United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT August 5, 2005
_______________________
Charles R. Fulbruge III
No. 03-10837 Clerk
____________
LYRICK STUDIOS, INC.,
Plaintiff-Counter Defendant-Appellee,
v.
BIG IDEA PRODUCTIONS, INC.,
Defendant-Counter-Claimant-Appellant.
_______________________
Appeal from the United States District Court
for the Northern District of Texas
_______________________
Before SMITH, DENNIS, and PRADO, Circuit Judges.
PRADO, Circuit Judge:
Appellee Lyrick Studios, Inc. (“Lyrick”) contends that
appellant Big Idea Productions, Inc. (“Big Idea”) breached their
agreement under which Big Idea provided Lyrick with an exclusive
license to distribute children’s cartoon programs. Lyrick sued
over this breach, and the jury found in its favor. Big Idea
appeals, arguing that Lyrick cannot satisfy the requirement that
all transfers of copyright (such as exclusive licenses) must be
in writing and signed by the transferor. Because there is no
sufficient writing here, we reverse the judgment.
Phil Vischer founded Appellant Big Idea Productions, Inc. to
finance and market “VeggieTales,” a computer-animated Christian-
1
themed children’s cartoon he created, featuring the characters
Bob the Tomato and Larry the Cucumber. Originally, Big Idea
independently distributed VeggieTales to members of an
organization called the Christian Bookstores Association (“CBA”).
The programs were successful, and Big Idea eventually entered
into a contract with a third party to distribute to the CBA.
VeggieTales’ sales continued to grow.
With this success, Big Idea wanted to sell its products to a
larger audience. To do this, Big Idea began negotiating with
Lyrick Studios, which had experience with its own successful
children’s programs. In February 1997, Tim Clott, Lyrick’s CEO,
sent Big Idea the first of three documents that are critical to
this case. This document was a proposal for distribution of
VeggieTales to the “general marketplace.” It ended with the
caveat that “for both of our protection, no contract will exist
until both parties have executed a formal agreement.” Big Idea’s
vice president of licensing and development, Bill Haljun, sent
the second critical document——a fax that listed several issues
still to be decided. The next day, the parties discussed the
issues in a phone call and agreed to resolve them. Haljun faxed
Clott a few days later, noting that “Phil is ecstatic.”
Shortly afterwards, Lyrick prepared a 16-page contract.
This draft agreement was never signed. In fact, several draft
contracts (and suggested revisions to the drafts) were sent back
and forth over the years. There were several sticking points,
2
including DVD distribution rights, rights to stuffed animals, the
possibility of a “key man” provision, and even the term of the
contract. The parties agree that no formal “long-form” contract
was ever signed.
Despite lacking a formal signed contract, in March 1998,
Lyrick began distributing VeggieTales videocassettes. The
cassettes were immediately successful; both parties made a
significant profit from the relationship.
The negotiations over a written contract continued until
June 1999, when the fourth and final draft was prepared by
Lyrick. Like the other drafts, this one was never signed. At
some point around this time, the parties’ relationship became
strained. One point of contention involved the rights to stuffed
animals, or as the parties referred to them, plush. The parties
eventually signed an agreement (“the plush letter”) transferring
plush rights in VeggieTales from Lyrick to Big Idea.
In March 2001, Lyrick was acquired by HIT Entertainment, a
London-based children’s entertainment company, but it continued
to distribute VeggieTales. In December 2001, Big Idea informed
Lyrick that it was going to use a new distributor. In response,
Lyrick sued Big Idea.
This lawsuit is primarily based on Lyrick’s claims that Big
Idea breached its exclusive license/distribution agreement by
entering into an agreement with the new distributor. During
discovery, Big Idea produced a document that Lyrick now contends
3
is the third crucial document——a November 1997 internal
memorandum by Bill Haljun. Haljun wrote this memo in response to
a Big Idea employee’s question about the 10-year term with
Lyrick. In his memo, Haljun replied that “[w]e agreed over the
phone to his contract . . . . I would say that we have an
agreement in force.” Lyrick had not seen this internal
memorandum before litigation.
The case proceeded to trial. After the close of Lyrick’s
evidence, Big Idea moved for judgment as a matter of law, arguing
that any contract for an exclusive license of a copyrighted work,
such as VeggieTales, had to be in writing. The district court
denied this motion, and the case went to the jury. The jury
found that there had been a contract and that Big Idea had
breached it. As a result, the jury awarded Lyrick damages of
$9,071,973 for lost profits on videocassettes and DVDs. The
district court entered judgment for this amount, along with
$750,000 in attorney’s fees. The judgment amount also included
$14,540 in damages for breach of the plush letter; Big Idea
agreed to this $14,540 award before trial and does not appeal it.
