CHAPTER 10

Ownership of Work Created by Employees

INTRODUCTION

When an individual is employed for the purpose of creating or developing a product, providing a service, or selling, it is important to determine whether the employer or the employee owns or controls the work product involved. In this chapter we will discuss the relationship between employers and employees with respect to tangible items such as merchandise and intangibles such as patents, trademarks, and copyrights.

TANGIBLE PROPERTY ITEMS

When an employee creates tangible items while employed, such as automobile parts, computer components, textiles, or any other form of merchandise, the item created belongs to the employer. Often companies allow employees to purchase samples of the merchandise created for significant discounts with the understanding that the employee will not resell those samples in competition with the employer. Many companies actually have employee stores in which the samples are offered for sale. Of course, if an employee complies with the employers’ rules regarding samples, the relationship will remain positive. If, on the other hand, employees violate those rules, then serious consequences can result. It is important for the rules regarding products to be clearly spelled out either in the employee handbook, online on the employer’s employee website, or if an employee store has been established, then in that store.

INTANGIBLE PROPERTY ITEMS

Patents

Many businesses involve situations in which employees develop products that are new and innovative. If the invention is novel and desirable, then it may be patentable. In this event, the question is whether the patent belongs to the employee or the employer.

To begin with, it is important to determine whether an invention is novel and, if so, whether it can be patented. This should be determined by consulting with a patent attorney or a patent agent. The difference between patent attorneys and agents is that a patent attorney is a lawyer who has obtained a special license to assist with the writing and filing of patents with the US Patent and Trademark Office (USPTO). That person can also assist with other legal matters as well. A patent agent is not an attorney and can only assist in obtaining a patent. Patent agents are customarily less expensive than patent attorneys, but they have a more limited scope of practice.

In the United States, a patent can only be applied for by an individual. The individual can assign the patent or its rights to a company, but a company cannot itself apply for a patent. For this reason, it is a good idea to have a written agreement between the employer and employee making it clear that any patentable invention created by the employee during the term of employment will belong to the employer. If there is no such agreement, then the question is whether the employer owns the invention when it is created during the term of the employment. If the employee created the invention outside of work, will the invention belong to the employer or will it remain the property of the employee? Unfortunately, there are a number of additional problems that can and do arise with respect to these types of arrangements. To begin with, if an employee had developed the invention before the employment commenced but only disclosed it after being employed, would that be covered by the agreement? If the employee developed the invention at home, on vacation, during a leave, or on paid holiday, does the invention belong to the employer? If the employee develops the invention but does not disclose it until the employee terminates employment, will the invention still belong to the employer? These are some of the questions that should be considered when writing a contract between the employer and employee with respect to patentable inventions. As you can see, the issues are complex and technical and can involve huge sums of money. For these reasons, it is very important for both employers and employees to clearly understand the relationship between them with respect to patentable inventions, and it is very important for an experienced attorney to be involved in preparing the agreement that deals with this subject.

Copyrights

Another form of intangible property is copyright. Copyright applies to art, music, literature, software, and combinations of these, such as audiovisual works. In fact, any original work of authorship that is put into some tangible form is copyrightable. Copyright applies to all forms of creative work. Under copyright law, if a work is created by an employee within the scope of the individual’s employment, then the copyright in that work belongs to the employer. If, on the other hand, the work is created outside the scope of employment or by an independent contractor, then the copyright remains the property of the individual who created the work unless both parties agree otherwise. There is a doctrine under copyright law known as the “work for hire” doctrine that states that if the parties agree in writing that the copyright in the work will belong to the person ordering or commissioning the work rather than the contractor creating the work and if the work falls into nine enumerated categories, then the copyright will belong to the person commissioning or ordering the work. The nine enumerated categories are: 1) a contribution to a collective work; 2) a part of a motion picture or other audiovisual work; 3) a translation; 4) a supplementary work; 5) a compilation; 6) an instructional text; 7) a test; 8) answer material for a test; or 9) an atlas.

If the parties did not initially set up the appropriate arrangement for a work for hire, they can still accomplish the same end result by having the independent contractor assign or license the copyright to the party commissioning or ordering the work. The difference between an assignment and a license is that an assignment transfers the rights to the other party whereas a license only permits the other party to use the rights. There are a host of variations of these types of transfer, so it is important for you to work with an experienced intellectual property lawyer with respect to these arrangements.

