REVISED
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 96-10892
_____________________
LULIRAMA LTD, INC; SPENCER MICHLIN,
Plaintiffs-Counter Defendants-
Appellants-Cross-Appellees,
v.
AXCESS BROADCAST SERVICES, INC,
Defendant-Counter Claimant-
Appellee-Cross-Appellant.
_________________________________________________________________
Appeals from the United States District Court
for the Northern District of Texas
_________________________________________________________________
November 10, 1997
Before POLITZ, Chief Judge, KING, Circuit Judge, and DUPLANTIER,*
District Judge.
KING, Circuit Judge:
Plaintiffs-Appellants Lulirama Ltd., Inc. and Spencer
Michlin appeal the district court’s denial of their motion for
summary judgment and partial grant of the summary judgment motion
filed by Defendant-Appellee Axcess Broadcast Services, Inc.
Axcess appeals the district court’s refusal to impose sanctions
on Lulirama and Michlin pursuant to Rule 11 of the Federal Rules
*
District Judge of the Eastern District of Louisiana,
sitting by designation.
of Civil Procedure. We affirm in part and vacate and render in
part.
I. FACTUAL AND PROCEDURAL BACKGROUND
In November 1991, Lulirama Ltd., Inc. (“Lulirama”) and
Axcess Broadcasting Services, Inc. (“Axcess”) entered into a one-
year business arrangement (the “Jingle Writing Agreement”) in
which Lulirama’s president Spencer Michlin, through Lulirama, was
to write and provide Axcess with fifty advertising jingles at a
rate of $750 per jingle, for a total of $37,500. One third of
the price was to be paid up front, with the remainder paid in
four installments. Michlin’s services were to be provided on a
confidential basis, and he was not to provide similar services to
any company selling musical advertising through radio and
television stations during the time period covered by the
agreement. The Jingle Writing Agreement is memorialized in a
one-page billing statement signed by both parties. The statement
contains handwritten notations added by Axcess which specify that
the work is “for hire,” that the jingles are to be delivered at a
rate of thirteen per quarter, and that they must be approved by
Otis Conner, the president of Axcess. Axcess timely paid
Lulirama under this agreement, but Lulirama provided only seven
jingles.
In April 1992, Lulirama, Michlin, and Axcess entered a
written license agreement (the “Promotional License Agreement”)
that gave Axcess the right to use any musical works in which
Lulirama or Michlin could “claim ownership or other right, title
2
or interest, whatsoever” for demonstration and promotional
purposes at client meetings for product development. In return,
Axcess was to pay Lulirama $1,000 per month for the first two
years and $1,500 per month thereafter. The term of the
Promotional License Agreement was one year, but it was
automatically renewable for up to four years at the discretion of
Axcess.
In March 1993, the parties orally extended the Jingle
Writing Agreement for an indefinite period of time. Axcess was
to pay Lulirama $50,000 per year in monthly installments of
$4,166, based on a rate of $1,000 per jingle. The parties
terminated the Jingle Writing Agreement as extended in June 1994.
From March 1993 to June 1994, Axcess paid Lulirama
approximately $66,658 in monthly installments of $4,166, but
Lulirama provided only twenty-nine songs. Axcess subsequently
sought to have some of the money it had paid to Lulirama
refunded, or, in the alternative, to have Lulirama provide it
with the jingles that Axcess claimed it was due under the Jingle
Writing Agreement.
Axcess sued Lulirama and Michlin in Texas state court in
December 1994. The state district court granted summary judgment
in favor of Axcess on a breach of contract theory and ordered
Lulirama to refund some of its money to Axcess based on
Lulirama’s failure to provide songs due under the Jingle Writing
Agreement. See Axcess Broadcast Servs. v. Michlin, No. 94-12703
(192d Dist. Ct., Dallas County, Tex. June 9, 1995). Lulirama
3
appealed, and the Dallas court of appeals reversed the state
district court’s entry of summary judgment while the federal case
was pending before this court. See Lulirama Ltd. v. Axcess
Broadcast Servs., No. 05-95-01212-CV, 1996 WL 743774 (Tex. App.--
Dallas Dec. 31, 1996).
On October 31, 1995, Lulirama and Michlin2 filed suit
against Axcess in federal district court, asserting thirty-six
claims of copyright infringement. Lulirama alleged that, without
proper authorization, Axcess reproduced the jingles, prepared
derivative jingles, distributed copies of the jingles, and
authorized others to perform the jingles in violation of
Lulirama’s copyrights. Axcess answered, asserting several
affirmative defenses and alleging that it owned the copyrights to
all of the jingles. Axcess also filed a counterclaim asserting a
fraud claim and a claim for declaratory judgment that Axcess
owned the copyrights to all of the jingles or, in the
alternative, that it had “a continuing, unqualified license for
the unlimited use” of the jingles.
