Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles, County, No. BC384048, Teresa Sanchez-Gordon, Judge. Reversed and remanded.
Akin Gump Strauss Hauer & Feld, Rex S. Heinke and Christopher Blanchard, for Plaintiff and Appellant.
Sidley Austin, Peter I. Ostroff, Bradley H. Ellis and Michelle B. Goodman, for Defendant and Respondent.
PERLUSS, P. J.
Bagdasarian Productions, LLC appeals from the judgment entered after the trial court ruled as a matter of law that Capitol Records, Inc. (Capitol) had the right under a 1968 sales agreement to license certain master recordings of songs by Alvin and the Chipmunks for use as background music in motion pictures and television programs. We reverse.
In plain language not otherwise explained by any material extrinsic evidence, the 1968 agreement conveyed to Capitol’s predecessor physical ownership of certain master recordings identified in that agreement, as well as an unlimited right to exploit those master recordings “for the purpose of manufacture and distribution... of reproductions or records” as those terms are defined in the agreement. That specified purpose, as broad as it may be, does not include licensing the recordings for use as background music in television or feature films, a use that involves neither the “manufacture” nor the “distribution” of records or reproductions, even under the most expansive interpretation of the 1968 agreement.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Parties
Bagdasarian Productions is the successor-in-interest to Monarch Music Corporation (Monarch) and its president and sole owner, Ross Bagdasarian, Sr., the creator of Alvin and the Chipmunks, a music “group” consisting of three cartoon chipmunk characters whose voices had a distinctive, squeaky, high-pitched quality produced by increasing the speed of the audio tape of the singers’ voices. During the late 1950’s and 1960’s, Bagdasarian, who used the stage name David Seville, created numerous popular recordings marketed under the names Alvin and the Chipmunks, The Chipmunks, or David Seville and the Chipmunks. These performances were recorded pursuant to various recording contracts between Bagdasarian, on the one hand, and Liberty Records, Inc. (Liberty), predecessor-in-interest to Capitol, on the other hand, and captured in several master recordings, which Bagdasarian and Monarch owned under the terms of the recording agreements.
A master recording is the original fixation of sound on a phonorecord (a device for recording sound) from which copies may be made. (See generally 1 Nimmer & Nimmer, Nimmer on Copyright (2009) § 2.03[C], p. 2-36.1.)
2. The 1968 Agreement Between Bagdasarian-Monarch and Liberty
On July 1, 1968 Bagdasarian, in both his personal capacity and as the president of Monarch, entered into a written agreement to sell to Liberty master recordings encompassing 112 musical selections in exchange for a lump sum payment of $200,000. This 1968 agreement is at the center of the instant dispute.
Paragraph 2 of the 1968 agreement provides, “Monarch and Artist [Bagdasarian] hereby assign and grant to Liberty all rights of every kind, and the complete, exclusive, perpetual, unencumbered, unconditional and worldwide right, title and interest in and to said Monarch-Artist master recordings and all records and reproductions made therefrom together with such rights to use and control the same and the performances embodied thereon for the purposes of manufacture and distribution by Liberty and its licensees of reproductions or records which for the purposes of this agreement include discs, tapes or any other article or device now or subsequently known or developed, and for such other purposes as are set forth herein. Without limitation of the foregoing, Liberty and/or its subsidiaries, affiliates and licensees shall have the exclusive, perpetual, unlimited and complete right to make, manufacture, sell, license, distribute, advertise, exploit or otherwise use or control the use of or dispose of or deal in said master recordings, the matrices, mothers, stampers, duplicates, records or other copies or derivatives produced from said master recordings and the performances embodied thereon, and all or any part or parts thereof, edited, excerpted, altered or changed in any manner or by any means whatsoever-in connection with the manufacture and distribution of said reproductions or records throughout the world or any part thereof, under any label, trademark, tradename, or other identification, and by any means or method, upon such terms as it may desire, but Liberty at its option, may refrain from doing any of the aforementioned.”
Paragraph 9(c) of the 1968 agreement defines the terms “‘record’ or ‘phonograph record’ or ‘reproduction’” to mean, for purposes of the agreement, “any disc record of any material and revolving at any speed, or any magnetic tape recording, or any other device or contrivance of any size, type, character, dimension or description designed for the reproduction of sound in the phonograph record field as that field is presently understood or may be hereafter developed, including without limitation, devices designed to reproduce both visually and aurally the performances of recording artists.”
Paragraph 10 provides, “Notwithstanding the provisions of Paragraph 2hereof, Artist reserves the perpetual right to use copies of any and all Monarch-Artist master recordings hereunder and to make productions or records thereof, whether in whole or in part, in connection with or for any purpose other than the manufacture and distribution of records and reproductions therefrom. Accordingly, Artist shall have such right in connection with any one or more performances, productions, exhibitions, or presentations, whether musical, dramatic or literary, and whether for the purpose of entertainment, advertising, commercials, or other recreation or business purposes and whether in connection with the medium of television broadcasting, radio broadcasting, motion picture exhibitions or live, or any other method or device, now or hereafter known, of or for recording or playing back sound. Artist does hereby agree to indemnify and save harmless Liberty from and against any and all claims, liability, loss, damage, or expense, including a reasonable allowance for attorneys’ fees, which may be sustained by Liberty by reason of any use by Artist such as is permitted by the foregoing provisions of this Paragraph 10.”
The 1968 agreement also included an integration clause, providing “[t]his instrument constitutes the entire agreement between the parties and cannot be modified except by written instrument, signed by the parties hereto.”
Bagdasarian died in 1972.
3. The Complaint
On January 18, 2008 Bagdasarian Productions sued Capitol. Citing paragraphs 2 and 9 of the 1968 agreement, which it attached to its complaint in its entirety, Bagdasarian Productions alleged the 1968 agreement had granted Capitol’s predecessor physical ownership of the master recordings as well as the limited right to exploit the performances contained on those recordings for the “purpose of the manufacture and distribution of reproductions or records.” Bagdasarian Productions alleged Capitol’s decades-long history of licensing those rights to third parties in the television, film and merchandising industries-industries Bagdasarian Productions claimed were outside the phonograph record industry-was unauthorized and outside the scope of the limited rights granted in the 1968 agreement. The complaint included causes of action for breach of contract, plagiarism under Civil Code section 980, subdivision (a)(2), and conversion and sought an accounting of license fees and other revenues received by Capitol in connection with its alleged wrongful conduct.
