The opinion of the court was delivered by: David G. Trager, United States District Judge
This litigation began in December of 1998 when plaintiffs Films By Jove, Inc. ("FBJ") and Soyuzmultfilm Studio ("SMS"*fn1) brought an action for copyright infringement, breach of contract, unfair competition, and RICO violations against Joseph Berov ("Berov"), Natasha Orlova, Rigma America Corporation, and the St. Petersburg Publishing House and Group. A state-owned Russian company, the Federal State Unitarian Enterprise Soyuzmultfilm Studio ("FSUESMS"), subsequently intervened as a third-party plaintiff.*fn2 The central dispute between the parties concerns the ownership of copyrights in approximately 1500 animated films created by a state-owned Soviet film studio, Soyuzmultfilm Studio, between 1946 and 1991.*fn3
On August 27, 2001, this court granted summary judgment in favor of the plaintiffs, relying primarily on the submissions of the parties' Soviet law experts, and also, in part, on interpretations of Soviet law from a series of decisions by the commercial courts of the Russian Federation, known as arbitrazh courts. See Films By Jove, Inc. v. Berov, 154 F. Supp.2d 432 (E.D.N.Y. 2001). On December 18, 2001, the Presidium of the High Arbitrazh Court of the Russian Federation issued an opinion apparently overruling two of these lower court opinions. Following the High Arbitrazh Court's ruling, as well as an October 2, 2001 decision from the Paris Court of Appeals, which defendants claim supports some of their arguments, defendants filed a motion, pursuant to Rule 60(b)(2) of the Federal Rules of Civil Procedure, for reconsideration of this court's August 27, 2001 decision, and for a stay of any enforcement proceedings pursuant to Rule 62(b).
Plaintiffs counter that the French and Russian decisions upon which defendants base their motion in fact establish no basis for reconsideration. The Paris Appeals Court's decision, which, according to plaintiffs, has been appealed, is inconsistent with a previous ruling of the same court, upheld by the court of last resort, in another suit involving the same parties and turning on identical questions of Russian law. Moreover, plaintiffs contend that a French court's interpretation of Russian law is, in any event, not controlling on this court.
An opinion from Russia's High Arbitrazh Court is no doubt of greater significance as evidence of the content of Russian law. However, plaintiffs contend that the December 18, 2001 decision, nevertheless, does not warrant reconsideration. First, plaintiffs claim that, although invited by this court to await the results of future decisions from the Russian courts, the parties expressly stipulated at oral argument that they would accept an immediate ruling. Second, plaintiffs maintain that even if this court were to entertain a motion to reconsider in reliance on the December 18 decision, notwithstanding the parties' stipulation, that opinion does not address the question of copyright ownership central to this case and, therefore, provides no basis for altering the previous ruling in favor of plaintiffs. Third, plaintiffs contend that because Russia is a civil law jurisdiction, which lacks a system of stare decisis, it is appropriate for this court to ignore the holding of the High Arbitrazh Court and to make an independent assessment of Russian law based on the submissions of the parties' experts — especially inasmuch as the High Arbitrazh Court's decision adopts an unprecedented and illogical construction of Soviet statutory law. Fourth, plaintiffs have submitted an affidavit from a distinguished Russian jurist advancing general allegations of corruption and institutional biases against private enterprise within the Russian courts and presenting specific evidence of undue governmental influence over the arbitrazh court proceedings leading up to the December 18, 2001 decision. These facts, according to plaintiffs, explain the peculiar nature of the decision and demonstrate that the opinion was the product of judicial misconduct. Based on this evidence, plaintiffs argue that for this court to vacate its ruling in reliance on the High Court's decision would violate plaintiffs' rights, in essence confiscating FBJ's substantial investment in developing the commercial value of Soyuzmultfilm Studio's animated films for the international market. Giving effect to the High Arbitrazh Court's December 18, 2001 decision would therefore offend domestic public policy with respect to private property rights, as well as norms of international law. Thus, if the decision is determined to have any relevance, plaintiffs contend that it should nevertheless be afforded no deferential weight. Fifth, plaintiffs advance an alternative claim to the disputed copyrights rooted in principles of equity and agency law.
According to plaintiffs, on May 22, 1992, a valid licensing agreement was signed between FBJ, a California corporation, and the legal successor to a former state-owned Soviet film studio, Soyuzmultfilm Studio. See Mem. of Law in Supp. of Pls.' Mot. to Dis. the 3D-Party Compl. Pursuant to FRCP 12(b)(6) [hereinafter "Pls.' Mot. Dis."] at 3. Founded in 1936, on property that had been expropriated by the Soviet state from the Russian Orthodox Church, Soyuzmultfilm Studio created approximately 1500 animated motion picture films, many of which became very popular. See id. at 2. SMS, a privately-owned Russian joint stock company, is the successor to the entity with which FBJ entered into the May 1992 agreement. Thus, SMS claims to be the current successor to the original state enterprise Soyuzmultfilm Studio. See Decl. of Mila Straupe, Ex. 15, attached to Decl. of Julian Lowenfeld [hereinafter "Straupe Decl."] ¶ 12. The 1992 agreement purported to make FBJ the exclusive licensee worldwide for the animated films in the Soyuzmultfilm library, including those produced during the period of state ownership. See Pls.' Mot. Dis. at 3.
