Unlike a patent, registered copyright, or registered trademark, all of which are the result of a formal grant by a government agency such as the United States Patent & Trademark Office, a trade secret has no such formal governmental recognition. Instead, the trade secret owner must take proactive steps to both establish and protect its trade secrets. To prevail in a trademark misappropriation lawsuit, the trade secret claimant must be able to define the trade secret, explain why it’s a trade secret, and demonstrate the steps it has taken to protect the trade secret from dissemination. A common mistake in the world of trade secret IP is that many think that simply designating a document as confidential will automatically confer trade secret status on that document and its underlying content. As discussed in our Nov. 21, 2023 blog entitled “Boosting Enterprise Value Through Trade Secrets,” this understanding is incorrect. Consider a recent 2023 case out of Texas where the jury concluded that a telecom company acted in bad faith by filing a $23 million trade secret misappropriation lawsuit against a competitor; the court found that the underlying technology was not a trade secret. Telegistics, Inc. v. Advanced Personal Computing, Inc. d/b/a/ Liquid Networx, no. 2019-15000 in the 190th District Court of Harris County, Texas. Telegistics alleged that its former employee obtained a copy of Teligistic’s internal Request for Proposal (“RFP”) and used it as the basis for tweaking his new employer’s (Liquid Networx) internal RFP. That is, the former employee altered the RFP so that it could be used by his new employer. As such, Liquid Nerworx did not itself spend time and resources developing its own RFP. Telegistics had made its RFP available to on-line to bidders who were invited to submit responses for Telegistics’ products and services. The document included a confidentiality notice and information that permitted bidders to submit responses for Telegistic’s telecom products and services. Telegistics claimed that the RFP was a trade secret. Defendant Liquid Networx challenged the existence of Teligistic’s alleged trade secrets, claiming the plaintiff had not clearly defined its trade secrets. Liquid Networx argued that while the source code of Telegistic’s platform, for example, could qualify as a trade secret, the actual output generated by the platform, such as the RFP, was not entitled to trade secret protection just because a confidentiality label was affixed to it. Unfortunately for it, Telegistics was also unable to demonstrate any reasonable efforts it had made to keep the information it received from bidders confidential once received. The jury agreed. Interestingly, the jury went a step further and additionally found that Teligistics acted in bad faith by filing its lawsuit. Networx is now seeking its attorneys’ fees as a result. As our earlier blog emphasized, the plaintiff in a trade secret misappropriation lawsuit must at the get-go establish that it does indeed have protectable, definable trade secrets. Telegistics did not meet this threshold. Texas, as with almost all of the other fifty states, including Florida, has adopted the Uniform Trade Secrets Act as its statutory trade secret law. Accordingly, it is highly likely that the same decision would have been reached no matter what jurisdiction the Telegistics case had been brought, namely, that the RFP was not a trade secret. Take-Home Points: The “confidential” labelling of a document, without more, will likely be insufficient for converting the confidential document into a trade secret. Moreover, documents generated automatically by a software program that itself qualifies as a trade secret (e.g., source code and/or object code) may not qualify as a trade secret if other factors are not present. For example, what steps has the trade secret claimant made to limit the dissemination of the collected information within the organization? Here are some tips for consideration: Consider the nature of the document. Is it a general information form or something highly unique to be used in generating a potential economic benefit, e.g., a manufacturing document containing trade secret raw material specifications and which has limited access within the company. What is the purpose of the document? Does it contain information about a trade secret (e.g., generally unknown information about a critical raw material component) where the development of the underlying trade secret involved creativity, considerable time, and considerable resources from human resources to financial resources (e.g., R&D spending)? Is the “confidential” document more of a general information form or a specially developed form? Is there an economic value that comes from maintaining the document’s confidence? What steps are taken to keep it from third parties and to limit access to the document within the company? If it is to be disseminated to third parties, what safeguards are in place to limit the dissemination