683 F.2d 808
216 U.S.P.Q. 184, 1982 Copr.L.Dec. P 25,436
ASSOCIATED FILM DISTRIBUTION CORPORATION, Avco Embassy
Pictures Corp., Buena Vista Distribution Co., Inc., Columbia
Pictures Industries, Inc., Filmways Pictures, Inc., Metro
Goldwyn-Mayer, Inc., Paramount Pictures Corporation,
Twentieth Century-Fox Film Corporation, United Artists
Corporation, Universal Pictures Division of Universal City
Studios, Inc., Universal Film Exchanges, Warner Bros. Inc.,
Warner Bros. Distributing Corporation, Appellees,
The Honorable Dick THORNBURGH, Governor of the Commonwealth
of Pennsylvania, Individually and in his official capacity,
Bartle, Harvey, III, Attorney General for the Commonwealth
of Pennsylvania, individually and in his official capacity,
Budco Theatres, Inc., Budco Quality Theatres, Inc., its
subsidiary corporation, Fox Theatres Management Corporation,
The Governor and the Attorney General of the Commonwealth of
Pennsylvania, Appellants in No. 81-2706.
Appeal of BUDCO QUALITY THEATRES, INC., in No. 81-2707.
Appeal of FOX THEATRES MANAGEMENT CORPORATION, in No. 81-2708.
Nos. 81-2706 to 81-2708.
United States Court of Appeals,
Argued May 14, 1982.
Decided July 20, 1982.
Gregg H. S. Golden (argued), Deputy Atty. Gen., Leroy S. Zimmerman, Atty. Gen., Allen C. Warshaw, Deputy Atty. Gen., Harrisburg, Pa., Chief, Special Litigation Section, for the Governor and Attorney General of the Commonwealth of Pennsylvania.
H. Donald Busch (argued), Lewis A. Grafman, Shelley R. Goldfarb, Philadelphia, Pa. (Harry Norman Ball, Busch & Schramm, Philadelphia, Pa., of counsel), for Budco Quality Theatres, Inc.
Peter M. Fishbein (argued), Richard M. Squire, Manya L. Kamerling, Karen E. Katzman, Philadelphia, Pa. (Cohen, Shapiro, Polisher, Shiekman & Cohen, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for Fox Theatres.
Bernard G. Segal (argued), Bancroft D. Haviland, James D. Crawford, Carole E. Handler, George P. Williams, III, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., (Barbara Scott, William Nix, New York City, of counsel), for appellees.
Before GIBBONS, and HUNTER, Circuit Judges, and GERRY, District Judge.
OPINION OF THE COURT
JAMES HUNTER, III, Circuit Judge.
Plaintiffs in this case are movie distributors and producers. They filed suit against Pennsylvania's governor and several movie exhibitors seeking a declaratory judgment that the Pennsylvania Feature Motion Picture Fair Business Practices Law, 73 P.S. §§ 203-1 through 203-11, was unconstitutional. The trial court granted summary judgment for plaintiffs, striking down the entire statute as violative of the First and Fourteenth Amendments and the pre-emption provision of the Copyright Act, 17 U.S.C. § 301. For the reasons which follow, we will reverse the grant of summary judgment and remand this case to the district court, 520 F.Supp. 971.
In 1980, Pennsylvania enacted the Feature Motion Picture Fair Business Practices Law ("Pennsylvania Act"). The Act forbids all blind bidding, some guarantees, all advances, all "five o'clock looks," and exclusive first runs which last longer than 42 days. Motion pictures contain protected speech. However, the Pennsylvania Act does not directly affect speech or content; rather, the Act is an economic statute designed to regulate motion pictures as commodities.
