Entrepreneurs frequently ask how they can eliminate the risk of having prospective business partners or licensees steal their ideas. Unfortunately, there is no way to completely guarantee exclusive ownership of an idea once it is revealed to a potential competitor. Even a relatively clear-cut case of piracy can be aggressively defended in court, and in many cases the financial burdens of litigation prevent owners of intellectual property from enforcing their rights. The first line of defense, therefore, is non-legal: reveal your ideas to people or businesses whom you can trust.
But since trustworthiness is a quality not easily measured, and human judgement is fallible, the question of what legal means best protect your ideas remains. In most cases, the trade secret laws provide the best means of protection. Burten v. Milton Bradley , a case decided last year by the First Circuit Court of Appeals, illustrates how the trade secret laws may be used by a "David" to overcome a "Goliath."
BURTEN v. MILTON BRADLEY
Late in 1979, two independent game inventors named Alan Coleman and Roger Burten conceived of a microprocessor-controlled game, which they called Triumph. They created a prototype and approached the Milton Bradley Company as a possible licensee to market the game.
In February of 1980, Coleman and Burten met with several Milton Bradley executives at Milton Bradley's offices in East Long meadow, Massachusetts. Before demonstrating Triumph, Burten and Coleman signed a non-disclosure waiver form prepared by Milton Bradley. The critical part of this document state that:
"This submission by me and its acceptance by Milton Bradley does not, in whole or in part, establish or create by implication or otherwise any relationship between Milton Bradley and me not expressed herein. I further understand and agree that Milton Bradley,...shall not be obligated to me in any way with respect to my idea..."
In a written addendum, Milton Bradley agreed to pay a non-refundable advance of $25,000 after 30 days, and every additional 30 days, until it either returned the prototype or signed a contract.
Following this meeting, Milton Bradley evaluated the Triumph prototype at its plant. Less than one month later, Milton Bradley informed Burten and Coleman that it was not interested in marketing the game. Burten and Coleman attempted, unsuccessfully, to interest other companies in their game. By the end of 1980, they had given up trying to find a game manufacturer to market Triumph.
In early 1981, the two inventors attended the annual two-week toy fair in New York City. There they saw the first public display of Dark Tower, Milton Bradley's new integrated electronic board game -- the first such game on the market. Burten and Coleman immediately concluded that Milton Bradley had stolen their idea and used it in creating Dark Tower. Milton Bradley denied this charge, and refused to pay any royalties. Dark Tower enjoyed great commercial success, while Triumph gathered dust instead of profits.
Burten and Coleman brought suit in Federal District Court in Rhode Island, claiming that Milton Bradley had misappropriated the trade secrets embodied in Triumph. Following a lengthy trial, a jury awarded them $737,058.10 for lost royalties.
Despite this judgement, Milton Bradley still had a powerful card to play. Based solely on the non- disclosure waiver form that Burten and Coleman had signed at Triumph's demonstration, Milton Bradley asked the court to set aside the jury's verdict. The company argued that this agreement disclaimed any relationship between the parties, and therefore precluded the establishment of a confidential relationship.
The "confidentiality" of the relationship was an essential element of Burten and Coleman's trade secret claim. The court found that without the written waiver, a confidential relationship would have existed, and Milton Bradley's behavior would have constituted a breach of that relationship. However, since the waiver did exist, the court found Milton Bradley protected from liability and set aside the jury verdict, observing that "Coleman and Burten made their bed when they eagerly affixed their signatures to the disclosure waiver form in order to induce Milton Bradley to look at their wares; they cannot sleep elsewhere."
Burten and Coleman appealed the district court's decision to the First Circuit Court of Appeals in Boston, which reversed the district court and reinstated the jury verdict. The Court of Appeals acknowledged that a confidential relationship, which would otherwise protect a trade secret, can be defeated if both parties expressly disclaim such a relationship. However, here the court found that Milton Bradley's non-disclosure waiver agreement was not sufficiently explicit to waive a confidential relationship. The court also found that the addendum obligating Milton Bradley to pay $25,000 if it held the game for longer than 30 days that Milton Bradley had not intended to waive any claim to royalties for use of the idea. Following this decision, Milton Bradley paid Burten and Coleman the amount determined by the jury verdict.
The Milton Bradley case contains several important lessons on the law of trade secret misappropriation. First, it demonstrates that although a written non-disclosure agreement is desirable from the inventor's point of view, such an agreement is not entirely necessary. The law imposes an "implied contract" of confidentiality in many commercial relationships. For example, a confidential relationship exists where disclosures are made between employers and employees, purchasers and suppliers, or, as in the case discussed here, between prospective licensees and licensors.
Milton Bradley also shows that although a trade secret owner may "sign away" this mantle of confidentiality, the law is highly protective of inventors. In Milton Bradley, the law's protectiveness showed itself in the court's unwillingness to enforce a waiver that was less than crystal clear. Despite this outcome, however, inventors are frequently forced to give up their trade secret rights to gain access to possible licensees. Compare the weak provision in the Milton Bradley case with a similar type of provision in the IBM Software Submission Agreement, which states:
"Your submission will not create any confidential or fiduciary relationship between you and us";
"We will have no obligation to treat your Software as confidential."
IBM will not consider any idea until the owner signs this agreement, which effectively waives any confidential relationship. If Milton Bradley's waiver form had used such explicit language, Burten and Coleman's case would have been dismissed before it reached the jury.
However, there is a heavy burden on the defendant in this situation to demonstrate that it did not misappropriate an idea belonging to someone else. The larger the defendant, the more important that it have documentation verifying independent creation of the idea under dispute. The fact that the workbooks in which Milton Bradley required its engineers to record their ideas showed no mention of the Dark Tower idea before the first meeting with Burten and Coleman weighed heavily in Milton Bradley's failure to convince the jury that it had independently created Dark Tower.