The court also permitted Lyrick to collect on a $500,000 bond Big
Idea posted when it obtained a preliminary injunction preventing
Lyrick from distributing VeggieTales products. Big Idea now
appeals the district court’s denial of its motion for judgment as
a matter of law. We review this ruling de novo. Arsement v.
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Spinnaker Exploration Co., LLC, 400 F.3d 238, 248 (5th Cir.
2005). Judgment as a matter of law is proper when “there is no
legally sufficient basis for a reasonable jury to find for [a]
party on [an] issue.” FED. R. CIV. P. 50(a)(1).
Under § 204(a) of the Copyright Act, “[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). A grant of an exclusive license is considered a
“transfer of copyright ownership.” 17 U.S.C. § 101 (2005).
Section 204(a)’s requirement, while sometimes called the
copyright statute of frauds, is in fact different from a statute
of frauds. Konigsberg Int’l, Inc. v. Rice, 16 F.3d 355, 357 (9th
Cir. 1994). Rather than serving an evidentiary function and
making otherwise valid agreements unenforceable, under § 204(a)
“a transfer of copyright is simply ‘not valid’ without a
writing.” Id. The writing in question “doesn’t have to be the
Magna Charta; a one-line pro forma statement will do.” Effects
Assocs., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990). Nor
does the writing have to contain any particular language. Radio-
Television Espanola S.A. v. New World Entm’t, Ltd., 183 F.3d 922,
927 (9th Cir. 1999) (“No magic words must be included in a
document to satisfy § 204(a).”). It must, however, show an
5
agreement to transfer copyright. Id; see also Playboy Enters.,
Inc. v. Dumas, 53 F.3d 549, 564 (2d Cir. 1995).1 An after-the-
fact writing can validate an agreement from the date of its
inception, at least against challenges to the agreement by third
parties. Billy-Bob Teeth, Inc. v. Novelty, Inc., 329 F.3d 586,
591 (7th Cir. 2003); Magnuson v. Video Yesteryear, 85 F.3d 1424,
1429 (9th Cir. 1996); Imperial Residential Design, Inc. v. Palms
Dev. Group, Inc., 70 F.3d 96, 99 (11th Cir. 1995); Eden Toys,
Inc. v. Florelee Undergarment Co., Inc., 697 F.2d 27, 36 (2d Cir.
1982). The parties both agree that the issue whether the
parties’ undisputed writings satisfy § 204(a) is one of law. Cf.
Television Espanola, 183 F.3d at 924 (deciding the issue on a
motion for summary judgment); Konigsberg, 16 F.3d at 356(deciding
the issue on a motion to dismiss).
The writing requirement serves several purposes. First, it
ensures that a copyright will not be inadvertently transferred.
Effects Assocs., 908 F.2d at 557. Second, it “forces a party who
wants to use the copyrighted work to negotiate with the creator
to determine precisely what rights are being transferred and at
what price.” Id. Third, it provides a guide for resolving
1
In Playboy, the Second Circuit held that a statement
reading “payee acknowledges payment in full for the assignment to
Playboy Enterprises, Inc. of all right, title and interest in and
to the following items: [a description of a painting followed]”
was insufficient to transfer copyright under § 204(a). 53 F.3d
at 560.
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disputes; the parties can look to the writing to determine
whether a use is improper. Id. In this way, the writing
requirement “enhances predictability and certainty of copyright
ownership——‘Congress’[s] paramount goal’ when it revised the
[Copyright] Act in 1976.” Id. (quoting Community for Creative
Non-Violence v. Reid, 490 U.S. 730, 749 (1989)).
Here the parties dispute whether Big Idea and Lyrick have a
writing that meets § 204(a)’s requirement. Lyrick contends that
§ 204(a) is satisfied with a series of documents——the letters
between Haljun and Clott and the internal Haljun memorandum. Big
Idea responds that the letters were just proposals and never
showed a final agreement. Big Idea also argues that Haljun’s
internal memo is not the kind of writing that can satisfy §
204(a).
Resolving this issue requires us to examine the documents.
In the first document——the February 1997 letter from Tim Clott of
Lyrick to Bill Haljun of Big Idea——the opening paragraph
describes the letters contents as “our proposal.” The rest of
the letter sets out provisions such as territory, term, rights,2
products, and the distribution of proceeds. The final paragraph
2
Although the “rights” section discussed distribution of
Big Idea programs, Lyrick’s letter did not actually state that
the licensing rights were exclusive. An express exclusive
license provision does not appear until the draft long-form
contracts. These long-form contracts were never signed, and
Lyrick does not rely on them.