In reliance on this agreement, FBJ invested more than three million dollars to restore and update the library of films, which, plaintiffs submit, was in "woeful condition" in 1992. Mem. of Law in Supp. of Pls.' Mot. for Summ. J. and in Opp'n to Defs.' Mot. for Summ. J. [hereinafter "Pls.' Mot. for Summ. J."] at 19. FBJ further embarked on an extensive revoicing project, hiring famous actors to produce English, French, and Spanish versions of the original Russian-language animated films. See Decl. of Joan Borsten, Ex. 16, attached to Decl. of Julian Lowenfeld [hereinafter "Borsten Decl."] ¶ 5.
FBJ and SMS accuse Berov, who operates several stores in Brooklyn that sell Russian-language entertainment products, of violating their exclusive rights in Soyuzmultfilm Studio's films.*fn4 See Pls.' Mot. Dis. at 3. Defendants counter that SMS's claim to the copyrights is invalid and that SMS's predecessor, the entity that purported to make FBJ the exclusive licensee of the Soyuzmultfilm library of animated films, was likewise not a legitimate copyright holder and thus lacked the authority to grant that license. See Mem. of Law in Opp'n to Mot. for Summ. J. by Pls./3D-Party Defs. and in Supp. of Cross-Mot. for Summ. J. by 3D-Party Pl. [hereinafter "FSUESMS's Cross-Mot."] at 5-6; Decl. of Peter B. Maggs [hereinafter "Maggs Decl."] ¶ 69. Instead, defendants contend that the copyrights in question are in fact owned by the Russian state, and are under the "operative management"*fn5 of the third-party plaintiff, FSUESMS, which intervened in this case claiming that it, rather than SMS, is the lawful successor to the original state-owned Soyuzmultfilm Studio. See 3D-Party Compl. ¶ 8.
Thus, "[a]lthough this dispute started out purely as an infringement action by FBJ against the defendants, it has become a full-fledged dispute about copyright ownership between FBJ/SMS and FSUESMS." Films By Jove, 154 F. Supp.2d at 434 n. 5. Ultimately, the resolution of the present dispute requires determining who was the initial owner of the copyrights in the films produced by the state enterprise Soyuzmultfilm Studio, and, more importantly, how, if at all, the reforms of Perestroika, in the late 1980s, affected the ownership of the studio's intellectual property rights.
The complex and colorful history of the state-owned Soviet film studio that created the disputed films is examined in great detail in this court's August 27, 2001 opinion. A general familiarity with the underlying facts and with the parties' arguments will be assumed throughout this decision. Suffice it to say that plaintiffs and defendants (and their respective experts) have offered fundamentally different accounts of the studio's history, which, for the purposes of the instant motion, will be summarized as set forth below.
Plaintiffs' experts explain that under Soviet law the copyrights in the disputed films belonged as an initial matter to the studio that created the films, rather than to the Soviet state. See Decl. of Michael Newcity [hereinafter "Newcity Decl."] ¶¶ 15, 20-52; Reply Decl. of Paul B. Stephan [hereinafter "Stephan Reply Decl."] ¶ 5 n. 1; Notice of Mot. to Dis. 3D-Party Compl. Pursuant to FRCP 12(b)(6) [hereinafter "Pls.' Not. Mot. Dis."] at 7-9. From its inception in 1936 until 1989, Soyuzmultfilm Studio, like practically all enterprises in the Soviet Union, operated as a state enterprise. See Pls.' Mot. Dis. at 2. However, according to plaintiffs, in December 1989, pursuant to new legislation liberalizing the structure of ownership in the Soviet economy, the state enterprise was transformed into a "lease enterprise" or "rent entity," also called Soyuzmultfilm Studio. See id. at 2-3.
Plaintiffs note that "[m]any state companies became rent enterprises in the late 1980s and 1990s. In accordance with law, they stopped to be `state-owned', but having in mind a further transition to privately held companies, they acquired another legal status, taking on lease only state buildings and equipment, but keeping their income and products for themselves and thus they received freedom from the state." Straupe Decl. ¶ 11. Under the terms of a lease agreement with the Soviet State Film Committee, known as Goskino,*fn6 the lease enterprise Soyuzmultfilm Studio paid rent to the state in exchange for a ten-year lease on the state-owned tangible property previously assigned to the former state enterprise Soyuzmultfilm Studio — i.e., the studio's facilities and equipment. Pls.' Mot. Dis. at 3.
