MEMORANDUM OPINION
This is а bankruptcy case. Golden Books Family Entertainment, Inc. is a debtor before this court. Golden Books publishes, produces, licenses, and markets a host of children’s and family-related media and entertainment products. It owns an array of film copyrights, distribution rights, trademarks, and licenses relating to characters, television programs, and motion pictures. Moreover, through a number of license agreements, Golden Books publishеs children’s books featuring characters owned by other companies.
Golden Books, as part of its sale of its assets to Random House and Classic Media, Inc. (“the Buyers”), is proposing to assume and assign various executory contracts. Among the contracts that Golden Books is seeking to assume and assign is an Agreement, dated April 20, 1998, with DIC Entertainment, L.P., in which Golden Books licenses certain of DIC’s copyright and trademark rights with respeсt to the children’s character, Madeline (the “Madeline Agreement”).
This court approved Golden Books’ proposed asset sale to the Buyers in a sale
all parties [who have failed to object are] deemed to have given the consent contemplated by the Bankruptcy Codе Sections 365(c)(1) and (f)(1) to the assumption of such Executory Contract by the relevant Debtors and the assignment of such Executory Contract to the [Buyers].
After being notified of the sale, DIC filed a motion with the court on August 13, 2001, objecting to the transfer of the rights to Madeline from Golden Books to the Buyers under § 365(c) of the bankruptcy code, which prohibits a bankruptcy trustee from assuming and assigning executory contracts where applicable non-bankruptcy law operates to prohibit such transfers. In its objection brief, DIC argues that the Madeline Agreement is an executory contract within the meaning of § 365(c) of the Bankruptcy Code, that the Madeline Agreement is a nonexclusive personal license, and that copyright law prohibits the transfer of nonexclusive personal licenses without the permission of the licensor. At an oral argument before the court оn September 28, 2001, DIC set forth an alternative argument that even if the court disagrees with DIC’s characterization of the Madeline Agreement as a nonexclusive license and finds that the Madeline Agreement is an exclusive license, copyright law also prohibits the free transfer of exclusive licenses. DIC found support for this proposition of law in the recent Central District of California case, Gardner v. Nike, Inc., 110 F.Supp.2d. 1282 (C.D.Cal.2000).
The objection motion hаs been fully briefed and argued by both parties. This is the court’s decision on DIC’s motion.
I. DISCUSSION
Under § 365(c) of the Bankruptcy Code, when an executory contract can not be assigned under applicable non-bankruptcy law, it may not be assumed or assigned by the bankruptcy trustee without permission of the other contracting party. Lawrence P. King et áL, 3 Collier on Bankruptcy ¶365.06[1] (15th ed.1997). The relevant portion of section 365(c) states:
Trustees may not assume or assign any executory contract ... of the debtor, whether or not such contract ... prohibits or restricts assignment of rights if,
1)
A) applicable law excuses a party, other than the debtor, to such contract from accepting performance from or rendering performance to an entity other than the debtor or debtor in possession .... whether or not such contract ... prohibits or restricts assignment of rights or delegation of duties; and
B) such party does not consent to such assumption or assignment.
11 U.S.C. § 365(c). In this case, Golden Books is operating as the trustee because it is a debtor in possession pursuant to 11 U.S.C. § 1107(a).
The issue before the court is whether Golden Books, as debtor in possession, can freely assign the Madeline Agreement to the Buyers without the permission of DIC.
The parties do not dispute that the Madeline Agreement is an “executory contract” within the meaning of section 365(c). Courts, including the Third Circuit, have widely held that the test to be applied to determine whether a contract is executory is the “Countryman” definition, which provides that a contract is executory when the obligations of “both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other.” Countryman, Executory Contracts in Bankruptcy; Part I, 57 Minn. L.Rev. 439, 460 (1973);
see also Everex Systems. Inc. v. Cadtrak Corp (In rе CFLC, Inc.),
The issue thus becomes a question of copyright law: Does copyright law preclude the free assignment of the Madeline Agreement? Courts have generally found that the answer to this question turns on whether the license is exclusive or nonexclusive.
See generally In re Patient Educ. Media, Inc.,
To determine whether the Madeline Agreement is an exclusive or nonexclusive license, the court must examine the terms of the аgreement itself.
A. The Madeline Agreement
In the Madeline Agreement, DIC granted to Golden Books certain rights in Madeline cartoons that were owned by DIC. Section 2(a) of the Agreement, which sets
DIC hereby grants to Golden, throughout the Territory, the sole, exclusive, and irrevocable right, license, and privilege to (i) manufacture, sell, rent, and otherwise distribute “Videograms” of the Programs in any and all formats and configurations; (ii) publicize, advertise, exploit, promote, market and turn to account copies of such Videograms (“Copies”) in connection with any or all of the foregoing rights, and (iii) license, lease, and authorize others to do any or all of foregoing during the Term.
