1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-27-1999

Orson Inc v. Miramax Film Corp

Precedential or Non-Precedential:

Docket 97-1994

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Recommended Citation

"Orson Inc v. Miramax Film Corp" (1999). 1999 Decisions. Paper 111.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/111
Filed April 27, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 97-1994 

ORSON, INC. t/a ROXY SCREENING ROOMS 

v. 

MIRAMAX FILM CORP., 

 Appellant 

On Appeal from the United States District Court 

for the Eastern District of Pennsylvania 

(D.C. No. 93-cv-04145) 

(District Judge: Hon. J. Curtis Joyner) 

Argued September 17, 1998 

Before: SLOVITER, SCIRICA and ALITO, Circuit Judges

(Filed April 27, 1999) 

 Thomas E. Zemaitis 

 Barbara T. Sicalides 

 Pepper, Hamilton & Scheetz 

 Philadelphia, PA 19103-2799 

 Carole E. Handler (Argued) 

 Kaye, Scholer, Fierman, Hays 

 & Handler 

 Los Angeles, CA 90067 

 Attorneys for Appellant 
 Paul R. Rosen 

 Jeffrey M. Goldstein (Argued) 

 Spector, Gadon & Rosen 

 Philadelphia, PA 19103 

 Richard J. Perr (Argued) 

 Fineman & Bach 

 Philadelphia, PA 19103 

 Attorneys for Appellee 

OPINION OF THE COURT 

SLOVITER, Circuit Judge. 

I. 

INTRODUCTION 

Section 106 of the Copyright Act provides that, subject to 

certain exceptions inapplicable here, the owner of a 

copyright has: 

 the exclusive rights to do and to authorize any of the 

 following: 

 . . . 

 (3) to distribute copies or phonorecords of the 

 copyrighted work to the public by sale or other transfer 

 of ownership, or by rental, lease, or lending; [and] 

 (4) in the case of literary, musical, dramatic, and 

 choreographic works, pantomimes, and motion 

 pictures and other audiovisual works, to perform the 

 copyrighted work publicly. 

17 U.S.C. S 106. 

Another section of the same statute provides: 

 On and after January 1, 1978, all legal or equitable 

 rights that are equivalent to any of the exclusive rights 

 within the general scope of copyright as specified by 

 section 106 . . . are governed exclusively by this title. 

 2 
 Thereafter, no person is entitled to any such right or 

 equivalent right in any such work under the common 

 law or statutes of any State. 

17 U.S.C. S 301. 

Section 203-7 of the Pennsylvania Feature Motion Picture 

Fair Business Practices Law (the "Pennsylvania Act") 

provides that: 

 No license agreement shall be entered into between 

 distributor and exhibitor to grant an exclusivefirst run 

 or an exclusive multiple first run for more than 42 

 days without provision to expand the run to second 

 run or subsequent run theatres within the 

 geographical area and license agreements and prints of 

 said feature motion picture shall be made available by 

 the distributor to those subsequent run theatres that 

 would normally be served on subsequent run 

 availability. 

73 Pa. Cons. Stat. S 203-7. 

Appellant Miramax Film Corp., a motion picture 

production and distribution company, appeals the District 

Court's failure to overturn a jury's award of damages of 

$159,780 to plaintiff Orson, Inc., the owner of a Center City 

Philadelphia (referred to as "Center City") movie theater, for 

Miramax's violation of section 203-7 of the Pennsylvania 

Act by entering into an exclusive first-run exhibition 

agreement for more than forty-two days with another

Center City theater. See Orson, Inc. v. Miramax Film Corp., 

983 F. Supp. 624 (E.D. Pa. 1997). Miramax argues for 

reversal on the ground, inter alia, that the Pennsylvania Act 

is preempted because it interferes with a copyright holder's 

authority to exercise its exclusive rights to license the work. 

Before we can address this provocative legal issue, we must 

first consider Orson's argument that this court has already 

decided this issue contrary to Miramax's position and that 

we are bound to reject Miramax's preemption argument by 

the law of the case doctrine and our own binding precedent. 

 3 
II. 

FACTS AND PROCEDURAL HISTORY 

This is the second time the parties are before this court 

in this case. The facts are presented in detail in our first 

opinion which followed the District Court's grant of 

summary judgment in favor of Miramax. See Orson, Inc. v. 

Miramax Film Corp., 79 F.3d 1358 (3d Cir. 1996) ("Orson I"). 

Nonetheless, we recount the facts necessary for the issue 

presented here. 

Miramax distributes art films nationally, including in 

Philadelphia and the surrounding metropolitan area. The 

parties have not attempted to define "art films" other than 

as we previously did by contrasting them with "movies that 

may be characterized as `commercial' or `mainstream.' " Id. 

at 1362. Only a limited number of theaters in any area 

exhibit art films. Orson showed primarily second-run art 

films from January 1992 through October 1994 through 

the Roxy Screening Rooms, a Center City movie theater 

with two screens. The first runs of Miramax's art films were 

shown in Center City at the Ritz Theaters, a pair of theaters 

with five screens each, the Ritz Five and the Ritz at the 

Bourse (collectively, the "Ritz"). During its two and one-half 

years of operation by Orson, the Roxy received only one 

first-run movie from Miramax, and rarely received secondrun movies after the forty-second day of play at the Ritz, 

despite repeated requests. 

In August 1993, Orson filed suit against Miramax, 

charging that Miramax's distribution of films, specifically in 

its dealings with the Ritz, violated the Sherman Act, the 

Pennsylvania common law tort of unreasonable restraint of 

trade, and section 203-7 of the Pennsylvania Act. The 

District Court granted Miramax's motion for summary

judgment as to both Orson's federal and state antitrust 

claims. It also granted summary judgment to Miramax as to 

Orson's claim under section 203-7 of the Pennsylvania Act 

for nine of the fifteen films at issue because it construed 

that provision as satisfied by Miramax's expansion of the 

distribution of those films to suburban theaters before the 

forty-third day of their runs at the Ritz; by agreement of the 

 4 
parties, it dismissed without prejudice Orson's claim as to 

the six remaining films. Orson, Inc. v. Miramax Film Corp., 

862 F. Supp. 1378 (E.D. Pa. 1994). Orson appealed. 

This court affirmed the grant of summary judgment to 

Miramax on the antitrust claim and the restraint of trade 

claim. Orson I, 79 F.3d at 1358. The principal portion of 

our opinion was directed to analyzing how the legal

principles regarding restraint of trade applied to the 

arrangement by which Miramax granted the Ritz an 

exclusive license to exhibit its first-run films. We concluded 

that "Orson failed to present sufficient evidence to support 

its claim that the Miramax-Ritz clearances were 

unreasonable restraints of trade." Id. at 1372. 

