# Effects Associates v. Cohen: Moviemakers Do Lunch, Not Contracts, and the Implied License Was Born

> The Ninth Circuit held that delivering commissioned footage grants an implied nonexclusive license, because section 204(a) covers only ownership transfers.

Topic: Copyright  |  Author: Lidiia Levitska  |  Source: Intellectual Property Law (outsideipcounsel.com)
Canonical: https://outsideipcounsel.com/blog/effects-associates-v-cohen-implied-license/


*Effects Associates, Inc. v. Cohen*, 908 F.2d 555 (9th Cir. 1990), is the decision that turned a Hollywood payment squabble into the foundational doctrine of implied copyright licenses. A special-effects house delivered footage for a low-budget horror picture on a handshake, the producer shorted the bill, and the effects house sued for copyright infringement rather than breach of contract. Writing for the panel, Judge Alex Kozinski held that the statute of frauds in 17 U.S.C. § 204(a) governs only transfers of copyright ownership, and that a creator who makes a work at another's request and hands it over intending that it be used has granted a nonexclusive license by conduct, no paper required.

The opinion is short, funny, and endlessly cited. Its summary of the producer's position, that "Moviemakers do lunch, not contracts," became one of the most quoted lines in copyright law. More importantly, the rule it announced now governs every commissioned work that changes hands without a signed agreement, from film footage to wedding photography to custom software.

## At a glance

- **Case:** *Effects Associates, Inc. v. Cohen*, 908 F.2d 555 (9th Cir. 1990)
- **Decided:** July 20, 1990 (argued March 7, 1990); opinion by Judge Kozinski for a panel with Judges Canby and Leavy; summary judgment for the defendants affirmed
- **Holding:** Delivering a commissioned work with the intent that the commissioning party copy and distribute it grants an implied nonexclusive license, which § 204(a)'s writing requirement does not reach.
- **Significance:** Final; the source of the three-element implied-license test applied nationwide and extended to software, architecture, and other commissioned works.

## The writing requirement and the nonexclusive-license escape hatch

The Copyright Act contains its own statute of frauds. Section 204(a) provides that a "transfer of copyright ownership" is not valid unless it is in writing and signed by the owner of the rights conveyed. The definitional section, 17 U.S.C. § 101, sweeps assignments, mortgages, and exclusive licenses into the term "transfer of copyright ownership," but it expressly carves out one category: the nonexclusive license. That carve-out is the doctrinal hinge of *Effects Associates*. Because a nonexclusive license is not a transfer, it needs no writing, and, as the court put it, quoting the Nimmer treatise, it "may be granted orally, or may even be implied from conduct."

Kozinski was emphatic that the writing requirement itself is no mere technicality. Section 204, he explained, ensures that a creator will not give away a copyright inadvertently and forces a party who wants to use a work to negotiate over precisely what rights are being transferred and at what price. Nor is compliance burdensome: the writing need not be elaborate, since "a one-line pro forma statement will do." The question in the case was what happens when sophisticated commercial parties skip even that one line.

The Ninth Circuit had already sketched the answer in *Oddo v. Ries*, 743 F.2d 630 (9th Cir. 1984), where an author who prepared truck-restoration articles for a planned book was held to have impliedly licensed his partner to use them. *Effects Associates* converted that sketch into a rule.

## A horror film, a handshake, and a withheld eight thousand dollars

Larry Cohen, whom the court introduced as a maker of low-budget horror movies, was finishing *The Stuff*, a 1985 film about a yogurt-like dessert that devours its consumers. He asked Effects Associates, a small special-effects shop, to create footage to enhance certain action sequences, and in a short letter dated October 29, 1984, Effects offered to prepare seven shots, the most dramatic of which would depict the climactic explosion of the Stuff factory. Cohen agreed to the deal orally. Nobody said a word about copyright.

Cohen was unhappy with the factory-explosion footage, and he expressed that dissatisfaction the way producers sometimes do: he paid only half the promised amount for that shot, leaving a little over $8,000 unpaid. The price originally agreed was $62,335, which Effects adjusted upward to $64,033.92 in a January 10, 1985 invoice to cover extra expenses, and Cohen paid almost $56,000 of it. Effects demanded the balance; Cohen refused; and Cohen then cut the footage into the film anyway and delivered the picture to New World Entertainment for distribution.

