Hey, That Was My Idea! Understanding Damages in Idea Submission

Transcription

1 Hey, That Was My Idea! Understanding Damages in Idea Submission David E. Fink and Damaris M. Diaz Starting in 2005, Anthony Spinner, a 70s-era television writer, alleged that the widely acclaimed television series Lost was based upon his decades-old idea, and he sued American Broadcasting Companies, Inc. (ABC) in search of an exorbitant payment. On November 16, 2011, Los Angeles Superior Court Judge Kevin C. Brazile granted summary judgment in favor of ABC, ending more than five years of litigation. The motion had been made based on the three pillars of idea submission defense lack of access, lack of substantial similarity, and independent creation. Without reaching the issue of substantial similarity, the court found that lack of access and independent creation barred the plaintiff s claim as a matter of law. 1 This claim lacked merit, but what if it had been meritorious? The question of how damages would be measured impacted both parties and was the subject of much dispute even before the parties reached the courtroom. It is long established that ideas, free as the air as they may be, are sometimes protectable by implied contracts. In its most general terms, an implied contract may be created when the creator of an idea submits the idea to another party for the purpose of selling it, and the parties come to a mutual understanding that the recipient will pay for any use of the idea. After decades of idea submission claims, however, there is still wild inconsistency with respect to the measure of damages, and the absence of a clear standard plagues plaintiffs and defendants alike. For the plaintiff, expensive litigation may result in an extremely modest award, making litigation economically David E. Fink is a partner and Damaris M. Diaz is an associate in the Los Angeles office of Kelley Drye & Warren LLP. prohibitive. Conversely, the lure of a potential windfall has been too great a temptation for many plaintiffs, increasing the number of frivolous claims. For the defendant, there is the risk that even a small kernel of an idea, no matter how mundane on its own, will be viewed as the inspiration behind a massive enterprise, and the proverbial idea man will be awarded a slice of success disproportionate to the value of his contribution. The Wild, Wild West of Damages Modern idea submission cases trace their roots back to Desny v. Wilder, the seminal California Supreme Court case establishing an implied contract cause of action for a pitched idea. 2 Since Desny, subsequent cases have borrowed from both contract and copyright principles to provide guidance on the elements of idea submission claims. 3 Liability can now be reasonably evaluated by litigants. Much uncertainty still remains, however, in determining the measure of damages, if liability is ultimately established. Desny provided some guidance, but it still left litigants with an amorphous standard. The Desny court contemplated damages based upon existing contractual damages theory: successful idea submission plaintiffs are entitled to the reasonable value of their submitted ideas. 4 In determining that the conveyance of ideas could constitute valid consideration for a contract, the Desny court described the elements creating value in an idea or work: The time of the author; his resourcefulness in, opportunity for and extent of, research; his penetration in perception and interpretation of source materials; the acumen of his axiological appraisals of the dramatic; and his skill and style of composition, including the art of so portraying accurate narration of events long past as to arouse vivid emotions of the present, are all elements which may contribute to the value of his product. Some of those elements in varying quanta and proportions must exist in any literary composition; thereby the composition reflects the personality of the author. And any literary composition, conceivably, may possess value in someone s estimation and be the subject of contract, or, conversely, it may be considered totally devoid of artistic, historic, scientific or any practical value. Obviously the defendants here used someone s script in preparing and producing their photoplay. That script must have had value to them. 5 Because the Desny opinion was the result of the plaintiff s appeal of a grant of summary judgment, 6 the court did not reach a calculation of the measure of damages, and the opinion provides no explicit formula for the calculation of reasonable value. Courts have awarded damages in idea submission cases in a variety of different forms: lump-sum value determinations; 7 royalties based on number of uses; 8 percentages of defendants profits; 9 all compensation expected by the submitter; 10 and even all profits derived from the idea. 11 Reasonable value, like most things reasonable, has no precise definition in the law, and what has evolved post-desny has been, at first glance, an inconsistent case-by-case application of various principles of contract law and arbitrary measures of reasonable value. In contrast to claims brought under the Copyright Act, discussed below,

