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Beholder Productions, Inc. v. Catona, et al.

Court held that plaintiff had granted an implied license to defendants and granted summary judgment for defendants, noting that in the Third Circuit, an implied license is an affirmative defense to a claim of copyright infringement

The court granted summary judgment for defendants, dismissing plaintiff’s copyright infringement suit. Finding that defendants requested creation of the work, plaintiff delivered the work, and plaintiff intended for defendants to copy and distribute the work, the court held that plaintiff gave defendants an implied license in the work. The court reached this result in spite of a written contract between the parties that reserved all rights in the product to plaintiff until payment was complete.

In December, 2004, defendant Fred Catona approached plaintiff Beholder Productions, Inc. to find out whether Beholder would be interested in producing DVDs, CDs, and other materials for a voice lesson program titled The Ultimate Voice Coach. Beholder agreed and entered into a written contract with Catona to produce the materials. Catona, on behalf of himself and all other defendants, agreed to pay Beholder a $25,000 “Production Budget Estimate Sum,” a 25% mark-up of the production, a 5% commission of Catona’s royalties, and additional expenses. The contract stated that “[a]ll rights to the final productions are reserved to Beholder Productions, Inc. until all payments have been made.”

By February, 2005, Beholder had delivered Ultimate Voice Coach DVDs and CDs to Catona for his approval. Beholder admitted that, in delivering these materials, it expected Catona and defendant Gotham Distributing Corporation to copy and distribute the Ultimate Voice Coach products to customers. In March, 2005, Beholder completed delivery of the finished products and sent Catona an invoice. Defendants paid Beholder an initial payment of $25,300, but refused to pay an additional $72,689.12, as provided in the contract, as well as $3,279.50 in claimed royalties.

Beholder initially filed a copyright infringement claim, joined with claims for breach of contract and unjust enrichment, in federal court. The district court dismissed Beholder’s copyright claim, because Beholder had not filed for copyright registration of the subject work, and remanded the other two claims to state court. Beholder subsequently acquired Certificates of Copyright Registration for the Ultimate Voice Coach works and refiled its copyright claim in federal court.

Here, defendants moved for summary judgment on plaintiff’s copyright infringement claim on the ground that Beholder granted defendants an implied license in the Ultimate Voice Coach materials. Under the law of the Third Circuit, an implied license is an affirmative defense to copyright infringement. The court granted defendants’ motion and dismissed Beholder’s infringement action, citing the Ninth Circuit’s Effects Associates decision for the rule of law applicable in this situation. See Effects Assocs. v. Cohen, 908 F.2d 555 (9th Cir. 1990). Under the three-pronged test established in Effects Associates, an implied license is granted if “1) a person (the licensee) requests the creation of a work, 2) the creator (the licensor) makes that particular work and delivers it to the licensee who requested it, and 3) the licensor intends that the licensee-requestor copy and distribute [the] work.”

Applying the Effects Associates test to the facts of this case, the court found that Beholder had granted the defendants an implied license in the Ultimate Voice Coach materials. First, the licensee, in this case Catona acting on behalf of all the defendants, requested that Beholder create the Ultimate Voice Coach DVDs, CDs, and other materials. Second, the licensor, Beholder, created the requested works and delivered them to the licensee defendants. Third, licensor Beholder delivered the works intending that defendants copy and distribute the Ultimate Voice Coach materials.

The court rejected Beholder’s argument that the terms of the contract between Beholder and defendants rendered Effects Associates inapplicable. Beholder argued that the clause “no copyrights will be transferred until Beholder is paid in full” acted as a condition precedent to grant of an implied license and that, by withholding payment, defendants had not satisfied that condition. The court reasoned that Beholder’s retention of copyright ownership does not preclude granting of an implied license because “an implied license . . . does not amount to a transfer of ownership. . . . Implied licenses enable a distributor to market a product while the creator maintains ownership of that product’s copyright.” The court also stated that, as in Effects Associates, the licensor in this case did not tell the licensee that failure to pay would constitute copyright infringement. To the contrary, Beholder gave defendants the product “knowing that they intended to market and distribute it and never told them not to do so.”