Copyright law made for artistic creation has been adapted to computer software to protect scientific technology used to control computer hardware.  Copyright law does not protect ideas, procedures, processes, systems, facts, algorithms or methods of operation.  The unique order and sequence of words that the author uses to express the ideas may be protected by copyright, including a programmer’s expression of ideas in a program.  

Software may be protected when a program creates a unique sequence of instructions.  Previous routines and subroutines may be placed together in a unique sequence, similar to a compilation of old stories.  Even though the components themselves may not be protected, the sequence may be copyrighted.  If only one particular sequence of instructions is possible to program a computer, then that sequence cannot be protected by copyright because no other persons would be able to utilize the underlying idea.

There are critical differences between copyright and trade secret law.  Trade secret law allows the owner to enforce rights against persons having a duty of confidentiality.  Copyright applies only when work is finalized.  If work is made public, the owner loses trade secret protection.  Trade secrets are difficult to protect.  However, international treaties protect copyrights.  Since mass market software is not secret by definition, trade secret protection is not available.

Trade Secret Law         
Trade secret law protects the same particulars that copyright protects as well as items that copyright cannot protect.  Trade secret law is based in many American states upon the Uniform Trade Secrecy Act.  Reasonable precautions must be taken to maintain secrecy.  Precautions must be “reasonable under the circumstances.”  Requirements vary on a case by case basis, depending upon the size of the company, the nature and value of the information and other factors.

Various measures must be taken in order to ensure protection of trade secrets.  All documents and disks should be secured when they are not in use.  Physical access should be restricted.  Computer security measures, including passwords, should be implemented.  Exit interviews must be taken with employees leaving their employment, at which time their confidentiality obligations should be described.  Audit trails and transaction logs should be conducted.  These should state the identity of any person who has seen the secret, the date and the purpose.  Persons with access to the trade secret must sign a confidentiality agreement.  All materials should be marked:  “THIS INFORMATION IS CONSIDERED A TRADE SECRET.”  I
n the software industry, trade secret law is used to:

* protect ideas which give a business a headstart over competitors;

* prevent competitors from learning that a new program is under development and learning its functions;
* protect source code, development tools, design specifications, flowcharts, formulae, and algorithms in the software;  and
* protect valuable information such as marketing plans, price information and customer lists.

Trade secret law applies several areas of law:
1.  Property law is used to protect intangible personal property.  Trade secrets can be sold, assigned and licensed.
2.  Contract law is used to protect the owner against disclosure by a person who agreed to hold the information in confidence.  Violation of the confidentiality covenants constitutes a breach of contract.  Contracts may be written, oral or implied by the circumstances.
3.  Tort law applies when a person wrongfully takes a trade secret from the owner and the tortfeasor converts it to his own use and benefit.  Also, fraud in obtaining knowledge of the trade secret and breach of fiduciary duty may be involved.
4. Certain states have applied criminal law to unlawful use of a trade secret.

Trade secret law prevents employees and others who have a confidential relationship with the owner from revealing trade secrets to third party competitors without the owner’s permission.  Unlawful disclosure may permit the owner to file claims against the disclosing person as well as against the competitor for injunctive relief and damages.

Trade secret law requires determination of the nature and scope of the secret itself.  Violation of a trade secret may occur through a breach of contract, a tort or a violation of a duty.  The owner must decide upon the appropriate remedy to seek to redress the damage.

Copyright protection may be used in conjunction with trade secret protection.  Certain valuable innovations and information cannot be patented, including most aspects of computer programs.  Patent protection is rare for software because inventions must be novel and non-obvious at the time of the creation.  Most software programs fail to meet the non-obviousness test under 35 U.S.C.  Sections 102 and 103.  It is difficult to establish that an invention is surprising or unexpected to an experienced software expert.

Technology Ventures & Alliances
Technology businesses have been successfully forming ventures and collaborations or strategic alliances by making minority investments in smaller companies, rather than mergers or acquisitions.  Businesses form joint ventures for various reasons, including improvement of market or strategic position, reduction of risks and leveraging of limited financial and human resources.  In many cases, synergies are created by combining strengths of diverse businesses.

Technology may be transferred between companies to maintain a competitive position in separate markets.  Technology obtained from a smaller company can permit a larger company to accelerate its technological advances.  A company with strong engineering skills may combine with another having strong marketing capacity for their mutual benefit.  International alliances have become popular.

