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Parsing the Copyright Preemption Issue in Claims for Breach of Implied-in-Fact Contracts

By Stan Soocher
June 30, 2011

The U.S. Court of Appeals for the Ninth Circuit recently reconfirmed the long-established principle that, under California law, an implied-in-fact contract claim over an alleged promise to pay for use of an idea or concept isn't preempted by federal copyright law. Montz v. Pilgrim Films & Television Inc., 98 U.S.P.Q.2D (BNA) 156 (9th Cir. 2011). But for years, many studios have required parties to sign submission agreements that limit studio liability when ideas, concepts and scripts are pitched to the studios. Notably, the Ninth Circuit's decision in Montz was a reminder of the different approach that courts in the Second Circuit have taken in finding whether implied contract claims are subject to copyright preemption.

Ghost of an Idea

In Montz, parapsychologist Larry Montz and his publicist Daena Smoller alleged in a complaint in the Central District of California that, for several years beginning in 1996, they had pitched Montz's concept for a reality TV series about “paranormal investigators” to studios that included NBC Universal and what today is the SyFy Channel. But the Montz plaintiffs claimed that instead of partnering with Montz, NBC and Pilgrim Films & Television produced the paranormal-investigators series Ghost Hunters for NBC's SyFy. The district court found federal copyright law preempted both the plaintiffs' state-law claims for breach of implied-in-fact contract and of confidential relationship; later, Montz and Smoller agreed to drop their copyright infringement claim.

In an appeal of the preemption ruling, a three-judge panel for the Ninth Circuit affirmed the district court, noting of the implied contract claim that “the plaintiffs allegedly disclosed their work to the defendants 'for the express purpose of offering to partner ' in the production, broadcast and distribution of the Concept'; the defendants allegedly rejected the offer but, in return, made an implied promise 'not to disclose, divulge or exploit the Plaintiffs' ideas and concepts without the express consent of the Plaintiffs.' (Emphases added.) ' [However, t]he plaintiffs expected to receive a share of the profits and credit for use of their work, but only because they expected, as any copyright owner would, that their work would not be used without their permission.” Montz v. Pilgrim Films & Television Inc., 606 F.3d 1153 (9th Cir. 2010). Thus as the three-judge panel saw it, there was no “extra element” to allow the claim to avoid copyright preemption.

After rehearing, in May 2011 an en banc panel of appellate judges issued a 7-4 decision reinstating Montz's state-law claims. (Howard B. Miller of Los Angeles' Girardi & Keese argued the case for Montz before the en banc panel. Gail Migdal Title, of the Los Angeles office of Katten Muchin Rosenman LLP, argued for the appellees.)

Circuit Judge Mary M. Schroeder noted in the opening of her majority en banc opinion: “In Hollywood, writers commonly submit copyrighted scripts to producers with the understanding that if the script is used, the producer must compensate the writer for the use of the copyrighted material. But what happens when the producer uses the idea or concept embodied in the script, but doesn't pay? The Supreme Court of California, in 1956, answered this question by recognizing an implied contractual right to compensation when a writer submits material to a producer with the understanding that the writer will be paid if the producer uses the concept. Desny v. Wilder, 46 Cal. 2d 715, 299 P.2d 257 (Cal. 1956).” Judge Schroeder then emphasized: “A so-called 'Desny claim' has remained viable under California law for over [50] years.”

In Desny, Victor Desny had pitched a true-story film synopsis, about an individual who had been trapped in a cave, to the secretary of director/producer Billy Wilder. Desny alleged that during the phone conversation, the secretary told him “she would talk it over with Billy Wilder” and that Desny told the secretary that if the story was used he wanted “the reasonable value of it. ' She said that if Billy Wilder of Paramount uses the story, 'naturally we will pay you for it.'” Desny sued in Los Angeles Superior Court from the Wilder-directed movie Ace in the Hole (a.k.a., The Big Carnival). The superior court granted summary judgment for the defendants. But the California Supreme Court reinstated Desny's claim for compensation.

In Montz, Judge Schroeder observed of Desny: “Wilder allegedly failed to compensate the plaintiff, and the California Supreme Court held that, given the entertainment industry norms, the plaintiff had sufficiently pled the breach of an implied contract to pay for use of his idea.”

