IP Law Chat : IP Law Chat -- Hendricks & Lewis, intellectual property, trademark, copyright and technology attorneys

Fortune Dynamic has been designing and selling footwear for young women branded with the DELICIOUS trademark since 1997.  In 1999, Fortune registered the DELICIOUS mark for footwear.

In 2007, Victoria's Secret launched a personal care product line under the trademark BEAUTY RUSH.  As part of a promotion for that product line, Victoria's Secret gave away and sold a pink tank top with the word "Delicious" written across the chest in silver typescript.  "Yum" was written in much smaller lettering on the back of the top and "beauty rush" appeared in the back collar.

Fortune sued Victoria's Secret, claiming that Victoria's Secret's use of "Delicious" on the tank top infringed Fortune's rights in its DELICIOUS trademark.  The District Court denied Fortune's motion for a preliminary injunction and granted Victoria's Secret's motion for summary judgment concluding that the likelihood of confusion factors weighed in favor of Victoria's Secret and that Fortune's claims were barred by the fair use defense.

Setting the theme for its analysis, the Ninth Circuit started its discussion off with the "well-established" principle that summary judgment is generally disfavored in trademark cases.  In light of that principle, the Ninth Circuit reversed the grant of summary judgment, concluding that both questions answered by the District Court should have been answered by a jury:

We are far from certain that consumers were likely to be confused as to the source of Victoria's Secret's pink tank top, but we are confident that the question is close enough that it should be answered as a matter of fact by a jury, not as a matter of law by a court.

. . . .

The same is true of Victoria's Secret's reliance on the Lanham Act's fair use defense.  Although it is possible that Victoria's Secret used the term "Delicious" fairly--that is, in its "primary, descriptive sense"--we think that a jury is better positioned to make that determination.

As to the likelihood of confusion factors, the Ninth Circuit disagreed with the District Court and concluded that a reasonable jury could find that most of the factors weighed in favor of Fortune rather than Victoria's Secret.  The Ninth Circuit also held that the District Court abused its discretion in excluding survey evidence offered by Fortune, noting that its shortcomings went to the weight of the survey not its admissibility.

The Ninth Circuit then addressed Victoria's Secret's fair use defense, acknowledging its merit but ultimately leaving it for the jury to decide:

[I]n light of evidence suggesting that Victoria's Secret used the term "Delicious" as a trademark and suggestively rather than descriptively, together with Victoria's Secret's failure to investigate the possibility that DELICIOUS was already being used as a trademark, there remains a genuine issue of material fact as to whether Victoria's Secret used "Delicious" unfairly.

The Ninth Circuit opinion offers a thoughtful, well-written discussion of the fair use defense, hitting the high points of the defense, including how to determine whether a term is being used as a mark and whether a term is being used only to describe goods or services.

The case cite is Fortune Dynamic, Inc. v. Victoria's Secret Stores Brand Mgmt., Inc., No. 08-56291 (9th Cir. Aug. 19, 2010).

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The General Conference Corporation of Seventh-day Adventists is a corporation formed in 1863, marking the official organization of the Seventh-day Adventist Church.  The corporation holds title to various registered marks including "Seventh-day Adventist," "Adventist," and "General Conference of Seventh-day Adventists."  It also used "SDA" as an acronym for "Seventh-day Adventist" but has not registered the acronym.

The defendant, Walter McGill, was originally baptized in a Seventh Day Adventist church affiliated with the plaintiffs.  McGill later separated from the church due to a theological dispute and formed his own church called "A Creation Seventh Day & Adventist Church," which name he said came from a divine revelation.  He apparently was aware that plaintiffs had trademarked "Seventh Day Adventist" but used the name anyway, believing he was divinely mandated to do so.

Plaintiffs sued McGill alleging a number of federal and state law claims including trademark infringement, unfair competition and dilution under the Lanham Act.