Axcess filed a motion for summary judgment, and Lulirama
filed a motion for partial summary judgment. Axcess also filed a
motion for Rule 11 sanctions on the grounds that Lulirama’s
2
Lulirama and Michlin concede that any copyrights that
Michlin would otherwise own as creator of the jingles are owned
by Lulirama pursuant to the work for hire doctrine because
Michlin wrote the jingles in the course and scope of his
employment as president of Lulirama. See 17 U.S.C. § 101, 201.
Because Michlin has no claim to any of the copyrights at issue in
this case, the remainder of this opinion refers only to Lulirama
in discussing the legal positions of Lulirama and Michlin.
4
complaint lacked a legal basis and was filed for improper
purposes. The court granted in part and denied in part Axcess’s
motion, dismissed its fraud claim, and denied Lulirama’s motion
for partial summary judgment. Specifically, the district court
held that Lulirama’s copyright infringement claims were barred by
res judicata,3 that Axcess owned the copyrights in the first
seven jingles, and that Lulirama owned the copyrights in the
subsequent twenty-nine jingles. The district court held,
however, that Axcess had an oral or implied license to use the
twenty-nine songs4 and that Axcess had not exceeded the scope of
the license.5 The district court also denied Axcess’s motion for
3
Following the district court’s entry of final judgment in
this case, the Dallas Court of Appeals reversed the state
district court’s judgment rendering summary judgment in favor of
Axcess. Accordingly, Lulirama’s copyright infringement claims
cannot be precluded by res judicata. See Savidge v. Fincannon,
836 F.2d 898, 906 (5th Cir. 1988) (“A decree that has been
vacated or nullified by an appellate court cannot be given res
judicata effect.”); 18 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND
PROCEDURE § 4432, 302 (1981) (“Reversal and remand for further
proceedings on the entire case defeats preclusion entirely until
a new final judgment is entered by the trial court or the initial
judgment is restored by further appellate proceedings. The fact
that an appeal is pending in a higher appellate court does not
restore the preclusive effects of the reversed judgment.”).
4
The district court did not specify whether it construed
the license to be exclusive or nonexclusive. However, as
explained in Part II.A.2.b, infra, the license is necessarily
nonexclusive because it is not reflected in a written instrument.
5
This holding is not reflected in the district court’s
final judgment even though Axcess requested declaratory judgment
to this effect as an alternative to a declaratory judgment that
it owned the copyrights to all thirty-six jingles. Presumably,
the district court intended its holding that Axcess had a license
to use the last twenty-nine jingles as an alternative basis for
the court’s disposition of Lulirama’s copyright infringement
claims.
5
Rule 11 sanctions. Lulirama timely appealed and Axcess cross-
appealed.
II. DISCUSSION
Lulirama challenges the district court’s conclusions (1)
that Axcess owns the copyrights to the seven jingles that
Lulirama provided to Axcess during the first year of the Jingle
Writing Agreement and (2) that Axcess has an implied or oral
license to use the twenty-nine jingles that Lulirama provided to
Axcess after the first year of the Jingle Writing Agreement.
Axcess appeals the district court’s denial of its motion for Rule
11 sanctions against Lulirama for filing a meritless lawsuit for
improper purposes. We address each of these issues in turn.
A. Summary Judgment
1. Standard of Review
“We review a grant of summary judgment de novo, applying the
same criteria used by the district court in the first instance.”
Texas Manufactured Housing Ass’n v. City of Nederland, 101 F.3d
1095, 1099 (5th Cir. 1996), cert. denied, 117 S. Ct. 2497 (1997).
Summary judgment is proper “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to
judgment as a matter of law.” FED. R. CIV. P. 56(c); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986).
6
2. Analysis
a. Copyright ownership of the first seven jingles
The district court concluded that Axcess owned the
copyrights to the first seven jingles that Lulirama produced
under the Jingle Writing Agreement on the ground that these
jingles were works for hire within the meaning of the Copyright
Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (1976) (codified
as amended in scattered sections of 17 U.S.C.).
Under the Copyright Act, copyright ownership “vests
initially in the author or authors of the work.” 17 U.S.C.
§ 201(a). “As a general rule, the author is the party who
actually creates the work, that is, the person who translates an
idea into a fixed, tangible expression entitled to copyright
protection.” Community for Creative Non-Violence v. Reid, 490
U.S. 730, 737 (1989). However, the Act creates an exception to
this general rule that authorship vests in the creator for “works
made for hire.” See 17 U.S.C. § 201(b). Section 201(b) of the
Act provides:
In the case of a work made for hire, the employer or
other person for whom the work was prepared is
considered the author for purposes of this title, and,
unless the parties have expressly agreed otherwise in a
written instrument signed by them, owns all of the
rights comprised in the copyright.
Id. Section 101 defines a “work made for hire” as follows:
(1) a work prepared by an employee within the scope of
his or her employment; or
(2) a work specially ordered or commissioned for use
as a contribution to a collective work, as a part
of a motion picture or other audiovisual work, as
a translation, as a supplementary work, as a
7
compilation, as an instructional text, as a test,
as answer material for a test, or as an atlas, if
the parties expressly agree in a written
instrument signed by them that the work shall be
considered a work made for hire.
