Subafilms, Ltd. The Hearst Corp., Plaintiffs-Counter-Defendants-Appellees v. Mgm-Pathe Communications Co., Fka Mgm/ua Communications Co. And as United Artists Corporation Mgm/ua Home Video, Inc. Warner Home Video, Inc. Warner Bros. Inc., Defendants-Counter-Claimants-Appellants. Subafilms, Ltd. The Hearst Corp. v. Mgm-Pathe Communications Co., Fka Mgm/ua Communications Co. And as United Artists Corporation Mgm/ua Home Video, Inc. Warner Home Video, Inc. Warner Bros. Inc. United Artists Corporation

In this case, we consider the "vexing question"1 of whether a claim for infringement can be brought under the Copyright Act, 17 U.S.C. Sec. 101 et seq. (1988), when the assertedly infringing conduct consists solely of the authorization within the territorial boundaries of the United States of acts that occur entirely abroad. We hold that such allegations do not state a claim for relief under the copyright laws of the United States.

In 1966, the musical group The Beatles, through Subafilms, Ltd., entered into a joint venture with the Hearst Corporation to produce the animated motion picture entitled "Yellow Submarine" (the "Picture"). Over the next year, Hearst, acting on behalf of the joint venture (the "Producer"), negotiated an agreement with United Artists Corporation ("UA") to distribute and finance the film. Separate distribution and financing agreements were entered into in May, 1967. Pursuant to these agreements, UA distributed the Picture in theaters beginning in 1968 and later on television.

In the early 1980s, with the advent of the home video market, UA entered into several licensing agreements to distribute a number of its films on videocassette. Although one company expressed interest in the Picture, UA refused to license "Yellow Submarine" because of uncertainty over whether home video rights had been granted by the 1967 agreements. Subsequently, in 1987, UA's successor company, MGM/UA Communications Co. ("MGM/UA"), over the Producer's objections, authorized its subsidiary MGM/UA Home Video, Inc. to distribute the Picture for the domestic home video market, and, pursuant to an earlier licensing agreement, notified Warner Bros., Inc. ("Warner") that the Picture had been cleared for international videocassette distribution. Warner, through its wholly owned subsidiary, Warner Home Video, Inc., in turn entered into agreements with third parties for distribution of the Picture on videocassette around the world.

In 1988, Subafilms and Hearst ("Appellees") brought suit against MGM/UA, Warner, and their respective subsidiaries (collectively the "Distributors" or "Appellants"), contending that the videocassette distribution of the Picture, both foreign and domestic, constituted copyright infringement and a breach of the 1967 agreements. The case was tried before a retired California Superior Court Judge acting as a special master. The special master found for Appellees on both claims, and against the Distributors on their counterclaim for fraud and reformation. Except for the award of prejudgment interest, which it reversed, the district court adopted all of the special master's factual findings and legal conclusions. Appellees were awarded $2,228,000.00 in compensatory damages, split evenly between the foreign and domestic home video distributions. In addition, Appellees received attorneys' fees and a permanent injunction that prohibited the Distributors from engaging in, or authorizing, any home video use of the Picture.

A panel of this circuit, in an unpublished disposition, affirmed the district court's judgment on the ground that both the domestic and foreign distribution of the Picture constituted infringement under the Copyright Act. See Subafilms, Ltd. v. MGM-Pathe Communications Co., Nos. 91-56248, 91-56379, 91-56289, 1993 WL 39269 (9th Cir. Feb. 17, 1993).2 With respect to the foreign distribution of the Picture, the panel concluded that it was bound by this court's prior decision in Peter Starr Prod. Co. v. Twin Continental Films, Inc., 783 F.2d 1440 (9th Cir.1986), which it held to stand for the proposition that, although " 'infringing actions that take place entirely outside the United States are not actionable' [under the Copyright Act, an] 'act of infringement within the United States' [properly is] alleged where the illegal authorization of international exhibitions t[akes] place in the United States," Subafilms, slip op. at 4917-18 (quoting Peter Starr, 783 F.2d at 1442, 1443 (emphasis in original) (alterations added)). Because the Distributors had admitted that the initial authorization to distribute the Picture internationally occurred within the United States, the panel affirmed the district court's holding with respect to liability for extraterritorial home video distribution of the Picture.3