More importantly, for the purposes of the present dispute, at the time the lease agreement entered into effect, plaintiffs contend, the original state enterprise ceased to exist, having been transformed into the lease entity, which was, according to the Soviet legislation governing the creation of lease enterprises, the legal successor to the rights and duties of the state enterprise it effectively replaced. As a result of this transformation, the copyrights in the disputed films passed by operation of law to the lease entity.*fn7 See Straupe Decl. ¶ 11.
Moreover, unlike the state-owned tangible property, which was returned to the Russian state at the end of the lease term, the copyrights, which were initially studio property in the plaintiffs' version of the story, did not revert upon termination of the lease. See Decl. of Paul B. Stephan [hereinafter "Stephan Decl."] ¶ 9 ("[I]ntellectual property rights transferred to the lease enterprise were not leased, but rather fully owned by the lease enterprise."). Indeed, according to plaintiffs, there was no longer any state enterprise in existence to claim a reversion interest in the copyrights at the end of the lease term, since the original state enterprise Soyuzmultfilm Studio had been transformed, in 1989, into the lease enterprise bearing the same name. In May 1992, the lease entity, which, according to plaintiffs, had full title to the copyrights as the legal successor to the antecedent state enterprise, granted the exclusive license to FBJ as described above.
In July 1999, shortly before the lease was set to expire, the lease enterprise Soyuzmultfilm Studio was itself reorganized, this time in the form of a fully-privatized joint stock company. See Straupe Decl. ¶ 12. That joint stock company is SMS, one of the plaintiffs in this case. Upon expiration of the lease term, the premises and equipment that had been leased from the Soviet state had to be returned. Accordingly, SMS moved the studio's offices to another location in a suburb of Moscow, taking with it the copyrights, ownership of which had passed to SMS, again by operation of law, as a consequence of the reorganization of lease enterprise.*fn8 See id. ¶ 13.
On June 30, 1999, in response to the demands of a faction of disgruntled Soyuzmultfilm Studio employees who had lost an internal power struggle for control of the lease enterprise, the Prime Minister of the Russian Federation, Sergei Stepashin, issued a decree accepting a proposal of the Russian Property Ministry that called for the establishment of a new state enterprise to take over the state-owned facilities and equipment that had been leased for ten years to the lease enterprise.
See Pls.' Mot. Dis. at 5; Ex. 17, attached to Decl. of Julian Lowenfeld [hereinafter "Stepashin Order"]; Tr. of Aug. 17, 2000 Hearing at 20. This new state entity, organized as a federal state unitarian enterprise, is FSUESMS, the third-party plaintiff in the present action. According to plaintiffs, it was only later, after the Russian Orthodox Church initiated a lawsuit to reclaim the property that had been expropriated from it in 1936, that FSUESMS, backed by Goskino and the State Property Ministry, began to advance the unfounded contention that FSUESMS was in fact a continuation of the original state enterprise and was, therefore, the rightful inheritor of Soyuzmultfilm Studio's extensive film library. See Pls.' Mot. Dis. at 5; Borsten Decl. ¶ 14.
In December 1999, a year after plaintiffs commenced their infringement suit against Berov in this court, and more than seven years after FBJ acquired its Soyuzmultfilm copyright license from the lease enterprise, FBJ received a letter from E. Rahimov, the director of FSUESMS,*fn9 asserting that Soyuzmultfilm Studio had been restored to its prior status as a state enterprise, that the copyrights for films produced by Soyuzmultfilm Studio prior to 1989 belonged to the Russian state, and that, therefore, any contractual arrangements between SMS and FBJ concerning such films were invalid. See Borsten Decl. ¶ 14.
In sum, plaintiffs argue that: 1) Soviet law had since 1936 vested ownership of the copyrights for the animated films produced by the state enterprise Soyuzmultfilm Studio in the studio itself rather than the Soviet state; 2) in 1989, upon execution of the lease agreement with Goskino, the state enterprise was transformed into a lease enterprise, at which point full title to the copyrights passed by operation of law to the lease enterprise, which was the legal successor to the now-defunct state enterprise; 3) in 1992, the lease enterprise granted a copyright license to FBJ; 4) upon expiration of the lease in 1999, the copyrights, subject to FBJ's license, passed to the joint stock company SMS, while 5) the tangible equipment and facilities leased to the rent entity by Goskino on behalf of state reverted to the state; and 6) the state then transferred its tangible property to FSUESMS, a state enterprise newly-created in 1999 to take over the state-owned property formerly assigned to the original state enterprise Soyuzmultfilm Studio and leased for ten years to the lease enterprise.
Defendants have offered a fundamentally different version of events. First, they claim that the copyrights in the films produced by the state enterprise Soyuzmultfilm Studio were always owned by the state and were merely under the "operative management" of the studio. See Maggs Decl. ¶ 18; FSUESMS's Cross-Mot. at 6-7. It follows from this premise that the lease enterprise could not have acquired plenary ownership of the disputed copyrights from the state enterprise, whether by outright transfer or by operation of law, since the state enterprise, according to defendants, had no such ownership rights in the Soyuzmultfilm copyrights to convey. See FSUESMS's Cross-Mot. at 8.
