Studios May Have the Most to Lose

Billions of dollars and the future earning power of some of the nation’s most cherished cultural icons are at stake as the U.S. Supreme Court considers a constitutional challenge to a 1998 copyright extension law, legal experts said Wednesday.

The experts agreed that the high court’s decision to consider Eldred vs. Ashcroft, until Tuesday an obscure appeal, could lead to the most important copyright decision in more than 100 years.

Movie studios, record companies, publishers and experts in intellectual property law were caught by surprise when the high court announced Tuesday that it would review a 1st Amendment challenge mounted by a coalition of Internet entrepreneurs and legal scholars to the 1998 Sonny Bono Copyright Term Extension Act. That act extended copyrights for an additional 20 years.

“This is a really big deal,” said Stephen Gillers, vice dean of New York University Law School. “This case is sexy because it’s about money and the arts at the same time.”

“This is it,” agreed Dennis S. Karjala, who teaches copyright and intellectual property law at Arizona State University Law School. “It’s hard to think of a bigger copyright case” since the landmark 1879 decision that divided intellectual property into functional works, which are patented, and artistic works, which are copyrighted.

Any ruling by the Supreme Court would affect early depictions of Mickey Mouse, first copyrighted in 1928, and film classics such as “Gone With the Wind” and “The Wizard of Oz,” novels such as “The Great Gatsby” and “The Sun Also Rises,” as well as early jazz music and compositions by George and Ira Gershwin.

“I think just about everybody in the [entertainment] business will be impacted. Somebody’s going to get hurt here,” said Gerry Margolis, of Manatt, Phelps & Phillips.

David Nimmer, a visiting law professor at UCLA, said that although many of the recent copyright cases considered by the Supreme Court have affected just a narrow portion of copyright holders, “This case has the potential to affect every copyright owner.”

Nimmer and Gillers predicted that with so much at stake, the Supreme Court case is likely to generate millions in new legal business.

“Probably billions of dollars ride on this decision, so millions of dollars will be spent on lawyers and amicus briefs and research on the history of copyright going back to King James,” Gillers said.

Walt Disney Co. Chairman Michael Eisner said it was “too early to comment” extensively on possible fallout from any change in the copyright law. He attempted to minimize the impact.

“All that has happened is that two courts upheld Congress’ extension of the copyright law, and we don’t consider it unusual that it is going to the last court of appeal, the Supreme Court,” Eisner said.

“If it went bad, and I don’t think it will, we’re talking about the very early images [of Mickey Mouse and others], we’re not talking about our trademarks ... this is not taking away those values,” Eisner said.

But legal and financial analysts anticipate a huge impact.

“The people who are freaking out are the studios,” said Los Angeles lawyer Neville Johnson, who has a copyright infringement case involving a 1920s jazz song pending in U.S. District Court in Los Angeles. “It’s Mickey Mouse, is why they’re all freaked out.”

“In the case of Mickey Mouse, this is a huge issue,” agreed Kevin Lane Keller, a Dartmouth College marketing professor and an expert on Disney marketing. “Mickey has huge symbolic value and he still has a lot of commercial value.

“These characters and brands have so much earning potential,” Keller said. “They can be licensed and merchandised in so many ways. The amounts are staggering. In a lot of cases, we’re talking about billion-dollar brands.”

Metro-Goldwyn-Mayer Inc. and Warner Bros., which have Hollywood’s largest film libraries, also could feel a huge impact. The studios had no comment.

Wall Street analysts say it’s difficult, if not impossible, to come up with an exact dollar value for some of the studios’ most popular characters or movies. Companies are loath to put a value on their properties, and usually lump revenue from those characters or properties into “intangible assets.”

But licensing revenue offers a glimpse into the value of some of these properties. For example, Disney has said that Winnie the Pooh and the Hundred Acre Woods characters generate a third of all of their licensing revenue.

In the late 1990s, Pooh generated $2 billion a year for Disney and its licensees.

Chris McGurk, chief operating officer at MGM, said, “Copyright is the only thing that protects us from people taking our properties, copying them, exploiting them, doing whatever they want for free.”

MGM’s James Bond franchise is said to be worth more than $1 billion for the Santa Monica studio. It is about a fourth of the estimated $5-billion value of MGM’s 4,100 film library, analysts have said.

Supporting the appeal, copyright scholars and Internet entrepreneurs said the extensions have the unfortunate, and unintended, effect of burying works that could be resurrected. The Gershwin tunes and “The Great Gatsby” will live on, they said, and the copyright laws will determine only who profits from their existence.

To illustrate their point, they cited in court papers an exception to the rule. Frank Capra’s 1946 film “It’s a Wonderful Life” had a second life when its copyright was allowed to lapse because of an oversight. This forgotten movie “lay gathering dust in a movie studio until the early 1970s” when its copyright expired, the papers said.

Once it passed into the public domain, several public broadcasting stations aired it during the Christmas season. Within a few years, the forgotten film became a classic and a Christmas tradition.

But Margolis, whose firm represents high profile copyright holders, called such arguments disingenuous.

“We’re not talking about people who want to make intellectual property available to the free world, we’re talking about people who want to go into business,” he said. “The opposition is not free-speechers. They’re people who want to go into business and make a profit on what yesterday was someone else’s property.”

Arizona State’s Karjala played a key role in organizing 60 law professors to send a letter to Congress in 1998 opposing the Sonny Bono law, contending that it “would impose substantial costs on the United States general public without supplying any public benefit.”

He said Wednesday that the case “is an issue of tremendous importance. It is one where we simply can never expect Congress to follow the constitutional requirements because there is a built-in bias in the legislative process for copyright. The beneficiaries are organized and the general public is not organized. It’s no one’s fault. It’s structural. It’s a problem of democracy.”