McGill filed a motion to dismiss arguing that (1) the District Court lacked subject matter jurisdiction because it could not decide the trademark question without resolving an underlying religious doctrine dispute; (2) the Religious Freedom Restoration Act rendered trademark law inapplicable to him; and (3) Seventh-Day Adventism is a religion and therefore generic and not capable of being trademarked.  The District Court concluded that trademark law did apply, that McGill had waived the RFRA defense, and the issue of whether the trademark term was generic was a factual issue that could not be resolved on a motion to dismiss.

The plaintiffs later moved for summary judgment, which the District Court granted with respect to the infringement claim relating to "Seventh-day Adventist" but denied as to "Adventist" and "SDA."

As to McGill's claim that the District Court lacked subject matter jurisdiction because it could not apply neutral principles of trademark law without resolving an underlying doctrinal dispute (i.e., "who are the 'true' Seventh-day Adventists"), the Sixth Circuit disagreed.  It concluded that "[t]rademark law will not turn on whether the plaintiffs' members or McGill and his congregants are the true believers" and therefore affirmed the District Court's (and its own) subject matter jurisdiction over the case.

The Sixth Circuit noted that McGill's RFRA defense had merit as a factual matter but ultimately concluded that he could not claim the benefit of RFRA because it did not apply in suits between private parties.  The court thus sided with the Seventh and Ninth Circuits, which had reached a similar conclusion.

The Sixth Circuit also appeared to acknowledge the merit of McGill's genericness argument, noting that "well-known terms that society understands to refer to a particular faith in general are generic, and no single party can prevent others from using them."  But because whether a name is generic is a question of fact, the Sixth Circuit concluded that "[i]t would be inappropriate to conclude as a matter of law, regardless of the evidence that could be adduced . . . that the public considers 'Seventh-day Adventist' to refer generically to a religion."

Finally, the Sixth Circuit affirmed the grant of summary judgment on the trademark infringement claim relating to the mark "Seventh-day Adventist," specifically addressing only McGill's assertion that the District Court misjudged the relevant factors in light of the relevant public:

McGill argues that the relevant public--those who believe in the imminence of Christ's return and that the Sabbath should be observed on Saturday--are so discerning that there is a genuine issue of material fact about the likelihood that they would confuse McGill's church for the plaintiffs' church.  But while it may indeed be hard to envision a person mistakenly joining the wrong church, it is not at all difficult to imagine a person consuming McGill's published materials and ascribing his teachings to the General Conference, especially in light of the relatedness of the parties' services and similarity of the marks.

The case cite is Gen. Conference Corp. of Seventh-Day Adventists v. McGill, No. 09-5723 (6th Cir. Aug. 10, 2010).

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MGE sued Power Maintenance International, Inc. and GE ("GE/PMI") for, among other things, violations of the Digital Millennium Copyright Act in connection with MGE's uninterruptible power supply machines ("UPS") and MGE's copyrighted software used on those machines.

As to MGE's DMCA claim, MGE's UPS machines require use of MGE's copyrighted software to complete full servicing of the machines.  MGE instituted security measures related to use of its software, succinctly described by the Fifth Circuit:

The software requires connection of an external hardware security key (called a "dongle") to the laptop serial port.  Each dongle has an expiration date, a maximum number of uses, and a unique password.  When the software is activated, it searches for a properly programmed dongle before it will fully launch.  Once launched, the software will go through a second series of protocol exchanges with the data located on the UPS machine's microprocessors to confirm that MGE software is communicating with MGE hardware.  If the protocol exchange is successful, MGE's software proceeds to collect system status information for the technician.

After MGE introduced the security technology, hackers published information on the Internet disclosing how to defeat the security features of a hardware key.  Once that key is defeated, the software can be accessed and used without limitation.  GE/PMI apparently admitted that it recovered a laptop that contained hacked MGE software and had used the software in five instances.

During an off-record jury charge conference, the District Court dismissed MGE's DMCA claim and MGE appealed that decision, among others.

But the Fifth Circuit affirmed the dismissal of the DMCA claim, concluding that MGE had not shown that GE/PMI circumvented MGE's software protections in violation of the act.  Specifically, the Fifth Circuit found that MGE had not shown that bypassing its "dongle" infringed a right protected by the Copyright Act, which is the type of "access" the DMCA was intended to reach.  The Fifth Circuit concluded that the DMCA required that the "owner's technological measure must protect the copyrighted material against an infringement of a right that the Copyright Act protects, not from mere use or viewing."  MGE's "dongle" only prevented initial access to the software rather than protecting against copyright violations and therefore circumventing the "dongle" did not give rise to a DMCA claim.