of the document? When hiring an employee who has worked for a competitor, consider having the employee sign a document stating that, if he had any access to his/her former employer’s trade secrets, that he/she will not use any such trade secrets in the course of his new employment. Such a document may help the new employer, if ever accused of trade secret misappropriation, establish that it took reasonable precautions to prevent the “entrance” of any trade secret information belonging to the trade secret claimant into new employer’s business. This approach could help reduce the amount of any damages award. In conclusion, every business, no matter how small, should be looking into trade secrets as a valuable asset, meaning one which can be monetized and form a part of an IP portfolio. However, claiming something is a trade secret in a trade secret misappropriation lawsuit does not necessarily make it so as the Telegistics case demonstrates. Any attorney who commences a trade secret lawsuit on behalf of a client needs to honestly assess whether the alleged trade secret will actually qualify as a trade secret under state statues and case law. The same also applies where federal trade secret theft claims are involved as under, e.g., the Defend Trade Secrets Act. Contact Susan at Troy & Schwartz (  786-808-1490  ) to request a complimentary copy of her trade secret implementation checklist and work with her to conduct a trade secret audit, create appropriate protection systems, etc. or to represent you in trade secret misappropriation matter. THANK YOU FOR YOUR INTEREST IN THIS BLOG. AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

Background & Current Issues: Trade secrets have historically been an outlier in the area of intellectual property (IP) law because they have not been viewed as “real” IP. Today they are being increasingly viewed as valuable IP assets. Indeed Gene Quinn, one of the most influential IP thought leaders in the U.S., has predicted that trade secrets may pass patents in terms of valuation. Nevertheless, trade secrets have their own unique challenges and characteristics. The following lists some of the issues currently comprising the trade secret ecosystem. A weakened patent system resulting from the America Invents Act and subsequent court decisions which have both invalidated patents and impacted the issuance of new patents. Trade secret protection either singularly or in connection with patents may be a viable way to reduce patent invalidation risk and and/or strengthen a patent’s commercial viability over the long term. The explosion of AI and Large Language Models (LLMs). Here the issue pertains to controlling what can and cannot be shared. Where the possibility of divulging copyrighted, patented, or trade secrets as the result of generative AI exists, the resulting output could infringe on intellectual property rights, divulge valuable trade secrets, or breach confidentiality obligations (e.g., the need to protect personally identifiable information or to comply with obligations under an NDA). Remote work and employee mobility. Today, more and more potentially valuable business information is “leaving” the office traveling through space so to speak to remote servers, computers, and the “cloud.” The locked file cabinet with tightly controlled access of years past is fast becoming a relic, being replaced by systems subject to cybersecurity risks 24/7. Trade secrets are often viewed as a potential liability by companies due to cyber threats and employee “movement”. The move to eliminate non-competes. The Federal Trade Commission is attempting to regulate non-competes out of existence, and some states already have or are in the process of doing so. A patent document, registered copyright certificate, or registered trademark certificate issued by a government agency provides proof that the associated IP rights actually exist. With trade secrets, however, no government agency is involved in establishing the IP right. Instead, the trade secret owner is tasked with establishing that the confidential information indeed qualifies as a trade secret. Proof that a trade secret actually exists is required by the courts in any trade secret misappropriation lawsuit. Requiring proof of documentation establishing the existence of the trade secret is considered a reasonable measure by the court. Trade secrets are protected under state law and federal law. Damages in a misappropriation case often exceed the damages in patent infringement case. Europe has largely adapted the trade secret law of the United States and trade secret law is seeing global standardization. Trade Secrets and Confidential Information: Referring to item #5 above, many still assume that confidential company information automatically qualifies as a trade secret. Trade secrets of course constitute confidential information, but not all confidential information will qualify as a trade secret. For example, Florida’s Uniform Trade Secrets Law, largely