Because virtually every individual and every business deals with copyright in some form, it is very important to understand your rights and enlist the aid of a competent attorney. Examples of copyrightable materials that you likely have include photographs, writing such as letters, poems, articles, books, and the like, all forms of music, and even some texts you sent to family members, friends, or colleagues may be copyrightable.

Both employers and employees likely have copyrightable material they have created which may be important to them. It is important to determine whether the items remain the property of the individual who created the item or whether it belongs to someone else. In addition, the mere fact that an item is accessible on the web, in the library, or even in your possession, does not mean that you may copy, display, or use that item without restriction. Downloading software on your computer without obtaining permission from the appropriate party could subject you to serious consequences including damages and, in some cases, even criminal sanctions. For these reasons, you should work with an experienced attorney whenever copyright issues arise.

Trademarks

Any name, symbol, logo, or combination of these items that is used to identify the source or sponsorship of a product or services defined as a trademark. The difference between a trademark and copyright is that trademarks are product or service identifiers, whereas copyrights protect creative works, and in order for something to be copyrightable it must be substantial. A single word is not copyrightable, though it can be a trademark.

The most valuable asset a business likely has is its good name. The business name, if used to identify the business in interstate or foreign commerce, is protected by the trademark laws of the United States. Additional protection can be obtained for the business trademark by having it registered with the US Patent and Trademark Office. This registration is only effective in the United States. If registration of a trademark is desired in other countries, the United States is party to a multinational treaty known as the Madrid Accord, which enables registration of trademarks in 105 countries as of the date of this writing through the US Trademark Office.

Protectable Trademarks

In order for a trademark to be protectable it must be distinctive and not generic. Generic and descriptive names are not considered distinctive enough to be granted trademark status. A generic word merely identifies the product for what it is. Thus, the use of the name Beer to identify a brand of beer is generic and would not be accepted as a trademark. Similarly, a descriptive name only characterizes the attributes or qualities of the product. For example, using the name Raisin Bran to identify a cereal is merely descriptive of the product’s ingredients and might have difficulty gaining trademark status.

Generic words are never afforded trademark protection. Descriptive trademarks, however, may be protected in limited circumstances. A descriptive mark may be protected if the proprietor of the mark can prove that it has acquired a secondary meaning. Secondary meaning will exist when the public no longer connects the words of the trademark with the literal, dictionary meaning, but rather with a unique product. For example, the descriptive term TV Guide also has a secondary meaning as the (registered) trademark of a particular publication that contains television program listings and topical articles about the industry.

Some trademarks, even though they are considered distinctive, are nevertheless prohibited by statute or public policy. Obscene or scandalous trademarks are generally denied trademark protection. Trademarks that are deemed deceptive and misleading, such as the mark Idaho Potatoes to identify potatoes produced in some area other than Idaho, are also denied protection.

Protecting a Trademark

In order to secure trademark protection, it is not sufficient merely to adopt a distinctive mark. The trademark must be used in the ordinary course of trade or used in commerce. The use requirement is fundamental to trademark law and is necessary for common-law protection, as well as federal and state registration.

Common law is the body of law developed from court decisions rather than from state or federal statutes. Federal or state registration of a trademark has certain advantages but is not necessary. This will be discussed more fully later in this chapter. Common-law protection will suffice and has the benefit of not requiring any interaction with governmental agencies.

A trademark is deemed to be used when it has been placed in any manner on the product, its containers or displays associated with it, or on any of the tags or labels affixed to the product. Thus, it is not always necessary that the trademark actually be physically affixed to the goods. As long as the trademark is associated with the product at the point of sale and in such a way that the product can be readily identified as coming from a particular manufacturer or source, the trademark may be protected. It should be noted, however, that the mere listing of a trademark in a catalog, the ordering of labels bearing the trademark, the use of the trademark on invoices, or the exhibition of trademarked goods at a trade show alone may not be sufficient in and of themselves to constitute use, because the use of the trademark was not associated with the point of sale.