The case cite is MGE UPS Systems Inc. v. GE Consumer & Indus. Inc., No. 08-10521 (5th Cir. July 20, 2010).

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AOL owns trademark registrations for stylized representations of the mark ADVERTISING.COM.  The parties agreed that the genus of the services AOL offered under these marks is online or Internet advertising.  AOL sued Advertise.com claiming that it infringed AOL's trademark rights by using ADVERTISE.COM and a stylized version of that mark that was confusingly similar to AOL's stylized ADVERTISING.COM marks.

AOL moved for a preliminary injunction, which the District Court granted, enjoining Advertise.com from using any design mark that is confusingly similar to AOL's stylized ADVERTISING.COM marks and from using ADVERTISE.COM or any other name confusingly similar to ADVERTISING.COM.  The District Court concluded that AOL was likely to show that the ADVERTISING.COM marks--including the standard text mark--are descriptive and therefore protectable.

Advertise.com appealed to the Ninth Circuit, arguing generally that the standard text mark ADVERTISING.COM is generic and therefore not protectable.  It did not appeal the part of the preliminary injunction enjoining Advertise.com from using any design mark that was confusingly similar to AOL's stylized ADVERTISING.COM marks.

The Ninth Circuit disagreed with the District Court's conclusion that AOL was likely to prevail on the merits and found (after a somewhat lengthy analysis) that the record demonstrated that Advertise.com was likely to rebut the presumption of validity afforded AOL's ADVERTISING.COM mark and prevail on its claim that the mark was generic.  The Ninth Circuit thus reversed and vacated that portion of the preliminary injunction that enjoined Advertise.com from using the name ADVERTISE.COM or any other name confusingly similar to AOL's ADVERTISING.COM marks.

The case cite is Advertise.com, Inc. v. AOL Advertising, Inc., Nos. 10-55069, 10-55071 (9th Cir. Aug. 3, 2010).

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Toys "R" Us came out the winner in a copyright infringement case brought by Baby Buddies over its pacifier holder (which attaches a pacifier to a baby's clothing via a tether).  Both Toys "R" Us' and Baby Buddies' pacifier holders consisted of a white plastic bear attached to a ribbon that forms an "X" shape behind the bear.  Baby Buddies' ribbon was aquamarine and Toys "R" Us' was light mint-green.

Toys "R" Us had sold the Baby Buddies pacifier holder but later decided to produce its own and hired a consultant to design several different holders.  The consultant later sent a copy of the Baby Buddies pacifier holder to a subcontractor with a note stating:

I need a new animal design.  The buyer likes this bear but I do not want to produce the same exact thing.  Can you please work on a similar design?

The subcontractor responded with pacifier holders featuring a bear as well as an angel, a duck, a bunny and balloons.

The District Court granted summary judgment to Toys "R" Us on two of Baby Buddies' three counts.  After separating the protectable elements from the unprotectable elements (the latter including the tether, the color of the tether, the clip attaching the holder to the baby's clothing and the bow) leaving only the plastic molded bear, the District Court concluded that there was no genuine issue of fact as to infringement.

The Eleventh Circuit affirmed the grant of summary judgment based on a similar analysis.  The court first concluded that the bear and bow were eligible for copyright protection although it ultimately held that the bow fell short of the admittedly low threshold of originality required for copyright protection.  As for the bears, after examining the features of the bears in minute detail, the court concluded that no reasonable jury could find that they were substantially similar.  (Pictures of the two pacifier holders are attached as exhibits to the court's opinion.)

The case cite is Baby Buddies, Inc. v. Toys "R" Us, Inc., No. 08-17021 (11th Cir. July 22, 2010).

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Despite years of litigation, that still appears to be an open question.

