Clause & Effect

Production Agreements/Motion Picture and Screenplay Rights. The U.S. Court of Appeals for the Ninth Circuit found that, under a 1939 agreement between RKO Radio Pictures and actor/director/screenwriter Orson Welles, the studio owned the copyright to the motion picture 'Citizen Kane' despite a subsequent agreement terminating the parties' relationship. But the appeals court remanded the case for a determination of whether the studio or Welles owned the right for home-video release of the movie years later, and whether Welles had a profit-participation right in the movie. Welles v. Turner Entertainment Co., 05-55742.

The production agreement stated in part:'[RKO] shall own the negative and positive prints of each of the Pictures and all rights of every kind and nature in and to each Picture, and all parts thereof and all material, tangible and intangible, used therein, as soon as such rights come into existence.' But the parties signed an exit agreement in 1944 ending their business relationship. The Ninth Circuit explained that the exit contract ' which contained no choice-of-law provision, so California law applied ' 'did not retroactively rescind RKO's copyright in the Citizen Kane motion picture unless RKO's copyright remained executory at the time of the Exit Agreement ' Under the parties' agreements, RKO had always owned the motion picture copyright, and it had no executory right in the motion picture to release at the time the parties signed the Exit Agreement.'

This meant that Turner Entertain-ment, RKO's successor-in-interest, had the right to exploit the 'Citizen Kane' movie itself on home video. But an original-story clause in the 1939 RKO/Welles agreement stated: 'In case of any original story written by [Mercury] or any of its employees and used as the basis of either Picture, however, [RKO] shall acquire the motion picture and television rights in such story for such Picture only.'

Thus, the appeals court noted, 'to distribute Citizen Kane on home video, the defendants still need the right to exploit the screenplay from which the Citizen Kane motion picture was derived ' [Looking at the issue under a New York choice-of-law provision in the production agreement, on] one hand, a reasonable argument can be made that distributing a motion picture on home video is simply an exploitation of the defendants' 'motion picture' rights in the Citizen Kane screenplay. On the other hand, such a broad interpretation would render the additional grant of 'television rights' to the defendants superfluous because if 'motion picture' rights encompassed home video rights, 'motion picture' rights could also be argued to encompass the right to display Citizen Kane on television.' Because the contract was ambiguous, the appeals instructed that extrinsic evidence needed to be examined on remand.

Finally, a separate 1939 agreement with RKO for Welles to act in three movies gave him a net-profits right from each of the films. But the 1944 exit agreement stated: 'No net profits resulted from the sale and distribution of the first picture produced under the title 'CITIZEN KANE,' and accordingly Welles is entitled to no contingent compensation.'

Here, the appeals court emphasized: 'The parties do not dispute on appeal that ' the Exit Agreement prospectively ended Orson Welles's right to contingent compensation under the Actor Agreement ' [Plaintiff] Beatrice Welles [Orson's daughter], however, argues that there is conflicting evidence about whether Orson Welles and RKO entered into another agreement, after the Exit Agreement, to share the profits of Citizen Kane.' The court remanded the profit-participation issue for fact-finding on conflicting evidence.

Recording Agreements/Non-Exclusivity. The U.S. District Court for the Northern District of Illinois, Eastern Division, denied a motion for reconsideration of a ruling that an agreement between the band Hawthorne Heights and Victory Records did not require the group to record exclusively for the label. Bucciarelli-Tieger v. Victory Records Inc., 06 C 4258. In addition, in a separate ruling the court granted Hawthorne Heights' motion for a preliminary injunction to bar Victory Records from interfering with the band's 'rights to record new material with a producer or a record label of its choosing' during the Hawthorne Heights/Victory Records litigation.

The Victory Records contract clause at issue states: 'Artist grants to Company four (4) separate, consecutive and irrevocable options, each to extend the Term for further periods ('Option Periods') consecutively commencing upon the expiration of the preceding period and expiring twelve (12) months after the date Artist delivers to Company the last Album constituting Artist's Recording Commitment in that Option Period.'

