IVAN HOFFMAN, B.A., J.D.
Here is the situation: you are a publisher, a film or television company, a manufacturer or any other recipient of an “idea.” By “idea,” I refer to that which may not rise to the level of being protected or protectible by copyright. This means that it is either not original enough to meet the threshold of such protection or has not been reduced to some concrete “expression.” The idea can be for a book, story, film, new product, changed usage of an existing product, marketing idea or any other “idea.” You receive, either unsolicited or in somewhat unclear circumstances, the “idea” from a third party. What are the rights and liabilities of the parties to this transaction? [also read "Copyright vs. Contract Claims"]
I have previously discussed issues related to unsolicited submissions including the need for a submission agreement from the recipient’s standpoint (read “Handling Unsolicited Material.”). From the submitter’s standpoint, there are of course other approaches to protecting ideas prior to submission but these are not the subject of this article.
Two cases out of California help to frame the issues. Keep in mind that most often these issues are the subject of state law (but, as the second case indicates, there may also be federal copyright or other federal issues are presented) and thus you should always consult with an attorney in your state to determine what the law may be in regards to any situation you may find yourself in, no matter which party to the transaction you may be.
Gunther-Wahl, Inc. vs. Mattel, Inc.
In Gunther-Wahl Prods., Inc. vs. Mattel, Inc., the California Court of Appeal for the Fourth Circuit was called upon to decide whether, in the specific, given set of facts, a submitter (Gunther-Wahl) of an idea was entitled to compensation for its use by Mattel, the recipient of the idea. Since these cases are very fact-specific, let me give a summation of the facts in this case.
In the early 1990’s, the plaintiffs alleged that they met a representative of Mattel at a trade show and discussed, in general terms, that the plaintiffs had several ideas for products including for a product called “Flutter Faeries.” The representative apparently told the plaintiffs to contact her to set up a meeting to discuss these ideas and such a meeting took place. At such meeting, the plaintiffs detailed the nature of the “Flutter Faeries” product line including the kind of clothing they wore, how they would be marketed and other such details. Mattel asked the plaintiffs to leave the materials plaintiffs had prepared so that they could be discussed with other parts of the company. At no time, the plaintiffs testified, did Mattel ever say that the company was already developing such a line of toys. There was no discussion of payment to the plaintiffs by Mattel at this initial meeting. There were subsequent internal meetings within Mattel about the said product line and follow up meetings with the plaintiffs about the same.
The Court summarized the plaintiffs’ position as to the legal import of these facts:
At some time later, Mattel informed plaintiff’s that the company was not going to pursue the Flutter Faeries product line. The discovery developed in the litigation revealed that Mattel retained some of the materials left by the plaintiffs and submitted to the company, although the evidence as to intention of the company in this regard was not clear.It is undisputed that a meeting between Gunther-Wahl and Mattel occurred at the Mattel offices in July 1993 and that three properties, including Flutter Faeries, were discussed. Michael Wahl understood that if Mattel liked the properties, they would enter negotiations to license and participate. More specifically, Michael Wahl testified: “Our creations are our property. You can’t just take them. Generally, my understanding would be that they would have to compensate us if they took them. . . . Morally and the way our industry works. If everybody could freely take the intellectual properties of others, no one would present anything to anybody and nothing would get produc[ed] and no toys would be made. No one would show anybody anything.” As he explained, a lot is spent in development; and there would be no incentive to present ideas to Mattel if he thought Mattel could take those ideas and run with them without compensating him.
The Court stated:
Importantly, the Court further stated:The Wahls subsequently discovered that Mattel trademarked the name “Flutter Fairies” and, in their opinion, utilized several of the concepts from the July 1993 presentation and materials in toys produced by Mattel. Candy Wahl opined that if Mattel had designed various Fairy-themed names on its own, one would expect Mattel would have told Michael Wahl at the July 1993 meeting that Mattel had a fairy product.
The issues on appeal had to do with the nature and correctness of the jury instructions but, boiled down to as much “non-legalese” as possible, the issues related to how a jury could decide if there was an obligation on the part of Mattel to pay for the use of the plaintiffs’ ideas, assuming that in fact Mattel used the ideas.There was conflicting evidence as to the originality of the Flutter Faeries concept and the origin of Mattel’s use of some of the ideas pitched by the appellants in July 1993. Mattel produced evidence that supported its argument that Candy Wahl’s Flutter Faeries concept was not unique or original. Moreover, despite inferences to the contrary, there was substantial evidence that Mattel did not borrow or steal her ideas but came up with the challenged portions, such as a fairy theme, fairy dust, flowers on dresses, the name “Flutter Fairies” and so forth, through its own design efforts and/or the efforts of others paid by Mattel. (See Teich v. General Mills (1959) 170 Cal.App.2d 791, 7803-804 [even where showing of similarity and access raise an inference of copying, defendant can demonstrate its product was independently conceived and developed and avoid liability].) Furthermore, Mattel argued that the release of its challenged products in 1995 did not have anything to do with the rejection of the Flutter Fairies by other toy and entertainment companies in 1993 and 1994.
