IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks - October 25, 2012

Table of Contents

• Claybrook v. American Broadcasting Company
• DC Comics v. Pacific Pictures Corp.

Claybrook v. American Broadcasting Company, USDC M.D. Tennessee, October 15, 2012

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• District court dismisses putative class action alleging racial discrimination in casting of shows The Bachelor and The Bachelorette, holding that First Amendment protects defendants’ casting decisions.

Plaintiffs, two African-American men who unsuccessfully auditioned for the lead role in the popular reality television show The Bachelor, brought a putative class action against broadcasters and producers of The Bachelor and its spin-off The Bachelorette (the Shows). Plaintiffs alleged that they and other minorities were deprived of the equal opportunity to contract to fill the lead roles because of defendants’ allegedly discriminatory casting decisions.

Plaintiffs alleged that the fact that none of the Bachelors or Bachelorettes has been a person of color is no accident, but rather that, as a matter of internal policy, defendants have intentionally cast only white Bachelors and Bachelorettes. Plaintiffs cited a news article stating that the Shows’ producers have feared “potential controversy of an interracial romance,” believing that this would alienate the Shows’ predominantly white viewership. Plaintiffs further alleged that The Bachelor and The Bachelorette “are examples of purposeful segregation in the media that perpetuates racial stereotypes and denies persons of color of opportunities in the entertainment industry[,]” and “sends the message . . . that only all-white relationships are desirable and worthy of national attention,” which message has a deleterious effect on society. Based on these allegations, plaintiffs claimed that defendants’ alleged discriminatory casting decisions violated 42 U.S.C. § 1981 (which prohibits, among other things, discrimination in the formation of contracts), and sought to certify a class of plaintiffs consisting of all non-white applicants who met the Shows’ baseline eligibility requirements. Defendants moved to dismiss the complaint with prejudice, arguing that the First Amendment protected both the Shows and defendants’ casting decisions related to the Shows, and therefore barred Plaintiffs’ claims.

At the outset, the court rejected Plaintiffs’ argument that addressing the defendants’ First Amendment defense at the pleading stage was premature, reasoning that where plaintiffs’ own allegations establish that the First Amendment bars the plaintiffs’ claims as a matter of law, federal courts may dismiss those claims. Framing the issue as a conflict between § 1981, which prohibits intentional race discrimination in the making and enforcing of contracts (and, for the purposes of the motion to dismiss, the casting contract to appear as the lead role in either of the shows), and the First Amendment, which protects artistic forms of expression, including entertainment, television programs, and dramatic works, the court reasoned that, as applied to the facts of the case, § 1981 would regulate the creative content of the Shows by forcing the defendants to employ race-neutral criteria in the casting process. Noting that an attempt to regulate speech based on its content — in this case, the race of the cast members — required a strict scrutiny test, the court concluded that the First Amendment trumped the application of § 1981, because the casting decisions were “part and parcel of the creative process” behind the television programs.

The court rejected Plaintiffs’ argument that casting decisions do not necessarily involve conduct that is materially communicative, and thus protected by the First Amendment, holding:

As defendants persuasively argue, casting decisions are a necessary component of any entertainment show’s creative content. The producers of a television program, a movie, or a play could not effectuate their creative vision, as embodied in the end product marketed to the public, without signing cast members. The plaintiffs seek to drive an artificial wedge between casting decisions and the end product, which itself is indisputably protected as speech by the First Amendment. Thus, regulating the casting process necessarily regulates the end product. In this respect, casting and the resulting work of entertainment are inseparable and must both be protected to ensure that the producers’ freedom of speech is not abridged.”

In reaching this conclusion at the pleading stage, the court assumed, as alleged in the Amended Complaint, that the defendants did discriminate in the casting process on the basis of race, that they did so to conform the content of their shows to the viewpoint of their target audience concerning interracial relationships, that Shows’ content did perpetuate racial stereotypes about interracial relationships, and that the plaintiffs sought to change the defendants’ casting process to address that issue. Taking the allegations in the complaint as true, the court reasoned that the plaintiffs were arguing that the racial composition of the Shows conveys an influential message to the viewing public regarding interracial romantic relationships and that defendants consciously made casting decisions to control the message, a message with which the plaintiffs strongly disagreed and sought to change in order to “showcase” their own more progressive message through the application of § 1981. This, according to the court, amounted to an attempt to regulate the Shows’ creative content, which the First Amendment forbids. The court concluded: “Ultimately, whatever messages The Bachelor and The Bachelorette communicate or are intended to communicate — whether explicitly, implicitly, intentionally, or otherwise — the First Amendment protects the right of the producers of these Shows to craft and control those messages, based on whatever considerations the producers wish to take into account.”

DC Comics v. Pacific Pictures Corp., USDC C.D. California, October 17, 2012

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• District Court grants summary judgment in favor of DC Comics in copyright action, concluding that 1992 agreement between DC and heirs of original Superman illustrator superseded illustrator’s original grants, and thus barred heirs from exercising statutory copyright termination rights with respect to original grant.

In 1938, Jerome Siegel and Joseph Shuster, the co-creators of Superman, entered into an agreement assigning the exclusive right to the use of the Superman characters and story to plaintiff DC Comics. Following Shuster’s death in 1992, his sister and sole heir executed an agreement with DC, pursuant to which DC provided additional money to the heirs in exchange for a settlement and release of all claims regarding Shuster’s copyrights, and a re-grant of such rights to DC. In 2001, Shuster’s heirs entered into an agreement transferring all current and future rights in Shuster’s creations, including any copyright termination interest in Superman, to defendant Pacific Pictures Joint Venture.

