Lott & Fischer is an intellectual property law firm in Coral Gables, Florida. The firm concentrates its practice exclusively in intellectual property law, including U.S. and international patent, trademark, copyright, unfair competition, Internet, and entertainment law and related litigation.
Covenants not to compete are particularly critical in intellectual property transactions - partly because intellectual property is generally intangible. It is a creation of the mind. If intellectual property rights are evidenced by by a government certification of some sort, such as letters patent or a trademark or copyright registration certificate, you have made out a prima facie case for ownership - but otherwise it can be very difficult to establish ownership of intellectual property rights and difficult to protect those intellectual property rights against infringement or misappropriation by others.
This is the situation in which restrictive covenants are most valuable. Regardless of a certificate of ownership, you can protect yourself by contract law, at least against the specific individuals who have contracted not to compete with you in the area of your own intellectual property.
By "intellectual property" we mean generally patented or potentially patentable inventions, trademarks, service marks, copyrightable subject matter, and trade secrets.
I will touch on each of these areas, give you just a quick primer on some of the substantive rights involved with each, and then discuss with you the kinds of contractual arrangements and the specific types of provisions and considerations that you need to be mindful of in connection with each area.
A. Definition of a Patent
Unlike other forms of intellectual property, patent rights do not exist unless and until they are granted by the government, the federal government or the government of a foreign country.
A U.S. patent is the grant of a property right from the Government to the inventor. It gives the inventor the right to exclude others from making, using, or selling the patented invention in the United States for the duration of the patent.
Once the patent expires, the invention enters the public domain and can be made, used, or sold by anyone.
Only the inventor, or the inventor's assignee, is entitled to apply for a patent - and only the inventor or the inventor's registered patent attorney or agent may prosecute a patent before the Patent and Trademark Office.
B. Types of Patents
1. Utility Patent
By far, the most common type of patents issued by the U.S. Government, are utility patents.
A utility patent is granted for inventions which are novel, useful, and non-obvious. A utility patent can be obtained for the utilitarian or functional aspects of an invention.
Utility patents have a duration of twenty years from the date of filing the application.
During the life of the patent, maintenance fees must be paid in order to sustain the patent.
There is no renewal of a patent. When a patent term expires, the invention is forever dedicated to the public.
2. Design Patent
A design patent can be obtained for the physical appearance of an invention.
To be eligible for a design patent, an invention must be novel, non-obvious and ornamental. In other words, the design must not serve a primarily functional purpose.
Design patents expire fourteen years from the date of issue of the patent. Maintenance fees are not paid on design patents.
3. Plant Patent
A plant patent is a patent granted by the Government to an inventor who has invented or discovered, and asexually reproduced, a distinct and new variety of plant.
The plant patent lasts twenty years from the date of filing the application, and protects the inventor's right to exclude others from asexually reproducing, selling or using the patented plant.
4. Patentable Inventions
Not all inventions are patentable. An invention must fall within one of four categories provided in the U.S. Patent Laws. These categories include: machines, articles of manufacture, composition of matter and processes. or any improvements made upon these categories. As a result you cannot obtain a patent on laws of nature, mathematical formulas, and abstract ideas.
C. Inventions Already in Use or on Sale
An invention is not eligible for patent protection if the invention was on sale, offered for sale, or in public use in the United States for more than one year prior to filing the patent application. Public use has been held to include disclosure to one who is not under an obligation of confidentiality.
An invention is not eligible for United States patent protection if it is described in a publication, including the publication of a foreign patent, anywhere in the world more than one year prior to the filing of the application.
Therefore, if you have a client who has filed for a foreign patent, or who is about to introduce a new product at a trade show, you must look into filing a patent application immediately.
You also must take the time limitation into consideration as soon as the inventor starts talking to people about the invention. Whether he is looking for investors, wanting to sell the idea outright, or discussing manufacture, unless there is a patent in place, there should be a written obligation to maintain confidentiality.
