By Andrew Beckerman-Rodau*
A pdf version of this article may be downloaded here.
The integration of the Internet into all aspects of society has led to the quick and widespread distribution of information in digital form. This digital information can be easily, quickly and inexpensively aggregated by third parties, who can then redistribute it. Such information aggregators can free ride on the work of others. For example, to obtain current news anyone with an Internet connection can go directly to Google News, which collects links to news stories from a significant number of news outlets. Specialized aggregators provide on-line locations for news related to specific subject matter. Additionally, numerous blogs collect news stories created by others. Twitter accounts are also used to collect and distribute news stories created by a variety of sources. These accounts can be used to redistribute or retweet the same story via multiple feeds. Newspapers, wire services and other news creators and providers have voiced concern that such free riding allows news aggregators to benefit from the work of enterprises that create news media without having to pay any of the costs to obtain such news stories. It has been asserted that such free riding is both unfair and illegal. Moreover, it has been argued that it can economically injure or destroy such enterprises. Interestingly, such concern by entities that collect and provide news was raised in the distant past long before the Internet existed. In the 1918 Supreme Court decision International News Service v. Associated Press a news organization complained that a competitor was free riding on its efforts to obtain news stories. This allowed the competitor to gain the benefit of using news stories without having to incur the substantial costs to obtain such stories. The Supreme Court upheld a lower court preliminary injunction prohibiting the competitor from free riding because it believed a consequence of such activity could be ruinous competition that would destroy the incentive for any enterprise to expend the resources to gather news. The underlying basis for the Court’s decision was a federal common law action for misappropriation. A subsequent Supreme Court decision negated federal common law, which effectively eliminated International News Service as a binding precedent. Nevertheless, some states adopted the misappropriation doctrine from International News Service under state unfair competition law. This misappropriation doctrine has been asserted with limited success in state courts and has appeared in some recent federal district court decisions applying state law. Although federal courts of appeals have reversed these recent district court decisions, they have found the cause of action to be potentially viable, even though unsuccessful in the cases before the court. Additionally, despite the fact that some courts have relied on preemption under copyright law to greatly reduce the scope of a misappropriation action, it has continued to survive. Arguably, this is because the International New Service case raises some timeless and difficult issues. Namely, how to define property, whether free riding is permissible, and whether ruinous competition is legally actionable. This Article will critically examine the International News Service decision and subsequent judicial decisions relying on the misappropriation doctrine. It will argue that the decision has been misinterpreted and misunderstood. Contrary to popular understanding, the Court in International News Service did not find that conventional property rights existed in news. The actionable wrongful conduct in the case was based on one party competing in a legally unfair manner. The finding that the conduct was legally unfair and subject to injunctive relief was based on two questionable rationales. First, the Court seemed disturbed that one party was free riding on the labor and investment of another party. Second, the Court was concerned that the free riding could cause ruinous competition that might result in no enterprise having the necessary economic incentive to enter the news gathering business. The difficulty with these rationales is that free riding and ruinous competition are typically acceptable marketplace conduct in a free enterprise economic system. The encouragement of innovative and creative conduct and the resulting societal benefits require allowing free riding at least with regard to using mere ideas and information. Only when the free riding amounts to utilizing a concrete embodiment of the idea or information that qualifies for protection under intellectual property law does such free riding become actionable infringement. Although this may not always be fair, it is represents the dominant utilitarian view of property as opposed to a labor theory. Under this utilitarian view a balance must be struck between extending rights in intellectual property in order to incentivize innovative and creative conduct, and limiting such rights to avoid impinging on marketplace competition. Ruinous competition is likewise an unfortunate but necessary Darwinian aspect of marketplace competition. Societal changes and development of new technology frequently destroy the economic viability of previously successful business enterprises. Attempting to limit such ruinous consequences of competition is problematic because it will typically protect the status quo at the expense of delaying the inevitable introduction of new ideas and technology into the marketplace. In light of this, any misappropriation action based simply on free riding or a potential to cause ruinous competition should be rejected as inconsistent with both existing property law and a competition-based economic system. Existing actions based on various tort doctrines provide adequate legal recourse when competitive conduct enters the realm of deception or misrepresentation, or improperly interferes with or restrains competition. Finally, contract law allows parties to voluntarily agree to protect ideas or information without affecting the rights of anyone not a party to the contract. Hence, elimination of the misappropriation doctrine leaves sufficient legal protection in place for idea and information creators to receive legal protection without overly interfering with the marketplace.
