

expressly stated as being “in perpetuity,” were coterminous with

the first copyright term in the Film, which ended on December

31, 1989. Petitioner’s first claim for relief, which was

adjudicated and rejected by the District Court on stipulated facts

(which decision was affirmed by the Second Circuit), sought a

declaratory judgment that Defendants’ distribution rights in the

Film terminated on that date. Plaintiff's remaining claims were

dismissed based on this holding.

A. Background Facts

In 1960, MGM entered into negotiations with Bronston

concerning the production, financing and distribution of a

motion picture about the life of Jesus to be entitled “King of

Kings” (the “Film”). The screenplay had been written by Philip

Yordan as a “work-made-for-hire” for Bronston. Bronston was

seeking financing for the Film, which would ultimately cost

over $8 million to produce, in exchange for which it would

license distribution rights in the Film.

5. Defendant New MGM, which was incorporated in 1981, is not

related to MGM.

Benjamin Melniker (“Melniker”), Vice President and

General Counsel of MGM, as well as one of its directors, took

the lead in the negotiations on behalf of MGM. Samuel

Bronston, assisted by numerous accomplished entertainment

lawyers, was also personally involved. Caribe Curacao, N.V.

(“Caribe”) and Nazareth Production Company (“Nazareth”),

the assignees of the various distribution rights in the Film, were

also involved in the transaction.®

On or about August 4, 1960, the parties entered into an

agreement (the “Basic Agreement”) concerning the production,

financing and distribution of the Film. (A copy of the relevant

portions of the Basic Agreement is annexed to the Petition

commencing at page 46a.) Pursuant to the terms of the Basic

Agreement, MGM provided promissory notes in order to finance

$5 million of the total production budget (which was then

approximately $6 million, although it was later increased), in

consideration of which it was agreed 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 Luxembourg .. .

In addition, MGM acquired an option for the exclusive right to

distribute the Film in the Nazareth Territories, which had been

excluded.

6. Nazareth, which was a signatory to the agreement finally

reached, held the distribution rights for Germany, France, Belgium,

Holland and Luxembourg (the “Nazareth Territories”). Caribe, which

was a party to other, related agreements concerning the Film, had been

assigned all distribution rights in the Film except for Spain, Portugal

and the Nazareth Territories, as security for certain loans which it had

extended to Bronston.

On or about December 2, 1960, MGM exercised the option

granted in paragraph 9 of the Basic Agreement to acquire the

same distribution rights in the Nazareth Territories which it

enjoyed in the other licensed territories. At this point, the parties

had contracted, as between themselves, for MGM to have

perpetual distribution rights in the Film for the entire world

except Spain and Portugal. MGM, in turn, agreed to account

and pay to Bronston 60% of net profits, as defined in the Basic

Agreement, after recoupment.’

The Film was first exhibited on or about October 30, 1961.

As a result of proceedings in bankruptcy several years later,

Bronston assigned its copyright interest in “King of Kings” to

P.C. Films Corp., the Petitioner herein.

As a result of a series of assignments, mergers and

acquisitions,* Turner now owns the distribution rights in the

Film which were first acquired by MGM in 1960 pursuant to

the Basic Agreement.

Turner is continuing to exercise distribution rights in the

Film as the successor to MGM under the Basic Agreement.

Warner Home Video, another named defendant in this action,

is distributing the Film in home video pursuant to licenses

7. The complex calculation and distribution of “net profits” is set

forth at paragraph 8 of the Basic Agreement.

8. On February 29, 1980, MGM assigned its filmed entertainment

business to Metro-Goldwyn-Mayer Film Co. (“MGM Filmco”). MGM

Filmco changed its name to MGM/UA Entertainment Company. In

March of 1986, TBS Acquisition Corp. was merged into MGM/UA

Entertainment Co. The name of the newly-created entity was MGM

Entertainment Co. In August of that same year, MGM Entertainment

Co. was merged into TBS Entertainment Co. A few days later, TBS

Entertainment Co. changed its name to Turner Entertainment Co.

emanating from or through the New MGM (including its

affiliates and subsidiaries) and Turner Entertainment Co.

B. The Litigation

In 1990 P.C. Films, as assignee of Bronston’s interest in

the Film, advised Respondents of its claim that the “perpetual”

distribution right for which MGM had contracted in the Basic

Agreement was intended to, and under New York law did,

terminate on December 31, 1989, at the conclusion of the first

28 year copyright term in the Film.°

P.C. Films commenced this action on March 7, 1991. The

complaint set forth six claims for relief. The first claim, which

was the subject of the trial on stipulated facts in the District

Court, was for a declaratory judgment that the distribution

license granted in the Basic Agreement terminated on December

31, 1989, and that Respondents have no further distribution

rights or other rights with respect to the Film. The remaining

claims were for copyright infringement, for unfair trade

practices and unfair competition, for replevin of the elements

of the Film, for replevin of all videocassette materials for the

Film, and for an accounting.

