ENTERTAINMENT RESEARCH GROUP, INC., a California
corporation, Plaintiff-Appellant, v. GENESIS CREATIVE GROUP,
INC., a Michigan corporation; AEROSTAR INTERNATIONAL, INC.,
a South Dakota Corporation, Defendants-Appellees, and THE
QUAKER OATS COMPANY, Defendant.
Nos. 95-17123, 96-16689
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
122 F.3d 1211; 1997 U.S. App. LEXIS 21731; 43 U.S.P.Q.2D
(BNA) 1705; 97 Cal. Daily Op. Service 6536; 97 Daily Journal
DAR 10693
April 17, 1997, Argued, Submitted, San Francisco, California
August 18, 1997, Filed
OPINION
REA, District Judge:
Entertainment Research Group, Inc. ("ERG") appeals from two separate orders
by the district court granting [**2] partial summary judgment in favor of
defendants Genesis Creative Group, Inc. ("Genesis") and Aerostar International,
Inc. ("Aerostar") and from a third order awarding attorney's fees to defendant
Genesis. n1 We have jurisdiction pursuant to 28 U.S.C. § 1291 and 17 U.S.C. §
505. We affirm the district court's orders granting partial summary judgment,
but we vacate and remand the award of attorney's fees.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n1 ERG filed two separate appeals - one from the district court's orders
regarding summary judgment and one from the district court's award of attorneys'
fees. These two appeals were consolidated and heard together.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
BACKGROUND
ERG designs and manufactures three-dimensional inflatable costumes that are
used in publicity events, such as shopping mall openings. The costumes are
approximately eight feet tall and are worn by a person who remains inside the
costume. Various companies purchase and use these costumes to promote their
products. The costumes are based upon these companies' cartoon characters. n2
[**3]
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n2 For example, Pillsbury purchased "Pillsbury Doughboy" costumes, Toys "R"
Us purchased "Geoffrey the Giraffe" costumes, and Quaker Oats Company purchased
"Cap'n Crunch" costumes.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
ERG has manufactured and sold these walk-around inflatable costumes for the
past sixteen years. Over this time, ERG has developed techniques and designs
that have resulted in high-quality, attractive, durable and comfortable
inflatable costumes. Up until the Spring of 1991, ERG was allegedly the only
manufacturer utilizing these techniques. ERG is owned by Allen Edward "Ed"
Breed. Mr. Breed is also ERG's president and sole shareholder.
Appellee/defendant Genesis is in the business of marketing promotional and
advertising devices to various companies, including Kraft, General Mills, Quaker
Oats and Pillsbury. Appellee/defendant Aerostar is a manufacturer of hot air
balloons, cold air inflatable [*1215] products and cold air walk-around
costumes.
In 1989, ERG and Genesis began a business relationship - a relationship that
has evolved into [**4] this lawsuit. Genesis describes the relationship as that
of manufacturer (ERG) and wholesaler (Genesis). ERG describes it as a principal
(ERG)-agent (Genesis) relationship that was created by an oral contract under
which Genesis was to sell exclusively ERG's products and related repair and
maintenance services on a commission basis.
Although the parties dispute who contacted whom first, we know that on
February 27, 1989, Mr. Breed sent a letter to Genesis's vice-president of sales,
Glenn Bodien, outlining Mr. Breed's proposed structure for the relationship.
Soon after, ERG's inflatable costumes were being sold to Genesis's customers. By
September, 1990, more than forty-eight ERG-manufactured costumes had apparently
been sold and distributed by Genesis to at least nine different companies,
representing thirteen different cartoon characters.
On September 18, 1990, ERG and Genesis entered into and signed a
"Confidential Disclosure Agreement." This agreement states that Genesis shall
not disclose "valuable and proprietary technical information" and that Genesis
shall not duplicate any of ERG's costumes.
Up until August, 1991, Genesis apparently continued to solicit customers for
ERG-manufactured [**5] costumes. The parties disagree on how their business
relationship came to an end. ERG claims that Genesis secretly entered into an
agreement with Aerostar while the ERG-Genesis relationship was still alive and
that Genesis supplied Aerostar with ERG-made costumes and ERG's proprietary
information so that Aerostar could enter into the inflatable costume industry
and so that Genesis could get itself a better deal through Aerostar. On its
part, Genesis contends that it was forced to end the relationship due to ERG's
failure to produce and service costumes in the timely manner required by Genesis
's customers. In any event, on August 23, 1991, Genesis gave ERG written notice
of the termination of all future business relations.
Shortly thereafter, Genesis apparently entered into a formal business
relationship with Aerostar to sell inflatable walk-around costumes manufactured
by Aerostar to Genesis's customers. ERG claims that Genesis and Aerostar had
been meeting prior to the August, 1991 termination of the ERG-Genesis
relationship. Genesis and Aerostar deny the existence of any such secret
meetings and plans.
ERG also claims that Genesis and Aerostar conspired to divert former and
potential [**6] customers away from ERG to themselves both for costume
purchases and for maintenance and repair services. ERG specifically alleges that
Genesis made misrepresentations about ERG's prices and ability to provide
requested services and that Genesis engaged in a variety of other schemes
designed to disrupt ERG's business relationships and to create a demand for
Aerostar-manufactured costumes.
ERG further claims that Genesis provided Aerostar with examples of
ERG-manufactured costumes so that Aerostar could learn how to manufacture the
complicated and intricate costumes and so that Aerostar could copy the costumes.
In addition, ERG alleges that Aerostar employees ripped out and pasted over ERG
's copyright labels in ERG-manufactured costumes without the approval and/or
knowledge of ERG. Finally, ERG claims that Genesis and Aerostar distributed
advertising materials depicting ERG-manufactured costumes without ERG's
approval.
On June 30, 1992, ERG initiated this action by filing a complaint in the
United States District Court for the Northern District of California against
defendants Genesis and Aerostar. A second amended complaint was filed on
September 29, 1993. The second amended complaint [**7] contained the following
twelve causes of action: (1) copyright infringement against Genesis for
infringing ERG's "Inflatimation Elf" costume; (2) copyright infringement against
Genesis for infringing ERG's "Inflatimation Soldier" costume; (3) breach of
written contract against Genesis; (4) breach of oral contract against Genesis;
(5) copyright infringement against Aerostar for infringing ERG's derivative
works; (6) intentional interference with contract [*1216] against both
defendants; (7) negligent interference with contract against both defendants;
(8) intentional interference with prospective economic advantage against both
defendants; (9) negligent interference with prospective economic advantage
against both defendants; (10) false designation of origin (Lanham Act) against
both defendants; (11) unfair business practices/unfair competition against both
defendants; and (12) civil conspiracy against both defendants.
On May 2, 1994, the district court granted partial summary judgment for
Genesis and Aerostar on ERG's derivative copyright infringement claim (ERG's
fifth cause of action). n3 See Entertainment Research Group, Inc. v. Genesis
Creative Group, Inc., 853 F. Supp. 319 (N.D. [**8] Cal. 1994). The district
court did so on the ground that ERG did not possess valid copyrights in its
three-dimensional inflatable costumes that ERG designed and manufactured based
upon the preexisting copyrighted two-dimensional cartoon characters.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n3 Although this cause of action was solely brought against Aerostar, by
virtue of ERG's catch-all twelfth cause of action for conspiracy, the second
amended complaint made it so that each defendant is potentially liable for each
cause of action.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Genesis and Aerostar thereafter filed motions for partial summary judgment as
to ERG's eleven remaining causes of action. At that hearing, ERG stipulated that
it did not have any evidence to support its first and second causes of action
for copyright infringement involving the Inflatimation Elf and Inflatimation
Soldier costumes (the "Inflatimation" claims). On September 6, 1995, the
district court issued an order granting Genesis and Aerostar's motions for
partial summary judgment, finding that ERG had not established a genuine [**9]
issue of material fact as to any of its remaining causes of action. n4
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n4 An amended order was issued by the district court on September 11, 1995.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Pursuant to 17 U.S.C. § 505, Genesis and Aerostar subsequently filed separate
motions to recover attorney's fees incurred in defending against ERG's copyright
causes of action - claims 1 and 2 (the Inflatimation claims) and claim 5 (the
derivative copyright claim). The district court denied Aerostar's request for
attorney's fees in its entirety and denied Genesis's request for attorney's fees
with regard to the derivative copyright claim. However, the district court
awarded attorney's fees to Genesis in the amount of $ 195,759.00 for having to
defend against ERG's Inflatimation claims.
