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WRENCH LLC v. TACO BELL CORP.

June 10, 1999

WRENCH LLC, A MICHIGAN LIMITED LIABILITY COMPANY; JOSEPH SHIELDS; AND THOMAS RINKS, PLAINTIFFS,
v.
TACO BELL CORP., A FOREIGN CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Quist, District Judge.

OPINION

This case is about two dogs: Gidget, a live female Chihuahua who stars in Defendant, Taco Bell Corp.'s ("Taco Bell"), popular television commercials as the suave male Chihuahua with a taste for Taco Bell food and known for the line, "Yo quiero Taco Bell" ("I want some Taco Bell"), and "Psycho Chihuahua," Plaintiffs' caricature of a feisty, edgy, confident Chihuahua with a big dog's attitude. The question at the bottom of this dispute is whether Taco Bell's live Chihuahua is Psycho Chihuahua incarnate. Plaintiffs contend that Taco Bell used their ideas based on Psycho Chihuahua to create the live Chihuahua character featured in Taco Bell's current advertising campaign and have sued Taco Bell alleging claims for breach of implied contract, misappropriation, conversion, and unfair competition. Now before the Court is Taco Bell's motion for summary judgment.

Facts

Plaintiffs reside in Grand Rapids, Michigan, and are the developers and promoters of a cartoon character known as "Psycho Chihuahua." Taco Bell is a franchisor of fast food Mexican restaurants, with its principal offices in Irvine, California.

Plaintiffs Thomas Rinks ("Rinks") and Joseph Shields ("Shields") developed Psycho Chihuahua sometime in early 1995. Psycho Chihuahua depicted a clever, feisty Chihuahua dog with a "do-not-back-down" attitude. (Shields Dep. at 88, Def.'s App. B2 Ex. 18; see also 1st Am.Compl. ¶ 7.) Rinks and Shields promoted and marketed Psycho Chihuahua through Wrench LLC ("Wrench"), their wholly-owned limited liability company. Plaintiffs initially marketed Psycho Chihuahua on a small scale through use on T-shirts and other merchandise. However, by early 1996, Wrench had licensed the rights to produce the apparel to several large manufacturers.

In June 1996, Rinks and Shields attended a licensing trade show in New York City to promote Psycho Chihuahua. Ed Alfaro ("Alfaro"), Taco Bell's Creative Services Manager, and Alfaro's boss, Rudy Pollak ("Pollak"), Taco Bell's Vice President of Administration and Employee Programs, also attended the show. Alfaro and Pollak had gone to the show in order to meet with a licensing agent and obtain ideas for use in a potential Taco Bell retail licensing program. Alfaro was part of a department known at Taco Bell as "Visionary Infoworks." Alfaro's department was in charge of developing the Taco Bell licensing program, which was separate from Taco Bell's marketing department. During the show, Alfaro noticed the Psycho Chihuahua display, and he and Pollak approached Rinks and Shields to talk about the character. Alfaro, who was immediately taken with Psycho Chihuahua, saw it as a "strong character" that would appeal to Taco Bell's core consumers, males ages 18-24. (See Alfaro Dep. at 46-48, Def.'s App. B Ex. 2.) Alfaro and Pollak spoke briefly with Rinks and Shields and obtained some Psycho Chihuahua materials to take with them to Taco Bell's headquarters in California.

After returning to California, Alfaro began to promote Psycho Chihuahua within the company as a potential Taco Bell corporate "icon." Alfaro contacted Rinks and asked him to create art boards combining Psycho Chihuahua with the Taco Bell name and image. Shortly after Alfaro made the request, Rinks and Shields prepared and sent several art boards to Alfaro, along with Psycho Chihuahua T-shirts, hats, and stickers for Alfaro to use in promoting Psycho Chihuahua at Taco Bell.

Alfaro introduced Psycho Chihuahua at Taco Bell by passing out the Psycho Chihuahua items that Rinks and Shields had sent him and meeting with top executives to gain their support for the character. Because Alfaro was not a part of the marketing group, he first sought to gain the support of top executives outside of the marketing department to gain support for his clan to sell the character to the marketing department.*fn1 In late July or August, Alfaro held separate meetings with Joaquin Palaez, Taco Bell's Vice President of Quality and Technology, and Olden Lee, Taco Bell's Senior Vice President of Human Resources, to introduce them to Psycho Chihuahua and receive comments on the character. Later, Alfaro showed the materials to other executives, including Vada Hill, Taco Bell's Vice President of Brand Management. Alfaro and Pollak also presented the Psycho Chihuahua materials to Taco Bell's then-outside advertising agency, Bozell Worldwide. In addition, Alfaro presented Psycho Chihuahua and other graphic designs to a series of focus groups to gauge consumer reaction to the designs as potential Taco Bell icons. Psycho Chihuahua was the best received design. (See Alfaro Dep. at 90.)