The one year time bar is an absolute, statutory bar to obtaining patent protection.
III. Agreements And Restrictive Covenants Relating To Patents
A. Confidential Disclosure Agreement
A confidential disclosure agreement is really not limited to new inventions. It can protect any sort of confidential information
- a concept for a new restaurant - a new business venture -
any sort of confidential business information that could be of value to others if it were disclosed.
A confidential disclosure agreement is particularly critical in the patent area however, for two reasons, the one year time bar and because of the nature of patent protection
Because of the one year time bar....if the inventor discloses the subject matter of the invention to another without an agreement of confidentiality, the clock starts running on the one year to get the patent application on file.
When I say it is also important because of the nature of patent protection, remember the first thing I told you about patents, there is no patent protection unless and until a patent is granted by the Government. A patent is granted to the inventor. The inventor is not the first person to conceive of the idea, the inventor is the first person to reduce the invention to practice.
Therefore - the inventor has a concept - an idea for a new invention - he must discuss it with other people, which is the usual situation in the real world....he needs to consult with someone about the electronic circuitry, or the practicalities of manufacturing, or regarding investment capital or partnership -
BUT - If the concept is disclosed to another, before it is reduced to practice - that is, before the concept really becomes an invention, and the person to whom it is disclosed is the first to reduce the idea to practice....he becomes the inventor and he gets the patent, not the guy who originally conceived the idea.
That is why it is critical to have a confidential disclosure agreement in place before an invention is disclosed.
You will also hear "Confidential Disclosure Agreements" referred to as "Non-Disclosure Agreements" for obvious reasons. The point is, the person who is receiving the information is promising not to tell anyone else. Typically, a Confidential Disclosure Agreement also provides:
i) that the party receiving the information recognizes that it is confidential and proprietary;
ii) that the party receiving the information will not to utilize the information for his/her own benefit; and
iii) that the information and all documents, charts, graphs, notes memoranda and other items embodying the information will be returned to the disclosor within a set period of time.
Even if a patent never issues, the contracting party still may be bound to the inventor not to utilize nor disclose the invention even though the inventor may not be able to keep anyone else from utilizing the invention.
A Confidential Disclosure Agreement is signed by the person who is receiving confidential or trade secret information, prior to release of the information itself. The information is identified in the agreement only in general terms.
B. Technology Development Agreement
Frequently the next step in developing an invention is the Technology Development Agreement.
Once the confidential information - the concept for the invention - has been disclosed and evaluated by the person receiving it, and the parties have agreed to work together, the details of their working relationship should be specified in a further agreement. This will often take the form of a Technology Development Agreement.
This is generally used when the party who has initially developed the idea needs help to further refine and develop the product.
It also comes into play in other situations such as when an invention is brought to a company, the company is interested, but needs the assistance of the inventor to modify the invention so that it works with technology the company is already using.
Obviously this agreement will set out the rights and responsibilities of each party, the consideration to be paid, the grounds for termination and what happens at termination and so forth.
But with a Technology Development Agreement you also need to consider:
i) whether or not the technology is or will be the subject of a patent application;
ii) who will bear the costs of obtaining the patent;
iii) who is to own the patent should it issue; and
iv) what happens if a patent does not issue.
There can be specific provisions for ownership of the technology to reside with the inventor regardless of whether or not a patent issues, and specific provisions that the other party will not compete with the inventor nor utilize the technology whether or not a patent issues.
The person or company who is contracting with the inventor may want to provide that they will own the technology or that if a patent doesn't issue, the agreement terminates, or the obligation to make payment terminates or is greatly reduced.
C. Technology Transfer Agreement
An inventor can also agree to transfer his invention to another; that is, to transfer or assign actual ownership.
A transfer of ownership rights can be made whether or not the invention is patented. The inventor can transfer the right to obtain a patent as well as a patent application or an issued patent.
If there is going to be a patent application , the agreement must provide for what is to happen if a patent does issue and what is to happen if a patent does not issue.
