Technology From Heaven Unlimited v. Mattel CA2/8 ( 2021 )

Filed 2/26/21 Technology From Heaven Unlimited v. Mattel CA2/8
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
TECHNOLOGY FROM HEAVEN B302299
UNLIMITED,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. 19STCV04869)
v.
MATTEL, INC.,
Defendant and Respondent.
APPEAL from an order of the Superior Court of
Los Angeles County, Randolph Hammock, Judge. Affirmed.
Steinhart Law Offices and Terran T. Steinhart for Plaintiff
and Appellant.
Kinsella Weitzman Iser Kump & Aldisert, Lawrence Y.
Iser, Patricia A. Millett and Kristen L. Spanier for Defendant and
Respondent.
__________________________________
In a first amended complaint, plaintiff and appellant
Technology from Heaven Unlimited brought a civil action for
damages against defendant Mattel, Inc., for misappropriation of a
toy idea.1 The first amended complaint alleged two causes of
action: 1) tortious/property-based misappropriation of an idea,
and 2) breach of contract-based misappropriation of an idea. The
trial court sustained defendant’s demurrer without leave to
amend on both causes of action and ordered the case dismissed
with prejudice.
The parties do not dispute New York law governs this
appeal based on an agreement executed between the parties prior
to the submission of the toy idea.2 The trial court ruled New
York law required plaintiff to plead facts that showed the idea
was novel in absolute terms on both causes of action. On appeal,
as argued at the trial court, plaintiff relies on Keller v. American
Chain Co. (1930) 255 N.Y. 94 (Keller) and Apfel v. Prudential-
Bache Securities Inc. (1993) 81 N.Y.2d 470 (Apfel) and contends a
“pre-disclosure” contract existed between the plaintiff and
defendant requiring only a showing of “limited novelty” (as
opposed to “general novelty”) on the contract-based cause of
1 The idea involves three versions of a Barbie figurine flying
on a drone.
2 Mattel’s Submission Agreement, which the parties
executed, contains a choice-of-law clause for the application of
New York law. As a general structure, New York’s state court
system consists of three levels: Court of Appeals (highest
appellate court), Appellate Department of the Supreme Court
(Intermediate appellate court) and Supreme Court (trial court of
general jurisdiction).
2
action and that its pleading sufficiently established such facts.3
In plaintiff’s opening brief, plaintiff also contended the first
amended complaint adequately pleaded facts constituting general
novelty. Plaintiff, however, abandoned this contention in its reply
brief, instead arguing the pleadings sufficiently established
limited novelty to the buyer.
We agree with the trial court that both causes of action in
the first amended complaint required a greater showing of
novelty than just to the buyer. As such, we need not analyze
whether the plaintiff sufficiently pleaded facts for the lesser
showing of limited novelty to the buyer. We therefore affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Technology from Heaven Unlimited is a California
non-profit corporation who invents toys. Clayton Golliher is the
founder and CEO of the plaintiff. Mr. Golliher serves as a pastor
of the Christian congregation of the ministry. Defendant Mattel,
3 The terms “limited novelty” and “general novelty” are not
specifically used in any of New York’s published cases cited by
the parties. Instead, these terms were defined by plaintiff in its
opening brief as follows:
“ ‘General novelty’ (aka ‘originality’ or ‘absolute novelty’)
means information generally unknown and unavailable to the
public at large (e.g., the existence and contagiousness of the
COVID-19 virus before February 1, 2020).” (Italics omitted.)
“ ‘Limited novelty’ means information that is open and
available to the general public and therefore does not have
general novelty (e.g., the published characteristics of a patented
item; the published rules of medical science and legal
jurisprudence), but is not considered common knowledge because
it is novel and unknown to many competent adults.” (Italics
omitted.)
3
Inc., is a Delaware corporation with its principal place of business
located in Los Angeles County, California. Defendant is a
successful manufacturer of toys which includes the well-known
“Barbie” brand aimed at girls aged three to 12 years old.