2 there are no statutory guidelines for determining reasonable value of an idea. In the idea submission context, reasonable value varies according to a multitude of factors including, for example, the creator of the idea, the creator s experience and level of sophistication, what that person could reasonably expect as compensation for the idea, the level of the development of the idea at the time of submission, the extent of the defendant s use of the idea, and the resources expended by others to improve upon the idea. 12 For example, when dealing with an accomplished producer of multiple successful syndicated television programs, current information generally is available upon which to base a computation of reasonable value, such as the producer s usual compensation for projects of the type being proposed, the usual level of involvement in projects born from the proposed ideas, and the screen and media credits usually obtained in previous projects. In contrast, where an unknown or longforgotten writer with no reputation or no recent history in the industry submits a five-page treatment containing a bare concept that bears resemblance to a show that becomes a seven-season mega television hit, there is no indicia of similar compensation to assist in determining compensation. Understandably, it would be difficult to attempt to fashion a single measure of damages that would fairly compensate both of these idea submitters. Why Can t Idea Submission Damages Be Like Copyright Damages? Damages seem comparatively civilized in the world of copyright, where the measure of damages is governed primarily by statute. The Copyright Act provides that a copyright infringer is liable for either (1) the owner s actual damages, plus additional profits of the infringer or (2) statutory damages. 13 Actual damages represent the extent to which infringement has injured or destroyed the market value of the copyrighted work at the time of infringement. If the infringement has entirely destroyed the value of the work, the damages then equal the full value. The copyright proprietor is competent to testify as to such value. 14 The measure of damages, however, is an objective, rather than subjective test of value. 15 Actual damages are those moneys that copyright owners can prove they lost as a result of the infringement, established by demonstrating the amount of revenue that would have accrued to the owner but for the infringement, plus the infringer s net profits (i.e., the gross profits derived from the use of the copyrighted material minus costs and expenses proven by the producer). 16 The copyright infringer s profits are available only to the extent they have not already been accounted for in determining the plaintiff s actual damages from lost revenue due to the infringement. 17 And when they are awarded, the plaintiff is entitled to only those profits the infringer attained in excess of actual damages, in order to avoid double recovery. 18 The plaintiff has the burden of establishing with reasonable probability the existence of a causal connection between defendant s infringement and the loss of anticipated revenue. 19 Once the plaintiff has established this causal connection, it becomes the defendant s burden to show that the plaintiff would not have realized the claimed profits even without the infringement. 20 In the alternative to proving actual damages, a plaintiff may choose to seek statutory damages under the Copyright Act. 21 In its most general application, the statute provides for damages in an extremely wide range from $750 to $30,000, but nonetheless provides a foundation for determining an appropriate damages amount that can be considered when evaluating exposure to a copyright claim. 22 The factors considered in awarding damages in this range are the number and breadth of infringements of the copyright, the expenses saved and profits reaped by defendants due to the infringements, the revenues lost by plaintiffs, each party s compliance with its contractual obligations to the other, and the degree of willfulness or innocence possessed by the infringer. 23 Statutory damages are an attractive option where actual damages are difficult to establish. Such damages are appropriate even when the infringement causes no injury to the owner or produces no profits to the infringer. 24 The principles underlying recovery in copyright cases are grounded in the concept of ownership of a limited monopoly: the owner of a tangible expression of an idea has the right to exclude others from the unauthorized exploitation of that particular expression of the idea. 25 Thus, copyright damages aim to compensate plaintiffs for the harm actually caused by the defendant s unauthorized use of the copyright by analogizing to rudimentary principles of tort law. 26 In The measure of damages is an objective, rather than subjective test of value. contrast, the principles guiding idea submission claims arise from contract: idea creators have a right to the reasonable value of disclosure of their ideas not because the idea has a certain inherent value as a thing to be owned, but instead because recipients accept disclosure on the condition that they would pay for its use. 27 Like the other terms of the implied contract, the payment terms are fashioned from the circumstances of the disclosure. These circumstances naturally vary in each case. In California, the measure of damages [for a breach of contract]... is the amount which will compensate the party aggrieved for all the detriment caused thereby. 28 However, no person can recover a greater amount in damages for the breach of an obligation than he could have gained by the full performance thereof on both sides. 29 Even contract principles disfavor placing purveyors of an idea in a better position than they would have been absent the breach. Just Pay Me: The Lump-Sum Value Cases Leading up to Desny, courts measured damages in terms of the value of the idea to the owner, often based on the plaintiff s own testimony. In Stanley v. CBS, Inc., 30 for example, the

