Clause & Effect

Net-Profit Rights/Movies Based on TV Shows. The Court of Appeal of California, Second District, Division 7, decided that an agreement actors Robert Wagner and Natalie Wood entered into with Spelling-Goldberg Productions (SGP) for the parties to submit an idea to the ABC-TV network for what became the 1970s TV series, 'Charlie's Angels,' didn't entitle Wagner and his family trusts to 50% of the net profits from two movies based on the series. Wagner v. Columbia Pictures Industries Inc., B184523.

Wagner and Wood had entered into an agreement with SGP to star in the TV movie Love Song. The agreement also stated that the actors and SGP would 'jointly submit up to five ideas to ABC for the basis of a pilot script for the 1974-1975 television season.' After ABC accepted the 'Angels' series idea the parties had submitted, the Wagners and SGP entered into a separate agreement to equally split any net profits received by SGP.

Columbia Pictures subsequently obtained film rights to the series from the heirs of series writers Ivan Goff and Ben Roberts, who had retained the motion-picture rights under the 1970 Writers Guild of America Minimum Basic Agreement. When Wagner filed a breach-of-contract suit for 50% of the net profits from the 2000 and 2003 movies based on the 'Charlie's Angels' series, the L.A. Superior Court granted summary judgment for Columbia Pictures.

Wagner argued that the net-profits agreement included 'from any and all sources,' as had the Love Song acting agreement. But affirming, the court of appeal noted: 'Even if the Wagners and SGP intended [in the 'Charlie's Angels' agreement] the Wagners would share in the net profits 'from any and all sources' they did not say so in their contract. What they said in their contract was the Wagners would share in 'all monies actually received by Producer, as consideration for the right to exhibit photoplays of the series, and from the exploitation of all ancillary, music and subsidiary rights in connection therewith.' For a right to be 'subsidiary' or 'ancillary,' meaning supplementary or subordinate, there must be a primary right to which it relates. The only primary right mentioned in the contract is 'the right to exhibit photoplays of the series.' Thus the Wagners were entitled to share in the profits from the exploitation of the movie rights to Charlie's Angels if those rights were exploited by Columbia as ancillary or subsidiary rights of its primary 'right to exhibit photoplays of the series' but not if those rights were acquired by Columbia independently from its right to exhibit photoplays [as Columbia had done in this case from the series writers' heirs].'

The Court of Appeal continued: 'Thus, for example, if SGP held the motion picture rights to Charlie's Angels from the beginning or if it acquired them by exercising its right of first refusal as producer to purchase the rights from Goff and Roberts then it could be said to have acquired those rights by exploiting its right to exhibit photoplays of the series and the Wagners would be entitled to a share of the profits. But if SGP (or Columbia) purchased the motion picture rights to Charlie's Angels on the open market, independent of any right it had as producer of the TV series, then it could not be said to have acquired those rights by exploiting its right to exhibit photoplays of the series and the Wagners would not be entitled to a share of the net profits.'

The court also ruled that a copyright assignment by SGP when it separately sold its assets to Columbia Pictures in 1982 didn't include the motion-picture rights to 'Charlie's Angels' because the accompanying purchase agreement had stated that it was subject 'to all SGP['s] ' industry-wide collective bargaining agreements.'

Insurance/Contract-Breach Exclusion

The Court of Appeal of California, Second District, Division 1, ruled that a film distributor's failure to pay for film rights didn't constitute a loss from a 'wrongful act' covered by the distributor's directors and officers liability-insurance policy. August Entertainment Inc. v. Philadelphia Indemnity Insurance Co., B184276.

August Entertainment's president negotiated a contract under which InternetStudios.com agreed to pay $2 million for rights to films that August had the right to exploit as exclusive sales agent. After InternetStudios later refused to proceed with the deal, August filed suit in L.A. Superior Court for breach of contract and anticipatory repudiation. August also claimed that InternetStudios' president was liable personally because he had failed to state in the parties' agreement that he had signed on behalf of his company.

InternetStudios liability policy from Philadelphia Indemnity Insurance Co. excluded 'any actual or alleged liability of the Company under any express contract or agreement.' After Philadelphia Indemnity denied InterStudios' request for coverage of the cost of the August Entertainment suit, August, InternetStudios and InternetStudios' president settled their dispute. August then sued Philadelphia Indemnity. The trial court granted sustained Philadelphia Indemn-ity's demurrer to the complaint.

