The Past and Present of Trade Secret Legislation

The Past and Present of Trade Secret Legislation

In order to better understand the past and present state of trade secret legislation, it is important to understand what a trade secret is and why it is often viewed differently from other intellectual property rights.

What is a Trade Secret?

Trade secrets can include a broad range of proprietary information, including product development plans, customer information, and even formulae. In order to have your trade secret protected, you:

  • must be using the trade secret
  • the trade secret must be conferring you with an economic advantage
  • the trade secret must not be generally known in the industry
  • the trade secret must be protected in a way that safeguards its confidentiality

If all of these elements are met, the owner of the trade secret may file a suit when the secret is acquired, used, or disclosed by illegal means.

Why are Trade Secrets different from other IP rights?

Unlike patents and copyrights that are governed by federal statutes, trade secret rights fall under state law. This usually makes trade secrets the “odd man out.” Congress is now considering making a federal civil action for trade secret misappropriation, including remedies that are currently unavailable under state law. Not only does Congress believe state law for trade secrets is inadequate, they also have expressed concern about the threat posed by international espionage.

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History of Trade Secret Legislation

Trade secret laws developed from common law principles of agency, trusts, and torts. Since these principles varied from state to state, the Uniform Trade Secrets Act (UTSA) was adopted by many states beginning in the 1980’s. 47 states have adopted the UTSA today.

The statute directed at trade secrets is the Economic Espionage Act of 1996, in which the EEA created criminal penalties for trade secret misappropriation. However, there was no room to bring were civil action for damages. Congress amended the EAA in 2012 to clarify that the EAA applied to trade secrets in use or intended to be in use. They also increased the range of available criminal penalties.

Proposed Legislation on Trade Secrets

House Bill 5233, known as the “Trade Secrets Protection Act of 2014” hoped to make a path for civil action for misappropriation of trade secrets. The bill also proposed a civil seizure remedy that would authorize the court to enter an Ex Parte Seizures to preserve evidence or to prevent the “propagation or distribution” of a misappropriated trade secret. Lastly, the bill hoped to create expanded remedies, including compensatory and punitive damages.

The Senate hoped to pass a similar bill, the Defend Trade Secrets Act of 2014, and both the House and the Senate had the support of many industry groups, who believed such a bill would protect trade secrets and combat any industrial espionage efforts. Critics argued that Congress did not need to step in if the current system of state laws worked. These critics further added that adopting federal statutes would erode state activity in the trade secret areas, resulting in fewer trade secret laws in the future. However, President Obama  made some changes to trade secret legislation in the past few days.

Defend Trade Secrets Act of 2016 (DTSA)

On May 11, President Obama signed into law the DTSA. This enables companies to go to federal court to sue for misappropriation of trade secrets. The DTSA now allows for Ex Parte Seizures in “extraordinary circumstances.” The law also expands remedies, such as adding Exemplary Damages and rewarding attorney’s fees. Injunctive relief is also provided and expanded with the DTSA.

With the passing of the DTSA, private parties do not have to rely solely on state law when it comes to protecting their trade secrets. The hope is that this new trade secret protection will allow trade secrets to function like other intellectual property rights and provide secret holders with more protection.

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Sources referenced:

  1. JD Supra (2014)
  2. JD Supra (2016)

 

 

 

Spirit v. Led Zeppelin: “Stairway To Heaven” Infringement Lawsuit

Spirit v. Led Zeppelin: “Stairway To Heaven” Infringement Lawsuit

There were many issues surrounding the Spirit lawsuit against Led Zeppelin and we will try to break down those issues in this post. Spirit claimed that Led Zeppelin infringed on its copyright with the iconic guitar arpeggio opening of “Stairway to Heaven.” Spirit believes their instrumental track “Taurus” is very similar to Led Zeppelin’s track. In order to better understand the case, let us first take a look at the issues that may come forth at trail.

Statute of Limitations

Led Zeppelin released their song about 43 years ago. The US Copyright Act says action must be “commenced within three years after the claim accrued.” This means Spirit would not be able to recover for any alleged infringement during the first 40 years of the song’s release. Recovery of new formats or new releases of the song would also be limited. Since the song has historically performed well, Spirit may still be able to recover a large amount of money. However, Spirit is concerned with more than just money. The band is also seeking an injunction to prohibit a new Led Zeppelin’s album by Jimmy Page.

Copyright Infringement

Many listeners are conflicted on whether Led Zeppelin copied Spirit’s song or whether the two bands just used the same instruments. To determine whether or not actual infringement took place, it is necessary to look at the court’s two-prong test:

  1. Copying of a prior work; and
  2. A substantial similarity to the prior work sufficient to constitute improper appropriation.

