Laura Larson v. Warner Bros Entertainment, Inc, et al

Filing 5

Filed (ECF) Appellees DC Comics and Warner Bros. Entertainment, Inc. Motion to dismiss for lack of jurisdiction. Date of service: 06/28/2011. [7801117]--[COURT UPDATE : Spread filing to 11-56034. Resent NDA. 06/28/2011 by TW] (DP)

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EXHIBIT I Ca � 2:04-cv-08400-0DW-RZ C 1 2 3 4 5 6 7 8 9 10 11 12 13 'C 14 15 16 17 18 19 20 21 22 23 24 Document 336 Filed 07/21/2008 Page 1 of 92 WEISSMANN WOLFF BERGMAN COLEMAN GRODIN &EVALL LLP Michael Ber an BN 37797) ani Man avia ( BN 94092) A am Ha n (SBN 21 802 9665 Wi1s ire Boulevard, inth Floor Beverly Hills, California 90212 Telephone: (3 1 858-7888 Fax: (3 1 0) 550- 191 mbergman@wwllp.com � � � � � U FROSS ZELNICK LEHRMAN &ZISSU, P.C. Roger L. Zissu (Admitted pro hac vice) James D. Weinberger (Adinitted pro hac vice) 866 United Nations Plaza New York, New York 1 0017 Telephone: (21 813-5900 Fax: (212) 813- 901 � PERKINS LAW OFFICE, P.C. Patrick T. Perkins (Admitted pro hac vice) 1 7 1 1 Route 9D Cold Spring, New York 1 0516 Telephone: (84 265-2820 Fax: (845) 265- 819 Attorneys for Defendants and Counterc1aimant � UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA - EASTERN DIVISION JOANNE SIEGEL and LAURA SIEGEL LARSON, vs. Plaintiffs, Case No.: CV 04-8400 SGL (RZx) Hon. Stephen G. Larson, U.S.D.J. Hon. Ralph Zarefsky, U.S.M.l DEFENDANTS' BRIEF ON TIME WARNER INC.; WARNER ADDITIONAL ISSUES COMMUNICATIONS INC.; WARNER BROS. ENTERTAINMENT INC.; WARNER BROS. TELEVISION Time: 3 :00 p.m. Date: August 1 1, 2008 PRODUCTION INC.; DC COMICS; Courtroom: 1 and DOES 1 -10, Judge Stephen G. Larson Defendants. 25 26 ( 27 AND RELATED COUNTERCLAIMS 28 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 407 Ca 2:04-cv-OS400-0DW-RZ 1 Document 336 Filed 07/21/200S Page 2 of 92 TABLE OF CONTENTS Pa 2 3 INTRODUCTION 4 I. ................................................................................................... . ........... 1 6 PLAINTIFFS HAVE RECAPTURED ONLY THE COPYRIGHTABLE ELEMENTS IN THE ACT ION COMICS #1 STORY; ALL OF SIEGEL'S SUBSEQUENT WORK ON SUPERMAN WAS AS A WORK FOR HIRE AND IS CONSEQUENTLY OWNED EXCLUSIVELY BY DC ............................. 3 7 A. u 5 The Facts Relevant to This Issue Are Undisputed . .............................. 8 1. Preclusive Findings of Fact from Previous Litigations 9 2. Siegel and Shuster's Creation of the First of the Superman Comic Strips and Their March 1, 1938 Grant to Detective 10 ............ ..................................................................... 5 5 6 11 3. The Business and Contractual Relationship of the Parties After March 1 , 1938 ..................................................... 8 12 4. Plaintiffs' Notices and Copyright Termination Claim ........... 1 0 13 B. 15 All Works Created by Siegel Subsequently to the Action Comics #1 Story Were Works for Hire Created At the Instance and Expense of Detective Comics ......... . ..................................................................................... 12 16 1. 14 Superman Works Subsequent to the Action Comics #1 Story Were Prepared at Detective Comics' Instance ................................................................................... 14 17 2. 18 19 Action Comics #2-61 and Other Superman Strips after March 1, 1938 Were Created at the Expense of DC Comics ................................................................ 3. 20 21 · ". C C. . ........ 16 Detective Comics had the Power to Accept, Reject, ModifY or Otherwise Control the Work ................................. 1 7 22 Plaintiffs Have Not Recaptured The "Superman Character" As Only SpecIfic, IndividuarWorks Are Subject To Recapture ................................................................. 18 23 1. COl'yright Protection and Ownership, Including the ermination, is Provided for on a Work by Riglit of T. Work BasIs.............................................................................. 1 8 2. Plaintiffs Can Not Under Section 304(c) Amorphously Recapture a Character............................................................. 1 9 24 25 26 27 o 28 1 . DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 408 Ca ( 2:04-cv-OB400-0DW-RZ II. Document 336 Filed 07/21/200B Page 3 of 92 3 THE PROFITS FROM THE DOMESTIC EXPLOITATION OF EACH POST-TERMINATION SUPERMAN WORKS MUST BE SEPARATELY "APPORTIONED" IN ORDER TO DETERMINE WHAT PERCENTAGE IS ATTRIBUTABLE TO PLAINTIFFS ' THEACTION COMICS #I STORy ..... . ................ . 21 4 A. 1 2 . 5 6 B. 9 III. 11 l3 ( 14 15 16 17 . .. . . .. .. . . AN EQUITABLE APPORTIONMENT REOUIRES A SEPARATE ANALYSIS OF EACH OF THB INDIVIDUAL POST-TERMINATION WORKS lIN WHICH PLAINTIFFS CLAIM AN INTEREST TO DETERMINE THEIR RESPECTIVE PERCENTAGES IF ANY, ATTRIBUTABLE ION COMICS #1 STORy. .. .. ..................... .. ..... ........... .. 32 TO THE ACT . . IV. . Applicable Copyright and Equitable Principles Mandate an Apportionment Analysis Here ................... .. .. ... ....... 26 . 10 12 .. Numerous New Characters, Characteristics and Story Elements Have Been Created By DC Comics and its Licensees Since Action Comics #1, and Those New Elements Permeate the New Post-Termination Works .... .......................... .. ... .................... .. .. 24 . 7 8 .. . . . . . . PLAINTIFFS ARE ENTITLED TO SHARE PROFITS OBTAINED FROM MIXED USES OF ANY RECAPTURED COPYRIGHT MATERIALS AND TRADEMARKS ONLY INSOMUCH AS SUCH PROFITS ARE ATTRIBUTABLE TO THE RECAPTURED COPYRIGHTABLE ELEMENTS IN THE ACTION COMICS #1 STORy .. ... ........ ........... . .. .. .............. .............. 38 .. . . . . . . . . .. . A. Legal Background and Nomenclature ....... ... .. .. ..... .... .. .............. 39 B. Only Certain Superman Merchandise Could Possibly Implicate Plaintiffs' Recaptured Copyright in the Action Comics #1 Story ...... ... ................. .......... . 41 . . . . 18 . . . . .. 1. Plaintiffs Are OnlyEntitled to an Accounting from New Post-Termination Uses of Copyrightable Elements Derived from the Action Comics #1 Story, as Opposed to Uncopyrightable Elements, such as Names and Logos ......... .42 2. 19 The Kinds of Trademark Uses at Issue in this Case .............. .43 20 21 22 (1) Pure Trademark Uses .................................................. .44 23 (2) Mixed Copyright and Trademark Uses ... .. .. .............. 45 3. 24 25 26 ( 27 . . Principles to B e AI1plied in Any Accounting of Mixed Copynght and Traoemark Uses .... ................ . ... ........... . .. .46 . C. . . . . . . . Plaintiffs' AttemI1t to Avoid the Limitations on Any Accounting for Uses Involving Trademarks Are Unavailing .............. .. ... .. ................ . .. ........ ...... .. ............ 49 . .. . . . . . . . . . .. 28 11 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 409 Ca 2:04-cv-OB400-0DW-RZ Document 336 Page 4 Filed 07/21/200B of 92 4 PLAINTIFFS ARE ONLY ENTITLED TO AN ACCOUNTING OF PROFITS FROM THE EXPLOITATION OF PRE­ TERMINATION DERIVATIVE WORKS IF THEY HAVE BEEN SUFFICIENTLY ALTERED AFTER THE EFFECTIVE DATE OF THE SUPERMAN NOTICES TO CONSTITUTE NEW DERIVATIVE WORKS, AND THEN ONLY TO THE EXTENT OF SUCH ALTERATION .... .. .. ... ... .. ...... .. ......................... 5 1 5 A. 1 V. 2 3 . 6 . . . . B. 8 9 . . Post-Termination Alterations To Pre-Termination Derivative Works Must Be More Than Trivial To Qualify As A New Derivative Work ........ .. ..... ...... .......... ............ 52 . 7 . C) . . . . The Release OfPre�Terrnination Works In DVD Format ith So-Called Additional Content Does Not Transform Such Works Into Post­ Termination Derivative Works Subject To An Accounting . . .. ....... ... ...... .. .. .... ... ........................................ ...... .. . . . . . . . 56 11 PLAINTIFFS' ACCOUNTING CLAIMS ARE EQUITABLE IN NATURE AND ACCORDINGLY ARE APPROPRIATELY TRIED T O THE COURT WITTING WITHOUT A JURY ........... ............ 58 12 A. 10 VI. 13 Plaintiffs Do Not Have A Seventh Amendment Right To A Jury Trial On Their Accounting Claims ............. .. .... .. . .. ... .. ...................................... ..... ...... ...... . 1. 14 . . . . . . .. . The Accounting Plaintiffs Are Seeking Is, And Has Historically Been, Equitable In Nature ..... . . ... . ............. ... 60 c; Nature of the Remedy Sought ........ . . .. ............ ..... ....... ..... 64 . 15 2. 16 . . . . 69 . . .. .. . . 24 . PLAINTIFFS HAVE THE BURDEN OF PROOF ON IDENTIFYING WHICH POST-TERMINATION WORKS CONTAIN ANY COPYRIGHTABLE ELEMENTS FROM THE ACTION COMICS #1 STORY, AND THE PROPER APPORTIONMENT OF PROFITS THER E FROM ..................... . .......... C. VII. . . 66 . 21 23 . The Remaining Claims and Defenses That Are Not Implicated in the Equitable Accountings and are Otherwise Jury Issues Can Independently Be Tried First ...................... ............. .................... . .... .... .. ............ . 19 22 . . 66 18 20 . .. The Question of Whether Any of DC Comics' Licenses to WBEI Constitute "Sweetheart Deals" is Implicated Only as a Result of the Equitable Nature of the Accounting Requested, and Accordingly Should Be Determined by the Court, Not a Jury ..... .... ..... .. . .... ... ... .. . ... ...... .................. .................. B. 17 . . . . . . . ... . . . . . .. 25 26 A. Plaintiffs Must First Establish That The Works At Issue Include the Co-Owned CopY!ighted Material From the Action Comics ifl Story ..... .. . .. ...................... 72 .. 27 59 .. . . u 28 111 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 410 Ca ( 1 2 3 4 5 Document 336 2:04-cv-08400-0DW-RZ B. C. Filed 07/21/2008 Plaintiffs Should Also Bear The Burden of Establishing Apportionment As to Each Work. Page 5 of 92 ................................ Defendants Have The Burden Of Rebutting Plaintiffs' Profits Evidence By Demonstratmg Deductible Expenses CONCLUSION ........... , ......................................................................... ........................................................................................ 75 79 80 6 7 8 9 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 IV DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 411 Ca 2:04-cv-08400-0DW-RZ 1 Document 336 Filed 07/21/2008 Page 6 of 92 TABLE OF AUTHORITIES Pa e 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19 Abend v. MCA, Inc., 863 F.2d 1465 (9th Cir. 1988),495 U.S. 207 (1990) ..................................30 ABKCO Music, Inc. v. Harrisongs Music, Ltd., 508 F. Supp. 798 (S.D.N.Y. 1981) . . . passim Aliotti v. R. Dakin & Co., 831 F.2d 898 (9th Cir. 1987) .......................................................................49 Apple . 49 f5F�z:fe{4{5c(9�h1st���F���:: . Basqitiat v. Kemper Snowboards, 1998 U.S. Dist LEXIS (S.D.N.Y. Apr. 20, 1998) .......................................73 Beacon Theaters, Inc. v. Westover, 359 U.S. 500 (1959) 69 Blackman v. Hustler Magflzine, Inc., 620 F. Supp. 792 (V. D.C. 1985) 33,35 Brown v. McConnick et al., 87 F. Supp. 2d 467 (D. Md. 2000) ........................................................ 33, 34 C Burro t r�'!!.:.��:.���:: . 20,21 18'3F:l;f�[o��� �i;.q�t2 ...... ... .......... ....................... .................... .................................................. .................................................................................... .......................................................... 21 22 23 24 25 26 27 28 ................. Butler v. Target Corp., 323 F. Supp. 2d 1052 (C.D. Cal. 2004).......................................................39 Caffey v. Cook, 409 F. Supp. 2d 484 (S.D.N.Y. 2006) . . . . 57 . Cavalier v. Random House, Inc. 297 F.3d 815 (9th Cir. 2002) .......................................................................36 Chauffers, Teamsters and Helpers Local391 v. Terry, 494 U.S. 558 (1990) . passim Columbia Pictures Industrial, Inc. v. Krypton Broadcast o/Birmingham, Inc., 259 F.3d 1186 (9th Cir. 2000) ..................................................................... 34 Cream Records v. Jos. Schlitz Brewing Company, 754 F.2d 826 (9th Cir. 1985) ...........................................................31,48,76 Curtis v. Loether, 415 U.S. 189 (1974) . . . 66 ...... 20 u FEDERAL CASES ........................ 17 s .............................. .... .......... ................... ... ............... .............................................. ........................................................ ............ ......... (J v DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 412 Ca ( 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Document 336 2:04-cv-08400-0DW-RZ Filed 07/21/2008 �69U.S: %J9o&962) .............................................................................passim Dastar 5 r97J:S.- Jtt26b�f �����'!.���.����.����:: . 50 Dairy .. ........................... ................. Data General CorR. v. Grumman S)!stem Support Corp. , 36 F.3d 1147 (lst 1st Cir. 1994)............................................................ 77,79 DC Comics, Inc. v. Filmation Associates, 486 F. Supp. 1273 (S.D.N.Y.1980) ............................................................ .40 DC Comics v. Kryptonite C0rJZ., 336 F. Supp. 2d 324 (S.D.N.Y. 2004) .........................................................40 DC Comics, Inc. v. Powers, 465 F. Supp. 843 (S.D.N.Y. 1978) ..............................................................40 r 5 ? ¢j�e708 (9th Cir. 1998) ....................................................................... 15 Dolma Donaldson Public Co. v. Bregman, Vocco & Conn., Inc., 375 F.2d 639 (2d Cir. 1967) ........................................................................ 17 Durham Industrial, Inc. v. Tom)! Corp. , 630 F.2d 905 (2d Cir. 1980) .................................................................passim Dynamic Solutions, Inc. v. Planning and Control, Inc., 646 F. Supp. 1329 (S.D.N.Y. 1986) ............................................................ 28 l{5a��2d�fJl(5tf2ff.f(8ff.������.�:.��:'�.��.���������.��: Easter 18 Eiben v. A. Epstein & Sons International, Inc., ........... .. . .. 13, 17 Edgar Rice Burroughs, Inc. v. Manns Theaters, U.S.P.Q. 19 20 21 22 23 24 25 26 ( Page 7 of 92 27 195 159 (C.D.Ca1.1976) ...............................................................40 . 57 F. Supp. 2d 607 (N.D. Ill. 1999) ...................................................... 73-74 Entertainmentm't Research Group v. Genesis Creative Group, 122 F.3d 1211 (9th Cir. Cal.. 1997) .............................................................53 Estate ofHogarth v. Edgar Rice Burroughs, Inc., U.S.P.Q. 62 2d 1301 (S.D.N.Y. 2002), ...........................................13, 15, 18 Feltner v. Columbia Pictures, 523 U.S. 340 (1998) 59 .................................................................................... Flynn v. Surnow et al. , 2003 U.S. Dist. LEXIS 26973 (C.D. Cal. 2003) ......................................... 36 cCann Erickson, Fournier v. M 242 F. Supp. 2d 318 (S.D.N.Y. 2003) ......................................................... 12 28 Vi DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 413 Ca 1 2 3 4 2:04-cv-08400-0DW-RZ Filed 07/21/2008 Document 336 Fox Controls, Inc. v. HoneyHJel/, Inc., (N.D. 2005 U.S. Dist. LEXIS 14410 Page 8 of 92 Ill. Jul. 14, 2005) .............................. 75 ( ) Frank Music CorR. v. MGMInc. , 886 F.2d1345 (9th Cir. 1989) ..................................................................... 31 Frederick Warne & Co., Inc. v. Book Sales Inc. , 481 F. Supp. 1191 (S.D.N.Y. 1979) ......................................................40, 51 5 Gaste v. Kaiserman, 8 863 F.2d1061 (2dCir. 1988) ...................................................................... 31 Great �4V:��2�t&oU6� ��������.�..��:.�...��.�����: .. . . .. . .. .. . 65 9 44 F.3d1267 (lIth Cir. 2001), ............................................................. passim 6 7 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ................. .. . .. . . . . ... Greenberg v. National Geographic Society, Idema v. Dreamworks, Inc. 162 F. Supp. 2d1129 (C.D. Cal. 2001).......................................................49 L. Batlin & Son, Inc. v. Snyder, 536 F.2d486 (2dCIr. 1976) ........................................................................ 53 Libert)! Oil Co. v. Condon National Bank, 260 U.S. 235 (1922) .................................................................................... 67 Lin-Brook Builders Hardware v. Gertler, 352 F.3d298 (9th Cir. 1965) ....................................................................... 13 Lone �(Jr����5;7(S�f>.W.y: ff�f��·:.. �.�.��·.'............................................... 36 Martha Graham School and Dance Foundation, Inc. v. Mar �io ��33(2d�ft�2�o{f���������?�����:.!.��::.,.................................... 17 Maurel v. Smith, 220 F.195 (S.D.N.Y. 1915), ........................................................................ 63 May v. Moganelli - Heumann Associates, 618 F.2d1363 (9th Cir. 1980) ..................................................................... 13 Mirage Editions, Inc. v. Albuquerque A.R.T. Co. , 856, F.2d1341 (9th Cir. 1988)....................................................................43 New York Times Co. v. Tasini, 533 U.S. 483 (2001) .................................................................................... 53 Nichols v. Universal Pictures Corp., 45 F.2d119 (2dCir. 1930) .......................................................................... 20 Oddo v. Ries, 743 F.2d630 (9th Cir. 1984) ................................................................ passim u Vll DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 414 Ca ( 1 2 3 4 5 6 7 8 9 10 11 12 13 ( 14 15 16 17 18 19 2:04-cv-OB400-0DW-RZ Document 336 Filed 07/21/200B Okura & Co. v. Careau Group, 783 F. Supp. 482 (C.D. Cal. 1991).............................................................. 68 . Patten v. Sl!perior Talking Pictures, 8 F. Supp. 196 (S.D.N.Y. 1 934) ............................................................. 40 -41 Picture Music, Inc. v. Bourne, Inc., 457 F.2d 1 2 1 3 (2d Cir. 1972) ................................................................ 15, 1 7 Philips v. Kaplus, 764 F.2d 807 ( lIth Cir 1985) ................................................................ 62,68 Playboy Enters., Inc. v. Dumas" 53 F. 3d 549 (2d Cir. 1995) ....................................................... 12,13,15,16 Playboy Enterprises, Inc. v. Netscgpe CommunicationsCorp., 55 F. Supp. 2d 1070 (C.D. Cal. 1999) 40-41 . Polar Bear Products, Inc. v. Timex Corp., 483 F.3d 700 (9th Cir. 2004) .47, 48 Pye v. Mitchell, 574 F.2d 476 (9th Cir. 1978) . . .. 26 Rice v. Fox Broadcast Corp., 330 F.3d 1 1 70 (9th Cir. 2003) ..................................................................... 20 Rogers v. Koons, 960 F.2d 301 (2d. Cir. 1992) ...................................................................... .47 Ross v. Bernhard 396 U.S. 531 ( 1962) .............................................................................passim i Se R z o lf- 2(j� ��� d ��i°'(9�� Itif.�o8S{.�'::.����.������.�!.��'!�������.����: .......13 Shapir e 3 1 , 62 �2� F�!X�5f/idci�!19'?sr.����.�����.��:: . o Sheldo f06 r.2:r415°{i�Ci? {�3J).��������..�������:.���: . .. passim Sheldon v. Metropolitan-Goldwyn Pictures Corp., supra, 309 U.S. at 399 passim SHL Imaging, Inc. v. Artisan House, Inc. 1 1 7 F. Supp. 2d 301 (S.D.N.Y. 2060) ......................................................... 58 Siegel v. National Periodical Publications, Inc., 508 F.2d 909 (2d Cir. 1974) . . 6,9, 14 Siegel v. Time Warner Inc., 542 F. Supp. 2d 1 098 (C.D. Cal. 2008) passim ................................................... ................................................................ .......... ........................................................ ... 20 21 22 Page 9 of 92 . .................................... ................. ... ....... ......................................... ............................................ 23 24 25 ..... 26 ( 27 .................................................... ..... ................................................ 28 V111 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 415 Cas 1 2 3 4 5 6 7 8 9 10 11 12 13 �: 16 17 18 19 20 21 22 23 24 25 2:04-cv-OS400-0DW-RZ Document 336 Filed 07/21/200S Page 10 of 92 Siegel v. Warner Brothers Entertainment Inc., 496 F. Supp. 2d1111 (C.D. Cal. 2007)................................................passim "-.) ( s.O.S., Inc. v. Pay'day, Inc.;.. 886 F.2d1081 (9th Lir. 1989) ............................................................... 22, 26 Straus v. DVC Worldwide, Inc., 484 F. Supp. 2d620 (S.D. Tex. 2007) ........................................................ 74 Strauss v. The Hearst Corp., 1998 U.S. Dist. (S.D.N.Y. Feb. 16, 1988) .................................................. 70 Sygma "�oJ�lI89SS;{di/fW�5f�����: . 31 Taylor v. Meirick, 712 F.2d1112 (7th Cir. 1983) ..................................................................... 73 Thor° b 1si F�fi3{r(6thIcf��2gg7).��' ���: .� ����..���� :................................... 74 Towers v. Titus, 5 B.R. 786 (N.D. Cal. 1979) 62, 65 Twent u �i� ��3J g:c9�tHk. �o(fs)�:.��:.�.:�.���.����:!.��:............................passim Twenti u . 30 () fii ��2J 57t(91:gr: ?��)�:.���������: Twin Peaks Products, Inc. v. Publications International, Ltd., 996 F.2d1366 (2dCir. 1993) . 33 Universal CifJ!. Studios, Inc. v. TShirt Gallery, Ltd., 634 F. Supp. 1468 (S.D.N.Y. 1986) ............................................................40 . Walt Disney Productions v. Air Pirates, 581 F.2d751 (9th Cir. 1978) ...................................................................... .40 Warner Brothers, Inc. v. American Broadcasting Cos., 654 F.2d204 (2dCir. 1981) ........................................................................ 24 Warne (l f/�d1l(id ci�a{9Ilr:.���.· :............................................................... 40 8 Weinstein v. UniversifY.. ofIllinois 811 F.2d1091 Otli Cir. 1987)..................................................................... 28 Weissmann v. Freeman, 868 F.2d1313 (2dCir.) 27 Wyatt f51lg�;r�if (s 1J��y'ni tsgy 50 ........ ... .. .. . ......... . ...... ......... ... .. .. . . .. .......... . .. .. . . ................................................. ..........•...... .................... ... ...... ... . .......... . . . ... .... . .. . .... . ..... . ..... ... ......... ............ . .. . ...... ......... .. ............................................................................... 26 27 ....... . .. . .... . ........................ . .. . ... . .... .. .. . . .. .. 28 (J IX DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 416 Cas ( 1 2 3 2:04-cv-OB400-0DW-RZ Zella v. E. w: Document 336 Filed 07/21/200B Page 11 of 92 Scripps et al., 529 F. Supp. 2d 1 124 (C.D. Cal. 2007) ....................................................... 73 . Zuill Shanahan, v. 80 F.3d 1366 (9th Cir. 1996) ....................................................................... 28 4 5 6 7 8 9 STATE CASES Columbia Broadcast System, Inc. SUfJerior Court, v. . 69 Cal. Rptr. 348 (Cal. App. 1 968) ............................................................. 3 4 Hodge Sl!Perior Court, v. Korea 145 Cal. App. 4th 278 (2006) ................................................................ 67-68 f9f!1{ ftli lif4(�3031.������ ���:..·: .. 10 11 ........................................................ Sander/Moses Products, Inc. NBC Studios, Inc., 68 v. 142 Cal. App. 4th 1 086 (2006) .................................................................... 8 1 12 13 FEDERAL STATUTES 15 37 C.F.R. § 202.1 (a) ..........., .................................................................................. 39 5 U.S.C. § 1 052 &1 053 ....................................................................................... .41 17 5 U.S.C. § 1 125 (a)(l )(B) ...................................................................................... 67 18 1 7 U.S.C. §§ 1 0 1 .............................................................................................passim 19 1 7 U.S.C. 1 02(a) .............................................................................................passim 20 1 7 U.S.C. § § 1 02(a), 20 1 (a) ................................................................................... 1 9 21 1 7 U.S.C. § 1 03 (b) .........................................................................................passim 22 1 7 U.S.C. § 201 (a)&(b) ...............................................................................passim 23 1 7 U.S.C. § 304(c) ..........................................................................................passim 24 1 7 U.S.C. § 504(b) ................................................................................................ 70 25 1 7 U.S.C. §504(c) .................................................................................................. 33 26 c 37 C.F.R. § 20 1 . 1 0(b) (l)(ii) ................................................................................. 1 9 16 ( 14 1 7 U.S.C. § 7 (repealed) ........................................................................................ 52 27 Fed. R. Civ. P. 39 28 Fed. R. Evid. 402 .................................................................................................... 12 ................................................................................................... 67 x DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 417 Cas Filed 07/21/2008 Document 336 2:04-cv-08400-0DW-RZ Page 12 of 92 1 H.R. Rep. No. 94-1476, 94th Congo 2d Sess. (1976) ..................................... passim 2 OTHER STATUTES 3 Cal. Civ. Code § 1 7200 et seq ...................................... . ............................. .. . ........ (J 67 4 5 6 TREATISES William F. Patry Patry on Copyright 7 § 3:57 ................................................................................................. 54 8 § 3:164 ............................................................................................... 20 9 22: 1 3 1 ............................................................................................... 74 10 § 22: 1 3 1 ................................................................................. ; ..... 74, 77 11 § 22: 145 ...................................................................................... 74, 76 12 § 22: 147 ............................................................................................. 30 l3 14 15 16 17 18 19 20 21 22 23 24 25 26 § 22: 1 1 7 .................................................................................. :.......... 74 Thomas McCarthy, McCarthy on Trademarks & Unfair Camp., § 6.14 .......... 39 c James Wm. Moore, Moore's Federal Practice § 39.12[2] at 39- 1 6 (3d ed. J. 2007) ...................................................................................................................... Melville B. Nimmer&David Nimmer, 67 Nimmer on Copyright §3.01 ............................................................................................................ 52 § 3.03 [A] ..................................................................................................... 54 §§ 3.03[A] &[B][2] ............................................................................... 43, 63 §§ 3.03 [B] [ l ] .............................................................................................. 43 § 6.03 ....................................................................................................passim § 9.03[D] ...................................................................................................... 1 5 § 14.03 ......................................................................................................... 29 ��3rios(�Ja�d:i�6�5 .�.���. �����:: ��.�����.��������..�.���������� .. ................. 27 64 u 28 Xl DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 418 Cas 2:04-cv-OS400-0DW-RZ c 1 D ocumen t 336 Filed 07/21/200S Page 1 3 of 92 INTRODUCTION The Court has held that "Siegel's heirs regain[ed] . . . the copyright in the 2 5 Action Comics Vol. 1" and recognized that "[w]hat remains is an apportionment of profits .. . ." Siegel v. Warner Bros. Ent. Inc., 542 F. Supp. 2d 1 098, 1 145 (C.D. Cal. 2008) ("Siegel1f'). Although 6 these basic parameters of the case have now been established, what also remains to 7 be determined is what exactly is to be "apportioned" between the parties, how that 8 apportionment is to be conducted, who should conduct the apportionment, and 9 which party has the burden of proof on establishing the proper apportionment of profits. ! 