Generally, the inventor agrees that if the patent issues, he or she will execute the necessary documents for filing with the United States Patent and Trademark Office to transfer ownership to the transferee.
If a patent does not issue, the inventor will frequently agree not to disclose the technology to another nor to compete with the transferee in the utilization of the technology.
Consideration for the transfer will generally be greater if a patent issues. The patent gives the patent holder rights of exclusivity that will not be present with unpatented technology.
In some cases, the transferee will be interested in the transfer only if a patent issues, and will want to terminate the agreement if a patent does not issue. If this is the case, you must be very careful to define what the transferee can do in the way of competition, etc. as the transferee is very likely to have been provided with specific information from the inventor that would not be available to others.
D. Patent or Technology License Agreement
Inventions, whether patented or not, can also be the subject of license agreements.
A license agreement does not involve a transfer of title, but grants permission to another to utilize the technology.
If there is a patent, you frequently see license agreements that are for the life of the patent, but licenses are also granted for a lesser term.
Technology licenses may be exclusive or non-exclusive. An exclusive license is generally interpreted to exclude even the licensor from using the technology in competition with the licensee, so be careful of the terminology, an exclusive license is quite literally exclusive of everyone but the licensee.
A non-exclusive license on the other hand allows the licensor to grant permission to others to use the technology, including competitors of the licensee. Be sure your client completely understands that, and also take that into account in negotiating consideration for the license. An exclusive license is worth a great deal more than a non-exclusive license.
A license may specifically define the application of the technology that is being licensed. Very often inventions will have application in a number of different industries. If the licensee only wants to use the technology in the manufacture of cars, define the license to limit it to the manufacture of cars. That way the licensee is not paying for areas or uses that are not of interest, and the licensor can grant another license, even an exclusive license, to use the invention in the manufacture of prefabricated housing.
Licenses should also specifically define geographic territory. This is another way for the licensor to retain rights that are not needed by the licensee and for the licensee to pay for only what he needs.
Finally, you will want to specify whether or not sub-licenses may be granted by the licensee.
D. Distribution Agreement
Pecause a patent holder can preclude others from making, using or selling a patented invention in the United States, a company can be liable for merely distributing patented products even if they are manufactured by another.
A distribution agreement gives permission for the sale of products which embody the technology. A distribution agreement should also define the territory and set out provisions for non-competition.
When obtaining a license or distribution rights from a patentee or inventor, the licensee or distributor should ask for:
i) a warranty that the product does not infringe the intellectual property rights of a third party; and
ii) a provision for indemnification should the licensee or distributor have to defend against a claim of infringement.
Again, since patent infringement occurs when one makes, uses or sells the patented invention, mere distributors are liable equally with manufacturers, should the product be found to infringe a patent.
A. Definition of a Trademark
A trademark is a word, phrase, symbol or design, or any combination of those elements which identifies the goods or services of one party and distinguishes those goods or services from those of others.
This definition includes service marks, which identify the source of services, such as hotels, restaurants, tax return preparation services, etc. rather than products.
There are also:
i) Certification marks which certify that goods or services of others have certain characteristics or have met certain standards - an example would be the Underwriters' Laboratories certification that products meet their standards; and
ii) Collective marks are used to indicate membership in an organization.
B. Purpose of Trademark Law
Trademark law has a two-fold purpose. It is designed to protect the trademark owner. In using and advertising trademarks in the development of a business, the trademark owner develops valuable consumer good will and name recognition. Trademark law protects trademark owners from competitors who want to trade on that goodwill without having earned it.
The second thrust of trademark law is consumer protection. Because the owner has used his trademarks in connection with the business, the consumer has come to recognize the trademarks as our signal for what we are getting. If we see golden arches, we know that we can go get a Big Mac and that it will be essentially the same Big Mac that we get if we see golden arches in North Carolina or in Colorado.
We are entitled to that. We are entitled to take for granted that if we see a trademark we are going to get the product we are expecting and not something else.