On the other hand, we vacated the judgment for Miramax 

on Orson's claim under the Pennsylvania Act because we 

determined that the District Court had erred in its

interpretation of section 203-7. The District Court had 

construed the statutory requirement that a distributor, 

such as Miramax, expand the run of the film after forty-two 

days to other theaters in the "geographical area" to have 

been satisfied by Miramax's expansion to suburban 

theaters. We held, in the absence of any applicable opinion 

by the Pennsylvania Supreme Court, that the relevant 

geographical area for purposes of section 203-7 was the 

same area covered by the license, i.e., Center City

Philadelphia. Because the record was disputed or 

incomplete, we remanded for further proceedings as to 

whether Miramax's actions as to those films violated section 

203-7 of the Pennsylvania Act. Id. at 1374-75. 

On remand, the case proceeded to a jury trial, and the 

jury awarded Orson damages of $159,780. See Orson, Inc., 

983 F. Supp. at 626. The District Court denied Miramax's 

post-trial motions. The court held that Orson had presented 

sufficient evidence to establish that Miramax had caused 

the injury, that Miramax acted willfully and intentionally, 

and that the damages were proper. Id. at 634-36. 

Additionally, the District Court rejected Miramax's

challenge to the constitutionality of section 203-7. The 

court concluded that Third Circuit precedents had decided 

the question of the facial validity of the Pennsylvania Act; 

 5 
moreover, those same precedents "effectively foreclosed" an 

as-applied challenge. Id. at 630. 

Miramax filed a timely notice of appeal. It argues that 

section 203-7 is unconstitutional on its face and as applied, 

that the finding of willful and intentional violation is 

erroneous as a matter of law, and that there was no

evidence to support the assumption that the Roxy (Orson's 

theater) would have exhibited the films after forty-two days. 

We have jurisdiction pursuant to 28 U.S.C. S 1291. 

III. 

EFFECT OF PRIOR DECISIONS 

We engage in plenary review of a Motion for Judgment as 

a Matter of Law and apply the same standards as the

district court. See Lightning Lube, Inc. v. Witco Corp., 4 F.3d 

1153, 1166 (3d Cir. 1993). Where the issue involves purely 

a question of law, such as federal preemption, we review 

the decision of the district court de novo. See Espinal v. 

Northwest Airlines, 90 F.3d 1452, 1455 (9th Cir. 1996). 

However, Orson contends that we are foreclosed from

examining the legal issue presented because of the law of 

the case doctrine and the holdings of our prior decisions. 

A. Law of the Case 

Orson's reliance on the law of the case doctrine need not 

detain us long. This doctrine precludes a court from 

reconsidering "issues previously resolved by an earlier 

panel" in the same case. Atlantic Coast Demolition & 

Recycling, Inc. v. Board of Chosen Freeholders, 112 F.3d 

652, 663 (3d Cir. 1997); see also United States v. Local 560 

(I.B.T.), 974 F.2d 315, 329 (3d Cir. 1992) ("When an 

appellate court decides a legal issue, that decision governs 

all subsequent proceedings in the same case."). As we 

stated in Schultz v. Onan Corp., 737 F.2d 339, 345 (3d Cir. 

1984), "[T]he law of the case doctrine applies `to issues that 

were actually discussed by the court in the prior appeal 

[and] to issues decided by necessary implication." Miramax 

argues that there was no such discussion the first time this 

case was before us. 

 6 
Orson's law of the case argument is predicated on a

footnote in Orson I stating that this court had already 

rejected a facial preemption challenge to section 203-7. See 

79 F.3d at 1373 n.14. However, an examination of Orson I 

shows plainly that it did not resolve the legal issues 

regarding preemption that Miramax raises on appeal.

As we noted at the outset, Orson I was an appeal by

Orson from the District Court's grant of summary judgment 

to Miramax in Orson's suit alleging that Miramax violated 

the federal antitrust laws, engaged in restraint of trade and 

violated section 203-7 of the Pennsylvania Act. See Orson 

Inc., 862 F. Supp. at 1381. On appeal, after we considered 

and affirmed the grant of summary judgment on the 

antitrust and restraint of trade counts, we turned to 

Orson's claims based on section 203-7. Because the 

District Court had not construed section 203-7 to require 

expansion after forty-two days in Center City, we remanded 

for further proceedings because the summary judgment 

record was either "disputed or incomplete in critical 

respects." Id. at 1374. 

There is no indication in the opinion that we focused on 

the possibility that we could have avoided the remand if we 

had decided that the Copyright Act preempted section 203- 

7. At most, we rather summarily read our prior case law 

regarding section 203-7 as having decided that issue. We 

noted Miramax's contention that the federal Copyright Act 

would preempt section 203-7 if the Act "were interpreted 

this way," id. at 1373 n.14, but because we believed that 

we had previously rejected a facial challenge on that ground 

in two prior cases, see Associated Film Distrib. Corp. v. 

Thornburgh ("AFD I"), 683 F.2d 808 (3d Cir. 1982), and 

Associated Film Distrib. Corp. v. Thornburgh ("AFDI II"), 800 

F.2d 369 (3d Cir. 1986), we did not discuss it further. 

Orson I, 79 F.3d at 1373 n.14. Therefore, because the 

preemption issue was neither actually discussed nor

necessarily decided by implication in Orson I -- the only 

prior decision to which the law of the case doctrine might 

arguably apply -- we hold that doctrine inapplicable here. 

Therefore, we turn to consider Orson's argument that our 

precedents on the preemption issue now foreclose our 

review of Miramax's preemption claim. 

