Wrench, LLC v. Taco Bell Corp.

Wrench, LLC (Wrench) (plaintiff) developed a fictional character known as “Psycho Chihuahua.” The character was a smart, feisty Chihuahua dog with a big attitude. Ed Alfaro, Creative Services Manager of Taco Bell Corp. (Taco Bell) (defendant) saw Wrench’s Psycho Chihuahua at a licensing trade show in June 1996 and asked for materials about the character to take back to Taco Bell. Alfaro began promoting Psycho Chihuahua around Taco Bell as a potential corporate icon for use in commercials and other advertising. In September 1996, Wrench hired Strategy Licensing (Strategy) to conduct licensing negotiations with Taco Bell on Wrench’s behalf. In November 1996, Alfaro asked Strategy to develop a proposal for the terms of Taco Bell’s use of Psycho Chihuahua. Strategy sent the proposal to Alfaro on November 18, 1996. Taco Bell neither accepted nor explicitly rejected the proposal, and Alfaro continued negotiations through spring 1997 with Wrench and Strategy about possible marketing campaigns based on Psycho Chihuahua. On March 18, 1997, Taco Bell hired a new advertising agency, TBWA Chiat/Day (Chiat/Day) to work with its marketing department and develop a new advertising campaign for Taco Bell products. On June 2, 1997, Chiat/Day presented Taco Bell with three separate advertising strategies. One strategy involved using a Chihuahua with an intense desire for Taco Bell. Chiat/Day said they came up with this idea independently of Wrench’s Psycho Chihuahua idea. Later in June, Alfaro again met with Strategy and Wrench and expressed a continued desire to work with them on using Psycho Chihuahua for Taco Bell. Strategy provided Alfaro with additional Psycho Chihuahua products, and Alfaro passed these along to Chiat/Day in July 1997. On December 28, 1997, Taco Bell launched a very successful national advertising campaign featuring commercials with a feisty Chihuahua. Wrench brought suit against Taco Bell in district court alleging claims for breach of implied contract, misappropriation, conversion, and unfair competition, among others. The district court granted Taco Bell’s motion to dismiss in part and denied it in part. Taco Bell appealed on several grounds, including that Wrench did not prove the existence of an implied in fact contract, and that even if it did, Wrench’s claims were preempted under the Copyright Act.