Judge Schroeder added: “In recent years, litigation has, not surprisingly, moved to the federal courts where defendants have hoped for greater success in pressing for copyright preemption. ' Defendants were initially quite successful in federal court.”

Montz Continues Idea Support

The last major Ninth Circuit pronouncement on the preemption issue was in 2004, in Grosso v. Miramax Film Corp., 383 F.3d 965 (9th Cir. 2004), in which the federal appeals court ruled that screenwriter Jeff Grosso could proceed with his claim for breach of implied contract over the defendants' movie Rounders. The California Court of Appeal later found against Grosso, noting: “Plaintiff simply mailed his script to Gotham [Entertainment Group] after reading in a writer's market guide that Gotham accepted unsolicited material. There was no response from Gotham at all. There were no communications between plaintiff and Gotham. Nor was there any communication between plaintiff and defendants, including Miramax.” Grosso v. Miramax Film Corp., B193872 (Cal. Ct. App 2007). But the Ninth Circuit's Grosso opinion led to more idea-submission litigation.

Now the Montz-rehearing decision certainly doesn't please potential studio defendants. As Judge Diarmuid F. O'Scannlain noted in his Montz-rehearing dissent: “Montz asserts that Pilgrim produced and broadcast a television program derived from Montz's screenplays, video, and other materials without authorization. These rights are equivalent to the rights of copyright owners '. I suggest the majority does not appreciate the significance of Montz's refusal to authorize Pilgrim to use the ideas embodied in his materials. This is not the same as authorizing Pilgrim to use his ideas so long as it pays him. A copyright is not just the right to receive money upon the use of a work; it is 'the right to control the work.'” Judge O'Scannlain added: “Montz did not offer to sell his idea to Pilgrim; he offered 'to partner' with Pilgrim in the show's 'production and distribution.' ' Thus, Montz does not claim to have sold the rights to the ideas embodied in his materials, as did the plaintiff in Grosso v. Miramax Film Corp.

In majority, Judge Schroeder found the Montz parties' claim for breach of confidential relationship escaped preemption, because that “claim protects the duty of trust or confidential relationship between the parties, an extra element that makes it qualitatively different from a copyright claim.” The specificity of the Montz complaint was at issue in the litigation, but the Ninth Circuit majority concluded the complaint sufficiently claimed breach of implied contract, for example, which “closely tracks the complaint we found sufficient in Grosso.”

The first reported decision to cite the Montz-rehearing majority came just several days after the en banc court ruled, from the U.S. District Court for the District of Nevada ' but not on implied contracts. In Smith v. PROductions, 2:10-cv-00870-GMN (D.Nev. 2011), the Nevada federal district court denied a motion for reconsideration of a copyright-infringement suit dismissal by noting: “[Plaintiff] explains that he 'pitched the game show concept' to Poker PROductions, that Poker PROductions indicated that 'there was a major flaw in the show idea,' and that Defendants' 'Face the Ace' show has 'the same game concept.' ' Plaintiff clearly asserts a claim that his game show idea and concept was protected and violated or improperly appropriated by Defendants. However, his game show idea and concept was not protectable under copyright law. See, Montz v. Pilgrim Films & Television, Inc.

A few days after the District of Nevada ruled, the U.S. District Court for the Central District of California ' in Starclipz LLC v. StarGreetz Inc., CV 11-2779 CAS (C.D.Calif. 2011) ' quoted the Montz-rehearing majority for the widely established judicial position that, “[f]or preemption purposes, 'ideas and concepts that are fixed in a tangible medium fall within the scope of copyright.'” (Starclipz considered whether several state law claims were preempted by the federal copyright law, though the Central District found, for example: “Plaintiffs' unfair competition and interference with prospective economic advantage claims are not preempted by the Copyright Act. Plaintiffs' unfair competition claim is predicated primarily on defendants' alleged breaches of contract and fraud, which are not preempted '. Similarly, plaintiffs' interference with prospective economic advantage, is premised on defendants' alleged misappropriation of trade secrets,” an unpreempted “primary allegedly wrongful” act.)