The first amended complaint alleged that in early 2014,
plaintiff heard that defendant sought to develop a toy featuring a
Barbie figurine on a flying mechanism that could be operated by
a young female consumer. Based on the rumor, plaintiff began
work on creating a flying Barbie toy with a plan to submit the
idea to the defendant.
In July of 2014, defendant informed the plaintiff that the
previous idea submission protocol had been changed with a new
online process called Mattel Inventor Connect (“MIC”). Plaintiff
was advised that to submit an idea through MIC, inventors were
required to complete an MIC application and execute a
“Submission Agreement.”
The Submission Agreement contained eight (8) clauses. It
provided, inter alia, that the submission, “do not create any
financial, equitable or other obligations” and that “[a]ny such
obligations may arise only in another separate written agreement
that is physically signed by [the inventor] and an officer of
[defendant].” The Submission Agreement also specified that “[n]o
rights, duties or obligations may be read into this Agreement or
the relationship of the parties under any theory, such as custom,
trade usage, course of dealing, course of performance, or implied
contract.” Plaintiff executed the Submission Agreement.
The first amended complaint describes the flying Barbie
concept as follows: “By August 2014, [plaintiff] was successful in
creating a concrete, novel flying Barbie toy concept that utilized a
four propeller drone as the mechanism to make Barbie fly; and
4
presented Barbie as an action figure in three different
interlocking configurations: (a) Barbie standing on a drone in the
configuration of a hover board; (b) Barbie hanging from the drone
in the configuration of a hang glider; and (c) Barbie as a fairy
with the drone in the configuration of fairy wings.” (Italics
omitted.)
Beginning around August of 2014, plaintiff presented its
flying Barbie concepts to the defendant through the MIC. The
submission consisted of still photos and a video. While the
submission was made to several different departments within the
defendant’s departments, only the Barbie brand/department,
through Helen De La Cruz, communicated interest. Through
various correspondences, a meeting was set up at defendant’s
El Segundo headquarters for December 10, 2014. At the
December 10, 2014 meeting, Mr. Golliher, as CEO of the plaintiff,
explained to the defendant’s staff that the prototype’s flight
control technologies were probably too complex for the young
Barbie consumers but that an “auto hover” technology was easier
and more appropriate. To demonstrate the auto hover
technology, Mr. Golliher had purchased a toy that employs this
technology from a toy store and brought it to the meeting. Mr.
Golliher indicated he had entered collaboration with a group
called BrixnClix to provide the auto hover technology. On
December 11, 2014, a day after the meeting, defendant informed
plaintiff that it was not interested in moving forward with the
submitted concepts.
Around February 16, 2016, defendant released a new toy
called the Barbie Starlight Adventure. Plaintiff contends the
new Barbie toy contained two features from its submission: 1)
Barbie presented as an action figure standing on top of a flying
5
drone hover board, and 2) the ease of use for young Barbie
consumers regarding the auto launch, auto hover, auto land, auto
pilot flight control technology (auto hover technology) in
conjunction with override capability. Thereafter, plaintiff
contacted the defendant to inform its belief defendant had used
two features from its toy idea submission and requested the
defendant to pay a reasonable compensation. Defendant
declined.
On July 20, 2019, plaintiff filed the first amended
complaint which alleged three causes of action: 1) first cause of
action for tortious/property-based misappropriation of an idea,
2) second cause of action for breach of contract-based
misappropriation of an idea, and 3) third cause of action for
copyright infringement. Five days later, plaintiff moved to
dismiss the third cause of action for copyright infringement,
leaving the first amended complaint with the other two causes of
action. Defendant demurred.
The demurrer was heard on September 24, 2019. At the
hearing, relying on Keller and Apfel, plaintiff argued general
novelty is not required on the second cause of action for contract-
based misappropriation of an idea. Plaintiff posited that in a pre-
disclosure contract dispute for misappropriation of an idea, the
strict requirement of novelty in New York law is relaxed. Rather
than requiring novelty to the world at large, plaintiff reasoned
the novelty, or, the newness of the idea, applied only to the buyer.
