Articles Posted in Trademarks, copyrights, and trade secrets

Until recently, almost all trade secret law was furnished by state law, not federal law. Absent federal diversity jurisdiction, lawsuits for misappropriation of trade secrets had to be brought in state court. Even though the vast majority of states (including Indiana) have adopted the Uniform Trade Secrets Act (“UTSA”), there are nonetheless variations in trade secret law from one state to another. However, in May 2016 President Obama signed the Defend Trade Secrets Act (or “DTSA”), creating at 18 U.S.C. § 1836 a new federal civil cause of action for misappropriation of trade secrets.  Even so, the federal statute does not pre-empt state law, and state causes of action under the UTSA remain viable.

Definitions of Trade Secret and Misappropriation

Two crucial components of trade secret law are the definitions of trade secret and misappropriation.  The DTSA definitions, found at 18 U.S.C. § 1839, are not identical to the familiar UTSA definitions, but there are no major surprises. At least for the most part, information that is a trade secret under the UTSA is also a trade secret under the DTSA, and vice versa.  Similarly, there are likely very few acts that qualify as misappropriation under one statute but not the other.

Okay, this article in the Washington Post is just too good not to mention.

As reported in 2011 by the Guardian, British photographer David Slater spent three days in an Indonesian national park following and photographing crested black macaques, a type of monkey. At some point, he set up his camera on a tripod and left it unattended for a few minutes. When he returned, he found that the macaques had taken the camera and were taking pictures with it, apparently intrigued by the sound of the shutter. As it turns out, they took some pretty good pictures, including some of themselves. That’s right – monkey selfies.

At least one of the pictures was posted on Wikimedia Commons. As Wikimedia has now disclosed, it received from Mr. Slater a “take-down notice” under the Digital Millenium Copyright Act (or DMCA). The take-down provisions of DMCA are intended to deal with some of the unique intellectual property issues created by the internet, including the issue of an online service provider (or “OSP,” such as Wikimedia) being liable for copyright infringement when infringing material is posted on the OSP’s web site. If the owner of copyrighted material (text, a photograph or other image, video or audio recording, etc.) discovers his material has been posted online, the copyright owner can send a notice to the OSP demanding that it be taken down. If the OSP complies, it will not be liable for infringement. However, the OSP is also required to notify the person who posted the material that it has been taken down, and that person has the opportunity to challenge the allegation of infringement.

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In a previous post we discussed a few basic principles of confidentiality agreements (also known as non-disclosure agreements or NDAs). That post discussed the basic of these agreements and the important principles of restrictive covenants and trade secrets. Left unanswered was the critical question: How long can, or should, a confidentiality obligation last?

Reasonable Periods of Confidentiality
Now let’s get back to the question of a reasonable amount of time for confidentiality obligations to last with respect to CBI that does not meet the definition of a trade secret. As discussed above, a factor is the nature of the CBI owners legitimate business interests that are protected by the agreement. An example of a legitimate business interest of the owner is to protect the confidentiality its cost of goods sold or COGS. Disclosure of that information to competitors may give them an unfair advantage when bidding for the business of new customers. But how long does that legitimate business interest last? That depends on the nature of the goods and the nature of the industry. In some industries, costs are sufficiently stable that knowledge of a company’s COGS from five years ago enables a competitor to make an accurate estimate of the company’s COGS today, and a court might consider a confidentiality period of five years to be very reasonable. In other industries, costs change much more quickly, and a court might find that a confidentiality period of five years is unreasonable and rule that the agreement is unenforceable — unless the COGS also meets the definition of a trade secret.

Here’s where things get more complicated because the definitions of CBI in most confidentiality agreements are not identical to the definition of a trade secret. In most cases, all trade secrets are also CBI, but not all CBI qualifies as a trade secret. So what to do?

