Wednesday, March 10, 2021

Charles Tait Graves: Idea Submission Cases, Desny Claims, and Trade Secret Law

I thoroughly enjoyed Charles Tait Graves new article: Should California’s Film Script Cases Be Merged into Trade Secret Law?, which was recently published in The Columbia Journal of Law & the Arts.  Graves is a partner at Wilson Sonsini and teaches trade secret law at UC Hastings Law.   

The article deals with so-called "idea submission" cases. The fact pattern is as follows. Plaintiff, who is sometimes called the "idea man" in older cases, shares an idea with Defendant, hoping for monetary compensation even though there's no express contract stating terms of payment. Defendant subsequently takes the idea and commercializes it without paying Plaintiff. (There's an excellent discussion of the idea submission cases in Chapter 4 of Elizabeth Rowe and Sharon Sandeen's Trade Secret Law casebook). 

At least in California, the Plaintiff-idea person will likely have two distinct types of legal claims in this scenario: (1) a claim for breach of an implied-in-fact contract, which in California is called a Desny claim; and (2) a claim for civil trade secret misappropriation, which since 2016 can be brought under both state law (e.g. under the California Uniform Trade Secret Act) and federal law via the Defend Trade Secrets Act (DTSA). Graves recounts in tremendous detail how these two different legal regimes developed on separate ends of the map of California, in Southern and Northern California, respectively. Graves' thesis is that, even though these two areas of law have been historically addressed separately, they have a lot in common and can learn a lot from one another.   

I interviewed Graves about the article, transcribed below.

CAH: What is an idea submissions case?

CHARLES TAIT GRAVES: We need to be very careful in defining this.  The term "idea submission case" has very different meanings in different states. In California, we typically mean a Desny claim, and that is what I talk about in the article. The Desny version of the idea submission claim, which arises most often in the Hollywood/entertainment context, is a very tightly controlled implied-in-fact contract claim that can arise when someone submits an idea (typically a film script, a screen play, or a fleshed-out idea for a film), and there is offer for payment and an acceptance, followed by use without payment.

I will also note that I define idea submission cases in the article to include only contract-based claims like Desny claims, because I am intentionally not including the penumbra of tort and other common law claims that are likely preempted by trade secret or copyright law.  

CAH: So you might have told a national tale. Trade secret law is obviously now federal even if state claims are still available. But you choose to limit this to California. Why?

CHARLES TAIT GRAVES: The states differ in how they treat idea submissions. For example, in California, the "idea man" (now we would say "idea person") can have an implied-in-fact contract claim based on submission of an idea conditioned on payment, even if the idea was not novel. However, in New York, for example, the law is different: novelty would be required.  So the idea submission law is very different state to state.  This is why this is a state-specific story.

CAH: OK, so in the universe of your article we have two different legal claims to address the idea submission situation in California. Readers know a lot about trade secret claims and what is required for a trade secret claim. But we are less familiar with this other kind of claim you discuss: the Desny claim. What is a Desny claim and how did it come about? How do the Desny claim and the trade secret claim differ? 

CHARLES TAIT GRAVES: The Desny claim is an implied-in-fact contract claim. It takes its name from the famous case, Desny v. Wilder (Cal. Sup. Ct. 1956), in which the California Supreme Court created the elements that plaintiffs must satisfy to win on this kind of claim. 

Desny emerged out of many years of bewildering California case law. At that time, in the 1950s, courts were struggling to figure out what to do with the idea submission cases coming out of Hollywood. These usually involved screen plays or concepts for films, and usually the plaintiff believed they were entitled to compensation after the film was made based on their script or ideas. There was a lot of confusion and multiple sorts of approaches in the common law. The situation was even more confusing because, prior to Desny, there used to be "common law copyright" protection for ideas in California.  Under that regime, ideas could be claimed as property rights and litigated under a "plagiarism" approach without involving contract law at all.  But in 1947, California’s legislature amended, and significantly narrowed, the state statute governing common law copyright protection, Civil Code Section 980. The 1947 amendment to California law left a gap in the law.