Second Circuit: Novelty Required

Like the Ninth Circuit, federal courts in the Second Circuit don't find claims for breach of confidential relationship to be preempted. But a major distinction between New York and California law on implied contracts is that the former can require that the plaintiff's idea has some novelty, while the latter generally doesn't. (See, e.g., Lapine v. Seinfeld, 918 N.Y.S.2d 313 (Sup. Ct., N.Y. Cty. 2011) (“[W]here there has been no post-disclosure contract for use of the idea, proof of novelty is required to establish both that the user of the idea in fact obtained it from the plaintiff and that the idea had value, thus establishing consideration for the [implied-in-fact] contract” (citing Apfel v. Prudential-Bache Secs. Inc., 81 N.Y.2d 470 (1993).)

Lacking a Desny standard, federal courts in the Second Circuit have taken an inconsistent view on the preemption of implied-in-fact contract claims. Lapine, supra, noted: “There is considerable dispute among the federal courts about whether, or under what circumstances, a state law claim for breach of an implied-in-fact or other contract is preempted by the Copyright Act. Substantial authority articulates the broad proposition that the implied promise to pay for an idea constitutes the 'extra element' necessary to avoid preemption” (citing Wrench LLC v. Taco Bell Corp., 256 F. 3d 446 (6th Cir. 2001), Katz Dochrermann & Epstein Inc. v. Home Box Office, 50 U.S.P.Q.2D (BNA) 1957 (S.D.N.Y. 1999), and the Ninth Circuit's ruling in Grosso v. Miramax Film Corp., supra.). “Other cases, although involving claims of implied promises to pay for the use of ideas, appear to be inconsistent with the above authority.” (citing, e.g., Smith v. New Line Cinema, 03 Civ. 5274 (S.D.NY. 2004).)

The Southern District of New York recently considered preemption of implied-in-fact contracts in Forest Park Pictures v. Universal Television Network Inc., 10-5168 (S.D.N.Y. 2011). The plaintiffs sued over the USA Network TV series Royal Pains, claiming they had pitched their “character biographies, concepts, themes, and plot/story lines” for Housecall, a similar series about a “concierge” doctor, to an executive for the New York-based cable channel who “at all relevant times knew: a) that writer-creators pitch creative ideas to prospective purchasers with the object of selling those ideas for compensation; and b) that it was standard in the entertainment industry for ideas to be pitched with the expectation of compensation in the event of use.”

As for choice of law, Southern District Judge Colleen McMahon noted that the Los Angeles-based Forest Pictures “argue[s] that California law applies to the preemption analysis. Plaintiffs are incorrect. Whether a federal statute preempts a state-law claim is a federal question and a federal court applies the law of the circuit in which it sits ' here, the Second Circuit ' when deciding federal questions.”

As to preemption, Jude McMahon noted: “First, the subject matter of Plaintiffs' breach-of-contract claim ' the character biographies, plots, and story lines created by Plaintiffs for Housecall ' falls within the subject matter of the copyright laws. ' Moreover, the preemptive reach of the Copyright Act also encompasses state-law claims concerning materials that are not copyrightable, such as ideas. ' Thus, even if Plaintiffs' state-law claim is based on their ideas and concepts for Housecall, the claim still falls within the subject matter of the copyright laws.”

Then citing Smith v. New Line Cinema, supra, Judge McMahon decided: “Plaintiffs' breach-of-implied-contract claim based on his alleged right to be compensated for the use of his idea for a television series is equivalent to the exclusive rights protected by the copyright law and is therefore preempted by the Copyright Act.”

Conclusion

With the Montz-rehearing ruling, the Ninth Circuit exhibits more consistency in its acceptance of implied-in-fact contract claims, while courts in the Second Circuit have found preemption of implied contracts both where pitch meetings did and didn't take place ' and non-preemption where a pitch meeting did occur. (For the latter, see, e.g., Katz Dochrermann & Epstein Inc. v. Home Box Office, supra.) Suffice it to say that after the Montz-rehearing decision, potential implied-contact defendants have a better chance of raising a preemption bar in New York, than in California.


Stan Soocher is Editor-in-Chief of Entertainment Law & Finance and a tenured Associate Professor of Music & Entertainment Industry Studies at the University of Colorado's Denver Campus. He can be reached at [email protected] or via www.stansoocher.com.