In ruling on the correctness of the jury instructions, the Court summarized the law in this area. The Court, citing the famous California case of Desny v. Wilder, stated that:
Thus, the initial proposition in this area of the law is that the “consideration” for the agreement to pay is the act of disclosing the idea and that it does not matter whether or not the idea is “novel” or even original. Thus, as I indicate above, the idea does not have to rise to the level of being protectible by copyright. These cases turn on the law of contract, not intellectual property. Thus, the issue is whether or not, in a given factual setting, the parties intended the act of disclosing to be conditioned upon an agreement to pay for the disclosure. In other words, was a contract created by the conduct of the parties?Mattel acknowledges on appeal that an agreement to disclose an abstract idea may be compensable, even though it lacks novelty.
Again citing the Desny case, the within Court stated:
In other words, the requirement, which again is very fact-specific, is that there be some intention, express or implied, on the part of the discloser of the idea and upon the recipient of the idea, to pay for its use, assuming it is used. There does not have to be an express agreement. The requirement can be satisfied by an agreement implied from the facts.The “clearly conditioned” language in the contested instruction is from Desny v. Wilder, supra, 46 Cal.2d 715, 738-739: “assuming legality of consideration, the idea purveyor cannot prevail in an action to recover compensation for an abstract idea unless (a) before or after disclosure he has obtained an express promise to pay, or (b) the circumstances preceding and attending disclosure, together with the conduct of the offeree acting with knowledge of the circumstances, show a promise of the type usually referred to as ‘implied’ or ‘implied-in-fact.’ [Citations.] That is, if the idea purveyor has clearly conditioned his offer to convey the idea upon an obligation to pay for it if it is used by the offeree and the offeree, knowing the condition before he knows the idea, voluntarily accepts its disclosure (necessarily on the specified basis) and finds it valuable and uses it, the law will either apply the objective test (discussed, supra . . . ) and hold that the parties have made an express (sometimes called implied-in-fact) contract, or under those circumstances, as some writers view it, the law itself, to prevent fraud and unjust enrichment, will imply a promise to compensate.” (Italics added; footnote omitted. See also 4 Witkin, Summary of Cal. Law (9th ed. 1987) Personal Property, §§ 48-49, pp. 53-55.)
The Court quoted from the Desny case to distinguish the situation in which a “purveyor of an idea” voluntarily discloses it prior to the recipient even requesting it or agreeing, either expressly or by implication drawn from the facts, to pay for the same.
The Court then quoted from another case in which a plaintiff sued the producers of the old television series “Sea Hunt,” claiming that he had shown the “idea” to the producers and within the television industry, that such a situation was understood to be that if the producers were to use the idea, they would pay the submitter therefore.The idea man who blurts out his idea without having first made his bargain has no one but himself to blame for the loss of his bargaining power. The law will not in any event, from demands stated subsequent to the unconditioned disclosure of an abstract idea, imply a promise to pay for the idea, for its use, or for its previous disclosure. The law will not imply a promise to pay for an idea from the mere facts that the idea has been conveyed, is valuable, and has been used for profit; this is true even though the conveyance has been made with the hope or expectation that some obligation will ensue.
The Court also quoted from yet another California case when it discussed how such “agreement” might be inferred.Appellant Minniear’s contention in the contract case, much like the case at bench, was that while there was no express contract with Ziv to pay for Sea Divers, “there was an implied contract, and it is understood in the industry that when a showing is made, the offeror shall be paid for any ideas or material used therein.” (Id. at p. 500.) After reviewing pertinent California authority, the Minniear court concluded, 266 Cal.App.2d 495, 504: “Here there is substantial evidence in the record for the jury to infer a reasonable expectation by appellant that the defendant Ziv might buy the idea for a TV underwater series in the spring of 1956. It is not necessary that the seller should definitely state that he is selling his merchandise to the prospective buyer. The agreement of sale may be inferred by the circumstances. (Desny v. Wilder, supra.)[emphasis added]
The Court distinguished other cases, cited by Mattel, in which, the Court said, the intention of the submitter was not to seek payment for the idea if used but the intention was as to other reasons. Thus, the question turns in nearly total part on the intention of the parties, both the submitter and the recipient, within the given factual context. The Court found that given that Mattel had invited the plaintiff submitter to a meeting to discuss the ideas, that the implication was that such invitation, along with the submission, along with the use of the idea subsequently, clearly manifested an agreement to pay the submitter for the idea. Thus the Court reversed the trial court’s judgment since the jury instructions that were given gave the distinct impression that an “express agreement” had to be found before there could be any liability. Such an “express agreement” is not required under California law.The assent of the producer is manifested by his acceptance of the idea or material submitted under the circumstances, a part of which is that it is reasonably understood that a professional author expects payment of the reasonable value of the idea or the material, if used, so that the conduct of the producer in accepting it implies a promise to fulfill those reasonable expectations.” (Chandler v. Roach, supra, 156 Cal.App.2d 435, 441.) Moreover, “We believe that if a producer obligates himself to pay for the disclosure of an idea, whether it is for protectible or unprotectible material, in return for a disclosure thereof he should be compelled to hold to his promise. There is nothing unreasonable in the assumption that a producer would obligate himself to pay for the disclosure of an idea which he would otherwise be legally free to use, but which in fact, he would be unable to use but for the disclosure. (Id. at pp. 441-442.)