The district court's calculation of attorney's fees was soon determined to be
erroneous by the parties. Apparently, the amount of the award included the
attorney's fees that Genesis had incurred in defending against the derivative
copyright claim. Accordingly, ERG filed a motion to [**10] amend. On October 2,
1996, the district court issued an amended order which lowered the award of
attorney's fees to Genesis to $ 95,075.75. n5
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n5 The district court arrived at this amount by excluding any fees incurred
after September 29, 1993 - the date when the derivative copyright claim was
first brought.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
STANDARD OF REVIEW
The district court's decision to grant summary judgment is reviewed de novo.
See, e.g., Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995), cert.
denied, 516 U.S. 1171, 134 L. Ed. 2d 209, 116 S. Ct. 1261 (1996). Viewing the
evidence in the light most favorable to the non-moving party, we must determine
whether there are any genuine issues of material fact and whether the district
court correctly applied the relative substantive law. Id. The district court's
interpretation of state law is reviewed under the same de novo standard that is
used to review questions of federal law. See, e.g., Salve Regina College v.
Russell, 499 U.S. 225, 231, 113 L. Ed. 2d 190, 111 S. Ct. 1217 (1991).
The district court's decision [**11] to award attorney's fees under the
Copyright Act, 17 U.S.C. §§ 101-1101, is reviewed for an abuse of discretion.
See, e.g., Fantasy, Inc. v. Fogerty, 94 F.3d 553, 556 (9th Cir. 1996). However,
"Any elements of legal analysis and statutory interpretation which figure in the
district court's decision are reviewable de novo." Hall v. Bolger, 768 F.2d
1148, 1150 (9th Cir. 1985). A district court's award of attorney's fees "does
not constitute [*1217] an abuse of discretion unless it is based on an
inaccurate view of the law or a clearly erroneous finding of fact." Fantasy, 94
F.3d at 556.
DISCUSSION
The district court granted summary judgment against ERG on all twelve of ERG
's causes of action. ERG has not appealed the district court's grant of summary
judgment as to claims 1 and 2 - the Inflatimation claims. ERG's opening brief
failed to make any mention of the following causes of action: (1) intentional
interference with contractual relations; (2) negligent interference with
contractual relations; (3) intentional interference with prospective economic
advantage; and (4) negligent interference with prospective economic advantage.
In addition, ERG's opening brief [**12] provided only cursory mention, with
virtually no discussion, of ERG's Lanham Act and unfair competition/unfair
business practices causes of action.
We will not consider any claims that were not actually argued in ERG's
opening brief. As we stated in Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir.
1994):
We review only issues which are argued specifically and distinctly in
a party's opening brief. We will not manufacture arguments for an
appellant, and a bare assertion does not preserve a claim,
particularly when, as here, a host of other issues are presented for
review. As the Seventh Circuit in Dunkel stated aptly: "judges are not
like pigs, hunting for truffles buried in briefs."
Id. (citations omitted). Accordingly, because ERG failed to "present a specific,
cogent argument for our consideration" with regard to these causes of action, we
will not discuss them. Id. As a result, the only issues to be addressed are: (1)
ERG's derivative copyright claim; (2) ERG's breach of contract claims; (3) ERG's
civil conspiracy claim; and (4) the award of attorney's fees. We address each of
these claims independently.
I. Derivative Copyright Infringement [**13] Cause of Action
ERG alleges that Aerostar copied and infringed ERG's copyrights in the
inflatable costumes that ERG designed and manufactured based on the underlying
copyrighted characters. To establish copyright infringement, the holder of the
copyright must prove both valid ownership of the copyright and infringement of
that copyright by the alleged infringer. See, e.g., North Coast Indus. v.
Maxwell, 972 F.2d 1031, 1033 (9th Cir. 1992); Sid & Marty Krofft Television v.
McDonald's Corp., 562 F.2d 1157, 1162 (9th Cir. 1977). If the plaintiff
copyright holder survives the first step by establishing that he or she owns a
valid copyright, the plaintiff must then establish infringement by showing both
access to the copyrighted material on the part of the alleged infringer and
substantial similarity between the copyrighted work and the alleged infringing
work. North Coast, 972 F.2d at 1033.
In the instant case, the district court granted the motions for summary
judgment on the infringement claim on the ground that ERG failed to establish
that it had a valid copyright in its costumes. See Entertainment Research Group,
853 F. Supp. at 324. We agree.
A. Copyright [**14] Registration Certificates
Under the copyright laws, the registration of a copyright certificate
constitutes prima facie evidence of the validity of a copyright in a judicial
proceeding commenced within five years of the copyright's first publication. 17
U.S.C. § 410(c); see also North Coast, 972 F.2d at 1033; Masquerade Novelty,
Inc. v. Unique Indus., Inc., 912 F.2d 663, 668 (3rd Cir. 1990); S.O.S., Inc. v.
Payday, Inc., 886 F.2d 1081, 1085-86 (9th Cir. 1989). A certificate of copyright
registration, therefore, "shifts to the defendant the burden to prove the
invalidity of the plaintiff's copyrights." Masquerade Novelty, 912 F.2d at 668;
see also Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9 F.3d 823, 832
(10th Cir. 1993). An accused infringer can rebut this presumption of validity,
however. See, e.g., North Coast, 972 F.2d at 1033; Durham Indus., Inc. v. Tomy
Corp., 630 F.2d 905, 908 (2d Cir. 1980). To rebut the presumption, an
infringement defendant must simply offer some evidence or proof to dispute or
deny the plaintiff's prima facie case of infringement. See, e.g., North Coast,
972 F.2d at 1033; Folio Impressions, [**15] Inc. v. [*1218] Byer California
, 937 F.2d 759, 763 (2d Cir. 1991).
It is undisputed that on September 23, 1993, the United States Copyright
Office issued certificates of copyright registration to ERG for its "Toucan Sam,
" "Dino," "Dough Boy," "Little Sprout," "Cap'n Crunch," "Geoffrey the Giraffe,"
and "Oatis Oat Square" costumes. ERG argues that the district court committed a
clear error of law requiring reversal by failing to give anything but "lip
service" to the presumption of validity for these copyrights. We disagree. ERG's
argument is based on the district court's statement that, "Since Aerostar has
put ERG's copyrights in dispute, ERG must prove the validity of its copyright as
a threshold issue." Entertainment Research Group, 853 F. Supp. at 321. Although
a literal reading of the district court's statement could lead one to conclude
that the district court erroneously shifted the burden of proving copyright
validity back to ERG before any evidence had been considered by erroneously
requiring ERG to prove validity as a "threshold issue," a reading of the entire
district court order makes clear that the district court did not improperly deny
ERG of the statutory presumption of [**16] validity.
Aerostar - the alleged infringer - presented photographs and artwork of the
original copyrighted figures to the district court. These materials raised a
serious question as to whether ERG's costumes based on those copyrighted
characters were sufficiently "original" to merit copyright protection. Such a
showing is critical given our holding in North Coast that the statutory
presumption of validity can be rebutted if the alleged infringer demonstrates
that the plaintiff's work "is not original but copied from another's work."
North Coast, 972 F.2d at 1033; see also Masquerade Novelty, 912 F.2d at 668-69
(stating that, "Where, for example, the issue is whether the copyrighted article
is 'original,' the presumption will not be overcome unless the defendant offers
proof that the plaintiff's product was copied from other works or similarly
probative evidence as to originality."). These photographs and artwork reveal
that ERG's costumes are quite similar in appearance to the copyrighted
characters the costumes are based on. Accordingly, because Aerostar had offered
evidence that ERG's costumes were "not original but copied from another's work,"
the district court properly [**17] held that Aerostar had rebutted the
statutory presumption, and the district court properly shifted the burden of
proving validity - the threshold issue for copyright infringement lawsuits -
back to ERG. See, e.g., Masquerade Novelty, 912 F.2d at 668-69; Carol Barnhart
Inc. v. Economy Cover Corp., 773 F.2d 411, 414 (2d Cir. 1985); Durham, 630 F.2d
at 908-09 (holding that the presumption of validity was rebutted where "one look
" at the plaintiff's allegedly copyrightable figures revealed a complete absence
of any originality).
B. Copyrights in Derivative Works
Having discussed this initial "threshold" issue, we will now evaluate whether
ERG's costumes are actually copyrightable. It is undisputed that ERG's costumes
are based upon two-dimensional characters that are copyrighted and owned by the
purchasers of the costumes. The Copyright Act defines a derivative work as:
[A] work based upon one or more pre-existing works, such as an . . .
art reproduction . . . or any other form in which a work may be
recast, transformed, or adapted. A work consisting of editorial
revisions, annotations, elaborations, or other modifications which, as
a whole, represent [**18] an original work of authorship, is a
"derivative work."
