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.
© 1998 Leslie J. Lott and Mark E. Stein
Protecting the intellectual property, trade secrets and other confidential information owned by your company or client is critical, particularly in today's business world of rapidly changing technologies. Intellectual property is intangible, it might be represented by a certificate of registration such as letters patent or a trademark registration certificate, but otherwise, it can be very difficult to establish ownership and infringement by another. In most cases, the presumption is that if there is no certificate evidencing ownership, the subject matter is public domain and available for all to use.
By "intellectual property" we mean generally patented or potentially patentable inventions, trademarks, service marks, trade names, copyrightable subject matter, and trade secrets. These materials will also discuss the protection of other forms of confidential and proprietary information such as customer lists. Each of these areas, along with the kinds of contractual arrangements that are relevant in connection with each will be discussed below.
II. Preliminary Steps: A corporate Intellectual Property Program
One preliminary step in protecting intellectual property assets and confidential and proprietary information is the creation of a corporate intellectual property program. Small companies can institute such a program by designating a single individual to oversee the entire program. At a minimum, an effective corporate intellectual property program should include several components:
• First, as discussed throughout this paper, all employees should be required to sign employment agreements that clearly state that all copyrights, proprietary information, including trade secrets, and all inventions made with time, materials or facilities of the corporation, including patentable and unpatentable inventions are owned by and belong to the corporation. These agreements should also expressly require employees to maintain the confidentiality of all confidential and proprietary information and should define the phrase "confidential and proprietary information."
• Next, employees should be encouraged to bring inventions, designs, names or any other similar ideas to management.
• Management should institute a system to evaluate the ideas and if appropriate, seek the appropriate protection for each.
• Ownership should be acquired for all patents, trademarks or servicemarks, copyrights and trade secrets.
• The development of all inventions or technological developments should be documented in detail from the beginning of the idea through the final development phase, and all documentation should be corroborated and reviewed contemporaneously by some management level individual.
• Management should create systems to minimize the risk of infringing intellectual property owned by others and to evaluate developed ideas for possible commercial development through licensing or similar third-party type relationships.
• Any time third parties are hired to create works of intellectual property such as software, photographs, molds, graphics and other types of intellectual property, the company should obtain a written agreement from the creator assigning all rights in the work to the company.
The above checklist is a general, but basic, outline of the types of steps a corporation should institute to protect its intellectual property and confidential information. What follows is a discussion of the various types of intellectual property rights and suggestions for protecting these valuable assets from misuse by both current and former employees and others.
A. Definition Of A Patent
A 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, selling, offering to sell or importing the patented invention in the United States for a specified period of time. Once the patent expires, the invention enters the public domain and can be made, used, or sold by anyone. Only the inventor can apply for and receive a patent for an invention 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 - A utility patent is granted for inventions which are novel, useful, and non-obvious. These patents can be obtained for the utilitarian or functional aspects of an invention. Utility patents have a duration of twenty years from the date the patent is filed. During this period, maintenance fees must be paid in order to sustain the patent. Utility patents are, by far, the most common type of patents issued by the U.S. Government.
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, ornamental and non-obvious. In other words, the design must not serve a primarily functional purpose. The outward visible feature of a new light fixture, for example, might be the subject of a design patent. Design patents expire at the conclusion of fourteen years from the date of the grant 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, using or importing into the United States 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. Also patentable are any improvements made upon these categories. As a result, laws of nature, mathematical formulas, and abstract ideas may not, alone, be the subject of a patent.
C. Patent Searches
The inventor should consider commissioning a preliminary patentability search prior to applying for a patent. A search will provide information concerning whether the invention is patentably distinct from inventions already patented ("prior art"). While a preliminary patentability search is not a prerequisite to filing a patent application, it is highly advisable to ensure the appropriate scope of the patent application and the validity of the potential patent.
D. Inventions Already in Use or on Sale
The inventor must realize that a patent may not be obtained if the invention was on sale or in public use in the U.S., or described in a publication anywhere in the world more than one year prior to the filing of the application. If an inventor markets or sells the invention more than one year prior to filing an application, the inventor is not entitled to receive a patent.
