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Warner Brothers International Television Distribution v. Golden Channels & Co.

In a breach of contract case between a cable company in Israel and Warner Brothers International Television Distribution, the Ninth Circuit reversed the district court’s damages award of $19,315,960 to Warner Brothers, finding that neither party breached the licensing agreement even though they failed to agree on the terms for a renewal period. The damages were based on Warner Brothers’ claims of lost profits through the purported renewal period.

Warner Brothers International Television Distribution had been supplying content to Golden Channels for several years according to yearly agreements. In 1999, the parties entered into a 30-month agreement that required Golden Channels to provide a $5 million letter of credit to Warner Brothers which was to remain in place through May 31, 2002, “only”. The agreement gave Warner Brothers the right to renew the agreement at its option, but also stated that if Warner renewed, the parties would discuss the appropriate amount of security for the renewal period.

Warner Brothers gave notice that it renewed the agreement and the parties began negotiations about lowering the licensing fees and about the amount of security that would be required. Because of the operations of Golden Channels’ bank, Golden Channels instructed the bank to maintain the letter of credit through July, 2003, but did not promise Warner Brothers that it would provide a $5 million letter of credit for the renewal period.

Negotiations failed and in December, 2002, Golden requested the return of the letter of credit and offered to pay for all programming already received to that date, and to terminate the agreement. Warner filed suit, claiming that Golden Channels breached the contract by requesting the return of the letter of credit and for not paying for programming through the entire renewal period.

The district court found that the parties had created an implied in fact contract that Golden breached and that Golden should be estopped from requesting the return of its letter of credit because it knew that Warner was adamant about the maintenance of the $5 million security.

The Ninth Circuit reversed. The court held that “[m]utual assent is essential to an implied contract, the distinction from an express contract being merely that the promise is implied by conduct rather than expressed in words.” The court found that the contract only required the parties to discuss the appropriate amount of the security for the renewal term, which they did, and it required Golden Channels to provide the letter of credit through May 31, 2002, which it did, so neither party breached the licensing agreement, which in fact had terminated. The court remanded with instructions to the district court to find damages for Warner Brothers only in the amount due for actual performance rendered.