                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-27-1999

Orson Inc v. Miramax Film Corp
Precedential or Non-Precedential:

Docket 97-1994




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http://digitalcommons.law.villanova.edu/thirdcircuit_1999/111


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Filed April 27, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 97-1994

ORSON, INC. t/a ROXY SCREENING ROOMS

v.

MIRAMAX FILM CORP.,
       Appellant

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 93-cv-04145)
(District Judge: Hon. J. Curtis Joyner)

Argued September 17, 1998

Before: SLOVITER, SCIRICA and ALITO, Circuit Judges

(Filed April 27, 1999)

       Thomas E. Zemaitis
       Barbara T. Sicalides
       Pepper, Hamilton & Scheetz
       Philadelphia, PA 19103-2799

       Carole E. Handler (Argued)
       Kaye, Scholer, Fierman, Hays
        & Handler
       Los Angeles, CA 90067

        Attorneys for Appellant
       Paul R. Rosen
       Jeffrey M. Goldstein (Argued)
       Spector, Gadon & Rosen
       Philadelphia, PA 19103

       Richard J. Perr (Argued)
       Fineman & Bach
       Philadelphia, PA 19103

        Attorneys for Appellee

OPINION OF THE COURT

SLOVITER, Circuit Judge.

I.

INTRODUCTION

Section 106 of the Copyright Act provides that, subject to
certain exceptions inapplicable here, the owner of a
copyright has:

       the exclusive rights to do and to authorize any of the
       following:

       . . .

       (3) to distribute copies or phonorecords of the
       copyrighted work to the public by sale or other transfer
       of ownership, or by rental, lease, or lending; [and]

       (4) in the case of literary, musical, dramatic, and
       choreographic works, pantomimes, and motion
       pictures and other audiovisual works, to perform the
       copyrighted work publicly.

17 U.S.C. S 106.

Another section of the same statute provides:

       On and after January 1, 1978, all legal or equitable
       rights that are equivalent to any of the exclusive rights
       within the general scope of copyright as specified by
       section 106 . . . are governed exclusively by this title.

                                  2
       Thereafter, no person is entitled to any such right or
       equivalent right in any such work under the common
       law or statutes of any State.

17 U.S.C. S 301.

Section 203-7 of the Pennsylvania Feature Motion Picture
Fair Business Practices Law (the "Pennsylvania Act")
provides that:

       No license agreement shall be entered into between
       distributor and exhibitor to grant an exclusivefirst run
       or an exclusive multiple first run for more than 42
       days without provision to expand the run to second
       run or subsequent run theatres within the
       geographical area and license agreements and prints of
       said feature motion picture shall be made available by
       the distributor to those subsequent run theatres that
       would normally be served on subsequent run
       availability.

73 Pa. Cons. Stat. S 203-7.

Appellant Miramax Film Corp., a motion picture
production and distribution company, appeals the District
Court's failure to overturn a jury's award of damages of
$159,780 to plaintiff Orson, Inc., the owner of a Center City
Philadelphia (referred to as "Center City") movie theater, for
Miramax's violation of section 203-7 of the Pennsylvania
Act by entering into an exclusive first-run exhibition
agreement for more than forty-two days with another
Center City theater. See Orson, Inc. v. Miramax Film Corp.,
983 F. Supp. 624 (E.D. Pa. 1997). Miramax argues for
reversal on the ground, inter alia, that the Pennsylvania Act
is preempted because it interferes with a copyright holder's
authority to exercise its exclusive rights to license the work.
Before we can address this provocative legal issue, we must
first consider Orson's argument that this court has already
decided this issue contrary to Miramax's position and that
we are bound to reject Miramax's preemption argument by
the law of the case doctrine and our own binding precedent.

                               3
II.

FACTS AND PROCEDURAL HISTORY

This is the second time the parties are before this court
in this case. The facts are presented in detail in our first
opinion which followed the District Court's grant of
summary judgment in favor of Miramax. See Orson, Inc. v.
Miramax Film Corp., 79 F.3d 1358 (3d Cir. 1996) ("Orson I").
Nonetheless, we recount the facts necessary for the issue
presented here.

Miramax distributes art films nationally, including in
Philadelphia and the surrounding metropolitan area. The
parties have not attempted to define "art films" other than
as we previously did by contrasting them with "movies that
may be characterized as `commercial' or `mainstream.' " Id.
at 1362. Only a limited number of theaters in any area
exhibit art films. Orson showed primarily second-run art
films from January 1992 through October 1994 through
the Roxy Screening Rooms, a Center City movie theater
with two screens. The first runs of Miramax's art films were
shown in Center City at the Ritz Theaters, a pair of theaters
with five screens each, the Ritz Five and the Ritz at the
Bourse (collectively, the "Ritz"). During its two and one-half
years of operation by Orson, the Roxy received only one
first-run movie from Miramax, and rarely received second-
run movies after the forty-second day of play at the Ritz,
despite repeated requests.

In August 1993, Orson filed suit against Miramax,
charging that Miramax's distribution of films, specifically in
its dealings with the Ritz, violated the Sherman Act, the
Pennsylvania common law tort of unreasonable restraint of
trade, and section 203-7 of the Pennsylvania Act. The
District Court granted Miramax's motion for summary
judgment as to both Orson's federal and state antitrust
claims. It also granted summary judgment to Miramax as to
Orson's claim under section 203-7 of the Pennsylvania Act
for nine of the fifteen films at issue because it construed
that provision as satisfied by Miramax's expansion of the
distribution of those films to suburban theaters before the
forty-third day of their runs at the Ritz; by agreement of the

                               4
parties, it dismissed without prejudice Orson's claim as to
the six remaining films. Orson, Inc. v. Miramax Film Corp.,
862 F. Supp. 1378 (E.D. Pa. 1994). Orson appealed.