IN PLAIN ENGLISH

To ensure trademark protection, the trademark proprietor is well advised to physically affix the trademark to the product. In this way, the product is certain to bear the trademark when it is sold. Proper use of a service mark is accomplished by identifying the service by the mark in advertising, signs, brochures, and the like.

Confusingly Similar

Common law protects the trademark proprietor against someone else subsequently using a trademark that is confusingly similar. This raises the question of when trademarks are considered confusingly similar. Generally, trademarks will be confusing if they are similar in sound or appearance, particularly if the trademarks are affixed to similar products or if products are marketed throughout the same or similar geographic areas.

On the other hand, if two products bearing similar trademarks are not related or are marketed in different geographic areas, there may not be any infringement. Thus, a business that distributes its products solely in the Northwest could probably adopt and use a trademark already used by a business distributing its product solely in the state of Maine, provided the mark of the Northwest business does not adversely affect the value of the trademark used by the Maine company.

Moreover, a Northwest toy manufacturer could probably adopt and use a trademark used by a Northwest chain saw manufacturer. In these situations, there may be no infringement, because it is not likely that the use of the mark by the toy manufacturer would confuse chain saw purchasers. Here again, appropriation of another’s trademark may be wrongful if the use, even by a noncompeting business, would dilute the value of the mark to the original owner. (Remedies for trademark infringement will be discussed later in this chapter.)

Federal Registration

The trademark proprietor can procure greater protection under federal or state statutes than under the common law. The federal statute governing trademarks is known as the Lanham Act of 1946, which has been amended and updated from time to time. It is not the function of the Lanham Act to grant trademark rights, because those are secured by the common-law principles discussed above but, rather, to provide a central clearinghouse for existing trademarks via registration.

In 1989, the Trademark Law Revision Act of 1988 (TLRA) became effective and made substantive changes to the previous trademark laws. In addition, the trademark law was amended in 1996 to add a federal antidilution provision. Though the Lanham Act provides much of the skeleton of trademark law, these amendments add the needed detail to make trademark law a more complete body of law. Unfortunately, the Supreme Court weakened the antidilution provision in 2005, and, as a result, legislation has been enacted by Congress to clarify and strengthen this form of protection.

Prior to enactment of the TLRA, a mark could be registered only upon actual use in interstate commerce. This requirement was satisfied when an applicant sold a few units of the product bearing the trademark in an interstate transaction. A mark could essentially be reserved for later use by making a token use at the time of application. The minimum token use requirement allowed the registering of trademarks that might never be used and possibly prevented other proprietors from legitimately using the mark. This judicially sanctioned practice also clogged the federal register with unused marks.

Under the TLRA, token use is no longer permitted. Actual use of the mark is required in order for a trademark to be registered. In addition, the revised law allows for the filing of an application for a trademark based on a bona fide intention to use that mark in the future. This reserves and protects a mark for a limited time and to a limited extent prior to its being used in commerce. If the mark is not actually used within a certain time period, the trademark registration will be denied.

There are two official registers for trademarks: the Principal Register and the Supplemental Register. Marks registered on the Principal Register enjoy all of the benefits of the trademark law. Marks registered on the Supplemental Register do not enjoy all of those benefits. The following sections about how to register a trademark apply to the Principal Register. (A separate section included later in this chapter describes what the Supplemental Register covers and how it may be used.)

Applications Based on Actual Use

The use requirement is met if the mark is protected as a common-law trademark. Once the proprietor has established a mark’s actual use in commerce, the mark can be registered by filing an application with the US Patent and Trademark Office (USPTO). This process entails filling out an application, sending in a drawing of the mark, including specimens of the mark used in commerce, and paying the required fee. (The filing fee is constantly changing, though there is a reduced fee for those who file online and agree to prosecute the entire registration through an online procedure. For current information, see www.uspto.gov. As of the date of publication, the fee for electronic registration ranges between $225 and $400 per mark for a single class.)

If the examining officer at the USPTO accepts the application, the trademark will appear shortly thereafter in the Official Gazette. Anyone who believes that they would be injured by the issuance of the registration has thirty days to file a written notice stating the reasons for opposition. If nobody objects or if the objections are found to be without merit, a certificate of registration will be issued.

Applications Based on Intent-to-Use

Under the TLRA, a right to a particular mark can be preserved for future use through an intent-to-use provision. This does not remove the requirement of actual use in commerce, which is still necessary for registration of the mark.

