On June 26, 2012, in Forest Park Pictures v. Universal Television Network, a case of first impression in the U.S. Court of Appeals for the Second Circuit, the court held that an implied-in-fact contract claim arising from the submission of an idea for a television series was not preempted by the Copyright Act.1 In dicta, the court also observed that the same result would obtain if the claim had been based on an express contract.2
Although the Second Circuit had opined on preemption issues in several cases involving other types of state law claims, such as misappropriation3 (including “hot news”4), conversion,5 trade secrets,6 unjust enrichment,7 and confidential relationships,8 it had not been squarely presented with the question as applied to contract claims.9 In reversing the district court decision,10 which had relied on prior Southern District decisions holding such claims to be preempted,11 the Second Circuit joined the Ninth12 and seven other sister circuits13 which had rejected the preemption defense to breach of contract claims.
In our July 2011 column, we discussed the sharp contrast between the district court decision in Forest Park and the contemporaneous Ninth Circuit opinion in Montz v. Pilgrim Films & Television,14 wherein the U.S. Court of Appeals for the Ninth Circuit followed its long line of precedents rejecting the preemption defense to implied-in-fact contract claims based on idea submissions. As a result of the Second Circuit reversal in Forest Park, preemption analysis of idea-submission contract claims will no longer diverge based on whether the “pitch meeting” occurred in New York or Los Angeles. However, the ultimate viability of such claims will still vary due to differences in the treatment of such claims under New York and California law and the outcome of the choice of law analysis.
The Principles of Preemption
In §301 of the Copyright Act of 1976,15 effective as of Jan. 1, 1978, Congress set forth the requirements for determining whether a cause of action under state law is preempted. Section 301 was designed to provide a uniform national scheme for the protection and enforcement of exclusive rights under copyright and for limitations on those rights. The elimination of state causes of action involving both (i) works that are within the subject matter of copyright, as set forth in §§102 and 103 of the act, and (ii) rights equivalent to the exclusive rights under copyright as set forth in §106 of the act,16 was deemed crucial to the achievement of national uniformity.17 If either of these preemption requirements is not met, the state law claim will survive a preemption challenge.
For example, because §102 re-quires that, to qualify for copyright protection, a work must be “fixed in any tangible medium of expression,” a live performance that is not recorded or preserved in any manner would not be within the subject matter of copyright. Therefore claims relating only to the live performance, such as for imitating the performance, would not be preempted by the Copyright Act.
Even if a work is “fixed” and embodies copyrightable subject matter, a claim that is not equivalent to an exclusive right under §106 would not be preempted. Whether the state law claim invokes an equivalent right is often determined by whether the state claim includes an “extra element,” that is, an element whose protection would not abridge an exclusive right of the copyright holder. For example, a letter from a producer to his entertainment lawyer detailing a confidential treatment for a television series, albeit within the subject matter of copyright, could form the basis for a breach of fiduciary duty claim if disclosed by the lawyer without permission; that claim would not be preempted because the client’s right to confidentiality is not equivalent to any right under copyright.
The Works at Issue
Plaintiffs Forest Park Pictures and Hayden and Tove Christensen (collectively, FPP) created a concept for a television series (the “treatment”) which they put in writing and mailed to Alex Sepiol, a programming executive at USA Network, a division of defendant Universal Television Network Inc. The treatment did not include any detailed plot or character development, but presented the central idea for a series to be titled “Housecall.” In it, a doctor, who had been banished by his colleagues for providing free medical services to patients without means, relocates to Malibu, Calif., and establishes a “concierge” practice devoted exclusively to the rich and famous.
After submitting the written materials to Sepiol, FPP requested a “pitch meeting” with him to try to sell the concept to USA. Sepiol met with FPP and listened to their full pitch. FPP, Sepiol and USA were fully aware of the industry practice to compensate those submitting the pitch if the concept were used as the basis for a series (or movie). In fact, Sepiol himself had been hired by USA after a concept he had pitched was developed into the successful series “Burn Notice.”
After their meeting with Sepiol, FPP heard no further word from him or USA. Some four years later, a new, and popular, series appeared on USA titled “Royal Pains,” which revolved around a doctor who, after being expelled from his medical community for providing free services to the poor, establishes a concierge medical practice for the rich and famous in the Hamptons. Other than exchanging wealthy Hamptonites for the elite of Malibu, a distinction without a conceptual difference, the idea for the USA series was virtually identical to the FPP treatment.