Ohio has enacted a similar statutory scheme, R.C. §§ 1333.05 through .07, the constitutionality of which was upheld after eight weeks of discovery and a four week trial. Allied Artists Pictures Corp. v. Rhodes, 496 F.Supp. 408 (S.D.Ohio, 1980), aff'd in relevant part and remanded on commerce clause issue, 679 F.2d 656 (6th Cir. June 4, 1982). The Ohio statutory scheme, unlike the Pennsylvania scheme, allows advances within fourteen days of the first exhibition of a movie, forbids conditioning a license on guarantees, and contains no provision regulating the length of first runs.
The First and Fourteenth Amendments
The trial court ruled that the Pennsylvania Act was unconstitutional as violative of the First and Fourteenth Amendment because the Act, on its face, "creates the risk of a delay in licensing and of shifting financial burdens and uncertainties (from the exhibitors to the distributors)." 520 F.Supp. at 983. We disagree. On its face, the Act does nothing but forbid certain trade practices. Whether the Act in fact creates any material risk of delay in exhibition or in fact threatens to inhibit the production of motion pictures by changing the financial structure of the industry were hotly contested questions of fact: defendants argued that, in fact, the statute has no impact on any First Amendment freedoms at all, or, in the alternative, that any impact is minimal and more than justified by the need to restore some economic power balance between the exhibitors and the distributors/producers.
The Ohio district court established the following framework for its First Amendment analysis of the Ohio statute:
There is no question that motion pictures are a form of expression falling within First Amendment protection. Interstate Circuit v. Dallas, 390 U.S. 676, 682 (88 S.Ct. 1298, 1302, 20 L.Ed.2d 225) (1968); United States v. Paramount Pictures, Inc., 334 U.S. 131, 166 (68 S.Ct. 915, 933, 92 L.Ed. 1260) (1948). Even assuming that the Ohio statutes encroach upon that expression, however, that fact does not end the inquiry.
... (In) Konigsberg v. State Bar of California, 366 U.S. 36, 49 (81 S.Ct. 997, 1005, 6 L.Ed.2d 105) (1961), ... the Supreme Court (stated) ...:
(G)eneral regulatory statutes, not intended to control the content of speech but incidentally limiting its unfettered exercise, have not been regarded as the type of law the First or Fourteenth Amendment forbade Congress or the States to pass, when they have been found justified by subordinating valid governmental interests, a prerequisite to constitutionality which has necessarily involved a weighing of the governmental interest involved.
Id. at 50-51 (81 S.Ct. at 1006-07)....
The Act (is not directed at the content of expression). It is trade practice legislation, directed at the motion picture industry as opposed to other industries, not because that industry communicates ideas, but rather because, as plaintiffs readily acknowledge, the market structure of that industry is unique.
The Ohio Act is clearly content-neutral. It is an economic regulation operating on all distributors and exhibitors acting within Ohio regardless of the content or subject matter of the films involved. To the extent that it affects expression, it does so only incidentally.
As such the Act falls within that category of "general regulatory statutes, not intended to control the content of speech but incidentally limiting its unfettered exercise," which should be upheld when "justified by subordinating valid governmental interests." Konigsberg, supra, 366 U.S. at 50-51, 81 S.Ct. at 1006-07....
Determination of the constitutionality of such legislation necessarily entails a balancing of the legitimate governmental interests it serves against its impact on the protected expression.
In United States v. O'Brien, 391 U.S. 367, 377, 88 S.Ct. 1673, 1679, 20 L.Ed.2d 672 (1968), rehearing denied, 393 U.S. 900, 89 S.Ct. 63, 21 L.Ed.2d 188, the court elaborated on the balancing test:
(A) government regulation is sufficiently justified if it is within the constitutional power of the Government; if it furthers an important or substantial governmental interest; if the governmental interest is unrelated to the suppression of free expression; and if the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest.
496 F.Supp. at 432-33 (footnotes omitted). We agree with the Ohio district court and with the Sixth Circuit, see 679 F.2d at 661, 663, that this framework embodies the correct approach to statutes like the Pennsylvania Act. However, the grant of summary judgment in this case precluded the application of this framework. The trial court could not evaluate the actual impact of the Act (if any) on First Amendment values; could not assess the nature and weight of the state concerns which led to the Act's enactment; and could not balance the state concerns against the threat (if any) to the First Amendment.