The concept of possession and control permeates property law. Property rights are established and/or identified via demonstrating possession of the thing sought to be treated as property. This makes it difficult to apply traditional property law concepts to ideas, which are elusive things whose source can be difficult to ascertain. Moreover, ideas are difficult to define and hence difficult to control. Attaching a property label to ideas is therefore in conflict with the concept of possession. Additionally, from a policy perspective it may be preferable for ideas to be treated as part of the public domain rather than allowing a person or entity to own an idea. Judicial decisions examining property rights in ideas have considered the above policies and considerations. The California Supreme Court stated:
Generally speaking, ideas are as free as the air and as speech and the senses . . . . An idea is usually not regarded as property, because all sentient beings may conceive and evolve ideas throughout the gamut of their powers of cerebration and because our concept of property implies something which may be owned and possessed to the exclusion of all other persons.
Likewise, Justice Brandeis opined:
An essential element of individual property is the legal right to exclude others from enjoying it. If the property is private, the right of exclusion may be absolute; if the property is affected with a public interest, the right of exclusion is qualified. But the fact that a product of the mind has cost its producer money and labor, and has a value for which others are willing to pay, is not sufficient to ensure to it this legal attribute of property. The general rule of law is, that the noblest of human productions—knowledge, truths ascertained, conceptions, and ideas—become, after voluntary communication to others, free as the air to common use.
Nevertheless, ideas can often have significant value and hence create disputes. Assume Able proposes an idea to Company X about how to save money. Company X rejects the idea but Able subsequently discovers that Company X is using the idea. Does Able have a claim for compensation? Assume Betty shares an idea with a television producer for a new reality show that involves a competition between fashion designers. The producer subsequently creates a reality show involving competing fashion designers, but the various details of the show are dissimilar to Betty’s proposed show. Does Betty have a claim against the producer? Despite the value of many ideas, a threshold issue is whether the law should attach a property label to mere ideas. The determination of whether this label should attach is significant because once something is designated property, a bundle of legally enforceable rights attach to it. The determination would be easy if it was based on a labor theory. However, U.S. law has typically relied on a utilitarian theory for designating property rights. This theory is based on a policy determination of whether and when the property label should be attached to something. Under federal intellectual property law, both statutory law and judicial decisions have attempted to draw a line between what is and what is not granted property status. In the area of trademark law property rights related to a novel and creative trademark only arise when a trademark is actually used in commerce to identify particular goods. Copyright law bestows property rights on the expression of an idea but not on the underlying idea itself. Likewise, patent law does not grant property status to mere ideas. Patentable inventions must be useful in the sense that they represent an application of an idea that solves a problem or accomplishes some functional objective. The determination of precisely where to draw the line between intellectual property that is within the domain of federal patent and copyright law, and intellectual property that is outside of that domain is not always easy to ascertain. Nevertheless, it is clear that mere ideas alone are outside the scope of federal intellectual property protection and therefore, at least under federal intellectual property law, mere ideas are not entitled to be labeled as property. State common law, in contrast to federal intellectual property law, has provided protection for ideas even though such ideas were outside the domain of patent and copyright protection. Typically, such results reflect notions of equity and fairness and are based on either contract law or unfair competition law. In an idea submission case, the Supreme Court of Alaska stated:
The law pertaining to the protection of ideas must reconcile the public’s interest in access to new ideas with the perceived injustice of permitting some to exploit commercially the ideas of others. . . . Creating a middle ground between no protection and the legal monopolies created by patent and copyright law, courts have protected ideas under a variety of contract and contract-like theories. These theories protect individuals who spend their time and energy developing ideas that may benefit others. It would be inequitable to prevent these individuals from obtaining legally enforceable compensation from those who voluntarily choose to benefit from the services of the “idea-person.”
