Wrench LLC v. Taco Bell Corp.
Facts
Wrench (P) created a cartoon character known as ‘Psycho Chihuahua’ and marketed the character on T-shirts and other merchandise. By 1996, Wrench had licensed the rights to produce the apparel to several large manufacturers.
Wrench attended a licensing trade show which Taco Bell Corp. also visited. Taco Bell was immediately taken with Psycho Chihuahua and began to promote the character within the company as a potential Taco Bell corporate icon for advertising. The company invited Wrench to provide art boards combining Psycho Chihuahua with the Taco Bell name and image. Wrench sent several art boards along with Psycho Chihuahua T-shirts, hats, and stickers. The materials were widely distributed within the company and upper level management was made aware of the concept.
Wrench hired a licensing agent to work with Taco Bell and the agent made immediate contact with the company. Wrench proposed licensing terms for the use of the character which Taco Bell neither accepted nor rejected.
Another firm also promoted the character to Taco Bell as one of several possible ideas for a Cinco de Mayo or summer promotion. One proposal involved a male Chihuahua passing up a female Chihuahua to get to a person seated on a bench eating Taco Bell food. Three commercials were produced one of which included the ‘Chihuahua’ commercial.
Wrench brought this lawsuit and Taco Bell moved for summary judgment. The court first 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. In its present motion, Taco Bell contends that it is entitled to summary judgment because: the 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; the concept of using a live Chihuahua in Taco Bell commercials was independently created; and (3) the plaintiff’s ideas were not novel.
Issue
- May an implied in fact contract 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?
Holding and Rule of Law
- Yes. 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.
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.’ Such contracts mutual assent and consideration’ and is treated in all other respects like an express contract. A court must look to the acts and conduct of the parties to determine whether the essential elements of an express contract have been established. These contracts often arise where one accepts a benefit from another for which compensation is customarily expected.
Where 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. Taco Bell contends that Wrench cannot prove 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 contend that the mere understanding that the defendant would pay for the use of the Psycho Chihuahua materials is sufficient to support an implied in fact contract.
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. Wrench has presented sufficient evidence to create a genuine issue of material fact regarding whether an implied in fact contract existed between the parties.
Disposition
Reversed and remanded.