17 U.S.C. § 101. Given this definition, it is clear that ERG's costumes are
derivative works for purposes of the Copyright Act. n6
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n6 ERG even registered its copyrights in its costumes as derivative works
based on the two-dimensional copyrighted characters.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
That ERG's costumes are derivative works is not a bar to their
copyrightability, however. Section 103(a) of the Copyright Act explicitly
provides that the subject matter of copyright, as specified by Section 102,
includes "derivative works." 17 U.S.C. § 103(a). Nevertheless, the copyright
protection afforded to derivative works is more [*1219] limited than it is for
original works of authorship. Specifically, Section 103(b) provides that the
copyright in a derivative work "extends only to the material contributed by the
author of such work, as distinguished from the preexisting material employed in
the work." 17 U.S.C. § 103(b); see also Russell v. Price, 612 F.2d 1123, 1128
(9th Cir. 1979). Accordingly, [**19] we will now examine whether ERG's
costumes are copyrightable as derivative works.
We have not previously had occasion to provide much guidance with regard to
the copyrightability of derivative works.) See Moore Pub., Inc. v. Big Sky
Marketing, Inc., 756 F. Supp. 1371, 1374 (D. Idaho 1990) (looking to cases from
the Second Circuit and the Seventh Circuit for guidance on the standards to be
employed in determining whether derivative works are copyrightable). Faced with
this lack of guidance, the district court turned to the Second Circuit's
decision in Durham Industries, Inc. v. Tomy Corp., 630 F.2d 905 (2d Cir. 1980),
as a model for determining whether ERG's derivative works were copyrightable.
See Entertainment Research Group, 853 F. Supp. at 321-22. ERG argues that the
district court should not have relied on that test since the Durham test is not
the controlling law of the Ninth Circuit and since the Durham analysis is
premised on an erroneous interpretation of copyright law.
Instead of the Durham test, ERG contends that the district court should have
applied the test created by a district court in the Central District of
California. Doran v. Sunset House [**20] Distributing Corp., 197 F. Supp.
940 (S.D. Cal. 1961), aff'd, Sunset House Distributing Corp. v. Doran, 304 F.2d
251 (9th Cir. 1962). In Doran, we affirmed the district court's decision that a
three-dimensional, inflatable representation of Santa Claus was original and
copyrightable. The district court in that case reached its decision based on its
belief that the "test of copyrightability must be the form which the author has
used to express the figure, idea, or theme." Id. at 944. In other words, under
the Doran district court's test, if the form of the derivative work and the form
of the underlying work - three-dimensional, two-dimensional, plastic, etc. - are
sufficiently different, then the derivative work is original enough to be
copyrightable.
ERG argues that the Doran test should apply to the instant case since it has
never been overturned and is, therefore, the controlling law in this Circuit on
the copyrightability of three-dimensional representations of preexisting
two-dimensional works. We disagree. In the first place, the Doran test is
inapplicable to the instant circumstances since Doran involved the
copyrightability of a derivative [**21] work where the preexisting work was
taken from the public domain and not copyrighted itself. Here, on the other
hand, ERG's costumes were based on preexisting works that were copyrighted and
owned by the ultimate purchasers. This difference is critical because in
deciding whether to grant copyright protection to a derivative work, courts must
be concerned about the impact such a derivative copyright will have on the
copyright privileges and rights of the owner of the underlying work. See 17
U.S.C. § 103(b). Indeed, the body of law regarding derivative copyrights is
designed to strike a balance between the holder of a copyright in the underlying
work and the creator of a work that is made by copying that underlying work. See
, e.g., Durham, 630 F.2d at 910-11. Accordingly, because the Doran test
completely fails to take into account the rights of the holder of the copyright
for the underlying work, the Doran test should not be applied to determine the
copyrightability of a derivative work that is based on a preexisting work that
is itself copyrighted.
In addition, it is not clear that we ever adopted the Doran test since our
opinion affirming the district [**22] court's decision really focused on the
similarity between the Santa Claus products at issue, rather than on the
different "forms" of the products. See Melville B. Nimmer, Nimmer on Copyright,
§ 2.08[C] at 2-111, 2-112 n. 136 (commenting that the Ninth Circuit "apparently
relied upon the originality inherent in the graphic elements of the plaintiff's
Santa Claus, rather than on the grounds for originality stated by the district
court."). In this respect, it is notable that although we quoted Doran in Runge
v. Lee, 441 F.2d 579, 581 (9th Cir. [*1220] 1971), for the standard for
"originality" in copyrights, the portion of Doran that was quoted had nothing to
do with the district's court's language indicating that a change in "form" is
sufficient for originality purposes. Id.
In direct contrast, we are satisfied that the test developed by the Second
Circuit in Durham is the proper approach for us to apply in the instant
circumstances to determine whether ERG's costumes are copyrightable as
derivative works. This test contains two prongs:
First, to support a copyright the original aspects of a derivative
work must be more than trivial. Second, the original [**23] aspects
of a derivative work must reflect the degree to which it relies on
preexisting material and must not in any way affect the scope of any
copyright protection in that preexisting material.
Durham, 630 F.2d at 909.
The first prong of the Durham test is in harmony with numerous decisions of
this Circuit which establish that the original aspects of a work must be "more
than trivial" to warrant copyright protection. See, e.g., North Coast, 972 F.2d
at 1033 (stating that "originality is the indispensable prerequisite for
copyrightability"); Kamar Int'l, Inc. v. Russ Berrie & Co., 657 F.2d 1059, 1061
(9th Cir. 1981) (holding that "originality is the sine qua non of
copyrightability").
ERG takes issue with the second prong of the Durham test, arguing that it
embodies an erroneous interpretation of the copyright laws. We are not persuaded
by this argument, as we believe that this prong is completely consistent with
Section 103(b) of the Copyright Act and is, in fact, necessary because of
Section 103(b). Section 103(b) provides that:
The copyright in a compilation or derivative work extends only to the
material contributed by the author [**24] of such work, as
distinguished from the preexisting material employed in the work, and
does not imply any exclusive right in the preexisting material. The
copyright in such work is independent of, and does not affect or
enlarge the scope, duration, ownership, or subsistence of, any
copyright protection in the preexisting material.
17 U.S.C. § 103(b). Following the direct language of § 103(b), the second prong
of the Durham test is designed to ensure that copyright protection is not given
to a derivative work if doing so would necessarily affect the scope of any
copyright protection in the preexisting material.
Viewed from another perspective, this second prong of the Durham test is
necessary to ensure that copyright protection is not given to derivative works
whose originality is merely trivial. Section 103(b) mandates that the copyright
protection for derivative works not affect the scope of any copyright protection
in the underlying work. Copyright protection for underlying works would be
affected - and, thus, § 103(b) would be violated - if derivative works without
adequate originality were given copyright protection. See, e.g., Gracen, 698
F.2d 300 at 304-05; [**25] Durham, 630 F.2d at 910-11; Moore Pub., 756 F. Supp.
at 1374. This is so because if copyright protection were given to derivative
works that are virtually identical to the underlying works, then the owner of
the underlying copyrighted work would effectively be prevented from permitting
others to copy her work since the original derivative copyright holder would
have a de facto monopoly due to her "considerable power to interfere with the
creation of subsequent derivative works from the same underlying work." Gracen,
690 F.2d at 305; see also Durham, 630 F.2d at 911. This conclusion finds support
in our decisions in the somewhat analogous context where we have decided not to
grant copyright protection to an artist's presentation of a song - even under an
unfair competition theory - where doing so would undermine the rights of the
song's copyright holder by exposing her licensees to potential litigation. See
Sinatra v. Goodyear Tire & Rubber, 435 F.2d 711, 718 (9th Cir. 1970).
Our belief that the Durham test is the proper approach is furthered by the
fact that the principles underlying this test have been followed and approved of
by many other courts. [**26] See, e.g., Gracen, 698 F.2d at 304-05; EFS
Marketing, Inc. v. Russ Berrie & Co., Inc., 836 F. Supp. 128, 131, 133 (S.D.
N.Y. 1993); Moore Pub., 756 F. Supp. at 1374; M.S.R. Imports, Inc. v. R.E.
Greenspan Co., Inc., 1983 WL 1778, *17 n. 4 (E.D. Pa. 1983).
[*1221] C. Application to the Instant Facts
Having concluded that the Durham analysis is the proper approach to take, we
will now apply the test to the instant circumstances.
1. Prong One: Originality
The first issue is whether ERG's costumes are sufficiently "original" to
justify protection as derivative works. We have explained what "originality"
means in the context of derivative works as follows:
All that is needed to satisfy both the Constitution and the statute is
that the "author" contributed something more than a "merely trivial"
variation, something recognizably "his own." Originality in this
context "means little more than a prohibition of actual copying." No
matter how poor artistically the "author's" addition, it is enough if
it be his own.