3 4 10 Superman material that was published in Defendants respectfully submit that the facts of this case and established law 11 12 mandate the following conclusions: (1) That by their termination notices Plaintiffs have recaptured only the 13 ( 14 15 16 original copyrightable elements first appearing in the Superman story published in Action Comics #12 (the "Action Comics #1 Story"), as all later contributions by Siegel to the Superman oeuvre were made as work for hire; (2) That any accounting to Plaintiffs for the profits attributable to the use of 17 18 the Action Comics #1 Story in newly prepared post-termination derivative works 19 20 21 22 23 24 25 26 ( 27 28 1 Accordingly, the parties have identified (via their February 21,2008 Stipulation), and the Court has ordered briefing on (via its March 31,2008 Order), the following seven issues: (1) the "work for hire" status of Jerome Siegel's contributions on Superman works following the Action Comics #1; (2) the propriety of "apportionin�" the profits from post­ termination Superman works to account for factors other than Plamtiffs' recaptured copyright; whether and how the apportionment should take into account (3) any mixed use of trademarks and copyrights, and (4) post-termination alterations to pre-termination derivative works; (5) if the apportionment analysis must be conducted on a work by work basis; (6) whether Plaintiffs' accounting claims - including the apportionment analysisis for the court or a jury; and (7) which party has the burden of proof on the accounting and apportionment Issues. Additionally, the Court has stated that should Plaintiffs wish the Court to deal with the issues raised in" their previously-filed Motion for Reconsideration which was denied, without prejudice, they may "append" them to their brief on these seven issues. (July 3, 2008 Order). In the event Plaintiffs do append their previous Motion for Reconsideration to their Opening Brief herein, Defendants respectfully refer the Court to their previously-filed Opposition to said Motion. 2 Such original material would not include those copyrightable elements in the prior unterminated Superman Promotional Announcements (the "Announcements"). 1 " DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 419 Cas 2:04-cv-OS400-0DW-RZ D ocum ent 336 Filed 07/21/200S Page 14 of 92 1 will require the exclusion ofthe profits resulting from all other factors, including 2 profits attributable to the copyrightable elements owned exclusively by defendant 3 (J DC Comics as well as the contributions and efforts of DC and its licensees; (3) That the apportionment analysis must take into account the profits 4 5 attributable to the use of DC Comics' trademarks - in which Plaintiffs have no 6 interest - even where combined with a copyright use in which Plaintiffs might 7 share; 10 (4) That Plaintiffs will be entitled to share in the profits from the posttermination exploitation of a pre-termination work derivative of the Action Comics #1 Story only if the pre-termination derivative work has been sufficiently adapted, 11 recast or transformed post-termination to constitute a wholly new derivative work; 8 9 12 (5) That the required apportionment analysis will have to be conducted 13 separately on an individual work-by-work basis in order to fairly determine what 14 portion of the profits of each post April 15 the use of the 16 Action Comics #1 Story; 1999 derivative work can be attributed to 0 (6) That since Plaintiffs' accounting claim is equitable in nature, the 17 apportionment analysis must be conducted, and the determination made, by the 18 Court, sitting without a jury; and 19 20 (7) That Plaintiffs have the burden of establishing (a) which post-terminatio derivative works contain any recaptured copyrightable elements fom the Action 21 Comics #1 Story and (b) their relative contribution to the gross revenues generated 22 by the work, while Defendants have the burden of establishing the expenses 23 properly deductible from those revenues in order to calculate the profits in which 24 Plaintiffs can share. 25 Each of these seven issues is addressed and discussed in detail, below. 26 27 u 28 2 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 420 Cas 2 :04-cv-OB400-0DW-RZ ( Document 336 1 Filed 07/21/200B Page 1 5 of 92 ARGUMENT 4 PLAINTIFFS HAVE RECAPTURED ONLY THE COPYRIGHT­ ABLE ELEMENTS IN THE ACTION COMICS #1 STOR lj ALL OF SIEGEL'S SUBSEQUENT WORK ON SUPERMAN WA:s AS A WORK FOR HIRE AND IS CONSEQUENTLY OWNED EXCLUSIVELY BY DC 5 Plaintiffs have made clear their intention to argue at trial that they have not 2 3 6 I. only recaptured the copyright in the Action Comics #1 Story,but in scores of other 7 Superman stories as well. 8 have been recaptured by Plaintiffs is the 9 share in any profits from the post-termination exploitation of Superman must be 10 11 However, as shown below, the only copyright that could Action Comics #1 Story,and their right to measured by the contents ofthat story alone. Under an agreement dated March 1 , 1938, pursuant to a December 1 937 12 13 Detective are sometimes referred to herein as "DC"), all right, title and interest in 14 the Superman character, including the preexisting Superman story. Once that grant 15 was made, DC owned all existing Superman material - including the Superman 16 character - outright, and any subsequent authorized derivative Superman works 17 could only have been produced with DC's permission. The vast majority of the 18 subsequent Superman works were created wholly without Siegel's involvement. 19 The few that do contain Siegel's contributions, principally 20 were created as works for hire and therefore are not subject to termination under 21 ( option, Siegel and Shuster granted to DC's predecessor, Detective Comics (DC an the express terms of the statute. 22 Action Comics #2-61, Defendants, nevertheless, expect Plaintiffs to proffer evidence concerning Action Comics #1 Story,but 23 24 also from post-termination works attributable to the subsequent derivative works 25 published in 26 ( profits not merely from post-termination uses of the Superman works appearing before April 1999. 27 28 Action Comics #2-61 as well as from the thousands of other gestalt contentions, Plaintiffs' recapture is limited to a single work - the thirteen pages of the Action Comics #1 Story - for three Despite such unfounded 3 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 421 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21 /2008 Page 1 6 of 92 1 reasons. First, it is self-evident that Plaintiffs, as Siegel's heirs, cannot employ the 2 Copyright Act's termination provision to recapture rights in any works that Siegel 3 l) did not author. Second, any contributions that Siegel may have made to post- 4 Action Comics #1 Superman comics were works for hire and therefore are not 5 subject to termination under the express terms of section 304(c). Third, Plaintiffs 6 can not escape the consequences of the fact that Siegel was not the legal author of 7 any Superman work except the 8 amorphously recaptured "the Superman character," because the right of copyright 9 termination, like copyright protection and ownership, is provided on a work-by- Action Comics # 1 Story by loosely contending they 10 work basis, and not for any separate components of a work such as 11 characterization. There can be no dispute about the work for hire status of Siegel's 12 14 Action Comics #2-61 or any other Superman comic books published after Action Comics #1. On March 1, 1938 Siegel and Shuster 15 transferred to DC their entire rights in all ofthe Superman material they had 16 created, and also agreed they could not thereafter at any time use the Superman 17 character, story or title without the written consent of DC. In consequence, at that 18 moment, the right to create derivative, i. e., further new works using or based upon 19 all existing Superman material, including the first Superman story, reposed 20 exclusively in DC, and any such works could only have been created at the 21 instance of DC. Siegel and Shuster were thereafter employed by DC to prepare 22 and regularly furnished the continuity and artwork for all new episodes of the 23 24 Superman series. In these circumstances, under the clear and well established rules of the applicable 1 909 Copyright Act work for hire test,3 all of the new Superman 25 material following 13 contributions to c Action Comics #1 was produced at the instance and expense of 26 27 28 The Court has already thoroughly explicated the controlling law - the 1 909 Act work for hire test - in earlier addressmg its application to Siegel's proposed 1 940 script for a Superboy comic book (the "1 940 Superboy Script"). See Siegel v. Time Warner Inc., 496 F. Supp. 2d 1 1 1 1 (C.D. Cal. 2007) ("Siegel F'). 4 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES 3 Cl EXHIBIT I - 422 Cas 2:04-cv-08400-0DW-RZ ( 1 Documen t 336 Filed 07/21/2008 Page 1 7 of 92 . the publisher, subject to its right of control. 2 A. The Facts Relevant to This Issue Are Undisputed The parties and the Court have the benefit of an extensive documentary 3 4 record of numerous undisputed facts, including numerous judicially binding fact 5 findings, many of which are relevant to the remaining questions ofthe legal 6 authorship and copyright ownership of all Superman works that followed the first 7 Action Comics #1 Story. See Siegel 1, 496 F. Supp. 2d at 1 127. 8 Preclusive Findings of Fact from Previous Litigations 1. In 9 Siegel National Comics Publications, Inc. et aI., No. 1 099- 1947 (Sup. v. 10 11 rights in the Superman character that Siegel and Shuster had transferred to 13 Detective on March 1 , 1 938. Following a bench trial the referee rejected Siegel's 14 and Shuster's claims of ownership of Superman. (Id. Ex. R.) Thereafter, in April 15 of 1 948 he issued detailed findings of fact and conclusions of law expanding on his 16 earlier trial opinion. 17 Consent Judgment vacated the referee's findings but upheld the validity of the 18 parties' previous agreements, including that of March 1 , 1 938, which had "validly 19 transferred to Detective Comics, Inc." all of Siegel and Shuster's rights in the "first 20 release of the comic strip SUPERMAN" in the June, 1938 issue of the magazine 21 "Action Comics" making Detective "the absolute owner" thereof. 22 this Court has noted, while the referee's findings did not address or decide the 23 questions of federal copyright law at issue today, "[c]ertainly the referee made 24 fmdings dealing with the parties' business and contractual relationship concerning 25 Siegel's Superboy submission, factual issues that touch upon the work for hire 26 ( annul and rescind previous agreements with Detective in an effort to recover all the 12 ( Ct. Westchester) (the "Westchester Action"), 4 Siegel and Shuster sought in part to question . . 27 4 Declaration of Michael Bergman filed on April 20, 2007 in support of Defendants' Motion for Partial Summary Judgment ("Bergman SJ Dec!."), Ex. Q. Given the extremely bulky nature of that previously filed Declaration and Exhibits, Defendants are not filing a second copy hereWIth. 5 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES 28 See (Id. Ex. F herei nafter "FOF".) The parties' subsequent Final (Id. Ex. V.) As ." Siegel I, 496 F. Supp. 2d at 1 1 36. EXHIBIT I - 423 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 1 8 of 92 3 Siegel National Periodical Publications, Inc., 508 F.2d 909 (2d Cir. c) 1974) ("Nationaf') Siegel and Shuster sued again, this time to claim the renewal copyright in the Action Comics #1 Story. In affirming the summary judgment for 4 Detective's successor, National, the Second Circuit relied on various of the 5 referee's findings of fact in the Westchester Action, holding that the Final Consent 6 Judgment was 7 whether Siegel and Shuster intended to transfer all of their Superman copyright 8 rights to Detective by their March 1 , 1938 agreement. 9 1 3 .5 Because these findings were wholly consistent with the terms of the Final 1 2 In v. res judicata as to National's renewal copyright ownership and as to National,508 F.2d at 9 1 2Action Comics #1 Story, 10 Consent Judgment as to the copyright ownership of the 11 National did not question their preclusive effect with regard to Superman works. 12 Although Defendants have previously objected to giving such findings preclusive 13 effect as to the copyright ownership of the Superboy property - for the reason that 14 they were inconsistent with and vacated by the Final Consent Judgment - this 15 Court has now held them to b e preclusive and binding as to the facts therein found. 496 F. Supp. 2d at 1 127.6 16 Siegel I, 2. 17 18 19 20 21 22 23 24 25 26 27 28 C; strip Siegel and Shuster's Creation of the First of the Superman Comic Strips and Their March 1, 1938 Grant to Detective idea oja comic As this Court has noted, "in 1 933, Siegel conceived of the , featuring a character named 'Superman, " for which he and Shuster developed material that they unsuccessfully shopped around for several years to numerous publishers. Siegel I,496 F. Supp. 2d at 1 1 1 3 (emphasis added); Siegel 5 The Second Circuit declined to affirm the District Court's work for hire conclusion on the basis of the referee's fact fmdings because the referee had found that Siegel and Shuster had already created the first Superman story several years before submitting it to Detective. Id. at 9 14. Under such circumstances, Detective could not have been the "motivating factor" in its creation which was therefore not produced at its instance. /d. This Court held that the 1 940 Superboy Script submitted to Detective was not a work for hire, principally because the expense requuement was not satisfied. Siegel 1, 496 F. Supp. 2d at 1 139. Defendants have assumed the binding status of such finding for the purpose of this brief, but respectfully reserve their right to appeal on this and the broader question of the binding nature of factual findings vacated by and thus not incorporated in the Final Judgment. 6 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES 6 /I C, EXHIBIT I - 424 .. Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 07/21/2008 Page 1 9 of 92 1 II, 542 F. Supp. 2d at 1 1 02-08. In December 1937, after Detective acquired two 2 other comic strips penned by Siegel and Shuster, called "Slam Bradley" and "The 3 Spy," Detective entered into "a written contract of employment" with them to 4 provide material for these strips for the next two years. 5 Supp. 2d at 1 1 14. This agreement provided that Detective as "emplo yer" would be 6 deemed the "sole creator" oftheir material for these strips and that "any new and 7 additional features which the Employees produce for use in a comic magazine are 8 to be first submitted to Employer, who reserves the right to accept or reject same 9 within a period of sixty days." (Bergman SJ Dec!. Ex. A). At that time, Detective 10 discussed with Siegel and Shuster the possibility of their furnishing material for a 11 new comic magazine at the increased rate of $ 1 0 per page. 12 2d at 1 1 14. See also FOF � 16. Id. at 1 1 06; Siegel 1, 496 F. Siegel I, 496 F. Supp. In early 1 93 8 Detective decided to proceed with its new magazine, titled 13 15 Action Comics. Siegel 1, 496 F. Supp. 2d at 1 1 14; Siegel 11, 542 F. Supp. 2d at 1 1 06. See also FOF � 1 7. When the McClure Newspaper Syndicate brought 16 Siegel and Shuster's Superman strip to Detective for consideration as a new series 17 ( for 14 20 Action Comics, Detective decided to "exercise . . . the option granted to it by said agreement of December 4, 1 937" (FOF � 29; see also Siegel 1, 496 F. Supp. 2 at 1 1 1 3 - 14; Siegel II, 542 F. Supp. 2d at 1 1 06) to publish the original Superman story. (Siegel 1, 496 F. Supp. 2d at 1 1 14; Siegel II, 542 F. Supp. 2d at 1 1 07; FOF 21 �� 19 &24-29). 18 19 22 On March 1 , 1 938, Detective executed an agreement with Siegel and Shuste 23 to obtain all rights in their pre-existing Superman materials and the Superman 24 character. Siegel I, 496 F. Supp. 2d at 1 1 07; Siegel II, 542 F. Supp. 2d at 1 1 14. 25 26 ( See also FOF �� 25, 33. their rights and good will in the Superman materials, including "the exclusive right 27 to the use ofthe characters and story . . . contained therein" and also agreed: 28 In this agreement Siegel and Shuster transferred all of not to employ said characters or said story in any other strips or sell any like strip or story containing the same characters . . . at any time 7 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 425 Cas 2:04-cv-08400-0DW-RZ 2 3. 5 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Page 20 of 92 c) (Bergman SJ Decl. Ex. B (hereinafter "March 1938 Agreement")). 4 6 Filed 07/21/2008 hereafter to any other person, firm or corporation, or permit the use thereof by said other parties without obtaming your written consent therefor. 1 3 Document 336 The Business and Contractual Relationship of the Parties After March 1, 1938 At the time that Siegel and Shuster entered into the March 1 938 Agreement, the only existing Superman materials were the Superman strips created some years earlier as expanded in their 13-page comic book format, as well as some additional continuity by Siegel that was never used. (Bergman SJ Decl. Exs. X &Y (Notices of Termination of December 4, 1937 and March 1 , 1 938 agreements, '\1 3; ("the sai grant included all Superman works in existence up through said date (March 1 , 1938)")); see FOF '\1'\1 32-33; Siegel II, 542 F . Supp. 2d at 1 107. All ofthat pre- existing Superman material was conveyed to Detective, and Detective used certain Action Comics #1 published on April 1 8, 1 938. of this material in the first issue of (FOF '\1 3 1). Because it was no longer possible under the March 1 938 Agreement for Siegel and Shuster "to employ" their original Superman material without Detective's "consent" (Bergman SJ Decl. Ex. B), the only way they could prepare further Superman material for ensuing features without infringing copyright was to do so with Detective's authorization. Detective obtained the material for such sequels from Siegel and Shuster, paid them for it, and published it "at regular intervals." (FOF '\1 36); see Plaintiffs' First Amended Complaint ("FAC"), '\1 28); Siegel 1, 496 F. Supp. 2d at 1 1 14. 7 "Siegel and Shuster continue[d] to be paid at the agreed rate of $ 1 0 per page." (FOF '\1 36); Siegel 1, 496 F. Supp. 2d at 1 1 14. Both ofthem also understood that that they could be discharged at any time and that Detective could Unlike the situation pertaining to the 1940 Superboy Script, the record is clear that " ) Siegel and Shuster were paid for these Superman works at an agreed fixed page rate, and � '\ Detective also had the right at any point not only to modify or reject Siegel's and Shuster's submissions but further to replace them with other writers. 7 � 8 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 426 Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 07/21 /2008 Page 2 1 of 92 1 continue to produce materials containing Superman without their involvement. 2 (FOF �� 37-38, 42 and Conclusion of Law sf Detective undertook the financial 3 risk of publishing the later Superman features and devoted considerable resources 4 to the promotion of its new Action Comics magazine and the Superman strip. 5 (FOF � 3S.) As noted above, Detective at all times also had the ultimate right to 6 reject the post March 1 , 1938 submissions. The arrangements for Superman's appearances after Action Comics #1 were 7 8 based on the parties' earlier December 4, 1937 contract and were formally 9 reconfirmed in their September 22, 1 938 employment agreement. This agreement 10 (the "September 1 938 Employment Agreement") expressly sets out the terms on 11 which Siegel and Shuster had been supplying and would "continue" to furnish the 12 new episodes. (Bergman SJ Declaration, Ex. F). More specifically, the parties: • ( Stated that "we [Detective] wish you to continue to do said work and hereby employ and retam you for said purposes for the period of this contract." (pg. 1) • Affif!I1ed that Siegel and Shu.ster expressly confi�ed. that Detective ComiCS, Inc. was the "exclusIve owner" of "comic StrIp[SJ known by the title[] 'Superman' . . . and to the rights to publish comic stnps carrying said titles and characters contained therein and continuity thereof." (jJg. 1) • Confirmed that Siegel and Shuster shall furnish "such matter [Superman material] exclusively to us [Detective] for the duration of this agreement as such matter may be required by us or as designated by us in Writing. '" (pg. 1) • Provided that Siegel and Shuster would continue to be paid at the same rate of $ I O per page. ij)g. 2) • 14 Reiterated that Siegel and Shuster "have been doing the art work and continuity for said comics [including Superman] for us." (pg. 1) • 13 Confirmed that Detective possessed editorial control over the content of the 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 See also Declaration of Michael Bergman in Support of Defendants' Reply In Support of Motion for Partial Summary Judgment filed on June 25, 2007 ("Bergman Reply Dec!.") at 73 (1941 Saturday Evening Post article based on interviews with Siegel indicates Siegel and Shuster's awareness in March of 1938 not only that Detective would be sole owner of Superman but also that henceforth Detective would at its sole discretion decide whether to hire them or some other team to draw the strip.) In his March 1 , 1 973 affidavit in the National litigation, Siegel referred to this article without questioning its accuracy. See Declaration of Michael Bergman in Opposition to Plaintiffs' Motion for Partial Summary Judgment in the Superman Action filed May 29, 2007 ("Bergman Opp. Dec!.") Ex. H. 9 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES 8 EXHIBIT I - 427 Cas 2:04-cv-08400-0DW-RZ 2 4 5 6 Filed 07/21 /2008 Page 22 of 92 Superman comics, reserved "the right to reasonably supervise the editorial matter of all features" and mandated that that the "cormcs shall be equal to the present standards." (pg. 1 , 3) 1 3 Document 336 • .) Reiterated that other artists could be substituted and Siegel and Shuster could be terminated if the standards were not met; (pg. L) and • ( "­ Made clear that Detective was the copyright owner of all works covered, including Superman. (pg. 2) !d. (emphasis added); see also Siegel I, F. Supp. 2d at 1 1 14. 7 Over the years, Detective exercised considerable control over the direction 8 of Siegel's creations, eventually requiring Siegel to submit synopses for advance 9 approval. (FOF "If 86. See also December 19, 1 939 Agreement (Declaration of 10 Michael Bergman In Support o f Defendants' Brief on Additional Issues ("Bergman 11 Decl.") Ex. A) (requiring confIrmation "([t]hat we have the unrestricted right to 12 adapt, arrange, change, transpose, add to and otherwise deal with any or all said 13 comic strips and the titles, characters, and continuity thereof as we on our sole 14 discretion may deem it necessary or advisable to do so·").)i Indeed, the Superman 15 story and characters evolved on an issue-by-issue basis under the guidance and 16 direction of the editors of Detective, and then DC. See also Siegel 11, 542 F. Supp. 17 2d at 1 1 1 0- 1 1 . By the end of 1 947, Siegel had ceased providing regular continuity 18 for Superman comic books and no longer played any role in furnishing Superman 19 material to Detective or its successors. 20 21 4. _ 0 Plaintiffs' Notices and Copyright Termination Claim In April 1999, Plaintiffs served notices of termination under 17 U.S.C. § 22 304(c) purporting to terminate grants by Siegel of renewal copyrights to DC's 23 predecessors in specifIed Superman works, including his fIrst appearance in Action 24 Comics #1 , as well as certain unpublished, unregistered early versions of such 25 story (the "Notices"), all effective as of April 1 6, 1 999. (Bergman SJ Decl. Exs. 26 In fact, when Siegel and unable to meet their workload, work was 9occasionally ghost writtenShuster werethe direction of Detective. (FOFthe58, 87). Even by others at "tf 27 28 when Siegel was no longer involved as a contributor, the production of Detective's Superman works continued. (FOF �"tf 63; 92 ( 1 20 releases of Superman published in magazines between 1943 and 1 947 mcluding when Siegel was away durmg the war.)) 10 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES (.) EXHIBIT I - 428 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21 /2008 Page 23 of 92 1 X-DD.) The Notices with respect to the December 4, 1 937 and March 1 , 1 938 2 grants state that such agreements "included all SUPERMAN works in existence up 3 through said date (March 1 , 1 938) . . . ." (id. at 551), and each identifies the 4 terminated works as "an illustrated comic book constituting a front cover and 5 pages 1 - 1 3 , inclusive, in the body of Action Comics, Vol. 1 , No. 1 , June 1 938 6 issue, publication date April 1 8, 1 938 . . . Copyright Reg. No. B379787 . . . ," the 7 previous unpublished and unregistered works upon which this first published 8 Superman comic feature was based, as well as a 550 page list of additional 9 ( "remaining works," that include "each and every work (in any medium . . . 10 11 wherever created)" that includes any Superman "element." Id. In this action, Plaintiffs allege that their Notices have had the effect of 12 13 14 Comic Strip and the Revised 1 934 Comic Strip, both published as/in Action 15 Comics No. 1 ; (iii) the material published as/in Action Comics Nos. 1 -6 (statutory copyright to Action Comics No. 6 was secured on September 26, 1 938); (iv) the 17 material published as/in Action Comics Nos. 7-61 (statutory copyright to Action 18 Comics No. 6 1 was secured on April 13, 1 943), and/or (v) subsequent works 19 involving ' Superman', all as set forth in the Notice of Termination." (FAC � 39.) 20 Plaintiffs also allege that all Superman works created by Siegel and Shuster after 21 the first Superman story appeared in Action Comics #1 , including Superman stories 22 in Action Comics #2-61, were not works made for hire (Id. �� 30-32 &34). 23 Reciting the master-servant criteria for determining whether Siegel and Shuster 24 were traditional employees (a claim never made by Defendants) - which are 25 irrelevant to the 1909 Act work for hire test for independent contractors - and 26 ( term of "(i) the copyrightable 'Superman' character; (ii) the 1934 Superman · 16 ( terminating and recapturing joint copyright ownership for the extended renewed without regard to the parties' actual business and contractual relationship, Plaintiff: 27 claim that such works are not made for hire. (Id. � 34). 28 Defendants have denied each ofthese allegations, and DC Comics' Fifth 11 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 429 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 24 of 92 1 Alternative Counterclaim seeks a declaration that the copyright rights in the newly 2 added material in any ofthe "derivative works based upon and that post-date 3 Action Comics no. 1 . . . are owned exclusively by DC Comics" and not subject to 4 copyright termination (Am. Ans. and Counterclaim �� 1 1 8-20). B. 5 6 All :( �j In v �'(orv ( �; �'ul1 :KS tor II C) len to the A �.:�At the Because the above facts are not and cannot be disputed, resolution of the 7 8 copyright ownership issues raised herein calls upon the Court to do "exactly what 9 the Second Circuit did in its time" and what this Court previously did in deciding 10 the work for hire status of the 1940 Superboy Script, namely, to "apply the 11 copyright law under the 1 909 Act" to the established facts, including relevant 12 findings ofthe referee and "render a legal judgment" as to the works at issue. 