A lot of companies bring on independent contractors to develop content. They may be photographers, designers, writers, consultants, etc. who sign independent contractor agreements. Here are three common mistakes that you should not make if you are hiring an independent contractor.
Intellectual property ownership mistakes in independent contractor agreements
The first common mistake is to leave out language that ensures you as the hiring party own the intellectual property in the deliverables. Did you know that unless the contract specifically says otherwise, the independent contractor will retain ownership of the copyright in the deliverables? Many companies have been surprised to learn, after spending a lot of money on an independent contractor, that they do not own the rights in the content they thought they had paid for.
The agreement should have a work made for hire provision. And since the definition of work made for hire is specific, some things that the contractor may do will not qualify as work made for hire. So the agreement should also say that to the extent the deliverables are not work made for hire, the independent contractor assigns the intellectual property to the party that hired it.
Confidential information mistakes
The second common mistake that you should avoid in engaging with an independent contractor is being vague or loose when it comes to confidentiality. The independent contractor could learn a lot about your business – its vendors, its customers, its plans, and how the company operates. The confidentiality provision should adequately restrict how the independent contractor discloses that information or uses it outside of the engagement with the company. If not, that information may lose its trade secret protection. Or the contractor could take the information it learns about your company and use it while working for one of your competitors.
A third common mistake that you should avoid in independent contractor agreements is being silent on defense and indemnification. If a third party sues you over something that the independent contractor has done, you would likely want to look to the independent contractor to pick up the costs of defense and pay the amount of any judgment that results. Say, for example, the independent contractor copies a photograph from somewhere else and then provides that to you as his or her original work. If the true owner of the copyright in that work sues you for using the photo, it is only fair that you can turn to the contractor for relief. The agreement should say that.
Copyrights and patents and trademarks usually come to mind when thinking about intellectual property. But trade secrets are a critically important and very useful form of intellectual property and are often overlooked. Here are three ways that trade secrets can be more powerful than copyright.
1 – Trade secrets protect ideas and facts (while copyright does not).
Something qualifies as a trade secret if it (1) has economic value because it is secret, and (2) has been the subject of efforts to keep it secret. So a trade secret can be an intangible idea – like the knowledge of how to do something. Or it can be a set of facts, like a list of customers. Copyright wouldn’t protect either of these things – ideas or facts – because copyright covers creative expression. You can’t look to copyright to stop others from using ideas you have or lists of facts you compile. But trade secrets, on the other hand, might cover you.
2 – You don’t have to register trade secrets.
Let me try to clarify one thing really quickly – you don’t have to register copyrights either to own them. But you do have to register that copyright if you need to sue anyone for infringement. With trade secrets, there’s not even any such thing as registration. You have trade secrets from possessing valuable information that you have actually kept secret. That’s it.
3 – Trade secrets can last forever.
Copyright lasts a long time, but trade secrets can last even longer. When an employee of a company creates a copyrighted work, the rights last for 95 years. But there is no expiration date for trade secrets. For as long as a company keeps its valuable trade secret information secret, it’s protected by trade secrets law.
There are other ways trade secrets are more powerful than copyright. Can you think of any? Leave a comment here or take to Twitter (I’m @internetcases there).
Plaintiff sued its competitor in the mobile payment space for, among other things, trade secret misappropriation. Plaintiff claimed that defendant created its products using source code copied from plaintiff by two of plaintiff’s former employees who now work for defendant.
Defendant moved for summary judgment, arguing that plaintiff did not own the source code (and the trade secrets in it), because an independent contractor created the source code.
The court denied the motion for summary judgment. Plaintiff had provided evidence that the source code was written by a number of parties (including its own employees) and not just the independent contractor that defendant claimed owned the source code. The court held that plaintiff had presented evidence to raise genuine issues for trial as to who wrote what code.
