1. HRM 250 Fredrick Kong Hospitality Business Law March 23, 2010 Chef Whitmore

2. Patrick J. Coyne, Washington, DC, for petitioners (PREI). Andrew J. Pincus, Washington, DC, for respondents (Columbia). Justice THOMAS delivered the opinion of the Court.

3. Property in question: La Mancha Private Club and Villas, Palm Springs, CA Operated by Kenneth F. Irwin and Professional Real Estate Investors, Inc. (PREI)

4. Background info: PREI operated the La Mancha Private Club and Villas in Palm Springs, CA. Video disc players were installed in each hotel room. Guests can rent motion picture video discs from the hotel’s motion picture library, which offered more than 200 titles. These video discs were first purchased by PREI. PREI were also attempting to develop a market to sell these video disc players to other hotels who wish to offer the same in- room entertainment services.

5. Issue(s): Columbia Pictures, Inc., along with seven other motion picture companies (Columbia), filed charges against PREI for violation of the Copyright Act in 1983 (copyright infringement). Columbia’s argument: They held copyrights to the materials recorded on the video discs. At the same time, Columbia also held license to a wired-cable television system called Spectradyne. This system transmitted copyrighted materials to view in hotel rooms. Therefore, PREI was directly competing with Columbia for not only the viewing market at La Mancha, but also for the broader market of in-room entertainment services in other hotels.

6. Issue(s) (continued): PREI countersued Columbia with antitrust claims and in violation of the Sherman Antitrust Act. PREI’s argument: Columbia’s suit was a mere “sham”. Columbia was filing charges, in an attempt to cover up their own “anticompetitive behavior”. By filing charges, PREI also claimed that Columbia was trying to monopolize the industry.

7. Question 1: Was PREI in violation of the Copyright Act? Under Section 106, there are five exclusive rights that were granted to copyright holders:  The right to reproduce (copy).  The right to create derivative works of the original work.  The right to sell, lease, or rent copies of the work to the public.  The right to perform the work publicly (if the work is a literary, musical, dramatic, choreographic, pantomime, motion picture, or other audiovisual work).  The right to display the work publicly (if the work is a literary, musical, dramatic, choreographic, pantomime, pictorial, graphic, sculptural, motion picture, or other audiovisual work). The Act was amended in 1995 to include a sixth exclusive right—the right to perform a sound recording by means of digital audio.

8. Question 1 (continued): Was PREI in violation of the Copyright Act? Under the Fair Use defense of the Copyright Act:  The purpose and character of the use (commercial or educational, transformative or reproductive).  The nature of the copyrighted work (fictional or factual, the degree of creativity).  The amount and substantiality of the portion of the original work used.  The effect of the use upon the market (or potential market) for the original work. The Act was later amended to extend the fair use defense to unpublished works.

9. Question 1 (continued): Was PREI in violation of the Copyright Act? 2 VERY IMPORTANT points to note:  Columbia did NOT dispute the fact that PREI had rights to freely sale or lease copyrighted materials under the “First Sale” Doctrine of the Copyright Act.  PREI did NOT dispute that rental of the video discs to view in room did constitute “performance” of copyrighted materials. The main point of the question now relies on whether viewing of such video discs in hotel rooms violated Columbia's exclusive right to “perform the copyrighted work[s] publicly.”*

10. Ruling for Question 1: Was PREI in violation of the Copyright Act? Under the Copyright Act’s “First Sale” Doctrine, PREI was NOT in violation of the Copyright Act:  PREI was the first purchaser of the video discs (ruled by the District Court).  Hotel rooms are NOT considered a “public place” (further affirmed by the Court of Appeals). The First Sale doctrine permitted the purchaser to transfer (i.e., sell, give away, etc.) a particular lawfully made copy of the copyrighted work without permission once it has been obtained. This decision was preceded by a similar case, Bobbs-Merrill Co. v. Straus, 210 U.S. 339 (1908)

11. Question 2: Was Columbia’s charges in violation of the Sherman Antitrust Act, and was it a sham? The Court of Appeals characterized a "sham" litigation as “abuse of the judicial processes” with one of the following:  'misrepresentations... in the adjudicatory process'  The pursuit of ‘a pattern of baseless, repetitive claims’ "instituted" ‘without probable cause, and regardless of the merits.’

12. Ruling for Question 2: Was Columbia’s charges in violation of the Sherman Antitrust Act, and was it a sham? Based on the Court of Appeals’ characterization of a “sham” litigation, Columbia’s charges did NOT violate the Sherman Antitrust Act, and therefore, was not considered a sham litigation. Columbia was entitled to immunity under Eastern R. Presidents Conference v. Noerr Motor Freight, Inc., supra. Reason was because Columbia’s action suit was a legitimate effort to stop a copyright infringement and not a sham.

13. Personal message to the industry Just because you owned copyrighted materials doesn’t mean you are free to use it commercially. Private home use of copyrighted materials, such as books, music, movies, etc., are perfectly fine, since you already paid for your rights to use it in your possession. However, if you wish to profit from someone else’s copyrighted materials, it would be best to obtain written permission from the original owner. In this case, PREI purchased and owned copyrighted materials. They would not have any problems if the movie video discs were for private home use. However, since they are using it to make a profit, they should have obtained written permission from the original owners, Columbia. Even though the court ruled in their favor in the end, obtaining written permission in the first place would’ve been much “easier” than to go through a whole lawsuit. Bottom line: Make sure you are permitted to profit from someone else’s materials. Always obtain written permission, if necessary.