Fred Wehrenberg Circuit of Theatres, Inc. v. Moviefone, Inc. (73 F. Supp. 2d 1044, 1999)

MEMORANDUM AND ORDER

PERRY, District Judge.

This matter is before the Court on cross-motions for summary judgment on count I and defendant’s motion for summary judgment on count II of plaintiffs amended complaint.

Plaintiff Fred Wehrenberg Circuit of Theatres, Inc., a Missouri corporation with its principal place of business in Missouri, owns and operates numerous movie theaters in the St. Louis area, as well as in other geographic areas not at issue in this case. Defendant Moviefone, Inc. is a Delaware corporation with its principal place of business in New York.

In count I of its two-count amended complaint, plaintiff alleges that defendant engaged in common law unfair competition through misappropriation. Plaintiff brings count II pursuant to the Lanham Act, 15 U.S.C. §'1125(a)(1)(B), alleging false or misleading description of fact. For the reasons set forth below, the Court will grant defendant’s motion for summary judgment on both counts of the amended complaint and deny plaintiffs cross-motion.

I. Factual Background

In order to exhibit movies in its theaters, plaintiff must generate and publicize movie show time schedules for each of its theaters which, according to plaintiff, takes much time and effort. Plaintiff maintains an automated phone system and ticketing system called CINE-TIX through which movie patrons may purchase movie tickets by credit card up to five days in advance. In addition, plaintiff also operates a web site which contains plaintiffs movie schedules and information about its movie theaters. Plaintiff contends that it receives revenue from a few companies in exchange for its movie schedule information. For purposes of this motion, the Court will assume this is true.

Defendant provides movie listings for approximately 20,000 movie screens belonging to numerous theater companies in at least thirty-four geographic markets, including the St. Louis market, through its automated phone system and its Internet web site. In nineteen of those markets, defendant also engages in teleticketing, which allows movie patrons to purchase tickets in advance by credit card on the phone or over the web site. Defendant does not, however, provide teleticketing services in the St. Louis market.

Defendant entered the St. Louis market in the summer of 1998. While some theaters in St. Louis provide their movie show time information to defendant directly via computer or fax, defendant collects other theaters’ • schedules, including plaintiffs schedules, independently, and then places the information on its phone and web systems. Plaintiff contends that defendant, through defendant’s fault, frequently provides incorrect and inaccurate movie theater and show time information in regard to plaintiffs schedules on its phone system and web site. For purposes of this motion, the Court will assume that defendant has inaccurately provided plaintiffs movie schedules over its phone and web systems through no fault of plaintiff.

Defendant advertises its services in the St. Louis market by placing advertisements in various publications, such as the Riverfront Times. These advertisements make no reference to individual movie exhibitors or to any movie show times. Defendant also sells advertising space on both its automated phone system and its web site, which movie studios and other companies purchase in order to advertise their movies or other merchandise. In addition, defendant’s phone number and web site address often appear in cooperative advertisements found in newspapers. Cooperative advertisements publicize a particular movie, and are paid for by the movie studio that produces the movie and different movie exhibitors. These ads also contain a list of movie exhibitors showing the particular movie, therefore the names of plaintiffs theaters are, at times, found in cooperative advertisements with defendant’s contact information.

II. Discussion

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate if there is no genuine issue of material fact and if the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining summary judgment, the facts and the inferences from those facts are viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). At the summary judgment stage, courts do not weigh the evidence and decide the truth of the matter, but rather determine if there is a genuine issue for trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. Rule 56(c) mandates the entry of summary judgment against a party, if after adequate time for discovery, that party fails to make a showing sufficient to establish the existence of an essential element of the case that the party will have the burden of proving at trial. Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548.

A. Common Law Unfair Competition

In count I of its amended complaint, plaintiff alleges that defendant engaged in common law unfair competition. Plaintiff further elaborates on its claim of unfair competition in its amended complaint by claiming that it spends a substantial amount of time generating and maintaining its show time information and monitoring its CINE-TIX system, that plaintiffs show time information is time sensitive and changes continuously, and that unauthorized use of plaintiffs information constitutes free-riding on its costly efforts. In addition, plaintiff contends that its CINE-TIX service is in direct competition with defendant’s services and that defendant’s alleged free-riding on plaintiffs efforts will likely damage plaintiff. Plaintiff bases its claim of unfair competition on International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918), in which the United States Supreme Court recognized misappropriation as a form of unfair competition. The specific type of misappropriation identified in International News Service has become known as misappropriation of “hot news.” In order to determine if misappropriation of “hot news” is a valid cause of action in Missouri, and if so, whether plaintiff has established the essential elements of this cause of action, an examination of the International News Service case and the resulting theory of misappropriation is required.

