Trade Secrets

What do they protect?
Trade secret protection is afforded to confidential information that has actual or potential commercial value by virtue of its secrecy.   Source code, engineering specs, manufacturing tricks, business plans, customer lists… if it’s valuable to you because you keep it known only to yourself and not to your competitors, then it’s probably protectable as a trade secret.

How you get them?
Trade secret rights apply to confidential information that you actively protect as a secret.  No formal registration is required, or, for that matter, available.  You protect trade secrets by guarding their secrecy.  Typical steps include: executing nondisclosure and nonuse agreements with employees, contractors, and everyone else to whom trade secrets are disclosed; keeping trade secrets in inaccessible places such as locked cabinets and vaults, and, if in digital form, behind password-protected security; and establishing procedures for preventing unauthorized access, disclosure, and use.

How long do they last?
Trade Secret protection lasts for as long as you keep the underlying confidential information a secret. The formula for Coca Cola has been protected as a trade secret continuously since 1886.

Who can you sue?
You can bring suit against anyone who misappropriates your trade secrets.  Misappropriation occurs when someone takes, discloses, or uses your trade secrets without your permission contrary to a prohibition not to.  A common scenario is when a departing employee carries a deck of source code or a customer list out the door.

Any limitations on what can be owned?
Trade secret protection only applies to actual secrets.  Trade secret protection can be lost once the information is publicly available, independely discovered by someone else, or disclosed by you to someone who is not obligated to maintain it in confidence.  Be sure to check your standard form of nondisclosure agreement to ensure its obligations of confidentiality do not terminate too soon.

Is this really necessary?
Most every company has a few bits of information they would rather keep to themselves for competitive advantage.  Depending on your business, trade secrets can comprise a large and valuable component of your IP portfolio.  Trade secrets are the primary method of protecting new inventions until they are patented, for example.  Advocates of open source methodologies suggest that certain kinds of information becomes more valuable as it is shared with others; in this light, trade secrets can be seen as inefficient.  The conservative approach is first to ensure that all trade secrets are protected, then to determine which, if any, should be injected into the public domain as open source.

Trademarks

What do they protect?
Trademarks protect brand names, logos, taglines, and other marks that
identify the source of goods and services in the marketplace.

How you get them?
Trademark rights begin to accrue just by using the mark in commerce, but
only in the geographic places where the mark is meaningully used.  Federal
trademark registration at the U.S. Patent and Trademark Office (PTO)
provides stronger protection that covers the whole country.

How long do they last?
Trademark rights last for as long as the underlying brand is continuously
used in commerce.  Periodic renewal is required to maintain registration.

How do you infringe them?
Trademark infringement can arise by using a similar mark on similar goods in a way that is likely to confuse the consuming public as to the source of those goods.  The infringement needn’t be purposeful; you can sue anyone who’s confusing your consumers whether they know about you, your products, or your trademark.

Any limitations on what can be owned?
Lots, but here’s a big one.  Some trademarks cannot be owned.  Brands that describe the goods they are used with, for example, are out of bounds.  It is perfectly ok to own trademark rights in the word “Apple” if you’re selling records or computers; it is not ok if you are selling apples, however, because other apple sellers need to use that word too.  The strongest trademarks, therefore, are so-called fanciful marks – words that are made-up or have no rhetorical relationship to the underlying goods.
“Kodak,” “Xerox,” and “Google” are oft-cited favorites in the fanciful
department.

Is this really necessary?
Brands are very powerful assets, representing your company’s reputation in the minds of its real and potential customers.  Whatever you might think about IP law in general, using trademark law to own and control your brand is a conservative, perhaps fundamental, business practice.

Before committing significant resources to developing a brand, it is always a good idea to at least run a trademark search to ensure that someone else doesn’t already own the trademark in that brand for similar goods or
services.  You would be surprised to learn how often people neglect to clear trademark rights before they name their company, purchase a domain name, print business cards and letterhead, and even begin selling products, all under a new brand.  They are often shocked when the cease & desist letter arrives from the senior owner of the trademark claiming the inevitable likelihood of consumer confusion.