This court affirmed the grant of summary judgment to
Miramax on the antitrust claim and the restraint of trade
claim. Orson I, 79 F.3d at 1358. The principal portion of
our opinion was directed to analyzing how the legal
principles regarding restraint of trade applied to the
arrangement by which Miramax granted the Ritz an
exclusive license to exhibit its first-run films. We concluded
that "Orson failed to present sufficient evidence to support
its claim that the Miramax-Ritz clearances were
unreasonable restraints of trade." Id. at 1372.

On the other hand, we vacated the judgment for Miramax
on Orson's claim under the Pennsylvania Act because we
determined that the District Court had erred in its
interpretation of section 203-7. The District Court had
construed the statutory requirement that a distributor,
such as Miramax, expand the run of the film after forty-two
days to other theaters in the "geographical area" to have
been satisfied by Miramax's expansion to suburban
theaters. We held, in the absence of any applicable opinion
by the Pennsylvania Supreme Court, that the relevant
geographical area for purposes of section 203-7 was the
same area covered by the license, i.e., Center City
Philadelphia. Because the record was disputed or
incomplete, we remanded for further proceedings as to
whether Miramax's actions as to those films violated section
203-7 of the Pennsylvania Act. Id. at 1374-75.

On remand, the case proceeded to a jury trial, and the
jury awarded Orson damages of $159,780. See Orson, Inc.,
983 F. Supp. at 626. The District Court denied Miramax's
post-trial motions. The court held that Orson had presented
sufficient evidence to establish that Miramax had caused
the injury, that Miramax acted willfully and intentionally,
and that the damages were proper. Id. at 634-36.

Additionally, the District Court rejected Miramax's
challenge to the constitutionality of section 203-7. The
court concluded that Third Circuit precedents had decided
the question of the facial validity of the Pennsylvania Act;

                               5
moreover, those same precedents "effectively foreclosed" an
as-applied challenge. Id. at 630.

Miramax filed a timely notice of appeal. It argues that
section 203-7 is unconstitutional on its face and as applied,
that the finding of willful and intentional violation is
erroneous as a matter of law, and that there was no
evidence to support the assumption that the Roxy (Orson's
theater) would have exhibited the films after forty-two days.
We have jurisdiction pursuant to 28 U.S.C. S 1291.

III.

EFFECT OF PRIOR DECISIONS

We engage in plenary review of a Motion for Judgment as
a Matter of Law and apply the same standards as the
district court. See Lightning Lube, Inc. v. Witco Corp., 4 F.3d
1153, 1166 (3d Cir. 1993). Where the issue involves purely
a question of law, such as federal preemption, we review
the decision of the district court de novo. See Espinal v.
Northwest Airlines, 90 F.3d 1452, 1455 (9th Cir. 1996).
However, Orson contends that we are foreclosed from
examining the legal issue presented because of the law of
the case doctrine and the holdings of our prior decisions.

A. Law of the Case

Orson's reliance on the law of the case doctrine need not
detain us long. This doctrine precludes a court from
reconsidering "issues previously resolved by an earlier
panel" in the same case. Atlantic Coast Demolition &
Recycling, Inc. v. Board of Chosen Freeholders, 112 F.3d
652, 663 (3d Cir. 1997); see also United States v. Local 560
(I.B.T.), 974 F.2d 315, 329 (3d Cir. 1992) ("When an
appellate court decides a legal issue, that decision governs
all subsequent proceedings in the same case."). As we
stated in Schultz v. Onan Corp., 737 F.2d 339, 345 (3d Cir.
1984), "[T]he law of the case doctrine applies `to issues that
were actually discussed by the court in the prior appeal
[and] to issues decided by necessary implication." Miramax
argues that there was no such discussion the first time this
case was before us.

                               6
Orson's law of the case argument is predicated on a
footnote in Orson I stating that this court had already
rejected a facial preemption challenge to section 203-7. See
79 F.3d at 1373 n.14. However, an examination of Orson I
shows plainly that it did not resolve the legal issues
regarding preemption that Miramax raises on appeal.

As we noted at the outset, Orson I was an appeal by
Orson from the District Court's grant of summary judgment
to Miramax in Orson's suit alleging that Miramax violated
the federal antitrust laws, engaged in restraint of trade and
violated section 203-7 of the Pennsylvania Act. See Orson
Inc., 862 F. Supp. at 1381. On appeal, after we considered
and affirmed the grant of summary judgment on the
antitrust and restraint of trade counts, we turned to
Orson's claims based on section 203-7. Because the
District Court had not construed section 203-7 to require
expansion after forty-two days in Center City, we remanded
for further proceedings because the summary judgment
record was either "disputed or incomplete in critical
respects." Id. at 1374.

There is no indication in the opinion that we focused on
the possibility that we could have avoided the remand if we
had decided that the Copyright Act preempted section 203-
7. At most, we rather summarily read our prior case law
regarding section 203-7 as having decided that issue. We
noted Miramax's contention that the federal Copyright Act
would preempt section 203-7 if the Act "were interpreted
this way," id. at 1373 n.14, but because we believed that
we had previously rejected a facial challenge on that ground
in two prior cases, see Associated Film Distrib. Corp. v.
Thornburgh ("AFD I"), 683 F.2d 808 (3d Cir. 1982), and
Associated Film Distrib. Corp. v. Thornburgh ("AFDI II"), 800
F.2d 369 (3d Cir. 1986), we did not discuss it further.
Orson I, 79 F.3d at 1373 n.14. Therefore, because the
preemption issue was neither actually discussed nor
necessarily decided by implication in Orson I -- the only
prior decision to which the law of the case doctrine might
arguably apply -- we hold that doctrine inapplicable here.

Therefore, we turn to consider Orson's argument that our
precedents on the preemption issue now foreclose our
review of Miramax's preemption claim.

