Donald M. Gindy - Taco Tale - Copyright Act Doesn't Pre-empt Implied-In-Fact Contract

Taco Tale

By Donald M. Gindy

Originally published in the Los Angeles Daily Journal, Monday, October 15, 2001.

The little dog looks into the camera and recites, "Yo Quiero, Taco Bell." For the last several years, television viewers could not miss the sad little face on the Chihuahua pitching Taco Bell. A case from the 6th U.S. Circuit Court of Appeals, Wrench LLC v. Taco Bell Corp., 99-1807 (6th Cir. 2001), enlightens us on exactly how that little dog became a TV icon. The court also expounds upon whether an implied-in-fact contract is pre-empted by the Copyright Act.

The plaintiffs, animators who license the characters they create, had lengthy discussions in 1996 with Taco Bell representative regarding the use of their cartoon character "Psycho Chihuahua." The dog was described as a clever, feisty canine with an attitude, who would appeal to Taco Bell's core customers. Promotional ideas were cast about, including art boards, T-shirts, hats and stickers. They proposed a commercial in which a male dog passed a female dog in order to get Taco Bell food.

The plaintiffs retained a licensing company, which hired a marketing group to prepare a presentation of Psycho Chihuahua materials. The presentation included uniform designs, T-shirts, food wrappers, posters and cup designs. Taco Bell representative were impressed with the presentation. The licensing company submitted the plaintiffs' financial proposal for the deal. It was not accepted, but neither was it explicitly rejected.

A short time thereafter, Taco Bell changed advertising agencies. Two creative directors from the new agency were assigned the account. They claimed that they "independently" conceived of the idea of using a Chihuahua as the centerpiece of a new campaign. While eating Mexican food at an outdoor café, they both saw a Chihuahua walking down the street. They realized that the dog should be used to personify an intense desire for Taco Bell food. They conceived of a commercial where a male Chihuahua would walk past a female Chihuahua in order to sit next to a person eating Taco Bell food. In the ensuing months, a script was prepared using the Chihuahua. Taco Bell initiated a nation-wide ad campaign in 1997.

This highly suspect origin of the Chihuahua idea led the plaintiffs to file their action. They alleged an implied-in-fact contract and several tort causes of action under both Michigan and California law. Taco Bell replied by asserting that the entire action was pre-empted by the Copyright Act. The District Court agreed and granted summary judgement.

The 1976 Copyright Act, 17 U.S.C. Section 301(a), provides for federal pre-emption of rights equivalent to copyright, combining a subject-matter test with an equivalent-rights test. Expressly pre-empted are "all legal or equitable rights ... equivalent to any of the exclusive rights within the general scope of copyright ... in works of authorship fixed in a tangible medium of expression ... within the subject matter of copyright."

The plaintiffs argued that both prongs of the test were incorrectly decided. With respect to the subject-matter test, they pointed out that their state-law claims were not barred by the Copyright Act. Under Section 102(b), the act expressly excludes ideas not fixed in tangible form. The plaintiffs argued that when dealing with Taco Bell, they had conveyed ideas in oral as well as written form. However, the court determined that the matters upon which Taco Bell relied were in written form. They pointed to the art boards, uniform designs and the like. Furthermore, the court noted that the act is broad enough to encompass both tangible and intangible ideas when part of a whole. "Uncopyrightable ideas that make up copyrightable works are within the subject matter of copyright."

This rationale is based on the idea that in the absence of coalescing the tangible form with the intangible, states would be able to manipulate the concept of what is copyrightable to fit their own notions. Thus the court held that the District Court had not erred in finding that subject-matter test met.

However, the equivalency test was another matter. The state law at issue must provide rights that are "equivalent" to those provided by copyright. If an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display in order to constitute a state-created cause of action, there is no pre-emption. The extra element must change the nature of the action so that it is qualitatively different from a copyright-infringement claim. 1 Melville B. Nimmer & David Nimmer, "Nimmer on Copyright" Section 1.01[B][1]-[2](1999).

The plaintiffs alleged an implied-in-fact contract, which the court saw as distinctly different from copyright in that it requires mutual assent and consideration. When analyzed, the claim was one for failure to pay upon a binding agreement to produce creative work. It was a claim for damages unlike the exclusive rights found in the Copyright Act. "The promise to pay is the extra element."

Moreover, under Michigan and California law, an implied-in-fact contract includes recovery for the reasonable value of services rendered, which provision is also not found in the Copyright Act. Under the circumstances, the appellate court had no problem with a finding that the implied-in-fact contract was not the equivalent of the rights bestowed under the Copyright Act. A cause of action for breach of contract will not in all instances be beyond the reach of copyright pre-emption. For instance, if a contract were entered to refrain from reproducing, redistributing or displaying a work, it would probably fall within the ambit of the act. This kind of contract describes an expressive work and is equivalent to the rights under the Copyright Act.

Although it may appear that the 6th Circuit corrected an egregious wrong with an inequitable result, in truth, they distinguished the implied-in-fact contract from the quasi-contract. Where the former is not pre-empted as there is an implied promise to pay, the latter is a construct of the law rectifying unjust enrichment due or unauthorized use of the work in question. There is no mutual assent to a quasi-contract. Del Madera Properties v. Rhodes & Gardner Inc., 820 F.2d 973 (9th Cir. 1987).

However, that wasn't the end of the story. Taco Bell also alleged that even if an implied-in-fact contract existed and was not pre-empted, the plaintiffs had not proved that the subject of the agreement had any value. It was neither novel, nor original, to use dogs in commercials. The court concluded that the notion of value was between the parties. It is not for courts to decide what constitutes adequate consideration.

The Supremacy Clause was intended to avoid conflicts between federal and state laws. Nevertheless, there are times and places available for the application of state-law claims that are not the equivalent of the rights enumerated in the Copyright Act. In those instances, pre-emption can become a confusing thicket. For instance, not pre-empted are state right-of-privacy and right-of-publicity laws. Midler v. Ford Motor Co., 849 F.2d 460 (9th Cir. 1988). But contrast Midler with Fleet v. CBS Inc., 50 Cal.App.4th 1911 (1996).

Copyright pre-emption analysis is predicated on the cause of action. Most courts analyze the elements of the causes of action pled. So long as the additional element is present, state-law claims can and will survice. Fortunately for the plaintiffs, they were the recipients of a favorable analysis by the 6th Circuit. As a result, redress may be available to the creators of the "Psycho Chihuahua."