So then in 1956, the California Supreme Court confronted this fact pattern in the Desny case, and had to decide how to fill the gap and address confusion in the case law. The plaintiff in Desny (Victor Desny) came up with a story for a film based on a media frenzy that had happened in the real world over a man trapped in a cave, and Desny was trying to get in touch with the well-known director Billy Wilder through Wilder's assistant, so that Wilder could make the film and (Desny hoped) compensate him. Desny claimed he told Wilder's assistant that use of his film idea was conditioned on payment, and that the assistant told him that if Wilder used the submission, he would be paid. [For a somewhat light-hearted take on the facts of this case, check out this piece in Variety].

So with these facts in the background, the court had to decide what kind of claim could be brought to get compensation for idea submissions, and what would be the elements of such a claim? The court put together a test that said: (1) if you submit an idea (like a screenplay or a synopsis) for sale, and (2) its use is conditioned on payment, and (3) the defendant knew or should have known there was a payment condition, yet (4) still voluntarily accepted the idea, and (5) the defendant actually used it, and (6) it had some value (even if it was not novel)...there can be a claim for breach of implied-in-fact contract. 

But it is a very complex, difficult claim to bring. There are a lot of elements to prove. It can be hard to bring these claims, and there are situations where plaintiff can't win them. For example, courts have held if the idea was previously published, or even if it was shown earlier to the defendant without the same condition of payment for use, then there is no viable Desny claim. Also, these claims cannot be based on merely inchoate discussions with no plausible promise of payment. There has to be a tight nexus between disclosure of the idea or screen play to the defendant and conditioning payment. 

CAH: If the director, Billy Wilder, had done what he did today, and Desny had brought a trade secret claim instead of breach of (implied) contract, how would this have gone?

CHARLES TAIT GRAVES: I suspect that if this came up in 2021, the courts would just see this as a trade secret case and apply trade secret law in the usual way.  They would decide whether this met the requirements of a trade secret, including whether it was sufficiently secret (this could be doubted, since the film idea centered around the public facts of the real-life cave rescue effort); whether it derived sufficient independent economic value from secrecy; and whether reasonable secrecy efforts were taken. 

But at the time of Desny, California trade secret law was very primitive. Almost all the cases were in the employee mobility/customer list context, not necessarily the high tech sphere like today. Hollywood was more the powerhouse at that time, not Silicon Valley. And these film script cases had previously been seen in a statutory context that was now gone post-1947.  So in a sense, I think it is a historical accident that the California Supreme Court came up with this strange, non-trade-secret, California-specific claim to deal with what might now look like a trade secret claim. Today, I think the courts would have applied the elements of trade secret law that we are familiar with, they wouldn't struggle to craft this new kind of implied-in-fact contract claim.  

But nonetheless, the Desny claim is how the Supreme Court of California decided to deal with the situation. And very interestingly, the courts have stuck with the Desny claim and its elements all the way from the 1950s until today. The Ninth Circuit and the California courts use this very same test in dealing with idea submission scenarios like Desny. It took them a while to get there, but it stuck. 

CAH: So let's talk about independent derivation. A big part of your article focuses on the independent derivation "defense" to misappropriation. The trade secret statutes say that misappropriation of a trade secret does not include, among other things, "...independent derivation..."  How do the Desny implied-in-fact contract cases, and trade secret cases, deal with independent derivation, and what can they learn from each other?

CHARLES TAIT GRAVES: Independent derivation was the original impetus for the article. I noticed that courts on the Desny idea submission side had been publishing these very interesting opinions finding that certain claims were not actionable because there was an independent source for the film script or idea, other than the plaintiff.  Courts would find that, even though plaintiff gave defendant an idea for a film, the evidence showed defendant already had the same idea before defendant even met plaintiff, or even that third parties, maybe even other studios, gave the idea to the defendant, and the people who worked on the production never even saw the plaintiff's materials. There are very detailed discussions of these issues in the Desny line of cases coming out of Hollywood, and decades of published cases that deeply analyze the independent development situation.  

In contrast, on the trade secret side there is little development of independent derivation, and not much of a structure for assessing it, at least in California. There is case law on who bears the burden to prove independent derivation, but not much on how to prove it, like what evidence is needed and what factors really matter. So one of the insights for this article was that we have all this law coming out of Southern California, involving movies and tv, and can't we look at this law on the trade secret side, where we are trying to get at the same question: Did the defendant independently derive the information that the plaintiff says was misappropriated? Why not look at these cases about tv shows and movies, and see how they assess independent derivation, and use that for trade secret cases?

CAH: What are some key lessons you see in the Desny line of cases' approach to independent derivation that trade secret law could use?  And would these apply anywhere, or only in California trade secret cases?