In September 1996, Wrench hired Strategy Licensing ("Strategy"), a Connecticut-based licensing agent. Arlene Scanlan ("Scanlan") and Neal Seideman ("Seideman"), the Strategy representatives for Wrench, became involved in the communications with Alfaro. On September 11, 1996, Scanlan wrote a letter to Alfaro thanking him for his help in promoting Psycho Chihuahua at Taco Bell and expressing her enthusiasm for "the opportunity to work alongside the Taco Bell brand. . . ." (Letter from Scanlan to Alfaro of 9/11/96, Pls.' App.Ex. 7.) Scanlan also enclosed marketing boards and other Psycho Chihuahua materials for the presentation to Bozell, which described Psycho Chihuahua as "irreverent," "edgy," and "spicy" with an "over-the-top" attitude and an "insatiable craving" for Taco Bell food. (See Pls.' App.Ex. 8.) Wrench also sent additional materials to Alfaro, which included marketing boards, point of purchase drawings, and commercial scripts. (See Pls.' App.Ex. 9.) Throughout the late summer and fall, Alfaro continued his discussions with Rinks about developing Psycho Chihuahua for Taco Bell's use.

In November 1996, Scanlan and Seideman attended a meeting with Pollak, Alfaro, and two other members of Alfaro's group. Topics of the meeting included Taco Bell's past marketing efforts and future marketing plans, and the scope of potential use of Psycho Chihuahua. In particular, the parties discussed broadening the use from merely applications in sales of retail merchandise such as T-shirts, as originally envisioned by Alfaro's group, to use in Taco Bell's advertising. At the conclusion of the meeting, Pollak asked Scanlan to prepare a proposal of the terms for Taco Bell's use of Psycho Chihuahua.

Scanlan sent a proposal to Alfaro on November 18, 1996, based on a licensing agreement that Scanlan had worked on for PepsiCo's use of a character known as Fido Dido. (See Scanlan Dep. at 198-99, 351, Pls.' Dep.App.) The proposal provided that Taco Bell would pay Wrench a percentage based upon the amount of money spent on advertising, a percentage of Taco Bell's retail licensing sales, and a percentage based on the cost of premiums, such as toys sold in Taco Bell restaurants. (See id. at 393-94; Letter from Scanlan to Alfaro of 11/18/96, Pls.' App.Ex. 11.) Taco Bell did not accept the proposal, although it did not explicitly reject it or indicate that it was ceasing further discussions. (See Scanlan Dep. at 202-04, Pls.' Dep.App.) In fact, Alfaro continued to talk with Wrench and promote Psycho Chihuahua within Taco Bell. On December 5, 1996, Alfaro and Pollack met with Vada Hill, who then held the position of Chief Marketing Officer, and others to present licensing various ideas, including Psycho Chihuahua. (See Hill Dep. at 123-25, Pls.' Dep.App.) A few days later, Pollak told Alfaro that they should continue to work on the Psycho Chihuahua idea to show Vada Hill "a better alternative" to other ideas under consideration "if there [was] one!" (E-mail from Pollak to Alfaro of 12/9/96, Pls.' App. Ex. 15.)

In February 1997, Alfaro traveled to Grand Rapids, for a meeting with Rinks, Shields, Scanlan, and Seideman to review and finalize a formal presentation featuring Psycho Chihuahua to be presented to Taco Bell's marketing department in early March 1997. During the meeting, Wrench presented ideas for an advertising, licensing, and promotional campaign called "Go Psycho at Taco Bell." (See Pls.' App.Ex. 16.) The ideas discussed included using a live dog manipulated through CGI (computer graphics imaging) (See id.) The participants also discussed ideas for commercials, such as a male Chihuahua passing up a female Chihuahua, the use of a bobbing head doll, and a Chihuahua head popping out of a circle at the end of commercials. (See Alfaro Dep. at 209-10, Rinks Dep. at 248-49, Pls.' Dep.App.)