13 Siegel J, 496 F. Supp. 2d at 1 1 37. Works for hire are excluded from termination under the express terms of the 14 15 statute. See 1 7 U.S.c. § 304(c). As this Court has previously noted, "if a work is 16 one for hire, then Siegel's heirs cannot seek to terminate his earlier grant . . . to 17 defendants' predecessors in interest, such a grant being merely a superfluous act 18 that did not alter the pre-existing ownership rights to that copyright. Id. at 1 1 35 19 (citing Playboy Enters., Inc. 20 established that a work is made for hire, the hiring party is presumed to be the 21 author of the work")). Accordingly, copyrightable material contributed by Siegel 22 to subsequent Superman works pursuant to a work for hire relationship is not 23 C subject to termination and recapture, and has no relevance to the remaining issues in this case. 10 24 v. Dumas, 53 F.3d 549, 554 (2d Cir. 1995) ("Once it is 25 26 10 Under Fed. R. Evid. 402, irrelevant evidence must be excluded. Accordingly, in the interest of efficiency, this court has the authority to exclude irrelevant evidence prior to trial. Fournier v. McCann Erickson, 242 F. Supp. 2d 3 1 8, 334-35 (S.D.N.Y. 2003) ("The 28 purpose of a motion in limine is to allow the tnal court to rule in advance of trial on the admissibility and relevance of certain forecasted evidence.") With the exception of the Action Comics #1 Story, evidence concerning Siegel's contribution, if any, to the 12 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES 27 U EXHIBIT I - 430 Cas 2:04-cv-OS400-0DW-RZ ( Document 336 Filed 07/21/200S Page 25 of 92 1 1909 Act precedent determines whether Siegel's contributions to Superman 2 comic books after March 1 , 1 938 were works for hire. Siegel I, 496 F. Supp. 2d at 3 1 136 (citations omitted)). In 1965 the Ninth Circuit was the first to formulate the 4 1 909 Act "instance and expense" test to determine whether the copyright in a work 5 prepared by an independent contractor is owned by the engaging party as a work 6 for hire: 7 8 9 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 [wlhen one person engages another, whether as an employee or as an . mdependent contractor, to produce a work of an artistIc nature, that in osence of an express contractual reservation of the copyright in the a the artist, the presumption arises that the mutual intent of the parties is that the title to the copyright shall be in the person at whose instance and expense the worK IS done. Lin-Brook Builders Hardware v. Gertler, 352 F.3d 298, 300 (9th Cir. 1965). Under this test courts are required to focus their analysis on three factors: "(1) At whose instance was the work prepared; (2) whether the hiring party had the power to 'accept, reject, modify', or otherwise control the work; and (3) at whose expense was the work created." Siegel I, 496 F. Supp. 2d at 1 1 36; see also Self-Realization Fellowship Church v. Ananda Church o /Self-Realization, 206 F.3d 1 322, 1326 (9th Cir. 2000); Lin-Brook, 352 F.2d at 300. In devising these criteria, consideration of "objective" facts was required in order to avoid arguments based upon after-the-fact self-serving assertions of subjective intent or other irrelevant matters. Estate o /Hogarth v. Edgar Rice Burroughs, Inc., 62 U.S.P.Q.2d 1 3 0 1 , 1 327 (S.D.N.Y. 2002), a ff'd, 342 F.3d 149 (2d. Cir. 2003); see May v. M oganelli Heumann Assocs. , 6 1 8 F.2d. 1363, 1369 (9th Cir. 1980). 1 1 23 24 25 26 27 28 thousands of other pre-termination Superman works is simply not relevant to Plaintiffs' accounting claim. 1 1 Satisfaction of the requisite inquiry resulted in "an almost irrebut[t]able presumption that any person who paid another to create a copyrightable work was the statutory 'author' under the 'work for hire' doctrine." Hogarth., 342 F.3d at 1 5 8; Easter Seal Soc yf Crippled Children v. Playboy Enters. , 815 F.2d 323, 327 (5th Cir. 1987). As or the Second Circuit explained, under the 1909 Act, "a party who hires another to create a copyrightable work is the 'author' of the work for purposes of the statute, absent an agreement to the contrary." Playboy, 53 F.3d at 554; accord Siegel J, 496 F. Supp. 2d at . 1 136. 13 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 431 Cas 2 :04-cv-08400-0DW-RZ 1 1. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Document 336 Filed 07/21/2008 Page 26 of 92 Superman Works Subsequent to the Action Comics #1 Story Were Prepared at Detective Comics' Instance () The element of "instance" is satisfied by determining which party was the "motivating factor in producing the work." Siegel 1, 496 F. Supp. 2d at 1 1 39 (quoting Twentieth Century Fox Film Corp. v. Entm 't Distributing, 429 F.3d 869, 879 (9th Cir. 2005». Here, all of the established indicia of instance are present. First, it is clear that as early as 1 933 when Siegel and Shuster created their original Superman material, that their efforts were intended to create an ongoing comic strip f eature, not a one-shot story. Thus, all involved understood that after March 1 , 1938 Detective would want and need more Superman material for sequels in later issues ofAction Comics or otherwise. Second, on March 1 , 1 938 it was clear that Detective had become the absolute owner of all the Superman material then "in existence" and that Siegel and Shuster could not make any further use of Superman for any purpose without ' Detective's permission. See supra Section I(A)(1); National, 508 F.2d at 9 13-14. But for Detective's consent, Siegel and Shuster would have been forbidden from creating the Superman stories in Action Comics #2-61 or any other Superman comic strips, which were derivative works because they were based on the copyrighted material, including the character delineation of Superman, in the Action Comics #1 Story. See 1 7 U.S.C. §§ 1 0 1 (def. of "derivative work") & 1 03(b); c Siegel 11, 542 F. Supp. 2d at 1 124. 12 Thus, Detective was necessarily f "the motivating party" in the production of all of the new Superman material: it was Detective alone who supplied the underlying material to Siegel and Shuster and who required and paid them for the derivative works based thereon. Unlike the Superman material furnished for the Action Comics #1 Story, none of this material was preexisting - all was subsequently prepared. Under the controlling 12 Even with regard to the 1940 Superboy Script, Plaintiffs did not deny its derivative ortiori, nature based on the prior Superman works, Sie�el 1, 496 F. Supp. 2d at 1 153; af the subsequent Superman features were derivatIve works based on the Action Comics #1 Story. C J . 14 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 432 Cas 2 :04-cv-08400-0DW-RZ ( D ocument 336 Filed 07/21 /2008 Page 27 of 92 1 cases as well as this Court's prior decision, this is precisely the situation where the 2 derivative nature of the works at issue and the need for permission to prepare them 3 from the copyright owner of the underlying works has been held to signify that 4 they were prepared at the instance of the party who was then the copyright owner 5 of the preexisting material. Siegel I, 496 F. Supp. 2d at 1 143 (discussing Hogarth, 6 62 U.S.P.Q.2d 1301 and Picture Music, Inc. 7 Cir. 1 972)); see also 3 Melville B. Nimmer&David Nimmer, Nimmer on Copyright ("Nimmer")§ 9.03[D] at 28-3 (2005). 13 8 v. Bourne, Inc. , 457 F.2d 1213 (2d 9 10 evidence of an agreement by which the employee or independent contractor 11 retained the copyright in his work," Dolman v. Agee, 157 F.3d 708, 712 (9th Cir. 12 1 998), the parties here fully reinf orced and extended the presumption in their 13 September 1 938 Employment Agreement. This agreement memorialized an 14 already existing classic work for hire relationship. It provided that "You [Siegel 15 or and Shuster] have been doing the artwork and continuity for said comics f us 16 [Detective Comics]" and used the unequivocal work for hire language that 17 Detective would "employ and retain" Siegel and Shuster to "continue" to provide 18 such material on the same basis. (Bergman SJ Decl. Ex. F at 1). See Hogarth, 62 19 u.S.P.Q.2d at 61 (term "employ and engage" traditional indicia o f work for hire). 20 Accord Siegel I, 496 F. Supp. 2d at 1 140 (ensuring Superman material part of 21 "regular job duties"). That neither Siegel nor Shuster was "a formal employee" in 22 the traditional sense, as this Court has noted, has nothing to do with whether Siegel 23 and Shuster were furnishing material as independent contractors on a work for hire 24 ( Third, although "[t]he work for hire presumption can be overcome by basis. !d. at 1 138 (quoting Playboy, 55 F.3d at 555). 25 26 ( Fourth, instance is also established where a publisher has a right to supervise, reject or modify an independent contractor's creative efforts, Twentieth 27 28 13 Defendants do not contend that the derivative work status of the Superman features in Action Comics #2-61 or any other post-March 1 , 1938 Superman works requires the conclusion that these were works for hire, but only that such status signifies "instance". 15 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 433 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 . Page 28 of 92 1 Century, 429 F.3d at 879-880 ("instance" requirement also "shaped in part by the 2 degree to which the hiring party had the right to control or supervise the artist's 3 1 938 Siegel and Shuster could not use the Superman character or any of the 5 Superman continuity without the consent of Detective necessarily gave Detective 6 l work"); accord Siegel 1, 496 F. Supp. 2d at 1 143. The fact that after March 1 , 4 ( right to accept or reject any submissions. See Section I(B)(3) infra. 7 Fifth, before Action Comics #2 was created Detective had obtained all rights 8 to all Superman material then in existence. (Bergman SJ Decl. Ex. B). The parties 9 \"j already had a prior employment relationship (evidenced by the December 4, 1 937 10 agreement) with respect to "Slam Bradley" and "The Spy" to produce content at 11 regular intervals. (FOF �� 15, 33). Under that agreement Siegel and Shuster were 12 also to submit material for any other new properties to Detective, which could then 13 accept or reject it. (Bergman SJ Decl. Ex. A). At that time, they were told that 14 they would be paid $ 1 0 per page for any comic that was subsequently accepted for 15 pUblication in Detective's new comic magazine, Action Comics #1. (FOF � 1 6). 16 In subsequently accepting the Superman strip for Action Comics on March 1 , 1 938, 17 Detective exercised the option granted to it in the December 4, 1 937 agreement. 18 (FOF � 29). Thereafter, for each subsequent issue of Action Comics, which "was 19 published at regular intervals," Plaintiffs were told to and submitted the requested 20 additional strip. (See FOF � 36); see Siegel 1, 496 F. SUpp. 2d at 1 138 (regular 21 payments and work indicative of work for hire relationship). (See also Bergman 22 Decl. Ex. B (Liebowitz letter ("we have loaded you up with 43 pages a month . . . 23 the success of the magazine is dependent on the type of work done by yourself and 24 other contributing artists . . . "» . 25 26 27 28 2. (� Action Comics #2-61 and Other Superman Strips after March 1, 1938 Were Created at the Expense of DC Comics. The fact that Siegel and Shuster were paid a sum certain for each page of Superman content they produced satisfies the expense requirement of the work for hire test. See Playboy, 53 F.3d at 555 (requirement met when "hiring party simply u 16 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 434 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 29 of 92 1 pays an [employee or] independent contractor a sum certain for his or her work.") 2 After March I , 1938, upon acceptance of Superman submissions to be used in . 3 Action Comics #2 and forward, Siegel and Shuster were paid by Detective at the 4 agreed upon rate of $ 1 0 per page (per the December 4, 1 937 agreement). (See FOF 5 �� 16, 36). SiegelJ, 496 F. Supp. 2d .at 1 138 ("regular, periodic payments of a 6 sum certain bear the hallmark of the wages of an employee required to produce the 7, work in question for his or her employer, and not that of a party who is free to 8 engage [others] in marketing his or her work.") (citing Donaldson Pub. Co. 9 ( Bregman, Vacca & Conn., Inc. 375 F.2d 639 (2d Cir. 1 967)). The amount of the payment was increased over time. (FOF � 52). 14 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 3. v. Detective Comics had the Power to Accept, Reject, Modify or Otherwise Control the Work. With respect to this final factor of the work for hire test, the recipient need only possess the power to "accept, reject, or modify" the work at issue. Twentieth Century, 429 F.3d at 880 (quoting Picture Music, 457 F.2d at 1 2 1 7). This inquiry is concerned with the abstract ability to control, and not whether the right was actually exercised. See Easter Seal Soc yf Crippled Children, 8 1 5 F.2d at 327 or (hiring party is "thought to maintain the 'right' to control simply by paying for the artha Graham School work and having the power to refuse to accept it."); see M and Dance Foundation, Inc. v . M artha Graham School a /Contemporary Dance, Inc., 380 F.3d 624, 635 (2d Cir. 2004) ("The right to direct and supervise the manner in which the work is created need never be exercised.") lfthe post-March 1 , 1938 Superman materials were derivative works based on the Action Comics #1 Story, "such a designation would have vested Detective Comics with the right to control that material (Detective Comics' consent being necessary for the material's production.)" Siegel I, 496 F. Supp. 2d at 1 144. 14 Unlike the situation pertaining to the 1940 Superboy script, there is no dispute that after March I , 1 938 Siegel and Shuster were paid the agreed amount per page for all of their contributions of Superman material for publication in Action Comics, as confirmed by the September 1 938 Employment Agreement. 17 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 435 Cas 2:04-cv-08400-0DW-RZ D ocum e nt 336 Filed 07/21/2008 Page 30 of 92 Because Detective controlled the underlying works upon which the Siegel and 2 Shuster's post-March 1 , 1 938 submissions were based, it alone possessed the right 3 to direct and supervise any work derived therefrom. Hogarth, 342 F.3d at 1 63 4 ("the copyright proprietor has the right to 'direct and supervise' the work ofthe 5 commissioned party sufficient to render it a work for hire.") (internal citations 6 omitted). Detective made it clear to Siegel and Shuster that it alone owned all 7 rights to the Superman strips; that Siegel and Shuster could be discharged at any 8 time; and that Detective could continue to produce materials containing Superman 9 U without the involvement of Siegel and Shuster. (FOF '\1'\1 37-38). This right was 10 confirmed in the September 1938 employment agreement, which reserved the 11 12 "right to reasonably supervise the editorial matter of all features." (Bergman SJ Dec!. Ex. F). 1 5 Accordingly, this final element of the work for hire test is also 13 satisfied. 16 14 C. 15 � Plaintiffs Have Not Recaptured The "Su erman Character"As Only Specific, Individual works Are Su )ect '1'0 Recapture 1. 16 17 COllyright Protection and Ownership, Inciuding the Right of Termination, is Provided for on aWork by Work Basis Copyright protection and ownership subsists on an individual basis for any 18 19 20 15 As noted above, Detective at all times also had the ultimate right to reject the post March 1 , 1938 submissions. Assuming, arguendo, that any of the post-Action Comics #1 Supennan works were not created at the instance and expense of DC (and therefore were not works for hire), Plaintiffs' recapture interest would in any event be limited to only those derivative works actually authored by Siegel. As explained in its legislative history, the purpose of Section 304(c)'s tennination provision is to give "the author or the dependents of the author . . . a chance to benefit" from the extension of the renewal copyright tenn for 1909 Act works. H.R. Rep. No. 94-1476, 94th Congo 2d Sess. ( 1 976) CH. Rep."), at 140. Accordingly, tennination rights are afforded only to "the author" or, ifhe IS dead, to certain "designated" persons related to the author of any particular cop�ghted work. 1 7 U.S.C. § 304(c)(1 ) & (2). It is self-evident that one cannot claim an initial copyright ownership interest in works he did not author. See 1 7 U.S.C. § 201 (a) & (b). Here, Siegel had no involvement in the creation of the vast majority of works listed in the Notices. See, e.g., Bergman SJ Decl. Ex. X at 493 (Lois & Clark television series), 547 (theme from the movie E.T., which is alleged to include theme from the Supennan film), 477a (action figure ofLex Luthor/Kryptonite.) Without any creative participation, Siegel could not possibly be considered the "author" of these later works on any theory. As a result, neither he nor his heirs after his death were given any termination right with regard to such works. 21 22 23 24 25 26 27 28 16 u 18 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 436 Cas 2:04-cv-OB400-0DW-RZ ( Document 336 Filed 07/21/200B Page 31 of 92 1 particular work: "copyright protection subsists . . . in original works o authorship f 2 fixed in any tangible medium of expression." 17 U.S.C. !o2(a). See also 1 7 U.Se. 3 §§ ! o2(a), 201 (a) ("[c]opyright in a work protected under this title vests" in its 4 author or authors) (emphasis added). These bedrock provisions carry forward prio 5 law under the 1 909 Act. See generally H. Rep. at 5 1 -57 and 120-2 1 . 6 In the 1976 Act's provisions embodying the newly provided termination 7 right, Congress similarly structured this benefit to authors in terms of the copyright 8 in particular works. Thus, section 304(c) enables an author or his heirs designated 9 therein to terminate pre-I 978 grants "[i]n the case of any copyright subsisting in 10 11 madef hire. " 1 7 U.S.C. § 304(c) (emphasis added). Pursuant to 17 U.S.e. § or 12 304(c)(4)(B), the Register of Copyright required a terminating party to specifically 13 identify "each work to which the notice oftermination applies . . . and . . . . the 14 original copyright registration number." 37 C.F.R. § 201 . 10(b)(I)(ii). That section 15 304(c) and the Copyright Office Regulations speak in terms of a "copyright" and a 16 particular "work," and provide for the right of termination of grants with respect to 17 particular copyrighted works - not in terms of groups of copyrights, or any 18 components or aspects of a copyright - follows from the above statutory provisions 19 ( either its first or renewal term on January I , 1976, other than a copyright in a work pertaining to copyright protection and ownership. 20 Thus, the right to terminate prior grants under section 304(c), which relates 21 to copyright ownership can only b e effected on a work by work basis. See Siegel 22 II, 542 F. Supp. 2d at 1 1 34 ("The instant matter, although couched in terms of 23 terminating the 1 938 grant, is in effect one for co-ownership of the copyright in the 24 Superman material contained in Action Comics, Vol. 1 ."). 25 26 ( 27 28 2. Plaintiffs Can Not Under Section 304(c) Amorphously Recapture a Character . Although Plaintiffs assert their entitlement to recapture the "copyrightable 'Superman' Character," see FAC '11 39, their right to recapture rights in particular works does not entitle them to separately recapture protectable components of any 19 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 437 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 32 of 92 1 particular work, such as a character in a literary or dramatic work, on an 2 amorphous basis. This is because characterization, along with plot and setting or 3 locale, are not works themselves, but only components of literary, pictorial and 4 audio visual works. Thus, section 1 02(a), which lists the categories of works of 5 authorship for which copyright protection subsists, does not include characters. As 6 () explained by Patry: 7 8 9 10 11 12 l3 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Characters are not enumerated in the statute as a separate class of copyrightable work and cannot be separately registered . . . This is, h.owev�r, a purely administrative matter with no effect on copy­ nghtablltty. 1 William F. Patry, Patry on Copyright ("Patry"), § 3: 164 ( l st ed. 2007) (citations omitted). Insofar as copyrightability is concerned - which is not at issue here copyright protection for characters as part o the works in which they are f incorporated has long been upheld where the character is sufficiently delineated. See, e.g., Rice v. Fox Broad. Corp. 330 F. 3d 1 170, 1 1 75-76 (9th Cir. 2003); Nichols v. Universal Pictures Corp., 45 F.2d 1 1 9, 1 2 1 (2d Cir. 1 930). C) ' To the extent that a character is adequately developed therein, recapture of copyright in a work by termination would enable the terminating party to regain the ownership benefits of all the work's protectab1e components, including such character delineation, but only copyrightable material from a particular "work" subject to termination can be recaptured. This is made clear by section 304(c)'s express terms which only permit termination of "any copyright," i.e., work, "subsisting in either its first or renewal term on January 1 , 1978." Moreover, where a terminated agreement has granted the right to use a character, the only wa to recapture the entirety of the copyrightable components of a character as delineated in a series of works is to recapture the copyright in all of the works in which he and his exploits are depicted. See Burroughs v. M etro-Goldwyn-Mayer, Inc., 683 F.2d 610, 622-23 (2d Cir. 1 982). In other words, where, as here, termination is limited to the rights granted in the first work because the sequels are works for hire (see Section I, above), termination will not recapture expanded C) 20 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 438 Cas 2:04-cv-08400-0DW-RZ ( 1 Document 336 Filed 07/21/2008 Page 33 of 92 character delineation in sequels. 17 2 Finally, that the requirement to specify "each work to which the notice 3 applies" cannot be satisfied by only identifying generally a separate creative 4 component found in a work, such as a character, is also confirmed by Plaintiffs' 5 own Notices which specify "each work to which" they apply but nowhere identify 6 as the subject of Plaintiffs' purported terminations "the Superman character," 7 whose delineation has been expanded in many subsequent works not subject to 8 recapture. (See Bergman SJ Dec!. Exs. X-DD �� 2-3). 9 II. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 PROFITS FROM THE DOMESTIC EXPLOITATION OF EACH POST-TERMINATION SUPERMAN WORK MUST BE SEPARATELY "APPORTIONED" TO DETERMINE WHAT PERCENTAGE IS ATTRIBUTABLE TO THE ACTION COMICS #1 STORY As the Court has noted, "the accounting sought by plaintiffs in this action is an equitable remedy" that will involve "an apportionment" to determine what profits are recoverable. Siegel II 542 F. Supp. 2d at 1 145. "Apportionment," in the copyright context, refers to determining what percentage of a defendant's total profits garnered from the exploitation of a particular work can reasonably be attributed to the copyrightable elements ofthe underlying work which plaintiff owns or shares. See Sheldon v. Metro-Goldwin Pictures Corporation, 106 F.2d 45 (2d Cir. 1 939), a ff'd 309 U.S. 390 ( 1940). While the apportionment concept was developed and has generally been applied in copyright infringement cases, there is no principled reason why the concept should not also be applied where, as here, there is an accounting issue between co-owners of a copyright as to their respective shares of the profits generated by works utilizing the co-owned copyrightl 8 1 7 In Burroughs, the Second Circuit held that notwithstanding the effectiveness of the termination of the grantee's rights in the first work in which the character Tarzan appeared as well as in some but not all of the ensuing Tarzan stories, defendant MGM "still had the right to reuse Tarzan and whatever other characters it had used in the 1 932 film [the first licensed work1 if they appeared in any" of the later books not terminated. ld., 683 F.2d at 623. 18 The Court has ruled that Plaintiffs have successfully terminated, effective as of April 16, 1 999, Siegel's grant to Detective. Siegel Il, 542 F. Supp. 2d at 1 142 , 1 1 45. However since there has not yet been an effective termination of Shuster's concurrent grant to Detective of the same Superman materials and rights, DC retains all of Shuster's 21 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 439 Cas 2:04-cv-08400-0DW-RZ 1 2 Document 336 Filed 07/21/2008 Page 34 of 92 . particularly since a defendant co-owner, unlike an infringer, is not a wrong-doer. 19 l) Plaintiffs have asked this Court for an accounting and an award of a share of 3 Defendants' profits attributable to the exploitation of all Superman derivative 4 works newly prepared after the April 1 6, 1 999 effective date of their termination.2o 5 However, because virtually all of these post-termination works contain 6 copyrightable elements that have not been recaptured by Plaintiffs but are instead 7 owned exclusively by DC (including DC's other superhero characters), Defendants 8 respectfully submit that, as the Court has recognized, any determination of 9 10 Plaintiffs' accounting claim will necessarily require an equitable apportionment of , the profits generated by each of Defendants 21 post-termination Superman works to 11 determine what percentage of those profits is properly attributable to the original 12 Action Comics #1 Story, and what percentage is attributable to everything else - 13 including the copyrightable elements in the Announcements or other elements 14 (copyrightable or not) authored or contributed thereafter by DC or its licensees. 15 Plaintiffs have previously taken the position that no apportionment analysis 16 should be conducted for certain types of works (e.g. works prepared by 17 C) Defendants' licensees), and that Plaintiffs are entitled to a flat 50% of Defendants' 18 19 20 21 22 23 24 25 26 27 28 copyright interests in the Action Comics #1 Story, and remains fully entitled to continue to exercise such co-ownership rights to this day. S.0.s., Inc. v. Payday, Inc., 886 F.2d 108 1 , 1086 (9th Cir. 1989); Oddo v. Ries, 743 F.2d 630 (9th Cir. 1984). 19 The Court has also ruled that Plaintiffs' Notices did not reach the two Announcements for Action Comics #1, which were copyrighted by Detective prior to April 16, 1938, Siegel 11, 542 F. Supp. 2d at 1 126, and which contain the f publishea image of ust Superman. Therefore, DC remains the sole owner of the copyrightable content of the Announcements, and remains entitled to exploit that content without sharing with Plaintiffs the proceeds attributable to that content. Id.. Finally, since all of Siegel's post­ Action Comics #1 contributions to Superman were as works for hire, DC remains the sole proprietor of all of the new copyrightable content of the Superman works published after f Action Comics #1 and through the effective date of Plaintif s' termination. (See Section I, infra.) 20 See FAC at �� 58, 66-73, i 05(d), 1 06, 108-1 1 0. 2 1 Defendants' consider that Plaintiffs are entitled to share only in defendant DC Comics' profits, and not in the profits of any other defendant. However, Defendants recognize that the Court has reserved for trial the issue of whether DC's licenses to defendant Warner Bros. Entertainment Inc. ("WBEI") constitute so-called "sweetheart deals," entitling Plaintiffs to reach the profits of WBEI in connection with the works prepared pursuant to those licenses. . / " l) 22 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 440 Cas 2:04-cv-OB400-0DW-RZ Document 336 Filed 07/21/200B Page 35 of 92 1 profits from all such works.22 Further, Plaintiffs have argued that where an 2 3 apportionment analysis might be appropriate, such apportionment should be weighted heavily in favor of the Action Comics #1 Story.23 But whatever the trier . . 4 of fact might ultimately decide regarding the relative weights of the parties' 5 respective contributions and the resulting percentages to be applied to the profits 6 7 from post-termination works, it is clear as an initial matter that an apportionment analysis must in fact be conducted, 24 and that the analysis must be conducted on a 8 work-by-work basis: The Superman character and mythology have been 9 ( significantly expanded with new characteristics, characters and story elements in 10 11 which were never owned by Siegel and accordingly were not recaptured by 12 Plaintiffs - permeate all ofthe post-termination works in varying amounts. 13 Moreover, Superman has appeared in myriad works either in a cameo role or 14 joined with major characters outside the "Superman family" - as part ofthe 15 "Justice League" team or co-starring with Batman. Under these circumstances, 16 both established copyright law and the equitable principles of co-ownership 17 accounting mandate that each post-termination work at issue be separately 18 ( the decades since Action Comics #1 was published, and those new elements - considered so that the Action Comics #1 Story elements in that work are identified 19 20 21 22 23 24 25 26 ( 27 28 22 In the FAC, Plaintiffs' acknowledge that there is an "apportionment" issue relating to whether the profits, in which they claim the right to a joint owner's 50% share, should be limited to profits attributable to the use of copyrighted material from "the underlying f Recapturea Copyrights co-owned by Plaintif s" (FAC, "t[ 58(c) or should also include profits attributable to other material not found in such underlymg works but contributed later to the '''Superman' franchise'" by any of Defendants' predecessors in interest (id.). However, they argue that there should be either "no app ortionment" at all (id. "t[ 106(c)) or "[a]ltematively, that apportionment should apply only to profits from the exploitation of the Recaptured Copynghts in derivative works created by a Defendant, but not to profits from licensing of the Recaptured Copyrights (id. "t[ 1 06(d)) (italics omitted). See, a/so, FAC at "t["t[ 58(b), 73, 1 06-109.) 