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An adventurous cucumber. A singing tomato. A childlike asparagus. Characters from the popular Christian cartoon series “VeggieTales” were at the heart of a multimillion-dollar suit that the 5th U.S. Circuit Court of Appeals used to clarify federal copyright law. The message from the Larry the Cucumber case is this: Get a deal in writing. The 5th Circuit reversed a $10.3 million judgment against “VeggieTales” creator Big Idea Production, holding that Lyrick Studios doesn’t have enough in writing to show it had a deal with Big Idea for exclusive distribution of the cartoon videos. In a case of first impression for the 5th Circuit, a three-judge panel concluded in Lyrick Studios Inc. v. Big Idea Productions Inc. that 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 the “VeggieTales” works. While Lyrick may have had an oral agreement with Big Idea 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, Big Idea argued in its brief to the 5th Circuit. “You could be in business 100 years, and it wouldn’t matter,” says Vincent H. Chieffo, lead counsel for Big Idea and a shareholder in the Los Angeles office of Greenberg Traurig. Taking its cue from two 9th U.S. Circuit Court of Appeals decisions, 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 in the Aug. 5 opinion. Judges Jerry Smith and James Dennis joined Prado in the decision. Thomas Williams, Lyrick’s lead attorney and a partner in Haynes and Boone in Fort Worth, Texas, says the decision is disappointing. “It is our position that there was an agreement,” Williams says. Lyrick filed suit in January 2002, after Big Idea announced that it was going to use a new distributor. According to the 5th Circuit’s opinion, the suit was based primarily on Lyrick’s claims that Big Idea breached its 10-year exclusive license/distribution agreement with Lyrick by entering into an agreement with the new distributor. Big Idea alleged in its brief to the 5th Circuit that Lyrick never had a valid contract for a 10-year exclusive copyright license to the “VeggieTales” works. U.S. District Judge Barbara Lynn of Dallas presided over the two-week trial. After Lyrick presented its evidence, Big Idea moved for judgment as a matter of law, arguing that the contract for an exclusive license of a copyrighted work had to be in writing. Lynn denied the motion, and the case went to the jury. Williams says the jury found there was a contract between Lyrick and Big Idea and that Big Idea breached the contract. That finding was not challenged, he says. 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. As noted in the opinion, the judgment also included $14,540 in damages that Big Idea agreed to pay for the breach of an agreement transferring rights to Lyrick to sell “VeggieTales” stuffed characters. Lynn also permitted Lyrick to collect on a $500,000 bond that Big Idea posted when it obtained a preliminary injunction to stop Lyrick from distributing “VeggieTales” products, Prado noted in the opinion. The 5th Circuit reversed Lynn’s judgment, with the exception of the $14,540 for the stuffed characters, and vacated her order permitting Lyrick to collect on the bond. The panel remanded the case to the U.S. District Court in Dallas for consideration of attorney fees, based on Lyrick’s recovery of damages for the stuffed characters, and for entry of an order for restitution of the $500,000 bond. BOB THE TOMATO According to the 5th Circuit’s opinion, Phil Vischer founded Big Idea, an Illinois corporation, to finance and market “VeggieTales,” a computer-animated Christian-themed children’s cartoon he created that features the characters Bob the Tomato and Larry the Cucumber. As noted in the opinion, Big Idea began negotiating with Lyrick, a Texas corporation that created and distributes “Barney and Friends” programs about a purple dinosaur. Prado wrote in the opinion that Tim Clott, Lyrick’s chief executive officer, sent Big Idea an e-mail in February 1997 that was a proposal for distribution of “VeggieTales” to the “general marketplace.” As Prado noted in the opinion, the e-mail ended with the caveat that “for both of our protection, no contract will exist until both parties have executed a formal agreement.” According to the opinion, Bill Haljun, Big Idea’s vice president of licensing and development, subsequently sent Lyrick an e-mail that listed several issues still to be decided. Prado wrote in the opinion that the parties discussed the issues in a phone call on the following day and agreed to resolve those issues. 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 that Big Idea told Clott that it accepted his proposal and would go forward on that basis. “I would say that we have an agreement in force,” Haljun wrote in the memo. Lyrick learned of the memo through discovery in its suit against Big Idea, Prado wrote in the opinion. Prado noted in the opinion that, although 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, according to the opinion. 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. “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 a writing,’” Prado wrote in the opinion, citing the 9th Circuit’s 1994 decision in Konigsberg International Inc. v. Rice. According to the 5th Circuit opinion, Konigsberg involved an oral agreement author Anne Rice had with two movie producers that Rice would create a story that could form the basis for derivative works in various entertainment media. Although no written contract was ever signed, the producers paid Rice $50,000 for the story on which she subsequently based her novel “The Mummy.” The producers were unable to exercise their rights and sued Rice, alleging that she had refused their option to extend, but the district court dismissed the case because there was no writing that satisfied 204(a), Prado noted in the 5th Circuit opinion. When Rice sent the producers’ lawyer a letter stating, “As far as I am concerned, these contracts, though never signed, were honored to the letter,” the producers tried to re-open the case on the ground that Rice’s letter met the 204(a) writing requirement. The 9th Circuit held in Konigsberg that Rice’s letter, “though ill advised,” was not the type of writing contemplated by 204. Konigsberg shows that not all documents referring to the existence of a contract or admitting that an agreement existed constitute a sufficient note of memorandum of transfer, Prado wrote for the 5th Circuit. Prado also cited the 9th Circuit’s 1999 decision in Radio Television Espanola S.A. v. New World Entertainment Ltd. That case, like Lyrick, involved faxes about a deal for an exclusive license to distribute copyrighted works and an internal memo. The 9th Circuit found that the faxes did not contain “language indicating finality” and that the memo could not satisfy 204(a) “because it was never communicated to Television Espanola.” The 5th Circuit concluded in Lyrick that the Lyrick and Big Idea executives’ faxes, by themselves, do not set out a final signed contract and do not satisfy the writing requirement when combined with 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. The 5th Circuit also didn’t accept Lyrick’s alternative argument that the parties acted as if they had a deal for several years and that it was unfair for Big Idea to rely on a “hyper-technical” 204(a) argument. “I don’t think there’s any question there was an agreement,” says Dallas attorney Molly B. Richard, a trademark and copyright law practitioner who reviewed the 5th Circuit’s opinion and the parties’ briefs. The importance of this case is the court’s holding that copyright law requires that an agreement for an exclusive license be in writing, says Richard, principal in the Richard Law Group and a past chairwoman of the State Bar of Texas Intellectual Property Law Section. “If a party is going to take the position that they have an exclusive license, there has to be a writing; course of conduct is not enough,” Richard says.

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