Petition for Writ of Certiorari — TT Telefilm, GmbH & Co. v. Movie Group, Inc.

~ Supreme Court, U.S.

\\ ri LED

97 1170 DEC 1 2 197

OrFiCe OF THE CLERK

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

TT TELEFILM, GmbH, & Co.,

Petitioner

v.

THE MOVIE GROUP, INC., and

INTERNATIONAL MOVIE GROUP, INC.,

Respondents

Petition for Writ of Certiorari to the Supreme Court

of the State of California

PETITION FOR A WRIT OF CERTIORARI

EEE E™“_™E™E_EEEEEOEE“™E™“™“Q™“Q“LQ“QN

J. Lawrence Blades *Richard I. Chaifetz

338 Undermountain Road 9194-B Red Branch Road

Salisbury, CT 06068 Columbia, MD 21045

(860) 435-6562 (301) 596-5409

*Counsel of Record

LE

i

QUESTIONS PRESENTED

I. Whether section 204(a) of the Copyright Act, 17

U.S.C. §204(a), which invalidates oral transfers of

exclusive rights in copyrighted works, precludes a party

who claims to have acquired an exclusive right to a

copyrighted work by oral transfer from enforcing a

subsequent contract to transfer that exclusive right to a

third party or whether such a contract is enforceable as the

California State Courts below held?

Il. Whether under prior rulings of this Court unclear

State procedural practices can be invoked to support a

holding that a civil defendant has waived important

Federal defenses to a claim?

PARTIES TO THE PROCEEDING

TT Telefilm, GmbH & Co., Defendant/Petitioner

The Movie Group, Inc., Plaintiff/Respondent

International Movie Group, Inc., Plaintiff/Respondent

a TY ARLE Reet rf

Ee er a re i

a a ee li

EE ee lil

pT ee ae ee Vv

Petition for a Writ of Certiorari ............. |

EE ee ee ee l

Statement of Jurisdiction.............. 2

EE OS ee ee ae ee 2

EE Oe 2

EE Ee eee 3

Reasons for Granting the Writ ......... 11

I. This Court should resolve the issue of whether

Section 204 (a) of the Copyright Act, 17 U.S.C. §204(a),

which invalidates oral transfers of exclusive rights in

copyrighted works, precludes a party who claims to have

acquired an exclusive right in a copyrighted work by oral

transfer from enforcing a subsequent contract to transfer

that exclusive right to a third party or whether such

contracts are enforceable as the California State Courts

ENA a ae 11

II. Under prior rulings of this Court unclear State

procedural practices cannot be invoked to support a

holding that a civil defendant has waived important

Federal defenses toaclaim .................--- 14

ee hk ae 24

IV

Appendix:

September 17, 1997 Order Denying Review by the

Supreme Court of the State of California....... la

July 15, 1997 Order Denying Rehearing of the

California Court of Appeal for the Second Appellate

Dpieint, TOEVIGMI OND i wn i Oe Be 2a

June 27, 1997 Decision of the California Court of

Appeal for the Second Appellate District, Division

i re ee at te ee eee 3a

December 1, 1995 Statement of Decision of the

California Superior Court for

SU MO sc vs Pe ee PPT eV ES 19a

CASES: PAGES

Bateman v. Mnemonics, Inc., 79 F.3d 768

(Cie SI. ee eae ee 4's 12

Bayly v. Lee, 174 Cal. 137, 162 P. 96 (1916) ... 16

Benson v. Shotwell, 87 Cal. 49, 25 P. 249 (1890) . 16

Brant v. Bigler, 92 Cal. App. 2d 730, 208 P.2d 47

Co ie BEE OES GDA ee 16

Brookhart v. Janis, 384 U.S. 1 (1966) ........ 22

Buffum v. Barceloux Co., 289 U.S. 227 (1933) .. 24

Bybee v. Oregon & California R.R. Co., 139 U.S.

a Gs se eae awe ee as 22

Cameron v. Burnham, 146 Cal. 580, 89 P. 928

GEE ccd ac head x Kee «ee 16

Carranza v. Noroian, 240 Cal.App. 2d 481,

OP Ce ae Lee 0 Ss VAS es 17

City of Stanton v. Cox, 207 Cal.App.3d 1557

Pe a ce oe OR ae eee aes 20

Se Ko ee

Vi

Community for Creative Non-Violence v. Reid,

SOUS: TAOUIN) 6 icc tctewnens 13, 23

Curtis Publishing Co. v. Butts, 388 U.S. 130

(SN) save Uae eee aes 22

Dawn v. Superior Court, 228 Cal. App. 2d 283,

SF Ca: BT. CAI ok 6 OLN es 16

Eden Toys, Inc. v. Floralee Undergarments Co. Inc.,

697 F.2d 27 (2d Cir. 196Z) 0. cee. 12

Elster’s Sales v. Longo, 4 Cal. App.3d 216, 84 Cal.

Retr. $3 Care ss & is Seen FS 20

Effects Associates v. Cohen, 908 F.2d 555 (9th Cir.