By coincidence, while Alfaro was working with Rinks and Shields on producing the presentation for the marketing department, another firm, TLP Partnership ("TLP"), was also promoting Psycho Chihuahua to Taco Bell as one of several possible ideas for a Cinco de Mayo or summer promotion.*fn2 On February 6, 1997, TLP made a presentation to members of Taco Bell's marketing department which included Psycho Chihuahua. (See C. Hennessy Dep. at 12-17, Def.'s App. B1 Ex. 8; Pls.' App.Ex. 20.) TLP had discovered Psycho Chihuahua at a trade show in New York and received Strategy's consent to use the image in its presentation. Alfaro was not aware of TLP's presentation. Following the presentation, Taco Bell conducted a series of focus groups to research consumer reaction to TLP's ideas. Psycho Chihuahua was one of two ideas that sparked positive consumer reaction. (See Pls.' App.Ex. 23 at TB000291.) However, Taco Bell did not use any of TLP's ideas. (See M. Hennessy Dep. at 29, Def.'s App. B1 Ex. 9.)

Alfaro was unable to arrange a meeting during March 1997 with the marketing department to present the Psycho Chihuahua materials. However, on April 4, 1997, Scanlan and Seideman made a formal presentation of the "Go Psycho" campaign to Alfaro and his group using samples of uniform designs, T-shirts, food wrappers, posters, and cup designs based upon the ideas discussed during the February 6, 1997, meeting. Scanlan and Seideman also presented storyboards depicting two of the ideas for commercials discussed during the February 6, 1997, meeting. (See Pls.' App. Ex. 28.) Alfaro and his group were impressed with the "Go Psycho" materials.

On March 18, 1997, Taco Bell hired a new advertising agency, TBWA Chiat/Day ("Chiat/Day") In a meeting held a few days later, Taco Bell briefed Chiat/Day on the history of its brand, its marketing history, its consumer profile, and its past advertising campaigns. Taco Bell advised Chiat/Day that it wanted a campaign ready to launch by July 1997 that would reconnect Taco Bell with its core group of consumers, males 18 to 24 years old. Chuck Bennett ("Bennett") and Clay Williams ("Williams") were asked to work on the Taco Bell account as creative directors. Bennett's and Williams' prior collaborative efforts included a commercial spot which they made for Nissan Motor Corp. This spot featured several dogs, including a Chihuahua, taking a sport utility vehicle and its owner for a joy ride. (See Bennett Dep. at 221-22, Def.'s App. B2 Ex. 3; Williams Dep. at 370, Def.'s App.B.Ex. 23.)

By late May, Bennett and Williams had come up with approximately thirty ideas for television commercials. Many of the ideas were based on the theme: "There's something inside you that's hungry for Taco Bell," which Chiat/Day had developed based on feedback from the focus groups. The main theme presented was the "Burp" idea, in which various characters would burp in different "humorous circumstances." Chiat/Day presented these ideas in a meeting held on May 20, 1997. Taco Bell did not like the ideas.

On June 2, 1997, Bennett and Williams made another presentation to Taco Bell in which they presented several new themes, including one called the "Hunger Monster," one called the "Pink Room," which was intended to depict different scenes showing a person's stomach and incorporated the "Something Inside You is Hungry For Taco Bell," and one involving a Chihuahua, in which a male Chihuahua would pass up a female Chihuahua to get to a person seated on a bench eating Taco Bell food.

According to Bennett and Williams, they conceived the "Chihuahua" idea as they were having lunch on a Sunday afternoon at an outdoor Mexican restaurant. (Bennett Dep. at 203-05; Williams Dep. at 174-75.) According to them, as they sat there, they noticed a Chihuahua trotting down the street that appeared to be on a mission, and thought that using a Chihuahua may be "a way of personifying the intense desire for Taco Bell" food. (Williams Dep. at 180.) Williams wrote a script using the Chihuahua, which was presented to Taco Bell at the June 2, 1997, meeting. (See Pls.' App.Ex. 35.)

Following the June 2 meeting Chiat/Day conducted focus groups to test consumer reaction to the proposed ideas. After reviewing the focus group results, a decision was made to produce three commercials based on the "Pink Room" idea, a commercial called "Bigger is Better," and one "Chihuahua" commercial. (See Miller Dep. at 184, Def.'s App. B2 Ex. 12.)

