Trade secrets law is concerned with the protection of technological and commercial information not generally known in the trade against unauthorized commercial use by others. The policy basis for trade secret protection is the desire to encourage research and development by providing protection to the originator of business information, and to maintain proper standards of business ethics. See Kewanee Oil Company v. Bicron Corp., 416 U.S. 470 (1990). The trade secret owner is not granted exclusivity to the information, but rather is only protected against improper acquisition and/or use of the information. As a result, others are free to discover a trade secret by any fair means.

II. Legal Basis

Until relatively recently, trade secret protection had been based on common law principles; namely, trade secrets had been protected under contract, quasi-contract, and property theories. Protection of trade secrets under contract theories includes instances in which there existed an express contract concerning non-disclosure or use of a trade secret, or there existed a confidential relationship giving rise to a duty not to disclose or use the trade secret, such as an employer-employee relationship. The quasi-contract basis of trade secret protection includes avoidance of unjust enrichment from trade secret misappropriation. Finally, under the property theory, a trade secret is viewed as a property right that is subject to protective restrictions on its use and disclosure.

Perhaps the most widely used common law definition of a trade secret was set forth in the Restatement of Torts, § 757 comment b (1939):

[A trade secret is] [a]ny formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.

More recently, the Restatement of Unfair Competition, § 39 (2002), defines a trade secret with a slight difference.

A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.

Washington State is also one of the few states that recognize the theft of trade secrets as a crime. See, generally, RCW § 9A.56.010. There are no reported cases of criminal trade secret theft in Washington.

The Restatement also lists six factors to be considered in determining the existence of a trade secret:

1. the extent to which the information is known outside the business;
2. the extent to which it is known by employees and others involved in his business;
3. the extent of measure taken by the owner to guard the secrecy of the information;
4. the value of the information to the owner and to his competitors;
5. the amount of efforts or money expended by the owner in developing the information; and
6. the ease or difficulty with which the information could be properly acquired or duplicated by others.

These factors are “[t]he most-cited listing of the objective criteria for determining the existence of a trade secret.” M. Jager, Trade Secrets Law § 5.05 (1995). Note that this definition is still widely used in spite of the decision of the authors of the Restatement (Second) of Torts (1979) to omit any discussion of trade secrets.

In recent years, trade secret law has become largely statutory. The Uniform Trade Secret Act (UTSA) has now been adopted (sometimes with modifications) in 46 states and the District of Columbia. M. Jager, supra, at § 3.05 (2001). Washington adopted the UTSA as of January 1, 1982. RCW 19.108 et seq. Nonetheless, and despite the UTSA’s widespread adoption, the Restatement’s definition retains vitality and is often referred to by the courts during the course of their deliberations in applying the UTSA.

The Oregon State Trade Secrets Act was adopted in 1987 and is also based on the UTSA. See, generally, OR. Rev. Stat. §§646.461 et seq. (1998).

In slight contrast, the Idaho State Trade Secrets Act is based on the 1985 revised version of the USTA.
See, generally, Idaho Code §48-801 et seq. (2002).

The UTSA defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

III. Elements of a Trade Secret

Under both the old Restatement of Torts and the current statutory definition, to establish the existence of a trade secret one must show that the information or item alleged to be a trade secret is: (1) of an appropriate subject matter to be protected as a trade secret; (2) not a matter of common knowledge in the trade and not readily ascertainable by proper means; (3) of value; and (4) the object of reasonable precautions taken under the circumstances to maintain secrecy.
A. Protectable Subject Matter

Under the common law and the Washington statutory definition, almost any knowledge or information used in conjunction with one’s business may be held as a trade secret. Specific examples include:
1. Formulas for chemicals, drugs, cosmetics, foods, et cetera.
2. Industrial Processes. E.I. du Pont de Nemours & Company, Inc. v. Christopher, 431 F.2d 1012 (5th Cir. 1970).
3. Know-how, i.e., technical information relating to the practical application of patented or unpatented inventions.
4. Blueprints, such as for a building or machinery.
5. Computer software, to the extent it cannot be reverse-engineered.
6. Sources of supply, pricing information, identity of vendors or suppliers, and customer lists.

In addition and contrary to common belief, trade secrets are not limited to technical items, know-how and related matters, but include a wide variety of business information (i.e., employee benefit information and financial statements and projections). Under the Washington statute, a trade secret can include information that has commercial value from a negative standpoint (e.g., knowledge that a particular process cannot be used to produce a certain product).

B. Not Generally Known or Readily Ascertainable

Trade secret protection is available only for information not generally known (i.e., secret information), and is not available for information, which is common knowledge. In addition to not being generally known, a trade secret must not be readily ascertainable by proper means. The comments to the UTSA indicate that information is “readily ascertainable” if it is available in trade journals, reference books or other published materials.

Note that secrecy is not lost if the possessor of the information disclosed it to another in confidence or under an express or implied obligation not to disclose it. Thus, information can be disclosed, for example, to prospective purchasers of the trade secret, or to employees involved in a manufacturing process, which utilizes the trade secret, without destroying the trade secret. These types of disclosures comport with commercial reality.

In Washington, trade secrets must be “novel” and not ascertainable from other sources. Spokane Research & Dev. Found. v. City of Spokane, 983 P.2d 682 (Wash. App. 1999) (citing Confederated Tribes of Chehalis Res. v. Johnson, 135 Wn.2d 734, 749, 958 P.2d 260 (1998) (en banc); See also, Buffets, Inc. v. Klinke, 73 F.3d 965, 969 (9th Cir. 1996) (recipes denied trade secret protection under USTA because they lacked requisite novelty and economic value).

Another interesting twist in Washington trade secret law is that even memorizing information, such as customer lists, can be considered trade secret misappropriation. Ed Nowogroski Ins., Inc. v. Rucker, 88 Wn. App. 350, 356, 944 P.2d 1093, 1096 (1997) (memorized information included insurance agency’s confidential customer lists and other unspecified confidential customer information.

C. Independent Economic Value

To be protectable, the trade secret information must provide a competitive advantage over others who are unaware of the secret information. Earlier decisions required that for a trade secret to have value, the information must be regularly used in the proponent’s business. This requirement, which could post a problem during research and development, has been rejected by the UTSA.

D. Reasonable Efforts to Maintain Secrecy

The requirement that the possessor of a trade secret must make reasonable efforts to maintain secrecy is based on the rationale that if the possessor does not treat the information as a trade secret, then the law also should not. The degree of secrecy required is that which is reasonable under the circumstances and may include:

1. establishing / enforcing clear policies about confidential business information;
2. identifying technological and technical information deemed to be secret;
3. advising / training employees and others of the existence of trade secrets;
4. use of nondisclosure and confidentiality agreements with employees and others;
5. limiting access to trade secrets on a “need-to-know-basis”;
6. controlling access to company files and facility locations;
7. central control of blueprints and engineering drawings;
8. use of security systems and guards;
9. providing locked storage for sensitive information such as laboratory notebooks;
10. implementation of document protection and retention policies; and
11. use of computer passwords and firewalls throughout organization.

IV. Trade Secret Misappropriation

Under the common law, liability for trade secret misappropriation required acquisition by another by improper conduct or unfair means together with the use or disclosure by such person to the trade secret owner’s detriment. Under the UTSA, the definition of misappropriation is much broader; it can include simple acquisition of a trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means no subsequent or impending use of the trade secret is required.

The UTSA specifies that “improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means. Again, one of the broadly stated policies behind trade secret law is the maintenance of standards of commercial ethics. Thus, improper means could include otherwise lawful conduct which is improper under the circumstances; e.g., an airplane over-flight used as aerial reconnaissance to determine the competitor’s plant layout during construction of the plant. E.I. du Pont de Nemours & Co., Inc. v. Christopher, 431 F.2d 1012 (CA5, 1970).