Id. § 101. The two parts of this working definition are mutually
exclusive: the first part applies to works created by employees;
the second applies to works created by independent contractors.
See Reid, 490 U.S. at 742-43. The district court concluded that
Lulirama acted as an independent contractor for Axcess in
providing the jingles pursuant to the Jingle Writing Agreement,
and none of the parties dispute this conclusion.
The district court determined that the jingles written
pursuant to the Jingle Writing Agreement during the first year of
the agreement fit the second prong of the Copyright Act’s
definition of “works made for hire.” In reaching this
conclusion, the court relied on an affidavit that Michlin
executed in conjunction with Axcess’s state court action in which
Michlin expressed the following understanding of the Jingle
Writing Agreement:
Under this arrangement, I was to supply Axcess’
requirements for advertising jingles and provide them
to Axcess through my company Lulirama. Axcess was to
sell these songs to its television and radio station
clients.
The district court concluded that the above statement indicated
that the jingles written pursuant to the first year of the Jingle
Writing Agreement were “works specially ordered or commissioned
for use . . . as a part of a motion picture or other audiovisual
work,” 17 U.S.C. § 101, based on the following rationale:
8
It is best to interpret the broad term “audiovisual” to
include both purely visual and purely audio works as
well as combined audio and visual works. No purpose of
the Copyright Act would be served by a narrower
definition because there is nothing inherent, from a
copyright policy perspective, in a purely visual,
purely audio, or combination work to merit differential
treatment.
Lulirama contends that the district court improperly
expanded the class of specially commissioned works that can be
works for hire within the meaning of the Copyright Act. We
agree.6
The Supreme Court observed in Reid that the legislative
history of the Copyright Act of 1976 indicates that it is “a
carefully worked out compromise aimed at balancing legitimate
interests” of hiring parties and artists. Reid, 490 U.S. at 748
(internal quotation marks omitted). As such, the Court
admonished that “[s]trict adherence to the language and structure
of the Act is particularly appropriate.” Id. at 748 n.14.
A work created by an independent contractor can constitute a
work for hire only if it fits one of the nine narrowly drawn
6
Lulirama also argues somewhat cursorily that the billing
statement memorializing the first year of the Jingle Writing
Agreement described the jingles in question insufficiently to
establish a valid work for hire agreement. We need not resolve
this issue because we conclude that the district court erred in
holding as a matter of law that Axcess owns the copyrights to the
first seven jingles. As explained in Part II.A.2.b, infra,
Axcess has requested in the alternative declaratory judgments
that it either owns the copyrights to these jingles or has an
unlimited license to use them. Because we conclude as a matter
of law that Axcess has, at a minimum, a nonexclusive license to
use the jingles as it has, remand for determination of copyright
ownership is unnecessary. Accordingly, we need not determine
whether Axcess’s claim to copyright ownership with respect to the
first seven jingles is foreclosed as a matter of law on the
alternative ground advanced by Lulirama.
9
categories of works delineated in the second part of § 101's
definition of “works made for hire.” See id. at 748 (“[T]he
legislative history underscores the clear import of the statutory
language: only enumerated categories of commissioned works may
be accorded work for hire status.”); Easter Seal Soc’y for
Crippled Children and Adults v. Playboy Enters., 815 F.2d 323,
328 n.8 (5th Cir. 1987) (“Only the buyers and sellers of works
falling with[in] § 101(2)’s nine categories can decide who will
be the statutory author; and then only by compliance with the
statute of frauds clause.”). Axcess contends only that the
jingles fit one of the categories listed in § 101: the category
of “work[s] specially ordered or commissioned for use . . . as a
part of a motion picture or other audiovisual work.” 17 U.S.C.
§ 101. Accordingly, this is the only potential avenue to work
for hire status that we address.
Section 101 of the Act defines “audiovisual works” as
works that consist of a series of related images which
are intrinsically intended to be shown by the use of
machines or devices such as projectors, viewers, or
electronic equipment, together with accompanying
sounds, if any, regardless of the nature of the
material objects, such as films or tapes, in which the
works are embodied.
17 U.S.C. § 101. The plain language of this definition indicates
that an audiovisual work must have a visual component. In order
to be classified as an audiovisual work, the work in question
“must consist of (1) ‘images;’ (2) such images must be ‘related’
and presented in a ‘series;’ (3) such images must be capable of
being shown by a machine or device.” 1 MELVILLE B. NIMMER & DAVID
10
NIMMER, NIMMER ON COPYRIGHT § 2.09[A] (1997) [hereinafter NIMMER]
(footnotes omitted). Use of the term “images” in the statutory
definition denotes a visual component because the definition
indicates that an audiovisual work consists of “images . . .
together with accompanying sounds, if any.” 17 U.S.C. § 101
(emphasis added). To conclude that an “image” within the Act’s
definition of “audiovisual works” need not contain a visual
component would render the reference to “accompanying sounds” in
the definition superfluous because “accompanying sounds” would be
subsumed by the term “images.” Such a statutory construction
would violate the long-settled principle that each word in a
statutory scheme must be given meaning. See Bailey v. United
States, 116 S. Ct. 501, 506 (1995) (noting the “assumption that
Congress intended each of its terms [in a statutory scheme] to
have meaning”).