3 California Supreme Court affirmed a $35,000 judgment given by a jury in favor of the plaintiff based on this measure. 31 During the years 1942 to 1944, plaintiff Jack Stanley allegedly submitted to defendant CBS his original script for a radio program called Walter Wanger Presents and a radio format entitled Preview Parade or Hollywood Preview giving insight on upcoming movies, for the purpose of determining whether CBS wanted to buy or license the programs. 32 Stanley alleged that the parties entered into an implied agreement under which CBS would pay him reasonable value of the ideas if CBS used his concepts. 33 In May 1945, CBS produced and aired a program called Hollywood Preview, which allegedly copied and embodied Stanley s program. 34 Stanley sued for breach of implied agreement to pay for the radio program idea that he claimed to have created and conveyed to CBS. 35 To prove the value of the idea, Stanley and his expert witness testified to the estimated value of the concept and industry custom of paying authors a percentage of production costs based on the number of times the show aired. 36 Stanley spent several years developing his concept and had hired actors and technicians to Donahue v. Ziv, a post Desny case, provides another basis for calculating damages. produce a recording of the concept. 37 Once CBS used his idea, the idea no longer had any value to Stanley, who could no longer sell it to another producer. 38 The court noted that the fact that the idea no longer had any market value would not preclude recovery; its value or the plaintiff s damages must be ascertained in some other rational way and from such elements as are attainable. 39 The court stated that in such cases the proper measure of damages is generally its actual value or its value to the owner, which may be shown by its costs, the cost of reproducing or replacing it, or its utility and use. 40 The jury awarded $35,000 in damages, which the California Supreme Court affirmed. 41 In today s dollars, that award would be more than $330, Similarly, in Golding v. R.K.O. Pictures, Inc., 43 two well-established writers submitted a play to defendant for consideration as a motion picture project. 44 When defendant created a motion picture based upon plaintiffs manuscript, plaintiffs sued and testified that the value of the play prior to infringement was between $25,000 and $50, The jury awarded plaintiffs $25, The California Supreme Court affirmed. 47 Cases such as Stanley and Golding stand for the notion that the reasonable value of an idea would be the value to the owner, measured at the time of the disclosure, as opposed to the market value of the idea to other potential buyers after defendant s use, or as opposed to the value of the idea after its extensive development by the defendant. This measure of damages may avoid unfairness to plaintiffs whose ideas have no provable marketable value after disclosure, and to defendants who, through their own efforts, greatly increase the value of an idea over time. Although the principles behind these awards make sense, they still provide no clear guidance or formula for calculating these values, leaving the question almost entirely in the hands of plaintiffs whose personal valuation of the idea is generally biased and subject to overstatement. It Flows Downhill: Damages Based upon Royalty per Use Donahue v. Ziv, 48 a post-desny case, provides another basis for calculating damages. In Donahue, the plaintiffs were awarded reasonable value damages in the form of a royalty for each broadcast of the defendant s television program based upon plaintiffs submitted idea. 49 In 1955, Donahue submitted written material containing his ideas for a television series about underwater diving to defendant Ziv Television Programs. The submission consisted of twelve story outlines, one screenplay and a proposed budget. 50 During a meeting between plaintiffs and Ziv s vice president wherein Ziv expressed interest in the concept, the parties discussed but did not decide the plaintiffs compensation for the submission. 51 Plaintiffs alleged it was expressly and impliedly agreed that if Ziv used the format, it would pay for it. 52 In 1956 and 1957, Ziv produced a program, now famously titled Sea Hunt, which allegedly used plaintiffs format and outlines. 53 Ziv successfully moved to exclude all evidence of gross revenues from its program, but the court rejected Ziv s request for a jury instruction barring consideration of the value of the finished product in the determination of reasonable value of the plaintiffs idea. 54 Ziv sought to prevent the plaintiffs from recovering for the enhanced value which their material acquired as a consequence of independent efforts and expenditures... by the defendants. 55 The appellate court agreed with the superior court s denial of the defendants request, not because the jury should be allowed to consider the success of the idea in determining its value, but rather because telling juries what they may not do is dangerous business. 56 Following a trial, the jury awarded plaintiffs $250, Defendants moved for judgment notwithstanding the verdict, which was granted. 58 On appeal, judgment in Ziv s favor was reversed, and the case was remanded for a new trial. 59 At the conclusion of the second trial, the jury awarded plaintiffs $200, Analyzing plaintiffs second damages award, the California Court of Appeal noted that plaintiffs were competent to testify as to the value of their services in disclosing the idea. 61 Citing Golding v. R.K.O., the court stated: California courts have consistently held that an owner of literary property may properly testify as to its value even if he is not an expert in such matters. 62 Donahue testified that the value of his idea was in excess of a million dollars, and his opinion was not contradicted because defendant did not call any experts concerning value. 63 Donahue had been in the entertainment industry for twenty years and had made many films, although he had never produced or financed a television show. 64 Additionally, Donahue had experience in appraising the worth of properties in the television field. 65 Ziv s vice president testified that the company s usual