 7 
B. Third Circuit IOP 9.1 

Orson argues that this court decided in AFD I that 

section 203-7 was not preempted by the federal Copyright 

Act, and that therefore we are bound to that decision by 

our Internal Operating Procedure ("IOP") 9.1.1 That IOP 

reflects this court's commitment to "maintain a consistent 

body of circuit jurisprudence." A.C.L.U. of New Jersey v. 

Schundler, 1999 WL 77766 at *24 n.6 (3rd Cir. 1999). 

The complaint in AFD I was filed shortly after the passage 

in 1980 of the Pennsylvania Act. That Act comprehensively 

regulates several aspects of the licensing, distribution, and 

exhibition of films. It requires blind bidding by theaters, 

outlines specific procedures for that bidding, prohibits 

advances, and strictly curtails minimum guarantees. See 

73 Pa. Cons. Stat. SS 203-1-203-6. It also includes the 

section at issue here, which provides that no license 

agreement between a distributor and an exhibitor can grant 

an exclusive first run for more than forty-two days without 

provision to expand the run to second-run or subsequentrun theatres within the geographical area. See 73 Pa. Cons. 

Stat. S 203-7. Finally, the Act creates private causes of 

action by exhibitors against distributors for violations of its 

provisions. See 73 Pa. Cons. Stat. S 203-10. The 

Pennsylvania courts have never interpreted the Act's 

provisions. 

The plaintiffs in AFD I, movie distributors and producers, 

filed a motion for declaratory judgment in the United States 

District Court for the Eastern District of Pennsylvania 

challenging the entire statutory scheme on various 

grounds. The District Court granted summary judgment to 

plaintiffs on all their claims. See Associated Film Distrib. 

Corp. v. Thornburgh, 520 F. Supp. 971, 996 (E.D. Pa. 1981). 

The court held that the Pennsylvania Act violated both the 

First Amendment by indirectly restraining dissemination of 

protected expression, id. at 991, and the Supremacy Clause 

_________________________________________________________________ 

1. IOP 9.1 states: "It is the tradition of this court that the holding of 

a 

panel in a reported opinion is binding on subsequent panels. Thus, no 

subsequent panel overrules the holding in a published opinion of a 

previous panel. Court in banc consideration is required to do so." 

 8 
because it was preempted by the federal Copyright Act. Id. 

at 995-96. 

In reaching the latter conclusion, the district court held 

that certain provisions of the Pennsylvania Act, such as 

those prohibiting advances, prohibiting guarantees in 

percentage leases, requiring advance screenings, and 

requiring certain bidding procedures, interfered with the 

essence of the copyright grant because the provisions 

"substantially restrict the conditions under which a 

copyright holder may distribute and license its work." Id. at 

994. The district court recognized that an Ohio district 

court had upheld the constitutionality of a similar, but not 

identical, Ohio statute. See Ohio Rev. Code Ann. 

SS 1333.05-07 (Baldwin 1998). Nonetheless, the district 

court in AFD I, emphasizing the differences between the 

Pennsylvania and Ohio laws, viewed the Pennsylvania Act's 

"broad and comprehensive regulation" to conflict with the 

federal objectives of the Copyright Act. 520 F. Supp. at 995. 

The court also concluded that the requirement in section 

203-7, requiring that "[a]fter 42 days thefilm must be 

reoffered for licensing and the run must be `expanded,' " 

interfered with the copyright holder's freedom to license. Id. 

at 994-95. 

On appeal, this court reversed. AFD I, 683 F.2d at 817. 

In our discussion, we relied essentially on the analysis 

detailed both in the Ohio district court opinion reviewing 

the Ohio statute and in the Sixth Circuit's opinion on 

appeal. See Allied Artists Pictures Corp. v. Rhodes, 496 F. 

Supp. 408 (S.D. Ohio 1980), aff'd in relevant part and 

remanded in part, 679 F.2d 556 (6th Cir. 1982). With 

respect to the First and Fourteenth Amendment claims,2 we 

quoted extensively from the Ohio district court opinion, 

which had rejected the First Amendment challenge, but we 

stated that because the trial court here had granted 

summary judgment, it was not able to evaluate the actual 

impact of the Act, if any, on First Amendment values, it 

_________________________________________________________________ 

2. Although the District Court's opinion referred exclusively to the First 

Amendment, it is established that the Fourteenth Amendment applies 

the provisions of the First Amendment to the states. See 44 Liquormart, 

Inc. v. Rhode Island, 517 U.S. 484, 489 n.1 (1996).

 9 
could not assess the weight of the state's concerns, and it 

could not make the necessary balance between the 

distributor's protected rights and the nature and weight of 

the state's concerns. AFD I, 683 F.2d at 813-14. 

Accordingly, we remanded the case so that the district 

court could apply the standards articulated in the Ohio 

cases to the Pennsylvania Act. 

We also decided that the court should not have granted 

summary judgment on the copyright preemption claim.

Again, we relied almost exclusively on the analysis used by 

the Ohio district court and the Sixth Circuit, which had 

rejected the similar contentions made there. Id. at 816. 

It is significant (and overlooked in our prior opinions) 

that the Ohio district court, in deciding that the Ohio 

statute did not create, grant or destroy any rights that are 

"equivalent" to the exclusive rights of the federal Copyright 

Act, stated, "Indeed, by providing procedures for the 

licensing of a film, the Act recognizes sub silentio the right 

of the copyright owner to exhibit the motion picture and to 

grant an exclusive or restrictive license to others to exhibit 

it." Allied Artists Pictures, 496 F. Supp. at 443. The Sixth 

Circuit agreed with this language, see 679 F.2d at 663, and 

we quoted it verbatim in AFD I. 683 F.2d at 814-15 n.11. 

However, as with the First Amendment issue, we concluded 

that the trial court should not have reached its decision on 

summary judgment, and we remanded the preemption 

issue, noting that although the Act on its face contains no 

threat to the copyrights themselves: 

 The question of whether and to what extent the 

 Pennsylvania Act interferes with attaining the 

 "purposes and objectives of Congress" is one which 

 must be resolved before the trial court can decide, as a 

 matter of law, whether the interference (if any) is such 

 as to require invalidation of all or part of the 

 Pennsylvania Act on preemption grounds. 

Id. at 816 (emphasis added). 