Alternatively, even if the state enterprise were the initial owner of the copyrights, defendants emphatically deny plaintiffs' contention that the state enterprise was transformed into the lease enterprise in 1989 and ceased to exist thereafter. Instead, defendants argue that the state enterprise went into a period of "suspended animation," 2d Supp. Decl. of Peter B. Maggs [hereinafter "Maggs 2d Supp. Decl."] ¶ 11, during the ten-year term of the lease, and was revived in 1999 in the form of a federal state unitarian enterprise, as FSUESMS.*fn10 Because, according to defendants, the state enterprise Soyuzmultfilm Studio was not transformed or reorganized in 1989, no rights passed to the rent entity by operation of law. See Reply Mem. of Law of Defs. and 3D-Party Pl. in Supp. of Jt. Mot. for Recons. and Modification [hereinafter "Defs.' Reply Mem. for Recons."] at 5. Therefore, the only assets that the lease enterprise acquired were those expressly specified in the lease agreement. Under the terms of that agreement, the lease enterprise received, in exchange for rental payments to the state, a ten-year lease on the state-owned tangible property previously assigned to the state enterprise Soyuzmultfilm, including its equipment and offices.*fn11 The lease did not on its face purport to transfer any copyrights to the lease entity. Even if the copyrights had somehow passed in connection with the lease agreement, defendants maintain that any such transfer would be subject to the limit of the ten-year lease term, at which point the copyrights, like the tangible property, would have reverted to the state. See 9th Supp. Decl. of Peter B. Maggs [hereinafter "Maggs 9th Supp. Decl."] ¶ 10. Moreover, defendants argue that the Soviet legislation regulating the formation of lease enterprises only permitted lease entities to transfer "material valuables" — i.e., tangible property. Therefore, the lease enterprise Soyuzmultfilm Studio had no authority to enter into the 1992 copyright license agreement with FBJ and likewise could not have transferred any interest in the films to SMS upon expiration of the lease term. See Maggs Decl. ¶¶ 41-42.
Thus, defendants maintain that: 1) the copyrights in the films produced by the state enterprise were owned initially by the state; 2) the 1989 lease agreement did not terminate the state enterprise or cause its transformation into a lease entity, but rather 3) merely transferred state-owned tangible property to the lease enterprise for a period of ten years;*fn12 4) upon termination of the lease, the property leased by the state reverted to state ownership, and was assigned to FSUESMS, 5) which is a continuation of the original Soyuzmultfilm Studio, reorganized, in compliance with Russian legislation, in the form of a federal state unitarian enterprise.
Shortly after FBJ and the lease enterprise executed the licensing agreement in May 1992, the two companies became involved in two separate lawsuits in France, seeking to combat alleged infringement of the Soyuzmultfilm Studio copyrights by Sovexportfilm, an entity that throughout much of the Soviet period had exercised monopoly rights over the foreign distribution of films produced by Soviet film studios.*fn13 See Tr. of Aug. 18, 2000 Hearing at 183-85.
According to plaintiffs, although Perestroika-era reforms eliminated Sovexportfilm's export monopoly in 1988, and granted the film studios the exclusive right to exploit their film copyrights commercially through direct contracts with foreign investors, Sovexportfilm continued to sell rights in films produced by Soyuzmultfilm Studio, and other Russian film studios, without obtaining the studios' permission. See id.
In 1993, believing that Sovexportfilm's infringing activities threatened to compromise the commercial value of FBJ's exclusive license, FBJ and the lease enterprise Soyuzmultfilm Studio initiated a copyright infringement suit against Sovexportfilm in France. See id. at 184. Initially, the County Court of Paris dismissed the suit. However, in a ruling handed down on September 12, 1997, the Court of Appeals of Paris overturned this decision and ruled in favor of the plaintiffs. See Court of Appeals of Paris, Sept. 12, 1997 Dec., Ex. 14, attached to Decl. of Julian Lowenfeld [hereinafter "Sept. 12, 1997 French Dec."]. The appeals court found that the copyrights for films produced during the Soviet period by Soyuzmultfilm Studio belonged to the studio, and that, at least since September 19, 1989, the studio had exclusive rights to sell its films in foreign markets. See id. at 12. Accordingly, the appeals court concluded that Sovexportfilm could not license any films produced by Soyuzmultfilm Studio without obtaining the studio's permission. Therefore, Sovexportfilm committed copyright infringement by engaging in such unapproved licensing transactions in France. See id. at 12-14. Recognizing that, in May 1992, Soyuzmultfilm Studio had "ceded the totality of its exploitation rights to [FBJ]," id. at 13, the court concluded that FBJ was "entitled and justified in its claims of copyright infringement." Id. at 14. This ruling was upheld by the final court of appeals, the French High Cassation Court, on July 6, 2000. See French High Cassation Court, July 6, 2000 Dec., Ex. 14, attached to Decl. of Julian Lowenfeld [hereinafter "July 6, 2000 French Dec."].