                               7
B. Third Circuit IOP 9.1

Orson argues that this court decided in AFD I that
section 203-7 was not preempted by the federal Copyright
Act, and that therefore we are bound to that decision by
our Internal Operating Procedure ("IOP") 9.1.1 That IOP
reflects this court's commitment to "maintain a consistent
body of circuit jurisprudence." A.C.L.U. of New Jersey v.
Schundler, 1999 WL 77766 at *24 n.6 (3rd Cir. 1999).

The complaint in AFD I was filed shortly after the passage
in 1980 of the Pennsylvania Act. That Act comprehensively
regulates several aspects of the licensing, distribution, and
exhibition of films. It requires blind bidding by theaters,
outlines specific procedures for that bidding, prohibits
advances, and strictly curtails minimum guarantees. See
73 Pa. Cons. Stat. SS 203-1-203-6. It also includes the
section at issue here, which provides that no license
agreement between a distributor and an exhibitor can grant
an exclusive first run for more than forty-two days without
provision to expand the run to second-run or subsequent-
run theatres within the geographical area. See 73 Pa. Cons.
Stat. S 203-7. Finally, the Act creates private causes of
action by exhibitors against distributors for violations of its
provisions. See 73 Pa. Cons. Stat. S 203-10. The
Pennsylvania courts have never interpreted the Act's
provisions.

The plaintiffs in AFD I, movie distributors and producers,
filed a motion for declaratory judgment in the United States
District Court for the Eastern District of Pennsylvania
challenging the entire statutory scheme on various
grounds. The District Court granted summary judgment to
plaintiffs on all their claims. See Associated Film Distrib.
Corp. v. Thornburgh, 520 F. Supp. 971, 996 (E.D. Pa. 1981).
The court held that the Pennsylvania Act violated both the
First Amendment by indirectly restraining dissemination of
protected expression, id. at 991, and the Supremacy Clause
_________________________________________________________________

1. IOP 9.1 states: "It is the tradition of this court that the holding of
a
panel in a reported opinion is binding on subsequent panels. Thus, no
subsequent panel overrules the holding in a published opinion of a
previous panel. Court in banc consideration is required to do so."

                                8
because it was preempted by the federal Copyright Act. Id.
at 995-96.

In reaching the latter conclusion, the district court held
that certain provisions of the Pennsylvania Act, such as
those prohibiting advances, prohibiting guarantees in
percentage leases, requiring advance screenings, and
requiring certain bidding procedures, interfered with the
essence of the copyright grant because the provisions
"substantially restrict the conditions under which a
copyright holder may distribute and license its work." Id. at
994. The district court recognized that an Ohio district
court had upheld the constitutionality of a similar, but not
identical, Ohio statute. See Ohio Rev. Code Ann.
SS 1333.05-07 (Baldwin 1998). Nonetheless, the district
court in AFD I, emphasizing the differences between the
Pennsylvania and Ohio laws, viewed the Pennsylvania Act's
"broad and comprehensive regulation" to conflict with the
federal objectives of the Copyright Act. 520 F. Supp. at 995.
The court also concluded that the requirement in section
203-7, requiring that "[a]fter 42 days thefilm must be
reoffered for licensing and the run must be `expanded,' "
interfered with the copyright holder's freedom to license. Id.
at 994-95.

On appeal, this court reversed. AFD I, 683 F.2d at 817.
In our discussion, we relied essentially on the analysis
detailed both in the Ohio district court opinion reviewing
the Ohio statute and in the Sixth Circuit's opinion on
appeal. See Allied Artists Pictures Corp. v. Rhodes, 496 F.
Supp. 408 (S.D. Ohio 1980), aff'd in relevant part and
remanded in part, 679 F.2d 556 (6th Cir. 1982). With
respect to the First and Fourteenth Amendment claims,2 we
quoted extensively from the Ohio district court opinion,
which had rejected the First Amendment challenge, but we
stated that because the trial court here had granted
summary judgment, it was not able to evaluate the actual
impact of the Act, if any, on First Amendment values, it
_________________________________________________________________

2. Although the District Court's opinion referred exclusively to the First
Amendment, it is established that the Fourteenth Amendment applies
the provisions of the First Amendment to the states. See 44 Liquormart,
Inc. v. Rhode Island, 517 U.S. 484, 489 n.1 (1996).

                                9
could not assess the weight of the state's concerns, and it
could not make the necessary balance between the
distributor's protected rights and the nature and weight of
the state's concerns. AFD I, 683 F.2d at 813-14.
Accordingly, we remanded the case so that the district
court could apply the standards articulated in the Ohio
cases to the Pennsylvania Act.

We also decided that the court should not have granted
summary judgment on the copyright preemption claim.
Again, we relied almost exclusively on the analysis used by
the Ohio district court and the Sixth Circuit, which had
rejected the similar contentions made there. Id. at 816.

It is significant (and overlooked in our prior opinions)
that the Ohio district court, in deciding that the Ohio
statute did not create, grant or destroy any rights that are
"equivalent" to the exclusive rights of the federal Copyright
Act, stated, "Indeed, by providing procedures for the
licensing of a film, the Act recognizes sub silentio the right
of the copyright owner to exhibit the motion picture and to
grant an exclusive or restrictive license to others to exhibit
it." Allied Artists Pictures, 496 F. Supp. at 443. The Sixth
Circuit agreed with this language, see 679 F.2d at 663, and
we quoted it verbatim in AFD I. 683 F.2d at 814-15 n.11.
However, as with the First Amendment issue, we concluded
that the trial court should not have reached its decision on
summary judgment, and we remanded the preemption
issue, noting that although the Act on its face contains no
threat to the copyrights themselves:

       The question of whether and to what extent the
       Pennsylvania Act interferes with attaining the
       "purposes and objectives of Congress" is one which
       must be resolved before the trial court can decide, as a
       matter of law, whether the interference (if any) is such
       as to require invalidation of all or part of the
       Pennsylvania Act on preemption grounds.

Id. at 816 (emphasis added).