When asked by the trial court whether additional facts
could be alleged if absolute novelty was the standard, plaintiff
indicated its belief sufficient facts were presented in the first
amended complaint.
6
The trial court ruled the following day. Relying on Lapine
v. Seinfeld (2011) 31 Misc.3d 736,4 the trial court reasoned, under
New York law, both the first cause of action for tortious/property-
based misappropriation of an idea, and the second cause of action
for breach of contract-based misappropriation of idea, required
novelty in absolute terms, not just to the buyer, which plaintiff
had failed to plead. Final judgment of dismissal was entered on
October 9, 2019. This appeal followed.
II. STANDARD OF REVIEW
In reviewing the sufficiency of a complaint for a sustained
demurrer, the standard of review is well-settled. “We treat the
demurrer as admitting all material facts properly pleaded, but
not contentions, deductions or conclusions of fact or law.
[Citation.] We also consider matters which may be judicially
noticed.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591 [96 Cal.Rptr.
601, 487 P.2d 1241], superseded by statute on other grounds as
stated in Crawford v. Huntington Beach Union High School Dist.
(2002) 98 Cal.App.4th 1275, 1286 [121 Cal.Rptr.2d]; Cal. Const.,
art. IX, § 5 [“Legislature shall provide for a system of common
4 Under New York statutory law, published Supreme Court
decisions may be cited as precedent. See New York Judicial Law
section 431 which states. “The law reporting bureau shall report
every cause determined in the court of appeals and every cause
determined in the appellate divisions of the supreme court,
unless otherwise directed by the court deciding the cause; and, in
addition, any cause determined in any other court which the
state reporter, with the approval of the court of appeals,
considers worthy of being reported because of its usefulness as a
precedent or its importance as a matter of public interest. [¶]
Each reported decision shall be published as soon as practicable
after it is rendered.”
7
schools by which a free school shall be kept up and supported”].)
We give the complaint a reasonable interpretation, reading it as a
whole and its parts in their context. (Speegle v. Board of Fire
Underwriters (1946) 29 Cal.2d 34, 42 [172 P.2d 867], superseded
by statute on another point R.E. Spriggs v. Adolph Coors Co.
(1974) 37 Cal.App.3d 653.) When a trial court sustains a
demurrer, we determine whether the complaint states facts
sufficient to constitute a cause of action. (See Hill v. Miller
(1966) 64 Cal.2d 757, 759 [51 Cal.Rptr. 689, 415 P.2d 33].)
“Nevertheless, if no liability exists as a matter of law, we must
affirm that part of the judgment sustaining the demurrer, and if
the plaintiff cannot show an abuse of discretion, the trial court’s
order sustaining the demurrer without leave to amend must be
affirmed.” (Gutkin v. University of Southern California, (2002)
101 Cal.App.4th 967, 975-976 [125 Cal.Rptr.2d 115].)
III. DISCUSSION
A. Types of Misappropriation Claims
Based on our reading of New York cases, claims for alleged
misappropriation of an idea may be classified into two categories
with one category consisting of two sub-parts. First are property
right claims. This is a broad category with boundaries not clearly
defined. Second are contract-based claims which fall into two
sub-parts: 1) claims of breach of contract entered prior to the
disclosure of the idea, and 2) claims of breach of contract entered
after the disclosure of the idea. Keeping these categories and
sub-parts in mind is helpful to understand New York’s legal
territory in this area of the law.
8
B. New York Law on Misappropriation of an Idea
1. General Standard
Under New York law, a civil action for damages that claim
misappropriation of an idea requires two essential elements: 1) a
legal relationship must exist between the parties, and 2) the idea
must be novel and concrete. (See McGhan v. Ebersol (S.D.N.Y.
1985) 608 F.Supp. 277, 284.) In the instant appeal, the plaintiff’s
main contention relates to the second element of novelty.