4 methods of compensation at the time in question were (1) a royalty deal for a certain fee per episode or (2) a percentage of profits, ranging from 2.5 percent to 10 percent of the show s profits. 66 Based on Donahue s testimony regarding the value of his idea, and defendant s testimony of the standard computation of compensation for such submissions, the jury awarded $2 each for some 100,000 telecasts, presumably using defendant s witness s royalty approach, for a total of $200,000 as the value of the use [to] the defendant, 67 which the appellate court affirmed. 68 In Donahue, the court permitted the plaintiff to testify as to the value of the idea at the time the series was syndicated as opposed to its value at the time of disclosure, reasoning that the compensation was for the unauthorized use of the idea, which did not occur until syndication, prior uses having been expressly authorized by the plaintiffs. 69 The plaintiffs successfully argued that the idea increased in value between its disclosure and its use, and that they should therefore be entitled to that increase in value. 70 Where s My Cut? Percentage of Defendant s Profits The court in Buchwald v. Paramount Pictures 71 applied yet another approach for determining value using a fair and equitable percentage of defendant s profits in the context of express contracts for idea submission. Buchwald involved the idea behind the film Coming to America, starring Eddie Murphy. 72 In early 1982, plaintiff Art Buchwald, a writer and humorist, prepared a screen treatment for a movie, with character suggestions from his friend Alain Bernheim, who registered Buchwald s treatment with the Writers Guild of America. 73 In late 1982, Bernheim pitched Buchwald s treatment to Paramount Pictures, with Eddie Murphy specifically in mind to star in the movie. 74 Paramount s executives liked the idea and began moving forward on a project based on the treatment. 75 In early 1983, Paramount entered into an agreement with Buchwald to purchase the rights to the idea under an option contract, and Paramount and Bernheim entered into an agreement whereby Bernheim would serve as producer for the film based on the treatment. 76 After many months of attempting to turn Buchwald s concept into a movie, Paramount allegedly abandoned the project in March Bernheim shopped Buchwald s concept to other movie studios and eventually entered into an option contract with Warner Brothers in May Warner Brothers canceled the project in January 1988, however, after learning that Paramount was already shooting Coming to America, starring Eddie Murphy and presumably based on Buchwald s concept. 79 The movie, which was released in 1988, was tremendously successful. 80 Buchwald and Bernheim received no compensation or credit and sued Paramount for breach of contract. 81 Plaintiffs express contracts with Paramount entitled them to certain contingent consideration if Paramount made a film based upon Buchwald s concept. 82 Finding that Coming to America was in fact based upon Buchwald s treatment, 83 the Superior Court awarded damages in the amount of $750,000 to Bernheim and $150,000 to Buchwald. 84 The court examined the following factors in determining the value of Bernheim s services justifying his contingent consideration : he controlled Buchwald s project; he had a significant role in the early development of the concept; the concept was indisputably unique; he suggested Eddie Murphy for the starring role, and Murphy s persona was a large part of the success of the film; and Paramount earned tens of millions of dollars in gross profits ( it is entirely permissible for the court to consider the success of Coming to America in determining compensation to be awarded Bernheim. ). 85 The court s task was to produce a fair and equitable result neither a windfall to Bernheim nor unjust enrichment for Paramount. 86 Between the upfront compensation and a contingent amount based on the value of Bernheim s services, the court concluded that $750,000 was fair and just, as it was between less than 1 percent to 5 percent of Paramount s gross profits, and also accounted for the creative efforts by persons other than Bernheim and Buchwald. 87 Assuming that Bernheim would have served as the producer of the film, the amount was also within the range of total compensation paid to producers on comparable films. 88 Notably, in the case of Buchwald himself, the originator of the idea, the award was much less. The court considered factors such as the uniqueness of the concept and the effect of that concept on the success of the film; Buchwald s stature as a nationally known humorist and the media attention that would result from a film based upon a concept he created; and the fact that Paramount earned tens of millions of dollars of gross profits. 89 The court concluded that $150,000 was appropriate contingent compensation. 90 The court s task was to produce a fair and equitable result, neither a windfall... nor unjust enrichment. In contrast, in Mann v. Columbia Pictures, 91 another case involving the submission of an idea for a motion picture, the California Court of Appeal stated that [e]vidence relative to the motion picture s earnings and number of showings was irrelevant to a determination of the reasonable value of plaintiff s idea. 92 Plaintiff was an unknown writer and sued to recover only the value of her idea, as opposed to recovery for any expectation of additional services beyond the idea submission. 93 Plaintiff was a beauty salon employee who wrote an outline and various character descriptions for a movie based on a salon scenario. 94 Plaintiff submitted this and another work to Columbia Pictures to be considered for motion picture projects, expecting to be paid if either work was used in a motion picture. 95 Four years later, Columbia Pictures released a film titled Shampoo, which plaintiff claimed was based on her beauty salon movie concept. 96 Plaintiff sued for the recovery of the reasonable value of her ideas. 97 After trial, the jury determined that this reasonable value amounted to $185, However, the trial court