(1) Copying

This first element can be proven by either direct or circumstantial evidence. The more access a party had to prior work, the easier it becomes to prove similarity. In this case, proving access will not be a problem because Led Zeppelin and Spirit performed together the day after Christmas 1968 and many times in 1969. Spirit played “Taurus” at many of these concerts and music festivals. Since there is evidence of both access and similarity in this case, it must now be determined whether the second element is met.

(2) Substantial Similarity

In addition to proof of copying, there must also be a substantial similarity to the work. Substantial is defined as “qualitatively or quantitatively” and similarity means “similar in the ears of the ordinary member of the intended audience.” If the case reaches the trial court, both parties will present expert witnesses to show the similarities and dissimilarities between the two songs. Ordinary members of the listening audience may also be called upon to give their opinion.

Possible Affirmative Defenses by Led Zeppelin

  • The chord progression in “Taurus” is not original.
  • The chord progression in “Taurus” is not protectable under copyright law.
  • “Stairway to Heaven” was independently developed by Led Zeppelin without referenced to “Taurus.” Any borrowing from Spirit’s song would be seem as so minor that is it disregarded by the law. This would be “de minimis use.”
  • Since only short portions of “Taurus” were used by Led Zeppelin, the recording could be covered under the “fair use” limitations. However, this may not be the best defenses since copyright owners are entitled to as sales and licenses of their work.

Likely Outcome

If the court and ordinary members of the listening audience see enough similarities in the work to fulfill the two elements of copyright infringement, Led Zeppelin will be held strictly liable. It does not matter whether or not the copying with intentional or accomplished subconsciously.

It is very unlikely this dispute will makes its way deep into the legal system. Led Zeppelin has resolved prior claims of copyright infringement brought by third parties outside of court. In the case, Led Zeppelin is most likely to conclude the dispute with a confidential settlement agreement. The agreement may involve payments to Spirit and writing credit for the song “Stairway to Heaven.” However, Jimmy Page testified on behalf of his band on June 16, 2016. The trial is heating up and may not turn out as previous copyright infringement lawsuits have worked out for Led Zeppelin the past.

Source referenced: Forbes

What is a Trade Secret?

What is a Trade Secret?

Last week we discussed the past and future of trade secret legislation. This week we take a step back and look at how a California court broadly defined the information that would fall under the category of a trade secret. The case brought forth in the California Appeals Court,  Altavion, Inc. v. Konica Minolta Systems Laboratory Inc., added to our knowledge of trade secret law in this state. This case was notable because it expanded what qualifies as a trade secret and permitted a more general recovery for trade secret misappropriation. Let us take a closer look at the case on hand.

Altavion v. Konica Minolta Systems Laboratory

KMSL and Altavion had attempted to work together before this lawsuit came about. Defendant KMSL manufactured printers and plaintiff Altavion was a small company that “invented a process to create self-authenticating documents by using barcodes with encrypted data about the contents of the original document that enable detection if the document had been altered from the original.” KMSL approached Altavion about their technology and the pair discussed embedding Altavion’s technology into KMSL’s printers. After more than forty meetings about the possible licensing deal, the two were not able to come up with a suitable agreement.

About a year later, Altavion saw that KMSL was filing for patents with Altavion’s barcoding technology. Altavion immediately filed suit against KMSL for trade secret misappropriation. A bench trial revealed that KMSL had misappropriated trade secrets Altavion disclosed to KMSL during negotiations for a licensing deal. The trial court found more information about the misappropriation and awarded Altavion $1 million in damages, $513,400 in prejudgment interest, and almost $3.3 million in attorneys’ fees.

KMSL appealed the trial court’s decision by saying generalized ideas and inventions are protected under patent law, not trade secret law. The court disagreed and cited California’s UTSA, section 324, which states there is substantial overlap between patent and trade secret law. The Court of Appeals also determined that Altavion’s barcode has some independent economic value. KMSL made a second argument by saying that Altavion did not take the necessary steps to protect its trade secret because it publicly disclosed he concept of verifying documents using a unique barcode technology. Once again, the court did not agree and said Altavion only disclosed how the technology could be used, not its unique detail designs.

Future Implications

This ruling by a California Court of Appeals provides us with a better understanding of what exactly falls under the broad definition of a trade secret. We know now that trade secrets are more than a specific formula or a set of lists. Trade secrets can be concepts and designs to solve problems. This means technological innovations can also fall under trade secrets. We may be seeing an increase in the number of trade secrets in the near future.

Source referenced: Lexology

 

The Future of Trade Secret Law

The Future of Trade Secret Law

As patents are becoming more and more difficult to obtain and enforce, many intellectual property owners are beginning to see trade secret law as a way to protect their IP assets. Congress is also considering providing federal private right of action for trade secret misappropriation. However, before deciding whether you should protect your IP with trade secret law, it is necessary to make sense of the history behind trade secret legislation.

