So what is a trade secret? Generally, a trade secret is information that the owner has taken reasonable measures to keep secret, derives independent economic value from not being generally known, and cannot be readily ascertainable by proper means, such as reverse engineering or independent development. Many businesses rely on trade secret protection rather than
Five IP Pitfalls That Start-Up (and Grown Up) Companies Can Easily Avoid
In business, there are numerous 
opportunities for pitfalls, mistakes and errors and they come up in all different legal areas – from basic formation issues to labor and employment to intellectual property. Mistakes and missteps involving intellectual property can be particularly problematic because IP is a company asset; it constitutes a part of (often a significant part of) a company’s valuation. In my 20 years working with start-up companies – and even fully grown-up companies, I have seen mistakes involving company intellectual property prove to be disastrous. With careful planning and good counsel, these mistakes are completely avoidable.
#1. Failure To Transfer the IP From The Founder Into the Company. It is a foundational item for any company – if the company is being formed around a piece of IP or if a piece of IP is intended for use by a company, the company should make sure the founder that owns the IP must contribute it to the company. While a very basic issue, this problem plagues more start-ups than you can imagine. Most often it happens during the informal, pre-formation time frame when founders are kicking around an idea and developing code and no one has consulted a lawyer. Conflict between the founders develop and there is a divergence of opinion on the value brought to the table by the non-developer founders; the developers decide to split with the IP and form a new company. While this will likely generate lawsuits just as soon as the developer’s company is in a financing round, the non-developer founders will very likely not receive as much as they would have had the IP been properly assigned to the company.Continue Reading Five IP Pitfalls That Start-Up (and Grown Up) Companies Can Easily Avoid
Model Mayhem – The Communications Decency Act is Not a Defense to Negligent Failure to Warn Claim
One of the primary purposes of the Communications Decency Act (“CDA”) is to limit liability for certain internet content providers specifically protecting websites from liability for material posting on their website by a third party. In Jane Doe No. 14 v. Internet Brands, Inc., the operator of a networking site in the modeling industry sought to use the CDA as a defense to a negligence claim based on a failure to warn. The facts of the case are horrific.
Jane Doe was an aspiring actress who posted her information on the networking site Modelmayhem.com. In February 2011, she was contacted by two men Lavont Flanders and Emerson Callum, about a modeling audition in Florida. Jane Doe traveled to Florida to meet with the two men and was given a drug that caused her to pass out after which she was raped and the assault made into a pornographic film. (Flanders and Mr. Callum were convicted of numerous crimes by a federal jury in Florida and sentenced to life in prison for this and other similar assaults.)
Jane Doe claimed that the owner of the Modelmayhem.com website, Internet Brands, Inc. knew of the two men’s unlawful conduct but took no steps to warn her or other users of the threat. Prior to the 2011 assault, Internet Brand, which had purchased the Modelmayhem site in 2008, had apparently sued the seller of the site in 2010 for failing to disclose the potential civil liability arising from the criminal deeds of Callum and Flanders. She brought a claim against Internet Brands, Inc. for negligence under California law which recognizes a cause of action for failure to warn. Internet Brands moved to dismiss the claim asserting that the CDA immunized it from liability as to Jane Doe’s claims. The trial court agreed and dismissed the complaint. Jane Doe appealed to the Ninth Circuit which reversed the trial court’s decision in an opinion dated September 17, 2014.Continue Reading Model Mayhem – The Communications Decency Act is Not a Defense to Negligent Failure to Warn Claim
Will The Copyright Act be Amended to Include a “Making Available” Right
Under the WIPO Internet Treaties, member states are required to recognize in their national laws the exclusive right of authors of works to ‘‘make [the works] available’’ and ‘‘communicate [the works] to the public’’, including through interactive platforms, such as the Internet. The United States implemented the WIPO Internet Treaties through the Digital Millennium Copyright Act (‘‘DMCA’’) in 1998. Based on advice received from the Copyright Office and others, Congress did not amend U.S. law to include explicit references to ‘‘making available’’ and ‘‘communication to the public,’’ concluding that the distribution right under the Copyright Act already covers those rights. However, because of the absence of express “making available” language in the Copyright Act, courts in file-sharing litigation have reached somewhat different conclusions as to whether the distribution right requires proof of actual dissemination.
Commentators on the subject have opined that the “making available” right is subsumed within the distribution rights set forth in Section 106 of the Copyright Act and that most courts have correctly interpreted the Act as such. These courts have found that a defendant infringes the distribution right by making the work available without having proof that the work was actually accessed by others. For example, in A&M Records, Inc. v. Napster, the 9th Circuit held that “Napster users who upload file names to the search index for others to copy violate plaintiffs’ distribution rights”. Also in UMG Recordings, Inc. v. Alburger, the United States District Court for the Eastern District of Pennsylvania held that “There is no requirement that plaintiffs show that the files were actually downloaded by other users from Defendant, only that files were available for downloading.”
However, it appears that some courts have concluded that an infringement of the distribution right under the Act does not occur in the absence of actual dissemination. For example, in Atlantic Recording Corp. v. Howell, the District Court of Arizona held that “[the distribution right] is not violated unless the defendant has actually distributed an unauthorized copy of the work to a member of the public.”
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Patent Filings and the Potential Discovery of Trade Secret Misappropriation
Under California law, a plaintiff must bring a claim for trade secret misappropriation within three years of discovering the misappropriation or, by the exercise of reasonable diligence, should have discovered the alleged misappropriation. Often times, discovery of alleged trade secret misappropriation is rather straightforward, i.e., a company discovers that its former employee has downloaded information from a computer and has started soliciting customers to do business with a competitor. However, there are times when discovery is less straightforward, especially in product development where it can take years for a product to hit the market. One potential source of information that may give rise to the discovery of trade secret misappropriation that employers must be aware of are patent filings. The U.S. District Court in the Northern District of California recently used evidence of a patent filing to grant summary judgment in favor of a defendant accused of trade secret misappropriation in the case: Wang v. Palo Alto Networks, Inc. (Case No. 12-05579).
Mr. Wang was a design engineer specializing in the field of network security. He spent approximately a decade trying to commercialize his firewall technology that included “fast signature scan” technology. In 2004, he filed a patent application on his technology. His patent eventually issued in November 2008.
For years prior to the issuance of his patent, he tried to interest venture capitalists in his product. In 2005, Mr. Wang met defendant Fengmin Gong at a seminar. Mr. Gong was a chief scientist at McAfee, Inc. at the time. Mr. Wang gave Mr. Gong a brief overview of the technology he was developing and later had Mr. Gong sign a nondisclosure agreement. Over the next year, Mr. Wang discussed his alleged trade secrets with Mr. Gong and even gave him a copy of his patent application that contained trade secret information. Mr. Gong was supposedly the only person to whom Mr. Wang disclosed his trade secret information.
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