We emphasize that the Ohio statute did not have any
limitation on the length of the first run, that the Ohio court
on which we relied in AFD I stated that the Ohio statute
sub silentio recognized the copyright owner's right to grant

                               10
an exclusive license to exhibit the film, and that our
opinion in AFD I quoted that language about the copyright
owner's right to grant an exclusive license to exhibit the
film.

As the foregoing discussion makes clear, at most AFD I
remanded the legal decision with respect to the 42-day rule,
along with the provisions of the Act that we actually
discussed in the opinion, so the district court could
determine "whether and to what extent the Pennsylvania
Act interferes with attaining the `purposes and objectives of
Congress.' " Id. at 816. That we did not decide the
preemption issue is evident from the statement in the same
sentence that this question "is one which must be resolved
before the trial court can decide, as a matter of law,
whether the interference (if any) is such as to require
invalidation of all or part of the Pennsylvania Act on
preemption grounds." Id. (emphasis added). If we had
decided the copyright preemption issue as a matter of law,
there would have been no reason to remand for the trial
court to decide the same preemption issue as a matter of
law. Indeed, the most direct statement in AFD I regarding
section 203-7 -- "particularly with regard to the 42-day
provision, the Pennsylvania Act may have a greater impact
upon plaintiffs' copyright rights than the Ohio Act," id. at
816 n.12 -- suggests a potential preemption problem with
that section.

Surprisingly for a decision on which all the later cases
depend, the 42-day rule is never discussed or analyzed in
AFD I, undoubtedly because the Ohio statute under
discussion in the Ohio district court and the Sixth Circuit
opinions on which we relied did not have any comparable
provision. Moreover, we cannot regard our decision in AFD
I as a legal determination on the preemptive effect of the
Copyright Act on section 203-7 because the construction of
the requirements imposed by section 203-7 was first given
in Orson I, fourteen years after AFD I. Before that case, the
district judges had different understandings of the language
of that section. See Associated Film Distrib. , 520 F. Supp.
at 994-95 ("After 42 days, the film must be reoffered for
licensing, and the run must be `expanded.' "); Associated
Film Distrib., 614 F. Supp. at 1123-24 ("The statute does

                                11
not prevent distributors from contracting for runs longer
than six weeks. . . . The statute also does not prevent a
distributor from entering into a series of exclusive licenses
with exhibitors as long as each license does not exceed 42
days."); Orson, Inc., 862 F. Supp. at 1387 (Requirement for
expansion after 42 days satisfied because several of the
films under consideration " `expanded' to other Philadelphia
area theaters, outside of Center City Philadelphia, before
the 42-day period expired."). It was not until we reversed
the District Court's decision in Orson I that this court
provided our definitive construction of section 203-7, viz.,
that it required the copyright holder to expand its license to
another exhibitor within the same geographic area, that is,
Center City.

In case after case, courts commented on the vague and
uncertain meaning of the statutory language. See, e.g.,
Associated Film Distrib., 614 F. Supp. at 1111 ("this part of
the statute [section 203-7] was inartfully drafted, and
distributors interpret its requirements differently"); Orson,
Inc., 862 F. Supp. at 1387 (characterizing statute's wording
as "sufficiently vague" to permit alternate readings). It
would be stretching for us to hold IOP 9.1 applicable in
these circumstances. See, e.g., Connors v. Beth Energy
Mines, Inc., 920 F.2d 205, 211 n.7 (3d Cir. 1990) (holding
IOP 9.1 inapplicable when prior decision predicated on a
different record).

Orson may have been misled because we also fell into the
same error regarding the precedential effect of AFD I in two
later decisions. After the remand in AFD I, the district
court, after a six-week bench trial, issued its Findings of
Fact and Conclusions of Law in which it upheld the
constitutionality of the Pennsylvania Act against all
challenges. See Associated Film Distrib., 614 F. Supp. at
1125. This time the distributors appealed, arguing that the
Act violated the Commerce Clause (a claim not made in
AFD I), violated the First Amendment, and violated the
Supremacy Clause because of preemption by the Copyright
Act. We rejected the distributors' claims, and affirmed. AFD
II, 800 F.2d at 369.

With respect to the copyright preemption issue, we stated
that in AFD I we had "conclusively established that the

                               12
Pennsylvania Act was not facially preempted by the
Copyright Act," AFD II, 800 F.2d at 375, and construed our
remand to have been for a factual determination by the
District Court whether in actual operation the Act
prevented or interfered with federally created rights. Id. at
376. We noted that the distributors contended that "the
limitation on the length of exclusive runs to 42 days
interferes with the copyright owner's right to license
exclusively for the life of the copyright," id., and we
disagreed with the district court's construction of this
provision to mean that the Act "permitt[ed] a distributor to
enter into a series of exclusive contracts with the same
exhibitor as long as no contract lasted longer than 42
days," id. (citing 614 F. Supp. at 1123-24). In doing so, we
reiterated that the language required the distributor " `to
expand the run to second run or subsequent run theatres
within the geographical area.' " Id. at 377 (quoting 73 P.S.
S 203-7) (emphasis in opinion). Thus, although we rejected
the district court's interpretation of the Act and emphasized
the importance of the term "expand" in doing so, we offered
no further opinion as to what the Act affirmatively required.

We recognized "[t]here may be merit" to the preemption
issue raised by the distributors but believed our prior
opinion in AFD I decided the Pennsylvania Act is not
facially invalid. Id. at 377. The writer of that opinion
(coincidentally the writer of this opinion) opined that "the
42-day clause is inconsistent with the Copyright Act," id. at
377 n.3, but also believed we were bound by our prior
opinion.

As we have demonstrated above, we did not decide the
issue whether the 42-day rule is preempted by the
Copyright Act in AFD I. This writer concedes she erred in so
stating in AFD II. As has been said and oft-repeated,
"Wisdom too often never comes, and so one ought not to
reject it merely because it comes late." Henslee v. Union
Planters Bank, 335 U.S. 595, 600 (1949) (Frankfurter, J.,
dissenting). In any event, it is apparent that our opinion in
AFD II cannot be the basis for application of IOP 9.1
because the issue was not actually decided there. And, as
we explained earlier in this opinion, in Orson I we relied on
the statement in AFD II that the issue had been decided in
AFD I.

