How did a tiny L.A. ad agency win a $33 million lawsuit against a big corporation over the idea for a pen contest?
It all came down to what was stated in the contract: that the agency owned the idea. The verdict may have a chilling effect on the ad industry, the corporation’s attorney claims, because clients may now demand contracts that grant them ownership of the ideas in a “pitch session.”
Concept Chaser Co., a husband-and-wife ad agency in El Segundo, claimed it proposed a contest in which participants submitted videos online. It was all to market the HyperG, a gel pen sold by Torrance-based Pentel of America, a subsidiary of Japanese corporation Pentel Co. Ltd. A lawsuit claimed Pentel stole and executed the idea with another ad agency.
Pentel countered that it had created the concept behind the contest before the pitch. But on Dec. 12, a jury sided unanimously with Concept Chaser, handing the agency $14.7 million for breach of contract, $750,000 for fraud and $17.5 million in punitive damages. Pentel will appeal.
Michael Alder, the Beverly Hills attorney who represents Concept Chaser, said it was a clear case of contract breach.
“Pentel strung them along for a month and a half, got all their ideas and then gave it to another ad company,” Alder said. “Pentel claimed it was their idea, but they didn’t have any documents. The jury didn’t believe their witnesses.”
Grant Nigolian, an attorney in Irvine who represents Pentel in the case, said that the judgment could change the nature of pitch sessions, and hamper creativity and business development for ad agencies.
“Companies should require agencies to sign written agreements that clearly state the ideas/concepts proposed are freely available to the companies for use,” Nigolian said. “The results of the Pentel trial will likely be to the detriment of ad agencies.”
The dispute originated when Pentel of America President Isseki Nakayama called Concept Chaser in November 2007 about an urgent project to market a new pen to professionals such as doctors, lawyers and accountants.
Concept Chaser owner Yoshi Hayakawa and his wife, Clara Goh Hayakawa, met with Nakayama at Pentel’s offices. But before pitching any ideas, the Hayakawas had Nakayama sign a contract stipulating that Concept Chaser owned all intellectual property created for the project. The contract stated that the agency would receive $5,000 for developing ideas, even if they were never used.
The following month, the Hayakawas presented their ideas at a series of meetings in Pentel’s offices.
Instead of targeting professionals, Concept Chaser proposed the company should focus on college students with a video contest. After a series of meetings, Pentel informed the Hayakawas in mid-January 2008 that they didn’t have a marketing budget for the project. Pentel paid the $5,000.
Alder said that about a year after their last meeting with Pentel, the Hayakawas were surfing the Internet and found Pentel had created a campaign virtually identical to their pitch. They then sued for breach of contract and fraud.
In court filings, Pentel’s attorneys stated that examples of past Pentel campaigns, including video sweepstakes, were provided to the Hayakawas. Pentel contended that Concept Chaser simply cut and pasted the company’s ideas rather than create ideas and the agency never fulfilled its assignment to reach professionals.
Contract matters
Greg Sater, a partner in the L.A. office of Venable who specializes in intellectual property law, was not involved with the case but reviewed it for the Business Journal. He said ad agencies, like Hollywood writers, regularly pitch ideas and sometimes complain ideas are stolen. Most such lawsuits fail. What made this case different was the contract that Concept Chaser wrote.
“This wasn’t a fully articulated agreement, but it was in writing and it was signed,” Sater said. “It led to a very impressive victory at trial.”
Alder said the contract was standard operating procedure at the agency and recommends prepitch agreements for other creative types.
“The more documentation the better,” he said. “Send letters confirming what happened at meetings, register your writing for copyright if appropriate, and keep e-mails and notes. If you can get a contract, that’s the best.”
Russel Wohlwerth, a principal at External Consulting Group, a Culver City company that helps advertisers work with marketing agencies, said most agencies assume they own ideas they pitch, but advertisers often assume that they can use them even if they don’t hire the agencies.
“If anything, this case will make people cautious and seek to clarify upfront who owns what,” Wohlwerth said. “Kudos to the agency, because companies often assume they own a pitch when they hear it. You don’t want that ambiguity.”
Pentel is preparing an appeal, which attorneys for both sides estimate will take about a year to decide.
However, Nigolian also claims Judge Mark Mooney is biased in the case. Shortly before trial, Mooney received the Trial Judge of the Year award from the Consumer Attorneys Association of Los Angeles, and Alder, the lawyer for Concept Chaser, is president-elect of the organization. Alder led the committee that selected Mooney as the honoree, and Alder personally handed the trophy to the judge at a Beverly Hills dinner last January. Nigolian plans to pursue the issue as part of the appeal process.
