Chapman Law Review
A PREEMPTIVE COPYRIGHT GHOST LURKING IN BREACH OF CONTRACT CLAIMS: RESOLVING THE COPYRIGHT PREEMPTION ANALYSIS
Copyright (c) 2013 Chapman Law Review; Jessica Nguyen
Supernatural activity has overtaken copyright law, reigniting the pressure to resolve significant legal issues after a period of quiet unrest. Ghost Hunters, a Syfy channel reality show following investigators as they study paranormal activity, has provided more than intrigue to viewers every Wednesday night; it has intensified an ongoing debate among the thirteen judicial circuits. While a paranormal team investigates the ghost of a colonel lurking in a Kentucky distillery on next week’s Ghost Hunters episode, parapsychologist Larry Montz continues to wage his legal battle against NBC Universal (NBC) and Pilgrim Films & Television. Montz claims that he first pitched the idea of a show following paranormal investigators to NBC and the Syfy channel. But both declined to use the idea. NBC then produced Ghost Hunters for the Syfy channel, which resulted in Montz v. Pilgrim Films & Television, Inc. Montz wound its way up to the Supreme Court where the entertainment industry rushed to have its say. The immediate issue in the Montz case was whether federal copyright law preempted Montz’s state claims for breach of implied contract and breach of confidence. The test that many courts employ to resolve whether state claims are worthy of surviving preemption has left plaintiffs, defendants, writers, and the media industry with little guidance. This Comment proposes a new test with a clear set of factors to determine what it takes for a state law claim to avoid preemption.
Part I will explain the dynamics of the entertainment industry, the formation of implied contracts in the entertainment industry, and the industry’s business structure, which favors media companies and established producers. Part II will discuss the basic foundation of federal copyright law, the necessity of preemption to maintain copyright law, and the role of the “extra element” test in parsing out preempted claims. Part III will examine how the “extra element” test has been applied in different ways among the courts. Finally, Part IV will propose a new test with a distinct set of factors that should be used in lieu of the “extra element” test.
I. Contracting for Ideas in the Entertainment Industry
The entertainment industry regularly strikes deals, allowing innovators to create the products consumers enjoy most: movies, television shows, music, and video games. The transactions are fluid and efficient because the entertainment industry is built on relationships, custom, and courses of dealing through the repeated interactions of writers, producers, actors, directors, and studios. For example, studios will typically only accept ideas for new films, television shows, or books from writers who use an agent. The agent acts as a gateway, regulating the relationship between idea creators and the studio. Any unsolicited ideas submitted without representation by an agent are returned to the writer. An agent has an established reputation in the entertainment industry allowing him to negotiate on behalf of a writer to get the best deal possible. Therefore, a person’s reputation in the entertainment industry is a crucial component of maintaining expectations, transacting in business, and making deals.
A key component to exchanges in the entertainment industry is acceptance of the implied contract. The implied contract recognizes a mutual agreement between a producer and writer: if the producer uses the writer’s idea, then the writer will be compensated. This agreement may not be captured in written form, but is merely understood by all the parties involved. The implied contract is a useful tool to get around a written agreement. No express written agreement is necessary, or even preferred, given that the fast-paced nature of the entertainment business calls for efficiency and speed. The process of negotiating and drafting long-form contracts for every deal impedes the flow of business. Similarly, if the implied contract is breached, most cases settle to ensure business consistency. Therefore, the implied contract is important to the proper functioning and maintenance of the entertainment industry.
While it would be ideal for writers and studios to hold an equal share of the power in an entertainment industry business relationship, this is simply not the case. The lion’s share of power is in the hands of producers and well-established media companies. This imbalance is due to several circumstances: (1) the disproportionate number of writers to producers/studios; (2) the use of releases by studios and producers to limit the amount of ideas they receive; and (3) the “independent creation” defense available to producers when they are sued.
First, the number of people clamoring to get into the entertainment industry is staggering. Studios have their pick of ideas and personnel. The nature of supply and demand weighs heavily against the writers.
Second, producers and studios are at liberty to demand that a writer sign a release before submitting an idea, which waives a writer’s rights to his material. A producer or studio manages the number of submissions they receive by refusing to accept unsolicited ideas unless a release has been signed. But a writer who submits his ideas through an agent usually does not have to sign a release. Therefore, writers without an agent are in the feeble position of either waiving their rights or not having their ideas heard at all. Producers and studios can make their demands, knowing that they possess greater bargaining power than their writer counterparts. Producers and studios are also better positioned to advantageously alter industry customs because they perpetually hold the upper hand. Writers are therefore left at the whim of the top “players” in the entertainment business.
Lastly, an independent creation defense arms studios and producers with a tool to rebut a writer’s breach of implied contract claim. The independent creation defense rebuts the plaintiff’s claim if a defendant can show he thought of the idea on his own. Even if the defendant produced the disputed work after he had access to the plaintiff’s idea, the defendant can still use the defense to defeat an idea submission claim. Once again, the studio and the producer win.
A writer that voluntarily chooses to venture into the entertainment business faces an ongoing struggle. He is forced to adhere to rules dictated by the opposing side. But in abiding by those rules, one of the strongest forms of protection that a writer can have over his work is a copyright.
II. The Basics of Copyright, Preemption, and the Extra Element Test
A copyright protects the labor and investment a person has put into a particular piece of work by granting the author “a series of exclusive rights.” To prevail on a copyright infringement claim, a plaintiff must prove: (1) ownership of a valid copyright and (2) the infringing party copied original elements of the copyrighted work. The second requirement will be more challenging for the plaintiff to prove than the first. Without direct evidence of copying, the plaintiff has a heavy burden to show that his work and the infringing work are “substantially similar” in both idea and expression. The test of substantial similarity is “whether the accused work is so similar to the copyrighted work that the ordinary reasonable person would conclude that the defendant unlawfully” used the plaintiff’s work. Even if the similarity is a small part of the entire work, substantial similarity can be found if the similarity is “qualitatively” important.
The courts have applied different tests to guide them in determining the adequate level of similarity between two works necessary to meet the substantial similarity test. For example, the Ninth Circuit test employs a two-step process. The first step is an “extrinsic test” that examines whether the general ideas are substantially similar, using specific criteria, such as the type of artwork, the materials, the subject matter, and the setting of the story. Satisfying this objective test can be difficult because the analysis depends on the availability and complexity of the evidence. If the extrinsic test is satisfied and the ideas are substantially similar, the analysis progresses to the second step, labeled the “intrinsic test.” This focuses on the expression of the idea, such as the final version of a movie or the aired version of a television show. This test is subjective and relies on the perceptions, observations, and impressions of an ordinary, reasonable person who can respond to the expression. Therefore, the extrinsic test resolves whether a defendant has taken the actual idea while the intrinsic test determines whether the expression of the idea has been pilfered. Satisfying both the extrinsic test and the intrinsic test constitutes copyright infringement.
