Sample Student Answer #1–IP Exam

QUESTION #1

WORD COUNT = 1790

With regards to identification and discussion of any IP related risks:

• There are serious risks involving trade-secret law.
  • Assuming we are operating under UTSA , the company that owns and operates this web-site could be culpable under civil law and criminal law.
  • Some of the memos that I read on-line contain information that is proprietary to other entities.  Some of these memos could contain trade-secrets (i.e. formula, patterns. programs, processes, etc).  The web-site does not appear to filter for these.
  • It is highly likely that the people that obtained these memos and transmitted them to the web-site were employees of the company in which they originated.   Or, they could be departing employees.  Either way, they are still likely bound to a confidentiality contract.
  • Today, it would be highly unusual if those employees were not under a confidentiality agreement contract with their employees. This creates a duty upon the employee to maintain secrecy.
  • The web-site company has obtained these by improper means by inducing a breach of a duty to maintain secrecy and, as such, obtained these memos under “Improper Means”
  • (Clearly not all memos on the web-site are trade-secrets, however, I am sure that there are many memos that do contain some sort of trade-secret data and meet the definition of a trade-secret, especially under the relaxed rules coming into play under the UTSA which covers any valuable information.  Also, many of the memos I saw and certainly have seen at my own place of employment that could potentially end up on this site contain data that falls under the definition of secret under Metallurgical Industries.)
  • The company operating the web-site is misappropriating the trade-secrets since they are acquiring the trade-secrets and they know they are obtaining them improperly,
  • Of course, the threshold requirements for defining a trade-secret under Metallurgical Industries and attempts to keep secret under Rockwell would have to be analyzed for each subject memo.
  • The remedies under such a misappropriation of trade-secrets are very serious and could range from injunction, damages incurred due to the misappropriation, and exemplary damages in the case of willful misapprpriation.  This web-site is clearly willfully misappropriating these secrets.   The remedies will change depending on what state one is operating within.  Criminal penalties could exist as well!
• The company could be culpable under the Economic Espionage Act of 1996.  (EEA).
  • They would be culpable under this provision as they have
    • Obtained trade-secrets by appropriated them without authorization;
    • Received the stolen trade-secrets; and
    • Duplicated them.
  • Note the EEA is broader than the UTSA and even legally acquired secrets can be misappropriated under the EEA.
• Some of the memos on this web-site may be original works of authorship and protectable under copyright law.
  • If the works distributed were works-for-hire created by the employees for their employers, the company operating the web-site would be liable for copyright infringement to the corporations such as E-Bay and MTV since the corporations were the copyright owners.  If not, then the web-site would be liable to the authors of the memos if others, besides the authors, transmitted the memos to the web-site without the author’s permission.  This, of course, assumes that the memos meet the threshold requirements of a minimum degree of creativity and independent creation. This may be questionable on some of them.
  • If these memos are subject to copyright protection by the authors or their employers, then there is certainly has been unauthorized reproduction and distribution of these memos on the part of the web-site operator and they would be liable for damages under the copyright statutes assuming the copyright owner did not grant permission to distribute the works.
  • Assuming a copyright exists and there was infringement, fair use may be a defense, but since this is clearly a commercial activity, it is exploitative, unpublished, and 100% of the memo content is displayed, I think that defense would fail.  Although arguments could be made such as this site is for educational use to educate the world on the workings of corporations and corporate corruption, which may be highly influential in supporting a fair use defense.
• The web-site operator may be liable under trademark theory under the theory of Initial Interest Confusion.  The theory would be that the use of names such as E-Bay and MTV in these memos may draw people to this site causing initial interest confusion.
• This web-site operator could be liable under the common law doctrine of contributory copyright infringement since the web-site owner could be viewed as an aider-and-abettor as the web-site owner has knowledge of the infringing activity and induces people (employees) to infringe the copyrights of various written works.  (i.e., the works owned by employers.) The requirements of contributory copyright infringement are met assuming the works are subject to copyright protection and it was not the copyright owners that transmitted the works to the web-site.  The direct infringer would be the individuals that transmitted copyrighted memos to the web-site without the copyright owners permission and the web-site owner is then liable under contributory infringement for the reasons cited.
• This web-site operator could be liable under the doctrine of vicarious copyright infringement.  Similar to the facts in Fonovisa v. Cherry Auction, the web-site owner in the instant case is both in control of the premises (web-site), it promotes the premises (web-site), and control of access to the premises by requiring certain fees to be paid.   The infringing works draw potential customers to this venue (web-site).  The web-site owner also financially benefits from the reproduction and dissemination of these copyrighted works owned, presumably by the employers of employees who transmitted these works to the web-site.  The requirements of vicarious copyright infringement are then met assuming the works are subject to copyright protection and it was not the copyright owners that transmitted the works to the web-site. The direct infringer would be the individuals that transmitted copyrighted memos to the web-site without the copyright owners permission and the web-site owner is liable under vicarious infringement.