Effects responded not with a collection suit but with a federal copyright action, arguing that because it owned the footage and had never signed anything, Cohen's copying, distribution, and public display were infringement. The case's first trip to the Ninth Circuit was jurisdictional: the district court had dismissed on the theory that the dispute was really a state-law contract matter, and the court of appeals reversed in *Effects Associates, Inc. v. Cohen*, 817 F.2d 72 (9th Cir. 1987), holding that a plaintiff who frames its claim as infringement may proceed in federal court. On remand, the district court granted summary judgment to Cohen on the ground that Effects had impliedly licensed the use. The 1990 appeal tested that conclusion.

## Moviemakers do lunch: the court's reasoning

Cohen's opening gambit was industry custom. Transfers of rights in the movie business, he argued, are routinely sealed over meals and phone calls, not signatures; requiring paperwork would gum up joint creative endeavors. Kozinski summarized the argument, "tongue in cheek," as "Moviemakers do lunch, not contracts," and rejected it flatly. "Common sense tells us that agreements should routinely be put in writing," the court observed, and Hollywood gets no dispensation from § 204(a). If Cohen wanted to own the footage or hold exclusive rights, he needed a signed writing, full stop.

But that did not decide the case, because Cohen did not need ownership. He needed only permission. And permission of the nonexclusive kind can arise from conduct alone. The court found the conduct here unambiguous: Effects "created a work at defendant's request and handed it over, intending that defendant copy and distribute it." The footage was made for one purpose, incorporation into *The Stuff*, and the record said so at every turn: the copyright registration certificate named the film, so did the October 29 letter agreement, Effects' president agreed at his deposition that this was his understanding, and Effects handed over the film negatives without ever warning Cohen that cutting them into the picture would be infringement. To hold that no license accompanied delivery would mean Effects' contribution to the film was worthless, a conclusion impossible to square with the nearly $56,000 Cohen paid for it. The court therefore held that Effects had impliedly granted nonexclusive licenses to Cohen and his production company to incorporate the footage into the film, and to New World to distribute it.

The partial payment did not change the analysis. In a footnote, the court declined to treat full payment as a condition precedent to the license, noting that conditions precedent are disfavored and will not be read into a deal absent plain language; the October 29 letter agreement contained none.

## What Effects kept, and where the doctrine went next

The court took pains to point out that Effects was not left remediless or stripped of its property. A nonexclusive license moves no ownership. Effects still held the copyright in the footage, remained free to license it to others, and, critically, could sue Cohen in state court for breach of contract to collect the unpaid $8,000. What it could not do was leverage a payment dispute into a federal infringement claim carrying statutory damages and control over the film's distribution.

The decision's afterlife has been remarkable for a case about exploding industrial dessert. The Seventh Circuit distilled its facts into the now-standard three-element test in *I.A.E., Inc. v. Shaver*, 74 F.3d 768 (7th Cir. 1996): an implied nonexclusive license arises when (1) the licensee requests the creation of a work, (2) the creator makes that particular work and delivers it to the requester, and (3) the creator intends that the requester copy and distribute it. The Ninth Circuit carried the framework into the software era in *Asset Marketing Systems, Inc. v. Gagnon*, 542 F.3d 748 (9th Cir. 2008), holding that a contractor who wrote custom programs for a client impliedly licensed the client to use, retain, and modify them, and clarifying that the third element flexes to whatever exclusive right is at issue. The rule is now embedded in the Ninth Circuit's model civil jury instructions as an affirmative defense to infringement.

