208 F.3d 368 (2nd Cir. 2000), 99-7214, Nadel v Play-By-Play Toys & Novelties

Docket Nº:Docket Nos. 99-7214(L), 99-7232(XAP)
Citation:208 F.3d 368
Party Name:CRAIG P. NADEL, Plaintiff-Counter-Defendant-Appellant-Cross-Appellee, v. PLAY-BY-PLAY TOYS & NOVELTIES, INC., Defendant-Counter-Claimant-Appellee- Cross-Appellant.
Case Date:March 27, 2000
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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208 F.3d 368 (2nd Cir. 2000)

CRAIG P. NADEL, Plaintiff-Counter-Defendant-Appellant-Cross-Appellee,

v.

PLAY-BY-PLAY TOYS & NOVELTIES, INC., Defendant-Counter-Claimant-Appellee- Cross-Appellant.

Docket Nos. 99-7214(L), 99-7232(XAP)

United States Court of Appeals, Second Circuit

March 27, 2000

Argued: November 10, 1999

Appeal from an order of the United States District Court for the Southern District of New York (Sidney H. Stein, Judge) granting defendant's motion for summary judgment and dismissing plaintiff's complaint arising out of defendant's alleged use of plaintiff's toy idea without paying compensation. Defendant cross-appeals from the district court's grant of summary judgment dismissing defendant's counterclaims for tortious interference, unfair competition, and violations of the Lanham Act. We find that the district court misconstrued the standards for novelty in submission-of-idea cases under New York law and erred in applying such standards to plaintiff's claims, but we agree with the district court's dismissal of defendant's counterclaims.

Affirmed in part; vacated and remanded in part.

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MARTIN B. PAVANE, Cohen, Pontani, Lieberman & Pavane, New York, NY (Catriona M. Collins, on the brief), for plaintiff-counter-defendant-appellant-cross- appellee.

RAYMOND A. KURZ, Rothwell, Figg, Ernst & Kurz, Washington, DC (Celine Jimenez Crowson, on the brief), for defendant-counter-claimant-appellee-cross- appellant.

Before: CARDAMONE, SOTOMAYOR and KATZMANN, Circuit Judges.

SOTOMAYOR, Circuit Judge:

Plaintiff-appellant Craig P. Nadel ("Nadel") brought this action against defendant-appellee Play-By-Play Toys & Novelties, Inc. ("Play-By-Play") for breach of contract, quasi contract, and unfair competition. The thrust of Nadel's complaint was that Play-By-Play took his idea for an upright, sound-emitting, spinning plush toy and that, contrary to industry custom, Play-By-Play used the idea in its "Tornado Taz" product without paying him compensation. Play-By-Play also filed several counterclaims against Nadel, alleging that Nadel falsely told other members of the toy industry that Play-By-Play had stolen his idea, thereby harming its ability to receive toy concepts from toy industry members.

For the reasons that follow, we vacate that part of the district court's order granting Play-By-Play's motion for summary judgment and dismissing Nadel's complaint and affirm that part of the district court's order dismissing Play-By-Play's counterclaims.

BACKGROUND

Nadel is a toy idea man. Toy companies regularly do business with independent inventors such as Nadel in order to develop and market new toy concepts as quickly as possible. 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

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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.

In 1996, Nadel developed the toy concept at issue in this case. He transplanted the "eccentric mechanism"1 found in several hanging Halloween toys then on the market-such as "Spooky Skull" and "Shaking Mutant Pumpkin"-and placed the mechanism inside of a plush toy monkey skin to develop the prototype for a new table-top monkey toy. This plush toy figure sat upright, emitted sound, and spun when placed on a flat surface.

In October 1996, Nadel met with Neil Wasserman, an executive at Play-By-Play who was responsible for the development of its plush toy line. According to Nadel, he showed his prototype monkey toy to Wasserman, who expressed interest in adapting the concept to a non-moving, plush Tazmanian Devil toy that Play-By-Play was already producing under license from Warner Bros. Nadel contends that, consistent with industry custom, any ideas that he disclosed to Wasserman during their October 1996 meeting were subject to an agreement by Play-By-Play to keep such ideas confidential and to compensate Nadel in the event of their use.

Nadel claims that he sent his prototype monkey toy to Wasserman as a sample and awaited the "Taz skin" and voice tape, which Wasserman allegedly said he would send, so that Nadel could make a sample spinning/laughing Tazmanian Devil toy for Play-By-Play. Wasserman never provided Nadel with the Taz skin and voice tape, however, and denies ever having received the prototype monkey toy from Nadel.

