How Can You Protect Your Software As A Trade Secret?

How Can You Protect Your Software As A Trade Secret?

Client Resources | March 30, 2018

Customized or proprietary software may be your company’s largest asset.  But is it a trade secret? Software is different than other types of trade secrets because both copyrights and patents might provide additional protection.

Protecting software as a trade secret has some advantages to using a copyright or patent.  For example, trade secret protection does not require—as copyrights or patents do—an application and upfront filing cost.  Trade secrets—perhaps obviously—are much more secret than more publicly available patents or copyrights.  Moreover, trade secrets can protect a broader array of software information than a copyright.  Ultimately, using trade secrets to protect software may be most useful to a small software company, as it innovates quickly and competes against larger, well-funded competitors with older, legacy software.

Yet, advantages aside, trade secret protection for software can be difficult—perhaps even more so in a growth and sales-oriented environment.  What the cases show is that the entire software package is unlikely to be a trade secret.  Of the different parts, the source code is most likely to be a trade secret.  But the more visible to a user a part of the software is, the less likely that part is to be a trade secret.  A recent case shows these basics in action.

How courts typically analyze software as a trade secret

Here’s a perhaps too-common hypothetical.  Your company developed a new software product—an automatic ticket pricing product perhaps.  A company—after receiving several trial periods and demonstrations—became a customer and licensed your software.

After becoming a licensee, the customer received continuous training from you.  While licensing your software, the customer decided to build its own automatic ticket pricing product.  To do so, the customer hired a developer and sent the developer various annotated screenshots of your software.

You sued the customer.  It was “abundantly clear” to the court that your customer closely modeled its product on yours and “relied heavily” on its knowledge of your product “to build [its] own software.”[1]  Yet the court refused to stop the customer from using and selling its software.  The law of trade secrets did not protect your software.

Why? In short, because the company gave free trials of its software without confidentiality agreements.

In the Broker Genius case, Broker Genius had ticket-pricing software called AutoPricer v.3.  One of its customers was NRZ, which was owned by Messrs. Shamah and Zalta.  To become a customer, NRZ signed both a Terms of Use and a Service Agreement.

Importantly, Broker Genius had no evidence that any of the defendants accessed its source code.  The court analyzed three types of information that Broker Genius claimed were trade secrets—information about scaling AutoPricer v.3, about AutoPricer v.3’s software architectures, and about AutoPricer v.3’s user experience and user interface.

Generally, to succeed on a claim for trade secret misappropriation, a plaintiff must prove that (1) it had a trade secret, and (2) the defendant used the trade secret improperly.

Improper use of the software was an easy question for the court.  First, the Service Agreement prevented disseminating, distributing, and reverse engineering the AutoPricer software.  Second, “Zalta admitted that he distributed screenshots of the AutoPricer v.3 user interface—along with his annotations that explained how the software and its various widgets functioned—to at least two software developers.”[2] Third, NRZ breached the Service Agreement by having very similar software to AutoPricer v.3 created after having had access to the claimed trade secret information.

But the claimed trade secret information was not secret enough to be a trade secret.   Broker Genius could not show sufficient secrecy because Broker Genius had disclosed information it claimed to be a trade secret to people under no obligation to protect the confidentiality of the information.

Specifically, the court stated that some highly visible marketing activities—e.g., publishing screenshots of earlier versions of AutoPricer and three-to-eight-minute product demonstrations—did not destroy trade secret status.    But Broker Genius gave customers the full version of its software during a trial period under the Terms of Use, which contained no confidentiality provision.  And, because the Terms of Use did not protect confidentiality during a trial period, the terms of the later Service Agreement did not matter.

Georgia law on software as trade secrets

Broker Genius is not unusual.  Georgia cases under the GTSA analyze software similarlyIn fact, the law about computer software and trade secrets has not greatly changed in decades.[3]

That said, Georgia courts may be less likely than the court in Broker Genius to conclude that parts of software besides source code may be a trade secret.  The more visible a part of the software is to users, the less likely it is to be a trade secret.  Here are three Georgia examples:

  • In Airwatch LLC v. Mobile Iron, Inc., even though the plaintiff had given its software program to numerous third parties for a free trial, its program could still be protected as a trade secret because the plaintiff provided evidence that the trade secret information at issue was not visible to a typical user.[4]
  • In EarthCam, Inc. v. OxBlue Corp., a plaintiff’s web-based camera system was not a trade secret because it allowed customers to publicize the contents of the webpage.[5]
  • In Warehouse Sols., Inc. v. Integrated Logistics, LLC, a plaintiff’s verbal instructions about confidentiality without written non-disclosure agreement did not preserve secrecy of a software program’s functionality because how the software “looked and worked was readily apparent to authorized users with an ID and password.”[6]

Protecting software

Ultimately, the Broker Genius case is a good reminder of the steps to increase the chance of being able to protect software as a trade secret.  Those steps can include the following:

  • Adopt confidentiality policies that cover documents, that warn employees about what can be discussed publicly including on social media, and that create exit interview procedures;
  • Have employees acknowledge the policies in writing;
  • Have employees sign confidentiality or non-disclosure agreements that create reminders for employees to keep secrets throughout their tenure and that establish a process for keeping new work confidential;
  • Make third parties sign confidentiality agreements before being able to access trade secrets or use the trade-secret-containing software. Every agreement under which someone gets access to software containing trade secrets should have a confidentiality provision.  The confidentiality agreements should mention specific software features, and source and object codes;
  • Supplement written policies with verbal warnings to employees and customers about specific trade secrets;
  • Inventory and identify trade secrets. Early identification can avoid the difficulty of being in the middle of litigation and trying to claim things as trade secrets that the business treated inconsistently.  In software, this probably means to note what parts of the software are trade secrets and treat those parts consistently;
  • Mark the visible parts of the software as confidential;
  • Restrict access to the trade secret parts of the software to those who need to use them;
  • Log who uses the trade secret parts of the software;
  • Monitor how software demonstrations occur;
  • Consider patent and copyright protection;
  • Do not distribute code or software into the open source community;
  • Establish adequate electronic and physical security. This may mean a code repository with secured access to all confidential materials. In addition, log and monitor any copying.  Control access to R&D and production facilities with key cards or fingerprint scanners.  Use firewalls and passwords.  Give varying degrees of access. Basically, all employees do not need access to all information; and
  • Be able to estimate how long the software took to create and articulate why others cannot easily create similar software.

[1] Broker Genius, Inc. v. Zalta, 280 F. Supp. 3d 495, 504 (S.D.N.Y. 2017).

[2] Id. at 511.

[3] Elec. Data Sys. Corp. v. Heinemann, 268 Ga. 755, 757 (1997) (“It is well-accepted that computer software may constitute trade secrets.”).

[4] No. 1:12-cv-3571-JEC, 2013 WL 4757491, at *4 (N.D. Ga. Sept. 4, 2013).

[5] 49 F. Supp. 3d 1210, 1227-28 (N.D. Ga. 2014).

[6] 610 F. App’x 881, 885 (11th Cir. 2015).

Attorneys
Copyright © 2018 Krevolin & Horst, LLC | One Atlantic Center | 1201 West Peachtree Street, NW | Suite 3250 | Atlanta, GA 30309 | 866-378-4980 | Sitemap | The Fine Print