We granted Appellants' petition for rehearing en banc to consider whether the panel's interpretation of Peter Starr conflicted with our subsequent decision in Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965 (9th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1582, 123 L.Ed.2d 149 (1993), which held that there could be no liability for authorizing a party to engage in an infringing act when the authorized "party's use of the work would not violate the Copyright Act," id. at 970; see also Columbia Pictures Indus., Inc. v. Professional Real Estate Investors, Inc., 866 F.2d 278, 279-81 (9th Cir.1989) (holding that a hotel was not liable under the Copyright Act for making available videodisc players for in-room viewing), rev'd on other grounds, --- U.S. ----, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993). Because we conclude that there can be no liability under the United States copyright laws for authorizing an act that itself could not constitute infringement of rights secured by those laws, and that wholly extraterritorial acts of infringement are not cognizable under the Copyright Act, we overrule Peter Starr insofar as it held that allegations of an authorization within the United States of infringing acts that take place entirely abroad state a claim for infringement under the Act. Accordingly, we vacate the panel's decision in part and return the case to the panel for further proceedings.

I. The Mere Authorization of Extraterritorial Acts of

Infringement does not State a Claim under the Copyright Act

As the panel in this case correctly concluded, Peter Starr held that the authorization within the United States of entirely extraterritorial acts stated a cause of action under the "plain language" of the Copyright Act. Peter Starr, 783 F.2d at 1442-43. Observing that the Copyright Act grants a copyright owner "the exclusive rights to do and to authorize" any of the activities listed in 17 U.S.C. Sec. 106(1)-(5), id. at 1442 (emphasis in original),4 and that a violation of the "authorization" right constitutes infringement under section 501 of the Act, the Peter Starr court reasoned that allegations of an authorization within the United States of extraterritorial conduct that corresponded to the activities listed in section 106 "allege[d] an act of infringement within the United States," id. at 1442-43. Accordingly, the court determined that the district court erred "in concluding that 'Plaintiff allege[d] only infringing acts which took place outside of the United States,' " and reversed the district court's dismissal for lack of subject matter jurisdiction. Id. at 1443.5

The Peter Starr court accepted, as does this court,6 that the acts authorized from within the United States themselves could not have constituted infringement under the Copyright Act because "[i]n general, United States copyright laws do not have extraterritorial effect," and therefore, "infringing actions that take place entirely outside the United States are not actionable." Peter Starr, 783 F.2d at 1442 (citing Robert Stigwood Group, Ltd. v. O'Reilly, 530 F.2d 1096, 1101 (2d Cir.), cert. denied, 429 U.S. 848, 97 S.Ct. 135, 50 L.Ed.2d 121 (1976)). The central premise of the Peter Starr court, then, was that a party could be held liable as an "infringer" under section 501 of the Act merely for authorizing a third party to engage in acts that, had they been committed within the United States, would have violated the exclusive rights granted to a copyright holder by section 106.

Since Peter Starr, however, we have recognized that, when a party authorizes an activity not proscribed by one of the five section 106 clauses, the authorizing party cannot be held liable as an infringer. In Lewis Galoob, we rejected the argument that "a party can unlawfully authorize another party to use a copyrighted work even if that party's use of the work would not violate the Copyright Act," Lewis Galoob, 964 F.2d at 970, and approved of Professor Nimmer's statement that " 'to the extent that an activity does not violate one of th[e] five enumerated rights [found in 17 U.S.C. Sec. 106], authorizing such activity does not constitute copyright infringement,' " id. (quoting 3 David Nimmer & Melville B. Nimmer, Nimmer on Copyright Sec. 12.04[A][a], at 12-80 n. 82 (1991)). Similarly, in Columbia Pictures, we held that no liability attached under the Copyright Act for providing videodisc players to hotel guests when the use of that equipment did not constitute a "public" performance within the meaning of section 106 of the Act, see Columbia Pictures, 866 F.2d at 279-81.