based on the Uniform Trade Secrets Act, defines “trade secret” as “information, including a formula, pattern, compilation, program, device, method, technique, or process that: “Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by other person.” The unauthorized use of a trade secret is known as misappropriation. To prevail in a court of law on a trade secret misappropriation claim, the plaintiff must first establish that the misappropriated information is indeed a trade secret and has been handled as a trade secret by the plaintiffs. Documentary proof is generally the standard required for meeting this requirement. Contracts such as an employment handbook, NDAs, employee onboarding/exit documentation, trade secret assignment documents, an in-house trade secret policy, etc. are types of acceptable documentation. Several years ago, the commentator was able to get a motion for summary judgment granted on behalf of the defendants because the plaintiff could provide no documentary proof that he indeed had a trade secret. Even large companies one would think should know better have lost their trade secret misappropriation lawsuits because of the lack of documentation or poor documentation. See e.g., California Healthcare Services v. Amgen and Bundy Baking Solutions v. Mallet. Other helpful factors in establishing trade secrets to the satisfaction of a court include having conducted trade secret audits to evaluate the efficacy of a business’s procedures to protect its trade secrets, using robust cybersecurity efforts, etc. Non-disclosure agreements (NDAs) can be confusing when it comes to trade secret protection because they are generally limited to protection of exchanged confidential information for a period of only 1 to 3 years following the NDAs’ termination. However, if trade secrets are to be divulged, it is important that any disclosed trade secrets be protected by the receiving party indefinitely and the NDA should state as such. Otherwise, trade secret protection could be at risk. Most receiving parties do not want the burden of protecting the disclosing party’s divulged trade secrets indefinitely. Accordingly, the NDA’s disclosing party should think twice before disclosing a trade secret or insist on adequate provisions in the NDA to protect any divulged trade secrets. Gearing Up for Trade Secret Protection: Any business, no matter how small, may have valuable trade secret assets which can enhance the business’s value. A robust trade secret approach may also be attractive to potential venture capitalists and future buyers of the business. If you aren’t sure is something could be a trade secret, ask yourself the $64,000 question: What would be the consequences for my business if this confidential information became known by others? How does one get started in identifying and protecting a trade secret? Here are some questions to ask to get the process going. What is the trade secret (e.g., software code, a special recipe, a customer list that the business has spent money and time on developing, certain steps of a manufacturing process requiring tight control, a raw material having “special” requirements, etc.)? Who will have access to the trade secret (e.g., employee, independent contractor, business partner)? What documentation should the business have in place to protect the trade secret asset (e.g., employee handbook, code of conduct, onboarding/exit documentation, IP assignment of any developed trade secrets to the business, NDAs, independent contractor agreements, trade secret policy documents, shareholder/partnership/operating agreements, etc.)? How do we educate employees and independent contractors that it’s a trade secret which must be carefully and diligently protected (e.g., asset notice and acknowledgement documentation)? How do we train those who require access to the trade secret to protect the trade secret (e.g., ensure they know it’s a trade secret)? How do we monitor the interaction between those who have access and the frequency of interaction (e.g., by maintaining a privilege or access log which states the people who have access, how the access is provided, and have them document the dates on which they accessed the trade secret)? Getting Started with a Legal Advisor: In conclusion, every business, no matter how small, should be looking into trade secrets as a valuable asset, meaning one which can be monetized and form a part of an IP portfolio. Contact Susan at Troy & Schwartz (  786-808-1490  ) to request a complimentary copy of her trade secret implementation checklist and work with her to perform a trade secret audit, create appropriate documents, etc. or to represent you in trade secret misappropriation matters. As an IP attorney who practices patent, trade secret, trademark, and copyright law, she is uniquely qualified to address best practices for procuring, monetizing, and enforcing IP rights. THANK YOU FOR YOUR INTEREST IN THIS BLOG. AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.