In International News Service, the plaintiff Associated Press (“AP”) and the defendant International News Service (“INS”), were both in the news wire business in which they competed to gather news and then distribute it to each of their respective member newspapers who paid for the services. AP claimed that INS was misappropriating its property, in the form of the news, because INS would copy the news from AP bulletin boards and early editions of east coast newspapers containing AP stories and then sell the AP stories as INS stories, sometimes intact and sometimes after' rewriting them. While the Court mentioned that the news has some aspects that lend themselves to copyright protection and other aspects that do not, the Court, did not focus on whether the news was protectable as property under concepts of copyright. Rather, the Court concerned itself with the business of making the news known to the world, in which the parties directly competed, and with deciding what constituted unfair competition within that business. Importantly, the Court stated that in determining what conduct comprises unfair competition, courts must make particular reference to the type of business at issue. Id. at 235-236, 39 S.Ct. 68.

The Court explained that the gathering of the news entailed great expense in terms of skill, effort, and money, and that the exchange value to the gatherer was dependent on the freshness and novelty of the news it' distributed (thus the term “hot news”). Therefore, because news was the material out of which both parties were seeking profit at the same time in the same field, the Court recognized the news as quasi-property for this purpose. The Court declared that the defendant “in appropriating [the news] and selling it as its own is endeavoring to reap where it has not sown, and by disposing of it to newspapers that are competitors of complainant’s members is appropriating to itself the harvest of those who have sown.” Id. at 239-40, 39 S.Ct. 68. The Court noted that INS’s actions constituted an “unauthorized interference with the normal operation of complainant’s legitimate business precisely at the point where the profit is to be reaped, in order to divert a material portion of the profit from those who have earned it to those who have not ...” Id. at 240, 39 S.Ct. 68. Finally, if INS were allowed to misappropriate the news at its height of value, the-Court maintained that it would make publication profitless or of so little profit that it would “in effect cut off the service by rendering the cost prohibitive in comparison with the return.” Id. at 241, 39 S.Ct. 68. The Court therefore upheld the injunction prohibiting INS’s actions.

The Court decided International News Service under federal common law before the Court’s decision in Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The application of misappropriation as a form of federal common law ceased to exist with the Erie decision. National Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 851 (2d Cir.1997); Schuchart & Assocs., Prof'l Engineers, Inc. v. Solo Serve Corp., 540 F.Supp. 928, 942 n. 9 (W.D.Tex.1982). Many states, however, adopted the theory of misappropriation as a form of state common law unfair competition.

In Missouri, common law unfair competition encompassed several categories of legal claims, including palming or passing off, trademark violations, and misappropriation. In National Tel. Directory Co. v. Dawson Mfg. Co., 214 Mo.App. 683, 263 S.W. 483, 484 (1924), the Missouri Court of Appeals held that unfair competition comprised more than merely the traditional passing off to the public the goods or business of one person for that of another. The court cited International News Service for the proposition that the doctrine of unfair competition had been expanded to “encompass the schemes and inventions of the modern genius bent upon reaping where he has not sown.” Id. In 1974, the Missouri Court of Appeals again recognized, with reference to International News Service, that misappropriation was a component of Missouri’s doctrine of unfair competition. National Broad. Co., Inc. v. Nance, 506 S.W.2d 483, 484 (Mo.Ct.App.1974). The concept of misappropriation in Missouri was broader' in its application than the specific misappropriation of “hot news” found in International News Service. For instance, in Nance, the defendant’s misappropriation did not involve “hot news” at all but involved tape piracy in which the defendant rerecorded musical performances from audio tapes sold in stores and then sold the rerecordings to retail stores. Nance, 506 S.W.2d at 484.