The apparent premise of Lewis Galoob was that the addition of the words "to authorize" in the Copyright Act was not meant to create a new form of liability for "authorization" that was divorced completely from the legal consequences of authorized conduct, but was intended to invoke the preexisting doctrine of contributory infringement. See Lewis Galoob, 964 F.2d at 970 ("Although infringement by authorization is a form of direct infringement [under the Act], this does not change the proper focus of our inquiry; a party cannot authorize another party to infringe a copyright unless the authorized conduct would itself be unlawful."). We agree.

Contributory infringement under the 1909 Act developed as a form of third party liability. Accordingly, there could be no liability for contributory infringement unless the authorized or otherwise encouraged activity itself could amount to infringement. See, e.g., Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir.1971) ("[O]ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a 'contributory' infringer." (emphasis added)); cf. Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 526, 92 S.Ct. 1700, 1706, 32 L.Ed.2d 273 (1972) ("But it is established that there can be no contributory infringement without the fact or intention of a direct infringement. 'In a word, if there is no [direct] infringement of a patent there can be no contributory infringer.' " (quoting Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S. 661, 677, 64 S.Ct. 268, 276, 88 L.Ed. 376 (1944) (Frankfurter, J., dissenting on other grounds) (alteration added by Deepsouth Court))).7 See generally 1 Paul Goldstein, Copyright: Principles, Law and Practice Sec. 6.1, at 705 (1989) [hereinafter Goldstein] ("It is definitional that, for a defendant to be held contributorily ... liable, a direct infringement must have occurred."); 3 David Nimmer & Melville B. Nimmer, Nimmer on Copyright Sec. 12.04[A][b], at 12-81 (1993) [hereinafter Nimmer] ("There can, by definition, be no contributory liability if that conduct which is aided by the putative contributory infringer is not itself infringing."). Indeed, the Supreme Court in Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984), although expressly noting that it addressed an extraordinary claim of vicarious or contributory infringement under the 1976 Act for which there was "no precedent in the law of copyright," id. at 439, 104 S.Ct. at 787, inquired whether the machines sold by Sony ultimately were capable of a "substantial noninfringing use[ ]," id., at 442, 104 S.Ct. at 789 (emphasis added); see also Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 845 (11th Cir.1990) ("Contributory infringement necessarily must follow a finding of direct or primary infringement.").

As the Supreme Court noted in Sony, and this circuit acknowledged in Peter Starr, under the 1909 Act courts differed over the degree of involvement required to render a party liable as a contributory infringer. See Sony, 464 U.S. at 437-38 & n. 18, 104 S.Ct. at 786-87 & n. 18; Peter Starr, 783 F.2d at 1443. Viewed with this background in mind, the addition of the words "to authorize" in the 1976 Act appears best understood as merely clarifying that the Act contemplates liability for contributory infringement, and that the bare act of "authorization" can suffice. This view is supported by the legislative history of the Act:

The exclusive rights accorded to a copyright owner under section 106 are "to do and to authorize" any of the activities specified in the five numbered clauses. Use of the phrase "to authorize" is intended to avoid any questions as to the liability of contributory infringers. For example, a person who lawfully acquires an authorized copy of a motion picture would be an infringer if he or she engages in the business of renting it to others for purposes of unauthorized public performance.

H.R.Rep. No. 1476, 94th Cong., 2d Sess. 61, reprinted in 1976 U.S.C.C.A.N. 5659, 5674 (emphasis added).

Consequently, we believe that " 'to authorize' [wa]s simply a convenient peg on which Congress chose to hang the antecedent jurisprudence of third party liability." 3 Nimmer, supra, Sec. 12.04[A][a], at 12-84 n. 81.