5 awarded defendants judgment notwithstanding the verdict, which the court of appeal ultimately affirmed, finding the defendants did not have access to plaintiff s submission and the concept upon which their film was based was independently created. 99 Even Shakespeare Is Not Immune In Blaustein v. Burton, 100 plaintiff Julian Blaustein sued Richard Burton and Elizabeth Taylor for breach of contract for their use of Blaustein s idea for the creation of a film based on Shakespeare s play The Taming of the Shrew. 101 In 1964, Blaustein conceived of the idea to produce a film version of the play starring the married actors, to be directed by the stage director Franco Zeffirelli, and incorporating several specific concepts and scenes that differed from stage productions of the play. 102 Blaustein had various meetings with defendants and their agents throughout 1964 and discussed the various aspects of his concept. 103 Blaustein alleged that the parties came to an agreement that if defendants created The Taming of the Shrew, he would be the producer of the film. 104 Ultimately, defendants created the film without Blaustein s involvement, and Blaustein sued for breach of contract. 105 The trial court s Landsberg s unconventional approach may simply be a misapplication of the law. decision granting defendants motion for summary judgment was reversed on appeal, on the basis that issues of fact remained as to whether the parties had entered into a contract for the use of Blaustein s idea. 106 The court of appeal stated that if the trier of fact were to find that such a contract had been created, then Blaustein s compensation at the time of the contract would have taken one of two forms: (1) Blaustein would be engaged as producer of the work or (2) defendants would pay Blaustein the full monetary equivalent of being a producer. 107 Defendants obligation to pay is triggered not by the use of [Blaustein s] services as a producer, but rather by their use of appellant s idea. 108 Since defendants created the film without Blaustein s involvement as producer, the only option remaining was to pay him the value of a producer s work. 109 That value, according to Blaustein s affidavit, would be comprised of his expected salary based on his then going rate, plus the value of the screen and advertising credits he would have received as producer. 110 At that point in time, Blaustein had been in the motion picture business for thirty-five years, working his way up the ladder from reader, story editor, head of a story department, editorial supervisor, and, finally, to a producer of seventeen films. 111 Given his considerable experience and status, there was enough evidence upon which to base a calculation of reasonable value for his services as producer: Blaustein s going rate could have been determined by analyzing his past producer projects, and although the monetary equivalent of screen and advertising credits was not a readily quantifiable figure, there would have been enough facts upon which to base an estimation of that value. The Outlier: Disgorgement of Profits An apparent outlier in the world of idea submission damages is Landsberg v. Scrabble, 112 where the Ninth Circuit affirmed an award of all profits for a defendant s unauthorized use of a plaintiff s idea. Landsberg wrote a book on strategy for the Scrabble board game, and wrote to defendant, the owner of the Scrabble trademark, to request permission to use the mark. 113 In response, defendant requested a copy of Landsberg s manuscript, and the parties engaged in discussions regarding the possibility of defendant publishing the work. 114 These negotiations were unsuccessful, and defendant published its own book on strategy, allegedly based on Landsberg s manuscript, and Landsberg sued for breach of implied contract and common law copyright infringement. 115 The infringement in Landsberg predated the Copyright Act of 1976; therefore, there was no issue of preemption in that case. 116 The court found for the plaintiff on his contract claim, finding that there can be no copyright preemption where the state law cause of action alleges breach of a contract to pay for use of a disclosed idea, as opposed to plagiarism of a copyrighted work. 117 Under Desny, plaintiff Landsberg s submission had created an implied contract relating to the submission of his manuscript. 118 In a surprising decision, the court awarded to Landsberg damages amounting to defendant s full profits from the book, plus those profits of the nonparty publisher. 119 In justifying its departure from the reasonable value measure of damages, the court explained: If the implied contract between Landsberg and [defendant] provided merely for the payment of the reasonable value by [defendant] for the use of Landsberg s manuscript, then the grant of total profits of [defendants] would exceed the amount Landsberg had received in the absence of breach. He would be entitled only to the market value of [defendant s] use of the manuscript. 120 The court went on to create a new rule: that where the implied contract was not for the mere use of the idea, but also for defendant s refraining from using the idea without Landsberg s permission, Landsberg was entitled to more than the fair value of defendant s use. He was entitled to deny defendant permission to use the idea at all and to exploit his work by other means. 121 Landsberg submitted his manuscript to defendant, not as part of an offer to sell his idea, but rather as part of his request to obtain defendant s permission to use the Scrabble trademark. 122 It was not a matter of defendant merely accepting Landsberg s idea offer and paying for its use. Instead, the court found that Landsberg s submission of his manuscript to the defendant was with the implied condition that the defendant would not use the manuscript without his consent, and that Landsberg therefore retained the right to restrict the defendant s use of his idea. 123 Thus, the defendant s unauthorized use of the plaintiff s idea breached not

