Montz v. Pilgrim Films & Television, Inc.

Citations: 649 F.3d 975; 76 A.L.R. 6th 709; 98 U.S.P.Q. 2d (BNA) 1569; 2011 U.S. App. LEXIS 9099; 2011 WL 1663119Docket: 08-56954

Court: Court of Appeals for the Ninth Circuit; May 4, 2011; Federal Appellate Court

Original Court Document: View Document

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A group of plaintiffs, including Larry Montz and Daena Smoller, appealed a decision from the Central District of California involving multiple defendants, including Pilgrim Films and NBC Universal. The core issue revolves around the legal implications of submitting copyrighted scripts to producers, specifically concerning compensation rights when a producer uses an idea from a script without payment. The Supreme Court of California established a precedent in 1956 (Desny v. Wilder) recognizing an implied contractual right to compensation for writers under such circumstances. This "Desny claim" has been upheld in subsequent cases, including Gunther-Wahl Productions and Grosso v. Miramax Film Corp., which affirmed that such claims are not preempted by federal copyright law due to the necessity of a mutual expectation of compensation. The Ninth Circuit previously ruled that while unjust enrichment claims are preempted, breach of contract claims can stand if the plaintiff demonstrates a reasonable expectation of payment. The recent panel ruling contradicted this precedent by finding a similar claim preempted, prompting the court to reaffirm that copyright law does not preempt contract claims where there is a bilateral expectation of compensation, a key element distinguishing these claims from those strictly under copyright protections.

The document outlines a legal dispute involving Plaintiff Larry Montz, a parapsychologist, who conceived a television show idea involving a team of paranormal investigators. Between 1996 and 2003, Montz and his associate Daena Smoller pitched this concept to various television studios, including NBC and the Sci-Fi Channel, but did not secure interest. In 2006, they filed a lawsuit against Pilgrim Films, NBC Universal, and others, alleging copyright infringement and breach of contract.

Montz claimed that the defendants had breached an implied contract by using his concept for the show "Ghost Hunters," which aired on the Sci-Fi Channel and was produced in partnership with NBC. The plaintiffs argued that their idea was shared under the understanding of confidentiality and that they expected compensation and a partnership in the project's profits. They asserted that the defendants' actions violated industry norms regarding the sharing of creative ideas, which typically involve a mutual agreement on confidentiality and compensation.

The district court initially dismissed Montz's contractual claims as preempted, a decision that was reversed by the appellate court. The court also overturned the dismissal of the breach of confidence claim, remanding both claims for further proceedings. The plaintiffs’ complaint emphasized their expectation of receiving credit and profit sharing based on the established customs of the entertainment industry.

Defendants filed a motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing it failed to state a claim. The district court partially granted and denied this motion, determining that the complaint sufficiently stated a federal copyright claim but that federal copyright law preempted the plaintiffs' state-law claims. Consequently, the court dismissed the state-law claims with prejudice and without leave to amend. Following this, the plaintiffs amended their copyright claim and included Universal Television Networks as a defendant. The parties then agreed to voluntarily dismiss the amended copyright claim with prejudice, leaving no claims for the court to adjudicate, which led to a final judgment in favor of the defendants. The plaintiffs appealed the dismissal of their breach of implied contract and breach of confidence claims, which were affirmed by a three-judge panel on June 3, 2010, on the grounds of preemption by federal copyright law. The case was subsequently ordered for en banc rehearing.

The section outlines California implied-in-fact contract law within the context of the Hollywood film industry, where writers often pitch scripts or concepts to producers with the expectation of payment if their work is used. Although ideas cannot be copyrighted under 17 U.S.C. 102, they may still be misappropriated if there is an implied contract regarding compensation. The California Supreme Court's ruling in Desny established that an implied contract can exist when a writer discloses an idea under the understanding that they will be compensated if it is utilized. The case cited involved director Billy Wilder, who allegedly did not pay a writer for an idea that influenced his film "Ace in the Hole." The central issue remains whether copyright law preempts such implied contract claims.