The two-part substantial similarity test demonstrates that copyright protection does not extend to ideas alone; the idea must be accompanied with an expression of the idea to be eligible for copyright protection. Idea purveyors, such as Larry Montz, who have not yet embodied their ideas in an expression before the alleged infringement took place must therefore seek recourse through other legal causes of action. Copyright preemption responds to these alternatives by moderating the relationship between federal and state law. It ensures that protecting ideas through state law causes of action does not interfere with federal copyright law. And where a conflict exists, federal law controls. A state law claim is preempted if two requirements are met: (1) the “subject matter requirement”–the work to be protected falls within one of the categories protected by the Copyright Act; and (2) the “general scope requirement”–the state law claim asserts rights (i.e., reproduction, distribution, display, etc.) that are equivalent to one of the exclusive rights granted protection under the Copyright Act. This Comment will focus on the second prong of this test as it has been the central source of conflict for idea submission cases like that of Larry Montz. Resolving these cases requires determining whether the asserted state claim masks what is truly a copyright claim. The courts have predominantly utilized the “extra element” test to answer that question. The “extra element” test measures the degree of equivalency between state law claims and copyright claims. Furthermore, it determines whether there is some factor that changes the “nature of the action so that it is qualitatively different from a copyright infringement claim,” thereby taking the claim outside the bounds of copyright law and avoiding preemption.
A copyright holder has the right to reproduce, perform, distribute, and display his work. Federal copyright infringement occurs when the infringer obstructs those rights by reproducing, performing, distributing, or displaying the copyright holder’s work. At the state level, if an act of reproduction, performance, distribution, or display will by itself infringe a state-created right on which the plaintiff brings a case, the state claim is preempted. But if another element is required, instead of, or in addition to, reproduction, performance, distribution, or display, to prove the state claim, then there is an “extra element.”
III. The Problem with the “Extra Element” Test
The “extra element” test has invoked much criticism and attention because of its uncertainty and lack of guidance. The test has been criticized for giving the courts too much discretion, and inconsistent results justify the intense scrutiny. This Comment focuses on the “extra element” test in breach of implied contract claims. Three perspectives characterize the application of the “extra element” test to breach of contract claims: (1) the minority view where breach of contract claims concerning reproduction, performance, distribution, or display of a copyrighted work are never preempted; (2) an alternative view that finds state breach of contract actions are always preempted; and (3) the majority view where breach of contract causes of action are not preempted when they enforce rights qualitatively different from those exclusively protected by copyright law.
A. Breach of Contract Claims Are Never Preempted
A few courts have held that a breach of contract case based on reproduction, performance, distribution, or display of copyrighted material is never preempted. The inherent promise in a contract is the “extra element” that sets a contract claim apart from a copyright case.
In ProCD, Inc. v. Zeidenberg, the court emphasized that “[a] copyright is a right against the world,” restricting strangers in what they can do. An equivalent state right would have the power to restrict strangers from acting. But state rights created by a contract affect only their parties, not strangers outside the contract. A right enforceable against a particular party is not equivalent to a right enforceable against the world. A contract therefore does not create rights equivalent to the exclusive rights granted in federal copyright law because a contract right cannot be enforced against strangers to the contract. Even though the court intends to avoid adopting a blanket statement that every contract claim escapes preemption, the court’s holding does exactly the opposite. It establishes that contract rights are different from rights under copyright law in all cases. The court’s opinion asks, “[a]re rights created by contract ‘equivalent to any of the exclusive rights within the general scope of copyright‘?” The court answers “no.” The court’s answer is absolute and without qualification, leaving little possibility for overlap between copyright and contract rights. The court thus renders the preemption mechanism inoperative.
Academics in the copyright field, such as Professor Paul Goldstein, also support the reasoning portrayed in ProCD. Professor Goldstein takes ProCD a step further, saying, “contract law is a good example of a state law that will be immune from preemption under the extra element test. . . . [C]ontract law requires the plaintiff to prove the existence of a bargained-for exchange–something it need not prove in a cause of action for copyright infringement.” Just like the court in ProCD, Professor Goldstein does not otherwise qualify his statement with exceptions to immunity, appearing to infer that contract claims will always be immune. Under this line of reasoning, the “bargained-for exchange” part of every contract is the “extra element” that allows a breach of contract claim to avoid preemption in every case.
The danger in following this rationale is that anything labeled “contract” will escape preemption. This includes contracts, which promise to refrain from doing what copyright law already prohibits: contracts promising not to reproduce, distribute, perform, or display a work. Plaintiffs are therefore given a free pass to circumvent federal copyright law, pursue a state claim, obtain a remedy under state law, and virtually nullify the preemption mechanism. It is the court’s duty to avoid drawing a quick conclusion from the pleaded “laundry list” of elements in state law claims and to analyze whether an “extra element” truly exists.
B. Breach of Contract Claims Are Always Preempted
In Wolff v. Institute of Electrical and Electronics Engineers, Inc., a photographer sued an engineering society for exceeding the rights that the photographer originally granted to the society for use of a photograph. The court held that copyright law preempted the plaintiff’s state law claim for breach of contract, relying heavily on congressional intent and Congress’s actions when enacting the preemption provision of the Copyright Act.
The current preemption section of the Copyright Act describes preempted claims in a generalized way. However, the House of Representatives Committee Report to the Copyright Act illustrates that an earlier draft of the preemption provision explicitly listed specific causes of actions that would not be preempted, including breach of contract. That portion of the Act was eliminated on the floor of the House and does not appear in the final version of the Copyright Act. The removal arguably illustrates that Congress intended those causes of action to be preempted.
The Wolff court, in fact, inferred “[w]here Congress includes limiting language in an earlier version of a bill, but deletes it prior to enactment, it may be presumed that the limitation was not intended.” The court interpreted Congress’ deletion of the provision protecting breach of contract claims from preemption to mean that such claims should always be preempted.
But subsequent courts have indicated that Wolff goes too far in interpreting congressional intent. One possible explanation that has been offered for Congress’ action is that House members were concerned that an explicit list would cause confusion about the scope of preemption, especially since the list was non-exhaustive. The purported danger was that clearly identifying non-preempted rights would give states a green light to pass laws concerning those rights, thereby rendering preemption useless. The bill was therefore revised to account for the possibility of ambiguity and to maintain the power of preemption.