Hawthorne Heights recorded two albums for Victory Records, then sent the label a termination letter. The band claimed, among other things, royalty inconsistencies, that the label falsely depicted the band 'as in a war with artists in other genres' and that the label 'physically threatened professional music industry figures, as well as HH's personal manager.' But Victory Records exercised its third option with Hawthorne Heights and the band filed suit.

Victory Records claims the word 'consecutive' in the contract clause modifies the word 'album,' rather than 'options.' But in denying the label's motion for reconsideration, the district court noted: 'It is clear from this language that what is consecutive are the options granted to Victory, not the albums to be recorded. As we have construed the contract, during each option period plaintiffs must record one album for Victory. Plaintiffs are free to record other albums for other recording labels, or for themselves, during this time, as long as they complete a sufficient number of masters to constitute a record deliverable to Victory during the option period.'

The court went on to advise Victory Records: '[Defendants] could have contracted for the exclusive services of plaintiffs ' Second, defendants, as parties to this contract, could have negotiated a limited amount of time for the delivery of the albums ' [Still, u]nder the present interpretation of the contract, plaintiffs are required to deliver an album [based on the third option] to Victory within a reasonable time, and if at some point Victory believes that plaintiffs have unreasonably delayed their obligations, defendants are free to pursue their remedies.'

In its decision issuing the preliminary injunction for the band, the district court noted in part 'because it appears that if no injunction is put in place, Victory will continue to send cease-and-desist letters to any producer, record company or other entity that plaintiffs attempt to work with, we find that plaintiffs have demonstrated irreparable harm … Further, plaintiffs are not seeking an injunction permitting them to reproduce and sell their previous albums without interference from Victory, but one permitting them to record new albums without such interference.'

Several issues remain to be decided in the litigation. These include whether Hawthorne Heights or Victory Records owns the copyrights in the two albums the band delivered to the label, and whether the band properly terminated the Victory Records agreement for cause.

Production Agreements/Motion Picture and Screenplay Rights. The U.S. Court of Appeals for the Ninth Circuit found that, under a 1939 agreement between RKO Radio Pictures and actor/director/screenwriter Orson Welles, the studio owned the copyright to the motion picture 'Citizen Kane' despite a subsequent agreement terminating the parties' relationship. But the appeals court remanded the case for a determination of whether the studio or Welles owned the right for home-video release of the movie years later, and whether Welles had a profit-participation right in the movie. Welles v. Turner Entertainment Co., 05-55742.

The production agreement stated in part:'[RKO] shall own the negative and positive prints of each of the Pictures and all rights of every kind and nature in and to each Picture, and all parts thereof and all material, tangible and intangible, used therein, as soon as such rights come into existence.' But the parties signed an exit agreement in 1944 ending their business relationship. The Ninth Circuit explained that the exit contract ' which contained no choice-of-law provision, so California law applied ' 'did not retroactively rescind RKO's copyright in the Citizen Kane motion picture unless RKO's copyright remained executory at the time of the Exit Agreement ' Under the parties' agreements, RKO had always owned the motion picture copyright, and it had no executory right in the motion picture to release at the time the parties signed the Exit Agreement.'

This meant that Turner Entertain-ment, RKO's successor-in-interest, had the right to exploit the 'Citizen Kane' movie itself on home video. But an original-story clause in the 1939 RKO/Welles agreement stated: 'In case of any original story written by [Mercury] or any of its employees and used as the basis of either Picture, however, [RKO] shall acquire the motion picture and television rights in such story for such Picture only.'

Thus, the appeals court noted, 'to distribute Citizen Kane on home video, the defendants still need the right to exploit the screenplay from which the Citizen Kane motion picture was derived ' [Looking at the issue under a New York choice-of-law provision in the production agreement, on] one hand, a reasonable argument can be made that distributing a motion picture on home video is simply an exploitation of the defendants' 'motion picture' rights in the Citizen Kane screenplay. On the other hand, such a broad interpretation would render the additional grant of 'television rights' to the defendants superfluous because if 'motion picture' rights encompassed home video rights, 'motion picture' rights could also be argued to encompass the right to display Citizen Kane on television.' Because the contract was ambiguous, the appeals instructed that extrinsic evidence needed to be examined on remand.

