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. e du/thir dc ir c uit_1999/111Filed 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 AppellantPaul 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, sub ject 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 ot her transfer of ownership, or by rental, lease, or lendin g; [and]

(4) in the case of literary, musical, dramat ic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to per form 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 e quitable rights that are equivalent to any of the exc lusive rights within the general scope of copyright as spe cified by section 106 . . . are governed exclusively b y this title.

2Thereafter, no person is entitled to any suc h 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 Pi cture Fair Business Practices Law (the "Pennsylvania Act" ) provides that:

No license agreement shall be entered into b etween distributor and exhibitor to grant an exclus ivefirst 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 av ailable by the distributor to those subsequent run thea tres 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 Di strict Court's failure to overturn a jury's award of damag es of $159,780 to plaintiff Orson, Inc., the owner of a C enter City Philadelphia (referred to as "Center City") movie t heater, for Miramax's violation of section 203-7 of the Pennsyl vania Act by entering into an exclusive first-run exhibit ion agreement for more than forty-two days with another Center City theater. See Orson, Inc. v. Miramax Fil m Corp., 983 F. Supp. 624 (E.D. Pa. 1997). Miramax argues fo r reversal on the ground, inter alia, that the Pennsy lvania Act is preempted because it interferes with a copyright holder's authority to exercise its exclusive rights to licen se 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 a nd that we are bound to reject Miramax's preemption argumen t by the law of the case doctrine and our own binding pr ecedent.

3II.

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 o f summary judgment in favor of Miramax. See Orson, In c. v. Miramax Film Corp., 79 F.3d 1358 (3d Cir. 1996) ("O rson 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" ot her than as we previously did by contrasting them with "movi es that may be characterized as `commercial' or `mainstream .' " Id. at 1362. Only a limited number of theaters in any a rea exhibit art films. Orson showed primarily second-ru n art films from January 1992 through October 1994 throug h the Roxy Screening Rooms, a Center City movie theat er with two screens. The first runs of Miramax's art f ilms were shown in Center City at the Ritz Theaters, a pair o f theaters with five screens each, the Ritz Five and the Ritz at the Bourse (collectively, the "Ritz"). During its two a nd one-half years of operation by Orson, the Roxy received only one first-run movie from Miramax, and rarely received s econdrun movies after the forty-second day of play at th e Ritz, despite repeated requests.

In August 1993, Orson filed suit against Miramax, charging that Miramax's distribution of films, spec ifically in its dealings with the Ritz, violated the Sherman Ac t, the Pennsylvania common law tort of unreasonable restra int of trade, and section 203-7 of the Pennsylvania Act. T he District Court granted Miramax's motion for summary judgment as to both Orson's federal and state antit rust claims. It also granted summary judgment to Miramax as to Orson's claim under section 203-7 of the Pennsylvan ia Act

for nine of the fifteen films at issue because it c onstrued that provision as satisfied by Miramax's expansion of the

distribution of those films to suburban theaters be fore the forty-third day of their runs at the Ritz; by agree ment of the

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

the six remaining films. Orson, Inc. v. Miramax Fil m Corp., 862 F. Supp. 1378 (E.D. Pa. 1994). Orson appealed.

This court affirmed the grant of summary judgment t o Miramax on the antitrust claim and the restraint of trade claim. Orson I, 79 F.3d at 1358. The principal port ion 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. W e concluded that "Orson failed to present sufficient evidence t o 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 Mira max 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 distribu tor, such as Miramax, expand the run of the film after f orty-two days to other theaters in the "geographical area" t o 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 relevan t 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 violate d 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 Mira max's post-trial motions. The court held that Orson had p resented

sufficient evidence to establish that Miramax had c aused the injury, that Miramax acted willfully and intent ionally, 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 d ecided the question of the facial validity of the Pennsylv ania Act;

5moreover, those same precedents "effectively forecl osed" 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 a s applied, that the finding of willful and intentional violati on is erroneous as a matter of law, and that there was no evidence to support the assumption that the Roxy (O rson'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 Judgmen t as a Matter of Law and apply the same standards as the district court. See Lightning Lube, Inc. v. Witco C orp., 4 F.3d 1153, 1166 (3d Cir. 1993). Where the issue involves purely a question of law, such as federal preemption, we r eview the decision of the district court de novo. See Esp inal v. Northwest Airlines, 90 F.3d 1452, 1455 (9th Cir. 19 96). 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 dec isions.