An exception to this "on sale" rule may apply if the use of the invention is purely experimental in nature.
IV. Agreements And Restrictive Covenants Relating To Patents
A. Confidential Disclosure Agreement
Once letters patent are issued by the United States Patent and Trademark Office, the patentee has the right to preclude others from making, using, selling, offering to sell or importing the patented invention in the United States. Prior to such issuance, however, the only protection that may be afforded a patentable invention is through contract.
The first line of defense in any new technology is a "Confidential Disclosure Agreement", also referred to as a "Non-Disclosure Agreement" because it binds the party receiving the information not to utilize it for his own benefit nor to disclose it to third parties, except in certain enumerated circumstances.
Confidential Disclosure Agreements are critical when the individual or company which developed the technology needs to disclose the technology to another for purposes of obtaining capital investment, for obtaining additional technical advice to further develop the invention, to manufacture the product, for purposes of marketing and distribution, or to enter into a license of technology.
The value of a Confidential Disclosure Agreement lies in its enforceability even absent the issuance of a patent. That is, 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 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. However the general description must be clearly distinguish the confidential or trade secret information from other non-confidential information.
Given the one year time bar for obtaining letters patent, it is particularly critical that anyone to whom information concerning the invention is disclosed, is under agreement not to make further disclosure. A sample Confidential Disclosure Agreement is attached to this paper as Appendix A.
B. Technology Development Agreement
Once the confidential information has been disclosed and evaluated by the person receiving it, and the parties have agreed to work together in connection with the confidential information or technology, the details of their working relationship should be specified in a further agreement. Frequently, this will take the form of a Technology Development Agreement. This is generally used when the party who has initially developed the technology needs the assistance of another to further refine and develop the product, and maybe even for manufacturing and distribution.
In addition to all the usual contractual provisions, such as the precise rights and responsibilities of each party, consideration and what is to occur in various eventualities, such an agreement should also set out whether or not the technology is the subject matter of an application for letters patent, and if so where, how the costs of obtaining the patent are to be born, who is to own the patent should it issue, and what is to occur should a patent 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. Such provisions are limited only by the general law governing non-competition agreements. Counsel drafting such agreements, should take care to review the general or state law governing non-competition agreements.
C. Technology Transfer Agreement
An inventor can also agree to transfer his technology to another. That is, to transfer actual ownership. Once again, this is without regard to whether or not the technology is patented.
If it is contemplated that the technology involved is to be the subject of an application for letters patent, 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.
Consider also that 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. In such cases, particular care must be taken to restrict what the transferee can do in the way of competition, etc. as the transferee may have be provided with specific information from the inventor that would not be available to others.
D. Patent or Technology License Agreement/Distribution Agreement
Inventions, whether patented or not, can also be the subject of license agreements. Such agreements grant permission to another to utilize the technology. They may be for the life of the patent, or for a lesser term. They may be exclusive or non-exclusive and may specifically define the application of the technology that is being licensed. They should also specifically define geographic territory and whether or not sub-licenses may be granted.
A distribution agreement provides for the sale of products embodying the technology. Such agreements should include provisions for non-competition.
When obtaining a license or distribution rights from a patentee or inventor, the licensee or distributor should seek a warranty that the product does not infringe the intellectual property rights of a third party, and provision for indemnification should the licensee or distributor have to defend against a claim of infringement. Since patent infringement occurs when one makes, uses, sells or imports 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, name, symbol or device, or combination thereof, which identifies and distinguishes the source of the goods or services of one party from those of others. A service mark is closely related, except that it serves to identify and distinguish the source of services rather than products. Certification marks are used to certify that goods or services of others have certain characteristics. Collective marks are used to indicate membership in an organization or to indicate that goods or services are produced or authorized by an organization.