One one might consider writing a confidentiality agreement that, for CBI that qualifies as a trade secret, lasts for as long as that is true and, for all other CBI, lasts for only, say, three years. And one can certainly write a contract with precisely that provision, but it will pose a dilemma for the recipient: The recipient will probably not be able to tell the difference between CBI that qualifies as a trade secret and CBI that does not. Here are some possible ways to resolve that dilemma.

  • The recipient may decide to simply live with the dilemma and assume that all CBI must be protected essentially forever. Some recipients find that acceptable.
  • The owner of the CBI may accept a time limitation for all CBI, including CBI that qualifies as a trade secret. However, that may create other problems for the CBI owner. Note the second part of the definition of a trade secret — it must be subject to reasonable precautions to protect its secrecy. Is it a reasonable precaution to disclose information under a confidentiality agreement that permits the disclosure or use of the information after a certain period of time? Some courts say no, with the result that the information loses its status as a trade secret.
  • The confidentiality agreement may impose a limit that applies to ALL CBI, but only if, and for as long as, the CBI qualifies as a trade secret. In that case, the owner accepts the possibility that some CBI may have no protection at all because it never qualifies as a trade secret. For some owners in some situations, that is a more acceptable risk than the possibility of having its CBI lose status as a trade secret.

In short, there is no single solution that works in every case. Each situation must be negotiated individually, with the interests of both sides of the agreement taken into account.
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Confidentiality agreements (also known as non-disclosure agreements or NDAs) are common in today’s business world. They are sometimes in the form of stand-alone agreements, often used when two businesses are discussing a potential deal and at least one of them needs to disclose to the other information that is not available to the public (sometimes called confidential business information or CBI). Other times, they are embedded in agreements with a broader scope, such as employment contracts, service contracts, and contracts for the sale and purchase of a business.

The fundamental concept of a confidentiality agreement is simple. The person receiving or possessing the other person’s CBI promises not to disclose it to others and (usually) not to use the information for any purpose other than the discussions of a potential transaction or the purpose of the larger contract in which the confidential provision is embedded.

The details, however, can be tricky, and one of the thornier details is the question of how long the obligations of nondisclosure and nonuse last. Naturally, the person disclosing the CBI wants the commitments to last forever, but the person making the commitments wants them to expire at some point in time, not necessarily because he or she wants to use or disclose the information, but because he or she wants the possibility of being sued for breach to come to an end, and the sooner the better.

So how long can, or should, a confidentiality obligation last? Before answering that question, a little review of some legal principles is in order. Note that these issues are very fact-sensitive and that the law varies a fair amount from state to state. For that reason, this discussion is based on general concepts; the results may be very different in any particular case.

Restrictive Covenants
Confidentiality agreements are sometimes considered to be within a larger category of contracts known as restrictive covenants, i.e., agreements that in one way or another restrict commercial trade. With freedom of trade and commerce being so important to American society, restrictive covenants are not favored by public policy or the law. That doesn’t mean restrictive covenants are necessarily void or illegal, but they may be unless the restrictions are sufficiently narrow. At least some courts have held that confidentiality obligations can last for only a reasonable period of time (with an exception discussed below), and a confidentiality obligation that lasts too long may result in a court refusing to enforce the agreement.

Unfortunately, there are no clear rules to tell us what amount of time is reasonable for the duration of a confidentiality obligation. Instead, there are factors that must be weighed and balanced. Those factors include the nature of the legitimate business interests of the owner of the CBI; the effect of the restrictions on the person making the non-disclosure and non-use commitments; and the public interest.

So far we know that it may be necessary for a confidentiality obligation to expire after a reasonable period of time, and, if it doesn’t, the agreement may be unenforceable. HOWEVER, there is a major exception, and that exception is for CBI that also meets the definition of a “trade secret.”

Trade Secrets
Although “confidential business information” does not have a universal meaning,the definitions contained in most confidentiality agreements are broad enough to encompass “trade secrets,” a term defined by state statute. In Indiana, section 24-2-3-2 of the Indiana Code defines a trade secret as information that

  1. has independent economic value because others who could obtain economic value from the information do not have the information and cannot reasonable acquire it; and
  2. is the subject of reasonable efforts to maintain its secrecy.

