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V.N. Producoes v. Songs of Universal

August 6, 2010

V.N. PRODUCOES, PUBLICIDADE E PARTICIPACOES, LTD CORPORATION, PLAINTIFF,
v.
SONGS OF UNIVERSAL, INC., DEFENDANT.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge

OPINION and ORDER

In the 1960s, two popular Brazilian songwriters, Antonio Jobim and Vinicius de Moraes, authored Portuguese compositions ("Compositions"), including some world-famous famous songs, such as "The Girl from Ipanema" and "How Insensitive."*fn1 To market the Compositions, Antonio Jobim and Vinicius de Moraes entered into a series of subpublishing agreements between 1962-1973 (the "Subpublishing Agreements") with the predecessors-in-interest of Defendant Songs of Universal, Inc., (Songs of Universal, Inc. together with its predecessors-in-interest, "Universal").*fn2 The Subpublishing Agreements granted Universal certain limited rights to exploit the Compositions in exchange for paying royalties to Antonio Jobim and Vinicius de Moraes. This case represents two separate breach-of-contract actions (the "Jobim Action" and the "VM Action," and together, the "Actions") arising from the Subpublishing Agreements. Antonio Jobim died in 1994, Vinicius de Moraes in 1980. The Plaintiffs in the Actions are the successors-in-interest to Antonio Jobim and Vinicius de Moraes ("Jobim";*fn3 "VM";*fn4 and together, "Plaintiffs"). The Plaintiffs allege claims for multiple violations of the Subpublishing Agreements.

Jobim initiated its Action on April 5, 2005. VM initiated its Action on August 23, 2006. The claims in the Actions overlap partially. On January 29, 2007, the Court (i) bifurcated the pre-trial proceedings into two phases: a liability phase and a damages phase, and (ii) consolidated the Actions for the limited purposes of discovery as to the liability phase (Dkt # 21 in 1:05-cv-3527.)

The parties have concluded the liability phase of the discovery and now bring motions for partial summary judgment. Specifically, before the Court are: (i) Jobim's motion for partial summary judgment; (ii) VM's motion for partial summary judgment; and (iii) Universal's cross-motion for partial summary judgment against both Jobim and VM.

BACKGROUND

a. The Contracts between the Parties

This case centers on the interpretation of certain provisions in the Subpublishing Agreements.*fn5

Under the Subpublishing Agreements, Plaintiffs granted to Universal certain limited rights in the Compositions. These rights included: the exclusive rights to sell copies of the Compositions in specified geographical territories ("Licensed Territories"); issue exclusive performance and mechanical licenses in the Licensed Territories; and issue non-exclusive world-wide synchronization licenses for motion pictures and television productions originating in the Licensed Territories (Lehman Affirmation "Aff'm.," Ex. 3, at ¶2.)

The Subpublishing Agreements gave Universal the right to assign and transfer its rights under the Subpublishing Agreement to any of its subsidiaries or affiliates in the Licensed Territories (Lehman Aff'm., Ex. 3, at ¶6); but in assigning and transferring its rights under the Subpublishing Agreements to foreign affiliates and subsidiaries, Universal would remain liable for the full amount of Plaintiffs' royalties (Lehman Aff'm., Ex. 3, at ¶6.)

In exchange for these rights in the Compositions, the Subpublishing Agreements required Universal to pay royalties to the Plaintiffs. Specifically, the Subpublishing Agreements provide that Universal pay Plaintiffs: (i) 10% of the retail price of any copies sold in the Licensed Territories, and (ii) 50% of "all monies earned" for synchronization licenses (Lehman Aff'm., Ex. 3, at ¶3.) The Subpublishing Agreements further provide that: (i) "The mechanical rights shall be divided on the basis of: 50% (fifty per cent) of all mechanical rights to the owners [Plaintiffs] and 50% (fifty per cent) of all mechanical rights to the SUB-PUBLISHER [Universal]," and that (ii) "All broadcasting and performing fees . . . will be divided on the basis of: 6/12 for the original owners [Plaintiffs] 6/12 for the new owners [Universal]" (Lehman Aff'm., Ex. 3, at ¶3.) Finally, the Subpublishing Agreements provide that Plaintiffs receive "fifty (50%) per cent of all monies earned from any other source whatsoever in connection with the said compositions" (Lehman Aff'm., Ex. 3, at ¶3.)