Federal Trade Secret Legislation

The Supreme Court ruled in 1974 that state trade secret laws may “protect inventive subject matter without running afoul of the federal patent system.” After this ruling, states continued what they were doing and also continued to keep an eye out for trade secret misappropriation. When Congress saw that states varied on the type of trade secret legislation, they passed that Uniform Trade Secrets Act (UTSA) in 1979. This permitted companies with operations in several states to function more easily and with more protection. Although most states have adopted the UTSA in part or in whole, state court ruling have often led to differences for trade secret protection.

Commonalities Across States

When looking at trade secret legislation across different states, there are some common features that exist among them. First of all, the definition of trade secrets is common. The majority of the states define trade secrets as “information that derives some independent economic value.” States also agree that it is the duty of IP owners to keep information away from those who would use it for their own economical value.

Similar to the definition, states also agree on the scope of of trade secret law. While the scope of patents is often debated, most states tend to agree that “any information relevant to a business’ economic success” would fall in the category of a trade secret. State also agree that the IP owner must actively takes steps to protect and maintain the secrecy of his/her information. Lastly, states agree in saying that trade secret misappropriation should be criminalized. This is because states find that misappropriation usually occurs through theft, bribery, misrepresentation, or a breach of duty to protect secrecy.

More Trade Secret Legislation

Congress passed the Economic Espionage Act (EEA) in 1996 to criminalize trade secret misappropriation by foreign actors or governments. In addition, the EEA criminalized domestic trade secret misappropriation that impacted interstate commerce. Although high profile convictions under the EEA have increased awareness of misappropriation consequences, only a few number of criminal cases have actually been brought under the EEA.

Congress hoped to amend the EEA to “create a federal private right of action for trade secret owners to obtain redress for misappropriation.”  The Defend Trade Secrets Act (DTSA) would allow a trade secret owners to bring a federal civil action in response to acts of misappropriation or foreign economic espionage. The proposal also highlighted damages, injunctive relief, fee-shifting, and treble damages. The most important part of the DTSA would be that it provides “an ex parte order for preservation of evidence or seizure upon the verified complaint or affidavit of a trade secret owner.”

Another proposal to amend trade secret law was the Trade Secret Protection Act (TSPA) of 2014. The TSPA is fairly similar to the DTSA, but it preserves the right of the Attorney General to seek an injunction through a civil proceeding against someone who commits trade secret misappropriation. Unlike the DTSA, the TSPA puts additional restrictions on the civil seizures. This proposal was made in the House, while the DTSA was proposed in the Senate.

The Future

Federal trade secret law could be expanding in the new future and this is good news for IP owners across the nation. Both the DTSA and the TSPA will create a civil right of action for trade secret misappropriation. We recommend all intellectual property owners to carefully consider the changes DTSA and TSPA will bring to their business and their IP rights.

Source referenced: JD Supra

 

 

What are Blockchain Smart Contracts?

What are Blockchain Smart Contracts?

Smart contracts are “contracts between parties stored on a blockchain” or “any computation that takes place on a blockchain.” The term can be used to identify a specific technology (smart contract code) or a specific application of that technology (smart legal contracts). The two uses of this term often lead to confusion and debates among individuals. Understanding the difference between the two uses of the word smart contracts will help you answer questions and better take a stand for your position on smart contracts.

Smart Contract Code

Smart Contract Code is the term used to identify a specific technology. Individuals who develop blockchain technology used the term “smart contract code” to refer to blockchain code. However, many people generically use this term to refer to any complex program that is stored and executed on blockchain. The reason we call these codes contracts is to show that they hold something valuable. Think of it as something equivalent to money or someone’s identity. Unlike legal contracts, smart contracts are not actually “contracts.” They do need conditioned financial language at all times.They can also hold balances of cryptocurrency. Augur, Slock.it, and Boardroom are examples of application that are made out of smart contract code. As the use and understanding of this term increases, we may be able to get out of using the analogy to legal contracts. Instead, we may be able to refer to smart codes the same way we refer to JavaScript or HTML.

Smart Legal Contracts

The terms smart legal contracts refers to “a way of using blockchain technology to complement, or replace, existing legal contracts.” Unlike Smart Contract Code that can operate on its own, smart legal contracts need the assistance of the law. In other words, it would require a blend of code and natural language. An example would be a supplier of goods who enters into a contract with a retailer. While the payment may be automatically made when the delivery is made, an indemnification clause would no bring any value to a smart legal contract because a court would be needed to enforce it.

When can you use a Smart Contract?

