Gardner v. Nike, Inc., CV-99-12700 LGB.

• Decision Date: 31 July 2000
• Docket Number: No. CV-99-12700 LGB.,CV-99-12700 LGB.
• Citation: 110 F.Supp.2d 1282
• Parties: Michael GARDNER, an individual, and Bien Licensing Agency, Inc., a California Corporation, Plaintiffs, v. NIKE, INC., an Oregon corporation, and Sony Music Entertainment, Inc., a Delaware corporation, Defendants.
• Court: U.S. District Court — Central District of California

110 F.Supp.2d 1282

Michael GARDNER, an individual, and Bien Licensing Agency, Inc., a California Corporation, Plaintiffs, v. NIKE, INC., an Oregon corporation, and Sony Music Entertainment, Inc., a Delaware corporation, Defendants.

No. CV-99-12700 LGB.

United States District Court, C.D. California.

July 31, 2000.

Herbert Hafif, Michael G Dawson, Larry A Sackey, Herbert Hafif Law Offices, Claremont, CA, for Michael NMI Gardner, Bien Licensing Agency Inc.

C Dennis Loomis, James Douglas Weiss, Troop Steuber Pasich Reddick & Tobey, Los Angeles, CA, for Nike Inc, an Oregon Corporation, defendant.

ORDER GRANTING DEFENDANT NIKE'S MOTION FOR SUMMARY JUDGMENT

BAIRD, District Judge.

I. INTRODUCTION

Plaintiffs Michael Gardner and Bien Licensing Agency, Inc. bring this action for declaratory relief against Nike. Nike moved for summary judgment arguing that plaintiffs do not have standing to bring this action.

II. FACTUAL AND PROCEDURAL BACKGROUND

In 1992, Nike and Sony entered into a licensing agreement. That licensing agreement granted Sony certain specific rights to a Nike-created cartoon character — MC Teach.¹ Both parties agree that the agreement contemplated an exclusive license. (See Pl.'s Statement of Genuine Issues ¶ 7.) Subsequently, Sony transferred all its rights in the exclusive license to plaintiff Gardner. As a result, Gardner, through its exclusive licensing agent, Bien Licensing Agency, Inc., started making use of the character on various products.

As a result of plaintiffs' use of the character on educational materials, Nike has threatened legal action against plaintiffs and their proposed licensees. As a result of such threats, plaintiffs first filed suit in state court seeking declaratory relief, alleging slander of title and intentional interference with economic relations. Subsequently, plaintiffs voluntarily agreed to dismiss their tort causes of action, leaving only the action for declaratory relief. However, at the eve of trial, the state court dismissed the action without prejudice for lack of subject matter jurisdiction.

On December 3, 1999, plaintiffs filed their cause of action in this Court seeking declaratory relief. Plaintiffs filed their suit against Nike and Sony. However, Sony is intended to be an involuntary plaintiff (and not a defendant) and the parties stipulated to such treatment. The parties and Sony have further agreed that Sony is not required to participate actively in the litigation and will abide by the Court's ultimate judgment, subject to receiving notice and having an opportunity to be heard concerning such judgment.

On June 5, 2000, Nike filed the instant motion for summary judgment. In this motion, Nike claims that the case must be dismissed because plaintiffs do not have standing to sue. First, Nike argues that Bien Licensing Agency, Inc. does not have standing to sue because as an agent of Gardner, it does not have standing to sue on its principal's contract with a third party. Similarly, to the extent that Gardner predicates his standing on his agency relationship with Sony, Nike argues that he too lacks standing. Additionally, Nike argues that Gardner and Bien also do not have standing to bring this action because Sony's assignment of rights under the Nike exclusive license was invalid. In their opposition, plaintiffs do not address the agency argument, and thus neither will the Court. Rather, plaintiffs argue that under the 1976 Copyright Act, an exclusive licensee such as Sony can freely assign its rights in the license to a third party such as Gardner, without the original licensor's consent. Also on June 5, 2000, plaintiffs filed their own motion for summary adjudication. That motion also hinges on the same argument — namely, whether plaintiffs have standing to bring this action. Thus, the Court addresses both motions in this Order.

III. STANDARD

Rule 56 of the Federal Rules of Civil Procedure provides that a court shall grant a motion for summary judgment 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). Material facts are those that may affect the outcome of the case. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the nonmoving party. See id.