Some courts have recognized a cause of action for the use of ideas under a contract or a property theory only if the idea is both novel and concrete. Other courts have recognized a cause of action under contract theory without requiring the idea to be novel and concrete. Finally, a common law cause of action for idea misappropriation has been recognized as both a property action and a tort action.
The 1918 Supreme Court decision in International News Service v. Associated Press is generally considered to be the source of the misappropriation action. The meaning of the case however has engendered confusion and disagreement to this day. On its most basic level the dispute involved two news services—International News Service and Associated Press—who competed in gathering and distributing news to newspapers. The trial court preliminarily enjoined International News Service from using Associated Press news obtained via bribery and via inducing breach of agreements between the Associated Press and its member newspapers. However, the trial court refused to preliminarily enjoin International News Service from using Associated Press news obtained from bulletins released to the public and from published newspapers containing Associated Press news items. The Court of Appeals upheld the lower court’s injunction but remanded with directions to the district court to issue an injunction barring International News Service from using Associated Press news until it ceased to have commercial value as news. The Supreme Court solely addressed the question of whether International News Service engaged in actionable conduct by taking Associated Press news from publicly available sources and using it as its own news. The Court noted that neither copyright nor conventional property law protected the news at issue. Nevertheless, the Court affirmed the preliminary injunction on the basis of International News Service’s conduct, which sounded in tort. Consistent with the Court’s view that news is not granted property status, the opinion labeled the news at issue as “quasi” property, which it defined as creating rights only between International News Service and Associated Press, as opposed to the public in general. Such a definition unequivocally shows that the news at issue in the case was not viewed as property by the Court. The use of the phrase “quasi property” was therefore used as a shorthand reference to indicate conventional property rights were not at issue in the case. The real issue in the case was International News Service’s marketplace conduct. Specifically, whether International News Service was competing fairly or unfairly with Associated Press. The finding of unfair competition appears to be based on two rationales. First, International News Service engaged in free riding: Associated Press spent substantial resources acquiring the news and International News Service appropriated and sold that news as its own without incurring the substantial costs to obtain it. Second, denying a cause of action would result in ruinous competition because it would become unprofitable for anyone to engage in the newsgathering and distribution business. This concern has continued to exist. A recent case applying New York common law held that an element of a common law misappropriation action included a finding that “the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.” 
Misappropriation is often asserted in law suits alleging that a plaintiff’s intangible property was taken by a third party without providing payment or obtaining permission. For example, the long running dispute between the Winklevoss brothers and Mark Zuckerberg is largely based on the assertion that Mr. Zuckerberg stole the brothers’ idea for Facebook.com. Misappropriation is also typically referred to in judicial decisions and scholarly writing with regard to disputes over ideas or information. However, the prima facie elements of misappropriation are often not clearly delineated. Sometimes it is used to refer to the business tort of passing off. It may also be used as a synonym for unfair competition or to refer to breach of an implied contractual relationship involving disclosure of an idea or information. Finally, it may represent a request for equitable relief when no specific cause of action is applicable. In Sellers v. ABC, the Court noted that a common law action existed for “misappropriation of an idea or theory if (1) the idea is novel; (2) the idea is in a concrete form; and (3) the defendant makes use of the idea.” In Mercury Records Products v. Economic Consultants, the Court stated that “[t]he elements of the misappropriation cause of action . . . are: (1) time, labor, and money expended in the creation of the thing misappropriated; (2) competition; and (3) commercial damage to the plaintiff.” The Court in Jaggon v. Rebel Rock Entertainment, Inc. held that an action for misappropriation of an idea requires showing that (1) the idea was novel; (2) the idea was disclosed to the defendant in confidence; and (3) the defendant adopted and used the idea. Finally, in NBA v. Motorola, the Court held that a plaintiff could bring an action for misappropriation of time-sensitive information if: (1) the plaintiff incurs costs or expenses in generating or collecting the information; (2) the information has time-sensitive value; (3) defendant’s use of the information amounts to free riding on the plaintiff’s efforts to obtain the information; (4) the parties are in direct competition with regard to a particular product or service; and (5) the defendant’s free riding on plaintiff’s efforts would threaten the future production of the product or service by substantially reducing the incentive to engage in the business activity. Despite judicial recognition that common law misappropriation actions exist to protect ideas and information, such actions are generally unsuccessful. Additionally, although the comments in the Restatement (third) of Unfair Competition suggest that the ongoing viability of a misappropriation action is questionable in light of its general lack of success and preemption by federal copyright law, misappropriation actions continue to be brought by plaintiffs and have succeeded in a limited number of cases.