A. Law of the Case

Orson's reliance on the law of the case doctrine ne ed not detain us long. This doctrine precludes a court fro m reconsidering "issues previously resolved by an ear lier 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 a n appellate court decides a legal issue, that decisio n 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 a ppeal [and] to issues decided by necessary implication." Miramax argues that there was no such discussion the first time this

case was before us.

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

footnote in Orson I stating that this court had alr eady rejected a facial preemption challenge to section 2 03-7. See 79 F.3d at 1373 n.14. However, an examination of Or son I shows plainly that it did not resolve the legal iss ues 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 ju dgment to Miramax in Orson's suit alleging that Miramax vi olated 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 con sidered 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 r equire expansion after forty-two days in Center City, we r emanded for further proceedings because the summary judgmen t record was either "disputed or incomplete in critic al respects." Id. at 1374.

There is no indication in the opinion that we focus ed on the possibility that we could have avoided the rema nd if we had decided that the Copyright Act preempted sectio n 203- 7. At most, we rather summarily read our prior case law regarding section 203-7 as having decided that issu e. We noted Miramax's contention that the federal Copyrig ht Act would preempt section 203-7 if the Act "were interp reted this way," id. at 1373 n.14, but because we believe d that we had previously rejected a facial challenge on th at ground in two prior cases, see Associated Film Distrib. Co rp. 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 furt her. Orson I, 79 F.3d at 1373 n.14. Therefore, because t he preemption issue was neither actually discussed nor necessarily decided by implication in Orson I -- th e only prior decision to which the law of the case doctrin e might arguably apply -- we hold that doctrine inapplicabl e here.

Therefore, we turn to consider Orson's argument tha t our precedents on the preemption issue now foreclose ou r review of Miramax's preemption claim.

7B. Third Circuit IOP 9.1

Orson argues that this court decided in AFD I that section 203-7 was not preempted by the federal Copy right Act, and that therefore we are bound to that decisi on by our Internal Operating Procedure ("IOP") 9.1.1 That IOP

reflects this court's commitment to "maintain a con sistent body of circuit jurisprudence." A.C.L.U. of New Jer sey 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 comprehen sively regulates several aspects of the licensing, distrib ution, and exhibition of films. It requires blind bidding by t heaters, outlines specific procedures for that bidding, proh ibits 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 licen se agreement between a distributor and an exhibitor ca n grant an exclusive first run for more than forty-two days without provision to expand the run to second-run or subseq uentrun theatres within the geographical area. See 73 P a. Cons. Stat. S 203-7. Finally, the Act creates private cau ses of action by exhibitors against distributors for viola tions 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 pro ducers, filed a motion for declaratory judgment in the Unit ed States District Court for the Eastern District of Pennsylv ania challenging the entire statutory scheme on various grounds. The District Court granted summary judgmen t 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 b oth the First Amendment by indirectly restraining dissemina tion of protected expression, id. at 991, and the Supremacy Clause

___________________________________________________ ______________

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

a panel in a reported opinion is binding on subsequen t panels. Thus, no subsequent panel overrules the holding in a publish ed opinion of a previous panel. Court in banc consideration is requ ired to do so."

8because it was preempted by the federal Copyright A ct. Id.

at 995-96.

In reaching the latter conclusion, the district cou rt held that certain provisions of the Pennsylvania Act, su ch as those prohibiting advances, prohibiting guarantees in percentage leases, requiring advance screenings, an d requiring certain bidding procedures, interfered wi th the essence of the copyright grant because the provisio ns "substantially restrict the conditions under which a copyright holder may distribute and license its wor k." Id. at 994. The district court recognized that an Ohio dis trict 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 dist rict court in AFD I, emphasizing the differences between the Pennsylvania and Ohio laws, viewed the Pennsylvania Act's "broad and comprehensive regulation" to conflict wi th the federal objectives of the Copyright Act. 520 F. Sup p. at 995. The court also concluded that the requirement in se ction 203-7, requiring that "[a]fter 42 days thefilm must be reoffered for licensing and the run must be `expand ed,' " interfered with the copyright holder's freedom to l icense. Id.

at 994-95.

