Monthly Archive: August 2019

Trade Secrets – Overlooked and Undervalued

At the time of writing, there is a case being heard at the District Court of New Zealand (Te Kōti ā Rohe) of an Auckland-based architect accused of stealing trade secrets.  His former employer claims he had downloaded, without appropriate authorisation, a large number of proprietary documents to a memory stick, including the company’s annual business plan, project files and pricing models.

This case highlights the importance of understanding trade secrets and other confidential information, how to protect them, and the obligations of those with access.

 

What is a Trade Secret?

Trade secrets protect information that has value to a business and its commercial activities, but is generally not known outside of the organisation (i.e. is not in the public domain).

Trade secrets define a business’s competitive advantage, and if leaked, they have the potential to damage the organisation’s market position.  The law provides protection to prevent third parties using this information, without authorisation, to gain an unfair competitive advantage.

To qualify as a trade secret, the information concerned should have arisen through the investment of significant time, energy, skill and expense, thus contributing to the value of the business.  Further, the business must have taken reasonable steps to keep the information secret.

Examples of the types of confidential information that may qualify as trade secrets include: business processes, practices and methods; business strategies; customer information; ideas for commercial opportunities; formulae; recipes.

 

Trade Secrets as an IP asset

In the US alone, for example, it is estimated that the economic losses from intellectual property or intangible asset theft are between US$225 and US$600 billion each year.  Almost every country and company have the potential to be affected by this type of crime.

For many organisations, trade secrets are often neglected or overlooked.

Recommended good practice towards the effective management of trade secrets involves steps that include firstly identifying the intangible assets your business owns.  Following this, determining which of these assets are critical and which less so, and attempting to value them.

This leads to the assets being identified as trade secrets, confidential information and general information.  Confidential information, for example, may also be important to a business’s market position, but would have less of an impact than a trade secret if leaked.

Once the assets have been categorised, a business should prepare proactive policies and processes to assert, monitor and protect the information.  This can include contractual guidelines, non-disclosure agreements, restraints of trade (non-competes), access control, and education and awareness programmes for staff.

Should a leak occur, this would typically be remedied through breach of contract, or in the absence of a contract, breach of confidence

 

Summary

Trade secrets is an area within the field of intangible assets that can often be overlooked by employers and employees alike.

Businesses and employers may not realise the value of this type of information and thus not protect it appropriately.  They should ensure that they fully evaluate the information that is critical to their commercial activities and manage it accordingly.

Whether a director, employee or contractor, those engaged by an organisation or other entity should understand the importance of trade secrets, as well as their own obligations, both during and after their period of engagement, with regards the information to which they may have become privy.

Alistair Curson

 

References

Bainbridge D. (2012). “Intellectual Property.” 9th edn, Pearson Education Limited, Harlow, England.

Batty R. (2016). “’Trade Secrets’ Under New Zealand Law”. Canterbury Law Review 22, 235-268. Retrieved August 14, 2019 from: http://www.nzlii.org/nz/journals/CanterLawRw/2016/12.pdf

EverEdge Global. (2019, July 30). “Preventing the Leakage of Confidential Information”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/confidentialinformationleak

EverEdge Global. (2019, July 30). “Understanding Trade Secrets and Confidential Information”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/tradesecrets

EverEdge Global. (2019, July 30). “US$600 Billion and Rising: Confidential Information and Trade Secret Theft”. Retrieved August 14, 2019, from: https://www.everedgeglobal.com/blog/tradesecrettheft

Hurley S. (2019, July 19). “Auckland architect accused of stealing trade secrets”. Retrieved August 15, 2019, from: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12250740

McDonald A. (2019). “Trade Secrets and Confidential Information”. Retrieved August 10, 2019, from: https://www.amcdonald.co.nz/information/intellectual-property-law-barrister/trade-secrets-confidential-information/

Ministry of Business, Innovation and Employment Hikina Whakatutuki. (2019). “Types of intellectual property”. Retrieved August 10, 2019, from: https://www.business.govt.nz/risks-and-operations/intellectual-property-protection/types-of-intellectual-property/

New Zealand Crimes Act 1961, s230. Retrieved August 14, 2019, from: http://www.legislation.govt.nz/act/public/1961/0043/latest/DLM330238.html

New Zealand Intellectual Property Office. “Trade Secret”. Retrieved August 10, 2019, from: https://www.iponz.govt.nz/assets/pdf/IP-cards/ip-card-trade-secret.pdf

NZCity. (2019, July 10). “An Auckland architect is facing a rare charge of stealing trade secrets”. Retrieved August 11, 2019, from: https://home.nzcity.co.nz/news/article.aspx?id=293572

Peart S. (2018, May 30). “Protection of Trade Secrets”. Retrieved August 14, 2019, from: http://www.marksandworth.nz/news/articles/protection-of-trade-secrets

Copyright – Originality

Modern copyright law protects works against copying; issuing copies to the public; performing, playing, showing or communicating to the public; or the making of adaptations.