Moreover, § 102 of the Act lists “motion pictures and other
audiovisual works” and “sound recordings” as distinct categories
of works entitled to copyright protection. See 17 U.S.C. § 102.
That Congress chose to create these separate categories indicates
that it recognized a distinction between audiovisual and purely
audio works. Additionally, Section 101 defines “sound
recordings” as
works that result from the fixation of a series of
musical, spoken, or other sounds, but not including the
sounds accompanying a motion picture or other
audiovisual work, regardless of the nature of the
material objects, such as disks, tapes, or other
phonorecords, in which they are embodied.
11
Id. § 101 (emphasis added). The district court’s conclusion that
“purely audio works” constitute “audiovisual works” would render
the category of “sound recordings” completely empty. Because
works otherwise meeting the definition of “sound recordings” are
purely audio works, under the district court’s statutory
construction, they would all be excluded from the definition
because they would also constitute “other audiovisual work.”
Therefore, we cannot agree with the district court that the term
“audiovisual works” encompasses “purely audio works.”
Axcess argues that Michlin’s statement that he agreed to
provide advertising jingles to Axcess “to sell . . . to its
television and radio station clients” indicates that each of the
jingles was commissioned for use in both the television and radio
mediums. Axcess argues that, to the extent that each jingle was
commissioned for use in television, each jingle is “a work
specially ordered or commissioned for use . . . as a part of a
motion picture or other audiovisual work.” 17 U.S.C. § 101.
However, Michlin’s statement of his understanding of the Jingle
Writing Agreement does not unambiguously indicate that each
jingle that he wrote pursuant to the Jingle Writing Agreement
would potentially be used both for television and radio
advertising. One could read his statement as indicating that
Axcess intended to commission some jingles for use in television
advertisements and other jingles for use in radio advertisements.
Because the summary judgment evidence does not indicate which of
the first seven jingles were commissioned for use as part of a
12
television advertisement, a radio advertisement, or both, a
genuine issue of material fact exists as to whether any or all of
these jingles were “specially ordered or commissioned for use . .
. as a part of a motion picture or other audiovisual work,” 17
U.S.C. § 101, and thus whether they are works made for hire.7
Axcess argues in the alternative, however, that it has a
nonexclusive license to use the first seven jingles, as well as
the twenty-nine jingles produced during the period in which the
parties extended the Jingle Writing Agreement without a written
embodiment of the agreement. We turn now to the issue of
nonexclusive license.
b. Nonexclusive license
The district court concluded that no valid work for hire
agreement existed with respect to the twenty-nine jingles written
after the original Jingle Writing Agreement expired at the end of
one year because the extension of the Jingle Writing Agreement
was not evidenced in a writing signed by the parties.
Accordingly, the court determined that Lulirama, as the employer
of the creator of these works, owned the copyrights to them.
7
Axcess insists that a particular jingle need not have
been commissioned only for use in an audiovisual work in order to
qualify for work for hire status. Assuming that this is true,
it is clear that, in order for a particular jingle to qualify as
a work for hire, Axcess must have commissioned it at least in
part for the purpose of making it a part of an audiovisual work.
The summary judgment evidence in this case does not establish
that at least part of the purpose for Axcess’s commissioning each
of the first seven jingles was for use in television advertising.
Accordingly, summary judgment in favor of Axcess as to its
ownership of the copyrights to the first seven jingles was
inappropriate.
13
Axcess does not dispute this conclusion. The district court went
on to conclude that, while Lulirama owned the copyrights to these
jingles, it had granted Axcess an oral or implied license to sell
the jingles to Axcess’s radio and television customers. Lulirama
contends that the district court erred in this regard. We cannot
agree.
While the Copyright Act requires that exclusive licenses be
evidenced by a writing, no such writing requirement applies to
nonexclusive licenses. Section 204(a) of the Act provides that
“[a] transfer of copyright ownership, other than by operation of
law, is not valid unless an instrument of conveyance, or a note
or memorandum of the transfer, is in writing and signed by the
owner of the rights conveyed or such owner’s duly authorized
agent.” 17 U.S.C. § 204(a). Section 101 of the Act defines
“transfer of copyright ownership” to include exclusive licenses,
but expressly excludes nonexclusive licenses. See id. § 101. As
such, “[u]nder federal law, a nonexclusive license may be granted
orally, or may even be implied from conduct.” 3 NIMMER, supra,
§ 10.03[A], at 10-40 (footnotes omitted); see also I.A.E., Inc.
v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996); Effects Assocs. v.
Cohen, 908 F.2d 555, 558 (9th Cir. 1990).