6 merely an agreement to pay for use, but also an agreement not to use the idea without permission, and defendant s entire profits were the measure of Landsberg s damages. 124 The Ninth Circuit focused on the plaintiff s loss of control over his work. Where the defendant s breach results in plaintiff losing the opportunity to market his work as he saw fit, the profits from [defendant s] exploitation of it are both the best measure of his losses due to the breach, and are consistent with [California Civil Code] 3358 s limitation. 125 Although limited to this scenario, Landsberg articulated a standard that could invite abuse: plaintiffs who otherwise bring claims for breach of an implied contract to pay for use of an idea might simply claim that their implied contract was for a promise not to use the disclosed idea without plaintiff s permission, giving them access to Landsberg s all-profits measure of damages. However, to do so plaintiffs would have to prove that they could and would have produced their ideas on their own and thus would have been the sole profit earners from the idea. Indeed, the court in Landsberg assumed that the plaintiff would have published his manuscript on his own in order to justify awarding damages equaling defendant s profits and those of the publisher. 126 In this, the court may have gone too far: Landsberg was not a publisher; he was a writer. Had he ventured to self-publish his manuscript on Scrabble strategy, he surely would have had to expend far greater costs to produce and distribute his book than those expended by the defendant. In addition, without rights to the Scrabble trademark or access to defendant s resources, he likely would not have earned the same amount of profits as the defendant on its book using the Scrabble marks. The Landsberg result more closely resembles copyright actions with their actual damages plus additional profits of defendant than it does idea submission claims under Desny s reasonable value approach. Landsberg s unconventional approach may simply be a misapplication of the law 127 and its influence is limited to its rare factual findings, which may explain why no California cases have followed it in awarding successful idea submission plaintiffs all of the defendants profits. 128 The Wild, Wild West Goes East The above cases demonstrate at least some lack of certainly in determining remedies in idea submission cases under California law. Other states fare no better. New York, another idea rich state, enforces contract and damages principles analogous to those in California, with the important distinction that under New York law novelty is an explicit required element of idea submission claims. This novelty requirement precludes many idea submission claims, leaving a sparser field of cases that reach an evaluation of damages. One such case, Reiling v. Fisher Price, 129 awarded damages in the form of a royalty and specifically rejected plaintiffs claims for disgorgement of profits. Reiling involved the submission of an idea for a line of toys by a toy inventor and design company to Fisher Price, a toy manufacturer. 130 Plaintiffs submitted a toy concept for Reel Heroes to Fisher Price, and the parties entered into an option agreement for the concept s development. 131 After consideration, Fisher Price declined to license or buy plaintiffs concept and returned their idea materials. 132 Fisher Price then proceeded to manufacture and sell a line of toys called Rescue Heroes, which plaintiffs claimed were based on their Reel Heroes concept. 133 Plaintiffs sued for misappropriation and unfair competition under New York law, seeking compensatory damages and disgorgement of defendant s profits. 134 After trial, the jury awarded plaintiffs $1.7 million as reasonable royalties that plaintiffs would have received for Fisher Price s use of their idea. 135 Fisher Price successfully moved to cancel the disgorgement hearing on the grounds that plaintiffs were not entitled to disgorgement. 136 The court held that the best measure of damages to compensate plaintiffs for the loss suffered as a result of defendant s misappropriation and unfair competition was the jury s award of royalties on the sales of the products derived from plaintiffs idea. 137 The court stated that, where plaintiffs actual losses could be calculated, that was the appropriate measure of damages. 138 Under New York law, Compensatory damages... simply make good or replace the loss caused by the breach of contract or tortious conduct complained of. 139 [T]he injured party is entitled to indemnity for his loss, and no more. The plaintiff cannot hold the defendant liable for more than the actual loss which the defendant has inflicted by his or her wrong. 140 Had Fisher Price not misappropriated plaintiffs idea, it would have paid plaintiffs royalties as per the rate identified in the parties option agreement and based on the expert... under New York law, novelty is an explicit required element of idea submission claims. testimony concerning royalty rates typical to the toy industry. 141 Thus, the jury s award for reasonable royalties adequately compensated plaintiffs for their injury. 142 Disgorgement was therefore an unfair remedy, as full disgorgement would bear no relation to the plaintiffs actual losses, and would result in a windfall recovery beyond what plaintiffs could ever expect to receive under the option agreement. 143 As the court explained: cases that award a disgorgement of a defendant s profits do so only because a misappropriating defendant diverted sales and reaped profits that the plaintiff itself would otherwise have received, and thus the defendant s profits are a reasonable measure, or proxy, for plaintiff s lost profits. This is not the case here where [plaintiff] does not dispute that it is not a toy manufacturer, would never have marketed and sold action figures incorporating the Reel Heroes concept, and only ever would have received... a royalty on sales of the accused products. 144