In addition to these rights in the Compositions, Plaintiffs also granted Universal the right to create new adaptations of the Compositions with Plaintiffs' consent (Lehman Aff'm., Ex. 3, at ¶4.) This included the right to produce English lyric versions of the Compositions. Pursuant to this provision, and shortly after the parties executed the Subpublishing Agreements, Universal hired Norman Gimbel ("Gimbel") to compose English lyrics for four of the Compositions (the "English Lyric Versions"). Plaintiffs consented to this arrangement.

To this end, Universal entered into songwriter agreements with Gimbel dated April 24, 1963 (the "Songwriter Agreements").*fn6 The Songwriter Agreements required Universal to pay Gimbel 16 2/3% royalties for mechanical and synchronization licenses issued for the English Lyric Versions (Lehman Aff'm. Supp., Ex. 4, at ¶2.)

In addition to providing for a reduction in royalty rates for the English Lyric Versions, the Songwriter Agreements further provided that Universal would retain the copyrights to the English lyrics, title, and music for the original term of the copyrights, i.e., through 1991 (Lehman Aff'm., Ex. 4, at ¶1.)

The Songwriter Agreements, however, do not indicate whether the renewal rights in the English Lyric Versions would revert to Gimbel in 1991. This contractual ambiguity regarding reversionary rights in the English Lyric Versions triggered a series of disputes between Universal and Gimbel over royalty payments.

Since Gimbel's royalties would reduce Universal's royalties for the English Lyric Versions, Plaintiffs and Universal executed an appendix to the Subpublishing Agreements (the "Appendix"). In the Appendix, Plaintiffs and Universal agreed to a reduced royalty rate of 40% (down from 50%) for money collected from the English Lyric Versions (Lehman Aff'm., Ex. 3, Appendix ¶3.)*fn7

In the Appendix, the Plaintiffs also reserved the right to terminate the Subpublishing Agreements (the "Termination Provision") (Lehman Aff'm., Ex. 3, Appendix ¶4.) Under the Termination Provision, the Plaintiffs had the right to terminate the Subpublishing Agreements upon written notice of breach, followed by a sixty-day cure period, and, upon Universal's failure to cure, thirty days written notice of termination (Lehman Aff'm., Ex. 3, Appendix ¶4.)

In May 1991, near the expiration of the original term of the copyrights in the English Lyric Versions, VM entered into an agreement with Universal (the "May 1991 Agreement," and together with the Subpublishing Agreements, the "Agreements"),*fn8 in which VM transferred to Universal all of its copyright interests in the Compositions for the United States (Bart. Decl. Ex. C, at ¶2.) In exchange, Universal agreed to pay VM royalties according to the rates set out in the Subpublishing Agreements, as well as a one-time payment of two hundred thousand dollars. (Bart. Decl. Ex. C, at ¶5.)

On November 27, 1995, Gimbel and Universal entered into a settlement and release agreement to settle their disputes over royalty payments (the "1995 Gimbel Agreement").*fn9 Under the 1995 Gimbel Agreement, Universal agreed to raise Gimbel's royalty rate from 16 2/3% to 50% for all English Lyric Versions. The 1995 Gimbel Agreement further entitled Gimbel to collect his share of the royalties directly from the licensees, and to administer "any composition which utilizes both the music and [Gimbel's] English lyrics . . . throughout the Universe" (Lehman Decl. Opp'n, Ex. 9, at ¶3.) Finally, the 1995 Gimbel Agreement provided that for instrumental Compositions containing an English title but not English lyrics (the "English Title Instrumental Versions"), Gimbel would not be permitted to collect his share directly, but would receive an increase in his royalty rate from 16 2/3% to 33 1/3% (Lehman Decl. Opp'n, Ex. 9, at ¶4.)