Copyright preemption under the Copyright Act of 1976 occurs when a plaintiff’s work falls within the subject matter of copyright and state law grants rights equivalent to the exclusive rights protected by copyright. The subject matter of copyright is broader than the protections it offers; however, only ideas fixed in a tangible medium qualify for copyright protection, as non-fixed ideas are excluded from this scope. Once an idea is recorded, it satisfies the writing requirement of the Copyright Act. Although fixed ideas fall within copyright’s subject matter, actual copyright does not protect the underlying ideas or concepts.

The key issue in preemption litigation is whether a state law right is qualitatively different from copyright rights. For instance, a California claim under Desny is considered qualitatively different because it requires an agreement to pay for the use of disclosed ideas, which adds an element not found in federal copyright law. Contract claims typically survive preemption due to this extra element, and California courts consistently hold that Desny claims arise from personal agreements distinct from copyright protections. The recognition of rights from these agreements does not create a monopoly on the ideas involved.

An implied-in-fact contract between an author and an agent, producer, or director is inherently personal, affecting only the contracting parties and differing from copyright, which is a public right. California courts have consistently distinguished between rights under federal copyright law and those asserted in Desny claims, particularly regarding idea submissions. Recent litigation trends have shifted to federal courts, where defendants often seek copyright preemption, achieving initial successes in cases like Selby v. New Line Cinema Corp. However, a district court later ruled that an implied-in-fact contract claim can survive copyright preemption when it aims to protect rights beyond those covered by copyright, as noted in Groubert v. Spyglass Entertainment Group. This position aligns with the Copyright Act’s preemption guidelines and recognizes the need for state contract law protections in the entertainment industry. The dissent’s view, which limits protection to those seeking payment, overlooks the rights of plaintiffs wanting contractual agreements regarding the use of their ideas. Additionally, a claim for breach of confidence is also protected from copyright preemption due to its distinct qualitative elements involving trust or confidentiality.

Defendants contend that the complaint lacks sufficient factual allegations to support claims for breach of implied contract and breach of confidence. They argue that it fails to show (1) that Montz and Smoller disclosed their idea for sale, (2) their expectation of reasonable compensation, and (3) that defendants were aware of the conditions under which the idea was presented. However, the complaint does include these allegations, mirroring those deemed adequate in previous cases. Additionally, defendants assert that Montz and Smoller did not adequately allege the disclosure of "confidential and novel information" or that defendants were aware it was to be kept confidential. This assertion is also countered as the complaint contains these necessary allegations.

The district court's judgment is reversed, and the case is remanded for further proceedings regarding the plaintiffs’ claims. Circuit Judge O’Scannlain, joined by Judges Gould, Tallman, and Bea, dissents, arguing that Montz retains copyright ownership rights and alleges that Pilgrim implicitly promised not to use or disclose his ideas without consent. The dissent posits that enforcing such a promise involves rights equivalent to those protected under the Copyright Act. The court affirms that state law claims are preempted if they concern rights that fall within the subject matter of copyright and are equivalent to exclusive rights under the Copyright Act. 

Montz’s breach-of-implied-contract claim includes allegations that the plaintiffs disclosed their ideas to the defendants confidentially, expecting to partner with them and receive compensation from the exploitation of their ideas. By accepting the idea, defendants allegedly agreed not to disclose or exploit it without consent, and Montz claims they breached this implied agreement by producing and broadcasting the concept without sharing profits or credit with the plaintiffs.

A state law claim must protect rights distinct from copyright rights, requiring an "extra element" that changes the nature of the action. Montz’s breach-of-implied-contract claim fails this requirement, as it parallels the exclusive rights granted to copyright owners under 17 U.S.C. § 106, which includes rights to reproduce, distribute, display, and create derivative works. Montz contends that the defendants breached an implied agreement by producing and airing "Ghost Hunters" without consent regarding his ideas and concepts. This claim mirrors the protections afforded by copyright, indicating that an implied promise not to use or copy materials falls under the same umbrella as § 106 protections. 