V. Relief Available

A. Injunctive Relief

Once it has been established that a trade secret has been misappropriated, injunctions to enjoin further use of a trade secret generally have been issued by the courts. This remedy is expressly provided under the UTSA. Under the common law, there were several different views concerning the duration of prohibitory injunction. Under one doctrine, the defendant could be permanently enjoined from using the misappropriated trade secret, even if it later became public knowledge. Allen-Qualia Co. v. Shellmar Products Co., 87 F.2d 104 (7th Cir. 1936). This view was based on the theory that the defendant by her own inequitable conduct had permanently deprived herself of the right to employ the trade secret. Under a second doctrine, the injunction is terminated once the information becomes available to the public. Conmar Products Corp. v. Universal Slide Fastener Co., 172 F.2d 150 (2d. Cir. 1949). And under a third doctrine, the duration of the injunction is limited to the period of time it would have taken the defendant either by reverse engineering or by independent development to develop its product or process without the use of the trade secret. K-2 Ski Company v. Head Ski Co., Inc., 506 F.2d 471 (9th Cir. 1974).

UTSA adopts the K-2 rule; injunctive relief terminates once a trade secret ceases to exist. The injunction, however, may be continued for an additional length of time to eliminate any commercial advantage derived from the misappropriation. As such, the maximum duration of an injunction is the period of time it would have taken the defendant to lawfully discover the trade secret either through independent development or reverse engineering.

B. Damages and Attorney’s Fees

The UTSA provides that in addition to or in lieu of injunctive relief, damages of the actual loss caused by the misappropriation may be awarded. In addition to damages, the complainant may recover the unjust enrichment resulting from the misappropriation, provided that such amount is not taken into account in computing the actual loss. If willful or malicious misappropriation is found, the court can award exemplary damages in an amount not to exceed twice the actual damages, together with recovery for unjust enrichment. In such circumstance, the court may also award attorney’s fees. The comments to the UTSA indicate that the patent laws of the United States are followed in determining whether attorney’s fees should be provided.

C. Statute of Limitations

The UTSA specifies that an action for misappropriation must be brought within three years after the misappropriation is discovered or reasonably should have been discovered.

A. UNITED STATES FEDERAL ECONOMIC ESPIONAGE ACT OF 1996

The United States Federal Economic Espionage Act of 1996, 18 U.S.C. § 1831-1831, is effectively the only federal law of protecting trade secrets per se. In most cases trade secrets are protected under state statues and common law. The Washington State trade secret act, excerpted below, is based on the Uniform Trade Secret Act, which has also been adopted in some form in most jurisdictions.

Sec. 1831. Economic Espionage

(a) In General. – Whoever, intending or knowing that the offense will benefit any foreign government, foreign instrumentality, or foreign agent, knowingly –

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains a trade secret;

(2)without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys a trade secret;

(3)receives, buys, or possesses a trade secret, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4)attempts to commit any offense described in any of paragraphs (1) through (3); or

(5)conspires with one or more other persons to commit any offense described in any of paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined not more than $500,000 or imprisoned not more than 15 years, or both.

(b)Organizations. – Any organization that commits any offense described in subsection (a) shall be fined not more than $10,000,000.

Sec. 1832. Theft of Trade Secrets

(a) Whoever, with intent to convert a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret, knowingly –

(1) steals, or without authorization appropriates, takes, carries away, or conceals, or by fraud, artifice, or deception obtains such information;

(2) without authorization copies, duplicates, sketches, draws, photographs, downloads, uploads, alters, destroys, photocopies, replicates, transmits, delivers, sends, mails, communicates, or conveys such information;

(3) receives, buys, or possesses such information, knowing the same to have been stolen or appropriated, obtained, or converted without authorization;

(4) attempts to commit any offense described in paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit any offense described in paragraphs (1) through (3), and one or more of such persons do any act to effect the object of the conspiracy, shall, except as provided in subsection (b), be fined under this title or imprisoned not more than 10 years, or both.

(b) Any organization that commits any offense described in subsection (a) shall be fined not more than $5,000,000.

Sec. 1833. Exceptions to Prohibitions

This chapter does not prohibit –

(1) any otherwise lawful activity conducted by a governmental entity of the United States, a State, or a political subdivision of a State; or

(2) the reporting of a suspected violation of law to any governmental entity of the United States, a State, or a political subdivision of a State, if such entity has lawful authority with respect to that violation.

Sec. 1834. Criminal forfeiture

(a) The court, in imposing sentence on a person for a violation of this chapter, shall order, in addition to any other sentence imposed, that the person forfeit to the United States –

(1) any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation; and

(2) any of the person’s property used, or intended to be used, in any manner or part, to commit or facilitate the commission of such violation, if the court in its discretion so determines, taking into consideration the nature, scope, and proportionality of the use of the property in the offense.

(b) Property subject to forfeiture under this section, any seizure and disposition thereof, and any administrative or judicial proceeding in relation thereto, shall be governed by section 413 of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 853), except for subsections (d) and (j) of such section, which shall not apply to forfeitures under this section.

Sec. 1835. Orders to preserve confidentiality

In any prosecution or other proceeding under this chapter, the court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets, consistent with the requirements of the Federal Rules of Criminal and Civil Procedure, the Federal Rules of Evidence, and all other applicable laws. An interlocutory appeal by the United States shall lie from a decision or order of a district court authorizing or directing the disclosure of any trade secret.

Sec. 1836. Civil proceedings to enjoin violations

(a) The Attorney General may, in a civil action, obtain appropriate injunctive relief against any violation of this section.

(b) The district courts of the United States shall have exclusive original jurisdiction of civil actions under this subsection.

Sec. 1837. Applicability to conduct outside the United States

This chapter also applies to conduct occurring outside the United States if –

(1) the offender is a natural person who is a citizen or permanent resident alien of the United States, or an organization organized under the laws of the United States or a State or political subdivision thereof; or

(2) an act in furtherance of the offense was committed in the United States.

Sec. 1838. Construction with other laws

This chapter shall not be construed to preempt or displace any other remedies, whether civil or criminal, provided by United States Federal, State, commonwealth, possession, or territory law for the misappropriation of a trade secret, or to affect the otherwise lawful disclosure of information by any Government employee under section 552 of title 5 (commonly known as the Freedom of Information Act).

Sec. 1839. Definitions

As used in this chapter –

(1) the term ”foreign instrumentality” means any agency, bureau, ministry, component, institution, association, or any legal, commercial, or business organization, corporation, firm, or entity that is substantially owned, controlled, sponsored, commanded, managed, or dominated by a foreign government;

(2) the term ”foreign agent” means any officer, employee, proxy, servant, delegate, or representative of a foreign government;

(3) the term ”trade secret” means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if –

(A) the owner thereof has taken reasonable measures to keep such information secret; and

(B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public; and

(4) the term ”owner”, with respect to a trade secret, means the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed.

B. WASHINGTON STATE UNIFORM TRADE SECRETS ACT

In most cases trade secrets are protected under state statues and common law. The Washington State trade secret act, Wash Rev. Code § 19.108.010, et seq. (2000), excerpted below, is based on the Uniform Trade Secret Act which has also been adopted in some form in most jurisdictions.

RCW 19.108.010 – Definitions

Unless the context clearly requires otherwise, the definitions set forth in this section apply throughout this chapter.

(1) “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means;

(2) “Misappropriation” means:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(i) Used improper means to acquire knowledge of the trade secret; or

(ii) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was (A) derived from or through a person who had utilized improper means to acquire it, (B) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use, or (C) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(iii) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

(3) “Person” means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.

(4) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

[1981 c 286 § 1.]

RCW 19.108.020 – Remedies for misappropriation — Injunction, royalty

(1) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(2) If the court determines that it would be unreasonable to prohibit future use, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time the use could have been prohibited.

(3) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.
[1981 c 286 § 2.]

RCW 19.108.030 – Remedies For Misappropriation — Damages

(1) In addition to or in lieu of injunctive relief, a complainant may recover damages for the actual loss caused by misappropriation. A complainant also may recover for the unjust enrichment caused by misappropriation that is not taken into account in computing damages for actual loss.

(2) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (1).
[1981 c 286 § 3.]

RCW 19.108.040 – Award Of Attorney’s Fees

If a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or resisted in bad faith, or willful and malicious misappropriation exists, the court may award reasonable attorney’s fees to the prevailing party.
[1981 c 286 § 4.]