Following Bagdasarian’s death, all rights he and Monarch retained in the Chipmunks enterprise passed to Bagdasarian’s wife and then to his children when his wife died in 1992. For purposes of this case, it is undisputed that Bagdasarian Productions acquired those rights in 1996.
Civil Code section 980, subdivision (a)(2), provides, “The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior sound recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.”
The unauthorized duplication and sale of performances fixed on master recordings is conversion. (A & M Records, Inc. v. Heilman (1977) 75 Cal.App.3d 554, 570 [“[t]he court correctly found that such misappropriation and sale of the intangible property of another without authority from the owner is conversion”].)
Because sound recordings were not subject to the federal Copyright Act until the Sound Recording Amendment Act of 1971 (Pub. L. No. 92-140 (Oct. 15, 1971) 85 Stat. 391), amending the Copyright Act of 1909, Bagdasarian Productions’s state-based claims are not preempted by federal copyright law. (See 17 U.S.C.A. § 301(c) [“With respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this title until February 15, 2067.... Notwithstanding the provisions of section 303, no sound recording fixed before February 15, 1972, shall be subject to copyright under this title before, on, or after February 15, 2067.”]; see also Goldstein v. California (1973) 412 U.S. 546, 568 [93 S.Ct. 2303, 37 L.Ed.2d 163] [federal copyright protection not afforded to sound recordings fixed before Feb. 15, 1972].)
4. The Parties’ Cross-motions for Summary Adjudication and Summary Judgment
On August 8, 2008 Bagdasarian Productions moved for summary adjudication on the issue of duty pursuant to Code of Civil Procedure section 437c, subdivision (f)(1), asserting as a matter of law Capitol owed Bagdasarian Productions the obligation under paragraphs 2 and 10 of the 1968 agreement not to license the master recordings to third parties for exploitation outside the phonographic record field.
Code of Civil Procedure section 437c, subdivision (f)(1), provides in part, “A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.”
On November 7, 2008 the court denied Bagdasarian Productions’s motion on the ground it had “failed to carry [its] burden of establishing that [its] interpretation of the contract is correct.” Notwithstanding the requirement in Code of Civil Procedure section 437c, subdivision (g), that it “specify one or more material facts raised by the motion as to which the court has determined there exists a triable controversy [and] specifically refer to the evidence proffered in support of and in opposition to the motion which indicates that a triable controversy exists, ” the court did not identify any conflicting extrinsic evidence precluding it from interpreting the agreement as a matter of law.
On November 25, 2008 Capitol filed its own motion for summary judgment or, in the alternative, summary adjudication arguing that paragraph 2 of the 1968 agreement had granted its predecessor Liberty exclusive ownership of the master recordings identified in that agreement along with unlimited rights to exploit them in any manner and in connection with any industry it saw fit. Alternatively, Capitol argued, use of the master recordings as background music in motion pictures and broadcast television and for merchandising was an authorized use even if the rights conferred to Capitol in the 1968 agreement were limited to the “reproduction of sound in the phonographic record field, ” because that field includes the electronic media and merchandise sold in record stores. Capitol also asserted Bagdasarian Productions’s claims were either untimely under the relevant statutes of limitations or barred under the equitable doctrine of laches.
On February 24, 2009 the court denied Capitol’s motion ruling, without elaboration, that Capitol “ha[d] not established that its interpretation of the contract language” was correct. As with its denial of Bagdasarian Productions’s motion for summary adjudication, the trial court did not identify any conflicting extrinsic evidence precluding it from interpreting the 1968 agreement as a matter of law.
The court also rejected Capitol’s theories that the complaint or individual causes of action were time-barred or barred under laches as a matter of law.
5. Capitol’s Motion in Limine
On March 6, 2009 Capitol filed a document entitled “Motion in Limine Number 1, ” requesting “a preliminary disposition by the court of an issue of law, ” namely, “whether Capitol has the right, pursuant to the 1968 Sale Agreement, to license the master recordings for the uses about which [Bagdasarian Productions] complains....” Bagdasarian Productions opposed the motion. Although it agreed in principle with Capitol that the interpretation of the rights conferred by the 1968 agreement was solely a question of law, it reminded the court it had apparently rejected the argument when it denied the parties’ respective motions for summary adjudication and summary judgment. Accordingly, it argued it should be permitted to identify and provide extrinsic evidence to assist the court in interpreting the intent of the parties at the time they entered the 1968 agreement.
To the extent the motion in limine was an attempt by Capitol to resuscitate its earlier summary judgment motion, it was improper. (See Super. Ct. L.A. County, Local Rules, rule 8.92(b) [“motion in limine shall not be used for the purpose of seeking summary judgment” or summary adjudication].)
On March 9, 2009, in response to Capitol’s motion in limine and Bagdasarian Productions’s opposition, the court announced it intended to determine whether there was material and conflicting extrinsic evidence of the parties’ intent that precluded its interpretation of the 1968 agreement as a matter of law. To that end, the court held a hearing in which Bagdasarian Productions presented the testimony of three witnesses: Alfred Schlesinger, Chris Minks and Bagdasarian’s son, Ross Bagdasarian, Jr. Bagdasarian Productions offered Schlesinger’s testimony to show that Liberty had prepared the 1968 agreement; thus any ambiguity should be interpreted against it as the drafter. Minks’s and Bagdasarian, Jr.’s testimony was offered to show the reasons Bagdasarian Productions waited until the current lawsuit to object to Capitol’s licensing agreements with third parties for use outside the phonographic record field.
Schlesinger identified himself as an attorney with 50 years’ experience practicing entertainment law; he had represented various recording artists in contract negotiations with Liberty in the 1960’s. In Schlesinger’s experience Liberty would draft and prepare the recording agreement for an artist’s signature. Schlesinger admitted he had no knowledge of the 1968 agreement at issue in this case; he did not know who had prepared it or whether it had been the product of extensive negotiations. He also acknowledged that, even when Liberty prepared agreements for artists he had represented, the written draft represented the negotiated oral agreement that had been reached by the parties.