2. Downey v. General Foods Corp.
On the issue of novelty, we start by reviewing the pertinent
published opinions of the New York’s highest court, the Court of
Appeals. One of the seminal New York cases on
misappropriation of an idea is Downey v. General Foods Corp.
(1972) 31 N.Y.2d 56 (Downey). Downey is a property right case.
In Downey, the plaintiff wrote several letters to the
defendant (General Foods) and sent an “Idea Submittal Form”
suggesting the product “Jell-O” be renamed “Wiggley” or some
variation thereof, to be marketed to children. (Downey, supra, 31
N.Y.2d at p. 59.) Defendant acknowledged receipt of the letters
and the Idea Submittal Form and informed plaintiff that it had
no interest in the plaintiff’s idea. (Id. at p. 60.) Several months
later, defendant introduced into the market a Jell-O product
named “Mr. Wiggle.” Plaintiff alleged misappropriation of an
idea and filed suit for damages. (Ibid.)
The Downey court noted, “[t]he critical issue in this case
turns on whether the idea suggested by the plaintiff was original
or novel. An idea may be a property right. But, when one
submits an idea to another, no promise to pay for its use may be
implied, and no asserted agreement enforced, if the elements of
novelty and originality are absent, since the property right in an
9
idea is based upon these two elements.” (Downey, supra, 31
N.Y.2d at p. 61.) The Downey Court went on to reason, “[i]n the
case before us, the record indisputably establishes, first, that the
idea submitted -- use of a word (‘wiggley’ or ‘wiggle’) descriptive of
the most obvious characteristic of Jell-O, with the prefix ‘Mr.’
added -- was lacking in novelty and originality . . . .” (Id. at pp.
61-62.)
3. Apfel v. Prudential-Bach Securities Inc.
Twenty-one years later, the New York Court of Appeals
published Apfel. (Apfel, supra, 81 N.Y.2d 470.) Apfel is a
contract-based claim that falls into the sub-part of a post-
disclosure agreement. In Apfel, the High Court of New York
distinguished the Downey rule in the context of a “post-
disclosure” agreement between the parties. Apfel focused on the
question of the existence of a valid consideration, not whether the
idea was novel.
The facts in Apfel are illustrative of this separate rule.
Plaintiffs were an investment banker and a lawyer who proposed
to defendant, an investment bank, a method of issuing municipal
bonds to be sold, traded, and held, without the issuance of a
paper certificate by means of a computer entry. After the
plaintiff disclosed the idea to the defendant, the parties
negotiated and entered into an agreement “under which plaintiffs
conveyed their rights to the techniques and certain trade names
and defendant agreed to pay a stipulated rate based on its use of
the techniques for a term from October 1982 to January 1988.
Under the provisions of the contract, defendant’s obligation to
pay was to remain even if the techniques became public
knowledge or standard practice in the industry and applications
for patents and trademarks were denied.” (Apfel, supra,
10
81 N.Y.2d at p. 474.) To reiterate the point, after the idea was
disclosed, the defendant entered into an agreement to pay and
use the plaintiff’s idea.
After several years of fulfilling the terms of the contract,
the defendant refused to make additional payments indicating
the plaintiff’s idea had been in the public domain at the time of
the agreement and that the idea was never the plaintiff’s to sell.
The plaintiff sued on several grounds including breach of contract
for damages. (Apfel, supra, 81 N.Y.2d at p. 874.) The defendant
contended that no contract existed between the parties because
the agreement lacked consideration – that an idea cannot be
legally sufficient consideration unless it is novel. (Id. at p. 475.)
As noted before, Apfel turned on the issue of consideration.
The Apfel court reasoned, “[u]nder the traditional principles of
contract law, the parties to a contract are free to make their
bargain, even if the consideration exchanged is grossly unequal
or of dubious value [citations]. Absent fraud or unconscionability,
the adequacy of consideration is not a proper subject for judicial
scrutiny [citation]. It is enough that something of ‘real value in
the eye of the law’ was exchanged [citations]. The fact that the
sellers may not have had a property right in what they sold does
not, by itself, render the contract void for lack of consideration
[citations].” ( Apfel, supra, 81 N.Y.2d at pp. 475-476.)
