Did the 9th Circuit Just Open Pandora's Box?
Justice Traynor once wrote, "The policy that precludes protection of an abstract idea by copyright does not prevent its protection by contract." Taking up where Justice Traynor left off, the Ninth Circuit recently decided Grosso v. Miramax Film Corp. (2004 U.S. App. LEXIS 18909), and the ramifications could be far-reaching. Of course, it's not the first time that the Ninth Circuit has issued a controversial decision. But if the Grosso decision holds up -- and that's not a "gimmie" either because the Ninth Circuit is the most over-turned circuit -- it certainly will be interesting to see what developments occur in IP law in the near future.
The general facts before the Ninth Circuit are as follows: Plaintiff Jeff Grosso claimed that Miramax stole his ideas when, after reviewing his screenplay, Miramax made the movie Rounders. Grosso filed a lawsuit in federal court, claiming that Miramax and other defendants violated his copyright in his screenplay The Shell Game or alternatively breached an implied contract to pay the reasonable value of the material Grosso earlier had disclosed to Miramax. The trial judge didn't see merit in the claims, however, granting Miramax summary judgment on Grosso's copyright claim, and dismissing Grosso's contract claim on the ground it was preempted by the Copyright Act.
On appeal, the Ninth Circuit upheld the lower court's ruling on the copyright claim, finding that the "two works [were] not substantially similar." Although the Court of Appeals acknowledged that "both works have poker settings," it went on to explain that "the only similarities in dialogue between the two works come from the use of common, unprotectable poker jargon." Having said that, the Ninth Circuit went on to reinstate Grosso's contract claim "because it alleges an extra element that transforms the action from one arising under the ambit of the federal statute to one sounding in contract." Emphasis is mine. You're probably wondering about the "extra element," right? Me too.
Well, under California law, a claim for breach of implied contract may be maintained when the recipient of a "valuable idea" accepts the information knowing that compensation is expected, and subsequently uses the idea without paying for it. Desny v. Wilder (1956) 46 Cal.2d 715, 733. Yep, the Ninth Circuit actually blew the dust off an old California Supreme Court opinion and gave it new life. Unfortunately, in so doing, it raised a lot of difficult questions. For example, what will be the bright line test for distinguishing "valuable ideas" from non-compensable ones? Since the trial judge already determined that Miramax's work was not similar to Grosso's screenplay, Miramax's alleged expression of Grosso's idea will not necessarily be determinative. What if Grosso can only show that Miramax produced a film involving poker after its representatives reviewed and considered The Shell Game? Will that be enough? How far will this go?
And what about damages? The Ninth Circuit cited Landsberg v. Scrabble Crossword Game Players, Inc. (9th Cir. 1986) 802 F.2d 1193, which involved the non-sanctioned use of a manuscript, as support for its decision in Grosso. While the Landsberg court acknowledged that contract damages are designed to give the non-breaching party the benefit of its bargain, or its equivalent, the Court of Appeals ultimately found that the defendant's profits were the best measure of loss for defendant's breach of contract -- not the fair market value of the defendant's use of the manuscript. So, then, in cases such as Grosso, is the trial judge supposed to disgorge any and all profits that Miramax made on Rounders even though the trial judge already found, as a matter of law, that the two works were not similar? What is the fair market value of a screenplay that is not used? What must recipients of other people's ideas now do to reduce their exposure to future claims of breach of implied contract? But I digress...and I really need to wrap this one up.
In any event, to get around Miramax's preemption argument, the Ninth Circuit explained that the "bilateral expectation of compensation" for an implied contract was the so-called "extra element" that distinguished Grosso from other preemption cases, such as Del Madera Props. v. Rhodes & Gardner, Inc. (9th Cir, 1987) 820 F.2d 973. A simple review of the Del Madera opinion suggests, however, that the Ninth Circuit's conclusion is result-oriented. For instance, unlike Grosso whose copyright claim failed, Del Madera was successful in its copyright claim and sought further damages for unjust enrichment. In reaching its decision that Del Madera's state claim was preempted, the Ninth Circuit concluded that the breach of an implied promise not to use copyrightable subject matter without permission was the "equivalent to the protection provided by section 106 of the Copyright Act."
How is that any different from the breach of an implied promise not to use Grosso's "idea" without permission, i.e., being compensated by Miramax? If Del Madera had brought a claim for breach of an implied contract, wouldn't the result still be the same? Can preemption be that easily defeated through artful pleading? Did the Ninth Circuit think this one through to the end? Perhaps the United States Supreme Court will help provide some answers if Miramax decides to take this battle to the next level.