The U.S. Court of Appeals for the Ninth Circuit recently reconfirmed the long-established principle that, under California law, an implied-in-fact contract claim over an alleged promise to pay for use of an idea or concept isn't preempted by federal copyright law. Montz v. Pilgrim Films & Television Inc., 98 U.S.P.Q.2D (BNA) 156 (9th Cir. 2011). But for years, many studios have required parties to sign submission agreements that limit studio liability when ideas, concepts and scripts are pitched to the studios. Notably, the Ninth Circuit's decision in Montz was a reminder of the different approach that courts in the Second Circuit have taken in finding whether implied contract claims are subject to copyright preemption.

Ghost of an Idea

In Montz, parapsychologist Larry Montz and his publicist Daena Smoller alleged in a complaint in the Central District of California that, for several years beginning in 1996, they had pitched Montz's concept for a reality TV series about “paranormal investigators” to studios that included NBC Universal and what today is the SyFy Channel. But the Montz plaintiffs claimed that instead of partnering with Montz, NBC and Pilgrim Films & Television produced the paranormal-investigators series Ghost Hunters for NBC's SyFy. The district court found federal copyright law preempted both the plaintiffs' state-law claims for breach of implied-in-fact contract and of confidential relationship; later, Montz and Smoller agreed to drop their copyright infringement claim.

In an appeal of the preemption ruling, a three-judge panel for the Ninth Circuit affirmed the district court, noting of the implied contract claim that “the plaintiffs allegedly disclosed their work to the defendants 'for the express purpose of offering to partner ' in the production, broadcast and distribution of the Concept'; the defendants allegedly rejected the offer but, in return, made an implied promise ' not to disclose, divulge or exploit the Plaintiffs' ideas and concepts without the express consent of the Plaintiffs.' (Emphases added.) ' [However, t]he plaintiffs expected to receive a share of the profits and credit for use of their work, but only because they expected, as any copyright owner would, that their work would not be used without their permission.” Montz v. Pilgrim Films & Television Inc. , 606 F.3d 1153 (9th Cir. 2010). Thus as the three-judge panel saw it, there was no “extra element” to allow the claim to avoid copyright preemption.

After rehearing, in May 2011 an en banc panel of appellate judges issued a 7-4 decision reinstating Montz's state-law claims. (Howard B. Miller of Los Angeles' Girardi & Keese argued the case for Montz before the en banc panel. Gail Migdal Title, of the Los Angeles office of Katten Muchin Rosenman LLP, argued for the appellees.)

Circuit Judge Mary M. Schroeder noted in the opening of her majority en banc opinion: “In Hollywood, writers commonly submit copyrighted scripts to producers with the understanding that if the script is used, the producer must compensate the writer for the use of the copyrighted material. But what happens when the producer uses the idea or concept embodied in the script, but doesn't pay? The Supreme Court of California, in 1956, answered this question by recognizing an implied contractual right to compensation when a writer submits material to a producer with the understanding that the writer will be paid if the producer uses the concept. Desny v. Wilder , 46 Cal. 2d 715, 299 P.2d 257 (Cal. 1956).” Judge Schroeder then emphasized: “A so-called 'Desny claim' has remained viable under California law for over [50] years.”

In Desny, Victor Desny had pitched a true-story film synopsis, about an individual who had been trapped in a cave, to the secretary of director/producer Billy Wilder. Desny alleged that during the phone conversation, the secretary told him “she would talk it over with Billy Wilder” and that Desny told the secretary that if the story was used he wanted “the reasonable value of it. ' She said that if Billy Wilder of Paramount uses the story, 'naturally we will pay you for it.'” Desny sued in Los Angeles Superior Court from the Wilder-directed movie Ace in the Hole (a.k.a., The Big Carnival). The superior court granted summary judgment for the defendants. But the California Supreme Court reinstated Desny's claim for compensation.

In Montz, Judge Schroeder observed of Desny: “Wilder allegedly failed to compensate the plaintiff, and the California Supreme Court held that, given the entertainment industry norms, the plaintiff had sufficiently pled the breach of an implied contract to pay for use of his idea.”