RCW 19.108.050 – Court Orders To Preserve Secrecy Of Alleged Trade Secrets

In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.
[1981 c 286 § 5.]

RCW 19.108.060 – Actions For Misappropriation — Time Limitation

An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.
[1981 c 286 § 6.]

RCW 19.108.900 – Effect Of Chapter On Other Law

(1) This chapter displaces conflicting tort, restitutionary, and other law of this state pertaining to civil liability for misappropriation of a trade secret.

(2) This chapter does not affect:

(a) Contractual or other civil liability or relief that is not based upon misappropriation of a trade secret; or

(b) Criminal liability for misappropriation of a trade secret.
[1981 c 286 § 7.]

RCW 19.108.910 – Construction Of Uniform Act

This chapter shall be applied and construed to effectuate its general purpose to make uniform the law, with respect to the subject of this chapter among states enacting it.
[1981 c 286 § 8.]

RCW 19.108.920 – Short Title

This chapter may be known and cited as the uniform trade secrets act.
[1981 c 286 § 9.]

RCW 19.108.930 – Effective Date — Application — 1981 c 286

This chapter takes effect on January 1, 1982, and does not apply to misappropriation occurring prior to the effective date.
[1981 c 286 § 12.]

RCW 19.108.940 – Severability — 1981 c 286

If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.
[1981 c 286 § 10.]

NOTE:

Theft of trade secrets: RCW 9A.56.010 (6), 9A.56.020.

Idaho Trade Secrets Act: Idaho Code §48-801 et seq. (2002)

48-801. DEFINITIONS.

As used in this chapter unless the context requires otherwise:

(1) “Omproper means” include theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.

(2) “Misappropriation” means:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(A) Used improper means to acquire knowledge of the trade secret; or

(B) At the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was:

(i) Derived from or through a person who had utilized improper means to acquire it;

(ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

(3) “Person” means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency, or any other legal or commercial entity.

(4) “Computer program” means information which is capable of causing a computer to perform logical operation(s) and:

(a) Is contained on any media or in any format;

(b) Is capable of being input, directly or indirectly, into a computer; and

(c) Has prominently displayed a notice of copyright, or other proprietary or confidential marking, either within or on the media containing the information.

(5) “Trade secret” means information, including a formula, pattern, compilation, program, computer program, device, method, technique, or process, that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Trade secrets as defined in this subsection are subject to disclosure by a public agency according to chapter 3, title 9, Idaho Code.

48-802. INJUNCTIVE RELIEF.

(1) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(2) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.

(3) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

48-803. DAMAGES.

(1) Except to the extent that a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.

(2) If willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award made under subsection (1) of this section.

48-804. PRESERVATION OF SECRECY.

In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in-camera hearings, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.

48-805. STATUTE OF LIMITATIONS.

An action for misappropriation must be brought within three (3) years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim.

48-806. EFFECT ON OTHER LAW.

(1) Except as provided in subsection (2) of this section, this chapter displaces conflicting tort, restitutionary, and other law of this state providing civil liability remedies for misappropriation of a trade secret.

(2) This chapter does not affect:

(a) Contractual remedies, whether or not based upon misappropriation of a trade secret; or

(b) Other civil remedies that are not based upon misappropriation of a trade secret; or

(c) Criminal remedies, whether or not based upon misappropriation of a trade secret.

48-807. SHORT TITLE.

This chapter may be cited as the “Idaho Trade Secrets Act.”

Oregon Trade Secrets Act: OR. Rev. Stat. §§646.461 et seq. (1995)

TRADE SECRETS

646.461 Definitions for ORS 646.461 to 646.475. As used in ORS 646.461 to 646.475, unless the context otherwise requires:

(1) “Improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means. Reverse engineering and independent development alone shall not be considered improper means.

(2) “Misappropriation” means:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who used improper means to acquire knowledge of the trade secret;

(c) Disclosure or use of a trade secret of another without express or implied consent by a person who, before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake; or

(d) Disclosure or use of a trade secret of another without express or implied consent by a person, who at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was:

(A) Derived from or through a person who had utilized improper means to acquire it;

(B) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(C) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use.

(3) “Person” means a natural person, corporation, business trust, estate, trust, partnership, association, joint venture, government, governmental subdivision or agency or any other legal or commercial entity.

(4) “Trade secret” means information, including a drawing, cost data, customer list, formula, pattern, compilation, program, device, method, technique or process that:

(a) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. [1987 c.537 §2]

646.463 Enjoining misappropriation; payment of royalties; affirmative acts.

(1) Actual or threatened misappropriation may be temporarily, preliminarily or permanently enjoined. Upon application to the court, an injunction shall be vacated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(2) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of the misappropriation that renders a prohibitive injunction inequitable.

(3) In appropriate circumstances, the court may order affirmative acts to protect a trade secret. [1987 c.537 §3]

646.465 Damages for misappropriation.

(1) A complainant is entitled to recover damages adequate to compensate for misappropriation, unless a material and prejudicial change of position by a defendant prior to acquiring knowledge or reason to know of the misappropriation renders a monetary recovery inequitable.

(2) Damages may include both the actual loss caused by misappropriation, and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss, but shall not be less than a reasonable royalty for the unauthorized disclosure or use of a trade secret.

(3) Upon a finding of willful or malicious misappropriation, punitive damages may be awarded in an amount not exceeding twice any award made under subsections (1) and (2) of this section. [1987 c.537 §4]

646.467 Attorney fees.

The court may award reasonable attorney fees to the prevailing party if:

(1) A claim of misappropriation is made in bad faith;

(2) A motion to terminate an injunction is made or resisted in bad faith; or

(3) Willful or malicious misappropriation is found by the court or jury. [1987 c.537 §5]

646.469 Preservation of trade secret by court; methods.

In any action brought under ORS 646.461 to 646.475, the court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding in camera hearings, sealing the records of the action or ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval. [1987 c.537 §6]

646.471 Limitation on commencement of action.

An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered. For the purposes of this section, a continuing misappropriation constitutes a single claim. [1987 c.537 §7]

646.473 Conflicting tort, restitution or other law providing civil remedies; exclusions for certain other remedies; limited immunity for public bodies and officers, employees and agents.

(1) Except as provided in subsection (2) of this section, ORS 646.461 to 646.475 supersedes conflicting tort, restitution or other law of Oregon providing civil remedies for misappropriation of a trade secret.

(2) ORS 646.461 to 646.475 shall not affect:

(a) Contractual remedies, whether or not based upon misappropriation of a trade secret;

(b) Other civil remedies that are not based upon misappropriation of a trade secret;

(c) Criminal remedies, whether or not based upon misappropriation of a trade secret; or

(d) Any defense, immunity or limitation of liability afforded public bodies, their officers, employees or agents under ORS 30.260 to 30.300.

(3) Notwithstanding any other provision in ORS 646.461 to 646.475, public bodies and their officers, employees and agents are immune from any claim or action for misappropriation of a trade secret that is based on the disclosure or release of information in obedience to or in good faith reliance on any order of disclosure issued pursuant to ORS 192.410 to 192.490 or on the advice of an attorney authorized to advise the public body, its officers, employees or agents. [1987 c.537 §8]

646.475 Application and construction of ORS 646.461 to 646.475; short title; effect of invalidity.

(1) ORS 646.461 to 646.475 shall be applied and construed to effectuate their general purpose to make uniform the law with respect to the subject of ORS 646.461 to 646.475 among states enacting them.

(2) ORS 646.461 to 646.475 may be cited as the Uniform Trade Secrets Act.

(3) If any provision of ORS 646.461 to 646.475 or its application to any person or circumstances is held invalid, the invalidity shall not affect other provisions or applications of ORS 646.461 to 646.475 which can be given effect without the invalid provision or application, and to this end the provisions of ORS 646.461 to 646.475 are severable. [1987 c.537 §§9,10,11]

One author{1} indicates, “another technique for identifying trade secrets is to send a memorandum to all department heads asking them to list potentially protectable trade secrets. The memorandum should contain an easily understandable definition of the type of information sought. For example, the memorandum might explain that:

“A trade secret can consist of a formula, pattern, compilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular operation or service. A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and requirements of customers.”{2}

After the department head has completed the list, the compliance committee or in-house corporate counsel should review it.{3} The department head should then be interviewed to determine which items on the list should be protected.

