Contract Drafting Clairvoyance

Almost no area of law is as litigious as the interpretation of contracts. Strict recording of every point discussed by the parties is helpful in making sure all aspects of the agreement have been included. The less specific the contract language, the more court time is needed to hash out what was intended by the parties. The attorney involved in the original drafting of the document is charged with the responsibility of capturing, in a snapshot moment in time, the parties’ agreements to do, give and refrain from doing certain things in their contractual relationship. If any of those understandings are discussed but not memorialized in the drafting of the contract, they may not be considered in the interpretation of the written agreement. Basic contract law tells you that any part of the discussion that does not end up in writing will be construed as “dehors” or outside of the contract, and cannot alter the written words. Most contracts add the boilerplate clause that the contract includes the parties’ entire agreement, which strengthens the interpretation that the contract is complete within its “four corners”.

Contracts drafted in rapidly changing areas such as the media and entertainment industry may detail the seemingly full outlines of the agreement, but the parties may later find that the court construes the language and provisions to exclude new formats, delivery systems, methods and contraptions not known or invented yet. James Brown, the Godfather of Soul, found that out the hard way with the employment contract he signed for his performance in the televised T.A.M.I. Awards in 1965. The contract was found by a court to be broad enough to include uses that were not invented or even imagined at that time, including sales of the program to the public in the home theater market for Beta and VHS tapes. The case came about mainly from the exploitation of a T.A.M.I. footage clip by its use in the 1991 movie, “The Commitments”, which featured James Brown’s performance on a television set watched by the characters. The contract included perpetual rights of exploitation of all parts of the performance including “all or any part of your acts, poses, plays and appearances of every kind and nature made or done by you … all instrumental, musical or sound effects produced by you, made or done by you in connection with the Performances and your services hereunder”, and the right to “exhibit, transmit, reproduce, distribute, broad cast and exploit … or the advertising or exploitation thereof, in and by all media and means whatsoever.” The contract also gave the TAMI Show producers “the right to use and display, and to license others to use and display, your name and likeness for advertising or publicizing the Performance in conjunction with and so called ‘commercial tie-ups”. Mr. Brown asserted that the phrase “in connection with” did not allow the performance in the T.A.M.I. Show to be used in separate contexts such as a full-length motion picture, but only in the publication and exploitation of the full show itself. The court pointed to the language allowing “portions” of the performance to be used The only use that was found to be prohibited by the contract were product endorsements from the footage, which Mr. Brown had a longstanding policy against. The language allowing “perpetual use … in all media and means whatsoever” was construed to allow use extending to media developed thereafter, even if not foreseen.

Still, even with general language encompassing all future uses and inventions, some specific language is required in a world where new media and means of delivery are being rolled out daily, and questions may arise whether the drafter meant to include not only new ways to deliver or play the material to which rights have been granted. For example, does a reference to “the internet” include mobile applications, online streaming, downloading directly from “the cloud” or other ways devised to obtain the material? Does the language “all delivery systems” include not only wireless devices such as tablets, phones, and televisions, but also video game consoles?

Formats pose another dilemma, as the producers of the new 3D version of “Titanic” recently found out. The copyright holders to a Picasso painting used in the movie have brought suit against the producers for more licensing money, arguing that the 3D version is a totally separate and new work for which Producer James Cameron had no permission to use the painting. The Picasso heirs had a history of disputing how the painting was used in the original movie as well, objecting to historical differences and artistic license regarding how the painting was handled.

Contract provisions granting and reserving rights can specify certain delivery methods such as those listed above, and the language used should include references to “any and all media and methods in use now, in the past, or yet to be invented” with examples of uses given “including but not in limitation of” certain types of media, delivery systems, and formats. It does not hurt to list numerous examples when contracting for intellectual property rights, as that will help to show the intentions of the parties to encompass every possible use that could be made of the material in the future. Such inclusion also puts the parties in mind of the possibilities in the future of what may happen to the rights they are granting or purchasing.

Of course, attention must also be paid to the possibility of other parties being involved with those rights in the future. For example, the original party may die, leaving intellectual property rights to his or her estate, which will then receive the benefits of the bargain struck by the rights holder. Many disputes have involved the heirs and assigns of original copyright owners such as Andy Warhol, Mario Puzo, author of the Godfather novel, Pablo Picasso, and others who argued, sometimes successfully, that the rights granted by their ancestor did not include some future uses.

Another situation may arise when the rights granted or purchased are transferred to business entities such as corporations, or are acquired in mergers by successor entities which were not contemplated at the time of the original grant. In a slightly different but instructive context, the contract between Howard Stern and Sirius Satellite radio did not end up the way that Stern contemplated and thought he understood at the time it was made. The shock jock sued Sirius, arguing that stock awards based on subscriber targets should include subscribers obtained from XM after the merger between the Sirius and XM satellite radio companies. On his radio show, Stern argued that the discussions he had during the contract negotiations gave him to understand that any subscribers obtained during the contract period would be counted toward the bonus he would be awarded at certain levels, as they were all subscribers to the same service and the two companies had become one. However, Stern’s contract did contemplate a merger, but there was a specific bonus that would be paid in that event, and it seemingly superseded and replaced the original subscriber bonus. A New York state judge agreed, finding that the contract clearly intended that the merger subscribers should not be counted toward the bonus, and agreed to Sirius’s request to throw the suit out with prejudice. On his radio show, Stern argued that since the two companies were now one, he should be paid for the merged subscribers, which may have been a winning argument if not for the contract language about a possible merger. Contrary to his understanding of their discussions, the company was not the “Sirius” that paid the original bonus prior to the mergers. But was the “merged Sirius”, which did not have to pay those bonuses, but only the merger bonus.

In contracts, language is king, and aside from certain interpretations stemming from industry and trade usages, a contract made in a moment in time could be subject to a different interpretation in a future world where situations or definitions have changed. In drafting contracts, it is best to use language allowing for all possibilities, all situations, and all changes that could occur not only here and now, but perpetually, in the future and throughout the universe.


© 2012 Mary Ellen Tomazic