Protection of a mark for future use can be accomplished by filing an application based on the applicant’s bona fide intent to use the mark in commerce. An intent-to-use registration should not be requested merely for the purpose of attempting to reserve a mark. The statute does not explicitly define bona fide intent, but the good faith of the applicant will be determined from the circumstances surrounding the application and the applicant’s conduct with respect to the mark. The history behind the statute’s enactment suggests that the applicant’s conduct concerning the intent-to-use the mark will be measured against standards accepted in the trade or business.

Opposition

If the intent-to-use application satisfies the requirements of the USPTO regulations, it will receive approval for publication in the Official Gazette. Upon such publication, a thirty-day period for opposition to registration of the mark begins to run. This period is similar to that accorded applications for registration of marks that are in actual use. Those applications that go unopposed receive a notice of allowance. The date the notice is issued is very important because the reservation of the mark is limited to a period of six months from the date of allowance, during which time actual use of the mark in commerce must begin or the trademark application will lapse.

Extensions

If an applicant fails to commence using the mark in commerce within the allowable six-month period, it is possible to obtain an extension for another six months. This extension is automatic upon application and payment of fee only if submitted before the original six-month period expires. Four additional six-month extensions are also possible but require, in addition to application and fee submission before expiration of the then current six-month period, approval by the USPTO upon a showing of good cause why such extension should be granted. In no event shall the period between the date of allowance and the commencement of use of the mark in commerce be permitted to exceed thirty-six months.

In making a request for extension, the applicant must include the following:

• a verified statement of continued bona fide intent to use the mark in commerce;

• the specification as to which classification(s) of goods and services the intent continues to apply; and

• the required fee (currently $150 per extension per classification of goods or services).

Application forms may be obtained by calling the USPTO at (800) 786–9199 or from its website at www.uspto.gov.

Statement of Use

Once actual use of the mark in commerce has occurred, the applicant must file a verified statement of use. If everything is in order, the mark will be registered for the goods or services that the statement of use indicates. The Commissioner for Trademarks shall notify an applicant as to whether a statement of use has been accepted or refused. An applicant will be allowed to amend the statement of use if the mark was not used on all the goods initially identified.

Constructive Use

An important concept found in the Lanham Act and improved by later amendments is that of constructive use. This concept, which has been called the cornerstone of the intent-to-use method, also applies to use-based applications as well. When an application to register a mark is filed under the doctrine of constructive use, filing constitutes use of the mark as of the filing date. Thus, when the application to register is filed, a right of priority to exclusive use of the mark is created throughout the United States. This is true only if the mark is filed for registration on the Principal Register. The constructive use doctrine does not apply to domestic (or foreign) applications on the Supplemental Register.

This doctrine gives applicants a strong incentive to file for registration as early as possible. The constructive use statute provides priority filing protection, and thereby prevents others from acquiring the mark by simply using it before the intent-to-use applicant does. Constructive use greatly reduces disputes as to which party has priority, thus saving costs and limiting uncertainty in infringement or opposition proceedings.

Exceptions

Exceptions to the priority right of use are marks used prior to the applicant’s filing date, intent-to-use applications filed prior to the applicant’s filing date, and use-based applications registered prior to the applicant’s filing date. Applications for registration filed by foreign applicants are also excepted if the foreign application was filed prior to the constructive use application.

Assignments

The current law generally prohibits assignment of intent-to-use applications, thereby preventing applications for marks being filed by individuals for the sole purpose of selling them. However, an intent-to-use application may be assigned to the applicant’s business.

Benefits of Registration

Registering your mark provides you many benefits. First, registration enables a proprietor to use the “^®” symbol or the phrase “registered trademark” in conjunction with the mark. This may well deter others from using the mark. Proprietors of marks that have not been registered are prohibited from using the above symbols with their marks. Commonly, “™” for trademark or “™” for service mark is used in conjunction with an unregistered mark during the application period. These designations have no official status, but they do provide notice to others that the user is claiming a property right in the mark.

Second, registration on the Principal Register is evidence of the validity of the registration, the registrant’s ownership of the mark, and the exclusive right to use the mark on identified goods in commerce.