We emphasize that the Ohio statute did not have any

limitation on the length of the first run, that the Ohio court 

on which we relied in AFD I stated that the Ohio statute 

sub silentio recognized the copyright owner's right to grant 

 10 
an exclusive license to exhibit the film, and that our 

opinion in AFD I quoted that language about the copyright 

owner's right to grant an exclusive license to exhibit the 

film. 

As the foregoing discussion makes clear, at most AFD I 

remanded the legal decision with respect to the 42-day rule, 

along with the provisions of the Act that we actually 

discussed in the opinion, so the district court could 

determine "whether and to what extent the Pennsylvania 

Act interferes with attaining the `purposes and objectives of 

Congress.' " Id. at 816. That we did not decide the

preemption issue is evident from the statement in the same 

sentence that this question "is one which must be resolved 

before the trial court can decide, as a matter of law, 

whether the interference (if any) is such as to require 

invalidation of all or part of the Pennsylvania Act on 

preemption grounds." Id. (emphasis added). If we had 

decided the copyright preemption issue as a matter of law, 

there would have been no reason to remand for the trial 

court to decide the same preemption issue as a matter of 

law. Indeed, the most direct statement in AFD I regarding 

section 203-7 -- "particularly with regard to the 42-day 

provision, the Pennsylvania Act may have a greater impact 

upon plaintiffs' copyright rights than the Ohio Act," id. at 

816 n.12 -- suggests a potential preemption problem with 

that section. 

Surprisingly for a decision on which all the later cases 

depend, the 42-day rule is never discussed or analyzed in 

AFD I, undoubtedly because the Ohio statute under 

discussion in the Ohio district court and the Sixth Circuit 

opinions on which we relied did not have any comparable 

provision. Moreover, we cannot regard our decision in AFD 

I as a legal determination on the preemptive effect of the 

Copyright Act on section 203-7 because the construction of 

the requirements imposed by section 203-7 was first given 

in Orson I, fourteen years after AFD I. Before that case, the 

district judges had different understandings of the language 

of that section. See Associated Film Distrib. , 520 F. Supp. 

at 994-95 ("After 42 days, the film must be reoffered for 

licensing, and the run must be `expanded.' "); Associated 

Film Distrib., 614 F. Supp. at 1123-24 ("The statute does 

 11 
not prevent distributors from contracting for runs longer 

than six weeks. . . . The statute also does not prevent a 

distributor from entering into a series of exclusive licenses 

with exhibitors as long as each license does not exceed 42 

days."); Orson, Inc., 862 F. Supp. at 1387 (Requirement for 

expansion after 42 days satisfied because several of the 

films under consideration " `expanded' to other Philadelphia 

area theaters, outside of Center City Philadelphia, before 

the 42-day period expired."). It was not until we reversed 

the District Court's decision in Orson I that this court 

provided our definitive construction of section 203-7, viz., 

that it required the copyright holder to expand its license to 

another exhibitor within the same geographic area, that is, 

Center City. 

In case after case, courts commented on the vague and 

uncertain meaning of the statutory language. See, e.g., 

Associated Film Distrib., 614 F. Supp. at 1111 ("this part of 

the statute [section 203-7] was inartfully drafted, and 

distributors interpret its requirements differently"); Orson, 

Inc., 862 F. Supp. at 1387 (characterizing statute's wording 

as "sufficiently vague" to permit alternate readings). It 

would be stretching for us to hold IOP 9.1 applicable in 

these circumstances. See, e.g., Connors v. Beth Energy 

Mines, Inc., 920 F.2d 205, 211 n.7 (3d Cir. 1990) (holding 

IOP 9.1 inapplicable when prior decision predicated on a 

different record). 

Orson may have been misled because we also fell into the 

same error regarding the precedential effect of AFD I in two 

later decisions. After the remand in AFD I, the district 

court, after a six-week bench trial, issued its Findings of 

Fact and Conclusions of Law in which it upheld the 

constitutionality of the Pennsylvania Act against all 

challenges. See Associated Film Distrib., 614 F. Supp. at 

1125. This time the distributors appealed, arguing that the 

Act violated the Commerce Clause (a claim not made in 

AFD I), violated the First Amendment, and violated the 

Supremacy Clause because of preemption by the Copyright 

Act. We rejected the distributors' claims, and affirmed. AFD 

II, 800 F.2d at 369. 

With respect to the copyright preemption issue, we stated 

that in AFD I we had "conclusively established that the 

 12 
Pennsylvania Act was not facially preempted by the 

Copyright Act," AFD II, 800 F.2d at 375, and construed our 

remand to have been for a factual determination by the 

District Court whether in actual operation the Act 

prevented or interfered with federally created rights. Id. at 

376. We noted that the distributors contended that "the 

limitation on the length of exclusive runs to 42 days 

interferes with the copyright owner's right to license 

exclusively for the life of the copyright," id., and we 

disagreed with the district court's construction of this 

provision to mean that the Act "permitt[ed] a distributor to 

enter into a series of exclusive contracts with the same 

exhibitor as long as no contract lasted longer than 42 

days," id. (citing 614 F. Supp. at 1123-24). In doing so, we 

reiterated that the language required the distributor " `to 

expand the run to second run or subsequent run theatres 

within the geographical area.' " Id. at 377 (quoting 73 P.S. 

S 203-7) (emphasis in opinion). Thus, although we rejected 

the district court's interpretation of the Act and emphasized 

the importance of the term "expand" in doing so, we offered 

no further opinion as to what the Act affirmatively required. 

We recognized "[t]here may be merit" to the preemption 

issue raised by the distributors but believed our prior 

opinion in AFD I decided the Pennsylvania Act is not 

facially invalid. Id. at 377. The writer of that opinion 

(coincidentally the writer of this opinion) opined that "the 

42-day clause is inconsistent with the Copyright Act," id. at 

377 n.3, but also believed we were bound by our prior 

opinion. 

As we have demonstrated above, we did not decide the 

issue whether the 42-day rule is preempted by the 

Copyright Act in AFD I. This writer concedes she erred in so 

stating in AFD II. As has been said and oft-repeated, 

"Wisdom too often never comes, and so one ought not to 

reject it merely because it comes late." Henslee v. Union 

Planters Bank, 335 U.S. 595, 600 (1949) (Frankfurter, J., 

dissenting). In any event, it is apparent that our opinion in 

AFD II cannot be the basis for application of IOP 9.1 

because the issue was not actually decided there. And, as 

we explained earlier in this opinion, in Orson I we relied on 

the statement in AFD II that the issue had been decided in 

AFD I. 