A “joint venture” is a cooperative business activity, formed by two or more businesses which creates an independent business entity and allocates ownership, operational duties and financial risks and rewards to each member, while each company retains its separate identity.  A “strategic alliance” is created when one corporation signs an agreement with another for the transfer of technology, research and development services and marketing rights or provides equity for a minority position, but a separate business entity is not created.

Traditionally, software developers and publishers license their programs, rather than sell copies.  The licensee obtains limited rights to use the software.  A written agreement restricts the scope of the license granted to the software licensee.  Licenses permit the software owners to safeguard their market, maximize financial return and protect their intellectual property rights.  Licenses are either negotiated with and signed by end users or arranged through the pre-printed shrink-wrap licenses used in mass-market software.

Negotiated license agreements customarily include provisions removing many rights which a purchaser may obtain.  The agreement may restrict the use of the software to a particular computer or computers at a specified location.  Certain agreements restrict usage to a specified number of concurrent users or to a particular application by the licensee.  There may be prohibitions against usage by third parties and against transfer or sub-licensing.  Other prohibitions may prevent copying of the software, network usage and modification of the software.  Normally, reverse engineering and decompiling of the software are not allowed. 

End user licenses are usually non-exclusive licenses.  The licensor retains all copyright rights and is entitled to enter into other non-exclusive licenses with other customers.  There are various types of end user licenses.  Examples include licenses for single users, site licenses, enterprise licenses and multi-user licenses.

Recent court cases have indicated that a licensee must be careful to specify in the agreement any rights which it may need.  For example, certain courts have held that licensees may not make back-ups and adaptations, unless the agreement specifically authorizes such rights.  If third party software maintenance is desired, this right must be specified in the license.

Many licenses include non-disclosure provisions.  Non-disclosure agreements work for programs which are used in a specialized market in negotiated license agreements. 

Shrink-wrap licenses must be used for mass-market software since developers and publishers are unable to pre-arrange written agreements with customers through retail outlets.  These licenses attempt to remove most rights of the software purchaser.  However, there are several legal problems with such licenses, including the argument that these amount to adhesion contracts since the consumer has no opportunity to bargain with the publisher.  In addition, the consumer does not knowingly agree upon the material terms of the agreement since many users do not read the licenses.  Such licenses may violate consumer protection legislation. 

Technology Collaborations
The organization must provide management and supervision of the venture.  There should be well-defined lines of authority and agreed upon communication methods and decision-making.  Alliances with more than two members may become difficult to manage.  Initially, it is essential to decide upon either an informal or formal structure.

Informal Organization
Informal means a case in which a separate organization will not be created.  A steering committee or group of people from within each company must be assigned to coordinate efforts of the collaboration.

Formal or Separate Organization
This option applies to those joint ventures (partnerships and corporations) that establish a separate organization owned and operated by the sponsors.  Here, the new organization is staffed independently from the collaborating companies.  A board of directors or steering committee is appointed by each party to coordinate activities.

A separate organizational structure is preferable when conditions require integrated management, long-term commitment, and high amount of uncertainty.  The separate structure is also used for ventures expecting to tackle multiple projects or having long-term objectives, requiring close coordination during the term of the venture.

Choosing a legal structure for a new venture should be based upon the specific circumstances of the transaction.  The following are general criteria to make the decision:
      1. Simplicity.  Use the simplest structure capable of meeting the needs.
      2. Number of Partners.  If the number of partners is three or less, and the alliance will probably not last for more than three to five years, a partnership or written contract may be sufficient.  As the lifespan of the venture increases and the number of partners increase, the corporate form may become more desirable.
      3. Expected Life.  Alliances intended to last only a few years may use the written contract or partnership form, whereas longer-term ventures may prefer a corporation.
      4. Tax Considerations.  If significant tax shelter is desirable, particularly for technology development where large losses or R&D investment tax credits are anticipated, the corporate accountant should be consulted for specific advice regarding the ways to maximize use of the tax shelter.  The structure which maximizes tax shelter may not promote management effectiveness.
      5. Ease of Management.  Alliances which do not necessitate detailed planning, decision making, and operations over the long haul may use a written contract or partnership form.  However, if a close cooperation and strong integration is essential, a corporation may be desirable because it requires more detailed management procedures.
      6. Capital Investment.  If significant capital investment is required, the partnership form may have beneficial tax impact than a corporation.  However, a corporation may make it easier to raise larger amounts of capital from the sale of stock.
      7. Management and Coordination.  These are the questions which will ultimately determine the effectiveness of the alliance.  Close attention and monitoring is required throughout the term of the alliance.  Management procedures should be clearly agreed upon before legal agreements are signed.