Affirming, the court of appeal explained that 'D & O policies typically exclude coverage for breach of contract. ' [In this case,] a corporation intentionally entered into a contract, decided not to make payment on it, and looked to its D & O insurer for a bailout. ' [W]e conclude that, under the policy in this case, the insurer was not liable for the underlying settlement or judgment. To hold otherwise would make it a de facto party to a corporate contract and require it to pay the full contract price (plus interest), letting the corporation completely off the hook. Performance of a contractual obligation ' here the payment of $2 million ' is a debt the corporation voluntarily accepted. It is not a loss resulting from a wrong-ful act within the meaning of the
policy.'

Insurance/Copyright-Infringement Coverage

The U.S. District Court for the District of New Jersey determined that coverage for 'advertising injury' under comprehensive-general-liability insurance included the duty to defend against a suit for contributory- and vicarious-copyright infringement. Columbus Farmers Market LLC v. Farm Family Casualty Insurance Co., 05-2087.

The owners of the neighboring Columbus Farmers Market and Columbus Flea World in Burlington, NJ, were sued by the Recording Industry Association of America (RIAA) for operating a 'pirate bazaar' where vendors sold 'pirated and counterfeit compact discs and cassette tapes in violation of federal copyright and state laws.' After the New Jersey federal district court found the owners liable for both contributory and vicarious infringement, the owners' insurers denied them liability coverage.

The insurance-policy language at issue stated: 'We will pay those sums that the insured becomes legally obligated to pay as damages because of ' 'advertising injury' to which this coverage part applies. We will have the right and duty to defend any 'suit' seeking those damages. ' This insurance applies to ' 'Advertising injury' caused [emphasis added] by an offense committed in the course of advertising your goods, products or services ' 'Advertising injury' means injury arising out of one or more of the following offenses[:] ' Infringement of copyright, title or slogan.'

However, there was no policy definition of 'advertising.' When the flea-market owners sued for coverage, the defendant insurers argued that the infringement had to have occurred in the advertising itself. But the district court noted that in the RIAA litigation, 'the Court held that the [flea-market owners] materially contributed to copyright infringement by, in part, 'provid[ing] extensive advertising for the Market (including maintaining a Web site and organizing holiday-themed events) and work[ing] to attract customers to the Market' ' Because the RIAA specifically claims that [the flea-market owners] contributed to infringement by advertising, [the owners] have shown the requisite causal link between the advertising activity and the offense (copyright infringement).'

Net-Profit Rights/Movies Based on TV Shows. The Court of Appeal of California, Second District, Division 7, decided that an agreement actors Robert Wagner and Natalie Wood entered into with Spelling-Goldberg Productions (SGP) for the parties to submit an idea to the ABC-TV network for what became the 1970s TV series, 'Charlie's Angels,' didn't entitle Wagner and his family trusts to 50% of the net profits from two movies based on the series. Wagner v. Columbia Pictures Industries Inc., B184523.

Wagner and Wood had entered into an agreement with SGP to star in the TV movie Love Song. The agreement also stated that the actors and SGP would 'jointly submit up to five ideas to ABC for the basis of a pilot script for the 1974-1975 television season.' After ABC accepted the 'Angels' series idea the parties had submitted, the Wagners and SGP entered into a separate agreement to equally split any net profits received by SGP.

Columbia Pictures subsequently obtained film rights to the series from the heirs of series writers Ivan Goff and Ben Roberts, who had retained the motion-picture rights under the 1970 Writers Guild of America Minimum Basic Agreement. When Wagner filed a breach-of-contract suit for 50% of the net profits from the 2000 and 2003 movies based on the 'Charlie's Angels' series, the L.A. Superior Court granted summary judgment for Columbia Pictures.

Wagner argued that the net-profits agreement included 'from any and all sources,' as had the Love Song acting agreement. But affirming, the court of appeal noted: 'Even if the Wagners and SGP intended [in the 'Charlie's Angels' agreement] the Wagners would share in the net profits 'from any and all sources' they did not say so in their contract. What they said in their contract was the Wagners would share in 'all monies actually received by Producer, as consideration for the right to exhibit photoplays of the series, and from the exploitation of all ancillary, music and subsidiary rights in connection therewith.' For a right to be 'subsidiary' or 'ancillary,' meaning supplementary or subordinate, there must be a primary right to which it relates. The only primary right mentioned in the contract is 'the right to exhibit photoplays of the series.' Thus the Wagners were entitled to share in the profits from the exploitation of the movie rights to Charlie's Angels if those rights were exploited by Columbia as ancillary or subsidiary rights of its primary 'right to exhibit photoplays of the series' but not if those rights were acquired by Columbia independently from its right to exhibit photoplays [as Columbia had done in this case from the series writers' heirs].'

