The High-touch Legal Services® Blog…for Startups!

© 2009-2017 Dana H. Shultz, Attorney at Law

Trade Secrets Receive Federal Protection

Photo of volumes of the United States Code, symbolizing DTSA protection of trade secretsThis post discusses the civil and criminal protections for trade secrets available since May 12, 2016 under the federal Defend Trade Secrets Act (DTSA).

Relevant definitions in the DTSA roughly follow – with numerous modest differences – those in the Uniform Trade Secrets Act , which has been adopted, with various modifications, by almost all states. (more…)

DTSA (Defend Trade Secrets Act) Requires Notice to Employees

Photo of Obama signing a bill, symbolizing enactment of DTSAUntil recently, trade secrets were solely a matter of state law.  However, on May 11, 2016, President Obama signed the DTSA, the Defend Trade Secrets Act of 2016.

Because of the DTSA, trade secret misappropriation suits with an interstate component now can be filed in federal court. For more information about civil and criminal enforcement, please see Trade Secrets Receive Federal Protection. (more…)

Non-compete Enforced to Protect Trade Secrets

Cover page from Richmond Technologies v. Aumtech court decisionCalifornia is well-known for enforcing non-compete provisions only under narrowly-defined circumstances. A recent case in the United States District Court for the Northern District of California (Richmond Technologies v. Aumtech Business Solutions) illustrates that protection of trade secrets can be one of those circumstances.

Jennifer Polito, a former employee of plaintiff Richmond Technologies (which does business as ePayware), started working for defendant Aumtech. ePayware brought suit, alleging that Ms. Polito misappropriated ePayware’s source code, license keys and customer list to help Aumtech compete against ePayware.

Previously, ePayware and Aumtech had entered into a Confidentiality and Non-Disclosure Agreement that contained a provision by which Aumtech agreed not to compete with ePayware “with similar product and or Service using its technology” for a period of one year.

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Why Your Lawyer Need Not Sign an NDA

Cover page from California Business and Professions Code

Once in a while, when I send an engagement letter, the prospective client wants to add confidentiality provisions to protect its trade secrets. The following is the explanation that I provide as to why such provisions – let alone a separate nondisclosure agreement (NDA) – are not required in an attorney’s engagement letter.

California Business and Professions Code Section 6068 specifies the fundamental obligations of an attorney. Subsection (e)(1) states that each attorney must “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.” (Emphasis added.) Attorneys in other states have similar obligations.

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NDA Nets Plaintiff $50 Million

Dur-a-Flex Logo

Dur-a-Flex v. Laticrete International illustrates the value of a well-drafted nondisclosure agreement (NDA) – not to mention one that includes an attorneys’ fee provision.

Dur-a-Flex developed a trade-secret process for producing colored sand. Laticrete was a long-time Dur-a-Flex customer and the only customer for this product.

When Laticrete’s orders dropped significantly, Dur-a-Flex suspected that Laticrete was using the Dur-a-Flex process in violation of the NDA that Laticrete had signed.

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Protecting Software: Keeping Trade Secrets while Registering Copyrights

Many software companies rely on a combination of copyright and trade secret protection for their products. There is a potential problem, however: The requirement to submit source code with a copyright registration is somewhat at odds with the confidentiality requirements of a trade secret.

Fortunately, the U.S Copyright Office offers some flexibility in its deposit requirements for software containing trade secrets. The applicant may deposit any of the following: (more…)

Don’t Steal Your Former Employer’s Customers (Unless You’re Confident…)

Photo of a man with a finger blicking his lips, symbolizing that an employer's customers may be a trade secretMany people know that, when one leaves a job in California, the former employer typically cannot stop the former employee from working for a competitor. However, some people mistakenly believe that the right to compete includes the right to steal the former employer’s customers!

According to Civil Code Section 3426.1(d), a trade secret is “information…that [d]erives independent economic value…from not being generally known to the public…and [i]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” For many employers, a customer list is an important trade secret.

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Trade Secret Protection of Software has Limits

Developers of proprietary software typically rely copyright and trade secret protection of their works. A recent California case (Silvaco Data Systems v. Intel Corporation) illustrates how far trade secret protection does, and does not, go.

Silvaco develops and markets electronic circuit design software. Silvaco won a suit against Circuit Semantics, Inc., claiming that CSI, with the help of two former Silvaco employees, misappropriated Silvaco trade secrets, in the form of source code, by incorporating them into CSI’s software. Silvaco obtained an injunction against continued use of the technology incorporating its trade secrets.

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You Can Have a Successful Business Even if You Don’t Have a Patent

I recently met a software developer who wants to start a business. He immediately started talking to me about obtaining a patent. Condensed a bit, our conversation went roughly as follows:

  • Dana: Without giving away information that would jeopardize your ability to obtain a patent, what would the software do?
  • Developer: It is enterprise customer relationship management (CRM) software.
  • Dana: What is novel and non-obvious about it?
  • Developer: It will be based on a unique algorithm.
  • Dana: You cannot patent an algorithm.
  • Developer: I can get a patent on software that implements an algorithm.
  • Dana: Perhaps. But there are other means, such as trade secrets, that might adequately protect the software [cut off in mid-sentence]….
  • Developer: VCs want to invest in companies that have patents.

Leaving aside the singular focus on VC funding – something that few entrepreneurs obtain (see Realistic Financing Options for Startup Companies) – the would-be entrepreneur was similarly myopic in focusing on a patent as the only type of intellectual property that matters.

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Top Ten IP Mistakes of Small to Mid-Size Tech Companies

On June 18, I will make a presentation to the East Bay MashEx. The title: “The Top Ten Intellectual Property Mistakes of Small to Mid-Size Technology Companies”. (The handout is available as a Free Download on the Downloads page.)

Here are the mistakes that I will talk about:

  1. Failing to use employee invention agreements
  2. Assuming that the company owns contractors’ work product
  3. Using another company’s license agreement
  4. Thinking that patents are the only IP that matters
  5. Filing for a provisional patent before the scope of the invention is clear
  6. Treating the federal government like non-government infringers
  7. Neglecting to identify and protect trade secrets
  8. Believing that “open source” means “no restrictions”
  9. Giving the “family jewels” to an overseas supplier
  10. Registering the wrong entity as the owner of IP

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.