Although the Peter Starr court recognized that the addition of the authorization right in the 1976 Act "was intended to remove the confusion surrounding contributory ... infringement," Peter Starr, 783 F.2d at 1443, it did not consider the applicability of an essential attribute of the doctrine identified above: that contributory infringement, even when triggered solely by an "authorization," is a form of third party liability that requires the authorized acts to constitute infringing ones. We believe that the Peter Starr court erred in not applying this principle to the authorization of acts that cannot themselves be infringing because they take place entirely abroad. As Professor Nimmer has observed:

Accepting the proposition that a direct infringement is a prerequisite to third party liability, the further question arises whether the direct infringement on which liability is premised must take place within the United States. Given the undisputed axiom that United States copyright law has no extraterritorial application, it would seem to follow necessarily that a primary activity outside the boundaries of the United States, not constituting an infringement cognizable under the Copyright Act, cannot serve as the basis for holding liable under the Copyright Act one who is merely related to that activity within the United States.

3 Nimmer, supra, Sec. 12.04[A][b], at 12-86 (footnotes omitted).

Appellees resist the force of this logic, and argue that liability in this case is appropriate because, unlike in Lewis Galoob and Columbia Pictures, in which the alleged primary infringement consisted of acts that were entirely outside the purview of 17 U.S.C. Sec. 106(1)-(5) (and presumably lawful), the conduct authorized in this case was precisely that prohibited by section 106, and is only uncognizable because it occurred outside the United States. Moreover, they contend that the conduct authorized in this case would have been prohibited under the copyright laws of virtually every nation. See also 1 Goldstein, supra, Sec. 6.1, at 706 n. 4 (suggesting that "Peter Starr's interpretation of section 106's authorization right would appear to be at least literally correct since the statute nowhere requires that the direct infringement occur within the United States."); ITSI T.V. Prods., Inc. v. California Auth. of Racing Fairs, 785 F.Supp. 854, 863 (E.D.Cal.1992) (asserting that "because 'authorization' is itself actionable as a 'direct' act of copyright infringement, the fact that the act 'authorized' occurs abroad is irrelevant"), rev'd on other grounds, 3 F.3d 1289 (9th Cir.1993).

Even assuming arguendo that the acts authorized in this case would have been illegal abroad, we do not believe the distinction offered by Appellees is a relevant one. Because the copyright laws do not apply extraterritorially, each of the rights conferred under the five section 106 categories must be read as extending "no farther than the [United States'] borders." 2 Goldstein, supra, Sec. 16.0, at 675. See, e.g., Robert Stigwood, 530 F.2d at 1101 (holding that no damages could be obtained under the Copyright Act for public performances in Canada when preliminary steps were taken within the United States and stating that "[t]he Canadian performances, while they may have been torts in Canada, were not torts here"); see also Filmvideo Releasing Corp. v. Hastings, 668 F.2d 91, 93 (2d Cir.1981) (reversing an order of the district court that required the defendant to surrender prints of a film because the prints could be used to further conduct abroad that was not proscribed by United States copyright laws). In light of our above conclusion that the "authorization" right refers to the doctrine of contributory infringement, which requires that the authorized act itself could violate one of the exclusive rights listed in section 106(1)-(5), we believe that "[i]t is simply not possible to draw a principled distinction" between an act that does not violate a copyright because it is not the type of conduct proscribed by section 106, and one that does not violate section 106 because the illicit act occurs overseas. Danjaq, S.A. v. MGM/UA Communications, Co., 773 F.Supp. 194, 203 (C.D.Cal.1991), aff'd on other grounds, 979 F.2d 772 (9th Cir.1992). In both cases, the authorized conduct could not violate the exclusive rights guaranteed by section 106. In both cases, therefore, there can be no liability for "authorizing" such conduct. See also 3 Nimmer, supra, Sec. 12.04[A][b], at 12-87 to 12-88.