As set forth in section 3, the “Term” of the license agreement runs from April 20,1998 until June 1, 2004. The “Territory” is defined, in section 4 of the Agreement, as including the United States and its territories and Canada. “Videograms” is defined in section 2(a) as “a cassette, disc, or other device now known or hereafter devised and designed to be used in conjunction with a reproduction apparatus which causes a visual image ... to be seen on the screen of a television receiver or any comparable device.... ”
At oral argument, Golden Books and the Buyers pointed to a number of relevant provisions of the Agreement that they believe demonstrate that the Madeline Agreement is an exclusive and not a nonexclusive license. Specifically, Buyers counsel directed the court to:
section 2(a), set forth above;
section 2(c), which states that “Golden Books shall have the sole, full, and complete discretion concerning the manufacture, distribution, marketing, and other exploitation of all Videograms and Copies” and that the judgment of Golden Books as to all matters affecting exploitation shall be binding on DIC;
section 2(d), which states that Golden Books shall have the sole and exclusive right to negotiate and enter into contracts with respect to the property, “including the right to sublicense its rights hereunder”;
section 2(e), which states that “Golden Books shall have the right to use and authorizе others to use the name, physical likeness ... biographies, and voice of any person rendering services in connection with the Programs”;
section 9, which obligates DIC to provide further assurances in the event that there is a question as to the grant that has been given to Golden Books in the agreement; and,
section 12(d), which states that none of the rights granted to Golden Books in the Agreement has been or will be transferred by DIC to any third рarty.
Each of these rights seems to indicate that Golden Books did hold exclusive rights with respect to the licensed property.
In apparent contradiction to section 2(a), which gives Golden Books the exclusive right to sub-license the Madeline Properties to others, the Agreement also includes among its miscellaneous provisions a section labeled Assignments/Sublieense (section 18(e)), which states that subject to certain exceptions: “Neither party shall have the right to assign its rights and obligations hereunder without the other party’s prior consent, which consent shall not be unreasonably withheld.”
B. Is the Madeline Agreement Exclusive or Nonexclusive?
It is clear from the above listed terms that the Madeline Agreement grants to Golden Books certain exclusive rights with respect to a sub-set of the copyright relating to the Madeline video properties that DIC owns. Golden Books and the Buyers
DIC’s position that the license is necessarily nonexclusive because it only grants exclusive rights to a set of rights that are limited in temporal and geographical scope is incorrect as a matter of law. Intellectual property rights are recognized as bundles of rights, portions of which may be exclusively оr nonexclusively licensed. The fact that only certain rights are exclusively licensed does not convert the license to a nonexclusive license. Under copyright law, even if one licenses a right that is limited in geographic or temporal scope, if that right is nonetheless exclusive within those parameters, it is an exclusive grant of a copyright. Therefore, based on the licenses terms, the court finds that the Madelinе Agreement is an exclusive license.
DIC’s only plausible textual argument in support of nonexelusivity is that section 18(e) detracts from the exclusivity of the license in the sense that Golden Books cannot have a freely transferable property interest if they need DIC’s permission to sub-license it. Given the many provisions in the Agreement that indicate that this license was indeed meant to be exclusive, the court declines to accept this argument.
Copyright law clearly distinguishes between the legal effect of a nonexclusive license and an exclusive license. Contract clauses restricting assignment do not change this calculus under the copyright law. The court therefore finds that the non-assignment clause of section 18(e) is exactly the type of boilerplate restriction of assignment that section 365(f) states should have no bearing on this matter. See 11 U.S.C. § 365(f)(1) (“Excеpt as provided in subsection (c) of this section, notwithstanding a provision in an executory contract ... that prohibits, restricts, or conditions the assignment of such a contract ... the trustee may assign such contract ... ”) (emphasis added); see also 11 U.S.C. § 365(c) (“Trustees may not assume or assign any executory contract ... of the debtor, whether or not such contract ... prohibits or restricts assignment of rights if ...” excused by applicable law).
Accordingly, the сourt finds that the Madeline Agreement is an exclusive license.
C. Under Copyright Law, Does Golden Books Need DIC’s Consent to Transfer the Madeline Agreement?
DIC’s objection as filed asserts that the Madeline Agreement is a nonexclusive license and is therefore non-assignable under the copyright law. Prevailing case law holds that nonexclusive intellectual property licenses do not give rise to ownership rights and are not assignable ovеr the objection of the licensor.
See In re Catapult Entertainment,
At oral argument, DIC alternatively contended that if the court determined that the Madeline Agreement was an exclusive hcense that, as a matter of copyright law, even an exclusive hcensе cannot be assigned without the licensor’s consent. To support this argument, DIC relies on Gardner v. Nike, 110 F.Supp.2d. 1282 (C.D.Cal.2000).