Finally, keep in mind that ministerial activities such as obtaining an internet domain name or reserving a company name while forming a corporation or LLC with your secretary of state do not grant you any trademark rights or insulate you from claims of infringement.

A bit about basic terminology.  Intellectual Property (IP) refers to two, and possibly three, things.  In the study of programming languages, we would say the term is overloaded.  The first two are:

1. IP assets – the stuff you create; and
2. IP rights – your ownership rights in that stuff.

IP assets include inventions, works of authorship, brand names, and confidential information.  IP rights include patents, copyrights, trademarks, and trade secrets.

We typically say that IP rights “protect” IP assets.  So:

•    patents protect inventions;
•    copyrights protect works of authorship;
•    trademarks protect brand names; and
•    trade secrets protect confidential information.

By saying that IP rights protect IP assets, we mean that IP rights give the holder the exclusive right to have, hold, and use the underlying IP asset.  You can use IP rights to exclude everyone else from using IP assets.

Functionally, and in extraordinarily general terms (warning: gross oversimplification follows!), this means that the holder of an IP right can sue someone to make them stop using the underlying IP asset.  That’s what IP rights give you, the right to sue people out of your way so you alone can profit from your IP assets.

Finally, 3. IP law is the set of rules established by and enforced by governments that more or less make the above true.

Any questions?

In our capitalist economy, company owners generally expect management to seize every lawful opportunity to increase company valuation.  Intellectual Property (IP) law provides many such opportunities.  The wise entrepreneur should obtain a grounding in IP law to ascertain how best to capitalize on it.

Dubious?  Here are just a few things that effective use of IP can do for your company:  forestall competition, reduce many different kinds of risks, generate cash, and, perhaps most importantly, create new assets where none had existed before.  IP is thus the ROI on R&D – it’s how you turn innovative ideas into assets, which can then be monetized.  Effective use of IP can create substantial value.

Any enterprise that creates, innovates, or advances the state of the art in any area should protect its creations, innovations, and advancements by obtaining all available IP rights.  Aggressive attention to IP constitutes a conservative business practice.  It may or may not turn out to be an intelligent business decision to assert those IP rights against others once obtained, but you lose the right to make that decision if you neglect to obtain IP rights in the first place.

IP rights, especially patents, have become a thriving form of currency among a large and growing number of market participants.  An entire subculture of IP-focused  investment banks, speculators, traders, “trolls,” auction houses, and the like, has arisen to make a market in IP.  Underlying the dynamism of this market is a shared understanding of the fundamental reality that IP lawsuits are crushingly expensive.  Those accused of IP infringement often agree to cave and pay royalties as a much cheaper and more predictable alternative to the exorbitant expense of IP litigation.  When litigation doesn’t settle, it can ultimately result in large damage awards and injunctions prohibiting the infringing behavior.

This power attracts IP holders.  Its availability means that more applications to secure IP rights are being filed every year as more companies attempt to establish exclusionary beachheads in what they imagine to be the important technologies of the future.  It also leads directly to more IP being asserted more aggressively than ever against potential infringers, who require their own IP portfolios to undergird defensive counterclaims.  Thus, practically all market participants of all stripes realize a necessity to obtain IP protection for both offensive and defensive purposes.   It is not hyperbolic, then, to suggest that viable participation in modern commerce requires careful attention to IP.

And make no mistake: IP is not just for technology companies.  Items as prosaic as a brand name or a customer list can be protected by IP; even if these are all you’ve got, you can use IP to fatten your company’s valuation and thin its risk profile.

The above reflects the status quo, without purposeful normative comment.  Reasonable minds can (and most definitely do) differ on whether our IP laws should give rise to the above dynamic.  While many, many companies rely heavily on existing IP laws to build assets and forestall competition, an increasingly vocal faction insists that some of our IP laws might have lost touch with modern technology and business practices. 

To be continued.

I would probably subscribe to that.