“When the totality of the parties’ conduct indicates an
intent to grant such permission, the result is a legal
nonexclusive license . . . .” 3 NIMMER, supra, § 10.03[A], at 10-
41 (footnotes omitted). Other circuits have held that an implied
nonexclusive license arises when “(1) a person (the licensee)
14
requests the creation of a work, (2) the creator (the licensor)
makes the particular work and delivers it to the licensee who
requested it, and (3) the licensor intends that the licensee-
requestor copy and distribute his work.” I.A.E., 74 F.3d at 776
(citing Effects, 908 F.2d at 558-59).
In this case, the above criteria are plainly satisfied.
First, Axcess requested the creation of the jingles. Second,
Michlin created the jingles as Lulirama’s agent and Lulirama
delivered them to Axcess. Third, Michlin conceded in his
affidavit that he understood that, pursuant to the Jingle Writing
Agreement, Axcess would sell the jingles to its radio and
television customers. Lulirama nevertheless advances a number of
arguments as to why a nonexclusive license did not arise in this
case, all of which we find to be without merit.
Lulirama first argues that a nonexclusive license cannot
exist between the parties because the parties intended that
Axcess would obtain full copyright ownership of the jingles
pursuant to the work for hire doctrine. The Eleventh Circuit
rejected a similar argument in Jacob Maxwell, Inc. v. Veeck, 110
F.3d 749 (11th Cir. 1997). In that case, an artist agreed to
write a song for a baseball team, and the parties agreed orally
that the baseball team would have an exclusive license to use the
song. See id. at 751. Applying Florida contract law, the court
concluded that, although no exclusive license existed because
such a license cannot be created orally, the artist had granted
the baseball team a nonexclusive license to use the jingle
15
because it had acquiesced in the team’s use of the song. See id.
at 752. In so doing, the court rejected the argument that the
parties’ intention to create an exclusive license foreclosed the
recognition of a nonexclusive license. See id. at 752-53. The
court observed:
Like the district court, we conclude that while it
may well be that the parties in their initial
negotiations contemplated an exclusive license, JMI
cannot reasonably deny, given its subsequent conduct
here, that it granted to the Miracle the sort of
lesser, nonexclusive license to play the piece during
the summer of 1993 that federal law recognizes may
result from a purely oral transaction.
Id. at 753.
We agree with the analysis of the Eleventh Circuit. Under
Texas contract law,8 illegal contracts are generally
unenforceable. See Plumlee v. Paddock, 832 S.W.2d 757, 759 (Tex.
App.--Fort Worth 1992, writ denied). However, a court will sever
the illegal portion of the agreement and enforce the remainder if
the parties would have entered the agreement absent the illegal
portion of the original bargain. See Panasonic Co. v. Zinn, 903
F.2d 1039, 1041 (5th Cir. 1990).
Where the subject matter of the contract is legal, but
the contract contains an illegal provision that is not
an essential feature of the agreement, the illegal
provision may be severed and the valid portion of the
contract enforced. . . . In determining whether a
particular provision is severable, “the issue is
whether [the parties] would have entered into the
agreement absent the illegal parts.”
8
To the extent that it is not inconsistent with the
Copyright Act and its policies, Texas law governs our analysis of
whether the parties contractually created a nonexclusive license.
See Fantastic Fakes, Inc. v. Pickwick Int’l, Inc., 661 F.2d 479,
482-83 (5th Cir. Unit B Nov. 1981).
16
Id. (quoting Rogers v. Wolfson, 763 S.W.2d 922, 925 (Tex. App.--
Dallas 1989, writ denied); see also Redgrave v. Wilkinson, 208
S.W.2d 150, 152 (Tex. Civ. App.--Waco 1948, writ ref’d n.r.e.)
(“If, for a legal consideration, a party undertakes to do two or
more acts, and a part of them are unlawful, the contract is good
for so much as is lawful, and void for the residue. Whenever the
unlawful part of a contract can be separated from the rest, it
will be rejected and the remainder established.” (internal
quotation marks omitted)); 6A ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS
§ 1522, at 760-61 (1962) (noting the well-recognized rule that,
“if a lawful consideration is given for two promises, one of
which is lawful and the other unlawful, the lawful promise is
enforceable” and observing that “there is no injustice to the
defendant in permitting the plaintiff to abandon the illegal
promise and to enforce the other one . . . [because] [t]he
defendant receives everything for which he bargained and gives
less in return”).
Lulirama states in its response brief that “[t]he record
here indicates that a work for hire agreement was presumably
intended,” and that “Michlin mistakenly believed that a valid
work for hire agreement had been reached.” It would be quite
anomalous to allow Lulirama, which admittedly intended by the
Jingle Writing Agreement to convey to Axcess a bundle of rights
including all of the exclusive rights of copyright ownership, to
complain that the intent of the parties to the agreement was
frustrated by the district court’s conclusion that Lulirama
17
conveyed by implication a smaller bundle of rights. Because
Lulirama intended to convey to Axcess all of the rights
associated with ownership of the copyrights to the jingles, it of
necessity intended to convey the lesser-included set of rights
associated with a nonexclusive license to use the jingles.
