FAQ: Questions and Answers

[back to notice text] Question: What is intellectual property? Answer: Intellectual property consists of property created through human creativity. It includes, for example, literature, the visual arts, music, drama, compilations of useful information, computer programs, biotechnology, electronics, mechanics, chemistry, product design, and trade identity symbols. Intellectual property law is designed to promote human creativity without excessively restricting dissemination of the fruits of such creativity. Intellectual property rights are embodied in patents, trade secrets, copyrights, and trademarks. [back to notice text] Question: What can be kept as a trade secret? Answer: A trade secret is information that provides a business with a competitive advantage. The following section provides examples of circumstances where trade secret protection was approved or denied. Courts have provided trade secret protection to formulas, patterns, plans, designs, physical devices, processes, software, and ?know-how.? Examples of these trade secret categories are provided below. Please keep in mind that different courts may reach contrary conclusions concerning trade secret status with respect to what may appear to be identical matters. You may wish to consult a lawyer in your local area to obtain information on your state?s laws. FORMULA: A formula (i.e., a recipe that allows one to create a product) can be a trade secret. One of the most familiar examples of a trade secret formula is the Coca-Cola formula. This formula gives the Coca-Cola Company a significant business advantage in the soda market, as there is no other soda that tastes the same. The Coca-Cola Company has put numerous security measures in place to keep its formula a secret. In fact, the Coca Cola Company ensures that no one knows every step of the formula! Other common formulas found to be trade secrets in the food, drug, and cosmetics industry include formulas for butter flavoring, cheese, breakfast cereal, seasoning for fried chicken, special diet rations for dogs, mixed alcoholic beverages, lipstick, and hair conditioner. On the other hand, formulas for a lemon-flavored soft drink, recipes and cooking procedures for common dishes such as BBQ chicken and bakery goods were all denied trade secret protection. PATTERNS, PLANS, & DESIGNS : A pattern, plan or design can be a trade secret. For example, courts have found the following to be trade secrets: circuitry for an advanced minicomputer, color TV circuitry, schematics for an analog circuit, plans and specifications for gears and rollers of a photo-processing machine, plans for drilling equipment, plans and designs for a veneer dryer, molds for the manufacture of street markers, and a design for a grating. PHYSICAL DEVICE : A physical device used in manufacturing can be a trade secret. Examples of these devices found to be trade secrets include: a device for manufacturing radio parts, machinery and equipment used to manufacture polyethylene, machinery and equipment used to manufacture saw grade diamonds, a computer tool used to service microprocessor-based elevators, a tool for making a pressure-sensing mechanism, a machine for inking carbon paper and ribbons, and an adhesive-tape machine. PROCESS : A process, method or technique used to make the final end product can also be a trade secret. The following is an example of using a process as a trade secret: Suppose you work at a hair salon and when a customer wants you to dye his or her hair, you use a hair dye formula that is pre-bottled. However, you have also developed your own unique process in applying the formula to hair so that the hair color stays longer. Because your process gives you a competitive business advantage, you may obtain trade secret protection of your dye process. Other examples of processes found to be trade secrets include: a process to manufacture foam crash pads, a process to treat metal, a process to manufacture fiberglass, a method and procedure to manufacture epoxy resin rods, a process to manufacture potassium sulfate, and a process for an environmentally sound method to manufacture coated paper. Keep in mind that processes and methods incident with a patent may still constitute a trade secret. See below for more information on patents and trade secrets. ?KNOW-HOW? : "Know-how" can be a trade secret. A method or technique in some cases might fall into the ?process? category, but many methods and techniques can be better described as ?know-how" (i.e., information and experiential expertise related to using formulas or processes.) When asserting methods and techniques in this category, however, one must be very specific in describing the method or technique. Examples of trade secrets in this area include: know-how pertaining to the construction of plant chemicals, methods for testing procedures to assure the quality of raw material, know-how to ascertain whether CAT scanning equipment and components are operating according to specifications and to identify malfunctions, and methods to manufacture typewriters. [back to notice text] Question: What do courts consider in determining if a trade secret exists? Answer: Courts usually consider the following three factors in determining whether you have a trade secret: (1) Is the information deemed to be a "trade secret" valuable to the business? Only secret information can be protected by trade secret law. Secrecy is typically determined by evaluating whether or not the information is "generally known" or "readily ascertainable." If the information is secret, you must consider whether the secret information is valuable to your business. How would you rank its value? Courts tend to find that the information is a trade secret if the information is so valuable as to significantly impact the operations of a business. (2) What steps have been taken to keep the information secret? Trade secret laws require that you have taken some action to keep