ISS) i vd oa S Sa eee 12

Fairlane Estates, Inc. v. Carrico Construction Co.,

228 Cal. App. 2d 65, 39 Cal. Rptr. 35

(SSO) occ Hee eee ee eee 20

Fay v. Nota, 3720.3: S90 Cipeee 20 Ves aS 22

Feist Publications, Inc., v. Rural Telephone Service

Co., 499 U.S. 340 (1991) ........... ye

Vii

Fogarty v. Saathoff, 128 Cal. App. 3d 780, 785;

180 Cal. Rptr. 484 (1982) ............ 16

FPI Development, Inc. v. Nakashima, 231 C.A. 3d

367, 282 Cal.Rptr. 508 (1991) ........ 18

Freytag v. Commissioner of Internal Revenue, 501

oe 3) ee 21

Head v. New Mexico Board of Examiners, 374 U.S.

pe SS oie sk ese ee ee hee 6 22

L.A.E., Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996) 12

Imperial Residential Design, Inc. v. Palm

Development, Inc., 70 F.3d 96

() (oS. .: Geer: aaa iear ar ae 12

Jacob Maxwell, Inc. v. Veeck, 110 F.3d 749

ea) o& oe) eee ee 2 ee 12

Johnson v. Zerbst, 304 U.S. 458 (1938) ....... 21

Konigsberg International, Inc. v. Rice, 16 F.3d 355

Ut a a ae ee 12

Viii

Kossler v. Palm Springs Developments, Ltd.,

101 Cal.App. 3d 88, 99, 161 Cal. Rptr. 423

6 RR Rear een unease aera er eg 16

Murray v. Carrier, 477 U.S. 478, 488 (1986) ... 21

New York Times v. Sullivan, 376 U.S. 254 (1965) . 22

Niederer v. Ferreira, 150 Cal.App.3d 219,

197 Cal, Hage, GES CIF hc oe ve 20

Pastene v. Pardini, 135 Cal. 431, 67 P. 681 (1902) 20

Pence v. Langdon, 99 U.S. 578 (1878) ........ 22

Playboy Enterprises v. Dumas, 53 F.3d 549 (2d Cir

TEE 60's 6494 Ae ee ee ee ees 12

Pry Corp. v. Leach, 170 Cal. App. 2d 632, 2 Cal.

Dee. “pe Ne se Sos CRON Ce se 16

Rancho Santa Fe Pharmacy, Inc. v. Seyfert, 219

Cal.App. 3d 875, 368 Cal.Rptr. 505 (1990) 18

Rodenberry v. Rodenberry, 44 Cal. App. 4th 634, 51

Cal. BO. BET GIF G ey cece sees 18

Saxon v. Blann, 968 F.2d 676 (8th Cir. 1992) ... 12

ix

Subafilms, Ltd. vy. MGM-Pathe Communications,

24 F.3d 1088 (9th Cir. 1994).......... 12

Trafton v. Youngblod, 69 Cal.2d 17,

69 Cal. Rowr. 568 (1968) ........... 20

Update Art, Inc. v. Modiin Publishing, Ltd.,

843 F.2d 67 (2d Cir. 1988) ........... 12

Valente-Kritzer v. Pinckney, 881 F.2d 772 (9th Cir) 12

Williams v. Kinsey, 74 Cal.App.2d 583,

ik ge 85: Tn 20

Wisniewski v. Morris, 227 Cal. App.2d 580, 38

Cle: BIS be ek ev ec ees. 16

Yakus v. U.S., 321 U.S. 444 (1944) .......... 21

STATUTES AND RULES

STATUTES:

Section 101 of the Copyright Act, 17 U.S.C. §101 14

Section 102 of the Copyright Act, 17 U.S.C. §102 14

Section 106 of the Copyright Act, 17 U.S.C. §106 12

xX

Section 204(a) of the Copyright Act, 17 U.S.C.

DD 0-5. 2.0 eke Shaw kd oan passim

Section 302 of the Copyright Act, 17 U.S.C. §302 14

ee EY oa es ae 8s oe eK 2

California Civil Code, Section 1439 .......... 15

California Civil Code, Section 1550 .......... 16

California Civil Code, Section 1614 .......... 18

California Civil Code, Section 1615 .......... 18

California Code of Civil Procedure,

Ee re 17

California Evidence Code, Section 601, etseg .. 18

OTHER MATERIALS

1 B.E. Witkin, Summary of California Law, § 796

(Contracts) (9th Ed. 1987 & Supp.) ..... 16

Weil and Brown, California Practice Guide: Civil

Procedure before Trial (TRG 1997) ........ 17, 18

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

TT TELEFILM, GmbH, & Co.,

Petitioner

v.

THE MOVIE GROUP, INC., and

INTERNATIONAL MOVIE GROUP, INC.,

Respondents

Petition for Writ of Certiorari to the Supreme Court

of the State of California

PETITION FOR A WRIT OF CERTIORARI

OPINIONS BELOW

This petition seeks review of the September 17,

1997 denial of a petition for review by the California

Supreme Court (unpublished)(App.la) which denied

review of the June 27, 1997 decision issued by the Second

Appellate Division of the California Court of Appeal

(App. 3a)(unpublished), which affirmed the December 1,

1995 Statement of Decision of the California Superior

Court for Los Angeles County (App. 19a).

2

STATEMENT OF D N

In seeking review of the above-referenced denial of

a petition for review by the California Supreme Court

which denied review of the decision of the California

Court of Appeal, petitioner invokes certiorari jurisdiction

conferred on this Court by 28 U.S.C. §1257.