In 1994, FBJ and the lease enterprise, together with two other Russian films studios, Mosfilm and Lenfilm, took part in a second litigation in France challenging Sovexportfilm's unauthorized licensing of Soviet films. See Tr. of Aug. 18, 2000 Hearing at 185. This case raised essentially the same legal issues as the first suit, viz. the ownership of copyrights and attendant commercial exploitation rights in films produced by Soviet film studios. However, according to plaintiffs, most of the films that were the subject of the second suit had not been considered in the first suit. See Decl. of Joan Borsten in Opp'n to Defs.' Mot. for Recons. [hereinafter "Borsten Decl. in Opp'n to Recons."] ¶ 4. On June 19, 1996, the Commercial Court of Paris ruled in favor of FBJ, Soyuzmultfilm Studio, Mosfilm Studio, and Lenfilm Studio. Rejecting the defendants' claim that Goskino, "having financed the films" on behalf of the Soviet state "became owner of the copyrights," the court found that Soviet law clearly established "[t]he Studios['] inalienable rights [in] their works." Commercial Court of Paris, June 19, 1996 Dec., Ex. 14, attached to Decl. of Julian Lowenfeld [hereinafter "June 19, 1996 French Dec."] at 9. The Commercial Court of Paris further concluded that Soviet economic reforms enacted in 1986 and thereafter had put an end to the state monopoly on foreign trade, and that Sovexportfilm could therefore no longer license films produced by Russian studios without the agreement of the studios, which were the rightful copyright holders. See id. at 9-11.
On October 2, 2001, the Paris Court of Appeals, the same court whose September 12, 1997 decision in favor of the lease enterprise Soyuzmultfilm Studio and FBJ was upheld by the French High Cassation Court on July 6, 2000, reversed course and overturned the June 19, 1996 decision of the Commercial Court of Paris. See Court of Appeals of Paris, Oct. 2, 2001 Dec., Ex. CC, attached to 6th Supp. Decl. of Robert W. Clarida [hereinafter "Oct. 2, 2001 French Dec."]. The appeals court acknowledged that pursuant to Article 486 of the Soviet Civil Code, "the copyright of feature and documentary films belongs to the enterprise which executed their production." Id. at 25. Nevertheless, the court found that, for the Soviet-era films at issue in the French litigation, the right of commercial exploitation of the copyrights "belonged exclusively to the GOSKINO of the USSR which exercised it through the mediation of . . . SOVEXPORTFILM," and therefore Sovexportfilm did not engage in copyright infringement by licensing those films in France. Id. at 26.
Thus, at present, the French courts, in two separate litigations, have reached inconsistent — indeed, flatly contradictory — conclusions with regard to the validity of FBJ's exclusive copyright license.*fn14 The first ruling in favor of FBJ has been upheld by the court of last resort. Plaintiffs represent that the October 2, 2001 decision resulted from an incomplete presentation of Soviet law to the French court and that the decision is currently on appeal. See Borsten Decl. in Opp'n to Recons. ¶¶ 12-16. To date, the parties have provided no further information concerning the status of the appeal.
While the present infringement action was pending in this court, SMS and FSUESMS were engaged in two separate series of lawsuits before the Russian arbitrazh courts,*fn15 in which each claimed to be the rightful successor to the state enterprise Soyuzmultfilm Studio, and each sought to nullify the other entity's corporate registration. The Public Prosecutor of the Moscow Region, together with the Ministry of State Property of Russia, Goskino, and FSUESMS, commenced the first of these two parallel proceedings in the Moscow Region Arbitrazh Court on November 11, 1999. See Maggs Decl. ¶ 27. SMS subsequently commenced the second suit against FSUESMS in the same court, see id. ¶¶ 28-29, with the Ministry of State Property and Goskino evidently intervening on FSUESMS's behalf, in order to protect the interests of the Russian state.
The validity of SMS's and FSUESMS's respective corporate registrations was the focus of both litigations. However, "some of [the] cases found occasion to address the possession of the copyrights in the state enterprise Soyuzmultfilm Studio's library." Films by Jove, 154 F. Supp.2d at 439. Although FBJ was not a party to any of the litigation in the Russian arbitrazh courts, the validity of FBJ's license, which, of course, is essential to plaintiffs' infringement action, hinges on determining whether, in 1989, the lease enterprise succeeded to the intellectual property rights of the state enterprise Soyuzmultfilm Studio such that it could properly license the copyrights in the studio's Soviet-era films. The parties' experts vigorously debate the significance of the legal conclusions reached in the arbitrazh court decisions, disputing the holdings of many of the cases, as well as whether, and to what extent, the various decisions control the outcome of this case. In the August 27, 2001 decision granting summary judgment to the plaintiffs, this court, without treating any arbitrazh court opinion as dispositive, referred extensively to the Russian decisions in explaining and justifying its conclusions regarding the relevant Russian law.
