Trade Secrets and Copyrights
Trade secret law and patents protect certain types of ideas. Copyright
law prevents copying of the specific expression of an idea; however, it
does not protect against someone expressing the same idea in a different
way. Because of the cost and difficulty of obtaining patents, most software-related
companies use trade secret and copyright law--coupled with contracts and
license agreements--for protection.
Scope. Patents generally cover inventions, meaning
technology. Algorithms (mathematical formulas) are generally not protectible
unless part of a process. This makes patent protection for software problematic.
Term. The protection lasts the life of the patent
(usually 17 years) and applies even if someone independently makes the
- Novelty. The invention must not be known, already invented
or used by others in the U.S., or patented or described in any publication
anywhere in the world.
- Utility. The invention must be useful;
this is usually not an issue.
- Non-obviousness. The hardest hurdle to
overcome. Very roughly, the invention must not be obvious to a practitioner
of ordinary skill who has comprehensive knowledge of the field.
Drawbacks. One problem with patents is that,
upon issuance, the owner loses any trade secret rights. Perhaps half of
all patents attacked in court are found invalid, and patent litigation
is very expensive.
Scope. Generally, any information that meets
the criteria can be a trade secret.
Term. Trade secret protection lasts forever unless
it is independently discovered, reverse engineered or becomes public knowledge.
- Competitive Advantage. The information must give the owner
an advantage over competitors who do not know or use it.
(1) However, the advantage may be prospective.
(2) Other confidential information that does not constitute trade secrets
can be protected by contract or license.
- Not Generally Known. The information must
not be widely available.
(1) There is no protection if the information is readily ascertainable
by proper means by competitors.
(2) However, if only a few competitors know it and are maintaining secrecy
also, the information may still constitute a trade secret with respect
- Kept Confidential. The owner must take
reasonable steps to maintain secrecy.
(1) Confidentiality agreements with employees, customers and potential
business partners are recommended.
(2) Physical security may consist of passwords, restricted access, locks
on doors and file cabinets, numbered copies, document sign-out sheets,
marking information "Confidential," etc.
- Trade secret law does not protect against independent discovery or
reverse engineering. Contract or license provisions can fill this gap
with respect to customers.
- Protection may be lost if the information is
disclosed to a government agency as part of a permit, registration or
license process. However, many federal agencies have procedures which,
if followed, will provide trade secret protection.
- Any unprotected disclosure may lead to the loss
of the trade secret.
Examples. Trade secrets may include formulas,
processes, patterns, software designs, customer lists, customer preferences
and internal business and marketing plans.
- However, a customer list may not constitute trade
secret if the information can be assembled from legitimate sources.
Customer preferences are easier to protect. ii. Employee compensation
figures, operational information and procedures, and internal financial
statements may not qualify in some situations, but again may be protected
- Generally, the coverage should be specific without disclosing the
trade secrets themselves. Coverage that is overly broad or vague may
not be enforceable.
- Inserting non-competition clauses into confidentiality
agreements with employees may invalidate the entire agreement, since
non-competition clauses are generally invalid in California.
- California law generally invalidates clauses
that try to transfer invention rights from an employee to the employer
where the employee made the invention on his/her own time and did not
use the employer's equipment or facilities and the invention does not
relate to the employer's business. (Labor Code Sections 2870-2872.)
- Employee agreements should be signed at the time of hiring; agreements
with third parties should be signed prior to disclosure. If a third
party refuses to sign, a fall-back strategy is to inform the third party
that the information is confidential and mail a confirming letter, prior
to the disclosure if possible.
Scope. Copyright covers original works of authorship
fixed in any tangible medium.
Term. For works created prior on or after January
1, 1978, the basic rule is the life of the last-surviving author plus
50 years. With works for hire, the term is 75 years from publication or
100 years from creation.
- Originality is required, but this essentially
means independent creation, not novelty. This is usually a problem only
with databases and forms.
- The work must be fixed in a tangible medium;
saving it on diskette or a hard drive is sufficient.
- The right exists upon creation, but registration
is required to bring an infringement action and it broadens the remedies
(1) If registration occurs prior to the infringement, the owner can
recover statutory damages ($500 to $20,000 per infringer, up to $100,000
if willful) and, in the discretion of the court, attorneys fees.
(2) Generally, copies of the work must be filed-- which can cause the
loss of trade secret protection. However, the Copyright Office allows
the filing of only a portion of the work upon request, so that trade
secrets can almost always be protected. iv. Copyright protection will
not apply where there are only a few ways of presenting the idea (for
example, spreadsheet layouts).
- Copyrights cannot protect ideas. However, there
still may be protection even if the other party paraphrases a work if
that other party follows the "structure, sequence and organization"
of the work.
- Employees. The work for hire doctrine states that the employer
owns the rights if the employee creates a work within the scope of his/her
- Independent Contractors. Danger! Without
a written agreement, an independent contractor generally owns the work,
and the commissioning party merely has a license to use it. Even using
the term "work for hire" in an agreement with the contractor
or stating that the commissioning party is the owner may be insufficient
for software-related work: an assignment clause should be used.
- Joint Works. Where two or more parties
contribute to a work, they own it jointly. Each can use it internally
without payment to the others. Each can also license it to third parties,
though any exclusives license requires the consent of each owner.
Any profits must be split equally among the owners, regardless
of how much each contributed to the project. This can, of course, be
changed by agreement.
- Derivative Works. Derivative works are
those that are based on another party's work, but have original additions.
Generally, the author of the derivative work cannot use or license it
without permission from the underlying owner--but the underlying owner
has no rights to the new portions of the work without obtaining permission.
- For works created after March 1, 1989, (the effective
date of the Berne Convention for the U.S.) copyright notices are not
technically required. However, they are still desirable to prevent claims
of "innocent infringement."
- "Copyright 1996 Bruce E. Methven. All rights
(1) A "c" within a circle–©–may be used in place of "Copyright,"
but a "c" within parentheses–(c)– is not sufficient. On your website, the html code to display the copyright symbol is ©.
(2) "All rights reserved" is optional but recommended. iii.
Use the first year the work was created; using later years may invalidate
the protection. If substantial changes are made in later years, those
years may be included as well: "Copyright 1993-1997" or "Copyright
1992, 1994, 1995."
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Copyright 2004 Bruce E. Methven, All Rights Reserved.
The foregoing article constitutes general information only and should not be relied upon as legal advice.