The courts have been reluctant to follow Wolff’s dispositive determination of congressional intent derived from the omission of examples of non-preempted rights from the final version of the Copyright Act. Rather, courts have regarded Wolff as standing for the proposition that a breach of contract claim is preempted when a plaintiff alleges that copyright infringement caused the breach of contract.
The case of Endemol Entertainment B.V. v. Twentieth Television, Inc., came dangerously close to articulating a categorical rule similar to Wolff: a breach of an implied contract, in particular, is always preempted. The plaintiff in this case hoped to license his television program concept and format. The defendant expressed an interest in the concept and format. During negotiations, both parties understood that the plaintiff would be paid for any use of his ideas. The defendant started to market the television series without the plaintiff’s permission. The plaintiff and defendant later broke off negotiations when no agreement could be reached. The defendant then produced a pilot based on the format and concept of the plaintiff’s program. The court found that the plaintiff’s claim alleged no rights beyond the defendant’s promise not to benefit from the plaintiff’s copyrighted work, which did not rise to the level of an “extra element.” The promise not to benefit was not an “extra element” because copyright law already protects a copyright holder from an infringer who benefits from the work. The defendant in this case received the benefit of the plaintiff’s work. Copyright law alone could effectively protect the plaintiff’s rights and therefore preempted the breach of contract claim.
Citing Professor Nimmer for the proposition that “quasi-contracts” are preempted, the Endemol court concluded that implied contracts are a species of quasi-contracts and should therefore be preempted in all cases. A number of courts have followed the same line of thought. However, courts have mistakenly interpreted Professor Nimmer’s work because a “quasi-contract” is merely a type of implied contract rather than a term incorporating all implied contracts. A “quasi-contract” is an implied-in-law contract, as opposed to an implied-in-fact contract. The focus of cases like Endemol has been the implied-in-fact contract where the parties’ actions reflect a mutual understanding of a promise to pay for the use of ideas. The “quasi-contract” has little value in analyzing situations where implied-in-fact contracts are in dispute. Professor Nimmer addresses the distinction: “[Q]uasi-contract refers to an obligation imposed by law to avoid unjust enrichment. It is therefore . . . pre-empted . . . . Unfortunately, courts often refer to ‘implied-in-fact’ contracts as pre-empted, when they mean to declare implied-in-law (i.e., quasi-) contract[s]” as preempted. Professor Nimmer further clarifies that “implied-in-fact” contracts survive preemption. As a result, the Endemol court’s analysis became misguided when it introduced quasi-contract theories to its preemption analysis of an implied-in-fact contract.
The critical difference between an implied-in-fact contract and an implied-in-law contract is the existence of an “extra element.” The “extra element” in an implied-in-fact contract claim is the promise to pay, while an implied-in-law contract does not require an “extra element” beyond reproduction, performance, distribution or display. The former typically avoids preemption and the latter results in preemption of state claims. Therefore, the interchangeable use of the term “implied contract” in reference to both an “implied-in-fact” contract and an “implied-in-law” contract can distort the preemption analysis. Courts and commentators must be careful to keep the two distinctly separate.
Rather than conducting an intensive analysis of the facts, the Wolff and Endemol courts adhered to the view that breach of contract claims are always preempted by federal copyright law. A fact-heavy analysis of the rights that each plaintiff claimed may have yielded different results and offered guidance to courts navigating similar claims.
C. Breach of Contract Claims Are Not Preempted When They Enforce Rights Qualitatively Different From the Exclusive Rights of Copyright Law
Many courts have gravitated away from adopting a bright-line rule and towards a fact-specific analysis to determine whether a breach of contract claim protects rights that are qualitatively different from rights under copyright law. Courts are valuing substance over form so that plaintiffs can no longer disguise a federal copyright claim as a state law claim.
In Wrench LLC v. Taco Bell Corp., Taco Bell expressed an interest in using a “Psycho Chihuahua” cartoon from a licensing trade show. In later discussions with Taco Bell, one of the cartoon creators suggested using a live dog that would be given personality through computer imaging. The two parties discussed how much it would cost to use the “Psycho Chihuahua” character and Taco Bell understood that if it chose to use the Psycho Chihuahua concept, it would have to pay the cartoonists. The creators’ licensing agency sent a proposal to Taco Bell, laying out the fees. Taco Bell did not accept the proposal nor did Taco Bell explicitly reject it or indicate that it would stop any further discussions. The cartoonists then gave a formal presentation to Taco Bell’s marketing department where they submitted prospective promotional materials focused on the “Psycho Chihuahua” and orally conveyed specific ideas for television commercials. Taco Bell later hired a different advertising agency and sent the hired agency all of the “Psycho Chihuahua” materials from Taco Bell’s advertising department. Taco Bell later aired a Chihuahua commercial and based its marketing efforts around a Chihuahua without compensating the designers of “Psycho Chihuahua.”
The Wrench court found that the “extra element” in the state law breach of implied contract claim was the promise to pay. The court examined the action that violated the implied contract and concluded that the violating act was not one of reproduction, performance, distribution or display by itself, but of the failure to pay. A copyright holder retains rights of reproduction, performance, distribution, or display, but noticeably absent from this list is the right to payment. Failing to pay does not violate federal copyright law. Therefore, the court held that together, the use of the work (which could infringe on copyright) and the failure to pay violated the contract. However, the use of the work alone could not violate the contract.
The court emphasized that the qualitative difference from a copyright infringement claim arose from the required elements to prove the state breach of contract claim: an enforceable promise, a breach, proof of mutual assent, consideration, the value of the work, and the defendant’s use of the work. It was significant, therefore, that the elements necessary to prove the state breach of implied contract were distinct from the elements of a copyright infringement claim.
The court also looked at the different remedies available through the state law claim versus a copyright claim to find a qualitative difference. The court took note of the fact that breach of implied contract actions in the state allowed for recovery of the reasonable value of services rendered. The remedies for a copyright infringement action, on the other hand, include injunctions, impounding and destruction of infringing articles, damages and profits, and costs and attorney’s fees. For the plaintiffs to receive the remedy of reasonable value of services rendered, they had to sue under a breach of contract claim. In Wrench, the reasonable value of services rendered would most likely consist of the time spent to develop, (1) the promotional materials submitted to Taco Bell’s advertising department, and (2) the ideas that were designed to appeal to the Taco Bell marketing team. The creators undertook their work with the expectation that they would be paid. Therefore, the remedies under the state law claim made it qualitatively different from a copyright infringement claim.