Minks is a finance manager at Bagdasarian Productions. In 2007, prompted by Twentieth Century Fox’s interest in producing a movie using the artwork for the original Chipmunks characters from the 1950’s and 1960’s, Minks searched for company documents that would clarify whether Bagdasarian Productions owned the original artwork. Minks located the 1968 agreement in the company’s files, confirming that Bagdasarian Productions owned the artwork in question. After reading the 1968 agreement in its entirety, Minks directed Bagdasarian, Jr., the president of Bagdasarian Productions, to other paragraphs in the 1968 agreement that, as Minks understood them, showed Bagdasarian Productions also owned the rights to exploit certain master recordings outside the phonographic record field.
Bagdasarian, Jr., a nonpracticing attorney, is the son of the creator of the original Chipmunks and the president of Bagdasarian Productions. He and his wife, Janice Karman, revived the Chipmunks enterprise in the 1980’s, writing and producing television shows and songs and providing the vocals for the animated characters. Bagdasarian, Jr. testified he had been told sometime in the 1980’s by someone (he did not remember who) that his father had sold all the rights to the master recordings (save the composition rights). For that reason, he did not object when Capitol, throughout the years, had licensed those rights in the master recordings to third parties to use as background music for motion pictures (for example, “Rocky IV, ” “Donnie Brasco” and “Almost Famous”) and more recently as background music in broadcast television (“The Sopranos” and “Providence”).
It is undisputed that Bagdasarian Productions owns the composition rights to the songs on the master recordings identified in the 1968 agreement and that Bagdasarian, Jr. was aware of Capitol’s licensing agreements in the years prior to the lawsuit because Bagdasarian Productions had licensed the composition rights to the same parties.
In 2007 Bagdasarian, Jr. realized his understanding of the ownership of the rights to exploit the master recordings was mistaken after Minks showed him paragraphs 2 and 10 of the 1968 agreement. He also learned in 2007 that one of the master recordings identified in the 1968 agreement had been licensed for use in merchandise (a chipmunk pen that played a Chipmunks song when a button was pressed). Bagdasarian, Jr. acknowledged the 1968 agreement had been in his files since 1993 when he requested information from Capitol concerning ownership of the Chipmunks’ “Witch Doctor” song, but explained he had not focused on the agreement until Minks brought it to his attention in 2007.
At the hearing on Capitol’s motion, the court also admitted into evidence various documents offered by the parties, including a 1993 agreement between Bagdasarian, Jr., (doing business as Bagdasarian Productions) and Capitol, as well as various recording contracts between Bagdasarian and Liberty in 1960, 1963, 1967 and 1969.
6. The Court’s Ruling and Entry of Judgment in Favor of Capitol
Following the testimony of Bagdasarian Productions’s witnesses and the admission of the documentary evidence, the court took the matter under submission, informing the parties it would rule after receiving written briefs summarizing their arguments. On May 27, 2009, finding no conflict in the extrinsic evidence, the court ruled Capitol has the right to grant master-use licenses for the master recordings identified in the 1968 agreement “for soundtracks for film, television and with products such as toys” and “Bagdasarian [Productions] has no such rights.” The court entered judgment in favor of Capitol. Bagdasarian Productions filed a timely notice of appeal.
DISCUSSION
1. Governing Law on Contract Interpretation
The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time they entered into the contract. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865; see also Civ. Code, § 1636.) That intent is interpreted according to objective, rather than subjective, criteria. (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126 (Wolf III).) When the contract is clear and explicit, the parties’ intent is determined solely by reference to the language of the agreement. (Civ. Code, §§ 1638 [“language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity”]; 1639 [“[w]hen a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible”].) The words are to be understood “in their ordinary and popular sense” (Civ. Code, § 1644) and the “whole of [the] contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” (Civ. Code, § 1641.)
Although parol evidence is inadmissible to vary or contradict the clear and unambiguous terms of a written, integrated contract (Code Civ. Proc., § 1856, subd. (a); Wolf III, supra, 162 Cal.App.4th at p. 1126), extrinsic evidence is admissible to interpret the agreement when a material term is ambiguous. (City of Hope Nat. Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395 (City of Hope); see Pacific Gas & Electric Co. v. G.W. Thomas Drayage & Rigging Co. (1968) 69 Cal.2d 33, 39-40 (Pacific Gas & Electric) [if extrinsic evidence reveals that apparently clear language in the contract is, in fact, “susceptible to more than one reasonable interpretation, ” it may be used to determine contracting parties’ intent]; Code Civ. Proc., § 1856, subd. (g) [extrinsic evidence admissible to interpret terms of ambiguous agreement].)
As we explained in Wolf III, supra, 162 Cal.App.4th 1107, when the meaning of words used in a contract is disputed, the trial court engages in a three-step process: “First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. (Pacific Gas & Electric, supra, 69 Cal.2d at p. 37; Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.) If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. (Pacific Gas & Electric, at pp. 39-40; Wolf [v. Superior Court (2004)] 114 Cal.App.4th [1343, ] 1350-1351.) When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. (City of Hope[, supra, 43 Cal.4th at p.] 395 [interpretation of written instrument solely a judicial function ‘when it is based on the words of the instrument alone, when there is no conflict in the extrinsic evidence, or [when] a determination was made based on incompetent evidence’]; Parsons v. Bristol Development Co.[, supra, ] 62 Cal.2d [at pp.] 865-866.) This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439; Parsons, at p. 866, fn. 2) or [when] extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. (Parsons, at p. 865; New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473, 1483.)” (Wolf III, at pp. 1126-1127, fn. omitted.)
Wolf III, supra, 162 Cal.App.4th 1107 and the cases on which it relied do not contemplate a separate proceeding for resolution of contract issues. Rather, this established case law simply outlines the steps a trial court properly takes, either in response to a motion for summary judgment/summary adjudication or a motion in limine to allow or exclude extrinsic evidence, to determine whether the interpretation of a contract is a question of law for the court or whether it requires resolution of conflicting extrinsic evidence, thereby creating a factual issue for the jury to decide. (See City of Hope, supra, 43 Cal.4th at p. 395.)
