Editor’s Note: JosÃ© Cortina is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A. TechLaw is a regular feature in Local Tech Wire.
_______________________________________________________________________________________While most businesses rely traditionally on what are mostly statutory forms of protection to protect their intellectual property, such as patents, trademarks and copyrights, an often overlooked form of information which is protectable is that which is known as a trade secret.
Protection for trade secrets arose originally out of common law in the states, but statutes have been enacted in most states to attempt to provide a somewhat more uniform scheme of protection.
What Constitutes a Trade Secret?
A trade secret is any information that is maintained as a secret and that creates for its owner economic value because it is not being known or discoverable by others. Trade secrets can include a formula such as the Coca Cola drink formula, a method of manufacture, a customer list, pricing information, and other nonpublic data. As previously noted, trade secret protection is originally derived from the common law, but today most states have adopted some statutory form of law in many cases based on what is known as the Uniform Trade Secrets Act. By comparison, patents, trademarks and copyrights are protected for the most part through a system of federal law enacted by Congress.
How Is Information Maintained as a Trade Secret?
In order to maintain information as a trade secret it must be kept secret. This would require steps such as prohibiting disclosure to persons who are not part of the business owning the trade secret, and within the business limiting disclosure to those “who have a need to know,” and who have been contractually obligated such as through an employment agreement to maintain trade secret and confidential information within the business. It is also important that the business take precautions including marking secret information “Confidential and Proprietary,” securing it in locations with limited access which are not accessible by those who are not bound to keep the information confidential, and disposing of any documents containing the secret information in a manner that will not allow it to be readily recovered by others.
Factors Involved in Deciding Whether To Maintain Information as a Trade Secret
In many cases, a business is faced with a difficult decision about whether to try to maintain information as a trade secret, or to seek some other form of protection such as patents or registration of a copyright claim contained within the trade secret.
In undertaking this consideration it is important to keep in mind that the intent of the patent statutes is to encourage complete disclosure of an invention. Thus, the concept of patent protection and trade secret protection cannot exist mutually. While patent protection provides a monopoly right to use the disclosed invention during the life of the patent, it comes with the price of disclosing the invention to the world. Trade secret, protection, if available can provide exclusive rights to the protected invention for so long as it can be maintained as a secret.
As an example, consider the case of a process for manufacturing fiber optic couplers. Conventional technologies involved using a Bunsen burner to melt the glass fibers together, but transmission losses were caused by the introduction of carbon particles into the glass fiber from the flame. A company then developed a new process in which a laser is used to heat the fibers and fuse them together without introduction of carbon particles, resulting in a coupler with significantly reduced dB losses between the two glass fibers. As far as the consumers of the products are concerned, all they know is that the company is producing much better couplers than the competition–not how the product was made. In this case, factors going into the decision about whether to seek patent protection or maintain knowledge of the process as a trade secret include:
1. How long can the company maintain the information secret with low risk if disclosure?
2. How likely is it that a competitor will quickly develop a similar process involving lasers?
Depending on the answers to these questions, the company can make an intelligent decision about whether to attempt to keep the information as a trade secret or to seek patent protection for the process.
In the case of software, copyright law allows for registration of the copyright with the copyright office as a literary work. Registering software is required in order to be able to file a federal lawsuit for copyright infringement, but the registration also requires that a copy of the software be filed. On its face, this arguably precludes concurrent copyright registration and trade secret protection. A special provision for registering copyrights for software, however, allows a copyright owner to strike or block out up to 50% of source code being deposited with the copyright office. Thus, it may be possible to register the copyright and still protect any trade secrets in the software.
Trade Secrets and Employees
One often troublesome area in the realm of protecting trade secrets is in connection with a departing employee. In order to be able to enforce trade secret obligations, it is important that the employee at the time of commencing employment sign an employment agreement requiring them not to disclose company trade secret information either during employment or after departing employment with the company.
If someone threatens to disclose your trade secrets, but has not yet done so, prompt legal action is necessary to attempt to obtain an injunction prohibiting such disclosure. While it is often impossible to recover trade secret status for information that has been disclosed, there may still be steps that the company through the courts can take to preserve protection for wrongfully disclosed trade secret information.
If the trade secret information disclosed involves an invention, and the invention has not been offered for sale in the United States for more than a year, patent protection can still be sought by preparation and filing of a patent application covering the invention embodied in the trade secret. The U.S. provides a one year grace period for filing a patent application from the date the “invention” was first offered for sale. In most other countries, which have what is known as an “absolute novelty” requirement, in the case of wrongful disclosure of a trade secret, a grace period of six months is often provided allowing the owner of the trade secret embodied in the invention to seek patent protection in countries having such absolute novelty requirements.
Notwithstanding, the competitive advantage provided by maintaining information as a trade secret, there are some drawbacks. More specifically, trade secrets can be destroyed by independent discovery by others. If a trade secret is embodied in a product and not apparent therefrom, others can legally attempt to reverse engineer the product to discover the trade secret. Similarly, accidental distribution of a document describing the trade secret without obligations or confidentiality can also serve to destroy the trade secret.
While trade secrets can provide a powerful form of protection for data or information which a company may deem to be not fully protectable by more traditional forms of intellectual property such as patents or copyright, there are potential pitfalls. It is important that a company in implementing a trade secret program understand the requirements for maintaining data or information trade secret, and to effectively exploit it. Without such steps being taken, it is often the case that the trade secret will be divulged, and in many cases, it would be too late to seek an alternative form of protection such as a patent.
Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. A. JosÃ© Cortina is a registered patent attorney who focuses his practice on the intellectual property needs of small to large technology companies, including providing patent, trademark, copyright, counseling, licensing, conflict resolution and transactional services. He is experienced in a broad range of technologies, including electronics, communications, computer hardware and software, biomedical, materials, and selected chemical and chemical engineering technologies. Questions or Comments can be sent to firstname.lastname@example.org