On appeal, this court reversed. AFD I, 683 F.2d at 817. In our discussion, we relied essentially on the ana lysis detailed both in the Ohio district court opinion re viewing 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). Wit h respect to the First and Fourteenth Amendment claim s,2 we quoted extensively from the Ohio district court opi nion, which had rejected the First Amendment challenge, b ut we stated that because the trial court here had grante d summary judgment, it was not able to evaluate the a ctual impact of the Act, if any, on First Amendment value s, it

___________________________________________________ ______________

2. Although the District Court's opinion referred e xclusively to the First Amendment, it is established that the Fourteenth Am endment 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).

9could 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 w eight of the state's concerns. AFD I, 683 F.2d at 813-14. Accordingly, we remanded the case so that the distr ict court could apply the standards articulated in the Ohio cases to the Pennsylvania Act.

We also decided that the court should not have gran ted 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, whic h had rejected the similar contentions made there. Id. at 816.

It is significant (and overlooked in our prior opin ions) 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 t he licensing of a film, the Act recognizes sub silenti o the right of the copyright owner to exhibit the motion pictur e 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 conc luded

that the trial court should not have reached its de cision on summary judgment, and we remanded the preemption issue, noting that although the Act on its face con tains no threat to the copyrights themselves:

The question of whether and to what extent t he Pennsylvania Act interferes with attaining t he "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 st atute sub silentio recognized the copyright owner's right to grant

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

opinion in AFD I quoted that language about the cop yright owner's right to grant an exclusive license to exhi bit the

film.

As the foregoing discussion makes clear, at most AF D I remanded the legal decision with respect to the 42- day rule, along with the provisions of the Act that we actual ly discussed in the opinion, so the district court cou ld determine "whether and to what extent the Pennsylva nia Act interferes with attaining the `purposes and obj ectives of Congress.' " Id. at 816. That we did not decide the preemption issue is evident from the statement in t he same sentence that this question "is one which must be r esolved before the trial court can decide, as a matter of l aw, whether the interference (if any) is such as to req uire invalidation of all or part of the Pennsylvania Act on preemption grounds." Id. (emphasis added). If we ha d decided the copyright preemption issue as a matter of law,

there would have been no reason to remand for the t rial court to decide the same preemption issue as a matt er of law. Indeed, the most direct statement in AFD I re garding section 203-7 -- "particularly with regard to the 4 2-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 analy zed 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 compar able 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 construc tion 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 reoffer ed for licensing, and the run must be `expanded.' "); Asso ciated Film Distrib., 614 F. Supp. at 1123-24 ("The statut e does

11not prevent distributors from contracting for runs longer

than six weeks. . . . The statute also does not pre vent a distributor from entering into a series of exclusiv e licenses with exhibitors as long as each license does not ex ceed 42 days."); Orson, Inc., 862 F. Supp. at 1387 (Require ment for expansion after 42 days satisfied because several o f the films under consideration " `expanded' to other Phi ladelphia area theaters, outside of Center City Philadelphia, before the 42-day period expired."). It was not until we r eversed

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 a nd uncertain meaning of the statutory language. See, e .g., Associated Film Distrib., 614 F. Supp. at 1111 ("th is 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 reading s). It would be stretching for us to hold IOP 9.1 applicab le in these circumstances. See, e.g., Connors v. Beth Ene rgy 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 int o the same error regarding the precedential effect of AFD I in two later decisions. After the remand in AFD I, the dis trict court, after a six-week bench trial, issued its Fin dings of Fact and Conclusions of Law in which it upheld the constitutionality of the Pennsylvania Act against a ll challenges. See Associated Film Distrib., 614 F. Su pp. 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 Copyr ight Act. We rejected the distributors' claims, and affi rmed. 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