The Moral of the Blog: Choreographic works are copyrightable under the 1976 Copyright Act. However, just how far that protection reaches under the jurisprudence of the various circuits may well depend on whether the circuit adopts the U.S. Copyright Compendium’s definition of choreography which is favorable to choreographers. As with any copyright infringement case, the trier of fact is tasked with determining whether the copyrighted work and the alleged infringing work are substantially similar wherein the analysis involves both a quantitative (how much?) and qualitative (how significant?) analysis. District courts are generally the gate keeper in determining if a work qualifies for copyright protection. Although choreographic works are among the least copyrighted works, the decision discussed below is instructive because of its focus on quantitative vs qualitative analyses of infringement. A Word of Caution: It is not clear just how the plaintiff in the case discussed below became aware of potential copyright infringement of his registered work. It must be emphasized that today numerous AI programs exist which can search the Internet to find infringing works. Such software is now being routinely used by photographers. Generative AI also has huge implications in the arena of copyright infringement which the Copyright Office is well aware of and attempting to address. Discussion: When it comes to copyrightable works, we generally think of books, musical compositions, sound recordings, paintings, and software. The Ninth Circuit’s Nov. 1, 2023 decision in Hanagami v. Epic Games, Inc., et al. is a reminder that choreography is a protectable work under U.S. copyright law since the enactment of the 1976 Copyright Act, the first federal copyright statute to provide express protection for “choreographic works” which are “original works of authorship.” 17 U.S.C. § 102(a)(4). In Hanagami, a choreographer commenced a copyright infringement lawsuit against the creator of a videogame having virtual animation known as “emote” which the choreographer claimed depicted portions of his registered choreography. The dance routine had first appeared on YouTube in 2017, and Hanagami obtained a copyright registration in 2021. Epic Games argued that the choreographer had failed to state a claim because the allegedly copied dance steps were not protectable elements of the copyrightable work and thus not substantially similar to Epic’s remote. The district court agreed by focusing on the choreography’s individual poses rather than the “whole” work, concluding that the copied portion of the work was closer to a uncopyrightable “short routine” and comprised a “small component” of the choreographer’s work. As such, there was no substantial similarity between the copyrighted work and the emote and the case was dismissed. The Ninth Circuit disagreed. In doing so, the Court noted that the Act does not specifically define choreographic works and that there is little case law pertinent to infringement of choreographic works. The Hanagami Court adopted the Copyright Office’s definition of choreography stated in the Compendium of U.S. Copyright Office Practices. The Compendium is not legally binding on any court, and was drafted by the Copyright Office to provide guidance and interpretation of various aspects of copyright law. Here, the Court relied on the definition as persuasive authority. Slip opinion, FN 10. It concluded that the district court’s approach of reducing the choreography to “poses” was at odds with the Ninth Circuit’s way of analyzing copyright claims for other art forms, like musical compositions. The Compendium defines choreography as “the composition and arrangement of a related series of dance movements and patterns into a coherent whole.” Although related, dance and choreography are not synonymous. Dance is defined by the Compendium as the “static and kinetic succession of bodily movement in certain rhythmic and spatial relationships. The Court was careful to point out that the Compendium does not draw a bright line distinction between copyrightable choreography and uncopyrightable dance. However, to be copyrightable, the choreography must not be simply based on common dance themes such as a basic foxtrot step or a common ballet position. As with book themes (e.g., political satire) or song themes (e.g., a breakup), choreographers should be able to use certain “building” blocks of dance and choreography at will. “The uncopyrightable elements of a dance instead function as the building clocks for a choreographer’s expression in such the same way that words and short phrases provide the basic material for writers.” Slip opinion at 20. The Court held that the district court incorrectly found that the choreographic work was not protectable by focusing on the individual, unprotectable elements. Indeed, “reducing choreography to “poses” would be akin to deducing music to just “notes.” Slip opinion at 22. Instead, the Court agreed with the choreographer that his protectable elements include not only the dancer’s poses but also their body potion, body shape, body actions, transitions [between poses], use of