23 See, e.g., FAC, � 106(e). "[A]pportionment . . . should weigh strongly in Plaintiff's [sic] favor, since the value of the Superman Franchise is largely attributable to the unique ' Superman' character and other elements created by Siegel and Shuster and protected by the Recaptured Copyrights, in a percentage that the court may deem just and proper." 24 In oral argument on September 1 6, 2007, Plaintiffs' counsel acknowledged the necessity for certain apportionments to be made in connection with Plaintiffs' equitable 23 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 441 Cas 2 :04-cv-OB400-0DW-RZ D ocumen t 336 Filed 07/21/200B Page 36 of 92 1 and quantified, and that Plaintiffs' recovery does not extend to profits attributable 2 to the other elements in the work in which they have no ownership interest. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A. f g () Numerous New Characters haracteristics and Stor Elements Have Been Created By DC t omics and Its Licensees ince ActIOn Comics #1, and Those New Elements Permeate the New Post­ Termination Works It is beyond dispute that, in the 70 years since Superman's first appearance, Superman has developed substantially, and his "universe" has expanded exponentially. As judicially recognized, the presentations of Superman since the first Action Comics #1 Story were not a static' depiction but an ever-evolving portrayal, adding new super powers, new villains and new components to the Superman mythos and backstory. See Warner Bros., Inc. v. American Broadcasting Cos., 654 F. 2d 204, 205-06 (2d Cir. 1 98 1 ). Indeed, the Superman story and characters evolved on an issue-by-issue and episode-by-episode basis as directed by the editors of Detective, and then DC, for decades. As this Court has observed, "[t]hese additional works have added decades of new material to further define, update, and develop the character (such as his origins, his relationships, and o his powers and weaknesses) in an ongoing flow of new exploits and supporting , characters, resulting in the creation of an entire fictional Superman 'universe. " Siegel 11, 542 F. Supp. 2d at 1 1 1 0. Significantly, many of Superman's powers that are among his most famous today did not appear in the Action Comics # 1 Story, but only appeared in later publications. These include his ability to fly; his super-vision which enables him to see through walls ("x-ray" vision) and across great distances ("telescopic" vision); his super-hearing which enables him to hear conversations at great distances; his ability to survive in space without atmospheric protection; and his "heat vision," the ability to aim rays of extreme heat with his eyes. Siegel II, 542 F. Supp. 2d at 1 1 1 0-1 1 . Also absent from the Action Comics # 1 Story was any reference to some of the more famous story elements now associated with ----�----� accounting claims. (See Bergman Decl. Ex. C (Hearing Transcript) at 1 6 & 22). C) 24 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 442 Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 0712 1 12008 Page 37 of 92 1 Supennan but at the time not yet created, such as "Kryptonite" or the name of 2 Supennan's home planet "Krypton," the "Fortress of Solitude," and the "Daily 3 Planet." (Id.) In addition, some of the most famous supporting characters 4 associated with Supennan do not appear in the Action Comics # I Story, including 5 Jimmy Olsen and villains Lex Luthor and Brainiac. (Id.) Even Lois Lane lacked a 6 last name - it was added later. 7 Numerous "Supennan universe" works and products embodying such post- 8 Action Comics #1 Story components have been created by DC and its licensees 9 following the April 1 6, 1 999 effective date of Plaintiffs' tennination. These works 10 11 television series of which in excess of 1 50 episodes have been produced; and the 12 2006 motion picture Superman Returns 13 new Supennan story elements. (Declaration of Paul Levitz submitted herewith 14 ("Levitz Dec!."), '\1 3). The post-tennination works also include a myriad of works 15 and products that include and feature DC superhero characters in addition to 16 Supennan - such as Batman, Wonder Woman, Green Lantern and Flash - 17 marketed under the titles, inter alia, ofJustice League, Legion o Superheros, and f 18 In finite Crisis. (Id.) Additionally, DC has licensed the production and sale of 19 literally thousands of consumer products - including toys, games and apparel - tha 20 21 include not only Supennan imagery, but also to a large extent, as labeling, DC's Supennan-related trademarks. (Id. '\1 4).25 In many instances, these trademarks 22 involve no copyrightable matter, while in others a copyrightable aspect of the 23 Supennan character, such as his image, is used only to identify the product's 24 ( include hundreds of Supennan comic books and graphic novels; the Smallville source or origin. - all of which feature varying amounts of 25 26 ( 27 28 25 These examples of post-tennination Supennan works are provided to the Court by way of example only for purposes of this motion, and are by no means an exhaustive representation of all the relevant Supennan works created since April 16, 1999 that will be proffered at trial. Those works, particularly in the consumer products area, are extremely voluminous, and most ofthe works are unique in the specific mix of Supennan elements they contain. 25 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 443 Cas 2:04-cv-08400-0DW-RZ 1 Document 336 Filed 07/21/2008 Page 38 of 92 The elements that have not been recaptured by Plaintiffs - namely the new 2 Supennan character delineation, entirely new characters and story elements owned 3 by DC and the non-Supennan characters and story components, as well as the first 4 published image of Supennan in the Announcements and DC's Supennan-related 5 trademarks - that is, all the things in addition to the copyrightable elements of the 6 Action Comics #1 Story, contribute in varying amounts to the success and therefore 7 - ( \ ,,- ) the profits of the numerous post-termination works. I 8 B. 9 10 11 12 13 14 15 16 17 18 Because Plaintiffs are not the sole owners of the copyrightable elements in the Action Comics #1 Story, and because DC and its licensees authored the posttennination Supennan works and therefore own all the new material included in those works, several key copyright principles are implicated, as discussed below. First, it is established copyright law that each co-owner (such as Plaintiffs or DC) can use or license the co-owned copyrighted work (such as the Action Comics #1 21 22 23 24 25 26 27 28 Story) as he sees fit, subject only to a duty to account to his co-owner for a �, U share of the profits from that exploitation. S. O.S., Inc., 886 F. 2d at 1 086; Oddo v. Ries, 743 F. 2d. 630, 633 (9th Cir. 1984); Nimmer, § 6. 12[A], [B] at 6-38.4 - 6- 19 20 Applicable Copyright and Equitable Principles Mandate an Apportionment AnalYSIS Here Second, under Section 1 03(b) ofthe 1976 Copyright Act, in the case of so­ called "derivative works," (e.g. any works based on the Action Comics #1 Story) 26 Section 201 of the 1976 Copyright Act carried forward the basic principles of prior law that copyright "vests initially III the author or authors of the work," and that "authors of a joint work are co-owners of [the] copyright." 1 7 U.S.C. § 2 0 1 (a) & (b). See also Siegel I, 496 F. Supp. 2d at 1 144-45. Under the 1976 Copyright Act, pre-existing, i.e. 1909 Act, "court made law . . . on the rights and duties of co-owners of a work . . . is left undisturbed . . . [and] co-owners of a copyright . . . [are] treated generally as tenants in common . . . subject to a duty to account to other co-owners for any profits." See H. Rep. at 120-2 1 . Under the 1909 Act, as today, each joint author is a co-owner who possesses "an undivided ownership in the entire work, including all of the contributions contained therein," 1 Nimmer § 6.03 at 6-7; see Pye v. Mitchell, 5 74 F.2d 476, 480 (9th Cir. 1 978); Siegel I, 496 F. Supp. 2d at 1 144, and who can nonexclusively exercise all the rights of the copyright owner subject only to a duty to account to other co-owners for their share 0 "profits" earned from such use or licensing. 1 Nimmer § 6.10[A] at 6-34 - 6-36; Oddo v. Ries, 743 F.2d at 632-33. u 26 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 444 Cas 2:04-cv-08400-0DW-RZ ( D ocumen t 336 Filed 07/21/2008 Page 39 of 92 1 "the copyright . . . extends only to the material contributed by the author of such 2 [derivative] work, as distinguished from the pre-existing material employed in the 3 work." 1 7 U.S.c. § 1 03 (b).27 Thus, unless a co-owner actually participates in the 4 creation and preparation of a derivative work by the other co-owner, he can not use 5 the new version at all without the permission of the co-owner who prepared the 6 new matter. Weissmann v. Freeman, 868 F .2d 1 3 13, 1 3 1 7 (2d Cir.), cert. denied, 7 493 U.S. 883 (1 989). 8 9 In Weissmann, plaintiff and defendant had jointly authored a number of scholarly articles in the field of nuclear medicine over the course of several years. 10 11 material, and substantial reorganization and rearrangement ofthe prior material, l3 id. at 1 322, and indicated that she was the sole author of this revised work, id. at 14 1320. Defendant conceded that the new material was created entirely by plaintiff, 15 but argued that his later reproduction and use of the revised work without 16 plaintiffs permission (removing plaintiff's name as author and substituting his 17 own) was nonetheless not an infringement, because he was in effect also the co- 18 author ofthe new work as well as the prior works on which it was based. The 19 district court agreed and, after a bench trial, found for defendant, holding that the 20 entire series of the parties' works - including the work alleged to have been 21 infringed - constituted a single evolutionary joint work. Id. at 1 3 17. The Second 22 Circuit, noting that "[t]he finding was made based on the district court's mistaken 23 , new photo illustrations, references to current scholarly literature, additional textual 12 ( Plaintiff took one such jointly-authored article, and revised and updated it, with view that joint authorship of the prior existing works automatically makes the two 24 25 26 ( 27 28 27 As this Court has previously explained, "the 1909 Act . . . recognized that such additional material contained within a derivative work was itself 'subject to copyright' protection. 1 7 U.S.C. § 7 (repealed). For this reason, cases decided under the 1909 Act recognized that ' [tlhe aspects of a derivative work added by the derivative author are that author's property, but the element drawn from the pre-existing work remains on grant from the owner of the pre-existing work.' Stewart v. Abend, 495 U.S. 207, 223 (1 990)." Siegel L 496 F. Supp. 2d at 1 142-43; see also id. at 1 15 1-52; Siegel 11, 542 F.Supp. 2d at 1 124. 27 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 445 Cas 2:04-cv-OS400-0DW-RZ Document 336 Filed 07/21 /200S Page 40 of 92 1 joint authors co-owners of the derivative work," reversed, stating that "[s]uch a 2 ruling stands copyright law on its head." Id. 3 C) In explaining its decision, the Second Circuit first noted that "Congress 4 endeavored to 'make [] plain that copyright in a derivative work is independent of, 5 and does not enlarge the scope of rights in, any pre-existing material incorporated 6 in it. '" Id. at 1 3 18, citing H. Rep. at 1 20. Accordingly, Even though one co-author has the right to revise a joint work in order to create an individual derivative work, the other co-author acquires no property rights in the newly created work prepared without bis involvement. Dynamic SolutIOns, Inc. v. Planning and Control, Inc., 646 F. Su 'pp.. 1 329, 1338-39 (S.D.N.Y. 1986) (even sole author/owner of pre-exIsting material contained in derivatIVe work has no propertY right in new matter created for the derivative work added without hIS /Illinois, 8 1 1 F.2d 1 09 1 , particiQation); see Weinstein v. University o 1 095 Clth Cir. 1 987); H. Rep. at 1 20; 1 Nimmer § 6.06[B], at 6-1 5 . 7 8 9 10 11 12 !d. Consequently, since the passive co-owners (such as Plaintiffs) attain no 13 property ownership interest in the new matter contained in derivative works (such 14 as that contained in the post-termination Superman works prepared by DC and its 15 licensees), as a matter of statute they are not entitled to any income from the new 16 matter, and their interest is limited to those profits ofthe derivative work that are 17 attributable to the original, underlying co-owned material. 18 ";, C In Oddo v. Ries, supra, the Ninth Circuit explained that the duty to account 19 between co-owners "comes from 'equitable doctrines relating to unjust enrichment 20 and general principles oflaw governing the rights of co-owners'" and not from copyright's "proscription on infringement." Oddo v. Ries, 743 F . 2d. at 633 ,zs 21 22 Accordingly, the sharing of profits between co-owners with respect to joint 23 licensing or licensing by only one of them must be done on an equitable basis. !d. 24 In the absence of an agreement to the contrary, the co-authors will each have equal 25 shares (1/2 for two, 1/3 for three, etc.) in the profits generated from their jointly 26 owned work. 1 Nimmer § 6.08 at 6-33. As set forth above, however, because a 27 28 28 A joint author cannot be liable for infringement of copyright from such use or licensing. Id at 632-33. See also Zuill v. Shanahan, 80 F.3d 1 366, 1 369 (9th Cir. 1996). u 28 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 446 Cas 2:04-cv-08400-0DW-RZ c Document 336 Filed 07/21/2008 Page 41 of 92 1 passive co-owner owns no property interest in any new matter in a derivative work, 2 under this approach, in order to be fair and equitable, the sharing of profits will 3 have to involve determining the relative value ofthe jointly owned underlying 4 material (i.e., the Action Comics #1 Story less the Announcements), as compared 5 with the solely owned newly added material (everything else) in the myriad post- 6 termination derivative works in which Plaintiffs seek to share. 7 This approach is quite similar to the formula used for determining what 8 profits of an infringer are awarded to the copyright owner of the infringed work. 9 See I Nimmer § 6.12 [C][3] at 6-40 (fact that apportionment concept "involved 10 11 not render it any less applicable in these circumstances"). Under section 504(b) of 12 the 1 976 Copyright Act (concerning infringement), a copyright infringement 13 victim is "entitled to recover . . . any profits ofthe infringer that are attributable to 14 the infringement and are not taken into account in computing the actual damages." 15 In addition, "[i]n establishing the infringer ' s profits, . . . the infringer is required to 16 prove . . . the elements of profit attributable to factors other than the copyrighted 17 work." Id. 2 Per the legislative history, the language of this provision makes clear 18 that "where some ofthe defendant's profits result from the infringement [use of the 19 prior work] and other profits are caused by different factors, it will be necessary fo 20 ( apportionment of profits payable by an infringer rather than by a joint owner does the court to make an apportionment." H. Rep. at 1 6 1 . 9 21 The leading "apportionment" case is Sheldon v. Metro-Goldwin Pictures 22 Corporation, supra, 1 06 F.2d 45, which was decided in the infringement context. 23 In that case, Judge Learned Hand evaluated what portion of the profits of a motion 24 picture could be attributed to the copyrighted play from which it was adapted 25 26 ( 27 28 29 This provision deals with the reality that, in any new work making use of a prior work - that is, a derivative work - the revenues, and therefore the profits, from sales of the new work are only partially attributable to the prior work. Per Nimmer, the statutory command means that "no recovery may be ordered for the elements of profits attributable to factors other than the copyrighted work, whether public domain or otherwise." 4 Nimmer § 1 4.03 at 4-14. 29 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 447 Cas 2:04-cv-OS400-0DW-RZ D ocument 336 Filed 07/21/200S Page 42 of 92 1 (without the permission ofthe copyright proprietor).30 Judge Hand discussed a 2 two-part apportionment: (1) apportioning out the contributions of others (e.g. , 3 actors, directors, producers, etc.) to the success of the motion picture, and (2) 4 apportioning out the contributions of non-infringing elements (e.g., newly created 5 dialogue, characters, scenes, etc.) to the success of the motion picture. 6 Recognizing that that there were many factors other than the underlying play that 7 contributed to the success ofthe film, Judge Hand's analysis led him to the 8 conclusion that only 20% of the defendant movie company's profits from the film 9 were attributable to the underlying copyrighted work. A leading copyright 10 commentator, William Patry, correctly notes that "while in Sheldon the court 11 () awarded 20% of the profits, this was only out of an abundance of caution, with , 1 0% being the favored figure., 3! 12 13 The principles of apportionment as established by Judge Hand in Sheldon 14 were quickly adopted and have universally been applied. See, e.g., Twentieth 15 Century-Fox Film Corp. 16 now settled that that where a portion of the profits of an infringing work is 17 attributable to the appropriated work, to avoid an unjust course by giving the 18 originator all profits where the infringer's labor and artistry have also to an extent 19 contributed to the ultimate result, there may be a reasonable approximation and 20 apportionment by the court ofthe profits derived therefrom."); Abend v. MCA, Inc. , 21 supra, 863 F.2d 1465, 1480 (court must apportion profits because factors other 22 than the copyrighted story clearly contributed to the subject work's success: 23 "Defendants' fear that [plaintiff] could receive 1 00% of their profits is unfounded. v. Stonesif 140 F.2d 579, 584 (9th Cir. 1 944) ("It is er, C) 24 25 26 27 28 30 While Judge Hand noted the "insoluable" difficulty in an apportionment of determinin what "evidence of separation" courts will accept "to disentangle" the contributions of the prior work from other factors resulting in the success of the second work, id. at 48, he "resolved to avoid the one certainly unjust course of giving the plaintiffs everything because the defendants cannot with certainty compute their own share." Id. at 5 1 ; see ff'd on other grounds, also Abend v. MeA, Inc., 863 F.2d 1465, 1478 (9th Cir. 1988), a 495 U.S. 207 (1990). () 3 ! 6 Patry § 22:147 at 22-352. 30 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 448 Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 07/21/2008 Page 43 of 92 1 [Plaintiff] can receive only the profits attributable to the infringement. . . . While 2 apportioning profits is not always an easy task in these cases, neither is it a new or 3 unusual one."); Frank Music Corp. 4 1 989) ("[w]here a defendant alters infringing material to suit its own unique 5 purposes, those alterations and the creativity behind them should be taken into 6 account in apportioning the profits of the infringing work."); Cream Records v. 7 Jos. Schlitz Brewing Company, 754 F.2d 826, 828 (9th Cir. 1985) (value of non- 8 infringing, independently created material excluded from profits attributed to copyrighted work).32 9 10 v. MOMInc. , 886 F.2d 1 545, 1 549 (9th Cir. While these cases, too, were in the infringement context, there is no basis in 11 12 co-owner any worse than an infringer who must disgorge his illegally obtained 13 ( copyright jurisprudence for treating a co-owner who must share his profits with his profit to a victim. Moreover, in the infringement context, because the defendant is 14 a tortfeasor the analysis is skewed in favor of the plaintiff, whereas no such public 15 policy is present in this context where one co-owner, here DC Comics, had and has 16 the absolute and unfettered right to make use of the copyrighted work subject 17 solely to a profits accounting. Indeed, apportionment i s even more appropriate in a 18 co-ownership context because any sharing between co-owners must be on an 19 "equitable" basis, and it would b e inequitable to require a co-owner - who was 20 fully entitled to use the co-owned copyright in a new derivative work - to share all 21 of the profits derived from the new work even ifthe underlying co-owned work comprised only a small fraction of the new work.33 22 23 24 25 26 27 28 32 See also Sygma Photo News Inc. v. High Society, 778 F.2d 89 (2d Cir. 1985) (draw of brand name more significant than photo on cover - 20% of profits awarded); Gaste v. Kaiserman, 863 F.2d 1 06 1 (2d Cir. 1 988) (in apportioning profits, elements of profit attributable to factors other than copyrighted work include added independent contributions). Numerous other cases, ill various Circuits at both the district court and appellate levels, apply the apportionment analysis in infringement cases, and the necessity of apportIOning profits has become a core principle in copyright jurisprudence. 33 Where such apportionment must be made to share profits earned by one co-owner of copyright from exploitation of a derivative work based upon the jointly owned work, the co-owner providing such an equitable accounting does so as a trustee, not as an infringer. Shapiro Bernstein & Co. v. Jerry Vogel Music Co. , 223 F.2d 252, 254 (2d Cir. 1955) 31 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 449 Cas 2:04-cv-08400-0DW-RZ 1 III. Document 336 Filed 07/21/2008 Page 44 of 92 3 AN EQUITABLE APPORTIONMENT REQUIRES A SEPARATE ANALYSIS OF EACH OF THE INDIVIDUAL POST-TERMINATION ( "-WORKS IN WHICH PLAINTIFFS CLAIM AN INTEREST TO DETERMINE THEIR RESPECTIVE PERCENTAGES, IF ANY, ATTRIBUTABLE TO THE ACTION COMICS #1 STORY 4 Here, there are hundreds of comic books and graphic novels, thousands of 2 -) 5 consumer products, and scores of media properties involving Superman that were 6 published andlor produced under license in the nine years since the April 1 6, 1 999 7 effective date of the Superman terminations notices, and Plaintiffs have requested 8 an accounting, and a share, of the profits of all of them. Accordingly, the profits 9 generated by these post-termination works will have to be allocated, in proportion, 10 to the respective contributions of ( 1 ) the recaptured copyrightable elements of the 11 Action Comics #1 Story (which Plaintiffs share) and (2) everything else (which 12 ' they do not). 13 The "everything else" consists, in large part, of the 70 years of new matter, 14 updated delineation of Superman himself, new Superman family characters, 15 numerous non-Superman family characters teamed with Superman, and new 16 dimensions, expansions and developments to the Superman character and his story 17 that have been added by DC and its predecessors and licensees, resulting from the 18 creative talent of the artists and writers who over the years have imbued Superman 19 with continued vigor and consumer appeal. It also consists ofthe copyrightable 20 elements contained in the Announcements depicting the cover ofAction Comics 21 #1, which Announcements were not recaptured by way of Plaintiffs' termination 22 notices.34 Finally, a significant portion of the post-termination works - and 23 particularly the consumer products works - only make use of Superman references 24 as trademarks to identify product origin and not to entertain. These trademarks C� 25 26 27 28 ("As to the scope of the accounting it is clear that each holder of the renewal copyright on a joint work should account to the other for his exploitation thereof, - not as an infringer but as a trustee."). 34 That depiction remains the exclusive property of DC Comics, and DC continues to have the nght to prepare derivative works based on that depiction with no need to account to PlaintIffs for any resulting profits. See Siegel II, 542 F. Supp. 2d at 1 126. . C) 32 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 450 Cas 2:04-cv-OB400-0DW-RZ ( D ocument 336 Filed 07/21 /200B Page 45 of 92 1 remain the exclusive property of DC Comics, and accordingly are also to be 2 factored out in the calculation of profits to be shared with Plaintiffs. (See Section 3 IV, infra.) 4 Once again, given the paucity of apportionment authority in the co- 5 ownership context, cases analyzing infringement claims must provide the 6 necessary guidance to determine how multiple content works are to be reviewed 7 and apportioned, when each of the multiple content works is claimed to derive, in 8 some part, from the plaintiffs copyrighted work. Practically speaking, this issue 9 does not arise frequently in infringement cases because most of those cases involve 10 11 shown below, those few infringement cases that do involve "multiple" works eithe 12 explicitly or implicitly require a separate analysis of each allegedly infringing wor 13 to determine first ifthere was, in fact, infringement, and if so, the extent of profits 14 attributable to each use of infringing material. Under the principles applied in 15 these cases, each of the post-termination Superman works published by DC, and 16 each of the Superman merchandise and media products created and distributed 17 under license from DC, must be assessed separately and individually to determine 18 whether and to what extent they incorporate elements of the Action Comics #1 19 Story, and therefore what portion of the revenues (and ultimately the profits) 20 generated by those works can fairly be attributed to those recaptured copyrightable 21 elements. See, e.g. , Brown v. M cCormick et al., 87 F . Supp. 2 d 467 (D. Md. 2000); 22 ( a one-by-one comparison of the infringed and infringing works. However, as Blackman v. Hustler Magazine, Inc., 620 F. Supp. 792 (D. D.C. 1 985); ABKCO Music, Inc. v. Harrisongs Music, Ltd. , 508 F. Supp. 798 (S.D.N.Y. 1 981).35 23 24 . 25 26 ( 27 28 3 5 C Columbia Broad. Sys., Inc. v. Superior Court, 69 Cal. Rptr. 348, 350, 353-56 (Cal. f App. 1 968) (where plaintiff alleged that two episodes of a 132-eJ?isode television senes "copie[d] and useEd] a script, and the ideas, characters, charactenzations, plot, theme and story line contained therein," defendant was ordered to answer an interrogatory requesting infonnation on the profits it had earned on those particular episodes); Twin Peaks Prods., Inc. v. Publications Int 'l, Ltd., 996 F.2d 1 366, 1 3 8 1 (2d Cir. 1 993) (holdin that separate episodes of the Twin Peaks television series are separate "works" for pU1Jloses of statutory damages under 17 U.S.C. §504(c), stating that "The author of eight scnpts for eight television episodes is not limited to one award of statutory damages just 33 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES . EXHIBIT I - 451 Cas 2:04-cv-08400-0DW-RZ 1 Document 336 Filed 07/21/2008 Page 46 of 92 Brown provides an illustration of the proper application ofthis work-by- 2 work analysis in a case involving infringement across several mediums. In Brown, 3 plaintiff Quiltrnaker alleged that defendants had infringed two copyrighted quilt 4 designs and, therefore, that various displays of those two quilts were infringing, 5 including displays in the movie How to M ake an American Quilt; on T-shirts and 6 tote bags promoting the movie; in a painting and in prints of the painting; on cable 7 television programs; at quilting exhibitions; and in a book. Brown, 87 F. Supp. 2d 8 at 469. Accordingly, the court analyzed each separate display to determine 9 u infringement, finding some of the accused works to be infringing, and some not. 10 11 Id. at 481-82. After determining which uses were infringing, the Court then evaluated the 12 plaintiff's damages claims with respect to each alleged infringement. That 13 damages award included, inter alia: (I) an award of $ 1 nominal damages for 14 exhibiting an infringing quilt because plaintiff did not suffer any damages and 15 defendants did not earn any profits from the exhibition; (2) $ 0 for including an 16 infringing quilt on tote bags and T-shirts to promote the movie because plaintiff 17 did not suffer any damages and defendants did not earn any profits from the 18 merchandising of the movie; (3) statutory damages in the amount of$500 per 19 infringement of each of the 1 4 copyrighted patterns that made up one of the 20 infringing quilts as damages for including a picture of that quilt in a book; (4) 21 statutory damages in the amount of$500 per infringement of each of the 14 22 copyrighted patterns that made up one of the infringing quilts as damages for the 23 unauthorized display of that quilt in a cable television program; and (5) 24 0.000 1 1 76% of producer Amblin Entertainment's $2m fee on the movie ($2.35), 25 which the Court determined after an apportionment analysis.36 Id. at 4 81-83. 