The trial court apparently did not engage in this process when ruling on the summary judgment/summary adjudication motions, but revisited the question after Capitol filed its motion in limine. Whether the trial court’s ultimate ruling in favor of Capitol’s interpretation of the 1968 agreement is properly characterized a reconsideration of its earlier denial of Capitol’s motion for summary judgment, as Bagdasarian Productions asserts (see Le Francois v. Goel (2005) 35 Cal.4th 1094, 1096-1097 [trial court has inherent authority to reconsider sua sponte earlier interim ruling to correct its own errors whether or not any new issues or facts have been asserted]; In re Marriage of Barthold (2008) 158 Cal.App.4th 1301, 1308-1309 [trial court’s inherent authority to correct its error applies even when trial court’s sua sponte decision to reconsider its earlier ruling was prompted by an improper motion]; accord, Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 73), or a ruling following a bifurcated bench trial on the question of contract interpretation, as Capitol contends, the effect, for all practical purposes, is the same: Finding no conflicting extrinsic evidence, the court decided the meaning of the 1968 agreement as a matter of law.
Because the motions and accompanying papers were not included in their entirety in the record on appeal, it is not clear whether and to what extent extrinsic evidence was offered in support of either party’s motion for summary judgment/summary adjudication.
We, too, find no conflict in the extrinsic evidence and, accordingly, review de novo the trial court’s interpretation of the 1968 agreement. (City of Hope, supra, 43 Cal.4th at p. 395; Parsons v. Bristol Development Co., supra, 62 Cal.2d at p. 865; Wolf III, supra, 162 Cal.App.4th at pp. 1126-1127.)
2. The 1968 Agreement Grants Capitol the Right To Exploit the Master Recordings for the Purpose of the Manufacture and Distribution of Reproductions or Records
a. Property rights associated with the master recordings
California recognizes two distinct property rights associated with ownership of sound recordings made prior to 1972: (1) The right to the physical recording itself, and (2) the right associated with the intangible intellectual property embodied on the recording. (See Civ. Code, § 980, subd. (a)(2); see also Simplicity Pattern Co. v. State Board of Equalization (1980) 27 Cal.3d 900, 906 [distinguishing for tax purposes property right in film negative and master recordings used to make audiovisual materials from the property right in intangible property contained on negative and master recordings]; Preston v. State Bd. of Equalization (2001) 25 Cal.4th 197, 209 [same]; cf. Michael Todd Co. v. County of Los Angeles (1962) 57 Cal.2d 684, 689 [“like the common-law [copyright], ” plaintiff’s statutory copyright in the motion picture and negatives is an ownership interest in “intangible property wholly distinct from any property interest that plaintiff may have in the material object copyrighted”].) Thus, for example, a person may own a physical master recording as a collector’s item, but have no right to exploit the intangible property embodied on the recording. (See, e.g., Stephens v. Cady (1852) 55 U.S. 528, 530 [14 L.Ed. 528] [“[T]he property acquired by the sale in the engraved plate, and the copy-right of the map [engraved in the plate] are altogether different and independent of each other, and have no necessary connection. The copy-right is an exclusive right to the multiplication of the copies... disconnected from the plate, or any other physical existence”]; see also Copyright Act of 1909 (Pub. L. No. 60-349) (Mar. 4, 1909) 35 Stat. 1075, § 41 [“the copyright is distinct from the property in the material object copyrighted, and the sale or conveyance, by gift or otherwise, of the material object shall not of itself constitute a transfer of the copyright, nor shall the assignment of the copyright constitute a transfer of the title to the material object”].)
b. Paragraph 2 of the 1968 agreement conveys to Capitol full physical ownership of the master recordings but only a defined right to exploit the performances embodied on them
Bagdasarian Productions and Capitol agree the grant of rights to the master recordings is found in paragraph 2 of the 1968 agreement, but they vigorously disagree as to the extent of that grant. Capitol insists the first part of the first sentence of paragraph 2 grants to Liberty (Capitol’s predecessor) “all rights of every kind and the complete, exclusive, perpetual, unencumbered, unconditional and worldwide right, title, and interest in” the master recordings identified in the contract for any and all purposes. Bagdasarian Productions, on the other hand, emphasizes the language in the second part of that sentence to argue that the right to use and control the intangible property captured on the master recordings is limited to the “manufacture and distribution... of reproductions or records” in the phonographic record field.
While acknowledging the basic principle that transfer of the physical ownership of the master recording does not necessarily confer the right to the intangible property embodied on it, Capitol insists the words “all rights of every kind” at the beginning of paragraph 2 granted it unlimited rights to both the physical recordings and the intangible property captured on them. It simply makes no sense, it argues, to convey “all rights of every kind” in solely the physical ownership of the recordings: Physical ownership of the recordings implies a single right, not the bundle of rights suggested by the phrase “all rights of every kind.”
Capitol’s interpretation of the phrase “all rights of every kind” is certainly understandable. Indeed, were that the only relevant language in the 1968 agreement, we would agree with Capitol’s interpretation of its rights. However, the first part of that sentence must be read in conjunction with the language immediately following it, explaining that “all rights of every kind” in the master recordings is granted “together with” the right to “use and control [the master recordings] and the performances embodied thereon” for the purpose of the “manufacture and distribution by [Capitol] and its licensees of reproductions or records....” (See Civ. Code, § 1641 [contract must be interpreted as a whole with each provision informing the other].) The use of the coordinating conjunction “together with” rather than the term “including” is significant. The contracting parties’ choice of language requires that we read the first part of the sentence granting “all rights of every kind” in the recordings as referring solely to the physical recordings themselves and not to the intangible property; those intangible rights are transferred by the second part of the sentence conveying to Capitol the right “to use and control the recordings and the performances thereon.” (Civ. Code, § 1641 ; see also Lyons v. Fire Ins. Exchange (2008) 161 Cal.App.4th 880, 886-887 [court cannot read contract so as to ignore language because “such a reading would be contrary to the rule that all words in a contract are to be given meaning” with the “language in the contract ‘interpreted as a whole’”].)
