Lulirama Ltd., Inc. v. Axcess Broadcast Services, Inc., 96-10892

• Decision Date: 10 November 1997
• Docket Number: No. 96-10892,96-10892
• Citation: 128 F.3d 872
• Parties: 1998 Copr.L.Dec. P 27,716, 44 U.S.P.Q.2d 1731 LULIRAMA LTD., INC.; Spencer Michlin, Plaintiffs-Counter Defendants-Appellants-Cross-Appellees, v. AXCESS BROADCAST SERVICES, INC., Defendant-Counter Claimant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 872

128 F.3d 872

1998 Copr.L.Dec. P 27,716, 44 U.S.P.Q.2d 1731

LULIRAMA LTD., INC.; Spencer Michlin, Plaintiffs-Counter Defendants-Appellants-Cross-Appellees, v. AXCESS BROADCAST SERVICES, INC., Defendant-Counter Claimant-Appellee-Cross-Appellant.

No. 96-10892.

United States Court of Appeals Fifth Circuit.

Nov. 10, 1997.

Michael Lowenberg, Steven E. Ross, Akin, Gump, Strauss, Hauer & Feld, Dallas, TX, for Lulirama Ltd., Inc., and Michlin.

John B. Schorsch, Jr., Mastrogiovanni & Schorsch, Dallas, TX, Paul V. Storm, Dallas, TX, John A. Harre, Fish & Richardson, Boston, MA, for Axcess Broadcast Services, Inc.

Appeals from the United States District Court for the Northern District of Texas.

Before POLITZ, Chief Judge, KING, Circuit Judge, and DUPLANTIER, ^* District Judge.

KING, Circuit Judge:

Plaintiffs-Appellants Lulirama Ltd., Inc. and Spencer Michlin appeal the district court's denial of their motion for summary judgment and partial grant of the summary judgment motion filed by Defendant-Appellee Axcess Broadcast Services, Inc. Axcess appeals the district court's refusal to impose sanctions on Lulirama and Michlin pursuant to Rule 11 of the Federal Rules of Civil Procedure. We affirm in part and vacate and render in part.

I. FACTUAL AND PROCEDURAL BACKGROUND

In November 1991, Lulirama Ltd., Inc. ("Lulirama") and Axcess Broadcasting Services, Inc. ("Axcess") entered into a one-year business arrangement (the "Jingle Writing Agreement") in which Lulirama's president Spencer Michlin, through Lulirama, was to write and provide Axcess with fifty advertising jingles at a rate of $750 per jingle, for a total of $37,500. One third of the price was to be paid up front, with the remainder paid in four installments. Michlin's services were to be provided on a confidential basis, and he was not to provide similar services to any company selling musical advertising through radio and television stations during the time period covered by the agreement. The Jingle Writing Agreement is memorialized in a one-page billing statement signed by both parties. The statement contains handwritten notations added by Axcess which specify that the work is "for hire," that the jingles are to be delivered at a rate of thirteen per quarter, and that they must be approved by Otis Conner, the president of Axcess. Axcess timely paid Lulirama under this agreement, but Lulirama provided only seven jingles.

In April 1992, Lulirama, Michlin, and Axcess entered a written license agreement (the "Promotional License Agreement") that gave Axcess the right to use any musical works in which Lulirama or Michlin could "claim ownership or other right, title or interest, whatsoever" for demonstration and promotional purposes at client meetings for product development. In return, Axcess was to pay Lulirama $1,000 per month for the first two years and $1,500 per month thereafter. The term of the Promotional License Agreement was one year, but it was automatically renewable for up to four years at the discretion of Axcess.

In March 1993, the parties orally extended the Jingle Writing Agreement for an indefinite period of time. Axcess was to pay Lulirama $50,000 per year in monthly installments of $4,166, based on a rate of $1,000 per jingle. The parties terminated the Jingle Writing Agreement as extended in June 1994.

From March 1993 to June 1994, Axcess paid Lulirama approximately $66,658 in monthly installments of $4,166, but Lulirama provided only twenty-nine songs. Axcess subsequently sought to have some of the money it had paid to Lulirama refunded, or, in the alternative, to have Lulirama provide it with the jingles that Axcess claimed it was due under the Jingle Writing Agreement.