During discovery, the parties took Melniker’s deposition.

Melniker is the only known remaining witness who has personal

9. The copyright in the Film was renewed pursuant to filings made

by both Turner and P.C. Films in 1989. Turner does not claim, however,

to be the copyright proprietor of the Film, and it filed its renewal

application naming Bronston as a co-claimant, as MGM had done when

it filed for the original copyright registration in 1962. Melniker testified

that MGM’s name was added, by agreement with Bronston, to enable it

to register and hold the copyright in trust for Bronston. This practice

was standard MGM policy and facilitated the process of depositing copies

with the Copyright Office. Turner similarly registered the renewal

No assertion of copyright ownership is made by MGM or Turner.

knowledge regarding the negotiation and execution of the Basic

Agreement.'° Melniker testified that it was MGM’s general

policy to get “perpetual” distribution rights, and that the

company would not have invested $5 million in a film being

produced by another entity, as it did with “King of Kings,” for

less than a perpetual term. When asked whether any of the other

parties ever express a desire or intention that MGM’s term of

distribution be for a shorter period, Melniker responded

“Cajbsolutely not. We never would have continued the

negotiation if that happened.” (Page 63a.)

Melniker testified that the duration of the “perpetual”

distribution right was intended to be “forever,” and was not

limited to any specific term of years. Melniker also testified

that the original parties to the Basic Agreement never intended

the duration of MGM’s distribution rights to be measured in

terms of the copyright in the Film. (Page 64a.)

Petitioner’s declaratory judgment claim was tried on

stipulated facts and exhibits, including Melniker’s deposition

transcript. There was no testimony offered to contradict

Melniker and it was agreed that his credibility was not at issue.

THE DECISIONS BELOW

A. The District Court Decision

Petitioner made two basic arguments in support of its claim

that the perpetual distribution term contracted for in the Basic

Agreement terminated at the end of the Film’s initial 28 year

intent, and that had the parties intended for the distribution

term to include the renewal copyright period, they would have

10. A copy of the relevant portions of Mr. Melniker’s testimony

are annexed to the Petition commencing at page 61a.

specifically referred to the renewal term or set forth a specified

term of years. Second, Petitioner argued that construing the

Basic Agreement’s “perpetual” distribution term as extending

beyond the initial 28 year copyright period would violate those

sections of the United States Constitution and the Copyright

Act of 1909 (the “1909 Act”) which provide that copyright

protection must be of limited duration.'!

The District Court rejected both of these assertions, finding

that “plaintiff's argument misconstrues both the nature of

licenses related to copyrights, and judicial treatment of such

contractual arrangements.” P.C. Films Corp. v. Turner

Entertainment Co., 954 F. Supp. 711, 713 (S.D.N.Y. 1997).

Noting that “courts routinely recognize the right to enter into

perpetual licenses incident to copyrighted material” without

any concern that constitutional limitations prohibit such grants

(954 F. Supp. at 714), and that Petitioner had cited no case

holding that such a grant must be limited to the initial copyri ght

term (/d. at 713), the court held that

the private agreement between two parties — which

does not affect the movement of the Picture into the

public domain once the initial and renewal terms

have expired — does not “alter rights granted by

the copyright statutes as to invade the scope of

Thus, having found that the “perpetual” right to distribute the

Film was a matter of a private contract affecting only the

contracting parties’ rights and obligations as between

themselves, the court held that:

11. Itis this argument on which Petitioner primarily based its appeal

to the Second Circuit and currently its Petition to this Court; Petitioner's

argument regarding the parties’ intent has become secondary.

[Giving effect to perpetual license rights — beyond

the initial copyright term — does no harm to

interest in copyrighted material after the statutorily

granted monopoly period (/d.)

The District Court also rejected Petitioner’s argument that

the parties to the 1960 Basic Agreement had intended for

MGM’s distribution right to be coterminous with the initial

‘renewal term’ ” is not required, and finding that the use of the

term “perpetual” to describe the duration of MGM’s distribution

right was “unambiguous and convey[s] a plain, ordinary

meaning. Perpetual means forever” (Jd. at 715-16).

Accordingly, the Court found that “the parties to the Basic

Agreement intended for the instrument to convey perpetual

distribution rights, i.e. rights that last forever” (Jd. at 716).

Furthermore, the Court found that even if some ambiguity could

be found in this term, that Melniker’s unchallenged testimony

“lays the issue to rest” and establishes that the parties never

intended for MGM’s distribution right to be coterminous with

the initial copyright period (/d.).

