District Court Dismisses The Nichols Agency’s Contract Claim Against Enchanted Child Care, Inc.

Holding:

The U.S. District Court for the District of Maryland dismissed a claim for breach of contract relating to plaintiff The Nichols Agency’s (“NAI”) copyrighted marketing works. According to the Court, NAI’s breach of contract claim that defendant Enchanted Child Care, Inc. (“ECCI”) displayed its commercials without permission was “substantively similar” to its Copyright Act claim that ECCI reproduced and distributed these works without its consent. Because the breach of contract claim was not separate and distinct from the Copyright Act claim, the Court held that federal law on copyright preempted the state law contract claim. Therefore, the dismissal of the contract claim was warranted.

Detailed Summary:

This case involved claims of breach of contract, unfair competition, and copyright infringement.  Plaintiff NAI alleged that defendant ECCI used NAI-produced marketing works in violation of the terms of their agreement.  In this contract, the parties agreed to produce advertising and marketing products for ECCI, a string of day care centers. Under the agreement, NAI was to serve as the “exclusive advertising/marketing consultant for all TV, Radio, Print, Magazine & Billboards, etc.” ECCI was to pay a monthly “administrative/consulting fee” of $1,000, along with “15% of the gross monthly budget.” The agreement provided that it could be cancelled by either party with thirty days’ written notice.

Crucial to the Court’s decision was a provision in their agreement stating that NAI “shall own all rights, title, interest, and copyright in and to ALL media & marketing campaigns, placement schedules, advertisement, scripts, copy, artwork, illustrations, graphic designs, and other products developed and created by (NAI) for (ECCI).”

In resolving ECCI’s motion to dismiss, the district court applied a two-step test to determine whether the claim for breach of contract should be preempted by the Copyright Act, 17 U.S.C. §§ 101 et seq. United States ex. rel. Berge v. Bd. Trs. Univ. Alabama, 104 F.3d 1453, 1463 (4th Cir.1997).  The Court determined, first, whether the commercials at issue fell “within the scope of the ‘subject-matter of copyright, as specified in 17 U.S.C. §§ 102, 103.’“ Id.  The commercials were held within the scope of the Copyright Act because they were “original works of authorship fixed in any tangible medium of expression”. Specifically, the commercials were under the category of “motion pictures and other audiovisual works.”

Second, the Court determined whether “the rights granted under state law” were “equivalent to any exclusive rights within the scope of federal copyright set out in 17 U.S.C. § 106.” Berge, 104 F.3d at 1463.  It is settled that a breach of contract claim will survive preemption only when the cause of action is based upon provisions of the contract outside the subject matter of copyright. Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir.1988). 

Specifically, “the state law right ‘is equivalent to one of the rights comprised by a copyright if it is infringed by the mere act of reproduction, performance, distribution, or display.’“ Fischer v. Viacom Int’l, 115 F.Supp.2d 535, 541 (D.Md.2000) (quoting Baltimore Orioles, Inc. v. Major League Baseball Players Ass’n, 805 F.2d 663, 677 (7th Cir.1986).  Here, the “crux “of NAI’s breach of contract claim was the use of its commercials without permission. In particular, NAI alleged that “(ECCI) had an obligation to cease making use of the (NAI) Works after termination of the Agreement,” and that “(ECCI’s) continued use of the (NAI) Works after the Termination Date, without authorization from (NAI), is a material breach of contract.”  The court held that this allegation was substantively similar to that of NAI’s Copyright Act claim, which alleged that ECCI had “knowingly and willfully infringed (NAI’s) copyrights by reproducing, publishing, and distributing registered NAI Works on its website without authorization from (NAI).”

On the basis of the foregoing, the Court ordered the dismissal of the breach of contract claim, except as to a claim for $2,449.85 for services rendered and late fees.

Also See:

FCC Adopts New Rules Permitting TV Channel Sharing by Broadcasters; Enacts First Step Towards Freeing UP Spectrum under Incentive Auction

FCC Modernizes Broadcast Television Public Inspection Files to Give the Public Online Access to Information Previously Available Only at TV Stations

Copyright Office Conducts Proceedings on Exemption to Prohibition on Circumvention of Copyright Protection Systems

Legislation to Deregulate Television Market Introduced in House and Senate

Copyright Office Proposes New Fee Schedule