The misappropriation doctrine was recently asserted in Barclays Capital v. TheFlyonthewall.com, which involved a modern scenario analogous to the facts in International News Service. In Barclays Capital, the defendant, an online subscription news service operating under the name TheFlyonthewall.com, aggregated and distributed a variety of information to financial investors via the Internet. The information at issue was contained in equity research reports disseminated by plaintiffs, who are major financial institutions. The plaintiffs widely disseminated electronic copies of these reports. However, the plaintiffs engaged in substantial efforts to restrict access to the reports to select clients and licensees. Additionally, the plaintiffs relied on modern technological measures to curtail unauthorized dissemination of the reports. Despite such efforts, authorized parties released the reports, which were then redistributed by unauthorized third parties such as the defendant. Defendant news service provided both copies of portions of the plaintiffs’ equity research reports and information extracted from those research reports in the form of recommendations contained in the reports. The district court found that the defendant engaged in copyright infringement by copying portions of the reports and issued a permanent injunction against similar future conduct. However, the information extracted from the reports by the defendant in the form of recommendations was outside the domain of copyright protection, which typically does not protect ideas, facts or mere information. Nevertheless, the district court determined that the recommendations in the reports required the plaintiffs to expend substantial resources to produce them and that the recommendations were very time sensitive. The district court also determined that the plaintiffs and the defendant were in direct competition with regard to distribution of investment information. Finally, the district court found that the defendant’s free riding would likely threaten the plaintiffs’ ability to engage in their business activities. In light of this, the district court held that the defendant had engaged in misappropriation of information. The district court then enjoined the defendant from using the information for a limited time period in order to allow the plaintiffs to obtain an economic return on their investment in generating the information. Although on appeal the Second Circuit reversed the lower court’s conclusion that defendant was liable for misappropriation under state common law, the Court appeared reluctant to totally eliminate the misappropriation doctrine. Although it narrowed the scope of the doctrine by holding that it was preempted by federal copyright law under the facts in this case, the Court opined that the doctrine still existed and could apply under the appropriate facts. This result is consistent with other judicial decisions that have generally concluded that some form of a state misappropriation action survives preemption in light of the legislative history of the Copyright Act. One of the few cases where the misappropriation action was successfully utilized under state law is the Board of Trade v. Dow Jones. This case involved the Chicago Board of Trade, an exchange for trading commodity futures contracts. The Board sought government approval to trade stock index futures contracts based on the Dow Jones stock index, which is a widely available numerical average of thirty industrial stocks that represented the stock market as a whole. The Board did not plan to use the Dow Jones name on the contracts. Additionally, the information used to compute the index was public knowledge disseminated by Dow Jones. However, Dow Jones objected to having their index associated with a stock index futures contract because they believed it could damage their image or reputation. The Board brought a declaratory judgment action seeking permission to sell the contract based on the Dow Jones index. The trial court determined that Dow Jones had a property right in its index but that the Board could use the index for its futures contract provided that each contract included a disclaimer indicating that Dow Jones was neither associated with nor sponsored the contracts. The Illinois Supreme Court, reversing the trial court, held that the sale of stock index futures contracts based on the Dow Jones index would be a misappropriation of Dow Jones intangible assets under Illinois common law. The Court reached this conclusion despite the lack of competition between the parties, the public dissemination of virtually all information about the index by Dow Jones, and the fact that the Board would not use the Dow Jones name on any contracts. Additionally, in contrast to Barclays Capital, the Court did not discuss copyright preemption. Ultimately, the Court’s decision gave Dow Jones a property right in publicly disseminated information.