Finally, the District Court concluded that a consideration

of the equities would lead to the same result, since a contrary

finding would “work an injustice not only to the parties, but

more generally to those contracting in the film distribution and

financing industry” who rely on standard industry usage of

“perpetual” grants to describe the distribution rights for which,

like MGM, they are paying substantial sums (/d. at 716).

B. The Second Circuit Decision

In affirming the District Court’s decision, the Second

Circuit noted that the Supreme Court “has consistently allowed

authors to assign their rights in the renewal term before that term

commences.” 138 F.3d 453, 457 (2d Cir. 1998). The Court rejected

the Petitioner’s argument regarding the general presumption

against the conveyance of renewal rights, noting that under its

holding in Siegel v. National Periodical Pubs, Inc., 508 F.2d 909

(2d Cir. 1974), this presumption may be rebutted where the author

includes “language which expressly grants rights in ‘renewals of

the Basic Agreement granted MGM the “perpetual and exclusive

right to distribute” the Film, and since “ ‘perpetual’ was sufficiently

synonymous with ‘forever,’ ”"? (id.), the Court held that MGM’s

“perpetual” grant of distribution rights encompassed the renewal

term.

The Court added that even if Siegel had not been controlling,

the conclusion that the parties in this case intended to

convey rights in the renewal term is supported by

extrinsic evidence, namely the testimony of the sole

surviving participant in the negotiations, MGM’s Vice

President and General Counsel, Benjamin Melniker.

138 F.3d at 457."

12. The Court quoted one of the definitions of “forever” from

Webster's Third New International Dictionary (1981), i.e. “continuing

forever.” 138 F.3d at 457.

13. The Court also cited the maxim of contract interpretation that

when a contract “may be performed lawfully, as well as in violation of

the law, it is valid, ... [and the] construction of a contract should be,

when it is possible, in favor of its legality .. .” 138 F.3d at 458, citing

Shedlinsky v. Budweiser Brewing Co., 163 N.Y. 437, 439, 57 N.E. 620,

620 (1900). The Court explained that “the Basic Agreement can be

lawfully interpreted to continue through the renewal period, thereby

giving effect to the intention of the parties to the greatest extent possible

consistent with the law.” Jd.

The Second Circuit declined to decide the question raised by

petitioner of whether a perpetual license of copyright rights is

contrary to federal copyright law and policy as it was unnecessary

for the Court to reach this question. The Court had already

determined that the Respondent’s license extended through the

renewal term, i.e. through the year 2036, based on the clear

language of the Basic Agreement and the intent of the parties."

Significantly, the Court held that it would therefore be

premature and therefore inappropriate at this time to

decide whether a contract purporting to grant a

perpetual license of copyright rights, that is, rights that

endure beyond the renewal period, is contrary to

federal copyright law and policy. We need not resolve

that issue because the renewal term for the film “King

of Kings” does not expire until after 2036. We have

held that the Basic Agreement’s grant of distribution

rights “in perpetuity” grants rights through the renewal

period. Thereafter, the work will go into the public

domain. We decline to decide whether the Basic

Agreement imposes restrictions on P.C. Films beyond

the renewal period. 138 F.3d at 458.

The Second Circuit also rejected the Petitioner’s extraordinary

request, which request is reiterated in this Petition, that the term

“perpetual” somehow be “removed” from the Basic Agreement,

that Melniker’s unrebutted testimony also be disregarded, that the

contract be treated as one which had been silent as to duration,

and that the Court invoke the rule that contracts silent as to duration

of the grant of copyright rights convey rights for the initial

14. The Court stated that, even if it were to assume arguendo that

the grant was “void,” it would not adopt Petitioner’s analysis as this

“would require the Court to ignore the manifestation of the parties’

intention on the issue of duration.” 138 F.3d at 458.

REASONS FOR DENYING THE WRIT

THIS COURT NEED NOT ADDRESS THE

CONSTITUTIONAL ISSUES RAISED

PREMATURELY BY PETITIONER

The District Court and the Second Circuit both determined

that, based on the plain language of the Basic Agreement and

the manifest intent of the parties, the Respondents were granted

an exclusive “perpetual” license to distribute the film “King of

Kings,” and that this was both intended to and did encompass

(at least) the renewal copyright term. Thus, under both

decisions, the Basic Agreement /awfully extends through the

renewal term, i.e. through at least the year 2036.'° As noted

above, the Second Circuit specifically declined to address as

“premature” Petitioner’s asserted constitutional “conflict”

concerning the post-renewal term validity of the “perpetual”

license. That Court’s position is entirely consistent with this

Court’s long-established doctrines concerning the adjudication

of constitutional issues and presents a compelling reason for

denying the present Petition.

