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The 5th U.S. Circuit Court of Appeals used characters from the popular computer-animated Christian-themed children’s cartoon series VeggieTales to clarify federal copyright law. In a case of first impression, the court reversed a $10.3 million judgment against Veggie- Tales creator Big Idea Productions Inc., holding that Lyrick Studios Inc. doesn’t have enough in writing to show that it had a deal with Big Idea for exclusive distribution of the cartoon videos. Lyrick Studios Inc. v. Big Idea Prods. Inc., No. 03-10837. The three-judge panel concluded that Section 204(a) of the Copyright Act requires Lyrick to have more than two faxes about the proposed agreement and an internal memo written by a Big Idea executive to have an enforceable agreement granting Lyrick exclusive license to distribute VeggieTales. Big Idea argued that, while Lyrick may have had an oral agreement for distribution of the VeggieTales works and may have performed under that agreement for four years, Lyrick did not establish that it had a written conveyance, signed by Big Idea, that would make the alleged 10-year exclusive copyright license valid and enforceable. The 5th Circuit panel held that, under 17 U.S.C. 204(a), the transfer of copyright ownership is not valid without a written agreement signed by the owner of the rights or the owner’s authorized agent. “A grant of an exclusive license is considered a ‘transfer of copyright ownership,’ ” Judge Edward Prado wrote for the panel. Lyrick filed suit in January 2002, after Big Idea announced that it was going to use a new distributor. Big Idea said that Lyrick never had a valid contract for a 10-year exclusive copyright license to the VeggieTales works. Following a trial, presided over by U.S. District Judge Barbara Lynn in Dallas, the jury found that there was a contract between Lyrick and Big Idea, and that Big Idea breached the contract. According to the 5th Circuit opinion, the jury awarded Lyrick more than $9 million in damages for lost profits on the VeggieTales videos. Lynn entered judgment for that amount plus $750,000 in attorney fees. The 5th Circuit reversed. According to the opinion, Phil Vischer founded Big Idea, an Illinois corporation, to finance and market VeggieTales. Big Idea negotiated with Lyrick to distribute VeggieTales. Bill Haljun, Big Idea’s vice president of licensing and development, sent Lyrick an e-mail that listed several issues to be decided. Prado wrote that the parties discussed the issues in a phone call and agreed to resolve them. The 5th Circuit opinion also noted that Haljun, responding to a Big Idea employee’s question about the 10-year term with Lyrick, wrote in a 1997 internal memo, “I would say that we have an agreement in force.” Prado said that, though Lyrick and Big Idea worked on four drafts of a contract over the years, they agree that no formal “long-form” contract was ever signed. Despite not having a formal signed contract, Lyrick began distributing VeggieTales videos in March 1998. Lyrick argued in its brief to the 5th Circuit that the two e-mails and Haljun’s 1997 internal memo satisfy the requirements of the Copyright Act. “The purpose of Section 204(a) is to prevent inadvertent transfers of copyrights, not invalidate written agreements under which parties successfully performed for four years,” Lyrick asserted in the brief. But according to Prado, “Rather than serving an evidentiary function and making otherwise valid agreements unenforceable, under Section 204(a)” a transfer of copyright is simply not valid without writing. As for Haljun’s memo, “Satisfying Section 204(a)’s writing requirement with a purely internal memo that was never intended to be provided to Lyrick could not further the copyright goals of predictability of ownership,” Prado wrote in the opinion.

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