26 27 28 because he or she can continue the plot line from one episode to the next and hold the viewers' interest without furnishing a resolution."); Columbia Pictures Indus., Inc. v. Krypton Broad. o/Birmingham, Inc., 259 F.3d 1 1 86, 1 193-94 (9th Cir. 2000) (same). 36 The Court did not award plaintiff any profits from co-defendant Universal City Studios because it lost money on the movie. C) ( 34 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 452 J'I '\ Cas 2:04-cv-OS400-0DW-RZ ( Document 336 Filed 07/21 /200S Page 47 of 92 The Blackman Court also evaluated multiple infringements. There, the 2 defendant Hustler Magazine was accused of infringing plaintiff s copyrighted 3 photographs by including them in several of its magazines without permission. 4 Specifically, defendant published "1 1 [of plaintiffs photographs] in its September, 5 1 976 issue and subsequently republished nine of those photographs in 'The Best of 6 Hustler #2', and republished one [ofplaintiffs] photograph[s] in its July, 1 979 7 anniversary issue." Blackman, 620 F. Supp. at 795. To analyze infringement, the 8 Court undertook an analysis of each specific work: "Because each of Hustler's 9 three successive publications of [plaintiff s] photographs was issued at a different 10 time and involved a distinct set-up and arrangement of copy, they shall b e treated 11 as three separate infringements for the purpose of assessing damages." Id. at 796. 12 The Court undertook an apportionment with respect to each individual magazine at 13 issue, apportioning 60% of the profits from the September, 1976 issue to the 14 infringing photographs, 35% of the profits from Best of Hustler #2 to the 15 infringing photographs, and 3 % of the profits from the July, 1979 Anniversary 16 ( 1 issue to the infringing photograph. Id. at 801-02. 17 The ABKCO Court likewise analyzed a plaintiffs claim of damages from 18 19 had previously concluded that the George Harrison song "My Sweet Lord" 20 infringed plaintiffs song "He's So Fine," and the plaintiff sought damages with 21 respect to defendant's sale ofthree particular works - the single "My Sweet Lord," 22 and the albums "All Things Must Pass" and "The Best of George Harrison" - each 23 of which included "My Sweet Lord" as one of its songs. The Court conducted 24 separate apportionments with respect to each infringing work, apportioning 70% 0 25 the mechanical royalties from the sale of the single to "My Sweet Lord" (which 26 ( multiple content works that infringed its copyrighted work. Specifically, the Court included another song on the B-side) and 50% ofthe mechanical royalties from the 27 sale of the album "All Things Must Pass" to "My Sweet Lord." ABKCO, 508 F. 28 Supp. at 800-0 1 . Given the lack of evidence concerning the relative importance of 35 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 453 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 48 of 92 1 "My Sweet Lord" to the sale of the "Best of George Harrison" album, the Court 2 refused to apportion any more than the song's own mechanical royalties to that 3 infringing use. Id. at 801. Given that the song was the same in each instance, the 4 Court then calculated the profits (revenues minus expenses) with respect to each 5 album and the deducted one fourth of that amount to account for the contributions 6 of "other factors" to the success of the song, such as "the words and the popularity 7 and stature of George Harrison in this particular field of music." Id. at 801 _02.37 8 U These cases highlight the core principle that the trier of fact must examine 9 each targeted work to determine whether, and how much, ofthe plaintiff s 10 copyright is incorporated into that work. 38 This is crucial in an infringement 11 analysis to establish the fact and extent ofthe infringement, if any. Similarly, it is 12 essential in an equitable apportionment analysis between co-owners, where no 13 infringement has occurred, to ensure that plaintiffs recovery i s commensurate with 14 the amount of the shared copyrighted material actually used by defendants. 15 Accordingly, the proper way to analyze whether or not - and, if so, to what extent 16 - the various post-termination Superman works incorporate the Action Comics #1 17 Story is for the court to be presented with each work in which Plaintiffs assert an 18 interest, and for Plaintiffs to explain how the Action Comics #1 Story has been use 19 in that specific work. Only after an analytic comparison by the court can it 20 properly be determined what portion, if any, of the profits from any of the post- 21 termination works can equitably be attributed to the Action Comics #1 Story. 22 23 24 25 26 27 28 3 7 Where a plaintiff claims the profits from a series of television shows or movies at issue, the courts make a detailed, sel?arate review of the entire body of such works. See Flynn v. Surnow et al. , 2003 U.S. DISt. Lexis 26973 (C.D. Cal. 2003) (court watched the entire first season of the television series 24 in making its "detailed comparison of the cQuade Associates v. CBS Inc., allegedly infringing and infringed works"); Lone WolfM et al. , 961 F. Supp. 587 (S.D.N.Y. 1997) (court reviewed the series "Walker, Texas Ranger" on defendant's motion for summary judgment of plaintiffs' claim that the series infringed plaintiffs copyright in the 1 983 picture "Lone Wolf McQuade"); Cavalier v. Random House, Inc., 297 F.3d 8 1 5 (9th Clr. 2002) (court looked in detail at both dispute books in determining infringement). 38 Plaintiffs have confirmed this work-by-work approach in their prior briefmg. See Plaintiffs' Opposition to Defendants' Motion for Partial Smnmary Judgment at 27 (mixed use of copynght and trademark) and 29 (derivative works). C) . U 36 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 454 Cas 2:04-cv-OB400-0DW-RZ ( 1 Document 336 Filed 07/21/200B Page 49 of 92 In practical application here, the trier of fact will have to isolate the 2 recaptured elements of the Action Comics #1 Story that have been used in each 3 post-termination derivative work, and assign a percentage value to the profits from 4 that work that are attributable to those Action Comics #1 Story elements. 3 9 This 5 process will need to be applied separately to each and every work in which 6 Plaintiffs claim they are entitled to share profits because the aspects of each that 7 are attributable to the Action Comics #1 Story vary in each case, often 8 substantially.40 lfthe profits of any defendant other than DC Comics are at issue, 9 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 3 9 As mentioned above, not to be included in the profits Plaintiffs are entitled to a share are those profits attributable to: (a) trademark uses (such as the use of the name "Superman" or the "S-in-Shield" Device; (b) those portions of mixed uses attributable to non-Superman elements (e.g. Superman as part of a team of heroes along with, for example, Batman and Wonder Woman); (c) new elements added after the Action Comics #1 Story, such as characters (e.g. , Lex Luthor, Perry White, Jimmy Olsen, Lana Lang), superpowers (e.g., the ability to fly, x-ray vision, heat vision); new plot elements (e.g., the "Fortress of Solitude" and Kryptonite); (d) new story lines; (e) the pre-1999 independently created derivative portions ofpost-1999 works; (f) the appearance of Superman in costume as he appears in the Announcements; and (g) DC Comics' contributions as "steward" over the Superman stories, characters, and marketing, that has maintained Superman's value for an unprecedented number of years. 40 The various "Superman related" comic series published by DC illustrate the need for a work by work apportionment. For example, in series such as Justice League o America, f each comic features a group of superheroes including Batman, Wonder Woman, Green Lantern, Vixen and others as well as Superman. Often Superman plays a very minor role in these comics; e.g., the November 2006 issue (Bergman Dec!. Ex. D) where Superman appears in three panels of the entire comic. Moreover, the depictions of Superman in the various comic series reveal a superhero markedly different from his Action Comics #1 counterpart; he has different physical features, greatly expanded powers and reflects far different attitudes. As will be demonstrated at trial, this IS not "your father's Superman." Similarly, just as the success of a motion picture is due to the contributions of actors, directors, cinematographers, and many others, so too is the success of a comic or series 0 comics which embody the combined talent of writers, pencillers, inkers, colorists, cover artists, editors and others. This is particularly true of the modem, post-1 999 comics based on complex storylines and containing elaborate graphics far different than the simple, structured frames of Action Comics #1. (See, e.g., Bergman Dec!. Ex. E). The Smallville television series further illustrates the need f a work by work analysis. For or these episodes, it will be necessary to evaluate how much of each of the I SO-plus episodes is attributable to protectable elements from the Action Comics #1 Story and not from other works created by Defendants, general ideas, stock concepts, and other unprotectable elements. The importance of the Action Comics #1 Story differs drastically from episode to episode, and as the series has progressed it has increasingly devoted more of its story lines to the supernatural and science fiction - with, among other things, a focus on Clark's discovery of his origins on the planet Krypton and his father, Jor-E!. Indeed, some episodes contain little of Clark, focusing instead on other characters, including Lex Luthor or Aquaman. (Hage Dec!. in Support of Defendants' Motion for Partial Summary Judgment, Ex. E (Season Five, Episodes 4 and 9) and Ex. F (same).) It is undeniable that in a fair accounting, Plaintiffs would not be entitled to the same 37 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 455 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/2 1 /2008 Page 50 of 92 1 further apportionments may be necessary to determine the extent to which the 2 creative and marketing elements relating to motion pictures and television 3 programs produced by DC's licensees, such as the skill and reputation ofthe 4 producer and director, the actors, newly added dramatic and plot elements, scenery, 5 standing of the studio and the advertising on which exhibitors and viewers rely, see 6 7 Sheldon, 1 06 F.2d at 48-49, contributed to the gross revenues and resulting royalty to DC from such exploitation.41 Defendants recognize that, given the amount and 8 nature of the post-termination Superman works, such an analysis will be 9 CJ cumbersome and time-consuming. Defendants therefore are willing to work with 10 Plaintiffs and the Court to establish a workable process for this evaluation - 11 perhaps through the appointment of a special master - so long as their right to a 12 particularized work-by-work review is not compromised. 13 IV. 15 PLAINTIFFS ARE ENTITLED TO SHARE PROFITS OBTAINED FROM MIXED USES OF ANY RECAPTURED COPYRIGHT MATERIAL AND TRADEMARKS ONLY INSOMUCH A S SUCH PROFITS ARE ATTRIBUTABLE TO THE RECAPTURED COPYRIGHTABLE ELEMENTS IN THE ACTION COMICS #1 STORY 16 With respect to profits from any derivative work newly prepared after April 17 1 6, 1 999, the effective date of Plaintiffs' copyright termination, the Court has held 18 that any such "profits defendants gamer from the use of Superman trademarks that 19 'are purely attributable to [those] trademark rights,' . . . are not subject to 20 accounting," Siegel 11, 542 F. Supp. 2d at 1 142-43. This leaves for adjudication at 21 trial and on a full record the apportionment issues relating to Plaintiffs' claims to 22 participate in profits from so-called "mixed use of trademark and copyright" in 23 post termination derivative works based on the Action Comics #1 Story after the 24 effective date of Plaintiffs' termination. !d. at 1 142. While the law addressing 25 apportionments between profits attributable to the copyright and trademark 14 () 26 27 28 proportion of the profits from an episode that re-thinks and re-casts the original Superman origin story as they would be from a more distant, modem and sophisticated episode, based principally or entirely upon newly added materials. 41 Both Plaintiffs and Defendants have designated expert witnesses to testify on many of these apportionment issues. u 38 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 456 Cas 2:04-cv-OB400-0DW-RZ ( Document 336 Filed 07/21/200B Page 5 1 of 92 I components of works is sparse, certain established principles provide useful 2 guides to assess instances of such alleged "mixed use." 3 A. 4 While trademark and copyright are two areas of intellectual property law 5 that are commonly grouped together in various contexts, each protects different 6 rights. The Constitution empowers Congress to provide the limited monopoly of 7 copyright protection as a reward to induce the creation of artistic works for the 8 public benefit. U.S. Const. Art. I, Sec. I , Cl. 8. However, copyright protection 9 only subsists "in original works of authorship," 1 7 U.S.c. § 1 02(a), and not all Legal Background and Nomenclature 10 II ("Words and short phrases such as names, titles, and slogans" are "works not 12 subject to copyright"). See also Butler v. Target Corp. , 323 F. Supp. 2d 1 052, 13 1 059 nA (C.D. Cal. 2004) (words, names and titles are not subject to copyright 14 protection); 1 Nimmer § 2.16 at 2-1 85 - 2-186 ("It is . . . clear, as a matter of 15 statutory construction by the courts (as well as Copyright Office Regulations), that 16 titles may not claim statutory copyright."). In the same rubric of unprotected 17 material are basic geometric shapes and simple forms o f ornamentation such as 18 stars and chevron stripes. (Compendium II of Copyright Office Practices (the 19 ( aspects ofa work are protected under copyright. See 37 C.F.R. § 202. 1 (a) "Compendium") at 500-3 and see in fra.) 20 A trademark, on the other hand, functions to identify the source of goods 21 22 trademark owner from unfair competition. Playboy Enters., Inc. 23 Comm. Corp., 55 F. Supp. 2d 1 070, 1 080 (C.D. Cal. 1999) ("A trademark is a 24 word, symbol or device which identifies the source of goods or services."). See 25 also 1 J. Thomas McCarthy, McCarthy on Trademarks & U f Comp. , § 6. 14 at n air 26 ( and services and serves to protect the public from being misled and to protect the 6-30 (4 Ed. 2008) ("Copyright law gives the author the right to prevent copying of 27 the copyrighted work in any medium. Trademark law prevents the use of a similar 28 mark on such goods and services as would probably cause confusion.") To v. Netscape 39 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 457 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 52 of 92 1 illustrate the effect of the difference between copyright and trademark in the 2 context of this case, while the 2006 release of Superman Returns, which contains 3 some literary elements derived from Action Comics #1 , would entitle Plaintiffs to 4 a share of DC Comics' profits, it is clear that Plaintiffs' recapture of certain 5 copyright elements would not entitle Plaintiffs to any share of DC' s profits from 6 the sale of a t-shirt bearing the word "Superman" as a trademark to indicate DC as 7 () the source of such product. ·8 9 As noted above, trademarks are not limited to word marks. Instead, the U.S. Trademark or Lanham Act protects "a broad spectrum of marks, symbols, 10 design elements and characters which the public directly associates with the 11 plaintiff or its product." Warner Bros., Inc. v. Gay Toys, Inc., 658 F.2d 76, 78 (2d 12 Cir. 1 981). It has also been held that 13 14 15 where the product sold by plaintiff is 'entertainment' in one form or another, then not only the advertising ofthe product but also an ingredient of the jJl"oduct itself can amount to a trademark protectable unCler § 43(a) [ofTitle 1 5] because the ingredient can come to symbolize the plaintiff or its product in tile public mind. 16 DC Comics, Inc. v. Filmation Assocs., 486 F. Supp. 1 273, 1277 (S.D.N.Y. 1 980) 17 (emphasis added). See also DC Comics v. Kryptonite Corp. , 336 F. Supp. 2d 324, 18 332 (S.D.N.Y. 2004) (DC owns rights under trademark law in KRYPTONITE); 19 DC Comics, Inc. v. Powers, 465 F. Supp. 843 (S.D.N.Y. 1 978) (DAILY 20 PLANET); Universal City Studios, Inc. v. TShirt Gallery, Ltd., 634 F. Supp. 1468, 21 1476, n.9 (S.D.N.Y. 1 986) ("[i]t i s not disputed that section 43(a)'s protections 22 c 'extend to the specific ingredients of a successful T.V. series"'). 23 24 25 26 27 28 Furthermore, as explained in Frederick Warne & Co., Inc. v. Book Sales Inc., 481 F. Supp. 1 19 1 , 1 196-97 (S.D.N.Y. 1 979): Dual protection under copyright and trademark laws is particularly appropriate fo� graphic !epresenta�ions of cJ:1aracters. A. character a eemed an artIstIc creatIOn deservmg copynght protectIOn, see Walt Disney' Productions v. Air Pirates, 5E l F.2d 75 1 (9th Cir. 1 978), cert. deniea, 439 U.S. 1 132, 99 S.Ct. 1 054, 59 L.Ed.2d 94 (1979), may also serve to identify the creator, thus meriting protection under theories of trademark or unfair competItion, see Ed gar Rice Burroughs, Inc. v. Manns Theaters, 195 U.S.P.Q. 159 (C.D.Ca1.l 976); Patten v. Superior (J 40 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 458 Cas 2:04-cv-08400-0DW-RZ ( 1 2 3 4 5 6 7 8 9 Document 336 Filed 07/21 /2008 Page 53 of 92 Talking Pictures, 8 F. Supp. 196 (S.D.N.Y. 1 934); see generally Waldheim, Characters M They Be Kidnapped? 55 T.M.R. 1 022 qy (1 965). Indeed, because oftheir special value in distinguishing goods and services, names and pictorial representations of characters are often registered as trademarks under the Lanham Act. 5 U.S.C. § 1 052 ade Revisited, & 1 053; see Brylawski, Protection of Characters Sam Sp 22 Bull.Soc.Cr. 77 (1 974); Adams, Superman, Mickey Mouse and Gerentology, 64 T.M.R. 1 83 (1 974). In short, the law recognizes both copyright and trademark protection for different aspects of entertainment properties such as those at issue here. B. Only Certain Superman Merchandise Could Possibly Imolicate Plaintiffs' Recaptured CopYrIght in the Action Comics #fStory As the Court has previously recognized, Plaintiffs' termination rights under 10 11 other Federal, State or foreign laws." 1 7 U.S.C. § 304(c)(6)(E); Siegel 11, 542 F. 12 Supp. 2d at 1 140. Accordingly, DC's trademark rights - including its right to l3 continue using its Superman trademarks - remain unaffected, and Plaintiffs have 14 no right to share in the profits attributable to Defendants' continuing exploitation 15 of such trademarks post-termination. The question arises as to what is properly 16 accountable to Plaintiffs when a particular work is neither pure trademark use (in 17 which Plaintiffs would not be entitled to share) nor a pure copyright use (in which 18 Plaintiffs would share to the extent the work incorporates copyrightable elements 19 from the Action Comics #1 Story) - for example, works which feature 20 copyrightable elements from the Action Comics #1 Story in addition to any 21 uncopyrightable word marks, titles, logos or other indicia of source or origin. This 22 so-called "mixed use" arises principally in connection with DC's product licensing 23 ( section 304(c) of the Copyright Act "in no way affects rights arising under any and merchandising, as opposed to its publications or licensed media properties. 24 Defendants contend that in this mixed use category of works, the Court 25 26 c should look at each work keeping in mind the nature ofthe use, giving more weight to the use of copyrightable imagery where elements of the character 27 delineation are integral and essential parts of the product (e.g., a "storytelling" 28 work such as a motion picture or comic book), as opposed to mere indicia of 41 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 459 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 54 of 92 I origin or labeling ancillary to the product content. Of course, any profit from the 2 exploitation of Superman imagery in a new derivative work attributable to the 3 universe of recaptured Superman literary material would then need to be 4 apportioned to ensure that Plaintiffs only recover that to which they are entitled, 5 namely, profits attributable to copyrightable elements present in the Action 6 C) #1 Story. See Section V, in fra. 7 1. 8 9 10 11 12 13 14 IS 16 17 18 19 20 21 22 23 24 25 26 27 28 Comics Plaintiffs Are Only Entitled to an Accounting from New Post-Termination Uses of Copyrightable Elements Derived from the Action Comics #1 Story, as Opposed to Uncopyrightable Elements, Such as � ames and Logos Because words, names and titles are not protected by copyright, it is axiomatic that Defendants' continuing use of Superman trademarks such as iterations ofthe word SUPERMAN in different fonts and typestyles does not involve use of any copyrightable material from Action Rep. at 55 Comics #1 . See also H. (no copyright protection for forms of typef ace). Similarly, the use of the S-shield in one .or another form does not constitute the use of any material c protected by copyright. As explained in the Compendium (the official publication intended primarily for use of the staff of the Copyright Office for their examining and related practices), because a certain minimal amount of original creative authorship is essential for registration, it is not possible to copyright common geographic figures or shapes such as the hexagon, or the ellip'se, a standard symbol, such as an arrow, or a five-pointed star. Likewise, mere coloration cannot support a copyright even though it may enhance the aesthetic appeal or commerCIal value of a worK. . . . Tile same is true of a simple combination of a few standard symbols, such as a circle, a star, or triangle, with minor, linear or spatial variations. Compendium at 500-3. Here there can be no dispute that the "S-in-Shield," particularly as it appears in Action Comics #1, simply does not overcome the 2 threshold for copyrightability explained above.4 42 The issues of clarity concerning the "S-in-Shield" device set f orth in Siegel II, 542 F. F. Supp. 2d at 1 126 in the Promotional Ads that Plaintiffs failed to recapture, similarly exist m Action Comics #1 Story, as the f ollowing are the only two discemable shields therefrom: () 42 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 460 Cas 2:04-cv-08400-0DW-RZ ( 1 Document 336 Filed 07/21/2008 Page 55 of 92 Moreover, as the Court has held, the accounting that results from Plaintiffs' 2 3 attributable to the 'post-termination exploitation of derivative works [ofAction 4 Comics, Vol. 1 ,] prepared prior to termination. '" Siegel 11, 542 F. Supp. 2d at 5 1 142 (quoting PIs. S J. Reply Mem. at 28). Thus, Defendants remain free to 6 continue to fully use as a trademark any pre-termination derivative images of the 7 Superman character based on the appearance of the character in the Action Comics 8 #1 Story. Furthermore, the use of these pre-termination derivative images on new 9 merchandise - for example a different T-shirt or new watch face - does not 10 constitute the preparation of a new post-termination derivative work. See 1 11 Nimmer, §§ 3.03[B][I] &[B][2] at 3-17 - 3-18 (rejecting and noting broad 12 disagreement with Mirage Editions, Inc. v . Albuquerque A.R.T. Co. , 856, F.2d 13 1341 (9th Cir. 1 988), which had held that removing reproductions of artworks 14 from a compilation and mounting them on ceramic tiles constituted the creation of 15 a derivative work). Finally, even the transformation of a two-dimensional drawing 16 into a three-dimensional action figure, which could arguably constitute a new 17 derivative work, would not qualify as adding sufficient newly protectable material 18 to constitute a derivative work absent "artistic aspects" as opposed to "mechanical 19 or utilitarian features." Durham Indus., Inc. 20 (2d Cir. 1980). 21 ( termination of Siegel's March 1 , 1 938 grant "should not include any profits 2. 22 23 24 25 26 ( 27 28 v. Tomy Corp. , 630 F.2d 905, 912-13 The Kinds of Trademark Uses at Issue in this Case For the purposes of addressing the "mixed use" question raised by the Court, it is important to understand the nature of DC's post-termination uses of . .. 1IIil·.1 .·· Iti',�, J COVER LAST PANEL (Bergman SJ Dec!. Ex. E). As detailed in Defendants' prior submissions, neither of these images was part of the original Superman story submitted by Siegel and Shuster to DC both the cover and last panel were created a fter DC engaged Siegel and Shuster to reformat the Superman story for presentation in comic book form (Defs. Superman SJ. Opp. at 28-39). 43 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 461 Cas 2:04-cv-08400-0DW-RZ 1 2 Document 336 Filed 07/21 /2008 Page 56 of 92 Superman in product licensing. These uses generally fall into two categories: (1) Pure Trademark Uses. This category of merchandise features no 3 . copyrightable imagery from Action Comics #1 whatsoever. This includes any uses 4 ofthe "S-Shield" logo (as modified by DC) and telescoping Superman logo 5 (again, created entirely by DC), shown below, without other images of Superman 6 l) which could be protected under copyright: 7 8 9 10 11 12 Examples of currently offered "pure trademark use" products are shown here: 13 14 15 16 17 APPAREL 18 19 20 21 22 23 THERMOS BELT BUCKLE LUNCHBOX MAGIC 8 BALL 24 25 26 27 u 28 44 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 462 Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 07/21/2008 Page 57 of 92 1 2 3 4 5 6 7 8 9 10 11 12 13 ( 14 .1 5 16 17 18 19 USB HUB MOUSE FLOOR MAT LICENSE HOLDER (Declaration of Mario Ortiz submitted herewith ("Ortiz Dec!."), �� 3-14 &Exs. AL.) Pursuant to the legal authority discussed in subsection A, supra, and the Court's prior ruling, Plaintiffs are not entitled to an accounting for any profits earned by Defendants from such pure trademark uses. (2) Mixed Copyright and Trademark Uses. Other types of Superman licensed merchandise, however, involve both trademark uses, such as the S-Shield, telescoping logo, or other indicia of origin not subject to copyright protection (including the name Superman in stylized font, or the terms KRYPTONITE, LEX LUTHOR, THE DAILY PLANET) and a copyrightable character image. These uses mix or blend trademark use with certain copyrightable drawings and imagery derived in some form from Action Comics #1, as shown in the following examples: 20 21 22 23 24 APPAREL PARTY SUPPLIES PIGGY BANK 25 26 ( 27 28 45 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 463 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21 /2008 Page 58 of 92 () 1 2 3 4 5 6 7 8 9 10 11 12 13 LUNCHBOX BICYCLE VIDEO GAME ACTION FIGURE (Ortiz Decl. "11"11 1 5-22 &Exs. M-T.) Defendants concede that Plaintiffs may be entitled to an accounting of some of the profits from their use of any posttermination, newly created Superman imagery43 in product licensing of this kind.44 3. Principles to Be Applied in Any Accounting of Mixed CopYright and Trademark Uses Since Plaintiffs are not entitled to share in the profits generated by 14 Defendants' trademark uses (whether pre- or post-termination), Defendants submit 15 that the following principles should govern any accounting of profits from the 16 licensed merchandise involved in this case: 17 First, as explained in greater detail in Section III, in ra, the Court (or a f 18 Special Master) will need to examine each item of merchandise to which Plaintiffs 19 claim they are entitled to a share of profits in order to make a fair determination of 20 the extent of post-termination use of recaptured Superman copyrightable material 21 use in a particular product. Given the factual nature of this inquiry and the vast 22 differences in uses of Superman imagery across product categories and licenses, 23 24 25 26 27 28 43 The imagery used in the products depicted above is believed to be pre-termination in some instances. 