                               13
Accordingly, we believe that Orson is incorrect in arguing
that the issue of the preemption of section 203-7 as now
construed has previously been decided by this court. We
turn now to that issue.

IV.

PREEMPTION

The Supreme Court has recognized three ways in which
federal law may preempt, and thereby displace, state law:
(1) "express preemption," (2) "field preemption" (which is
also sometimes referred to as "implied preemption"), or (3)
"conflict preemption." See Pacific Gas & Elec. Co. v. Energy
Resources Conservation and Dev. Comm'n, 461 U.S. 190,
204 (1983); International Paper Co. v. Ouellette, 479 U.S.
481, 491 (1987). Express preemption arises when there is
an explicit statutory command that state law be displaced.
See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 382
(1992). An example of express preemption can be found in
the subsection of the Employee Retirement Income Security
Act of 1974, stating that the provisions of that Act "shall
supersede any and all State laws insofar as they may now
or hereafter relate to any employee benefit plan." 29 U.S.C.
S 1144(a).

Under field- or implied-preemption principles, state law
may be displaced "if federal law so thoroughly occupies a
legislative field as to make reasonable the inference that
Congress left no room for the States to supplement it."
Cippolone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992)
(internal quotation marks omitted).

Finally, state law may be displaced under conflict-
preemption principles if the state law in question presents
a conflict with federal law in one of two situations: when it
is impossible to comply with both the state and the federal
law, see Pacific Gas, 461 U.S. at 204, or when the state law
"stands as an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress,"
Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977).

As the Court has noted, these categories are not
necessarily air-tight. See English v. General Elec. Co., 496

                                14
U.S. 72, 79 n.5 (1990) ("By referring to these three
categories, we should not be taken to mean that they are
rigidly distinct. Indeed, field pre-emption may be
understood as a species of conflict pre-emption: A state law
that falls within a pre-empted field conflicts with Congress'
intent (either express or plainly implied) to exclude state
regulation.").

The Copyright Act contains an express preemption
provision in S 301, which states, in relevant part:

       On and after January 1, 1978, all legal or equitable
       rights that are equivalent to any of the exclusive rights
       within the general scope of copyright as specified by
       section 106 in works of authorship that are fixed in a
       tangible medium of expression and come within the
       subject matter of copyright as specified by sections 102
       and 103, whether created before or after that date and
       whether published or unpublished, are governed
       exclusively by this title. Thereafter, no person is
       entitled to any such right or equivalent right in any
       such work under the common law or statutes of any
       State.

17 U.S.C. S 301(a) (emphasis added). The exclusive rights in
the copyrighted work granted by the Act are reproduction;
preparation of derivative works; distribution by sale, rental,
lease or lending; public performance, in the case of motion
pictures or audiovisual works; and public display of
individual images from motion pictures or audiovisual
works. 17 U.S.C. S 106.

State laws, whether statutory or common law, are subject
to express preemption under Copyright Act S 301 only if
they create rights that are "equivalent" to the exclusive
rights within the general scope of copyright. See 17 U.S.C.
S 301(a); see also Ehat v. Tanner, 780 F.2d 876, 878 (10th
Cir. 1986) (because literary works, including compilations
and derivative works, are within the subject matter of
copyright, state common law that purported to protect a
work for which plaintiff 's copyright action was
unsuccessful was preempted); 1 Melville B. Nimmer and
David Nimmer, Nimmer on Copyright S 1.01[B][1] (1998)
(discussing various state law causes of action).

                               15
As noted above, conflict preemption may arise either
because " `compliance with both regulations is a physical
impossibility' or because the state law `stands as an
obstacle to the accomplishment and execution of the full
purposes and objectives of Congress.' " Jones, 430 U.S. at
525; see also Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
The purposes and objectives of Congress, which appear in
the Copyright Act, are to implement a nationally uniform
system for the creation and protection of rights in a
copyrighted work. See Goldstein v. California, 412 U.S. 546,
561 (1973) (turning "to federal copyright law to determine
what objectives Congress intended to fulfill").

An illustration of conflict preemption under the Copyright
Act is provided by Capital Cities Cable, Inc. v. Crisp, 467
U.S. 691, 710-11 (1984). That case concerned an Oklahoma
state law that banned advertising of alcoholic beverages by
cable operators. However, the Copyright Revision Act of
1976 established a program of compulsory copyright
licensing under the regulations of the Federal
Communications Commission (FCC) pursuant to which a
cable operator could transmit signals out of state upon
payment of service royalties. The Supreme Court held the
Oklahoma law preempted, not only because the FCC had
explicitly preempted the area, but also because the state
law would destroy or interfere with the exercise of a
federally created copyright right. Id. at 710-11; see also 1
Nimmer & Nimmer, supra, S 1.01[B][3]. Cf. Storer Cable
Communications v. City of Montgomery, 806 F. Supp. 1518,
1534 (M.D. Ala. 1992) (city ordinance requiring cable
programming provider to license programs to additional
entities unconstitutional through either S 301 or conflict
preemption).

In this case, Miramax argues both express preemption
and conflict preemption. In the case before us, we might be
able to apply both express preemption and conflict
preemption but because our analysis more closely parallels
that used in cases applying conflict principles, we proceed
on that ground.