In the suit brought by FSUESMS and the Russian government, the Moscow Region Arbitrazh Court ruled in favor of SMS on March 6, 2000, and this decision was upheld by the Moscow Region Arbitrazh Appeals Court on June 7, 2000. The SMS-initiated suit likewise resulted in two early victories for the joint stock company: a favorable ruling from the Moscow Region Arbitrazh Court on June 5, 2000, which was upheld by the appeals court on July 24, 2000. The initial decisions in both litigations found that the right to the copyrights in the films and the trademark in the name Soyuzmultfilm Studio, among other intangible rights, passed to the lease enterprise by operation of law, and were legitimately transferred to the joint stock company. Moreover, in support of plaintiffs' theory of the case, the courts found no connection between the original state enterprise Soyuzmultfilm Studio and FSUESMS. See June 5, 2000 Dec., Ex. 19, attached to Decl. of Julian Lowenfeld [hereinafter "June 5 Dec."]; July 24, 2000 Dec., Ex. 20, attached to Decl. of Julian Lowenfeld [hereinafter "July 24 Dec."]; Discussion of Mar. 6, 2000 and June 7, 2000 Decs. within Aug. 18, 2000 Dec., Ex. 18, attached to Decl. of Julian Lowenfeld [hereinafter "Aug. 18 Dec."].
These initial decisions were vacated, however, by the Federal Arbitrazh Court for the District of Moscow, which remanded the cases to the Moscow Region Arbitrazh Court, instructing the court to consider evidence that the copyrights and other non-material assets may have belonged to the state at the time the lease agreement was executed and that these assets consequently never passed to the lease enterprise, or to its successor, SMS. See Aug. 18 Dec. (remanding the first suit); Sept. 25, 2000 Dec., Ex. G, attached to Decl. of Robert W. Clarida [hereinafter "Sept. 25 Dec."] (remanding the second suit).*fn16
(a) FSUESMS's Suit Against SMS on Remand
Moscow Region Arbitrazh Court: December 26, 2000
On remand in the suit brought by FSUESMS, the Ministry of State Property of the Russian Federation, and Goskino against SMS, the Moscow Region Arbitrazh Court, by and large, reinstated and expanded upon its earlier findings and conclusions. Of all the opinions to emerge on remand, the December 26, 2000 decision was the only to address at length the question of copyright ownership, essentially adopting the theory of the case put forth by plaintiffs in the present action. First, the court concluded that, according to Article 486 of the Soviet copyright law, "the copyrights to a film belong to the enterprise that shot the film."*fn17 Dec. 26, 2000 Dec., Ex. 8, attached to Stephan Decl., Jan. 22, 2001 [hereinafter "Dec. 26 Dec."] at 6. The court went on to hold that, upon the signing of the lease agreement, the state enterprise was transformed into the lease entity, which was the legal successor to the state enterprise, under Article 16 of the Fundamental Principles on Leasing.*fn18 See id. at 6, 7. The reorganization of the state enterprise in turn triggered the transfer of the copyrights to the lease enterprise by operation of law pursuant to Article 498 of the Soviet copyright law, which provides that upon the reorganization of an enterprise, copyrights owned by the enterprise pass to the legal successor. See id. at 6.
Moreover, the court concluded that the expiration of the lease term on December 20, 1999 did not affect the ownership of the copyrights because those rights did not pass to the lease enterprise under the lease, but rather by operation of law. See id. In fact, the court noted, the copyrights could not have been transferred through the lease agreement because, under Soviet law, the lessor, Goskino, did not control the intellectual property rights of the state enterprise Soyuzmultfilm Studio, which were owned by the studio itself rather than the state. See id. at 7. Thus, the court concluded that "copyrights to the animated feature films made by [the state enterprise Soyuzmultfilm Studio] belonged to the Studio without time limit, and upon its reorganization, the copyrights went to the [l]ease enterprise . . . also with no term limitations." Id. at 6.
The December 26, 2000 decision explicitly rejected as without foundation the argument that "the copyrights to the animated films belong to [FSUESMS]." Id. at 7. FSUESMS's alleged interest in the Soyuzmultfilm Studio copyrights was premised on the proposition, advanced by defendants in this case, that the formation of FSUESMS in June 1999 represented the resumption of the activity of the state enterprise. However, in the December 26 opinion, the court held that FSUESMS could not be a continuation of the original Soyuzmultfilm Studio because "a state enterprise, after leasing out an enterprise and complex of facilities and property, could not exist any more and could no longer be a legal person at the same time because it did not have its own property and legal capacity." Id.