The Wrench court did not adhere to a bright-line rule to resolve the preemption issue, but instead, went through a step-by-step analysis of the infringing action, the elements of proof, and the available remedies to conclude that the claim was qualitatively different as to avoid preemption.
Fischer v. Viacom International, Inc. also follows the fact-specific approach by looking at the particular rights at issue to determine if the claim is preempted. The plaintiff in Fischer developed an animated character team of “a guy named ‘Steve’ and his blue dog named ‘Bluey.”’ He drafted a written proposal for an animated television series based on the character team and submitted it to Nickelodeon U.K. Nickelodeon asked for permission from the plaintiff to allow Viacom, Nickelodeon’s parent company, to keep “the details of the series on file for future reference.” The plaintiff responded by sending a more detailed description, a script for a pilot of the animated show, a sheet that displayed the characters in different poses, and character descriptions. The plaintiff and Viacom continued their exchanges, and Viacom purportedly expressed interest in the character team and encouraged the plaintiff to continue developing it. The plaintiff was then told to “pursue the production of his series” and he was given people to contact. Based on this encouragement, the plaintiff produced a five-minute video and sent it to Nickelodeon. The plaintiff was then sent a release to sign, whereupon he broke off all contact with Nickelodeon so that he could retain the rights to his work. Nickelodeon never returned any of the plaintiff’s materials. The plaintiff subsequently discovered a show similar in design to his animated character team of Steve and Bluey had aired on Nickelodeon.
Similar to Wrench, the Fischer court examined the payment right created by the implied contract and the plaintiff’s expectation of payment if his idea was used. However, unlike Wrench, the court found that the rights in the implied contract were equivalent to the rights under copyright law, focusing on the implied contract’s role as a tool to restrict use by someone other than the plaintiff. The court appeared to not place too much emphasis on “payment,” as it regarded the contract as pure regulation of “use” rather than regulation of payment.
Similarly, in Selby v. New Line Cinema Corp., the court scrutinized the nature of the plaintiff’s allegations to conclude that copyright law preempted the implied-in-fact contract claim. The plaintiff alleged that the defendant agreed to pay him and give him screen credit if his ideas were used to produce and distribute a film. The plaintiff had submitted his screenplay for a movie entitled “Doubletime” to New Line Cinema, whereupon “New Line informed [him] that it had recently produced a ‘time-travel’ film and ‘it was therefore reluctant to produce another film that employed transitions in time as a central element.”’ New Line sustained a relationship with the plaintiff by requesting any future drafts of “Doubletime,” and New Line later purchased a screenplay entitled “Frequency” with the same premise. The court found that any restriction on use of the plaintiff’s ideas strictly fell within the Copyright Act. The court believed that the plaintiff alleged no additional rights beyond the right to use his own work as he pleased. The implied contract, as framed by the court, did not control conduct beyond the use of the plaintiff’s ideas. The court overlooked the plaintiff’s demand for compensation, finding that the right to use the plaintiff’s idea was equivalent to the rights granted under federal copyright law and therefore preempted.
The court in Idema v. Dreamworks also emphasized the appropriateness of a fact-specific analysis, focusing on the actual allegations at issue and the “gravamen” of the state law claim. The plaintiff’s claim for breach of implied contract was based on the studio’s understanding that the plaintiff’s story could only be used if the plaintiff was paid and on the studio’s knowledge that the plaintiff already prepared book and movie proposals. Unlike Selby and Fischer, the court concluded that the “extra element” was the exchange of promises, relying on more than acts of reproduction, copying, distribution, or performance.
It is apparent from the varied applications of the “extra element” test that the courts’ conclusions were primarily shaped by how they framed their analyses and how they chose to perceive the allegations–focusing on prohibiting use or focusing on compensation. Even the Idema court recognized that it could have held the breach of contract claim preempted, stating:
Though it is certainly possible that this claim is preempted, in whole, or in part, by the Copyright Act, that preemption is not clear to this Court (a subsequent state court is certainly empowered, with greater elucidation of the factual allegations underpinning the claim, to make its own findings about preemption under copyright).
A fact-specific analysis, therefore, will yield different results. As depicted above, similar factual situations have led to conflicting findings, yet the courts have not established a consistent, factually-based method to determine whether there is an “extra element.” The division among the circuits will further deepen as courts commit to applying their own tests and theories to copyright preemption cases. The uncertainty in the court system trickles down to impact business operations as writers, producers, and studios become apprehensive of their legal rights. A coherent procedure to analyze state law claims for an “extra element” is necessary to sustain the flow of everyday business and to guide the courts in their decision-making.
IV. Selby Charts the Path for a Definitive Application of the “Extra Element” Test
The significance of Selby is not its holding, but its review of the ProCD decision, which, as explained in Part IIIA, articulated that breach of contract claims are never preempted. The Selby court essentially criticized the characterization of a promise to pay as an “extra element” in the preemption analysis. The Selby court stated, “the very promise is so inextricably entwined with the copyright that to permit the promisee to sue upon it would undermine the preemption feature of the Copyright Act.” In other words, allowing a copyright holder to pursue a breach of contract claim would weaken the power of copyright preemption because payment for the benefit of a copyrighted work is already embodied in the rights granted to a copyright holder and thus governed by copyright law. The Selby court does not go so far to say that a payment promise preempts a breach of contract claim in every case, but only that under the particular facts of Selby, the promise was woven into the screenplay owner’s copyright. The Selby court’s use of the words “inextricably entwined” shapes this Comment’s proposal for a better copyright preemption system based on the facts of any given case.
A. Connecting “Inextricably Entwined” to Constitutional Law
Similar to the way that Selby’s use of the term draws attention, the Supreme Court heavily relied on the term “entwine” in a notable decision. In Brentwood Academy v. Tennessee Secondary School Athletic Association, the phrase “pervasive entwinement” was coined as a way to determine if state action existed when a constitutional question was brought before a court. State action is any action that is taken by the government, or on behalf of the government, especially in the context of constitutional law. The “pervasive entwinement” test evaluated whether the conduct of a private actor, such as an individual or business, was so closely tied to the state as to attribute the private actor’s conduct to that of the state. If the private actor’s conduct was so pervasively entwined with the state, then state action existed and the private actor is deemed to have essentially acted as the state. Significantly, the test analyzed when one type of action resembled another action in such a striking way that one took on the character and identity of the other. Even though the Supreme Court did not specifically define “entwinement,” it illustrated what entwinement looks like in a heavily fact-centered inquiry.
