IP Law Daily, COPYRIGHT—Cal. App.: California trial court erred in finding breach of contract claim preempted by Copyright Act, (Jul 30, 2021)

By John W. Scanlan, J.D.

A breach of contract claim based upon a right to payment for use of the clips would have avoided preemption because it would have been qualitatively different from copyright, but the plaintiff alleged unauthorized use rather than breach of a promise to pay.

A breach of contract claim brought by the licensor of video and film clips against two licensees for allegedly exceeding the terms of the license was preempted by the Copyright Act, a California state appellate court said in an unpublished decision affirming in part a trial court’s decision. However, the lower court’s rulings that several other fraud-related state claims also were preempted were reversed because these claims required the plaintiff to establish the element of misrepresentation, which was not required for a Copyright Act claim. Concerning the breach claim, the court explained that breach of contract claim based upon a right to payment for use of the clips would have avoided preemption because it would have been qualitatively different from copyright, but the plaintiff alleged unauthorized use rather than breach of a promise to pay (Retro Video, Inc. v. Direct Holdings Americas, Inc., July 28, 2021, Bendix, H.).

Retro Video licenses the right to show vintage video and film clips on behalf of the owners of the underlying footage. Retro Video (and its predecessor in interest, Research Video) have licensed, and continue to license, clips to Direct Holdings Americas (DHA) and Mosaic Media Investment Partners LLC (MMIP) for use in infomercials to promote compilations that are associated with particular decades or genres of music under the Time Life (TL) Music brand. According to Retro Video, each license was expressly limited to a particular project consisting of an exclusive TL compact disc compilation and provided for limitations on the media outlets and platforms in which the infomercials could appear. Since December 2011, the parties agreed that Internet streaming of the clips would be restricted to the TL Music website only.

Retro Video asserted that DHA, MMIP, and their affiliates have streamed the clips on unapproved platforms, showed them to the public after the licenses had expired, and used them to promote music compilations not covered by the licenses. The company brought various state law claims against DHA, MMIP, some of their officers and directors, an entity that negotiated the licenses on behalf of DHA and MMIP and its principals. The court sustained the respondents’ demurrer and dismissed the claims with prejudice. The court stated that all the claims were preempted by the Copyright Act, that all the claims also were time-barred, that all the claims based on contract failed against any defendant except DHA for lack of privity, and that Retro Video had failed to plead sufficient facts to support several of the claims. Retro Video appealed.

Preemption. Retro Video’s claim for breach of contract was preempted by the Copyright Act because the claim fell within the scope of the Act and the claim did not require proof of any additional elements beyond those required by the Act. The company had alleged that DHA and MMIP had violated the terms of the licenses by streaming informercials containing its clips on platforms other than the TL music website, by using clips governed by licenses that had expired, or by using them for projects not covered by the license at issue. This was the equivalent of a claim that DHA and MMIP had violated the licenses’ restrictions on public performance of these clips, which involves a right exclusively protected by federal copyright law. As the breach of contract claim was based on a promise to refrain from copying the material or infringing rights protected by copyright, it was preempted.

Retro Video argued that DHA and MMIP had made a promise of payment in exchange for the license that constituted an extra element that would defeat preemption; while the court agreed that a right to payment is different from copyright and a contract claim based upon it would not be preempted, the court went on to find that Retro Video’s claim was not based upon a promise to pay but on the unauthorized use of its clips because it was paid a fixed sum per clip. In order to establish a breach of contract, Retro Video would have had to allege facts showing that DHA or MMIP had breached a license term other than a restriction on the use of the clips, the court said.

Because Retro Video did not address preemption regarding the claim of breach of implied covenant of good faith and fair dealing, the court declined to disturb the lower court’s ruling.

However, the court reversed the lower court’s preemption rulings with respect to the other claims, finding that the claims for fraud and deceit, fraudulent concealment, and intentional misrepresentation were not preempted by the Act. Claims for fraud are not preempted by the Copyright Act because they involve the extra element of misrepresentation not required by the Act. Each of Retro Video’s fraud-based claims rely upon the theory that by executing the licenses DHA and MMIP represented that they would follow the license restrictions on dissemination of the clips and that these representations were false when they were made because the two companies intended to violate them. As a result, these claims were not preempted.

The claim for negligent misrepresentation also was based upon an extra element of a misrepresentation. The court observed that as they were pleaded, the causes of action for unjust enrichment, constructive trust, and for an accounting were based upon allegedly fraudulent conduct by the respondents. The respondents did not explain why these claims should be treated any differently from the fraud claims; as a result, the court ruled they also were not preempted.

Other claims. The court determined that Retro Video had adequately pleaded its causes of action based upon fraud or misrepresentation, reversing the lower court. The appellate court also found that the lower court had erred in sustaining a general demurrer on the remaining causes of action based on a statute of limitations defense because a general demurrer cannot be sustained as to a portion of a cause of action and some of the purported license breaches occurred within the respective three- or four-year statutory limitations periods.

The Case is No. B309882.

Attorneys: Neil J. Fraser (Law Offices of Neil J. Fraser) for Retro Video, Inc. Jason R. Scheiderer (Dentons US LLP) for Direct Holdings Americas, Inc.

Companies: Retro Video, Inc.; Direct Holdings Americas, Inc.

Cases: Copyright CaliforniaNews GCNNews