Trade Secrets & Copyrights

Mike Morris

Overview

• Trade secret refresher• Copyright refresher• Termination of Copyright Transfers

Thanks to the following for their contributions:John McNettBraden DuffinProfessor Marshall Leaffer

Trade Secrets

= information

Neither the form of the information nor the media on which the information is stored matters: written; human memory; electronic; physical sample, etc.

Trade Secrets

• Under the Uniform Trade Secrets Act, adopted by 45 states including IN, a trade secret is information including a formula, pattern, compilation, program, device, method, technique, or process that:

– (1) derives independent economic value, actual or potential, from not being known or readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and

– (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy

Examples of Trade Secrets• Manufacturing methods, jigs,

processes• Formulas• Customer lists• Customer preferences• Material composition• Computer code• Engineering drawings,

specs, changes• Pricing, cost & profit

information

• Data compilations• Information re: regulatory

approval• Failures; what did not work• Bids• Lab notebooks, meeting

minutes• Legal information• Vendor & raw material

identification, pricing, etc.• Testing and QC procedures

Examples Of Efforts That Are “Reasonable” to Maintain Secrecy

• Confidentiality agreements– Vendors and contractors– Employees– Visitors

• Security alarms, systems• Restrict computer access (user groups, limited authorization,

passwords)• Legends on documents: “Confidential” or “Trade Secret”• Limit tours and other access• Visitor sign-in log• Compartmentalize information: access given on a “need to

know” basis

Courts look at what efforts you undertook – be active, not passive.

Trade Secrets vs. PatentsTrade Secrets• Establishment:

– Procedures to limit access

– Notice to those with access

– Immediately Enforceable

• Duration:– Can potentially last

forever

Patents• Establishment:

– Filing application with USPTO

– Expensive– Delay in effective date

• Duration:– Statutory term (20yrs.

from filing + PTA)

Trade Secrets vs. Patents

Trade Secrets• Scope:

– Trade secrets apply only to persons who have a duty with the owner, either by contract or by custom. Employees Vendors

– Can be defined at time of litigation

Patents• Scope:

– Only applies to geographic territory (i.e., country by country)

– Limited number of claims

– Often drafted years before party is targeted for infringement suit

Trade Secrets vs. Patents

Trade Secrets• Statute of Limitations

– 3 years in IN and most states

• Ownership:– Multiple parties can

separately own trade secrets in the same information

Patents• Statute of Limitations

– 6 years before laches issues

• Ownership:– Only one patent can

have a particular patent claim

Trade Secrets

• Remedies– Damages (including punitive damages)– Injunctions– Attorney fees (if bad faith or willful and malicious

misappropriation)

• No trade secret violation if:– Information is in the public domain (known or “readily

ascertainable”)– Someone independently develops– Purchased from legitimate 3rd party– Information is obtained through reverse engineering

UTSA - Misappropriation• (a) acquisition of a TS of another by a person who knows or has

reason to know that the TS was acquired by improper means OR • (b) disclosure or use of a TS of another without express or implied

consent by a person who:– Used improper means to acquire knowledge of TS– At time of disclosure, knew or had reason to know his

knowledge of TS was:– Derived from person who used improper means to acquire it– Acquired under circumstances giving rise to duty of secrecy;

OR– Derived from or through a person who owed a duty to

maintain secrecy; or• (c) before a material change in his position, knew or had reason to

know that it was a trade secret and knowledge of it had been acquired by accident or mistake.

Confidentiality Agreements

• Before disclosing, have him/her sign a confidentiality agreement.

• Disclose only on a need to know basis.• Reclaim possession of documents afterwards.• Beware: duration clauses (“this Agreement

shall be for a term of three (3) years…”) create a strong argument that the information is no longer confidential thereafter.

• Also get a noncompetition agreement!

Copyrights

Protecting Original Works of Authorship

Copyrights

• What is a copyright? – “original works of authorship fixed in any tangible medium of expression …”

• Only the “expression” is protectable, not the underlying idea itself.

• Ideas, methods, discoveries and machines are not copyrightable (they may be patentable).

• Titles and slogans are not copyrightable (they may be trademarks) – but logo artwork is copyrightable.

• Pure information is not copyrightable (phone book; raw data).

Copyrights Are Most Helpful if Registered Early

• Copyrights automatically come into being when the work is created.

• Registration is not required, but is strongly recommended (particularly if value or creation time/effort/expense is great).

Federal Copyright Registration – How To Obtain

• Old Method:– Fill out a paper form (TX, VA, SR, SE, or PA) and send it to the

U.S. Copyright Office along with the required fee and two copies of the work.

– $65 filing fee ($50 for Fill-In Form CO)– 11 month minimum processing time– Check or money order

• Preferred Method:– eCO Online System (launched June 2008)– $35 fee for basic claims– 3 month minimum processing time– Credit card, debit card, electronic check, or Copyright Office

deposit account

Federal Copyright Registration

• Has several advantages:– Provides proof of creation date– Required before bringing copyright infringement action in court– If registration is applied for within 5 years of publication,

registration will establish a legal presumption of validity and ownership.