Technology Choices
Careful choices must be made in determining whether to file a patent application or depend upon trade secret law.  A patent application must disclose important information required to operate the invention.   Trade secret law and copyright law may be used successfully together to obtain broad legal protection for most programs.  Trade secret law is essential during the development phase of a software program.  When a program is distributed, it loses its trade secret status, unless specific steps are taken to preserve its secrecy.  For example, this may involve distributing the program in object code form only and having each recipient sign a license restricting disclosure of the secrets it contains.

In technology joint ventures, proprietary information may be handled by licensing the technology at the market rate to the joint venture.  Licensing permits a value to be placed upon the information as part of the equity contribution.  The owner of the proprietary information may seek royalties, which become a preferred dividend from the venture.

Copyright Office Registration
Registration is a desirable step in obtaining copyright protection.  A completed Form TX must be completed and filed with the Register of Copyrights.  The requirements differ from other writings. Identifying portions of the software program in a form readable by a person without a machine must be submitted.  Generally, a printed copy of the first 25 and last 25 pages of source code and all of the code if it is less than 50 pages should be submitted.

Trade secret materials may be blocked out to avoid disclosure of the secrets, provided the blocked out portion is less than the remaining portion.  Alternatively, the first and last 10 pages with nothing blocked out can be filed.  It is possible to register the source code, provided other requirements are fulfilled.  Reproductions of the computer screens may be filed with the identifying portion.

There is legislation covering protection for chips and masks which has attributes of copyright, patents and trade secret law.  A qualifying owner of a mask work fixed in a semiconductor chip product may obtain an exclusive right to reproduce or license reproduction for a period of 10 years.  Registration must occur within 2 years of initial commercial usage.  Reverse engineering is permitted in order to encourage new and improved designs.

Computer programs and manuals can be readily copied.  Copyright registration is one method used to protect computer programs.  Software may also be protected under patent and trademark law.  Copying of software may be prevented by copyright.  Patent law prevents the illegal production, use or sale.  Trademarks prevent confusingly similar names.

Copyright Infringement
Infringement involves the unauthorized copying of a protectable part of a copyrighted work.  The owner or licensee of a copy of a computer program is authorized to make a copy of it, either in order to use the program or back it up to protect against accidental destruction.

A common test for determining protectable software is the abstraction-successive filtering-comparison method.  This involves a process of elimination.  Abstract ideas cannot be protected and therefore must be first removed.  Next, any essential manners of expression are removed.  The third step involves removal of any instructions written because of industry standards or hardware requirements.  Lastly, any instructions obtained from public domain software are eliminated.

The remaining instructions are protectable.  In an infringement action, the court then compares the remaining protectable code from the copyrighted software to the portion that was copied.  Infringement will be found if any significant, non-trivial code was copied.

Patent Law
Instructional steps in a program arranged in a sequence using combinations of words, letters, numbers and symbols are protectable by copyright, not patent law.

Patent law is limited to unique combinations of data manipulation used to solve mathematical problems.  This combination of sequences are referred to as an algorithm. As a practical matter, a company, which is faced with patent infringement, usually licenses the invention, rather than face the risks, uncertainties and expense of litigation.  Alternatively, a defendant infringer may decide to defend and seek to have the patent reversed in court.  A software algorithm must be intimately associated with a physical operation or structure in order to be patented.  However, software controlling conventional computer equipment cannot be patented.  If an algorithm is combined with new mathematical manipulation steps to control a physical device, patent protection may be possible.  However, software patents are rare because the combination of an algorithm intimately associated with a physical structure or machine is unusual.  Courts apply policy considerations against preventing others from using mathematical principles which may hinder other new inventions.

A patent or copyright may be infringed even if a trade secret was not violated.  When a patent is issued, any trade secret information disclosed in the patent is destroyed. Traditionally, patent law was used to protect the applications of science, such as machines and their operation.  Copyright applied to the writings of an author, typically creations of an artistic nature.  Computer software programs are scientific, not artistic since their purpose are to control computer hardware.  During the past few decades, American courts have decided several cases regarding patent and copyright protection and Congress has revised the statutory laws in these areas.

Presently, computer software can be protected by copyright law, but computer hardware cannot take advantage of these laws.  Software includes both source and object code.  New arrangement of words in a computer may be protected. Protectable software includes programs for controlling both the computer as well as databases which are compilations of computer readable data used by the hardware under the control of the program.

Trademark Law
Under federal and state law, a manufacturer, merchant or group associated with a product or service can obtain protection for a word, phrase, logo or other symbol used to distinguish that product or service from others.

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