In an as always entertaining opinion written by Chief Judge Kozinski, the Ninth Circuit handed a big win to MGA Entertainment in its long-running battle with Mattel over the Bratz line of dolls.

The dispute has its origins in the idea of Carter Bryant for the line of Bratz dolls, which he pitched to MGA while still employed by Mattel, designing fashion and hair styles in the "Barbie Collectibles" department.  MGA liked the idea and Bryant signed a consulting agreement with MGA.  Bryant gave Mattel notice but before his employment ended, he provided preliminary sketches and prepared a preliminary sculpt for the Bratz to MGA.  MGA subsequently released the Bratz dolls, which apparently were a huge success.

When Mattel learned of Bryant's involvement with the Bratz, the lawsuits began.  Those consolidated proceedings were ultimately divided into two phases with phase 1 addressing ownership claims relating to the Bratz.  The present appeal dealt with equitable orders entered by the District Court at the conclusion of phase 1.  (Phase 2 was pending and would deal with the remaining claims.)

In phase 1, the jury found that Bryant thought of the "Bratz" and "Jade" names and created the preliminary sketches and sculpt while employed by Mattel.  Along with a finding that MGA committed three state-law violations relating to Bryant's involvement with the Bratz, the jury found MGA liable for copyright infringement and awarded Mattel $10 million in damages (compared to the more than $1 billion Mattel apparently had sought).

Based on these jury findings, the District Court entered equitable orders.  With respect to the state-law violations, the court imposed a constructive trust over all the trademarks, effectively transferring MGA's Bratz trademark portfolio to Mattel.  And with respect to the copyright claim, the court enjoined MGA from producing or marketing essentially all Bratz female dolls and any future dolls substantially similar to the copyrighted Bratz works.  "In effect, Barbie captured the Bratz."

The Ninth Circuit vacated the constructive trust imposed over all Bratz-related trademarks finding that it was overbroad.  The Ninth Circuit questioned whether Bryant assigned his "ideas" for the Bratz to Mattel under his employment agreement.  The agreement assigned "inventions" to Mattel which were defined to include a number of items but not specifically "ideas."  Although the agreement could be interpreted to include ideas, the Ninth Circuit concluded that the District Court erred in finding that it clearly covered ideas.  But the Ninth Circuit left the issue to be addressed by the trial court on remand because it vacated the constructive trust on other grounds.

The Ninth Circuit ultimately vacated the constructive trust on the ground that it was overbroad because it transferred the entire Bratz trademark portfolio to Mattel despite the fact that the value of the brand had been significantly increased by MGA's own efforts:

It is not equitable to transfer this billion dollar brand--the value of which is overwhelmingly the result of MGA's legitimate efforts--because it may have started with two misappropriated names.  The district court's imposition of a constructive trust forcing MGA to hand over its sweat equity was an abuse of discretion and must be vacated.

The Ninth Circuit also vacated the District Court's injunction on the copyright claim, which enjoined MGA from producing the Bratz dolls or any other substantially similar dolls.  The Ninth Circuit concluded that the District Court had erred in holding that Bryant's employment agreement with Mattel clearly assigned works made outside the scope of Bryant's employment.  Rather, because the agreement was ambiguous (stating that he assigned inventions created "at any time during my employment by the Company"), the issue should have been submitted to the jury.  That error was sufficient to require vacating the copyright injunction.

In light of its decision vacating the equitable orders and remanding for essentially a do-over, the Ninth Circuit also addressed MGA's appeal of the District Court's copyright rulings.  Specifically, the Ninth Circuit discussed the trial court's decision with respect to the scope of copyright protection afforded the Bratz sketches and sculpt created by Bryant (assuming for purposes of the discussion that Mattel owned those works).  In particular, the court focused on the distinction between an idea and a particular expression of an idea; the latter is protected by copyright while the former is not.

As to the doll sculpt, the Ninth Circuit concluded that the District Court had erred in affording broad protection to it and instead held that it was entitled to only "thin" protection against virtually identical copying.