Along with the identification process, an attempt should be made to document the time, expense, and investment of the corporation in creating and developing the trade secret information.{4} Such documentation can especially be important in litigation.{5} Two of the six factors considered by the Restatement (First) of Torts in ascertaining whether information is entitled to trade secret status relate to value. In particular, the Restatement (First) of Torts considers the value of the information to the trade secret owner and to its competitors, and the amount of effort and money expended by the trade secret owner in developing the information.{6}

As a result, accurate records should be kept to reflect the amount of time and money invested by the corporation in the research and development work that results in the trade secrets. The records should document the difficulties encountered in developing the trade secrets including the failed work.{7} Examples of documents to be included in this program include time sheets, diaries, notebooks, computer databases, and logs.{8} The information in these materials should include the following:

1. dates and types of efforts;
2. persons involved with or knowledgeable about the project;
3. time and place of any disclosure; and
4. identity and position of all persons who have had access to the information to be protected.”

{1}See 8 Corporate Compliance Series, Designing An Effective Intellectual Property Compliance Program (2002).
{2}See Restatement (Third) of Unfair Competition § 39 cmt d.
{3}Before this documentation is created, it is wise to consider whether it may be some day discovered in litigation. Therefore, it is suggested that this process occur under in-house corporate counsel’s supervision.
{4}Jager, Trade Secrets Law § 5.05[2] [c][i] (1991).
{5}E.g., Modern Controls, Inc. v. Andreadakis, 578 F.2d 1264, 1269 (8th Cir. 1978) (“Andreadakis claims that he and the persons he was working with developed no confidential business information during his employment that he did not already know. He argues that he left Modern Controls with no more information than he possessed when he left Control Data. The affidavits submitted by Andreadakis do not support this contention. To the contrary, the unrefuted evidence shows that during the time of this employment, the device moved from an unmarketable state to a marketable one and that this transition was accomplished after Modern Controls invested over $500,000 and utilized approximately one-half, or seventeen, of its employees over a sixteen-month period.” (footnote omitted)).
{6} Restatement (First) of Torts § 757 cmt b (1939) (“ (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information;….”).
{7}Jager, Trade Secrets Law § 5.05[2] [c][i] (1991).
{8}Jager, Trade Secrets Law § 5.05[2] [c][i] (1991).
{9}Jager, Trade Secrets Law § 5.05[2] [c][i] (1991).

The dispute over trade secret protection for the religious scriptures of the Church of Scientology continued in Religious Technology Center v. Netcom On-Line Communication Services, Inc. (”Netcom I”).{3} As in the Lerma case, the defendant Erlich in the Netcom I case had posted portions of the religious scriptures of the Church on the Internet. A preliminary injunction based upon violation of trade secrets was denied initially on the ground that there was no showing of a likelihood of succeeding on the trade secret claim. The court noted that while the Internet “has not reached the status where a temporary posting on a newsgroup is akin to publication in a major newspaper or on a television network, those with an interest in using the Church’s trade secrets to compete with the Church are likely to look to the newsgroup. Thus, posting works to the Internet makes them “generally known’ to the relevant people–the potential “competitors’ of the Church.”{4}

The defendant Erlich in Netcom I argued that no trade secret misappropriation had occurred because he did not charge anyone for the materials and thus had not profited from the use of the trade secrets. The court rejected this argument. Nothing in the USTA or the California Act required that the defendant gain an advantage from the disclosure. It was a sufficient “use” by disclosure of a trade secret with actual or constructive knowledge that the secret was acquired under circumstances giving rise to the duty to maintain secrecy under Section 3426.1(2) of the California Trade Secrets Act. In conclusion, the court noted: “Thus Erlich’s admitted posting of the information, regardless of any alleged fair use defense or lack of financial motive, may constitute misappropriation of the Church’s trade secrets.”{5}

The court in Religious Technology Center v. Netcom On-Line Communication Services, Inc. (”Netcom II”){6} reconsidered and revised its decision with respect to Internet postings in response to a later request for expanded preliminary injunction. During these weak reconsideration proceedings, the Church of Scientology was able to raise serious questions as to whether specific processes and instructions contained in the documents taken by the defendant Erlich qualified as trade secrets. After reviewing its prior decision, the court in Netcom II noted:

Nevertheless, the Court believes that its statement in its September 22, 1995 order that “posting works on the Internet makes them “generally known’ to the relevant people” is an overly broad generalization and needs to be revised. The question of when a posting causes the loss of trade secret status requires a review of the circumstances surrounding the postings and consideration of the interest of the trade secret owner, the policies favoring competition and the interest, including First Amendment Rights, of innocent third parties who acquire information off the Internet.

* * *
The relevant inquiry is whether the documents for which trade secret protection is sought are “generally known” to the relevant people–the potential competitors of the Church. . . . Nevertheless, defendant has not established the extent to which the specific practices and instructions contained in the works are known generally or to potential competitors.{7}

The court weighed the balance of hardships, and entered a limited preliminary injunction enjoining the disclosure of the alleged trade secrets.

Other courts have had difficulty in accepting the concept that trade secrets cannot be maintained in this digital age, and that one click of a computer button to post information on the Internet destroys all trade secret rights. In DVD Copy Control Ass’n v. McLaughlin,{8} the court entered an injunction prohibiting the defendant from posting or otherwise disclosing or distributing on their web sites or elsewhere an encryption program developed by the plaintiff to protect copyrighted materials stored on DVDs. The encryption algorithm and master keys were shown to be the type of proprietary information that would qualify as trade secrets under the California Trade Secrets Act. The alleged defense that the information was obtained by reverse engineering was dismissed, because the defendant was subject to a “click license,” which preconditioned installation of the DVD software on an agreement not to reverse engineer. In explaining the grant of a preliminary injunction, the court held:

The Court is not persuaded that trade secret status should be deemed destroyed at this stage merely by the posting of the trade secret to the Internet. Religious Technology Center vs. Netcom on-Line.com. To hold otherwise would do nothing less than encourage misappropriators of trade secrets to post the fruits of their wrongdoing on the Internet as quickly as possible and as widely as possible thereby destroying a trade secret forever. Such a holding would not be prudent in this age of the Internet.{9}

The posting of trade secrets on the Internet was also involved in Ford Motor Co. v. Lane.{10} The District Court found that the defendant Lane had posted strategic marketing and product development plans of Ford on his web site. It also found that Ford presented substantial evidence to support the claim that the defendant violated the Michigan Uniform Trade Secrets Act. However, a preliminary injunction restraining the defendant’s publication of these trade secrets was denied on the grounds that it would constitute an invalid prior restraint of speech in violation of the First Amendment.

{1}Religious Technology Ctr. v. Lerma, 908 F. Supp. 1362, 37 U.S.P.Q.2d 1258, 1262 (E.D. Va. 1995) (appeal pending)
{2}37 U.S.P.Q.2d at 1263.
{3}Religious Technology Center v. Netcom On-Line Communication Services, Inc., 923 F. Supp. 1231 (N.D. Cal. 1995).
{4}Religious Technology Center v. Netcom On-Line Communication Services, Inc., 923 F. Supp. 1231, 1256 (N.D. Cal. 1995).
{5}Religious Technology Center v. Netcom On-Line Communication Services, Inc., 923 F. Supp. 1231, 1257 n.31 (N.D. Cal. 1995).
{6}Religious Technology Center v. Netcom On-Line Communication Services, Inc., 1997 U.S. Dist. LEXIS 23572 (N.D. Cal. January 3, 1997).
{7}Religious Technology Center v. Netcom On-Line Communication Services, Inc., 1997 U.S. Dist. LEXIS 23572 (N.D. Cal. January 3, 1997).
{8}DVD Copy Control Ass’n v. McLaughlin, No. CV 786804, 2000 WL 48512 (Super. Ct. Cal. 2000).
{9}DVD Copy Control Ass’n v. McLaughlin, No. CV 786804, 2000 WL 48512 (Super. Ct. Cal. 2000).
{10}Ford Motor Co. v. Lane, 68 F. Supp. 2d 745, 52 U.S.P.Q.2d 1354 (E.D. Mich. 1999).