In Ashwander v. Tennessee Valley Authority, 297 U.S. 288,

56 S. Ct. 466 (1936), the Supreme Court discussed the rules it

had developed “under which it has avoided passing upon a large

part of all the constitutional questions pressed upon it for

15. The District Court held that Respondents’ rights through the

renewal term (and indeed beyond) did not “alter rights granted by the

its policies.” 954 F. Supp. at 713, 715. The Second Circuit also held that

the Basic Agreement “can be lawfully interpreted to continue through

the renewal period,” i.e. without violating any federal copyright law or

policy. 138 F.3d at 458.

decision.” 297 U.S. at 346, 56 S. Ct. at 482. The second of those

rules is applicable here:

2. The Court will not “anticipate a

question of constitutional law in advance of

the necessity of deciding it.”

297 U.S. at 346, 56 S. Ct. at 483, citing Liverpool, N.Y. & Phila.

Steamship Co. v. Emigration Commissioners, 113 U.S. 33, 39, 5

S. Ct. 352, 355, 28 L. Ed. 899; Abrams v. Van Schaick, 293 U.S.

188, 55 S. Ct. 135, 79 L. Ed. 278; Wilshire Oil Co. v. United

States, 295 U.S. 100, 55 S. Ct. 673, 79 L. Ed. 1329. “It is not the

habit of the court to decide questions of a constitutional nature

unless absolutely necessary to a decision of the case.” /d., citing

Burton v. United States, 196 U.S. 283, 295, 25 S. Ct. 243, 245, 39

L. Ed. 482.

Petitioner urges the Court to grant discretionary review and

devote precious resources to the issue of whether the “perpetual”

license to distribute the Film will be unconstitutional after the

expiration of the Film’s copyright protection. However, the

question of whether or not the grant will violate federal copyright

law once the film passes into the public domain need not be decided

until the expiration of the renewal term, i.e. until 2036 (or possibly

later).'° As the Second Circuit stated, it is

premature and therefore inappropriate at this time

to decide whether a contract purporting to grant a

perpetual license of copyright rights, that is, rights

that endure beyond the renewal period, is contrary

to federal copyright law and policy. We need not

16. On October 7, 1998, Congress passed legislation which would

extend most copyright terms for an additional 20 years. See “Copyright

Term Extension Act of 1997,” H.R. 604. Foreign copyright terms may

also have longer duration.

resolve that issue because the renewal term for the

film “King of Kings” does not expire until after

2036.

138 F.3d at 458.

Here, too, it would be premature and inappropriate for this

Court to determine whether a distribution license which two

courts and four jurists have already held to be valid through at

least the Film’s renewal term will violate the copyright

principles under the Constitution once the Film passes into the

public domain. Respondents maintain that it will not, as did

the District Court; however, under Ashwander, the Court should

not and need not “anticipate a question of constitutional law in

advance of the necessity of deciding it” in any event.

Il.

MGM’S DISTRIBUTION RIGHT IS A PERMISSIBLE,

PERPETUAL CONTRACT BETWEEN THE PARTIES

WHICH CONSISTS OF MORE THAN A

“COPYRIGHT LICENSE”

A. Petitioner’s Arguments Are Premised Upon A

Mischaracterization of the Basic Agreement

Petitioner’s primary argument on this appeal — that the

“perpetual” and “exclusive” grant of distribution rights to MGM

was unconstitutional — is based on a tortured and selective

reading of the Basic Agreement. Petitioner’s assertion that the

Basic Agreement created a void and unlawful “perpetual

premised on a fundamental mischaracterization of MGM’s

distribution right as a mere “copyright license.” MGM’s

distribution right expressly consisted of more than copyright

rights and, as the District Court recognized, this “exclusive”

and “perpetual” grant was an entirely permissible contract

between private parties. Respondents have never claimed, and

the District Court and Second Circuit did not hold, that the

Basic Agreement gave MGM copyright rights in perpetuity.

The constitutional conflict upon which Petitioner bases its

appeal simply does not exist. Moreover, Petitioner’s argument

that the parties did not intend to convey rights extending beyond

the Film’s initial 28 year copyright term is controverted by the

unambiguous language of the Basic Agreement and Melniker’s

unchallenged testimony regarding the parties’ intent.

B. The Basic Agreement Is Not Preempted By Federal

Petitioner argues that that federal copyright law somehow

preempts the Basic Agreement, again based on Petitioner’s now

familiar refrain that the Basic Agreement granted Respondents

a perpetual copyright “monopoly.” It is only by

mischaracterizing the Basic Agreement that Petitioner can even

make its preemption argument. Of course, as detailed above,

no such monopoly was intended or expressed by the parties, or

upheld by either of the courts below. Neither the Respondents,

the District Court nor the Second Circuit has stated that the

Basic Agreement conveyed any rights or protection afforded

under copyright beyond the statutorily defined period. There is

simply no conflict between the Basic Agreement and federal

law."’

