The opinion of the court was delivered by: TENNEY
Plaintiff Eastin-Phelan Corporation moves pursuant to Fed.R.Civ.P. 65(a) for a preliminary injunction enjoining defendants Hal Roach Studios, Inc. ("Hal Roach") and Richard Feiner & Company ("Feiner") from interfering with plaintiff's sales of substandard dimension motion picture films of the subjects enumerated in a licensing agreement between Eastin-Phelan and Hal Roach dated February 16, 1968. Plaintiff is also seeking to enjoin the defendants from interfering with the exhibition of such films by certain nontheatrical organizations to which plaintiff might sell these films. Jurisdiction is founded on diversity of citizenship. 28 U.S.C. § 1332.
The licensing agreement in question granted plaintiff the exclusive right to "duplicate, print, re-record, release, sell, distribute and exploit such motion picture film subjects" owned by Hal Roach and listed in the agreement. The subjects included several Laurel and Hardy films. At issue in the motion for a preliminary injunction is the meaning to be given to paragraph 5 of the agreement which provides in part:
"It is understood that the rights granted hereunder are limited to home and nontheatrical use . . . .
"'Nontheatrical' as used herein is defined as exhibitions on substandard dimension motion picture film only and outside of regularly established motion picture theatres, and not in commercial competition therewith. It is understood that showings in schools, churches, clubs, lodges, supermarkets, night clubs, restaurants, taverns, hospitals, homes, orphanages and such institutions as well as by industry are considered noncompetitive with established theatres." (Emphasis added.)
Subsequent to executing the licensing agreement, plaintiff commenced selling the films to Shakey's, Inc. and its franchisees for exhibition of the films throughout the country in restaurants known as Shakey's Pizza Parlors. Shakey's advertised the films and showed them to the general public without an admission charge as part of its effort to attract customers to its restaurants. By letter dated February 24, 1970 (Exh. 3 attached to affid. of Kent D. Eastin), Hal Roach informed plaintiff that
". . . it was never our intent, written or otherwise, to allow restaurants, taverns, et cetera to advertise and exploit the films bought from you in order to entice and invite . . . [customers] into these business establishments in commercial competition with theatres. This is not a home movies right, therefore we must ask that your boxes, invoices, et cetera clearly indicate that the films are to be used solely for home use and not for commercial exploitation and gain."
Hal Roach complained that the advertising and exhibitions of the films by Shakey's and similar establishments were in commercial competition with established motion picture theatres and thus were outside the scope of the licensing agreement. In April 1970 representatives of plaintiff and defendant met to discuss the dispute over the meaning of paragraph 5 of the agreement, and Hal Roach indicated that it never intended to grant plaintiff the right to sell the films to restaurants, night clubs and taverns that would use the films in a manner so as to become competitive with established theatres, despite the language in the agreement that such places were not considered competitive. Rather defendant Hal Roach intended to limit plaintiff's rights to private exhibitions of the films. Thereafter in a letter dated May 19, 1970 (Exh. 4 attached to affid. of Kent D. Eastin) Hal Roach offered to amend paragraph 5 of the basic agreement so as to specifically provide that purchasers of the film such as eating establishments would not be permitted to use the films to induce customers to patronize the establishment and that efforts to do so would be considered to be in commercial competition with theatres. Eastin-Phelan refused to amend the agreement.
Thereafter Hal Roach by letter dated July 15, 1971 (Exh. 5 attached to affid. of Kent D. Eastin) informed Shakey's that
"the Hal Roach Studios, Inc., retains all rights of public exhibition with respect to all of the copyrighted Laurel and Hardy films and we have assigned Richard Feiner and Company, Inc., the task of policing the exhibition by restaurants of these films as inducement to lure customers to these establishments. The unauthorized exhibition of these films by restaurants is a violation of our copyright ownership unless such restaurants enter into written agreements with the Hal Roach Studios, Inc. . . . ."
Hal Roach then again advised Shakey's that its use of the films in a manner so as to induce customers to frequent its pizza parlors was in violation of the licensing agreement between Hal Roach and plaintiff (Exh. 5 attached to affid. of Kent D. Eastin). Three days later, on October 7, 1970 Shakey's informed plaintiff by letter (Exh. 9 attached to affid. of Kent D. Eastin) that it would temporarily cease showing the films until the dispute between plaintiff and Hal Roach was resolved.
On November 1, 1971, plaintiff filed the within action seeking a declaratory judgment that plaintiff owns the exclusive right to exploit substandard dimension films and videotapes of the motion picture subjects listed in the licensing agreement for home and nontheatrical use as defined in the agreement. In support of the present motion for a preliminary injunction plaintiff asserts that despite what it considers the clarity of the language in paragraph 5 of the agreement defendants have interfered with its sales of the film and with the exhibitions of the films; that such interference has caused and will continue to cause plaintiff irreparable harm; and that defendants will not be caused undue inconvenience or loss by the issuance of an injunction.
The question raised is whether exhibition by Shakey's is "nontheatrical" in nature, as the term is used in paragraph 5 of the licensing agreement. The problem arises out of the juxtaposition of the words emphasized in the quotation from paragraph 5, supra. They are: "outside of regularly established motion picture theatres, and ...