The defendant in the case was Tennessee Secondary School Athletic Association (the “Association”), a membership organization set up to regulate interscholastic sports among public and private schools in Tennessee. The plaintiff was Brentwood Academy, a private school and a member of the Association. Brentwood Academy challenged a rule prohibiting the use of undue influence in recruiting athletes, claiming that the Association’s enforcement of the rule constituted state action. The Court focused on the organization and composition of the Association to conclude that it was “overborne by the pervasive entwinement of public institutions and public officials . . . .” In other words, the Association, a seemingly private institution, operated as a public, state organization, composed of officials that were treated like state employees. The Court recognized that the Association could not operate without the public school officials who overwhelmingly managed the Association.
Furthermore, Tennessee’s State Board of Education used its statutory authority to expressly delegate power to the Association to regulate interscholastic sports among Tennessee public schools. The State Board of Education later dropped its endorsement of the Association. But the Court found this irrelevant because a strong relationship still existed between the Association and the State. The extensive involvement of public employees at every level of the Association was a meaningful indicator of entwinement. The private character of the Association merely masked the State’s role, as the Association was acting as an arm of the State through the Board of Education. The particular facts of Brentwood are not significant to this Comment’s analysis of copyright preemption, but the Court’s logic of how the private athletic association came to be “charged with a public character” provides insight into how a copyright claim can be masked as a state claim.
The Brentwood court determined that “entwinement” is appropriate when the facts justify labeling “an ostensibly private action as public instead.” “[T]he relevant facts [may] show pervasive entwinement to the point of largely overlapping identity . . . .” In other words, complete entwinement might render two identities completely indistinguishable. But the Court also suggested that entwinement could be unwound if there was an offsetting reason to differentiate the two identities. The Court appears to indicate that an element may exist that takes private action out of the public sphere in the same way that an “extra element” can save a state law claim from federal copyright preemption. The Court’s reasoning might be summed up with the duck test: “If it looks like a duck, swims like a duck, and quacks like a duck, then it is probably a duck.” If it looks like state action, and acts like state action, then it is probably state action.
Focusing on the Brentwood court’s interpretation of what it means for two separate entities to be so entwined as to be inseparable, this Comment proposes to apply the “pervasive entwinement” test to the analysis of copyright preemption. The central question is whether copyright law is so entwined with a state law claim as to subject the claim to preemption. Similar to its application in Brentwood, the entwinement test will continue to uphold the fact-specific analysis used by many courts to find an “extra element” and thus refrain from adopting a bright-line rule.
The entwinement test will measure the degree to which federal copyright law overcomes the identity of a state law cause of action. Complete entwinement would occur where copyright law completely subsumes the state law claim, resulting in automatic preemption. For example, in an action for breach of confidence where the plaintiff’s only claim is that the defendant took the plaintiff’s materials and copied the content and ideas thereby breaking the plaintiff’s confidence, copyright law overrides the breach of confidence claim. Without showing any evidence that a confidential relationship existed, copyright law is the only source of authority that the plaintiff can rely on to assert his grievance in court. A breach of confidence action requires a confidential relationship, but if no such relationship exists, the plaintiff cannot use it as a weapon for protection against a defendant’s unlawful use. Copyright law would be the plaintiff’s most powerful resource, which he could employ to obtain a remedy and reclaim his rights. It dictates the outcome where a copyright thief impedes the plaintiff’s ability to control how his work is used. Copyright law, therefore, takes over the state law claim and preempts it when complete entwinement occurs. The complete opposite takes place when the two claims are not entwined: state law rules and there is no preemption.
As an alternative to the “extra element” test, the entwinement test will not necessarily draw a conclusion of whether a definitive “extra element” exists or not. Instead, the “extra element” test will be folded into the “pervasive entwinement” test. If a fact or set of facts unveils something akin to an “extra element,” entwinement is unwound as the state law claim becomes more distinct from a copyright claim. But if the facts show no “extra element,” the analysis does not end there. The “pervasive entwinement” test will measure the degree to which a state-created right is established, rather than whether it exists or not (which is what the “extra element” test does). In other words, if it looks like copyright infringement and acts like copyright infringement, then it probably is copyright infringement.
B. The Meaning of “Pervasive Entwinement” for Implied Contracts of Payment in the Entertainment Industry
Applying the “pervasive entwinement” test to breach of implied contract cases means evaluating the extent to which an implied contract has created a right distinct from the rights asserted under copyright law. The test will measure the strength with which the right to be paid has been established. This will essentially come down to the expectations of payment (the expectation of receiving payment and the expectation of giving payment) between the parties involved. A plaintiff who has proven a mutual understanding of the circumstances surrounding payment in exchange for use would be justified in utilizing contract law to assert his right to payment. In such an instance, contract law is the more appropriate authority to obtain a remedy because it governs a bargained-for exchange between two parties where expectations are thwarted. Copyright law does not completely account for the situation because the right to regulate the use of a work is only one component of the dispute; the mutual expectation of the right to be paid is the other component. Where the dual expectations of payment have not been recognized, or only minimally established as part of an exchange, copyright law governs the reclamation of rights to use a work. Copyright law is more pervasively entwined in the alleged state law claim and preemption occurs. Therefore, the pervasive entwinement test in the context of implied contracts will require an analysis of each party’s expectations.
This Comment proposes not only to advance the entwinement test utilized in constitutional law but also to set forth factors to guide the analysis. The absence of a clear road-map in fact-specific, “extra element” preemption cases have led to the distinct split among the circuits. The courts, employing a fact-specific analysis, have not articulated any method of how they arrived at their conclusions. As previously stated, categorical rules are the closest mechanism to a formulaic approach of preemption: state law claims are always or never preempted. This Comment resists the categorical rules in favor of a factual analysis and further proposes four factors in considering whether a state law claim is equivalent to a copyright infringement claim: (1) the history of the relationship between the plaintiff and defendant, (2) the extent to which the plaintiff and defendant are close to finalizing a deal, (3) the components of the plaintiff’s allegations, and (4) the predominant rights to be protected in the implied contract claim. The first two factors focus on the relationship between the plaintiff and defendant rather than explicitly on whether a copyright infringement claim and a state law claim intersect. But resolving the state of the plaintiff’s and defendant’s expectations contributes to measuring the extent to which a contract claim and a copyright claim are entwined. The expectation levels of each party influence the type of claim the plaintiff can pursue and the area of law under which the plaintiff can best achieve relief.
