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Case Summary: Effects Associates, Inc. v. Cohen, 908 F.2d 555 (C.A.9 (Cal.), 1990)

Category : Case Summaries, Contract, Copyright Infringement

Key Holdings: Ninth Circuit holds that: i) 17 U.S.C. § 204(a) requires that an assignment of a copyright must be in writing to be effective; ii) a non-exclusive license may be granted orally, or may even be implied from conduct; iii) conditions precedent are disfavored and will not be read into a contract unless required by plain, unambiguous language.

Background: Defendant Larry Cohen wrote, directed and produced a “B” horror movie called “The Stuff”. Cohen orally requested that Effects Associates (“Effects”), a small special effects company, create footage for certain sequences in the film. Effects created and delivered the requested footage to Cohen. Cohen paid Effects approximately $56,000 of the original contract price of $62,335. However, Cohen was dissatisfied with one of the scenes and unilaterally decided to pay only half the promised amount for that scene. Despite Effects protests and demands that payment be made in full, Cohen went on to use the unsatisfactory scene in the movie as planned. Effects brought suit against Cohen claiming copyright infringement for Cohen’s use of the scene without full payment. The district court granted summary judgment to Cohen on the infringement claim, holding that Effects had granted Cohen an implied license to use the scenes.

Issues: Did the district court correctly grant summary judgment to Cohen on the basis that Effects granted Cohen an implied copyright license?

Standard of Review: The district court’s grant of summary judgment is subject to de novo review.

Analysis: Cohen argued that ownership of the copyrights in the scenes vested in him. Rejecting this argument, the Ninth Circuit held that “where a non-employee contributes to a book or movie, as Effects did here, the exclusive rights of copyright ownership vest in the creator of the contribution, unless there is a written agreement to the contrary.” (citing Community for Creative Non-Violence v. Reid, 490 U.S. 730 ( 1989)). The Circuit Court further rejected Cohen’s argument that Effects should be deemed to have transferred ownership of the copyrights. “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.” (emphasis added). The Circuit Court found Cohen’s argument that the movie industry should be exempt from Section 204 to be utterly unpersuasive regardless of the customs in the industry. The Court explained that

Section 204’s writing requirement is not unduly burdensome …. 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.

Relying on Oddo v. Ries, 743 F.2d 630 (9th Cir. 1984), Cohen next argued that even if Effects retained ownership of the copyrights in its work, Cohen obtained a non-exclusive license to use the scenes. Citing Nimmer on Copyright, the Court agreed that “[a] nonexclusive license may be granted orally, or may even be implied from conduct.” M. Nimmer and D. Nimmer, Nimmer on Copyright, Sec. 10.03[A], at 10-36 (1989). Section 204’s writing requirement does not apply to non-exclusive licenses because the definition of “transfer” in Section 101 expressly excludes non-exclusive licenses. Given the fact that Effects’ created the scenes at Cohen’s request and handed them over intending that Cohen copy and distribute them, the Court was compelled to find that Effects concurrently conveyed a license to Cohen use the scenes. The Court rejected Effects’ argument that Cohen’s payment of the full contract price was a condition precedent to the implied license because the oral agreement failed to unambiguously specify that pre-payment in full was a condition. “Conditions precedent are disfavored and will not be read into a contract unless required by plain unambiguous language.” (citing In re Bubble Up Delaware, Inc., 684 F.2d 1259, 1264 (9th Cir. 1982).

While the Court agreed that Effects was barred from bringing a copyright infringement claim for Cohen’s use of the scenes within the scope of the implied license, the Court noted that Effects could bring a breach of contract action under the implied license to require Cohen to make full payment.

Holdings: The Ninth Circuit upheld the district court’s award of summary judgment to Cohen and dismissal of Effects’ copyright infringement claim on the rationale that Effects had granted an implied copyright license to Cohen to incorporate the works into his film and as such Effects was limited to suing Cohen for a breach of contract action under the license.

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