The Copyright Act
In addition to striking the Pennsylvania Act as unconstitutional under the First Amendment, the trial court ruled that the Act was pre-empted by the federal Copyright Act and therefore unconstitutional under the Supremacy Clause:
The Act's limit upon the duration of the license, upon when a distributor may license, its prohibition of guarantees and advances, and its bar against licensing or negotiations prior to screening, as well as consummating a license without complying with rebidding requirements, all directly-and severely-restrict the rights of the licensor.
520 F.Supp. at 995. We disagree with the trial court's analysis.
Title 17 U.S.C. § 301(a) provides:
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 ... are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
Section 106 of the Copyright Act confers exclusive rights on the copyright holder to the following:
(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies of phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of ... motion pictures ..., to perform the copyrighted work publicly; and
(5) in the case of ... individual images of a motion picture ... to display the copyrighted work publicly.
The trial court stated that the issue before it was
whether the Pennsylvania Act's broad and comprehensive regulation of the process of licensing copyrighted motion pictures conflicts with the objectives of Congress in its enactment of the Copyright Act.
520 F.Supp. at 995-996. The Ohio district court, dealing with this question, analyzed in great detail the legal contentions of pre-emption raised by plaintiffs and the actual impact of the Ohio statutory scheme on the plaintiffs' copyrights. Plaintiffs in Ohio argued that the Ohio Act's prohibitions against conditioning the licensing of films on the payment of guarantees, against negotiations after an unsuccessful bidding, and against blind bidding all were pre-empted because they frustrated the Copyright Act's protections by depriving the copyright's owner of the right to dispose of its subject matter on the optimum terms. The Ohio court rejected this argument. The court noted that the Copyright Act, enacted pursuant to Article I, § 8 of the United States Constitution, was "based on 'the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors.' (Citation omitted)." 496 F.Supp. at 446. The court further noted that " '(t)he copyright law, like the patent statutes, make reward to the owner a secondary consideration.' United States v. Paramount Pictures, Inc., 334 U.S. 131, 158 (68 S.Ct. 915, 929, 92 L.Ed. 1260) (1948)." Id. at 446. The court continued:
The Supreme Court has rejected the notion that because "a copyright is property derived from a grant by the United States," it is not subject to state regulation of the manner in which its product is marketed. Fox Film Corp. v. Doyal, 286 U.S. 123, 128 (52 S.Ct. 546, 547, 76 L.Ed. 1010) (1932). Further, the Supreme Court has rejected claims that the exclusive right granted by Congress to distribute copyrighted material included the exclusive right to distribute it in the manner deemed most desirable by the copyright holder. Watson v. Buck, 313 U.S. 387, 61 S.Ct. 962, 85 L.Ed. 1416 (1941).
In Fox Film, supra, the Supreme Court upheld a state's direct taking by imposition of a tax, of royalties derived from federal copyrights. Scarcely a more blatant, effective method of reducing the author's award can be imagined. Yet the Court stated:
The statute confers upon the author after publication the exclusive right for a limited period to multiply and vend copies and to engage in the other activities described by the statute in relation to the subject matter, U.S.C., Tit. 17. In creating this right, the Congress did not reserve to the United States any interest in the production itself, or in the copyright, or in the profits that may be derived from its use. Nor did the Congress provide that the right, or the gains from its exercise, would be free of tax. The owner of the copyright, if he pleases, may refrain from vending or licensing and content himself with simply exercising the right to exclude others from using his property. The sole interest of the United States and the primary object in conferring the monopoly lie in the general benefits derived by the public from the labors of authors.
... The nature and purpose of copyrights place them in a distinct category and we are unable to find any basis for the supposition that a nondiscriminatory tax on royalties hampers in the slightest degree the execution of the policy of the copyright statute.