1. First Factor: Course of Dealing Between the Plaintiff and Defendant
An implied contract for payment is based on the circumstances surrounding the idea disclosure. One such circumstance is the history of the relationship between a plaintiff and defendant. As two parties come into frequent contact with each other and engage in business deals, each develops a better understanding of what the other expects from a transaction. Included in those expectations are the details surrounding compensation. The payment terms are controlled by the relationship between both parties and how they have negotiated in the past. If the plaintiff brings a cause of action where the right to payment is in dispute, but the right has been recognized and successfully executed in similar past circumstances, the plaintiff should be justified in using contract law to enforce the right of payment because the expectations are clear. Entwinement is weak because copyright law does not govern the entire transaction; copyright law is only one piece of the transaction. Contract law is therefore necessary to protect the established right of payment, a right that is nowhere included in copyright law. The plaintiff and defendant’s course of dealing implicates the plaintiff’s payment right because the defendant’s understanding and past acceptance of the right distinguishes the contract claim from a copyright claim.
A plaintiff who has had no prior course of dealing with the defendant has neither established an expectation of payment nor arranged an accepted payment procedure. The mutual understanding that accompanies the formation of an implied contract is demonstrated by words and actions. But if a plaintiff and defendant have never transacted with one another, the plaintiff has no basis on which to interpret the defendant’s words and actions. Such foundational knowledge would typically help the plaintiff decipher the defendant’s expectation to pay for the use of an idea. The plaintiff cannot use contract law to protect a right that the defendant does not know exists. As a result, it appears as if the plaintiff is merely protecting his rights as a copyright holder. Any state law claim the plaintiff asserts will have the identity of a copyright claim. Copyright law therefore becomes the primary foundation of the plaintiff’s claim and preempts the cause of action.
Analyzing the past course of dealing between a plaintiff and defendant will determine how expectations are managed between the two parties and thus contributes to establishing the identity of a state law claim.
2. Second Factor: The Proximity to Making a Deal
As the plaintiff and defendant approach a finalized deal, the expectations of payment become clearer. Where a defendant expresses his interest in the plaintiff’s idea and encourages the plaintiff to further expand the idea or to take action beyond merely disclosing the idea, the defendant would be foolish to assume the plaintiff would perform those services for free. The defendant’s affirmative step to actively involve the plaintiff in development demonstrates an understanding that the plaintiff would eventually have to be compensated. The plaintiff rightfully has an expectation that the work he completed specifically for the defendant would result in payment.
The plaintiff and defendant would rely on contract law rather than copyright law to protect these expectations. For the plaintiff, copyright law will sufficiently protect a plaintiff’s work only up to the point that a payment right becomes clear. When the plaintiff has initiated work for the defendant beyond idea disclosure, contract law ensures that the plaintiff will get paid for performing the work. For the defendant, contract law protects the defendant’s right to receive the plaintiff’s work in exchange for money. Therefore, as the payment right becomes clear, copyright law is unwound from entwinement with the state law claim, leaving the plaintiff free to pursue a breach of implied contract claim.
Furthermore, as the contact between the plaintiff and defendant becomes frequent, negotiations progress, and the business relationship develops, the likelihood of discussing payment becomes unavoidable. The frequency, extent and nature of contact between the plaintiff and defendant contribute to the likelihood that “the defendant knows or should know the plaintiff expects payment,” an element of an implied-in-fact contract. As the right of payment starts to become more defined between both parties, contract law becomes a natural tool to protect the plaintiff if the right is infringed. Copyright law would no longer be the proper mechanism to protect the plaintiff’s rights over his work.
Fischer might have turned out differently if it was analyzed using this factor. The plaintiff developed materials (script, character description, five-minute video for the defendant) for his animated character team, “‘Steve & Bluey,” ‘ with the influence of the defendant. Nickelodeon’s interest in the plaintiff’s idea and inducement to expand the idea indicated that the defendant wanted the plaintiff to perform a service for the defendant. The average person who performs a service in a business transaction would expect payment. The series of correspondence between the plaintiff and defendant slowly built up expectations of what the parties wanted from each other. Copyright law cannot protect this expectation in a business transaction.
Where the plaintiff may have only submitted his idea without any response from the defendant or received an outright refusal of the submission, the plaintiff will probably find himself in the same situation as the Selby plaintiff with no acknowledgement from the defendant of the payment right. Without the payment right, the plaintiff’s only remaining claim would be the defendant’s improper use of the work without authorization. Copyright law would constitute the governing authority, thereby preempting any breach of contract claim. Regardless, the plaintiff would most likely fail in his state claim because it would be difficult for the plaintiff to prove one of the elements of an implied-in-fact contract in the entertainment industry: that the defendant accepted the disclosure knowing the conditions. If the plaintiff has received a denial or no response from the defendant, the defendant most certainly has not accepted the disclosure.
Focusing on the timeline of the transaction and examining the eventuality of a deal closing would guide the courts in determining how each party’s expectations are defined. The closer that the parties are to closing a deal, the more likely that one of the parties will be paid. The further away they are from reaching a deal, the less likely the payment terms will be defined.
3. Third Factor: Components of the Plaintiff’s Allegations
The plaintiff’s allegations will reveal the true nature of the plaintiff’s contract claim and whether copyright law is entwined with the claim. Since the court only looks at the facts presented by the plaintiffs and defendants, the court can determine whether an exchange exists between the parties. The pervasiveness of an exchange finds more support in contract law than copyright law. Copyright law does not purport to regulate the circumstances of an exchange; contract law does. A clear exchange between two parties would distinguish a state claim from the principles of copyright.
The court should look to whether the plaintiff’s complaint is focused towards proving the elements of a contract such as mutual assent and consideration (money in exchange for rights), or whether the complaint concentrates on proving the plaintiff’s right to control his allegedly infringed work. If the plaintiff’s complaint is overborne by facts that cater to the latter, any breach of contract claim the plaintiff alleges will be entwined with copyright. It would be difficult to separate a copyright claim from a breach of contract claim where the plaintiff predominantly alleges he can no longer use the work as he wishes. The plaintiff should, therefore, rely on copyright law to assert his grievance because his state law claim will be preempted. But if a plaintiff’s complaint asserts an exchange that was supposed to take place, it may be easier to separate any copyright issues from breach of contract issues. The plaintiff could then look to the tenets of contract law to assert his claim. Nevertheless, whether a plaintiff can look to state law or federal copyright law will depend on an intensive examination of the allegations asserted in the complaint.
4. Fourth Factor: The Predominant Rights Protected in an Implied Contract Claim
This last factor relies on other circumstances or facts of a case that may establish dual expectations of payment. Where the plaintiff can prove that the right of payment has assumed a distinct identity from the right to control use of the copyrighted work, the plaintiff will have a stronger chance of escaping preemption. No matter how the plaintiff labels the state claim on the pleading or describes the rights he seeks to be protected, the deciding court must focus its analysis on the actual relationship between the rights asserted under state law and copyright. The plaintiff’s goal should be to distinguish the rights asserted under state law from federal rights under copyright law as much as possible.