To achieve both of these goals, protecting the trademark owner's valuable goodwill and also protecting consumers against deception, trademark law prevents the use of a mark which is "confusingly similar" to the mark of another. That is, one cannot use a mark which is so similar to an existing mark that it is likely to confuse consumers into thinking that these goods or services are connected with the original mark owner.
C. Obtaining Trademark Protection
Unlike a patent, a trademark does not have to be registered to be protectable under the law. There are common law trademark rights begin as soon as a mark is used. Common law protection, though, is generally limited to the geographic area in which the actual use is taking place.
To obtain nationwide trademark protection, a trademark must be registered with the U.S. Patent and Trademark Office in Washington. Trademarks can also be registered on a state by state basis, but frankly the situations in which you would want to rely on state registration rather than federal registration are pretty limited.
It is interesting though, that the reason there is state registration of trademarks is that only patents and copyrights are mentioned in the Constitution. So the law concerning patents and copyrights is exclusively federal. Since trademarks are not mentioned in the Constitution, the states are not precluded from regulating trademarks and each state does so.
The federal government can exercise jurisdiction over trademarks only under the Commerce Clause. So a mark must be used in "commerce which may be regulated by Congress", generally interstate or international commerce before it can be registered by the federal government.
You must have actual use in commerce before a registration will issue, but an application may be filed on the basis of a bona fide intent to use the mark in commerce.
So when you are dealing with transactions which involve trademarks, keep in mind that , unlike patents or copyrights, trademarks may be registered in individual states and not just with the U.S. government or foreign governments.
D. Term of Trademark Protection
The final factor that you should take into account when you are dealing with trademark transactions is that trademark registrations can last indefinitely. So long as the mark is still in use and the registration is renewed every ten years, there is no upper limit on the duration of a trademark registration.
V. Agreements And Restrictive Covenants Relating To Trademarks
A. Assignment of Trademark
The first type of agreement I want to discuss with you in connection with trademark practice is an Assignment.
An assignment is the transfer of ownership rights to the trademark. However, because a big part of the trademark and of trademark law, is the goodwill of the mark, or its reputation in the mind of the consumer, a trademark assignment is not valid unless the mark is assigned along with that portion of the goodwill of the business that is embodied in the mark.
It is not necessary to sell the entire business, but the sale must include machinery or equipment or a formula or recipe, or maybe just the specifications of the specific product, or the policies for how the business is conducted, but there must be some indication that goodwill is being transferred along with the mark. Otherwise, it is considered an assignment in gross and is invalid.
The other factor you want to take into consideration with an assignment is what rights are being assigned. Are there state registrations, federal registrations. Are the rights to be transferred in the United States only or are there foreign rights to be acquired.
Will the transferor retain any rights to use the mark, or will the ownership revert under certain circumstances - this is particularly critical when the mark is an individual's own name, and it comes up more frequently than you might imagine.
It arose when Monty Trainors' restaurants were sold, for example - and recently I heard of a situation where a celebrity had allowed a company to register his name as the service mark for a chain of retail stores. The chain is now going into bankruptcy. Bankruptcy courts have been treating trademarks like any other asset of a business and allowing them to be sold out of the bankrupt estate. So this person may totally lose control of his or her own name.
So it is very important to look ahead to appropriate disposition of trademark rights under various contingencies.
B. Trademark License Agreement
One who owns a trademark at common law, or through registration, has the right to license another to use the mark. As with patent licenses, trademark licenses may be exclusive or non-exclusive, may be worldwide, or for some limited territory, and may be with or without royalty.
There are several unique aspects of Trademark licenses however, which I want to call to your attention.
1. Quality Control Provisions
Historically, trademark licenses were not allowed at all. The consumer protection aspects of trademark law were such that a trademark signified to the consumer that the trademark owner made the product. If another was allowed to use the mark, that guarantee was no longer there for the consumer, and the trademark owner was considered to have given up his ownership rights.
