Applying Classic Contract Interpretation Principles to New Media Contracts

The entertainment industry is as much defined by its technology as by the writers, performers, and producers that comprise it. Although it is clear from today’s 3D Imax mega-theaters that the industry has come a long way from the days of all-male casts performing Greek tragedies in ancient amphitheaters, one thing that has stayed constant over the last hundred years or so of technological change in the entertainment industry is the fact that those involved in drafting the industry’s contracts must always be one step ahead when it comes to anticipating how new entertainment technologies will effect the terms, conditions, and rights granted in those contracts. Starting with the transition from live theater to film, then again with each major change, from film to television, to home video, to today, the industry’s attorneys along with the courts of the United States have developed a comprehensive framework for how to draft contracts that successfully take into account the always-changing state of entertainment technology. With today’s proliferation of “new media” technology, such as “over-the-top” (“OTT”) streaming services such as Netflix and Amazon, it is more important than ever for entertainment attorneys to understand and develop the skills—drafting clear contracts that expressly account for developments in technology—that the last hundred years of entertainment precedent have established.

The first cases to grapple with the speed bumps introduced by new technology to existing entertainment contracts were copyright cases in the early twentieth century faced with the transition from live theater to motion pictures. Those cases addressed whether the assignee of the right to produce a story by means of one technology (live theater) also has the right to produce that story by means of a different, but similar technology (motion pictures). The Supreme Court’s first attempt to answer that question was in Manners v. Morosco, 252 U.S. 317 (1920). There, it held that a contract wherein a playwright granted a producer the “sole and exclusive license and liberty to produce, perform and represent” the play in the US and Canada, did not also grant to the producer the right to distribute a motion picture version of the play. Central to its decision was the rule that if, taken in context, the terms of a contract expressly indicate that the assignor has only granted the assignee the right to perform by means of one technology, then the contract applies only to that technology.

A couple of years later, the Second Circuit added a knowledge requirement to the holding in Manners. In Kirke La Shelle Co. v. Paul Armstrong Co., 263 N.Y. 79 (N.Y. 1933), the court ruled that if neither party to a contract is aware at the time of drafting of the potential for the future technology, then courts will find an implied covenant of good faith and fair dealing that prohibits either party from producing the production by means of that technology if either of their doing so would negatively affect the other. A generation later, the Second Circuit further refined the principles in Manners in Bartsch v. Metro-Goldwyn Mayer, Inc., 391 F.2d 150 (2d Cir. 1968), this time in response to that generation’s new technology: television. Although the court maintained the Kirke La Shelle principle that parties may not be deprived of rights to new technologies based on their ignorance of those technologies, the Bartsch court set a fairly high bar for what constitutes permissible “ignorance” of future technologies. The court found that as an experienced businessman knowledgeable in the entertainment industry, Bartsch should have understood that the “natural implication” of the contract’s language granting the right “to copyright, vend, license, and exhibit” the motion picture version of a play “throughout the world” would also include television, despite television only being at its most nascent stages at the time Bartsch entered the contract in 1938.

The Second Circuit’s tendency to interpret broadly what constitutes as a party’s “knowledge” of potential future entertainment technologies has continued with each subsequent technological advancement. In Boosey & Hawkes Music Publ’rs, Ltd. v. Walt Disney Co., 145 F.3d 481 (2d Cir. 1998), for example, the circuit held that the “nascent market for home viewing of feature films” that existed in 1939 was enough evidence when the parties in that case entered into their contract to support the court’s finding that the plaintiff music composer’s grant to the defendant movie studio of film rights also applied to use in home videos. Boosey & Hawkes is only one of many examples of cases that, taken together, work to instruct entertainment attorneys of the need to either expressly withhold for one’s client the rights to future technologies if one is the party granting, or else to ensure that a contract establishing the rights of one’s grantee client expressly grants any foreseeable future technologies. These steps may indeed make negotiating more costly, but any such costs will not compare to those that would come from litigation over vague contract provisions.

Although the above cases dealt primarily with the distribution of various granted rights in a copyright context with technologies long past made obsolete, modern entertainment attorneys would be well served in applying the principles that those cases established—namely the importance of writing clear contract language that expressly accounts for technological change—in any entertainment contract today. Whether in contracts between digital music streaming services like Spotify and recording artists over proper royalty rates, or even for even those between the various entertainment guilds and OTT services like Netflix in determining how to establish a fair derivative system that adequately takes into account the difference between traditional and new ways of consuming entertainment, attorneys must learn from the mistakes of the past in order to be prepared for the future.

Mark Sanchez is a J.D. candidate, 2017, at NYU School of Law.