With regards to identification and discussion of the protectability of any IP:

• The expression embodied in the web-site pages could be protected by copyright.
  • This is so because it meets the requirements of 102(a) as the site and its web-page designs may be viewed as an original work of authorship which has been fixed in a tangible medium of expression.
  • The tangible medium of expression could be the diskette, hard-drive, or RAM of the target computers in which the web-pages are stored and presented.
  • The web-site also meets the requirements of 102(b) as the site is an expression and probably not the idea.  Although one could argue that the merger doctrine would apply here as there are probably only a few ways of displaying corporate memos on a computer screen.  However, the other elements of the web-page like the layout choices may be protectable original work of authorship.
• This web-site could be copyright protectable as a compilation.
  • This is differentiated from Feist in that the facts compiled in this web-site and they way they are organized possesses the requisate requirements for originality.
• Any trade-secret with regards to how the web-site filters and disseminates these memos may be protectable.
  • We would need more information to determine this.
• The ornamental design of the web-site could be protected by a design patent.
  • This would assume that the software would be viewed as an article of manufacture and that the design of the web-site met the threshold requirements of novelty, originality, and nonobviousness.  This may be a very difficult hurdle to overcome.
• The underlying source code (software) for operating the web-site may be protected by copyright.
  • The software is protectable under 102(a) as, we would presume, that it incorporates authorship in the programmer’s expression of original ideas.
• The underlying source code could be protected by a utility patent.
  • This would assume the source code had ideas that were new, useful, and non-obvious.  However, this is a very difficult threshold to meet.  We would need more information here.
• The trade-name (brand) of the web-site could be protected by a trademark.  (i.e. INTERNALMEMOS).
  • The trademark in this case is acting as a source-identifier and represents a level of quality in terms of service, content, etc., and certainly would qualify for trademark protection.
• The domain name could be protected under trademark protection.
  • This would be enforced through the Anticybersquatting Consumer Protection Act and Uniform Dispute Resolution Procedure through ICANN.
  • A valid trademark would be required, but that is attainable as long as no other organizations preempted them under state or federal law.
• I considered if the content of the web-site (i.e. the memos) could be protected under copyright law.  I conclude it could not as these are not original work of authorship.
• The trade-dress of the web-site could be protected.
  • The evaluation of this would fall under either the Taco Cabana or Wal-Mart tests.
  • Most likely, it would fall under Taco Cabana and trade-dress, as defined in that case, covering the total image of the business (i.e. product-packaging).  In essence, the web-site could be viewed as being analogous to the store-front in Two Pesos.  As such, proof of secondary meaning would not be required (which this web-site probably did not attain) to prevail under a claim under § 43(a) of the Lanham act, as long as the web-site design would be viewed as inherently distinctive.
  • This is differentiated from Walmart, which covers product-design vs product-packaging trade-dress.  Per the Walmart court, product-design can never be inherently distinctive and can only be protectable when it gains secondary meaning which this web-site, in all likelihood, never did.
  • Therefore, if the web-site never obtained secondary meaning, trade-dress protection would only be obtainable for the web-site if the site would be viewed as product packaging and not product-design which I think one could successfully argue.

I would not take any chance on investing in this company.  First, although the company may be capable of protecting some of its IP, the amount of protection that it is entitled is limited and certainly does not give it any substantial competitive advantage over its potential competitors.  The only exception is possibly its brand name (trademark) and correlating domain name.  Second, due to the nature of the business there is both civil and criminal liability created with the services offered by this web-site.  I would want nothing to do with it.  Third, I think it is immoral and counter to good ethics to endorse this type of web-site.  As such, I could never support it financially or otherwise.

QUESTION #2

WORD COUNT = 772

Epitime has two choices in this matter.  They can either try to protect their proprietary system through the use of trade-secret law or they could try to protect their system through the use of the patent system.   I would recommend that Epitime uses trade-secret law to protect their system.  I do not recommend that they file a patent.  My reasoning is as follows:

The pros of Trade Secret protection (not filing a patent) are:

• Trade secret law can last indefinitely as opposed to patents which last generally 20 years from the date of filing.
• Trade secrets are very easy to obtain, although they require some diligence to maintain.  Note the Rockwell case.
• Formulas are ideal to protect by trade secrets.  Formulas may be more difficult to obtain patent protection.  Formula’s or mathematical algorithms are not patentable subject matter to the extent that they are merely abstract ideas.  Diehr.  The formula or mathematical algorithm must be reduced to a practical application.  That could occur in this case, but there would probably be a long prosecution in the patent office to succeed in obtaining claims to that formula.  It could be done, however.  The risk is that if the patent attorney is not successful, then this magic formula would be disclosed to the public after the 18 month publication date.
• Filing a patent will extinguish any trade-secret rights in the system.
• Although a patent is a very powerful legal tool that limits others from using, manufacturing, and selling the claimed invention, they are expensive to obtain and one runs the risk of disclosing the heart of the invention and not being able to obtain adequate and broad claim coverage for the invention.
• Disclosure of the invention to the public in consideration for patent protection makes it likely that one of Epitime’s competitors will make an improvement to that invention.  Although one of the primary objectives of patent law is to promote the progress of science and invention, if one of Epitime’s competitors obtain patent protection for improvements on their invention, that new patent may serve as a blocking patent to Epitime’s patent which would substantially diminish its value.
• Patents, such as software patents, can be very difficult to enforce.  First of all, it may be difficult to tell if one of their competitors is actually infringing the patent.  If a competitor has embedded the formula in its software or business method, it would be difficult to detect infringement.
• Patent infringement is expensive and very time consuming, although, trade-secret infringement litigation is also expensive as well.  Litigation is seldom a preferred choice.