 13 
Accordingly, we believe that Orson is incorrect in arguing 

that the issue of the preemption of section 203-7 as now 

construed has previously been decided by this court. We 

turn now to that issue. 

IV. 

PREEMPTION 

The Supreme Court has recognized three ways in which 

federal law may preempt, and thereby displace, state law: 

(1) "express preemption," (2) "field preemption" (which is 

also sometimes referred to as "implied preemption"), or (3) 

"conflict preemption." See Pacific Gas & Elec. Co. v. Energy 

Resources Conservation and Dev. Comm'n, 461 U.S. 190, 

204 (1983); International Paper Co. v. Ouellette, 479 U.S. 

481, 491 (1987). Express preemption arises when there is 

an explicit statutory command that state law be displaced. 

See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 382 

(1992). An example of express preemption can be found in 

the subsection of the Employee Retirement Income Security 

Act of 1974, stating that the provisions of that Act "shall 

supersede any and all State laws insofar as they may now 

or hereafter relate to any employee benefit plan." 29 U.S.C. 

S 1144(a). 

Under field- or implied-preemption principles, state law 

may be displaced "if federal law so thoroughly occupies a 

legislative field as to make reasonable the inference that 

Congress left no room for the States to supplement it." 

Cippolone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992) 

(internal quotation marks omitted). 

Finally, state law may be displaced under conflictpreemption principles if the state law in question presents 

a conflict with federal law in one of two situations: when it 

is impossible to comply with both the state and the federal 

law, see Pacific Gas, 461 U.S. at 204, or when the state law 

"stands as an obstacle to the accomplishment and 

execution of the full purposes and objectives of Congress," 

Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977). 

As the Court has noted, these categories are not 

necessarily air-tight. See English v. General Elec. Co., 496 

 14 
U.S. 72, 79 n.5 (1990) ("By referring to these three 

categories, we should not be taken to mean that they are 

rigidly distinct. Indeed, field pre-emption may be 

understood as a species of conflict pre-emption: A state law 

that falls within a pre-empted field conflicts with Congress' 

intent (either express or plainly implied) to exclude state 

regulation."). 

The Copyright Act contains an express preemption 

provision in S 301, which states, in relevant part:

 On and after January 1, 1978, all legal or equitable 

 rights that are equivalent to any of the exclusive rights 

 within the general scope of copyright as specified by 

 section 106 in works of authorship that are fixed in a 

 tangible medium of expression and come within the 

 subject matter of copyright as specified by sections 102 

 and 103, whether created before or after that date and 

 whether published or unpublished, are governed 

 exclusively by this title. Thereafter, no person is 

 entitled to any such right or equivalent right in any 

 such work under the common law or statutes of any 

 State. 

17 U.S.C. S 301(a) (emphasis added). The exclusive rights in 

the copyrighted work granted by the Act are reproduction; 

preparation of derivative works; distribution by sale, rental, 

lease or lending; public performance, in the case of motion 

pictures or audiovisual works; and public display of 

individual images from motion pictures or audiovisual 

works. 17 U.S.C. S 106. 

State laws, whether statutory or common law, are subject 

to express preemption under Copyright Act S 301 only if 

they create rights that are "equivalent" to the exclusive 

rights within the general scope of copyright. See 17 U.S.C. 

S 301(a); see also Ehat v. Tanner, 780 F.2d 876, 878 (10th 

Cir. 1986) (because literary works, including compilations 

and derivative works, are within the subject matter of 

copyright, state common law that purported to protect a 

work for which plaintiff 's copyright action was 

unsuccessful was preempted); 1 Melville B. Nimmer and 

David Nimmer, Nimmer on Copyright S 1.01[B][1] (1998) 

(discussing various state law causes of action). 

 15 
As noted above, conflict preemption may arise either 

because " `compliance with both regulations is a physical 

impossibility' or because the state law `stands as an 

obstacle to the accomplishment and execution of the full 

purposes and objectives of Congress.' " Jones, 430 U.S. at 

525; see also Hines v. Davidowitz, 312 U.S. 52, 67 (1941). 

The purposes and objectives of Congress, which appear in 

the Copyright Act, are to implement a nationally uniform 

system for the creation and protection of rights in a 

copyrighted work. See Goldstein v. California, 412 U.S. 546, 

561 (1973) (turning "to federal copyright law to determine 

what objectives Congress intended to fulfill"). 

An illustration of conflict preemption under the Copyright 

Act is provided by Capital Cities Cable, Inc. v. Crisp, 467 

U.S. 691, 710-11 (1984). That case concerned an Oklahoma 

state law that banned advertising of alcoholic beverages by 

cable operators. However, the Copyright Revision Act of 

1976 established a program of compulsory copyright 

licensing under the regulations of the Federal 

Communications Commission (FCC) pursuant to which a

cable operator could transmit signals out of state upon 

payment of service royalties. The Supreme Court held the 

Oklahoma law preempted, not only because the FCC had 

explicitly preempted the area, but also because the state 

law would destroy or interfere with the exercise of a 

federally created copyright right. Id. at 710-11; see also 1 

Nimmer & Nimmer, supra, S 1.01[B][3]. Cf. Storer Cable 

Communications v. City of Montgomery, 806 F. Supp. 1518, 

1534 (M.D. Ala. 1992) (city ordinance requiring cable 

programming provider to license programs to additional 

entities unconstitutional through either S 301 or conflict 

preemption). 

In this case, Miramax argues both express preemption 

and conflict preemption. In the case before us, we might be 

able to apply both express preemption and conflict 

preemption but because our analysis more closely parallels 

that used in cases applying conflict principles, we proceed 

on that ground. 

In AFD I, in considering the distributors' claim of

preemption we adopted the analytical structure previously 

employed by the Ohio federal courts construing the 

 16 
comparable Ohio statute. AFD I, 683 F.2d at 817. Relying 

on S 301 of the Copyright Act, the Ohio district court posed 

the crucial question as "whether the. . . [motion picture] Act 

creates, grants, or destroys any rights that are `equivalent' 

to the exclusive rights of copyright set forth in 17 U.S.C. 