Finally, a registered trademark that has been in continuous use for a period of five consecutive years may become incontestable. By registering the trademark, the proprietor may secure rights superior to those of a prior but unregistered user, but only if the original user does not object to the registrant’s use within five years.

Duration

Under the trademark law, registration remains in effect for a period of ten years. It may be renewed in additional ten-year increments by filing an application for renewal during the six months prior to the expiration of the existing ten-year term.

Supplemental Register

Supplemental Register applications may be made directly if the applicant is sure that registration on the Principal Register is unlikely or in response to the USPTO’s final refusal to register the mark on the Principal Register. This registration provides protection for individuals capable of distinguishing their marks from those of others, but whose marks do not comply with the requirements for registration on the Principal Register. Marks for the Supplemental Register are not published for, or subject to, opposition. They are, however, published as registered in the Official Gazette. If a person believes that they will be damaged by the registration of another’s mark on the Supplemental Register, that person may, at any time, petition for cancellation of the registration.

Applications filed on the Supplemental Register cannot be based on intent-to-use and do not enjoy the benefits of constructive use. Under the Lanham Act, an application filed on the Supplemental Register had to be in lawful use for a year prior to the filing of the application.

Loss of Protection

A use or intent-to-use is a prerequisite to trademark protection. It should be noted that some forms of use might result in the loss of a trademark. A number of well-known trademarks such as Aspirin, Thermos, and Escalator have been lost as a result of improper usage. Trademark protection is lost because the mark is used in some capacity other than as an adjective modifying a noun. When a trademark is used as a noun or a verb, it no longer functions to identify the source of the product, but rather becomes the name of the product itself. At that point, the mark becomes generic and is not subject to protection.

Abandonment of a mark will also result in loss of protection. A trademark is deemed abandoned when it has not been used for two years and there is no intent to resume its use. Token use will not be sufficient to avoid abandonment. To avoid abandonment, the proprietor does not have to use the mark in interstate commerce in the ordinary course of trade or business, but the mark should be used in intrastate commerce.

Infringement

A trademark that is in use and has been infringed allows the trademark proprietor to sue the infringing party either for monetary damages or for an injunction prohibiting the infringing use, or sometimes for both. Monetary damages may be measured either by the plaintiff’s losses resulting from the infringement or by the defendant’s profits. In certain exceptional circumstances where the defendant’s conduct is willful and flagrant, the plaintiff might also be entitled to exemplary damages equal to three times the actual damages and/or attorneys’ fees.

The relevant sections under the Lanham Act provide for remedies for infringement on marks that actually are in use. This effectively precludes an intent-to-use applicant from suing for infringement because use has not been made of the mark. The law permits anyone who feels that they will be damaged by acts that are likely to cause confusion, mistake, or deception as to the origin, sponsorship, or approval of the complainant’s goods or services with those of another to sue for unfair competition. Under the act, all remedies available for infringement actions are also available for actions of unfair competition.

Antidilution

In 1996, the federal trademark law was amended to provide special protection to famous marks. If you believe a famous mark is involved, either because your mark is famous or because you would like to use the famous mark of another, you should first discuss the situation with an experienced intellectual property attorney in order to avoid becoming involved in an expensive dispute.

International Protection

As of the date of this writing, there is no multinational treaty to which the United States belongs providing international trademark protection. The European Union has established a pan-European trademark registration for its member nations, but the United States is not a party to that treaty.

In 2003, the United States became a party to the Madrid Accord, which is the closest that this country has come to providing its citizens with international trademark protection. Under the Madrid Accord, Americans can apply for trademark protection in 105 countries as of the date of this writing by filing the appropriate application and paying the required fees to the United States Patent and Trademark Office. It is, thus, no longer necessary for U.S. companies to hire specialists in every country in which trademark registration is desired. Under the current arrangement, the application filed with the U.S. Patent and Trademark Office can identify the member countries in which registration is sought and the class of goods or services to be covered. The cost savings for using this process is significant and the convenience provides U.S. businesses with a more efficient method of obtaining foreign trademark registrations in the Madrid Accord member nations. It should be noted that the number of countries party to the Madrid Accord continues to increase. The fees required for registration are set by each country, in its own currency, and, as a result, are constantly in flux. In order to determine the actual fee at any time, an applicant should check the online registry, which contains a fee meter based on the number of countries, the classes in which a mark is to be registered, and the countries’ currency exchange rates. For a current listing of participating countries, as well as the fees charged and application process, see www.wipo.int/madrid.