Montz emphasizes that he expected compensation and involvement in the production if his ideas were used, contradicting the notion that he authorized their use merely for profit-sharing. Unlike the plaintiff in Grosso v. Miramax Film Corp., who sold rights, Montz maintains he did not relinquish his rights without conditions. The requirements of a Desny claim, which involve preparing and disclosing a work under conditions that suggest acceptance by the offeree, are reflected in Montz's allegations about his expectation of reasonable compensation for his ideas' use.

The court concluded that the defendants' implied promise to pay for the use of the idea in the script represented an "extra element" sufficient to preclude preemption. The focus was on the sale of the plaintiff's idea, with the plaintiff asserting he disclosed his work to the defendants for sale, implying an agreement to pay for its use. Conversely, Montz claimed he retained his copyright rights and presented his "Ghost Hunter" Concept to the defendants to propose a partnership, which was rejected. He alleged that the defendants implicitly promised not to use his ideas without consent, but did not promise payment for their use. The court noted that the distinction lies in whether the use of one’s work is authorized for payment or not authorized at all. The breach in Montz's case involved violating his exclusive rights as a copyright owner, unlike the breach in Grosso, which involved a right to payment. Despite Montz's expectation of compensation and credit, those expectations did not alter the nature of the action, which remained rooted in copyright law rather than contract law. Montz sought to amend his complaint to align with Grosso by claiming he authorized the use of his work for payment, but this would contradict his assertion that he did not sell his work. The majority's emphasis on limiting implied contract protections to those who authorize their work's use was questioned, with the dissent arguing that focusing on authorization is essential for distinguishing between contract and copyright claims.

Greater protection against unauthorized use of copyrighted material than what the Copyright Act provides is inconsistent with Congressional objectives. The Copyright Act establishes a balance between the rights of copyright owners and the expressive rights of the creative community, allowing suits only when there is substantial similarity between protected works (Benay v. Warner Bros. Entm’t, Inc.). Montz's implied contract claim seeks to extend this protection more broadly than federal copyright law, relying on California’s less stringent substantial similarity standard. However, broader state-created rights are subject to pre-emption by federal law. 

Montz’s breach-of-confidence claim mirrors the rights protected by the Copyright Act, asserting that the defendants breached a confidential relationship by exploiting Montz's novel ideas without permission. The claim necessitates proving Pilgrim’s disclosure of confidential material to third parties and a breach of trust, but these elements do not fundamentally alter the nature of the action. The right against unauthorized disclosure is already covered by copyright law, which applies universally, not just within confidential relationships. Consequently, Montz's breach-of-confidence claim is not significantly different from a copyright claim and is therefore preempted. Additionally, Montz does not claim he sold his ideas to Pilgrim, but rather that they used his copyrighted materials without consent, reinforcing the applicability of the Copyright Act’s protections.

Circuit Judge Gould, dissenting, aligns with Judge O’Scannlain’s dissent, expressing concern over the potential negative consequences of the majority's decision on implied contract claims that resemble copyright claims. He argues that allowing an "extra element" argument in these cases undermines the preemption provision of copyright law, which aims to maintain uniformity and avoid confusion between federal and state standards. Gould warns that the majority's ruling opens the door for state law claims that effectively expand federal copyright law, leading to instability and uncertainty for film and network companies. He emphasizes the need for clear legal frameworks to protect industry expectations.

The dissent further examines Montz’s breach-of-implied-contract claim, which alleges that the plaintiffs shared their 'Ghost Hunter' concept with the defendants under the expectation of confidentiality and compensation. The claim asserts that the defendants breached this implied agreement by exploiting the plaintiffs' ideas without consent. While the allegations focus on "ideas" and "concepts"—which are not copyrightable—the dissent acknowledges that the materials presented by Montz, such as screenplay treatments, are copyrightable under federal law. Therefore, Montz’s claim falls within the subject matter of copyright, highlighting the need for state law claims to protect rights distinct from those already covered by copyright.