12Pennsylvania Act was not facially preempted by the

Copyright Act," AFD II, 800 F.2d at 375, and constr ued 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 righ ts. Id. at

376. We noted that the distributors contended that "the limitation on the length of exclusive runs to 42 da ys interferes with the copyright owner's right to lice nse exclusively for the life of the copyright," id., an d we disagreed with the district court's construction of this provision to mean that the Act "permitt[ed] a distr ibutor 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 doi ng so, we reiterated that the language required the distribut or " `to expand the run to second run or subsequent run thea tres within the geographical area.' " Id. at 377 (quotin g 73 P.S. S 203-7) (emphasis in opinion). Thus, although we r ejected 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 preempt ion issue raised by the distributors but believed our p rior opinion in AFD I decided the Pennsylvania Act is no t facially invalid. Id. at 377. The writer of that op inion (coincidentally the writer of this opinion) opined that "the 42-day clause is inconsistent with the Copyright Ac t," id. at 377 n.3, but also believed we were bound by our pri or opinion.

As we have demonstrated above, we did not decide th e issue whether the 42-day rule is preempted by the Copyright Act in AFD I. This writer concedes she er red in so stating in AFD II. As has been said and oft-repeate d, "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) (Frankfurte r, 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. A nd, as we explained earlier in this opinion, in Orson I we relied on

the statement in AFD II that the issue had been dec ided in

AFD I.

13Accordingly, we believe that Orson is incorrect in arguing

that the issue of the preemption of section 203-7 a s 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 whic h federal law may preempt, and thereby displace, stat e law: (1) "express preemption," (2) "field preemption" (w hich 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. 19 0, 204 (1983); International Paper Co. v. Ouellette, 4 79 U.S. 481, 491 (1987). Express preemption arises when the re is an explicit statutory command that state law be dis placed. See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 382 (1992). An example of express preemption can be fou nd in the subsection of the Employee Retirement Income Se curity Act of 1974, stating that the provisions of that Ac t "shall supersede any and all State laws insofar as they ma y now or hereafter relate to any employee benefit plan." 29 U.S.C. S 1144(a).

Under field- or implied-preemption principles, stat e law may be displaced "if federal law so thoroughly occu pies a legislative field as to make reasonable the inferen ce 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 situation s: 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 Co ngress," 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

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

categories, we should not be taken to mean that the y 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 exclu de 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 e quitable rights that are equivalent to any of the exc lusive rights within the general scope of copyright as spe cified by section 106 in works of authorship that are fixed in a tangible medium of expression and come withi n the subject matter of copyright as specified by sections 102 and 103, whether created before or after tha t date and whether published or unpublished, are govern ed exclusively by this title. Thereafter, no pe rson is entitled to any such right or equivalent rig ht in any

such work under the common law or statutes o f any

State.

17 U.S.C. S 301(a) (emphasis added). The exclusive rights in the copyrighted work granted by the Act are reprodu ction; preparation of derivative works; distribution by sa le, rental, lease or lending; public performance, in the case o f motion pictures or audiovisual works; and public display o f individual images from motion pictures or audiovisu al

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

State laws, whether statutory or common law, are su bject to express preemption under Copyright Act S 301 onl y if they create rights that are "equivalent" to the exc lusive rights within the general scope of copyright. See 1 7 U.S.C. S 301(a); see also Ehat v. Tanner, 780 F.2d 876, 87 8 (10th Cir. 1986) (because literary works, including compi lations and derivative works, are within the subject matter of copyright, state common law that purported to prote ct a work for which plaintiff 's copyright action was unsuccessful was preempted); 1 Melville B. Nimmer a nd David Nimmer, Nimmer on Copyright S 1.01[B][1] (199 8) (discussing various state law causes of action).

15As noted above, conflict preemption may arise eithe r

because " `compliance with both regulations is a ph ysical 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 appe ar in the Copyright Act, are to implement a nationally un iform 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 de termine what objectives Congress intended to fulfill").

