Twentieth Century Fox Film Corp. v. Marvel Enter.

• Decision Date: 10 October 2001
• Docket Number: Docket No. 01-7983
• Citation: 277 F.3d 253
• Parties: (2nd Cir. 2002) TWENTIETH CENTURY FOX FILM CORPORATION, a Delaware Corporation, Plaintiff-Appellant, v. MARVEL ENTERPRISES, INC., a Delaware Corporation; TRIBUNE ENTERTAINMENT COMPANY, a Delaware Corporation; FIREWORKS COMMUNICATIONS, INC., a Delaware Corporation and FIREWORKS TELEVISION (US) INC., a Nevada Corporation, Defendants-Appellees. Argued:
• Court: U.S. Court of Appeals — Second Circuit

Page 253

277 F.3d 253 (2nd Cir. 2002)

TWENTIETH CENTURY FOX FILM CORPORATION, a Delaware Corporation, Plaintiff-Appellant, v. MARVEL ENTERPRISES, INC., a Delaware Corporation; TRIBUNE ENTERTAINMENT COMPANY, a Delaware Corporation; FIREWORKS COMMUNICATIONS, INC., a Delaware Corporation and FIREWORKS TELEVISION (US) INC., a Nevada Corporation, Defendants-Appellees.

Docket No. 01-7983

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: October 10, 2001

Decided: January 14, 2002

Appeal from the August 13, 2001, order of the United States District Court for the Southern District of New York (Allen G. Schwartz, District Judge), denying a motion for a preliminary injunction sought under a breach of contract claim and a Lanham Act claim.

Denial of preliminary injunction affirmed; case remanded for further consideration of Lanham Act claim.

Dale M. Cendali, O'Melveny & Myers LLP, New York, N.Y., for plaintiff-appellant.

Jonathan D. Reichman, New York, N.Y. (Dana R. Kaplan, John R. Hutchins, Kenyon & Kenyon, New York, N.Y., on the brief), for defendant-appellee Marvel Enterprises, Inc.

Maura J. Wogan, New York, N.Y. (Gerald E. Singleton, Edward Hernstadt, Frankfurt Garbus Kurnit Klein & Selz, P.C., New York, N.Y., on the brief), for defendant-appellee Tribune Entertainment Company.

Steven H. Rosenfeld, Jason A. Advocate, Ohrenstein & Brown, LLP., Garden City, N.Y., signed, on behalf of defendants-appellees Fireworks Communications, Inc., and Fireworks Television (US) Inc., the joint brief for all defendants-appellees.

Before: NEWMAN and CABRANES, Circuit Judges, and CARMAN,^* Chief Judge, United States Court of International Trade.

JON O. NEWMAN, Circuit Judge.

This appeal, raising issues concerning the rights of a trademark licensee, arises from a dispute between the motion picture studio that produced the film "X-Men" and the studio's licensor, which has published "X-Men" comic books and currently produces the television series, "Mutant X." Plaintiff-Appellant Twentieth Century Fox Film Corp. ("Fox") appeals from the Opinion and Order of the United States District Court for the Southern District of New York (Allen G. Schwartz, District Judge), entered August 13, 2001, denying a motion for a preliminary injunction to prevent the Defendants-Appellees Marvel Enterprises, Inc. ("Marvel"), Tribune Entertainment Co. ("Tribune"), and Fireworks Communications, Inc. and Fireworks Television (US), Inc. (collectively, "Fireworks") from airing the "Mutant X" television series, at least in its current form. The injunction was sought on the grounds that the TV series violated Fox's contractual rights and its rights under the Lanham Act. The ruling also dismissed Fox's Lanham Act claims. We conclude, contrary to the District Court, that a trademark licensee can sue its licensor for false advertising of the licensor's product, but we also conclude that the District Court did not err in denying the preliminary injunction. We therefore affirm the denial of the preliminary injunction but remand for further proceedings consistent with this opinion.

Background

The Parties. Fox is a Delaware corporation with its principal place of business in Los Angeles, California. Fox creates, produces, distributes, and markets throughout the world motion pictures and television shows, and goods, merchandise, and other products relating to such motion pictures and television shows. Marvel is one of the leading comic book/entertainment companies in the world, and is the largest publisher of comic books in the United States. Marvel's character-based entertainment business includes a proprietary library of over 4,500 characters. Marvel uses or licenses the use of its properties and characters on products, for special events, and in connection with animated and live action television series, television motion pictures, and theatrical film features.

The "X-Men" Property. In 1963, Marvel began publishing a comic book series entitled "X-Men," featuring a group of young, superpowered mutants led by Professor X, an older, superintelligent leader who sought to train his students and to protect them from a hostile society. Marvel has since released several dozen comic book series associated with the X-Men, including "Mutant X," which features the brother of one of the original X-Men.