The Apfel court explained, defendant received consideration
even though the idea was not novel. The court said,
“[m]anifestly, defendant received something of value here; its
own conduct establishes that. After signing the confidentiality
agreement, defendant thoroughly reviewed plaintiffs’ system
before buying it. Having done so, it was in the best position to
know whether the idea had value. It decided to enter into the
11
sale agreement and aggressively market the system to potential
bond issuers. . . . defendant can hardly claim now the idea had no
value to its municipal securities business. Indeed, defendant
acknowledges it made payments to plaintiffs under the sale
agreement for more than two years, conduct that would belie any
claim it might make that the idea was lacking in value or that it
had actually been obtained from some other source before
plaintiffs’ disclosure.” (Apfel, supra, 81 N.Y.2d at p. 476.)
Apfel explains with clarity why, in the context of a post-
disclosure agreement to use an idea, the issue of novelty is not
relevant. It said, “[w]hen a seller’s claim arises from a contract to
use an idea entered into after the disclosure of the idea, the
question is not whether the buyer misappropriated property from
the seller, but whether the idea had value to the buyer and thus
constitutes valid consideration. In such a case, the buyer knows
what he or she is buying and has agreed that the idea has value,
and the Court will not ordinarily go behind that determination.
The lack of novelty, in and of itself, does not demonstrate a lack
of value [citation].” (Apfel, supra, 81 N.Y.2d at p. 478.) Apfel is a
case that turns on the question of consideration because the
existence of a contract between the parties after the information
was disclosed was not in dispute.
In dicta, Apfel discussed contract claims based on a pre-
disclosure agreement. The Apfel court wrote, “[t]hese decisions
do not support defendant’s contention that novelty is required in
all cases involving disclosure of ideas. Indeed, we have explicitly
held that it is not [see Keller, supra,] 255 NY 94). Downey, Soule
and cases in that line of decisions involve a distinct factual
pattern: the buyer and seller contract for disclosure of the idea
with payment based on use, but no separate postdisclosure
12
contract for use of the idea has been made. Thus, they present
the issue of whether the idea the buyer was using was, in fact,
the seller’s.” (Apfel, supra, 81 N.Y.2d at p. 477-478.)
The Apfel court continued, “[s]uch transactions pose two
problems for the courts. On the one hand, how can sellers prove
that the buyer obtained the idea from them, and nowhere else,
and that the buyer’s use of it thus constitutes misappropriation of
property? Unlike tangible property, an idea lacks title and
boundaries and cannot be rendered exclusive by the acts of the
one who first thinks it. On the other hand, there is no equity in
enforcing a seemingly valid contract when, in fact, it turns out
upon disclosure that the buyer already possessed the idea. In
such instances, the disclosure, though freely bargained for, is
manifestly without value. A showing of novelty, at least novelty
as to the buyer, addresses these two concerns. Novelty can then
serve to establish both the attributes of ownership necessary for a
property-based claim and the value of the consideration--the
disclosure--necessary for contract-based claims.” (Apfel, supra,
81 N.Y.2d at p. 478.)
The Apfel court further explained, in post-disclosure
contract cases, the issue of where the idea originated does not
exist. In making this distinction between the post-disclosure and
pre-disclosure claims, the Apfel court appeared to imply a three-
level approach: 1) property-based claims require uniqueness and
novelty, 2) pre-disclosure contract-based claims require novelty to
the buyer (to determine whether a valid consideration existed),
and 3) post-disclosure contract-based claims require no resolution
of novelty. The Apfel court, however, did not expressly hold as
such.
13
C. Plaintiff’s Primary Contention
Based on Apfel’s dicta, plaintiff contends a transaction that
contains only a pre-disclosure agreement, and no post-disclosure
agreement, pursuant to which an idea with only a limited novelty
(and not general novelty) is disclosed by seller to buyer legally
supports a contract-based misappropriation claim.