An illustration of conflict preemption under the Co pyright Act is provided by Capital Cities Cable, Inc. v. Cr isp, 467 U.S. 691, 710-11 (1984). That case concerned an Okl ahoma state law that banned advertising of alcoholic beve rages by cable operators. However, the Copyright Revision Ac t 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 hel d the Oklahoma law preempted, not only because the FCC ha d 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; s ee also 1 Nimmer & Nimmer, supra, S 1.01[B][3]. Cf. Storer Ca ble Communications v. City of Montgomery, 806 F. Supp. 1518, 1534 (M.D. Ala. 1992) (city ordinance requiring cab le programming provider to license programs to additio nal entities unconstitutional through either S 301 or c onflict preemption).

In this case, Miramax argues both express preemptio n 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 pa rallels 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 prev iously employed by the Ohio federal courts construing the

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

on S 301 of the Copyright Act, the Ohio district co urt posed the crucial question as "whether the. . . [motion p icture] Act creates, grants, or destroys any rights that are `e quivalent' to the exclusive rights of copyright set forth in 1 7 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 de prive 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 copyrigh t owner to exhibit and to grant an exclusive or restrictive li cense to

others to exhibit it." Id.

In the same opinion, the Ohio court also rejected t he argument that the Ohio statute stood as an obstacle to the federally protected copyright (i.e., conflict preem ption), because it viewed the challenged provisions -- a li mit 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 o bserved, the exclusive rights conveyed by a copyright did no t authorize a copyright owner to engage in anti-compe titive practices in violation of antitrust laws or in frau dulent or deceptive practices. Id. at 447 (citing, inter alia , United States v. Paramount Pictures, Inc., 334 U.S. 131, 1 56-57 (1948), and Mariniello v. Shell Oil Co., 511 F.2d 8 53 (3d Cir. 1975)). Instead, the Ohio statute regulated distrib utors "in order to achieve fair and open bargaining," just as other state market regulations did. Id.

The distribution of motion pictures has been the su bject of attention since at least the 1940s when the Depa rtment of Justice filed antitrust suits attacking certain practices prevailing within the industry. See generally Unite d States v. Paramount Pictures, Inc., 334 U.S. 131 (1948) (r equiring distributors to divest ownership of exhibition thea ters). Again, in 1968 the effort of the Department of Just ice to correct certain distributors' business practices re sulted in stipulations in effect from 1969 to 1975 which rest ricted the number of blind-bidding films placed on the mar ket by

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

F. Supp. at 417 & n.6; Patrick McNamara, "Copyright Preemption: Effecting the Analysis Prescribed by Se ction 301," 24 Boston College L. Rev. 963, 990 (1983) (ci ting United States v. Paramount Pictures, Civ. Action 87 -273 (S.D.N.Y. Aug. 14, 1968)).3

The exhibitors and their trade association then lob bied state legislatures to adopt laws that prohibited bl ind bidding, and nearly half the states did so between 1978 through 1983. See Kathy Herman, Comment, "Anti-Blin d 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 comprehensi ve of the regulatory statutes enacted in that period. See Associated Film Distrib., 520 F. Supp. at 979 (desc ribing Pennsylvania's Act as "more comprehensive" than "Oh io's comparatively limited regulation"); see also Herman , supra, 5 J. L. & Com. at 304. Its provisions prohibiting b lind bidding, prohibiting advances, and limiting minimum guarantees are comparable to regulation by other st ates of several aspects of the licensing and distribution p ractices for exhibition of films, and Miramax does not chall enge those regulatory provisions before us.

The legislative findings and purposes included in t he Pennsylvania Act set forth a litany of the unfair m arket 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 comp letion and without offering exhibitors a chance to trade s creen the

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3. In the mid-1980s, the Department of Justice also proceeded against improper market practices by theater exhibitors the mselves. See generally Stanley I. Ornstein, "Motion Picture Dist ribution, 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 o f fair and honest competition; unfair and deceptive acts or practices ; and withholding full information regarding prospective motion picture pu rchases or rentals in a blind-bidding process. See 73 Pa. Cons. Stat. S 2 03-3.