 

Originality versus Novelty

For a work to attract copyright protection, it must be original.  This does not mean that the work is new.  Rather that it originated from the author who displayed reasonable independent labour, skill and judgment to create the work.  In other words, the author didn’t copy the work from another source.

 

Copyright Infringement and Independent Creation

It is possible for two authors to independently create very similar works.  Provided they did not copy from either each other (or from someone else) then there would be no infringement of copyright.

For copyright infringement to occur, the following need to be satisfied:

  1. There needs to be a valid copyright and ownership of it
  2. The alleged infringing work needs to show a level of objective and striking similarity to the copyright-protected work – a clear resemblance
  3. There needs to be a causal connection between the two works – facts that suggest that copying of the copyright-protected work is likely to have occurred in the creation of the infringing work
  4. There should be copying of a “substantial part” of the copyright-protected work – this is based on quality rather than quantity, as well as the relative importance of the copied elements to the copyright-protected work

Any evidence, or that lack of, to support an independent pathway of creation will be important in deciding a case of copyright infringement.

 

A Recent Example: Iron Man 3

For the past three years, Marvel Entertainment and Horizon Comics Productions have been engaged in a copyright infringement lawsuit over the design for Marvel’s Iron Man 3 movie poster.

Horizon asserted that Marvel had copied an image of their character Caliban (from their comic book series “Radix”) shown in a crouched kneeling position, and had used it to depict Robert Downey Jr. as Iron Man in the same pose.  They claimed that six Marvel employees were aware of the Horizon works and had influenced those who had designed the Iron Man 3 poster.

At trial, Marvel were able to provide evidence that their Iron Man 3 poster had been independently designed from photographs taken at photo shoot with Robert Downey Jr.

Horizon, however, did not produce evidence to the Court’s satisfaction to refute this.  Neither were they able to demonstrate a causal connection to copying, including evidence that the employees concerned had seen the Caliban drawing or had been involved in designing the ‘Iron Man 3’ poster.

On 15th July, the U.S. District Court ruled in favour of Marvel.

Alistair Curson

 

References

Bainbridge D. (2012). “Intellectual Property.” 9th edn, Pearson Education Limited, Harlow, England.

Fasthoff Law Firm. (2016, November 27). “Anatomy of a Copyright Infringement Case: Defenses to Allegations of Copyright Infringement”. Retrieved July 26, 2019, from: https://www.fasthofflawfirm.com/anatomy-copyright-infringement-case-defenses-allegations-copyright-infringement/

Horizon Comics Productions Inc v. Marvel Entertainment LLC et al, No. 1:2016cv02499 – Document 121 (S.D.N.Y. 2019). Retrieved July 30, 2019, from: https://law.justia.com/cases/federal/district-courts/new-york/nysdce/1:2016cv02499/455684/121/

Interlego A.G. Appellant v Tyco Industries Inc. and Others Respondents [1989] AC 217.

Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273.

McDonald A. (2019). “Copyright Law”. Retrieved July 26, 2019, from: https://www.amcdonald.co.nz/information/copyright-law-barrister/

McKeown JS. (2008, January 24). “Independent creation”. Retrieved July 30, 2019, from: https://www.lexology.com/library/detail.aspx?g=0551e374-9c92-4138-973f-69083615ea5b

New Zealand Copyright Act 1994, s16. Retrieved July 26, 2019, from: http://www.legislation.govt.nz/act/public/1994/0143/117.0/DLM345923.html

New Zealand Intellectual Property Office. “Copyright: Ownership and Protection”. Retrieved July 30, 2019, from: https://www.iponz.govt.nz/about-ip/copyright/ownership-and-protection/

Welk B. (2019, July 16). “Marvel Wins Copyright Infringement Lawsuit Over ‘Iron Man 3’ Movie Poster”. Retrieved July 25, 2019, from: https://www.imdb.com/news/ni62550147 and from: https://www.thewrap.com/marvel-wins-copyright-infringement-lawsuit-over-iron-man-3-movie-poster/