– If registration is made within 3 months after publication or prior to infringement, statutory damages and attorneys’ fees are available to copyright owner.

– Otherwise, only award of actual damages and profits is available to copyright owner—no attorneys’ fees.

• Register early and often for different versions

Copyright Notice• Optional today, but strongly recommended

– Extensive use of helps show willful infringement

• Notice = Symbol + Year of 1st publication + Name of owner: © 2010 Jones Industries, Inc. Copyright 2010 Jones Industries, Inc.

• Required for statutory damages and attorneys’ fees

Notice is optional. §§ 401-404. Lack of notice may allow reduction in amount of statutory damages for innocent infringers. §§ 401(d), 402(d)

Notice required for all published works. If work published w/out notice, copyright owner had to comply with 5-year cure provisions to avoid placing work in public domain. § 405(a). See also § 104A regarding TRIPS restoration of foreign copyrights.

Federal protection began upon general publication with proper notice. Publication without proper notice placed work in public domain. §§ 10, 19 (1909 Act). See also § 104A (1976 Act) regarding restoration of foreign copyright under TRIPS.

For works published on or after 3/1/1989

For works published on or after 1/1/1978 and before

3/1/1989

For works published before 1/1/1978

Categories of Works

• 17 U.S.C. § 102(a):– Literary works;– Musical works, including any accompanying words;– Dramatic works, including any accompanying music;– Pantomimes and choreographic works;– Pictorial, graphic, and sculptural works;– Motion pictures and other audiovisual works;– Sound records; and– Architectural works.

• 17 U.S.C. § 102(b):– Does not extend to any idea, procedure, process, system,

method of operation, concept, principle, or discovery, regardless of the form

What Rights are in a Copyright?

• Exclusive Rights (17 U.S.C. § 106):– Reproduction– Adaptation (derivative works)– Public distribution of copies (sale, rental, lease, & lending)– Public performance

Does not apply to sound recordings

– Public display Does not apply to architectural works

- © in architectural works also does not include pictures, photographs or other pictorial representations of the work (note: this is only a U.S. limitation)

– Digital audio transmission of sound recording(s)– Moral rights (not in § 106)

Integrity, Attribution, and Disclosure Very limited - adopted in a piecemeal fashion § 106A such as VARA (Visual Artists Rights Act of 1990)

Ownership

• Unlike patents and trade secrets:– no joint owner may license a third party without

consent of the other joint owners, and – all royalty income is shared equally among the

owners, absent an agreement to the contrary.• A work created by a person belongs to that person

unless it was:– within the scope of the person’s employment, or – subject to a contrary agreement which clearly

characterizes the work as a “work for hire”, or . . .

Work Made for Hire

– [a work is not a work for hire unless it is] specially ordered or commissioned for use as: a contribution to a collective work a compilation, or an atlas a supplementary work a part of a motion picture, a sound recording or other

audiovisual work a translation an instructional text, a test or answer material for a test

– Merely saying something is a “work made for hire” does not make it so

Remedies

• Injunction:– Stop selling order from a court– Destruction of infringing inventory

• Actual damages and infringer’s profits• Statutory Damages:

– $750 ≤ x ≤ $30,000 per work (all parts of a compilation or derivative work constitute

one work for statutory damages) $200 per work min. if innocent infringer

– $150,000 per work max. for willful infringement• Costs (regardless of registration) • Attorneys’ fees (only if timely registered)

Copyright Duration—for works created today

• For works originally created on or after January 1, 1978, a copyright lasts for:– 70 years after the last surviving author’s death,

unless …– If “work for hire” or if anonymous, then 95 years

from publication or 120 years from creation, whichever is shorter.

Copyright Duration

Renewal term of 67 years, but only if renewal was properly obtained

Automatic renewal term of 67 years (renewal registration is optional but incentives attach to renewal registration)

Work is now in the public domainN/AN/AWorks Published Before 1923

28-year first termDual term

When work was published with notice

Works Published between 1923 and

1963

28-year first termDual term

When work was published with notice

Works Published Between 1964 and

1977

Same as above, at least through 12/31/2002, if the work remained unpublished as of that date, or until 12/31/2047 if the work was published before 1/1/2003

UnitaryFederal protection began on 1/1/78

Works Created but not Published Before 1/1/78

Basic-term: Life of the author (or last-surviving author for joint works) plus 70 years

Alternative term for anonymous or pseudonymous works, or works made for hire: 95 years from publication or 120 years from creation, whichever is shorter

UnitaryWhen work was fixed in a tangible medium of expression

Works Created On or After 1/1/78

Length of TermNature of

Term

Date of Protection

DURATION AFTER THE CTEA

From Copyright Law, sixth edition, Joyce, Leaffer, Jaszi, Ochoa. Used with permission.