17. Indeed, were this Court to accept Petitioner’s meritless position,

countless agreements involving perpetual rights would be called into

question and normal commercial transactions in the motion picture

distribution and finance industry (not to mention other industries

involving copyrighted works and perpetual rights) would be undercut

(954 F. Supp. at 716-17).

The case authority cited by Petitioner for this position is

irrelevant to the extent that no conflict exists here between the

Basic Agreement and federal copyright law, and is entirely

distinguishable in any event. First, while Goldstein v.

California, 412 U.S. 546, 93 S. Ct. 2303 (1973), reh’g denied,

414 U.S. 993, 94 S. Ct. 27 (1973), unquestionably stands for

the proposition (later superseded by the preemption section of

the Copyright Act of 1976, 17 U.S.C. § 301(a)) that the states

retain concurrent jurisdiction to enact legislation consistent with

federal copyright law, it also actually upheld the validity of a

California statute that provided protection similar to copyright

of unlimited duration. Although the petitioners in Goldstein

argued, inter alia, that the lack of durational limitation in the

California statute was in conflict with the constitutional

proscription against unlimited copyrights, the Court rejected

this argument. As Chief Justice Burger observed:

When Congress grants an exclusive right or

monopoly, its effects are pervasive; no citizen or

State may escape its reach. As we have noted,

however, the exclusive right granted by a State is

confined to its borders. Consequently, even when

the right is unlimited in duration, any tendency to

inhibit further progress in science or the arts is

narrowly circumscribed. The challenged statute

cannot be voided for lack of a durational limitation.

(emphasis supplied)

Id. at 560-1. Although Goldstein was later superseded by

Section 301 of the 1976 Act, it is interesting to note that the

Court found no conflict between a state statute of unlimited

duration and federal copyright law or policy.

C. There Is No Conflict Among The Circuits

The other cases cited by Petitioner involve entirely

distinguishable facts, and do not reflect a “conflict” among the

circuits in any event.

The license agreement at issue in Rano v. Sipa Press, Inc.,

987 F.2d 580 (9" Cir. 1993), for example, was governed by the

1976 Act and contained no durational limitation, unlike the

Basic Agreement, which is governed by the 1909 Act and does

contain durational provisions. Jd. at 585. Similarly, in S.O.S.,

Inc. v. Payday, Inc., 886 F.2d 1081 (9" Cir. 1989), which

concerned a license agreement under the 1976 Act, the Ninth

Circuit simply held that the district court had erred by applying

the California rule that a contract should be interpreted against

the drafter, rather than the federal copyright policy which

assumes that licenses prohibit any use not authorized. /d. at

1088.

In this case, of course, the courts below applied no state

law in contravention of federal copyright policy, but rather

simply held that the Basic Agreement legitimately conveyed

rights including but not limited to those arising under copyright.

Petitioner’s analysis of ProCD, Inc. v. Zeidenberg, 86 F.3d

1447 (7 Cir. 1996), entirely misses the mark. Moreover, the

holding in ProCD actually supports the holdings of the courts

below in this case. In ProCD, the defendant purchased a

software package containing a shrinkwrap license setting forth

authorized uses of the information. The defendant downloaded

the information, which contained data compiled from hundreds

of telephone directories, and made it available on the Internet

at a much lower cost, in violation of the terms of the license

that had been included with the ProCD software.

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The ProCD defendant argued, inter alia, that the license

was unenforceable since the information contained in the

software he had purchased was not copyrightable,'* and that

restrictions on its use therefore violated provisions of the

holding that enforcement of the license did not create rights

equivalent to exclusive rights within the general scope of

Petitioner’s contention that these contractual restrictions

“evaded and contractually overruled this Court’s holding in

Feist Publications” is simply incorrect. The ProCD Court did

not hold:that the compilation of telephone directory data was

entitled to some sort of copyright protection in contravention

of the ruling in Feist, as Petitioner seems to suggest; rather,

the basis for its holding was that, as between the two parties, a

private agreement regarding the use of the information was

enforceable.

In Lasercomb America, Inc. v. Reynolds, 911 F.2d 970 (4*

Cir. 1990), the Court held that anti-competitive language

contained in a software developer’s licensing agreement

constituted an attempt on the part of the developer to unfairly

18. Under Feist Publications, Inc. v. Rural Telephone Service Co.,

499 U.S. 340, 111 S. Ct. 1282 (1991), in which this Court held that a

telephone book was not sufficiently original to warrant copyright

protection.