your information a secret. The security procedure taken to protect the information is often the most important evidence that the information constitutes a trade secret. For example, courts have often found that restricting access (on a "need to know" basis) to any sensitive information is a factor that helps to meet this requirement. Courts have also found that physical security, such as keeping written trade secret information in a locked drawer and granting very limited access to it, can meet this requirement. Generally, holders of trade secrets develop a formal system for safeguarding their trade secret information. Such a system can include, for example, reviewing information to be sure that the secret information is not included in documents sent to customers and competitors. In addition, proprietary notices can be placed on all documents containing information related to trade secrets and strict confidentiality provisions can be written into all consulting, manufacturing, employment, and/or non-disclosure agreements. (3) To what extent do employees and others involved in the business know about the information? What about people outside the business? The extent that those in your business and those outside the business have access to the information can affect a court's decision as to whether you have a legal trade secret. Generally, courts have found the information to be public knowledge and not a trade secret if people who do not have a need to know the information have access to it. This is especially true if many people outside the company are familiar with the information. [back to notice text] Question: How can I protect my trade secrets from disclosure by my employees? Answer: There are two types of legal contracts that are widely used to help businesses protect trade secrets: (1) non-disclosure agreements; and (2) non-compete agreements. Often, these agreements are included as part of an "employee agreement' that is signed upon commencement of employment. (1) NON-DISCLOSURE AGREEMENTS (NDAs) During the course of business, you may have to disclose your business secrets to your employees. What happens when you have a disloyal, untrustworthy, or dishonest employee and that employee knows your secrets? Is there anything you can do to stop the employee from telling others? A non-disclosure agreement (NDA) is a confidentiality agreement that can be used to protect trade secrets. Often, during the regular course of business, your secret information may be disclosed to employees or business partners. An NDA requires that the information be kept a secret. The provisions of the agreement require the person to keep the information confidential. If someone has signed an NDA and uses your trade secret without your authorization, you can sue for damages and stop the violator. (2) NON-COMPETE AGREEMENTS During the regular course of business, you may have to disclose your business secrets to your employees. But what happens when these employees leave your company? By requiring your employees to sign a non-compete agreement, employees must agree not to work for a direct competitor for a certain amount of time after leaving your company. The theory behind this type of agreement is that after a certain amount of time, your trade secret will no longer be valuable because of technological changes as your business advances, and, accordingly, the technology will no longer need to be protected as a trade secret. It is important to be aware that courts use a "rule of reason" in deciding whether a noncompete agreement is legal. In other words, the terms of a non-compete agreement must be reasonable as to the duration, territory, and scope of the activity. A restraint is generally enforceable if it is fairly designed to protect the employer?s trade secrets. For example, a one-year restriction is generally acceptable. There are restrictions imposed on enforcing non-compete agreements against employees and some jurisdictions have even barred them. For example, California has state laws that heavily restrict, and in some cases, completely bar, non-compete agreements. California does not apply a rule of reason in evaluating an agreement that prevents an individual from pursuing any lawful occupation, but instead, requires that the trade secret holder prove that the non-compete agreement is absolutely necessary to protect its trade secrets. You may wish to consult a lawyer in your local area if you have questions about either of these agreements or your state?s laws. [back to notice text] Question: What is copyright protection? Answer: A copyright protects a literary, musical, dramatic, choreographic, pictoral or graphic, audiovisual, or architectural work, or a sound recording, from being reproduced without the permision of the copyright owner. 17 U.S.C. ?102. The copyright in a work vests originally in the author(s) of the work. The author(s) may transfer the copyright to any other party if she(they) choose(s) to do so. 17 U.S.C. ?201. Subject to certain limitations, the owner of a copyright has the sole right to authorize reproduction of the work, creation of a work derived from the work, distribution of copies of the work, or public performance or display of the work. 17 U.S.C. ?106. This right lasts for the life of the author plus seventy years; or in the case of a copyright authored by an entity (a work-for-hire), for ninety-five years. 17 U.S.C. ?302. [back to notice text] Question: What may be copyrighted? Answer: In order to be copyrightable, a work must be 1. fixed in a tangible medium of expression ; and 2. original. Copyrights do not protect ideas, procedures, processes, systems, methods of operation, concepts, principles, or discoveries: they only protect physical representations. 17 U.S.C. ? 