The scope of the intangible property rights granted to Capitol is then limited by the third part of the first sentence in paragraph 2, which restricts the exploitation of the intangible rights “for the purpose of manufacture and distribution... of reproductions or records....” Any other interpretation of the first sentence of paragraph 2 makes no sense. If, as Capitol asserts, a grant of all rights of every kind in the master recordings necessarily included the right to use the master recordings and the performances embodied thereon, there would be no need to specifically grant those rights a second time, particularly in a more limited form. In essence, Capitol’s interpretation would require us to treat everything following the coordinating conjunction “together with” as superfluous. (See City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 473 [interpretation rendering contract language nugatory or inoperative is disfavored]; see also Farmers Ins. Exchange v. Knopp (1996) 50 Cal.App.4th 1415, 1421 [“If Farmers intended to limit the exclusion of coverage to when the specific act of carrying persons or property for a charge was being performed, then the second [reference to the term] ‘use’ was superfluous and redundant”; “[s]ince contracts... are to be construed to avoid rendering terms surplusage [citation] we will look to other reasonable interpretations of this policy language”]; Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 546 [contracts are to be interpreted to give effect to every provision; “[u]nder Wang’s interpretation the attorney fee clause in the commission agreement would become redundant and unnecessary”].)
Under the last antecedent rule, a rule of statutory and contract interpretation, the phrase “for the purpose of manufacture and distribution by Liberty and its licensees of reproductions or records” would modify only the right to use and control the recordings and the performances-the clause immediately preceding it-and not the grant of “all rights of every kind.” (See White v. County of Sacramento (1982) 31 Cal.3d 676, 680 [the last antecedent rule provides that “‘qualifying words, phrases and clauses are to be applied to the words or phrases immediately preceding and are not to be construed as extending to or including others more remote’”] accord, Renee J. v. Superior Court (2001) 26 Cal.4th 735, 743.) There are of course, exceptions to that rule. (See Wholesale T. Dealers v. National etc. Co. (1938) 11 Cal.2d 634, 659 [“‘[w]hen several words are followed by a clause which is applicable as much to the first and other words as to the last, the natural construction of the language demands that the clause be read as applicable to all’”].) For all practical purposes, however, whether or not the last antecedent rule applies makes no difference in this case because, either way, the phrase “for the purpose of manufacture and distribution of reproductions or records” modifies the exploitation rights, the only rights at issue in this case.
To counter the argument its interpretation reduces the language following the “together with” to mere surplusage, Capitol advances an explanation for the redundancy. According to Capitol, the grant of “all rights of every kind” is all-inclusive; and the language following the coordinating conjunction “together with” was only inserted to make clear that the 1968 agreement did not extinguish any rights Capitol had acquired in a 1967 recording agreement with Bagdasarian. Specifically, in the 1967 recording agreement, Bagdasarian granted Liberty the right to use certain master recordings “for the purposes of manufacture and distribution by Liberty and its licensees of reproductions or records, ” a right that terminated no later than June 1970 under the 1967 contract terms. The language following the phrase “together with” in paragraph 2 of the 1968 agreement, Capitol now explains (without reference to any extrinsic evidence supporting this account), deliberately repeats the language of the 1967 agreement to make clear the rights granted in the 1967 agreement were not extinguished by the 1968 agreement.
Capitol’s proffered explanation for the language in the first sentence of paragraph 2 following “together with, ” however, is belied by paragraph 5(c) of the 1968 agreement, which expressly provides the rights acquired by Liberty under the 1967 agreement-the rights to use the master recordings created pursuant to that agreement to manufacture and distribute reproductions or records-were not extinguished, but rather continued in perpetuity under the 1968 agreement: “The master recordings produced by Liberty in which Artist’s services were rendered under said 1967 [recording agreement] are included in the master recordings... being sold to Liberty pursuant to this agreement, and Artist shall not have nor retain any rights to manufacture and/or distribute and/or sell any reproductions or records thereof.” In light of paragraph 5(c), there was simply no reason to have included the restrictive language in paragraph 2 except to define, and thus to limit, the scope of the use rights transferred. (See, e.g., Aozora Bank Ltd. v. 1333 North California Boulevard (2004) 119 Cal.App.4th 1291, 1296 [bank’s proffered interpretation of contract ignores the phrase “to the extent that, ” a phrase that qualifies and limits the clause preceding it].)
Our conclusion the scope of the exploitation rights over intangible property granted to Liberty/Capitol is not unlimited, but rather is confined to the manufacture and distribution of recordings and reproductions is reinforced by the second sentence of paragraph 2, which highlights the breadth of those rights actually conveyed: ““Without limitation of the foregoing, Liberty... shall have the exclusive, perpetual, unlimited and complete right to make, manufacture, sell, license, distribute, advertise, exploit or otherwise use or control the use of or dispose of or deal in said master recordings, the mothers, stampers, duplicates, records or other copies or derivatives produced from said master recordings, and the performances embodied thereon, and all or any part of parts thereof, edited, excerpted, altered or changed in any manner or by any means whatsoever-in connection with the manufacture and distribution of said reproductions or records throughout the world or any part thereof, under any label, trademark, tradename or other identification, and by any means or method, upon such terms as it may desire, but Liberty at its option may refrain from doing any of the aforementioned.” (Italics added.) If Capitol were correct that the first sentence in paragraph 2 conveyed all rights of every sort to exploit the performances embodied on the master recordings, there would be no reason to include this second sentence in connection with the grant of those rights. In other words, the second sentence of paragraph 2 illustrates Liberty’s vast exploitation rights under the 1968 agreement while confirming those rights are limited to the manufacture and distribution of reproductions or records.