S 106." Allied Artists Pictures Corp., 496 F. Supp. at 443. 

That court concluded that the Ohio statute did not create 

rights equivalent to those in S 106, and did not deprive the 

distributors of copyright protections. Rather, the statute 

"provid[ed] procedures for the licensing of a film,. . . [and] 

recognize[d] sub silentio the right of the copyright owner to 

exhibit and to grant an exclusive or restrictive license to 

others to exhibit it." Id. 

In the same opinion, the Ohio court also rejected the 

argument that the Ohio statute stood as an obstacle to the 

federally protected copyright (i.e., conflict preemption), 

because it viewed the challenged provisions -- a limit on 

guarantees, a prohibition on negotiations following

unsuccessful bidding, a process for bidding with a 

concomitant ban on blind bidding, and a requirement for a 

trade screening -- as regulating market practices, rather 

than the copyright itself. For example, the court observed, 

the exclusive rights conveyed by a copyright did not 

authorize a copyright owner to engage in anti-competitive 

practices in violation of antitrust laws or in fraudulent or 

deceptive practices. Id. at 447 (citing, inter alia, United 

States v. Paramount Pictures, Inc., 334 U.S. 131, 156-57 

(1948), and Mariniello v. Shell Oil Co., 511 F.2d 853 (3d Cir. 

1975)). Instead, the Ohio statute regulated distributors "in 

order to achieve fair and open bargaining," just as other 

state market regulations did. Id. 

The distribution of motion pictures has been the subject 

of attention since at least the 1940s when the Department 

of Justice filed antitrust suits attacking certain practices 

prevailing within the industry. See generally United States 

v. Paramount Pictures, Inc., 334 U.S. 131 (1948) (requiring 

distributors to divest ownership of exhibition theaters). 

Again, in 1968 the effort of the Department of Justice to 

correct certain distributors' business practices resulted in 

stipulations in effect from 1969 to 1975 which restricted 

the number of blind-bidding films placed on the market by 

 17 
any single distributor. See Allied Artists Pictures Corp., 496 

F. Supp. at 417 & n.6; Patrick McNamara, "Copyright

Preemption: Effecting the Analysis Prescribed by Section 

301," 24 Boston College L. Rev. 963, 990 (1983) (citing 

United States v. Paramount Pictures, Civ. Action 87-273 

(S.D.N.Y. Aug. 14, 1968)).3 

The exhibitors and their trade association then lobbied 

state legislatures to adopt laws that prohibited blind 

bidding, and nearly half the states did so between 1978 

through 1983. See Kathy Herman, Comment, "Anti-Blind 

Bidding Legislation in the Motion Picture Industry:

Associated Film Distribution Corp. v. Thornburgh," 5 J. L. & 

Com. 293, 299 (1984). 

The Pennsylvania Act is one of the most comprehensive 

of the regulatory statutes enacted in that period. See 

Associated Film Distrib., 520 F. Supp. at 979 (describing 

Pennsylvania's Act as "more comprehensive" than "Ohio's 

comparatively limited regulation"); see also Herman, supra, 

5 J. L. & Com. at 304. Its provisions prohibiting blind 

bidding, prohibiting advances, and limiting minimum

guarantees are comparable to regulation by other states of 

several aspects of the licensing and distribution practices 

for exhibition of films, and Miramax does not challenge 

those regulatory provisions before us. 

The legislative findings and purposes included in the 

Pennsylvania Act set forth a litany of the unfair market 

practices it sought to prevent or ameliorate.4 One of the 

most egregious practices was that of blind bidding: the 

marketing and licensing of a film prior to its completion 

and without offering exhibitors a chance to trade screen the 

_________________________________________________________________ 

3. In the mid-1980s, the Department of Justice also proceeded against 

improper market practices by theater exhibitors themselves. See 

generally Stanley I. Ornstein, "Motion Picture Distribution, Film 

Splitting, and Antitrust Policy," 17 Hastings Comm. & Ent. L. J. 415 

(1995). 

4. These legislative concerns included, inter alia, undue control of 

exhibitors; restraint, destruction, or inhibition of fair and honest 

competition; unfair and deceptive acts or practices; and withholding full 

information regarding prospective motion picture purchases or rentals in 

a blind-bidding process. See 73 Pa. Cons. Stat. S 203-3. 

 18 
final product. As a result, distributors could make

deceptive claims regarding films offered for bidding. See 

Associated Film Distrib., 614 F. Supp. at 1107 (discussing 

the distributors' practice of promoting films based on 

multiple screen stars who had only cameo roles or who 

were never seen together in a single scene); see also Allied 

Artists Pictures, 496 F. Supp. at 429-30 (describing 

information from distributors as "scant and sometimes 

misleading"). The Pennsylvania Act prohibits this practice. 

See 73 Pa. Cons. St. Ann. SS 203-4, -8(b); see also Ohio 

Rev. Code Ann. S 1333.06(A). 

Closely tied to the problem of blind bidding was the 

unfairness in the bidding process itself which occurred 

when distributors would unseal closed bids in collusion 

with a favored exhibitor (the use of "five o'clock looks") in 

order to enable the exhibitor to offer a sufficiently high bid 

to obtain the film. See Associated Film Distrib., 614 F. 

Supp. at 1112 ("Collusion between favorites often controlled 

the bidding for pictures."); Allied Artists Pictures, 496 F. 

Supp. at 430. There was even talk that some distributors 

simply disregarded all the bids and awarded a license to a 

favored exhibitor. See id. 

To curtail these practices, the Pennsylvania Act requires 

that distributors issue invitations to bid that contain, in 

addition to the usual information, the names of all

exhibitors invited to bid, and the day, time, and location for 

bid opening. See 73 Pa. Cons. St. Ann. S 203-8(a)-(c); see 

also Ohio Rev. Code Ann. S 1333.07(A)-(D). Both the

Pennsylvania and the Ohio laws also require that exhibitors 

be able to examine all the bids. See 73 Pa. Cons. St. S 203- 

8(d); Ohio Rev. Code Ann. S 1333.07(E).5 

Another industry practice that Pennsylvania considered 

ripe for reform was the use of minimum guarantees and 

advances, see Associated Film Distrib., 614 F. Supp. at 

1109-10, which shifted the risks of unsuccessful 

_________________________________________________________________ 

5. In Associated Film Distributors, the District Court observed that the 

Pennsylvania Act "permits oral bid solicitation and oral bids." 614 F. 