Sid & Marty Krofft Tel., 562 F.2d at 1163 n. 5 (citations omitted); see also
North Coast, 972 F.2d at 1033.
Before assessing [**27] whether ERG contributed something more than a merely
trivial variation to the underlying copyrighted characters in the creation of
its costumes, one more complexity needs to be added to the mix. Although the
category of costumes has rarely been dealt with in the copyright context, it
seems clear that for copyright purposes, costumes would fall under the category
of "pictorial, graphic and sculptural works" and would be treated as sculptural
works. See 17 U.S.C. §§ 101, 103. This fact is critical to our determination, as
Section 101 of the Copyright Act states that sculptural works of artistic
craftsmanship receive copyright protection only
insofar as their form but not their mechanical or utilitarian aspects
are concerned; the design of a useful article [ordinarily not
copyrightable] . . . shall be considered a pictorial, graphic, or
sculptural work only if, and only to the extent that, such design
incorporates pictorial, graphic, or sculptural features that can be
identified separately from, and are capable of existing independently
of, the utilitarian aspects of the article.
17 U.S.C. § 101.
Accordingly, any aspects of ERG's costumes that are purely functional,
[**28] utilitarian or mechanical, will not be given any copyright protection.
Id.; see also Fabrica Inc. v. El Dorado Corp., 697 F.2d 890, 893 (9th Cir.
1983). Moreover, any artistic aspects of ERG's costumes will also not receive
copyright protection unless they can be identified separately from, and are
capable of existing independently of, the utilitarian purpose of the costumes.
17 U.S.C. § 101; see also Fabrica, 697 F.2d at 893.
Based on this statutory provision, the district court ruled that, "Any
differences in appearance between a derivative work and the preexisting work
which are driven primarily by a functional, utilitarian or mechanical purpose
cannot be considered when seeking artistic differences for the purpose of
originality." Entertainment Research Group, 853 F. Supp. at 322-23. ERG argues
that the district court committed clear error by utilizing this "functionality"
test - which ERG contends should only be used to determine if a sculptural work
is ultimately copyrightable - to determine whether a derivative work is
sufficiently original in the first place. In other words, ERG contends that the
district court should have first made the traditional originality [**29]
determination by examining whether any aspect of the derivative works -
including the purely utilitarian aspects - created sufficient originality and
then, second, used the functionality test to determine if the artistic aspects
of the derivative works were conceptually separable from the utilitarian aspects
such that the costumes could be copyrightable as sculptural works.
We disagree with ERG's analysis. In the instant circumstances, where the
derivative works at issue are sculptures, it makes no sense to include the
utilitarian aspects for purposes of determining originality when it is clear, in
light of § 101 of the Copyright Act, that these utilitarian aspects are not
copyrightable. Thus, ERG would illogically have the courts consider the
uncopyrightable elements of a derivative work in order to determine [*1222] if
the derivative work is ultimately copyrightable.
A simple hypothetical may help explain how futile the approach ERG is
suggesting would be. Under ERG's approach, a court could determine that a
sculptural work is sufficiently original to qualify as a derivative work even if
the derivative sculpture had absolutely no new artistic elements to it so long
as the sculpture had [**30] at least one purely functional, non-trivial element
to it that the author of the derivative sculptural work contributed. At the
second stage of the ERG approach, however, the court would be forced to conclude
that the derivative work was not copyrightable as a sculptural work pursuant to
17 U.S.C. § 101 since it did not possess any new, non-trivial artistic features.
Under such a scenario, the entire first step of the analysis would, therefore,
have been pointless. Thus, because any utilitarian, functional or mechanical
aspects of a derivative work will not be copyrightable in the long run, see 17
U.S.C. § 101, any differences in appearance between a derivative work and the
preexisting work which are not conceptually separable from any utilitarian,
functional or mechanical purposes should not be considered by a court in
determining whether sufficient artistic differences exist to constitute
"originality." Accordingly, the district court was correct to eliminate any such
differences from its originality analysis.
Having said this, it is now necessary to evaluate whether ERG raised a
genuine issue of fact as to whether the non-functional aspects of the ERG
costumes were sufficiently [**31] original. See, e.g., North Coast, 972 F.2d at
1034 (stating that summary judgment is appropriate "where no reasonable
trier-of-fact could find even trivial differences in the designs" which were
claimed to be copyrightable). Addressing this very issue, the district court
concluded that "no reasonable trier-of-fact could find even trivial artistic
differences in design between the preexisting work and the underlying work."
Entertainment Research Group, 853 F. Supp. at 323.
We agree with the district court that any artistic differences in the
costumes are merely trivial. ERG alleges that Mr. Breed's declaration
demonstrates that ERG contributed much that is "recognizably its own" to the
costumes since Mr. Breed had to make a number of creative decisions to enable
the costumes to be manufactured successfully and since Mr. Breed was guided by
his "artistic impression." The problem with ERG's argument, however, is that
originality is not present solely because Mr. Breed placed a lot of thought and
effort into figuring out how to transform the two-dimensional copyrighted
characters into three-dimensional inflatable costumes. See, e.g., Feist, 499
U.S. 340 at 352-56, 113 L. Ed. 2d 358, 111 S. Ct. 1282; [**32] Durham, 630 F.2d
at 911 (stating that a display of manufacturing skill is not independently
enough to constitute originality). Indeed, the courts and commentators seem to
agree that making decisions that enable one to reproduce or transform an already
existing work into another medium or dimension - though perhaps quite difficult
and intricate decisions - is not enough to constitute the contribution of
something "recognizably his own." See, e.g., Nimmer, § 2.08[C] at 2-111 (stating
that the "mere act of converting two dimensions to three dimensions, although it
creates a distinguishable variation, may not represent a contribution of
independent effort because no one can claim to have independently evolved the
idea and technique of working in three dimensions"); Durham, 630 F.2d at 911
(holding that, "The mere reproduction of the underlying characters in plastic,
even though . . . it undoubtedly involved some degree of manufacturing skill,
does not constitute originality"); Gallery House, Inc. v. Yi, 582 F. Supp. 1294,
1297 (N.D. Ill. 1984) (holding that the plaintiff moldmaker had not added any
"artistic effort" since he had "simply converted a two-dimensional [**33]
design to a three-dimensional object").
ERG also argues that a material issue of fact exists with regard to
originality due to the photographs and artwork attached to Mr. Breed's
declaration that allegedly demonstrate that the costumes involve much more than
"merely trivial" additions and alterations to the underlying copyrighted
characters. Specifically, ERG contends that the differences between the
representations of the characters in the flat reference artwork supplied by the
characters' proprietors and their representations in the three-dimensional
inflatable costumes are far from trivial since (1) the ERG costumes vary greatly
in [*1223] proportions and facial expressions from the original characters and
(2) the ERG costumes contain many elements, such as the texture of the costumes
and the manner in which they move which are wholly absent from the original
artworks.
Viewing the three-dimensional costumes and the two-dimensional drawings upon
which they are based, it is immediately apparent that the costumes are not exact
replicas of the two-dimensional drawings. Indeed, as the district court observed
with regard to the Toucan Sam costume, the proportions in the costumes are far
different [**34] from those in the underlying drawings. However, as was
discussed earlier, in evaluating the originality of ERG's costumes, any
differences that exist because of functional or mechanical considerations should
not be considered. The district court came to the conclusion that these
differences in proportion were solely - or at least primarily - driven by the
functional considerations necessitated by the fact that a human body must fit
inside the costumes. Accordingly, the district court discounted any differences
such as proportionality that were primarily caused by functional concerns.
We agree with the district court's conclusion that the differences in form,
texture and proportionality that ERG points to as non-trivial differences all
stemmed from functional considerations. Indeed, even though Mr. Breed states
that he was forced to make an "artistic decision" as to what changes should be
made to the costumes so that the original character's essence would not be lost,
a close reading of Mr. Breed's statement reveals that this "artistic decision"
was necessitated solely by the functional consideration that "the scale of the
character does not fit the human proportion" and, therefore, [**35] must be
changed so that the costumes can be functional. Accordingly, these so-called
artistic differences are really nothing more than changes necessitated by
utilitarian concerns. As such, these differences were appropriately not
considered by the district court.
ERG does point to one truly "artistic" difference, however, as ERG claims
that the facial expressions of the costumes contain more than merely trivial
differences from the facial expressions seen in the underlying drawings.