TATUTES INVOLVED

Section 204(a) of the Copyright Act, 17 U.S.C. §204(a),

provides in relevant part:

(a) A transfer of copyright ownership, other

than by operation of law, is not valid unless an

instrument of conveyance, or a note or

memorandum of the transfer, is in writing and

signed by the owner of the rights conveyed or such

owner's duly authorized agent.

INTRODUCTION

Section 204(a) of the Copyright Act establishes a

simple but fundamental rule - title to an exclusive right in

a copyrighted work can only be transferred by a writing

signed by the grantor or its agent. In the instant action,

the state courts of California enforced two motion picture

license agreements in favor of a licensor which admitted

at trial that it had not obtained title by a signed written

instrument. Furthermore, the parties to the chain of title

preceding one of the license agreements admitted in

swom testimony in foreign proceedings that the rights that

the licensor purported to transfer to Petitioner had never

been transferred to the licensor. The state courts below

———

3

refused to consider Petitioner’s challenge to the licensor’s

title on the sole ground that the issue had not been raised

as a separate affirmative defense in Petitioner’s answer to

the complaint. The courts below thereby subordinated

substantive, Federal, statutory rights to unclear state

procedural rules. The issue of title to copyrighted works

is one which arises frequently in copyright actions and in

contract actions relative to copyrighted works. This Court

should grant certiorari to establish clearly the standards

which apply to section 204(a) writings and the procedural

limitations which courts can impose on a litigant’s right to

raise a Federal issue.

STATEMENT OF CASE

Petitioner, TT Telefilm, GmbH & Co. (“TT

Telefilm”), is a German entity which is in the business of

licensing motion pictures to television stations and others

in the German speaking territories of Europe.

Respondents, The Movie Group, Inc., and International

Movie Group, Inc., (collectively “TMG”), are U.S. based

corporations engaged in the business of licensing motion

pictures to entities such as TT Telefilm. (App. 4a)

This case arises out of two written exclusive

licenses from TMG to TT Telefilm, executed in 1990 and

1991, for the distribution of motion pictures in identified

German-speaking territories in Europe.’ (App. 4a-Sa).

\These motion pictures were copyrighted in the United States. Both

licenses were executed in California and stipulated that California law

would apply.

4

Various disputes regarding film quality, delivery

schedules, and payment developed during 1991-92. (App.

6a) This contract action was filed in Los Angeles County

Superior Court in late 1992.

With respect to the first license agreement in issue,

known as the Four Film Agreement, in 1989, prior to

contracting with TT Telefilm ,TMG entered into a written

exclusive, long-term license for the same films to

VCL/Virgin Communications GmbH (“VCL”) one of TT

Telefilm’s competitors in Germany. (App. 4a) In 1989,

VCL in turn, exclusively sublicensed at least two of the

same films in the same territory to another German

company, Capitol Film & TV International GmbH

(“Capitol”).

Peter Strauss, President of TMG and TMG’s only

witness, admitted at trial that TMG had recovered the

movie rights from VCL solely by virtue of an oral

agreement. (App. 5a) No written agreement for the return

of such rights by VCL to TMG was ever produced or

claimed. This purported oral agreement was the only basis

for TMG’s claim that TMG had the right to enter into the

Four Film Agreement with TT Telefiim. The validity of

this claim is a critical focus of the instant Petition.

Moreover, TMG did not attempt to introduce any

evidence at trial which demonstrated that VCL ever

recovered the film rights from its sublicensee, Capitol.

This was a second vital omission which concealed the

facts that Capitol had never at any time since 1989 agreed

to retransfer the film rights to VCL and that VCL in turn

eee

5

had never at any time since 1989 agreed to retransfer them

to TMG. These facts are conclusively established in

sworn statements of TMG, VCL, and Capitol filed in

German court proceedings in 1993 which TT Telefilm

discovered only shortly before the trial of the instant

action. In other words, an actual fraud was perpetrated

upon TT Telefilm in the making of the Four Film

Agreement and upon the California courts in enforcing the

Agreement.

The California courts refused to consider the

Copyright Act’s application to the asserted oral agreement

and also refused to consider or to permit discovery

conceming the admissions of absence of title. (App. 8a-

9a) The subsequent judgment, which enforced the

exclusive licenses of films to which the licensor TMG

admittedly lacked title, worked a manifest injustice upon

TT Telefilm. This injustice is a direct consequence of the

trial court ignoring the mandate of the Copyright Act that

the rights claimed by a licensor such as TMG must be in

writing and signed by the grantors - here VCL and Capitol.

The details of this actual fraud are as follows: In

1993, after TMG terminated the Four Film Agreement,

VCL and TMG brought the equivalent of an ex parte

temporary restraining order proceeding in Germany

against a broadcaster who had been sublicensed by TT

Telefilm before the termination of the Four Film

Agreement to broadcast of one of the films, “Bed and

Breakfast.” Mr. Ruth, VCL’s principal, submitted a

sworn statement to the German court that Capitol had

a

6

acquired exclusive the rights from VCL, and that VCL had

never recovered them from Capitol. Mr. Strauss, TMG’s

principal, also submitted a sworn statement supporting the

German action. In a 1995 swom statement to Police

Department West, Hamburg, Germany, Criminal

Investigative Division, Mr. von Halem, Capitol’s

principal, confirmed that Capitol had never, from 1989

through at least 1995, returned the film rights to VCL.

