Saturday, June 11, 2011

Dastar Corp. v. 20th Century Fox, et al.: Implications For In-House Counsel & Others

For those of us who practice in the intellectual property arena, the implications of the U.S. Supreme Court’s holding in Dastar Corp. v. Twentieth Century Fox Film Corp., et al., 123 S.Ct. 2041 (2003) continue to reverberate throughout the entertainment field...especially for in-house counsel and those tasked with maintaining and exploiting any institutions intellectual property. This article will brief the Dastar case and then provide some suggested best practices.
Factual Background
In 1948, Doubleday published General Dwight D. Eisenhower’s famous book, Crusade in Europe and soon thereafter Fox obtained the exclusive rights to create a television series under the same name. In 1949, Fox produced (utilizing narration based on General Eisenhower’s book and stock film from the U.S. government along with various other sources) and aired a 26-episode television show entitled Crusade in Europe.
In 1975, Doubleday renewed the copyright in the book, but Fox failed to renew the copyright in its television series and in 1977 the television show Crusade in Europe entered the public domain. Nonetheless, in 1988 Fox reacquired the television rights to the book and licensed other companies the right to distribute Crusade in Europe on video. SFM Entertainment and New Line Home Video thereafter acquired the exclusive right to manufacture and distribute the Crusade in Europe television series on video.
Anticipating substantial renewed interest around the time of World War II’s 50th anniversary in 1995, Dastar bought betacam tapes of the original Crusade in Europe television series, copied those tapes, edited them and sold its television series entitled World War II Campaigns in Europe, removing any reference to Eisenhower’s book and crediting itself as the producer of its series entitled World War II Campaigns in Europe.
Procedural Posture
In 1998, Fox brought suit in District Court for copyright infringement and violation of §43(a) of the Lanham Act [15 U.S.C § 1125(a)]. The District Court found that Dastar had infringed on the copyright to the Crusade in Europe book, and also that Dastar had engaged in “reverse passing off” of the television series, claiming that Dastar wrongfully claimed that its Television series was really the property of Fox. The Court of Appeals for the Ninth Circuit reversed the copyright claim, remanding it back to the District Court, but affirmed the “reverse passing off” claim based on §43(a) of the Lanham Act. Dastar petitioned the U.S. Supreme Court and the Court soon granted certiorari.
Supreme Court’s Holding
The Supreme Court’s holding is one of the most interesting of the past few years, applying the facts of this case to the contours of copyright, trademark and patent law, demonstrating that any one of these unique species of intellectual property law can not be extended to the point where it would encroaches upon any of the other form of intellectual property protection, let alone the field of public domain.
The text of the holding largely turned upon what the term “origin” means within the context of the Lanham Act. As trademark law is designed primarily to protect consumers from confusion with regard to the manufacture of goods, “origin” relates to the entity that manufactures and/or produces the tangible goods that are sold in the marketplace [See, e.g., 4 J. McCarthy Trademarks and Unfair Competition, § 27:7 et seq. (4th ed. 2002)]. Accordingly, attempting to stretch the definition of the word “origin” to also include the creator of the ideas embodied in manufactured goods would conflict with copyright law. In summarizing the utility of trademark law, the Court noted that this specific body of law exists to protect consumers from false designations of origin of manufacture, not what might arguably be called false designations of creation.
Using Coca-Cola as a baseline, the Court stated that a typical consumer would not readily believe that the Coca-Cola Co.’s trademark in Coke necessarily implies that Coca-Cola was the original creator of the formula for its soft drink. Extrapolating from this and addressing the potentially special treatment the Lanham Act might accord to what could be called a “communicative product” (e.g., a book), the Court then held that creating a new class of products where “origin” connotes not only manufacture but also creation would directly conflict with both copyright and patent law, both of which allows the public to copy without attribution intellectual property that falls into the public domain. Even though the 1988 revisions to the Lanham Act expanded its application, the Supreme Court stated that the Act’s purpose was not the protection of creativity and cited with approval Dunhill v. Interstate Cigar, noting that, “…§43(a) does not have boundless application as a remedy for unfair trade practices….” Alfred Dunhill, Ltd. V. Interstate Cigar Co. 499 F.2d 232, 237 (1974). Writing for the majority, Justice Scalia also noted that while there may be perceived “moral” crossovers between copyrights, patents and trademarks, one species of protection simply can not be reconfigured to create preemptive rights in works that are in – or fall back into – the public domain. A key subtext is that §43(a) of the Lanham Act can not function as a means to protect what might be nominated as “moral rights”, creating a new class of intellectual property rights that does not yet exist in any substantial form in the U.S. Exceptions to this blanket prohibition to “moral rights” do exist, but they are very narrowly construed, and then typically apply only to the classic visual arts per se [see 17 U.S.C. § 106(a)(1)(A) et seq.; but cf., Article 6bis, Berne Convention for the Protection of Literary and Artistic Works (1971 Paris Act)].