Citcon, USA, LLC v. RiverPay Inc., 2019 WL 2327885 (N.D. Cal., May 31, 2019)
Plaintiff – a small online marketing company – sued a large, publicly-traded competitor for copyright infringement, misappropriation of trade secrets, deceptive and unfair practices, and breach of contract. The parties had previously signed a nondisclosure agreement and an agreement whereby plaintiff would provide defendant with access to plaintiff’s technology used to monitor the scope of companies’ online presence and the accuracy of information appearing in search engines. The parties had also engaged in discussions about defendant acquiring plaintiff. But after the negotiations broke off, plaintiff discovered that it appeared defendant had appropriated plaintiff’s technology (including copyright-protected materials) into defendant’s own product offerings.
The lower court entered a preliminary injunction against defendant, barring it from offering the allegedly infringing and misappropriating technology. Defendant sought review of the entry of preliminary injunction with the U.S. Court of Appeals for the Eleventh Circuit. The appellate court affirmed the order.
The appellate court rejected defendant’s argument that the lower court had not described specifically enough those trade secrets of plaintiff that defendant had allegedly misappropriated. It also rejected defendant’s arguments that plaintiff’s delay in bringing suit undermined its argument of irreparable harm, that plaintiff failed to show that it was likely to succeed on the merits of its underlying claims, and that the district court erred in weighing the balance of harm and in considering the impact on the public interest.
Advice Interactive Group, LLC v. Web.com Group, Inc., 2018 WL 2246603 (11th Cir., May 16, 2018)
About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.
IBM doesn’t let its employees use Siri, out of concern Apple may store and use sensitive IBM data. This decision on IBM’s part underscores an important business concern that companies of all sizes — not just behemoths like IBM — either have or should have.
Apple’s data usage policy that governs how it treats Siri inquiries says that Apple can use the information it collects to, among other things, improve the service. That’s a pretty broad grant of authority. Because the system that makes Siri available is so complex and multifaceted, Apple could reasonably justify extracting and using the information contained in just about any question people ask Siri. When that information comes from another major player in the competitive space, the implications of the appropriation of proprietary information become obvious.
IBM’s big concern is likely focused squarely on the protection of its trade secrets. State law provides the contours of trade secrets law, so the elements vary from state to state. But in general, a company can enforce its exclusive rights to possess and use information that (1) gives that company a competitive advantage, and (2) which is subject to efforts to keep secret. That latter part — keeping the information secret — is a big reason for nondisclosure agreements, password protected servers, and sensible restrictions on employee use of third party technologies (like social media and search tools like Siri).
Evan Brown is a Chicago technology and intellectual property attorney, representing businesses and individuals in a variety of situations, including matters dealing with the identification and protection of confidential business information.
Copying of employer computer files central to trade secrets claim
Mobile Mark, Inc. v. Pakosz, 2011 WL 3898032 (N.D.Ill. September 6, 2011)
Defendant used to work for plaintiff. Before he left that organization to work for a competitor, he allegedly accessed plaintiff’s computer system and copied proprietary information to a laptop that plaintiff had loaned him. He then allegedly transferred the proprietary data to a number of external storage devices, and then installed and repeatedly ran a “Window Washer” program on the laptop to delete files and other data in order to conceal his activities.
Plaintiff sued, putting forth several claims, including a claim of misappropriation of trade secrets under the Illinois Trade Secrets Act, 765 ILCS 1065/2. Defendant moved to dismiss. The court denied the motion.
One of the bases for plaintiff’s trade secret misappropriation claim was that defendant, by going to work for a competitor, would inevitably disclose the proprietary information he had obtained while working for plaintiff. Looking to Illinois law, the court noted that “[i]nevitable disclosure is not assumed when an employee has general information in his head as a result of working for a company.” But “where evidence exists that the employee copied the employer’s confidential information, it leads to the conclusion of inevitable disclosure.”
Reed Construction Data v. McGraw Hill Companies, No. 09-8578 (S.D.N.Y. September 14, 2010)
Court refuses to dismiss lawsuit in which plaintiff accused its competitor of paying others to subscribe to plaintiff’s proprietary database to get confidential information.
