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Welles v. Turner Entertainment Co.

Court of Appeals for the Ninth Circuit
503 F.3d 728 (2007)
ELI5:

Rule of Law:

When a contract grants specific media rights, such as "motion picture and television rights," but reserves broad residual rights to the grantor before the invention of a new medium, the contract is ambiguous as to whether it includes rights in that new, unforeseen medium. This ambiguity necessitates an examination of extrinsic evidence to determine the parties' probable intent.


Facts:

  • On July 22, 1939, Orson Welles's production company, Mercury Productions, Inc. (Mercury), and RKO Radio Pictures, Inc. (RKO) entered into a Production Agreement for two motion pictures.
  • Section 13 of the Production Agreement granted RKO the "motion picture and television rights" for any original story created by Mercury for a film.
  • The same section reserved to Mercury the "publication, radio, dramatic and other rights" in any such original story.
  • On January 14, 1941, Mercury and RKO agreed that the first motion picture produced under the agreement would be based on an original story titled 'Citizen Kane'.
  • RKO released the motion picture 'Citizen Kane' on May 1, 1941.
  • On December 15, 1944, Welles, Mercury, and RKO executed an Exit Agreement that terminated the 1939 Production Agreement and a related Actor Agreement.

Procedural Posture:

  • Beatrice Welles, as successor in interest to Orson Welles and Mercury Productions, filed suit against Turner Entertainment Co. and others (as successors to RKO) in federal district court.
  • Welles sought, among other things, a declaratory judgment that she owned the home video rights to 'Citizen Kane' and sought an accounting of profits.
  • The defendants filed a motion for summary judgment on Welles's claims.
  • The district court granted summary judgment in favor of the defendants, holding that they owned the home video rights and that Welles was not entitled to an accounting.
  • Beatrice Welles, as appellant, appealed the district court's grant of summary judgment to the United States Court of Appeals for the Ninth Circuit.

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Issue:

Does a 1939 contract granting a studio the "motion picture and television rights" in an original screenplay, while reserving all "other rights" to the creator, unambiguously include the right to distribute the motion picture on home video, a medium not in existence at the time of the agreement?


Opinions:

Majority - Gould

No. A contract granting "motion picture and television rights" before the advent of home video does not unambiguously include the right to distribute the work in that new medium, particularly when the creator reserved broad residual rights. The contract's language is ambiguous, and its interpretation requires consideration of extrinsic evidence. The court's reasoning, applying New York law, is that the grant of rights to RKO was narrow. A broad interpretation of "motion picture rights" to include home video would render the specific, additional grant of "television rights" superfluous. The court found this situation analogous to 'Cohen v. Paramount Pictures Corp.', where a narrow license for theatrical and television exhibition did not extend to home video. Because Mercury retained broad, residual rights (publication, radio, dramatic, and "other rights") and RKO received only specific rights, it is unclear what the parties would have intended regarding a technology that did not yet exist. Therefore, the issue cannot be resolved on summary judgment and must be remanded for the factfinder to consider extrinsic evidence regarding the parties' intent.



Analysis:

This decision solidifies a 'neutral principles of contract interpretation' approach for new use cases, rejecting a default rule or presumption favoring either the licensee or the licensor. The court's analysis hinges on the specific contractual language, emphasizing the distinction between a narrow grant of rights and a broad reservation of rights. This case serves as a critical precedent in disputes over digital and home video rights for works created under older contracts, demonstrating that licensees without explicit 'future technologies' clauses face significant risk. The ruling encourages courts to meticulously examine the scope of granted versus reserved rights to infer what the parties would have intended had they contemplated the new technology.

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