Ninth Circuit Decision Further Clouds Preemption Issues in Idea Theft Cases
Kelley Drye Client Advisory
May 6, 2011

On May 4, 2011, the U.S. Court of Appeals for the Ninth Circuit filed its decision reversing the order of the district court dismissing plaintiffs’ idea theft claim on the grounds of copyright preemption, remanding for further proceedings. Montz v. Pilgrim Films & Television Inc., No. 08-56984 (Judge Schroeder wrote the majority opinion; Judge O’Scannlain wrote a dissenting opinion, in which Judges Gould, Tallman and Bea joined; and Judge Gould wrote a separate dissent).

Notably, Judge Schroeder authored the Grosso opinion in 2004, in which the Ninth Circuit held that idea theft claims are not preempted by the Copyright Act. Since that time, Grosso has been attacked by many in the entertainment industry because, broadly interpreted, it practically eviscerates the doctrine of copyright preemption of idea theft claims and otherwise provides no guidance as to what idea theft claims (if any) may still be preempted. Judge Schroeder’s authorship of Montz is an unequivocal affirmation of her previous ruling in Grosso.

This is a disappointing result. There was an opportunity to scale back the reach of Grosso, but the Court passed on it. Nevertheless, arguably, Montz does not really change anything. The real thrust of the decision is the re-affirmance of what has been the law for 7 years since Grosso. Montz does go a little further, however, in making clear (to the extent it was not already) that plaintiffs can seek damages consisting of profits/partnership interest proceeds from production. Plaintiffs who have read Montz will probably plead that they agreed to split profits from the production of the work, as opposed to just seeking damages for the reasonable value of the idea. There is also troubling language in the opinion about "compensation was expected in accord with industry practice." See Op. at 5920. That phrase will likely be parroted by plaintiffs even more as they try to establish implied contract claims.

In the final paragraph of Judge Gould's dissent, he acknowledges the impact of the ruling: "There is no virtue in permitting a supplemental state law jurisdiction that in substance expands federal copyright law. Studio and network ventures need stable law that does not unsettle expectations. The majority's decision, however, will lead to uncertainty by making state law -- with its ambiguity, variability, and volatility -- available to litigants who bring nebulous state law claims that in substance assert rights in the nature of copyright." See Op. at 5935-36.

Recently, the Southern District of New York, in Canal + Image UK Ltd. v. Lutvak (10 Civ. 1536 (RJH)), issued a decision noting limited instances in which breach of contract claims may still be preempted. It will be interesting to see whether courts within the Second Circuit and elsewhere continue to apply the preemption doctrine and whether a circuit split eventually will result.

(Note: Lee Brenner filed an amicus brief with the Ninth Circuit court in the Montz case on behalf of American Broadcasting Companies, Inc., California Broadcasters Association, CBS Broadcasting Inc., CBS Films Inc., Home Box Office, Inc., Showtime Networks Inc., Summit Entertainment, LLC, and Turner Broadcasting System, Inc.).