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.

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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.

In Mr. Slater’s case, Wikimedia declined to take down the photograph because it does not believe that Mr. Slater owns the copyright to the photographs. Instead, Wikimedia explained to the ABA Journal that, in its view, no one owns the copyright to the photograph — not Mr. Slater because he didn’t take the photo and not the monkey because monkeys can’t own copyrights. And that gives us a good opportunity to discuss how a copyright originates and who owns it.

Copyright protection under title 17 of the United States Code is afforded to “original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” Examples of works of authorship include literary works; musical works (including lyrics); dramatic works; choreography; pictorial, graphic, and sculptural works; motion pictures and other videographic works; audio recordings; and architectural works. The standard for originality is low; a work is “original” if it was created independently by the author, i.e., without copying another work. In earlier years, the copyright to an original work of authorship did not exist until the work was published, but under today’s statute the copyright exists as soon as the work is created. (Once the work is published, some complicated rules dealing with the nationality of the authors and the country in which it is first published kick in, but in most cases publication does not affect the copyright under U.S. law.)

In most cases, the author of a work owns the copyright except for a couple of situations in which the work is considered a “work made for hire.” First, works created by their employees while acting within the scope of their employment are “works made for hire,” and the copyright belongs to the employer. Second, the copyright to a few types of specially ordered or commissioned work belongs to the person who commissioned the work, and not to the author, if they agree in writing that the work is to be considered as a work made for hire. Of course, the author of a work may agree to transfer the copyright to another person, and the agreement can be made even before the work exists. In that case, the copyright is essentially transferred immediately after its creation.

So what about the monkey’s selfie? Does a copyright exist, and, if so, who owns it? I’m not about to try to answer that question, but here are some possible arguments and questions to consider.

• Certainly the photographs taken by the macaques are within the scope of what is ordinarily considered a work, and they qualify as original. In addition, they are fixed in a tangible medium of expression that satisfies the requirement for a copyright to exist. But is there an author so that they can be considered original works of authorship? It seems logical to assume that the copyright statute presumes that an author must be a human being, so perhaps there is no copyright to the pictures because they are not orginal works of authorship.
• Why would Mr. Slater not be considered an author? It was his camera, and he created the circumstances that permitted the monkeys to take the camera and trigger the shutter. What if the pictures of the monkeys had been taken by a camera on the tripod with the shutter activated by a motion detector? If (as seems likely) that would be protected by copyright, what distinguishes it from pictures taken by the monkeys physically activating the shutter?
• Imagine someone leaves a piece of fabric outdoors, fabric that fades in the sunlight. The fabric moves around in the wind so that sometimes it is folded over on itself, creating a pattern on the fabric as it fades. Would the person who placed the fabric outdoors would have a copyright to the pattern? If so, wouldn’t Mr. Slater be in an analogous position? Or does it matter whether the person placed the fabric outdoors, intending to create a work of original authorship, or accidentally left the fabric outdoors with no intention of creating anything?
• What about “elephant art,” or paintings made by elephants holding paintbrushes with their trunks? It seems hard to distinguish those paintings from the monkey selfies, so as one goes, the other would likely go as well.
• Wikimedia seems to admit that there’s a copyright, but opines that Mr. Slater doesn’t own it. I’d think that the only way a copyright can exist is if Mr. Slater is the author (because, as discussed above, I think an “author” must be human), which means he is also the copyright owner. It seems to me that Wikimedia’s stronger argument is that no copyright exists because there is no author. But that’s just me.

As I said, I’m not attempting to answer the question of the copyright of the monkey selfies or any of the other above questions, but it will be interesting to see how this gets resolved.

And about the picture at the top of this article? It’s a ring-tailed lemur, not a monkey, but it’s the best stock photo I could find, and there was no way I was going to use the actual monkey selfies because I’m not at all sure that Wikimedia is right.

[Update August 31, 2014: On August 19, the U.S. Copyright Office issued a proposed third edition of the U.S. Copyright Office Practices. Section 306 provides, “The U.S. Copyright Office will register an original work of authorship, provided that the work was created by a human being. . . . The Copyright Office will not register works created by nature, animals, or plants.” It goes on to list several examples of works that will not be registered, including a “photograph taken by a monkey.” So at least in the tentative position of the U.S. Copyright Office, Wikimedia got this one right — the photograph is in the public domain.

And here’s what the monkey has to say about it: A Statement from the Monkey.]

Questions of the copyright to works of animal authorship are a bit outside our practice areas. But if you’re interested in copyright license agreements, please visit our web site.

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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.

If you would need advice on confidentiality agreements or you would like to have us review the form your company uses, please feel free to contact us.

The post Is Your Business’s Confidentiality Agreement Enforceable? Part 2 appeared first on Indiana Business Law Blog.

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.

If you would need advice on confidentiality agreements or you would like to have us review the form your company uses, please feel free to contact us.

The post Is Your Business’s Confidentiality Agreement Enforceable? Part 1 appeared first on Indiana Business Law Blog.

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.

The defendants also raise a number of defenses to Righthaven’s claims, including the argument that the defendants’ use of copyrighted material was covered by the doctrine of fair use and, therefore, was not an infringement.

In the previous post, we pointed out some things that website owners can do to avoid being sued for copyright infringement:

• Assume that everything you find on the internet is subject to a copyright.
• Don’t copy text from another website (or, for that matter, from any other copyrighted source) and post it on your website, even if you give credit to the original source, unless you get permission from the owner of the copyright.
• Don’t post copyrighted images on your website unless you receive permission from the owner of the copyright.
• Take advantage of the wealth of images that are available free or at low cost from online stock shops such as www.openphoto.net and www.istockphoto.com.

Regardless of how successful the Righthaven defendants are in their attempts to fight back, these tips remain valid. You do not want to be sued for copyright infringement, even if you might ultimately prevail in that lawsuit. It can be very expensive to ultimately prevail. It’s better not to be sued in the first place. But if you are sued, you should understand and take advantage of all the weapons that are available to you, both defensive and counteroffensive weapons.

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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.

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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.

Please contact our firm if you have any questions or concerns about this topic or any other issue related to owning and operating a small business or nonprofit organization.

Michael Smith, Attorney at Law Emily Angel, Legal Assistant

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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 www.littlehouseontheprairie.com. 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 www.littlehouseontheprairie.com is no longer active.

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

By the way, the picture of a house on a prairie at the top of this blog has nothing to do with Laura Ingalls Wilder, her books, or the Little House on the Prairie television series. It’s just a licensed stock photo. But it’s appropriate, don’t you think?

If you would like to speak with an attorney about your business or nonprofit organization, please feel free to contact our office.

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