Protecting Trade Secrets and Ideas
Under certain circumstances trade secrets and ideas can be protected by written, oral, or implied-in-fact contracts, as confidential information (trade secrets), or by operation of law. A more complete answer in each case requires a detailed analysis of an array of U.S. state and federal laws related to express and implied contracts, trade secrets, trademarks, copyrights, labor and employment law, and equitable principles of fairness. Then, specific facts of the relationship, the conduct and intentions and understandings of the parties, both express and implied, the circumstances of the disclosure, the particular jurisdiction , and the concreteness, novelty and originality of the idea must all be considered.
Protection by Contract or Operation of LawIdeas acquire the status of protectable confidential information or trade secrets from contractual duties arising between the disclosing party and the receiving party. Such duties usually come into existence by an oral or written agreement between the disclosing party and the receiving party. In rare cases the contract may be implied from the circumstances of the disclosure. In other cases, the duty may be imposed by law, such as in a joint venture or in an attorney-client relationship.
Duration and Formalities of ProtectionIn the U.S., post -1978 copyrights are automatically protected by federal copyright law from the moment they are created and fixed in a tangible medium and for individual authors, generally expire 70 years after the life of the author. Notwithstanding recent reforms in U.S. patent registration, patents still require a long and costly registration process and expire after 20 years (14 for design patents). Federal trademark registrations involve costly filing fees and a lengthy and complex registration process and expire after 5 years if not maintained, 10 years if not renewed. But legally protectable ideas (like the secret formula for Coca-Cola, for example) come into existence instantly and automatically when the idea is conceived or information is created or discovered and maintained as confidential. The owner's exclusive rights in such ideas, secrets, or information potentially last forever, never expire, do not require examination, review, approval, or registration with any governmental agency or entity, and require no maintenance or renewal.
Governmental approval and registration are required before a patent or trademark owner can affix a registration notice to any goods or services covered by the patent or trademark. But no such registration or approval is required to affix a notice to the public of the confidentiality of an idea or information claimed as proprietary.
For this reason, protection for confidential ideas, information, and secrets may last longer, include more content, and be considerably less expensive to acquire and maintain compared to other forms of intellectual property.
Idea Protection; Trade SecretsIdeas, concepts, and discoveries are expressly excluded from the protections of copyright law: "In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work." (17 U.S.C. ? 102(b))
But even material which could never be protected by copyright, trademark, or patent law may be protected from unauthorized use or disclosure by an agreement, oral, written, or implied by law or fact, entered into between the party disclosing the idea and the party receiving it. Trade secrets, inventions, ideas, facts, procedures, processes, systems, methods of operation, concepts, principals, discoveries, formulas, technology, titles, names, words, short phrases, formulas, recipes, vendor information, marketing plans, and customer lists, all qualify for instantaneous and perpetual, free legal protection if they comprise a trade secret.
One definition of a "trade secret" is in the Uniform Trade Secrets Act (California Civil Code ?3426.1): "information, including a formula, pattern, compilation, program, device, method, technique, or process that (1) derives independent economic value, actual or potential from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
Unprotectable IdeasIdeas which are generally not protectable by contract include abstract concepts, ideas not novel or concrete, public information "readily available" or generally known, information or ideas unlawfully obtained, skill or know-how, information obtained through reverse engineering, independent derivation, writings, inventions or ideas already owned by the prospective employee or a prior employee or partner of the prospective employee, and matters expressly excluded by agreement of the parties.
No "implied" idea protection will be found as to writings, inventions, or ideas "blurted out," in other words, ideas which are unsolicited and not received voluntarily (Desney v. Wilder, (1956) 46 Cal. 2d 715 at 756), including ideas submitted not to gain compensation for that idea, but for the sole purpose of inducing the receiving party to enter into a future business or employment relationship. See, Aliota v. R. Dankin Co., (9th Cir. 1987) 831 F.2d 898, 902; Faris v. Enberg, (1979) 97 Cal. App.3d 309, 318. In the certain jurisdictions in the U.S., the idea must be "novel" to be entitled to protection.
Legally enforceable contracts protecting ideas may be oral, written, or implied from the conduct of the parties. Written "nondisclosure" or "confidentiality" agreements are preferable to oral or implied agreements because they are easier to prove in court and help avoid any misunderstanding between the parties as to the scope and subject matter of the agreement. Nondisclosure agreements may be implied by the conduct of the parties, if the circumstances of the disclosure clearly indicate there was an implied agreement that the idea would not be used without permission and compensation. Such implied contracts can be difficult to prove and enforce.
