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Legal Protection for the Software Arts — Part 9

A widely used method of software protection is through trade secret law under the Economic Espionage Act (EEA) (18 U.S.C. §§ 1831-1839), which was enacted in 1996 and significantly amended on May 11, 2016, by the Defend Trade Secrets Act of 2016 (DTSA), Pub. L. No. 114-153, 130 Stat. 376 (2016) and at the state level by state trade secret statutes.

Under the Uniform Trade Secret Act (adopted in some form by all states but NY), a trade secret, generally speaking, means information, including 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.

Under the DTSA, ‘trade secret’ means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if: (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information[.]”

The bottom line for all the various trade secret laws is that it to be a protectable trade secret – and in this case, it is the software program: (1) is not generally known or ascertainable through proper means by persons outside the trade secret owner’s organization or control; (2) provides economic value or a business advantage to the owner by not being generally known; and (3) the owner makes reasonable efforts to keep confidential.

There is no registration requirement or procedure for trade secrets. Trade secret rights are acquired and maintained solely by the owner’s reasonable efforts to preserve the secrecy of valuable confidential information: (1) within the owner’s organization (including employees and independent contractors); (2) among selected third parties that need to use or review the information, such as customers, software developers, suppliers, service providers, lenders, joint venturers, merger partners, and prospective acquirers. This is typically accomplished by applying appropriate security measures at the owner’s facilities and in its computer networks, and using written confidentiality agreements. No legal notice needs to be attached to trade secrets. However, the trade secret owner should mark software and related documentation as “SECRET” or “CONFIDENTIAL” to provide actual notice of the trade secret owner’s rights, preserve secrecy, and discourage misappropriation.

Rights holders in proprietary software typically safeguard their trade secret rights in source code by both: (1) Maintaining the source code in confidence; and (2) releasing it only selectively (for example, under an escrow arrangement) and under strict restrictions. By adopting these measures, the right’s holder may preserve its trade secret rights in source code even if it widely sells, licenses, and distributes copies of the software’s object code to distributors or end-users.

David L. Cohen

David L. Cohen, P.C. – Kidon IP
123 West 93rd Street
New York, NY 10025
[email protected]
(914) 357-5196