122 F.3d 1211 (9th Cir. 1997), 95-17123, Entertainment Research Group, Inc. v. Genesis Creative Group, Inc.

Docket Nº:95-17123, 96-16689.
Citation:122 F.3d 1211
Party Name:97 Daily Journal D.A.R. 10,693 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.
Case Date:August 18, 1997
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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122 F.3d 1211 (9th Cir. 1997)

97 Daily Journal D.A.R. 10,693

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, Ninth Circuit

August 18, 1997

Argued and Submitted April 17, 1997.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Roberta L. Cairney, James Gibbons-Shapiro, Fenwick & West, San Francisco, California, and Earl L. Bohachek, Rubenstein and Bohachek, San Francisco, California, for plaintiff-appellant.

Kirkland W. Garey, Howard & Howard, Bloomfield Hills, Michigan (Henry Chun and Douglas P. Drayton, Robins, Kaplan, Miller & Ciresi, San Francisco, California, on the briefs), for defendant-appellee Genesis Creative Group, Inc.

Stephen W. Sommerhalter, Buchalter, Nemer, Fields & Younger, San Francisco, California, for defendant-appellee Aerostar International, Inc.

Ronald L. Yin, Limbach & Limbach, San Francisco, California, for amicus curiae.

Appeals from the United States District Court for the Northern District of California; F. Steele Langford, Magistrate Judge, Presiding. D.C. No. CV-92-2526-FSL.

Before: D.W. NELSON and FERNANDEZ, Circuit Judges, and REA, [*] District Judge.

REA, District Judge:

Entertainment Research Group, Inc. ("ERG") appeals from two separate orders by the district court granting 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. 1 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.

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. 2

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

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products and cold air walk-around costumes.

In 1989, ERG and Genesis began a business relationship--a relationship that has evolved into 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 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 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 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

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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). 3 See Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 853 F.Supp. 319 (N.D.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.

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 issue of material fact as to any of its remaining causes of action. 4

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....

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