18final product. As a result, distributors could make

deceptive claims regarding films offered for biddin g. See Associated Film Distrib., 614 F. Supp. at 1107 (dis cussing the distributors' practice of promoting films based on multiple screen stars who had only cameo roles or w ho were never seen together in a single scene); see al so Allied Artists Pictures, 496 F. Supp. at 429-30 (describin g information from distributors as "scant and sometim es misleading"). The Pennsylvania Act prohibits this p ractice. 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 th e unfairness in the bidding process itself which occu rred

when distributors would unseal closed bids in collu sion with a favored exhibitor (the use of "five o'clock looks") in

order to enable the exhibitor to offer a sufficient ly high bid to obtain the film. See Associated Film Distrib., 6 14 F. Supp. at 1112 ("Collusion between favorites often c ontrolled the bidding for pictures."); Allied Artists Picture s, 496 F. Supp. at 430. There was even talk that some distrib utors simply disregarded all the bids and awarded a licen se to a

favored exhibitor. See id.

To curtail these practices, the Pennsylvania Act re quires

that distributors issue invitations to bid that con tain, in addition to the usual information, the names of all exhibitors invited to bid, and the day, time, and l ocation 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 ex hibitors

be able to examine all the bids. See 73 Pa. Cons. S t. S 203- 8(d); Ohio Rev. Code Ann. S 1333.07(E).5

Another industry practice that Pennsylvania conside red ripe for reform was the use of minimum guarantees a nd advances, see Associated Film Distrib., 614 F. Supp . at 1109-10, which shifted the risks of unsuccessful

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5. In Associated Film Distributors, the District Co urt 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.

19exhibitions from distributors to exhibitors, who we re

required to pay fixed sums in advance of showing. S ee Allied Artists Pictures, 496 F. Supp. at 418. The p rovisions of the Pennsylvania Act directed to this practice p rohibit minimum guarantee payments if there is also "a fee or other payment . . . based in whole or in part on th e attendance or box office receipts," 73 Pa. Cons. St . S 203-5; see also Ohio Rev. Code Ann. S 1333.06(B), and proh ibit advance payments in contracts for exhibition. See 7 3 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 befo re theater's first exhibition).

In AFD II, we recognized that statutes that bar exa ction of advances from exhibitors, limit guarantees, and regulate the bidding and negotiation process may keep a dist ributor 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 662-6 3)). Nonetheless, we concluded that a reasonable governm ent regulation that seeks to remedy problems caused by the economic disparity that impedes fairness in bargain ing and honesty in business dealings is not impermissible m erely because it has an economic effect on those regulate d.

These regulations do not create a preemption issue because they only "touch copyrighted works indirect ly." 1 Nimmer & Nimmer, supra, S 1.01[B][3][c] at 1-65. Ho wever, a state regulatory scheme that is "copyright-based in essence" presents a different matter. See id. The 4 2-day

exclusive first-run license limitation in section 2 03-7 of the Pennsylvania Act is a distinctly different regulati on 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 b y 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 20 3-7 requires the distributor to expand its distribution after forty-two days by licensing another exhibitor in th e same

20geographic area, even if such expansion is involunt ary. A

distributor who exercises its federal right to gran t an

exclusive license to an exhibitor of choice will be subject to liability under the Pennsylvania Act for refusing t o 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 feder ally protected copyright.

That a copyright encompasses the right to refuse to license was reiterated by the Supreme Court in a de cision post-dating AFD I and AFD II, which stated that the Copyright Act grants a copyright owner "the capacit y arbitrarily to refuse to license one who seeks to e xploit 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 (198 1) (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 c opyright law to exclude others under licensing right).

In Storer Cable, 806 F. Supp. 1518, the court consi dered a challenge to a local ordinance that raised a pres umption that cable programmers who entered into exclusive l icenses for the broadcast of their programming were engagin g in proscribed conduct. Although the city defended the ordinance as a legitimate antitrust and pro-competi tion 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 copyrig ht for cable programming and who does no more than grant

another an exclusive distribution or exhibition lic ense 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 Colle ge Entrance Examination Board v. Pataki, 889 F. Supp. 554 (N.D.N.Y. 1995), the court addressed a New York Sta te law that required the owners of copyrights in certain

21standardized tests, which were used, inter alia, fo r graduate

school admissions, to file copies of those tests wi th the State after they were administered. The court held that the New York law improperly interfered with the copyrig ht holders' rights under S 106 because it required reproduction and distribution of the copyrighted te sts in

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

Applying a similar analysis in this case, we note t hat Congress determined that the copyright holder shoul d 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, s uch 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 cons titutes fair use), the parties here have not suggested, nor can we conclude, that the regulation enacted through secti on 203- 7 falls within one of the Copyright Act's exception s.