The Economic Espionage Act of 1996 (the “EEA”, now codified in 18 U.S.C. §§1831-1839) has created an important change in the law relating to the protection of trade secrets; namely, it provides for trade secret protection at the federal level. Specifically, the EEA was enacted as a federal criminal statute and, as such, it is enforced by the U.S. Department of Justice and its U.S. Attorneys’ offices located in each federal district across the country. The EEA does not provide for a private civil right of action. Accordingly, a victim of trade secret theft seeking redress must persuade the federal prosecutor in its judicial district that their particular case is worthy of prosecution.

The EEA contains two operative sections describing the conduct that is prohibited by the law. Section 1831 applies to actors engaged in foreign economic espionage, and requires that the theft of trade secrets benefit a foreign government, instrumentality or agent. Section 1832 is a general criminal trade secrets statute; applicable to anyone engaged in the common misappropriation of trade secrets. Both sections punish one who knowingly: (1) steals or misappropriates trade secrets, (2) receives misappropriated trade secrets, or (3) participates in a conspiracy to misappropriate trade secrets. 18 U.S.C. §§ 1831(a) and 1832(a). The territorial scope of the EEA is essentially limitless: it criminalizes not only acts conducted within the United States, but also foreign acts, provided the actor is a United States resident, 18 U.S.C. § 1837(1), or any “act in furtherance of the offense was committed in the United States.” 18 U.S.C. § 1837(2).

Individuals who violate section 1832 (domestic misappropriation of trade secrets) face penalties of up to ten (10) years in prison and unspecified fines. 18 U.S.C. § 1832(a). (Under federal law, the general maximum fine for felonies is $250,000.) Corporations or other organizations that violate section 1832 may be fined up to $5 million. The penalties for engaging in foreign economic espionage in violation of section 1831 (foreign economic espionage) are even greater: the maximum organizational fine is increased to $10 million and the maximum prison term is raised to fifteen (15) years.

The only Washington case to mention inevitable disclosure is an unpublished Washington Court of Appeals case, Solutec Corp. v. Agnew, 88 Wash. App. 1067, 1997 WL 794496 (Wash. App. 1997) (noting the lack of Washington law on inevitable disclosure) (unpublished){1}. Solutec has no precedential value; therefore, it is for this Court to decide whether inevitable disclosure should be considered law in Washington for purposes of this case. See Wash. Rev. Code Ann. 2.06.040.

Additionally, inevitable disclosure was not essential to the Solutec case. The main issue in that case was whether certain edible wax formulas were trade secrets, because the defendants had actually threatened to use the formulas, asserting that they were not trade secrets. See Solutec 1997 WL 794496 at *1, 4 (trial court made a specific finding that defendants had threatened to misappropriate plaintiff’s trade secrets). The Solutec decision also does not discuss the inevitable disclosure doctrine directly, it simply cites favorably to PepsiCo in a short two-paragraph discussion.

1. Inevitable disclosure improperly restricts the freedom of individuals to pursue their careers by changing jobs.

Inevitable disclosure operates as a constraint on freedom of employment by allowing employers to enjoin former employees from working for competitors without a covenant not to compete. See PSC Inc. v. Reiss, 111 F. Supp.2d 252, 256 (W.D.N.Y. 2000) (”in cases that do not involve the actual theft of trade secrets, the court is essentially asked to bind the employee to an implied-in-fact restrictive covenant based on a finding of inevitable disclosure.

Such a constraint on freedom of employment is contrary to Washington’s trade secrets and employment laws. In what is easily the most comprehensive case addressing Washington trade secrets law, the Washington Supreme Court, sitting en banc in a case subsequent to the unpublished Solutec decision, stated that “[a]s a general rule, an employee who has not signed an agreement not to compete is free, upon leaving employment, to engage in competitive employment.” Ed Nowogroski Ins. Inc. v. Rucker, 137 Wash.2d 427, 437 (Wash. 1999). The court went on to say that former employees remain under a duty not to disclose their former employer’s trade secrets and that when those trade secrets are improperly used, then that competitive activity can be enjoined or damages can be awarded. Id. at 437-8. Nothing in that opinion indicates that employees can be enjoined from working in their chosen profession under the Washington UTSA absent a showing of actual or threatened misappropriation. While the Washington Supreme Court did not address inevitable disclosure directly,{2} inevitable disclosure is contrary to the Court’s broad proclamation in favor of employee mobility. Indeed, courts that have rejected the inevitable disclosure doctrine have consistently emphasized the constraints it places upon freedom of employment in the absence of a non-compete agreement as a main reason for rejecting the doctrine. See e.g., Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp.2d 1120 (N.D. Cal. 1999) (stating that applying inevitable disclosure when there is no showing of actual or threatened use or disclosure “creates a de facto covenant not to compete”); EarthWeb, Inc. v. Schlack, 71 F. Supp.2d 299, 311 (S.D.N.Y. 1999) (”[c]learly, a written agreement that contains a non-compete clause is the best way of promoting predictability during the employment relationship and afterwards”); and PSC, 111 F. Supp.2d at 256-7.

2. Inevitable disclosure gives too much power to employers.

In addition to creating de facto covenants not to compete, inevitable disclosure gives employers a powerful tool by which they can improperly threaten and cower employees into staying with the company. See EarthWeb, 72. F. Supp.2d at 310-11 (describing how inevitable disclosure can be a “powerful weapon” in the hands of an employer and how the threat of litigation can have a “chilling effect” on employees’ legal right to switch jobs).

In contrast, a non-compete agreement is negotiated in advance, mutually agreed upon, and provides specific guidance regarding prohibited actions. See EarthWeb, 71 F. Supp.2d at 310-11 (describing the numerous problems with applying the inevitable disclosure doctrine, which the court described as “fraught with hazards,” including the lack of a “frame of reference because there is no express non-compete to test for reasonableness”).

With the inevitable disclosure, however, employers can get all of the benefits of a non-compete agreement (including the threat of it, which is perhaps the most important of all) without having to give up or negotiate anything. See EarthWeb, 71 F. Supp.2d at 310-11 (stating that the “chilling effect” caused by the “risk of litigation” posed by inevitable disclosure and other “constraints should be the product of open negotiation”). Inevitable disclosure is simply not consistent with Washington law, which supports the rights of employees to freely move between jobs.

3. Adoption Of Inevitable Disclosure Is Contrary To Washington’s Public Interest.

Separate and apart from inherent fairness to employees, there is a strong argument that freedom of employee movement helps promote a state or region’s economy, especially in the field of technology, and that restrictions on employee movement can impede growth. For example, Professor Ronald Gilson has argued that one of the main reasons for the boom in Silicon Valley, compared to Massachusetts Route 128,{3} was due to California’s refusal to enforce non-compete agreements, allowing much more employee mobility and consequently, a greater sharing of knowledge. Ronald J. Gilson, The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete, 74 N.Y.U.L. Rev. 575 (1999); see also AnnaLee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (1994). Indeed, Gilson specifically argued against the adoption of inevitable disclosure, arguing that it could end California’s economic advantage over other regions. See Gilson, 74 N.Y.U.L. Rev. at 622-27.

While adoption of inevitable disclosure might have a more dramatic effect on California, due to its general refusal to enforce covenants not to compete, a stronger argument could be made for applying it in California for just that reason. In contrast, Washington enforces reasonable non-compete agreements. See Knight, Vale and Gregory v. McDaniel, 680 P.2d 448, 451-52 (Wash. App. 1984) (citing Sheppard v. Blackstone Lumber Co., Inc., 540 P.2d 1373 (Wash. 1975). If employers want to restrict valuable employees from working for competitors in Washington, then they can negotiate a non-compete agreement with that employee. Similarly, employers have remedies under traditional trade secrets laws for former employees that actually disclose or threaten to disclose trade secrets. Inevitable disclosure simply gives employers a weapon that they already demonstrated it will use improperly. And as professor Gilson demonstrates, inevitable disclosure is contrary to the interests of the public at large.