Moscow Region Arbitrazh Appeals Court: February 22, 2001
The Moscow Region Arbitrazh Appeals Court initially upheld the December 26, 2000 decision of the Moscow Region Arbitrazh Court, in an opinion rendered on February 22, 2001. See Feb. 22, 2001 Dec., Ex. 6, attached to Decl. of Anya Zontova [hereinafter "Feb. 22 Dec."]. The appeals court explicitly affirmed the lower court's findings that: 1) "at the time the [state] enterprise switched to lease relations, a factual reorganization of the enterprise occurred"; and 2) as a consequence of this reorganization, "copyrights to animated films created by the state enterprise, by operation of law, and not the [lease] agreement, passed on to the successor of its rights, the lease enterprise." Id. at 6.
Federal Arbitrazh Court of the District of Moscow: April 20, 2001
On April 20, 2001, the Federal Arbitrazh Court for the District of Moscow, the same court that issued the August 18, 2000 order remanding the FSUESMS-initiated suit to the Moscow Region Arbitrazh Court, overruled the December 26, 2000 decision and the appeals court ruling upholding it. See Apr. 20, 2001 Dec., attached to Aff. of Vladimir Zlobinsky [hereinafter "Apr. 20 Dec."]. The Federal Arbitrazh Court ultimately concluded that SMS's registration was invalid because its charter contained claims that it received state-owned property from the lease enterprise — a transfer to which the state, as owner of the property, never consented. However, in reaching this result, the decision appears to focus on tangible property that passed under the lease agreement, rather than on the studio's copyrights and other intangible property. At the outset of the opinion, the court summarizes what it takes to be the reasoning of the lower court with respect to the transfer of Soyuzmultfilm Studio's intangible rights:
The Court found the provision in the Charter [of SMS]
as to the succession of all intangible rights
(including copyrights) from the leased enterprise to
be legally correct. The court noted that based on
Article 16 of the Basic Law of Leasing, the copyrights
for production of [Soyuzmultfilm Studio] films,
including intangible, were transferred to the leased
enterprise, which is the successor in interest with
respect to all rights of the leased state enterprise.
Because the succession to the rights is based in law
(Article 486*fn19 of the Civil Code of the former
Russian Soviet Federative Socialistic Republic,
Article 58 of the Civil Code of the Russian
Federation), it cannot be limited by lease agreement.
Id. at 4.
Immediately following this summary of the lower court's decision, the Federal Arbitrazh Court for the District of Moscow states that "[t]he conclusions of the court are incorrect and are based on improper application of the norms of substantive law." Id. at 5. However, in the ensuing discussion, the court at no point explains why the lower court's analysis of the copyright transfer from the state enterprise to the lease enterprise, and thereafter to SMS, is incorrect. Instead, the Federal Arbitrazh Court focuses on the disposition of the state's tangible property. See Films by Jove, 154 F. Supp.2d at 474-75. "According to the property transfer act," the court remarks, "there was transferred to the joint stock company the tangible assets owned by the state for separate accounting as state property in accordance with Annex No. 2." Apr. 20 Dec. at 6 (emphasis added). However, the court reflects, the charter of the lease enterprise acknowledged that the tangible property leased from the state would remain in state ownership. Therefore, that property could not be transferred without the approval of the state, through its agency, the Property Ministry. The Property Ministry's consent was never obtained, however. See id. On this basis, the court concluded that the lease enterprise improperly disposed of state property by transferring it to the joint stock company and, accordingly, the joint stock company's registration "must be deemed invalid as made in violation of law and interests of the state as owner of the property transferred to the joint stock company." Id.
Thus, on remand, the FSUESMS-initiated suit ended with the invalidation of SMS's registration but did not clearly resolve the copyright ownership question currently before this court.*fn20
(b) SMS's Suit Against FSUESMS on Remand
Moscow Region Arbitrazh Court: January 25, 2001
Meanwhile, another series of decisions was emerging on remand in the suit initiated by SMS. In the first of these cases, a month after the December 26 decision upholding SMS's registration, the Moscow Region Arbitrazh Court refused to cancel FSUESMS's registration. The reasoning of this decision echoes some of the arguments propounded by defendants in the present dispute. For one thing, the court concluded — in direct contradiction to its December 26 decision — that the Soyuzmultfilm lease agreement did not effect the conversion of the state enterprise into the lease entity:
This Court believes that the state-owned enterprise
Soyuzmultfilm Studios was never transformed into a
lease-holding enterprise as such because Article 16 of
the USSR Fundamental Legislation on Leasing provides
for no such transformation. Transformation provides,
above all, for ownership of the assets of the
reorganized enterprise to be transferred to the newly
established enterprise. That never took place
because, following the establishment of the
lease-holding enterprise, the physical assets of the
state-owned enterprise . . . remained state property
and remain such to this day.
Jan. 25, 2001 Dec., attached to Feb. 8, 2002 Letter of Julian Lowenfeld [hereinafter "Jan. 25 Dec."] at 3.