space, pauses, timing, energy, canon, motif, contrast, and repetition. Slip opinion at 21. Accordingly, what defines choreographic works is the relationship between these movements and patterns and the Hanagami alleged that the copied segment is the most recognizable and distinctive portion of his work, similar to the chorus of song which is repeated more than once. Hence, a jury may well find the copied portion to be qualitatively significant Slip opinion at 27. Slip opinion at 22. A good part of the Hanagami decision focuses on the challenges juries face when determining whether an alleged infringing work such as a choreographic work is substantially similar to a copyrighted work. Generally, de minimis copying is not actionable. In Hanagami, the alleged copying included a two-second combination of eight bodily movements, set to four beats of music performed ten times throughout the five-minute registered mark which at first blush may seem de minimis. The district court had additionally dismissed the case by finding that the allegedly copied choreography was “short” and a “small component” of Hanagami’s overall five-minute routine. Interestingly, Epic Games did not argue at the district court level that the alleged copying was de minimis. The Ninth Circuit held that the district court had also erred in its de minimis analysis. As the Court stated, the proper inquiry is not merely based on the mere length of the copied material. “The question in each case is whether similarity relates to matter that constitutes a substantial portion of the plaintiff’s work which is an “evaluation [that]must occur in the context of each case, both qualitatively and quantitatively. Slip opinion at 26 quoting Nimmer on Copyright § 13.03 (2023). Accordingly, what matters is whether the copied portion is deemed significant. The usage of a relatively small portion of an entire work may still be infringing if that portion is qualitatively important. Indeed, Hanagami alleged that the copied segment is the most recognizable and distinctive portion of his choreographed work, similar to the chorus of song which is repeated more than once. By way of a musical composition example, consider the iconic theme song for the movie “Jaws.” The first few stanzas are the most recognizable portion of the score. Those of us who have seen Jaws are reminded of the movie whenever those stanzas are heard. Qualitatively, these few stanzas would be of immense qualitative importance in any copyright infringement lawsuit involving the score. The determination of substantial similarity is generally made by the trier of fact. In the Ninth Circuit, the standard is the “intrinsic test” which focuses on “the similarity of expression from the standpoint of the ordinarily reasonable observer with no expert assistance.” Slip opinion at 17. The commentator emphasizes that jury outcomes are difficult to predict in a copyright infringement case because of the subjectivity of the substantial similarity analysis even under the “reasonable observer” test. Not surprisingly, the Court reversed the district court’s dismissal of Hanagami’s copyright infringement claims and remanded the case for further proceedings on two grounds: 1) its failure to focus on the choreographed work as a whole to determine its eligibility for protection rather than on the unprotectable individual elements; and 2) its failure to assess the qualitative significance of the allegedly copied portion of the work. Apparently, the district court would only have “accepted” the work as being protectable if Epic Games had used the copyrighted work in its entirety. The commentator notes that the work had been registered by the U.S. Copyright Office several years after the work had appeared on You Tube or was published. Accordingly, the choreographer will most likely need to prove damages (a challenging endeavor) since statutory damages will not be available. This is why it is important to seek copyright registration within 90 days of publication so that that any copyright infringement can seek statutory damages. Apparently, the district court would only have “accepted” the work as being protectable if Epic Games had used the copyrighted work in its entirety. Take Home Points: The Hanagami decision drives home the point that copyright infringement cases are complex. Even where issues of copyrightability do not arise, substantial similarity determinations are often not predictable and may vary from jury to jury for all but the most obvious cases of blatant copyright infringement. Nevertheless, copyright protection is intended to protect creators from the unauthorized use of their creations. It is highly recommended that copyright registration applications be filed within 90 days of the work’s publication to reap the benefits of statutory damages and shifted attorneys’ fees and costs in a copyright infringement lawsuit if infringement is proven. In Need of Legal Counsel on Copyright Matters? Contact Susan at 305-279-4740 for all matters related to copyright law from registration to copyright infringement lawsuits. THANK YOU FOR YOUR INTEREST IN THIS BLOG. AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.