Lulirama also argues that the existence of the Promotional
License Agreement between Lulirama and Axcess, which provided
Axcess with an exclusive license to use all works to which
Lulirama could claim an ownership interest for promotional
purposes, forecloses our finding an implied or oral nonexclusive
license. In support of this contention, Lulirama directs us to
Woodard v. Southwest States, Inc., 384 S.W.2d 674 (Tex. 1964).
In that case, the Texas Supreme Court held that, “[w]here there
exists a valid express contract covering the subject matter,
there can be no implied contract.” Id. at 675.
The flaw in Lulirama’s argument stems from the fact that no
express, written contract exists covering the subject matter of
the nonexclusive license in this case. The owner of a copyright
is free to grant multiple licenses for different uses of the same
material. Buffalo Broad. Co., Inc. v. American Soc’y of
Composers, Authors and Publishers, 744 F.2d 917, 920 (2d Cir.
1984) (“The [Copyright] Act specifically accords the copyright
owner the right to authorize others to use the various rights
recognized by the Act, including the performing right and the
reproduction right and to convey these rights separately.”
(citations omitted)). The Promotional License Agreement provided
18
Axcess with the very limited right to use all works in which
Lulirama could claim an ownership interest for promotional
purposes. The Jingle Writing Agreement provided Axcess with the
right to sell and distribute the jingles created pursuant to the
agreement. To the extent that the agreements involve distinct
rights, the nonexclusive license that the district court
determined to exist does not cover the same subject matter as the
Promotional License Agreement.
This conclusion finds further support in the fact that it is
highly questionable whether the jingles delivered pursuant to the
Jingle Writing Agreement are even subject to the Promotional
License Agreement. Lulirama concedes in its response brief that
“[t]he record here indicates that a work for hire agreement was
presumably intended. Such an agreement, if it were valid, would
have vested original copyright ownership in Axcess.” This
statement makes clear that, at the time the parties entered the
Promotional License Agreement, they did not believe that the
jingles created pursuant to the Jingle Writing Agreement would be
covered by it because they believed that Axcess would possess the
copyrights to the jingles pursuant to the work for hire doctrine.
As such, neither of the parties conceived of the jingles created
pursuant to the Jingle Writing Agreement as musical works in
which Lulirama or Michlin could “claim ownership or other right,
title or interest, whatsoever” for purposes of the Promotional
License Agreement. Lulirama adamantly argues that, in
interpreting contracts, courts must “take the wording of the
19
contract in the light of the surrounding circumstances,” Watkins
v. Petro-Search, Inc., 689 F.2d 537, 538 (5th Cir. 1982), so as
to “carry out the intentions of the parties as of the time the
instrument was executed.” First Nat’l Bank v. Kinabrew, 589
S.W.2d 137, 138 (Tex. Civ. App.--Tyler 1979, writ ref’d n.r.e.).
Applying these precepts to the Promotional License Agreement, we
are skeptical that the agreement even covers the same works as
the Jingle Writing Agreement, much less the same rights to those
works.
Moreover, acceptance of Lulirama’s position that the
existence of the Promotional License Agreement precludes a
finding that Axcess obtained additional rights to the jingles
through an implied license would require acceptance of the absurd
premise that the Jingle Writing Agreement and its oral extension,
pursuant to which Axcess paid Lulirama more than one hundred
thousand dollars from 1991 to 1994, provided Axcess with no more
rights to the jingles than it obtained through the Promotional
License Agreement, pursuant to which Axcess paid Lulirama an
additional $1000 (and later $1500) per month. We decline to
accept this premise, and therefore conclude that the existence of
the Promotional License Agreement in no way precludes the
existence of an oral or implied license.
Lulirama next argues that finding an oral or implied license
in this case would circumvent the statutory embodiment of the
work for hire doctrine by allowing Axcess to obtain the benefits
of noncreator authorship without complying with the statutory
20
requisites for such status. This is simply not true. As a
result of the Jingle Writing Agreement, Axcess obtained a
nonexclusive license to use the jingles created pursuant to the
agreement. If Axcess had acquired the copyrights to the jingles
as a result of the agreement, it would have obtained the
exclusive right to, among other things, (1) reproduce and make
copies of the jingles; (2) prepare derivative works based on the
jingles; (3) distribute copies or phonorecords of the jingles to
the public by sale or other transfer of ownership, or by rental,
lease or lending; and (4) authorize others to perform the jingles
publicly. See 17 U.S.C. § 106. However, because neither the
original Jingle Writing Agreement nor its oral extension
constituted a valid work for hire agreement, Axcess could not
obtain ownership of the copyrights to the jingles via the Jingle
Writing Agreement. As such, it obtained only a nonexclusive
right to engage in the above activities. This conclusion in no
way circumvents the Copyright Act.