Montz's breach-of-implied-contract claim does not satisfy the requirement for an “extra element” that transforms the nature of the action, as established by case law. Under 17 U.S.C. § 106, copyright owners hold exclusive rights to reproduce, distribute, display, and prepare derivative works from their copyrighted material. Montz alleges that the Defendants breached an implied agreement by producing and broadcasting "Ghost Hunters" based on his original screenplays and materials without his consent. This claim parallels the exclusive rights afforded to copyright owners under § 106, as both protect against unauthorized use and reproduction of original works. The excerpt argues that the majority's interpretation of Montz’s complaint misreads his assertion of control over his ideas, suggesting that he merely sought financial compensation rather than retaining rights. A copyright is described as a property right that includes the authority to control the distribution and public availability of the work, not merely a right to receive payment. Montz’s offer was to partner with Pilgrim for the show’s production, not to sell his idea outright. When his offer was declined, it implied an agreement that his ideas would not be used without consent, as he expected to be compensated for their use.

Montz's claim centers on his expectation of a partnership interest in the production proceeds of his idea, asserting that he did not merely seek financial compensation but also desired involvement in the show's production. Unlike the plaintiff in Grosso v. Miramax Film Corp., who claimed a sale of rights to his script, Montz maintains he retained copyright ownership. He presented his ideas for the "Ghost Hunter" Concept with the intent of partnering with Pilgrim in production and distribution, and although Pilgrim rejected this offer, it allegedly promised not to use Montz's ideas without his consent. Therefore, Montz argues that Pilgrim's obligation was to respect his rights under the Copyright Act rather than to compensate him monetarily. The distinction lies in Montz's claim that the use of his work was not authorized at all, contrasting with Grosso, where the breach involved a failure to pay for a sale of the idea. Montz alleges he anticipated both compensation and credit if his ideas were utilized. The court draws a clear line between the type of compensation sought in Grosso and the rights Montz sought to protect.

Montz's expectation of compensation and credit for the use of his work stems from his belief, common among copyright owners, that his work would not be utilized without authorization. The claim of entitlement to compensation under the implied contract is fundamentally linked to the contract's prohibition against unauthorized use, failing to establish a qualitative distinction between a breach-of-implied-contract claim and a copyright claim. Montz suggests remanding the case to amend the complaint to assert a breach of implied contract that aligns with previous rulings, but any amendment would require alleging authorization for the use of his work in exchange for payment, which contradicts his current assertion that he did not sell his work to Pilgrim.

The majority opinion emphasizes that implied contract protection should be limited to those who authorize the use of their work for consideration, while the dissent appears to misunderstand this limitation. The distinction is critical: a copyright owner who authorizes use but is not compensated has a contract claim, while an unauthorized use resulting in a similar work gives rise to a copyright claim. Montz's attempt to use an implied contract claim to address unauthorized use seeks broader protections than those provided by the Copyright Act, which balances property rights with the expressive rights of the creative community. The claim fails to meet the required substantial similarity standard of federal copyright law, and the broader California implied contract law does not provide a sufficient basis to avoid preemption. Furthermore, Montz's breach-of-confidence claim mirrors the protections of the Copyright Act, asserting rights over the confidential disclosure of ideas and concepts.

Plaintiffs allege that Defendants exploited their novel ideas and concepts for profit, breaching a confidential relationship. This claim parallels a breach-of-implied-contract claim and is rooted in the violation of exclusive rights of copyright owners as outlined in section 106. The majority opinion distinguishes the breach-of-confidence claim from copyright protections by requiring evidence that Defendants disclosed confidential material to third parties and breached a confidential relationship. However, the dissent argues that the right against unauthorized disclosure is inherent in copyright law and does not necessitate a confidential relationship. Thus, the dissent asserts that the breach-of-confidence claim is not fundamentally different from a copyright claim and is therefore preempted by the Copyright Act.

Moreover, the dissent highlights the impractical consequences of the majority's decision, cautioning against allowing implied contract claims that closely resemble copyright claims, as this could undermine the uniformity intended by the Copyright Act. The dissent expresses concern that such a legal framework would introduce instability for film production and network companies, exposing them to conflicting federal and state standards, which contradicts the objectives of the Copyright Act to maintain clear and stable legal expectations.