The 1993 Agreement. In October 1993, Marvel and Fox signed an agreement (the "1993 Agreement") pursuant to which Marvel licensed to Fox all the rights that Fox may require in order to produce, distribute, exploit, advertise, promote, and publicize theatrical motion pictures based on the "X-Men" comic book series. The "X-Men" comic book series, referred to in the Agreement as the "Property," includes the X-Men Characters, specifically the "core" Characters and the Characters of the "X-Universe"; their origin stories; storylines from individual comic books; and "all other elements relating to the Property and the Characters." The rights granted to Fox included "the right to use the title (or subtitle or portion of the title) of the Property or any component of the Property as the title of any Picture or related exploitation." The Agreement reserved all television rights to Marvel, subject to a proviso, critical to Fox's pending contract claim, that Marvel would not "produce, distribute or exploit or authorize the production, distribution or exploitation of any live-action motion picture" without Fox's consent (the "Freeze").

The "Mutant X" Comic Books. In November 1998, Marvel began publishing a comic book series called "Mutant X," which featured a character known both as Havok and Alex Summers, the brother of one of the original X-Men characters, known both as Cyclops and Scott Summers. The "X-Men" Film. In 1999, Fox exercised the option granted by the 1993 Agreement and began shooting a motion picture entitled "X-Men." On July 14, 2000, the "X-Men" movie was released in theaters nationwide. Fox estimates that gross receipts from the film have totaled more than $290 million, not including earnings from the sales of videotapes, DVDs, and associated merchandising.

The "Mutant X" TV Series. In the summer of 2000, Marvel and Tribune entered into an agreement to develop a live-action television series, originally to be called "Genome X" and then changed to "Mutant X," involving characters that were the product of genetic splicing experiments gone awry. In November 2000, Tribune and Fireworks agreed to cooperate on the financing, production, and distribution of the TV series.

The Instant Action. In April 2001, Fox filed the instant lawsuit, claiming that the Defendants violated its intellectual property rights in the "X-Men" film and associated marketing and branding efforts by marketing and producing the "Mutant X" television series, whose concept, premise, and characters Fox alleges are virtually identical to those of the "X-Men" film. Further, Fox claims that in violating the contractual "Freeze," Marvel has created a "knock-off" product to "cash in" on Fox's efforts, thereby cheapening the value of Fox's film and associated marketing opportunities, inducing purchasers of TV programming and the public to believe that the "Mutant X" TV series is associated with Fox's film, and diminishing the market for Fox's planned sequel(s) to the "X-Men" film.

Fox sued for (1) breach of contract against Marvel, (2) breach of implied covenant of good faith and fair dealing against Marvel, (3) tortious interference with contractual relations against Tribune and Fireworks, (4) unfair competition and/or false designation of origin under section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), against all Defendants, (5) copyright infringement against all Defendants, (6) deceptive trade practices against all Defendants, and (7) common law unfair competition against all Defendants.

Fox filed a motion for a preliminary injunction, and the Defendants filed a motion to dismiss. The District Court (1) declined to dismiss the breach of contract claim, ruling that a significant factual dispute existed as to the scope of the rights under the contract; (2) dismissed the claim for breach of the implied covenant of good faith and fair dealing, as duplicative of the contract claim; (3) dismissed the tortious interference with contract claim for failing to allege the required elements; (4) dismissed the Lanham Act claim on the ground that a trademark licensee has no goodwill in the licensed trademark, and therefore has no standing to sue; (5) declined to dismiss the copyright claim, finding that Fox sufficiently alleged the elements of a copyright cause of action with respect to its logos; (6) dismissed the common law unfair competition claim, because any misappropriation claim is preempted by the copyright laws, and any false designation/false advertising claim is precluded for the same reason as the Lanham Act claim; and (7) dismissed the deceptive trade practices claim, because no harm to the public is alleged or reflected in the record. See Twentieth Century Fox Film Corp. v. Marvel Enterprises, Inc., 155 F. Supp. 2d 1 (S.D.N.Y. 2001).

As to the motion for a preliminary injunction, the District Court held that Fox was likely to prevail on its breach of contract claim as to Marvel's use of the proposed title of the TV series, but not as to the characters or storylines, and that even as to the title, Fox had failed to show irreparable harm warranting a preliminary injunction. As to the copyright claim, the court granted a preliminary injunction prohibiting the Defendants from using video clips of the "X-Men" film in the promotion of the TV series, and prohibiting use of a substantially similar logo.

Fox appeals from the denial of its request for a broader preliminary injunction in aid of both its contract and Lanham Act claims. Fox also seeks reversal of the District Court's dismissal of the Lanham Act claim.

Discussion

Our appellate jurisdiction is properly invoked under 28 U.S.C....