Finally, Capitol cannot avoid the significance of this additional language in paragraph 2 by arguing all possible means to exploit the master recordings are encompassed by the terms manufacture and distribution. The language in the 1968 agreement plainly contemplates uses not encompassed by those terms. For example, the last part of the first sentence in paragraph 2 grants Liberty rights to the intangible property embodied on the recording for the purposes of manufacture and distribution of reproductions or records “and for such other purposes as are set forth herein.” Similarly, as discussed more fully below, paragraph 10 reserves for the artist, Bagdasarian, the right to use copies of the tapes “for any purpose other than the manufacture and distribution of records and reproductions therefrom.” Accordingly, however broad Capitol’s exploitation rights may be within the confines of the manufacture and distribution of the recordings or reproductions of the recordings, those rights are not, as Capitol contends, unlimited.
In response to our July 13, 2010 post-argument order, Capitol and Bagdasarian Productions submitted supplemental letter briefs addressing the meaning of the phrase “manufacture and distribution of records and reproductions” as used in the 1968 agreement and, specifically, whether there are possible means of exploiting the intellectual property embodied in the master recordings other than those involving the manufacture and distribution of records and reproductions.
c. Capitol’s licensing of the intangible property embodied on the master recordings for use as background music in television programs or motion pictures is not authorized under the 1968 agreement
Even if the scope of its right to license the intangible property embodied on the master recordings is defined by the portion of the first sentence of paragraph 2 of the 1968 agreement following the grant of “all rights of every kind, ” Capitol insists it is authorized to license the Chipmunks master recordings as background music in television and radio programs and commercials and motion pictures. Bagdasarian Productions’s contention such uses are outside the “phonographic record field, ” and thus beyond the scope of the rights granted to Capitol, it argues, misconstrues paragraph 9(c) of the 1968 agreement, which defines “[t]he terms ‘record’ or ‘phonograph record’ or ‘reproduction’” to mean “any disc record of any material and revolving at any speed, or any magnetic tape recording, or any other device or contrivance of any size, type, character, dimension or description designed for the reproduction of sound in the phonographic record field as said field is presently understood or developed, including without limitation, devices designed to reproduce both visually and aurally the performances of recording artists.” (Italics added.) This language, Capitol explains, is not a limitation on the fields in which it can license the intellectual property rights it was granted by paragraph 2 of the agreement, but rather the broadest possible definition of Capitol’s right to employ “methods or devices used to record sound” to exploit those rights.
We agree with Capitol that this definition of “record” and “reproduction” does not restrict Capitol’s right to exploit the master recordings in media other than the phonographic record industry. However, that does not mean that the rights afforded to Capitol to exploit the intellectual property on the recordings are unlimited. As discussed, the limitation is found in the express language of paragraph 2 itself, which grants Capitol the right to exploit the intellectual property embodied in the master recordings only for the purpose of “manufacture and distribution” of reproductions and records. Uses not involving the manufacture or distribution of reproductions or records-for example, publicly performing the records, as would occur if a recording of one of the songs was played during a live stage play-are not within this grant of rights.
Licensing third parties’ use of the master recordings to provide background music in a motion picture may indeed involve the reproduction of sound as that term is defined in paragraph 9(c), as Capitol contends. However, in contrast to including excerpts from Chipmunks’ songs in toys and other merchandise, which at least at first blush appears to involve the manufacture and distribution of reproductions of the recordings, licensing the recordings as background music in a television show or motion picture involves neither the “manufacture” nor the “distribution” of the recordings as those terms are generally understood: to make and supply a product. Capitol has presented no extrinsic evidence to suggest the plain meaning of those terms does not apply in the music or entertainment industries. (Cf. Wolf III, supra, 162 Cal.App.4th at pp. 1112-1113 [discussing parties’ separate treatment of right to produce motion pictures based on novel and right to exploit characters from novels in merchandising].)
Because the trial court interpreted the agreement to grant Capitol unlimited rights in the master recordings, the court did not consider, and neither party has directed its attention to the question, whether use of master recordings for the purpose of manufacturing and distributing toys would be authorized under the 1968 agreement. On remand, the trial court will have the opportunity to consider whether the allegations in the complaint involve use of the master recordings for the purpose of the manufacture and distribution of toys and other merchandise, and if so, whether they fall within the contract language as we have interpreted it.
The Oxford Dictionaries Online, for example, defines “manufacture, ” when used as a noun (as it is in the 1968 agreement), as “the making of articles on a large scale using machinery.” (Oxford Dictionaries< http:// oxforddictionaries.com (as of INSERT FILING DATE*).) “Distribution” is defined as “the action or process of supplying goods to stores and other businesses that sell to consumers” or “the action of sharing something out among a number of recipients.” (Ibid.; see Webster’s 3d New Internat. Dict., Unabridged (2002) at pp. 1378 [manufacture] and 660 [distribution]; see generally Wasatch Property Management v. Degrate (2005) 35 Cal.4th 1111, 1121-1122 [“[w]hen attempting to ascertain the ordinary, usual meaning of a word, courts appropriately refer to the dictionary definition of that word”].)
In practical terms, our holding means that, while Capitol may have the right under the 1968 agreement to license the master recordings in connection with the manufacture and distribution of movie soundtracks, the right to license the recordings for use in the film itself belongs not to Capitol, but to Bagdasarian Productions.
d. Paragraph 10 reinforces, rather than undermines, the limited grant of rights contained in paragraph 2
Bagdasarian Productions and Capitol each cite paragraph 10 in support of their respective interpretations of the 1968 agreement. Paragraph 10 reserves to Bagdasarian the “perpetual right” to use copies of the identified master recordings “in connection with or for any purpose other than the manufacture and distribution of records and reproductions therefrom. Accordingly, [Bagdasarian] shall have such right in connection with any one or more performances, productions, exhibitions... whether for the purpose of entertainment, advertising, commercials... television broadcasting, radio broadcasting, motion picture exhibitions or live, or any other method or device, now or hereafter known, of or for recording or playing back sound.”
Bagdasarian Productions contends paragraph 10 confirms its right to use, directly or by licensing third parties, the master recordings in every media (including television and motion pictures) except in connection with the phonographic record field. Capitol, on the other hand, argues the rights reserved in paragraph 10 were personal to Bagdasarian to allow him to continue to use the recordings in his profession; Bagdasarian’s reservation for personal use (even though “perpetual” and thus apparently enforceable by his heirs), it argues, does not include the right to license the master recordings for use by third parties.