In 1976, Congress revised the copyright law in the United States. With the advent of the new federal copyright law, Congress specifically preempted state copyright law which was “equivalent to any of the exclusive rights within the general scope of copyright ... and come within the subject matter of copyright” as designated by federal law. 17 U.S.C. § 301 (effective January 1, 1978). Misappropriation, as applied in many states, often involved rights and property that came under the new federal copyright law. Thus, it became a question for the courts whether each state’s misappropriation doctrine was preempted. In Hartman v. Hallmark Cards, Inc., 833 F.2d 117 (8th Cir.1987), the Eighth Circuit addressed the preemption of misappropriation in Missouri. The plaintiff sued under both the theory of federal copyright infringement and the Missouri common law of misappropriation. The court declared that the plaintiffs misappropriation claim was “basically a reformulation of [her] copyright claims and is thus preempted by federal law.” Id. at 121. In reaching its conclusion, the court cited the Ninth and Second Circuits for support, of which the Second Circuit specifically held that the misappropriation branch of unfair competition in New York was preempted. Id. (citing Litchfield v. Spielberg, 736 F.2d 1352, 1358 (9th Cir.1984), cert. denied, 470 U.S. 1052, 105 S.Ct. 1753, 84 L.Ed.2d 817 (1985), and Warner Bros. Inc. v. American Broad. Cos., Inc., 720 F.2d 231, 247 (2d Cir.1983)). Thus, as set forth by the Eighth Circuit, the doctrine of misappropriation in Missouri is preempted to the extent it is equivalent to federal copyright law. Id.; see also Banker’s Promotional Marketing Group, Inc. v. Orange, 926 F.2d 704, 705 (8th Cir.1991) (approving Minnesota district court’s application of Hartman in determining that state law claim of misappropriation was preempted by federal copyright law).

Plaintiff in this case does not argue that its movie show times should be protected by federal copyright law. In addition, in its memorandum in support of its motion for summary judgment, plaintiff seems to concede that, for the most part, the misappropriation doctrine in Missouri is preempted. Plaintiff contends, however, that the specific type of misappropriation in International News Service, namely misappropriation of “hot news,” survives preemption by federal copyright law. Plaintiff argues that its movie schedules come within this “hot news” exception and are thus property interests capable of protection against misappropriation.

There appears to be no Missouri or Eighth Circuit case law addressing the issue of whether misappropriation of “hot news” survives preemption by federal copyright law. While Missouri common law misappropriation was obviously broader in its application than just misappropriation of “hot news,” and, as evidenced by the Eighth Circuit decision in Hartman, was apparently the equivalent of federal copyright law, misappropriation of “hot news” would most likely survive preemption in Missouri based on the legislative history of the federal copyright law and other jurisdictions’ interpretations of the “hot news” exception.

Section 301 of federal copyright law preempts state copyright laws which are the equivalent to federal copyright laws. 17 U.S.C. § 301. As stated before, this would include state misappropriation claims which are the equivalent to the federal copyright statutes. In the House Report accompanying section 301, however, misappropriation was not preempted completely. The House Report stated:

“Misappropriation” is not necessarily synonymous with copyright infringement, and thus a cause of action labeled as “misappropriation” is not preempted if it is in fact based neither on a right within the general scope of copyright as specified by section 106 nor on a right equivalent thereto. For example, state law should have the flexibility to afford a remedy (under traditional principles of equity) against a consistent pattern of unauthorized appropriation by a competitor of the facts (i.e., not the literary expression) constituting “hot” news, whether in the traditional mold of International News Service v. Associated Press, 248 U.S. 215, 39 S.Ct. 68, 63 L.Ed. 211 (1918), or in the newer form of data updates from scientific, business, or financial data bases.

H.R.Rep. No. 94-1476, at 132 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5748. Thus, this legislative history demonstrates an intent to exclude misappropriation of “hot news” from the preemption of section 301.

