Subafilms, Ltd. v. MGM-Pathe Communications Co.

• Decision Date: 13 May 1994
• Docket Number: Nos. 91-56248,MGM-PATHE,91-56379 and 91-56289,s. 91-56248
• Citation: 24 F.3d 1088,30 USPQ2d 1746
• Parties: , 1994 Copr.L.Dec. P 27,264, 30 U.S.P.Q.2d 1746 SUBAFILMS, LTD.; The Hearst Corp., Plaintiffs-counter-defendants-Appellees, v.COMMUNICATIONS CO., fka MGM/UA Communications Co. and as United Artists Corporation; MGM/UA Home Video, Inc.; Warner Home Video, Inc.; Warner Bros. Inc., Defendants-counter-claimants-Appellants. SUBAFILMS, LTD.; The Hearst Corp., Plaintiffs-Appellants, v.COMMUNICATIONS CO., fka MGM/UA Communications Co. and as United Artists Corporation; MGM/UA Home Video, Inc.; Warner Home Video, Inc.; Warner Bros. Inc.; United Artists Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1088

24 F.3d 1088

62 USLW 2709, 1994 Copr.L.Dec. P 27,264,

30 U.S.P.Q.2d 1746

SUBAFILMS, LTD.; The Hearst Corp., Plaintiffs-counter-defendants-Appellees, v. MGM-PATHE COMMUNICATIONS CO., fka MGM/UA Communications Co. and as United Artists Corporation; MGM/UA Home Video, Inc.;

Warner Home Video, Inc.; Warner Bros. Inc.,

Defendants-counter-claimants-Appellants.

SUBAFILMS, LTD.; The Hearst Corp., Plaintiffs-Appellants, v. MGM-PATHE COMMUNICATIONS CO., fka MGM/UA Communications Co. and as United Artists Corporation; MGM/UA Home Video, Inc.;

Warner Home Video, Inc.; Warner Bros. Inc.; United

Artists Corporation, Defendants-Appellees.

Nos. 91-56248, 91-56379 and 91-56289.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Feb. 24, 1994.

Decided May 13, 1994.

Louis P. Petrich, Leopold, Petrich & Smith, Los Angeles, CA, for defendants-counter-claimants-appellants United Artists Corp., MGM/UA Communications Co., MGM/UA Home Video, Inc., Warner Bros., Inc., and Warner Home Video, Inc.

Bertram Fields, Greenberg, Glusker, Fields, Claman & Machtinger, Los Angeles, CA, for plaintiffs-counter-defendants-appellees Subafilms, Ltd. and The Hearst Corp.

Appeal from the United States District Court for the Central District of California.

Before: WALLACE, Chief Judge, and BROWNING, TANG, POOLE, D.W. NELSON, BEEZER, HALL, BRUNETTI, KOZINSKI, THOMPSON and LEAVY, Circuit Judges.

Opinion by Judge D.W. NELSON.

D.W. NELSON, Circuit Judge:

In this case, we consider the "vexing question" ¹ of whether a claim for infringement can be brought under the Copyright Act, 17 U.S.C. Sec. 101 et seq. (1988), when the assertedly infringing conduct consists solely of the authorization within the territorial boundaries of the United States of acts that occur entirely abroad. We hold that such allegations do not state a claim for relief under the copyright laws of the United States.

Factual and Procedural Background

In 1966, the musical group The Beatles, through Subafilms, Ltd., entered into a joint venture with the Hearst Corporation to produce the animated motion picture entitled "Yellow Submarine" (the "Picture"). Over the next year, Hearst, acting on behalf of the joint venture (the "Producer"), negotiated an agreement with United Artists Corporation ("UA") to distribute and finance the film. Separate distribution and financing agreements were entered into in May, 1967. Pursuant to these agreements, UA distributed the Picture in theaters beginning in 1968 and later on television.

In the early 1980s, with the advent of the home video market, UA entered into several licensing agreements to distribute a number of its films on videocassette. Although one company expressed interest in the Picture, UA refused to license "Yellow Submarine" because of uncertainty over whether home video rights had been granted by the 1967 agreements. Subsequently, in 1987, UA's successor company, MGM/UA Communications Co. ("MGM/UA"), over the Producer's objections, authorized its subsidiary MGM/UA Home Video, Inc. to distribute the Picture for the domestic home video market, and, pursuant to an earlier licensing agreement, notified Warner Bros., Inc. ("Warner") that the Picture had been cleared for international videocassette distribution. Warner, through its wholly owned subsidiary, Warner Home Video, Inc., in turn entered into agreements with third parties for distribution of the Picture on videocassette around the world.

In 1988, Subafilms and Hearst ("Appellees") brought suit against MGM/UA, Warner, and their respective subsidiaries (collectively the "Distributors" or "Appellants"), contending that the videocassette distribution of the Picture, both foreign and domestic, constituted copyright infringement and a breach of the 1967 agreements. The case was tried before a retired California Superior Court Judge acting as a special master. The special master found for Appellees on both claims, and against the Distributors on their counterclaim for fraud and reformation. Except for the award of prejudgment interest, which it reversed, the district court adopted all of the special master's factual findings and legal conclusions. Appellees were awarded $2,228,000.00 in compensatory damages, split evenly between the foreign and domestic home video distributions. In addition, Appellees received attorneys' fees and a permanent injunction that prohibited the Distributors from engaging in, or authorizing, any home video use of the Picture.

