Gilkyson v. Disney Enterprises, Inc.
66 Cal.App.5th 900
| Cal. Ct. App. | 2021Background:
- In 1963 Terry Gilkyson signed single-song work-for-hire agreements with Walt Disney Productions (assignable to Wonderland Music) that paid: $1,000 up-front and specified royalties, including 50% of the "net amount received by our music publisher on account of licensing or other disposition of the mechanical reproduction rights." The agreements also gave Disney sole discretion whether and how to exploit the material.
- "The Bare Necessities" was used in the 1967 Jungle Book film; several demo or deleted songs later appeared in bonus features of home-entertainment releases (VHS, DVD, Blu-ray, digital). Disney did not pay royalties for home-entertainment video releases beginning in 1991 and thereafter.
- Plaintiffs (Gilkyson's heirs) sued in 2013 alleging breach for failure to pay royalties on home-entertainment releases; this court earlier held (Gilkyson I) the claims accrue continuously and some breaches within the limitations period survive.
- At trial a jury found Disney breached and awarded $350,000 (lump-sum allocations for static-image uses and a sing‑along lyric use; no damages for audiovisual uses). The trial court later entered an additional $699,316.40 as prospective damages through the copyrights' duration.
- On appeal the Court of Appeal reviewed contract interpretation de novo and held the 1963 contracts limited royalty entitlement to 50% of net amounts actually received by the music publisher (Wonderland); because Wonderland received no such intercompany or synch receipts for the challenged home-entertainment uses, Disney had no contractual obligation to pay royalties. The judgment was reversed and remanded with directions to enter judgment for Disney.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of "mechanical reproduction" royalties and meaning of paragraph 6(c) (net amounts received by music publisher) | Mechanical reproduction should include audiovisual/home-entertainment uses or, at minimum, Disney should have charged affiliates so Wonderland received net sums; royalties due per use. | Paragraph 6(c) limits royalties to 50% of net amounts actually received by the music publisher; Wonderland received no such payments for the home-entertainment uses during the limitations period, so no royalties are owed. | Court: de novo contract interpretation; paragraph 6(c) governs and is unambiguous that royalties depend on net sums received by music publisher; judgment reversed for Disney. |
| Whether Disney was obligated to charge intercompany fees or exploit mechanical rights to generate royalties | Disney had a duty (or implied covenant) not to self-deal and must charge affiliates so royalties accrue to heirs. | Paragraphs 10 and 6(c) grant Disney sole discretion and impose no affirmative duty to exploit or to charge affiliates; no implied obligation can override express terms. | Court: Disney had no contractual obligation to collect intercompany fees; express discretion controls and plaintiffs' view would rewrite the contract. |
| Admissibility/weight of extrinsic evidence and trade practice to alter contract meaning | Industry usage, prior intercompany licenses and expert testimony show parties intended royalties for home-entertainment exploitation. | The contract language is clear; extrinsic evidence did not create a conflict about intent and expert testimony interpreting legal meaning is inadmissible. | Court: extrinsic evidence insufficient to overcome clear written terms; interpretation is a question of law for the court. |
| Trial-court award of future damages (declaratory relief), prejudgment interest, and new-trial/additur requests | Trial court properly awarded forward-looking damages and plaintiffs seek prejudgment interest or new trial/additur on damages. | Award improper because no continuing contractual entitlement absent net receipts; prejudgment interest and additur were not warranted. | Court: Because the contract interpretation forecloses plaintiffs’ entitlement, the trial-court awards and postjudgment rulings are reversed as moot; judgment entered for Disney. |
Key Cases Cited
- Gilkyson v. Disney Enterprises, Inc., 244 Cal.App.4th 1336 (2016) (prior appellate decision applying continuous-accrual doctrine to the heirs' royalty claims)
- City of Hope Nat. Med. Ctr. v. Genentech, Inc., 43 Cal.4th 375 (2008) (contract interpretation is a judicial question; de novo review when extrinsic evidence does not conflict)
- Wolf v. Walt Disney Pictures & Television, 162 Cal.App.4th 1107 (2008) (court decides contract meaning as a matter of law where extrinsic evidence is not in conflict)
- Carma Developers (Cal.), Inc. v. Marathon Dev. California, Inc., 2 Cal.4th 342 (1992) (implied covenant of good faith does not override express contractual grants of discretion)
- Third Story Music, Inc. v. Waits, 41 Cal.App.4th 798 (1995) (courts should not imply covenants that contradict express contractual terms)
- In re Mission Ins. Co., 41 Cal.App.4th 828 (1995) (courts cannot rewrite clear contractual language)
- Summers v. A.L. Gilbert Co., 69 Cal.App.4th 1155 (1999) (expert testimony on legal interpretation of contracts is inadmissible)