The California Court of Appeal recently upheld the dismissal of claims against Mattel, which alleged that Mattel stole the idea for its flying Barbie doll from Technology from Heaven Unlimited (“TFHU”). Applying New York law, the Court found that Mattel did not misappropriate TFHU’s idea to create a flying Barbie using drone technology, as this idea did not have general novelty, even if the idea was novel to the buyer. Moving forward, companies should ensure that they have clear policies and procedures in place before accepting ideas and before entering into contracts for the disclosure of ideas, because whether an idea may be novel may depend on the timing of the contract.
In early 2014, Plaintiff TFHU, a toy-inventing nonprofit, learned that defendant Mattel, a highly successful toy manufacturer, was looking to develop a new version of its “Barbie” brand doll that would include a mechanism for Barbie to fly. Accordingly, TFHU began to develop a toy to submit to Mattel.
In July 2014, Mattel informed TFHU that submissions would have to be made through an online process called Mattel Inventor Connect (“MIC”). As part of submitting an idea through MIC, inventors were required to execute a “Submission Agreement,” which specifically stated that it did not create any financial or equitable obligation between the parties and that any obligations must be in a separate written agreement. TFHU executed the Submission Agreement.
In August 2014, TFHU created a flying Barbie using a four propeller drone, and depicted Barbie riding the drone as a hoverboard, hanging from the drone as a hang glider, and using the drone as fairy wings. TFHU then submitted this concept through the MIC.
In December 2014, TFHU’s CEO, Clayton Golliher, met with Mattel’s Barbie department to discuss the concept. Golliher expressed his opinion that operating the flight control technology may be too difficult for a young girl and that “auto hover” technology would be more appropriate. The following day, Mattel informed Golliher that it was not interested in moving forward with TFHU’s concept.
Despite this, in February 2016, Mattel released Barbie Starlight Adventure—a toy which depicted Barbie riding a drone hoverboard equipped with auto hover technology. Believing Mattel used ideas from its submission, TFHU requested reasonable compensation from Mattel. Mattel declined and a lawsuit commenced.
Under the terms of Mattel’s Submission Agreement, the parties agreed that the suit would be governed by New York law.
Understanding Idea Misappropriation Claims
On July 20, 2019, TFHU filed its first amended complaint which alleged, after the third cause of action was dismissed, two causes of action: 1) tortious/property-based misappropriation of an idea; and 2) breach of contract-based misappropriation of an idea.
To successfully allege a claim for idea misappropriation, the individual asserting the claim must have a property-based interest in the idea. Under New York law, specifically as held in Downey v. Gen. Foods Corp., for an individual to have a property right in an idea, the idea must possess the elements of novelty and originality. Downey v. Gen. Foods Corp., 31 N.Y.2d 56, 61 (1972). The novelty must be “absolute” or “general,” meaning that the idea is novel and original to the world at large, and not just to the person seeking to use the idea.
For contract claims based on idea misappropriation, New York law distinguishes between pre-disclosure agreements (contracts formed before the idea is disclosed to the buyer) and post-disclosure agreements (contracts formed after the idea is disclosed to the buyer).
With regards to post-disclosure agreements, Apfel v. Prudential-Bache Sec., Inc. is the controlling case. Apfel v. Prudential-Bache Sec., Inc., 81 N.Y.2d 470, 473 (1993). Apfel held that if a buyer and seller enter into a post-disclosure agreement, then the novelty of the idea is irrelevant, because the buyer is aware of what it is buying and in entering into the agreement, has agreed that the idea has value.
Pre-disclosure agreements, on the other hand, do require a showing of novelty. This is because, unlike in post-disclosure contracts where the buyer has already determined that the idea has value, in pre-disclosure contracts, a determination of the idea’s novelty is necessary to decide whether the idea would be valuable and therefore constitute sufficient consideration under the contract.
In dicta, Apfel addressed pre-disclosure agreements, stating that novelty “at least to the buyer” is necessary for a seller to prove ownership of an idea. Because of this, New York law was left with some ambiguity as to whether the Downey rule, which requires that an idea have general novelty, or the Apfel rule, which only requires limited novelty (novelty to the buyer), would apply to pre-disclosure agreements.
While New York federal law has chosen to adopt Apfel’s dicta as a rule, no state case has applied the “novelty to the buyer” standard to pre-disclosure contracts. See Nadel v. Play-By-Play Toys & Novelties, Inc., 208 F.3d 368 (2d Cir. 2000). This is because state courts have seen no reason to overrule the holding in Downey in favor of Apfel’s dicta. See Lapine v. Seinfeld, 31 Misc. 3d 736, 738 (Sup. Ct. 2011)
Application to the Barbie Starlight Adventure Toy
The trial court sustained Mattel’s demurrer as to both the property and contract-based idea misappropriation claims arising from Mattel’s Barbie Starlight Adventure toy.
As to the property claim, the court found that a “hover board drone” and “auto hover technology, combined with an override feature” did not satisfy the novelty requirement. With respect to the “hover board drone,” the court found that neither a “hover board” nor a “drone” were novel in themselves. Moreover, the court ruled that these two elements were not novel as combined, as “a combination of pre-existing elements” will not satisfy the novelty requirement. See Schroeder v. Cohen, 169 A.D.3d 412 (App. Div. 1st Dept. 2019). The “auto hover technology, combined with an override feature” was also not found to be novel, as this technology already existed in the public domain.
As to the contract claim, the court, applying Downey, found that a breach of contract claim for idea misappropriation also required a showing of general novelty, which as discussed above, was not met.
On appeal, Plaintiff focused on the contract claim, arguing that the Apfel test, rather than the Downey test, should be applied. The Court of Appeals disagreed with plaintiff, and ultimately upheld the trial court’s ruling, holding that in the case of pre-disclosure agreements, the Downey test is the appropriate standard to use and therefore a showing of general novelty is required. Specifically, the court stated: “Plaintiff has not provided, and we have been unable to find, any New York published case holding that only novelty to the buyer is required for a claim of pre-disclosure contract-based misappropriation of an idea. … As such, we hold that the Downey rule applies to the instant case requiring a greater showing of novelty.”
Moving forward, buyers should ensure that they have clear policies and procedures in place before entering into contracts for the disclosure of ideas, because whether an idea must be novel or not depends entirely on the timing of the contract. If a buyer has a pre-disclosure contract in place which states that the seller’s disclosure of an idea does not create an agreement that the buyer will purchase the idea, then the idea must be novel both to the buyer and to the world at large in order to create an implied contractual duty for the buyer to pay if it uses the idea. On the other hand, if the buyer enters into a post-disclosure agreement with the seller, then the novelty requirement is eradicated and the buyer must pay regardless of if the idea is unique. Therefore, buyers should ensure that they have clear policies and procedures in place, or they may end up paying for ordinary, unremarkable ideas that they could have come up with entirely on their own.