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contains some critical language: “If the above terms are
acceptable to you we will begin drafting a formal agreement. (Of
course, for both of our protection, no contract will exist until
both parties have executed a formal agreement.)”
The second document that Lyrick relies on is Bill Haljun’s
faxed response. The cover sheet for this fax states, “Here is
our agreement to proceed and the remaining issues and
understandings which we need to resolve prior to signing a formal
document.” The faxed letter reads, in part, “We agree to proceed
to formalize this relationship as quickly as possible with
binding agreements, subject to the following clarifications and
additions. Hopefully, we can resolve these issues promptly and
begin the selling process . . . with the July trade show.” A
list of changes and proposals followed.
The final document is an internal memorandum written by
Haljun in November 1997, over six months after his fax and
directly responding to a concern about the proposed 10-year term.
It describes the parties’ negotiations and indicates that, “We
agreed over the phone to his contract and thanked him very much.”
In recalling the discussions, Haljun indicates that Big Idea
requested a minimum volume term, but Lyrick did not accept it.
Continuing, the memo states that Big Idea suggested some
revisions to the draft long-form contract and that Lyrick had not
yet responded to those revisions. The memo concludes with
language that Lyrick finds critical:
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Net of all this——when we told Tim Clott we accepted his
proposal and we would go forward on that basis, and they
have printed catalogs, represented our products and
gotten them on television, designed plush, and paid for
some research, I would say that we have an agreement in
force.
This memo was never sent to Lyrick. In fact, Lyrick saw it for
the first time during discovery.
Lyrick contends that these three documents constitute a
sufficient written agreement. This assertion raises two primary
issues. First, do the first two faxes indicate that they are
preliminary in nature or do they contain an actual contract?
Second, can Haljun’s internal memorandum constitute a “a note or
memorandum of the transfer?”
The two 1997 faxes, standing alone, do not show that the
parties entered into a final agreement to provide Lyrick with an
exclusive license to distribute VeggieTales programs. The
February fax from Lyrick indicates that it is a proposal. More
importantly, it expressly states, “Of course, for both of our
protection, no contract will exist until both parties have
executed a formal agreement.” Big Idea’s fax in response also
indicates a lack of finality, providing that, “We agree to
proceed to formalize this relationship as quickly as possible
with binding agreements.” This statement indicates that the fax
itself is not a binding agreement. Section 204(a) requires some
language of finality. Radio Television Espanola, 183 F.3d at
928. Finally, the continuing debate over the draft long-form
9
contracts concerned some of the terms in the 1997 faxes (such as
the term and the actual products to be distributed), which
further shows that the faxes were not final contracts.
Lyrick attempts to cure these problems by turning to the
internal Haljun memo. Lyrick argues that “[i]f a writing
executed after litigation has commenced is sufficient to satisfy
Section 204(a), a writing executed shortly after the agreement
was reached but communicated to the transferee after litigation
has commenced should also be sufficient . . . .” Lyrick thus
tries to fit this case in the line of cases where a post-transfer
writing has met § 204(a)’s requirements. We initially note that
when courts have found the post-deal writing sufficient, the
party challenging the writing has been an alleged infringer who
is an outsider to the deal. Billy-Bob Teeth, 329 F.3d at 590
(rival novelty tooth manufacturer); Magnuson, 85 F.3d at 1427
(unauthorized distributor); Eden Toys, 697 F.2d at 30–31
(manufacturer of a nightshirt with a similar print to licensed
one); Kaplan Co., Inc. v. Panaria Int’l, Inc., No. 96-Civ.-7973,
1998 WL 603225, at *2 (S.D.N.Y. Sept. 11, 1998) (infringing
third-party manufacturer). In that situation, courts are
hesitant to allow an outside infringer to challenge the timing or
technicalities of the copyright transfer. See Billy-Bob Teeth,
329 F.3d at 592–93; Magnuson, 85 F.3d at 1428–29; Eden Toys, 697
F.2d at 36. That situation is different from the situation here,
10
where the parties to the alleged contract disagree about whether
a valid agreement actually exists. Thus, the analysis in these
cases does not apply here, and the cases themselves are not
relevant.
On the other hand, two Ninth Circuit cases are relevant,
each for different reasons. One, Konigsberg International, Inc.
v. Rice, addresses a post-transfer letter in the context of a
dispute between the parties to the alleged contract. 16 F.3d 355
(9th Cir. 1994). The other, Radio Television Espanola S.A. v.