(App. 7a-8a)

The German restraining order was served the day

before the scheduled broadcast, and the broadcaster was

therefore forced immediately to settle with VCL. VCL

then withdrew the action, which had the effect under

German law of sealing the court files. Consequently, in

1993, TT Telefilm, which was not a party in that action,

was not aware of the admissions contained in the filings.’

It was not until the summer of 1995, just before

commencement of trial herein, that these filings were

obtained by TT Telefilm from a German prosecutor who

was investigating VCL. Thus, in 1995, it became clear to

TT Telefilm that TMG knew it had never reacquired title

to these copyrighted works but had still deliberately

entered the Four Film Agreement with TT Telefilm.

"TMG, on the other hand, knew of the German court proceeding

because it was a plaintiff in that case, but TMG failed to disclose

information or produce documents regarding it during discovery even

though such matter was within the scope of TT Telefilm’s general

discovery requests.

7

The instant law suit was filed in late 1992, and TT

Telefilm filed its answer in early 1993. The complaint

alleged, as it must, that TMG had fulfilled all of its

contractual obligations to TT Telefilm and that TT

Telefilm had breached the contracts by not paying the

contract price. Under the contracts, TMG had three

obligations: (1) to convey good title; (2) to deliver films of

proper technical quality, and (3) to deliver the films by

certain specified dates. TT Telefilm’s answer was 4

general denial of the allegations of the complaint; this had

the effect of putting in issue all of the claims in the

complaint.

TT Telefilm did not raise the oral contract issue and

the resulting invalidity of the contracts as a defense in the

answer because at that time it had no knowledge of the

facts. TT Telefilm did not obtain the evidence conceming

this actual fraud until shortly before trial.

_ At trial, TMG alleged that it had relied on an oral

agreement with VCL to recover the rights to the films

licensed to TT Telefilm, and it admitted that it had not

recovered the exclusive rights to the films in a writing.

(App. 5a) This fact alone should have been sufficient to

defeat its contract claims at trial under the written

agreement mandate of the Copyright Act.

Moreover, at trial no writing could have been

because TMG in fact never recovered the rights

from VCL, and VCL never recovered them from Capitol.

This was no technicality; TMG knew or should have

known it had not obtained the rights, and it repeatedly

8

committed actual fraud by making diametrically opposing

representations on the subject of ownership in different

court proceedings.

At trial, TT Telefilm repeatedly attempted to raise

the oral contract issue and the issue that previously TMG

had exclusively licensed at least two of these same films

to a competitor of TT Telefilm and had never recovered

the exclusive rights before purporting to license them to

TT Telefilm. Accordingly, TT Telefilm sought to establish

at trial that TMG did not perform, and could not have

performed, its essential obligation under the contracts for

which it was seeking damages in this action. Without a

valid transfer of such exclusive rights, TT Telefilm could

not legally conduct its normal business of sublicensing

such films to television stations and other exhibitors.

During the trial, TT Telefilm moved for a continuance to

conduct discovery concerning the contrary admissions and

evidence in the German proceedings, and moved for

dismissal of TMG’s causes of action for failure to

demonstrate performance (transfer to TT Telefilm of good

title) under the Copyright Act. These motions were

denied. (App. 8a)

In its December 1, 1995 Statement of Decision,,

the Superior Court held that the Four Film Agreement was

valid and had been breached by TT Telefilm. The Superior

Court did not consider or rule upon the issues of title, and

awarded TMG damages of over $300,000 for breach of

the Four Film Agreement by TT Telefilm, by reason of

9

partial nonpayment of the license fees. (App. 34a)’ The

Superior Court refused to consider the issues of title even

though passage of title was the primary purpose of the

license agreements. The Superior Court excluded these

issues on the grounds that they had not been pleaded in TT

Telefilm’s Answer or raised in the Final Pretrial

Order.(App. 8a).

A similar pattem of purported oral agreements and

actual fraud existed with respect to a second exclusive

license between the parties, referred to as the Romantic

Comedies II Contract (“RC 2 Contract”). In the RC2

Contract, TMG purported to license to TT Telefilm the

exclusive rights to six additional films in the same

German-speaking territories. TT Telefilm did not discover

until after the close of discovery and the Final Pre-Trial

Order that TMG never in fact obtained from the producer,

Chrysalide Films, societe francais (“Chrysalide”), in

writing or otherwise, certain rights which TMG

purported to grant to TT Telefilm in the RC2 Contract.

(App. 7a-8a)

First, TMG’s princi, Mr. Strauss, admitted at

trial that TMG had not entered into any contract with

Chrysalide to acquire the rights to any of the six RC2

films at the time that TMG executed the RC2 Contract

with TT Telefilm. Second, Mr. Strauss also admitted that

none of the six films was even in existence at the time the

RC2 Contract was entered with TT Telefilm. Indeed, he

31¢ also allowed TMG to retain over $440,000 which had already

been paid by TT Telefilm under the Four Film Agreement.

10

admitted that none of the films existed even later when

TMG finally entered into a license agreement with the

producer, Chrysalide. Third, the belated license

agreement between Chrysalide and TMG licensed only

five films, not six as provided in the RC2 contract with TT

Telefilm. According to TMG, its nghts to the sixth film

were acquired by oral agreement. Finally, the RC2

Contract included Luxembourg in its exclusive territory,

a country which TT Telefilm’s principal was prepared to

testify was a broadcast site which was vital to acquiring

and marketing exclusive German-speaking rights.