Remedies for Unauthorized Use of an IdeaLegal remedies for violating a contract protecting an idea or trade secret include injunctions against further use or disclosure, monetary damages for lost revenues, specific performance of agreed contract terms, payment of a reasonable royalty, attorneys fees, expert witness fees, and even punitive damages (California Civil Code ?3426.2-.4).
State law causes of action triggered by the unauthorized disclosure or use of a trade secret or protected idea include:
? Breach of oral contract, breach of written contract, (See, Buchwald v. Paramount Pictures Corp., (Cal. Sup. Ct. 1990) 13 U.S.P.Q. 2d 1497);
? Breach of implied-in-fact contract (See, Montz v. Pilgrim Films & Television, Inc. (9th Cir. 2011) 98 U.S.P.Q. 2d 1569); Desney v. Wilder (1956) 46 Cal. 2d 715; Selby v. New Line Cinema Corp. (C.D. Cal. 2000) 96 F. Supp 2d 1053, 1056; Nadel v. Play-by-Play Novelties, Inc. (2d Cir. 2000) 208 F. 3d 368);
? Breach of confidential relationship (Faris v. Enberg (1979) 97 Cal. App.3d 309, 318; Computer Asso. Int'l v. Alatai, Inc. (2d Cir. 1992) 982 F. 2d 693, 717);
? Misappropriation (Donchez v. Coor Brewing Co. (11th Cir. 2004) 392 F. 3d 1211, 1222);
Implied Contract Claims Not "Preempted", For Now.Under section 301(a) of the Copyright Act of 1976, if a work "comes within the subject matter of copyright" and the state law grants rights that are "equivalent" to any of the exclusive rights within the general scope of copyright, the state law claims will be "preempted "by federal copyright law and dismissed.
But in a recent en banc decision by California's 9th Circuit Court of Appeals, Montz v. Pilgrim Films & Television, et al., supra, held that implied-in-fact contract claims for use of an idea are not necessarily preempted by copyright law. The majority of the eleven judges of the 9th Circuit panel deciding the case reasoned that, despite the exclusion of fixed ideas from the scope of copyright protection in section 102 of the Copyright Act, ideas which are "fixed" do fall within the "scope" of copyright law, satisfying the first prong of the two-prong test for copyright preemption. However, the court held that the asserted right in Montz was not "equivalent" to any of the exclusive rights of copyright, because plaintiff's implied-in-fact contract claim (often referred to as a "Desney claim," named for the holding in Desney v. Wilder, supra.) involves an "extra element": an agreement to pay for the use of a disclosed idea.
The court explained that, unlike section 106 and 106A of the Copyright Act enumerating the exclusive rights of a copyright owner, private contracts do not create "exclusive rights," only rights between the parties. Strangers to the contract are free to do as they please and are not bound by the promises of a private agreement. Thus, the right asserted was not "equivalent" to any of the exclusive rights accorded to copyright owners under the Copyright Act, did not satisfy the second prong of the preemption test, and was thus not preempted by copyright law.
Breach of Confidence Claims Not Preempted.The court in Montz further held that plaintiff's claim for breach of confidence was similarly not preempted because it involved an added element of a duty of trust and confidential relationship. While a breach of confidence claim would arguably survive a preemption defense in the 2nd Circuit (Computer Asso. Int'l v. Alatai, Inc., 982 F. 2d 693, 717 (2d Cir. 1992)), the decision in Montz appears to create a narrower rule for preemption in the 9th Circuit than the currently prevailing rule in the 2nd Circuit. See, Muller v. Twentieth Century Fox Film Corp., 2011 WL 1330632 (2 nd Cir. March 30, 2011); Smith v. New Line Cinema, 2004 WL 2049232 (S.D.N.Y. 2004); Panizza v. Mattel, Inc., 2003 WL 22251317 (S.D.N.Y. 2003). This conflict between the 9th and 2 nd Circuit rules of preemption of implied-in-fact contracts may be decided by the U.S. Supreme Court in the not too distant future.
ConclusionAn exhaustive discussion of all reported permutations of law and facts protecting ideas is not possible in this brief article. But, even from the foregoing cursory review, there can be no doubt that under the right circumstances the old saying that "ideas are as free as the air" certainly does not hold true in the modern world of intellectual property protection.