California appellate court reverses trial court denial of summary judgment, ruling that Disney was not required to pay royalties to heirs of “The Bare Necessities” songwriter Terry Gilkyson for use of certain songs in home entertainment releases of The Jungle Book because contracts between Disney and Gilkyson unambiguously provided that Gilkyson only had right to royalties arising from songs’ mechanical reproduction and Disney’s music publishing subsidiary received no payment for such use.
This case arises out of Disney’s home entertainment releases of the 1967 animated film The Jungle Book, featuring the song “The Bare Necessities” by Terry Gilkyson. The California Court of Appeal ruled that Disney Enterprises, Inc., and its music publishing subsidiary Wonderland Music Company, Inc., were not required to pay royalties to Gilkyson’s heirs for the use of Gilkyson-composed songs in certain home entertainment releases of The Jungle Book. The court held that the express language of the contracts with Gilkyson granted Disney sole discretion to decide how to exploit the material and that Gilkyson had a right to royalties only from Disney’s exploitation of the songs’ mechanical reproduction rights if Wonderland received payment for that exploitation.
The agreements between Disney and Gilkyson dated back to 1963, when Walt Disney Productions (Disney Enterprises’ predecessor-in-interest) commissioned Gilkyson to write songs for potential use in The Jungle Book. Only “The Bare Necessities” was used in the film itself, but demo recordings of six other Gilkyson-composed songs were included as bonus features in certain home entertainment releases of The Jungle Book, including on VHS, DVD and Blu-ray, beginning in 1991. The contract for each song provided that Gilkyson’s material was written for Disney as a work for hire and authorized Disney to assign the material to Wonderland, its wholly owned subsidiary.
With respect to royalties, the contracts provided that Gilkyson had the right to royalties from Disney’s exercise of the mechanical reproduction rights but not from the exercise of the performance rights, such as the use of the songs in a motion picture. Specifically, the contracts excluded Gilkyson’s rights to “all revenue . . . paid to [Disney] by virtue of the exercise of the grand rights, dramatic rights, television rights and other performance rights, including the use of the material in motion pictures . . . , merchandising, television, radio and endeavors of the same or similar nature.” Although Wonderland paid Gilkyson and his heirs royalties for licensing “The Bare Necessities” for audio-only sales and sheet music sales over the years, it paid no royalties when The Jungle Book was released in video formats for home entertainment.
The Gilkyson heirs sued Disney in 2013, alleging breach of contract for failure to pay royalties in connection with some of these home entertainment releases. After litigation over the issue of whether plaintiffs’ claims were time-barred, Disney moved for summary judgment, arguing that the term “mechanical reproduction” solely refers to “audio-only uses and not to audiovisual uses such as in motion picture or other uses involving sound and images, whether on film or on digital formats such as DVDs.” Disney argued that a license for use in an audiovisual format is a separate license, known as a “synchronization” or “synch” license, and that since the challenged uses were on audiovisual media, they were not mechanical reproductions that bear royalties. The Gilkyson heirs countered that synch rights are a subset of mechanical reproduction rights and that it would be a breach of contract for Disney to have allowed Disney affiliates other than Wonderland to benefit from Gilkyson-composed songs without paying royalties to his heirs.
After the trial court denied Disney’s motion for summary judgment, the Gilkyson heirs asserted at trial that Wonderland “should have” charged its affiliated home entertainment division for the various uses of Gilkyson-composed songs. The jury awarded damages of $350,000, and the court awarded an additional $699,316 as damages for future royalties.
On appeal, the California Court of Appeal held that absent any conflict in extrinsic evidence, the court reviews issues regarding the proper interpretation of a contract de novo, and that the fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time of contracting. The appeals court made clear that it must interpret the parties’ intent according to objective, rather than subjective, criteria and solely by reference to the plain language of the agreements. The court must also give effect to all of a contract’s provisions and give meaning to the contracting parties’ choice of language.
Disney argued that its contracts with Gilkyson limit the heirs’ royalty rights to 50% of the net amount received by Wonderland for exploitation of the mechanical reproduction rights in Gilkyson-composed songs. Disney asserted that it owed no royalties to the Gilkyson heirs. The Gilkyson heirs urged several reasons for the court to reject Disney’s “net receipts” contract interpretation argument, but the court found none of them persuasive in light of the express language of the contracts.
The court found that the 1963 contracts did not obligate Disney to collect fees from other Disney affiliates for exploitation of the mechanical reproduction rights in the songs, nor to pay royalties to Gilkyson when licensing fees were not charged. Contrary to the Gilkyson heirs’ argument that they are entitled to royalties based on fees that Wonderland “should have” collected, the court reasoned that nothing in the contract language imposed an obligation on Disney to exploit the mechanical reproduction rights at all or to do so in a particular manner. In fact, the contracts expressly stated the contrary. And under the contracts, Wonderland had the right to permit its home entertainment affiliate to use the songs without charging it a license fee.
Critically, the court found that the contrary interpretation advanced by the Gilkyson heirs would require the court to disregard the contract’s express limiting language. The extrinsic evidence introduced by the Gilkyson heirs did not support a different interpretation of the contracts, and no principle of California law justified disregarding the parties’ objective manifestation of their intent. As such, the Gilkyson heirs’ construction of the agreements was unreasonable.
Ultimately, the court held that Disney’s “net receipts” interpretation of the contracts was the more reasonable construction and that the trial court had erred in denying Disney’s motions for summary judgment and for nonsuit. The court remanded the case, instructing the lower court to enter a judgment in Disney’s favor.
Summary prepared by David Grossman and Brandon Zamudio