Gradually, the law changed so that today licensing is very common. But the aspect of consumer protection remains strong. A trademark license must include provision for the trademark owner to exercise quality control. Otherwise, the license is considered a sham and the trademark owner runs the risk of having the mark declared abandoned.
2. Restrictions on Use at Termination
It is also very important that there be a clearly defined period of time for use of the trademark and provision for disposition of products and other items bearing the trademark at the termination or expiration of the agreement.
Typically, a trademark license will permit the use of a trademark for a period of time, say five years. At the end of that time, the licensee will not create any more products that have that trademark on them, but what happens with products then in inventory, what happens with sales orders that have been taken but not yet filled?
What if the orders were taken and the product was to have been shipped before the end of the license period, but there were delays that were outside the licensee's control. If the licensee ships the goods after the termination date, he breaches the license agreement, and if the licensee doesn't ship after the termination date, he breaches the sale agreement and possibly alienates a customer.
There is no right or wrong answer to these problems, and in fact the answer will depend upon the industry, the nature of the products and the nature of the business. My point is just to be certain you take these things into account.
When I say that the answer is particular to the industry, I am very serious about that. Many license agreements call for all products, advertisements, and materials bearing the mark to be destroyed at the conclusion of the license term. I was once involved in a license agreement for the use of a trademark in the airline industry, and the other lawyer actually proposed a license which had that provision. A contract that provided for the destruction of aircraft was just a bit draconian in our view. We ultimately agreed that repainting them, within a reasonable period of time, would work just as well.
C. Franchise Agreement
Let me shift focus for just a bit and talk about franchise law.
A franchise agreement is essentially a trademark license. Obviously, there are a number of other business terms and conditions attached as well, and franchise law is an entire specialty unto itself, But at its essence, a franchise agreement is permission to use the trademark or service mark of another. All of the rules and considerations governing trademark licenses apply equally to franchise agreements.
One particular problem area occurs when one single business owner has a number of different locations, and then sells different locations to different entities or individuals without adequate provision for trademark ownership. The result is numerous owners of the same trademark, in the same geographic area, such that each of them owns everything...and nothing. That is, they each have the right to use the mark, but none of them can stop a third party from infringing because no one can establish superior ownership rights. It is also unlikely that any of them could preclude any of the others from opening additional locations or licensing others. So they each have the right to use the mark but there is virtually no value in the mark, because anyone else can use it also.
You always want to avoid a situation of multiple trademark ownership. Ownership of the trademark should either be retained by the seller or transferred to one of the transferees, with licenses granted to all of the others. This maintains the integrity of the mark and preserves its value.
D. Acknowledgment of Ownership in Other Agreements Relating to Trademarks
In connection with patent law, we discussed Confidential Disclosure Agreements, Technology Development Agreements, Technology Transfer Agreements, and Patent and Technology License and Distribution Agreements.
Frequently, agreements relating to technology such as these, will also involve the use of a product name and/or a company name. In such cases, there are trademark considerations.
As with Trademark Licenses and Franchise Agreements, they should, minimally:
i) recite an acknowledgment of ownership of trademark:
ii) contain a disclaimer of any ownership rights by the party who is given permission to use the mark; and
iii) include a representation that the contracting party makes no claim of ownership and will take no action in derogation of ownership rights.
A. Definition of a Copyright
A copyright is a federally granted right which protects the author's particular expression of an idea. One of the fundamentals of copyright law is that a copyright does not protect an idea itself.
Rather, it protects the particular form of expression the author used in expressing his or her idea. Thus, anyone is free to express the same idea as long as the author's particular form of expression is not copied. For example, two nearly identical photographs taken of the Eiffel Tower by two different people can each be individually copyrighted if they are independently created since each photograph is an expression of its respective author.
B. What Can Be Copyrighted
Copyright is accorded to original works of authorship of literature, drama, music, sculpture, computer programs, sound recordings, film, photography, and works of fine art.