In AFD I, in considering the distributors' claim of
preemption we adopted the analytical structure previously
employed by the Ohio federal courts construing the

                               16
comparable Ohio statute. AFD I, 683 F.2d at 817. Relying
on S 301 of the Copyright Act, the Ohio district court posed
the crucial question as "whether the. . . [motion picture] Act
creates, grants, or destroys any rights that are `equivalent'
to the exclusive rights of copyright set forth in 17 U.S.C.
S 106." Allied Artists Pictures Corp., 496 F. Supp. at 443.
That court concluded that the Ohio statute did not create
rights equivalent to those in S 106, and did not deprive the
distributors of copyright protections. Rather, the statute
"provid[ed] procedures for the licensing of a film,. . . [and]
recognize[d] sub silentio the right of the copyright owner to
exhibit and to grant an exclusive or restrictive license to
others to exhibit it." Id.

In the same opinion, the Ohio court also rejected the
argument that the Ohio statute stood as an obstacle to the
federally protected copyright (i.e., conflict preemption),
because it viewed the challenged provisions -- a limit on
guarantees, a prohibition on negotiations following
unsuccessful bidding, a process for bidding with a
concomitant ban on blind bidding, and a requirement for a
trade screening -- as regulating market practices, rather
than the copyright itself. For example, the court observed,
the exclusive rights conveyed by a copyright did not
authorize a copyright owner to engage in anti-competitive
practices in violation of antitrust laws or in fraudulent or
deceptive practices. Id. at 447 (citing, inter alia, United
States v. Paramount Pictures, Inc., 334 U.S. 131, 156-57
(1948), and Mariniello v. Shell Oil Co., 511 F.2d 853 (3d Cir.
1975)). Instead, the Ohio statute regulated distributors "in
order to achieve fair and open bargaining," just as other
state market regulations did. Id.

The distribution of motion pictures has been the subject
of attention since at least the 1940s when the Department
of Justice filed antitrust suits attacking certain practices
prevailing within the industry. See generally United States
v. Paramount Pictures, Inc., 334 U.S. 131 (1948) (requiring
distributors to divest ownership of exhibition theaters).
Again, in 1968 the effort of the Department of Justice to
correct certain distributors' business practices resulted in
stipulations in effect from 1969 to 1975 which restricted
the number of blind-bidding films placed on the market by

                               17
any single distributor. See Allied Artists Pictures Corp., 496
F. Supp. at 417 & n.6; Patrick McNamara, "Copyright
Preemption: Effecting the Analysis Prescribed by Section
301," 24 Boston College L. Rev. 963, 990 (1983) (citing
United States v. Paramount Pictures, Civ. Action 87-273
(S.D.N.Y. Aug. 14, 1968)).3

The exhibitors and their trade association then lobbied
state legislatures to adopt laws that prohibited blind
bidding, and nearly half the states did so between 1978
through 1983. See Kathy Herman, Comment, "Anti-Blind
Bidding Legislation in the Motion Picture Industry:
Associated Film Distribution Corp. v. Thornburgh," 5 J. L. &
Com. 293, 299 (1984).

The Pennsylvania Act is one of the most comprehensive
of the regulatory statutes enacted in that period. See
Associated Film Distrib., 520 F. Supp. at 979 (describing
Pennsylvania's Act as "more comprehensive" than "Ohio's
comparatively limited regulation"); see also Herman, supra,
5 J. L. & Com. at 304. Its provisions prohibiting blind
bidding, prohibiting advances, and limiting minimum
guarantees are comparable to regulation by other states of
several aspects of the licensing and distribution practices
for exhibition of films, and Miramax does not challenge
those regulatory provisions before us.

The legislative findings and purposes included in the
Pennsylvania Act set forth a litany of the unfair market
practices it sought to prevent or ameliorate.4 One of the
most egregious practices was that of blind bidding: the
marketing and licensing of a film prior to its completion
and without offering exhibitors a chance to trade screen the
_________________________________________________________________

3. In the mid-1980s, the Department of Justice also proceeded against
improper market practices by theater exhibitors themselves. See
generally Stanley I. Ornstein, "Motion Picture Distribution, Film
Splitting, and Antitrust Policy," 17 Hastings Comm. & Ent. L. J. 415
(1995).

4. These legislative concerns included, inter alia, undue control of
exhibitors; restraint, destruction, or inhibition of fair and honest
competition; unfair and deceptive acts or practices; and withholding full
information regarding prospective motion picture purchases or rentals in
a blind-bidding process. See 73 Pa. Cons. Stat. S 203-3.

                               18
final product. As a result, distributors could make
deceptive claims regarding films offered for bidding. See
Associated Film Distrib., 614 F. Supp. at 1107 (discussing
the distributors' practice of promoting films based on
multiple screen stars who had only cameo roles or who
were never seen together in a single scene); see also Allied
Artists Pictures, 496 F. Supp. at 429-30 (describing
information from distributors as "scant and sometimes
misleading"). The Pennsylvania Act prohibits this practice.
See 73 Pa. Cons. St. Ann. SS 203-4, -8(b); see also Ohio
Rev. Code Ann. S 1333.06(A).

Closely tied to the problem of blind bidding was the
unfairness in the bidding process itself which occurred
when distributors would unseal closed bids in collusion
with a favored exhibitor (the use of "five o'clock looks") in
order to enable the exhibitor to offer a sufficiently high bid
to obtain the film. See Associated Film Distrib., 614 F.
Supp. at 1112 ("Collusion between favorites often controlled
the bidding for pictures."); Allied Artists Pictures, 496 F.
Supp. at 430. There was even talk that some distributors
simply disregarded all the bids and awarded a license to a
favored exhibitor. See id.

To curtail these practices, the Pennsylvania Act requires
that distributors issue invitations to bid that contain, in
addition to the usual information, the names of all
exhibitors invited to bid, and the day, time, and location for
bid opening. See 73 Pa. Cons. St. Ann. S 203-8(a)-(c); see
also Ohio Rev. Code Ann. S 1333.07(A)-(D). Both the
Pennsylvania and the Ohio laws also require that exhibitors
be able to examine all the bids. See 73 Pa. Cons. St. S 203-
8(d); Ohio Rev. Code Ann. S 1333.07(E).5

Another industry practice that Pennsylvania considered
ripe for reform was the use of minimum guarantees and
advances, see Associated Film Distrib., 614 F. Supp. at
1109-10, which shifted the risks of unsuccessful
_________________________________________________________________

5. In Associated Film Distributors, the District Court observed that the
Pennsylvania Act "permits oral bid solicitation and oral bids." 614 F.
Supp. at 1112. Although the Act does not expressly permit an oral
invitation to bid and bidding process, neither does it expressly prohibit
either action.