19. The Court noted that, “[a]lthough Congress possesses power

to preempt even the enforcement of contracts about intellectual property

... Courts usually read preemption clauses to leave private contracts

unaffected.” 86 F.2d at 1454, citing American Airlines, Inc. v. Wolens,

513 U.S. 219, 115 S. Ct. 817, 130 L. Ed. 2d 715 (1995). As for the

license, the Court observed that “§ 301(a) does not itself interfere with

private transactions in intellectual property,” and “does not prevent states

from respecting those transactions.” Jd. at 1455.

restrict all competition in the area of steel rule die

manufacturing. The “egregious” language at issue did much

more than restrict the licensee’s use of the information licensed;

it actually forbade the licensee from developing or assisting in

developing any kind of computer-assisted die-making software

for the term of the license, i.e. 99 years, plus 1 year.

The Ninth Circuit held that the copyright holder could not

use its copyright for this purpose, stating that, even if the

language did not rise to the level of an actual antitrust violation,

it was certainly an abuse of the deveioper’s copyright, and

therefore allowed the defendants to assert a defense of “misuse

of copyright.” Of course, there is no parallel to be drawn

between Lasercomb and the case at bar. Respondents are

engaging in no anti-competitive or other “egregious” behavior;

they are merely enforcing the specific rights granted them by

Petitioner in the Basic Agreement.

Finally, Petitioner cites the case of Vault Corp. v. Quaid

Software, Ltd., 847 F.2d 255 (5" Cir. 1988), in which the Fifth

Circuit held that the license agreement there at issue (also

governed by the 1976 Act), which incorporated Louisiana’s

License Act, was in conflict with, and was therefore preempted

by, § 117 of the 1976 Act, in that the Louisiana act permitted a

software producer to prohibit a licensee from adapting its

software through the process of decompilation or disassembly

in contravention of § 117.

The facts in the cases cited by Petitioner are distinguishable

from those at issue here. To the extent Petitioner claims there

is a conflict among the circuits based upon the holdings

discussed above, Respondents submit that no such conflict

exists, and that the above decisions are factually distinguishable

and utterly reconcilable.

More importantly, however, Respondents in this case have

not argued — and the District Court and Second Circuit did

not sanction — any interpretation of the Basic Agreement that

is in conflict with federal copyright law or policy in any event.

Petitioner is simply incorrect when it states that there exists a

conflict between federal copyright law and the exclusive and

perpetual right to distribute under state or common law. Rather,

as the District Court correctly held, the Basic Agreement

“... does not ‘alter rights granted by the copyright statutes as

to invade the scope of copyright law or violate its policies’”

(954 F. Supp. at 713). Accordingly, Petitioner’s “preemption”

argument must be rejected.

D. The Basic Agreement Did Not Terminate At The

Expiration Of The Initial Term Of Copyright

Even if one were to accept Petitioner’s mistaken premise

that the Basic Agreement purported to grant copyright rights

of unlimited duration, it does not follow that the Basic

Agreement would have terminated at the expiration of the initial

term of copyright (as opposed to the expiration of the renewal

term). Petitioner’s attempt to fill this logical gap is utterly bereft

of merit.

Petitioner argues that all references to Respondents’

“perpetual” rights should be removed from the Basic Agreement

and it should be treated as having no express period of duration.

Under copyright law, Petitioner then argues, unless a licensee

can show evidence of a contrary intent, a copyright license

without an express duration is only effective for the “then

existing copyright term” of the work.

Once again, the general proposition cited by Petitioner is

correct, but misdirected. In the absence of any durational

provision or other evidence of the parties’ intent, a contractual

grant of rights under copyright would, indeed, be coterminous

with the then existing term of protection. See, e.g., Corcovado

v. Hollis, 981 F.2d 679, 684-85 (2d Cir. 1993); April

Productions, Inc. v. G. Schirmer, Inc., 308 N.Y. 366 (N.Y. Ct.

App. 1955).

Here, however, even if the Court were to accept Petitioner’s

misguided assertion that the reference to a “perpetual” term

should be ignored and the Basic Agreement “treated as having

no express period of duration,” the Court would still have ample

evidence of the parties’ intent to convey rights including rights

during the renewal term.” First, whether or not the term

“perpetual” is enforceable, the fact remains that the parties,

after months of extensive negotiation, inserted the term into

the Basic Agreement as an expression of their intent. Further,

the unrebutted testimony of Melniker resolves any doubt and

reaffirms that the parties intended to convey perpetual rights.

Finally, other provisions in the Basic Agreement confirm that

the parties intended to convey perpetual rights, including

MGM's right to perpetually and exclusively access and use the

Film elements.