As to the sketches, although the Ninth Circuit agreed with the District Court's conclusion that they were entitled to broad copyright protection against substantially similar works, it held that the trial court erred in failing to filter out all of the unprotectable elements of the sketches.  Specifically, the Ninth Circuit held that "Mattel can't claim a monopoly over fashion dolls with a bratty look or attitude, or dolls sporting trendy clothing--these are all unprotectable ideas."

Chief Judge Kozinski concluded the opinion with another Barbie reference:  "America thrives on competition; Barbie, the all-American girl, will too."

The case cite is Mattel, Inc. v. MGA Entm't, Inc., No. 09-55673 (9th Cir. July 22, 2010).

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The Third Circuit had little positive to say about a District Court's analysis of the likelihood of confusion question in this trademark battle between the owners of the marks ForsLean and Forsthin.

The plaintiff, Sabinsa Corporation, an ingredient supplier for "nutraceutical" manufacturers, markets a product derived from the plant Coleus forskohlii, which is apparently intended to promote lean body mass.  Sabinsa marketed its ForsLean product to nutraceutical manufacturers and directly to the public.

The defendant, Creative Compounds, also supplies ingredients to the nutraceutical industry.  In 2004, it began selling its forskohlin product under the name Forsthin, which prompted a cease-and-desist letter from Sabinsa.

The matter ultimately ended up in litigation in federal district court in New Jersey and, following a bench trial, the District Court found in favor of Creative Compounds, concluding that there was no likelihood of confusion.

The Third Circuit strongly disagreed with the District Court's assessment of the likelihood of confusion.

Near the beginning of its analysis, the Third Circuit noted that it had reversed the same district court judge's likelihood of confusion analysis in an earlier case for similar errors made here.  The Third Circuit then proceeded to reject almost all of the District Court's conclusions on the likelihood of confusion factors, often making rather pointed remarks about the court's analysis.

On the similarity of the marks factor, the Third Circuit concluded that the District Court's reasoning contained "clear errors" in that the court focused on "minute differences" in the logos while "ignoring evidence" that the marks were often used in plain text without graphics.  It also took issue with the court's finding that the words "lean" and "thin" would convey different mental impressions to consumers notwithstanding its recognition that the terms are interchangeable to consumers.  In the end, the Third Circuit concluded that this factor favored Sabinsa.

The Third Circuit similarly took issue with the District Court's analysis of the strength of the mark factor, finding that the court had failed to analyze the conceptual or commercial strength of the ForsLean mark and had conflated the factors by referring to actual confusion and consumer sophistication in connection with the strength factor.  Again, the Third Circuit concluded that this factor actually favored Sabinsa.

With respect to Creative Compounds' intent in adopting the Forsthin mark, the Third Circuit noted that the District Court "ignored whole swaths of evidence and failed to make any subordinate findings regarding intent" and therefore it was "impossible to determine whether it appropriately comprehended the standard."  But, because this factor involved disputed factual issues, it could not conclude that the factor favored either party.

Ultimately, the Third Circuit concluded that six of the nine factors favored Sabinsa as a matter of law.  Concluding that remand to re-weigh the factors under the "proper legal standards" would serve no useful purpose and would waste judicial resources, the Third Circuit reversed and remanded for entry of judgment in favor of Sabinsa.

The case cite is Sabinsa Corp. v. Creative Compounds, LLC, No. 08-3255 (3d Cir. July 9, 2010).

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The defendants, Farzad and Lisa Tabari, are auto brokers, specializing in Lexus vehicles, who contacted authorized dealers, solicited bids and arranged for customers to buy from the dealers.  They offered these services at buy-a-lexus.com and buyorleaselexus.com.

Toyota objected to, among other things, the Tabaris' use of the Lexus mark in their domain names, claiming that such use was likely to cause confusion as to the source of their website.  After a bench trial, the District Court found infringement, ordered the Tabaris (who represented themselves both at trial and on appeal) to stop using their domain names and enjoined them from using the Lexus mark in any other domain name.

The Ninth Circuit vacated the injunction, concluding that it was overbroad based on the nominative fair use doctrine.