CHARLES TAIT GRAVES:  I think there are lessons that can work anywhere. Even though the Desny claim is California-specific, the way the Desny idea submission courts adjudicate the issue and assess the evidence is broad, and would work in the trade secret context, even outside California. I am somewhat surprised others have not connected the two lines of cases before on this point.

Going back to the 1950s, courts in Desny idea submission cases look at two things when assessing an independent derivation argument. First: the temporal structure. That is, when did defendant claim to have conceived of the information? Was it before or after defendant got any information from the plaintiff?  If it's after, the burden is higher for defendant to satisfy the court that this didn't actually come from the plaintiff. Second: who was the source of the independent derivation? Was it the direct recipient of the idea, so for example, Billy Wilder himself or his assistant? Or was it others within the same large studio, or even people at a different company? If it's the same individual who received the trade secret, or someone closely connected to them, it will be tougher to prove independent derivation. On the other hand, when defendant can point to an independent source like another movie studio or a company in another country, that is a better defense. 

It is easier to swallow an independent development argument when the defendant has evidence that they were already in development with a third party when the plaintiff came along.  For example imagine a company hires a new employee in a three-hundred person company, and the former employer sues for trade secret misappropriation. Imagine the defendant argues, "we were developing this first, before the employee was hired," and second, "it was our team over in Singapore that gave us this idea, it wasn't even anyone in the new hire's group."  Thinking about things this way, in terms of when did the independent development occur in relation to when the idea was received, and who was the independent source of the idea, can help courts tackle the under-developed issue of independent derivation in trade secret law.  

CAH: So you go into a lot of detail in the paper about preemption. But you come out concluding that, for a variety of reasons, Desny claims aren't preempted by the California Uniform Trade Secrets Act, just as they aren't preempted by copyright law. So as a matter of policy, do you think there's anything wrong with having multiple legal regimes to address this kind of a wrong? Or is there a room for both of them?

CHARLES TAIT GRAVES:  I don't think these claims are necessarily in conflict. There is a policy sameness here. On the one hand, the Desny claims were clearly created by the courts to protect the idea person, the individual who goes to a powerful studio to submit their idea, and just gets steam-rolled.  California courts created the Desny claim out of whole cloth precisely to protect the idea person, the weaker party, in the idea submissions context. Meanwhile, trade secret law is also guided, at least in California, by a strong policy of favoring the interests of the departing employee who is accused of taking their employer's trade secrets. The interests of the departing employee are paramount. So in this sense, there is a policy sameness, not a policy conflict. Both claims have an underlying policy of respecting the interests of the weaker party, whether it's the idea person-as-plaintiff or the departing employee-as-defendant. That said, you could certainly imagine scenarios where there would be a collision, for instance if a plaintiff manages to squeeze a Desny claim out of a situation for which it wasn't designed in order to get a windfall.

CAH: In concluding, do you have any observations on what these legal claims say about the difference between Southern California, the source of entertainment law and the Desny claim, and Northern California, where trade secret law tends to take center stage?

CHARLES TAIT GRAVES: One thing I can say is that you will notice the two sides almost never meet. There are almost never conferences on the intersection between trade secret law and entertainment law, even though you see conferences on the intersection between patent and trade secret law, things that are a bit more obvious.  I don't know why we have these two separate legal cultures. I can only speculate, but it's possible that it has to do with the fact that Southern California/Hollywood arose as a separate economy, and then Northern California/Silicon Valley arose as a separate economy.  Only now in the past twenty years are they sort of joining together. So my guess is that the people who do entertainment law and the people who do trade secret law just grew up at different law firms, worked in different practice areas, went to different symposia at law schools, read different treatises... It's like two ships passing in the night. So maybe this is why we don't often think about the fact that, actually, these two areas of law are really very similar. 

CAH: It is in a sense the fact pattern that joins them. Someone is stealing an idea without payment. It doesn't strictly matter if it's a technical prototype for a backpack or an idea for a film script.  When we have legal regimes addressing that kind of scenario, it's virtually inevitable they would have similarities.  


We also talked at length about the intricacies of preemption. For that, you'll have to read the article!    Again, Charles Tait Graves' article, Should California’s Film Script Cases Be Merged into Trade Secret Law? is now published and available online at The Columbia Journal of Law & the Arts.    


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