New World Entertainment, Ltd., concerns a purely internal
memorandum that was not provided to the other party to the
alleged transfer until litigation. 183 F.3d 922 (9th Cir. 1999).
In Konigsberg, two movie producers entered into an oral
agreement with the author Anne Rice. 16 F.3d at 356. Under this
agreement, Rice would create a story, called a “bible,” that
“could form the basis for derivative works in various
entertainment media.” Id. Rice would then write a novel based
on the bible and the producers would have two years of movie and
television rights, with an option to extend. Id. A written
contract was never signed, although Rice delivered the bible and
in exchange received $50,000 from the producers. Id. Rice then
wrote a successful novel, The Mummy, based on the bible, but the
producers were not able to exercise their rights. Id. The
producers claimed that Rice refused their attempts to exercise
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their option to extend. Therefore they sued. Id. The district
court dismissed the case because there was no writing that
satisfied § 204(a). Id. Rice then sent the producers’ lawyer a
letter stating, “[A]s far as I am concerned, these contracts,
though never signed, were honored to the letter.” Id. The
producers tried to use this letter to reopen the case, arguing
that this letter met § 204(a)’s writing requirements. Id.
The Ninth Circuit disagreed. It determined that Rice’s
letter was not a sufficient writing:
Rice's letter was written three and a half years after
the alleged oral agreement, a year and a half after its
alleged term would have expired and 6 months into a
contentious lawsuit. Thus, it was not substantially
contemporaneous with the oral agreement. Nor was it a
product of the parties' negotiations; it came far too
late to provide any reference point for the parties'
license disputes. In short, Rice's letter——though
ill-advised——was not the type of writing contemplated by
section 204 as sufficient to effect a transfer of the
copyright to THE MUMMY.
Id. at 357. Here, the document is more contemporaneous, entered
into during the course of the parties’ exchange of the long-form
contracts. But Konigsberg shows, however, that not all documents
referring to the existence of a contract, or even admitting that
an agreement existed, will constitute a sufficient note or
memorandum of transfer.
Radio Television Espanola is much closer to the situation
here. There a television company, Television Espanola,
negotiated an exclusive license with a distributor for certain
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programs. Radio Television Espanola, 183 F.3d at 925.
Afterwards, the distributor’s negotiating agent drafted and
signed an internal memo that listed the terms of the agreement.
Id. This memo noted that the television company was to prepare
the contracts. Id. Following this memo, the parties exchanged
many letters, faxes, and memos, but never signed a contract. Id.
Trying to overcome the lack of a formal signed contract,
Television Espanola pointed to several different documents it
claimed satisfied § 204(a). The first was a fax in which one of
the distributor’s executives referred to a deal between the
parties. Id. at 927. The court concluded that this fax did not
satisfy the writing requirement:
Surely, the fax references a deal, but it does not
specify anything about that deal or whether that deal is
for an exclusive license for the program or for other
broadcast rights. A mere reference to a deal without any
information about the deal itself fails to satisfy the
simple requirements of § 204(a). Without more, the
comment in the Garcia fax is merely a part of
negotiations rather than an “instrument of conveyance” or
“memorandum of the transfer.”
Id. (citation omitted). The second document that Television
Espanola relied on was also a fax. Id. This fax, also from the
distributor, discussed delivering episodes and concludes “[w]ith
nothing further at this time, awaiting the contracts.” Id. The
court concluded that this fax, too, failed to satisfy § 204(a).
Id. The court noted that the fax did not discuss the exclusive
license and that “The statement that New World is waiting for the
13
contracts ‘undercuts the hint of finality’ that the fax may
otherwise contain.” Id. at 928 (citing Valente-Kritzer Video v.
Pinckney, 881 F.2d 772, 775 (9th Cir. 1989)). Finally,
Television Espanola claimed that two other documents were
sufficient writings. The first document was the distributor’s
internal deal memo, describing the deal in some detail, including
the term and the total fee. Id. The second document was a fax
from Television Espanola asking the distributor to confirm the
contract. Id. Yet the court found that these documents, even
when taken together with the previous ones, did not contain
“language indicating finality.” Id. Rather, they discussed a
pending contract and negotiations. Id.
In rejecting Television Espanola’s claim, the Ninth Circuit
noted an additional reason why the internal deal memorandum was
not a sufficient writing. The memo could not have satisfied §
204(a) “because it was never communicated to Television
Espanola.” Id. at 928 n.6. Again, not all writings will satisfy
§ 204(a)’s requirements.