However, the TMG - Chrysalide contract by its terms

reserved Luxembourg to Chrysalide.

In its Statement of Decision, the trial court enforced

the RC2 contract and awarded TMG $850,000 in damages.

(App. 34a) Here too, the trial court denied TT Telefilm’s

motions and refused to explore the copyright issues. It

is a manifest injustice to permit TMG to recover a total of

$850,000 plus attorneys fees from TT Telefilm and to

retain $350,000 already paid by TT Teiefilm on the RC2

Contract when TMG did not own, never delivered, and

could never deliver to TT Telefilm all of the rights

contracted for in the RC2 Contract.

On June 27, 1997, the Court of Appeal affirmed

the Judgment of the Superior Court. (App. 3a-18a) On

July 11, 1997, TT Telefilm filed a Petition for Rehearing

with the Court of Appeal. On July 15, 1997, the Court of

Appeal denied TT Telefilm’s Petition for Rehearing. (App.

2a ). TT Telefilm then timely filed a Petition for Review

11

with the California Supreme Court which denied that

Petition by Order dated September 17, 1997. (App. 1a).

REASONS FOR GRANTING THE WRIT

I. This Court should resolve the issue of whether

Section 204 (a) of the Copyright Act, 17 U.S.C. §204(a),

which invalidates oral transfers of exclusive rights in

copyrighted works, precludes a party who claims to

have acquired an exclusive right to a copyrighted work

by oral transfer from enforcing a subsequent contract

to transfer that exclusive right to a third party or

whether such contracts are enforceable as the

California State Courts below have held.

The starting point in any discussion regarding

conveyance of title to an exclusive right in a copyrighted

work is that the instrument of conveyance must be in

writing and must be signed by the grantor or its agent.

Section 204(a) of the Copyright Act provides:

A transfer of copyright ownership, other

than by operation of law, is not valid unless

an instrument of conveyance, or a note or

memorandum of the transfer, is in writing

and signed by the owner of the rights

conveyed or such owner's duly authorized

agent.

All of the various federal courts that have

considered section 204(a) have uniformly held that a

12

transfer of an exclusive right must be in writing.* While

several courts have held that oral transfers can be

retroactively validated’ and there is also a dispute about

the extraterritorial application of U.S. copyright laws, ° the

law is clear that a transfer of an exclusive right in a U.S.

copyright which is not in writing is not valid.

Thus, for example, in Effects Associates v. Cohen,

908 F.2d 555, 556 (9th Cir. 1990), the Ninth Circuit,

construing section 204(a), stated:

The law couldn't be clearer: the copyright

owner of ‘a motion picture or other audio

visual work’ has the exclusive rights to

copy, distribute or display the copyrighted

work publicly. 17 U.S.C. § 106 (1988).

While the copyright owner can sell or

license his rights to someone else, Section

204 of the Copyright Act invalidates a

purported transfer of ownership unless it is

in writing. 17 U.S.C. § 204(a) (1988).

* Jacob Maxwell, Inc. v. Veeck, 110 F.3d 749 (11th Cir. 1997);

Bateman v. Mnemonics, Inc., 79 F.3d 768 (11th Cir. 1997); LA.E.,

Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996); Playboy Enterprises v.

Dumas, 53 F.3d 549 (2d Cir. 1995); Konigsberg International, Inc.

v. Rice, 16 F.3d 355 (9th Cir. 1994); Saxon v. Blann, 968 F.2d 676

(8th Cir. 1992); Effects Associates v. Cohen, 908 F.2d 555 (9th Cir.

1990); Valente-Kritzer v. Pinckney, 881 F.2d 772 (9th Cir. 1989).

> Imperial Residential Design, Inc. v. Palm Development, Inc., 70

F.3d 96 (1 1th Cir. 1995); Eden Toys, Inc. v. Floralee Undergarments

Co. Inc., 697 F.2d 27 (2d Cir. 1982); but see Konigsberg, supra.

°Subafilms, Lid. v. MGM-Pathe Communications, 24 F.3d 1058

(9th Cir. 1994); compare Update Art, Inc. v. Modiin Publishing,

Ltd., 843 F.2d 67 (2d Cir. 1988).

smuarienerneucesnammerninssy Cartier i drebictacediias Weliiacicuucacnaua

13

* * + . +

Section 204's writing requirement is not

unduly burdensome; it necessitates neither

protracted negotiations nor substantial

expense. The rule is really quite simple: if

the copyright holder agrees to transfer

ownership to another party, that party must

get the copyright holder to sign a piece of

paper saying so. It doesn't have to be the

Magna Charta; a one line pro forma

statement will do.

The Four Film Agreement and the RC2 Contract

each specified that California law applied’ and warranted

TMG’s good title to the works in question. Thus, in order

to transfer an exclusive copyright interest to TT Telefilm,

TMG was obligated in connection with the Four Film

Agreement to recover title to the works in question by an

assignment of rights in writing from VCL which in turn

had to recover them from its sublicensee, Capitol. The

contract between TMG and VCL had granted an exclusive

license to VCL in Germany with respect to each of these

four pictures. TMG tried to recover that license back

from VCL so that it could sell the television rights in

Germany to TT Telefilm. However, any agreement which

might have been reached (and the evidence is strong that

no agreement, not even an oral one, was ever reached) was

admittedly not reduced to writing as required by Section

7 Of course, since the Copyright Act preempts state law, Community

for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), that Act

would govern all copyright issues.