                               19
exhibitions from distributors to exhibitors, who were
required to pay fixed sums in advance of showing. See
Allied Artists Pictures, 496 F. Supp. at 418. The provisions
of the Pennsylvania Act directed to this practice prohibit
minimum guarantee payments if there is also "a fee or
other payment . . . based in whole or in part on the
attendance or box office receipts," 73 Pa. Cons. St. S 203-5;
see also Ohio Rev. Code Ann. S 1333.06(B), and prohibit
advance payments in contracts for exhibition. See 73 Pa.
Cons. St. S 203-6. But see Ohio Rev. Code Ann.
S 1333.06(C) (allowing advances but prohibiting
requirement of payment more than fourteen days before
theater's first exhibition).

In AFD II, we recognized that statutes that bar exaction
of advances from exhibitors, limit guarantees, and regulate
the bidding and negotiation process may keep a distributor
from achieving the optimal monetary return for the film.
See AFD II, 800 F.2d at 376 (citing AFD I, 683 F.2d at 816
(quoting Allied Artists Pictures, 679 F.2d at 662-63)).
Nonetheless, we concluded that a reasonable government
regulation that seeks to remedy problems caused by the
economic disparity that impedes fairness in bargaining and
honesty in business dealings is not impermissible merely
because it has an economic effect on those regulated.

These regulations do not create a preemption issue
because they only "touch copyrighted works indirectly." 1
Nimmer & Nimmer, supra, S 1.01[B][3][c] at 1-65. However,
a state regulatory scheme that is "copyright-based in
essence" presents a different matter. See id. The 42-day
exclusive first-run license limitation in section 203-7 of the
Pennsylvania Act is a distinctly different regulation from
those within the state's power over improper market
practices. If the state's ban on exclusivity after forty-two
days directly regulates a right that is protected by federal
copyright law, it must, of necessity, be preempted under
conflict preemption principles.

Among the "exclusive rights" granted underS 106 in the
Copyright Act are the rights to "distribute" and to "perform
the copyrighted work publicly." However, section 203-7
requires the distributor to expand its distribution after
forty-two days by licensing another exhibitor in the same

                               20
geographic area, even if such expansion is involuntary. A
distributor who exercises its federal right to grant an
exclusive license to an exhibitor of choice will be subject to
liability under the Pennsylvania Act for refusing to grant
licenses to other exhibitors in the same geographic area
after the forty-second day. It is evident that the
Pennsylvania Act regulates the essence of the federally
protected copyright.

That a copyright encompasses the right to refuse to
license was reiterated by the Supreme Court in a decision
post-dating AFD I and AFD II, which stated that the
Copyright Act grants a copyright owner "the capacity
arbitrarily to refuse to license one who seeks to exploit the
work." Stewart v. Abend, 495 U.S. 207, 228-29 (1990)
(citing Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932));
see also Schnapper v. Foley, 667 F.2d 102, 114 (1981)
(vesting "the liberty not to license rights in his work");
Lawlor v. National Screen Serv. Corp., 270 F.2d 146, 154
(3d Cir. 1959) (recognizing corollary right under copyright
law to exclude others under licensing right).

In Storer Cable, 806 F. Supp. 1518, the court considered
a challenge to a local ordinance that raised a presumption
that cable programmers who entered into exclusive licenses
for the broadcast of their programming were engaging in
proscribed conduct. Although the city defended the
ordinance as a legitimate antitrust and pro-competition
regulation, the court held it was preempted because "a
presumption that exclusive licensing contracts are illegal is
. . . not amenable to any saving construction." Id. at 1540.
The court noted that "[a] party who holds a copyright for
cable programming and who does no more than grant
another an exclusive distribution or exhibition license is
then in automatic jeopardy of liability as a result of these
sections, as is the licensee." Id. at 1539.

Orson argues that once a copyright holder, such as
Miramax, makes an initial distribution, a state is free to
regulate the manner in which the work is thereafter
distributed. We reject Orson's contention. In College
Entrance Examination Board v. Pataki, 889 F. Supp. 554
(N.D.N.Y. 1995), the court addressed a New York State law
that required the owners of copyrights in certain

                                21
standardized tests, which were used, inter alia, for graduate
school admissions, to file copies of those tests with the
State after they were administered. The court held that the
New York law improperly interfered with the copyright
holders' rights under S 106 because it required
reproduction and distribution of the copyrighted tests in
the face of the owners' desire not to do so.

Applying a similar analysis in this case, we note that
Congress determined that the copyright holder should be
granted exclusive rights under S 106, albeit for a limited
period. Although a State regulation falling within the
federally established exceptions to those rights, such as fair
use, see 17 U.S.C. S 107, may obligate a copyright holder to
change its practices to accommodate such uses, see, e.g.,
Association of Am. Med. Colleges v. Carey, 928 F.2d 519,
525-26 (2d Cir. 1991) (remanding to district court to make
factual findings on whether existing State law constitutes
fair use), the parties here have not suggested, nor can we
conclude, that the regulation enacted through section 203-
7 falls within one of the Copyright Act's exceptions.

Rather, the Pennsylvania Act, like the New York law
regulating standardized tests, would impose on copyright
holders, contrary to their exclusive rights underS 106, an
obligation to distribute and make available other copies of
the work following their initial decision to publish and
distribute copies of the copyrighted item. Although it is
true, as Orson points out, that the examiners in Association
of American Medical Colleges and in College Entrance
engaged in extensive efforts to prevent disclosure of their
tests, see Appellee Br. at 17 n.10, this factor does not
change the fundamental principle that these cases offer:
the State may not mandate distribution and reproduction of
a copyrighted work in the face of the exclusive rights to
distribution granted under S 106.