As previously discussed, although some federal judicial decisions have concluded that copyright law has preempted broad application of the state common law misappropriation doctrine, courts have generally concluded that some narrow cause of action survives in light of the legislative history of the Copyright Act. Although such judicial findings of preemption have significantly minimized successful assertion of the misappropriation doctrine in some jurisdictions, the doctrine should be eliminated for more fundamental reasons. Putting aside the preemption issue,  a misappropriation action based on International News Service is inconsistent with the fundamental concepts underlying property law. Moreover, classic justifications for the doctrine, which include preventing free riding and ruinous competition, are simply inappropriate. Such justifications are contrary to the legal goal of promoting marketplace competition and an impediment to rapid integration of technology and other changes into society.
The International News Service decision emphasizes that it is the competitive conduct of one of the parties—International News Service in that case—that is the source of liability. Additionally, as discussed above, the Court did not find that International News Service took property belonging to the Associated Press. In light of this, the decision in International News Service is difficult to rationalize. The Court in that case made it clear that no one has property rights in news that is freely available to the public. The Court then proceeded to enjoin International News Service from using such publicly available news, which anyone should be free to use. The result is that International New Services’ otherwise legal conduct was treated as unlawful. This inconsistency may be the source of the decision being viewed, incorrectly, as finding a property right in the news and for creating a misappropriation doctrine based on unfairly using the property of a third party. It is generally accepted that property rights do not arise in factual information, abstract ideas or newsworthy events. This is a policy-based determination premised, at least in part, on avoiding interference with the free flow of information that is necessary for a democratic society to flourish. Hence, applying the misappropriation doctrine to a news aggregator, for example, which merely collects and utilizes publicly available information should not by itself be actionable. The non-property status of publicly available facts and information makes them free for anyone to use without identifying their source. Holding someone liable for using such information is an extreme example of bootstrapping; refusal to apply a legal property designation to something in the public domain means it is free for anyone to use. It should not be actionable conduct to misappropriate or use something that is free for anyone to use, and failure to provide attribution of the source of such public information should be irrelevant because the source or creator of the information is not permitted to assert property rights in the information. Property rights in general are never absolute. Such rights are typically granted based on a utilitarian theory—rather than a labor theory—which balances competing interests. Although assigning property rights to the result of productive activity is generally desirable because it facilitates a marketplace economy by providing economic incentives to engage in such activity, important countervailing concerns militate against granting such rights for pure information. First, control of information and ideas is abhorrent to a free society. And thus, despite substantial efforts to generate, collect, control or disseminate information and ideas, the granting of any property rights in such information should be outweighed by the potential for such rights to negatively impact a free society. This concept is strongly embedded in intellectual property law. In the seminal case of Feist Publications v. Rural Telephone, Justice O’Connor stated:
The primary objective of copyright is not to reward the labor of authors, but “[t]o promote the Progress of Science and useful Arts.” To this end, copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed by a work. This principle, known as the idea/expression or fact/expression dichotomy, applies to all works of authorship. As applied to a factual compilation, assuming the absence of original written expression, only the compiler’s selection and arrangement may be protected; the raw facts may be copied at will. This result is neither unfair nor unfortunate. It is the means by which copyright advances the progress of science and art.