Plaintiff also relies on Keller. (Keller, supra, 255 N.Y. 94.)
Keller, like Apfel, is a “consideration” case. Keller involved a
seller and purchaser of tire chains. In the business model
between the supplier and purchaser of tire chains, freight for the
shipment of the tire chains was to be paid by the supplier
through the purchaser. Plaintiff worked for the purchaser and,
through research, discovered the freight charged by the rail
companies was too high. Plaintiff approached the supplier
(defendant) to negotiate a contract for this information so that
the seller would pay less on freight for the shipment of tire
chains. (Id. at p. 96.) Although no written contract was signed,
plaintiff sought one-third of the savings, which according to the
plaintiff, the defendant assented. Thereafter, plaintiff supplied
the information to the defendant. (Id. at p. 97.)
The defendant refused to recognize the existence of the
contract. Thereafter, plaintiff sued. After a verdict for the
plaintiff, the trial court set aside the verdict and dismissed the
complaint. The Appellate Division of the Supreme Court
affirmed the trial court’s judgment. The Keller court affirmed the
appellate division, but in doing so, discussed the “consideration”
question. (Keller, supra, 255 N.Y. at p. 97.)
Defendant argued there was no contract between the
parties for lack of consideration because the information
imparted was “nothing new, being an idea open and apparent to
14
everyone, and well known for years.” (Keller, supra, 255 N.Y. at
p. 97.) Based on the complexity of the information and the work
done to obtain it, the Keller court disagreed and observed, the
“information may be a valuable consideration for a promise to
pay . . . .” (Ibid.) While it is not crystal clear from the recitation
of facts in the case, the disclosure of information concerning the
lower freight costs appears to have been provided after the
alleged consummation of the oral agreement. The Keller court
ultimately determined, however, that because of the fiduciary
relationship plaintiff “could not . . . bind the defendant to a
promise based upon a consideration of receiving that to which it
was legally entitled.” (Id. at p. 100.)
The actual holding in Apfel which modified the Downey rule
in post-disclosure agreement cases does not support plaintiff’s
contention. Apfel’s dicta, which cites Keller arguably does.
Keller, published in 1930 has not been cited by recent New York
published cases alleging civil action on misappropriation of ideas.
New York courts appear to have drawn a two-part distinction:
Downey as a general rule, and Apfel, for post-disclosure
agreements.
Plaintiff cites Nadel v. Play-By-Play Toys & Novelties, Inc.
(2d Cir. 2000) 208 F.3d 368 (Nadel), to support its position that a
pre-disclosure agreement only requires “limited novelty” to the
buyer. Nadel, a federal case, is not binding on this court but may
be persuasive.5
5 Federal circuit court opinions do not bind California courts,
but they “may serve as persuasive authority.” (People v. Memro
(1995) 11 Cal.4th 786, 882 [47 Cal.Rptr.2d 219, 905 P.2d 1305],
overruled on other grounds in People v. Gaines (2009) 46 Cal.4th
172, 181, fn. 2.)
15
In Nadel, the plaintiff, a toy inventor presented an idea for
a table top monkey toy to the defendant who expressed interest.
Thereafter, plaintiff sent a prototype of the toy to the defendant
who kept the toy for several months. Before returning the toy to
the plaintiff, the defendant introduced a Tazmanian Devil toy
which contained features similar to the plaintiff’s prototype. (
Nadel, supra, 208 F.3d at p. 372.)
Plaintiff brought a civil action for breach of contract, quasi-
contract and unfair competition in federal district court. The
district court granted summary judgment in favor of the
defendant on the ground the plaintiff was not entitled to recover
for misappropriation of an idea unless it was able to show the
idea was novel and original. (Nadel, supra, 208 F.3d at p. 373.)
Relying on Apfel, the circuit court reversed. It held, “[f]or
contract-based claims in submission-of-idea cases, a showing of
novelty to the buyer will supply sufficient consideration to
support a contract.” (Id. at p. 376.)