## Open questions

*Effects Associates* resolved whether an implied license existed, but not everything about how such licenses behave. Scope is the persistent battleground: the court found a license to use the footage in *The Stuff*, but delivery-based licenses leave courts to infer boundaries around sequels, new media, and derivative uses that the parties never discussed. Revocability is another. Later courts have generally held that an implied license supported by consideration is irrevocable, while a gratuitous one may be revoked, but *Effects Associates* itself did not draw that line. Nor did it say how far its no-condition-precedent footnote extends: a creator who states clearly, before delivery, that no use is authorized until payment clears can likely condition the license, yet how explicit that reservation must be, and whether it survives conduct suggesting otherwise, remains fact-bound and litigated. Finally, the intent element still oscillates between objective conduct at the time of delivery and after-the-fact testimony about what the creator subjectively meant.

## Implications for creators and businesses

- **Deliver without paperwork and you have probably licensed the use.** A creator who makes a commissioned work and hands it over intending its obvious use cannot later wield copyright to block that use. The time to reserve rights is before delivery, in writing.
- **Commissioning parties get permission, not ownership.** The implied license is nonexclusive. The creator keeps the copyright, may relicense the work to competitors, and may exploit it independently. Anyone who needs exclusivity must satisfy § 204(a) with a signed writing, and a single sentence suffices.
- **Payment disputes are contract cases unless the license was conditioned.** Withheld fees do not automatically convert use into infringement. Creators who want that leverage should make full payment an express condition of any license, in plain language, before the work changes hands.
- **The doctrine follows commissioned work everywhere.** Courts have applied the *Effects Associates* framework to software, architectural drawings, photography, and marketing materials. Any business that routinely receives creative deliverables without contracts is relying, knowingly or not, on implied licenses of uncertain scope.

## Frequently asked questions

**Does a copyright license have to be in writing?** Only transfers of copyright ownership do. Under 17 U.S.C. § 204(a), assignments and exclusive licenses are invalid without a signed writing, but § 101 expressly excludes nonexclusive licenses from the definition of a transfer, so a nonexclusive license may be granted orally or implied from the parties' conduct.

**When do courts find an implied copyright license?** Courts applying Effects Associates, as distilled in I.A.E., Inc. v. Shaver, find an implied nonexclusive license when the licensee requests the creation of a work, the creator makes and delivers that particular work to the requester, and the creator intends that the requester copy and distribute it (or exercise whatever exclusive right is at issue).

**Did Effects Associates lose all rights to its footage?** No. Because the implied license was nonexclusive, Effects still owned the copyright, remained free to license the footage to others, and could sue Cohen in state court for breach of contract to recover the unpaid balance. It simply could not recast its payment dispute as federal copyright infringement.

## Authorities and sources

- [*Effects Associates, Inc. v. Cohen*, 908 F.2d 555 (9th Cir. 1990) (full opinion, BitLaw)](https://www.bitlaw.com/source/cases/copyright/effects_associates.html)
- [*Effects Associates, Inc. v. Cohen*, 908 F.2d 555 (9th Cir. 1990) (No. 88-6455, full opinion, public.resource.org)](https://law.resource.org/pub/us/case/reporter/F2/908/908.F2d.555.88-6455.html)
- [*Effects Associates, Inc. v. Cohen*, 817 F.2d 72 (9th Cir. 1987) (prior appeal on jurisdiction)](https://law.resource.org/pub/us/case/reporter/F2/817/817.F2d.72.86-5997.html)
- [17 U.S.C. § 204, Execution of transfers of copyright ownership (Cornell LII)](https://www.law.cornell.edu/uscode/text/17/204)
- [17 U.S.C. § 101, Definitions, "transfer of copyright ownership" (Cornell LII)](https://www.law.cornell.edu/uscode/text/17/101)
- [*Asset Marketing Systems, Inc. v. Gagnon*, 542 F.3d 748 (9th Cir. 2008) (No. 07-55217, slip opinion, govinfo)](https://www.govinfo.gov/content/pkg/USCOURTS-ca9-07-55217/pdf/USCOURTS-ca9-07-55217-0.pdf)
- [Ninth Circuit Model Civil Jury Instruction 17.26, Copyright Affirmative Defense: Implied License](https://www.ce9.uscourts.gov/jury-instructions/civil/chapter-17/17-26-copyright-affirmative-defense-implied-license/)
- [Effects Associates v. Cohen, Case Brief (Quimbee)](https://www.quimbee.com/cases/effects-associates-v-cohen)