Although ERG is correct that there are some differences in these facial
expressions, no reasonable trier of fact would see anything but the underlying
copyrighted character when looking at ERG's costumes. Indeed, much like the
Second Circuit in Durham concluded when looking at those three-dimensional
derivative works, "Tomy [i.e., ERG] has demonstrated, and the toys [costumes]
themselves reflect, no independent creation, no distinguishable variation from
preexisting works, nothing recognizably the author's own contribution that sets
Tomy's figures apart from the prototypical Mickey, Donald, and Pluto [Toucan
Sam, Geoffrey the Giraffe, Pillsbury Dough Boy, etc.], authored by Disney
[Kellogg's, [**36] Toys 'R' Us, Pillsbury, etc.] and subsequently represented
by Disney or its licensees in a seemingly limitless variety of forms and media."
Durham, 630 F.2d at 910. In other words, because ERG's costumes are "instantly
identifiable as embodiments" of the underlying copyrighted characters in "yet
another form," no reasonable juror could conclude that there are any
"non-trivial" artistic differences between the underlying cartoon characters and
the immediately recognizable costumes that ERG has designed and manufactured.
Id. at 908-09.
This conclusion makes even more sense in view of the fact that ERG's
customers - the companies - wanted costumes replicating their characters. Thus,
because ERG followed detailed instructions from its customers regarding exactly
how they wanted the costumes to appear, it can not be said that ERG's artistic
contributions were more than merely trivial contributions.
ERG cites our decision in North Coast for the proposition that summary
judgment is inappropriate here since the issue of whether ERG's artistic
contributions are trivial is a disputed question of fact that should be reserved
for the jury. See North Coast, 972 F.2d at 1034-35 [**37] (holding that whether
the differences between a print for a dress and Mondrian paintings were
non-trivial could not be determined as a matter of law at summary judgment).
North Coast does not establish that summary judgment is inappropriate, however.
Indeed, under the very language of North Coast, summary judgment in favor of a
defendant is sometimes appropriate in certain copyright actions "where no
[*1224] reasonable trier-of-fact could find even trivial differences" between
the original works and the reproductions. Id. at 1034 (citing Durham for this
proposition).
The instant case is also distinguishable from the circumstances in North
Coast because in North Coast, the artistic contributions that the district court
examined and found trivial were deemed to be the heart of the entire derivative
work of art at issue. Because those contributions were so crucial to the
derivative work, there was a clear possibility that a reasonable trier of fact
would find the derivative works to be recognizably the derivative creator's own
product. Thus, we felt it improper for the district court to resolve the matter
on summary judgment. Here, on the other hand, the claimed artistic [**38]
differences in the facial expressions of the characters are clearly not the
defining aspect of the costumes. In other words, while there may be some
differences between the facial expressions represented on ERG's costumes and
those in the underlying copyrighted characters, in the context of the overall
costume, these distinctions are so slight that no reasonable trier of fact would
see anything but a direct replica of the underlying characters. Therefore, while
it was not appropriate for the district court in the North Coast circumstances
to determine on summary judgment that the artistic contributions there were not
more than "merely trivial," it was perfectly appropriate for the district court
in the instant circumstances to rule that no reasonable trier of fact could find
any non-trivial artistic differences between ERG's costumes and the copyrighted
characters the costumes were based on.
In sum, because Mr. Breed's Declaration and the photographs and artwork
submitted in conjunction with his declaration do not raise any disputed factual
issue as to whether there are any non-trivial artistic differences between ERG's
costumes and the underlying copyrighted characters, the district [**39] court's
grant of summary judgment was appropriate.
2. Prong 2 of the Durham Analysis
In addition to concluding that ERG did not establish sufficient originality
to warrant copyright protection for its derivative costumes, the district court
also concluded that ERG failed to satisfy the second element of the Durham test
which states that derivative works are not copyrightable if they "affect the
scope of any copyright protection in that preexisting material." Durham, 630
F.2d at 909. Explaining its reasoning, the district court stated that, "Any
subsequent costume makers and the original copyright holders themselves . . .
would be limited by the granting of a derivative copyright in this situation or
at the very least be vulnerable to harassment." Entertainment Research Group,
853 F. Supp. at 324. Accordingly, the district court concluded that, "The fear
of the Durham Court and this court as well, is that ERG would have a
pseudo-monopoly" on all inflatable costumes depicting these characters. Id.
Given the fact that ERG's costumes are so similar to the well-known
copyrighted characters that they are based upon, the district court was correct
to conclude that [**40] granting ERG a copyright in its costumes would have the
practical effect of providing ERG with a de facto monopoly on all inflatable
costumes depicting the copyrighted characters also in ERG's costumes. Indeed, if
ERG had copyrights for its costumes, any future licensee who was hired to
manufacture costumes depicting these characters would likely face a strong
copyright infringement suit from ERG. Thus, in the instant circumstances, much
like in other cases discussing this very proposition, see, e.g., Gracen, 698
F.2d at 304-05; Durham, 630 F.2d at 910; Moore Pub., 756 F. Supp. at 1374, the
district court was correct to deny copyright protection to ERG's derivative
works on the ground that the rights of the holder of the underlying copyrighted
characters would be affected.
In addition, because no one can claim to have independently evolved any
particular medium or form and to, thus, corner the market on such a medium or
form of expression, see Nimmer § 2.08[C] at 2-112, it would be wrong to grant
ERG a copyright in its costumes.
Accordingly, for these reasons also, the district court was correct to grant
summary judgment against ERG. n7
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n7 Because of this recommendation, it is not necessary to address Aerostar's
and amicus Toys 'R' Us's argument that as a practical matter, ERG can not be
given a copyright in its derivative works since ERG was not licensed to obtain
such copyrights.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
[**41]
[*1225] II. Breach of Oral Agency Contract Cause of Action
One of ERG's most fundamental allegations is that Genesis owed ERG a
fiduciary duty of loyalty and that Genesis breached this duty by secretly
working with Aerostar to compete with ERG. n8 ERG claims that Genesis owed ERG
this duty due to the existence of an agency contract under which Genesis
allegedly agreed to act as ERG's exclusive agent. It is undisputed that no
written agency contract existed. Instead, ERG argues that an oral contract
existed. n9
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n8 Building upon this idea, ERG has alleged that Genesis and Aerostar were
co-conspirators or agents such that Aerostar can be held liable for all of
Genesis's alleged wrongs.
n9 ERG's opening brief also claims that an implied-in-fact agency contract
existed. This claim was not raised before the district court. Accordingly, we
will not consider this issue. See, e.g., United States v. One 1978 Piper
Cherokee Aircraft, 37 F.3d 489, 494 (9th Cir. 1994) (stating that, "Although we
have discretion to review issues not raised below, we do so only in exceptional
circumstances to prevent manifest injustice.").
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**42]
The district court granted summary judgment against ERG on its claim for
breach of an oral contract on the ground that ERG failed to establish any
evidence of a final agreement, either in writing or in the conduct of the
parties. See 1 B. Witkin, Summary of California Law, Contracts §§ 128, 133, 136,
145 (9th ed. 1988) (stating that preliminary negotiations will result in a
binding contract when all of the terms are definitely understood and agreed
upon).
In light of this standard requiring a final agreement, and in light of the
evidence presented in the record, we affirm the district court's ruling that ERG
failed to raise a genuine issue of fact suggesting the existence of an oral
contract creating an agency relationship. ERG pointed to the following pieces of
evidence as support for its claim that such an agency relationship existed by
virtue of an oral contract: (1) the fact that the parties did over $ 750,000 in
business over a two-year period; (2) the July 2, 1990 letter written by Genesis
to Mr. Breed and referred to as the "Deal Point Memorandum"; (3) the use of the
word "commission" in that letter and in the subsequent termination letter of
August 23, 1991; and (4) the [**43] Confidential Disclosure Agreement signed by
Genesis employees. We are not persuaded by any of these arguments.
Beginning with ERG's first piece of evidence, the mere fact that Genesis and
ERG engaged in various business dealings involving approximately $ 750,000 in
sales does not compel the conclusion that the parties had reached a final
agreement. Indeed, although it is true that common sense dictates that some type
of agreement must have existed between ERG and Genesis since so much money
changed hands, common sense also tells us that this fact reveals absolutely
nothing as to what kind of relationship existed between the two parties and as
to whether Genesis had agreed to be the exclusive agent for ERG.
The "Deal Point Memorandum" sent from Mr. Bodien of Genesis to Mr. Breed of
ERG that ERG claims is the embodiment of the final agreement between the two
parties also does not further ERG's argument. n10 This Deal Point Memorandum
expressly states that, "The enclosed information is in regards to the contract
which we have been discussing." Accordingly, at this point in time - July 2,
1990 - it is clear that no final contract had yet been entered into. This fact
alone refutes ERG's [**44] first argument that an agency contract can be
implied from the fact that ERG and Genesis were doing business together, as it
is clear that though the first ERG-Genesis sales began in February of 1989, in
July of 1990, there was still no contract.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n10 It should be noted that this July 2, 1990 letter referred to as the "Deal
Point Memorandum" by ERG is not labeled as such anywhere on the letter.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Moreover, the Deal Point Memorandum goes on to state that, "Some of the items
we aren't real clear on what you meant, so if you could please review and fill
us in." No reasonable trier of fact could read this sentence as meaning anything
other than that at the time of its writing, the parties were still [*1226]
discussing the terms of the contract and wanted some clarification before any
final agreement would be reached. Thus, contrary to ERG's assertions, the
so-called Deal Point Memorandum can not be considered to constitute the required
final agreement between the parties.