Plaintiff and defendant are fierce competitors that provide project news and information to the construction industry. (Really the parties are the only nationwide providers in this market space.) The companies sell subscriptions to their respective databases. Plaintiff requires its subscribers to sign a nondisclosure agreement, making them promise not to share information obtained from the database with others outside the subscriber’s company.
After plaintiff figured out that a copule of its subcribers worked for sham enterprises, it got wise to the notion that defendant had hired those subscribers to access the database. Plaintiff sued, claiming, among other things, misappropriation of confidential information under New York law.
Defendant moved to dismiss for failure to state a claim. The court denied the motion.
To state a claim for misappropriation of confidential information, plaintiff had to allege that defendant used plaintiff’s confidential information for the purpose of securing a competitive advantage. Defendant argued that a tort action for misappropriation was not proper because all that had happened was a use of information in violation of the nondisclosure agreements with the individuals allegedly hired by defendant to access plaintiff’s database.
The court rejected this argument for two reasons. First, plaintiff had not alleged that defendant was a party to the contract. So the liability could not be constrained to just breach of contract. Moreover, the court found, that the tortious conduct of misappropriation had a separate and additional existence apart from any contractual relationship, even if such a relationship did exist. The misappropriation sprang from circumstances extraneous to, and not constituting elements of, the subscription agreements with the parties defendant allegedly hired to access plaintiff’s information.
Andritz, Inc. v. Southern Maintenance Contractor, LLC, 2009 WL 48187 (M.D. Ga. January 7, 2008)
When defendants Pettit and Harper worked for plaintiff Andritz, Inc., they had company-issued laptops with which they accessed proprietary information. After defendants resigned, they allegedly took that proprietary information and gave it to defendant-competitor SMC.
Andritz sued in federal court, alleging violation of the Computer Fraud and Abuse Act (CFAA). Defendants moved to dismiss for failure to state a claim. The court granted the motion.
The CFAA claim failed because the plaintiff did not allege the type of “loss” or “damage” required to sustain such a claim. The loss that plaintiff alleged was that defendants took proprietary information and used it to poach customers.
But the CFAA requires there be an impairment of the computer system or data accessed. Because the plaintiff “still had access to the data just as it had before [d]efendants’ actions,” there was no violation of the CFAA.
In February 2004, defendant Genovese posted a message on his website that the source code for Windows 2000 had been “jacked,” and offered to provide copies of it via FTP to anyone willing to pay a small fee. After Microsoft investigated Genovese’s claims and successfully obtained one of the “jacked” copies, it notified the FBI. Genovese was arrested and charged under the federal Economic Espionage Act of 1996, 18 U.S.C. §1832 et seq. (“EEA”).
Genovese moved to dismiss the indictment, arguing that the EEA was facially overbroad and unconstitutionally vague as applied to him. The court rejected his arguments, and denied the motion to dismiss the indictment.
In holding that the statute was not overbroad, the court determined that Genovese’s alleged conduct, namely, distributing the source code “with intent to convert a trade secret…to the economic benefit of anyone other than the owner thereof” was not protected speech under the First Amendment.
On the question of whether the statute was unconstitutionally vague, the court concluded that the term “trade secret” was defined with “sufficient definiteness” so that an ordinary person in Genovese’s position would understand that trafficking in the Windows source code was prohibited by law. Genovese’s own conduct demonstrated that he knew the source code derived value from not being generally known (namely, by referring to it as “jacked” and by charging a fee for access to it.) Furthermore, the court found that one could infer Genovese knew the code was proprietary and that protective measures taken by Microsoft had been circumvented. Thus, Genovese could “reasonably understand” that his conduct was proscribed by the Act.
U.S. v. Genovese, 2005 WL 1439860 (S.D.N.Y., June 21, 2005).
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Evan Brown is an attorney in Chicago helping clients identify and manage issues with technology development, licensing, copyright, trademarks, domain names, service agreements and other matters involving the internet and new media.
Evan is a partner in the law firm of Much Shelist, P.C. He is an adjunct professor of law at Chicago-Kent College of Law, and is a Domain Name Panelist with the World Intellectual Property Organization (WIPO).