USDC C.D. California, December 24, 2008

Click here for a copy of the full decision.

Warner Bros. Entertainment announced its plans to release the motion picture Watchmen, based on the Watchmen graphic novel, on March, 6, 2009. Twentieth Century Fox Film Corp. filed suit against Warner Bros. for copyright infringement and interference with contract, claiming that through a series of agreements it owned some rights in the Watchmen graphic novel.

In August, 2008, the court denied Warner Bros.’ motion to dismiss for failure to state a claim. In this decision, the court granted summary judgment for Fox on the copyright infringement claim. (This decision is a short order in which the court gave notice to the parties of how it intends to rule on each party’s summary judgment motion; the court indicated that it would issue a longer, more detailed opinion in the future.)

In the court’s August ruling, it provided the following chronology:

  • Fox acquired the motion picture rights in Watchmen between 1986 and 1990.
  • In 1990, Fox entered into a domestic distribution agreement with Largo Entertainment, a joint venture of JVC Entertainment Inc., Golar (Lawrence Gordon), and BOH, Inc. This agreement (the “Largo Agreement”) established Fox’s domestic distribution rights in defined motion pictures (the “subject pictures”).
  • In June, 1991, Fox entered into a “Quitclaim Agreement” with Largo International, N.V. (Purchaser), through which Fox “quitclaims to Purchaser all of Fox’s right, title and interest in and to the Motion Picture project presently entitled ‘WATCHMEN’.” The agreement provided that, “if Purchaser elects to proceed to production, the[Watchmen] shall be produced by Purchaser and shall be distributed by Fox as a Subject Picture pursuant to the terms of the Largo Agreement . . . .” In consideration for the rights to Watchmen, Fox was to be reimbursed for its development costs and interest and to receive profit participation in the worldwide net proceeds of any Watchmen picture. Later in 1991, the Largo Agreement was amended and Watchmen was listed as a project quitclaimed to Largo.
  • In November, 1993, Lawrence Gordon, through his company Golar, withdrew from the Largo Entertainment joint venture and Largo conveyed any rights it had in Watchmen to Gordon/Golar. The court found that it could infer that, based on the 1991 quitclaim, Gordon now stood in the shoes of Largo with respect to Watchmen and held whatever rights it acquired through the 1991 Quitclaim, leaving Fox with the distribution rights it retained through that agreement.
  • In 1994, Fox negotiated a “Settlement and Release” agreement with Gordon which contemplated that the Watchmen project would be put in “perpetual turnaround” to Lawrence Gordon Productions, Inc. The Turnaround Notice gave Lawrence Gordon Productions the perpetual right to acquire all of the right, title and interest of Fox pursuant to the terms and conditions provided in the notice. The Turnaround Notice then described the formula for determining the buy-out price in the event that Gordon elected to acquire Fox’s interest. According to the court, this document suggests that Gordon acquired an option to acquire Fox’s interest in Watchmen for a price. The Notice also provided that the agreement was personal to Gordon and that, prior to payment, he could not assign rights or authorize any person to take any action with respect to the project.
  • In May, 2006, Warner Bros., allegedly with knowledge of the 1991 Quitclaim, entered into a quitclaim agreement with Gordon under which it claims to have acquired the rights to the Watchmen project.

In granting summary judgment to Fox on the copyright infringement claim, the court concluded that Warner Bros. could not have acquired all of the rights to Watchmen from Lawrence Gordon because Gordon did not own any rights in Watchmen – because he never exercised his option to acquire such rights from Fox. In reaching this conclusion, the court relied in part on Gordon’s agreement to and execution of a Turnaround Notice which indicated “a clear understanding that Fox owned important rights in Watchmen, including, at the very least, a distribution right, and that Gordon was required to comply with the terms and conditions of the buy-out if he wanted to acquire those rights. Because Gordon never paid the buy-out price, he never acquired Fox’s rights in Watchmen, and those rights therefore remain with Fox.”

The court concluded by saying that “the parties may wish to turn their efforts from preparing for trial to negotiating a resolution of this dispute or positioning the case for review.”