Moreover, the Supreme Court has held that abstract ideas and discoveries of new, naturally occurring minerals or plants and laws of nature, no matter how useful and important, are not eligible for patent law protection. Second, allowing property rights to attach to information and ideas placed in the public domain is contrary to the basic concept of common law property rights. Property rights typically require the owner to maintain control over property by demonstrating possession. Failure to maintain such control can result in the loss of property rights via operation of law. Placing ideas or information into the public domain clearly amounts to surrendering virtually all control over such ideas and information. Hence, it would be inconsistent with the fundamental concept of property law to allow someone to claim property rights in something he or she voluntarily relinquishes all control over. It is for these reasons, among others, that statutory bodies of intellectual property law specifically allow—and in some circumstances require—the release of certain information into the public domain without the resultant loss of all property rights in the information. Such legislative enactments reflect careful balances of the competing interests and are subject to legislative revision in light of changes in society and technology. Therefore, creating such rights in intangibles should be left to the legislative branch, rather than by the courts pursuant to common law property rights.
Preventing a commercial enterprise from free riding on the investment of time and money made by a competitor is a rationale asserted by International News Service and some subsequent cases analyzing the misappropriation doctrine. Legally prohibiting free riding is facially appealing because it comports with notions of fairness. However, by itself, it is generally an illegitimate legal rationale for rendering commercial conduct illegal. An economic system based on free competition will always have a certain degree of free riding. A company that introduces a new, successful product will inevitably engender competitors. For example, assume that I am the first person to successfully sell bottled water, and that others understandably begin selling water as well. In response, I might open my retail store 24 hours a day to increase sales. If my strategy is shown to work, it is likely some competitors will adopt the same approach. Similarly, if I sell a new product which turns out to have significant market penetration, it is likely that competing companies will develop and sell similar products once it is shown a lucrative market for that class of products exists. If I introduce a new style or design of clothing that is successful others will copy and market similar designs. Generic and lower priced versions of products frequently compete in the marketplace with well-known or established brands. If I open a restaurant adjacent to a newly opened luxury mall I may free ride on the increase in consumer traffic generated by the mall. Typically, all of these activities, without more, are considered legitimate competition. Developing a new business method or introducing a new product is neither easy nor inexpensive to accomplish. Consequently, it can be significantly less costly to create and sell products once someone else has determined a market exists or via marketing/advertising has created a new market. Such free riding is simply an aspect of competition that is often desirable for a variety of reasons. Allowing a first market entrant to block any of the above free riding by competitors may tend to preserve the status quo in the marketplace. This can have the undesirable effect of stifling innovation and creativity. Competition leads to competitors attempting to gain market share by utilizing efficiencies to lower production costs, by providing better customer service than competitors and by creating strong consumer-recognized brands. It also encourages competitors to improve existing products in order to capture a larger market share and perhaps charge a premium price for at least a limited time period. Moreover, maintaining the status quo can interfere with the integration of technology into the marketplace. In contrast, free riding forces market participants to embrace new technology in order to maintain an edge on competitors in the quest to provide better products and services while minimizing costs.
The avoidance of ruinous competition, another rationale asserted in International News Service, would seem to be an admirable goal; however, it is inconsistent with normal economic development and integration of technology into society. It is an unfortunate fact of business that many enterprises will fail due to marketplace competition. Attempting to insulate a business from such market forces via an action for misappropriation asserted against a competitor interferes with the natural evolution of enterprises in the marketplace. Additionally, concerns about ruinous competition are often based on erroneous beliefs or reflect an underestimation of the ability of enterprises to adapt to changes. For example, in International News Service the Court appeared to believe that allowing a news service to free ride on the news gathering activities of a competitor would result in no enterprise engaging in such activities. The Court asserted that it would be too costly to compete and make a profit in light of free riding by competitors. This is not a new argument. In Ghen v. Rich the Court opted to adopt the prevailing custom in the whaling industry. The custom provided that harpooning a whale made it your property even if the whale became submerged and floated away. If someone found the whale washed up on a remote beach the finder did not acquire ownership of the whale. The Court feared that