New and innovative ideas keep businesses one step ahead of the competition. However, dealing with idea submissions from third parties, such as independent contractors, customers, or members of the general public, can present serious issues that have the potential to derail a business as it moves forward with a new venture. Having a set of business policies and procedures in place that adequately deal with and clearly communicate the relationship between a business and those purveyors who submit business ideas can alleviate potential litigation issues and protect a business’ interest.
Idea purveyors – Who are they?
Idea submissions come in as many forms as there are businesses. Some businesses, such as those in the entertainment industry, are constantly besieged with idea submissions for new movies or television shows. Many, if not most, of the idea purveyors in this industry are professional writers, with agent representation and some legal savvy. For other types of businesses, idea submissions may come in the context of casual conversations with customers or other non-employees.
Generally speaking, ideas that are typically submitted to businesses come in a variety of forms and are wide-ranging in nature. For example, new idea submissions can be in the form of (1) business ideas, including ideas for new products or services, or suggestions on how to streamline a business’s procedures and processes; (2) literary submissions, such as a book, screenplay, or television show treatment; and (3) scientific ideas, such as new technologies.
While some idea purveyors may not want any compensation for their idea submissions, business owners should assume that every person who submits a new idea is doing so in the hopes that he or she will receive some sort of compensation for the idea if it is used. For that reason, it is essential that the relationship between a business and the idea purveyor be certain and established from the very start.
Implied Contracts
The principal hazard in leaving such business relationships informal and ambiguous is that the idea purveyor may claim that an implied contractual obligation to pay him has been established if the idea is used. An implied contract is an “agreement by conduct” recognized by the courts in the absence of a written agreement. If an idea purveyor succeeds in proving an implied contract has been breached, the potential exists for significant monetary damages to be awarded to the idea purveyor, based in part on how successful and profitable the idea has been for the business in question.
The theory underlying implied contracts in the idea submission context is to protect the idea purveyor from having his or her novel and marketable idea misappropriated without compensation. Courts will find an implied contract has been formed in a variety of circumstances, depending on the level of interaction and past business relationship between the parties involved. For instance, if a business has requested idea submissions, a court is likely to imply that a promise to pay for those ideas has been established if used. Likewise, if a business receives advance notice that an idea will be submitted upon the condition that payment is expected if the idea is used, an implied contract will likely be found if the business accepts the idea. On the other hand, the idea purveyor who shares his idea with a mass audience, without any reasonable notice of his intent to be compensated, probably does not have any rights under the general implied contract definitions and guidelines.
For example, the case of Harry Keane v. Fox Television Stations illustrates this point. Harry Keane claimed that he came up with the idea for the television show “American Idol” years before the show aired, and sent an information packet about the idea to a British television production company that was purportedly related to the current producers of the “American Idol” show on Fox. Though Fox denied that its hit show was based on Mr. Keane’s idea, the case was ultimately dismissed because the court found that Mr. Keane simply “blurted out” his idea without notifying recipients that he expected to be paid for the idea.
Policies and Procedures to Handle Idea Submissions
The simplest, most effective way to avoid litigation such as this and handle third-party idea submissions is to not accept them at all. However, this is not always practical, especially for those businesses that depend on a consistent flow of innovative ideas as part of their core business plan. For those businesses, the best practice is to memorialize the relationship between the business and the idea purveyor in writing.
As stated earlier, if an idea is proposed, the business owner must ensure that a written agreement, which clearly articulates and defines the idea submission, use, and compensation policy between idea purveyors, is established up front before the use of any idea is considered.
In addition, the written agreement should clearly articulate how much compensation, if any, will be paid if the idea is used, whether the idea is confidential, and if so, who may review the idea.
With these few simple policies and procedures in place, a business can avoid the litigation pitfalls that have the potential to emerge due to implied contract claims that can often be made by idea purveyors.
Contact:
Tom Van Arsdel I 713.650.2728 I tvanarsdel@winstead.com
Tom Van Arsdel is a persuasive, compelling, and determined litigator. His significant courtroom experience has earned him the reputation of an advocate who gets results. Tom’s broad-based practice includes litigation and counseling in intellectual property, business torts, employment, and complex commercial disputes. He has represented clients from a full range of industries, including sports and entertainment, software, banking, energy, manufacturing, and trading.
Tom has handled significant copyright, trademark, and contract disputes for entertainment clients, including serving as lead trial and appellate counsel for Fox Television and the producers of American Idol in a trademark infringement and breach-of-contract matter.