102(b). Anything unrecorded is not copyrightable, in as much as it is not "fixed;" for example, dances and improvisations themselves are not copyrightable: only visual recordings or written descriptions of them are. Say I go to a jazz concert and listen to a soloist's improvisation. If I have the musical equivalent of a photgraphic memory, I may be able to reproduce that improvised solo in my own concert on the following night. If that solo exists nowhere but my memory (i.e. the original concert was not recorded) I may play it with impunity, because it is not "fixed" and therefore not copyrightable. But, if the original concert was recorded (e.g. taped, videoed, transcribed on paper), even by an amateur, I am barred from playing my version of the solo. Even a bootleg recording (for which the recorder can be punished under section 1101 of the copyright act) qualifies for copyright protection: a work need not be formally published in order to be "fixed;" it need only be saved in a tangible form. 17 U.S.C. ? 104. The originality requirement of 17 U.S.C. ?102 demands that a work, in order to be copyrigted, be independently created by the author. In order to be original, a work need not necessarily have novelty, artistic merit, truth, or lawful content. For example, a replica of a painting in the public domain may not be novel, but it is copyrightable. An item of sculpture designed to be used as a pipe for smoking marijuana may not be designed for legal ends, but it is copyrightable. A false biography is copyrightable, although it may well also be cause for defamation litigation. [back to notice text] Question: Does copyright protect facts? Answer: No. Copyright protects only original expression, not discovered facts. Creative selection and arrangement of facts is protected, but you can take the basic facts and rearrange them without infringing copyright. Thus the publishers of a telephone book cannot sue an online phone book publisher for copyright infringement, even if it took the first publishers considerable effort to collect the listings. [back to notice text] Question: What is fair use? Answer: Fair use is an affirmative defense that can be raised by an individual who is sued for copyright infringement (or an individual against whom a claim of copyright infringement is alleged). See Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994). Once the plaintiff has proven that his or her copyright was infringed upon, the burden lies with the defendant who invokes the fair use defense to prove that her or his use of the copyrighted work of another should be legally permitted, notwithstanding the copyright owner's exclusive rights in her work. [back to notice text] Question: Do I need permission from the copyright holder to make fair use? Answer: No. If your use is fair, it is not an infringement of copyright -- even if it is without the authorization of the copyright holder. Indeed, fair use is especially important to protect uses a copyright holder would not approve, such as criticism or parodies. See Campbell v. Acuff-Rose Music, 510 US 569 (1994). [back to notice text] Question: What does ?misappropriating? a trade secret mean? Answer: One has ??misappropriated? a trade secret if he or she has acquired, disclosed, or used the trade secret information without the permission of the holder, where such activities were done through improper means (e.g., the trade secret information was stolen from the holder) or in breach of an obligation of confidentiality or non-use. If you have received a letter stating that you have ?misappropriated? a trade secret (see SAMPLE LETTERS; also see TRADE SECRET LAWS), you should consult with an attorney. [back to notice text] Question: What is third-party liability, also known as "secondary liability"? Answer: The concept of third party liability refers, as the name implies, to situations in which responsibility for harm can be placed on a party in addition to the one that actually caused the injury. The most common example comes from tort law: a customer in a grocery store drops a bottle of wine and another customer slips on the puddle and injures himself; he may bring an action for negligence against the customer who dropped the bottle and against the owner of the grocery store. Under the common law doctrine of third-party liability, a plaintiff must show not only that an injury actually occurred, but also (in most cases) that some sort of connection existed between the third party and the person who actually caused the injury. As such the concept of third-party liability is often divided into two different types: contributory infringement and vicarious liability. Typically, contributory infringement exists when the third party either assists in the commission of the act which causes the injury, or simply induces the primary party to do so commit the act which caused the injury. (See What is contributory infringement?.) Vicarious liability often requires the third party to have exerted some form of control over the primary party?s actions. In copyright law, vicarious liability may be established if the third party had the "right and ability to control" the infringer's activities, and if the third party received some financial benefit from the acts of infringement. (See What is vicarious liability?.) [back to notice text] Question: Does pre-notification mean anything? Answer: Sometimes, claimants send C&Ds even before a website has posted anything, anticipating that it may soon post something objectionable. Putting the site-owner on notice of their claim, they may be trying to get the site-owner to filter user-posted material -- which there is no general legal obligation to do. They may also try argue that the site-owner has knowledge of infringement if it later occurs, but if the content is user-posted, the DMCA safe-harbor applies until the host gets notice of the specific location of allegedly infringing activity. They may be trying to establish a basic element of another claim, such as trade secret. To misappropriate a trade secret is to use or disclose it knowing that it was acquired through improper means.

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