To hold otherwise would produce the untenable anomaly, inconsistent with the general principles of third party liability, that a party could be held liable as an infringer for violating the "authorization" right when the party that it authorized could not be considered an infringer under the Copyright Act. Put otherwise, we do not think Congress intended to hold a party liable for merely "authorizing" conduct that, had the authorizing party chosen to engage in itself, would have resulted in no liability under the Act. Cf. Robert Stigwood, 530 F.2d at 1101.8

Appellees rely heavily on the Second Circuit's doctrine that extraterritorial application of the copyright laws is permissible "when the type of infringement permits further reproduction abroad." Update Art, Inc. v. Modiin Publishing, Ltd., 843 F.2d 67, 73 (2d Cir.1988). Whatever the merits of the Second Circuit's rule, and we express no opinion on its validity in this circuit, it is premised on the theory that the copyright holder may recover damages that stem from a direct infringement of its exclusive rights that occurs within the United States. See Robert Stigwood, 530 F.2d at 1101; Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 52 (2d Cir.1939) (L. Hand, J.) ("The negatives were 'records' from which the work could be 'reproduced', and it was a tort to make them in this country. The plaintiffs acquired an equitable interest in them as soon as they were made, which attached to any profits from their exploitation...."), aff'd, 309 U.S. 390, 60 S.Ct. 681, 84 L.Ed. 825 (1940); see also Ahbez v. Edwin H. Morris & Co., Inc., 548 F.Supp. 664, 667 (S.D.N.Y.1982); Famous Music Corp. v. Seeco Records, Inc., 201 F.Supp. 560, 568-69 (S.D.N.Y.1961).9 In these cases, liability is not based on contributory infringement, but on the theory that the infringing use would have been actionable even if the subsequent foreign distribution that stemmed from that use never took place. See, e.g., Famous Music, 201 F.Supp. at 569 ("[T]hat a copyright has no extra-territorial effect[ ] does not solve th[e] problem of [whether liability should attach for preparing within the United States tapes that were part of a] manufacture [completed abroad] since plaintiffs seek to hold defendant for what it did here rather than what it did abroad." (emphasis in original)). These cases, therefore, simply are inapplicable to a theory of liability based merely on the authorization of noninfringing acts.

Accordingly, accepting that wholly extraterritorial acts of infringement cannot support a claim under the Copyright Act, we believe that the Peter Starr court, and thus the panel in this case, erred in concluding that the mere authorization of such acts supports a claim for infringement under the Act.

II. The Extraterritoriality of the Copyright Act

Appellees additionally contend that, if liability for "authorizing" acts of infringement depends on finding that the authorized acts themselves are cognizable under the Copyright Act, this court should find that the United States copyright laws do extend to extraterritorial acts of infringement when such acts "result in adverse effects within the United States." Appellees buttress this argument with the contention that failure to apply the copyright laws extraterritorially in this case will have a disastrous effect on the American film industry, and that other remedies, such as suits in foreign jurisdictions or the application of foreign copyright laws by American courts, are not realistic alternatives.

We are not persuaded by Appellees' parade of horribles.10 More fundamentally, however, we are unwilling to overturn over eighty years of consistent jurisprudence on the extraterritorial reach of the copyright laws without further guidance from Congress.

The Supreme Court recently reminded us that "[i]t is a long-standing principle of American law 'that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.' " EEOC v. Arabian American Oil Co. (Aramco ), 499 U.S. 244, 248, 111 S.Ct. 1227, 1230, 113 L.Ed.2d 274 (1991) (quoting Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285, 69 S.Ct. 575, 577, 93 L.Ed. 680 (1949)). Because courts must "assume that Congress legislates against the backdrop of the presumption against extraterritoriality," unless "there is 'the affirmative intention of the Congress clearly expressed' " congressional enactments must be presumed to be " 'primarily concerned with domestic conditions.' " Id. 499 U.S. at 248, 111 S.Ct. at 1230 (quoting Foley Bros., 336 U.S. at 285, 69 S.Ct. at 577 and Benz v. Compania Naviera Hidalgo, S.A., 353 U.S. 138, 147, 77 S.Ct. 699, 704, 1 L.Ed.2d 709 (1957)).