Notwithstanding Wasserman's denial, his secretary, Melissa Rodriguez, testified that Nadel's prototype monkey toy remained in Wasserman's office for several months. According to Ms. Rodriguez, the monkey toy was usually kept in a glass cabinet behind Wasserman's desk, but she remembered that on one occasion she had seen it on a table in Wasserman's office. Despite Nadel's multiple requests, Wasserman did not return Nadel's prototype monkey toy until February 1997, after Play-by-Play introduced its "Tornado Taz" product at the New York Toy Fair.

The parties do not dispute that "Tornado Taz" has the same general characteristics as Nadel's prototype monkey toy. Like Nadel's toy, Tornado Taz is a plush toy that emits sounds (including "screaming," "laughing," "snarling," and "grunting"), sits upright, and spins by means of an internal eccentric vibration mechanism.

Nadel claims that, in violation of their alleged agreement, Play-By-Play used his idea without paying him compensation. Play-By-Play contends, however, that it independently developed the Tornado Taz product concept and that Nadel is therefore not entitled to any compensation. Specifically, Play-By-Play maintains that, as early as June or July of 1996, two of its officers-Wasserman and Slattery-met in Hong Kong and began discussing ways to create a spinning or vibrating Tazmanian Devil, including the possible use of an eccentric mechanism. Furthermore, Play-By-Play claims that in late September or early October 1996, it commissioned an outside manufacturing agent-Barter Trading of Hong Kong-to begin developing Tornado Taz.

Play-By-Play also argues that, even if it did use Nadel's idea to develop Tornado Taz, Nadel is not entitled to compensation because Nadel's concept was unoriginal and non-novel to the toy industry in October 1996. In support of this argument, Play-By-Play has submitted evidence of various toys, commercially available prior to October 1996, which used eccentric motors and allegedly contained the same

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characteristics as Nadel's prototype monkey toy.

In connection with its counterclaims, Play-By-Play alleges that Nadel falsely told other members of the toy industry that Play-By-Play had stolen his toy idea, thereby damaging its ability to receive new toy concepts from toy industry members. Play-By-Play claims, for example, that Nadel frustrated its business negotiations with a company called Wow Wee. Specifically, Play-By-Play alleges that because of Nadel's false statements, Wow Wee broke off its business negotiations with Play-By-Play and approached other toy manufacturers before ultimately returning to Play-By-Play to conclude a deal. Play-By-Play contends that it suffered damages because of the resultant delay in bringing Wow Wee's toy concept to market.

Similarly, Play-By-Play alleges that Nadel's false statements damaged its business relationship with Andrew Ferber, a toy developer. Ferber was a former business associate of Nadel who attended Nadel's October 1996 meeting with Wasserman so that he could pitch his "conductive ink" technology to Play-By-Play for possible use in a Looney Tunes pillow. A follow-up meeting between Wasserman and Ferber was scheduled, but Wasserman never appeared for that meeting. Ferber testified that he learned of Nadel's lawsuit from Nadel and that he would be less willing to do business with Play-By-Play as a result. Ferber and Play-By-Play have not done business together.

DISCUSSION

I. NADEL'S CLAIMS

On January 21, 1999, the district court granted Play-By-Play's motion for summary judgment dismissing Nadel's claims for breach of contract, quasi contract, and unfair competition.2 Interpreting New York law, the district court stated that "a party is not entitled to recover for theft of an idea unless the idea is novel or original." Nadel v. Play By Play Toys & Novelties, Inc., 34 F.Supp.2d 180, 184 (S.D.N.Y. 1999). Applying that principle to Nadel's claims, the district court concluded that, even if the spinning toy concept were novel to Play-By-Play at the time Nadel made the disclosure to Wasserman in October 1996, Nadel's claims must nonetheless fail for lack of novelty or originality because "numerous toys containing the characteristics of [Nadel's] monkey were in existence prior to [] October 1996." Id. at 185. In essence, the district court interpreted New York law to require that, when a plaintiff claims that a defendant has either (1) misappropriated his idea (a "property-based claim") or (2) breached an express or implied-in-fact contract by using such idea (a "contract-based claim"), the idea at issue must be original or novel generally. See id. at 184 n.1. Thus, according to the district court, a finding that an idea was novel as to Play-By-Play-i.e., novel to the buyer-cannot suffice to sustain any of Nadel's claims. See id.

On appeal, Nadel challenges the district court's conclusion that a showing of novelty to the buyer-i.e., that Nadel's idea was novel to Play-By-Play at the time of his October 1996 disclosure-cannot suffice to sustain his claims for breach of contract, quasi contract, and unfair competition under New York law. Nadel...

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