Upon learning of “Royal Pains,” FPP brought a diversity action in the Southern District of New York for breach of an implied-in-fact agreement to provide reasonable compensation, according to industry practice, for use of its idea. The district court held that the claim was preempted because it was both within the subject matter of copyright and invoked an equivalent right. As to equivalency, the district court held, summarily, that FPP’s claim of a “state law right to receive compensation for the alleged use of [its] ideas or materials is equivalent to the exclusive rights protected by federal copyright law.”18
Although its reasoning was not explained, the district court may have considered the claim for compensation to be equivalent because, in very large part, the raison d’etre for the grant of exclusive rights is to enable the author to negotiate compensation for his creations. Or, perhaps, the district court mistakenly considered itself bound by a decision it cited as Second Circuit authority which actually was written by Circuit Judge Denny Chin sitting by designation in the district court.19 In any event, the Second Circuit has now clearly enunciated its view.
The Second Circuit Decision
Two questions were presented on the appeal: (i) whether a claim for breach of an implied-in-fact contract is preempted, and (ii) if not, whether FPP properly pled such a claim under applicable state law. With respect to preemption, the court held that the written treatment was within the subject matter of copyright (“original works of authorship fixed in any tangible medium of expression”). Moreover, the fact that the claim concerned use of a non-copyrightable idea was not considered a reason, under preemption analysis, to hold that the claim was outside the subject matter of copyright. In this regard, the court observed that the determining factor is whether the work is of a type protected under copyright, rather than the copyrightability of its contents.20
The court next considered the second requirement for preemption: whether the claim was “equivalent” to a right under copyright: that is, whether the state law claim was seeking to vindicate a right equivalent in nature to one of the exclusive rights under copyright. The court found “several qualitative differences” between a contract claim and a copyright infringement claim: (i) a contract claim includes an express right for payment for use of a work; (ii) a contract-claim plaintiff must prove mutual assent and valid consideration; and (iii) a contract claim asserts rights only against the contractual counterparty, whereas exclusive rights under copyright can be enforced against all U.S. persons or entities.21
The court also noted a difference of opinion among its sister circuits as to whether all contract claims survive preemption or only those containing a promise to pay (express or implied). Because the complaint specifically alleged a promise to pay for use of the idea, the court limited its holding to a contract claim with such an allegation.
Having determined that FPP’s contract claim was not preempted because it did not seek to enforce a right equivalent to copyright, the court next considered the viability of the claim under state law. That required a two-step analysis: (a) what state’s law applies; and (b) whether, under that state’s law of contracts, the claim is properly pled. Under the choice of law rules of the forum state, New York, the court first determined that there was a potential conflict between the laws of New York and California because, at least under some New York cases, the contract must include a specific price term, whereas in California the price could be inferred from industry practice. The court then applied New York’s “center of gravity” test governing choice of law in contract cases, in which the most important factors are the place of contracting and the place of performance. Both of these weighed in favor of California.
Turning to the final question, the court held that the claim for breach of an implied-in-fact contract was properly stated under California law. There, for more than 50 years, it has been held that a contract claim arising from submission of an idea—a pitch—could succeed either if the “catcher” expressly promised to pay or if “‘the circumstances preceding and attending disclosure, together with the conduct of the offeree acting with knowledge of the circumstances, show a promise of the type usually referred to as ‘implied’ or ‘implied-in-fact’.'” 22 Thus, FPP has prevailed at the pleading stage; however, it “will have to prove that such an industry standard exists and that both parties implicitly agreed to it.”23
Forest Park is instructive on several levels: preemption analysis, choice of law principles, and variations in substantive contract law between the potentially applicable states. Plaintiffs must analyze each of these issues, among others, before deciding where to file an idea-submission contract claim. Similarly, a potential defendant considering a declaratory judgment action should evaluate these same issues. But at least a producer in Malibu and another in East Hampton no longer need lose any sleep over whether federal courts in their venues will be preemptively inconsistent.
Robert J. Bernstein practices law in The Law Office of Robert J. Bernstein. Robert W. Clarida is a partner at Reitler Kailas & Rosenblatt and is the author of the “Copyright Law Deskbook” (BNA).
