A Bad Idea: Disclosing Ideas Without an NDA

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:

© 2010, Richard R. Bergovoy. All rights reserved.

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4 Responses to “A Bad Idea: Disclosing Ideas Without an NDA”

  1. Bonnie Vent says:

    Actually there was a prior relationship due to a similiar pitch when The Munsters DVD was released. They declined due to lack of budget and did not use the idea.

    During the same timeframe as the Addams Family ads, Mars, Inc also created ads featuring the Naked Cowboy character as a M&M. The Naked Cowboy filed a lawsuit. The 1st count of using his character without a license was dismissed. The judge deemed it was a parody. The 2nd count of implied endorsement of the product did produce a small settlement. The Naked Cowboy does not eat chocolate and was never paid or approached by Mars, Inc to promote M&Ms. Since they had no problem taking a licensed character I seriously doubt they would honor an NDA.

    An NDA would not have mattered in my case. The first judge dismissed the case because “in his opinion” the idea was not novel. It was only on appeal that it was stated the lack of NDA caused the case to be dismissed. If an NDA had been in place they would have just gone back to the “not novel” stance.

    The fact is that large corporations have the ability to make these cases go away. There was no: trial, no ability for my attorney to gather evidence, no jury to decide if the idea was stolen or not. Mars Inc. never denied where the idea came from.

    Mars, Inc. position on my case was: “Yes, we took your idea and made billions of dollars…and your problem is??? The judge says “Case Dismissed”

    Current laws and perhaps unethical relationships between high powered attorneys, large corporations and judges only protect the corporations. The laws need to be changed and it should not be possible for corporations to have undue influence on the legal system. The laws should protect the person with the idea, but sadly they do not. Idea theft is a huge problem and the laws needs to be changed.

    This is just another example of corporate greed. I used to believe that every citizen in this country had the right to be heard in a court of law. It was shocking to find out the truth that these cases never get to court.

    Bonnie Vent

  2. Richard R. Bergovoy says:

    Bonnie, thanks for providing a fascinating behind the scenes look at your case.

    My guess –and it’s only a guess– is that the appeals court felt uncomfortable with the trial court’s ruling that the novelty of your idea could be decided as a matter of law, that is, by the judge himself without receiving evidence, so they decided the appeal on the basis of the trial judge’s back-up ruling that no confidentiality existed between you and Mars.

    You are correct that if a pitched idea is not novel, then under the law of New Jersey and many other states, an idea person will not win a claim for compensation even with a nondisclosure agreement in place.

    I think you would agree, however, that all other things being equal, an idea person will be in a much stronger position to claim compensation with an NDA than without.

  3. Bonnie Vent says:

    Hi Richard,

    I would advise people to protect their ideas the best they can. An NDA is the customary way to do this. Of course by its very nature your idea will not go very far. The only time this might have helped my case was when Mars Inc. turned over the idea to their ad agency BBDO for production of the ads. Just be aware the deck is stacked against you when working with a large corporation. If they change one small thing it is no longer your idea and they can claim they did not use your idea, but they already had “in the works”, an idea that just coincidentally looks like yours.

    It is my understanding that the judge is not supposed to rule on the novelty issue; it is supposed to be decided by a jury based upon the evidence and how close the finished product matches the idea. In my case the idea was novel as they would not have come up with this on their own. They had never done anything with classic television before or since. They also received insider information from my pitch that 20th Century Fox was releasing the DVD, that is was going to be promoted and publicized nationally by the cast members, and the release date. Prior to that there had been no activity on the franchise for many years.

    Being in the entertainment industry I have heard several stories of idea theft. Not one of them felt there was anything they could do legally to prevent it. Try to find people that you can trust and nuture your relationships with those people. It is truly more of an issue of integrity than law.

    Bonnie Vent
    Genesis Creations Entertainment

  4. […] This post was mentioned on Twitter by Pete Salsich III. Pete Salsich III said: Idea creators — protect your ideas with an NDA: interesting post (and comments from the unlucky creator): http://bit.ly/cQcb7T […]

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