United States: INCUBATE THIS: Trade Secrets Lessons From HBO's Silicon Valley (May Contain Spoilers)

Last Updated: May 19 2014
Article by Valerie M. Goo

HBO's new series Silicon Valley satirizes the tech zeitgeist born and bred in the region that is the show's namesake by following a group of young software developers on their journey to build the next billion-dollar startup.  While it is too soon to predict whether Silicon Valley will become the next hot show that everyone can't stop talking about, Trade Secrets Watch cannot help but spot the trade secrets issues that have popped up so far.

The show's predictably awkward coder protagonist, Richard, creates a lossless compression algorithm while working on his music-matching app Pied Piper.  And, as the pilot episode reveals, it's this "game-changer" of an algorithm that becomes the startup idea at the center of the show.

It's clear, however, that naďve Richard is not very careful about keeping his intellectual property secret, as he stores the app on a publicly accessible website and ends up sharing it with some coworkers – the Silicon Valley version of Mean Girls:  "brogrammers."  By the end of the second episode, these brogrammers, at the behest of their employer/cult, Hooli, download the app and feverishly begin to reverse engineer the algorithm, with plans to beat Pied Piper to market with a business-facing version as close to the original as possible without being sued.  More problems begin to mount for poor Richard, as Hooli hires away his best friend, Bighead, to spite Richard for choosing to follow his Mark Zuckerberg dreams rather than sell Pied Piper to Hooli for $10 million (and, perhaps, to obtain some inside information about Pied Piper).

The show undoubtedly portrays Silicon Valley in a highly-fictionalized absurdist form.  And, to be sure, it isn't exactly accurate in its portrayal of how tech entrepreneurs behave in real life.  Nevertheless, there are some valuable lessons to be learned, especially from a trade secrets perspective.

Here's what Richard and his eccentric, but loveable cohorts should have done (if this weren't a TV show):

1)      Protect commercially sensitive material.  This is the most fundamental and in many respects the simplest step to take when it comes to trade secret protection.  Richard's first mistake was to store his crown jewels in a place that could be accessed by others.  He should have made reasonable efforts to preserve its secrecy, for example, by storing it on a standalone computer, and securing it with some type of password or encryption.  With respect to promoting his technology, it would have been more prudent to show it in a controlled environment (e.g., screenshots or a limited demo), rather than making the entire software available with no restrictions.

2)      Use a non-disclosure agreement (NDA).  Even though it's not always possible to have an NDA in place (depending on the audience), Richard should still carefully weigh his options and risks when disclosing his ideas.  An NDA imposes obligations on the recipient to refrain from disclosing confidential information to third parties and is a particularly important form of protection in the computer industry, where technology-based competitive advantages are often short-lived.  In this case, an NDA would offer some protection against the disclosure of sensitive trade secret information and provide legal recourse if the information is misused or disclosed to the wrong parties.

3)      Consider patenting the technology.   Judging by how revolutionary the compression algorithm appears to be, patenting aspects of the technology may be an effective way to protect the intellectual property.   Assuming that the patent is granted, Richard would essentially get a limited monopoly (right to exclude others from making, using, or selling the invention) in exchange for disclosing his idea to the public.  Although a patent is only enforceable for 20 years from its filing date (versus ongoing protection for trade secrets), the duration of intellectual property protection is probably not a critical factor given the relatively short shelf-life of software products in general.  In addition, because independent development is not a defense to patent infringement, Richard would still be able to assert his rights against Hooli despite its reverse engineering efforts.   (As we have reported previously, patents might or might not destroy all of his claims to trade secrets.)

4)      Consider copyrighting the technology.   Any original work, including software, is legally copyrighted as soon as it is recorded in a tangible form, but Richard should nevertheless consider official registration to establish a public record of the copyright claim and to utilize certain legal advantages in the event of an infringement suit.   If the "brogrammers" end up copying portions of Richard's code instead of writing their own, then Richard would be able to sue them for copyright infringement and compare the two sets of codes to determine unlawful copying.  Any comparison, however, would likely be subject during litigation to the Abstraction-Filtration-Comparison analysis methodology, set forth in the Second Circuit's Computer Associates International, Inc. v. Altai, Inc.   Under this analysis, a court would first break down the allegedly infringed program into its constituent structural parts and then sift out the non-protectable elements, such as ideas, public domain material, or material that is dictated by functional concerns.

5)      Use employment agreements.   Whether the hiring of Richard's best friend, "Bighead," by a competitor turns out to be a big headache for Richard remains to be seen.  Nevertheless, the reality of competitors hiring away employees is always a major concern.  A well-drafted employment agreement that includes enforceable post-employment restrictive covenants may offer some protection against the risk of trade secrets misappropriation and unfair competition.

Admittedly, what makes for entertaining television does not always jive with reality.  But some of the trade secrets problems posed by the show are very real.  Fortunately, with proper planning, it is possible to negotiate around these obstacles or even avoid them all together.  As for the show, it's probably better that they DON'T heed this advice, since half the fun comes from watching the resulting trainwreck.

Twitter: @TS_Watch

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