Beatles documentary hits the wrong notes with the High Court

Sony/ATV Music Publishing LLC v WPMC Ltd and Iambic Media Ltd.¹

The High Court has found that two film production companies infringed copyrights in eight Beatles songs set to be used in a soundtrack to a documentary entitled “The Beatles: The Lost Concert”. Mr Justice Arnold concluded that “subject to contract” negotiations between the parties did not amount to a collateral contract to grant a synchronisation licence to the defendants to exploit the claimants’ copyrights. Nor were the claimants estopped from denying that they granted the defendants such a licence. Since the claimants had claimed infringement of the US copyrights further to the decision in Lucasfilm Ltd v Ainsworth,² the judge also considered the “fair use” defence raised by the defendants, finding that the inclusion of complete versions of the songs in the documentary did not amount to fair use.

Background

The second defendant, Iambic Media Limited, acquired a copy of the master of the first ever Beatles concert in America, performed at the Coliseum in Washington DC on 11 February 1964. Iambic sought to make a documentary about this historic event, largely comprised of such concert footage.   Iambic later transferred the rights in this footage to the first defendant, WPMC Limited.  Both companies were owned and run by Christopher Hunt, a film and TV producer at the relevant time when licences were being negotiated with Sony/ATV Music Publishing (SATV).  The first claimant, Sony/ATV Music Publishing LLC, owns the worldwide copyrights in eight of the 12 songs performed in the concert footage of the documentary, and Sony/ATV Music Publishing (UK) Limited is the exclusive licensee of the copyright works in the UK.

Between the end of 2009 and October 2010, Iambic negotiated with SATV for a synchronisation licence for inclusion of the copyright works in the soundtrack to the documentary.  But no such synchronisation licence was granted by SATV to Iambic as a result of these negotiations.  Iambic then went into liquidation, and in 2012 SATV discovered that the documentary (which included the copyright works) was being promoted online by means of a website and trailer by WPMC.

WPMC accepted that, if it did not have a synchronisation licence, it had, on the face of it, committed copyright infringement by reproducing the copyright works in the documentary.  WPMC also admitted that it was intent on exploiting the documentary in the USA (which it argued it was entitled to do under a fair use defence).

It was the negotiations in 2010, which took place primarily by email correspondence, that formed the basis for WPMC’s assertion that there was no copyright infringement, either because a valid collateral contract had been agreed between the parties or on estoppel grounds.

Issues

The issues before the court were whether:

1. there was a valid collateral contract between the parties to grant a synchronisation licence;
2. if no synchronisation licence had been agreed, SATV were estopped from denying that they granted such a licence; and
3. under US law, the exploitation of the documentary in the USA would amount to infringement of SATV’s US copyrights or, as WPMC contended, would amount to fair use.

Decision

Collateral contract

WPMC contended that a valid collateral contract was concluded between the parties by two sets of email exchanges in 2010, even though the emails were expressed as “subject to contract”.

WPMC’s primary contention was that a valid contract was concluded between Iambic and SATV for the grant of a synchronisation licence to exploit the copyright works by an email exchange between Mr Hunt of Iambic and the head of Synchronisation and Marketing at SATV, Karina Masters, whereby Ms Masters’ email on 21 April 2010 constituted a valid offer and Mr Hunt’s reply on 22 April 2010 constituted a valid acceptance.

Arnold J found this email exchange could not constitute a valid contract for three reasons:

1. Mr Hunt’s purported acceptance by email on 22 April 2010 was actually a counter-offer, as he sought to vary the term relating to the approval of the final version of the film, so that such approval would not be unreasonably withheld or delayed.  It was clear from Ms Masters’ reply that the counter-offer was not accepted, as she did not accept that variation of the approval right.
2. The email negotiations were expressed as “subject to contract”.  Arnold J viewed both parties as experienced in the business of music licensing, and it was clear that Mr Hunt understood the conventional meaning of the term “subject to contract”. So there was no reason to depart from the conventional meaning of such term.  Indeed, Ms Masters’ offer email of 21 April 2010 was expressed as “subject to signed contract”, leaving, in the judge’s view, no doubt that the agreement could only be concluded by a signed contract.
3. Not only was Ms Masters’ offer expressed as “subject to contract”, it was also expressed as subject to SATV’s approval of the final film. As noted above, Mr Hunt sought a variation of this term so that approval should not be unreasonably withheld or delayed and so recognised it as a condition (yet to be fulfilled) in the agreement.

WPMC also put forward an alternative argument that the contract was concluded by a later email from Ms Masters on 2 September 2010, by which time all the key commercial terms had been agreed between the parties for the grant of the synchronisation licence and SATV had given approval of the final version of the film.  Yet again, however, the issue for WPMC was that this correspondence was also expressly marked “subject to signed contract”.  Arnold J dismissed WPMC’s argument that the use of this phrase meant that a contract would be forthcoming.   Arnold J also distinguished RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG,³ where a term of equivalent effect had indeed been waived, on the basis that there was nothing in the email of 2 September 2010 that could be construed as a waiver of the “subject to signed contract” restriction.  Secondly, the subsequent actions of the parties were directly proceeding towards the conclusion of the agreement by a signed contract. Moreover, this was not a case where there was any performance of the putative contract by either party before the dispute arose.