14

show that the prior sublicensee in Germany, Capitol, ever

returned its rights to VCL either verbally or in writing.

Therefore, TMG could not convey an exclusive license, or

any license for that matter, to TT Telefilm.

In the case of the RC2 Contract, TMG licensed six

films to TT Telefilm at a time when it had no rights and

no copyrights even existed. Aside from the questions

related to the scope of the license (i.e. the non-ownership

of rights by TMG at the time of entering the RC2

Contract, five vs. six films, and the absence of rights in

Luxembourg), this raises the issues of whether a license

can be validated by a subsequent acquisition of rights and

whether it is even possible to sell rights to a copyrighted

work which does not yet exist.®

Thus, if this case had been decided on the basis of

clear and unambiguous Federal statutory law, the

California courts would have been required to resolve the

dispute in favor of TT Telefilm. The only reason given

for this refusal to apply Federal law is that the issue was

waived because it was not specifically raised in the

pleadings as a separate affirmative defense. (App. 9a).

If. | Under prior rulings of this Court, unclear State

procedural practices cannot be invoked to support a

holding that a civil defendant has waived important

federal defenses to a claim.

*Under sections 101 (definition of “created”’), 102 and 302 of the

Copyright Act, 17 U.S.C.§§ 101, 102, 302, a copyright is created

when a work is “fixed” in a “tangible medium of expression.” This

raises the question, also raised below, of whether it is possible to

transfer an exclusive copyright license in a copyright which does not

exist.

15

As mentioned, the California Court of Appeal

refused to consider the issue of the validity of the contract

under section 204(a). This refusal was based on a claim

that TT Telefilm had waived its rights to assert these

claims by not having timely raised them as a separate

affirmative defense in the pleadings. (App. 9a).

The appellate court’s reasoning was that the issue

of whether title had been properly conveyed is an issue of

failure of consideration and that failure of consideration

is an affirmative defense which must be raised in the

answer or waived. Aside from the difficulty of asserting

such a defense before discovery of the facts, TT Telefilm

contended below that this issue was included within the

scope of its general denial. TT Telefilm also pointed out

to the California Supreme Court that there is a conflict

among the various intermediate California appellate courts

and scholars on the question of whether failure of

consideration is an affirmative defense, or whether

showing fulfillment of contractual obligations is part of

the plaintiff's burden of proof.

California law on this issue is best described as

confused and confusing. Section 1439 of the California

Civil Code provides:

Before any party to an obligation can

require another party to perform any act

under it, he must fulfill all conditions

precedent thereto imposed upon himself;

and must be able and offer to fulfill all

conditions concurrent so imposed upon him

on the like fulfillment by the other party . .

16

Section 1550 of the California Civil Code provides:

It is essential to the existence of a contract

that there should be. . .

4. A sufficient cause or consideration.

A party to a contract “must be free from substantial

default in order to avail himself of the remedies” in an

action for breach of contract, 1 B.E. Witkin, Swnmary of

California Law, § 796 (Contracts) (9th Ed. 1987 &

Supp.), and must allege and prove fulfillment of all

contractual requirements or plead excuse for non-

compliance. Bayly v. Lee, 174 Cal. 137, 139, 162 P. 96

(1916) (plaintiff must do what he is contractually

obligated to do before he can maintain an action against

adverse party); Cameron v. Burnham, 146 Cal. 580, 89 P.

928 (1905); Fogarty v. Saathoff, 128 Cal. App. 3d 780,

785; 180 Cal. Rptr. 484 (1982) (a party to a contract

cannot “place the other in default unless he is able to

perform or tender performance”).? And, the question of

a seller’s title to the object which is the subject of the sale

is a legitimate subject of inquiry in any action brought by

the seller for breach of contract with respect to the sale

thereof. Benson v. Shotwell, 87 Cal. 49, 25 P. 249 (1890);

Wisniewski v. Morris, 227 Cal. App.2d 580, 38 Cal.Rptr.

815 (1964).

TMG alleged in the Amended Complaint that it

had performed all things required of it under the licenses.

*See also, Dawn v. Superior Court, 228 Cal. App. 2d 283, 39 Cal.

Rptr. 443(1964); Pry Corp. v. Leach, 170 Cal. App. 2d 632, 2

Cal. Rptr. 425 (1960); Kossler v. Palm Springs Developments,

Ltd., 101 Cal. App. 3d 88, 99, 161 Cal. Rptr. 423 (1980); Brant v.

Bigler, 92 Cal. App. 2d 730, 208 P.2d 47 (1949)

17

This, of course, included the obligation to transfer to TT

Telefilm good title to the rights assigned in the licenses

which is the very essence of a motion picture license. TT

Telefilm, in its answer, generally denied these allegations

and thereby put TMG to the proof required of plaintiffs

by law. Nothing further was required.

This was in accord with the California Code of

Civil Procedure, commentary, and decisions in at least the

Third and Fourth California Appellate Districts. Section

431.30(b), Cal. Code Civ. Proc., states that:

The Answer to a complaint shall contain:

(1) The general or specific denial of the

material allegations of the complaint

controverted by the defendant.

(2) A statement of any new matter

constituting a defense.

“New matter” is, in essence, any ground urged by

defendant in avoidance of the complaint, that is, some

independent reason why the plaintiff should not recover,

even if everything alleged in the complaint is true.