The Ninth Circuit, Chief Judge Kozinski writing, first noted that the District Court erroneously applied the Sleekcraft likelihood of confusion test and concluded that the domain names infringed the Lexus trademark.  But that test does not apply when nominative fair use is at issue (e.g., where the defendant uses the mark to refer to the trademarked product itself).  Instead, in nominative fair use cases, the court asks whether "(1) the product was 'readily identifiable' without use of the mark; (2) defendant used more of the mark than necessary; or (3) defendant falsely suggested he was sponsored or endorsed by the trademark holder."  If the nominative use satisfies all of these factors, it does not infringe; if it does not, the court may order the defendant to modify use of the mark so that all of the factors are satisfied but "it may not enjoin nominative use of the mark altogether."

The breadth of the injunction, which precluded the use of Lexus in any domain name, troubled the Ninth Circuit:

A trademark injunction, particularly one involving nominative fair use, can raise serious First Amendment concerns because it can interfere with truthful communication between buyers and sellers in the marketplace. . . .  To uphold the broad injunction entered in this case, we would have to be convinced that consumers are likely to believe a site is sponsored or endorsed by a trademark holder whenever the domain name contains the string of letters that make up the trademark.

But the Ninth Circuit was clearly not convinced that consumers were likely to have that belief.  Instead, it concluded that the Tabaris needed to communicate that they specialized in Lexus vehicles and using the Lexus mark in their domain names accomplished that, even if that wasn't the only way to communicate the nature of their business.  "One way or the other, the Tabaris need to let their consumers know that they are brokers of Lexus cars, and that's nearly impossible to do without mentioning Lexus, . . . be it via domain name, metatag, radio jingle, telephone solicitation or blimp."

On a procedural point, the Ninth Circuit also clarified the burden of proof on a nominative fair use defense:

A defendant seeking to assert nominative fair use as a defense need only show that it used the mark to refer to the trademarked good, as the Tabaris undoubtedly have here.  The burden then reverts to the plaintiff to show a likelihood of confusion.

The Ninth Circuit thus vacated and remanded for "[a]t the very least," modification of the junction to allow some use of the Lexus mark in domain names by the Tabaris, noting that "[t]rademarks are part of our common language, and we all have some right to use them to communicate in truthful, non-misleading ways."

Notably, the Ninth Circuit (or at least Chief Judge Kozinski) had quite a bit to say about consumer understanding and expectations with respect to domain names and websites:

When a domain name making nominative use of a mark does not actively suggest sponsorship or endorsement, the worst that can happen is that some consumers may arrive at the site uncertain as to what they will find.  But in the age of FIOS, cable modems, DSL and T1 lines, reasonable, prudent and experienced internet consumers are accustomed to such exploration by trial and error. . . .  They skip from site to site, ready to hit the back button whenever they're not satisfied with a site's contents.  They fully expect to find some sites that aren't what they imagine based on a glance at the domain name or search engine summary.  Outside the special case of trademark.com, or domains that actively claim affiliation with the trademark holder, consumers don't form any firm expectations about the sponsorship of a website until they've seen the landing page--if then.  This is sensible agnosticism, not consumer confusion. . . .  So long as the site as a whole does not suggest sponsorship or endorsement by the trademark holder, such momentary uncertainty does not preclude a finding of nominative fair use.

In his concurring opinion, Judge Fernandez  felt "compelled to disassociate" himself from statements such as these because he could not "concur in essentially factual statements whose provenance is our musings rather than the record and determinations by trier of fact."

As a somewhat interesting side note, the Ninth Circuit concluded its opinion with a comment regarding the Tabaris' pro se status:

Many of the district court's errors seem to be the result of unevenly-matched lawyering, as Toyota appears to have taken advantage of the fact that the Tabaris appeared pro se. . . .  To avoid similar problems on remand, the district court might consider contacting members of the bar to determine if any would be willing to represent the Tabaris at a reduced rate or on a volunteer basis.

The concurring opinion specifically stated that he did not join in that portion of the majority's opinion, stating that "[t]o the extent that the majority sees [the Tabaris'] activities as especially socially worthy and above reproach, I do not agree."  Nonetheless, he concurred that the District Court had erred in its handling of the nominative fair use defense.

