Do the Oscars Show the Way to Preserving Goodwill via a Right of First Refusal?

On March 10, 2024 a select few in the film industry will be presented with the coveted Oscar statuette in the annual awards ceremony of the Academy of Motion Picture Arts and Sciences (“AMPAS”). The statuette dates back to 1927:

That’s when members of the newly formed Academy of Motion Picture Arts and Sciences held a dinner in the Crystal Ballroom of the Biltmore Hotel in downtown Los Angeles to devise a way to honor outstanding achievements in cinema. MGM art director Cedric Gibbons sketched the figure of a knight gripping a sword, standing in front of a reel of film. The five spokes of the reel stood for the original five branches of the Academy—actors, directors, producers, technicians, and writers—while the sword symbolized protection for the welfare of the industry. Then it was time to strike gold. In early 1928, Gibbons chose Los Angeles sculptor George Stanley to craft a three-dimensional design ... In the final design, the figure of the knight was streamlined, and the film reel moved beneath its feet.

A 2023 case in California, however, has upheld limits on the transferability of the prize. In Juarez v. Ward, 88 Cal. App. 5th 730, a California appellate court affirmed the trial court’s denial of a creditor’s attempt to take the statuette as satisfaction of a judgment because it found that AMPAS (which had been allowed to intervene in the case) had a right of first refusal to acquire it for $10. The right arose from a written agreement which the recipient had to sign as consideration for receiving the award and from the bylaws of AMPAS, of which the recipient was a member. The agreement provided that AMPAS would have 30 days to exercise the right, with the winner’s heirs to be bound by the restriction.

The appellate court concluded that, given these factors, the restriction was reasonable, citing the lower court’s reliance on the unrefuted statement of the CFO that AMPAS had spent millions of dollars to promote the Oscar and that the goodwill in its business would be irreparably harmed by the diminution in value of all Oscars if the restriction was not enforced.

Not mentioned in the opinion is the fact that AMPAS holds numerous registration for OSCAR marks and the statuette design, which lends additional support to their argument that the restriction is necessary to preserve goodwill.

We will be watching to see if a right of first refusal similar to that in Juarez has the potential to be an effective tool for artists and galleries who wish to have some control over the resale of works. Clearly any restriction will need to be carefully drawn and limited to what is necessary to protect goodwill.