20. Respondents respectfully submit, as argued herein, that the

proponent of a contract interpretation which reads out of the contract a

term of obvious importance to at least one of the parties faces a “distinctly

uphill struggle for judicial acceptance.” Jn re Kazmierczak, 24 F.3d 1020,

1022 (7th Cir. 1994). See Chemical Bank v. Affiliated FM Ins. Co., 815

F. Supp. 115, 119 (S.D.N.Y. 1993) (“Courts do not favor interpretations

of contracts which render some of their language nugatory”). Petitioner

has categorically failed to meet its burden since its argument is based

on the demonstrably incorrect premise that the Basic Agreement is

nothing more than a mere “copyright license.” Accordingly, the words

“perpetual” and “in perpetuity” should remain in the Basic Agreement

and be interpreted based on their plain and unambiguous meaning —

that the parties to the Basic Agreement intended to provide for

distribution rights in the Film that lasted forever.

As the court aptly held in Warner-Lambert Pharmaceutical

Company, Inc. v. John J. Reynolds, Inc., 178 F. Supp. 655, 661

(S.D.N.Y. 1959), aff'd, 280 F.2d 197 (2d Cir. 1960), “[i]f the

parties intend that the obligation be perpetual they must

expressly say so.” See Corcovado v. Hollis, 981 F.2d at 684-85

(parties to a contract can convey and embrace renewal rights

by using words like “forever” and “hereafter”) (citing Siegel v.

National Periodical Publications, Inc., 364 F. Supp. 1032

(S.D.N.Y. 1973), aff'd, 508 F.2d 909 (2d Cir. 1974)). Here, the

parties intended the distribution rights to be perpetual, and they

did in fact say so. Accordingly, this Court should reject, as did

the District Court and the Second Circuit, Petitioner’s meritless

argument that the Basic Agreement should terminate at the end

of the initial term of copyright protection.

Petitioner also contends that the Second Circuit did not

place sufficient importance on the fact that P.C. Films renewed

the copyright in the Film. This is simply not the case. Both

Turner (MGM’s successor) and P.C. Films (Bronston’s

successor) filed renewal applications, with Turner doing so as

a “co-claimant” with Bronston, as MGM had done with the

initial copyright registration.' Petitioner claims that Turner was

not an actual copyright proprietor,” and that if P.C. Films had

not filed its renewal application, MGM would have lost its

rights. Petitioner argues that MGM could therefore not have

expected to have rights into the renewal term, as those rights

21. According to Melniker, MGM’s name was added to the initial

registration to enable it to register and hold the copyright in trust for

Bronston. This was done pursuant to the parties’ agreement so that

Bronston could take advantage of an arrangement MGM had with the

that office.

22. This is not disputed by Respondents, who claim no copyright

ownership in the Film.

were dependent upon the actions of P.C. Films in renewing. As

the Second Circuit correctly explained, however,

it was the realistic commercial expectation of the

parties that Bronston would seek to renew the

any federal copyright protection for any of the rights

it retained by virtue of the Film falling into the

public domain.

138 F.3d at 457-58.

Ill.

THE DISTRIBUTION RIGHTS CONVEYED BY THE

BASIC AGREEMENT DO NOT ALTER RIGHTS

GRANTED BY COPYRIGHT STATUTES SO AS

TO INVADE THE SCOPE OF COPYRIGHT

LAW OR VIOLATE ITS POLICIES

Petitioner has consistently argued that the grants contained

in the Basic Agreement somehow violate public policy in that

they amount to a “perpetual copyright monopoly” and, thus,

will somehow prevent the public from enjoying certain rights

when the Film enters the public domain. Conspicuously absent

from Petitioner’s arguments is any explanation as to how an

agreement between two private entities will impose any kind

of impermissible restriction on the public 's rights once the Film

enters the public domain.” The public will have free access to

the Film when that occurs, even though, as between the two

parties, Respondents will still have the exclusive and perpetual

right to the “benefit and enjoyment for all purposes of all

23. As noted by the District Court, a “private agreement between

two parties — which does not affect the movement of the Picture into

the public domain” does not “invade the scope of copyright law or violate

its policies” (954 F. Supp. at 713, 715).

negative, positive and other materials related to the Picture”

(Basic Agreement, 411, pg. 49a), and the corresponding

obligation to continue to account to Petitioner.

The “exclusive” and “perpetual” distribution right provided

for in the Basic Agreement is entirely permissible when it is

construed as Respondents submit it was intended to be: as being

“exclusive” and “perpetual” as between the parties, rather than

as against the public at large. Petitioner contests the validity of

the distribution grant by asserting the opposite, i.e., that it

unlawfully attempts to provide a perpetual and exclusive

argument is amply rebutted, however, by basic legal principles

regarding contractual interpretation.

