IP Law Daily, COPYRIGHT—D. Haw.: Copyright Act did not preempt architectural firm’s breach of contract, other claims, (Nov 25, 2013)

By Peter Reap, J.D., LL.M.

The Copyright Act did not preempt the claims for breach of contract, quantum meruit, unjust enrichment, tortious interference with contractual relations, and civil conspiracy brought by architectural and design firm Frost-Tsuji Architects (“FTA”) against Highway Inn, Inc., and four other defendants (collectively, the “defendants”), the federal district court in Honolulu has decided (Frost-Tsuji Architects v. Highway Inn, Inc., November 20, 2013, Mollway, S.). Thus, the defendants’ motion to dismiss those claims was denied.

Background. In December 2012, Highway Inn hired FTA, an architectural and interior design firm, to design and oversee the development of a full-service restaurant. FTA then created several designs, plans, and specifications, and applied to register copyrights in these materials. FTA alleged that Highway Inn unilaterally terminated its contracts with FTA on April 25, 2013, then refused to pay FTA an outstanding balance of $39,015.85, plus interest.

FTA further alleged that Highway Inn and the other defendants made copies of FTA’s designs and drawings and used FTA’s work in the permitting and construction process. FTA also stated that Highway Inn and the other defendants “continue to copy and use FTA’s designs and drawings,” even though FTA “specifically disallowed” such copying and issued numerous written demands to cease and desist and to return the allegedly copyrighted documents.

The issue before the court was whether any of FTA’s state law claims were preempted by the federal Copyright Act.

Copyright Act Preemption.

The Copyright Act expressly preempts state law claims that are “equivalent to any of the exclusive rights” protected under the Act. 17 U.S.C. § 301. The Ninth Circuit has adopted a two-part test to determine whether a state law claim is preempted by the Act. First, a court must determine whether the subject matter of the state law claim falls within the subject matter of copyright as described in 17 U.S.C. §§ 1021 and 103.2. If it does, a court must then determine whether the rights asserted under state law are equivalent to the rights contained in 17 U.S.C. § 106, which articulates the exclusive rights of copyright holders.

Breach of contract claim. It was undisputed that the part of the contract between FTA and Highway Inn for the provision of architectural plans and drawings was within the “subject matter” of the Copyright Act, and therefore satisfied the first prong of the Ninth Circuit’s preemption test.

However, the contract between FTA and Highway Inn was also alleged to involve a number of services wholly unrelated to the copyrightable subject matter. For example, FTA alleged that Highway Inn owed payment on contracts for, among other things, “manag[ing] Highway Inn’s consultant team” and “obtain[ing] the proper building permits and approvals.” These services were not within the “subject matter of copyright as described in 17 U.S.C. §§ 1021 and 103.2.” To the extent that FTA’s claims were based on these other contracted-for services, they were not preempted by the Copyright Act, the court held.

Whether the preemption argument was successful as to the portion of FTA’s contract claim based on the allegedly copyrighted material depended on whether the claim required an “extra element” that the copyright claim did not. The Ninth Circuit has repeatedly held that contract claims are not preempted because they contain the required extra element, which is the bilateral expectation of compensation, the court observed.

The defendants did not dispute that the promise to pay was an extra element sufficient to avoid preemption. They argued, however, that preemption was proper because FTA “premised its breach of contract claim on the unlicensed use of copyrightable subject matter, as opposed to purely the breach of a promise to pay.” The defendants inferred this “premise” from two sentences in FTA’s First Amended Complaint. First, the defendants pointed to a sentence that stated, “FTA specifically disallowed the copying of its plans, designs and drawings … so long as Highway Inn refused to meet its contractual payment obligations.” Second, the defendants relied on a sentence that read, “Highway Inn’s right to copy and use FTA’s designs and drawings was extinguished when it terminated FTA.” From these two sentences, Highway Inn inferred that FTA was not challenging Highway Inn’s nonpayment under the contract, but rather the continued and unlicensed use of FTA’s copyrightable drawings and designs.

The defendants’ argument was unavailing, the court determined. Under any fair reading of FTA’s First Amended Complaint as a whole, FTA was premising its contract claim on Highway Inn’s promise to pay. Count I of the First Amended Complaint stated unequivocally that “Highway Inn’s refusal to pay FTA for [its] services … constitutes a breach of the [c]ontracts between FTA and Highway.” If such an unequivocally stated claim based on an explicit contract was preempted by the Copyright Act, it would be difficult to see how any breach of contract claim related to copyrightable material could survive preemption, the court commented.

The breach of contract claim here sought a remedy plainly different from “the relief available under the Copyright Act,” and the claim could survive even absent a valid copyright or a viable Copyright Act claim. In short, the defendants’ preemption argument was without merit.

Quantum meruit claim. Quantum meruit is an alternative to a contract claim that is based on an implied promise to pay. It was well settled that an implicit promise to pay, like an explicit one, is an extra element sufficient to avoid preemption under the Copyright Act, according to the court.

Unjust enrichment claim. FTA specifically grounded its unjust enrichment claim on the assertion that Highway Inn “failed to pay the amounts due and owing to FTA.” Therefore, in order to be successful on its unjust enrichment claim, as with its breach of contract and quantum meruit claims, FTA was required to demonstrate that the defendants made an unfulfilled promise to pay for its use of FTA’s designs and drawings. As with the previous claims, this promise to pay was the extra element sufficient to survive preemption under the Copyright Act.

Tortious interference with contract claim. While FTA’s allegations concerning this claim were sparse, they appeared to involve inducement through means, such as direct communication, that did not involve the reproduction of the copyrighted materials. To prevail on the tortious interference claim, therefore, FTA would have to prove this inducement element separately from any violation of the Copyright Act. This provided the “extra element” required to survive preemption, the court explained.

Civil conspiracy claim. Civil conspiracy depends on the presence of unlawful purpose or means, the court noted. Here, the predicate unlawful acts were Highway Inn’s alleged violation of the Copyright Act, and the other defendants’ alleged tortious interference with contract.

Because Highway Inn no longer challenged FTA’s copyright claim on the present motion, and because FTA’s tortious interference claim was not preempted, there was no reason to dismiss the civil conspiracy count, the court held.

The case is Civil No. 13-00496 SOM/BMK.

Attorneys: Randall K. Schmitt (McCorriston Miller Mukai MacKinnon LLP) for Frost-Tsuji Architects. Carolyn E. Hayashi (Char Sakamoto Ishii & Lum) for Highway Inn, Inc. and Ho’ola Mau, LLC. Arthur H. Kuwahara (Lee Kim Wong Yee & Lau) for Bryce E. Uyehara, A.I.A., Inc. Lyle M. Ishida (Tom Petrus & Miller LLLC) for J. Kadowaki, Inc. David M. Lum (Char Sakamoto Ishii & Lum) for Festival Management Corp.

Companies: Frost-Tsuji Architects; Highway Inn, Inc.; Ho’ola Mau, LLC; Bryce E. Uyehara, A.I.A., Inc.; J. Kadowaki, Inc.; Festival Management Corp.

Cases: Copyright HawaiiNews