In general, this case is similar to Radio Television
Espanola——preliminary faxes indicated that a contract would be
entered into but did not provide a final contract; an internal
memo, never intended to be given to the other party, described
some of the terms. To be sure, there are also several
differences. Haljun’s internal memo indicates that he agreed
14
over the phone and that he would say that they had an agreement
in force. This is somewhat more final than the internal
memorandum in Radio Television Espanola. These differences,
however, do not change the reasoning or the result.
In the end, we conclude that the faxes themselves do not set
out a final signed contract. By their own language, they are
part of negotiations: Lyrick’s initial fax states that “no
contract will exist until both parties have executed a formal
agreement.” Nor do the faxes satisfy the requirements when
combined with Haljun’s internal memo. Like the letter in
Konigsberg and the memo in Radio Television Espanola, Haljun’s
memo is not the kind of memorandum of transfer envisioned by §
204(a). Satisfying § 204(a)’s writing requirement with a purely
internal memo that was never intended to be provided to Lyrick
would not further the copyright goals of predictability of
ownership. See Effects Assocs., 908 F.2d at 557.
Lyrick alternatively argues that the parties acted as if
they had a deal for several years, making it unfair for Big Idea
to rely on a “hyper-technical” § 204(a) argument. The Ninth
Circuit rejected a similar argument in Konigsberg when it
required a writing even in the face of ample evidence of an
agreement, including that Rice had written the bible and had been
paid for it. Konigsberg, 16 F.3d at 356. Section 204(a)
requires a writing. Although Lyrick argues that enforcing this
15
requirement would be unjust, we will not add an exception to the
statute.
Attorney’s Fees
Lyrick was awarded $750,000 in attorney’s fees under TEX.
CIV. PRAC. & REM. CODE §38.001, which permits a party to recover its
attorney’s fees for successful breach of contract claims. Big
Idea asks us to reverse this amount and allow Lyrick to recover a
reasonable amount to cover the fees for only the breach of the
plush letter claim, not the breach of exclusive contract claim.
Lyrick contends that Big Idea stipulated that $750,000 was
reasonable amount of attorney’s fees and thus the award should
stand in full. We read the stipulation differently. In the
parties’ pretrial order, Big Idea agreed “that $750,000 is a
reasonable and necessary amount for Lyrick to have incurred in
the prosecution of its breach of contract claims in this action
in the district court.” (Emphasis added). This stipulation
refers to both claims in the aggregate; it says nothing about the
reasonable amount of fees for the breach of the plush letter by
itself. We will remand the attorney’s fees claim to the district
court for a determination of a reasonable amount of fees for
Lyrick’s $14,540 recovery for breach of the plush letter.
Bond
Early in the litigation, Big Idea obtained a preliminary
injunction preventing Lyrick from distributing VeggieTales.
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After trial, the district court determined that this injunction
was wrongfully issued and so permitted Lyrick to recover the
entire $500,000 bond that been posted by Big Idea when it
obtained the injunction. Big Idea now asks for restitution of
that amount because the preliminary injunction was not, in fact,
wrongfully issued. In response, Lyrick does not argue that
restitution is unwarranted if its judgment is reversed. Instead,
Lyrick argues that Big Idea does not have standing to request
restitution; it contends that only the surety can seek this
relief. Therefore, Lyrick asserts that a claim for restitution
of the bond amount can only proceed in a separate lawsuit brought
by the surety.
Federal Rule of Civil Procedure 65(c) requires an applicant
seeking a preliminary injunction to give security. If the party
chooses to provide security through a bond, Rule 65.1 places
certain requirements on sureties providing that bond. First,
each surety is required to submit to the court’s jurisdiction.
FED. R. CIV. P. 65(c). Additionally, “[t]he surety’s liability
may be enforced on motion without the necessity of an independent
action.” Id. Lyrick was willing to enforce the surety’s
liability in just this way. It would be inconsistent to permit
Lyrick to recover the bond amount from the surety without filing
a separate action but then, when Lyrick loses on appeal, to
require the surety to bring a separate lawsuit for restitution of
17
the same bond amount. Further, the surety already submitted to
the court’s jurisdiction when it posted the bond. Therefore, we
vacate the order allowing Lyrick to execute on the bond and
remand.
Conclusion
For these reasons, we reverse the judgment of the district
court, vacate the order permitting Lyrick to execute on the bond,
and remand for consideration of attorney’s fees and entry of an
order for restitution of the bond.
REVERSED AND REMANDED.
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