In a 7-4 decision, the U.S. Court of Appeals for the Ninth Circuit held, en banc, that a writer sufficiently stated an implied contract claim, not preempted by copyright law, where a plaintiff alleged a bilateral expectation that the plaintiff would be compensated by defendant for use of plaintiff’s idea.  Montz v. Pilgrim Films & Television, Inc., Case No. 08-56954, (9th Cir., May 4, 2011) (Schroeder,  J.) (O’Scannlain, J. and Gould, J., dissenting). 

In 1981, plaintiff Larry Montz, a parapsychologist, conceived of an idea for a television show that would follow a team of paranormal investigators throughout the United States, filming them as they were investigating paranormal activity.  From 1996 through 2003, Montz pitched the idea to numerous television studios, including defendants NBC and the Sci-Fi Channel.  To pitch the idea, Montz and Daena Smoller, a publicist and producer, showed the defendants television screenplay treatments, video and other production materials.  After participating in several meetings with the plaintiffs, the defendants indicated that they were not interested in pursuing Montz’s idea.  A few years later, the defendants launched the Sci-Fi Channel television series Ghost Hunters.  Subsequently, the plaintiffs filed a complaint against the defendants, alleging that the television series was based on the plaintiffs’ materials.  Specifically, the plaintiffs alleged copyright infringement, breach of implied contract, breach of confidence and related causes of action. 

The defendants moved to dismiss the complaint.  The district court found that the plaintiffs’ complaint alleged facts sufficient to state a federal copyright claim, but that federal copyright law preempted the plaintiffs’ state-law claims.  The plaintiffs later stipulated to the dismissal of their copyright claim.  With no remaining claims to adjudicate, the district court entered judgment in favor of the defendants.  The plaintiffs then appealed the dismissal of their breach of implied contract and breach of confidence claims.  A three-judge panel of the 9th Circuit affirmed the district court’s dismissal of the plaintiffs’ state law claims as preempted by federal copyright law.  The 9th Circuit subsequently ordered a rehearing of the case en banc. 

The federal Copyright Act expressly preempts state law claims if the plaintiff’s work “comes within the subject matter of copyright” and the state law grants “legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.”  Accordingly, to survive preemption, a state cause of action must assert rights that are “qualitatively different” from those protected by copyright.  In 1956, the California Supreme Court recognized that an implied contractual right to compensation exists when a writer submits material to a producer with the understanding that the writer will be paid if the producer uses the concept (Desny v. Wilder).  In 2004, the 9th Circuit applied that California law to hold that a so-called “Desny claim” (implied contractual claim) is not preempted by federal copyright law (Grosso v. Miramax Film Corp.).

Reversing the district court and the initial three-judge 9th Circuit panel, the en banc 9th Circuit panel held that copyright law did not preempt the plaintiffs’ claims for breach of implied contract and breach of confidence.  First, the court determined that the plaintiffs’ claims fell within the scope of the subject matter of the Copyright Act.  Although the plaintiffs’ ideas were not protected by copyright, the case fell within the scope of the Copyright Act because the plaintiffs’ ideas had been fixed in a “tangible medium of expression” through the plaintiff’s teleplays, videos and other pitch materials.  Second, the 9th Circuit determined that the plaintiffs’ claims for breach of implied contract and breach of confidence were not preempted, because each involved a necessary “extra element” to survive preemption.  With respect to the plaintiffs’ breach of implied contract claim, the “bilateral expectation” of compensation between the parties provided the necessary extra element.  Contracts provide for personal rights between only the contracting parties, the court explained, while copyright confers a “right against the world.”  Thus, “the rights protected under federal copyright law are not the same as the rights asserted in a Desney claim.”  With respect to the plaintiffs’ breach of confidence claim, the Court explained that “[t]he claim protects the duty of trust or confidential relationship between the parties,” which is “an extra element that makes it qualitatively different from a copyright claim.” 

The dissenting opinion sought to distinguish between writers who seek payment for the idea submission and those who seek an ownership interest in the production and a contractual agreement governing “the terms of the defendant’s use.”