In June 1997, Alfaro met with Scanlan and Seideman at the same licensing show in New York at which he had discovered Psycho Chihuahua a year earlier and told Scanlan that he was still interested in using Psycho Chihuahua. (See Pls.' App.Ex. 36.) On June 26, 1997, Scanlan sent Alfaro materials from the "Go Psycho" campaign to use in a meeting with Chiat/Day. (See Letter from Scanlan to Alfaro of 6/26/97, Pls.' App.Ex. 37.) Sometime during that month Alfaro had learned that Chiat/Day was planning to use a Chihuahua in a commercial, and he believed that he still might be able to persuade the marketing department to use Psycho Chihuahua. Alfaro left a voice mail with Vada Hill about the prospect, and Hill forwarded the message to Chris Miller, Taco Bell's Advertising Manager and the liaison between the marketing department and Chiat/Day. (See Miller Dep. at 198-99, Pls.' Dep.App.) On June 27, 1997, Alfaro passed the materials along to Miller along with a note suggesting that Taco Bell consider using Psycho Chihuahua as an icon and as a character in its advertising. (See Mem. from Alfaro to Miller of 6/27/97, Def.'s App. D Ex. 6.) The materials were received by Chiat/Day sometime between June 28 and July 26. (See E-mail from Miller to Alfaro of 7/26/97, Def.'s App. D Ex. 7.)

The "Chihuahua" and "Pink Room" commercials were shown regionally sometime in July. Based upon feedback from focus groups, Chiat/Day determined that the reaction to "Chihuahua" was very positive. On that basis, Taco Bell decided that the Chihuahua would be the focus of its 1998 campaign, and on December 28, 1997, Taco Bell launched its national campaign. To this day, Taco Bell continues to air commercials using the Chihuahua. Taco Bell's Chihuahua commercials have been very successful.

Summary Judgment Standard

Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed. R.Civ.P. 56. The rule requires that the disputed facts be material. Material facts are facts which are defined by substantive law and are necessary to apply the law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A dispute over trivial facts which are not necessary in order to apply the substantive law does not prevent the granting of a motion for summary judgment. Id. at 248, 106 S.Ct. at 2510. The rule also requires the dispute to be genuine. A dispute is genuine if a reasonable jury could return judgment for the nonmoving party. Id. This standard requires the non-moving party to present more than a scintilla of evidence to defeat the motion. Id. at 251, 106 S.Ct. at 2511 (citing Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L.Ed. 867 (1872)).

A moving party who does not have the burden of proof at trial may properly support a motion for summary judgment by showing the court that there is no evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986). If the motion is so supported, the party opposing the motion must then demonstrate with "concrete evidence" that there is a genuine issue of material fact for trial. Id.; Frank v. D'Ambrosi, 4 F.3d 1378, 1384 (6th Cir. 1993). The court must draw all inferences in a light most favorable to the non-moving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir. 1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986)).

Discussion

In its prior opinion issued on June 18, 1998, this Court granted in part and denied in part Taco Bell's motion to dismiss, leaving intact the breach of implied contract, misappropriation, conversion, and unfair competition claims. See Wrench LLC v. Taco Bell Corp., No. 1:98-CV-45, 1998 WL 480871, at *9 (W.D.Mich. June 18, 1998) ("Wrench I"). In particular, the Court held that Plaintiffs' misappropriation, conversion, and unfair competition claims were not preempted by § 301(a) of the Copyright Act because they require Plaintiffs to prove an extra element not required for a copyright infringement claim, namely, the existence of a legal relationship arising from an implied contract. See id. at *7-9. In a supplemental opinion denying Taco Bell's renewed motion to dismiss Counts II through V of Plaintiffs' First Amended Complaint and granting Taco Bell's motion to strike, the Court struck Plaintiffs' allegations of a legal relationship arising from a quasi contract on the basis that such allegations were inconsistent with the Court's earlier determination that Plaintiffs' unjust enrichment claim was preempted. See Wrench LLC v. Taco Bell Corp., 36 F. Supp.2d 787, 790-91 (W.D.Mich. 1998) ("Wrench II").

In its present motion, Taco Bell contends that it is entitled to summary judgment because: (1) Plaintiffs have not established an implied in fact contract, or alternately, if they have, their claims are preempted by the Copyright Act because the implied contract creates legal rights that are equivalent to the rights within the general scope of copyright; (2) the concept of using a live Chihuahua in Taco Bell commercials was independently created by Chiat/Day; and (3) Plaintiffs' ideas were not novel.