Axcess sued Lulirama and Michlin in Texas state court in December 1994. The state district court granted summary judgment in favor of Axcess on a breach of contract theory and ordered Lulirama to refund some of its money to Axcess based on Lulirama's failure to provide songs due under the Jingle Writing Agreement. See Axcess Broadcast Servs. v. Michlin, No. 94-12703 (192d Dist. Ct., Dallas County, Tex. June 9, 1995). Lulirama appealed, and the Dallas court of appeals reversed the state district court's entry of summary judgment while the federal case was pending before this court. See Lulirama Ltd. v. Axcess Broadcast Servs., No. 05-95-01212-CV, 1996 WL 743774 (Tex.App.--Dallas Dec. 31, 1996).

On October 31, 1995, Lulirama and Michlin ¹ filed suit against Axcess in federal district court, asserting thirty-six claims of copyright infringement. Lulirama alleged that, without proper authorization, Axcess reproduced the jingles, prepared derivative jingles, distributed copies of the jingles, and authorized others to perform the jingles in violation of Lulirama's copyrights. Axcess answered, asserting several affirmative defenses and alleging that it owned the copyrights to all of the jingles. Axcess also filed a counterclaim asserting a fraud claim and a claim for declaratory judgment that Axcess owned the copyrights to all of the jingles or, in the alternative, that it had "a continuing, unqualified license for the unlimited use" of the jingles.

Axcess filed a motion for summary judgment, and Lulirama filed a motion for partial summary judgment. Axcess also filed a motion for Rule 11 sanctions on the grounds that Lulirama's complaint lacked a legal basis and was filed for improper purposes. The court granted in part and denied in part Axcess's motion, dismissed its fraud claim, and denied Lulirama's motion for partial summary judgment. Specifically, the district court held that Lulirama's copyright infringement claims were barred by res judicata, ² that Axcess owned the copyrights in the first seven jingles, and that Lulirama owned the copyrights in the subsequent twenty-nine jingles. The district court held, however, that Axcess had an oral or implied license to use the twenty-nine songs ³ and that Axcess had not exceeded the scope of the license. ⁴ The district court also denied Axcess's motion for Rule 11 sanctions. Lulirama timely appealed and Axcess cross-appealed.

II. DISCUSSION

Lulirama challenges the district court's conclusions (1) that Axcess owns the copyrights to the seven jingles that Lulirama provided to Axcess during the first year of the Jingle Writing Agreement and (2) that Axcess has an implied or oral license to use the twenty-nine jingles that Lulirama provided to Axcess after the first year of the Jingle Writing Agreement. Axcess appeals the district court's denial of its motion for Rule 11 sanctions against Lulirama for filing a meritless lawsuit for improper purposes. We address each of these issues in turn.

A. Summary Judgment

1. Standard of Review

"We review a grant of summary judgment de novo, applying the same criteria used by the district court in the first instance." Texas Manufactured Housing Ass'n v. City of Nederland, 101 F.3d 1095, 1099 (5th Cir.1996), cert. denied, --- U.S. ----, 117 S.Ct. 2497, 138 L.Ed.2d 1003 (1997). Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554-55, 91 L.Ed.2d 265 (1986).

2. Analysis

a. Copyright ownership of the first seven jingles

The district court concluded that Axcess owned the copyrights to the first seven jingles that Lulirama produced under the Jingle Writing Agreement on the ground that these jingles were works for hire within the meaning of the Copyright Act of 1976, Pub.L. No. 94-553, 90 Stat. 2541 (1976) (codified as amended in scattered sections of 17 U.S.C.).

Under the Copyright Act, copyright ownership "vests initially in the author or authors of the work." 17 U.S.C. § 201(a). "As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection." Community for Creative Non-Violence v. Reid, 490 U.S. 730, 737, 109 S.Ct. 2166, 2171, 104 L.Ed.2d 811 (1989). However, the Act creates an exception to this general rule that authorship vests in the creator for "works made for hire." See 17 U.S.C. § 201(b). Section 201(b) of the Act provides:

In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.

Id. Section 101 defines a "work made for hire" as follows:

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Id. § 101. The two parts of this working definition are mutually exclusive: the first part applies to works created by employees; the second applies to works created by independent contractors. See Reid, 490 U.S. at 742-43, 109 S.Ct. at 2173-74. The district court concluded that Lulirama acted as an independent contractor for Axcess in providing the jingles pursuant to the Jingle Writing Agreement, and none of the parties dispute this conclusion.

The district court determined that the jingles written pursuant to the Jingle Writing Agreement during the first year of the agreement fit the second prong of the Copyright Act's definition of "works made for hire." In...