The case cite is Toyota Motor Sales, U.S.A., Inc. v. Tabari, No. 07-55344 (9th Cir. July 8, 2010).

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The plaintiffs--Larry Montz (a parapsychologist) and Daena Smoller (a publicist)--alleged that in 1981, Montz conceived of a new reality TV show involving a team of paranormal investigators who would investigate and occasionally debunk claims of paranormal activity.  Between 1996 and 2003, plaintiffs alleged that they presented screenplays, videos, and other materials relating to the proposed show to representatives of NBC Universal, Inc. and the Sci-Fi Channel "for the express purpose of offering to partner . . . in the production, broadcast and distribution of the Concept."  Although the reps allegedly were not interested in Montz's concept, NBC subsequently partnered with others to produce a series called Ghost Hunters on the Sci-Fi Channel that plaintiffs alleged was based on their material.

Plaintiffs then sued alleging claims for, among others, copyright infringement and two relevant state law claims:

(1) that "by producing and broadcasting" Ghost Hunters, the defendants breached an "implied agreement not to disclose, divulge or exploit the Plaintiffs' ideas and concepts without the express consent of the Plaintiffs, and to share with the Plaintiffs . . . the profits and credit for their idea and concepts"; and (2) that the defendants breached the plaintiffs' confidence "[b]y taking the Plaintiffs' novel ideas and concepts, exploiting those ideas and concepts, and profiting therefrom to the Plaintiffs' exclusion."

Defendants moved to dismiss the complaint for failing to state a claim for relief.  The District Court for the Central District of California held that the plaintiffs' complaint alleged sufficient facts to state a federal copyright claim but that plaintiffs' state law claims for breach of an implied in fact contract and breach of confidence were preempted by federal copyright law.  The District Court therefore dismissed those state law claims with prejudice and without leave to amend.  Subsequently, the parties stipulated to voluntary dismissal of plaintiffs' copyright claim and thereafter final judgment was entered in favor of defendants.

Plaintiffs then appealed the dismissal of their state law breach of implied contract and breach of confidence claims (as well as the District Court's denial of leave to amend those claims) on the ground that they were preempted by the Copyright Act.

Because there was no dispute that the first condition for preemption was met (that the claim comes within the subject matter of copyright), the Ninth Circuit's inquiry was limited to the second condition:  that the rights asserted under the state law claim are "equivalent" to the exclusive rights of copyright owners under Section 106 of the Copyright Act.  The Ninth Circuit concluded that the breach of implied contract claim satisfied this second condition and was therefore preempted:

The gravamen of the claim is that the defendants used the plaintiffs' work, without authorization, to create (and then profit from) a new television program.  The rights asserted by the plaintiffs under the implied contract are thus equivalent to the rights of copyright owners under Section 106--namely, the exclusive rights to use and to authorize use of their work.

In so concluding, the Ninth Circuit distinguished a prior case that upheld a similar claim by differentiating between the nature of the implied contracts involved in the two cases.  In the case in which the claim survived preemption, the implied agreement allegedly involved an implied promise to pay for use of the idea whereas here the alleged implied promise was not to disclose, divulge or exploit the ideas and concepts without the plaintiffs' express consent.  Therefore, according to the Ninth Circuit:

Whereas the breach of the alleged agreement in Grosso violated the plaintiff's right to payment on a sale, the breach of the alleged agreement in this case violated the plaintiffs' exclusive rights to use and to authorize use of their work--rights equivalent to those of copyright owners under Section 106.

For similar reasons, the plaintiffs' state law breach of confidence claim suffered the same preemption fate as it was "not qualitatively different from a copyright claim."

Interestingly, just days after this opinion, the Ninth Circuit issued an opinion in Benay v. Warner Bros. Entm't, Inc. in which it affirmed summary judgment on a copyright infringement claim against the plaintiffs but reversed summary judgment to defendants on the plaintiffs' state law implied in fact contract claim.  A discussion of the Benay case can be found here.

The case cite is Montz v. Pilgrim Films & Television, Inc., No. 08-56954 (9th Cir. June 3, 2010).

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