State Registration

Trademarks can also be registered under state law. The trademark proprietor may file with the appropriate state officer a trademark application, along with documentation similar to that required by the Lanham Act. State law protection of a trademark does not extend beyond the borders of the state. The number of specimens of the mark needed to complete registration may vary from state to state and the registration fee may also be different. Protection under state law can be broader than that found under federal laws. Remedies available under state law are also very likely to be different from those found under the federal statute. If a conflict arises between federal and state trademark law, it is important to remember that under the supremacy clause of the US Constitution, federal law will supersede state law.

Using an Attorney

Registration can be quite beneficial to a business that has invested time, money, and energy in developing a reputation for quality work. Procuring trademark protection on either the state or federal level may require a considerable amount of time and skill. In this regard, an attorney may prove invaluable. An attorney can, first of all, determine if the benefits to be derived from registration justify the expenses. The total cost of trademark registration usually runs about $1,500, not counting any artist’s fees for drawings. Second, an attorney can research trademark databases to determine if there are any conflicting marks. Finally, an attorney can complete the application and deal with any problems that may occur while it is being processed for registration.

If you are interested in contacting attorneys who specialize in trademark work, you can conduct an online search for trademark attorneys in your area or ask your state bar association for some recommendations.

Trade Secrets

Another form of protection, known as trade secret law, allows exploitation of a particular innovation and may afford even greater protection than copyright or patent laws, which were already discussed in this chapter. A trade secret may be loosely defined as anything that has not been revealed and could give you a competitive advantage. The secret should cover something that you actually use in your business and that you take some reasonable steps to protect. A trade secret may be lost if the owner fails to either identify it or take reasonable steps to protect it. Otherwise, the trade secret protection is perpetual. In fact, one of the most famous trade secrets is the recipe for Coca-Cola, which is more than 125 years old. Attempts to misappropriate Coca-Cola company trade secrets are currently being prosecuted under both federal and state trade secret laws.

Patent or Padlock Dilemma

The determination of whether patent or trade secret protection is most appropriate is sometimes referred to as the patent or padlock dilemma. You cannot obtain both kinds of protection, because achieving one will render the other impossible. The patent-versus-padlock decision must be made within one year after disclosure. This is because, as discussed above, the patent laws provide that a patent can be obtained only when the invention in question has not been in public use or on sale for more than one year before application is made. Furthermore, use by the inventor for commercial purposes, even in secret, is considered a disclosure within the meaning of the patent law. Thus, during the first year, the inventor must decide how the innovation will be protected. If trade secret protection is selected and no patent application is filed, then patent protection is probably lost forever.

Selecting a patent will destroy trade secret protection once the patent is issued, because the patent application must contain a full description of precisely what was invented. Thus, it is impossible to get both a patent and to keep some aspect of the invention secret. In order to determine which of these methods of protection should be elected, consult an attorney or patent agent who specializes in intellectual property.

Trade Secret Protection

All that is necessary for something to be protectable as a trade secret is the following:

• it gives you a competitive advantage;

• it will, in fact, be treated as a secret by you; and

• it is not generally known in your industry or business.

The fundamental question of trade secret law is—what is protectable? The way you use knowledge and information, the specific portions of information you have grouped together, and the mere assembly of information itself may all be trade secrets even if everything you consider important for your secrets is publicly available information. For example, if there are numerous methods for producing a particular dye and you have selected one of them, the mere fact that you have selected this method may itself be a trade secret. The identity of your suppliers may be a trade secret, even if they are all listed online. The fact that you have done business with these people and found them to be reputable and responsive to you may make the list of their names a trade secret.

Many trade secrets will be embodied in some form of document. One of the first things you should do is to mark any paper, photograph, or the like, “confidential.” You should also take steps to prevent demonstrations of your trade secret, such as manufacturing methods. Taking these steps will not create trade secret protection. However, the fact that an effort has been made to identify the materials and methods you consider secret will aid you in establishing that you treated them as a trade secret should litigation ever occur.

