Recorded Picture Company v. Nelson Entertainment, Inc.
By Li Y. Wang,
The Subdistributor Agreement and Producerís Rights
Producers should be aware that distributor agreements with subdistributors
may be upheld in court even if they violate the original agreement between the
producer and distributor. In Recorded Picture Company v. Nelson Entertainment
Inc., the California appellate court ruled that Recorded Picture Company
(Recorded Picture), the producer of "The Last Emperor," could not
compel the subdistributor, Nelson, Inc.(Nelson), to pay Recorded Picture the 70
percent of home video gross receipts as agreed by Recorded Picture and its
distributor, Hemdale Film Corporation (Hemdale.)
Nelson and Hemdale agreed to allow Nelson to retain 50 percent of the home
video proceeds rather than 30 percent as contemplated by the original
distribution agreement between Recorded Picture and Hemdale. Recorded Picture
did not trust Hemdale and required all subdistributors to pay Recorded Picture
directly, but Hemdale did not instruct Nelson of this obligation. Hemdale went
bankrupt and Recorded Picture sued Nelson to compel payment of 70 percent of
video gross receipts not just the 50 percent that Nelson agreed to a pay Hemdale.
The appellate court ruled that Nelson was not an assignee of Hemdaleís
distribution agreement with Recorded Picture; Nelson was a mere licensee. As a
licensee, Nelson did not benefit from Hemdaleís distribution agreement, and
was not bound by its obligations. Nelson knew of the distribution agreement
between Hemdale and Recorded Picture but did not know that producers were
entitled to 70 percent of proceeds. The court ruled that there was no fiduciary
duty between producers and distributors much less between producers and
subdistributors. Finally, the court rejected the producerís claim that Nelson
failed to review the Hemdale distribution contract with Recorded Picture noting
that the producers mistrusted Hemdale and could have protected themselves
expressly through a contract.
This ruling shows the courtís reluctance to protect producersí contracts
with distributors when unknowing subdistributors agree to terms inconsistent
with the original agreement. Moreover, the
court imposed on the producer the burden to contact the subdistributor before
the final contract was signed, while holding that the subdistributor had no duty
to check up on the original distribution agreement. In the foreign subdistributor
context, it will be more difficult for the producer to contact the
subdistributor, but it may well be worth the effort, in light of the courtís
reluctance to impose liability on the unknowing subdistributor for breach of the
original distribution contract.
Recorded Picture Company v. Nelson Entertainment Inc.,
53 Cal.App.4th 350, (Cal.App. 1997).
BLAKE & WANG, P.A. ENTERTAINMENT LAWYER SERVICES. ALL RIGHTS RESERVED.
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