After 1976 Act

• Congress chose to give the author and statutory successors the chance to recover some of the extended renewal term for pre-1978 works and part of the copyright term for post-1978 works

• Under the 1976 Act, the author and statutory successors (spouse, children, etc.) were given a right under §§ 304(c) and (d) to terminate pre-1978 grants to recover some of the extended renewal term for pre-1978 works

• Under the 1976 Act, the author and statutory successors given rights under §203(a) to terminate post-1978 grants made by author

Sections 304 (c) and (d) allow statutory successors to terminate pre-1978 assignments and exclusive or non-exclusive licenses of the renewal term of copyright, or any right under it, by affirmatively serving notice of termination effective within specified 5-year windows

• Copyrights to which termination under §§ 304(c), (d) applies: – Works “subsisting in either [their] first or renewal term” as

of 1/1/78

• Grants subject to termination under §§ 304(c), (d):– Executed prior to 1/1/78– by the author or, after author’s death, by the author’s

statutory successors (i.e., spouse or children/ executors/ next of kin)

• Who can terminate under §§ 304(c), (d):

– For grants by author: author, surviving spouse, children, grandchildren, estate, can terminate In case of joint works: either author (or successors)

can terminate the particular author’s share

– For grants by persons other than the author: surviving person(s) who executed it can terminate

§ 304(c)

Provides for termination of grants with effective dates from the end of the 56th year through the 61st year (the first 5-year window) measured from the date copyright was originally secured.

§304(d)

Limited second chance: § 304(d) provides for termination of grants during a period from the end of 75 years through the 80th year (a second 5-year window) measured from the date copyright was originally secured – but only for copyrights secured on or between 1/1/1923 and 10/26/1939 (37 CFR § 201.10)

• Sections 304(c) and (d) both provide that notice must be served between 2 years and 10 years (8-year window) before the effective date of termination, and the effective date must occur within the relevant 5-year window

2 yrs8-year window

5-year window

Example• Assume copyright date of 11/18/1951• 5yr termination window 11/18/2008 to 11/17/2013• Must serve notice between 11/18/1998 to 11/17/2011

11/18/20082 yrs

8-year window

11/18/1998 11/17/2006 11/17/2011

11/17/2013

5-year window

11/18/2008

Major exceptions to §§ 304(c), (d) termination mechanisms

• Grants related to works for hire can not be terminated

• Dispositions by will can not be terminated• Derivative works created prior to effective date of

termination can still be utilized under terms of the grant after termination

• Exploitation outside of U.S.A unaffected• Non-copyright grants (e.g., trademark rights or

publicity rights), even in the same agreement as a terminated copyright grant, can not be terminated

In 2013 another termination window opens

• §203(a) provides a right of termination for post-1978 grants made by author (applicable both to pre-1978 and post-1978 works) with a 5-year window open from the end of the 35th year through the 40th year measured from the date of the grant.

• The twist: If the grant covers the right of publication of the work, effective date must occur between (i) the end of the 35th year through the 40th year measured from the date of publication OR (ii) the end of the 40th year through the 45th year measured from the date of execution of the grant, whichever ends earlier.

§ 203(a)

Same advance notice as in § 304(c) and (d):

• The § 203(a) 5-year window opens for the first time in 2013 (1978 + 35 = 2013)

• Termination notices can be sent now for effective dates in 2013-2021 (2-10 yrs)

• Same exceptions as in § 304(c) and (d)

Who can terminate under § 203(a)?

• Author if alive• If author is dead: the author’s statutory

successors (including surviving spouse, children and grandchildren/or executor, administrator, personal representative or trustee)

§ 203(a)

Important differences from §§ 304(c), (d):

• Under § 203(a) the grant to be terminated must have been executed after January 1, 1978 by the author

• For joint grants of joint works, majority of joint authors (or respective/successors) must terminate

Comparison of §203(a) and § 304(c) and (d)

Majority of joint authors can terminate

Either joint author can terminate

Author/successors can terminate

Author/successors or surviving persons who executed grant can terminate

Applies to grants by authors only

Applies to grants by authors and others

Measure from date grant executed

Measure from date copyright secured

Post-1978 grantsPre-1978 grants

§203§304

Ways to get around termination rights

• Negotiate a new post-1978 agreement with a party other than the author (not subject to termination under § 304 or § 203) that revokes and replaces the pre-1978 contract that’s subject to termination (Milne, Steinbeck)

• Serve timely notice of termination followed by prompt sale of terminated interest back to grantor – termination is not “agreement” but exercise of unilateral right

• Devise by will • Work for hire

Takeaway

• New window opening in 2013 offers new opportunities for works subject to post-1978 grants

• Termination rules are complicated but potentially rewarding to author and successors

• During 2-10 year periods when termination notices may be sent, re-negotiation and a new grant may make more sense (send notice then transfer rights)

• Re-negotiations could cancel previous grant and remove option for termination of grant (Milne, Steinbeck)

Takeaway

• Original parties (must include author) can anytime re-negotiate and reset the 35 year clock – does not eliminate termination right, only postpones

• Best practice for businesses seeking rights in a work is to acquire the work as a work for hire

• If termination is imminent, can create derivative works prior to effective date and exploit after effective date

Questions