Supp. at 1112. Although the Act does not expressly permit an oral 

invitation to bid and bidding process, neither does it expressly prohibit 

either action. 

 19 
exhibitions from distributors to exhibitors, who were 

required to pay fixed sums in advance of showing. See 

Allied Artists Pictures, 496 F. Supp. at 418. The provisions 

of the Pennsylvania Act directed to this practice prohibit 

minimum guarantee payments if there is also "a fee or 

other payment . . . based in whole or in part on the 

attendance or box office receipts," 73 Pa. Cons. St. S 203-5; 

see also Ohio Rev. Code Ann. S 1333.06(B), and prohibit 

advance payments in contracts for exhibition. See 73 Pa. 

Cons. St. S 203-6. But see Ohio Rev. Code Ann. 

S 1333.06(C) (allowing advances but prohibiting 

requirement of payment more than fourteen days before 

theater's first exhibition). 

In AFD II, we recognized that statutes that bar exaction 

of advances from exhibitors, limit guarantees, and regulate 

the bidding and negotiation process may keep a distributor 

from achieving the optimal monetary return for the film. 

See AFD II, 800 F.2d at 376 (citing AFD I, 683 F.2d at 816 

(quoting Allied Artists Pictures, 679 F.2d at 662-63)). 

Nonetheless, we concluded that a reasonable government 

regulation that seeks to remedy problems caused by the 

economic disparity that impedes fairness in bargaining and 

honesty in business dealings is not impermissible merely 

because it has an economic effect on those regulated. 

These regulations do not create a preemption issue 

because they only "touch copyrighted works indirectly." 1 

Nimmer & Nimmer, supra, S 1.01[B][3][c] at 1-65. However, 

a state regulatory scheme that is "copyright-based in 

essence" presents a different matter. See id. The 42-day 

exclusive first-run license limitation in section 203-7 of the 

Pennsylvania Act is a distinctly different regulation from 

those within the state's power over improper market

practices. If the state's ban on exclusivity after forty-two 

days directly regulates a right that is protected by federal 

copyright law, it must, of necessity, be preempted under 

conflict preemption principles. 

Among the "exclusive rights" granted underS 106 in the 

Copyright Act are the rights to "distribute" and to "perform 

the copyrighted work publicly." However, section 203-7 

requires the distributor to expand its distribution after 

forty-two days by licensing another exhibitor in the same 

 20 
geographic area, even if such expansion is involuntary. A 

distributor who exercises its federal right to grant an 

exclusive license to an exhibitor of choice will be subject to 

liability under the Pennsylvania Act for refusing to grant 

licenses to other exhibitors in the same geographic area 

after the forty-second day. It is evident that the 

Pennsylvania Act regulates the essence of the federally 

protected copyright. 

That a copyright encompasses the right to refuse to

license was reiterated by the Supreme Court in a decision 

post-dating AFD I and AFD II, which stated that the

Copyright Act grants a copyright owner "the capacity 

arbitrarily to refuse to license one who seeks to exploit the 

work." Stewart v. Abend, 495 U.S. 207, 228-29 (1990) 

(citing Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932)); 

see also Schnapper v. Foley, 667 F.2d 102, 114 (1981) 

(vesting "the liberty not to license rights in his work"); 

Lawlor v. National Screen Serv. Corp., 270 F.2d 146, 154 

(3d Cir. 1959) (recognizing corollary right under copyright 

law to exclude others under licensing right). 

In Storer Cable, 806 F. Supp. 1518, the court considered 

a challenge to a local ordinance that raised a presumption 

that cable programmers who entered into exclusive licenses 

for the broadcast of their programming were engaging in 

proscribed conduct. Although the city defended the 

ordinance as a legitimate antitrust and pro-competition 

regulation, the court held it was preempted because "a 

presumption that exclusive licensing contracts are illegal is 

. . . not amenable to any saving construction." Id. at 1540. 

The court noted that "[a] party who holds a copyright for 

cable programming and who does no more than grant 

another an exclusive distribution or exhibition license is 

then in automatic jeopardy of liability as a result of these 

sections, as is the licensee." Id. at 1539. 

Orson argues that once a copyright holder, such as 

Miramax, makes an initial distribution, a state is free to 

regulate the manner in which the work is thereafter

distributed. We reject Orson's contention. In College 

Entrance Examination Board v. Pataki, 889 F. Supp. 554 

(N.D.N.Y. 1995), the court addressed a New York State law 

that required the owners of copyrights in certain 

 21 
standardized tests, which were used, inter alia, for graduate 

school admissions, to file copies of those tests with the 

State after they were administered. The court held that the 

New York law improperly interfered with the copyright 

holders' rights under S 106 because it required 

reproduction and distribution of the copyrighted tests in 

the face of the owners' desire not to do so. 

Applying a similar analysis in this case, we note that 

Congress determined that the copyright holder should be 

granted exclusive rights under S 106, albeit for a limited 

period. Although a State regulation falling within the 

federally established exceptions to those rights, such as fair 

use, see 17 U.S.C. S 107, may obligate a copyright holder to 

change its practices to accommodate such uses, see, e.g., 

Association of Am. Med. Colleges v. Carey, 928 F.2d 519, 

525-26 (2d Cir. 1991) (remanding to district court to make 

factual findings on whether existing State law constitutes 

fair use), the parties here have not suggested, nor can we 

conclude, that the regulation enacted through section 203- 

7 falls within one of the Copyright Act's exceptions. 

Rather, the Pennsylvania Act, like the New York law

regulating standardized tests, would impose on copyright 

holders, contrary to their exclusive rights underS 106, an 

obligation to distribute and make available other copies of 

the work following their initial decision to publish and 

distribute copies of the copyrighted item. Although it is 

true, as Orson points out, that the examiners in Association 

of American Medical Colleges and in College Entrance 

engaged in extensive efforts to prevent disclosure of their 

tests, see Appellee Br. at 17 n.10, this factor does not 

change the fundamental principle that these cases offer: 

the State may not mandate distribution and reproduction of 

a copyrighted work in the face of the exclusive rights to 

distribution granted under S 106. 