Grosso vs. Miramax Film Corp. et. al.
In Grosso vs. Miramax Film Corp. et. al., the Ninth Circuit Court of Appeals (a federal court) was called upon to rule on 2 claims of the plaintiff. The first claim was based on an alleged copyright infringement of the plaintiff’s screen play. The second claim, sounding in contract, was based on the same principles above under Desny vs. Wilder. The trial court ruled that there was no copyright infringement because there was not enough similarity between the plaintiff’s submitted screen play and the defendant’s movie, Rounders. The trial court also ruled that the copyright claim preempted the state implied contract claim and dismissed the said state claim. The Ninth Circuit affirmed the dismissal of the copyright claim but ruled that the state claim sounding in contract was not preempted by the federal copyright law.
The Court stated:
To establish a Desny claim for breach of implied-in-fact contract, the plaintiff must show that the plaintiff prepared the work, disclosed the work to the offeree for sale, and did so under circumstances from which it could be concluded that the offeree voluntarily accepted the disclosure knowing the conditions on which it was tendered and the reasonable value of the work. See Faris v. Enberg, 158 Cal. Rptr. 704, 709 (Ct. App. 1979). Grosso’s complaint mirrors the requirements of Desny and states that “the idea was submitted by Plaintiff to Defendants with the understanding and expectation, fully and clearly understood by Defendants that Plaintiffs would be reasonably compensated for its use by Defendants.” We conclude that the complaint stated a Desny claim.
With respect to preemption, the Copyright Act, 17 U.S.C. § 301, establishes a two-part test. Claims under state law are preempted where: (1) the work at issue comes within the subject matter of copyright, and (2) the state law rights are “equivalent to any of the exclusive rights within the general scope of copyright.” Del Madera Props. v. Rhodes & Gardner, Inc., 820 F.2d 973, 976 (9th Cir. 1987) (internal quotation marks omitted) overruled on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994); see also 17 U.S.C. § 301.
The dispositive preemption issue in this case is whether the rights protected by a Desny claim are equivalent to the rights protected by copyright. To survive preemption, the state cause of action must protect rights that are qualitatively different from the rights protected by copyright: the complaint must allege an “extra element” that changes the nature of the action. Del Madera, 820 F.2d at 977. Our prior decision in Landsberg v. Scrabble Crossword Game Players, Inc., 802 F.2d 1193, 1196-97 (9th Cir. 1986), supports treating the implied promise to pay required by Desny as an “extra element” for preemption purposes. In Landsberg, the defendants used the plaintiff’s idea for a Scrabble strategy book without paying the expected compensation, and we applied California law to affirm a judgment of liability on a Desny claim. We explained that:The contract claim turns not upon the existence of a [copyright] . . . but upon the implied promise to pay the reasonable value of the material disclosed.Id. at 1196.
In Del Madera we held that a claim for unjust enrichment was equivalent to a claim for copyright infringement, and thus preempted, because the claim lacked an extra element—the bilateral expectation of compensation. Here, Grosso has alleged that the extra element is present. Therefore, his claim for breach of an implied-in-fact contract is not preempted by the Copyright Act, because it alleges an extra element that transforms the action from one arising under the ambit of the federal statute to one sounding in contract. See Del Madera, 820 F.2d at 977. Grosso’s complaint alleged circumstances that, if true, would sustain an action under Desny that is not preempted.
As with many areas of the law, preventive practice can often foreclose expensive litigation. All potential recipients of ideas, whether they be publishers, film or television or other media companies, manufacturers or any other potential recipients, should review with their attorneys their internal policies with regard to materials submitted to them. In all instances, however, such policies should include the use of a legally appropriate submission agreement to deal with the vagaries of the facts and in the process, perhaps save a significant amount of money.
Help me is almost always cheaper than fix me.
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