Lulirama next argues that, even if the Jingle Writing
Agreement and its oral extension created a nonexclusive license,
a fact issue exists as to whether Axcess’s use of the jingles
overstepped the boundaries of the implied license. This argument
lacks merit. In conceding that the parties intended by the
Jingle Writing Agreement to vest Axcess with original copyright
ownership to the jingles, Lulirama concedes that the parties
intended to grant Axcess the right to take any action consistent
with copyright ownership. This would include all of the actions
21
that form the basis of Lulirama’s claims of copyright
infringement, i.e., (1) reproducing and making copies of the
jingles; (2) preparing derivative works based on the jingles;
(3) distributing copies or phonorecords of the jingles to the
public by sale or other transfer of ownership, or by rental,
lease or lending; and (4) authorizing others to perform the
jingles publicly. See 17 U.S.C. § 106. Therefore, Axcess has
not overstepped the bounds of its nonexclusive license.
Lulirama finally argues that, even if the Jingle Writing
Agreement created a nonexclusive license, Lulirama revoked the
nonexclusive license by filing this lawsuit. This argument also
lacks merit. A nonexclusive license may be irrevocable if
supported by consideration. See 3 NIMMER, supra, § 10.02[B][5]
(“[N]onexclusive licenses are revocable absent consideration.”);
Avtec Sys., Inc. v. Peiffer, 21 F.3d 568, 574 n.12 (4th Cir.
1994); Keane Dealer Servs., Inc. v. Harts, 968 F. Supp. 944, 947
(S.D.N.Y. 1997); Johnson v. Jones, 885 F. Supp. 1008, 1013 n.6
(E.D. Mich. 1995). This is so because a nonexclusive license
supported by consideration is a contract. See Jacob Maxwell, 110
F.3d at 752-53 (construing an implied nonexclusive license
supported by consideration as an implied contract); I.A.E., 74
F.3d at 776 (“[I]mplied licenses are like implied contracts . . .
. .”); Effects, 908 F.2d at 559 n.7 (noting that an implied
license is "a creature of law much like any other implied-in-fact
contract"); 3 NIMMER, supra, § 10.01[C][5] & n.73.1 (observing
that a license can be a form of contract in the sense that it is,
22
“in legal contemplation, merely an agreement not to sue the
licensee for infringement.”).
Lulirama’s argument that it revoked any implied license that
might have arisen by filing the present lawsuit is tantamount to
an argument that it had a unilateral right of rescission without
notice--an argument entirely inconsistent with the existence of a
contract between the parties. If Lulirama had the ability to
terminate the license at will, then no contract could exist
because Lulirama’s obligation under the contract would be
illusory. See RESTATEMENT (SECOND) OF CONTRACTS § 2 cmt. e (1981)
(“Words of promise which by their terms make performance entirely
optional with the ‘promisor’ whatever may happen, or whatever
course of conduct in other respects he may pursue, do not
constitute a promise. Although such words are often referred to
as forming an illusory promise, they do not fall within the
present definition of promise.”); Light v. Centel Cellular Co.,
883 S.W.2d 642, 645 (Tex. 1994) (“When illusory promises are all
that support a purported bilateral contract, there is no
contract.”). A presumption exists that parties to a purported
contract did not intend to make illusory promises. See Holguin
v. Twin Cities Servs., Inc., 750 S.W.2d 817, 819 (Tex. App.--El
Paso 1988, no writ) (“[I]t is presumed that when parties make an
agreement they intend it to be effectual, not nugatory; and the
contract will be construed in favor of mutuality . . . .”).
The record in this case provides no indication that the
parties intended that Axcess’s right to use the jingles was
23
terminable at the will of Lulirama. Accordingly, we conclude
that Axcess’s rights under the nonexclusive license created by
the Jingle Writing Agreement did not end upon Lulirama’s filing
the present lawsuit.9
In sum, we conclude that the district court correctly
determined that Axcess has a nonexclusive license to use the last
twenty-nine jingles created pursuant to the Jingle Writing
Agreement. As we noted in Part II.A.2.a, supra, a triable issue
of fact may exist as to whether Axcess owns the copyrights to the
first seven jingles created pursuant to the work for hire
doctrine. However, in its counterclaim, Axcess sought
declaratory judgment that it either (1) owned the copyrights to
these jingles or (2) had a license to use them. It sought
summary judgment on its declaratory judgment claim, thus
indicating that it wished to have summary judgment declaring
either that it owns the copyrights to the jingles or that it has
a license to use them.
Based on the same analysis applied to the last twenty-nine
jingles, we conclude as a matter of law that, at a minimum,
9
Lulirama also contends that summary judgment was improper
because the district court stayed discovery and therefore denied
Lulirama the opportunity to discover evidence that would create
fact issues as to its copyright infringement claims. However,
Lulirama provides no indication of what evidence it hoped to find
had the district court allowed it to continue with discovery.
Accordingly, we find this argument to be without merit. Daboub
v. Gibbons, 42 F.3d 285, 288 (5th Cir. 1995) (“[T]he
[plaintiffs’] silence as far as naming what they are looking for
through discovery is fatal to their argument [that the district
court denied them sufficient discovery], and the district court's
decision to rule on the summary judgment motion was proper.”).