There are many different uses for smart contract. In the past, they have been used by the financial field as instruments for stocks, bonds, or derivative contracts. This allowed them to simplify the process related to trading. In the future, real estate and intellectual property can be exchanged and traded over the blockchain system. The hope is that smart contracts can be used to facilitate new types of commercial arrangements and make more commercial relationships possible. Machine-to-machine commerce and the growing system of smart devices with the ability to communicate to one another is also a region for smart contracts to grow. While smart contracts will not necessarily work for legal contracts, they are commercially viable if there is a trusting relationship.

We hope this article has cleared up confusion on the term smart contracts and has provided information on when to use smart contracts. The different uses of the term in the field only adds to the confusion of blockchain technology and smart contracts. With more and more technologies emerging, we should see an increase in the use of smart contracts for commercial purposes. Using them for legal matters is not recommended for the reasons stated above. Lawyers looking at smart contracts often see them as marginally approved legal agreements, but fail to see the potential of blockchain-code to extend beyond law’s reach.

Source referenced: Coin Desk

Trade Names vs. Trademarks vs. Domain Names

Trade Names vs. Trademarks vs. Domain Names

When we speak informally, we tend to think a company’s legal name, the name under which it is registered with the government, and the domain name it uses to communicate online are the same thing. Legally, this is not true. There is a difference between trade names, trademarks, and domain names. Knowing the difference between these three and knowing about the three different worlds they operate in can make all the difference for your business.

Trade Names

Under our legal system, a business is treated as a separate entity. A business is essentially considered a person. Each business is registered both with a state government and the IRS. A trade name is the name a business uses on contracts and other legal documents. This is also the name you would search for on Google or Yahoo if you are looking to get more information on a business.

Trademarks

A trademark can be the same as a company’s trade name, but it does not need to be the same. Sometimes a company uses different trade names and trademarks because they think one of them is easier for the customer to use and remember. Trademarks can be seen as the company’s “official” title. Let’s take Amazon for an example. Everyone knows Amazon.com as an online retailer, but may not know that the online retailer also operates under different legal entities. For example, they have Amazon.com Baby Inc., Amazon Payment Inc., and Amazon Overseas Holdings, Inc. A trademark would ideally be registered with the US Patent and Trademark Office and at the national trademark offices of  every countries where you do business.

Domain Names

Domain names are the internet protocol addresses associated with your website. For example, insidecounsel.com converts to 184.73.162.106 and domain names are managed by private companies. However, owning a certain domain name does not give you any trademark rights. While trademarks are only registered for specific goods and services, domain names are not. Any person in the world can own any domain name, regardless of if they are selling a service or product. Due to this, Delta Airlines had a lot of trouble obtaining delta.com as their domain name. If you are selling a good or service and you know someone has taken your domain name in bad faith (to divert customers from your business or to resell the domain to make a profit), having trademark rights over the name may help your case.

We hope knowing the difference between trade names, trademarks, and domain names has been helpful to our business clients. Thoroughly understanding the difference between these three can help your business avoid mistake and will help you properly protect your intellectual property rights.

Western Union vs. Bitcoin

Western Union vs. Bitcoin

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Western Union was not happy when Bitcoin “released” an advertisement comparing itself to Western Union. The image above shows the parody ad that was posted on Bitcoin’s Facebook page. Western Union filed a claim against Bitcoin under the Digital Millennium Copyright Act (DMCA) saying Bitcoin had infringed on its trademark of the image. However, DMCA only covers copyright material, not trademarks. Facebook removed the image from Bitcoin’s News Page immediately and the man who originally posted the image, Dave Aiello, wanted to charge Facebook for deleting his image. It is not clear whether Aiello was the one who originally created the image, but he was the one to post it on Facebook and later share it on reddit. Facebook told Aiello they would restore the image to Facebook, unless Western Union takes legal action within 10 to 14 days.

Parodies are usually considered “fair use” under DMCA. In addition, companies rarely take legal action based on images or content posted on social media sites. This raises the question of why Western Union was so fast to take action against Bitcoin. One reason could be that Western Union feels threatened by Bitcoin’s rise in popularity. Another reason could be that Western Union simply wanted attention. If this spoof had not surfaced on social media sites, Western Union would not have gotten the attention it received. If they decide to take further legal action against Bitcoin, it just brings more attention to the company.

While we may not know the exact reason Western Union is making such a big deal out of a parody advertisement, it will be interesting to see whether or not the DMCA holds that parodies fall under the “fair use” doctrine. In addition, DMCA does not cover trademarks, which is what Western Union wants to sue for. This controversy brought attention to Bitcoin and their services. It would be a win-win situation for both companies at the end of the day in terms of media exposure, especially if Western Union is not able to formally file against Bitcoin.

Sources referenced:

  1. ARS Technica
  2. Coin Desk