According to the January 25, 2001 decision, rather than transforming the state enterprise into a lease enterprise, the lease agreement simply resulted in "the transfer of all the employees of the state-owned enterprise to the leaseholders' organization*fn21 and, subsequently, to the [lease enterprise] and the joint-stock company." Id. Referring to the emergence of FSUESMS in June 1999, the court concluded that "the State, in the person of a properly authorized agency, is entitled, upon termination of the Lease Agreement, to recruit new employees and to make a decision to resume the activities of the state-owned enterprise on the basis of the state-owned physical assets." Id.
Acknowledging that "[a]ccording to paragraph 4 of Article 16 of the USSR's Fundamental Legislation on Leasing, a lease-holding enterprise becomes the successor to the property rights and responsibilities of the appropriate state-owned enterprise," id. at 2, the court concluded that this succession of rights would not extend beyond the lease term:
[W]hether a lease-holding enterprise becomes a
successor to a state-owned enterprise depends on the
existence of a lease agreement. A lease-holding
enterprise is a successor to a state-owned enterprise
only to the extent that it lawfully possesses (holds
on lease) the physical assets of a state owned
enterprise, and, while having them in its possession,
it can exercise the rights and perform the
responsibilities of the state-owned enterprise.
Therefore, legal succession from a state-owned
enterprise to a lease-holding enterprise provided for
in point 4 of Article 16 . . . results not from the
transformation of the former into the latter, as the
Plaintiff believes, but from the existence of an
agreement for the lease of the physical assets of the
enterprise. . . .
Being based on a lease agreement, such succession is
of temporary nature and is limited by the duration of
the said agreement.
The lease-holder cannot continue to be the legal
successor to a state-owned enterprise upon termination
of the Lease Agreement because, in that situation, the
lease-holder must return the leased property to the
state. . . .
Moscow Region Arbitrazh Appeals Court: April 3, 2001
On appeal, the decision not to cancel FSUESMS's registration was upheld. However, the appellate court, in a ruling issued on April 3, 2001, reversed the lower court's reasoning regarding the operation of the lease agreement and its effect on the succession of rights from the state enterprise to the lease enterprise. See Apr. 3, 2001 Dec., Ex. B, attached to Decl. of Anya Zontova [hereinafter "Apr. 3 Dec."]. More specifically, the appeals court rejected the conclusion that the succession of rights provided for in Article 16 of the Soviet leasing legislation "was based on the lease agreement, has a temporal nature and is restricted by the term of such agreement." Id. at 4. The appeals court found that
[t]he succession of rights is tightly linked with the
legal capacity of a legal entity. It is an integral
property of a legal entity, not of a leased property
complex. Therefore when the property is returned after
the agreement ended, there is no automatic return of
the succession of rights and obligations.
Id. at 5.
The appeals court further rejected the related proposition that the formation of FSUESMS in 1999 amounted to a "resumption of activity of the state enterprise," and specifically held that the state enterprise Soyuzmultfilm Studio ceased to exist in 1989 when it was transformed into the lease enterprise:
The fact of signing the lease agreement determines the
formation of a lease enterprise. As it takes place,
the activity of the state enterprise ceases through
the conversion resulting from the formation of a lease
enterprise on the basis of a state enterprise (Article
16 of the Fundamentals on Leasing.)
Thus, after signing the agreement of December 20, 1989
. . . the state enterprise ceased. By operation of
law, the successor of rights of this enterprise became
the lease enterprise . . ., which was later converted
into the joint stock company.
Id. at 4-5.
Although the April 3 decision reversed the lower court's reasoning that SMS's rights were dependent on the terms of the lease agreement, it nevertheless confirmed the validity of FSUESMS's registration. Acknowledging that SMS had inherited certain rights of the state enterprise, which it continued to possess after the expiration of the lease term, the court held that the registration of the "newly formed" FSUESMS did not violate SMS's rights because FSUESMS's charter did not specifically stipulate that it had inherited the rights of the state enterprise. See id. at 5. A lone reference, in Item 1.1 of the FSUESMS charter, to the Order of 1936, which had created the state enterprise Soyuzmultfilm — though presumably intended as an assertion that FSUESMS was a continuation of the original film studio — did not, according to the court, provide sufficient cause to nullify the registration. See id.
Federal Arbitrazh Court for the District of Moscow: June 4, 2001
Both SMS and FSUESMS appealed the April 3, 2001 appeals court decision to the Federal Arbitrazh Court for the District of Moscow: the former seeking reversal of the result of that decision, i.e., the refusal to cancel FSUESMS's registration; the latter challenging the appeals court's reasoning concerning succession of rights under the Soviet leasing law. See June 4, 2001 Dec., Ex. A, attached to Decl. of Anya Zontova [hereinafter "June 4 Dec."] at 3. Though these appeals were made to the same court that issued the April 20, 2001 ruling, overturning the lower court decisions in the suit initiated by FSUESMS, and canceling the joint stock company's registration, this time the court denied both appeals and upheld the reasoning and outcome of the April 3, 2001 ruling. See id. at 5. The Federal Arbitrazh Court explicitly affirmed that "after signing the lease ...