B. Purpose of Trademark Law
Trademark law is designed to protect consumers and to protect the good will which merchants develop through the use of trademarks and service marks. This goal is achieved by preventing would-be infringers from using similar marks which could confuse consumers into thinking that these goods or services originate from the original mark owner. A mark thus safeguards the owner's reputation in the marketplace as well as the value of the owner's advertising dollar.
C. Categories of Marks
There are four basic categories of marks. These include fanciful and arbitrary marks, suggestive marks, descriptive marks, and generic terms.
Fanciful marks, such as EXXON®, HAAGEN-DAS® and XEROX®, are completely made-up. Arbitrary marks in no way describe the goods or services they are meant to identify. Examples of arbitrary marks include APPLE® for computers and IVORY® for soap. They are common English-language words, but are "arbitrary" as applied to the specific goods or services for which they are used. Suggestive marks, such as 7-ELEVEN® and COPPERTONE®, indirectly describe the products or services they identify. All of these categories can be valid trademarks.
Descriptive marks include marks which merely describe the products or services they identify, describe the geographical location from which the goods or services emanate, or comprise a person's surname. Examples of descriptive marks include CHAP STICK® and BUFFERIN®. Descriptive words can generally be valid marks only after a number of years of use and extensive advertising resulting in "secondary meaning" as a trademark.
Finally, a generic term is a common descriptive name of goods or services such as computer or lip balm. A generic term can never become a trademark.
D. Obtaining Trademark Protection
Unlike patent rights, trademark rights begin as soon as a mark is used. This protection is generally limited to the geographic area in which the actual use is taking place. To obtain protection throughout the United States, a trademark must be federally registered with the U.S. Patent and Trademark Office. This requires use of the mark in commerce which may be regulated by Congress, generally comprising interstate and international commerce. An applicant may file an intent to use application prior to such use in commerce if he or she has a bona fide intent to use the mark in trade and commerce in the future.
E. Trademark Searches
As with patents, a comprehensive trademark search is recommended prior to use of the mark to ascertain whether the mark is likely to cause consumer confusion with an already existing mark. A search serves to ensure the validity of the mark. It is also important to keep in mind that trademark infringement does not require intent. The innocent adoption of a mark that is confusingly similar to that of another is actionable at law. A preliminary search of the U.S. Patent and Trademark Office records, may serve to avoid unknowing infringement of another's trademark. The most prudent choice, however is to obtain a comprehensive search, which would include the U.S. Patent and Trademark Office records, as well as the records of all fifty (50) states, common law users and the internet.
F. Term of Trademark Protection
Trademark registration can last indefinitely, so long as the registration is renewed every ten years and continued use is maintained.
VI. Agreements And Restrictive Covenants Relating To Trademarks
A. Protection Through Registration
The owner of a trademark, whether registered or not, has the right to prevent another from using a "confusingly similar" mark, that is, one which is likely to cause confusion or mistake as to the source, origin or sponsorship of the goods or services. These rights, at common law, however, are limited to the geographic area in which the trademark owner trades or is known. Federal trademark registration carries with it the exclusive right to use the trademark throughout the United States. Similarly, registration in the State of Florida gives rise to the presumption of the exclusive right to use a mark throughout the State of Florida.
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. A sample Trademark License Agreement is attached to this paper as Appendix B.
1. Quality Control Provisions
Historically, this was not the case. 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 over all uses of the owner's trademark. Otherwise, the license is considered a sham and the trademark owner runs the risk of having the mark declared abandoned.
It is also very important that there be clearly defined terms for use of the trademark and disposition of products and all other items bearing the trademark at the termination or expiration of the agreement.
C. Franchise Agreements
Franchise law is, of course, an entire specialty in itself, and an in-depth discussion of franchise agreements would far exceed the scope of this paper. It should be born in mind, however, that a franchise agreement is essentially a trademark license. Obviously, there are a number of other business terms and conditions attached as well. But, at its essence, it 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 a business owner has a number of different locations, and sells different locations to different entities or individuals without adequate provision for trademark ownership. The result is numerous owners of the same property, the 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 preclude third party use because there are already a multiplicity of users. It is unlikely that any of them could preclude any of the others from opening additional locations or licensing others.
In such a situation, ownership of the trademark should 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, recite an acknowledgment of ownership of trademark, a disclaimer of any ownership rights in the party given permission to use the mark, and 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. Copyright does not give protection to the actual idea being expressed. 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. Copyright protects the author from the unauthorized copying of the work, or a portion of the work, by another.
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 therefrom.
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 achieve copyright protection. However, in order to initiate a copyright infringement suit, registration is required. To achieve maximum protection, a copyright should be registered within three months after publication, to enable the copyright owner to maintain the right to recover statutory damages and attorney's fees.
E. Duration of Copyright
In general, the duration of copyright protection is the life of the author plus 50 years for works created on or after January 1, 1978. In the case of works made for hire, the term of protection is 75 years after the first publication or 100 years after creation of the work, whichever expires first. For works created before January 1, 1978, the term of protection varies depending on whether the work was published or copyrighted before January 1, 1978.
VIII. Agreements And Restrictive Covenants Relating To Copyrights
A. Work for Hire Agreements
If, within the scope of his or her employment, an employee creates a copyrightable work, the employer is deemed 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. In such case, 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.
B. Assignment of Copyright
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. A sample Assignment of Copyright is attached to this paper as Appendix C.
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 such licenses to assure to 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. A sample Copyright and Trademark License Agreement is attached to this paper as Appendix D.
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 it then has unrestrained use of the work worldwide for future editions, abridgments, translations, etc. 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, wherein 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 does employ the programmer.
From the standpoint of the programmer, 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. Such 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, such conditions 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 and possession of the source code.
IX. Trade Secrets
A. Preliminary Considerations
Trade secrets exist in almost every business. Under the traditional, common-law definition, they consisted of virtually any information beneficial to the business, developed by the company through the expenditure of time and effort, unknown to others in competing businesses, and which gave an advantage to the company over such competition.
Under the recently enacted Florida Uniform Trade Secrets Act ("FUTSA"), a trade secret is any information (including, but not limited to, formulae, patterns, compilations, programs, devices, methods, techniques, or processes) which meets two criteria:
(1) it derives "independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons" to whom it might be valuable; and
(2) it is subject to "efforts that are reasonable under the circumstances to maintain its secrecy."
According to the legislative history of the FUTSA, this definition is intended to expand the scope of protectable trade secrets to allow a business to protect, due to its potential value, information which it does not presently intend to utilize or which it has not or cannot presently fully develop. In addition to information such as computer programs, formulae, and methods of production, trade secrets can also include customer lists, source lists, and the like.
If a company wishes to protect information as a trade secret, it must implement sound measures to protect against its disclosure. Under the common law, it was wise to do so not only in order to maintain competitive advantage, but also to bolster arguments of protectability should trade secret litigation become necessary. Under the FUTSA, in order to even meet the threshold qualifications as a trade secret, information must be the "subject of efforts that are reasonable under the circumstances to maintain its secrecy."
1. Necessary Level of Security
Even under the common law prior to the enactment of the FUTSA, courts would not protect the claimed trade secrets of a business which failed to take adequate precautions against unauthorized discovery. On the other hand, courts did not then, and do not now, expect a business to turn itself into an "impenetrable fortress" as a prerequisite for relief against misappropriation of trade secrets.
As one court observed in a case involving a secret manufacturing process:
While absolute secrecy is not required, there must be a substantial element of secrecy so that a third person would have difficulty in acquiring the necessary information for manufacturing the product without resorting to the use of improper means of acquiring the secret.
Thus, "heroic measures" to preserve secrecy are not required. The FUTSA codifies the common law doctrine of "relative secrecy", requiring that a business owner make reasonable efforts 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 of such information, each of which are discussed in detail later in this section.
2. Identifying Trade Secrets
Before taking any such protective security measures, a company must first identify its trade secrets. The threshold inquiry is the first of the two criteria in the definition in the FUTSA, discussed earlier: namely any information which derives "independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons" to whom it might be valuable.
Once a company has identified its trade secrets, they must be subject to "efforts that are reasonable under the circumstances to maintain [their] secrecy" in order for courts to protect them. Therefore, the company must determine the appropriate measures for the protection of its various trade secrets.
It is vital to specifically identify what matters are to be protected as trade secrets and to tailor security measures to protect only that information. If the security measures are overly broad, they often will become too burdensome to employ on a consistent basis. Failure to employ security measures consistently can lead to loss of trade secret protection.
3. Security Officer
When the security policies are in place, a reliable security officer should be appointed to implement them. This position should be held by a high level executive or employee.
First, the security officer must be knowledgeable of the company's inner workings and its trade secrets, and must be able to make accurate decisions regarding the secrecy and importance of trade secret materials. Second, the security officer must have the authority to command respect and enforce compliance with security measures. Finally, the security officer must be familiar with all contracts and agreements in which the company is involved, containing restrictions to protect the company's trade secrets.
B. Plant/Office Security
Among the specific 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 premises;
(viii) limiting access to sensitive materials, by means of "locking" computer systems 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.
Several of the above are discussed in more detail below.
C. Document Marking and Control
All documents which contain confidential or proprietary information should be identified and reassessed at regular intervals to see whether the information they contain has ceased to be confidential or has become obsolete. For example, new product designs, which are obvious from the exterior shape of the product, cease to be secret when the product is marketed. However, prior to marketing the design, maintenance of new designs in secrecy may be vital to the company.
All confidential documents should be marked with an appropriate proprietary information notice, such as:
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.
A notice similar to the one above has been used on drawings provided to a vendor. It should be noted that if the evidence establishes that a document was otherwise treated as a confidential document, the failure to apply a proprietary legend will not prevent a court from finding that a document is entitled to protection as a confidential document.
On the other hand, it should also be noted that if your company does establish a policy of stamping confidential documents with a restrictive legend, the failure to follow this policy may be interpreted as a lack of intention to protect a trade secret.
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. For example: "Subject to exemption (b)(4) of 5 U.S.C. 552".
1. Internal Documents
Confidential documents should never be left in open view or unattended even when they are in use. Any new product designs should be kept in a locked drawer or cabinet, and the design area should be locked at night. Similarly, secret processes and formulas should be kept under lock and key. Courts are impressed by such precautions as a locked box for blueprints and locking the area where the documents are kept at night.
No copies of confidential documents should be made without authorization from an appropriate member of management. All copies should be treated with the same care for confidentiality as the originals. When multiple copies of a confidential document must be distributed, the whereabouts of each numbered copy should be tracked in a log book.
Unwanted documents which contain confidential information should be properly disposed of by incineration and/or shredding. DOCUMENTS CONTAINING CONFIDENTIAL INFORMATION SHOULD NOT BE THROWN IN THE TRASH. Another common investigative technique is rifling through garbage bags.
In each area where confidential documents are located, an individual should have responsibility for marking them properly, keeping them under lock and key, monitoring their removal and return to locked files, not releasing them without authorization, overseeing copies, maintaining the log book of numbered copies of each document, and disposing of them properly. This individual should know to advise the security officer when a departing employee is the possessor of any confidential information, so that the security officer may be certain all such documents are surrendered upon the employee's leaving the company.
The security officer should monitor the practices of each such individual periodically, discussing problems with and reminding him or her of procedures to be followed.
2. Documents to be Released
a. Documents Not Intended to Disclose Secrets
Documents containing technical information prepared for outside release 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.
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. For example, 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 such requests, the business may be able to release censored drawings or descriptions insufficient to reveal any trade secrets involved.
b. Documents Containing Trade Secrets
A system should be established 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 such documents after the purpose for which they were supplied had been accomplished. Therefore, an adequate system to track and retrieve documents is important.
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 a new 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 to enable the ex-employer to obtain relief against a departing employee who was the originator of trade secrets which the employee is taking to his or her new employer, where the ex-employee's duties had not specifically required him to devise new products or techniques. The fact that an employee signed a secrecy agreement puts the employee on notice that trade secrets are involved. Further, an acknowledgment by the employee that the trade secrets are not previously known may go far to undermine any later defense that such subject matter was not secret.
a. Existing Employees
When a non-competition/non-disclosure agreement program is instituted, there is always a question as to whether employees already hired should be requested to sign such an agreement. Long-time employees may take it as a slight to their trustworthiness. Another question is whether the agreement is supported by sufficient consideration to consummate a contract. The prevailing view seems to be that continued employment constitutes sufficient consideration for such agreements.
For these reasons, some employers choose not to request existing employees to sign an agreement, relying instead on the general obligation of trust and confidence binding an employee with respect to the secrets of his employer even in the absence of a written agreement. Other employers take an opposite view, regarding confidentiality as being important enough to risk slighting long-term employees, and relying on the continuance of employment to be sufficient consideration for the confidentiality agreement. When obtaining covenants from existing employees, as a matter of precaution additional consideration could be provided, such as the payment of a sum of money, an increase in salary, or a promotion to a higher position. Depending upon the circumstances of the employment situation, a program could be set up whereby all new employees are required to sign a non-disclosure agreement, and present employees are asked to sign immediately, as well as upon any pay increase or promotion.
b. Provisions Applicable During Employment
Generally, an employee agreement should contain provisions for the following:
This 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-disclosure agreement may contain the following sample clause:
I [name of employee] agree that I will carefully guard and keep secret all confidential information of [the employer] which I may acquire or learn, and at no time while in the employ of said company or thereafter shall I disclose any such information without first securing the written consent of said company.
2. Duty to Disclose and Assign to Employer
A second necessary provision 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.
Although moonlighting may be quite common and, in general, unobjectionable to the employer, provision should be made to preclude an employee's moonlighting with a company which would compete with the business of the primary employer.
A. Duty not to Organize Competing Company
An employee should be bound not to take steps to organize a competing business prior to leaving the employ of his current employer.
B. Duty not to Solicit Fellow Employees
A further provision may require an employee, during his employment, not to solicit fellow employees to leave the company to undertake competitive employment.
C. Provisions Specifically Applicable After Employment
As an incentive for an employee to comply with the agreement, it might be helpful to include a provision which prohibits the breaching employee from receiving any benefits to which he or she would otherwise be entitled.
1. Non-disclosure and Non-use
A non-disclosure and 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.
2. Non-competition/Non- solicitation of Customers
In most states, such an agreement, known as a restrictive covenant not to compete, is enforceable. In Florida, the enforceability of such an agreement, which is also commonly referred to as an agreement in restraint of trade or commerce, is determined by one of three statutes. Section 542.33, Florida Statutes has been repealed, however its still governs agreements in restraint of trade entered into or having an effective date after June 28, 1990, but before July 1, 1996. Restrictive covenants or covenants not to compete entered into on or having an effective date after July 1, 1996 are governed by Section 542.335, Florida Statutes.
While a detailed discussion of these three statutes is beyond the scope of this paper, several key aspects of Section 542.335, Florida Statutes will be discussed. The changes to Chapter 542 enacted in 1996 generally disfavor agreements in restraint of trade or commerce. Section 542.335, Florida Statutes changed the focus in analyzing agreements in restraint of trade from the viewpoint of contract law back to the principals of unfair competition law.
To be enforceable under this statute, a restrictive covenant must be in writing and must be signed by the person against whom enforcement is sought. The party seeking to enforce a restrictive covenant now bears the burden of pleading and proving the existence of one or more "reasonably necessary" "legitimate business interests" that justify the enforcement of the restrictive covenant. The statute contains a non-exhaustive list of several categories of legitimate business interests, which include trade secrets, goodwill and specialized training. The term "legitimate business interest" is best defined as a business asset of any type, that if misappropriated would give the misappropriating party an unfair competitive advantage over the party from whom it was misappropriated.
This 1996 statute also establishes that a court shall apply a rebuttable presumption that particular time periods are reasonable and unreasonable. For example, a restrictive covenant predicated upon protection of trade secrets is presumed reasonable if its term is five (5) years or less, and presumed unreasonable, if its term is more than ten (10) years. Finally, Section 542.335 creates a presumption of irreparable injury for the violation of an enforceable restrictive covenant.
While few Courts have analyzed Section 542.335, based on the language of the statute, it would appear that courts analyzing agreements under this provision must focus on two questions. First, what is a legitimate business interest justifying the restrictive covenant? And second, what is reasonably necessary, i.e., what is the adequate measure of protection necessary for the protection of that legitimate business interest.
D. Creating Climate of Confidentiality
It is important for the business to create a climate of awareness among its employees that they have an obligation to preserve its trade secrets.
New employees should have this explained to them at the time of hiring. Posters can be displayed in appropriate areas of the plant, warning employees of their obligation of secrecy. If there is a house journal, periodic reminders should be published in it. Managers should be instructed to periodically remind employees working under their supervision of their confidentiality obligations.
E. Exit Procedures
The single most important step in protecting company secrets against a departing employee may be an effective exit interview. The interviewer should do the following: (i) recover from the employee any materials containing company secrets before he departs; (ii) retrieve and file the employee's photo I.D., and any other identifying materials which indicate that the employee is authorized to have access to the premises or to represent the company; and (iii) remind the employee of his continuing obligation not to disclose the trade secrets or use them in his new employment. Further, the interviewer has an opportunity to learn in what new employment the employee will be engaged.
Departing employees should be requested to sign a statement that they have returned all confidential materials and that they acknowledge their continuing confidentiality obligations. If it appears that the employee's new employment is with a competitor in a position likely to involve use of the trade secrets of the former employer, the competitor can be advised of the confidentiality provisions of the employment agreement binding the former employee.
A departure interview form should be the final entry in each employee's personnel file.
F. Outside Disclosures
1. Vendors/Outside Contractors
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, etc., 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.
An oral commitment of the vendor may be enforceable, or such an obligation may be imposed on the basis of the relationship between the parties. However, it is far safer to rely on neither and to set out the commitment in writing. It may be included as a clause in the standard terms and conditions or your company's Purchase Orders or Requests for Quotations. For example, the clause could read:
VENDOR agrees to keep confidential all proprietary information provided by XYZ CORP. and not to use, reproduce, distribute or disclose this information without the prior written consent of XYZ CORP. Upon demand by XYZ CORP., VENDOR agrees to destroy or return all items containing proprietary information and copies thereof.
In order to best protect trade secrets, the vendor's commitment should be set forth in a separate secrecy agreement.
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.
One area which is generally not subject to protection is the so-called "reverse engineering" process which may occur upon sale of a design or product to the public. In general, unless protected by patent or copyright, or by a specific contractual agreement such as those discussed herein, anyone is free to copy a design or product which is in the public domain.
One limitation occurs when a specific design is widely known as emanating from a specific source such that the design may be said to have acquired "secondary meaning". That is, members of the public are so familiar with the design that they assume the "copy" is the product of the original designer. Under such circumstances, the design may be subject to the principles of consumer protection law or may be protected by Section 43(a) of the Lanham Act as a designation of origin.
X. 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.
A detailed discussion of this topic is outside the scope of this paper. However, precautions should generally include an early agreement upon an appropriate protective order, filing evidence and certain testimony under seal, blacking out sensitive material which is not relevant to the proceedings, restricting access to copies of documents and possibly excluding individuals from the presence of depositions or testimony.
Individuals and businesses should obtain and utilize all available protections of patents, trademarks, copyrights and trade secrets. Obtaining the appropriate registrations and taking adequate security precautions are critical. However, there is no substitute for contractual agreements that restrict the use and disclosure of intellectual property and other confidential and proprietary information. Agreements such as those are discussed above provide a degree of protection that cannot be obtained from any other source.