failure to adopt this custom as the common law would have a significant negative effect on the local economy. The ruinous competition argument has also been asserted today in response to news aggregators who rely on the Internet to engage in a modern version of what occurred in International News Service. Such aggregators can easily and quickly access news stories on-line, extract the relevant news and then redistribute it for minimal cost. Newspapers and other news entities that expend substantial money and effort initially collecting the news argue that they are unable to operate profitably due to such free riding by aggregators. Even if such an argument is true, typically all existing business enterprises are subject to marketplace changes due to technology advances and numerous other factors. Businesses must either develop new business strategies to survive or they will be replaced by new enterprises. Such new strategies may include utilizing technology to counteract the consequences of free riding by competitors, providing new value-added services or abandoning an existing business model. Frequently, assertions that the activities of competitors, or others, will ruin a business enterprise reflect an attempt to maintain the status quo in the face of significant market disruptions. It is such disruptions, often the result of advancing technology, that are the real cause of the economic destruction of a business because the status quo may no longer represent a viable business model. This is exemplified by the music industry, whose existing business model has been economically devastated by the advent of technology that enables almost anyone to inexpensively copy and widely distribute music in digital form. Conventional print media, such as newspapers, have also been heavily impacted by the migration of news and other information to the Internet. Likewise, wide adoption of smart phones means more consumers are accessing and reading news in digital form on a smart phone or other device in lieu of print media. Nevertheless, business enterprises of some type will continue to make both music and news media available. How such enterprises are structured and what revenue sources they will rely on will undoubtedly change in unexpected ways. Consequently, justifying a misappropriation action based on a property rationale or the prevention of free riding or ruinous competition is problematic. Such an action will merely interfere with and delay the inevitable marketplace changes that result from changes in society and introduction of rapidly changing technology.
Despite the positive aspects of free competition, some limits must exist to create an orderly marketplace. Elimination of a misappropriation action does not leave competitors powerless. Certain types of activities that restrain trade may run afoul of antitrust law. Moreover, a property theory—via an infringement action—can be relied on to bar interference with unauthorized use of intellectual assets that are designated property. These would include assets protected via patent law, copyright law, trade secrets law and trademark law. Other statutory and common law actions focus on marketplace conduct that is generally deemed objectionable. Such actions, which come under the generic umbrella of unfair competition, are ultimately based on an underlying tort theory and include a constellation of actions such as injuring consumers or competitors via passing off, deception, misrepresentation or false advertising. All of these actions reflect an underlying policy of societal disapproval of misleading or deceptive marketplace conduct, or a breach of trust among parties. Finally, parties should be free to enter private contractual agreements as deemed necessary provided they do not restrain trade via collusion or unreasonably interfere with competition. Nevertheless, reliance on contract-based theories to protect information and ideas has received inconsistent and confusing judicial treatment. Judicial decisions deciding idea protection cases under contract law theories can generally be divided into two broad categories. One group of decisions adopts a freedom of contract rationale. This reflects a belief that the contracting parties are in the best position to determine whether to enter the agreement, and that courts should not second-guess the informed decisions made by the agreeing parties. The second group of decisions relies on a property rationale. This reflects a belief that a contractual agreement that purports to sell or transfer an interest in something not legally recognized as property is essentially lacking in consideration. And therefore, the agreement should not be enforceable under conventional contract law principles. In Tate v. Scanlan International, Inc., an operating room nurse thought up a simple medical device that could be used to minimize breakage of a particular type of suture material used in surgery. She disclosed her idea on a confidential basis to a company that designed and sold surgical supplies upon the mutual understanding that she would be compensated if the company utilized her idea. The idea was eventually profitably marketed and sold but a dispute arose as to the amount of payment owed to the nurse. The trial court jury awarded the nurse substantial damages based on a contract theory. On appeal the Court upheld the damage award based on a breach of contract. However, the Court held that an idea could only be the subject of a contract, or other legal protection, if it was both novel and concrete. The novel requirement is satisfied if the idea originates with the idea creator and is not generally known to the public. The concrete requirement is met if the idea is sufficiently complete so that it can be used without the need for significant development before it can be