IV. ANALYSIS

As briefed by the parties, the determinative issue here is whether the 1976 Copyright Act allows Sony to transfer its rights under an exclusive license lacking the original licensor's consent. If the assignment is valid, then plaintiffs may bring this action. However, if the assignment is not, then judgment must be entered in defendant's favor. The essential facts here are undisputed. Nike gave Sony an exclusive license to use a copyrighted character ("the MC Teach character") for defined and limited purposes. All parties agree that the license was exclusive. (Pl.'s Statement of Genuine Issues ¶ 7.) Sony subsequently granted plaintiff Gardner all its rights under the license. (Pls.' Statement of Genuine Issues ¶ 2.) In other words, Sony "sub-licensed" or transferred its rights under the license to Gardner. Nike never gave explicit consent to the transfer of rights. (Pls.' Statement of Genuine Issues ¶ 5.) Nike claims that this sub-license or transfer, lacking Nike's consent, is invalid. Because such sub-license is invalid, Nike claims that plaintiffs do not have any ownership interest in the copyright and thus do not have standing to bring this suit. Plaintiffs argue, however, that under the Copyright Act of 1976, Sony may transfer its rights to the copyright, regardless of Nike's consent, because the exclusive license made Sony an "owner" under the Act. As an "owner," Sony was thus able to transfer whatever right it had under 17 U.S.C. § 201(d).

As evidenced by the parties' papers, the sole disagreement at this juncture is the interpretation of 17 U.S.C. § 201. Section 201 provides that:

(d) Transfer of Ownership. —

(1) The ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law, and may be bequeathed by will or pass as personal property by the applicable laws of intestate succession.

(2) Any of the exclusive rights comprised in a copyright, including any subdivision of any of the rights specified by section 106, may be transferred as provided by clause (1) and owned separately. The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title.

17 U.S.C. § 201(d). Defendant contends that the section does not confer upon Sony (the licensee) the right to assign the license. Rather, defendant argues that this section only confers upon Sony the "protections and remedies" of a copyright owner — namely, the right to sue and defend suits in its own name. Because Sony may not be viewed as an "owner" for purposes of assignability, Nike argues that Sony must obtain Nike's permission before assigning its license to anyone.²

A. The 1909 Copyright Act

As the parties noted, this is a case of first impression under the 1976 Copyright Act. Under the 1909 Copyright Act, the instant issue would have been easily resolved because, under that Act, a licensee (whether exclusive or not) "had no right to resell or sublicense the rights acquired unless he has been expressly authorized so to do." 3 Nimmer, Nimmer on Copyright § 10.01[C][4] (1999) (citing Harris v. Emus Records Corp., 734 F.2d 1329 (9th Cir.1984) (interpreting the 1909 Copyright Act)). The reasoning behind such rationale was that under the 1909 Act, a copyright owner could not assign "anything less than the totality of rights commanded by copyright." Nimmer, supra § 10.01[A]. Thus, a transfer of anything less than such a totality was considered a license. See Nimmer, supra § 10.01[A].

"The purpose of such indivisibility was to protect alleged infringers from the harassment of successive law suit. This result was achieved because only the copyright proprietor (which would include an assignee but not a licensee) had standing to bring an infringement action." See Nimmer, supra § 10.01[A]. This indivisibility doctrine created several problems for copyright licensees. First, because such licensee (whether exclusive or not) did not acquire ownership rights, she could not bring an infringement action unless the copyright proprietor was joined. See Nimmer, supra § 10.01[C][1]. The second problem arose "by reason of the rule that statutory copyright in a theretofore unregistered work was obtained by publication bearing a copyright notice in the name of the copyright owner." See Nimmer, supra § 10.01[C][2]. Thus, if an author of an unpublished article granted a magazine publisher only the right to reproduce the article in magazine form (which made the publisher a licensee, not a proprietor), and the magazine only carried a notice bearing the name of the magazine publisher, then the author's work was published without a valid notice in the name of the work's proprietor, and thus became part of the public domain. See Nimmer, supra § 10.01[C][1]. Third, because the Act only provided for the recording of "assignments," the indivisibility doctrine prevented (at least in theory) exclusive licensees from registering their license. See Nimmer, supra § 10.01[C][3]. Fourth, the rules relating to formalities and presence of consideration differed based on whether the "transfer" was a license or assignment. See Nimmer, supra § 10.01[C][5]. Licenses, even if exclusive, did not need to be in written form in order to be valid. See Nimmer, supra § 10.01[C][5]. In contrast, however, licenses were revocable in the absence of...