oral copyright license equals uncertainty in business dispute

Yong Ki Hong v. KBS America, Inc., 951 F. Supp. 2d 402 (E.D.N.Y. 2013)

Plaintiffs, who operated a video rental store catering to customers seeking Korean videotapes, sued KBSA, one of the three main sources for Korean programs, for antitrust violations and other claims.  KBSA counterclaimed for copyright infringement, defamation, and other claims.  The court dismissed plaintiffs’ claims on summary judgment, except for tortious interference against a few non-KBSA defendants, and kicked out the defamation counterclaims.

Plaintiffs sought to form (and for some time did form) a business relationship with KBSA, but when things went sour, they alleged that KBSA conspired to raise prices in the Korean videotape market.  There’s an interesting business model here: KBSA’s programming is primarily delivered through weekly “master tapes” which KBSA licenses and distributes, at a weekly fee, to individual video store owners for copying and retail distribution to their walk-in customers.  KBSA alleged that its (oral) licenses were site-specific and for walk-ins only, though plaintiffs disputed this.

Of course, plaintiffs couldn’t show antitrust injury, because who can?  As a result, their unjust enrichment claims also failed.

The NY Deceptive Practices Act, G.B.L. § 349(h), prohibits “[d]eceptive acts or practices in the conduct of any business, trade or commerce.”  Plaintiffs alleged that defendants’ price-fixing violated the DPA, but the law doesn’t extend to all unfair competition.  Defendants’ conduct wasn’t deceptive to consumers, as required; indeed, plaintiffs’ evidence suggested that defendants publicly announced their price control policy.  “Simply put, the defendants’ alleged scheme may have been … ‘reprehensible,’ but it was not ‘secretive.’”

The tortious interference claims largely failed because plaintiffs didn’t show actual breach of contracts or defendants’ actual knowledge of their contracts/business relationships.  Intentional infliction of emotional distress also wouldn’t fly, because this business situation was too far from the IIED wheelhouse.

On the copyright counterclaims, the court had some things to say about licensing.  KBSA sought summary judgment, but there was a factual dispute about whether its license was exclusive (allowing it to bring an infringement claim).  There was testimony that it was, but the written terms explicitly said that the Korean company KBS “retains the right to distribute its own programming content in North America.”  An exclusive license must exclude the licensor as well.  And though the contract purported to delegate to KBSA the right to sue, “a copyright owner cannot, by contract or otherwise, grant a non-exclusive licensee the right to sue for copyright infringement.”

Separately, there was a dispute of material fact about whether the relevant counterdefendants actually violated their license.  KBSA said its oral licenses were site-specific and only permitted rental to walk-in customers, and offered affidavits from various Korean video store owners in the New York area “affirming that their licenses with KBSA included those limitations and that they had always understood them.”  KBSA alleged that defendants, by moving from Brooklyn to Queens without authorization (when Queens licensees paid much higher license fees) and by renting to non-walk-in customers, violated their license terms.  But counterdefendants vigorously disputed the terms of the oral agreement and claimed that a relevant person approved their plan to move and assured them their license would transfer.  (Though this person might not have had actual or apparent authority to negotiate on KBSA’s behalf, his statements were of evidentiary value as to the nature of the KBSA agreement.)  KBSA argued that the counterdefendants had no valid license at all because their agreement wasn’t written, and therefore void under NY’s Statute of Frauds.  But that doesn’t matter under the federal copyright act, which permits nonexclusive oral licenses.

Now, on to defamation: libel and slander both.  First, KBSA claimed that certain counterdefendants made false oral statements to several reporters that “KBSA had wrongfully terminated supply” of KBSA videos. Second, KBSA claimed that they sent a letter to KBSA’s president and CEO making false accusations of wrongdoing by an important KBSA figure, C.J. Lee.  Third, KBSA argued that a counterdefendant filed two Blue House complaints (the Blue House is Korea’s equivalent of the White House) falsely accusing KBSA of “oppressing small businesses … and in some cases destroying their livelihood,” and claiming that C.J. Lee threatened the counterdefendant and solicited and/or accepted bribes from video store owners.

KBSA had no evidence of actual pecuniary or economic harm, so it needed to show that the statements were defamatory per se.  As to the oral statements to reporters from the Korean-American media accusing KBSA of wrongful conduct, the testimony about this was mostly hearsay.  There was admissible evidence of statements of (1) the undisputed fact that KBSA suddenly cut off supplies of videotapes to one store, plus (2) the claim that this action was unfair and “not a proper disposition.” That’s opinion, and didn’t imply the existence of undisclosed underlying defamatory facts.  At most, it was an implication of breach of contract, but that’s not defamatory per se.

Second, allegedly defamatory accusations about Lee: these statements were made in a letter concerning the dispute between the store owners and KSBA’s regional office, “a conflict that threatened to disrupt or destroy an otherwise mutually beneficial business relationship between the two parties.”  It was thus protected by the common interest privilege in the absence of malice.  It didn’t matter here that the parties to the communication were part of separate businesses, nor that their interests weren’t perfectly aligned—the requirement for the common interest privilege is that “they must both have some vested interest in the subject matter of the communications, but their respective interests need not be aligned.”  The privilege is designed to assist people in settling disputes, which was at least what was attempted here; the parties had a common interest in avoiding further escalation.  KBSA argued that it could show actual malice because the senders misrepresented the timing and circumstances of their store’s move to Queens.  This failed to show malice: even if they did misrepresent those things, that statement refers to their own actions, not Lee’s, and thus couldn’t be defamatory or show malice.  (Also, the statements weren’t defamatory.  The letter alleged that Lee cut off the store’s video supply in response to their threats to take the dispute to the press/wreak general havoc if KBSA didn’t do what they wanted.  That made the store owners look bad, not Lee.  Though he came off as “no wilting flower,” saying that he became “enraged” in response to such threats wasn’t defamatory, since rage would be a “natural human response” to such threats.) 

Finally, KBSA alleged “false and defamatory statements concerning KBSA and Mr. C.J. Lee” in the two complaints submitted to the Blue House.  This was, according to the evidence, a quasi-judicial administrative proceeding, in which the complainant hoped to vindicate “what he believed were his legal rights without the need to file a formal lawsuit—a resort to a form of alternative dispute resolution.”  The court further characterized the result of the complaint as “a formal administrative process involving fact-finding, an opportunity for both sides to be heard, consideration before a neutral arbiter, and standardized forms and procedures.”  The statements were therefore communications by a party in a quasi-judicial proceeding, material and pertinent to the issues to be resolved therein.  Thus, they were absolutely privileged.  “The fact that the place where the formal dispute resolution occurs is not called a courtroom provides no safe harbor for defamation claims.” Nor was the privilege limited to statements before US agencies or adjudicators.  (In the alternative, they were protected by qualified privilege, since the administrative body existed precisely to investigate such claims.)

Summary judgment, sua sponte, for defendants on these claims.
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