Opinion ID: 745282
Heading Depth: 4
Heading Rank: 2

Heading: Prong 2 of the Durham Analysis

Text: 73 In addition to concluding that ERG did not establish sufficient originality to warrant copyright protection for its derivative costumes, the district court also concluded that ERG failed to satisfy the second element of the Durham test which states that derivative works are not copyrightable if they affect the scope of any copyright protection in that preexisting material. Durham, 630 F.2d at 909. Explaining its reasoning, the district court stated that, Any subsequent costume makers and the original copyright holders themselves ... would be limited by the granting of a derivative copyright in this situation or at the very least be vulnerable to harassment. Entertainment Research Group, 853 F.Supp. at 324. Accordingly, the district court concluded that, [T]he fear of the Durham Court and this court as well, is that ERG would have a pseudo-monopoly on all inflatable costumes depicting these characters. Id. 74 Given the fact that ERG's costumes are so similar to the well-known copyrighted characters that they are based upon, the district court was correct to conclude that granting ERG a copyright in its costumes would have the practical effect of providing ERG with a de facto monopoly on all inflatable costumes depicting the copyrighted characters also in ERG's costumes. Indeed, if ERG had copyrights for its costumes, any future licensee who was hired to manufacture costumes depicting these characters would likely face a strong copyright infringement suit from ERG. Thus, in the instant circumstances, much like in other cases discussing this very proposition, see, e.g., Gracen, 698 F.2d at 304-05; Durham, 630 F.2d at 910; Moore Pub., 756 F.Supp. at 1374, the district court was correct to deny copyright protection to ERG's derivative works on the ground that the rights of the holder of the underlying copyrighted characters would be affected. 75 In addition, because no one can claim to have independently evolved any particular medium or form and to, thus, corner the market on such a medium or form of expression, see Nimmer § 2.08[C] at 2-112, it would be wrong to grant ERG a copyright in its costumes. 76 Accordingly, for these reasons also, the district court was correct to grant summary judgment against ERG. 7 II. Breach of Oral Agency Contract Cause of Action 77 One of ERG's most fundamental allegations is that Genesis owed ERG a fiduciary duty of loyalty and that Genesis breached this duty by secretly working with Aerostar to compete with ERG. 8 ERG claims that Genesis owed ERG this duty due to the existence of an agency contract under which Genesis allegedly agreed to act as ERG's exclusive agent. It is undisputed that no written agency contract existed. Instead, ERG argues that an oral contract existed. 9 78 The district court granted summary judgment against ERG on its claim for breach of an oral contract on the ground that ERG failed to establish any evidence of a final agreement, either in writing or in the conduct of the parties. See 1 B. Witkin, Summary of California Law, Contracts §§ 128, 133, 136, 145 (9th ed.1988) (stating that preliminary negotiations will result in a binding contract when all of the terms are definitely understood and agreed upon). 79 In light of this standard requiring a final agreement, and in light of the evidence presented in the record, we affirm the district court's ruling that ERG failed to raise a genuine issue of fact suggesting the existence of an oral contract creating an agency relationship. ERG pointed to the following pieces of evidence as support for its claim that such an agency relationship existed by virtue of an oral contract: (1) the fact that the parties did over $750,000 in business over a two-year period; (2) the July 2, 1990 letter written by Genesis to Mr. Breed and referred to as the Deal Point Memorandum; (3) the use of the word commission in that letter and in the subsequent termination letter of August 23, 1991; and (4) the Confidential Disclosure Agreement signed by Genesis employees. We are not persuaded by any of these arguments. 80 Beginning with ERG's first piece of evidence, the mere fact that Genesis and ERG engaged in various business dealings involving approximately $750,000 in sales does not compel the conclusion that the parties had reached a final agreement. Indeed, although it is true that common sense dictates that some type of agreement must have existed between ERG and Genesis since so much money changed hands, common sense also tells us that this fact reveals absolutely nothing as to what kind of relationship existed between the two parties and as to whether Genesis had agreed to be the exclusive agent for ERG. 81 The Deal Point Memorandum sent from Mr. Bodien of Genesis to Mr. Breed of ERG that ERG claims is the embodiment of the final agreement between the two parties also does not further ERG's argument. 10 This Deal Point Memorandum expressly states that, The enclosed information is in regards to the contract which we have been discussing. Accordingly, at this point in time--July 2, 1990--it is clear that no final contract had yet been entered into. This fact alone refutes ERG's first argument that an agency contract can be implied from the fact that ERG and Genesis were doing business together, as it is clear that though the first ERG-Genesis sales began in February of 1989, in July of 1990, there was still no contract. 82 Moreover, the Deal Point Memorandum goes on to state that, Some of the items we aren't real clear on what you meant, so if you could please review and fill us in. No reasonable trier of fact could read this sentence as meaning anything other than that at the time of its writing, the parties were still discussing the terms of the contract and wanted some clarification before any final agreement would be reached. Thus, contrary to ERG's assertions, the so-called Deal Point Memorandum can not be considered to constitute the required final agreement between the parties. 83 This conclusion is buttressed by subsequent communications between the parties. On September 7, 1990, having received no reply from Mr. Breed to the request quoted above, Mr. Bodien sent Mr. Breed another letter indicating that, [T]o date nothing has happened regarding the proposed contract between ERG and Genesis. Mr. Breed's letter in response to this letter from Mr. Bodien concedes that the Deal Point Memorandum did not finalize any contract, stating that, I am very reluctant, and have been since the beginning, to enter into an agreement with a company that primarily represents itself and not ERG. Thus, the evidence in the record beyond question refutes ERG's claim that a final agreement was reached as of July 2, 1990 (the date of the Deal Point Memorandum). 84 The fact that the Deal Point Memorandum and the August 23, 1991 termination letter sent to Mr. Breed by Mr. Dykstra of Genesis both used the word commission also does not demonstrate that Genesis and ERG had entered into an agency contract. Though ERG had proposed a 20-percent commission structure, Genesis introduced unrefuted evidence into the record establishing that Genesis never agreed to accept such a commission structure, despite the inclusion of the word commission in these two letters. Indeed, it is clear from the record that Genesis's markup, or commission, on all of the sales involving ERG's costumes ranged from 22 to 87 percent. Accordingly, it is quite a stretch for ERG to argue that the mere use of the word commission in these two letters is the smoking gun establishing that Genesis had in fact agreed to the final terms of a contract with ERG. 85 The Confidential Disclosure Agreement signed by Genesis employees also does not substantiate ERG's claim that an agency contract had been entered into. Indeed, a close reading of this agreement reveals that it actually supports Genesis's position that no agency contract existed. Specifically, the agreement states that it is to be signed [f]or the sole purpose of your evaluation of the propriety of entering into more formal arrangements and agreements. Hence, the disclosure agreement actually provides evidence that a final agency contract had not, at least at that point--September 18, 1990--been entered into yet. 86 In sum, because ERG failed to introduce any evidence suggesting that a final agreement was reached between ERG and Genesis, no reasonable juror could conclude that any binding agency agreement existed between ERG and Genesis. As a result, because there was no oral agency contract to be breached, it was perfectly appropriate for the district court to rule that ERG's claim for breach of an oral contract must fail as a matter of law. 87