In September 2002, a California appellate court ruled that the theory of “inevitable disclosure” is not recognized in California. The decision, Whyte v. Schlage Lock Co., 101 Cal. App.4th 1443 (Cal App. 2002), is important for trade secrets law, even though several federal courts have already rejected the “inevitable disclosure” theory. The Whyte court made clear that the “inevitable disclosure” theory conflicts with California’s strong policy in favor of every employee’s right to take the job of his or her choice. It also rejected the idea that the phrase “threatened misappropriation” in California’s Uniform Trade Secrets Act is a proxy for “inevitable disclosure” lawsuits. The critical portions of California’s Uniform Trade Secret laws are exactly the same as Washington’s statutes.

On January 2, 2002 a New York appellate court ruled that the doctrine of inevitable trade secret misappropriation is greatly disfavored and presumably not the law of New York. (Marietta v. Fabhurst, 2002, WL 31898398 (N.Y.A.D. Dept. 3 2002). However, the district court started to change its opinion in 2006. In Estee Lauder Cos. V. Batra, for example, the court found “[e]ven where a trade secret has not yet been disclosed, irreparable harm may be found based upon a finding that trade secrets will inevitably be disclosed…” Estee Lauder Cos. V. Batra, 430 F Supp 2d 158, 174 (S.D.N.Y. 2006). Here are some case notes:

1. Estee Lauder Cos. V. Batra, 430 F Supp 2d 158, 174 (S.D.N.Y. 2006) “Even where a trade secret has not yet been disclosed, irreparable harm may be found based upon a finding that trade secrets will inevitably be disclosed, where…the movant competes directly with the prospective employer and the transient employee possesses highly confidential or technical knowledge concerning []marketing strategies, or the like.”

2. Payment Alliance International, Inc v. Ferreira, 530 F. Supp. 2d 477, 481(S.D.N.Y. 2007).The court in this case directly discussed Marietta Corp. v. Fairhurst, “Thus, while these cases suggest that proof of inevitable disclosure would not provide a basis for injunctive relief independent of an express restrictive covenant. In fact, “a number of recent decisions, principally from federal district court applying New York law, have used proof of inevitable disclosure as a basis for enforcing restrictive covenants.”

3. IBM v. Mark D. Papermaster, 2008 WL 4974508, (S.D.N.Y. 2009)->The Court cited Estee Lauder v. Batra to support its order that the defendant is enjoined from working for or with direct competitor of plaintiff until further order of the Court.

{1} Washington law is quite clear in stating that unpublished opinions have no precedential value. See Wash. Rev. Code Ann. § 2.06.040 (”All decisions of the court having precedential value shall be published as opinions of the court. Each panel shall determine whether a decision of the court has sufficient precedential value to be published as an opinion of the court. Decisions determined not to have precedential value shall not be published.”).
{2}There was no dispute in Nowogroski regarding misappropriation, the issue was whether the information in question was a trade secret or not.
{3}In 1968, technology employment in Route 128 was triple that of Silicon Valley. Over the next few decades, Silicon Valley surged past Route 128. See Gilson, 74 N.Y.U.L. Rev. at 586-87.

Copyright infringement can occur willfully or “accidentally,” but copyright law prohibits both. One federal court recently held, “there is no need to prove anything about a defendant’s mental state; [copyright infringement] is a strict liability tort.” A strict liability tort is a legal wrong that does not require a “mental intent.”

In other words, a copyright owner, does not need to prove a defendant intentionally infringed the copyright in order to create liability because it is a “strict liability” tort [1]. If you copy a picture from the Internet without permission, for example, you can be liable for damages even if you did not know the picture was copyrighted. That is the essence of “strict liability.”

Further, if you hire someone (an employee or an independent contractor or a web designer) you are also liable for using a pictures posted to your website by that third party even if you did not know what they did. Said another way, the business displaying the copyrighted work without permission on their website is liable as the end user.

In fact, two or more people can be liable for the same act or acts of copyright infringement. This is called “joint liability.” If parties have joint liability, then they are each liable up to the full amount of the damages. Courts have found joint liability in such circumstances as a corporation’s president being jointly liable for publication of imagery from a CD-Rom. Other examples include website owners held liable for a third-party uploading content on their website (owner of website, infringed copyrights by distributing copyrighted photographs, even when website operator did not know that the photographs had been uploaded onto website).

If your web designer is liable so are you. Sadly, the party with the deepest pockets is the one that will likely get sued. In most cases that is the business owner that hired the web designer. The damages for this type of infringement can also be quite steep.

Under federal law, a copyright owner can be entitled to a $750 to $30,000 per infringement. If it is shown that the infringement is willful the law allows as much as $150,000 per infringement.

Recent jury awards have ranged from $675,000.00 to in excess of $1 Million dollars in damages for copyright infringement. One recent jury in Western Washington awarded over one-million dollars in damages for unauthorized use of as few 5 photographs or images. In another recent case a jury awarded $675,000 for infringing as few as 30 copyrighted works. The old adage, “ignorance of the law is never an excuse” applies to copyright law because even if you didn’t know, you might still be liable.

In some cases a standard business liability insurance policy (“slip and fall” policies) will cover copyright infringement claims made against a business. This is called “advertising insurance.” Ask your insurance agent if you have such coverage or consult a knowledgeable intellectual property or insurance lawyer can help determine if you have such coverage.

Above all, do not use copyright content without permission. A good general rule of thumb is, “if you did not take the picture, it is not yours.”

Double check your business insurance policies to make sure you are covered for “advertising” injuries because these types of claims can sneak up on you and in many cases you might be completely unaware of latent liabilities. Lastly make sure you have a good contract with any website developer and use only reputable companies. A development company located abroad might seem cheap until you get served with a copyright infringement lawsuit.

[1] Educational Testing Service v. Simon, 95 F. Supp. 2d 1081, 1087 (C.D. Cal. 1999) (holding copyright infringement occurred because the plaintiff owned the copyright and the defendant copied protected material).

Originally Published in the January 2010 Edition of Seattle Business Magazine

DEFINING THE SLANG

A “trademark” or “service mark” can be made up of any word, name, symbol, logo, color, sound, or product shape or any combination of these elements. Typically, a trademark is used to mark goods. Alternatively, a service mark is used when selling services. This article refers to trademarks and service marks synonymously. A trade name, which is similar to a trademark, merely represents the name of a company. Similarly, a domain name is part of a unique address that identifies a particular web site on the Internet. Typically, trademarks trump trade names and domain names and, therefore, registering one’s trade name with the state is not good enough to protect rights in the trademark. The same is true of domain names.

PROTECTING ONE’S MARKS

Generally speaking, trademarks can be protected in four different ways. First, trademarks can be nationally registered through the United States Patent and Trademark Office. Second, trademarks can be registered on a state-by-state basis. Third, trademarks can be protected within specific geographic areas under the common law of particular states. Fourth, trademarks can be protected internationally. As an aside, charitable groups, non-profit corporations, professional and fraternal groups and educational and religious institutions receive the same protection against confusing use of trademarks and corporate names as for profit business organizations.

BENEFITS OF FEDERAL TRADEMARK REGISTRATION

The benefits of federal trademark registration are immense. Some of the advantages are:

1. One registration covers fifty states;

2. One can use the ® symbol with one’s mark upon registration;

3. Once a federal registration is filed any common law rights being developed by competitors are stopped at their current extent;

4. Federal trademark registrations add value to a company’s intangible asset portfolio;

5. Tactical and substantive advantages in domain name disputes are gained;

6. One gets international priority in many foreign countries when filing for additional trademark registrations;

7. Court ordered damages can sometimes be tripled for federally registered trademarks;

8. The federal court system can be used to stop infringement of one’s marks;

9. A federal trademark registration can be entered into evidence in court to prove your trademark is valid and that you own the mark;

10. One gains potential future revenue from trademark licensing;

11. The United States Customs Service can be asked to stop goods marked with infringing trademarks from entering the United States; and,

12. The registered mark will show up prominently in other people’s trademark clearance searches (including the searches conducted by the Patent and Trademark Office)making it less likely that other businesses will chose to use your mark.