5. Balancing the Factors
This Comment proposes that the factors discussed above be examined together in totality to conclude whether preemption is proper. For example, if there is no history of a relationship between the plaintiff and defendant, the plaintiff will have a greater burden to prove that the parties are close to reaching a deal. Or if the parties are nowhere close to reaching a deal but the circumstances demonstrate knowledge by each party that payment is to occur at some point in the future, the balance will tip towards enforcement of the right under state law. This is to ensure that the parties actually recognize the right of payment. The factors will require courts to look at all the circumstances of a particular case rather than resorting to a bright-line rule. The more heavily the factors weigh in favor of pervasive entwinement and an indistinguishable identity shared between state-created rights and federal copyright, the greater the chances of preemption. Conversely, the more distinct and recognized the state rights become, the greater chance that the state claim survives preemption.
Although the “pervasive entwinement” test in the context of constitutional law has been criticized for being unclear and vague, it can be argued that any fact-specific analysis potentially carries the same issues. For example, one criticism of the “extra element” test is that it lacks guidance since there is always some difference between state law and copyright law to take the claim out of preemption. A small difference can be grounds for finding an “extra element,” allowing many state claims to survive preemption and potentially rendering preemption useless. The “pervasive entwinement” test attempts to address this problem by examining the degree to which an “extra element” exists rather than if one exists or not. This Comment uses the “pervasive entwinement” test as a jumping off point. It attempts to offset the concerns of the “pervasive entwinement” test by using factors that will lend some clarity and serve as a blueprint to the preemption analysis.
Copyright preemption of a state law claim has plagued the courts and entertainment industry professionals for quite some time. The split among the circuits regarding which test to apply and how to apply the test has led to inconsistent results. Some courts have tried to adopt categorical rules, which only frustrates the quest for guidance. Many courts have followed a fact-heavy analysis without offering any guideposts as to how they synthesized the facts to achieve their conclusion. A clear test focused on the facts but with defined factors to structure the analysis is necessary. The “pervasive entwinement” test used in constitutional law describes a situation where two entities are so alike that they are indistinguishable. By merging the two areas of constitutional law and copyright law, constitutional law could facilitate development in an area of copyright that courts have been unable to resolve. The “pervasive entwinement” test could be customized to copyright law with the use of factors to guide the test. The proposed factors to be utilized in analyzing breach of implied contract claims for preemption are tailored to the entertainment industry. While it is not for the judiciary to predict the future, it can examine the course of dealing between the two parties, the extent of the parties’ working relationship on the particular project, the plaintiff’s immediate allegations, and other facts or circumstances that contribute to demonstrating that a mutual expectation of payment exists. The proposed test will maintain an emphasis on the facts of each particular case while providing courts with a touchstone that they can use time and time again.
A justice who may wish to reverse a lower court decision nevertheless votes to deny certiorari because she realizes that her preferred case outcome is unlikely to prevail at the merits stage…. [H]er strategic action of defensively denying cert may have prevented an affirmance that would have taken on precedential value…. Alternatively, a strategic justice may vote to hear a case–or pursue an ‘aggressive grant’ of certiorari–when he thinks his preferred policy outcome will be reflected in the Court’s ultimate decision on the merits.
Id.; see also Eriq Gardner, Supreme Court Deals Setback to Hollywood, Won’t Hear Key ‘Ghost Hunters’ Case, The Hollywood Reporter (Nov. 7, 2011, 1:59 PM), http://www.hollywoodreporter.com/thr-esq/ghost-hunters-trial-syfy-nbc-universal-258280 (noting that the denial of certiorari of the Montz case leaves studios open to more lawsuits).
Many parties are affected by a decision such as this and if the Supreme Court had granted review, its finding would have had broad implications. See Decision Against NBC Universal for Use of Pitched Television Show Concept Without Compensation/Credit Being Appealed to Supreme Court, Arent Fox, (Oct. 10, 2011), http://www.arentfox.com/publications/index.cfm?fa=legalUpdateDisp&content_id=3353 (“Multiple parties are seeking leave to file amicus briefs in the matter.”).
There are a wide range of deals available in the entertainment industry such as cash up front (money is guaranteed), back-end deal (a portion of the cash is taken up front but a share of the product’s profit is also taken), working for scale (taking a large pay cut and accepting only the mandated minimum amount of money proscribed by organizations like guilds and unions), and tit for tat (trading something for another). See Daniel Fierman, Terms of En-deal-ment, EntertainmentWeekly.Com (Mar. 3, 2000), http://www.ew.com/ew/article/0,,275563,00.html.
A course of dealing refers to the conduct before the agreement in question. John D. Calamari & Joseph M. Perillo, The Law of Contracts 161 (4th ed. 1998). It is the series of previous conduct between two parties to a particular transaction that “establish[es] a common basis of understanding for interpreting their expressions and other conduct.” Id. (quoting UCC § 1-205(1)). See also Litwak, supra note 10, at 251 (“[A]gents, attorneys, studio executives and producers regularly conduct business with one another and observe an unwritten code of behavior.”).
There are two types of implied contracts in contract law: the implied-in-fact contract and the implied-in-law contract. The words or conduct demonstrating the agreement of the parties to a contract give rise to an implied-in-fact contract. See 1 Richard A. Lord, Williston On Contracts 35 (4th ed. 2007). An implied-in-law contract, on the other hand, does not require a meeting of the minds but is a concept imposed by the fiction of law for reasons of justice. See Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 456 (6th Cir. 2001); Restatement (Second) of Contracts §4 (1981); see also Caroline Cnty. v. Dashiell, 747 A.2d 600, 606 (Md. 2000) (citing Black’s Law Dictionary 324 (6th ed. 1990)) (defining an implied-in-law contract as one where circumstances justify implying a contract where none existed, especially in cases where parties place others in the wrong and equity commands that the situation should not have taken place).
Ideas conveyed to a producer or studio can be bargained for and constitute “valuable consideration” because the producer holds it as his own and may use it as he sees fit after the acquisition. Id.; see also High v. Trade Union Courier Publ’g Corp., 31 Misc. 2d 7, 8 (N.Y. Sup. Ct. 1946) (noting that even if an idea is common knowledge, it can constitute consideration in a promise to pay if the disclosure of the idea is protected by contract).
Section 106 grants the exclusive right (1) to reproduction of the work, (2) to preparation of derivative works based on the copyrighted work, (3) to distribution of the work to the public, (4) to performance of the work publicly, and (5) to display of the work publicly. 17 U.S.C. §106 (1976).
