United States: Dual Protection for Tangible Proprietary Information

Article by Kevin Young and Christopher Verstrate

For many technology and emerging growth companies, the protection of proprietary information is vital to maintaining and increasing competitive advantage in the marketplace. This is true for any company whose proprietary information and intellectual property are important assets. Unfortunately, not all such companies recognize the importance of their secrets, and therefore, do not properly protect them. For example, how many companies keep unique customer information under lock and key? The answer is, surprisingly few, even in instances where the company may have spent years and significant resources developing such information.

Many companies neglect this simple maxim: basic protection begins with maintaining the secrecy of proprietary information. In general, this means exercising reasonable safeguards to protect the secrecy and confidentiality of information which is of value to the company's competitive advantage. If kept reasonably secret, such information may be deemed a trade secret, granting the company certain means of protection under the law and certain remedies for misappropriation.

A second layer of protection for any such information may exist when the information is fixed in a tangible medium. In such instances, a company may be able to seek the dual protection of copyright registration for information which is also a trade secret. This applies to works such as a confidential proposal, business plan or computer program. Under the dual protection scheme discussed herein, a company would place both a copyright notice and a trade secret notice on such tangible items.

The term "dual protection" is used to define this concept, but that term is somewhat misleading; the true advantage of using these protections is not so much to gain dual protection, but rather to maintain continuous uninterrupted protection. The "dual protection" is to rely on trade secret protection for so long as possible while preserving copyright protection in the event that trade secret status is compromised by disclosure.

Protection under trade secrets law is the first part of dual protection. The Uniform Trade Secrets Act, which many states have enacted, provides a definition for what constitutes a trade secret. This Act defines a trade secret as "any formula, patent, compilation, program, device, method, technique or process that derives independent economic value from not being generally known or readily ascertainable by other persons and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

At a minimum, this Legal Update should serve as a reminder that such information, compilations, programs, methods, techniques or processes which offer your company a competitive advantage must be reasonably safeguarded in order to maintain protection under trade secrets laws. But, as discussed above, one should also be aware of the additional or dual protection available for information placed in a tangible medium. This is important because fixing such information in a tangible form and/or disclosing it to certain outside parties greatly heightens the potential for misappropriation. Thus, to combat this heightened risk, you should consider whether your company's latest computer program or business plan might not only constitute a trade secret, but may also be appropriate for copyright protection.

The Copyright Office views the categories available for copyright protection broadly, such that items including computer programs may be registered under the category of literary works. In general, copyright protection is available to "original works of authorship" that are fixed in a tangible form of expression.

Dual protection for this type of information has not always been available and the reasoning for this involves a complex analysis of the preemption laws under the Copyright Act, a federal enactment, and state trade secrets law. The Copyright Act, in Section 301, states that it preempts state laws that afford rights equivalent to copyright. However, most courts over the past decade and a half have held that this does not preempt state trade secrets laws, and have allowed companies to protect and enforce their rights to secret, proprietary information by way of copyright and trade secret laws. For example, the Supreme Court of the State of Washington succinctly stated, "We do not believe that federal copyright law preempts state trade secrets claims."¹ The U.S. District Court for the Northern District of Illinois recently affirmed this position, finding that the Copyright Act does not preempt claims for trade secret misappropriation or claims for breach of contract.²

What these decisions mean to today's business is that trade secrets which are incorporated into a tangible medium of expression may receive "dual protection" under state trade secrets laws and the federal copyright laws. This further means that a company need not stay clear of copyright protection for such things as computer programs on the basis that seeking such protection would vitiate any trade secrets claim and compromise the security and secrecy of the information contained in the computer program. In fact, copyright protection may be sought without publication of a work, so long as the application states that it is for an unpublished work. Publication is no longer a key to obtaining federal copyright; however, if a published work is to be copyrighted, it is advantageous to file such an application within three months following publication, in order that you may have certain statutory damages and other advantages under the Copyright Act available to you if you ever file a suit for infringement. Publication under the Copyright Act means the distribution of copies of work to the public by sale, transfer, rental, lease or lending. However, be cautious when analyzing or considering filing a copyrighted application involving publication for trade secret matter, as publication raises obvious issues as to trade secret protection.

Thus, a company may secure federal copyright protection, allowing it to avail itself of the rights and remedies under the Federal Copyright Act, without relinquishing any claims as to the secrecy of that information, provided that secrecy is maintained as required pursuant to the applicable trade secrets laws. Federal copyright registration is an important tool because it allows the owner to pursue claims for infringement under the Copyright Act.

To be sure, there are limits to the causes of action and remedies available for information protected as copyrighted matter. For example, the recent decision of the Northern District of Illinois cited above, affirmed that the copyright of the software at issue in that case preempted, or precluded, claims for unfair competition and civil conspiracy. However, from the standpoint of preparedness, what is important for a company to realize is that proprietary information which constitutes a trade secret and is fixed in a tangible medium may be protectable by copyright law. Any such information which may be disclosed to outside parties may be marked with a copyright notice and a trade secret notice, so that the company may rely on trade secret protection for as long as possible while preserving copyright protection should the secrecy ever be compromised. Considering the importance of proprietary information, it remains worthwhile to consider every form of protection available for each piece of such proprietary information in order to protect your company's competitive advantage.