IMPORTANCE OF TRADEMARK SEARCHING AND CLEARANCE

Before a company invests substantial money on advertising, business cards, store signs, customer recognition, etc. a comprehensive trademark search should be conducted and reviewed. A comprehensive trademark search will typically examine marks on the Federal Registry, all fifty state trademark registries, common law sources including business records and newspapers, and Internet sources such as domain name registrations. A comprehensive search will look for marks that are exactly the same as the suggested mark as well as “look alike” and “sound alike” marks.

A full trademark search will also consider marks that share common elements with the suggested mark, even if the marks appear quite different. This can be important in some cases. A written opinion interpreting the search results in light of legal trends and case law is also strongly recommended. In some cases, the process of conducting a trademark search and reviewing the results with a knowledgeable attorney results in a business modifying their mark or identity. In these cases, an ounce of prevention is worth a pound of cure. No one wants to face expensive litigation that may result in being forced to change one’s mark, pay damages to the other side, and risk losing one’s customer recognition.

In many cases a full trademark search and written opinion results in specific strategies that help mitigate the risks described above. Often these same strategies help in actually getting one’s trademark registered with the Patent and Trademark Office as well.

CHOOSING A STRONG TRADEMARK

Choosing a strong trademark can be one of the most important decisions that a business owner makes. Sometimes businesses are wed to a particular mark — making no other choice available. In these cases it is important to understand the strengths and weaknesses of the mark from a protection and registration standpoint.

Understanding one’s mark in this way allows for the appropriate development of registration and protection strategies that can help make a weak mark stronger. The process of understanding the relative strength of an existing trademark is the same as the first step in choosing a new mark from scratch.

Whether one’s mark has been predetermined or not, the first step in “choosing a strong mark” is to determine where the mark exists on a spectrum of protectability. Trademarks range from very weak and non-registerable to very strong and easily registered. Obviously, from a registration point of view, one end of the spectrum is highly desirable while the other end is much less so.

On the weaker end of the spectrum, one finds marks that are classified as “generic.” A generic mark is not protectable as a trademark. Use of such a mark is not recommended since anyone could use the same mark in the same way without legal consequence. A generic mark is one that has become so widespread that the consuming public no longer associates it with a particular company.

Ironically, owners of some of the most famous marks have had to fight to keep their once unique marks from becoming generic. KLEENEX for tissues and JEEP for small four-wheel drive vehicles are examples of marks that have come dangerously close to becoming generic. One step up from a generic mark is a group of marks referred to as “descriptive” or “merely descriptive.” Descriptive marks are exactly what their name implies – descriptive of particular goods or services. The fictional trademark CANNED GOODS for canned food products would be considered descriptive of canned goods. This mark might also be considered generic.

Using the same mark to sell books, however, would be considered arbitrary (which is a good thing, as described later). Sometimes descriptive marks can be registered and protected when one can show that the mark has become well known or, in other words, has “acquired distinctiveness.” A descriptive mark can often be placed on the supplemental federal registry and after five years it can often be registered as having become “distinctive,” and therefore no longer “descriptive.” Marks that are merely descriptive of goods and services should be used with caution and avoided when there is a choice. It is also important to note, however, that even a mark that has a weak placement on the trademark spectrum can be considered strong if the mark is widely recognized and has “commercial strength.” One step up from descriptive marks are marks referred to as “suggestive.”

Many times one can argue that a mark appearing to be descriptive is actually suggestive. A suggestive trademark, while not being the strongest of marks, is registerable. A suggestive mark is one that requires some degree of imagination to associate the mark with the goods and services. An example of a suggestive mark would be Technology for mechanical parts and computer hardware. The word technology describes the goods (to some extent) but the exact nature of the goods is not clear from the mark alone. Of course, as a practical matter, the further away one gets from generic, descriptive, and suggestive marks the stronger the resulting mark will be.

The best kind of mark one can have is described as “arbitrary or fanciful.” An arbitrary mark is made of common words, like “CANNED FOOD,” but applied to goods and services where there is no rational connection between the goods and the mark (like CANNED FOOD for the sale of paperback books). In an etymological sense, the association between the goods and the mark is “arbitrary.” A fanciful mark is one that has no current existence in our lexicon (it is simply “made up.”) Obviously, one’s intellectual property rights will be the strongest in marks that did not exist before they were “invented.” So, whether one has a mark or is thinking of a new mark, try to conceptualize where on the generic- descriptive-suggestive-arbitrary-fanciful spectrum the mark might fall. The further away from fanciful one gets the more important it will be to consult a trademark attorney about trademark searches, trademark registrations and, in some cases, trademark and/or advertising insurance.

TRADEMARKS “TRUMP” DOMAIN NAMES

Trademark law also applies to the Internet and domain names. Domain names are important marketing devices for corporations or businesses using the Internet, because customers and search engines use domain names to locate on-line businesses. A growing number of domain name trademark cases suggest that a trademark holder has no absolute right to use its trademark as a domain name.

The test for determining whether a trademark holder will be able to stop someone from using a similar domain name is the Likelihood of Confusion test. The Likelihood of Confusion test embodies the primary principle of traditional trademark law, namely that consumers should not be confused or deceived into buying goods or services based on false or confusing sponsorship. Other recent trademark cases suggest that a trademark holder might have an advantage in a domain name dispute.

One procedure often used by trademark owners to secure domain names being used by other people that are confusingly similar is offered by ICANN (Internet Corporation for Assignment of Names and Numbers). The procedure is an In Rem action against the domain name itself and results in a somewhat speedy and relatively inexpensive arbitration. The procedure seems to favor trademark owners.

INTERNATIONAL TRADEMARK LAW STRATEGY

International trademark strategy has two primary components. The first component involves acquiring and protecting trademark rights. The second component is making sure that one’s trademarks are not infringing a mark protected in a foreign jurisdiction. An international trademark strategy should reflect the concerns and conditions of one’s company, one’s target markets, and one’s industry.

Company concerns involve considerations such as: marketing strategy, budget, distributor relationship, and risk management. Understanding and refining an international marketing plan is critical to developing an effective international trademark protection strategy. The following five steps should be considered when refining an international marketing plan. First, define the geographic area of the target market. Second, identify the target markets of immediate importance. Third, identify target markets of secondary importance. Fourth, develop a timetable for entering into specific target markets. Fifth, create a budget to spread costs over time, if possible. When defining target markets, don’t forget to account for worldwide Internet sales if appropriate.

Trademark Law in Other Countries

Because of the national, regional, and international components of international trademark protection strategy, local and national laws as well as international agreements and treaties must be considered. Other relevant factors relate to a particular country’s intellectual property trends, culture, and local policy.

Trademark law throughout the world can be grouped roughly into two categories. The first category is based on what is called the “first-to-use” rule. The second category is based on what is known the “first-to-file” rule. The United States follows the first-to-use rule. China, for example, uses the first-to-file
rule.

In first-to-use countries, trademark priority is given to the first party that actually uses the mark in that particular country. In first-to-file countries, on the other hand, trademark use alone will not establish any rights to a mark. As a matter of practical importance, consider the risk that a junior user will register “your” mark and prevent you or your client from using it in many first-to-file countries (this might happen even though your client was the first one to actually use the mark).

Sometimes, strategic trademark filings can be used to minimize the risk posed by “mark sharks.” Additionally, some countries offer what is known as a defensive mark filing. When allowed, an applicant does not need to intend use of the defensive mark in the filed for country if use of the mark by another party in the country, even on dissimilar goods, would be likely to cause confusion. In many cases, strategic filings and defensive marks can be used to preserve rights in countries where future use and marketing is anticipated, but where there is no immediate intention or ability to enter a particular market.