44 Defendants will establish at trial that, practically speaking, only a portion of the entirety of Superman merchandise (and thus the profits generated by the sale of such merchandise) uses images of the Superman character. Through testimony of knowledgeable witnesses, Defendants will show that: (i) in most instances, only the Superman word mark or the S-Shield trademark are used on or in connection with products; (ii) less than one-half of all Superman products actually use images of the character, as opposed to these traditional uncopyrightable source-identifYing devices alone; and (iii) of those remaining products, many use copyrighted images solely to identifY source, i.e., as a trademark and not as content to entertain a viewer or purchaser. u 46 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 464 Cas 2:04-cv-OB400-0DW-RZ ( Document 336 Filed 07/21/200B Page 59 of 92 I there is simply no logical equitable or fair way to determine the extent to which 2 Plaintiffs are entitled to recover anything other than by looking to each product. 3 In its analysis of each product, the fact finder will, in effect, need to factor out the 4 trademark components and pre-termination imagery. Though, as noted above, no 5 case directly undertakes such an effort, there are examples of courts factoring out 6 profit drivers other than copyrightable subject matter in the infringement context 7 which are directly analogous. See, e.g., ABKCO, 508 F. Supp. at 801-02 8 (reducing profit award for infringement of "He's So Fine" by George Harrison's 9 "My Sweet Lord," in part, to account for Harrison's fame); Rogers v. Koons, 960 10 F .2d 3 0 1 , 3 1 3 (2d. Cir. 1 992) (reducing profit award in infringement action to 11 account for fame and notoriety of artist as a component of sale of work). 12 Second, even in the "mixed use" category described above, there is a key 13 must be considered. O n the one hand, in certain types o fproducts (such as the t- 15 shirts, piggy bank, lunchbox and bicycle shown above which make use of Superman artwork), the Superman copyrightable imagery and elements used on 17 the products are employed primarily for the purpose of indicating that such 18 products have been approved by Superman (i.e., his publisher). Thus, even if the 19 product may feature some newly created copyrightable imagery based on the 20 Action Comics #1 Story, that imagery is not being used to entertain, as a 21 copyrighted work is ordinarily employed, but instead i s being used only in the 22 nature of labeling to indicate source or origin. Defendants submit that for this 23 kind of mixed use there should be only a minimal attribution ofprofit to the 24 copyrightable components, as opposed to DC's exclusively owned trademarks, 25 because the purpose is not to sell copies of the image but to use the image 26 ( 14 16 ( dichotomy in the nature of the uses of any copyrighted Superman imagery that indirectly to promote sales of the product, resulting in at best "indirect profits" 27 under section 504(b) ofthe Copyright Act. See, e.g., Polar Bear Prods., Inc. 28 Timex Corp., 483 F.3d 700, 7 1 0-12 (9th Cir. 2004) (differentiating between v. 47 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 465 Cas 2:04-cv-OS400-0DW-RZ Do cument 336 Filed 07/21/200S Page 60 of 92 1 "'direct profits' - those that are generated by selling an infringing product-and 2 'indirect profits' - revenue that has a more attenuated nexus to the infringement" 3 and holding that a plaintiff must demonstrate a causal link from a promotional use 4 of a copyrighted work to sell a product in order to obtain any percentage of such 5 "indirect profits") (citing Mackie v. Rieser, 296 F.3d 909, 914 (9th Cir.2002)). See 6 also Cream Records, 754 F.2d at 828 (awarding copyright holder one-tenth of one 7 percent of profits from sale of beer where song was used without permission in 8 U commercial to promote sales of beer). 9 On the other hand, in certain types of Superman merchandise, such as action 10 figures and video games, the copyrighted Superman material is not simply used 11 for purposes of endorsement; rather, a replica of the Superman character is used in 12 a more traditional copyright sense, as an integral and essential part of the product 13 itself to entertain the purchaser or viewer. Here, any apportionment would need to 14 take into account the more direct relationship between DC's use of the copyrighted 15 material and profits from the product. See Polar Bear, 483 F.2d at 7 1 0. 16 Defendants therefore submit that, under an analysis of mixed copyright/trademark 17 use, Plaintiffs would be entitled to a lower percentage o f profits from the sale of 18 products using Superman imagery only as indicia of origin or source and to 19 promote sales, than from those which feature Superman himself to entertain. 20 C Third, insofar as graphic images ofthe Superman character are involved, 21 Defendants have the continuing right to use those that were created before April 22 1 6, 1999 (the effective date of Plaintiffs' termination) because these fall within the 23 "derivative work exception" of section 304(c)(6)(A). Siegel II, 542 F. Supp. 2d at 24 1 142-43. Accordingly, it will need to be determined (on a work by work basis) 25 whether any of the imagery used by Defendants on post-termination merchandise 26 comes from pre-termination derivative works in order to properly account to 27 Plaintiffs. 28 Fourth, even with respect to newly prepared post-termination derivative u 48 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 466 Cas 2:04-cv-OB400-0DW-RZ c Document 336 Filed 07/21 /200B Page 61 of 92 1 works, such as a new image of the Superman character from the Superman 2 Returns film, there would have to be an apportionment to determine the extent to 3 4 which these new images are based copyrightable components of the Action Comics #1 Story45 as distinguished from pre-termination derivative works created 5 by DC. See Section II, supra; Sheldon, supra, 1 06 F .2d 45 . 6 C. 7 8 9 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 Plaintiffs' Attemots to Avoid the Limitations on Any Accounting for Uses Involvmg 'I'iademarks Are Unavailing Plaintiffs will undoubtedly emphasize the importance in any apportionment evaluation of what is attributable to the copyrightable material in the Action Comics #1 Story as opposed to the subsequent derivative works based thereon. As part of this effort, they have insisted earlier and will undoubtedly insist again that because Action Comics #1 contained the first Superman story (although not the first Superman imagery), almost any post-termination derivative work should be seen as entirely comprised of Superman material that they have recaptured, in disregard of DC's pre-termination newly added material and the trademark components thereof In addition, Plaintiffs will no doubt try to avoid the independent significance of unaffected trademark rights by characterizing them as somehow "subsidiary" or inferior in significance to copyright law. Dastar Corp. v. Twentieth Century Fox Film Corp. , 539 U.S. 23 (2003), cited in Plaintiffs' summary judgment briefs, does not help their case. Dastar dealt not with a conflict between trademarks and copyright protection but instead with an attempt by Twentieth Century Fox ("Fox") to use the prohibition on "false designations of ,, origin" set forth in section 43(a) of the 1946 Trademark Act (the "Lanham Act /6 45 In order to be factored into the accounting, it is not sufficient that elements present in Action Comics #1 be present in the use at issue, such elements must also be copyrifthtable. See, e.g., Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1443 (9th Clr. 1 994); Aliotti v. R. Dakin & Co., 83 1 F.2d 898, 901 (9th Cir. 1 987); Idema v. ff'd in part, Dreamworks, Inc., 162 F. Supp. 2d 1 129, 1 176-77 (C.D. Cal. 200 1 , a dismissed in part, 90 Fed.Appx. 496 (9th Cir. 2003). 46 The Lanham Act provides a broad array of remedies grounded in consumer protection law, including for infringement of a federally registered trademark (section 32( 1)(a)), 49 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 467 Cas 2 :04-cv-08400-0DW-RZ Document 336 Yiled 07/21/2008 Page 62 of 92 1 to stop distribution of the defendant's video program, which used footage from a 2 Fox television series for which copyright protection had ceased due to failure to 3 renew. 539 U.S. at 25-27. In other words, Dastar dealt with an attempt by the 4 plaintiff to use Lanham Act principles to vindicate Fox's alleged authorship 5 attribution right under the Lanham Act to prevent use of public domain material at 6 a point where Fox no longer possessed any copyright rights to the work. The 7 Court refused to allow the Lanham Act to be extended so far as to cover Fox's 8 attribution claim. The Court did not, as Plaintiffs claim, hold that trademark law 9 was "subsidiary" to copyright law, but instead that trademark remedies for false 10 attribution of origin could not be extended to copying of communicative works, an 11 area clearly within the ambit ofthe Copyright Act (id. at 35-36), a proposition 12 l) entirely consistent with Defendants' position here. 13 In short, any argtiment that copyright rights must "trump" trademark rights 14 in any apportionment of mixed uses is wrong. A similar argument was rejected in 15 Warne, where the defendant maintained that the copyright public domain policy, 16 applicable because the Peter Rabbit books at issue there were no longer subject to 17 U.S. copyright protection, overcame plaintiff's trademark rights. As noted by 18 Judge Sofaer, 19 20 21 22 23 24 25 26 27 28 C' Defendant contends that the disputed questions of fact requiring denial ofplaintiffs motion [for summary judgment on its trademark law claims] need not be reached to find III de±endant's favor. Defendant argues that its use of the illustrations and marks is legally protected because they are part of copyrightable works now in the public domain. This argument is not persuasive. The fact that a copyrightable character or design has fallen into the public domain should not preclude protection under the trademark laws so long as it is shown to have acquired independent trademark significance, identifying in some way the source or sponsorship of the goods. See W yatt "Earp Enter prises v. Sackman, Inc. , 1 57 F. Supp. 62 1 (S.D.N.Y. 1 958). Because tiie nature of the property right conferred by copyright is significantly different from that of trademark; trademark protection should be able to co-exist, and possibl)' to overlap, with copyright protection without posing preemption difficulties. counterfeiting (section 32(J)(b» , unfair competition (section 43(a)(J)(A» , which includes infringement of an unregistered trademark, false advertIsing (section 43(a)(J)(B» , dIlution (43(c» and cybersquatting (section 43(d» . 50 () DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 468 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/2 1 /2008 Page 63 of 92 1 Warne, 481 F. Supp. at 1 1 96. Indeed, any attempt to place Plaintiffs' recaptured 2 copyrights in a position superior to DC's long-held and expensively developed 3 trademark rights would disregard the Lanham Act and DC's rights thereunder, and 4 would render a nullity Congress' express mandate that the copyright termination 5 right "in no way affects rights arising under any other Federal, State, or foreign 6 laws." 1 7 U.S.C. § 304(c)(6)(E). Thus, it is clear that any accounting of rnixed 7 copyright and trademark use must attempt, on a product-by-product basis, to fairly 8 ( gauge that balance. * 9 * * , As Defendants will prove at trial, most uses o f Defendants Superman 10 11 12 matter. In addition, in most instances, any use of trademarks comprised of 13 copyrightable material will involve only uses of pre-termination derivative works 14 which are not subject to termination. And in those cases, many uses of Superman 15 imagery on products is simply to indicate source or origin, as opposed to the 16 communicative uses for entertainment purposes generally protected by copyright. 17 In those cases where Defendants might have created a new Superman image after 18 April 1 6, 1 999 based on protectable material found in Action Comics #1 , because 19 such image would itself be in part based on pre-termination derivative works, only 20 a small portion of that new image could be properly attributable to recaptured 21 Action Comics #1 Story imagery. It is not possible, in such a case, to state with 22 precision the specific apportionment percentage to which Plaintiffs' co-ownership 23 share of that story would in tum apply. On such an issue, the Court could only 24 make a fair and reasonable approximation on a case-by-case basis. 25 ( trademarks after April 1 999 have involved pure trademarks and uncopyrightable V. 26 ( 27 28 PLAINTIFFS ARE ONLY ENTITLED TO AN ACCOUNTING OF PROFITS FROM THE EXPLOITATION OF PRE-TERMINATION DERIVATIVE WORKS IF THEY HAVE BEEN SUFFICIENTLY ALTERED AFTER THE EFFECTIVE DATE OF THE SUPERMAN NOTICES TO CONSTITUTE NEW DERIVATIVE WORKS, AND THEN ONLY TO THE EXTENT OF SUCH ALTERATION . The Court has held that, with respect to post-termination works, any "profits 51 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 469 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 64 of 92 1 defendants gamer . . . from [their] use of unaltered pre-termination derivative 2 works are not subject to accounting," Siegel 11, 542 F. Supp. 2d at 1 142-43. The 3 Court has now asked the parties to brief the issue of whether and to what extent 4 "[p]ost-termination alterations to pretermination derivative works" "fall within the 5 scope of what plaintiffs regained through their termination notices." March 3 1, 6 2008 Order at 2. Defendants submit that, to the extent such altered works exist, if 7 the alterations consist of sufficiently new original material to make the resulting 8 new work a separate "derivative work" under the Copyright Act, then Plaintiffs 9 U are entitled to an accounting for profits from that work, subject to the 10 apportionment principles described above in Section II, above. If, on the other 11 hand, a pre-termination derivative work is simply re-released, post-termination, on 12 a new format (such as a DVD or Blu-Ray Disc), or as a part of a compilation, then 13 that would not constitute a new post-termination derivative work, and Plaintiffs 14 accordingly would not be entitled to share in any profits therefrom. 15 A. 16 Post-Termination Alterations To Pre-Termination Derivative or s ust e ore an nVla 0 ua I s ew envative or 17 c Copyright protects "original works of authorship." 17 U.S.C. § 1 02(a). 18 Section 1 02(b) of the 1 976 Copyright Act, which carries forward prior 1 909 Act 19 law, provides that "[i]n no case does copyright protection for an original work of 20 authorship extend to any idea . . . concept, principle or discovery regardless of the 21 form in which it is described, explained, illustrated, or embodied in such work." 22 1 7 U.S.C. § 1 02(b). "[A] derivative work is 'any work based in whole, or in 23 substantial part, upon a pre-existing work, if it satisfies the requirements of 24 originality. . . . '" (Siegel !, 496 F. Supp. 2d at 1 1 5 1 (citing 1 Nimmer §3.0 1 , at 3-3 25 and 17 U.S.C. § 7 (repealed)).) Section 1 03(b) ofthe 1 976 Act, which also carries 26 forward the 1 909 rule, provides that "[t]he copyright in a . . . derivative work 27 extends only to material contributed by the author of such work, as distinguished 28 from the preexisting material employed in the work." 17 U.S.C. § 1 03(b). u 52 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 470 Cas 2:04-cv-OB400-0DW-RZ ( 1 \ Document 336 Filed 07/21/200B Page 65 of 92 In order for a work to qualify as a derivative work (as opposed to merely a 2 copy of the underlying work), the statute requires that the new work "recast, 3 transform[], or adapt[]" the underlying work. 17 U.S.C. § 101 (definition of 4 "derivative work"). Moreover, the new aspects of the new work must be non- 5 trivial additions. Durham Indus. , 630 F.2d at 909. As the Court of Appeals for 6 the Ninth Circuit has explained, the "non-trivial additions" threshold 7 8 9 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 s; is necessary to ensure that copyright protection is not iven to derivative works whose ori inali is merely trivial. ection 1 03(b) ofthe Copyri ht Act] man ates t at the copyright Rrotection for erivative wor s not affect the scope of any copyright protection in the underlying work. C0 right rotection for underlyn works would be affected - and, t us, § 03(b) would be violate - if derivatjve works without adequate originality were given copyright protection. � { § % 8{ rc � Entm 't Research Group, Inc. v. Genesis Creative Group, Inc., 1 22 F.3d 121 1 , 1220 (9th Cir. Cal. 1 997). In the context ofthis case, the mandate of Section 103(b) is crucial so as not to affect Defendants' rights in their "underlying works" - the pre-termination derivative works that the Copyright Act excludes from copyright termination. 1 7 U.S.c. § 304 (c)(6)(A). In applying the above-explained threshold, courts have held, for example, that mere reproduction of a prior work in a different format or medium does not transform the work into a derivative work. Greenberg v. Nat 'I Geographic Soc y, 44 F.3d 1 267, 1274 ( 1 1th Cir.), cert denied, 534 U.S. 951 (2001) (mere transfer of work from analog to a digital format does not result in a derivative work). See also Durham, 630 F.2d 905, 9 1 0 (noting "explicit rejection in Batlin of the contention that the originality requirement of copyrightability can be satisfied by the mere reproduction of a work of art in a different medium") (citing L. Batlin & Son, Inc. v. Snyder, 536 F.2d 486, 49 1 (2d Cir. 1 976»; New York Times Co. v. Tasini, 533 U.S. 483, 502 (2001 ) (noting difference between "mere transfer conversion . . . from one medium to another" and creation of new collective work). As explained by Patry, The mere transfer of a work from an analog format to a digital format 53 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 471 Cas 2:04-cv-OB400-0DW-RZ 1 Document 336 Filed 07/21/200B Page 66 of 92 3 results in no derivative authorship. For protection to exist when the work is transferred from one format to another, a recasting, transformation, or adaptation of the original authorship, must occur, as when additional expression is added or preexisting expression is altered in an aesthetically appreciable manner. 4 1 Patry § 3 :57 (citing Greenberg, 244 F.3d at 1267). Moreover, as compiled by 5 Professor Nimmer: 2 6 7 8 9 10 11 12 13 14 15 The following contributions to pre-existing works have been held to be too minimal to warrant the recognition of a new and separate copyright as a derivative or collective work: a change in rhythm and a slight variation in the base of the accompaniment of a song, plus a new title; changing the form of a factual table of facts from a vertical to a horizontal presentation; the selection of cities to be included in a public domain map; rearranging binary digits in a computer protocol; a change in medium (metal to plastic), and scale or size of a work of sculpture depicting "Uncle Sam" (including certain minor changes in shape or other features), used as a bank- 40,000 changes consisting "almost entirely of elimination and addition of punctuation, changes of spelling of certain words, elimination and addition of quotation mar and correction oft'Pographical errors"; making an obvious ks arrangement of pre-existing cuttmg designs on a crystal baby bottle; changing the language of a form agreement from a sales contract to a service contract; and the translation and transliteration of individual English words into Arabic. 1 Nimmer § 3.03 [A] at 3-10 - 3-1 1 . 16 In this case, as Plaintiffs conceded on summary judgment, the determination 17 of whether pre-termination works have been sufficiently altered to qualify as new, 18 post-termination derivative works, "will necessarily have to be made on a case by 19 case basis." (Pis. SJ. Opp. at 29.) And as the Court has previously ruled, any 20 derivative work prepared under authority of the terminated March 1 , 1938 grant of 21 rights in the Action Comics #1 Story prior to April 1 6, 1 999 can continue to be 22 exploited by Defendants without any obligation to account to Plaintiffs. Siegel II, 23 542 F. Supp. 2d at 1 142-43; 1 7 U.S.C. §304(c)(6)(A). Thus, for example, 24 Defendants can continue to exploit and sell copies of the Christopher Reeve 25 Superman films - all of which were created in the 1970s and 80s - even after 26 April 1 6, 1 999, without sharing profits from that exploitation with Plaintiffs. This 27 would be the case even in the event that the films were made available on a new 28 format, such as the recently-developed Blu-Ray Disc (a high definition DVD), as C) () 54 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 472 Cas 2:04-cv-OB400-0DW-RZ ( Document 336 Filed 07/21 /200B Page 67 of 92 1 the mere transfer of a copyrighted work to a new format does not, in itself, 2 constitute creation of a new work. See, e.g., Greenberg, 44 F.3d at 1274. 3 To the extent copyrightable content of any pre-termination Superman work 4 was modified post-termination, however, the question arises whether such 5 modifications rise to the level of creating a new derivative work, thus triggering 6 Defendants' duty to account to Plaintiffs from the exploitation of the new form in 7 which such pre-termination work is presented. In such a case, the newly added 8 material must be reviewed to determine whether it, in itself, has sufficient 9 originality to meet the standard for statutory protection under section 1 03(b) as it 10 applies to new derivative works. 11 12 will be trivial or non-existent. (Levitz Decl. � 6). For example, in the case ofthe 13 ( In some cases, the changes made to a film to re-release it on another format 2006 Blu-Ray video release of the pre-termination 1 978 film Superman: The 14 Movie, at trial, the evidence will show that the film was simply converted to high 15 definition format, and a longer version of the film that was completed in 1 978 16 containing material previously broadcast on television (as opposed to the shorter 17 version shown in theaters) was included on the DVD. (!d.) Thus, in this 18 circumstance, Defendants would have no obligation to account to Plaintiffs for any 19 profits flowing from the re-released 1 978 film - it, in effect, is the same as the pre- 20 existing derivative work. 21 A different situation pertains with respect to the 1 980 film Superman II. 22 (Id. � 7). This film was shot at the same time as Superman: The Movie, by 23 director Richard Donner. (Id.). However, between the release of the first and 24 second films, Donner was replaced by Richard Lester, who was credited with 25 directing the released film. (Id.). In 2006 a newly conceived "Donner Cut" of 26 Superman II was released, comporting with Richard Donner's original vision for 27 the film, which differed markedly from Richard Lester's. (Id.). 28 Defendants acknowledge that the recut and rearranged Superman II: The 55 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 473 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/2 1 /2008 Page 68 of 92 1 Richard Donner Cut, which was not completed in 1 980 and left hidden in a stock 2 room, but was instead re-edited shortly prior to its 2006 video release constitutes, 3 in part, a post-termination derivative work of the pre-termination work Superman 4 II. Based on the principles discussed above, Plaintiffs would be entitled to an 5 accounting of profits from the exploitation of Superman II: The Richard Donner 6 Cut, or any similarly changed or re-worked pre-termination work based on the 7 extent of the re-editing, and then subject of course to the same apportionment 8 exercise as with any other post-termination work, to determine the extent to which 9 () any resulting profits are attributable to the Action Comics #1 Story. See Section V, 10 11 supra. Accordingly, Defendants request that, with respect to any pre-termination 12 derivative work found to have been modified, post-termination, to the point where 13 the modified derivative work is itself a new work, (as with the case of Superman 14 II: The Richard Donner Cut), the Court should order an accounting of that work 15 subject to an apportionment to determine the extent ofthe re-editing and how muc 16 ofthe "new" material was drawn from the Action Comics #1 Story. 17 18 19 20 21 22 23 24 25 26 27 28 B. Lj The Release Of Pre-Termination Works In DVD Format With So-Called Additional Content Does Not Transform Such Works Into Post-Termination Derivative Works Subject '1'0 An Accounting. It is anticipated that Plaintiffs will claim that pre-termination works released in DVD format that are unchanged but that are bundled together and, in some cases, are packaged with additional content such as "deleted scenes" or mini­ documentary "featurettes" about the making of the various works, constitute new derivative works. Such a position, if asserted by Plaintiffs, would be incorrect as a matter of law. Rather, the modem DVD format, which includes the main work - either a motion picture or collection of television series episodes along with additional content such as pre-existing deleted scenes, short features, and the like - is, in fact, a compilation and a collective work under the Copyright Act. A compilation is u 56 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 474 Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 07/21/2008 Page 69 of 92 1 defined in the Copyright Act as "a work formed by the collection and assembling 2 of preexisting materials or of data that are selected, coordinated, or arranged in 3 such a way that the resulting work as a whole constitutes an original work of 4 authorship." 1 7 U.S.c. § 1 0 1 (definition of "compilation"). A subset of 5 compilations is the "collective work," which the Copyright Act defines as "a work 6 . . . in which a number of contributions, constituting separate and independent 7 works in themselves, are assembled into a collective whole." 1 7 U.S.C. § 1 0 1 8 (definition of "collective work"). Importantly for purposes of this case, a 9 compilation (and thus a collective work) is not a derivative work. Rather, the 10 terms "compilation" and "derivative work" "basically repres·ent 'different 11 concepts.'" H. Rep. at 57-58 (1 976); Ca ffey v. Cook, 409 F. Supp. 2d 484, 495- 12 496 (S.D.N.Y. 2006). 13 In this case, the evidence will show at trial that after April 16, 1 999, DC 14 Comics has authorized the re-release in DVD format of a number of licensed 15 motion pictures and television shows created prior to that date. (Levitz Dec!. "tf 5). 16 For example, between 1 993 and 1 997, the television series entitled "Lois &Clark: 17 The New Adventures of Superman" was created and broadcast under license from 18 DC. (Jd.). Beginning in June 2005, DC's licensee began releasing the program on 19 DVD. Each DVD set bundled all of the episodes from a given season (unchanged 20 from their appearance on television), along with additional content, such as menus, 21 ( interviews, commentary, and the like. (!d.). Each newly created "special feature" 22 23 . on the "Lois&Clark" DVDs - the episodes and the additional content - represent "separate and independent works in themselves." 1 7 U.S.C. § 1 0 1 (definition of 24 25 additional content, DC's pre-termination works are not transformed into post- 26 ( "collective work"). Thus, by virtue oftheir re-release on DVD bundled with termination derivative works and are not subject to an accounting.47 27 28 47 To the extent Plaintiffs claim that any additional content or featurette included on a post-termination release of an unaltered pre-termination derivative work, such as Lois and Clark, the question of whether such additional content separately constituted a new 57 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 475 Cas 2:04-cv-08400-0DW-RZ 1 Document 336 Filed 07/21/2008 Page 70 of 92 In short, to the extent a post-termination alteration to a pre-termination 2 derivative work recasts, transforms or adapts that pre-termination work so as to 3 create a new derivative work under section 1 03(b) of the Copyright Act, Plaintiffs 4 are entitled to an accounting of profits from that new work attributable to The 5 Action Comics #1 Story. However, in determining what in fact constitutes a post- 6 termination alteration, particularly with respect to a collective work compilation on 7 DVD, each individual work presented thereon must be considered separately in 8 order to ensure that works which simply are not derivative at all are not improperly 9 l) included in the accounting. 