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Sixth Circuit: Internet downloads not "manufactured," so logo placement agreement inapplicable

December 10, 2007
Post by Blog Staff

In a recent decision, the Sixth Circuit held that several agreements relating to logo placement on media incorporating songs by Meat Loaf did not encompass internet downloads. The court reached this decision based on a key paragraph in the most recent agreement:

Sony Music will continue to place the Cleveland logo (in the design currently used on the tape configuration of "Bat Out of Hell") on albums, CDs, cassettes, and all other forms and configurations of master recordings embodied on the albums entitled "Bat Out of Hell," "Dead Ringer," "Midnight at the Lost and Found," "Hits Out of Hell" and will add such logo to all forms and configurations on which it does not presently appear (including CDs) manufactured by Sony Music after September 1, 1998, provided, however, that Sony Music shall reasonably determine the size and location of such logo.

Because internet downloads are not "manufactured," the court held that the logo placement provision did not apply to that form of media, despite the existence of the arguably broadening provision requiring placement of the logo on "all forms and configurations [incoroprating the songs at issue] on which it does not presently appear." As a result, the court affirmed the district court's summary judgment on the issue.

In August 1977, Plaintiff Popovich signed a promotional contract with recording artist Michael Lee Aday, known professionally as "Meat Loaf." Popovich submitted Meat Loaf's first album—"Bat Out of Hell"—to CBS, which agreed to distribute it under its "Epic" label. "Bat Out of Hell" has subsequently sold over 30 million copies worldwide. Between 1981 and 1984, CBS released three more Meat Loaf albums, "Dead Ringer," "Midnight at the Lost and Found," and "Hits Out of Hell," a compilation of greatest hits from Meat Loaf's first three albums. The parties do not dispute that these albums are covered by the 1977 Agreement.In 1982, Popovich and his partners dissolved Cleveland Entertainment. Popovich retained the rights to use the Cleveland International Records tradename, logo, and recording label. Popovich created Popovich Ltd., and negotiated a new contract with CBS in 1982 with similar terms to the 1977 agreement. From 1986 to 1994, Popovich lived in Nashville, and for that time period, the Cleveland logo was not in use. When Popovich returned to Cleveland in 1994, he formed Popovich Music Group (PMG) and registered the name "Cleveland International Records" and the Cleveland logo to PMG.

On September 18, 1995, Cleveland Entertainment sued Sony for unpaid royalties due under the 1977 Agreement. The lawsuit did not allege any violations of the logo requirement contained in the 1977 Agreement. Ultimately, the lawsuit was settled, and on February 17, 1998, a Settlement Agreement was entered into by Sony and Cleveland Entertainment. The 1998 Settlement Agreement required Sony to pay a substantial sum of money to Popovich in exchange for a full and complete release of past claims from Popovich and Cleveland Entertainment. In addition, the parties negotiated a clause regarding Cleveland logo placement (emphasis added):

Sony Music will continue to place the Cleveland logo (in the design currently used on the tape configuration of "Bat Out of Hell") on albums, CDs, cassettes, and all other forms and configurations of master recordings embodied on the albums entitled "Bat Out of Hell," "Dead Ringer," "Midnight at the Lost and Found," "Hits Out of Hell" and will add such logo to all forms and configurations on which it does not presently appear (including CDs) manufactured by Sony Music after September 1, 1998, provided, however, that Sony Music shall reasonably determine the size and location of such logo.

Popovich argued such provision required Sony to place its logo on Internet downloads Meat Loaf songs. Sony disagreed, arguing it did not "manufacture" Internet downloads. The Sixth Circuit upheld the district court's finding that such logo placement provision unambiguously did not cover Internet downloads of certain Meat Loaf recordings.Popovich further argued the "new use" doctrine stood for the proposition that where one party wants contractual language governing a work's distribution to be broadly construed to govern use in a new medium, and the other party attempts to limit the application of the agreement, the burden of excluding the right to the new use will rest with the party attempting to limit the application. As applied here, Popovich argued that the "all forms and configurations on which it does not presently appear" language clearly contemplated new uses of the content, and therefore should apply to music downloads.

The Sixth Circuit rejected this argument. The court noted the "new use" doctrine had only previously applied to licenses (as opposed to production contracts such as the one at issue here) and held the logo placement provision did not meet one of the "new use" doctrine's requirements—that the language of the contract must be more reasonably read to include the new use being proposed than read to exclude such new use. The court agreed with the district court that the contract provision requiring the new use be "manufactured" (as opposed to, say, distributed or provided) by Sony was not more reasonably interpreted to include Internet downloads, which are not commonly viewed as something that is "manufactured." Accordingly, the district court's summary judgment on this issue was affirmed.

This case highlights the fact that a single word in a license or other agreement can be determinative in a future action regarding that agreement. It is important, therefore, for such agreements to be not only drafted carefully but also meticulously reviewed before execution, to ensure both parties understand the full extent of each others' obligations.

To read the full decision in Popovich v. Sony Music Entm't, Inc., click here.

Hat tip to Bill Patry, who blogs about the decision here.


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