In 2003, after Congress amended the copyright statute to grant additional statutory heirs termination rights under 17 U.S.C. § 304(d), Shuster’s estate served a notice of termination on DC purporting to terminate the prior grants of Shuster’s Superman copyrights. DC filed an action to secure its claimed interest in the Superman copyrights, and subsequently moved for partial summary judgment on its First and Third Claims. DC’s First Claim contested the validity of the termination notice, and its Third Claim challenged the web of agreements that Marc Toberoff and his entertainment companies and business partners engineered in alleged violation of DC’s rights under the Copyright Act.

The court first considered DC’s first claim seeking a declaration that the termination notice is invalid, in support of which DC argued that it was entitled to summary judgment on three grounds: (1) that the 1992 agreement barred the Shusters from pursuing termination; (2) that the Shusters lacked the majority interest necessary to terminate because they assigned 50 percent of their putative rights to Pacific Pictures; and (3) that no statutory basis existed for the Shusters to terminate, because Joe Shuster had no statutory heir under the Copyright Act when he died.

Noting that the relevant provision of the Copyright Act, 17 U.S.C. § 304(d), provides a termination right only with respect to grants of copyright made prior to January 1, 1978, the court found that the inquiry begins with whether the 1992 agreement superseded Shuster’s initial grants. The court determined that, under applicable New York law, the 1992 agreement – which settled and released all claims, rights, and remedies that the heirs had concerning the Shuster copyrights, and regranted such rights to DC – effectively revoked and superseded Shuster’s earlier grants. In addition, the court noted, the 1992 agreement renegotiated the terms of the prior agreements to the heir’s benefit; accordingly, the court concluded that in entering into the 1992 agreement, Shuster’s heir exhausted the single opportunity provided by statute to revisit the terms of Shuster’s pre-1978 grants of his copyrights.

The court also rejected defendants’ argument that an author or his estate may exercise termination rights “notwithstanding any agreement to the contrary.” 17 U.S.C. § 305. The court disagreed that the 1992 agreement constituted an impermissible “agreement to the contrary,” noting that this argument had been previously considered and rejected by the Second Circuit in Penguin Group (USA) Inc. v. Steinbeck, 537 F.3d 193, 202-03 (2d Cir. 2008) (emphasis added):

We do not read the phrase ‘agreement to the contrary’ so broadly that it would

include any agreement that has the effect of eliminating a termination right.

To do so would negate the effect of other provisions of the Copyright Act that

explicitly contemplate the loss of termination rights. . . . Moreover,

the 1994 Agreement did not divest the Steinbeck Descendants of any

termination right under section 304(d) when the parties entered into that

agreement. In 1994, only 17 U.S.C. § 304(c) provided a termination

right—section 304(d) would not become effective for another four years. It is

undisputed that the Steinbeck Descendants could not have exercised their

termination rights in 1994 because they lacked more than one-half of the

author’s termination interest. As of 1994, then, the agreement . . . did not

deprive the Steinbeck Descendants of any rights they could have realized at

that time. None of the parties could have contemplated that Congress would

create a second termination right four years later. Had Elaine Steinbeck not

entered into the 1994 Agreement, the section 304(c) termination right would

have expired, and Penguin would have been bound only by the 1938

Agreement for the duration of the copyright terms absent (as ultimately

happened) Congressional action. We cannot see how the 1994 Agreement

could be an ‘agreement to the contrary’ solely because it had the effect of

eliminating termination rights that did not yet exist.

Adopting the Second Circuit’s holding in Steinbeck, the court emphasized that when Joseph Shuster passed away and his heirs entered into the 1992 agreement, neither party to the 1992 agreement, nor anybody else, held a termination right, and the parties could not have contemplated that Congress would create a second termination right six years later. Accordingly, the court agreed with Steinbeck’s reasoning that the 1992 agreement was not an “agreement to the contrary” “solely because it had the effect of eliminating termination rights that did not yet exist.”

With respect to DC’s second argument, that the defendant heirs lacked the majority interest necessary to terminate because they assigned 50 percent of their putative rights to Pacific Pictures, the court disagreed with DC. Instructing that, under the Copyright Act, the right to serve a termination notice cannot be anticipatorily transferred to a third party, the court found that although the Shusters may have believed that their contracts transferred the Shuster heirs’ termination rights to Pacific Pictures, as a matter of law those agreements did not and could not have done so. Accordingly, the heirs retained the requisite majority share. The Shusters could not have transferred the copyrights to anyone prior to the effective date of the termination—October 26, 2013. The court found that the agreements did not transfer ownership of the subject copyrights, and that defendants retained the requisite majority share.

The court declined to address DC’s third argument, that Shuster lacked a statutory heir.

Turning to DC’s Third Cause of Action, the court concluded that defendants’ agreements purporting to assign their copyrights to Pacific Pictures prior to the effective termination date in 2013, and prohibiting defendants from making any deal with DC without Toberoff’s and the Siegels’ consent, violated section 304(c)(6)(D) of the Copyright Act, which provides:

A further grant, or agreement to make a further grant, of any right covered by a terminated grant is valid only if it is made after the effective date of the termination. As an exception, however, an agreement for such a further grant may be made between the author or [his heirs] and the original grantee or [its successor], after the notice of termination has been served . . . .

Section 304(c)(6)(D), stated the court, gives DC, the original grantee, a competitive advantage over third parties akin to a right of first refusal. Accordingly, the court concluded that between the date of service of the termination notice and the effective date of the termination, DC was the only party that could have entered into an agreement with the Shuster heirs regarding the Superman copyrights.

For more information, please contactJonathanZavinat jzavin@loeb.com or at 212.407.4161.

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