PRECISE CONTRACT LANGUAGE

IVAN HOFFMAN, B.A., J.D.


        This article discusses 2 cases that demonstrate out how rights, and in turn MONEY, can and often do turn on the specific language of agreements.  The language of the agreement most often determines the outcome of the case and that means the difference between WINNING and LOSING.   Indeed, if the language is very clear, often the expense of litigation can be avoided since both sides can read the agreement and know exactly where they legally stand.  It is often the uncertainties of agreements that lead to litigation since each side is then faced with the need to turn the matter over to a court to decide.  With the consequent expense.

        But even with precise language, and the agreements in these cases reflect such precise language, litigation can happen anyway.  And in that instance, you want to have the language on your side.

The “9 ½ Weeks” Case

        This litigation and appeal (Jonesfilm vs. Lion Gate et. al.) involved rights to the movie “9 ½ weeks” and its sequels and prequels.  The issue on the appeal was a bit complex so let me simplify it.  Jonesfilm sued the defendants claiming that one of the defendants infringed on the trademark of Jonesfilm in and to the title of the very successful film starring Mickey Rourke and Kim Basinger.  The claim was based on the production by the defendants of a “prequel” to the film, called “The First 9 ½ Weeks.”  A “prequel,” for those that have been visiting other planets lately, is actually a sequel to a film but which has a story line that takes place prior to the story line of the original film.

        The defendants had a written agreement with an assignee (NTTS) of Jonesfilm, under which agreement the defendants produced etc. the said prequel.

        In the underlying agreement between NTTS and Jonesfilm, NTTS was granted the right to produce a “sequel” (called “Another 9 ½ Weeks”).  The language of the agreement stated that it was a grant “but only with respect to [a first sequel] or other permitted sequels.”   The agreement went on to state that “[a]ll rights not specifically granted to Purchaser [NTTS] are reserved to Owner [Jonesfilm].”

        The agreement further stated:

If the First Sequel is produced and delivered on or before December 31, 1996, then and only then, Purchaser [NTTS] shall have the exclusive right to produce additional sequels (“Additional Pictures”) . . . . on the same terms as set forth in this Agreement . . . subject only to good faith negotiation between the parties as to Owner's [Jonesfilm’s] compensation and credit….
        The defendants claimed that because the assignee had such rights from Jonesfilm including the right to assign that right to the defendants, that the defendants had such rights.

        At the trial, the judge dismissed the case because he said that the failure to join NTTS in the lawsuit was error.

        The Second Circuit Court of Appeal ruled that because NTTS had only an option to exercise “prequel” rights and that option was subject to a negotiation with Jonesfilm and since such negotiation did not take place, NTTS had no rights to pass along to the defendants because NTTS’ rights were actually not rights that could be exercised without such negotiation.

        The Court stated:

In other words, an unambiguous condition precedent to the transfer of rights from the plaintiff to make an additional movie was the good faith negotiation of a compensation and credit agreement. It is undisputed that the plaintiff was not contacted by NTTS or any other entity about the production of The First 9 ½ Weeks and that there were no negotiations with respect to the compensation and credit for that movie. Moreover, the subsequent transfer of rights by NTTS to the defendants did not transform the conditional option into an absolute right. The requirement of good faith negotiation survived any transfer because according to section 10 of the Jonesfilm/NTTS agreement, which set forth the conditions of the option to make additional movies, “[a]ny transfer, mortgage, assignment or other disposition of any sequel rights shall be subject to Owner’s rights hereunder.” Jonesfilm/NTTS Agreement at 8.
        In non-legal language, what the sum of this case is about is that the precision of the language of the agreement won the day for the plaintiff.   A less clear agreement might have lost that day.  Substitute the word “money” for the word “day” and you should get the point.

The “Be My Baby” Case

        The other case involves a very old recording agreement, drafted in the “early” days of rock and roll and the interpretation of the provisions thereof in view of subsequent developments.

        This case, Greenfield vs. Phillies Records et. al., involves claims by the members of the famous girl group The Ronettes, which had a string of hits in the 1960’s including “Be My Baby.”  The issue was the contract interpretation of the language granting all rights to Phillies Records and whether such grant was broad enough to encompass later licensing of the master recordings by the company, which form of licensing was not specified in the granting language.

