September 1, 2002

Subject: Intellectual Property Primer

Scenario 1:    You have a great idea for a television show.  How can
            you present your idea to a major network without losing your
            chance to get paid?

Scenario 2:    You're an inventor.  How do you introduce your invention to the world without some big business stealing your invention and telling you to pound sand for payment?

Scenario 3:    You're an employee at a manufacturing company.  You have developed a new device that will double the speed of the process.  You want to share the information with the company, but you want a share of the profits from the invention. 

The Basics
Intellectual property law; patent, trademark, copyright, trade secret and unfair competition law, partially protects some ideas.  The first point is that not all ideas are always protected. Patent law protects processes, machines or compositions of matter that are new, useful and not obvious.  Copyright laws protect the expression of ideas, not the ideas themselves.  

Courts have found protection for three kinds of ideas: literary, business and scientific.  Ideas for television and radio shows and movies are literary ideas.  Business ideas are methods of running a business, like adding a visitor center to a tourist attraction, proposing building a factory, transferring designs to cloth, and selling municipal bonds by computer.  Scientific ideas can include ways to record temperatures and pressure, inventory a phone system, and designing camouflaged items. 

When an idea has been stolen or misused, the owner can sue.  Remember that the law is different by state and what is in this memorandum may apply differently (if at all) in some places. 

A claim of idea theft needs two initial elements: a legal relationship between the parties and an idea that is both new and concrete.  A legal relationship can be based on a confidential relationship or some sort of contract. There are several kinds of contract relationships that can support a claim. 

Actual Contract
Most courts will find an enforceable express contract if the person to whom an idea is submitted has expressly promised to pay for it upon its use.  There are three obstacles that the idea owner must overcome when claiming an express contract relationship: consideration, the statute of frauds and federal copyright law preemption.

Implied Contract
A second contract theory that can show a legal relationship is the implied contract theory.  Here, consent of the parties is expressed by conduct not words.  Courts generally will protect the idea owner by finding an implied contract if no problems with consideration, statute of frauds, or federal preemption exist.  The facts of each case decide whether an implied contract exists.

Courts will not recognize an implied contract if the idea is unsolicited and involuntarily received.  A court may find an implied contract if the recipient is in a trade or industry accustomed to paying for submitted ideas.

If the recipient had warning of the intended submission and the opportunity to reject or stop its disclosure before it was made, but allowed the submission, some courts find that a promise to pay for the idea may be implied.

Most courts will find that an implied promise to pay exists if the recipient solicits and uses the idea.  Some recipients issue release forms for submissions that release them from any obligation.  Some courts will uphold these releases.

Quasi Contract
The final theory that shows a legal relationship is the quasi contract theory.  Quasi contracts are obligations created by law for reasons of justice. Unlike an implied contract, when the parties have a quasi contract, the parties have not shown mutual consent.

An example where a court may use this theory is where a recipient's agent, who had no authority to make a promise to pay for the idea, promises to pay if the idea is used.  If the idea owner reasonably believed the agent had authority to promise to pay, and the company uses the idea, the owner may collect.

Many courts will require novelty and concreteness if the idea owner relies on a quasi contract theory. 

Confidential Relationship
Even if the contract theories fail, courts hold that if a confidential relationship exists, the requirement is satisfied.

New & Concrete
Once the legal relationship has been found, courts often require that the idea be either new, concrete or both.  Some courts require the owner to prove that the idea was new.  This requirement depends both on the state and on which theory of legal relationship is argued.

Under an express contract theory, most courts do not require the idea to be new if the terms of the contract do not require it, because the parties are bound by the contract.  Some courts still require the idea to be new even in the express contract situation.

For implied and quasi contracts, most courts require a showing of newness for an idea owner to win.  In confidential relationship theory cases, courts sometimes waive the requirement.

Concreteness is rarely defined in opinions, but many courts apply a requirement of concreteness despite the legal relationship theory the owner pursues. There are two prevailing definitions: the immediate use definition, which asks whether the idea is developed to the point where it is ready for immediate use or an extension of the immediate use definition, which allows for both the idea to be nearly ready for use and for the recipient to help in preparing the idea for use.