Judge Schroeder added: “In recent years, litigation has, not surprisingly, moved to the federal courts where defendants have hoped for greater success in pressing for copyright preemption. ' Defendants were initially quite successful in federal court.”

Montz Continues Idea Support

The last major Ninth Circuit pronouncement on the preemption issue was in 2004, in Grosso v. Miramax Film Corp. , 383 F.3d 965 (9th Cir. 2004), in which the federal appeals court ruled that screenwriter Jeff Grosso could proceed with his claim for breach of implied contract over the defendants' movie Rounders . The California Court of Appeal later found against Grosso, noting: “Plaintiff simply mailed his script to Gotham [Entertainment Group] after reading in a writer's market guide that Gotham accepted unsolicited material. There was no response from Gotham at all. There were no communications between plaintiff and Gotham. Nor was there any communication between plaintiff and defendants, including Miramax.” Grosso v. Miramax Film Corp., B193872 (Cal. Ct. App 2007). But the Ninth Circuit's Grosso opinion led to more idea-submission litigation.

Now the Montz-rehearing decision certainly doesn't please potential studio defendants. As Judge Diarmuid F. O'Scannlain noted in his Montz-rehearing dissent: “Montz asserts that Pilgrim produced and broadcast a television program derived from Montz's screenplays, video, and other materials without authorization. These rights are equivalent to the rights of copyright owners '. I suggest the majority does not appreciate the significance of Montz's refusal to authorize Pilgrim to use the ideas embodied in his materials. This is not the same as authorizing Pilgrim to use his ideas so long as it pays him. A copyright is not just the right to receive money upon the use of a work; it is 'the right to control the work.'” Judge O'Scannlain added: “Montz did not offer to sell his idea to Pilgrim; he offered 'to partner' with Pilgrim in the show's 'production and distribution.' ' Thus, Montz does not claim to have sold the rights to the ideas embodied in his materials, as did the plaintiff in Grosso v. Miramax Film Corp.

In majority, Judge Schroeder found the Montz parties' claim for breach of confidential relationship escaped preemption, because that “claim protects the duty of trust or confidential relationship between the parties, an extra element that makes it qualitatively different from a copyright claim.” The specificity of the Montz complaint was at issue in the litigation, but the Ninth Circuit majority concluded the complaint sufficiently claimed breach of implied contract, for example, which “closely tracks the complaint we found sufficient in Grosso.”

The first reported decision to cite the Montz-rehearing majority came just several days after the en banc court ruled, from the U.S. District Court for the District of Nevada ' but not on implied contracts. In Smith v. PROductions, 2:10-cv-00870-GMN (D.Nev. 2011), the Nevada federal district court denied a motion for reconsideration of a copyright-infringement suit dismissal by noting: “[Plaintiff] explains that he 'pitched the game show concept' to Poker PROductions, that Poker PROductions indicated that 'there was a major flaw in the show idea,' and that Defendants' 'Face the Ace' show has 'the same game concept.' ' Plaintiff clearly asserts a claim that his game show idea and concept was protected and violated or improperly appropriated by Defendants. However, his game show idea and concept was not protectable under copyright law. See, Montz v. Pilgrim Films & Television, Inc.

A few days after the District of Nevada ruled, the U.S. District Court for the Central District of California ' in Starclipz LLC v. StarGreetz Inc., CV 11-2779 CAS (C.D.Calif. 2011) ' quoted the Montz-rehearing majority for the widely established judicial position that, “[f]or preemption purposes, 'ideas and concepts that are fixed in a tangible medium fall within the scope of copyright.'” (Starclipz considered whether several state law claims were preempted by the federal copyright law, though the Central District found, for example: “Plaintiffs' unfair competition and interference with prospective economic advantage claims are not preempted by the Copyright Act. Plaintiffs' unfair competition claim is predicated primarily on defendants' alleged breaches of contract and fraud, which are not preempted '. Similarly, plaintiffs' interference with prospective economic advantage, is premised on defendants' alleged misappropriation of trade secrets,” an unpreempted “primary allegedly wrongful” act.)

