DVD Copy Control Ass’n, Inc. v. Kaleidescape, Inc., 2009 WL 2450711 (Cal.App. 6 Dist. 2009)

I thought it would be worthwhile to mention the secondary licensing issue decided in Kaleidescape. DVD Copy Control Association’s licensing agreement contained one of those ubiquitous provisions that states that a party is entitled to an injunction upon breach:

[S]ection 9.2 of the License Agreement contained the recitation: “[D]ue to the unique nature of certain provisions hereof and the lasting effect of and harm from a breach of such provisions . . . in the event that Licensee breaches its obligations . . . , money damages alone will not adequately compensate an injured party . . . [and,] upon showing to the relevant court’s satisfaction that applicable factors other than the fact that harm will be irreparable and that monetary damages are not sufficient to remedy the injury have been fulfilled, will be entitled to specific performance or other temporary, preliminary, or permanent injunctive relief including corrective actions appropriate to the circumstances for the enforcement of any such obligations (whether or not there have been commercial sales of products subject to the requested relief).

The California state trial court appeared to reject the stipulation outright because “parties cannot control the sound exercise of jurisdiction by the trial court acting in equity.” The Court of Appeals clarified that the stipulation was binding to the extent that it would not be contrary to a rule of law or public policy.  The Court compared the injunction provision in this respect to a  liquidated damages stipulation and a consent decree:

It follows that, as a general matter, where the parties have stipulated to the nature or amount of a remedy, it is proper for the trial court to honor the parties’ agreement unless it finds that to do so would be contrary to a rule of law or public policy. The instant stipulation is no exception. In determining the lawfulness of a stipulation that contemplates an equitable remedy, the court should take into account the special nature of equitable remedies. (13 Witkin, Summary of Cal. Law, supra, Equity, § 2, p. 283.) Given their extraordinary nature, equitable remedies are usually unavailable where the remedy at law is adequate, as where damages are quantifiable. (Id. at § 3, pp. 284-285; Morrison v. Land (1915) 169 Cal. 580, 586.) That means that a court must reject a stipulation contemplating an equitable remedy that is contrary to law or public policy, such as where the evidence shows that an aggrieved party actually has an adequate remedy at law. Otherwise, the court should honor the parties’ agreement and enforce the stipulation. In the present case, the evidence was that the CSS license helped create the market for movies in the DVD format by reassuring the movie studios that movies released on DVDs could not be easily copied. Industry witnesses testified to their concern that an unaddressed breach of the license would undermine that reassurance and make the movie.

Fn 6. The majority of the appellate cases from other jurisdictions cited by the parties handle the issue in just this way. (See Dominion Video v. Echostar Satellite Corp. (10th Cir. 2004) 356 F.3d 1256, 1259, 1264 [rejecting preliminary injunction based upon contractual stipulation where district court had rejected all the plaintiff?s evidence of actual harm and found that damages could be quantified]; Smith, Bucklin & Associates, Inc. v. Sonntag (D.C. Cir. 1996) 83 F.3d 476, 478, 481 [contractual provision was “insufficient prop” to support irreparable harm finding where injury could be adequately compensated at law]; Ed Bertholet & Associates v. Stefanko (Ind.App. 1998) 690 N.E.2d 361, 363-364 [contractual provision not binding upon the court where there was no evidence of irreparable harm and affirmative evidence of adequate monetary remedy]; Ticor Title Ins. Co. v. Cohen (2nd Cir. 1999) 173 F.3d 63, 68-69 [permanent injunction upheld where irreparable harm shown by difficulty in calculating monetary damages and contractual provision stipulating that breach would cause irreparable injury].)