When I joined Watt Tieder as a lateral partner at the beginning of this year, I had already spent a great deal of time considering the ways in which I would be able to expand upon and enrich the scope of legal services the firm brings to client representation. My decision to join the firm was in part based upon my belief that my practice areas and experience, combined with Watt Tieder’s already-existing, deep knowledge about its clients’ industries and specific needs, creates an opportunity to serve the firm’s clients in new and valuable ways. My belief in that regard has only deepened since I joined the firm, with concrete examples stacking up continuously.
I am pleased to have this opportunity, in my first article as a Watt Tieder partner, to discuss issues pertinent to an area of litigation and consulting expertise that I hope will be of interest to those of you involved in ownership, management, or operation of construction-related businesses. Namely, intellectual property and employment law issues and best practices you and those within your company should consider in assessing whether you are doing everything you should to protect your valuable trade secrets.
Brief Overview Of Types Of Intellectual Property
There are four main types of intellectual property (IP) – patents, copyrights, trademarks and trade secrets. Many companies have IP rights of all four types. Very different steps are required to protect different types of IP. Your company should work with an experienced IP attorney to develop and continuously update a comprehensive IP protection plan. And for the reasons discussed below, it is important for your company’s IP protection plan to be closely coordinated with employment and contracting practices.
Patents are rights that may be granted to protect uniquely-original and usable inventions for a prescribed period of years, the length of which depends on the patent type. To register a patent, an application must be filed with the United States Patent and Trademark Office (USPTO), which will decide whether the invention is patentable. A registration gives the owner the ability to prevent others from using or selling the invention without permission. Registered patents may be challenged in court on several grounds, but mounting a successful challenge is a very expensive proposition. A patent registration is thus a highly valued asset and is key to preventing others from using or copying your invention, unless you have a foolproof way to keep your invention secret and out of the hands of competitors. On the other hand, if it is possible to keep the invention secret for enough time to gain a commercial advantage over competitors and the enforceability of the patent is questionable, registering a patent may be a mistake because the invention must be publicly disclosed in excruciating detail, for all competitors to see.
Copyrights protect ownership of artistic works. Protected works can be nearly anything creative. Examples run the gamut from songs, paintings, and books, to architectural drawings and computer software. A copyright generally lasts for the entirety of the creator’s life, plus an additional 70 years after his or her death. Copyright protection in a work exists automatically from the moment of creation. No registration is needed to protect the work. However, registering a work with the United States Copyright Office is necessary to sue for infringement and to make available certain remedies for post-registration infringement. It also provides proof of the date of creation of the work. Subject to certain exceptions such as “fair use” (for example, use in news reporting), the owner of a copyright controls all rights to use the work in any way.
A trademark (or service mark) is a word, phrase, symbol, or design used in commerce to identify goods or services as originating from a single source. Product brand names and logos are the most common marks. Trademark rights protect against commercial use of a similar mark in a way that is likely to create customer confusion as to the source of the product or service. “Common law” trademark rights can exist without the need for registration when there has been sufficient use of a mark in commerce. Registration with the USPTO creates additional protections that do not exist under common law, such as “constructive” notice to others of the registrant’s ownership of the mark, which can be crucial in an infringement lawsuit. Trademarks can be maintained for an indefinite period so long as use in commerce continues.
A trade secret is information known only to a specific business that gives it an advantage over its competitors. It is unlike a patent, copyright, or trademark in that it cannot be protected by government registration, but rather only by taking steps to protect its secrecy. The remainder of this article addresses issues that should be considered in identifying and protecting trade secrets.
Protecting Construction-Related Trade Secrets
Trade secrets are protected by federal and state statutes. Almost every state in the country has adopted a version of the Uniform Trade Secrets Act (UTSA), and similar statutory law is enforceable under the federal Defend Trade Secrets Act (DTSA). These state and federal statutes provide significant protections against, and penalties for, trade secret misappropriation.
The law generally protects “against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under the express or implied restriction of nondisclosure or nonuse.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974). To qualify as a trade secret, information need not be maintained in absolute secrecy. Protection is afforded to any information that (1) has economic value due to being generally unknown to those outside the business, and (2) is the subject of reasonable efforts to maintain its secrecy.
Companies frequently do not realize that they have information that may qualify for trade secret protection or do not realize the breadth of information that may be protected. For example, companies doing business in the construction space might recognize the need to protect purchasing and sales pricing and requirements information, but might overlook that protecting other types of information might also give the company a competitive advantage, such as:
- Custom design and manufacturing processes;
- Volume or other special discounts negotiated with vendors and customers;
- Unique arrangements with manufacturers, distributors, and licensors/licensees;
- Specially-designed insurance programs;
- Specialized plans for employee or contractor retention;
- Business forecasting;
- Mergers and acquisition plans;
- Joint venture information;
- Real estate purchase or sale plans; and
- Specialized contract terms used in all phases of the business.
The types of information that have competitive value, and can be reasonably protected from disclosure, of course vary from business to business. And different departments within a business often have different perspectives on what has competitive value. To most effectively and comprehensively protect your proprietary information, include all departments in brainstorming sessions to identify as broadly as possible the information, systems, programs, methods, and plans that bring value to the company, and consult with experienced IP and employment law counsel regarding the steps you should take to maximize your protection.
It is critical to involve legal counsel experienced in both IP and employment law because you need to know both what can be protected and how you can best protect it. While theft of information from outside the company (such as by computer network hacking) is certainly a concern to be considered, misappropriation by existing or former employees, or trade partners, is a larger concern for many businesses. To protect information with competitive value, and to maximize the likelihood of a legal finding that the information is a trade secret, reasonable steps must be taken to require employees and trade partners to protect secrecy. For example:
- Employees and trade partners should be required to sign non-disclosure, confidentiality, non-compete, and IP ownership and assignment agreements;
- Employees and trade partners should be restricted by contract, to the maximum extent legally allowed, from soliciting your employees to leave and join a competitor;
- Procedures should be implemented to ensure that when employment ends all employees are reminded in writing of continuing non-disclosure obligations, return all confidential information, computers and devices, and ideally sign an acknowledgment;
- Cease and desist letters and lawsuits when necessary should be used to enforce breaches of confidentiality and non-disclosure agreements;
- Paper copies of sensitive documents should be in locked areas, and electronic files should be password-protected, with access of employees and trade partners to information limited (physically and electronically) to those with a specific need for it;
- Encryption-protected communications should be used to send and receive sensitive electronic documents and data;
- For projects involving public entities, assess steps that can be taken to avoid public access to information with competitive value;
- Implement periodic training for employees regarding trade secret protection; and
- Increase vigilance and implement additional safeguards during mergers, acquisitions or other periods of significant company restructuring.
Many of the issues discussed in this article will undoubtedly have been familiar to many of you. I urge you, however, to consider whether any of these “best practices” are things your company may not be adequately addressing. If you take the lead in plugging those gaps in your company’s trade secrets protection protocols, you might be the hero who saves the company from losing a significant competitive advantage.
Colin Holley’s practice focuses on the litigation of complex business disputes, including matters involving intellectual property, trade secret misappropriation, labor and employment law, commercial law, real property, unfair competition, and appellate advocacy. His practice involves litigation and resolution of disputes in federal and state courts and arbitration venues nationwide.