Oral Argument
In his argument on behalf of the United States, the Assistant to the Solicitor General stated, “…the original television series was subject to a copyright, but that copyright expired in 1977 because respondent, Twentieth Century Fox, failed to renew it….if respondent had renewed it, one suspects that we wouldn’t be here today….” [Oral Argument of Gregory G. Garre, Esq., Asst. to the Solicitor General, p. 17, lines 6-10 (April 2, 2003) (emphases added)].
In other words, Fox simply dropped the ball when it came to renewing its copyright to prevent the lapse of Crusade in Europe into the public domain. Dastar, conversely, appears to have been much more on the ball by anticipating renewed interest in World War II around 1995 and aggressively developed and priced its own product. It should be particularly noted that Dastar distributed its World War II Campaigns in Europe for about $25 through retailers such as Sam’s Club, Costco, Best Buy and mail-order distributors, hitting just the right target market at the right price.
Herein lies the key implication for counsel, especially those working in-house for an entertainment company: aggressively manage any and all of your client’s intellectual properties. And, as the Supreme Court focused upon the term “origin”, let’s hone in on some specific strategies that can directly benefit your current (and hopefully, future) entertainment clients.
First, take an inventory. Make sure that your client maintains a database of any and all intellectual properties and provides appropriate triggers for action as expiry dates come due. If you provide legal services for a motion picture production and/or distribution company, you may have to set up a not-too-complex, flat-file database (I like Excel for this myself) that lists each copyright, registration and renewal dates, to whom it may be licensed, key license terms, payment schedules, and so on, and so on.
Second, identify potentially beneficial target markets. Work with your client to get them to brainstorm about any and all configurations for their media. This is what Dastar did when it simply recognized the strong likelihood of renewed interest in this World War II (and what Fox did not when it let its copyright lapse). While this may sound a bit like encouraging purely business activities upon your client, it is also about beginning to develop a licensing strategy. For example, assume you work with a film production company that also distributes its own products. This studio might be well on its way to establishing itself as a production entity, attracting the best talent (ranging from directors to actors to photographers, etc.). Might they be interested in licensing, say, their older movies to other distributors so that more attention (and financial resources) can be placed upon motion picture production?
Third, develop a licensing strategy that correlates to your client’s business goals. For the film production company above that has decided to emphasize creating (and protecting) new productions, identifying which profitable markets to target with their older product will necessarily inform the legal negotiations you will undertake on their behalf: exclusive licenses for new productions vs. non-exclusive licenses based upon territory for the older stuff; time-phased-licenses vs. perpetual licenses with decreasing minimum tiers of license fees; exclusive licenses for new media such as Internet streaming vs. non-exclusive licenses for select properties from your client’s video library; co-licenses vs. franchising…the list can go on and on but I suspect you get the picture (yes, pun intended).
            Fourth, do not forget about mediation and/or arbitration as a dispute resolution mechanism when violations of Copyrights occur. Admittedly, I’m not privy to all of the negotiations prior to the initial filing in District Court in the Dastar matter. However, I can speculate as to what might have been a very beneficial resolution to this matter for all parties. Instead of filing suit, counsel for Fox and team might have first contacted Dastar and entered into discussions during mediation or non-binding arbitration whereby Fox and Dastar might have entered into a cross-licensing arrangement whereby Dastar would be provided an exclusive license to the lower-tier distribution channels (e.g., Costco and the mail-order house mentioned above) and Fox would, in turn, distribute Dastar’s World War II Campaigns in Europe to the higher-end tier(s) (think, History Channel). Now imagine also that Fox and Dastar could bring Time-Life into this (as Time, Inc. was an original producer of the Crusade in Europe television series in 1949) and all three could enter into a new licensing agreement whereby they would jointly agree to provide Time-Life some form of exclusive distribution for multiple sets of World War II documentary films, of which its World War II Campaigns in Europe would be a key part. The financial rewards from such an arrangement would be manifest as Time-Life makes a fortune through its multiple-volume distribution business (think, any decade’s supposed musical hits and Time-Life is there selling a series on it).
I like to think that I am sufficiently savvy as a practitioner to know that there may have been simply too many parties (e.g., Fox and Doubleday and Time and SFM Entertainment and New Line Home Video) along with too many precedent contracts for a workable solution in this particular matter. However, a lesson learned from Dastar is that you should work as closely as possible with your entertainment clients ensuring that the embodiments of the intellectual property are gathering as little dust and as much money as possible!

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