This conclusion is buttressed by subsequent communications [**45] between
the parties. On September 7, 1990, having received no reply from Mr. Breed to
the request quoted above, Mr. Bodien sent Mr. Breed another letter indicating
that, "To date nothing has happened" regarding the proposed contract between ERG
and Genesis. Mr. Breed's letter in response to this letter from Mr. Bodien
concedes that the Deal Point Memorandum did not finalize any contract, stating
that, "I am very reluctant, and have been since the beginning, to enter into an
agreement with a company that primarily represents itself and not ERG." Thus,
the evidence in the record beyond question refutes ERG's claim that a final
agreement was reached as of July 2, 1990 (the date of the Deal Point
Memorandum).
The fact that the Deal Point Memorandum and the August 23, 1991 "termination"
letter sent to Mr. Breed by Mr. Dykstra of Genesis both used the word
"commission" also does not demonstrate that Genesis and ERG had entered into an
agency contract. Though ERG had proposed a 20-percent commission structure,
Genesis introduced unrefuted evidence into the record establishing that Genesis
never agreed to accept such a commission structure, despite the inclusion of the
word "commission" [**46] in these two letters. Indeed, it is clear from the
record that Genesis's markup, or "commission," on all of the sales involving ERG
's costumes ranged from 22 to 87 percent. Accordingly, it is quite a stretch for
ERG to argue that the mere use of the word "commission" in these two letters is
the smoking gun establishing that Genesis had in fact agreed to the final terms
of a contract with ERG.
The Confidential Disclosure Agreement signed by Genesis employees also does
not substantiate ERG's claim that an agency contract had been entered into.
Indeed, a close reading of this agreement reveals that it actually supports
Genesis's position that no agency contract existed. Specifically, the agreement
states that it is to be signed "for the sole purpose of your evaluation of the
propriety of entering into more formal arrangements and agreements." Hence, the
disclosure agreement actually provides evidence that a final agency contract had
not, at least at that point - September 18, 1990 - been entered into yet.
In sum, because ERG failed to introduce any evidence suggesting that a final
agreement was reached between ERG and Genesis, no reasonable juror could
conclude that any binding agency [**47] agreement existed between ERG and
Genesis. As a result, because there was no oral agency contract to be breached,
it was perfectly appropriate for the district court to rule that ERG's claim for
breach of an oral contract must fail as a matter of law.
III. Breach of Confidentiality Cause of Action
ERG's third cause of action is based on its belief that Genesis violated the
parties' Confidential Disclosure Agreement by disclosing confidential
information to Aerostar regarding the design, manufacture and pricing of ERG's
inflatable costumes and component parts. n11
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n11 The Confidential Disclosure Agreement specifies that the signer
acknowledges that ERG has "valuable proprietary and technical information" and
that the signer acknowledges ERG's property rights to "documents, drawings,
sketches, designs, copyrights, trademarks, patent applications, or materials and
Information of any kind." The Disclosure Agreement also provides that, "You [the
signer] understand and agree that the Information is confidential, and agree
that you shall not disclose the Information to anyone for any purposes." The
Disclosure Agreement was signed by Ronald Dykstra, the President of Genesis, on
September 18, 1990, and by Glenn Bodien, Sales Manager for Genesis, and Suzanne
Stolt, Genesis's Production Supervisor, on September 17, 1990.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - - [**48]
California case law recognizes a cause of action in tort for breach of
confidence. See, e.g., Faris v. Enberg, 97 Cal. App. 3d 309, 321, 158 Cal. Rptr.
704 (1979). This tort is based upon the concept of an implied obligation or
contract between the [*1227] parties that confidential information will not be
disclosed. See, e.g., Tele-Count Eng'rs, Inc. v. Pacific Tel. & Tel. Co., 168
Cal. App. 3d 455, 462, 214 Cal. Rptr. 276 (1985); see also Landsberg v. Scrabble
Crossword Game Players, Inc., 736 F.2d 485, 489 (9th Cir. 1984). In other words,
this cause of action recognizes "an obligation in law where in fact the parties
made no promise. It is not based upon apparent intentions of the involved
parties; it is an obligation created by law for reasons of justice." Fink v.
Goodson-Todman Enterprises, Ltd., 9 Cal. App. 3d 996, 1010, 88 Cal. Rptr. 679
(1970) (citation omitted).
To prevail on a claim for breach of confidence under California law, a
plaintiff must demonstrate that: (1) the plaintiff conveyed "confidential and
novel information" to the defendant; (2) the defendant had knowledge that the
information was being disclosed in confidence; (3) there was an understanding
between the defendant and the plaintiff that the confidence [**49] be
maintained; and (4) there was a disclosure or use in violation of the
understanding. See, e.g., Aliotti v. R. Dakin & Co., 831 F.2d 898, 903 (9th Cir.
1987) (citing Tele-Count Eng'rs, 168 Cal. App. 3d at 462-66 (1985)).
Information need not be protectable either as a trade secret, see Self
Directed Placement Corp. v. Control Data Corp., 908 F.2d 462, 465-67 (9th Cir.
1990), or by copyright law, see Tele-Count Eng'rs, 168 Cal. App. 3d at 462-66,
to be the subject of a breach of confidentiality claim. However, the information
disclosed "must be confidential and novel to warrant protection." Id. at 462;
see also Faris, 97 Cal. App. 3d at 322-23. Accordingly, the key to ERG's breach
of confidence claim is whether the information conveyed to Genesis by ERG was
"confidential and novel."
We affirm the district court's grant of summary judgment on this cause of
action because - even assuming that ERG can meet all of the other elements - ERG
can not establish that it conveyed any "confidential and novel information" to
Genesis. ERG and Genesis began their relationship - whatever it may have been -
at some time in 1989. It is undisputed that by that time, ERG had [**50]
already placed several of its inflatable costumes on the market through its
previous sales to assorted customers. After Genesis began to sell ERG's costumes
to the customers Genesis located, ERG did not require any of these purchasers to
execute non-disclosure agreements. Accordingly, it can be presumed that in all
of its sales prior to Genesis's arrival into the picture, ERG likewise did not
require any type of non-disclosure agreement to be signed by the purchasers. ERG
has not offered any evidence suggesting otherwise, and in fact, there is
substantial evidence indicating that ERG never took any steps to prevent other
manufacturers from looking inside ERG's costumes and reverse-engineering them.
The absence of any non-disclosure agreements entered into by these previous
purchasers is dispositive of the instant breach of confidence claim. In Aliotti,
831 F.2d at 903, we held that the plaintiff could not have conveyed any
"confidential" information to the defendant concerning her products for the
express reason that three of the dolls in question - the products at issue -
were already on the market. Because no confidential information was conveyed, we
granted summary judgment [**51] there against the plaintiff on her breach of
confidence cause of action. Likewise, in the instant case, we affirm the
district court's grant of summary judgment to Genesis and Aerostar since because
ERG's costumes were already on the market before Genesis became involved, any
design or manufacturing "information" that ERG may have disclosed to Genesis was
not "confidential" as a matter of law. See id. Thus, even though the Disclosure
Agreement states that the information conveyed was "confidential," as a matter
of law, this information was actually not "confidential." Id.
In this regard, it is important to note that "reverse-engineering" is
perfectly legal in a product not protected by a patent. See, e.g., Bonito Boats,
Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 156-58, 103 L. Ed. 2d 118, 109
S. Ct. 971 (1989); Chicago Lock Co. v. Fanberg, 676 F.2d 400, 404-05 (9th Cir.
1982). Accordingly, by not requiring the purchasers of its costumes to sign
non-disclosure agreements, ERG gave up any [*1228] ability it may have had to
claim that the manufacturing and design information disclosed to Genesis was
"confidential in nature."
In addition to this claim that Genesis disclosed confidential information
[**52] about ERG's manufacturing and design processes, ERG also argues that
Genesis breached the confidence it owed to ERG by disclosing to Aerostar the
prices that purchasers were paying for ERG-manufactured costumes. We also reject
this argument on the ground that such information was not confidential. In the
first place, the prices allegedly improperly disclosed were the prices that
Genesis - not ERG - charged the purchasers. Thus, the price information was, if
confidential at all, Genesis's confidential information - not ERG's. In
addition, price information is not covered in the definition of "Information"
detailed in the Disclosure Agreement, so Genesis technically would not have
violated the Disclosure Agreement by disclosing any pricing information.