Proprietary estoppel

WPMC argued that SATV made representations in email correspondence that it would grant Iambic a synchronisation licence, and that WPMC relied on these representations in producing the documentary and expending large sums of money.  Arnold J quoted with approval the general principle explained in Cobbe v Yeoman’s Row Management Ltd⁴ that ordinarily, proprietary estoppel cannot arise in a “subject to contract case”.  The reason for this is that “the would-be purchaser’s expectation of acquiring an interest in the property in question is subject to a contingency that is entirely under the control of the other party to the negotiations”. Again, crucially, as the emails and so the representations made by SATV were expressed as “subject to signed contract”, they could not be relied on until a valid contract was signed.  So it was not unconscionable for SATV to deny WPMC a synchronisation licence in circumstances where they had relied on such earlier “subject to contract” representations.

Fair use

Arnold J briefly highlighted the historical development of the US doctrine of fair use, citing cases and academic articles that demonstrated the perceived unwieldy doctrine can be “analysed and categorised in the same way as other areas of common law (negligence, for example)”.

Arnold J began his analysis by setting out the factors in considering a defence of fair use, which have been codified under section 107 of the US Copyright Act (Title 17 of the US Code), as follows

“(1)       the purpose and character of the use, including whether such use is of a commercial nature or for non-profit educational purposes;

(2)        the nature of the copyrighted work;

(3)        the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4)        the effect of the use upon the potential market for or value of the copyrighted work.”

Arnold J then turned to each of these factors as considered in the leading decision of Campbell v Acuff-Rose Music Inc.⁵  In particular, in considering factors (1) to (3) above, he disagreed with SATV’s analysis of Campbell that what WPMC must show in making out a fair-use defence is that no more has been taken of the copyright works than is necessary for the transformative purpose. In his view, the correct position under Campbell was that the defendant must show that “… the amount taken is reasonable, and not excessive. If no more is taken than is necessary, then that will be reasonable. The defendant does not have to show that he has taken the minimum necessary, however.” Arnold J did, however, accept WPMC’s contention that “it can be fair use to copy the whole of the copyright work where this is justified by the transformative purpose, particularly but not exclusively if the copy is not a high quality one (e.g. where an image is reduced in size)”.

It is important to note that WPMC did not adduce any factual evidence in support of its defence of fair use and so nor did SATV in response.  Given that the burden of proof was on WPMC in this respect, Arnold J noted that this point was of some significance.  Nevertheless, Arnold J assessed and rejected WPMC’s claim under the four statutory factors as follows:

1. The documentary was partly transformative to the extent that it provided historical and musical perspective to the concert, but it was not wholly transformative because performances of the copyright works were presented in their entirety in blocks.  Furthermore, there was relatively little in the way of commentary specifically on the copyright works, which it was clear were being presented for their intrinsic entertainment value.
2. It was common ground that the copyright works were “fully expressive works falling within the core of copyright protection”.
3. The copyright works were reproduced in their entirety in the documentary, and Arnold J found that not only did the usage exceed what is necessary to illustrate the nature and effect of the Beatles’ performances of the copyright works, it exceeded what was reasonable for that purpose.  The judge suggested that, if only a certain number of the excerpts of the concert video were produced, it might be seen as reasonable having regard to the transformative purpose.  But in incorporating the whole of each of the copyright works, the documentary went “well beyond that”.
4. Arnold J found that the relevant market was that of the recordings of live performances of the copyright works by the Beatles, and that the documentary, as it had reproduced complete and uninterrupted performances of the copyright works, could be seen as an acceptable substitute in this market.  Arnold J also found that to allow WPMC to use the copyright works would be to damage the market for synchronisation licences, the copyright works being one of SATV’s most valuable assets in this market.

Comment

While being fact-specific, the case demonstrates the difficulty in arguing that an agreement has been concluded during pre-contractual negotiations, where the correspondence is expressed as “subject to contract”.  It is clear from Arnold J’s analysis that, to overcome this high bar, there needs to be something in the correspondence itself, or in the subsequent actions of the parties which can be construed as a departure from the ordinary meaning of the words or a waiver of the stipulation as ordinarily construed, such as both parties’ fulfilling their obligations under the contract without a contract being signed.  As a result, the simple use of the restriction “subject to contract” (or, as in this case, “subject to signed contract”) in the heading of correspondence during negotiations remains a powerful defence to any suggestion that a valid pre-contractual agreement has been reached.  Practitioners should be wary, however, of using “subject to contract” and “subject to signed contract” inconsistently, as the latter may devalue the use of the former.

The decision is also an example of a case where a UK court has accepted jurisdiction on a foreign copyright point of law, further to the decision of the Supreme Court in Lucasfilm Ltd v Ainsworth. Indeed, Arnold J showed no reluctance in delving into the genesis of fair use and categorising it as a workable and defined doctrine, which he applied to the facts of the case.  Assuming that other UK judges may not shy away from taking a similarly analytical approach when tasked with applying US copyright law, an interesting subset of copyright jurisprudence based on US law might evolve which, while exposing differences in approach, could also inform areas of UK law where precedent is currently lacking, such as in the context of the new fair-dealing exception for parody under UK law.

Ultimately Arnold J found that the defendants had simply used too much of the copyright works, with minimal additional transformative content for a defence of fair use to be available in relation to the US copyrights.  In the judge’s view, it was clear from correspondence between the parties that the fair-use defence was put forward by WPMC as a bargaining chip to reduce the price of the licence, rather than as a legitimate defence available to it.

Ciarán Noonan, Trainee Solicitor, Michael Simkins LLP

Article written for Entertainment Law Review.