Stadt v. Fox News Network LLC

In a case involving copyrighted video footage of Bernie Madoff, court holds that breach of contract claim based on alleged unauthorized use of an “exclusive” credit constituted an “extra element” such that the contract claim was not preempted by the Copyright Act.

Plaintiff Kenneth R. Stadt is the sole owner of a 2003 video containing footage of Bernie Madoff and his wife on a yacht in Saint Tropez (“the Video”).

On January 8, 2009, Stadt and defendant Fox News Network LLC entered into a license agreement whereby Stadt granted Fox an exclusive license to air the Video on the Fox News Channel from January 8, 2009, to February 22, 2009 (the “License Agreement”). Under the License Agreement, Fox promised to stop using the Video after the agreement expired. In consideration for this promise and a payment by Fox of $10,000, Stadt allowed Fox to air the Video with a “Fox Business Exclusive” credit on the screen.

On March 16, 2009, Stadt discovered that Fox continued to show the Video even though the license had expired. After receiving a cease and desist from Stadt, Fox requested that Stadt grant Fox a new license. On April 30, 2009, the parties entered into a license extension agreement (“Extension Agreement”) that authorized Fox to air the Video until April 30, 2009. The Extension Agreement terms were identical to the terms of the License Agreement. Fox paid $50,000 for the extension.

On May 18, 2009, Stadt sent a second cease and desist letter to Fox, claiming that it continued to use the Video after the Extension Agreement expired. In September 2009, Stadt filed a complaint against Fox, alleging copyright infringement and breach of contract. A few months later, Stadt amended his complaint to include claims for conversion, breach of fiduciary duty and an accounting, unfair and deceptive trade practices in violation of section 349 of the New York General Business Law, unjust enrichment and common law unfair competition.

Fox moved to dismiss all of Stadt’s claims except for the copyright infringement claim, arguing that the claims were preempted by the Copyright Act, failed to state a claim as a matter of law, or both.

The Copyright Act preempts a state law claim where (1) the particular work to which the claim is being applied falls within the types of work protected by the Copyright Act (the “subject matter requirement”) and (2) the claim seeks to vindicate legal or equitable rights that are equivalent to one of the bundle of exclusive rights already protected by the copyright law (the “general scope requirement”). To satisfy the general scope requirement, the Second Circuit has held that the state law claim must not include any “extra elements” that make it qualitatively different from a copyright infringement claim. Second Circuit courts take a “restrictive view” of what qualifies as an extra element sufficient to defeat a preemption claim.

The district court first considered whether Stadt’s breach of contract claim was preempted by the Copyright Act. The court found that the subject matter requirement was easily met as the License Agreement concerned a type of work – an original video – protected by the Copyright Act. As for the general scope requirement, Stadt argued that Fox’s continued use of the “Fox Business Exclusive” credit following expiration of the Extension Agreement constituted an “extra element” that rendered his breach of contract claim distinct from his copyright infringement claim. Fox, however, asserted that the agreement could only be breached by the unauthorized use of the Video and not by any use of the credit, and that a claim based on unauthorized use was preempted.

The district court ultimately rejected Fox’s arguments and held that Stadt’s breach of contract claim based on Fox’s unauthorized use of the credit constituted an extra element sufficient to survive preemption under the Copyright Act.

The district court, however, did find that Stadt’s unjust enrichment and unfair competition claims were preempted by the Copyright Act. The court found that Stadt’s unjust enrichment claim sought to recover for a right clearly within the general scope of the Copyright Act – the exclusive right to reproduce the Video. As for Stadt’s unfair competition claim, which alleged that Fox’s use of the credit misrepresented the Video as its own, the court held that this type of misrepresentation – reverse passing off – did not constitute an extra element for preemption purposes as it is essentially a claim for the unauthorized use of copyrightable material.

Finally, the court dismissed Stadt’s remaining state law causes of action – conversion, breach of fiduciary duty and accounting and section 349 of the General Business Law – for failure to state a claim as a matter of law. However, the court granted leave to amend with respect to the conversion claim.