1. Forest Park Pictures v. Universal Television Network, 683 F.3d 424 (2d Cir. 2012).
2. Id. at 432.
3. Fin. Info. v. Moody’s Investors Serv., (808 F.2d 204, 208 (2d Cir. 1986).
4. Nat’l Basketball Ass’n v. Motorola, 105 F.3d 841, 853 (2d Cir. 1997) (NBA).
5. Harper & Row, Publishers v. Nation Enters., 723 F.2d 195, 201 (2d Cir. 1983), rev’d on other grounds, 471 U.S. 539 (1985).
6. Computer Assocs. Int’l. v. Altai, 982 F.2d 693, 717 (2d Cir. 1992).
7. Briarpatch v. Phoenix Pictures, 373 F.3d 296, 306-07 (2d Cir. 2004).
8. Smith v. Weinstein, 578 F.Supp. 1297, 1307 (S.D.N.Y. 1984), aff’d without opinion, 738 F.2d 419 (2d Cir. 1984).
9. Although earlier Second Circuit decisions had considered implied-in-fact contract claims involving copyrightable subject matter, see, e.g., Willis v. Home Box Office, 2003 WL 1026132 (2d Cir. 2003); and Thurman v. Whitfield, 751 F.2d 90 (2d Cir. 1984), those decisions made no analysis of preemption. In Thurman, the court, applying California law, permitted the contract claim to go to trial but did not even mention the preemption issue. In Willis, the court held that plaintiff had not stated a valid implied-in-fact contract claim under New York law and therefore did not address preemption beyond a cursory reference to the district court proceedings.
10. See, e.g., Muller v. Twentieth Century Fox Film, 794 F.Supp.2d 429 (S.D.N.Y. 2011) (plaintiff’s breach-of-implied-contract claim, based on the defendants’ purported failure to compensate and credit the plaintiff for the alleged unauthorized use of his screenplay, was preempted); Smith v. New Line Cinema, 2004 U.S. Dist. LEXIS 18382, 2004 WL 2049232, at *5 (S.D.N.Y. Sept. 13, 2004) (plaintiff’s breach-of-implied-contract claim, based on the defendants’ use of the plaintiff’s screenplay without compensation, was preempted); see also Panizza v. Mattel, 2003 U.S. Dist. LEXIS 17228, 2003 WL 22251317 (S.D.N.Y. Sept. 30, 2003).
11. 2011 WL 1792587 (S.D.N.Y. May 10, 2011).
12. See, e.g., Montz v. Pilgrim Films & Television, 649 F.3d 975 (9th Cir. 2011).
13. As the Second Circuit observed in Forest Park, supra, 683 F.3d at 431:
A number of our sister circuits have accordingly concluded that at least some contract claims involving the subject matter of copyright do not contest rights that are the equivalent of rights under the Copyright Act, and thus are not preempted. See Montz, 649 F.3d at 980–81 (implied-in-fact contract); Utopia Provider Sys. v. Pro-Med Clinical Sys., 596 F.3d 1313, 1326-27 (11th Cir. 2010) (express contract); Bowers v. Baystate Techs, 320 F.3d 1317, 1324–26 (Fed.Cir. 2003) (applying First Circuit law to an express contract in a software license); Wrench v. Taco Bell, 256 F.3d 446, 456 (6th Cir. 2001)] (implied-in-fact contract); ProCD v. Zeidenberg, 86 F.3d 1447, 1454-55 (7th Cir. 1996)] (express contract in a software license); Nat’l Car Rental Sys. v. Computer Assocs. Int’l., 991 F.2d 426, 431 (8th Cir.1993) (express licensing agreement); Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1490, 1501 (5th Cir.1990) (express contract); Acorn Structures v. Swantz, 846 F.2d 923, 926 (4th Cir. 1988) (per curiam) (express contract).
14. See note 12, infra.
15. 17 U.S.C. §301.
16. 17 U.S.C. §106 provides:
Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:
(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
(6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.
17. Congress provided in §301(a) as follows:
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright as specified by sections 102 and 103, whether created before or after that date and whether published or unpublished, are governed exclusively by this title. Thereafter, no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.
18. Forest Park, supra, 2011 WL 1792587 at *16.
19. See, Muller, supra, at note 10.
20. Forest Park, supra, 683 F.2d at 430 (citing NBA, supra, 105 F.3d at 850).
21. Forest Park, supra, 683 F.2d at 431.
22. Id. at 434 (quoting Desny v. Wilder, 46 Cal.2d 715, 738, 299 P.2d 257 (1956).
23. Forest Park, supra, 683 F.3d at 435.