We agree with Capitol that the reservation of rights to use the copies of the master recordings in all media and for any purpose other than the manufacture and distribution of records is a personal right. Indeed, nothing in paragraph 10 allows Bagdasarian to license to third parties any rights he “reserved” for himself in paragraph 10. Nonetheless, by expressly reserving for Bagdasarian the right to use the master recordings for things other than the manufacture and distribution of records and reproductions, and specifically including within that authorization the right of Bagdasarian to use the recordings in television and film, paragraph 10 confirms the use of the recordings in television and film was not contemplated or encompassed by the grant of rights for the purpose of “manufacture and distribution” of records and reproductions.
Capitol contends paragraph 10’s “reservation of rights” only makes sense if Bagdasarian had sold all the rights (without limitation) in paragraph 2, an interpretation, it insists, that is reinforced by the introductory language in paragraph 10, which explains its provisions apply “[n]otwithstanding the provisions of paragraph 2.” According to Capitol, if Bagdasarian had retained the rights to use the master recordings for purposes other than the manufacture and distribution of records-that is, not sold those rights in paragraph 2-the reservation of them in paragraph 10 would be unnecessary. However, contrary to Capitol’s contention, paragraph 10’s reservation to Bagdasarian of rights to use copies of the master recordings in media and for uses other than the manufacture and distribution of records as broadly defined in the agreement does not undermine paragraph 2’s limited grant of rights to Capitol or otherwise render the reservation in paragraph 10 surplusage. Because paragraph 2 grants Capitol all rights to the physical master recordings and all reproductions and copies of them, paragraph 10’s reservation of rights was necessary to ensure Bagdasarian had access to the copies of the master recordings he sold in paragraph 2. Far from being redundant, paragraph 10 was necessary for Bagdasarian to accomplish the “personal use” Capitol concedes was afforded to him in paragraph 10.
The 1967 recording agreement, in which Bagdasarian granted Liberty, Capitol’s predecessor, possession of the physical master recordings and all copies of the master recordings for the duration of the recording contract, contains a similar reservation allowing Bagdasarian access to recordings in Liberty’s possession: “Notwithstanding the provisions of clause 5 [granting possession of all master recordings to Liberty], Artist reserves, and Liberty grants to Artist, the perpetual right to use copies of any and all masters hereunder, which Liberty agrees to furnish at Liberty’s direct actual cost, and to make [re]productions or records thereof... for any purpose other than the manufacture and distribution of recordings hereunder.”
e. Paragraph 4(e) does not assist Capitol
Capitol’s reliance on paragraph 4(e), which prohibits Bagdasarian from licensing any of the rights conferred under the agreement to third parties, is similarly misplaced. In paragraph 4(e), Monarch and Bagdasarian merely warrant that neither of them has or will license any rights conferred to Liberty under the 1968 agreement, so as not to interfere with the rights sold under the agreement. It does not prevent Bagdasarian from licensing the rights he has retained-not sold-under the terms of the agreement.
Paragraph 4 provides in part, “[Artist represents] [¶] (e) [n]o third person has any right, title or interest in or to each of said master recordings... and Monarch-Artist have not heretofore granted any right or license inconsistent with or which may impair and/or curtail any of the rights or licenses granted hereby, and Monarch-Artist will not grant, lease, license, sell or assign to any other person rights in or to said master recordings, nor will it itself suffer or suffer to be done any act, or acts, in derogation of the rights of Liberty hereunder.”
3. The Undisputed Extrinsic Evidence Does Not Support Capitol’s Interpretation of the 1968 Agreement
A contract apparently unambiguous on its face may still contain a latent ambiguity that can only be exposed by extrinsic evidence. (Pacific Gas & Electric, supra, 69 Cal.2d at p. 40; accord, Wolf III, supra, 162 Cal.App.4th at p. 1133.) Thus, although insisting the 1968 agreement is not ambiguous, Capitol alternatively urges us, should we disagree with its interpretation of the language of the agreement itself, to consider extrinsic evidence of Bagdasarian Productions’s predispute, postcontracting conduct, in particular, Bagdasarian Productions’s knowing acquiescence in Capitol’s decades-long practice (since 1985) of licensing the master recordings to third parties for use in television programs and feature films. (See City of Hope, supra, 43 Cal.4th at p. 393 [“A party’s conduct occurring between execution of the contract and a dispute about the meaning of the contract’s terms may reveal what the parties understood and intended those terms to mean. For this reason, evidence of such conduct... is admissible to resolve ambiguities in the contract’s language”].)
A party’s predispute, post-contracting conduct can be powerful evidence of that party’s intent at the time it entered in the agreement. (See Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 753-754 [“‘[t]he acts of the parties under the contract afford one of the most reliable means of arriving at their intention’”]; accord, City of Hope, supra, 43 Cal.4th at pp. 393-395; see also Oceanside 84, Ltd. v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1449 [“conduct of the parties after the execution of the contract, and before any controversy arose, may be considered in order to attempt to ascertain the parties’ intention”].) However, that rule of contract interpretation rests on the fundamental principle that a party will act in accordance with its contracting intent at the time he or she entered into the contract. (See, e.g., Loomis Fruit Growers’ Assn. v. California Fruit Exchange (1932) 128 Cal.App. 265, 274 [“‘[i]t is to be assumed that [the parties to a contract] best know what was meant by its terms, and are the least liable to be mistaken as to its intention’”]; see also Rest.2d Contracts, § 202(4) [“[w]here an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement”].) It has little, if any, applicability here, when the predispute post-contracting conduct belongs not to the contracting party, but to a successor-in-interest who was not a party to the contract and has not been shown to have any knowledge of the contracting party’s actual intent at the time he entered into the contract. Thus, Bagdasarian Productions’s post-contract, predispute conduct-the actions of Bagdasarian, Jr.-sheds little, if any, light of the intent of its predecessor-Bagdasarian-at the time the 1968 agreement was negotiated and signed. (See generally Wolf III, supra, 162 Cal.App.4th at pp. 1133-1135 [corporation’s payment under predecessor’s contract based on its mistaken interpretation of its obligations under agreement did not result in a forfeiture of right to argue it had no obligation to pay under the plain language of the agreement].)
