Potential clients often ask: “I have this million dollar idea I want to pitch to Company A, but if I ask them sign an NDA, they won’t have the meeting. Could they steal my idea?”
The answer is frequently “yes,” if the company does not sign a nondisclosure or other written agreement acknowledging the confidentiality of the idea.
That unfortunate fact was demonstrated in a case in which entertainment broker Bonnie Vent cold-called Mars Snackfoods and pitched an idea for a cross-promotion featuring characters from the Addams Family television show on M&Ms candies. According to Vent, Mars subsequently declined to use her idea, but eight months later, Mars ran advertisements featuring M&Ms candies altered to resemble the cast of the program:
In its decision, the federal Second Circuit Court of Appeals rejected her claim for compensation, and in doing so, set forth a nice primer on property-based misappropriation of ideas under New Jersey law. (Property-based misappropriation of idea claims share many elements with trade secret claims. Many states also allow contract-based misappropriation of ideas claims.)
According to the court, in the absence of a contract, an idea is protected against misappropriation only if: 1) it is novel; 2) it is made in confidence to the recipient; and 3) it is utilized by the recipient.
The court ruled that Vent’s claim failed the second requirement, because there was no confidentiality between Vent and Mars.
Vent did not claim that she offered an NDA or even discussed confidentiality during her pitch call with the Mars representative, but argued that: 1) confidentiality was implied because Mars, as the more powerful party in the relationship, had a fiduciary duty (obligation to take care of her interests); and 2) confidentiality was implied by custom in the entertainment industry.
A confidential relationship may be implied between parties if there is a fiduciary relationship between them, for example if the parties are in a relationship where one is vulnerable to or relies on special skills or knowledge of the other. This was not such a case, because Vent cold-called the Mars representative, and volunteered the information. Normally, a fiduciary relationship cannot be formed without the consent of both parties, ruled the court.
A confidential relationship may also be implied if customary in an industry, but assuming such a custom exists in the entertainment industry, the court ruled that it did not apply to Mars, which is not in the entertainment industry. (The decision referred to a case in which it was held that confidentiality is customary for idea pitches in the toy industry.)
One caveat — the law of misappropriation of ideas is state-based, with a wide variation in law among states. However, many (not all) states use some variation of the New Jersey three-part test of novelty, confidentiality, and utilization to decide when the idea originator must be compensated for property-based claims, and sometimes even for contract-based claims.
Takeaway: granted, it is often tough to get an audience before a large company or venture capitalist to pitch your million dollar idea, but before you do so, carefully balance the benefit of requesting a nondisclosure agreement against the risk of losing the idea, or worse yet, getting ensnared in endless, Kafkaesque litigation: