law of computer technology fall 2015 © 2015 michael i. shamos trade secrets michael i. shamos,...

LAW OF COMPUTER TECHNOLOGY FALL 2015 © 2015 MICHAEL I. SHAMOS

Trade Secrets

Michael I. Shamos, Ph.D., J.D.Institute for Software ResearchSchool of Computer ScienceCarnegie Mellon University


Definition of a Trade Secret

• Rule of thumb: it’s a secret and it relates to trade• Information of business value that others do not have• “information, including a formula, pattern, compilation,

program device, method, technique, or process, that:(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Uniform Trade Secrets Act §1(4)


Trade Secret Examples

• The following are almost always recognized as trade secrets, if kept secret:

• Customer lists (if not readily reconstructible from public sources), pricing strategies, cost information

• Formulas, e.g. Coca-Cola (1886)• Blueprints, circuit diagrams• Algorithms, source code• Business plans, product ideas• Negative information, which ideas did not work• Unique compilations of publicly available information


Trade Secret Examples• Novelty is not required, nor unique ownership• Hardware design • Technical data about product performance• Pending patent applications• New product names• Financial projections• Marketing plans, unpublished promotional material• Cost & pricing information• Sales data• Info re: new business opportunities• Personnel performance data


Financial information Technical & scientific information

Commercialinformation

Negativeinformation

ALL OF THESECAN BE

TRADE SECRETS


Not Trade Secrets

• Techniques known in the trade• Skills that one would acquire in the same job regardless

of employer• Published materials• Information not kept secret by the owner• Usually: information disclosed to others without

obligation of confidence


Uniform Trade Secrets Act

• Enacted in 47 states, including Pennsylvania(not MA, NC, NY)

• Very brief• Defines trade secrets• Defines misappropriation• Statute of limitations: 3 years


Maintaining Secrecy

• Marking documents as confidential• Confidentiality agreements• Controlled access to premises• Copy protection, watermarking, embedded strings in

code• Sign-in procedures; notification of confidentiality• Restrictions on removal of documents• Recovery of documents on termination• Secret must be “substantially secret,” not absolutely

secret


Improper Means

• “includes theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.”

UTSA §1(1)• Improper surveillance• Trespassing• Visiting a competitor’s factory with glue on one’s shoes

to pick up shavings of exotic metals used by competitor

Misappropriation

(i) acquiring a trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means; or(ii) disclosure or use of a trade secret without express or implied consent by a person who(A) used improper means to acquire it; or(B) at the time of disclosure or use knew or had reason to know that it was derived from a person who used improper means to acquire it; or acquired under circumstances giving rise to a duty to maintain its secrecy; or(C) before a material change of his position, knew or had reason to know that it was a trade secret acquired by accident or mistake.

Paraphrase of UTSA §1(2)


Proper Means

• Observing the item in public use or on public display.• Obtaining the information from published literature.• Obtaining the information from one who is not under

any obligation of confidence (e.g., obtaining a competitor’s pricing from a mutual customer).

• Independent development• Copying a publicly-available product• Reverse engineering

– microscopic examination– disassembling, decompiling– BUT: obfuscation as a countermeasure


Evidence of Misappropriation

• Remarkably short redevelopment time• Employee leaves Company A, goes to work for

Company B. In three months Company B starts marketing a product competitive with A’s, which took two years to develop.

• This is strong evidence of misappropriation IF the material used was secret


Losing Trade Secrets

• Publication• Negligent disclosure• Patent application after the patent is published• Failure to protect• Deliberate disclosure to a person not under obligation of

confidence


Trade Secret Injunctions(a) Actual or threatened misappropriation may be enjoined. Injunction shall terminate when the trade secret no longer exists, but may be continued for an additional reasonable period of time to eliminate commercial advantage derived from the misappropriation.

(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited, e.g., a material change of position prior to acquiring knowledge of misappropriation that renders a prohibitive injunction inequitable.


SyncSort, Inc. v. Innovative Routines International (D. N.J. 2011)

• SyncSort and IRI produce commercial sorting software• They use different command languages that include

about 100 commands• Both make use of “scripts” – sequences of sorting

commands to perform repetitive functions• Scripts are long and expensive to develop• IRI wanted SyncSort customers to switch to IRI• IRI needed to find a way to translate SyncSort scripts

into the CoSort (IRI) command language


SyncSort, Inc. v. IRI

• IRI obtained a copy of the 471-page SyncSort manual that explained all the SyncSort commands

• The manual stated, “This document contains proprietary and confidential material, and is only for use by the lessees of the SyncSort proprietary software system.

• IRI used the manual to develop ssu2scl, a script translator

• IRI used ssu2scl to help SyncSort customers convert to CoSort

• SyncSort sued IRI to enjoin further use of ssu2scl, claiming that the manual was a trade secret


SyncSort, Inc. v. IRI

• Facts:– The SyncSort manual was posted unprotected on

various websites at various times– When SyncSort learned of the postings, it had them

removed– SyncSort employees answered technical questions

about SyncSort commands on Internet blogs– Tens of thousands of students at various universities

had access to the SyncSort manual• The Court (judge only) granted a permanent injunction

against IRI


Paramanandam v. Herrmann827 N.E. 2d 1173 (Ind. App. 2005)

• Herrmann owned Dynamic Scales, a company that sold scales

• Herrmann hired Param in 2002 to create a website• Param registered 400 domain names for Herrmann,

one of which was Mall88• Param developed a list of 6000 keywords to be used to

direct search engines to dynamicscales.com• Param quit in December 2003, began using the domain

Mall88 for himself, and formed ScaleableScales.com. The keywords were used to direct users to Param’s site


Paramanandam v. Herrmann

• Param’s site was nearly an identical copy of the Dynamic Scales site

• Dynamic Scales sued Param for an injunction against misappropriation of trade secrets

• The trial court granted the injunction• The appeals court reversed, finding that there was

nothing secret about the contents of Dynamic Scales’ site: “Dynamic Scales made no efforts to maintain secrecy of the information contained on its website or its domain names”

• Without a trade secret, there can be no trade secret misappropriation


Booloon, Inc. v. Google(Cal. App., May 25, 2012)

• Qin Zhang, an attorney, owns Booloon, Inc.• Nick Mote is a Google advertising employee• Zhang and Mote had a mutual friend, Kai He.• Kai He asked Mote to meet with Zhang over coffee for

advice about Booloon’s technology concept• At the meeting in 2008, Zhang gave Mote a demo of

some language technology useful in search engines• No confidentiality agreement was signed, but Mote

orally agreed to keep any information he received confidential

• In 2010, Booloon sued Google


Booloon, Inc. v. Google

• Booloon claimed Mote “disclosed the confidential information he obtained at the meeting to Google. Google used this confidential information” in its search engine

• Mote denied disclosing Booloon information• Mote did not work on search engines• Google denied using any Booloon information, and

Boollon could not prove its case• The trial court dismissed the case• Appeals Court upheld the lower court’s dismissal• BUT: a confidential relationship WAS established


ConnectU v. Facebook

• In November 2003, Harvard sophomore Mark Zuckerberg was hired as a consultant by ConnectU, Inc. to write code for a social networking site

• Zuckerberg was given full access to the ConnectU source code

• In December 2003, Zuckerberg and others began developing the Facebook site

• On January 8, 2004, Zuckerberg confirmed to ConnectU that he would deliver finished code for ConnectU

• On January 11, 2004, Zuckerberg registered the domain thefacebook.com


ConnectU v. Facebook

• On February 4, 2004, Zuckerberg launched the Facebook site

• ConnectU hired a different programmer to complete its site

• On May 21, 2004, ConnectU launched its site


ConnectU v. Facebook• ConnectU sued Facebook and Zuckerberg in July 2007

in Massachusetts.• Allegations:

– Zuckerberg intentionally hampered the development of ConnectU while working there

– Facebook infringes ConnectU’s copyrights– Facebook misappropriated ConnectU’s trade secrets

• A hearing was held in July 2007. The judge was unimpressed with ConnectU’s case and allowed it time to collect supporting evidence before dismissing the case

• Settlement: $20 million in cash and $45M in stock


Facebook v. ConnectU

• ConnectU provided a tool that enabled Facebook users to provide ConnectU with their login credentials, which ConnectU then used to grab data from Facebook's servers.

• The California Penal Code provides for action against anyone who “Knowingly accesses and without permission takes, copies, or makes use of any data from a computer, computer system, or computer network.”

• In May 2007, Facebook sued ConnectU in Federal court in California

• This case also settled


Facebook, ConnectU Settlement

• ConnectU and Facebook settled the cases in February 2008

• ConnectU sold its stock to Facebook for cash and stock in Facebook

• Later, ConnectU alleged that Facebook falsely misrepresented the value of its stock to reduce the amount paid to ConnectU

• In June 2008, the court rejected ConnectU’s claim of fraud against Facebook, and enforced the settlement

• In 2011, an appeal failed and ConnectU accepted the settlement. The stock is now over $500 MILLION


Major Ideas

• A trade secret can be any sort of information useful in a business and not generally known to others

• Steps must be taken to maintain secrecy• Trade secrets are protected against theft and

misappropriation• Trade secrets are not protected against independent

discovery or legal reverse engineering• Trade secrets do not expire as long as they continue to

be secret• Theft of trade secrets is a crime


QA&


Jennings v. Elections Canvassing Commission (Fla. App. 2007)

• Christine Jennings ran for U.S. Congress against Vern Buchanan in the 13th District in Florida

• Buchanan won by 369 votes out of 238,249 cast, a 0.15% margin

• BUT: over 18,000 ballots showed no vote for either candidate

• Jennings sued to overturn the election• She alleged that the electronic voting machines had

been tampered with and asked the court to compel the state (an/or the machine vendor) to produce the source code for examination by her expert


Jennings v. Elections Canvassing Commission (Fla. App. 2007)

• Jennings offered no evidence of tampering but insisted she could not determine whether there was tampering without the code

• The trial court denied her request• She appealed• Ordinarily, actions taken during a case that do not

dispose of the case are not appealable• Reason: judicial economy. If a mistaken ruling loeads

to a loss, it can be rectified on appeal• There are exceptions: preliminary injunctions, by

permission of court, etc.


Jennings v. Elections Canvassing Commission

• Denying discovery is not immediately appealable• The appeals court declined to review, writing that

“Because the petitioners have not met their extraordinary burden to demonstrate that the trial court departed from the essential requirements of law, resulting in irreparable, material injury for the remaining trial proceedings that cannot be rectified on direct appeal, we deny the petition for writ of certiorari.”


Economic Espionage Act18 U.S.C. §1832

• Applies to trade secrets related to or included in a product in interstate or foreign commerce. Prohibits:

• stealing, appropriating or obtaining such trade secret information by fraud

• Copying, duplicating, photographing, downloading, transmitting the information

• Receiving, buying, or possessing such information, knowing it to have been been stolen or misappropriated

• Penalty: 10 years + $500,000 + forfeiture of gain• Penalty for a corporation: Up to $5 million fine

law of computer technology fall 2015 © 2015 michael i. shamos trade secrets michael i. shamos,...

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