Trade secrets are a form of intellectual property, and the trade secret statute provides protection against improper use or disclosure, in addition to the protection provided by a confidentiality agreement. Unlike most forms of intellectual property, such as patents, trade secrets never expire; they remain protected by statute for as long as the information continues to meet the definition. For that reason, some courts have ruled that the requirement for confidentiality agreements to be limited to a reasonable period of time is subject to an exception for trade secrets. To the extent a confidentiality agreement covers a trade secret, the confidentiality obligation is permitted to last forever, or at least for as long as the information continues to qualify as a trade secret under the statutory definition.

Here’s where that leaves us: With respect to trade secrets, confidentiality obligations do not need to expire. (In fact, as we’ll see later, they should not expire.) With respect to other CBI, confidentiality obligations may need to expire after a reasonable period of time to ensure enforceability. In the next article, we will consider how to deal with that bifurcation.
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On February 25, 2011 I wrote a blog post about Righthaven, LLC, a company that has made a business out of suing owners of web sites for alleged copyright infringement. At the time, Righthaven had filed at least 239 lawsuits against all sorts of defendants, including individuals, small businesses, and nonprofit organizations. The number of lawsuits has now reached at least 275, most of them in either Nevada or Colorado.

Although many of the lawsuits have been settled, some of the defendants have chosen to fight back. For example, in Righthaven LLC v. Buzzfeed, Inc., the defendants recently filed a class action counterclaim on behalf of the defendants in all the Colorado lawsuits. In their counterclaim, the defendants argue that Righthaven has committed abuse of process and violated the Colorado statute against unfair and deceptive trade practices. In support of their counterclaim, the defendants allege, among other things, that

  • Righthaven has asked for remedies that it knows it is not entitled to. Specificially, the counterclaim says that Righthaven has tried to lock the defendants’ websites and to get ownership of those websites.
  • Righthaven has attempted to coerce defendants into monetary settlements by threatening to get statutory damages and to take control of the defendants’ websites.
  • Righthaven has sued for infringement of copyrights that Righthaven does not own.

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A few days ago I wrote about a whole raft of copyright infringement lawsuits that have been filed by a company called Righthaven, LLC. My hope was that drawing attention to those lawsuits might educate business owners and nonprofit organizations about the potential legal problems associated with posting copyrighted material on their websites.

Since then I learned of a company that recently paid $4000 to settle an accusation of infringing the copyright of photograph that would have cost about $10 to license. The company is in the business of writing copy for web sites. Yes, that’s correct — they’re copywriters. Apparently, the problem arose when one of them pulled a photo from the internet and placed it on a customer’s blog under the mistaken belief that if the photo didn’t have a copyright notice, then it was in the public domain and thus fair game. If you read my previous blog entry, you already know how wrong that is. Now the copywriters do, too.

You can read the entire story here.

Click here for a later post on this topic.

You may not have heard about Righthaven, LLC, a company that has filed 239 (and counting) lawsuits against alleged copyright infringers in less than a year. But if your small business or nonprofit organization has a website, you should pay attention.

According to the Electronic Frontier Foundation, Righthaven searches the internet for newspaper stories that have been copied and posted on websites, acquires the copyright to the stories, and then sues the person who posted the copied material. Righthaven seems to be an equal opportunity plaintiff, willing to sue just about anyone. So far it has taken on The Drudge Report, A Blog About History, Teapartier Sharon Angle, and the Democratic Party of Nevada.

Righthaven doesn’t restrict its targets to large organizations or famous names. Over thirty of the Righthaven lawsuits have been filed against individuals who posted on their websites the same copyrighted photograph from the Denver Post photo featuring a Transportation Security Administration officer patting down a passenger at Denver International Airport. While some of the defendants admit to copying the photo directly from the newspaper’s website, most of them claim they found the image somewhere else on the internet and had no idea the photo was copyrighted until they received notice of the lawsuit.