implemented. Requiring novelty and concreteness amounts to a rejection of the a freedom of contract rationale in favor of a reliance on reliance on an underlying property. This arguably makes sense under a property theory because property rights can be asserted against the public generally. Hence, a vague undeveloped idea that is generally known to members of the public cannot be an individual’s property. However, contract actions only affect the rights of the contracting parties who have voluntarily entered into a binding legal relationship. The rights of anyone not a party to the contract are unaffected. Injecting a property rationale into such relationships is therefore inconsistent with the underlying freedom of contract rationale that is strongly embedded in contract theory. A trend exists in modern idea-submission cases for courts to minimize reliance on an underlying property theory in favor of a freedom of contract theory. In Nadel v. Play-By-Play, an independent toy designer developed a concept for a plush monkey that made noise and spun around when placed on a flat surface. The designer asserted that he disclosed a prototype of the toy to the defendant toy company pursuant to industry custom that required the defendant to pay him for the concept if it was used by the toy company. The defendant rejected the design but subsequently came out with a toy based on the concept. In reversing the trial court’s dismissal of the action the Court held that a different standard of novelty applied to a property-based action and a contract-based action. A property action requires the conventional novelty standard: the idea is not known to the public. However, under a contract theory, the novelty standard only requires that the idea was novel to the defendant at the time of contracting without regard to whether it was generally known to the public or to competitors. This approach, followed by some courts, reflects a freedom of contract rationale that recognizes that a party should be free to contract to buy an idea based on its determination of value. Additionally, it recognizes that enterprises involved in a business or industry are typically best situated to determine the value of an idea and to reach appropriate contract terms. Nevertheless, the Nadel court allowed for a limit on the freedom of contract with regard to ideas. It preserved the right of a court to find an idea so lacking in novelty that it can be assumed it is not novel to the buyer and therefore insufficient as a matter of law to support a contract claim. Although I think it is unlikely that a court would apply this limit, it allows a court the ability to find a contract for an idea unenforceable in egregious situations where enforcing the contract would be inequitable and unfair. This can be analogized to the doctrine of unconscionability in contract law, which serves a similar purpose for contracts generally. An alternate view of contracts for the purchase of ideas or information is to consider them service contracts. This approach eliminates the focus on whether the idea or information sought to be sold or conveyed is absolutely novel, novel to the buyer or concrete. It also lets business entities decide what and how they want to contract for something. For example, an enterprise could agree to pay for the service of providing an idea or information without regard to whether it is novel or concrete. Or, the parties could contractually require that the idea or information that is the subject matter of the contract must be novel or concrete. Even though reliance on a service contract rationale typically eliminates factual findings related to concreteness or novelty, significant hurdles still exist for a contractual theory to prevail. It must still be shown that the parties mutually agreed to enter a contract for the transfer of an idea or information. If a written contract is at issue, normal contract interpretation rules can be utilized. Of course, such disputes do not commonly involve written contracts and therefore parties frequently assert an implied-in-fact contract theory. Nevertheless, any contractual theory including an implied-in-fact theory requires establishing that the parties intended to enter into an enforceable agreement. Industry custom can be a decisive factor, such as in the Nadel decision, when asserting an implied-in-fact contract theory. However, this is not unique to contracts for ideas or information. Industry custom is applicable, when relevant, to understanding and interpreting contracts generally.
The International News Service decision, despite being overruled by a subsequent Supreme Court decision and narrowed in scope by the preemptive effect of copyright law, has continued to survive as a state-based misappropriation action. This is a consequence of the decision being both misunderstood and misapplied. Any common law cause of action for misappropriating an idea or information based on a property rationale should not prevail. Nor should preventing free riding or ruinous competition provide a rationale for such actions. Courts should unequivocally repudiate the misappropriation doctrine in an effort to provide clarity in the law. This clarity is important in the current climate, where ideas are increasingly more valuable and new technological innovations continually emerge. Instead, any common law action to protect ideas or information should only succeed, if at all, under existing contract and tort causes of action.
To facilitate the exchange of ideas, the standard custom and practice in the toy industry calls for companies to treat the submission of an idea as confidential. If the company subsequently uses the disclosed idea, industry custom provides that the company shall compensate the inventor, unless, of course, the disclosed idea was already known to the company.