Playbook for Protecting Trade Secrets Begins with Protecting Your Home Turf

Playbook.jpgRegardless of your political preferences, President Obama's election victory offers an important lesson that can be extended to your company's protection of trade secret intellectual property.

In sports - similar to politics or business - a critical strategy for success is the concept of "protecting your home turf." In this regard, after the dust settled on the voting, one point stood out: President Obama and his campaign team was able to hold onto all of the states they won in 2008 with the exception of two (Indiana and North Carolina). In other words, President Obama was able to essentially protect the real estate he won in 2008 on his way to a second-term as the President. For companies, the same concept should extend to their operations when it comes to protecting trade secrets. 

What Actions Can Employers Take to Protect Trade Secret Information?

Often times trade secret misappropriation can be entirely avoided or, at least, the likelihood significantly reduced by taking appropriate preventive measures to protect such assets. Developing those measures should be tailored to your specific facts and circumstances and in collaboration with an experienced trade secret lawyer. But the following topics provides preliminary precautions every business should consider to minimize its risk of experiencing or being accused of trade secret misappropriation:

  1. Perhaps the single most important component of a trade secret protection program involves educating employees, especially those in management, marketing, and sales, about the importance of protecting trade secret and other confidential information. By emphasizing the value of the information to be protected as it relates to the business provides a solid foundation for these constituents to understand the context and rationale for why trade secret precautions are necessary and should be taken seriously.
  2. The second most important component of a trade secret protection program is identifying what protections are available to protect the information the first place. In this regard, your company's IT professional or professionals play two critical roles in protecting trade secrets: First, IT provides the first line of defense in identifying appropriate security measures, as well as identifying areas where security improvement is needed. Second, IT professionals often will be the "first responders" in terms of identifying tell-tale signs of potential trade secret theft in terms of unusual download activities and access activities. Accordingly, will often be the single best resource for implementing procedures for monitoring and responding to potential misappropriation issues.

Why Should Companies Protect Trade Secrets?

If your company needs convincing of the value in protecting trade secrets, this Blog previously reported that trade secret misappropriation in the U.S. translated into an estimated $45 to $300 billion in annual losses. 

And for more specific examples of the costs of trade secret misappropriation, consider the following:

And you don't have to be a GM in order to have trade secrets worth protecting. In fact, smaller and medium-sized businesses routinely have "know how," pricing, marketing, or customer data that has been acquired over the years that has immense value to the business, which would be detrimental if a competitor were to acquire such intellectual property. 

Conclusion.

A company following appropriate trade secret precautions has the beginning point for increases its chances successfully suing to protect its trade secrets and, therefore, maintaining its competitive advantage in the market place.  

Contact Jason Shinn for more information about such precautions, including drafting noncompetition provisions in employment agreements to prevent employees from starting and using trade secrets in a competing business; (ii) having appropriate security measures to protect trade secrets and confidential information from disclosure; and (iii) having a comprehensive employee exit/termination procedure intended to prevent trade secrets from walking out the employer's front door when employees leave.

Is Your Company Making this Mistake When it Comes to Employees and Intellectual Property?

Ghost-Rider-Marvel-1.jpgA lawsuit, Friedrich v Marvel Entertainment (PDF), filed by a former employee claiming ownership rights to intellectual property was recently dismissed in favor of the employer.

This suit also provides valuable lessons for employers about the importance of securing ownership rights in intellectual property created by employees and independent contractors, and making sure that ownership is documented. 

Background of the Ghost Rider Intellectual Property

Gary Friedrich sued his former employer comic book publisher Marvel Entertainment, LLC claiming that he created the comic book character Ghost Rider back in the early 1970s. The value of the Ghost Rider character significantly increased since the 1970s because of increased revenue from movies, video games, and promotional products. In fact, Ghost Rider, as played by Nick Cage, returns to the big screen beginning this weekend in the "Spirit of Vengeance.

The Copyright Infringement Claims Against Marvel & the "Work Made for Hire" Defense

Under the Copyright Act, a copyright normally vests initially in the author or authors who created the work. 17 USC 201(a). But when the copyright work is a "work made for hire," the employer or other person for whom the work was prepared is considered the author. 17 USC 201(b).

In regards to employers, under 17 USC 101, a work is considered a work made for hire if it is:

  1. A work prepared by an employee within the scope of his or her employment; or 
  2. A work specially ordered or commissioned for use as a 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, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

Marvel took the position that the Ghost Rider character was created as a "work for hire" under the copyright laws and, therefore, Marvel and its successor companies continued to be the owner of all rights and interests in the intellectual property. 

What Can Go Wrong in a Work Made for Hire Defense 

Normally establishing a "work made for hire" defense is relatively straight forward, e.g., you produce the written agreement establishing the fact. But Marvel ran into a number of issues that jeopardized its defense:  

First, Mr. Friedrich signed a "work made for hire" agreement in 1978. But Ghost Rider was created in the beginning of the 1970s. 

Second, at the time Mr. Friedrich would have created Ghost Rider, he claimed he was employed to read and respond to fan mail and, therefore, the Ghost Rider character was created outside the scope of his employment.  

Third, Marvel attempted to support its "work made for hire" defense, based on its practice at the time of placing a legend on the reverse side of all checks used to pay individuals like Mr. Friedrich who had made creative contributions to Marvel. That legend provided that the payee acknowledged the rights in and to the work for which payment was being made belonged to Marvel. Marvel, however, ran into a problem supporting this defense because the checks issued and presumably signed by Mr. Friedrich no longer existed (remember, these checks would have been issued back in the 1970s).

Despite these issues, Marvel was able to eventually (after over four years of litigation) convince the Court that Mr. Friedrich had in fact accepted and negotiated the checks that contained the language relinquishing all rights to the subject intellectual property. 

Closing Thoughts

While the employer (Marvel) eventually prevailed in the ownership dispute over the intellectual property, it is important to note that it took over four years of litigation to do so. In all likelihood the time and expense for this litigation could have been significantly decreased had the ownership issues involving the intellectual property been better handled and documented.  

In this regard, for companies that want to make certain they are the owner of a work - whether the work is created by an employee or independent contractor - the best advice is to require employees and independent contractors to execute an assignment and work-made-for-hire agreement at the outset of the relationship so that copyright ownership vest in the company.

For more information about drafting work made for hire agreements and other employment-related agreements, contact Jason M. Shinn.