Fox Film, supra, 286 U.S. at 127, 131, 52 S.Ct. at 548 (citations omitted).
The authority of the states to regulate market practices dealing with copyrighted subject matter is well-established. Thus, for example, the Supreme Court has made it clear that the existence of a copyright does not permit its owner to contract concerning it in ways that suppress competition in violation of federal antitrust laws. 15 U.S.C. § 1, et seq. Interstate Circuit v. United States, 306 U.S. 208, 230, 59 S.Ct. 467, 476, 83 L.Ed. 610 (1939). Similarly, ownership of a copyright does not entitle a company to abuse the market power it obtains thereby by engaging in a per se illegal tying arrangement, see, e.g., United States v. Paramount Pictures, Inc., 334 U.S. 131, 156-57, 68 S.Ct. 915, 929, 92 L.Ed. 1260 (1948), price fixing, see, e.g., Watson v. Buck, 313 U.S. 387, 61 S.Ct. 962, 85 L.Ed. 1416 (1941), or other fraudulent or deceptive practices, cf. Mariniello v. Shell Oil Co., 511 F.2d 853 (3d Cir. 1975); Hearing Aid Ass'n of Kentucky, Inc. v. Bullock, 413 F.Supp. 1032 (E.D.Ky.1976).
The State of Ohio is no more interfering with the legitimate rights of owners of copyrighted motion pictures by regulating the ways in which plaintiffs and other producer-distributors license their product in order to achieve fair and open bargaining than were the states in passing the legislation upheld in those cases.
496 F.Supp. at 446-47. The Sixth Circuit, in affirming the trial court on the Copyright Act challenge, stated:
we do not find authority for the argument that state trade regulation which affects distribution procedures and, indirectly, monetary returns from copyrighted property is invalidated implicitly or explicitly by the terms of the Copyright Act ... or the copyright clause (of the United States Constitution). After thorough analysis, Judge Duncan rejected each of these claims, 496 F.Supp. at 441-48. We agree with his decision and his analysis.
Allied Artists, 679 F.2d at 662-663.
The trial court in this case ruled that the Pennsylvania Act, on its face, is pre-empted by the Copyright Act because it limits the exercise of federally created rights and therefore " 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.' Hines v. Davidowitz, 312 U.S. 52, 67 (61 S.Ct. 399, 404, 85 L.Ed. 581) (1941)." 520 F.Supp. at 996. Specifically, the trial court ruled that the Pennsylvania Act's prohibitions against advances, against guarantees in combination with percentage payments, against blind bidding, against private negotiations for licenses where all bids are rejected, and against first runs of more than 42 days were all pre-empted by the Copyright Act. 520 F.Supp. at 994-95.
It was incorrect to reach this conclusion on summary judgment. Whether the prohibitions contained in the Pennsylvania Act in fact "stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" was in dispute. The Act on its face contains no threat to the copyrights themselves: the Act does not take away from plaintiffs and give to another the right to reproduce the film, to prepare derivative works based on the film, to distribute the film, or to license its performance. With regard to the question of whether the Pennsylvania Act unconstitutionally prevents or interferes with the goals of the Copyright Act, defendants contend that as a matter of fact the Pennsylvania Act has little or no impact upon the exercise of any federally created rights. The question of whether and to what extent the Pennsylvania Act interferes with attaining the "purposes and objectives of Congress" is one which must be resolved before the trial court can decide, as a matter of law, whether the interference (if any) is such as to require invalidation of all or part of the Pennsylvania Act on pre-emption grounds. Thus, while we agree with the framework of analysis set forth by the Ohio district court and adopted by the Sixth Circuit, we cannot apply that framework in a summary judgment context, because the parties do not agree on whether the Pennsylvania Act in fact precludes the "accomplishment and execution of the full purposes and objectives" of the Copyright Act.
For the foregoing reasons, we will reverse the trial court's grant of summary judgment and remand this case for trial.