First, it is well settled, and the Second Circuit here agreed,

that if a party to a contract contests its validity, that party bears

the burden of proving that the contract is invalid. See, e.g.,

Weil v. Neary, 22 F.2d 893, 895 (2d Cir. 1927) (“burden of

establishing an agreement to be illegal or against public policy

rests upon the person asserting it”), rev'd on other grounds,

278 U.S. 160, 49 S. Ct. 144 (1929). As the New York Court of

Appeals has long held:

It is a generally accepted rule that when a contract

is to do a thing which cannot be performed without

the violation of the law it is void; but when it may

be performed lawfully, as well as in violation of the

law, it is valid, in the absence, at least, of proof

that the intention of both parties was that the law

should be violated. The construction of a contract

should be, when it is possible, in favor of its legality

... The presumption of a lawful intention must

24. This will enable Respondents to continue making first

generation theatrical prints of the Film.

always prevail, and the burden of overthrowing it

is not met by him who asserts it by proof which is

quite consistent with a perfectly lawful purpose,

however demonstrating that, if effectuated in a

certain way, it would contravene the law. (Internal

citations omitted and emphasis supplied.)

Shedlinsky v. Budweiser Brewing Co., 163 N.Y. 437, 439

(1900); Jn re Castle Braid Co., 145 F. 224, 231 (S.D.N.Y. 1906);

Western Union Tel. Co. v. American Communications Ass'n,

C.I.0.,299 N.Y. 177, 188 (1949); Hendler & Murray v. Lambert,

147 A.D. 2d 444, 537 N.Y.S. 2d 560, 563 (2™ Dept.), app. denied,

74.N.Y. 2d 603, 543 N.Y.S. 2d 396 (1989); Mulligan v. Fioravera,

228 A.D. 270, 239 N.Y.S. 438, 441 (1* Dept.), aff'd, 255 N.Y.

539 (1930); Mendelsohn v. A & D Catering Corp., 119 Misc. 2d

581, 464 N.Y.S. 2d 331, 334 (Sup. Ct. Kings Cty. 1983), aff'd,

100 A.D. 2d 209, 437 N.Y.S. 2d 481 (2™ Dept. 1984); Terrace

Sav. & Loan Ass'n v. Martin, 236 N.Y.S. 2d 674, 677 (Sup. Ct.

Kings Cty. 1963).

Respondents’ rights under the Basic Agreement can be

performed lawfully, i.e. without violating constitutional principles

or federal copyright policy. Simply distributing the Film in 2037

(after the Film enters the public domain) does no violence to public

policy, and Respondents have never argued and, indeed, could

not argue, that under the Basic Agreement Respondents have the

right, or even the ability, to prevent any third party from exercising

25. Indeed, Respondents have all along acknowledged that Turner

would not have “exclusive” distribution rights as against third parties

after the termination of all copyright protection. That is precisely why

MGM’s exclusive and perpetual right of access to the original film

elements was of value to them. As noted above, even after copyright

protection expires, anyone will be able to copy and distribute the Film,

(Cont’d)

completely failed to prove, in accordance with Shedlinsky and the

other cases cited above, that both parties intended when they

entered into the Basic Agreement that copyright policy would be

violated at some point. Accordingly, Petitioner has failed to meet

its burden of proving that the Basic Agreement is void as against

public policy.

Petitioner has articulated no clear and substantial injury to

the public flowing from the rights granted under the Basic

Agreement. Petitioner merely states, without explanation or

justification, that public policy will be violated by the grant of

distribution rights at issue. As noted above, Petitioner’s only

tactic is to set up the straw man of a “perpetual copyright

monopoly” and argue that perpetual copyright grants are

unconstitutional and contrary to public policy. Merely arguing

that there is a potential, hypothetical conflict between the Basic

Agreement and copyright policy is insufficient to warrant a

finding that the Basic Agreement is void.

(Cont'd)

but only MGM was to have the ability to make first generation theatrical

prints by virtue of the continued exclusive access to the original film

elements, as provided in the Basic Agreement (11, p. 49a). This

substantial advantage over third parties was clearly based on a contractual

night which would nor terminate with copyright protection.

CONCLUSION

For all of the foregoing reasons, Respondents submit that

Petitioner’s request for a grant of a Writ of Certiorari should

be denied in its entirety.

Respectfully submitted,

STEPHEN F. HUFF

Counsel of Record

TOM J. FERBER

PAIGE A. MOORE

PRYOR CASHMAN SHERMAN

& FLYNN LLP

Attorneys for Respondents

410 Park Avenue

New York, New York 10022

(212) 421-4100

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.