Copyright gives the owner the exclusive right to reproduce, distribute, sell, perform, or publicly display the copyrighted work and to prepare derivative works.
C. Requirements for Protecting a Copyright
In order to obtain copyright protection, a work must be original and fixed in a tangible medium of expression.
To satisfy the originality requirement, the author must have engaged in some form of intellectual endeavor, and not mere copying, and must exhibit some form of creativity.
Further, in order to be deemed "fixed in a tangible medium", the work must be created on something sufficiently permanent to be perceived, reproduced, or otherwise communicated for a sufficiently long duration.
D. Time Constraints on Registration
Copyright protection begins automatically as soon as the work is created. In other words, the author need not register the work in order to obtaiin copyright protection.
However, registration is a prerequisite to bringing an infringement action.
To achieve maximum protection a copyright should be registered within three months after publication. This maintains the copyright owner's right to recover statutory damages and attorney's fees. E. Duration of Copyright
The duration of copyright protection is the life of the author plus 50 years. Or, in the case of works made for hire, 75 years after the first publication or 100 years after creation of the work, whichever expires first.
Copyrights cannot be renewed.
VII. Agreements And Restrictive Covenants Relating To Copyrights
A. Work for Hire Agreements
If a copyrightable work is created by an employee within the scope of his or her employment, the work is a work made for hire and the employer is the owner of the copyright.
If, however, the creator of the work is an independent contractor, or if the work is commissioned, the copyright will belong to the creator of the work.
If a copyrightable work is created by anyone other than an employee in the course and scope of employment, it is critical to have a "work for hire" agreement and/or assignment of copyright, so that the one who commissioned and paid for the work actually enjoys ownership of the copyright.
This is a real trap for the business person because it is counter intuitive. If you hire someone else to do something for you, and pay them, we are accustomed to owning the results of that effort. If you hire someone to build a house for you, you own the house.
This is not true with copyright law. If you hire a photographer to take photographs for use in advertising your business, or if you hire a computer programmer to write software for you, they own the copyright, and you are liable if you reprint the brochure which includes the photographs or have another programmer come in and de-bug the software.
In any such situation, you must have the independent contractor execute a work for hire agreement and assignment of copyright in the work created.
B. Transfer of Copyright Ownership
The transfer of copyright is not an "all or nothing" proposition. Copyright is frequently referred to as a "bundle of rights", including, among others, the right to reproduce and distribute the work, the right to perform the work, the right to create derivative works, such as a screenplay from a story or a translation, etc.
Any portion of these rights can be assigned to another, with the copyright owner retaining all other rights, or assigning certain other rights to other entities or individuals.
An assignment of copyright is not valid unless it is in writing and signed by the copyright owner.
C. Copyright Licenses
As with assignments, copyright licenses can be restricted to specific rights, with the copyright owner retaining all other rights.
Appropriate restrictions must be built into the licenses to assure the owner the flexibility to utilize the copyright for all uses which should be retained and to assure to the owner the benefit of his bargain, not releasing rights that are not compensated.
D. Publishing Agreements
Publishers' standard agreements almost invariably call for assignment of copyright from the author to the publisher.
This makes matters easier for the publisher, because the publisher then has unrestrained use of the work worldwide for future editions, abridgments, translations, books on tape any future use the publisher may wish to make.
It is not necessary, however, and is rarely advantageous for the author. A publisher need only have a license to publish and distribute the work. Copyright generally can and should be retained by the author.
E. Software Development Agreements
Another type of agreement frequently encountered in copyright practice is the Software Development Agreement, in which a company or an individual programmer is hired to develop software for a specific application.
Under copyright law, unless the programmer is an employee, employed for the purpose of writing software, copyright in the software will most likely be considered to be owned by the programmer, or the company who employs the programmer.
If you are representing the programmer - the programmer's copyright is protected by covenants not to copy or reproduce or alter the software, similar to the "shrink wrap licenses" packaged with commercially available software. These covenants are frequently secured by the programmer's retaining the source code, or having it held in escrow, and allowing access to the purchaser only on certain specified conditions.