A panel of this circuit, in an unpublished disposition, affirmed the district court's judgment on the ground that both the domestic and foreign distribution of the Picture constituted infringement under the Copyright Act. See Subafilms, Ltd. v. MGM-Pathe Communications Co., Nos. 91-56248, 91-56379, 91-56289, 1993 WL 39269 (9th Cir. Feb. 17, 1993). ² With respect to the foreign distribution of the Picture, the panel concluded that it was bound by this court's prior decision in Peter Starr Prod. Co. v. Twin Continental Films, Inc., 783 F.2d 1440 (9th Cir.1986), which it held to stand for the proposition that, although " 'infringing actions that take place entirely outside the United States are not actionable' [under the Copyright Act, an] 'act of infringement within the United States' [properly is] alleged where the illegal authorization of international exhibitions t[akes] place in the United States," Subafilms, slip op. at 4917-18 (quoting Peter Starr, 783 F.2d at 1442, 1443 (emphasis in original) (alterations added)). Because the Distributors had admitted that the initial authorization to distribute the Picture internationally occurred within the United States, the panel affirmed the district court's holding with respect to liability for extraterritorial home video distribution of the Picture. ³

We granted Appellants' petition for rehearing en banc to consider whether the panel's interpretation of Peter Starr conflicted with our subsequent decision in Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1582, 123 L.Ed.2d 149 (1993), which held that there could be no liability for authorizing a party to engage in an infringing act when the authorized "party's use of the work would not violate the Copyright Act," id. at 970; see also Columbia Pictures Indus., Inc. v. Professional Real Estate Investors, Inc., 866 F.2d 278, 279-81 (9th Cir.1989) (holding that a hotel was not liable under the Copyright Act for making available videodisc players for in-room viewing), rev'd on other grounds, --- U.S. ----, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993). Because we conclude that there can be no liability under the United States copyright laws for authorizing an act that itself could not constitute infringement of rights secured by those laws, and that wholly extraterritorial acts of infringement are not cognizable under the Copyright Act, we overrule Peter Starr insofar as it held that allegations of an authorization within the United States of infringing acts that take place entirely abroad state a claim for infringement under the Act. Accordingly, we vacate the panel's decision in part and return the case to the panel for further proceedings.

Discussion

I. The Mere Authorization of Extraterritorial Acts of Infringement does not State a Claim under the Copyright Act

As the panel in this case correctly concluded, Peter Starr held that the authorization within the United States of entirely extraterritorial acts stated a cause of action under the "plain language" of the Copyright Act. Peter Starr, 783 F.2d at 1442-43. Observing that the Copyright Act grants a copyright owner "the exclusive rights to do and to authorize" any of the activities listed in 17 U.S.C. Sec. 106(1)-(5), id. at 1442 (emphasis in original), ⁴ and that a violation of the "authorization" right constitutes infringement under section 501 of the Act, the Peter Starr court reasoned that allegations of an authorization within the United States of extraterritorial conduct that corresponded to the activities listed in section 106 "allege[d] an act of infringement within the United States," id. at 1442-43. Accordingly, the court determined that the district court erred "in concluding that 'Plaintiff allege[d] only infringing acts which took place outside of the United States,' " and reversed the district court's dismissal for lack of subject matter jurisdiction. Id. at 1443. ⁵

The Peter Starr court accepted, as does this court, ⁶ that the acts authorized from within the United States themselves could not have constituted infringement under the Copyright Act because "[i]n general, United States copyright laws do not have extraterritorial effect," and therefore, "infringing actions that take place entirely outside the United States are not actionable." Peter Starr, 783 F.2d at 1442 (citing Robert Stigwood Group, Ltd. v. O'Reilly, 530 F.2d 1096, 1101 (2d Cir.), cert. denied, 429 U.S. 848, 97 S.Ct. 135, 50 L.Ed.2d 121 (1976)). The central premise of the Peter Starr court, then, was that a party could be held liable as an "infringer" under section 501 of the Act merely for authorizing a third party to engage in acts that, had they been committed within the United States, would have violated the exclusive rights granted to a copyright holder by section 106.

Since Peter Starr, however, we have recognized that, when a party authorizes an activity not proscribed by one of the five section 106 clauses, the authorizing party cannot be held liable as an infringer. In Lewis Galoob, we rejected the argument that "a party can unlawfully authorize another party to use a copyrighted work even if that party's use of the work would not violate the Copyright Act," Lewis Galoob, 964 F.2d at 970, and approved of Professor Nimmer's statement that " 'to the extent that an activity does not violate one of th[e] five enumerated rights [found in 17 U.S.C. Sec. 106], authorizing such activity does not constitute...