Even Orson's own quotation of Warner Bros., Inc v. 

Wilkinson, 533 F. Supp. 105 (D. Utah 1981), appeal 

dismissed and case remanded, 782 F.2d 136 (10th Cir. 

1985), another federal decision discussing an anti-blind 

bidding statute, supports our distinction between 

regulations that are designed to assure a fair market and 

honest business dealings and those that direct a copyright 

 22 
holder to distribute and license against its will or interests. 

That court stated, 

 The right to transfer or license copyrighted material for 

 use by others under sections 106 and 201 et seq. of 

 the Copyright Act has never encompassed a right to 

 transfer the work at all times and at all places free and 

 clear of all regulation; it has meant that the copyright 

 owner has the exclusive right to transfer the material 

 for a consideration to others. 

533 F. Supp. at 108 (emphasis added). Nothing in that 

quotation detracts from the copyright owner's exclusive 

federal right to decide to whom it will transfer the work. 

Moreover, the language from the same paragraph serves to 

support precisely the point made herein; as the Warner 

Bros. court stated, "No one has appropriated a product 

protected by the copyright law for commercial exploitation 

against the copyright owner's wishes." Id. at 108 (emphasis 

added). 

Unlike the provisions in the Pennsylvania Act that are 

directed to market practices that have no counterpart in 

the Copyright law, section 203-7 conflicts with the

Copyright Act's grant to the copyright holder of an exclusive 

right to distribute and license a work, and it therefore 

follows that it is preempted. 

V. 

CONCLUSION 

In conclusion, we hold that because S 203-7 of the 

Pennsylvania Feature Motion Picture Fair Business 

Practices Law "stands as an obstacle" to the federally 

created exclusive rights given to a copyright holder, namely, 

the exclusive right to distribute the copyrighted work, it is 

preempted by the federal Copyright Act. Our dictum in AFD 

I that section 203-7 "may have a greater impact upon [a 

distributor's] copyright rights," AFD I, 683 F.2d at 816, was 

prescient.6 

_________________________________________________________________ 

6. In light of our conclusion, we need not address Miramax's objections 

to the trial proceedings. 

 23 
For the reasons set forth above, we will reverse the 

decision of the District Court denying Miramax's Motion for 

Judgment as a Matter of Law and directing entry of 

judgment for Miramax. 

 24 
ALITO, Circuit Judge, dissenting: 

The court makes a strong argument that Section 203-7 of 

the Pennsylvania Feature Motion Picture Fair Business 

Practices Law, 78 Pa. Cons. Stat. S 203-7 (the 

"Pennsylvania Act"), is invalid on its face under principles 

of conflict preemption, but I believe that this argument is 

foreclosed by the panel decision in Associated Film

Distribution Corporation v. Thornburgh, 683 F.2d 808, 816- 

17 (3d Cir. 1982) ("AFD I"). In my view, Judge Sloviter, 

writing for the Court, interpreted AFD I correctly in 

Associated Film Distribution v. Thornburgh, 800 F.2d 369 

(3d Cir. 1986) ("AFD II"), when she wrote: 

 [T]he earlier decision of this court [" AFD I"] conclusively 

 established that the Pennsylvania Act was not facially 

 preempted by the Copyright Act. At the same time, we 

 recognized that in actual operation the Act might 

 prevent or interfere with the goals of the Copyright Act 

 and remanded for a factual determination by the 

 district court of the Act's actual impact on federally 

 created rights. 

Id. at 375-76. Specifically addressing the 42-day provision, 

Judge Sloviter wrote: 

 There may be merit to the distributors' argument that 

 the 42-day provision, when construed as limiting the 

 distributors' right to license an exclusive run to 42 

 days, is preempted by the Copyright Act. However, 

 such preemption would be apparent on the face of the 

 statute and cannot be reconciled with the court's 

 earlier decision that the Act is not facially invalid under 

 the Copyright Act. . . . [W]e are bound to that position. 

Id. at 377. 

In a footnote, she added: 

 The writer of this opinion believes that the 42-day 

 clause is inconsistent with the Copyright Act. The 

 Copyright Act gives the owner of a copyright the 

 exclusive right to distribute copies of the copyrighted 

 work by rental, lease, or lending. 17 U.S.C. S 106(3); 

 see also M. Nimmer, Nimmer on Copyright S 8.11 at 8- 

 115 (1985). That right encompasses the grant of an 

 25 
 exclusive license for a period as long as the copyright 

 owner desires within the term of the copyright. 

 Nonetheless, she feels compelled to join her colleagues 

 in affirming the district court decision because Internal 

 Operating Procedure 8C of this court [now IOP 9.1] 

 binds subsequent panels to reported panel opinions. 

 Court in banc consideration is required to overrule a 

 published opinion. 

Id. at 377 n.3. 

I also agree with the way AFD I was interpreted in the 

earlier appeal in this case. In Orson, Inc. v. Miramax Film, 

Corp., 79 F.3d 1358, 1373 n.14 ( 3d Cir. 1996), the panel 

stated: 

 [W]e have already rejected a facial challenge to Section 

 203-7 under the Copyright Act, holding that "the Act 

 on its face contains no threat to copyrights themselves 

 . . . ." Associated Film Distribution Corp. v. Thornburgh, 

 683 F.2d 808, 816 (3d Cir. 1982), cert. denied, 480 

 U.S. 933, 107 S. Ct. 1573, 94 L.Ed. 2d 765 (1987); see 

 Associated Film Distribution Corp. v. Thornburgh, 800 

 F.2d 369, 377 (3d Cir. 1986), cert. denied, 480 U.S. 

 933, 107 S. Ct. 1573, 94 L.Ed. 2d 765 (1987) . . . . 

While I entirely agree with the court that we are not 

constrained to follow dicta in prior opinions, I cannot 

reconcile the court's holding in this case with the holding of 

the prior panel in AFD I. The court's reinterpretation of AFD 

I is an innovative tour de force, but in the end I find it 

unconvincing. Accordingly, I respectfully dissent. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 26