The 1995 Gimbel Agreement, however, did not resolve the disputes between Universal and Gimbel, and in 1999, both parties submitted to arbitration. Gimbel prevailed in the arbitration proceedings. Pursuant to the arbitration award, the parties amended the 1995 Gimbel Agreement, (the "1999 Gimbel Amendment," and together with the 1995 Gimbel Agreement, the "Gimbel Agreements").*fn10 The 1999 Gimbel Amendment entitled Gimbel to a royalty rate of 41.66% for both the English Lyric Versions and the English Title Instrumental Versions (Lehman Aff'm. Supp., Ex. 13, at ¶4.) The 1999 Gimbel Amendment also entitled Gimbel to administer his 41.66% share directly for both the English Lyric Versions and the English Title Instrumental Versions (Lehman Aff'm. Supp., Ex. 13, at ¶¶C-1--2.)

In May 2000, to ensure that Gimbel received his 41.66% share directly, Universal issued a directive to all licensees to pay Gimbel his share directly (the "Universal Gimbel Directive"). At the same time, Jobim conducted a royalty audit (the "Royalty Audit") for the period spanning 1995-2000.

On December 15, 2000, Jobim and Universal (but not VM) entered into standstill agreements (the "Standstill Agreements") that, effective December 12, 2000, tolled the running of "any and all statute of limitations (statutory and/or contractual) with respect to any and all claims and causes of action which Jobim may have against Universal" (Bart Decl. Ex. V.)*fn11 The Standstill Agreements further provided that during the tolling period "neither party shall sue the other" (Bart Decl. Ex. V.) Jobim and Universal continuously extended the Standstill Agreements through March 2, 2005.

b. The Plaintiffs' Claims at Issue in these Motions

Before the Court are each of Plaintiffs' motions for partial summary judgment and Universal's cross-motion for partial summary judgment. The Plaintiffs' claims at issue on these motions are: (I) breach of contract against Universal resulting from Universal's improper calculation and collection of royalties. Specifically, the Plaintiffs claim that: (i) Universal improperly reduced their royalties for the English Title Instrumental Versions; (ii) Universal improperly calculated royalties based on a "net receipts" calculation rather than an "at source calculation" (There are two ways to calculate Plaintiffs' royalties: "net receipts" and "at source." Under a "net receipts" arrangement, Plaintiffs would collect royalties based upon income received by Universal after foreign administration fees have been deducted. Under an "at source" arrangement, by contrast, Plaintiffs would collect royalties based on a percentage of income determined before licensing fees are deducted, i.e., the total amount received for the license "at the source"); (iii) Universal improperly reduced Plaintiffs' royalties as a result of the Gimbel Agreements (the "Gimbel Deduction"); and (iv) Universal failed to pay Plaintiffs their portion of black box income. (Black box income is a lump sum that foreign copyright societies remit to authors and publishers, based on excess operating funds they collect against their operating budget ("Black Box Income")).*fn12

In addition to the Plaintiffs' claims relating to royalty underpayments, Jobim asserts two other breach of contract claims: (II) Universal breached the Subpublishing Agreements by licensing the Compositions in territories outside the Licensed Territories ("Extraterritorial Licensing"); and (III) Universal breached the Subpublishing Agreements by assigning to Gimbel certain administrative rights in the Compositions (the "Gimbel Assignments").

Finally, Plaintiffs also seek (IV) declaratory judgments that the Agreements are invalid. Specifically, Jobim seeks (a) a declaration that the Subpublishing Agreements are invalid under a termination provision in the Subpublishing Agreements. Similarly, VM seeks (b) the equitable relief of rescission as to the May 1991 Agreement, which incorporated the royalty provisions of the Subpublishing Agreements.

Summary Judgment Standard

Summary judgment is appropriate under Rule 56(c) of the Federal Rules of Civil Procedure where "there is no genuine issue as to any material fact" such that "the moving party is entitled to a judgment as a matter of law." See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A genuine issue for trial exists if a reasonable trier of fact could return a verdict for the non-moving party based on the record as a whole. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if it would affect the outcome of the suit. Anderson, 477 U.S. at 249.

In deciding a summary judgment motion, the Court must not engage in fact-finding or credibility weighing, but rather the Court must determine whether any material questions of fact are in dispute after resolving all ambiguities and drawing all justifiable inferences in favor of the non-moving party. Reeves v. Sanderson Plumbing Prods. Inc., 530 U.S. 133, 150 (2000). The non-moving party seeking to avoid summary judgment must set forth specific facts showing a genuine issue for trial, see Fed. R. Civ. P. 56(e); Anderson, 477 U.S. at 248, and must offer ...


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