Second Circuit: Novelty Required

Like the Ninth Circuit, federal courts in the Second Circuit don't find claims for breach of confidential relationship to be preempted. But a major distinction between New York and California law on implied contracts is that the former can require that the plaintiff's idea has some novelty, while the latter generally doesn't. ( See , e.g. , Lapine v. Seinfeld , 918 N.Y.S.2d 313 (Sup. Ct., N.Y. Cty. 2011) (“[W]here there has been no post-disclosure contract for use of the idea, proof of novelty is required to establish both that the user of the idea in fact obtained it from the plaintiff and that the idea had value, thus establishing consideration for the [implied-in-fact] contract” (citing Apfel v. Prudential-Bache Secs. Inc. , 81 N.Y.2d 470 (1993).)

Lacking a Desny standard, federal courts in the Second Circuit have taken an inconsistent view on the preemption of implied-in-fact contract claims. Lapine, supra, noted: “There is considerable dispute among the federal courts about whether, or under what circumstances, a state law claim for breach of an implied-in-fact or other contract is preempted by the Copyright Act. Substantial authority articulates the broad proposition that the implied promise to pay for an idea constitutes the 'extra element' necessary to avoid preemption” (citing Wrench LLC v. Taco Bell Corp. , 256 F. 3d 446 (6th Cir. 2001), Katz Dochrermann & Epstein Inc. v. Home Box Office, 50 U.S.P.Q.2D (BNA) 1957 (S.D.N.Y. 1999), and the Ninth Circuit's ruling in Grosso v. Miramax Film Corp., supra.). “Other cases, although involving claims of implied promises to pay for the use of ideas, appear to be inconsistent with the above authority.” (citing, e.g., Smith v. New Line Cinema, 03 Civ. 5274 (S.D.NY. 2004).)

The Southern District of New York recently considered preemption of implied-in-fact contracts in Forest Park Pictures v. Universal Television Network Inc., 10-5168 (S.D.N.Y. 2011). The plaintiffs sued over the USA Network TV series Royal Pains, claiming they had pitched their “character biographies, concepts, themes, and plot/story lines” for Housecall, a similar series about a “concierge” doctor, to an executive for the New York-based cable channel who “at all relevant times knew: a) that writer-creators pitch creative ideas to prospective purchasers with the object of selling those ideas for compensation; and b) that it was standard in the entertainment industry for ideas to be pitched with the expectation of compensation in the event of use.”

As for choice of law, Southern District Judge Colleen McMahon noted that the Los Angeles-based Forest Pictures “argue[s] that California law applies to the preemption analysis. Plaintiffs are incorrect. Whether a federal statute preempts a state-law claim is a federal question and a federal court applies the law of the circuit in which it sits ' here, the Second Circuit ' when deciding federal questions.”

As to preemption, Jude McMahon noted: “First, the subject matter of Plaintiffs' breach-of-contract claim ' the character biographies, plots, and story lines created by Plaintiffs for Housecall ' falls within the subject matter of the copyright laws. ' Moreover, the preemptive reach of the Copyright Act also encompasses state-law claims concerning materials that are not copyrightable, such as ideas. ' Thus, even if Plaintiffs' state-law claim is based on their ideas and concepts for Housecall, the claim still falls within the subject matter of the copyright laws.”

Then citing Smith v. New Line Cinema, supra, Judge McMahon decided: “Plaintiffs' breach-of-implied-contract claim based on his alleged right to be compensated for the use of his idea for a television series is equivalent to the exclusive rights protected by the copyright law and is therefore preempted by the Copyright Act.”

Conclusion

With the Montz-rehearing ruling, the Ninth Circuit exhibits more consistency in its acceptance of implied-in-fact contract claims, while courts in the Second Circuit have found preemption of implied contracts both where pitch meetings did and didn't take place ' and non-preemption where a pitch meeting did occur. (For the latter, see, e.g., Katz Dochrermann & Epstein Inc. v. Home Box Office, supra.) Suffice it to say that after the Montz-rehearing decision, potential implied-contact defendants have a better chance of raising a preemption bar in New York, than in California.


Stan Soocher is Editor-in-Chief of Entertainment Law & Finance and a tenured Associate Professor of Music & Entertainment Industry Studies at the University of Colorado's Denver Campus. He can be reached at [email protected] or via www.stansoocher.com.

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