Finally, a separate 1939 agreement with RKO for Welles to act in three movies gave him a net-profits right from each of the films. But the 1944 exit agreement stated: 'No net profits resulted from the sale and distribution of the first picture produced under the title 'CITIZEN KANE,' and accordingly Welles is entitled to no contingent compensation.'

Here, the appeals court emphasized: 'The parties do not dispute on appeal that ' the Exit Agreement prospectively ended Orson Welles's right to contingent compensation under the Actor Agreement ' [Plaintiff] Beatrice Welles [Orson's daughter], however, argues that there is conflicting evidence about whether Orson Welles and RKO entered into another agreement, after the Exit Agreement, to share the profits of Citizen Kane.' The court remanded the profit-participation issue for fact-finding on conflicting evidence.

Recording Agreements/Non-Exclusivity. The U.S. District Court for the Northern District of Illinois, Eastern Division, denied a motion for reconsideration of a ruling that an agreement between the band Hawthorne Heights and Victory Records did not require the group to record exclusively for the label. Bucciarelli-Tieger v. Victory Records Inc., 06 C 4258. In addition, in a separate ruling the court granted Hawthorne Heights' motion for a preliminary injunction to bar Victory Records from interfering with the band's 'rights to record new material with a producer or a record label of its choosing' during the Hawthorne Heights/Victory Records litigation.

The Victory Records contract clause at issue states: 'Artist grants to Company four (4) separate, consecutive and irrevocable options, each to extend the Term for further periods ('Option Periods') consecutively commencing upon the expiration of the preceding period and expiring twelve (12) months after the date Artist delivers to Company the last Album constituting Artist's Recording Commitment in that Option Period.'

Hawthorne Heights recorded two albums for Victory Records, then sent the label a termination letter. The band claimed, among other things, royalty inconsistencies, that the label falsely depicted the band 'as in a war with artists in other genres' and that the label 'physically threatened professional music industry figures, as well as HH's personal manager.' But Victory Records exercised its third option with Hawthorne Heights and the band filed suit.

Victory Records claims the word 'consecutive' in the contract clause modifies the word 'album,' rather than 'options.' But in denying the label's motion for reconsideration, the district court noted: 'It is clear from this language that what is consecutive are the options granted to Victory, not the albums to be recorded. As we have construed the contract, during each option period plaintiffs must record one album for Victory. Plaintiffs are free to record other albums for other recording labels, or for themselves, during this time, as long as they complete a sufficient number of masters to constitute a record deliverable to Victory during the option period.'

The court went on to advise Victory Records: '[Defendants] could have contracted for the exclusive services of plaintiffs ' Second, defendants, as parties to this contract, could have negotiated a limited amount of time for the delivery of the albums ' [Still, u]nder the present interpretation of the contract, plaintiffs are required to deliver an album [based on the third option] to Victory within a reasonable time, and if at some point Victory believes that plaintiffs have unreasonably delayed their obligations, defendants are free to pursue their remedies.'

In its decision issuing the preliminary injunction for the band, the district court noted in part 'because it appears that if no injunction is put in place, Victory will continue to send cease-and-desist letters to any producer, record company or other entity that plaintiffs attempt to work with, we find that plaintiffs have demonstrated irreparable harm … Further, plaintiffs are not seeking an injunction permitting them to reproduce and sell their previous albums without interference from Victory, but one permitting them to record new albums without such interference.'

Several issues remain to be decided in the litigation. These include whether Hawthorne Heights or Victory Records owns the copyrights in the two albums the band delivered to the label, and whether the band properly terminated the Victory Records agreement for cause.