Even Orson's own quotation of Warner Bros., Inc v.
Wilkinson, 533 F. Supp. 105 (D. Utah 1981), appeal
dismissed and case remanded, 782 F.2d 136 (10th Cir.
1985), another federal decision discussing an anti-blind
bidding statute, supports our distinction between
regulations that are designed to assure a fair market and
honest business dealings and those that direct a copyright

                                22
holder to distribute and license against its will or interests.
That court stated,

       The right to transfer or license copyrighted material for
       use by others under sections 106 and 201 et seq. of
       the Copyright Act has never encompassed a right to
       transfer the work at all times and at all places free and
       clear of all regulation; it has meant that the copyright
       owner has the exclusive right to transfer the material
       for a consideration to others.

533 F. Supp. at 108 (emphasis added). Nothing in that
quotation detracts from the copyright owner's exclusive
federal right to decide to whom it will transfer the work.
Moreover, the language from the same paragraph serves to
support precisely the point made herein; as the Warner
Bros. court stated, "No one has appropriated a product
protected by the copyright law for commercial exploitation
against the copyright owner's wishes." Id. at 108 (emphasis
added).

Unlike the provisions in the Pennsylvania Act that are
directed to market practices that have no counterpart in
the Copyright law, section 203-7 conflicts with the
Copyright Act's grant to the copyright holder of an exclusive
right to distribute and license a work, and it therefore
follows that it is preempted.

V.

CONCLUSION

In conclusion, we hold that because S 203-7 of the
Pennsylvania Feature Motion Picture Fair Business
Practices Law "stands as an obstacle" to the federally
created exclusive rights given to a copyright holder, namely,
the exclusive right to distribute the copyrighted work, it is
preempted by the federal Copyright Act. Our dictum in AFD
I that section 203-7 "may have a greater impact upon [a
distributor's] copyright rights," AFD I, 683 F.2d at 816, was
prescient.6
_________________________________________________________________

6. In light of our conclusion, we need not address Miramax's objections
to the trial proceedings.

                               23
For the reasons set forth above, we will reverse the
decision of the District Court denying Miramax's Motion for
Judgment as a Matter of Law and directing entry of
judgment for Miramax.

                               24
ALITO, Circuit Judge, dissenting:

The court makes a strong argument that Section 203-7 of
the Pennsylvania Feature Motion Picture Fair Business
Practices Law, 78 Pa. Cons. Stat. S 203-7 (the
"Pennsylvania Act"), is invalid on its face under principles
of conflict preemption, but I believe that this argument is
foreclosed by the panel decision in Associated Film
Distribution Corporation v. Thornburgh, 683 F.2d 808, 816-
17 (3d Cir. 1982) ("AFD I"). In my view, Judge Sloviter,
writing for the Court, interpreted AFD I correctly in
Associated Film Distribution v. Thornburgh, 800 F.2d 369
(3d Cir. 1986) ("AFD II"), when she wrote:

       [T]he earlier decision of this court [" AFD I"] conclusively
       established that the Pennsylvania Act was not facially
       preempted by the Copyright Act. At the same time, we
       recognized that in actual operation the Act might
       prevent or interfere with the goals of the Copyright Act
       and remanded for a factual determination by the
       district court of the Act's actual impact on federally
       created rights.

Id. at 375-76. Specifically addressing the 42-day provision,
Judge Sloviter wrote:

       There may be merit to the distributors' argument that
       the 42-day provision, when construed as limiting the
       distributors' right to license an exclusive run to 42
       days, is preempted by the Copyright Act. However,
       such preemption would be apparent on the face of the
       statute and cannot be reconciled with the court's
       earlier decision that the Act is not facially invalid under
       the Copyright Act. . . . [W]e are bound to that position.

Id. at 377.

In a footnote, she added:

       The writer of this opinion believes that the 42-day
       clause is inconsistent with the Copyright Act. The
       Copyright Act gives the owner of a copyright the
       exclusive right to distribute copies of the copyrighted
       work by rental, lease, or lending. 17 U.S.C. S 106(3);
       see also M. Nimmer, Nimmer on Copyright S 8.11 at 8-
       115 (1985). That right encompasses the grant of an

                               25
       exclusive license for a period as long as the copyright
       owner desires within the term of the copyright.
       Nonetheless, she feels compelled to join her colleagues
       in affirming the district court decision because Internal
       Operating Procedure 8C of this court [now IOP 9.1]
       binds subsequent panels to reported panel opinions.
       Court in banc consideration is required to overrule a
       published opinion.

Id. at 377 n.3.

I also agree with the way AFD I was interpreted in the
earlier appeal in this case. In Orson, Inc. v. Miramax Film,
Corp., 79 F.3d 1358, 1373 n.14 ( 3d Cir. 1996), the panel
stated:

       [W]e have already rejected a facial challenge to Section
       203-7 under the Copyright Act, holding that "the Act
       on its face contains no threat to copyrights themselves
       . . . ." Associated Film Distribution Corp. v. Thornburgh,
       683 F.2d 808, 816 (3d Cir. 1982), cert. denied, 480
       U.S. 933, 107 S. Ct. 1573, 94 L.Ed. 2d 765 (1987); see
       Associated Film Distribution Corp. v. Thornburgh, 800
       F.2d 369, 377 (3d Cir. 1986), cert. denied, 480 U.S.
       933, 107 S. Ct. 1573, 94 L.Ed. 2d 765 (1987) . . . .

While I entirely agree with the court that we are not
constrained to follow dicta in prior opinions, I cannot
reconcile the court's holding in this case with the holding of
the prior panel in AFD I. The court's reinterpretation of AFD
I is an innovative tour de force, but in the end I find it
unconvincing. Accordingly, I respectfully dissent.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               26