Not even charitable organizations get a free pass. Trauma Intervention Program of Southern Nevada Inc. (TIP), a Las Vegas non-profit organization, was sued by Righthaven for re-posting news articles to their website. TIP organizes volunteers and sends them to emergency scenes to comfort traumatized witnesses of accidents, crimes, fires, etc. In response to the lawsuit, TIP replaced the full length articles with links back to the newspaper’s website.

As you might imagine, there are some strong and differing opinions about Righthaven. Some of its critics refer to it as a “copyright troll,” and to the defendants in Righthaven lawsuits as its “victims.” On the other hand, some copyright owners, such as the Denver Post complain about widespread copyright infringement and see Righthaven as a means of enforcing their copyrights.

No matter how you feel about Righthaven, it’s important to guard against infringing a copyright that belongs to someone else. The first step is to assume that everything you find on the internet is protected by copyright. At one time, material subject to a copyright had to be marked as such, but that hasn’t been true for years. Although some materials are in the public domain, it’s far safer to assume that everything you find on the internet is copyrighted even if it does not explicitly say so! Unless you have received permission from the owner, never post copyrighted text, images, or videos on your website.

It’s true that under some circumstances, copyright law allows a limited amount of copying under the doctrine of fair use. The problem is that the boundary between fair use and infringement is very difficult to discern. To say it’s fuzzy is an understatement. Summarizing or paraphrasing the original story are better ways to provide the same information to your readers without potentially infringing someone else’s copyrighted material. Remember: a copyright protects the expression of an idea, not the idea itself.

But what about pictures? Fortunately there are sites on the Internet you can find images and obtain free or low-cost licenses to them. Stock photo websites allow you to use keywords to search for all different types of images. Take a look at our blog – almost every entry includes a photo, and we found all of them on stock photo sites! Well, all of them except the picture of the Indiana Statehouse. That photo demonstrates another way to avoid infringing someone else’s copyright. It’s an original photo taken by a member of our staff and is therefore copyrighted exclusively for the use of Harshman Ponist Smith & Rayl.

Remember, just because it is relatively simple for you to find a picture or news story online does not mean you should post it! There can be real consequences to copyright infringement, even when it is unintentional.
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Earlier this week, Friendly Family Productions, LLC, the company that produced the television series Little House on the Prairie settled its lawsuit against a nonprofit corporation that operates a small museum outside Independence, Kansas. The museum is located at the site of the original house that Laura Ingalls Wilder wrote about in her book of the same title. Friendly Family Productions alleged that the museum infringed the trademark LITTLE HOUSE ON THE PRAIRIE. According to complaint filed in U.S. District Court in Los Angeles, the predecessor to Friendly Family Productions acquired rights to that trademark from the author’s descendants in 1974.

What got Friendly Family Productions all riled up (to use a term that Ms. Wilder would have been comfortable with) was the use of the trademark on merchandise that the museum sold, including the merchandise that it sold through a website with the domain name Friendly Family Productions acknowledged that it had no quarrel with the museum using the words “little house on the prairie” to describe the homesite or the museum, because a purely descriptive use like that does not infringe a trademark. On the other hand, Friendly Family Productions had considerable quarrel with the museum putting those words on merchandise (caps, T-shirts, magnets, note cards, key chains, and other items typical of promotional merchandise) and selling them over the internet. Friendly Family Productions claimed that the use of those words implied that the merchandise came from the owner of the trademark, when it did not. That is, in a nutshell, the reason trademarks exist — to identify the source of the goods that bear the mark.

According to an article in the Topeka Capital-Journal and other sources, Friendly Family Productions originally offered to pay the museum $40,000 if it would stop using the trademark. The museum refused the offer, choosing instead to fight the lawsuit. The terms of the settlement agreement are confidential, but we know that the nonprofit corporation has changed its name from Little House on the Prairie, Inc. to the more descriptive Little House on the Prairie Museum, Inc., and is no longer active.

There’s no way to know how much the two-year litigation cost the parties.
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