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Resources

Trade Secret Protection of Computer Software

TRADE SECRET PROTECTION OF COMPUTER SOFTWARE

© 1987 Ralph M. Tener
All Rights Reserved

McCandlish & Lillard, P.C.
11350 Random Hills Road, Suite 500
Fairfax, Virginia 22030
(703) 934-1170

 

I Uniform Trade Secrets Act
  A. Trade secrets in Virginia are governed by the Uniform Trade Secrets Act, VA. Code §§ 59.1-336 through 343, which became effective July 1, 1986.
  B. Definition of “trade secret”:
  “Information including, but not limited to, 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, and not being readily ascertainable by proper means by, 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” (Va. code § 59.1-336).
  1. Trade secrets need not be creative or innovative; unique; totally unknown to everyone but the owner; eligible for other forms of legal protection such as patent, copyright, or trademark protection; already in use in business; used continuously or repeatedly in business; nor even successful (Commissioners’ Comment, Uniform Trade Secrets Act, § 1).
  a. Just useful, not generally known, and treated as secret by the owner.
  b. Two competitors could have the same trade secret, independently derived, protectable against all the world except each other.
  c. The UTSA protects “negative” information such as results of experiments that failed, research dead ends, and unproductive approaches.
  d. Also protects one-time information (e.g., concerning a particular bid), and not-yet-exploited information.
  2. Difficult issue is distinguishing between employee or consultant’s general knowledge, skill, and experience (which he has a right to use for himself and others), and employer’s proprietary information (which employee or consultant has no right to use except for employer’s benefit) (See, e.g., Structural Dynamics Research Corp. v. Engineering Mechanics Research Corp., 401 F.Supp. 1102, 1111 (E.D. Mich. 1975);Anaconda Co. v. Metric Tool & Die Co., 485 F.Supp. 410, 423 (E.D. Pa. 1980)).
  C. Method of obtaining protection:
  1. There is no filing or registration of trade secrets.
  2. Owner simply must take reasonable effort to maintain the secrecy of the trade secret.
  a. Reasonable steps to preserve secrecy include marking documents as confidential; limiting access and opportunities to photocopy; looking up confidential documents when not in use; obtaining written nondisclosure agreements from employees, consultants, subcontractors, and users; making sure all who gain access are aware of and accept obligation to preserve secrecy; developing and implementing written policies to preserve secrecy; and using technology licensing agreements that impose obligation to preserve secrecy (See, e.g., J&K Computer Sys., Inc. v. Parrish, 642 P.2d 732 (Utah 1982)).
  b. Absolute security is not required, but mere intention is not sufficient; what is required is a continuing policy providing a combination of physical security and confidentiality procedures designed to signal to employees and others with access the secret nature of the information (Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983)).
  D. Owner of trade secret has right to prevent or obtain relief for misappropriation.
  1. “Misappropriation” is defined as acquisition by improper means; and disclosure of use without consent if acquired by improper means, in confidence, by accident or by mistake (Va. Code § 59.1-336).
  2. “Improper means” includes theft, bribery, misrepresentation, breach of a duty or inducement of breach of a duty to maintain secrecy, or espionage through electronic or other means (Va. Code § 59.1-336).
  a. Proper means include discovery by independent invention or reverse engineering; disclosure under a license agreement; observation in public use or on public display; and publication in trade or other literature (Commissioners’ Comment, Uniform Trade Secrets Act, § 1).
  3. Owner must act promptly upon notice of actual or threatened misappropriation, as trade secret protection is easily waived.
  E. Remedies:
  1. Injunction against actual or threatened misappropriation so long as trade secret exists, and possibly for an additional period which would eliminate the commercial advantage derived from the misappropriation (Va. Code § 59.1-337).
  a. In exceptional circumstances, injunction may condition future use of trade secret on payment of a reasonable royalty (Va. Code § 59.1-337).
  b. Court also has power to compel affirmative acts to protect a trade secret (Va. Code § 59.1-337).
  2. Damages for actual loss, plus any unjust enrichment not taken into account in computing actual loss (Va. Code § 59.1-338).
  a. Court may impose a reasonable royalty if plaintiff cannot prove damages in a greater amount (Va. Code § 59.1-338).
  b. Sections of the Uniform Act authorizing recovery of punitive damages and attorneys’ fees were not adopted by Virginia.
  F. In trade secret litigation, court has a duty to preserve secrecy of alleged trade secrets by reasonable means (Va. Code § 59.1-339).
  G. Limitations period is three years from date misappropriation is discovered or should have been discovered by exercise of reasonable diligence (Va. Code § 59.1-340).
I. COMPUTER SOFTWARE AS A TRADE SECRET
  A. Software has frequently been held to be a proper subject of trade secret protection (Com-Share, Inc. v. Computer Complex, Inc., 338 F.Supp. 1229 (E.D. Mich. 1971, aff’d 458 F.2d 1341 (6th Cir. 1972); University Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, rehearing denied 505 F.2d 1304 (5th Cir. 1974) (extensive discussion of application of trade secret law to computer programs); Telex Corp. v. IBM, 510 F.2d 894 (10th Cir. 1975); Data General Corp. v. Digital Computer Controls, Inc., 357 A.2d 105 (Del. Ch. 1975)).
  1. Protection can extend to all non-public aspects of software, including source and object code, documentation, design specifications, flowcharts, user evaluations and reactions, file and data formats, and performance test results (Id.).
  2. Important factor is time, effort and expense required to develop the software (Dickerman Assocs. v. Tiverton Bottled Gas Co., 594 F.Supp. 30 (1984).
  B. Novelty of programming techniques is not required.
  1. Even a program using well-known design concepts and subroutines can qualify for trade secret protection (Com-Share, Inc. v. Computer Complex, Inc., 338 F.Supp. 1229 (E.D. Mich. 1971) (operating system and text editor); Cybertek Computer Products, Inc. v. Whitfield, 203 U.S.P.Q. 1020 (Cal. Super. 1977) (management information system)).
  2. But no trade secret was found where program consisted almost entirely of standard, off-the-shelf routines (Jostens, Inc. v. National Computer Services, 318 N.W.2d 691 (Minn. 1982)).
  3. Despite use of generally-known techniques, court may afford protection to novel aspects of program (J&K computer Sys. v. Parrish, 642 P.2d 732 (Utah 1982)).
  C. Secrecy can be preserved through license agreements despite fairly wide-spread distribution.
  1. Minicomputer design held to be properly safeguarded even though maintenance manual with detailed drawings and specifications was distributed to thousands of users under a restrictive license agreement with confidentiality provisions (Data General Corp. v. Digital Computer Controls, Inc., 357 A.2d 105 (Del. Ch. 1975)).