Article I, section 8 of the Constitution authorizes Congress to grant rights to authors for the work in furtherance of the “Progress of Science and useful Arts.” U.S. Const. art.I, §8, cl.8.
The “idea/expression dichotomy” is the distinction between an unprotectable idea and its protectable expression. Jonathan S. Caplan, Copyright Infringement–Application of the Originality Requirement and the Idea/Expression Merger Doctrine to Compilations of Data –Kregos v. Associated Press, 937 F.2d 700 (2d Cir. 1991), 65 Temp. L. Rev. 275, 275-76 (1992). It limits copyright protection in the case of facts, principles, and ideas. 2 Jay Dratler, Jr. & Stephen M. McJohn, Intellectual Property Law: Commercial, Creative, and Industrial Property § 5.01, at 5-9 (Law Journal Press 2012).
A sample of the tests to define “substantial similarity” include:
The “abstractions” test: A defendant may take an abstract of the whole copyrighted work. Many patterns of generality can fit around a copyrighted work and the number of patterns increases as specifics are omitted from the abstract until all that may be left is a title or a summary of the work.
Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930). A point exists where the copyrighted work is no longer protected because the similarity lies in the idea rather than the expression of the idea. Id.; see, e.g., Walker v. Time Life Films, Inc., 784 F.2d 44, 49 (2d Cir. 1986) (holding that no substantial similarity existed between a film and a book beyond generalized and nonprotectible ideas because they “differ radically in pace and dramatic structure,” even though they both tell the same story).
The “patterns” test: The “pattern” of a work is protected. Zechariah Chafee, Jr., Reflections on the Law of Copyright, 45 Colum. L. Rev. 503, 513-14 (1945). “Pattern” includes the “sequence of events and the development of the interplay of characters.” Id.
“Comprehensive nonliteral similarity” and “fragmented literal similarity”: “Comprehensive nonliteral similarity” is a situation where the offending work copies the fundamental essence or structure of another work. 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright §13.03[A], at 13-39 (Matthew Bender 2012). See, e.g., Feder v. Videotrip Corp., 697 F. Supp. 1165, 1173 (D. Colo. 1988) (holding that a videotape and travel guide did not meet the standard because the similarities in structure and essence are inherent in other travel guides reviewing similar subjects). The “fragmented literal similarity” test entails a situation where pieces of a copyrightable work are taken and used, but the fundamental substance of the work is not copied. The test examines when the similarity becomes so substantial as to constitute infringement. 4 Nimmer, supra note 51, §13.03[A], at 13-54. The question becomes “whether the similarity relates to matter that constitutes a substantial portion of plaintiff’s work–not whether such material constitutes a substantial portion of defendant’s work.” Id. at 13-54.1 (emphasis added).
The “total concept and feel” test: The degree to which it appears to an observer that the defendant captured the total concept and feel of the plaintiff’s copyrighted work. See Roth Greeting Cards v. United Card Co., 429 F.2d 1106, 1110 (9th Cir. 1970) (finding that the characters in the art work, the mood the characters portrayed, the totality of the art work “conveying a particular mood with a particular message,” and the word arrangement are substantially similar to the copyrighted work), superseded by statute, 17 U.S.C. § 411(a); Warner Bros. Inc. v. Am. Broad. Cos., Inc., 654 F.2d 204, 211 (2d Cir. 1981) (quoting 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 13.03[E], at 13-48 (Matthew Bender rev. ed. 1980)) (finding that the total concept and feel of the two works are different because the plaintiff attempts to meet his burden of proof in an analysis that changes the “actual sequence or construction” of his work to achieve greater similarity with the defendant’s product); Reyher v. Children’s Television Workshop, 533 F.2d 87, 92 (2d Cir. 1976) (holding that the works are not similar in “total feel” because the copyrighted work develops the characters and the allegedly infringing work is void of setting or character development in presenting the theme).
As applied specifically to the Montz case, copyright law does not protect Larry’s Montz’s idea for a television show. Muller v. Twentieth Century Fox Film Corp., 794 F. Supp. 2d 429, 440 (S.D.N.Y. 2011).
Even though the author is not afforded copyright protection for his idea, the producer and author can contract to supply such protection. See Minnear v. Tors, 266 Cal. App. 2d 495, 503 (Cal. Dist. Ct. App. 1968) (citing Chandler v. Roach, 319 P.2d 776, 781 (Cal. Ct. App. 1957)) (explaining that even though the material is unprotected, the producer and writer are free to make whatever contract they want to transact in the exchange of ideas regardless of whether the producer later finds that he could have contrived the exact ideas without paying money for them).
When violation of a state law is based on an act incorporating elements beyond those of the exclusive rights under copyright law, then the rights are not equivalent and the second prong fails. Harper & Row Publishers, Inc., 723 F.2d at 200. See also Wrench LLC, 256 F.3d at 455 (“asking whether the state common law or statutory action at issue asserts rights that are the same as those protected under §106 of the Copyright Act”); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir. 1996) (noting that equivalent rights to the exclusive rights granted under the Copyright Act are established in the laws of each state).
In the Ninth Circuit, courts found that breach of implied contract claims were not preempted. See, e.g., Grosso v. Miramax Film Corp., 383 F.3d. 965, 968 (9th Cir. 2004) (not preempted); Benay v. Warner Bros. Entm’t, Inc., 607 F.3d 620 (9th Cir. 2010) (not preempted); Minniear v. Tors, 72 Cal. Rptr. 287 (Cal. Ct. App. 1968) (not preempted); Firoozye v. Earthlink Network, 153 F. Supp. 2d 1115, 1128 (N.D. Cal. 2001) (not preempted).
The Sixth Circuit has taken both sides and found some breach of implied contract claims preempted while finding others are not preempted. See, e.g., Murray Hill Publ’ns, Inc. v. ABC Commc’ns, Inc., 264 F.3d 622, 638 (6th Cir. 2001) (preempted), abrogated by Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237 (2010); Wrench LLC v. Taco Bell Corp., 256 F.3d 446, 459 (6th Cir. 2001) (not preempted).
In the case of actual damages, the copyright owner just has to prove the infringer’s gross revenue. See 17 U.S.C. §504(b) (2006). The copyright owner can elect to take actual damages or statutory damages. Id. The damages are granted to make the copyright owner whole from the losses suffered by infringement, and profits are given to prevent the infringer from wrongfully benefitting from his actions. 17 U.S.C. §504 (2006), House Report no. 94-1476, Historical and Revision Notes.