Rather, the Pennsylvania Act, like the New York law regulating standardized tests, would impose on copy right holders, contrary to their exclusive rights underS 106, an obligation to distribute and make available other c opies of the work following their initial decision to publis h and distribute copies of the copyrighted item. Although it is true, as Orson points out, that the examiners in As sociation of American Medical Colleges and in College Entranc e engaged in extensive efforts to prevent disclosure of their tests, see Appellee Br. at 17 n.10, this factor doe s not change the fundamental principle that these cases o ffer: the State may not mandate distribution and reproduc tion of a copyrighted work in the face of the exclusive rig hts 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 mark et and honest business dealings and those that direct a co pyright

22holder to distribute and license against its will o r 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 ri ght to transfer the work at all times and at all pl aces free and clear of all regulation; it has meant that t he copyright owner has the exclusive right to transfer th e material

for a consideration to others.

533 F. Supp. at 108 (emphasis added). Nothing in th at quotation detracts from the copyright owner's exclu sive federal right to decide to whom it will transfer th e work. Moreover, the language from the same paragraph serv es to support precisely the point made herein; as the War ner Bros. court stated, "No one has appropriated a prod uct protected by the copyright law for commercial explo itation 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 counterpa rt 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 ther efore 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 federa lly created exclusive rights given to a copyright holde r, namely, the exclusive right to distribute the copyrighted w ork, it is preempted by the federal Copyright Act. Our dictum in AFD I that section 203-7 "may have a greater impact upo n [a distributor's] copyright rights," AFD I, 683 F.2d a t 816, was prescient.6

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

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

decision of the District Court denying Miramax's Mo tion for Judgment as a Matter of Law and directing entry of judgment for Miramax.

24ALITO, Circuit Judge, dissenting:

The court makes a strong argument that Section 203- 7 of the Pennsylvania Feature Motion Picture Fair Busine ss Practices Law, 78 Pa. Cons. Stat. S 203-7 (the "Pennsylvania Act"), is invalid on its face under p rinciples of conflict preemption, but I believe that this arg ument is foreclosed by the panel decision in Associated Film Distribution Corporation v. Thornburgh, 683 F.2d 80 8, 816- 17 (3d Cir. 1982) ("AFD I"). In my view, Judge Slov iter, writing for the Court, interpreted AFD I correctly in Associated Film Distribution v. Thornburgh, 800 F.2 d 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 no t 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 C opyright 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 p rovision, Judge Sloviter wrote:

There may be merit to the distributors' argu ment that the 42-day provision, when construed as limi ting the distributors' right to license an exclusive run to 42 days, is preempted by the Copyright Act. How ever, such preemption would be apparent on the fac e of the

statute and cannot be reconciled with the co urt's

earlier decision that the Act is not faciall y invalid under the Copyright Act. . . . [W]e are bound to t hat 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 Ac t. 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

25exclusive license for a period as long as th e copyright

owner desires within the term of the copyrig ht. Nonetheless, she feels compelled to join her colleagues in affirming the district court decision bec ause Internal Operating Procedure 8C of this court [now IO P 9.1] binds subsequent panels to reported panel op inions. Court in banc consideration is required to o verrule 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. Mira max Film, Corp., 79 F.3d 1358, 1373 n.14 ( 3d Cir. 1996), the panel

stated:

[W]e have already rejected a facial challeng e 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. deni ed, 480 U.S. 933, 107 S. Ct. 1573, 94 L.Ed. 2d 765 ( 1987); see Associated Film Distribution Corp. v. Thornb urgh, 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 n ot constrained to follow dicta in prior opinions, I ca nnot reconcile the court's holding in this case with the holding of the prior panel in AFD I. The court's reinterpretat ion 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