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Axcess has a nonexclusive license to use the first seven jingles
created pursuant to the Jingle Writing Agreement. Put another
way, as a matter of law, Lulirama cannot state a claim of
copyright infringement against Axcess based upon Axcess’s past or
future use of the first seven jingles. See NIMMER, supra, §
10.01[C][5] n.73.1 (“A license is, in legal contemplation, merely
an agreement not to sue the licensee for infringement.”). This
conclusion should not be construed as disposing of the issue of
who actually owns the copyrights to the first seven jingles.
None of the claims presented by the parties mandates resolution
of this issue. Lulirama’s copyright infringement claims are
foreclosed regardless of who owns the copyrights, and Axcess has
requested alternative declarations of its rights with respect to
these jingles that obviate the need for a determination of
copyright ownership.
B. Sanctions
Axcess contends that the district court committed reversible
error in denying its motion for sanctions against Lulirama
pursuant to Rule 11 of the Federal Rules of Civil Procedure. We
disagree.
Rule 11 imposes the following duties on parties making
representations to a federal court:
By presenting to the court (whether by signing, filing,
submitting, or later advocating) a pleading, written
motion, or other paper, an attorney or unrepresented
party is certifying that to the best of the person's
knowledge, information, and belief, formed after an
inquiry reasonable under the circumstances,--
25
(1) it is not being presented for any improper
purpose, such as to harass or to cause unnecessary
delay or needless increase in the cost of litigation;
(2) the claims, defenses, and other legal
contentions therein are warranted by existing law or by
a nonfrivolous argument for the extension,
modification, or reversal of existing law or the
establishment of new law;
(3) the allegations and other factual contentions
have evidentiary support or, if specifically so
identified, are likely to have evidentiary support
after a reasonable opportunity for further
investigation or discovery; and
(4) the denials of factual contentions are warranted
on the evidence or, if specifically so identified, are
reasonably based on a lack of information or belief.
FED. R. CIV. P. 11. The rule provides that, if the court
determines that an attorney has violated the above provisions,
“the court may . . . impose an appropriate sanction upon the
attorneys, law firms, or parties that have violated [the above
provisions] or are responsible for the violation.” Id. (emphasis
added).
“We review all aspects of a district court's decision to
invoke Rule 11 and accompanying sanctions under an abuse of
discretion standard.” Childs v. State Farm Mut. Auto. Ins. Co.,
29 F.3d 1018, 1023 (5th Cir. 1994). This standard is necessarily
deferential because, based on its “[f]amiliar[ity] with the
issues and litigants, the district court is better situated than
the court of appeals to marshal the pertinent facts and apply the
fact-dependent legal standard mandated by Rule 11." Cooter &
Gell v. Hartmarx Corp., 496 U.S. 384, 402 (1990).
26
Axcess contends that the district court abused its
discretion in declining to impose Rule 11 sanctions for two
reasons: (1) because the record contains no evidence indicating
that Lulirama did not authorize Axcess’s use of the jingles, and
(2) because Axcess took inconsistent legal positions in the state
and federal court actions as to the legal effect of the
Promotional License Agreement. We reject both of these
contentions.
As to the first, a prima facie claim of copyright
infringement requires proof of two elements: “(1) ownership of a
valid copyright, and (2) copying of constituent elements of the
work that are original.” Feist Publications, Inc. v. Rural Tel.
Serv. Co., 499 U.S. 340, 361 (1991). The existence of a license
authorizing use of copyrighted material is an affirmative
defense, and Axcess therefore bears the burden of proving the
existence of a license. See CMS Software Design Sys., Inc. v.
Info Designs, Inc., 785 F.2d 1246, 1248 (5th Cir. 1986). Thus,
the absence of evidence in the record indicating that Lulirama
did not authorize Axcess’s use of the jingles does not indicate
that Lulirama’s claims of copyright infringement lack any basis
in law or fact because establishing the absence of a license is
not an element of proof required to state a prima facie claim of
copyright infringement.
As to Axcess’s second argument, the district court concluded
that the doctrine of judicial estoppel was a sufficient deterrent
to Lulirama’s taking inconsistent legal positions. In light of
27
its unique “[f]amiliar[ity] with the issues and litigants,” we
cannot say that the district court abused its discretion in
making this determination. Cooter & Gell, 496 U.S. at 402; see
also Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir.
1996) (“The doctrine of judicial estoppel prevents a party from
asserting a position in a legal proceeding that is contrary to a
position previously taken in the same or some earlier
proceeding.”).
III. CONCLUSION
For the foregoing reasons, we AFFIRM those portions of the
district court’s judgment (1) dismissing Lulirama’s copyright
infringement claims with prejudice and (2) declaring that
Lulirama owns the copyrights to the last twenty-nine jingles
created pursuant to the Jingle Writing Agreement. We VACATE that
portion of the district court’s judgment declaring that Axcess
owns the copyrights to the first seven jingles and RENDER
declaratory judgment that Axcess has a nonexclusive license to
reproduce these jingles, create derivative works from them,
distribute and sell them to its radio and television customers,
and authorize public performances of them. We AFFIRM the
district court’s order denying sanctions against Lulirama. Costs
shall be borne by Lulirama.
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