In Gardner, Nike and Sony entered into an exclusive hcensing agreement for the use of a cartoon character created by Nike. Sony subsequently transferred its rights under the hcense to Gardner, who started using the character on various products. In response to threatened legal action from Nike, Gardner brought an action for declaratory rehef against Nike seeking a declaration of his right to use the character. Gardner argued that under the Copyright Act, Sony, the original licensee, was allowed to transfer its rights to him without the consent of the original licensor, because the exclusive hcense made the original licensee an “owner” under the Copyright Act. As an “owner,” Gardner asserted, the original licensee was able to transfer whatever rights it had (including the right to assign, as set forth in § 106 of the Copyright Act 1 ) under § 201(d) of the Copyright Act. 2 Gardner, 110 F.Supp.2d. at 1284. In opposition, Nike argued that, according to the text of § 201(d), the original licensee was not an “owner” who has all the rights of ownership (including the right to assign); rather, § 201(d) only conferred upon the original licensee the “protections and remedies” of a copyright owner, which the court held includes only the right to sue and defend suits in its own name, but not the right to assign. Id. The Gardner court agreed with Nike and hеld that exclusive licensees do not have the right to assign under § 201(d) of the Copyright Act. Id. at 1286.
Commentators have noted that the holding in Gardner flatly contradicts the leading treatise on copyright law, Nimmer on Copyright, and leading bankruptcy cases such as In re Patient Educ. Media that state that under the Copyright Act exclusive licenses are freely assignable. See, e.g., Ronald Leibow, Ashleigh Danker & Keith Murphy, Transfer of Intellectual Property Rights in Bankruptcy, 820 PLI/ Comm 1141, 1154-1163 (2001).
In re Patient Education Media
is a bankruptcy case. The issue presented in
Patient Education Media
was whether the debtor could transfer its nonexсlusive license to use the copyrighted work over the objection of the copyright owner. Although the court did not need to address exclusive licenses in its holding, in dicta the court referred to the distinction in the
Ownership is the sinе qua non of the right to transfer, and the copyright law distinguishes between exclusive and nonexclusive licenses. A “transfer of copyright ownership” includes the grant of an exclusive license, but not a nonexclusive license. 17 U.S.C. § 101. The holder of the exclusive license is entitled to all of the rights and protections of the copyright owner to the extent of the license. 17 U.S.C. § 201(d). See generally 3 [Nimmer] § 10.02[A] at 10-23 (1996)[ ]. Accordingly, the licensee under an exclusive license may freely transfer his rights, and moreover, the licensor cannot transfer the same rights to anyone else.
In re Patient Educ. Media,
This court finds the reasoning of Gardner to be unpersuasive. The Copyright Act clearly states that there is a key distinction between exclusive and nonexclusive licenses. Section 101 of the Copyright Act defines a “Transfer of Copyright Ownership” as thе:
assignment, mortgage, exclusive license, or any other conveyance, alienation, or hypothecation of a copyright or any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.
17 U.S.C. § 101 (emphasis added). The court in Gardner held that conferring “protections and remedies” on an exclusive licensee is distinct from conferring ownership rights. In so doing, the Gardner court effectively interpreted § 201(d) to limit the meaning of “оwnership” as set forth in § 101. According to the Gardner court’s construction of the phrase “protections and remedies” in § 201(d), granting exclusive licensees “protections” does not necessarily grant them the right to assign. Rather, it only confers on the licensee the right to sue for infringement and to defend suits in its own name. This right is set forth for copyright owners in § 501(b). It is difficult to understand why the Gardner court held that the phrase “protections and remedies” confers on exclusive licensees the particular rights of copyright owners that are set forth in § 501(b), but does not confer to exclusive licensees the rights of copyright owners, such as the right to freely assign, that are set forth in § 106.
The more natural reading of § 201(d) is that Congress intended exclusive licensees to have all of the rights of an owner to the extent the license is intended to cover each of these rights. The court therefore declines to аdopt the holding of
II. CONCLUSION
The court finds that Madeline Agreement is an exclusive license. The court also finds that, under applicable copyright law, exclusive licenses convey an ownership interest to the licensee that allows that licensee to freely transfer its rights. Therefore, in this case, copyright law does not prevent the assumption and assignment оf the Madeline Agreement. The court thus has authority to permit the Golden Books to assume and assign the Madeline Agreement as part of their sale to Random House and Classic Media, Inc. Accordingly, DIC’s objection will be denied.
The court will enter an order in accordance with this memorandum opinion.
Notes
. Section 106 of the Copyright Act provides in relevant part that "the owner of [the] copyright ... has the exclusive rights to do and tо authorize” the designated uses of the copyrighted work. 17 U.S.C. § 106.
. Section 201(d) of the Copyright Act provides as follows:
(d) Transfer of Ownership.
The ownership of a copyright may be transferred in whole or in part by any means of conveyance or by operation of law ...
Any of the exclusive rights comprised in a copyright, including any subdivision of any of the rights specified by section 106, may be transferred as provided by the clause (1) and owned separately. The owner of any particular exclusive right is entitled, to the extent of that right, to all of the protection and remedies afforded to the copyright owner by this title. 17 U.S.C. § 201(d).