Courts differ on whether a writing is required for an idea to be concrete.  Some courts suggest an idea is not concrete if it is not written.  Others hold that an idea can be concrete even without a writing.

Inventions
The laws on submission of ideas for inventions and ideas for literary, business and scientific ideas are very similar.  The express, implied and quasi contract theories and the confidential relationship theory can all govern the submission of ideas for inventions but many invention cases turn on the existence of a confidential relationship.  When you want to present an idea relating to an invention, it is vital to preserve confidentiality.

Additionally, most courts require that ideas for inventions must be new and concrete.

Ideas and Inventions in Employment
The primary issue here is whether you were hired to invent for the employer.  If you were hired to invent for the employer, it is likely that those inventions and trade secret rights belong to the company.   If you were hired without the expectation of inventing anything, you could be entitled to all rights of your invention.  But there are other considerations.

The Shop Right
An employer gets an implied nonexclusive, royalty-free license, also called a shop right, when an employee makes and reduces to practice an invention on his employer's time, using his employers tools and the services of other employees.  An employer can receive a shop right even if the invention is later patented.  Although the employer has a nonexclusive license, the inventor retains the patent.  The employer cannot sell the patent or exclude others from using it.

Invention Assignment Agreements
In reality, employees hired to invent for a company usually sign a contract waiving ownership rights to all inventions created during employment or contractually grant the employer a shop right.  In these situations, the employer will likely win because the employee signed the contract with valid consideration.

Scenario 1
First, keep the idea confidential.  If a television network got the idea through other means, the network would not be bound to compensate you if no promises had yet been exchanged.

The best way to reveal the idea is to enter a contract saying that you will reveal your idea in consideration of the network paying you if the network uses the idea.  Because some courts say that the disclosure of an idea is not adequate consideration, you may need to show additional consideration.  If you have some type of preexisting duty to tell the network your idea, you may lose your chance to profit from the idea if courts in your state deny the existence of a valid contract because of your preexisting duty to reveal.

If you already fully revealed your idea to the network, you may have spoiled your chances for an express contract if the courts consider the disclosure past consideration.  You could use one of the other theories.

A written contract is important.  It is unclear in some states whether oral contracts are enforceable in these cases.  A written contract also avoids federal preemption. Remember that some courts say a letter of submission is not an express contract. 

If you received a release form from a television network with specific terms for your idea submission, you are likely to have only two choices: to sign or not to sign.  Entities with these forms generally have greater bargaining power and the terms will be tipped in their favor.  They will probably not honor your contract.  If you agree to the terms of the release form you are signing a contract to which you will probably be bound.

If the network solicits your idea, most courts will imply a contract, but an express contract should be drafted and signed anyway. 

The safest course here is to sign an express contract to reveal your idea in return for the promise to pay if the idea is used.

Scenario 2
The first question you need to consider is whether you want to patent the invention, sell or license the invention to a manufacturer, or sell the invention yourself by keeping the invention as a trade secret.  We will only discuss trying to sell the invention to a manufacturer.

A written, express contract is again the best way to present the idea to a manufacturer.  A clear statement of confidentiality should be in the contract. Whether the idea needs to be new will depend on the state.

Scenario 3
Assume you are not someone hired to invent.  You invented the device in your garage, but now you need to test it with actual company equipment.  If you do not mind giving the company a shop right, contract with the company to allow you to use the company's time and equipment to test your device in return for disclosure and license of the process.  A written contract is necessary.

If you do not want to give a license to your employer, you must avoid using any of the company's equipment, tools or other employees.  You must not use any of your time at work to further your invention.  You cannot test the device on the company's equipment.  The alternative is a written contract with the company to use its time and equipment for testing the device with a provision saying no shop right or implied license will be granted to the company.  You should expect to have to pay for this. The contract will need specific details providing the equipment, tools, time or labor that you need for testing your device.