The Court of Appeal continued: 'Thus, for example, if SGP held the motion picture rights to Charlie's Angels from the beginning or if it acquired them by exercising its right of first refusal as producer to purchase the rights from Goff and Roberts then it could be said to have acquired those rights by exploiting its right to exhibit photoplays of the series and the Wagners would be entitled to a share of the profits. But if SGP (or Columbia) purchased the motion picture rights to Charlie's Angels on the open market, independent of any right it had as producer of the TV series, then it could not be said to have acquired those rights by exploiting its right to exhibit photoplays of the series and the Wagners would not be entitled to a share of the net profits.'

The court also ruled that a copyright assignment by SGP when it separately sold its assets to Columbia Pictures in 1982 didn't include the motion-picture rights to 'Charlie's Angels' because the accompanying purchase agreement had stated that it was subject 'to all SGP['s] ' industry-wide collective bargaining agreements.'

Insurance/Contract-Breach Exclusion

The Court of Appeal of California, Second District, Division 1, ruled that a film distributor's failure to pay for film rights didn't constitute a loss from a 'wrongful act' covered by the distributor's directors and officers liability-insurance policy. August Entertainment Inc. v. Philadelphia Indemnity Insurance Co., B184276.

August Entertainment's president negotiated a contract under which InternetStudios.com agreed to pay $2 million for rights to films that August had the right to exploit as exclusive sales agent. After InternetStudios later refused to proceed with the deal, August filed suit in L.A. Superior Court for breach of contract and anticipatory repudiation. August also claimed that InternetStudios' president was liable personally because he had failed to state in the parties' agreement that he had signed on behalf of his company.

InternetStudios liability policy from Philadelphia Indemnity Insurance Co. excluded 'any actual or alleged liability of the Company under any express contract or agreement.' After Philadelphia Indemnity denied InterStudios' request for coverage of the cost of the August Entertainment suit, August, InternetStudios and InternetStudios' president settled their dispute. August then sued Philadelphia Indemnity. The trial court granted sustained Philadelphia Indemn-ity's demurrer to the complaint.

Affirming, the court of appeal explained that 'D & O policies typically exclude coverage for breach of contract. ' [In this case,] a corporation intentionally entered into a contract, decided not to make payment on it, and looked to its D & O insurer for a bailout. ' [W]e conclude that, under the policy in this case, the insurer was not liable for the underlying settlement or judgment. To hold otherwise would make it a de facto party to a corporate contract and require it to pay the full contract price (plus interest), letting the corporation completely off the hook. Performance of a contractual obligation ' here the payment of $2 million ' is a debt the corporation voluntarily accepted. It is not a loss resulting from a wrong-ful act within the meaning of the
policy.'

Insurance/Copyright-Infringement Coverage

The U.S. District Court for the District of New Jersey determined that coverage for 'advertising injury' under comprehensive-general-liability insurance included the duty to defend against a suit for contributory- and vicarious-copyright infringement. Columbus Farmers Market LLC v. Farm Family Casualty Insurance Co., 05-2087.

The owners of the neighboring Columbus Farmers Market and Columbus Flea World in Burlington, NJ, were sued by the Recording Industry Association of America (RIAA) for operating a 'pirate bazaar' where vendors sold 'pirated and counterfeit compact discs and cassette tapes in violation of federal copyright and state laws.' After the New Jersey federal district court found the owners liable for both contributory and vicarious infringement, the owners' insurers denied them liability coverage.

The insurance-policy language at issue stated: 'We will pay those sums that the insured becomes legally obligated to pay as damages because of ' 'advertising injury' to which this coverage part applies. We will have the right and duty to defend any 'suit' seeking those damages. ' This insurance applies to ' 'Advertising injury' caused [emphasis added] by an offense committed in the course of advertising your goods, products or services ' 'Advertising injury' means injury arising out of one or more of the following offenses[:] ' Infringement of copyright, title or slogan.'

However, there was no policy definition of 'advertising.' When the flea-market owners sued for coverage, the defendant insurers argued that the infringement had to have occurred in the advertising itself. But the district court noted that in the RIAA litigation, 'the Court held that the [flea-market owners] materially contributed to copyright infringement by, in part, 'provid[ing] extensive advertising for the Market (including maintaining a Web site and organizing holiday-themed events) and work[ing] to attract customers to the Market' ' Because the RIAA specifically claims that [the flea-market owners] contributed to infringement by advertising, [the owners] have shown the requisite causal link between the advertising activity and the offense (copyright infringement).'