This is not to say that Bagdasarian Productions’s acquiescence in Capitol’s past practice is wholly irrelevant to Bagdasarian Productions’s claims in this litigation. To the extent the 1968 agreement was identified in 1993 and presented to Bagdasarian Productions by Capitol in connection with Bagdasarian, Jr.’s inquiry concerning one of the recordings (“The Witch Doctor”) identified in the 1968 agreement, Bagdasarian Productions may well be charged upon appropriate proof with constructive knowledge of its terms at least as of that date. (See Phillips v. Sanger Lumber Co. (1900) 130 Cal. 431, 434 [corporation presumed to have knowledge of items entered into its books]; see also E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1318 [employer charged with whatever knowledge an honest bookkeeper would gain by reasonably diligent examination of employer’s books and records]; Sun ‘n Sand, Inc. v. United California Bank (1978) 21 Cal.3d 671, 702 [“employer is charged with the knowledge that an honest agent would have gained in the course of a reasonably diligent examination” of records available to it].) Notwithstanding Bagdasarian, Jr.’s and Minks’s insistence they were unaware of the actual terms of the 1968 agreement until 2007, such knowledge may give rise to legitimate defenses for Capitol, including those based on applicable statutes of limitations or the equitable doctrine of laches. (See, e.g., Santillan v. Roman Catholic Bishop of Fresno (2008) 163 Cal.App.4th 4, 11 [doctrine of imputing agent’s constructive knowledge to principal applicable when considering whether claim time-barred]; Capron v. State of California (1966) 247 Cal.App.2d 212, 231-232 [plaintiff’s action for fraudulent inducement barred by limitations because agent discovered fraud years before action was filed].) However, under the circumstances here, the acquiescence in Capitol’s past licensing practices does not assist in ascertaining the contracting parties’ intent at the time they entered into the 1968 agreement.
Capitol also relies on a 1993 agreement between Bagdasarian Productions and Capitol in which Bagdasarian licensed from Capitol master recordings for purposes of making and distributing record albums consisting of a compilation of Chipmunks Christmas songs. The recital in paragraph A of the 1993 agreement provides, “Capitol owns masters of sound-recordings embodying the performances of ‘The Chipmunks’ (‘Masters’), delivered or recorded under and pursuant to, inter alia, agreements between Capitol’s and Company’s predecessors-in-interest dated July 1, 1968.” Paragraph 4(c) of that agreement provides, “All Masters are, and remain, Capitol’s property, subject only to the limited license granted to [Bagdasarian Productions] pursuant hereto. [Bagdasarian Productions] neither has nor shall acquire any rights to use or exploit Masters, other than is set forth herein. This agreement is non-exclusive.”
Capitol insists this language confirms it owned the master recordings identified in the 1968 agreement outright. Capitol’s argument is flawed in several significant respects. Primarily, the language of the 1993 agreement itself simply acknowledges the 1968 agreement; it does not alter the terms of that agreement. Moreover, the 1993 agreement grants Bagdasarian Productions a license to use the master recordings for purposes of making and distributing record albums, a use that both parties agree Bagdasarian and Monarch did not retain in the 1968 agreement. Finally, like the other extrinsic evidence offered by Capitol, the 1993 agreement may provide evidence of Bagdasarian, Jr.’s understanding about rights and obligations created by the 1968 agreement; but it reveals nothing about his predecessor’s intent at the time he entered into the 1968 agreement.
Paragraph 7 of the 1993 agreement also provides no substantial support for Capitol’s interpretation of the 1968 agreement. That paragraph states, “Should [Bagdasarian Productions] wish to license individual Masters from [Capitol], [Bagdasarian Productions] shall submit a written proposal, ” which Capitol may approve or deny at its “sole discretion.” This provision simply requires Bagdasarian Productions to obtain separate licenses from Capitol to use additional master recordings for any records it makes. Nothing in that paragraph, or in the 1993 agreement as a whole, alters, explains or clarifies the rights conveyed in the 1968 agreement.
Citing Evidence Code section 622, Capitol alternatively argues that Bagdasarian Productions is bound by the recitals in paragraphs A and 4(c) of the 1993 agreement. (See Evid. Code, § 622 [“facts recited in a written instrument are conclusively presumed to be true as between the parties thereto or their successors in interest”].) According to Capitol, the recitals in paragraphs A and 4(c) of the 1993 agreement conclusively demonstrate that Capitol owns all the rights to the master recordings. As discussed, however, those recitals pertain only to the ownership of the master recordings and their use in connection with the manufacture and distribution of records, rights that are not disputed by Bagdasarian Productions.
If anything, the material extrinsic evidence supports our conclusion the 1968 agreement did not grant Capitol unlimited rights in the intangible property embodied in the master recordings. In 1969, just nine months after the parties had signed the 1968 agreement, Bagdasarian and Liberty executed a new recording contract in which Bagdasarian agreed to record a minimum of 24 “single record sides” for Liberty. In that agreement Bagdasarian granted Liberty “[a]ll rights of every kind” in those yet-to-be-developed recordings, including the “exclusive and perpetual right” to perform “or permit performances thereof in any medium and by any means whatsoever.” Plainly, the parties knew how to make the “broad, all encompassing” grant of rights Capitol now claims in the 1968 master recordings and simply elected not to do so in the 1968 agreement. (See Wolf III, supra, 162 Cal.App.4th at p. 1135 [“[T]he choice of language in Paragraph 21 is highly significant. When the parties intended to identify ‘subsidiaries, ’ they knew how to do so.”].)
In sum, the 1968 agreement conveys to Capitol’s predecessor certain master recordings together with the right to exploit those recordings in connection with the manufacture and distributions of records and reproductions as defined in the 1968 agreement. The right to license those master recordings for purposes other than for manufacture and distribution of the recordings-that is, as relevant here, for use as background music in television and feature films-was not conveyed to Liberty/Capitol in the 1968 agreement.
DISPOSITION
The judgment is reversed, and the matter remanded to the trial court to conduct further proceedings not inconsistent with this opinion. Bagdasarian Productions is to recover its costs on appeal.
We concur: WOODS, J.ZELON, J.