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An individual, start-up business, or established company may have an idea or concept that is unique but not otherwise protectable by a patent. This can include a business model, formulas, recipes, processes, product concepts, marketing plans, unique sources for supplies, assembly processes, or customer lists (collectively referred to as “trade secrets”).
The protection of your trade secrets is essential to maintaining a competitive advantage. How can a start-up business protect its Trade Secrets? As the name suggests, the subject of a trade secret must remain secret and there must be adequate measures to protect the secrecy. That means it must not be public knowledge or of general knowledge in the trade or industry. If the secret is disclosed through authorized means or there are not adequate measures to guard the secrecy competitors can take advantage of the trade secret. But if there is an unauthorized disclosure and use of a trade secret, there are strict criminal and civil penalties. (Note: If you are an employee, it is important not to disclose a trade secret, here is a summary of the criminal risk) What are adequate measures for protecting a Trade Secret? While there are no fixed rules as to what are “adequate” measures, there are best practices that must always be followed: 1. Never disclose confidential information, to anyone who has not signed a nondisclosure agreement or without a confidential relationship. 2. Have password protection on all software that contains Trade secrets and limit an employee or contractor’s ability to place the trade secrets on a personal computer. 3. Maintain a policy that all business records must be returned after separation with an employee or contractor. 4. Never disclose any aspect of the trade secret publicly. The best practice to ensure your trade secrets are protected is to conduct an annual audit. Through this process, you can identify your trade secrets, determine the steps that can be taken to protect their secrecy, update your company passwords, and test your security measures. In general, infringement can be avoided if it can be demonstrated there was a “fair use” of the work in question. Fair use is proven by showing that proper credits were given to the author of the work and that the portions reproduced were for a limited purpose not in direct competition.
There is no brightline test to determine fair use. To determine if use of a work is "fair" the following factors are considered: 1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; 2. The nature of the copyrighted work; 3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; 4. The effect of the use upon the potential market for or value of the copyrighted work. Work created by an employee, within the scope of their position, is presumptively the property of the employer. This is called a “Work for Hire” creation. It is best to have the scope of employment clearly defined so there is no confusion on this point.
The same is not true for Independent Contractors, Freelancers, or Consultants. For these outside contractors you will need a Work for Hire Agreement to ensure you own all rights to the work created. A Work for Hire Agreement only applies to contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas. For more information: http://www.copyright.gov/circs/circ09.pdf. The answer depends on the terms of your license agreement. Every license agreement conveys a part of the owner's "bundle of rights". (For example: the owner of a photography can license that work to be used online to one party and license reproduction in hard copy form to another party). A license can be all rights or just a small portion.
The Copyright owner can reserve the right, in full, to file suit against a potential infringement on the work. This is part of the bundle of rights that can be conveyed in a license agreement. Failure to address this issue in the agreement can cause a potential dispute between the owner and licensee if a suit is filed. A non-exclusive licensee would likely never be able to file suit for infringement. But the extent of a license is not always as clear as the title of the agreement may suggest. |
Elliott Stapleton Attorney with CMRS Law
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