The "undisputed axiom," 3 Nimmer, supra, Sec. 12.04[A][b], at 12-86, that the United States' copyright laws have no application to extraterritorial infringement predates the 1909 Act, see, e.g., United Dictionary Co. v. G. & C. Merriam Co., 208 U.S. 260, 264-66, 28 S.Ct. 290, 290-91, 52 L.Ed. 478 (1908) (Holmes, J.), and, as discussed above, the principle of territoriality consistently has been reaffirmed, see, e.g., Capitol Records, Inc. v. Mercury Records Corp., 221 F.2d 657, 662 (2d Cir.1955) (citing American Code Co. v. Bensinger, 282 F. 829, 833 (2d Cir.1922) ("The copyright laws of one country have no extraterritorial operation, unless otherwise provided." (citing Ferris v. Frohman, 223 U.S. 424, 32 S.Ct. 263, 56 L.Ed. 492 (1912)))); sources cited supra pp. 1093-94. There is no clear expression of congressional intent in either the 1976 Act or other relevant enactments to alter the preexisting extraterritoriality doctrine. Indeed, the Peter Starr court itself recognized the continuing application of the principle that "infringing actions that take place entirely outside the United States are not actionable in United States federal courts." Peter Starr, 783 F.2d at 1442 (citing Robert Stigwood, 530 F.2d at 1101).

Furthermore, we note that Congress chose in 1976 to expand one specific "extraterritorial" application of the Act by declaring that the unauthorized importation of copyrighted works constitutes infringement even when the copies lawfully were made abroad. See 17 U.S.C.A. Sec. 602(a) (West Supp.1992).11 Had Congress been inclined to overturn the preexisting doctrine that infringing acts that take place wholly outside the United States are not actionable under the Copyright Act, it knew how to do so. See Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 440, 109 S.Ct. 683, 691, 102 L.Ed.2d 818 (1989) ("When it desires to do so, Congress knows how to place the high seas within the jurisdictional reach of a statute." (quoted in Aramco, 499 U.S. at 258, 111 S.Ct. at 1235)). Accordingly, the presumption against extraterritoriality, "far from being overcome here, is doubly fortified by the language of [the] statute," Smith v. United States, --- U.S. ----, ----, 113 S.Ct. 1178, 1183, 122 L.Ed.2d 548 (1993) (quoting United States v. Spelar, 338 U.S. 217, 222, 70 S.Ct. 10, 13, 94 L.Ed. 3 (1949)), as set against its consistent historical interpretation.

Appellees, however, rely on dicta in a recent decision of the District of Columbia Circuit for the proposition that the presumption against extraterritorial application of U.S. laws may be "overcome" when denying such application would "result in adverse effects within the United States." Environmental Defense Fund, Inc. v. Massey, 986 F.2d 528, 531 (D.C.Cir.1993) (noting that the Sherman Act, Lanham Act, and securities laws have been applied to extraterritorial conduct).12 However, the Massey court did not state that extraterritoriality would be demanded in such circumstances, but that "the presumption is generally not applied where the failure to extend the scope of the statute to a foreign setting will result in adverse [domestic] effects." Id. at 531 (emphasis added). In each of the statutory schemes discussed by the Massey court, the ultimate touchstone of extraterritoriality consisted of an ascertainment of congressional intent; courts did not rest solely on the consequences of a failure to give a statutory scheme extraterritorial application.13 More importantly, as the Massey court conceded, see id. at 532-33, application of the presumption is particularly appropriate when "[i]t serves to protect against unintended clashes between our laws and those of other nations which could result in international discord," Aramco, 499 U.S. at 248, 111 S.Ct. at 1230 (citing