The pros of Patent Protection (and not using Trade-Secret protection) are:

• Patent protection is a powerful monopoly that could exclude their competitors from using this formula.  This assumes claims could be granted covering the use of the formula which is always questionable.
• Patents may be less expensive to enforce.  They are certainly more predictable to enforce than trade-secrets.  Trade-secret litigation usually dissolves into a finger pointing exercise.  Patents on the other hand have a formal process to determine infringement using Markan hearings to construe the claims and concluding in a jury trial in most cases.
• Patents due encourage continued innovation and building on other’s inventions.  This is certainly good for society but may be bad for Epitime as stated above.  Although, if blocking patents were created, perhaps both Epitime and its competitor would both benefit from cross-licensing.
• Patents are much easier to sustain than trade-secrets.  No maintenance of secrecy is required for patents after they are filed.  Maintenance fees must be paid which can get quite expensive, especially during the final years of the life of the patent.  However, if the patent still has economic worth, then the fee is well worth it.
• Patents can easily be licensed to other entities.
• Patents protect against independent invention as opposed to trade-secrets.  So if a competitor independently invented the same formula, they would be prohibited from using that formula. (With the exceptions in the American Inventor Protection Act w/r/t business method patents in use before the filing of the patent application)  This would not be the case for trade-secrets.

Even though patents certainly have many advantages, I would feel much more comfortable recommending to my client that they put in place trade-secret protection “secrecy” procedures in their company and treat the formula like Coke’s secret formula.  Although patent protection is theoretically possible, the risk in disclosure may not be worth it since there is a chance the patent would not be granted and the formula would be disclosed with no protection.

QUESTION #3

WORD COUNT = 587

I would recommend to my client that they do not hire Suzie, unless Pine Noodles was in the State of California.  As Suzie is under a restrictive contract, she will be limited in what she can do for her new employer and there may be multiple causes of action against her.

First, her restrictive covenant not to engage in conflicting employment may be enforceable if it is reasonable from the standpoint of the employer, the employee, and public policy.  Having Suzie work for one of Doubleshaft’s customers may be viewed as conflicting employment as it could lead to Doubleshaft not only losing Pine Noodles as a customer but also potential advertisers as clients/associates of Doubleshaft that place advertisements in Pine Noodles.  This would probably be viewed as reasonable justification for enforcing such an agreement in most jurisdictions.  This could be one potential cause of action (“COA”) against Suzie which could result in some injunctive relief thereby terminating Suzie’s relationship with Pine Noodles.

Second, the clause with regards to Solicitation of Customers could also be a potential COA against Suzie as she would likely be soliciting some of Doubleshaft’s advertisers to procure placement in Pine Noodle’s publication.  The advertisers could certainly be viewed as customers of Doubleshaft.  As such, she would be in breach of this contractual term.  This could be another potential cause of action (“COA”) against Suzie which could result in some injunctive relief thereby terminating Suzie’s relationship with Pine Noodles.

One issue to analyze here is the extent of trade-secret information that Suzie may be privileged to.  If that exists, she may be limited due to her confidentiality agreement on what she can utilize for her new employer.  In the case of Wexler, the scientist was allowed to utilize his “aptitude, his skill, his dexterity…and other subjective knowledge” while obtained in the course of his employment.  That remained his property because he was not under a restrictive covenant with his employer. However, in the instant case, Suzie did enter into a restrictive covenant, which restricts her disclosure of such trade-secret & confidential information, such as customer (advertiser) lists.  This may limit the effectiveness of her employment if that information would be critical to her success.

Under the Inevitable Disclosure Doctrine, Doubleshaft could get an injunction against Suzie working for Pine Noodes (if they are viewed as a competitor) when her new job duties will inevitably require the disclosure of Doubleshaft’s trade-secrets.  One of these trade-secrets could potentially be customer / advertiser lists.

Under California law, I would recommend hiring Suzie.  It is the public policy of the State of California to encourage employee mobility.  As such, non-compete agreements are void in California. This agreement Suzie was asked to sign had non-compete elements and, as such, are generally void in California.  So if Suzie lived in Wisconsin and her new employer resided in California, she would be under little risk from a injunctive ruling from a California court.  If there was a ruling against her in another state that did enforce non-compete agreements, the California courts would still not honor the request of an out of state court for injunctive or other relief against Suzie or Pine Noodles in California.

In summary, unless in California, I do not recommend hiring Suzie as she her employment may be terminated by the courts and, even if it is not terminated by the courts, her effectiveness may be limited due to her limitations on disclosure of trade-secret information that would be critical to her success in her new position.