10 11 PLAINTIFFS' ACCOUNTING CLAIMS ARE EQUITABLE IN NATURE, AND ACCORDINGLY ARE APPROP RIATELY TRIED TO THE COURT SITTING WITHOUT A JURY 12 Plaintiffs have demanded "a trial by jury on each claim for relief alleged in 13 their Complaint for which trial by jury is allowable," but have not identified those 14 claims. As the Court has noted, Plaintiffs' accounting claims in this action lie in 15 equity. Siegel 11, 542 F. Supp. 2d at 1 144-45 ("the accounting sought by plaintiffs 16 in this action is an equitable remedy"). Plaintiffs have consistently acknowledged 17 during the litigation of this matter the equitable nature of the accounting they seek. 18 See, e.g., PIs. SJ Reply Mem. at 5 1 ("[o]nce copyright co-ownership is established 19 'the only issue therefore is the contractual, or in the absence of contract the 20 equitable, division of profits from the copyrighted work."'). Nonetheless, given 21 Plaintiffs' generalized jury demand, Defendants seek an affIrmative ruling on this 22 issue so that they can structure their trial preparations and pre-trial submissions 23 accordingly. VI. C 24 25 26 27 28 derivative work would need to be dealt with on a case-by-case basis. Defendants contend generally, however, that additional content such as a documentary about the makin� of a television series, even if it contains footage or shows scenes from certain episodes, IS not a derivative work, but instead is a new work that merely depicts the underlying work. C j SHL Imaging, Inc. v. Artisan House, Inc., 1 17 F. Supp. 2d 301, 305-06 (S.D.N.Y. 2000) ( (photowaph of pre-existing work does not "recast, transform or adapt" to make it a "derivative work ofthe pre"existing work; photograph "merely depicts" pre-existing work). 58 ) DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 476 Cas 2:04-cv-08400-0DW-RZ ( 1 Document 336 Filed 07/21/2008 Page 71 of 92 As an initial matter, it is important to note that the right to a jury trial may 2 arise in two ways: (1) where it is statutorily created by Congress or (2) where it is 3 compelled by the Seventh Amendment, which "preserved" the right to a jury for all 4 legal - as opposed to equitable - claims as such right existed in 1791. See 5 generall Feltner v. Columbia Pictures, 523 U.S. 340, 345 (1 998). A Court may y 6 avoid the Constitutional question if it is able to determine that a Plaintiff has a 7 statutorily created jury right. Id. There can be no dispute in this instance, 8 however, that even though the parties' relationship as co-owners of copyright has 9 arisen by virtue of the application of copyright law principles rendering them 10 11 respect to an accounting between joint-owners of a copyright. Such an accounting 12 does not arise under the Copyright Act or federal statute, see Oddo v. Ries, supra, 13 743 F.2d at 633 , but under state law equitable principles that govem sharing 14 between partners and tenants in common. See H. Rep. at 1 2 1 . As succinctly stated 15 by Plaintiffs, "once it established that Plaintiffs jointly own the original 16 'Superman' copyright(s) under the Copyright Act, the applicability of Federal law 17 ends with that determination, as Plaintiffs' claim for an accounting is govemed in 18 all respects by state law." See PIs. SJ Reply Mem. at 5 1 (emph. in original)). 19 Thus, the Court will have to answer the Constitutional question and determine 20 ( tenants in common, there is no statutory authority providing for a jury trial with whether Plaintiffs have a Seventh Amendment right to a jury trial. 21 22 23 24 25 26 ( 27 28 A. Plaintiffs Do Not Have A Seventh Amendment Right To A Jury Trial Un Their Accounting Claims. The Seventh Amendment's preservation of the right to a jury trial only applies to legal claims, not those arising in equity. Accordingly, Plaintiffs do not have a right to a jury trial on their accounting claims ifthey are equitable in nature. Under the two-part test employed by the Supreme Court, a court must consider two factors in determining whether an issue is legal or equitable: (1) the historical ff nature of the issues involved and (2) the remedy sought. Chau ers, Teamsters and Hel pers Local 391 v. Terry, 494 U.S. 558, 559 (1 990); Feltner, 523 U.S. at 348. 59 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 477 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 72 of 92 1 Furthermore, in applying this test, the Court must look to the "nature of the issue to 2 be tried rather than the character ofthe overall action." Ross v. Bernhard, 396 U.S. 3 C) 53 1 , 538 n. 1 0 (1 962); Chau eurs, 494 U.S. at 569-70 (quoting Ross). ff 4 Plaintiffs' Second, Third and Fourth Claims and their Prayer for Relief, 5 along with their unambiguous briefing on summary judgment, all consistently 6 7 request an "accounting for profits" and demand the imposition of a constructive trust for their benefit to accomplish the goal of the accounting requested.48 As 8 explained in further detail below, under the first prong of the test, accountings and 9 actions to impose constructive trusts between co-owners of property and tenants in 10 common have historically been heard only in courts of equity. This long 11 established rule applies to requests for such relief between co-owners of copyright 12 who share profits as tenants in common. In addition, under the second ,Prong ofth 13 test, the remedy Plaintiffs seek is restitutionary in nature and therefore clearly 14 equitable, as it arises out of a duty to account between co-owners and not out of a 15 claim for breach of contract or any tortious violation of Plaintiffs' legal rights. 16 Accordingly, Plaintiffs do not have a right to a jury trial in connection with their 17 accounting claims, and those claims - along with all ofthe equitable 18 apportionment questions they implicate - are appropriately tried to the Court, 19 sitting without a jury. 20 21 22 23 24 25 26 27 28 1. (� �, The Accounting Plaintiffs Are Seeking Is, And Has Historically Been, Equitable In Nature. Justice Marshall explained the first part ofthe Supreme Court's Seventh Amendment test as follows: "First, we compare the [] action to the 1 8th-century actions brought in the courts of England prior to the merger of the courts of law 48 The "�eneral nature of the case" - here, an action to establish and enforce copyright terminatlOn rights - is only to be considered to ensure that the party moving to strike a jury demand has not intentionally structured its pleadings or request for rehef in such an artful way as to deprive the opposing party of its jury tnal right. Dairy Queen v. W ood, 369 U.S. 469, 477-78 (1 962). Here, smce it is Plaintiffs' own pleadings and contentions, as well as the relief they seek, that structure and def the nature of their claims, the me protection afforded by Dairy Queen is not needed. 60 u DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 478 Cas ( 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 73 of 92 1 and equity." Chau eurs, 494 U.S. at 565; accord Ross, 396 U.S. at 538 n. 1 0 ff 2 (courts are to consider "the pre-merger custom with reference to such questions"). 3 As demonstrated below, Plaintiffs' accounting claims have historically been 4 equitable issues. 5 The Second through Fourth Claims for Relief in Plaintiffs' Amended 6 Complaint comprise their accounting claims, in which they seek a share ofthe 7 profits resulting from Defendants' exploitation of post-termination Superman 8 works: • The Second Claim for Relief seeks a declaration of the amount of Plaintiffs' share of the profits from Defendants' exploitation ofthe recaptured Superman copyrights after April 1 6, 1 999; (FAC, �� 5659); • The Third Claim for Relief seeks a declaration of the amount of Plaintiffs' share of the Rrofits from Defendants' exploitation ofthe Superman "crest" as published in Action Comics #1, including from Defendants' use of a revised version of such crest in a Superman shield used as a trademark or in merchandise (id. �� 6064), and . • 9 The Fourth Claim for Relief seeks an accounting for profits from licensing and commercia\�xploitation ofthe recaptured Superman copyrigIits (id. �� 65-72). 10 11 12 13 ( 14 15 16 17 See also FAC, � � 1 , 54(c), 73, 1 05(d), 1 06, 1 08-1 10. 18 While the interests Plaintiffs have recaptured are based in copyright, the 19 nature of the financial relationship they seek to enforce via their accounting claims 20 is grounded in state common law principles of tenancy in common and the duties 21 of a trustee: Section 201 of the 1 976 Copyright Act carried forward the basic 22 principles of prior law that "authors of a joint work are co-owners of [the] 23 24 25 26 27 28 DC has alleged in its Fifth Counterclaim that any requested accounting to Plaintiffs of profits for exploitation of Superman must be reduced to take into account, inter alia, (i) the newly created copyrightable material added in derivative works based upon the Action Comics #1 Story and created thereafter that remains owned by DC, (Counterclaim, '\I� 1 13-1 1 5); (ii) the value of the graphic appearance of Superman based upon the Slegels' failure to terminate the Promotional Announcements (id. � 1 32(c)); and (iii) DC's direct and indirect expenses, taxes and value of DC Comics role as a pUblisher of Superman works. (id. � 132(g)). As noted above, the Court has granted Defendants' partial summary judgment motion to exclude from any accounting award all Superman profits derived from exploitation outside the U.S., from exercise of trademark rights not sub ect to termination and from continued use and licensing of derivative works created j be Jore the alleged termination's effective date of April 16, 1 999. 61 49 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 479 Cas 2:04-cv-OB400-0DW-RZ Document 336 Filed 07/21/200B Page 74 of 92 1 copyright." 1 7 U.S.C. § 20 l (a) &(b). See also Siegel 1, 496 F. Supp. 2d at 1 1 44- 2 45. Under the 1 976 Copyright Act, pre-existing, i.e. 1 909 Act, "court made law . . 3 . on the rights and duties of co-owners of a work . . . [was] left undisturbed . . . 4 [and] co-owners of a copyright . . . [are] treated generally as tenants in common . . . 5 subject to a duty to account to other co-owners for any profits." See H. Rep. at 6 C) l20-2 l . 7 ' Under the 1909 Act, as today, each joint author is a co-owner who possesses 8 "an undivided ownership in the entire work, including all of the contributions 9 contained therein," 1 Nimmer § 6.03 at 6-7; see Pye, 574 F.2d at 480; Siegel 1, 496 10 F. Supp. 2d at 1 144, and who can nonexclusively exercise all the rights of the 11 copyright owner subject only to a duty to account to other co-owners for their 12 share of "profits" earned from such use or licensing. 1 Nimmer § 6.10; Oddo v. 13 Ries, 743 F.2d at 632-33. Where such an accounting must be made to share profits 14 earned by one co-owner of copyright from exploitation of a derivative work based 15 upon the jointly owned work, the co-owner providing such an accounting does so 16 as a trustee, not as an infringer. Shapiro Bernstein & Co. , 223 F.2d at 254("As to 17 the scope of the accounting it is clear that each holder of the renewal copyright on 18 a joint work should account to the other for his exploitation thereof, -- not as an 19 infringer but as a trustee."). 20 C Plaintiffs' present accounting claims are in accord with accounting claims 21 that have traditionally been adjudicated in courts of equity. Historically, an 22 accounting claim arising out of a duty to account which, results not from a tortious 23 act or breach of contract but, instead,from the parties ' relationship as partners, co- 24 owners of property, or beneficiaries and trustees, has been considered equitable in 25 nature. See Phillips v. Kaplus, 764 F.2d 807, 8 1 3-14 ( l I th Cir. 1 985) (and cases 26 cited therein); see also Towers v. Titus, 5 B.R. 786, 794 (N.D. Cal. 1979) (where 27 duty to account is itself of an equitable origin); see generally Dairy Queen, 369 28 U.S. at 480 (Harlan, J., concurring). The purpose of such an accounting claim is () 62 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 480 Cas 2 :04-cv-OS400-0DW-RZ c 1 2 Document 336 Filed 07/21/200S Page 75 of 92 to detennine the proper sharing of partners' profits or to divide up co-owned property. See Id As Supreme Court Justice Story50 explained many years ago: 8 Cases of account between tenants in common� between joint-tenants, between partners, and between part owners OI ships and the masters, fall under the like considerations. They all involve peculiar agencies, like those of bailiffs or managers of property, and require the same operative power of discovery and the same mterpositlOn of equity. Indeed in all cases of such joint interests, where one p� receives all the profits, he is bound to account to the other parties in mterest for their respective shares, deducting the proper cliarges and expenses, whether he acts expressly by their authonty as the bailiff, or only by implication as manager without dissentjure domini over the property." 9 Joseph Story, Commentaries on Equity Jurisprudence as Administered in England 3 4 5 6 7 10 11 and America § 622 at 37 ( l 4th ed. 1 9 1 8). The co-ownership relationship between Plaintiffs and DC Comics brought 12 13 It is not compelled by contract and is not sought as a remedy for breach; nor does 14 it result from any tortious act such as an infringement of a copyright or trademark. 15 As Judge Learned Hand explained, in a case involving the proper sharing among 16 ( about by Plaintiffs' copyright tennination is what creates the duty to account here. joint owners of an opera, 17 18 19 20 21 22 23 24 25 26 ( 27 28 the plaintiff's rights arise from a constructive trust, created and cognizable onlyoy a court of equity. . . Her suit, so far as concerns the statutory cORyrights, is clear1y on the equi!y side of the court, because at law slie could get no declaration of those rights, nor, indeed, could a court of law look at any but legal interests in the copyrights. Maurel v. Smith, 220 F. 1 95, 201-02 (S.D.N.Y. 1 9 1 5), a ff'd 27 1 F. 2 1 1 (2d Cir. 1 92 1). As such, it is critical to distinguish the accounting at issue here, which has a direct historical basis cognizable only in equity, from an "accounting" to detennine monetary relief for a tort such as trademark infringement, which is one of several mechanisms for calculating the recoverable damages for injury from a violation of a plaintiff' s property or contractual rights.51 The substantive claim here would 50 Justice Story served on the Supreme Court from 1 8 1 1-1 845. 51 See generall Dairy Queen, 369 U.S. at 480 (J. Harlan, concur) (explaining that there y 63 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 481 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 76 of 92 2 historically have been brought in the courts of equity as an equitable accounting. See, e.g., Story § 622 at 37.52 Thus, had Plaintiffs' accounting claims been brought 3 4 would have been classified as equitable and tried accordingly. Indeed, Plaintiffs 5 have conceded as much. See Pis. SJ Reply Mem. at 5 1 ("[t]he duty to account 6 [among co-owners of copyright] does not derive from the copyright law's 7 proscription of infringement. Rather, it comes from 'equitable doctrines relating 8 to un just enrichment and general principles of law governing the rights of co- 9 U prior to the merger of law and equity (or at any other time, for that matter), they owners" (quoting Oddo v. Ries, 743 F.2d at 633 (emph. added; internal citations omitted).53 1 10 11 2. The second prong ofthe analysis - the nature of the remedy sought - also 12 13 Nature of the Remedy Sought supports a finding that Plaintiffs' accounting claims are equitable. As shown 14 . below, the analysis ofthis second factor is largely historical and looks to how the 15 specific kind of relief requested is defined by plaintiffs themselves and how such 16 () relief is traditionally viewed. 17 18 19 20 21 22 23 24 25 26 27 28 are two types of accountings which would render the accounting "truly 'equitable,'" (i) where the substantive claim is cognizable only in equity; or (ii) where the accounts between the parties are of such a "complicated nature" that they can be satisfactorily unraveled only by a court of equity." Id. (intemal citations omitted); see also Towers v. Titus, 5 B.R. at 793; 9 Charles Alan Wright & Arthur Miller, Federal Practice & Procedure, § 23 1 0 at 44 (3d ed. 2008). This is also arguably a case where the accounts between the parties are so complex as to provide an independent basis for equity jurisdiction. Although some courts have rejected a complexity exception as a general matter, others, including the Supreme Court, nonetheless observe that in the context of an "accounting," compleXIty can provide a basis for equity jurisdiction. Dairy Queen, 369 U.S. at 478. The accounting Plaintiffs request is not a simple one to measure a plaintiffs damages from a tort. As noted above, the accounting at issue here is based on equitable principles and will involve numerous intricate apportionments to determine the proper scope of its application. f 53 See also, id. at 37: "[AJs between co-owners o a copyright, the duty to account does f ringement. Rather it comes from yright law's proscription o inf not derivefrom the cop equitable doctrines relating to unjust enrichment and general principles of laws goveming the rights o co-owners.'" (emph. in original; citations and internal quotations f marks omitted); Bergman Dec!. Ex. C (Hearing Transcript) at 1 6, 22 (acknowledging the necessity for certain apportionments to be made in connection with Plaintiffs' equitable accountmg claims.) 52 (J 64 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 482 Cas · 2:04-cv-08400-0DW-RZ ( 1 Document 336 Filed 07/21 /2008 Page 77 of 92 The Supreme Court has held that a remedy which seeks to restore to the 2 ' plaintiff particular funds or property in the defendant's possession, rather than to 3 impose personal liability on the defendant for a tort or other violation of a 4 plaintiffs legal rights, is considered equitable. See Great West Lif & Annuity Ins. e 5 Co. 6 equitable restitution); Chau eurs, 494 U.S. at 570-71 (accountings that arise out of ff 7 a tenancy in common are equitable because the relief sought in such an action is 8 restitutionary"). v. Knudson, 534 U.S. 204, 2 14, n. 2 (2002) (accounting for profits is a form of 9 10 restitution in equity, ordinarily in the form of a constructive trust or equitable lien, 11 where money or property identified as belonging in good conscience to the 12 plaintiff could clearly be traced to particular funds or property in the defendant's 13 ( As the Great West Lif Court explained, historically "a plaintiff could seek e possession." Id. at 2 1 3 (contrasting equitable restitutionary remedy with legal 14 restitutionary remedy "In cases in which the plaintiffcould not assert title or right 15 to possession of particular property") (emphasis in original). In this instance, 16 Plaintiffs have requested an accounting to "restore" to them a share of profits that 17 they are entitled to as tenants-in-common to the jointly owned Action Comics #1 18 Story. Specifically, Plaintiffs' claim is that as their partners under equitable 19 principles and "in good conscience" Defendants should pay over to them their 20 share of "particular funds or property in defendant[s'] possession." Thus the fact 21 that in the instant case the ultimate goal of the requested accounting is to have 22 Defendants make a payment or payments to Plaintiffs as partners cannot alter the 23 equitable nature of their claim and the equitable character of the relief sought. See 24 Philips, 764 F.2d at 814; see Curtis 25 Towers, 5 B.R. at 795 ("[w]e need not, and do not go so far as to say any award of 26 monetary relief must necessarily be 'legal relief. ' Where monetary relief is an 27 integral part of an equitable remedy, it remains equitable in nature." (quoting 28 Curtis, 4 1 5 U.S. 1 97)). Accordingly, the nature of the remedy Plaintiffs are v. Loether, 4 1 5 U.S. 1 89, 1 96 (1 974); see also 65 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 483 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 78 of 92 1 seeking likewise supports a detennination classifying Plaintiffs' accounting claims 2 as equitable. 3 B. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 () The uestion of Whether An of DC Comics' Licenses to WBEI onstItute weet eart ea s IS mp Icate n y as a esu 0 the Eauitable Nature of the Accounting Re uested and Accordingly Should Be Determined by the ourt, ot a Jury c N The issue of whether any of DC's Supennan licenses to WEEI constitute "sweetheart deals" is likewise an equitable issue that should be tried before the Court. This determination, which must be made prior to the accounting, will govern whether and to what extent any of WEEI's profits should be taken into account in detennining Plaintiffs' co-ownership share of the profits from the Action Comics #1 Story. That the "sweetheart deal" detennination is equitable and not legal is evident from the Court's analysis of Defendants' motion for partial summary judgment on Plaintiffs' "alter ego" claims. In its Order, the Court agreed with Defendants that Plaintiffs' "alter-ego" theory is not a viable legal claim because it "requires large legal ieaps that are not countenanced by current law." Siegel II, 542 F. Supp. 2d at o 1 143. Nonetheless, the Court exercised its equitable jurisdiction to keep a part of that claim alive, explaining that "the accounting sought in this action is an equitable remedy, and the Court must conduct its inquiry accordingly." Id. at 1 144. Thus, the question the Court left for trial is "[w]hether the license fees paid represents the fair market value therefore, or whether the license for the works between the related entities was a 'sweetheart deal.'" Id. at 1 145. Given that this issue was only preserved by the Court's exercise of its equitable jurisdiction, there can be no doubt that it must be resolved by the Court sitting in equity. C. l j The Remainin Claims and Defenses That Are Not Implicated in the Equitable ccountin s and are OtherWIse Jury Issues Can Independently Be Tried 'irst Rule 39 of the Federal Rules of Civil Procedure provides, in relevant part, that "the trial on all issues so demanded must be by jury unless . . . the court, on motion, or on its own, finds that on some or all of those issues there is no federal 66 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES C) EXHIBIT I - 484 Cas 2:04-cv-OB400-0DW-RZ Docum e n t 336 Filed 07/21 /200B Page 79 of 92 1 right to a jury trial." Fed. R. Civ. P. 39. As noted by the Advisory Committee, 2 "[w]hen certain of the issues are to be tried by jury and others by the court, the 3 ( court may determine the sequence in which such issues shall be tried." Id. (citing Liberty Oil Co. v. Condon Nat 'l Bank, 260 u.s. 235 (1 922)).54 4 The Court has granted summary judgment on Plaintiffs' First Claim for 5 6 Relief holding that their Superman termination notices are legally valid and 7 effective (FAC, '\1'\1 52-55) and, as established above, Plaintiffs' Second through 8 Fourth Claims are for an equitable accounting. Plaintiffs' Complaint pleads the 9 following remaining additional claims: (1) a declaration that Plaintiffs became "co­ lO 11 copyrights and compensatory and punitive damages for Defendants allegedly 12 "committing waste thereon." (Fifth Claim for Relief, id. '\1 74-82); (2) treble 13 damages and injunctive relief arising out of Defendants' alleged violation of 14 Plaintiffs' rights under the Lanham Act, 15 U.S.C. § 1 125 (a)(I)(B), by allegedly 15 intentionally misrepresenting that Defendants are exclusive owners of rights in any 16 recaptured Superman copyrights and the goods and products embodying the same 17 (Sixth Claim for Relief, id. '\1'\1 83-95); and (3) damages and injunctive relief for 18 unfair competition and unfair business practices in violation of California's Unfair 19 Competition Law ("UCL"), Cal. Civ. Code § 1 7200 e t seq. , arising out of 20 Defendant Warner Bros' alleged intentional omission from its filings with the SEC 21 of any mention of Plaintiffs' purported Superman copyright termination (Seventh 22 ( owners, as tenants in common, with Defendants" ofthe recaptured Superman Claim for Relief, id. '\1'\1 1 1 6 - 1 2 1 .) The Seventh Claim for Relief, under the UCL, is also equitable in nature, 23 24 and Plaintiffs are not entitled to a jury trial on that claim. Hodge v. Superior 25 26 ( 27 28 54 And as explained in Ross v. Bernhard, supra, in determining whether or not a jury trial is warranted, courts are to consider each issue individually, rather than to look to the character ofthe action as a whole. See 396 U.S. at 538. "Rule 38 provides for jury demands only for 'any issue triable of right by jury' and provides for parties to expressly limit jury demands to specific issues, leaving others triable by the court.'" 8 James Wm. Moore, Moore 's Federal Practice § 39. l 2 [2J at 39- 1 6 (3d ed. 2007). 67 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 485 Cas 2:04-cv-08400-0DW-RZ Docum e nt 336 Filed 07/2 1 /2008 Page 80 of 92 1 Court, 145 Cal. App. 4th 278, 284 (2006) ("the UCL is not simply a legislative 2 conversion of a legal right into an equitable one. It is a separate equitable cause of 3 action.") In Hodge, the sole issue was whether defendant had a right to a jury trial 4 on the plaintiffs UCL claim. The court stated that the alleged unlawful business 5 practice was independently actionable and subject to distinct remedies. Because 6 those remedies were solely equitable, defendant was not entitled to a jury trial: 7 l) "[w]here the remedies invoked are purely and exclusively equitable, the right to a 8 jury trial does not exist." Id. at 284_85. 55 9 Defendants do not dispute that Plaintiffs' remaining two claims - for Waste 10 and under the Lanham Act - are legal in nature. In the event these claims require a 11 trial, that will not compel a jury trial as to the accounting issue; it only potentially 12 affects the order ofthe trial. In "mixed-issue actions" involving both equitable 13 claims tried to the court and legal claims tried to the jury, the trials are generally 14 sequenced such that the legal issues are disposed of before consideration of the 15 equitable issues. In such cases, as noted by Justice Black, courts can adequately 16 safeguard the parties' right to a jury trial by trying the legal issues before a jury 17 first. See Beacon Theaters, Inc. v. Westover, 359 U.S. 500, 5 1 0-5 1 1 (1 959); Dairy 18 Queen, 369 U.S. at 479 ("legal claims . . . must b e determined prior to any final 19 court determination of respondents' equitable claims"); Kaplus, 764 F.2d at 8 1 1 . 20 C In the present case, it is unlikely that there will be any, let alone many, 21 common issues of fact in the trials ofthe legal and equitable issues. But in the 22 event that there were, trying the legal issues first will alleviate any Seventh 23 Amendment concerns by ensuring that any preclusive effect ofthe factual issues 24 decided in the jury trial will only be able to affect the equitable issues, tried 25 26 27 28 55 See also Okura & Co. v. Careau Group, 783 F. Supp. 482, 491 (C.D. Cal. 1 99 1 ) (Demand for jury trial on cause of action for unfair competition under Section 1 7200 was properly stricken: where counterc1aimant would only be entitled to equitable relief such as an injunction or restitution, no right ofjury trial attached to that cause of action.); and ( ', u ply Co. v. Lockheed Martin Cor 29 Cal. 4th 1 134, 1 144 (2003) ("While the p., Korea S p �./' scol?e of conduct covered by the UCL is broad, its remedies are limited. A UCL action is eqUltable in nature; damages cannot be recovered."). 68 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 486 Cas ( , 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 81 of 92 1 second, and not the other way around. Id. Thus, ifthere are any remaining legal 2 claims, they should be tried to a jury before the Court's own, more extensive, 3 accounting trial. 