## Facts

- Schism LLC was formed to produce a feature film titled *Schism*.
- In 2011, Schism received a $3.75 million advance from Seven Arts Entertainment, Inc. (SAE) in exchange for granting SAE distribution rights in the film.
- In 2012, Schism executed a mortgage of copyright in favor of SAE as security for SAE’s advance.
- In 2013, Peter Hoffman, Schism’s manager, contacted Prodigy Distribution, Inc. (Prodigy) to obtain post-production financing.
- On June 14, 2013, Prodigy and Schism entered into a series of agreements under which Prodigy agreed to loan funds to Schism, with repayment due by October 31, 2013.
- As security for the loan, Schism granted Prodigy worldwide distribution rights and a first-ranking and superior interest in Schism’s property and rights connected to the film.
- SAE participated in the Prodigy financing process and provided notices of assignment and instructions directing payments to Schism to help repay Prodigy’s loan.
- On June 18, 2013, Prodigy filed a UCC financing statement in Louisiana to perfect its security interest.
- On October 1, 2013, SAE entered into an agreement with Seven Arts Filmed Entertainment Louisiana, Inc. (SAFELA), a company 60% owned by SAE, granting SAFELA SAE’s distribution rights and a mortgage of copyright.
- Schism did not repay Prodigy by October 31, 2013, and never repaid the loan.
- On December 9, 2013, Schism registered the film’s copyright with the U.S. Copyright Office.
- On June 30, 2014, SAE and SAFELA recorded their mortgages of copyright with the Copyright Office.
- Prodigy sued for declaratory relief, seeking a determination that it owned (or held superior rights in) the film, while SAE and SAFELA claimed priority based on federal copyright recordation.

## Issues

1. Whether SAE and SAFELA were entitled to partial summary judgment that their recorded copyright mortgages had priority over Prodigy’s earlier granted distribution rights and state-law perfected security interest.
2. Whether SAE and SAFELA established, as a matter of law, the statutory requirements for later-transfer priority under 17 U.S.C. § 205(d), including good faith, valuable consideration, and lack of notice.

## Decision

- The court denied SAE and SAFELA’s motion for partial summary judgment.
- The court found defendants had not shown they were entitled to judgment as a matter of law on priority based on Copyright Office recordation.
- The court concluded the record left unresolved questions relevant to § 205(d), including issues tied to notice and good faith in light of SAE’s involvement in the Prodigy financing and the timing of the competing transactions.

## Legal Principles

- Summary judgment is improper where the record permits genuine disputes of material fact or competing reasonable inferences on elements material to the claim or defense.
- Under 17 U.S.C. § 205(d), a later copyright transfer can obtain priority over an earlier transfer only if it is recorded first and is taken in good faith, for valuable consideration, and without notice of the earlier transfer.
- A party seeking priority under § 205(d) must show the statute’s conditions are met; where notice and good faith are disputed on the record, priority is not appropriately resolved on summary judgment.
- Competing film-financing documents (distribution grants, security interests, and copyright mortgages) may require fact-based determinations about what rights were transferred, what the parties knew, and whether statutory priority conditions have been satisfied.

## Conclusion

The court denied defendants’ request for partial summary judgment because the evidence did not establish, as a matter of law, that SAE’s and SAFELA’s later-recorded copyright mortgages had priority over Prodigy’s earlier security-based distribution rights and perfected UCC interest; disputed questions remained about the statutory conditions for later-transfer priority under 17 U.S.C. § 205(d), including notice and good faith.


Prodigy Distribution v. Seven Arts Entertainment, 2015 WL 12672739 (2015)