I. Implied In Fact Contract

A contract between two parties may be implied in fact when the intention to enter into a contract "is not manifested by direct or explicit words between the parties," but instead is "gathered by implication or proper deduction from the conduct of the parties, language used, or things done by them, or other pertinent circumstances attending the transaction." Miller v. Stevens, 224 Mich. 626, 632, 195 N.W. 481, 482 (1923); see also Featherston v. Steinhoff, 226 Mich. App. 584, 589, 575 N.W.2d 6, 9 (1997) (noting that "[w]here the parties do not explicitly manifest their intent to contract by words, their intent may be gathered by implication from their conduct, language, and other circumstances attending the transaction"). "An implied contract, like other contracts, requires mutual assent and consideration" and is treated in all other respects like an express contract. Spruytte v. Department of Corrections, 82 Mich. App. 145, 147, 266 N.W.2d 482, 483 (1978). Therefore, "[i]n determining whether there is a contract implied in fact, the courts look to the acts and conduct of the parties to determine whether the essential elements of an express contract have been established." Lawrence v. Ingham County Health Dep't Family Planning/Pre-Natal Clinic, 160 Mich. App. 420, 422 n. 1, 408 N.W.2d 461, 462 n. 1 (1987).

Implied in fact contracts often arise where one accepts a benefit from another for which compensation is customarily expected. See Miller, 224 Mich. at 632, 195 N.W. at 483. Thus, where evidence shows that the parties understood that compensation would be paid for services rendered, a promise to pay fair value may be implied, even if no agreement was reached as to price, duration, or other terms of the contract. See In re Estate of Morris, 193 Mich. App. 579, 583, 484 N.W.2d 755, 756-57 (1992).

Taco Bell concedes that there is sufficient evidence in the record to support Plaintiff's allegation that the parties had a basic understanding that if Taco Bell used the Psycho Chihuahua idea, concept, or image, that Taco Bell would compensate Plaintiffs for the fair value of such use. (See Def.'s Br.Supp. at 28 (citing Alfaro Dep. at 171-73; Pollack Dep. at 206).) However, Taco Bell argues that Plaintiffs cannot prove the existence of an implied in fact contract because the parties did not agree on any of the essential terms that would normally be included in a licensing agreement, such as price, duration, scope of use, and exclusivity. Plaintiffs agree that no agreement was reached on the terms that would normally be included in a licensing agreement, but argue that their understanding with Alfero that Taco Bell would pay Plaintiffs for the use of the Psycho Chihuahua materials if Taco Bell decided to use the Psycho Chihuahua idea is, by itself, sufficient to support an implied in fact contract.

Courts in several jurisdictions have agreed with Plaintiffs' contention that an implied in fact contract may be found when the parties have an understanding that the recipient of a valuable idea has accepted and used the idea, knowing that compensation is expected for use of the idea, without paying the purveyor of the idea. For example, in Desny v. Wilder, 46 Cal.2d 715, 299 P.2d 257 (1956), the plaintiff, at defendant's request, prepared an abbreviated movie script for defendant. Plaintiff communicated a synopsis of the script to defendant's secretary. Shortly thereafter, the defendant produced a movie that closely resembled the plaintiff's story, but did not pay plaintiff for it. The California Supreme Court concluded that there was a genuine issue of material fact as to whether an implied in fact contract existed. See Desny, 46 Cal.2d at 738, 299 P.2d at 269; see also Landsberg v. Scrabble Crossword Game Players, Inc., 802 F.2d 1193, 1196 (9th Cir. 1986) (stating that "California law allows for recovery for the breach of an implied-in-fact contract when the recipient of a valuable idea accepts the information knowing that compensation is expected, and subsequently uses the idea without paying for it" (citing Desney)).

The Alaska Supreme Court reached a similar conclusion in Reeves v. Alyeska Pipeline Service Co., 926 P.2d 1130 (Alaska 1996) (per curiam). Citing 3 David Nimmer, Nimmer on Copyright, § 16.05[D], at 16-40 (1994), the court noted that "a request by the recipient for disclosure usually implies a promise to pay for the idea if the recipient uses it." Reeves, 926 P.2d at 1141. The court held that a reasonable jury could find that an implied in fact contract was created because the plaintiff had shown that the defendant solicited the plaintiff's idea and later asked for a written proposal. See id.

Similarly, in Riese v. QVC, Inc., No. 97-4068, 1999 WL 178545, 1999 U.S.Dist. LEXIS 3746 (E.D.Pa. Mar. 31, 1999) (mem.op.), the court concluded that a reasonable jury could find that an implied in fact contract was established where the plaintiff, who had provided the defendant with an idea for a television show, notified the defendant that he expected that he would act as the producer of the ...


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