Carranza v. Noroian, 240 Cal.App. 2d 481, 485-86, 49

Cal.Rptr. 629, 632-33 (1966); FPJ Development, Inc. v.

Nakashima, 231 Cal. App. 3d 367, 383-84, 282 Cal.Rptr.

508, 527 (1991); see Weil and Brown, California Practice

Guide: Civil Procedure before Trial (TRG 1997) Section

6:430, p. 6-86. Weil and Brown state:

But failure of conditions (non-performance

or defective performance) is not “new

matter”. . .because plaintiff bears the burden

of pleading and proving performance in a

18

contract action. Hence, simple lack of

performance is in issue under a simple

denial of plaintiffs allegation of

“performance” in the complaint.

Thus, a general denial puts in issue the question of

whether there is a failure of consideration (failure to

execute the bargained for promise). FP] Development,

Inc. v. Nakashima, 231 Cal App. 3d. at 383. Weil and

Brown, supra, Civil Procedure before Trial (TRG 1997)

Section 6:440, p. 6-88.

In FPI Development, an appeal of a summary

judgment motion in an action on a promissory note, the

California Third Appellate District ruled that the

defendant’s “general denial had put in issue the material

allegations of the complaint.” Jd. At 393 It noted that,

“[w]hat is put in issue by the denial is limited to the

allegations of the complaint”, and it held that “[i]f there

is a triable issue of fact as to matters put in issue by the

genera! denial, defendants are entitled to reversal of the

summary judgment.”/d. At 385.'°

Similarly, in Rancho Santa Fe Pharmacy, Inc. v.

Seyfert, 219 Cal.App. 3d 875, 368 Cal.Rptr. 505 (1990),

the California Fourth Appellate District held that the

submission of a written guarantee by a plaintiff suing on

a note triggered the presumption of consideration set forth

in Sections 1614 and 1615 of the Civil Code. The court

held that, pursuant to these Sections, and Sections 601-

605 of the Evidence Code, this presumption related to a

See also, Rodenberry v. Rodenberry, 44 Cal. App. 4th 634, 654,

51 Cal. Rptr. 2d 907 (1996) (“basic rule is that a party must prove

what the party must plead.”’)

19

burden of producing evidence as to consideration for the

guarantee, but it did not shift the burden of proof on the

issue of consideration for the guarantee which always

rests on the plaintiff. Thus, once the plaintiff produced a

written instrument, the presumption of consideration came

into play, but when

...the party against whom the presumption

operates produces some quantum of

evidence casting doubt on the truth of the

presumed fact, the other party is no longer

aided by the presumption. The presumption

disappears leaving it to the party in whose

favor it initially worked to prove the fact in

question.

219 Cal.App. 3d at 882; 368 Cal.Rptr. at 509.

Thus, under one line of California cases and

interpretation of California procedural rules, TT

Telefilm’s general denial of TMG’s allegation of due

performance in the instant case was sufficient to put the

title questions into issue since the transfer of title in the

exclusive license was the essence of the “performance.”

Characterizing this non-performance as a “failure of

consideration” does not change the issues or the burdens.

However, the trial court flatly refused to consider

any of the title issues. It ruled that since they weren't

specifically asserted in the original Answer or the Final

Pretrial Order, they could not be addressed. The trial

court thereby deprived TT Telefilm of the right to

introduce the “quantum of evidence” of non-performance

which would defeat the presumption of consideration in

a written instrument. More importantly, TT Telefilm was

20

deprived of the opportunity to establish that a fraud was

being perpetrated it and upon the court and that it was

being required to pay very substantial amounts of money

for movie rights which TMG did not and could never have

transferred to TT Telefilm.

The Court of Appeal affirmed the lower court’s

decision in reliance upon a conflicting line of authority:

Failure of consideration, which is

apparently what appellant is arguing, is an

affirmative defense which should have been

raised in the pleadings. (Williams v. Kinsey

(1946) 74 Cal.App.2d 583, 603; Niederer v.

Ferreira (1983) 150 Cal.App.3d 219, 224.)

The trial court has broad discretion to refuse

to allow the introduction of new legal

theories into a trial by either a plaintiff or a

defendant, where it would prejudice the

7 other party to do so. (Trafton v. Youngblod

(,968) 69 Cal.2d 17, 31-32; City of Stanton

v. Cox (1989) 207 Cal.App.3d 1557, 1563.)

(App. 9a).'’ Williams, supra, follows Pastene v. Pardini,

135 Cal. 431, 67 P. 681 (1902), as do such Second

Appellate District cases as Elster’s Sales v. Longo, 4 Cal.

App.3d 216, 84 Cal. Rptr 83 (1970), and Fairlane Estates,

Inc. v. Carrico Construction Co., 228 Cal. App. 2d 65, 39

Cal. Rptr. 35 (1964). ( lack of consideration for a written

contract is not available as a defense unless specially

'' The appellate court speculated that TT Telefilm was not harmed

by this breach of contract on the part of TMG. (App. a9). However,

as the primary purpose of the conracts was to pass title to the films,

TMG’s lack of title totally vitiates them.

POO Le

21

pleaded). Thus, the sole justification for exclusion of title

issues was their characterization as affirmative defenses.