The Second Circuit and the Northern District of Illinois have held that misappropriation of “hot news” does survive federal copyright preemption as a narrow exception. In doing so, these courts recognized the above passage from the House Report as evidence of an intent to exempt misappropriation of “hot news” from preemption. National Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 850 (2d Cir.1997); Financial Info., Inc. v. Moody’s Investors Serv., Inc., 808 F.2d 204, 209 (2d Cir.1986), cert. denied, 484 U.S. 820, 108 S.Ct. 79, 98 L.Ed.2d 42 (1987); Gannett Satellite Info. Network, Inc. v. Rock Valley Community Press, Inc., No. 93 C 20244, 1994 WL 606171, at *5 (N.D.Ill. Oct.24, 1994); GI Corp. v. U.S. Elecs. Components Corp., No. 93 C 43, 1994 WL 494698, at *7-*8 (N.D.Ill. Sept. 6, 1994); Nash v. CBS, Inc., 704 F.Supp. 823, 835 (N.D.Ill. 1989), aff'd, 899 F.2d 1537 (7th Cir.1990); see also Schuchart & Assocs., Prof'l Engineers, Inc. v. Solo Serve Corp., 540 F.Supp. 928, 943 (W.D.Tex.1982) (quoting the House Report excerpt stating “hot news” misappropriation survives preemption, but not expressly holding it survives preemption); Bruce P. Keller et al., Trademarks and Unfair Competition Issues, in Protecting Your Intellectual Property As sets 1999, at 257, 347-50 (PLI Patents, Copyrights, Trademarks, and Literary Property Course Handbook Series No. G9-0084, 1999). Therefore, because the common law of misappropriation in Missouri was based on International News Service and the very narrow exception of misappropriation of “hot news” as promulgated in International News Service survives federal copyright preemption based on the House Report, the Court believes that Missouri would allow a cause of action based on misappropriation of “hot news.”

In National Basketball Assoc. v. Motorola, Inc., the Second Circuit detailed the elements that it decided misappropriation of “hot news” entailed. These elements are (1) the plaintiff generates or collects information at some cost or ex>-pense; (2) the value of the information is highly time sensitive; (3) the defendant’s use of the information constitutes free-riding on the plaintiffs costly efforts to generate or collect it; (4) the defendant is in direct competition with a product or service offered by the plaintiff; and (5) the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened. NBA 105 F.3d at 845, 852.

The Court agrees with defendant that plaintiff here has failed to establish the last element of the “hot news” exception to preemption. Plaintiff is in the business of exhibiting movies. In order for plaintiff to conduct its business, it is necessary for it to generate movie show time schedules and publicize those schedules to the public. If plaintiff fails to do either of these things, it will no longer be able to participate in the business of exhibiting movies. The core of plaintiffs business and the source of the majority of its profits is not the publication of movie schedules, even though plaintiff contends it receives some revenue in exchange for its movie schedules. The core of plaintiffs business is exhibiting movies and the profit it makes from ticket and concession sales. If defendant continues to display plaintiffs movie show times on its web site or offers plaintiffs schedules to its listeners over its phone system, defendant’s actions will not reduce plaintiffs incentive to generate movie schedules or publicize them to the point that the existence or quality would be threatened, even assuming defendant incorrectly recites the information. In the words of International News Service, the cost of producing the schedules and publicizing them must render the production and publication “profitless or so little profitable as in effect to cut off the service by rendering the cost prohibitive in comparison with the return.” International News Service, 248 U.S. at 241, 39 S.Ct. 68. For a claim of misappropriation of “hot news” to succeed, defendant’s actions must make plaintiff virtually cease to participate in the business in question. This is not the circumstance in this case. Despite defendant’s actions, plaintiff will still generate movie schedules and publicize them through a variety of media, including its CINE-TIX system and web site, in order to draw people to come to its movie theaters, buy tickets, and purchase concessions. Plaintiff has not established that it would stop exhibiting movies and doing what is necessary to facilitate exhibiting movies if defendant continues its actions. Therefore, plaintiff has failed to establish element five, and the Court will enter summary judgment for the defendant on count I. It is unnecessary to evaluate the other four elements because plaintiff has failed to establish the last one, and thus, the Court makes no determination whether or not plaintiff actually satisfies elements one through four of the test.

B. False Advertising under the Lan-ham Act

In count II of its amended complaint, plaintiff alleges that defendant violated the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), by mistakenly or inaccurately publishing plaintiffs movie schedules. Plaintiff contends that these errors will be attributed to plaintiff and will thereby reflect poorly on plaintiffs goodwill and reputation. Further, plaintiff claims that defendant’s misrepresentation of theater and movie show time information in commercial advertising or promotion misrepresents the nature, characteristics, or quality of plaintiffs services and commercial activities. Defendant moves for summary judgment on count II of the amended complaint on the ground that its alleged conduct does not constitute commercial advertising or promotion.

The Lanham Act prohibits those “engaged in commerce” against false advertising. United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1179 (8th Cir.1998). The relevant provisions of the Lanham Act state:

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, .or device, or any combination thereof,