7 In Trademark Properties v. A&E TV Networks, 145 also decided under New York law, the Fourth Circuit upheld a jury award of $4 million in an idea submission case. Plaintiff was a real estate broker who allegedly conceived the idea for Flip This House, a television show about real estate flipping. 146 Plaintiff created and submitted a pilot to defendant, and the parties began discussing terms of an agreement. 147 Plaintiff alleged that the parties orally agreed to split the net revenues of the television show equally and then started filming the first season of the show together. 148 A dispute later arose over plaintiff s compensation and the parties parted ways. 149 Plaintiff then sued defendant for half of all profits derived over three seasons of the show. 150 As noted, the jury awarded an amount equivalent to half of the defendant s profits for the first season of the show, the only season on which plaintiff worked. 151 On defendant s challenge of the jury award, the Fourth Circuit reasoned that the jury likely accepted plaintiff s testimony and evidence as to an agreement to split the revenues of the first season, but rejected the evidence that there was an agreement to split profits from the other seasons. 152 In Wrench v. Taco Bell, 153 a Michigan federal jury awarded plaintiffs $30.1 million in damages for breach of an implied contract related to plaintiffs submission to Taco Bell of their idea for a live-action Chihuahua mascot for the food chain. Plaintiffs presented Taco Bell with a licensing proposal for the idea, which would entitle them to a fee based upon the percentage of money Taco Bell spent on advertising using the licensed idea, plus a percentage of Taco Bell s retail sales and premiums on products using the licensed idea. 154 Taco Bell allegedly broke off discussions with plaintiffs and used their idea without compensation. 155 There is no discussion of the calculation of the jury s award. If it were to be a percentage of Taco Bell s advertising expenditures, however, which amounted to $500 million, plaintiffs award would represent six percent of these costs. Conclusion The landscape is indeed treacherous for any party faced with the task of assessing potential damages in the idea submission context. If anything is clear from the case law, it is that damages may be determined in any number of ways, and there is no universal formula for determining the reasonable value of an idea. Nevertheless, Desny litigants must at some point face the nagging question of how damages will be calculated in their particular cases and what the real-world value of the claim is. Diverse as the decisions are, there is a message in the law. Idea submission cases are exactly what the law says they are claims for breach of implied contracts. Each one is unique and is completely circumstantial. In every case the basic question to establish liability is the same: did there exist circumstances giving rise to the formation of a mutually enforceable promise? Those same circumstances not only determine whether there is a contract, but also provide guidance about what the terms are. The cliché that the devil is in the details remains ever true, and the damages analysis is an amalgam of the details. Factors such as the circumstances of the disclosure itself, the sophistication and experience of the parties, the level of preexisting development, the resources needed to make an idea a finished product, and the customary compensation paid under similar circumstances, among others, all provide the necessary information for a custom tailored valuation of each claim. In the end, the circumstances fill in the missing terms. Reading the circumstances in an implied contract is just like reading the terms of an express written contract. The language or circumstances govern the terms, and the terms govern the obligations and value of the agreement. Endnotes 1. Spinner v. Am. Broad. Co., L.A. Superior Court Case No. BC Notice of appeal has been filed in the California Court of Appeal P.2d 257 (Cal. 1956). 3. E.g., Teich v. Gen. Mills, Inc., 170 Cal. App. 2d 791, (1959) (breach of contract case; court looked to copyright cases to determine if offending work was independently created); Green v. Schwarzenegger, 1995 U.S. Dist. LEXIS 14031, at *29 n.9 (C.D. Cal. 1995) (breach of contract case; court looked to copyright case, Meta-Film Associates, Inc. v. MCA, Inc., 586 F. Supp (C.D. Cal. 1984), to determine if plaintiff had demonstrated access); see also 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright, The Law of Ideas 19D.07[A] at 19D-87 ( whether defendant used plaintiff s idea corresponds to whether defendant copied plaintiff s protected expression in the context of a traditional copyright infringement claim... idea submission cases must be analyzed with the same degree of rigor as copyright infringement cases. ); id. 19D.07[B], at 19D-89 (the law of idea submission claims borrows liberally from the framework employed in the copyright context for assessing use of a plaintiff s work). 4. Desny, 299 P.2d at Id. at Id. at Stanley v. CBS, Inc., 221 P.2d 73 (Cal. 1950); Golding v. R.K.O. Pictures, Inc., 221 P.2d 95 (Cal. 1950). 