This raises the important question of whether a

defendant in a state civil trial can be held to have waived

an overriding, substantive, statutory, Federal right by

virtue of non-compliance with conflicting and confusing

state procedural practices. In other words, should a state

court be allowed to decide a case based on a preference

for State procedural rules over a substantive Federal law,

a preference for court rules over explicit statutory law, and

a preference for procedure over substance.

It is beyond dispute that a litigant must raise

objections and issues at trial or waive them, and that

parties to both civil and criminal proceedings may

knowingly waive rights granted to them by federal or

state statutes or constitutions. Yakus v. U.S., 321 U.S.

444(1944); Freytag v. Commissioner of Internal

Revenue, 501 U.S. 868, 878(1991)(generally, a litigant

must raise issues and objections at trial).'* However, on

many occasions this Court has held that such waivers

must be knowing and intentional (e.g. those made for

'2 In Murray v- Carrier, 477 U.S. 478, 488 (1986), this Court noted

that an inadvertent waiver of a right which occurred because facts

necessary to raise the objection were not reasonably available to

counsel would constitute cause for a grant of habeas relief. And, in

Johnson v. Zerbst, 304 U.S. 458 (1938), the Court held that to be

effective a waiver must be of a known right or privilege. In the

instant case, counsel who formulated the answer could not have

known at that time that TMG had obtained the rights transferred to

TT Telefilm by oral transfer. This was not learned until nine months

later, and thus the facts were not reasonably known to TT Telefilm

at the time that the court of appeal said the issue needed to be raised.

22

tactical reasons) and not inadvertent. Fay v. Noia, 372

U.S. 391 (1963); Brookhart v. Janis, 384 U.S. 1, 4

(1966) (“there is a presumption against the waiver of

constitutional rights...and for a waiver to be effective it

must be clearly established that ‘there was an intentional

relinquishment or abandonment of a known right or

privilege.’”); Pence v. Langdon, 99 U.S. 578, 581

(1878) (“Acquiescence and waiver are always questions

of fact.”). Such holdings are most common in the

criminal law sphere, Fay, supra, Brookhart, supra, but

they have been extended into the area of civil litigation as

well. Curtis Publishing Co. v. Butts, 388 U.S. 130

(1967);"° Head v. New Mexico Board of Examiners, 374

U.S. 424 (1963) (failure to raise argument in lower

courts will result in a waiver).

While most cases involve waiver of constitutional

rights, there is no reason why these considerations do

not apply to rights granted by federal statute. Bybee v.-

Oregon & California Railroad Co., 139 U.S. 663, 681

(1891). (railroad that received title to land by Act of

Congress is not estopped to assert that right by fact that

it paid third party for an easement over the land.) This is

particularly true of copyright law. This Court has held

that in the Copyright Act of 1976 Congress occupied the

'5In Curtis no constitutional defense along the lines of New York

Times v. Sullivan, 376 U.S. 254 (1965), was made at trial even

though counsel knew that the issue was pending in this Court. The

Fifth Circuit held that the constitutional issue had been waived for

this reason. This Court held that there was no prejudice to the

plaintiff from the failure to raise the constitutional issue at trial

because it was raised on appeal. Here, of course, the issue of the

applicability of section 204(a) was raised at trial.

23

entire area and preempted any state action regarding

copyrights. Community for Creative Non-Violence v.

Reid, 490 U.S. 730 (1989).

Thus, it is clear that this is an area in which

Congress has used its powers under the Constitution to

preempt the entire area, and its law reigns supreme. In

connection with the passage of title to exclusive rights in

copyrighted works, Congress has decreed that such rights

may be transferred only by a written instrument signed

by the grantor. The purpose of this preemption is to

prevent fraud and promote uniformity of law throughout

the United States. When local practices of the various

states prevent application of the provisions of section 204

to specific transactions those rules interfere with the

Congressional plan of intent and frustrates the uniform

application of the law. While the rights that a litigant has

under section 204 can knowingly be waived, the national

interest is clear that there should not be situations under

state law where this protection is waived inadvertently

because state procedural rules are less than clear.

This is exactly what happened here. In this case,

various California courts and scholars have reached

different conclusions about whether the issue of lack of

title in a contract to convey title is an affirmative defense

as the courts below held or an affirmative obligation of

proof for the plaintiff.'* It is particularly unfair to have

such a pleading rule when the information on this issue

'4This Court has held that in copyright infringement cases the issue

of ownership is always part of the plaintiff's burden of proof. Feist

Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340

(1991).

24

is totally in the hands of the plaintiff and the defendant is

unaware of the title problem at the time it files its

answer.’ TT Telefilm through no fault of its own was

caught in this confusion and was held to have sacrificed

this right without any forewarning.

Consequently, petitioner submits that this Court

should hold that such federal rights may not be waived

by inadvertence but only pursuant to clear rules and

practices.

CONCLUSION

For the reasons stated herein, it is respectfully

requested that this Court grant Respondent TT Laemal S

Petition for a Writ of Certiorari.

Respectfully submitted,

Richard I. Chaifetz

9194-B Red Branch Road

Columbia, Maryland 21045

(301) 596-5409

J. Lawrence Blades

338 Undermountain Road

Salisbury, Connecticut 06068

(860) 435-6562

Attorneys for Petitioner

'S"There can be no irrevocable estoppel when the truth has been

withheld.” Buffum v. Barceloux Co., 289 U.S. 227, 235 (1933).