4 6 VII. PLAINTIFFS HAVE THE BURDEN OF PROOF ON IDENTIFYING WHICH POST-TERMINATION WORKS CONTAIN ANY COPYRIGHTABLE ELEMENTS FROM THE ACTION COMICS #1 STOli AND THE PROPER APPORTIONMENT OF PROFITS JC,. THE.llli FROM 7 This Court has ruled that Plaintiffs successfully recaptured 50% of the new 5 56 8 copyrightable elements that first appeared in the Action Comics #1 Story, and 9 Plaintiffs are, pursuant to that ruling, entitled to participate in a portion of the 10 11 derivative works in the nine years since the effective date of termination. As 12 established in the preceding section, calculating Plaintiffs' share of the profits will 13 ( profits D C has earned by exploiting that jointly owned copyrighted material in new involve, inter alia, apportioning out the profits derived from factors other than the 14 co-owned work. 15 In a typical lawsuit, the Plaintiff has the burden of proving all of the 16 elements of its affirmative case, including damages. Under this standard rule 17 Plaintiffs would have the burden of proof on their claim to Defendants' profits 18 from the exploitation of the co-owned copyrighted material from the Action 19 Comics #1 Story unless they can present a compelling reason to shift that burden to 20 Defendants. Because this case requires the Court to conduct an accounting 21 allocating profits related to the exploitation of a copyright, the traditional burden of 22 proof must be squared with the statutory burden of proof that copyright 23 infringement plaintiffs benefit from, which modifies the traditional rule and places 24 25 26 ( 27 28 be tried before 56 Here, Plaintiffs' jury trial claims, if not previously resolved, should constructive trust. their claims for an equitable accounting of profits and imposition of a Moreover, because the claims of Plaintiffs to which a j1?)' trial right applies do not involve any overlapping factual issues with those pertainmg to their equitable accounting claims, such a jury trial will not affect the issues to be decided in the ensuing trial to the Court sitting in equity. Finally, ordering the trial in this manner would make it unnecessary to empanel a jury for a likely period of months to adjudicate Plaintiffs' accounting claims. 69 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 487 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 82 of 92 1 much of the burden of proving profits on an infringing defendant once 2 infringement has been established. See 4 Nimmer § 14.03 at 4-14 (discussing 3 "reason for displacing the plaintiff s normal burden of proof onto the shoulders of 4 the defendant"). Specifically, section 504(b) of the Copyright Act provides that in 5 an infringement case: 9 The copyright owner is entitled to recover . . . any profits ofthe infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer's profits, the copyright owner is required to present proof only of the mfringer's gross revenue, and the infringer is reqUIred to prove his or her deductIble expenses and the elements of profit attributable to factors other than the copyrighted work. 10 1 7 U.S.C. § 504(b). Thus, to establish the profits it is entitled to from any work 11 that is determined to be infringing, a copyright holder has the initial burden of 12 proving the gross revenues the infringer has received from the infringing activity. 13 The infringing defendant then must prove the expenses deductible from those 14 revenues and establish the extent to which any elements of profit are attributable to 15 non-infringing elements of a work or other contributions to the success of a work. 6 7 8 16 C There is a sizeable body of case law applying and refining the apportionmen 17 analysis in the infringement context. While it is reasonable to use such an 18 apportionment framework for an accounting of profits between co-owners, 19 20 especially given the lack of case law concerning the allocation of profits in the coownership context,S? it does not follow, as a matter of fairness or logic that the 21 Court should use the same burdens of proof when applying such an apportionment 22 process here. While Congress and the courts have determined that compelling 23 policy considerations exist to override the standard burden of proof in the 24 copyright in fringement context, the reasons for shifting the burden of proof are not 25 26 27 28 57 There is little instructive precedent on the issue of the allocation of the burden of proof in an accounting between copyright co-owners. See, e.g., Strauss v. The Hearst Corp., 1998 U.S. Dist. LEXIS 1427 at *20 (S.D.N.Y. Feb. 1 6, 1 988) ("[A]s a joint copyright holder, plaintiff is entitled to a pro rata share ofthe profits generated by defendant's use of the joint work or any portion thereof. While intimating no final view, I have serious doubt as to plaintiff's abIlity to prove, with sufficient certainty, the amount due him unde an accounting."). (-) "- - 70 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 488 Cas 2 :04-cv-08400-0DW-RZ ( Document 336 Filed 07/21 /2008 Page 83 of 92 1 present with regard to copyright co-owners where the relationship between the 2 parties is entirely different: A co-owner, unlike an infringer, has an equal right to 3 use the co-owned copyright as it sees fit. Under the apportionment f ramework used in the infringement context, a 4 5 6 should be evaluated separately. The first component ofthe profit determination is 7 a foundational one - Plaintiffs must identify which of Defendants' works are 8 subject to the accounting by identifying the works incorporating the co-owned 9 copyrighted material from the Action Comics #1 Story. While Defendants have 10 expanded the Superman universe by creating hundreds of new works since April 11 1 6, 1 999, Plaintiffs are only entitled to share in the profits from those works 12 incorporating the recaptured copyrighted material from the Action Comics #1 13 ( standard profit determination involves three distinct components, each of which Story. The second component of the profit apportionment, requires a qualitative 15 analysis. As detailed in Section II above, even after the works incorporating the 16 co-owned copyrighted material f rom the Action Comics #1 Story are identified, 17 apportionment is necessary to avoid the inequitable result of awarding Plaintiffs a 18 windfall that includes the portion of the profits from those works that was not 19 generated by the exploitation ofthe recaptured copyright. Accordingly, after 20 determining which of Defendants' post-termination derivative works incorporate 21 the co-owned copyrighted material from theAction Comics #1 Story, those works 22 must then be evaluated to separate the portion ofthe profits attributable to the 23 copyrighted material in the Action Comics #1 Story from the portion of profits 24 attributable to all of the other elements and contributions to the success of those 25 works, including copyrighted material from the countless Superman works 26 ( 14 Defendants created after Action Comics #1, material that is not protected by 27 copyright, and/or contributed by actors, directors, writers, artists, and other 28 individuals who factored into the success of those works. 71 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 489 Cas 2:04-cv-08400-0DW-RZ 1 Document 336 Filed 07/21/2008 Page 84 of 92 The third component of such an apportioned profit determination is financial 2 in nature - a mathematical calculation of revenues minus expenses. To arrive at 3 Plaintiffs' final share of the profits, the resulting number for each of the works 4 incorporating copyrighted material from the Action Comics #1 Story should be 5 multiplied by the relevant apportionment percentage and then divided by two to 6 (,) account for Plaintiffs' 50% share. 7 As discussed below, as to each of the first two components of the profit 8 calculus the burden is appropriately on Plaintiffs to establish their claim; as to the 9 third component - the determination of deductible expenses - Defendants 10 11 12 13 acknowledge that the burden might more appropriately be on them. A. Plaintiffs Must First Establish That The Works At Issue Include the Co-owned Copyrighted Matenal F'rom the ActIOn Comics #1 Story It is axiomatic that Plaintiffs' co-ownership rights to the copyrighted 14 material in the Action Comics #1 Story only entitle them to share in Defendants' 15 profits from the co-owned copyright. While this baseline issue is assumed in most 16 direct infringement cases involving a one-by-one comparison of infringed and 17 infringing works, there is no doubt that an infringer is only entitled to recover 18 profits attributable to the infringement, and it cannot claim profits from works that 19 do not include the plaintiff s copyright. This basic tenet is critical in this case 20 because there is not just one, but thousands of works, that are at issue. 21 Furthermore, not every work falling under the "Superman" umbrella 22 includes copyrighted material from the Action Comics #1 Story. Far from it - DC 23 has obtained countless copyrights and trademarks covering the development and 24 expansion ofthe Superman universe in the decades since 1 938. Accordingly, it 25 would be improper to allow Plaintiffs to assert an undifferentiated claim to share in 26 the profits from any work or product bearing the "Superman" name without 27 requiring them to first establish that the work or product actually incorporates C 28 C) 72 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 490 Cas 2:04-cv-08400-0DW-RZ ( 1 2 D ocument 336 Filed 07/2 1 /2008 Page 85 of 92 material from their one co-owned copyright in the Action Comics #1 Story. 58 This issue rarely arises in a direct infringement case for the common sense 3 reason that the allegations in most such cases concern one particular infringing 4 work and there is no dispute concerning the profits claimed by the plaintiff. 5 However, the courts that have touched on the subject all recognize that a party 6 cannot indiscriminately claim a share of a defendant's profits without tying those 7 profits to a work incorporating the infringed copyright. For instance, in Taylor v. 8 Meirick, 7 1 2 F.2d 1 1 12 (7th Cir. 1 983), the plaintiff, who owned several 9 copyrighted maps, sued a defendant for selling infringing maps. The plaintiff 10 11 sold 1 50 different maps; the three infringing maps represent 2 percent of this 12 figure; 2 percent of [defendant's gross profits during the relevant time period] is 13 ( calculated defendant's profits as follows: "During the damage period [defendant] $3,300." Id. at 1 1 19. Judge Posner rejected this methodology because it did not 14 focus on the profits the defendant earned from the infringing maps, as opposed to 15 defendants' other maps and products: .' 21 First, there is no evidence that the infringing maps represented 2 Rercent of [defendant's] total map sales as distinct from 2 percent of the titles in his inventory of maps. Second half of r defendant's] business consists of sales of something calied a 'RIf meter,' and [Rlaintiff] lumped the profits on those sales in with the profits of [ilefendant's] map busmess to get the figure that he multiplied by 2 percent in oriler to estimate [defendant's] profits on the infringing maps. . . . [Plaintift] could have made out a prima facie case for an award of infringer's .pro.fits. by showing [def endant's] gross revenues from the sale of the mfrmgmgmaps. It was not enough to show [defendant's] gross revenues from the sale of everythmg he sold. 22 Id at 1 122. C Basquiat v. Kemper Snowboards, 1 998 U.S. Dist. LEXIS 5733 at f 23 *2 (Apr. 20, 1998) ("A copyright plaintiff must, at the outset, establish the number 24 of infringing items sold and their initial selling price . . ."); Eiben v. A. E pstein & 16 17 18 19 20 25 26 ( 27 28 58 See, e.g., Zella v. E. W. Scripps et ai., 529 F. Supp. 2d 1 124, 1 132 (C.D. Cal. 2007) (plaintiffs required to identify each of the episodes of a television series they contend infringe their copyright: "that [plaintiffs] now suggest that the Court review every episode to save their claims would waste substantial judicial resources undertaking a task Plaintiffs should have undertaken themselves. The Court will not perform Plaintiff s' work for them and review all 1 50 episodes to select those which infringe on Plaintiffs' copyrights." (underlining added.) 73 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 491 Cas 2:04-cv-OS400-0DW-RZ Document 336 Filed 07/2 1 /200S Page 86 of 92 1 Sons Int '!, Inc., 57 F. Supp. 2d 607, 614 (N.D. Ill. 1999) (granting motion in limine 2 to preclude plaintiff, who held the copyright in certain architectural plans, from 3 presenting evidence of defendant's gross revenue from any portion of its 4 construction project other than the part that defendant constructed using the 5 infringing plans); see also 6 Patry § 22: 1 17 ("While some plaintiffs have 6 attempted to meet their burdens by merely placing into the record an 7 undifferentiated figure representing a corporation's gross revenue from all sources, 8 () infringing and noninfringing, such a ploy is clearly inadequate.") 9 The issue is more frequently raised in the related "indirect" profits context, 10 but the principle remains the same: "only those profits that are attributable to the 11 12 infringement may be awarded." 6 Patry § 22: 1 3 1 . See also Thoroughbred Sof tware Int '!, Inc. v . Dice Corp., 488 F.3d 352, 360-61 (6th Cir. 2007) (holding 13 that even where defendant infringer did not "delineate which part of its monthly 14 customer fee relate[d] to [the infringing] software," plaintiff was not "relieve[d] . . 15 . of its obligation that would allow the trier offact to determine what portion of 16 [the defendant's] monthly customer fee was attributable to the infringing 17 software."); Straus v . DVC Worldwide, Inc. , 484 F. Supp. 2d 620, 645 (S.D. Tex. 18 2007) ("The plaintiff has the burden of proving that the defendant's gross revenues 19 are specifically attributable to the sale of the infringing works."); Fox Controls, 20 Inc. 21 2005) ("To obtain an award of a defendant's profits, a plaintiff bears the burden of 22 connecting profits directly to the purported infringement."); 6 Patry § 22: 145 (The 23 burden on defendant to establish apportionment arises only if plaintiff first 24 establishes a causal nexus between the infringement and defendant's gross 25 revenue."). v. C Honeywell, Inc., 2005 U.S. Dist. LEXIS 144 10 at *25 (N.D. I11. Jul. 14, 26 In other words, labeling a work as part ofthe "Superman universe" is a 27 starting point, not an end point. This problem is evident when viewed in context 0 28 the damages report Plaintiffs' expert Steven Sills submitted in this matter. Mr. u 74 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 492 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 87 of 92 1 Sills' damages numbers are organized only by broad categories59 and include 2 numerous works within each category that indisputably fail to incorporate any 3 jointly owned copyrightable material from the Action Comics #1 Story.60 And 4 even some of the broad categories listed in Mr. Sills' report, like Krypto the 5 Superdog, include works that contain no copyrightable material from the Action 6 ( Comics #1 Story. 61 7 In sum, like an infringement plaintiff, Plaintiffs are required and bear the 8 burden to establish that the profits they are claiming have a causal connection to 9 the co-owned copyright by showing that each work at issue incorporates that 10 11 12 13 ( 14 15 16 17 18 19 20 21 22 23 24 25 26 ( 27 28 copyright. B. Plaintiffs Should Also Bear The Burden of Establishing Apportionment As to Each Work After establishing which derivative works incorporate the co-owned copyright and will therefore be subject to the accounting, the next step is apportionment - determining what portion of the profits from those works is attributable to the jointly owned copyright of the Action Comics #1 Story and what portion is attributable to factors other than those co-owned copyrightable elements. In a co-ownership situation, unlike an infringement case, the burden of apportionment should be on the plaintiff. As an initial matter, even in the infringement context, the profit determination is not punitive in nature, and this is especially true here. Thus, an optimal result, even in an infringement action, would allow the plaintiffto recover 59 Defendants' accounting expert, Franklin Johnson, since he was a rebuttal Plaintiffs' expert, used the same broad categories of works as were contained in Mr. Sills' report vis-a-vis revenues and expense. However, neither report addresses whether and to what extent any ofthese categories actually include revenues that can be attributed to the exploitation ofthe recaptured elements from the Action Comics #1 Story. 60 Bergman Dec!. Ex. F. 61 Given the parties' obviously differing interpretations of the scope of the co-owned material from the Action Comics #1 Story and the extent to which it permeates the post­ April 1 6, 1 999 works in the Superman universe, it makes sense to require Plaintiffs, as masters of their Complaint, to Identify the particular works that they contend include the co-owned material. 75 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 493 Cas 2:04-cv-08400-0DW-RZ D o cument 336 Filed 07/2 1 /2008 Page 88 of 92 1 only the share of the profits from a work that are attributable to the defendant's 2 exploitation ofthe copyright at issue and nothing more. See Sheldon, supra, 309 3 U.S. at 399 (purpose of awarding infringer's profits is "to provide just 4 compensation for the wrong, not to impose a penalty by giving to the copyright 5 proprietor profits which are not attributable to the infringement."); 6 Patry 6 § 22: 145 at 22-344 ("Apportionment [] plays a critical role in ensuring that only 7 those profits attributable to the infringement are disgorged."). However, because 8 the task of apportionment is often imprecise, the allocation of the burden of proof 9 l) effectively determines which party receives a windfall of profits resulting from the 10 difficulties of calculating apportionment. 11 In an infringement case the copyright infringer is a tortfeasor who has 12 appropriated a copyrighted work without permission, often intertwining the 13 copyrighted work with the infringer's own work and contributions in a way that 14 makes it difficult to separate the two out. On a policy level, it makes sense for 15 Congress and the courts to allocate the burden o f apportionment to the infringing 16 defendant as it i s only fair to place the burden of untangling those contributions on 17 the party that made the unilateral decision to tangle them in the first instance. See, 18 e.g., Sheldon, 309 U.S. at 401 ("in view of [the difficulty o f separating profits 19 attributable to the copyrighted matter from profits attributable to other factors], the 20 defendant, being responsible for the blending of the lawful with the unlawful, had 21 to abide the consequences 22 23 24 25 26 27 28 C' . . . ,,).62 However, the fact that the courts and Congress have made a policy decision to allocate the burden of proving apportionment to a defendant in a copyright 62 Even where claimed percentages are not supplied by the parties, if any rational apportionment can be made, the Court should undertake that apportionment sua sponte, even if the defendant has not satisfied its burden of establishing apportionment. Cream Records, 754 F.2d at 828 ("[W]here an infringer's profits are not entirely due to the infringement, and the evidence suggests some division which may rationally be used as a springboard, it is the duty of the court to make some apportionment.") (citation and intemal quotations omitted); see also 6 Patry § 22: 1 45 ("An important goal of the 1 976 Act was to make mandatory apportionment of damages between the infringing and . noninfringing elements of defendant's goods."). 76 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES U. EXHIBIT I - 494 Cas 2 :04-cv-08400-0DW-RZ ( Document 336 Filed 07/21 /2008 Page 89 of 92 1 infringement case should not be determinative in this case involving co-owners. 2 The critical difference between the present situation and an infringement case is 3 that in this instance, Defendants have always had the right to use the copyrightable 4 content from the Action Comics #1 Story as they pleased. Accordingly, different 5 policy considerations are implicated here, and Defendants respectfully submit that 6 those considerations dictate a different allocation of the burden of proof. 7 First of all, as discussed above, the policy basis for requiring an infringer to 8 bear the burden of proving apportionment is straightforward: because the infringer 9 has combined the copyright holder's copyright with its own work without 10 11 "an equitable response to an infringer who has frustrated the task of apportionment 12 by co-mingling profits." Data General Corp. 13 F. 3d 1 147, 1 176 ( 1 st Cir. 1994) (citing Sheldon, 309 U.S. at 40 1). This rationale 14 holds no weight in an accounting between tenants-in-common, however, because 15 each joint owner has the absolute right to use the copyright as it sees fit. Oddo v. 16 Ries, supra, 743 F.2d at 633. Accordingly, given the nature of the co-ownership 17 relationship, there is no policy basis for placing the burden o f apportionment on a 18 co-owner who has exploited a copyright rather than on the passive co-owner 19 ( permission, the infringer should bear the burden of untangling the two. This rille is claiming an accounting. v. Grumman Sys. Support Cor 36 p., 20 21 context than a typical co-ownership case because the parties have become co- 22 owners ofthe copyrightable material in the Action Comics #1 Story only recently, 23 by virtue of Plaintiffs' exercise of their statutory termination right. Prior to the 24 effective date of Plaintiffs' termination, Defendant DC Comics was the sale owner 25 of the copyright for 6 1 years. During the vast majority of that 6 I-year time period, 26 ( Second, this case is even a step further removed from the infringement DC had no reason to consider the financial or accounting implications of 27 combining the copyrighted material from the Action Comics #1 Story with the 28 subsequent creative developments that allowed Superman to become what he is 77 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 495 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008. Page 90 of 92 I today, or to consider and track whether any of the copyrighted material in the 2 Action Comics #1 Story was included in any of the hundreds of works that built 3 C-) upon and expanded the Superman universe throughout the years. 4 As this Court recognized in its Opinion, the post-Action Comics #1 works, 5 the majority of which were created during those 6 1 years, "added decades of new 6 material to further define, update, and develop the [Superman] character (such as 7 his origins, his relationships, and his powers and weaknesses) in an ongoing flow 8 of new exploits and supporting characters, resulting in the creation of an entire 9 fictional Superman 'universe.'" Siegel II, 542 F. Supp. 2d at 1 1 1 0. To the extent 10 the post-Action Comics #1 works incorporate any of the copyrightable elements II that first appeared in the Action Comics #1 Story (not all of them do), that 12 copyrightable material �as been buried under the countless derivative works that 13 have expanded the Superman universe during that time period. 14 Under these circumstances, allocating the burden of proving apportionment 15 to DC would place a harsher burden on DC than that on an infringement defendant. 16 Given DC's undisputable role in expanding the Superman franchise over those 6 1 17 years to its present level of prominence, an equitable allocation ofthe burden of 18 proof would give DC the benefit of the doubt with respect to those contributions.63 19 C Finally, a rule forcing a co-owner who has exploited a copyright to bear the 20 burden of apportioning the profits from the newly created work is inappropriate 21 because it would contravene the Congressional policy that the copyright law is 22 intended to promote the arts and sciences. In an infringement context, it is rational 23 from a policy perspective to punish an infringer by awarding the copyright holding 24 plaintiff any windfall that results from difficulties in apportionment. In a co- 25 ownership situation, however, where both parties have an equal right to exploit the 26 copyright, policy decisions should align with rules that encourage, rather than 27 28 63 Plaintiffs have the same access to the pertinent evidence that Defendants do - the works themselves - and given the equities involved, there is likewise no reason to allocate the burden of apportionment to Defendants. 78 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES C) EXHIBIT I - 496 Cas 2:04-cv-08400-0DW-RZ ( Document 336 Filed 07/21/2008 Page 91 of 92 I discourage, co-owners to exercise their rights in the co-owned copyright. 2 General, 3 supporting the rule that "apportionment is almost always available in the context 0 4 infringing derivative works, perhaps in part because original expression added by 5 the infringer is itself entitled to copyright protection.") 6 C Data j 36 F.3d at 1 1 76 (citing "policies underlying the Copyright Act" as Under an economic analysis, at the margins, a co-owner would refrain from 7 8 undertake the burden of apportioning out profits derived from the copyrighted 9 work from elements of profits attributable to other factors and if the co-owner 10 would also forfeit any revenues that were not attributable to the jointly owned II copyright but that could not adequately be apportioned out. In the interest of 12 encouraging further creation of new derivative works in these instances, the burden 13 ( creating a work incorporating a co-owned copyright if it were required to of proof should favor a co-owner who actively exploits a co-owned copyright over 14 a passive co-owner who sits back and waits to collect an accounting. 15 In this situation, D C - not Plaintiffs - has cultivated the Superman property 16 over the years and grown it to its current prominence. An equitable result would 17 recognize these efforts and encourage further exploitation of the jointly held 18 copyright by giving DC the benefit of the doubt with respect to any apportionment 19 calculations. 20 21 22 23 24 25 26 ( 27 28 C. Defendants Have The Burden Of Rebutting Plaintiffs' Profits EVIdence By Demonstrating Deductible Expenses The final component to the profit calculation is deducting expenses from the revenues earned from exploiting the copyright at issue. In the infringement context, the burden of proving gross revenues is allocated to the plaintiff copyright holder, and the infringer is then required to prove any deductible expenses. Thus far in this litigation, the parties have proceeded under this paradigm, with Plaintiffs' expert Steven Sills submitting an expert report calculating Defendants' revenues (and deducting only limited expenses) with respect to certain categories of exploitation and Defendants' rebuttal expert Franklin Johnson submitting a 79 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES EXHIBIT I - 497 Cas 2:04-cv-08400-0DW-RZ Document 336 Filed 07/21/2008 Page 92 of 92 1 rebuttal report identifying all of the deductible expenses relating to the creation an 2 3 exploitation ofthose works. While the equities in this co-ownership situation could potentially dictate a different result,6 4 Defendants have no objection to 4 continuing to assume the burden of establishing the expenses related to the 5 revenues they have received, subject only to the caveat discussed in Section VII(A) 6 above that Plaintiffs should bear the burden of identifying each work that they 7 contend includes portions of the co-owned copyrightable material from the Action 8 Comics #1 Story, as well as the proportionate amount of such use in each such 9 U work - something Plaintiffs have failed to do to date. 10 11 12 CONCLUSION For the foregoing reasons, Defendants respectfully request that the Court issue an order comporting with the relief sought herein. Respectfully submitted, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DATED: July 2 1 , 2008 WEISSMANN WOLFF BERGMAN COLEMAN GRODIN&EVALL LLP FROSS ZELNICK LEHRMAN &ZISSU, P.C. c -andPERKINS LAW OFFICE, P.C. By: /s/ . lVIicli"'ae""'I'BTe::::r"'g:::;m:O:a:O:n:---Attorneys for Defendants and Counterclaimant 6 4 A recent California state court decision provides a blueprint of an appropriate allocation of the burden of establishing profits relating to a particular property when that issue arises in a non-i�gement context. In Sander/Moses Prods., Inc. v. NBC Studios, Inc., 142 Cal. App. 4' 1086 (2006), a plaintiff loan-out company filed suit against NBC filer. The for failing to pay contingent compensation relating to the television series Pro Plaintiff appealed the jury's decision for the defendant, arguing that it should not have borne the burden of provmg the contingent compensation amount because all of the relevant accounting mformation was in the possession of the defendant studio. The court rejected plaintiff's argument stating, among other things that "there is no evidence that the information necessary to calculate the amount of contingent compensation to which [plaintiff] was entitled under the agreement was unavailable. To the contrary, the record shows that [plaintiff] was provided information through the audit process . . . . Moreover, [plaintiff's] expert was able to calculate its damages based on the available information." !d. at 1096. 80 DEFENDANTS' BRIEF ON ADDITIONAL ISSUES (J EXHIBIT I - 498

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