From the standpoint of the purchaser, however, conditions like these can be devastating. It is generally important that the purchaser be able to copy the software onto other computers, to de-bug and update it, and to alter its function as business circumstances dictate. On behalf of the purchaser, one would seek to negotiate copyright ownership - the work for hire - and possession of the source code.
VIII. Trade Secrets
A. Preliminary Considerations
Trade secrets exist in almost every business, they consist of virtually any information which is :
i) beneficial or potentially beneficial to the business;
ii) developed through the expenditure of time and effort;
iii) unknown to others in competing businesses; and
iv)which gives a business advantage to the company.
Trade secrets can include formulas, patterns, compilations, computer programs, devices, methods of production, techniques, or processes. They can also include customer lists, supplier lists, and source lists
But in order to qualify as a trade secret, the information must be subject to "efforts that are reasonable under the circumstances to maintain its secrecy."
This is where restrictive covenants come into play. "Efforts that are reasonable under the circumstances to maintain secrecy."
The security measures to be taken are many and varied, but key among them are contractual agreements restricting access to and disclosure and use of trade secrets.
Among the steps to be taken to protect trade secrets are:
(i) employee confidentiality agreements;
(ii) prominent labeling or identification of documents or other items containing confidential materials;
(iii) limiting distribution of documents to a "need-to-know" or "need-to-use" basis;
(iv) numbering documents (when reasonable) and maintaining ledgers to track each copy;
(v) creating a document destruction program;
(vi) visitor control (registration, badging, supervision);
(vii) fencing the premises;
(viii) limiting access to sensitive materials, as well as sensitive areas, such as computer and document storage areas;
(ix) restricting photocopying (logs or central copying);
(x) reviewing all outgoing materials;
(xi) posting signs and periodically circulating reminders cautioning employees to protect confidential information;
(xii) having employees periodically acknowledge their duty to protect confidential information, perhaps during employee reviews; and
(xiii) exit interviews.
I am going to discuss with you only a few of these measures, those which rely upon restrictive covenants of some nature.
B. Specific Measures Which Rely Upon Restrictive Covenants
1. Document Marking and Control
All documents which contain confidential or proprietary information should be identified and all confidential documents should be marked with an appropriate proprietary information notice an example is given in the written materials:
The information disclosed herein is proprietary with XYZ Company and shall not be duplicated, used or disclosed, nor shall the articles or subject matter contained herein be reproduced, without written permission of XYZ Company.
Confidential documents which must be submitted to the government for any reason should be marked to ensure that they are not inadvertently released to others under the Freedom of Information Act. There are specific exemptions under the Act for trade secret information, and the document marking should specifically refer to the exemption.
2. Documents to be Released
There are certain categories of documents within the company that are intended to be released to the outside world. These documents fall into two categories, documents which are not intended to disclose trade secrets and documents which intentionally disclose trade secrets.
a. Documents not intended to disclose secrets
Documents containing technical information prepared for general release are not intended to disclose trade secret information. They should be screened before release to ensure that they do not disclose trade secrets of the business.
These documents include advertisements, sales brochures, hand-outs for trade shows, newspaper press releases, articles to be submitted to technical or trade journals, and training and maintenance manuals intended for unrestricted release to customers.
In addition to documents for general release, there also may be specific requests for information that should not disclose trade secret information. For example, The company may receive an inquiry for information about a product so that the inquirer may determine whether the product will meet the inquirer's requirements.
A customer may want to know whether a trade secret formulation contains a particular ingredient in order to avoid possible adverse reaction with materials to be added by the customer. To accommodate requests like this, the business may be able to release censored drawings, or descriptions insufficient to reveal any trade secrets involved,
Or a company may be able to release the information subject to a Confidential Disclosure agreement such as we discussed earlier in connection with patents.
b. Documents containing trade secrets
There are other documents which must be released outside the company, which do intentionally contain trade secret information.