Protecting a Trade Secret

In this area, a little thought and cleverness will go a long way toward giving you the protection of the trade secret laws.

Physical Security

First, you should have some degree of physical security. It has been said that physical security is 90 percent common sense and 10 percent true protection. You should restrict the access to the area in which the trade secret is used. Some precaution should be taken to prevent visitors from peering into the manufacturing area where the secret process, formula, or technique is employed. The credentials of delivery and service persons should be examined. Employee access to trade secret information should be on a need-to-know basis. Employees should not be granted automatic free access to the material you desire to keep as a trade secret. Extra care should be taken with laptops, cell phones, tablets, and the like, because if they are lost or stolen, a tremendous amount of data is at risk of disclosure.

Employee Access

As noted, documents, pictures, or sketches containing trade secrets should be clearly labeled. A procedure should be established for controlled employee access to the documents. For instance, one person could be responsible for granting access to them and a sign-in/sign-out process could be instituted for those permitted access to the documents. Employees should realize that violation of an employer’s trade secret protection can and often will result in serious consequences.

Fragmenting Information

If possible, the information that you consider to be a trade secret should be fragmented. This means no one employee should have possession of the entire secret. Thus, no one person will have sufficient information to hurt you.

Confidentiality Agreements

It is also a good idea to have employees sign a confidentiality or nondisclosure agreement when hired. An attorney who deals with intellectual property can prepare agreements for use within your business. Employees should have these agreements reviewed by an experienced attorney before they are signed, because the individual will be agreeing to restrictions that must be adhered to or serious consequences may result.

If it ever becomes important for you to reveal a secret to an outsider, such as when someone desires to purchase the right to exploit your innovation through a licensing arrangement, a different form of confidentiality agreement is in order. These agreements generally provide that in exchange for disclosure of the confidential trade secret information, the party receiving such information will keep it in confidence and will not use or disclose it without the express written permission of the person making the disclosure. Again, your intellectual property lawyer can prepare such an agreement for you.

Vague Labeling

Another method of protecting your trade secret is to engage in some vague labeling. For example, if your trade secret consists of a unique mixture for a glaze, then instead of having the components of the glaze bear their true names, you should label them “Ingredient A,” “Ingredient B,” “Ingredient C,” etc. Then, if an employee quits or if a stranger happens into your office, all they will learn is that by mixing some portion of A with some portion of B, combined with some portion of C, the desired result will be achieved. This will not be very useful information. Similarly, if the trade secret is the temperature at which a glaze is fired, instead of actually marking the thermometer, you may wish to have the original temperature marks removed and replaced by colored zones.

IN PLAIN ENGLISH

If you are publishing in or contributing to industry or trade journals, take care not to reveal trade secrets. Occasionally, manufacturers or their employees inadvertently disclose valuable information in an attempt to impress their colleagues.

Misappropriating Trade Secrets

In order to avoid the charge that you are stealing someone else’s trade secret, you should question employees who come to work for you from a competitor. If there is any possibility of a new employee using the competitor’s trade secret information, the new employee should meet with the former employer and get written permission to use the information while working for you. Similarly, employees should be careful not to disclose or use the trade secrets of employers either when going out on their own or when starting a new job.

Trade secrets have been deemed so important that in the mid-1990s, the US Congress passed a federal law making it a crime to misappropriate another’s trade secret. It was felt that if the United States is to retain its technological competitive edge, the government must assist industry with this form of protection. Since its enactment, there have been several high-profile cases underscoring both the importance of trade secrets and the federal government’s efforts in helping to protect them.

Trade secret laws may be the only protection available for your business secrets. Care should therefore be taken to restrict access to the information and to treat the information as truly secret. Contractual arrangements both with employees and outsiders are quite useful. These, coupled with your common sense in the day-to-day operation of your business, will go a long way toward protecting your intellectual property. Employees must also be aware of the importance of trade secrets and they should not use or reveal them without obtaining appropriate permission from the owner of the trade secret or serious consequences may result.

Other Intangibles: URLs and Passwords

Since the early 1990s, when personal computers became popular and the Internet became widely available to individuals, there have been questions regarding the extent of legal and intellectual property protection in cyberspace. This is discussed more fully in the next chapter.