        Specifically, the language of grant, as quoted by the Court, said:

All recordings made hereunder and all records and reproductions made therefrom together with the performances embodied therein, shall be entirely [Phillies’] property, free of any claims whatsoever by you or any person deriving any rights of interest from you.  Without limitation of the foregoing, [Phillies] shall have the right to make phonograph records, tape recordings or other reproductions of the performances embodied in such recordings by any method now or hereafter known, and to sell and deal in the same under any trade mark or trade names or labels designated by us, or we may at our election, refrain therefrom.
        Subsequently, Phillies and its successors licensed the recording for use in motion pictures, called “synchronization rights,”  and for other uses such as compilation albums and such.  (Read “The Use of Music on a Multimedia Website” for an explanation of recording and music rights.)

        No royalties were paid to the plaintiffs for any such uses, who signed the agreement without being represented by an attorney.

        Those granting some or all rights to any intellectual property should be keenly aware that merely by making the grant in one part of a contract does not necessarily mean that the said party is entitled to be paid for the rights so granted.  The payment part of any contract contains separate provisions about what share the granting party is to get and unless there is either some specific reference to a payment for a certain kind of use or some “catchall” omnibus provision, the specifics of payment as to specific uses will control.  Apparently in this instance, the plaintiffs, while granting all rights, did not negotiate to be paid on all rights and there was no specific reference to being paid on the indicated licensed uses.

        The trial court found that because there was no specific grant of these rights, that such uses by the defendant was not permitted.  The Court of Appeals however, reversed, holding instead that the language of grant was sufficiently broad and unless the plaintiffs specifically excluded such rights, they were deemed included within the said grant.  The Court cited the general principle of law as follows, a principle that all should read over and over again:

The best evidence of what parties to a written agreement intend is what they say in their writing.
        The Court further said:
Extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous….
        And further:
Thus, if the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity.
        And further still:
[S]ilence [in a contract i.e. where the contract does not specify something] does not equate to contractual ambiguity.
        The Court found no such ambiguities and thus evidence of custom etc. was not admissible.

        The non-legalese explanation of the above is that because the contract was unambiguous on its face and the language precise, the grant was upheld. Thus, the failure of the agreement to address the specific issue means that the plaintiffs lost and thus lost the right to receive money for the uses that were not specifically covered.

Conclusion

        A contract should solve more problems than it creates and you never want to have any contract so vague and uncertain that it leads to litigation and, in the worst case scenario, a situation in which some other party, some trier of fact, be it judge or jury, is going to be able to interpret that which should have been expressly set forth in the agreement.  A contract should be clear and thorough, spending the extra few words to make it so complete that, as much as possible, no one can interpret it in any other way than the way the draftsperson intended.

        If you are even an infrequent reader of these articles, and certainly if you read them regularly, you know how often I stress the need for precision in drafting agreements.  It is one of the reasons I am so opposed to the use of cut and paste forms copied from books, the Internet or passed around by colleagues.  Legal rights almost always are determined by the language in an agreement.  Read “Private Laws.”  Also read “The Do It Yourself Publishing Lawyer.”  Trying to “save” money by using inapt forms or writing a complex legal document yourself almost always results in considerable expense to fix what could have been done less expensively and better in the first instance.  Help me is almost always cheaper than fix me.

        Neither of these cases involved such cut and paste forms or other such hand crafted agreements.  Both these agreements were apparently drafted with precision by experienced attorneys and this article is certainly full of praise for the agreements and the attorneys who drafted them.  Indeed, both cases were won by the party on whose behalf the agreements were drafted thus reinforcing the value of professionally drafted agreements.  But the point is that if there can be litigation even with artfully crafted agreements, imagine the difficulties that might be lurking if you draft your own.

        Of course, if you never intend your projects to be successful (read “Set to Fail”), then maybe you believe that none of this will ever become important to you and that you can continue to copy from forms, draft complex legal agreements yourself etc.  However, since no one can know, in advance, what projects are going to be successful, the result is that it always matters since in the one instance where the project is successful and you are not on solid legal ground, you are likely to lose and the other side likely to win.   And how many opportunities to win are you likely to get?

        So you should wake each day with the assumption that every project you are working on is going to be a success… and plan accordingly.   Planning accordingly means, in the intellectual property business, among other things, having valid, thorough and precisely drafted agreements prepared by attorneys experienced in the field.

        Since everyone plans for something, you can plan for success.

        Or you can plan to fail.

        The choice is yours.
 

© 2002 Ivan Hoffman.  All Rights Reserved.

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.

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