8. Donahue v. Ziv Television Programs, Inc., 54 Cal. Rptr. 130 (Cal. Ct. App. 1966); Donahue v. United Artists Corp., 83 Cal. Rptr. 131, (Cal. Ct. App. 1969). 9. Buchwald v. Paramount Pictures Corp., No. C , 1990 Cal. App. LEXIS 634 (Cal. App. Dep t Super. Ct. Jan. 31, 1992). 10. Blaustein v. Burton, 88 Cal. Rptr. 319 (Cal. Ct. App. 1970). 11. Landsberg v. Scrabble Crossword Game Players, Inc., 802 F.2d 1196 (9th Cir. 1986). 12. See, e.g., Stanley, 221 P.2d at 73; Blaustein, 88 Cal. Rptr. at 319; Buchwald, 1990 Cal. App. LEXIS U.S.C. 504(a) Nimmer on Copyright, supra note 3, Infringement Remedies 14.02[A]. 15. Jarvis v. K2 Inc., 486 F.3d 526, 534 (9th Cir. 2007); Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002) U.S.C. 504(b); see, e.g., Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004); On Davis v. The Gap, Inc., 246 F.3d 152, 159 (2d Cir. 2001) U.S.C. 504(b). 18. Id Nimmer on Copyright, supra note 3, Infringement Remedies 14.02[A]. 20. Id U.S.C. 504(a)(2). 22. Id. 504(c). 23. See Bryant v. Media Right Prods., Inc., 603 F.3d 135, 144 (2d Cir. 2010); N.A.S. Import, Corp. v. Chenson Enters.,

8 Inc., 968 F.2d 250, 252 (2d Cir. 1992); L.A. News Serv. v. Reuters Television Int l, Ltd., 942 F. Supp. 1275, 1282 (C.D. Cal. 1996). 24. See, e.g., New Form, Inc. v. Tekila Films, Inc., 357 F. App x 10 (9th Cir. 2009); Frank Music Corp. v. Metro-Goldwyn- Mayer Inc., 886 F.2d 1545, 1554 (9th Cir. 1989); Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, (2d Cir. 2001). 25. See 1 Nimmer on Copyright, supra note 3, Constitutional Aspects 1.03[A] at to Mackie v. Rieser, 296 F.3d 909, 915 (9th Cir. 2002) (citing Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, (1st Cir. 1994), overruled on other grounds by Reed Elsevier, Inc. v. Muchnick, 130 S. Ct (2010) (in defining plaintiff s burden with respect to establishing actual damages, it is useful to borrow familiar tort law principles of causation and damages )). 27. See Desny v. Wilder, 299 P.2d 257, 266, 269 (Cal. 1959); Donahue v. Ziv Television Programs, Inc., 54 Cal. Rptr. 130, 137 (Cal. Dist. Ct. App. 1966); Gunther- Wahl Prods., Inc. v. Mattel, Inc., 128 Cal. Rptr. 2d 50, 62 (Cal. Ct. App. 2002). 28. Cal. Civ. Code Id P.2d 73 (Cal. 1950). 31. Id. at Id. at Id. 34. Id. 35. Id. 36. Id. at Id. 38. Id. 39. Id. 40. Id. (citation omitted). 41. Id. at See calculators/inflation.htm P.2d 95 (Cal. 1950). 44. Id. at Id. at Id. According to com/calculators/inflation.htm, the award would have been $239, in today s dollars. 47. Id. 48. Donahue v. Ziv Television Programs, Inc., 54 Cal. Rptr. 130 (Cal. Dist. Ct. App. 1966). 49. See Donahue v. United Artists Corp., 83 Cal. Rptr. 131, (Cal. Ct. App. 1969). 50. Donahue, 54 Cal. Rptr. at Id. at Id. at Id. 54. Id. at Id. 56. Id. 57. Id. at Id. 59. Id. 60. Donahue v. United Artists Corp., 83 Cal. Rptr. 131, 139 (Cal. Ct. App. 1969). 61. Id. at Id. 63. Id. 64. Donahue, 54 Cal. Rptr. at Id. at Id. 68. Id. at Id. at Id. 71. Buchwald v. Paramount Pictures Corp., No. C , 1990 Cal. App. LEXIS 634 (Cal. App. Dep t Super. Ct. Jan. 31, 1992). 72. Id. at *1, * Id. at * Id. at * Id. 76. Id. at * Id. at * Id. at * Id. at * Id. 81. Id. at * Id. at * Id. at * Id. at * Id. at * Id. at * Id. 88. Id. 89. Id. at * Id. 91. Mann v. Columbia Pictures, Inc., 180 Cal. Rptr. 522 (Cal. Ct. App. 1982). 92. Id. at Id. 94. Id. at Id. 96. Id. at Id. at Id. at Id. at 527, Cal. Rptr. 319 (Cal. Ct. App. 1970) Id. at Id Id. at Id. at Id. at 321, Id. at Id. at Id. at Id. at Id Id. at Landsberg v. Scrabble Crossword Game Players, Inc., 802 F.2d 1196 (9th Cir. 1986) Id. at Id Id See Landsberg v. Scrabble Crossword Game Players, Inc., 736 F.2d 485, 487 (9th Cir. 1984) (plaintiff s claims arose from undertakings commenced before January 1, 1978, and thus were not subject to preemption) Landsberg, 802 F.2d at 1196; see also Grosso v. Miramax Film. Corp., 383 F.3d 965, 968 (9th Cir. 2004) Landsberg, 802 F.2d at Id. at Id Id Id. at Id. at Id Id.; California Civil Code 3358 provides: Except as expressly provided by statute, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides Landsberg, 802 F.2d at See 4 Nimmer on Copyright, supra note 3, The Law of Ideas 19D.09[B] at 19D The only case following Landsberg to award all profits of the defendant as damages for idea submission is Reeves v. Alyeska Pipeline Service Co., 56 P.3d 660 (Ala. 2002). Landsberg also seems to conflict to some degree with Faris v. Enberg, 158 Cal. Rptr. 704 (Cal. Ct. App. 1979), a California Court of Appeal case affirming summary judgment in favor of the idea recipient where the plaintiff had no intention of selling his idea and shared it with defendant solely for the purpose of inducing defendant to collaborate on the project. Since Faris never intended to sell his idea, there was no reason to imply that Enberg agreed to pay for its use, or to keep it confidential, and therefore no implied agreement was created. Id. at 709. Faris focused on the principle discussed in Desny that, in order to recover on an idea submission case, both plaintiff and defendant must know that plaintiff submitted his idea for the purpose of selling it to defendant, and defendant agreed to pay if in fact it used plaintiff s idea. Id. Under Faris, unlike Landsberg, where the plaintiff intends to

9 produce the idea himself, there can be no contract for sale implied by his gratuitous disclosure of the idea. Id. at Reiling v. Fisher-Price, Inc., No. 3:03cv222, 2006 U.S. Dist. LEXIS (D. Conn. Apr. 25, 2006) (applying New York law) Id. at * Id. at * Id. at * Id Id Id. at * Id Id. at * Id N.Y. Jur. 2d Damages Id Reiling, 2006 U.S. Dist. LEXIS 22813, at * Id Id. at * Id Trademark Props. Inc. v. A&E Television Networks, 422 F. App x 199 (4th Cir. 2011) Id. at Id. at Id Id Id. at Id. at Id Wrench LLC v. Taco Bell, JAS MI Ref. No WL, 2003 WL (W.D. Mich. June 4, 2003) See Wrench v. Taco Bell, 256 F.3d 446, 450 (W.D. Mich. 2001) Id.