For the forgoing reasons, the district court's grant of summary judgment to
defendants on ERG's breach of confidence cause of action was correct. Although
ERG argues that the question of whether the information conveyed by ERG to
Genesis was confidential should have been left for the jury, this contention is
without merit since any information ERG conveyed to Genesis was not confidential
as a matter of law. See Aliotti, 831 F.2d at [**53] 902-03.
IV. Civil Conspiracy Cause of Action
ERG's final cause of action alleges that Genesis and Aerostar are liable to
ERG as co-conspirators under a civil conspiracy theory. The district court
granted summary judgment against ERG on this claim on the ground that in the
instant circumstances, ERG could not state such a cause of action under
California law.
Under California law, there is no separate and distinct tort cause of action
for civil conspiracy. See, e.g., Applied Equipment Corp. v. Litton Saudi Arabia
Ltd., 7 Cal. 4th 503, 869 P.2d 454, 459 (Cal. 1994) (stating that, "Conspiracy
is not an independent tort; it cannot create a duty or abrogate an immunity. It
allows tort recovery only against a party who already owes the duty and is not
immune from liability based on applicable substantive tort law principles.")
(citing Doctors' Co. v. Superior Court, 49 Cal. 3d 39, 260 Cal. Rptr. 183, 775
P.2d 508 (1989)); see also 5 B. Witkin, Summary of California Law, Torts § 44
(9th ed. 1988) (stating that, "Strictly speaking, however, there is no separate
tort of civil conspiracy, and there is no civil action for conspiracy to commit
a recognized tort unless the wrongful act itself is committed and [**54] damage
results therefrom.").
Accordingly, regardless of whether Genesis and Aerostar formed such a
conspiracy, in order for ERG to have a valid civil conspiracy cause of action,
there must be another tort upon which ERG could base its conspiracy claim. Id.
Although ERG attempts to argue that it is enough for ERG to simply have alleged
underlying causes of action in its complaint, merely alleging underlying tort
causes of action is clearly insufficient to support a conspiracy cause of
action. See Applied Equipment, 869 P.2d at 457. Thus, because we have decided to
affirm the district court's grant of summary judgment as to all of the other
tort causes of action, summary judgment is also appropriate for ERG's civil
conspiracy claim since no underlying tort exists.
V. The Award of Attorney's Fees to Genesis
On October 2, 1996, the district court issued an amended order awarding
Genesis $ 95,075.75 in attorney's fees incurred in defending against ERG's first
and second causes of action, the Inflatimation claims. ERG appeals this award on
two grounds: (1) the district court committed clear error by awarding any
attorney's fees to Genesis since ERG's Inflatimation claims [**55] were
properly brought and since Genesis was an admitted infringer; and (2) the
district court's award of $ 95,075.75 was an unreasonable amount and, therefore,
an abuse of discretion.
A. Appropriateness of Attorney's Fees Award to Genesis
We have established that "an award of attorney's fees to a prevailing
defendant [*1229] that furthers the underlying purposes of the Copyright Act
is reposed in the sound discretion of district courts." Fantasy, 94 F.3d at 555.
Moreover, "Such discretion is not cabined by a requirement of culpability on the
part of the losing party." Id.
Within this framework, district courts are given wide latitude to exercise
"equitable discretion." See generally, Fogerty v. Fantasy, Inc., 510 U.S. 517,
127 L. Ed. 2d 455, 114 S. Ct. 1023 (1994). Some of the factors that can affect a
district court's decision are: (1) the degree of success obtained; (2)
frivolousness; (3) motivation; (4) the objective unreasonableness of the losing
party's factual and legal arguments; and (5) the need, in particular
circumstances, to advance considerations of compensation and deterrence. Id. at
534 n. 19; see also Jackson v. Axton, 25 F.3d 884, 890 (9th Cir. 1994).
In the instant case, the [**56] district court decided to exercise this
discretion by denying recovery of attorney's fees to both Aerostar and Genesis
for defending against ERG's derivative copyright claim on the ground that the
legal issues were quite novel and ERG's arguments quite plausible. In direct
contrast, the district court held that Genesis should be awarded attorney's fees
for defending against ERG's two copyright causes of action based on the
Inflatimation characters since it was "objectively unreasonable" for ERG to have
maintained those claims for almost three years without any evidentiary basis.
ERG argues that the district court was incorrect to award these attorney's
fees since ERG's Inflatimation claims were properly brought and since Genesis
"admitted to wrongdoing." The record does not support ERG's contention that
Genesis "admitted to wrongdoing," however. Indeed, although Genesis's opposition
memorandum to ERG's September, 1992 preliminary injunction motion did
acknowledge that Genesis employees had distributed advertising materials
containing pictures of ERG-manufactured costumes - the basis for the
Inflatimation claims - Genesis soon cleared up any confusion by stating that the
only brochures [**57] it ever distributed depicting ERG costumes were done with
the full authorization of Mr. Breed, the president and sole shareholder of ERG.
ERG's contention that Genesis was an admitted infringer is especially hard to
believe given the fact that at the May 11, 1995 hearing on Genesis and Aerostar
's motions for summary judgment, ERG did not even try to argue for the validity
of its first and second causes of action. Quite to the contrary, ERG's counsel
candidly conceded that ERG had no evidence whatsoever to substantiate its claims
of copyright infringement of the Inflatimation Elf and Soldier costumes.
ERG attempts to justify its retention of these claims on the ground that it
would have been legal malpractice for its counsel to remove such perfectly valid
claims from the complaint. Given the fact that ERG had no evidence at all to
support these claims - even after three years and numerous depositions - it
would hardly have been legal malpractice to drop such claims. In fact, ERG's
counsel really should not have even included the claims in the first place.
Thus, this argument does not convince us that the award of attorney's fees was
not warranted. See Hughes v. Novi American, Inc., [**58] 724 F.2d 122, 125
(Fed. Cir. 1984) (stating that the fact that a plaintiff's lawyer knows that the
plaintiff's copyright claims are not valid is a factor meriting an award of
attorney's fees).
Therefore, because the evidence in the record reveals that ERG never had any
evidence to support its Inflatimation claims, the district court properly found
that it was objectively unreasonable for ERG to have maintained these claims.
Accordingly, the district court did not err in deciding to award attorney's fees
to Genesis as the prevailing party. See, e.g., Fantasy, 94 F.3d at 560 (holding
that, "Since the reasons given by the district court in this case are
well-founded in the record and are in keeping with the purposes of the Copyright
Act, the court acted within its discretion in awarding a reasonable attorney's
fee"); Diamond v. Am-Law Pub. Corp., 745 F.2d 142, 148 (2d Cir. 1984) (holding
that where the plaintiff's copyright infringement claim was without a reasonable
legal basis, an award of attorney's fees to the defendants was a proper exercise
of judicial discretion).
[*1230] B. Reasonableness of the Amount of Attorney's Fees Awarded
It is well-established law that [**59] a party entitled to attorney's fees
as a prevailing party on a particular claim, but not on other claims in the same
lawsuit, can only recover attorney's fees incurred in defending against that one
claim or any "related claims." See, e.g., Hensley v. Eckerhart, 461 U.S. 424,
434-35, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983); Ackerman v. Western Elec. Co.,
Inc., 860 F.2d 1514, 1520 (9th Cir. 1988). Indeed, as the Supreme Court
commented in Hensley:
In some cases a plaintiff may present in one lawsuit distinctly
different claims for relief that are based on different facts and
legal theories. In such a suit, even where the claims are brought
against the same defendants . . . counsel's work on one claim will be
unrelated to his work on another claim . . . The congressional intent
to limit awards to prevailing parties requires that these unrelated
claims be treated as if they had been raised in separate lawsuits, and
therefore no fee may be awarded for services on the unsuccessful
claim.
Hensley, 461 U.S. at 434-35; see also Smith v. Robinson, 468 U.S. 992, 1006-07,
82 L. Ed. 2d 746, 104 S. Ct. 3457 (1984); Schwarz v. Sec. of Health & Hum.
Servs., 73 F.3d 895, 903 (9th Cir. 1995) (affirming the district court's [**60]
decision to refuse to award fees incurred on claims for which attorney's fees
were not available where the "course and conduct about which she [plaintiff]
complained [in these other claims] . . . were entirely distinct and separate"
from the claims upon which fees were awarded).
