Industry 'Custom and Practice' Not Enough to Create Binding Film Distribution Agreement

Film financing and film production can be long, slow processes. But deals for distribution rights may be struck up fast and furious, as seen from distribution interest in buzz movies at film festivals. This happened with Precious: Based on the Novel Push by Sapphire, a film about a young African-American mother in Harlem that won both the grand jury prize and audience award in drama at the Sundance Film Festival in January 2009. Hurried negotiations for the film distribution rights to Push has led to multi-suit litigation ' and a recent Manhattan federal district court ruling that may help define when there's a binding distribution deal.

The Fight for Push

Immediately after the Push screening at Sundance, The Weinstein Co. (TWC) moved to secure worldwide distribution rights from Smokewood Entertainment, the Denver, CO-based managing member of Push Pictures LLC. Cinetic Media Inc. and film agents John Sloss and Bart Walker handled the talks for Smokewood. According to TWC, on Jan. 27, 2009, Cinetic's reps orally offered TWC a deal that contained a minimum fee required for the rights, the distribution price per territories, box-office income bonuses and a reservation of film editing to Smokewood. TWC claimed it accepted the offer. An e-mail exchange followed into the early morning hours of Jan. 28. But on Feb. 2, Smokewood and Lions Gate Entertainment announced they had struck up a distribution deal for Push.

TWC sued Smokewood in a case that landed in New York federal court. TWC also sued Lionsgate (alleging tortious interference) and Cinetic, Sloss and Walker (alleging fraud, negligence and breach of contract), both of those cases in New York state court. Meanwhile, Lionsgate filed a declaratory action in Los Angeles Superior Court.

In its memorandum in opposition to Smokewood's motion to dismiss, TWC argued: “As is customary in the entertainment industry, shortly after accepting Smokewood and Cinetic's offer, David Glasser of TWC sent an e-mail to Walker and Sloss confirming the acceptance of the offer and noting that the scope of the offer included 'the acquisition of worldwide distribution rights in and to the feature film, presently entitled [Precious: Based on the Novel Push by Sapphire]. ' Walker replied that he was 'explaining every sentence' of the deal to the financiers and producers of the film. ' Walker did not state that the Agreement was not complete; nor did he state that Smokewood intended for the Agreement to be subject to execution of the appropriate documents. Walker also promised TWC that he would provide TWC with a written agreement for execution by the parties within a few hours.”

TWC approached its breach of contract claim against Smokewood on three fronts: that TWC had obtained an exclusive license, or at least an implied non-exclusive license, from Smokewood to distribute Push and that in any case Smokewood breached a binding, preliminary commitment for the good-faith negotiation of an agreement with TWC.

U.S. District Judge Naomi Reice Buchwald of the Southern District of New York disagreed with all three of TWC's arguments. See, The Weinstein Co. v. Smokewood Entertainment Group LLC, 09 Civ.1972(NRB). The district judge found no written transfer, as required by '204(a) of the Copyright Act, for any exclusive rights. According to the court: “Neither of the e-mails sent by Walker on the evening of January 27th demonstrates a clear statement of intent to transfer an exclusive right in Push. Rather, it is the plaintiff whose e-mails demonstrate an unambiguous desire to enter into the deal. By contrast, Walker's responses on behalf of defendant contain nothing like the affirmative and unambiguous statement that '204(a) requires from a copyright owner. After Glasser's first e-mail of the evening, in which he purported to confirm a deal, Walker merely stated that he would be talking with the producers and financiers of the film and would call afterwards. When Glasser followed up shortly afterward, once again purporting to confirm a deal, Walker provided a response that was as noncommittal as his previous message.” (Judge Buchwald added in a footnote: “This is, of course, to say nothing of the fact that approximately [10] hours later, Walker and Sloss were quite clear in writing about their desire not to enter into a deal with plaintiff.”)

No Deal, Even if Customary

The judge admonished: “On plaintiff's theory, because Glasser's e-mails were clear and evinced an unambiguous desire to finalize a deal, it was up to defendant to affirmatively reject Glasser's overtures. This is precisely contrary to the way copyright law allocates the obligations among parties to a transfer of copyright ownership.”

The court went on to find TWC's claim to an implied non-exclusive license “even more defective than plaintiff's claim to an exclusive license,” because “an implied non-exclusive license will only be found when a copyright owner creates a work at the request of the licensee and with the intention that the licensee exploit it. ' Plaintiff has not alleged that it requested the creation of Push.”

As for TWC's state law claim of breach by Smokewood of a commitment to negotiate in good faith, the district court warned: “While in many industries it is not unusual for parties to enter into oral contracts, and notwithstanding plaintiff's claims about 'custom and practice' in the entertainment industry, federal copyright law dictates the terms by which an exclusive license can be granted. ' To accept plaintiff's contention that parties can preliminarily bind themselves under state law to conclude exclusive licensing deals would be to open a serious loophole in the signed writing requirement of '204(a) ' at least on facts such as those alleged here.”

All of which raises warnings about the process by which film distribution deals are often negotiated. Or as Judge Buchwald put it: “Congress did not exempt parties in the film industry from the requirements of the Copyright Act.”