Nadel went on to note, “[m]oreover, Apfel made clear that
the ‘novelty to the buyer’ standard is not limited to cases
involving an express post-disclosure contract for payment based
on an idea’s use. The Apfel court explicitly discussed the pre-
disclosure contract scenario present in the instant case, where
‘the buyer and seller contract for disclosure of the idea with
payment based on use, but no separate postdisclosure contract for
the use of the idea has been made.’ ” (Nadel, supra, 208 F.3d at
p. 376.)
While Nadel adopted Apfel’s dicta as an actual rule and
applied the “novelty to the buyer” standard in a pre-disclosure
contract-based claim for misappropriation of an idea, no New
York court has done so. Plaintiff acknowledges this state of New
16
York law. He has guided us to four published post-Apfel New
York decisions adverse to its position.
The most recent case is Lapine, supra, 31 Misc.3d 736. In
Lapine, the plaintiff, a cook-book author (Author) provided a book
proposal including some manuscripts for hiding healthy foods in
children’s favorite recipes to HarperCollins for potential
publication. HarperCollins rejected the proposal but kept parts
of the manuscripts. Author published the cook-book through
another publisher. Thereafter, HarperCollins published a cook-
book with a similar theme.
Author sued Jerry Seinfeld and HarperCollins as
defendants. The suit against Seinfeld, the comedian, for slander
is not relevant to our analysis. The suit against HarperCollins
for misappropriation is. HarperCollins moved to dismiss the
complaint on the ground they are defectively pleaded. (Lapine,
supra, 31 Misc.3d at p. 741.) HarperCollins argued the Author’s
documentary evidence failed to show the requisite novelty.
The Lapine court agreed and squarely addressed Nadel.
The court wrote, “[t]here is federal case law, interpreting New
York law, which holds that while novelty and originality in
general—i.e., to the world at large—must be shown in order to
support a claim for misappropriation, a lesser showing of novelty
to the buyer is required in order to support a claim for breach of
implied contract. (See Nadel [Citation].) In this court’s opinion,
this federal holding is based on a misreading of Apfel [Citation].
Apfel modifies Downey to the extent of holding that the novelty of
an idea need not be demonstrated in order to establish a claim for
breach of implied contract based on use of an idea without
compensation where, subsequent to disclosure of the idea, the
parties have entered into a contract for use of the idea. Apfel
17
reasons that in such circumstances, the buyer ‘has agreed that
the idea has value, and the Court will not ordinarily go behind
that determination. The lack of novelty, in and of itself, does not
demonstrate a lack of value.’ [Citation.] In contrast, as the
Court further explains, where there has been no post-disclosure
contract for use of the idea, proof of novelty is required to
establish both that the user of the idea in fact obtained it from
the plaintiff and that the idea had value, thus establishing
consideration for the contract.” (Lapine, supra, 31 Misc.3d at
p. 744.)
Lapine further addressed Apfel’s dicta. The court wrote,
“Apfel does state that where no post-disclosure contract has been
made, ‘[a] showing of novelty, at least novelty as to the buyer,’
addresses these two concerns as to whether the user obtained the
idea from the buyer and whether it had value. [Citation.]
However, this statement is dictum, as Apfel involved a post-
disclosure contract which was found to obviate the requirement of
any showing of novelty.” ( Lapine, supra, 31 Misc.3d at p. 744.)
Lapine expressly rejected what the plaintiff asks us to do here.
In American Business Training Inc. v. American
Management Association (2008) 50 A.D.3d 219 (American
Business Training), New York’s Appellate Division of the
Supreme Court applied the Downey rule to a pre-disclosure
contract-based claim. In American Business Training, plaintiff
filed a civil suit for damages alleging seven causes of action for
fraud, misappropriation of ideas, breach of a joint venture
agreement, unjust enrichment, breach of an implied-in-fact
contract, breach of a quasi-contract, and conversion. (Id. at
p. 221.) Plaintiff, American Business Training Inc. (“ABT”) was
an owner of a management consulting business which, as part of
18
its business, put on seminars for members of the business
community who did not possess a master’s degree in business
administration (“MBA”). ABT created a five-day seminar
providing information on various business topics covered in
traditional MBA programs. Running into issues concerning over-
head costs, ABT approached the defendant, American
Management Association (“AMA”) for a potential joint venture.