The company should establish a system to track and retrieve all confidential documents which have been provided to outsiders for any reason.
Even when documents disclosing trade secrets are released to outsiders with the appropriate restrictions, protection may be lost by the failure of the trade secret owner to recover the documents after the purpose has been accomplished. Therefore, an adequate system to track and retrieve documents is important.
And it is is always wise to release sensitive documents under the protection of a Confidential Disclosure Agreement.
3. Employee Agreements
Even without a written agreement, Florida courts will generally enforce an obligation of confidence binding an employee or ex-employee not to disclose or use the trade secrets of his employer.
However, there are several reasons for requiring an employee whose duties will involve access to trade secrets to sign a written agreement at the time of hiring.
A written agreement may be necessary if the employee was the originator of trade secrets and then seeks to leave the company and take them to his new employer. The fact that an employee signed a secrecy agreement puts the employee on notice that trade secrets are involved.
You also want an acknowledgment by the employee that the trade secrets were not previously known to him. This will help to establish that they were in fact trade secrets of the company.
Generally, an employee agreement should also contain provisions for: non-disclosure, non-use, a duty to disclose and assign inventions to the employer, and for non-competition with the employer
A non-disclosure provision requires the employee not to disclose the trade secrets of the employer or use them other than for the employer's benefit.
A non-use covenant obligates the employee not to disclose or use the employer's trade secrets after termination of the employment, even when such trade secrets were originated by the former employee.
c. Duty to disclose and assign to employer
A duty to disclose and assign requires the employee to promptly disclose and assign to the employer any discoveries, improvements or inventions made by the employee during the course of his employment which relate to the business of the employer.
Absent such provision, the employee may be considered to have an interest in the subject matter at least equal to that of his employer or, in the alternative, it may be considered that the knowledge is part of the employee's skill and experience, rather than a trade secret of the employer.
A non-competition provision should include a duty not to moonlight, not to complete with the employer, not to organize a competing company, and a duty not to solicit fellow employees to leave the company to undertake competitive employment.
As an incentive for an employee to comply with the agreement, it is helpful to include a provision which prohibits the breaching employee from receiving any benefits to which he or she would otherwise be entitled.
4. Vendors/Outside Contractors
Not only employees, but also vendors and outside contractors will likely have access to trade secret information.
Any business which hires vendors to work to specification on parts or formulations that incorporate trade secrets, or which utilizes an outside contractor to build machinery, components, or which engages outside consultants to provide services involving sensitive information, should obtain advance commitment of the vendor, contractor or consultant to hold in confidence any trade secret information supplied by the business to enable the vendor's performance.
This may be in the form of a Confidential Disclosure Agrement, or it may just be included as a clause in the company's standard documents, such as Purchase Orders or Requests for Proposals.
An example of such a clause is provided in the written materials. Any such agreement should obligate the recipient of any documents containing the trade secrets to return them promptly to the discloser, together with any copies which have been made, after the purpose for which they have been furnished has been accomplished.
IX. SECRECY IN LITIGATION
Generally, litigation requires that proceedings be a matter of public record and may involve the very trade secret itself. This poses special problems of secrecy which are best resolved on a case by case basis, with specific regard to the facts, issues and posture of the client in the case itself.
Precautions should generally include:
i) an early agreement upon an appropriate protective order;
ii) filing evidence and certain testimony under seal;
iii) blacking out sensitive material which is not relevant to the proceedings;
iv) restricting access to copies of documents; and
v) excluding individuals from the presence of depositions or testimony.
In the protection of intellectual property, trademarks, patents, copyrights and trade secrets, it is important to utilize all means available. Obtaining appropriate registrations, and taking adequate security precautions are critical, but they are no substitute for contractual restrictions on the use and disclosure of intellectual property.
Agreements such as those we have discussed provide a measure of protection that can be obtained from no other source.