IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- December 12, 2012


Table of Contents

Celador Int’l Inc. v. American Broadcasting Companies, Inc., USCA Ninth Circuit, December 3, 2012 (unpublished opinion)
 Click here for a copy of the full decision.

  • Ninth Circuit upholds $269 million jury award against ABC and other Disney affiliates in a breach of contract case regarding the North American rights to the game show Who Wants to be a Millionaire?

Plaintiff Celador International Inc. (Celador) brought suit against American Broadcasting Companies, Inc., Buena Vista Television, and Valleycrest Productions (the Disney affiliates) asserting breach of the express provisions of a contract through which Celador sold the North American rights to the game show Who Wants to be a Millionaire? and breach of the implied covenant of good faith and fair dealing for defendants’ alleged failure to include half of ABC’s profits in Celador’s compensation and improperly deducting merchandising distribution expenses from the compensation. Following a jury award of $269 million in damages for Celador, the Disney affiliates moved for judgment as a matter of law or a new trial. The district court denied both motions, and the Disney affiliates appealed, arguing that the district court erred in submitting the interpretation of disputed contract questions to the jury, that the implied covenant theory was legally insufficient and tainted by the erroneous submission of the contract questions, that the jury award was unsupported by the record, and that they are entitled to a new trial because the district court committed evidentiary, instructional, and other errors. The Ninth Circuit, in a de novo review, found that the district court did not err in denying the motion for judgment as a matter of law and upheld the jury award.

The Ninth Circuit found that the district court did not err by submitting disputed contract questions to the jury because interpretations of contract provisions and the determination of whether contract language is ambiguous are questions of law. Under California law, the court determines whether a contract provision is ambiguous by determining whether any material conflict exists in the extrinsic evidence proffered by the parties to show whether the contract is susceptible to a particular meaning. If a material conflict exists, then the jury must weigh the credibility of the conflicting evidence. The Ninth Circuit found that a material conflict did exist with provisions of the contract related to network licensing and that the extrinsic evidence offered by the parties was materially conflicted as to that provision. The court found that the contract was also ambiguous as to the merchandising claim, because the contract did not expressly provide for the deduction of the merchandising distribution expenses, and divergent conclusions could result from the proffered extrinsic evidence.

The court of appeals concluded that the district court’s evidentiary rulings were not prejudicial and not reversible, and that even if the evidentiary rulings were erroneous, they did not entitle the Disney affiliates to a new trial, as an appellate court generally will not reverse the lower court’s denial of a motion for a new trial if some reasonable basis exists for the jury’s verdict. The court also found that the district court did not abuse its discretion in refusing to include the Disney affiliates’ suggested jury instructions. The court upheld the jury award because the assumptions that Celador’s experts relied upon to project damages provided a reasonable basis for the jury award and because the jury award is afforded substantial deference and was not grossly excessive clearly not supported by the evidence or based only on speculation or guesswork.

Morawski v. Lightstorm Entertainment, USDC C.D. California, November 19, 2012 (unpublished opinion)
 Click here for a copy of the court’s Nov. 1, 2012, order.
 Click here for a copy of the minutes of the court’s Nov. 13, 2012, hearing.

  • District Court Magistrate grants plaintiff’s motion to compel discovery related to defendants’ profits from motion picture Avatar, finding that defendants’ profits are an appropriate measure of damages for plaintiff’s breach of implied-in-fact contract claim under Ninth Circuit precedent interpreting California law.

Plaintiff Gerald Morawski brought suit against defendants, entities associated with the production and distribution of the 2009 blockbuster motion picture Avatar, asserting two breach of implied-in-fact contract claims based on his allegedly having met with director James Cameron and having submitted a one-page “conceptual summary” of a film project titled Guardians of Eden, which defendants allegedly used to make Avatar. Plaintiff sought discovery related to damages, including documents detailing profits from the film. Defendants asserted the discovery was irrelevant since plaintiff was not entitled to recover defendants’ profit but, at most, the market value of Guardians of Eden, as a measure of damages for an alleged breach of an implied-in-fact contract. After a hearing, the court granted plaintiff’s motion to compel the damages discovery, holding that, under Ninth Circuit precedent on damages for an implied-in-fact contract under California law, plaintiff was entitled to the discovery.

In its ruling, the court adopted the reasoning it set out in a previous order directing the parties to meet and confer in an attempt to resolve the outstanding discovery issues in advance of the scheduled hearing. In that Nov. 1, 2012, order, the court indicated that the discovery dispute centered around allowable damages for plaintiff’s breach of implied contract and agreed with plaintiff that he was entitled to discovery related to defendants’ profits from Avatar. “At this juncture, particularly during the discovery stage, information concerning profits appears relevant and necessary under the circumstances presented here.”

The court found the Ninth Circuit’s decision in Landsberg v. Scrabble Crossword Games Players, Inc., 802 F.2d 1193 (9th Cir. 1986), controlled on the issue of whether plaintiff might be entitled to a measure of lost profits as damages, rather than merely the market value of his work. In Landsberg, the Ninth Circuit held that the plaintiff, who had written an instructional book on Scrabble strategy, was entitled to the defendant’s profits from the publication of its strategy book, as a measure of damages for defendant’s breach of an implied-in-fact contract not to use plaintiff’s work without permission or compensation because the profits from the defendant’s exploitation of plaintiff’s work were the best measure of his loss – the inability to market his work as he saw fit. The district court noted that the Landsberg court also rejected the defendant’s arguments that profits were not a proper measure of damages either because third parties shared in some of the profits earned by the exploitation of the work and/or because the alleged “massive marketing power” of the defendant and the third party combined to result in far more sales that the plaintiff would have been able to accomplish on his own – arguments that the Avatar defendants had also asserted in the discovery dispute.

The defendants argued that even if profits were an appropriate measure of damages, plaintiff’s requests were overly broad and all plaintiff needed and should be entitled to were documents sufficient to establish defendants’ net profits from the motion picture. The court disagreed: “Net profit alone ... may not fully capture the entire mosaic of monies that flowed here.” The court also rejected defendants’ arguments that the confidentiality of the documents should shield them from production.

For more information, please contact Jonathan Zavin at jzavin@loeb.com or at 212.407.4161.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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