In the instant case, ERG's second amended complaint raised twelve causes of
action. Exercising its discretion, the district court decided that attorney's
fees should only be awarded to Genesis for those fees Genesis incurred in
defending against ERG's two copyright claims based on the Inflatimation Elf and
Soldier costumes. Those two copyright claims alleged that Genesis employees had
distributed to third parties advertising materials and brochures depicting
ERG-made costumes without ERG's authorization or consent. The crux of these
claims, therefore, was whether such unauthorized distributions ever took place.
The crux of the overall litigation and the other causes of action, on the other
hand - besides the derivative copyright infringement claim - was whether an
agency relationship existed between Genesis and ERG. In addition, all of the
other causes of action - except for the derivative copyright claim [**61] -
involved completely different legal theories and questions. Further, the mere
fact that the Inflatimation claims were a part of this overall case and involved
the same parties does not mean that these claims arose from the same "course and
conduct" as the other claims. See Schwarz, 73 F.3d at 903. As should be readily
apparent, therefore, the Inflatimation claims presented "distinctly different
claims for relief that are based on different facts and legal theories" from the
other causes of action in the overall litigation. See Hensley, 461 U.S. at 434.
Accordingly, under the rule requiring segregation of attorney's fees, id. at
434-35, the district court should not have awarded Genesis any attorney's fees
incurred in doing work on these other claims.
The district court's original order regarding attorney's fees and its amended
order reflect the district court's awareness of these principles. The district
court even noted that it had the discretion to ask Genesis to submit its
detailed time records or original bills so that the appropriate segregation
could occur. The district court declined to impose such a requirement in the
instant circumstances, however. Instead, [**62] the district court relied
exclusively on the declaration submitted by Genesis's counsel detailing the
hours spent on the Inflatimation claims to conclude that $ 95,075.75 in attorney
's fees had been incurred in defending against the Inflatimation claims.
The Supreme Court has detailed a district court's obligations pursuant to the
requirement that attorney's fees be awarded only for time spent on allowable
claims as follows:
There is no precise rule or formula for making these determinations.
The district court may attempt to identify specific hours that should
be eliminated, or it may simply reduce the award to account for the
[*1231] limited success. The court necessarily has discretion in
making this equitable judgment. This discretion, however, must be
exercised in light of the considerations we have identified.
Hensley, 461 U.S. at 436-37. In line with the Supreme Court's directive, we
have held that a district court can abuse its discretion in certain
circumstances by not requiring the party requesting attorney's fees to submit
any materials besides summaries of the time expended to litigate a matter. See
Intel v. Terabyte Int'l, Inc., 6 F.3d 614, 623 (9th [**63] Cir. 1993). Given
the instant circumstances, we feel that the district court abused its discretion
by concluding that the summaries submitted in conjunction with the declaration
of Genesis's counsel were sufficient to determine exactly how many hours Genesis
spent solely defending against the Inflatimation claims. Indeed, in these
circumstances, we believe that the district court erred in not requiring Genesis
to submit its original time records and billing statements so that ERG - and the
district court - could determine whether the fees being claimed were truly for
time spent in defending against the Inflatimation claims. See Intel, 6 F.3d at
623.
In making its determination that $ 95,075.75 should be awarded as attorney's
fees to Genesis for defending against the Inflatimation claims, the district
court relied on the declarations submitted by Genesis's attorney and the billing
summaries submitted in conjunction therewith. Genesis provided the district
court with one chart summarizing all of the time spent and the fees incurred in
defending against all three of ERG's copyright claims - the two Inflatimation
claims and the derivative copyright claim - and with a second chart summarizing
[**64] the time spent exclusively on the Inflatimation claims. According to
these summaries, over $ 70,000 in legal fees were incurred by Genesis in
defending solely against the Inflatimation claims from September, 1992 to
September, 1993. Given the facts surrounding this case, this amount is so
surprising that the district court abused its discretion by not requiring
Genesis to submit its original time records and billing statements so that the
district court could determine if the claimed attorney's fees were incurred
solely for the Inflatimation claims and not for other unrelated causes of
action.
In September, 1992, Genesis told ERG that regardless of whether the
unauthorized distributions complained of in ERG's Inflatimation claims had ever
taken place, such allegedly violative acts would no longer occur since all of
Genesis's advertising materials containing the allegedly unauthorized depictions
of ERG-made costumes had been exhausted. Thus, to Genesis, the issue had become
moot by this time. Based on this view, Genesis informed ERG that it would
stipulate to the fact that ERG would no longer be harmed - if ERG had ever been
- by such distributions. Accordingly, by September, 1992, [**65] most of the
force behind ERG's two Inflatimation copyright claims had all but disappeared.
That this is true is further evidenced by the fact that ERG stopped pursuing
these claims after its motion for a preliminary injunction was taken off
calendar by the district court on September 17, 1992 on the ground that there
was no threat of further harm to ERG from such distributions. n12
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n12 At this time, the case was still before United States District Judge
Stanley Weigel.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
Despite this turn of events, ERG still included these two claims in its
subsequently filed first and second amended complaints. As a result, Genesis
deemed it necessary - out of an appropriate abundance of caution - to prepare
for the possibility that ERG would once again attempt to vigilantly prosecute
these claims at some point. Given the fact that the Inflatimation claims had
lost most of their force since ERG would no longer suffer any such harm,
however, it is clear that by September, 1992, there was no real reason for
Genesis to conduct anything [**66] more than cursory legal and factual
preparations regarding these two Inflatimation claims. Consequently, we are
skeptical that Genesis could have spent over $ 70,000 in legal fees on these two
claims from September, 1992 to September, 1993.
Genesis's claimed $ 70,000 in legal fees incurred post-September, 1992 is
also notable due to the fact that these two copyright claims involved very
simple legal and factual issues. Indeed, as was mentioned before, the [*1232]
entire Inflatimation claims revolved around the simple and easily discoverable -
especially for Genesis - factual issue of whether Genesis employees had
distributed any advertising materials depicting ERG's costumes without ERG's
authorization. Extensive discovery was not necessary to answer this question.
Nor was extensive travel necessary. Of even more import, by September of 1992,
Genesis had all the information it needed - it knew that the materials had been
distributed at one time, and it knew that they were no longer being distributed.
Accordingly, Genesis's claim that it spent over $ 70,000 in legal fees on these
claims alone after September, 1992 should have at least raised some suspicions
such that the district court should [**67] have required Genesis to submit its
original billing records.
These suspicions should have been heightened even more by a comparison of
this $ 70,000 figure with the amount of attorney's fees that Genesis claimed it
expended in defending against the derivative copyright infringement suit. As our
earlier discussion reveals, the derivative copyright claim involved infinitely
more complex and intricate factual and legal issues than ERG's two Inflatimation
copyright claims. Indeed, it is principally for this reason that the district
court decided not to award any attorney's fees at all to Genesis or Aerostar for
defending against the derivative copyright claim, even though both parties were
statutorily entitled to such fees.
Given this context, it should come as quite a surprise that, according to the
prepared declaration and billing summaries submitted by Genesis to the district
court, the entire amount of attorney's fees incurred by Genesis in defending
against the derivative copyright action was only $ 43,343.75. In other words,
after September, 1992 - by which time the Inflatimation copyright claims had
really lost all of their force and legitimacy - Genesis apparently spent almost
[**68] twice as much money defending against the unsubstantiated Inflatimation
copyright claims as it ever expended for its defense of the novel and complex
derivative copyright lawsuit.
In light of the forgoing, the district court abused its discretion by not
requiring Genesis to submit its original time records and billing statements.
Absent such records and absent a summary of the total amount of attorney's fees
incurred by Genesis in defending against all of ERG's causes of action between
September, 1992 and September, 1993, the district court could not properly
ensure that the attorney's fees it was granting to Genesis were solely for fees
related to the Inflatimation copyright claims. In sum, because this overall
litigation involved numerous other claims for which attorney's fees were not
awarded - almost all of which contained more complicated factual and legal
questions than the Inflatimation copyright claims - and because the amount of
attorney's fees Genesis claimed were incurred to defend solely against the
Inflatimation claims was so high, the district court abused its discretion by
not requiring the submission of more detailed billing records. See Intel, 6 F.3d
at 623. [**69] As a result, we vacate the district court's award of $ 95,075.75
in attorney's fees to Genesis and remand the case to the district court for
further consideration. n13
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -
n13 We hasten to add that we do not mean to impute to Genesis or to its
attorneys any intent to mislead the court. But one does not always see one's own
situation with the perspicacity available to one's opponents. That is one reason
for supplying records to opposing counsel when there are any doubts at all.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
CONCLUSION
For the forgoing reasons, we affirm the district court's orders granting
summary judgment in favor of Genesis and Aerostar on all twelve of ERG's causes
of actions. However, we vacate and remand the district court's award of attorney
's fees to Genesis.
AFFIRMED in part, VACATED in part, and REMANDED.