AMA asked ABT to send its brochure of the five-day seminar.
ABT did so. Several weeks later, AMA informed ABT that the
five-day program was competitive with other programs offered by
AMA and declined the offer to collaborate. Several months later,
AMA introduced a course entitled “AMA’s Five Day MBA
. . . Essential Elements” which appeared very similar to ABT’s
five-day seminar. (Id. at pp. 220-221.)
AMA brought summary judgement which the trial court
granted. In dismissing the complaint, the trial court agreeing
with AMA that ABT had, “failed to establish that the allegedly
misappropriated idea possessed the novelty necessary to prevail.”
(American Business Training, supra, 50 A.D.3d at p. 221.)
On appeal, the appellate division noted, “[t]he primary
issue is whether plaintiff had an enforceable property right in the
idea [plaintiff] disclosed to defendant. The basic, and still
applicable, rule was stated by the Court of Appeals in Downey
[Citation].” (American Business Training, supra, 50 A.D.3d at
p. 222.) As in the instant appeal, ABT asserted that the Downey
rule was modified by Apfel.
The appellate division disagreed. The court reasoned, “the
ruling of Apfel concerned a situation where the idea at issue was
disclosed to the defendant, and the defendant, following its
disclosure, entered into a contract to pay the plaintiff for it. In
19
that situation, the Court explained, the plaintiff need not
establish that the idea was novel; the circumstances establish
that the plaintiff provided something of value to the defendant,
and therefore the plaintiff is entitled to the benefit that the
contract provided for, in exchange for that consideration.”
(American Business Training, supra, 50 A.D.3d at p. 223.) The
appellate division went on to iterate, “[i]n our view, the Downey
rule was only modified to the extent that a party who claims that
an idea was misappropriated need not establish that the idea was
novel and original if its value to the defendant was established by
the creation of a contract between the parties following disclosure
of the idea to the defendant.” (Ibid.) The appellate division’s
conclusion, reached eight years after Nadel was published, is in
direct contradiction to the holding in Nadel. We are bound by the
choice-of-law clause in the Submission Agreement to follow New
York law.
The other two cases, Oasis Music, Inc. v. 900 U.S.A., Inc.
(1994) 161 Misc.2d 627 (Oasis), and Marraccini v. Bertelsmann
Music Group, Inc. (1996) 221 A.D.2d 95, are equally unavailing to
the plaintiff’s position. Both Oasis and Marraccini applied the
greater novelty standard to factual scenarios that may be
classified as pre-disclosure agreement claims for contract-based
misappropriation of an idea.6
Admittedly, this area of the law is somewhat murky.
However, plaintiff has not provided, and we have been unable to
find, any New York published case holding that only novelty to
6 Oasis quoted Apfel’s dicta on novelty to the buyer but
appeared to apply an absolute novelty standard in its analysis.
(See Oasis, supra, 161 Misc.2d at p. 630.)
20
the buyer is required for a claim of pre-disclosure contract-based
misappropriation of an idea. To the contrary, New York courts
have limited Apfel’s modification of the Downey rule to only
circumstances where, after the disclosure, the seller and buyer
enter into an agreement for the purchase of the idea. As such, we
hold that the Downey rule applies to the instant case requiring a
greater showing of novelty.
We need not address whether the plaintiff sufficiently
pleaded facts showing limited novelty to the buyer, whether the
Submission Agreement was unconscionable (which is relevant if
we applied the “novelty to the buyer” standard), or whether a
legal relationship existed between the plaintiff and the
defendant.
DISPOSITION
The order of dismissal entered on October 9, 2019 is
affirmed. Defendant to recover costs on appeal.
OHTA, J.*
We concur:
GRIMES, Acting P. J. WILEY, J.
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
21