Taking Advantage of International Treaties And Conventions

There are a variety of international trademark treaties and conventions. Different conglomerations of countries around the world have joined various collections of trademark treaties and conventions. The Paris Convention and the Madrid Protocol are among the more famous of these trademark treaties. The Paris Convention and the Madrid Protocol allow one to use a filing date from an earlier application on a new application when both countries are members of the Convention and/or Protocol and when the second filing occurs within six months of the first filing. The European Union also has special rules and regulations for registering European wide trademarks. Of course there are different costs, benefits and strategies involved with taking advantage of different international trademark treaties, conventions
and agreements.

International Trademark Marking Requirements

In many countries around the world, use of the ® is either optional or there is no provision for marking. In some countries, like the United States, specific benefits are offered for using the ® appropriately, such as eliminating certain damages defenses. In other countries, like China, Chile and Costa Rica for example, a proper registration notice is required in order to maintain the registration and trademark rights. There is a danger, however, of using the ® too freely on one’s international packaging. In some countries false or misleading use of the ® can result in fines, imprisonment, and other liability. Germany is one example.

International Strategy And Recommendations

If cost is not an issue, business owners doing substantial international business should consider filing trademark applications in all target countries at the same time using the broadest possible description of goods and services allowed in each country. When cost is an issue, Paris Convention priority filings can be used to help spread costs over a six-month period. Lastly, business owners should consider evaluating marketing plans in light of the advantages and disadvantages of filing for trademark protection under particular trademark conventions, treaties, and agreements, such as the Madrid Protocol and the trademark regulations of the European Union.

CONCLUSION

A trademark can be almost anything, including words, logos, colors, and sounds. The benefits of properly protecting one’s trademark rights are huge. All businesses should protect their trademarks, and you should advise your clients accordingly. In the United States federal trademark protection is the best. It is recommended that a trademark search and written opinion interpreting the same be prepared for all businesses with important trademarks. Trademarks can have a state component, a federal component and an international component. An international trademark strategy, like a domestic strategy, should reflect the concerns and conditions of one’s company, such as marketing strategy, budget, distributor relationships and risk management. In addition, one’s international trademark strategy should reflect the conditions of one’s industry and one’s target markets, including the laws, policies and cultures of one’s target countries.

ABOUT THE AUTHOR

Timothy B. McCormack is an intellectual property attorney from Seattle, Washington, with experience in both trademark registration and litigation. He can be reached at tim@mccormacklegal.com. Disclaimer: there is no substitute for legal advice as it relates to particular facts. Nothing in this article should be construed as legal advice.

Intellectual property is the United States’ second largest export (second only to agriculture). We have come a long way since the manufacturing glory days of Henry Ford. In the twenty-first century we still make tangible products but it is the intangible trademarks, copyrights, patents, and trade secrets that help make the bottom line count. The following introduction to intellectual property provides a brief overview of the intangible property protections that can help businesses and non-profit organizations.

Web Site Issues

A variety of legal issues can arise in developing and operating a web site. As the development of e-commerce unfolds, an organization’s web site presents valuable potential benefits to the organization. A web site, however, also exposes an organization to potential liabilities and violations of state and federal legislation and international laws. This is one of the fastest growing areas of the law. It is impossible to address every conceivable legal issue that might arise in the operation of the successful business. Organizations must, at least, consider a basic range of legal issues when developing and operating a web site.

Trade Secret Infringement

Trademark infringement is another common area of dispute. Trademark infringement actions can cover everything from domain name disputes and improper use of a company’s name, mark or symbol to infringement of the distinctive elements used to distinguish one’s web site on the Internet. Some trademarks are registered with the federal government. Some trademarks are registered on a state-by-state basis. Still other trademarks are protected without any registration at all under state common law. In comparative advertising it is usually acceptable to use another’s trademark so long as the advertisement does not cause consumer confusion as to the source or sponsorship of goods.

Copyright Infringement

Copyright protects creativity. The efforts of writers, artists, designers, software programmers and other talents need to be protected so that hard work can be rewarded. Copyrights, like patents and trademarks, are an effective tool against unauthorized manufacture, use, sales, or imports of one’s creative expression, including package design and in some cases product configuration.

Copyright registrations can be enforced at the United States border, creating a cost-effective way of stopping unlawful competing products from entering your key markets.

Trade Secret Infringement

A trade secret is any valuable or technical information used in business to gain competitive advantage that is also kept secret. Examples include the formula for Coca Cola and your customer or client lists. In order to qualify for trade secret protection, reasonable efforts must be made to maintain the secrecy of the business information. Trade secrets are protected under both state and federal law.

Licensing Intellectual Property

Licensing intellectual property to third parties allows a company or a non-profit corporation to exploit and capitalize on its assets. A company should appreciate that licensing empowers businesses to overcome constraints (e.g., capital, manufacturing capacity, research and development capacity, market knowledge, distribution, or trademark and patent protection, or limited employees) sooner and faster than they could otherwise, making them more competitive. Before licensing intellectual property, a company should fully understand its intellectual property rights and applicable laws.

Patent Infringement

Patent protection is helpful in stopping unauthorized manufacturing, use, sales, or imports of one’s invention in the countries where the patent has issued. Patents can be very expensive but are sometimes worth the cost. It is important to think about what can be patented and if the cost of procuring the patent is worth the benefit.

Patents provide their owners with a monopoly of a particular invention/idea for a limited period of time. Patented inventions can range from the “turtle” bumps that separate our roadways to business methods and software for managing multi-tiered hub and spoke mutual funds. In many cases, patented inventions will be marked as “patented.” In some cases, however, patented inventions may not be properly marked. Interpreting what a patent covers or does not cover requires expert legal knowledge and sometimes expert technical knowledge. If patent infringement becomes an issue, the best advice is to seek expert advice.

The Right of Privacy and the Right of Publicity

The common law of many states protects individuals against intrusions into their personal privacy. There are four basic types of common law privacy intrusions. The four basic common law privacy intrusions are:
(1) unauthorized appropriation of a person’s name or likeness;[1]
(2) placing another person in a false light;[2]
(3) disclosure of private facts which are highly offensive and not newsworthy;[3]and
(4) unreasonable intrusion into an individual’s seclusion.[4] The right of publicity is similarly defined as the appropriation of the commercial value of a person’s identity, name or likeness without the person’s consent.[5]

As one can imagine, the posting of pictures or other information to one’s web site or bulletin board by customers can raise issues of: (1) copyright infringement; (2) violations of the right of privacy; and (3) violations of the right of publicity.

Defamation

The law of defamation, i.e., liable and/or slander, varies slightly from state to state, although the same basic principles apply everywhere. Defamation occurs when something false is spoken or written about a particular person and when that person is damaged by the defamation.[6] Ordinarily, one who repeats or republishes defamatory material is liable as if he or she had originally published it.[7] Entities such as news vendors and/or other distributors of defamatory material are sometimes not liable for defamation if they did not know of or have reason to know of the defamatory material.[8]

The Communications Decency Act, 47 U.S.C. § 230, provides some liability limitations to on-line service providers for defamation actions even when they know their services are being used to disseminate defamatory materials.[9] Specifically, the law says, “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Both “interactive computer service” and “information content provider” are defined broadly and would appear to encompass most on-line service providers, including entities operating entirely on the World Wide Web. [10]

The plain language of the statute and some case law dicta suggest that the Communications Decency Act might provide on-line service providers with a liability limitation that reaches far beyond simple defamation cases, reaching into other areas such as violations of privacy and publicity rights.

First Amendment Issues

In an age of “information” the First Amendment of the United States Constitution takes on new importance. Among other unique applications of the First Amendment, one court actually held that a United States export restriction on computer source code violated the First Amendment.

There are two legal tracts that are usually followed by courts when determining First Amendment protections in the United States. An analysis proceeding from the first tract offers greater protection and judicial scrutiny of regulations limiting the content of speech. The underlying idea is that any regulation limiting the content or “goods” found within the marketplace of ideas is unconstitutional, under any pretext (with a few notable exceptions).

The second tract allows the government, within the context of, “least restrictive means,” to put time, place, and manner restrictions on speech. The idea is that so long as the government is not regulating the content of the speech flowing into the market place it can say how and when the ideas may flow– if it has a legitimate reason.
The O’Brian case is a good example of a case from the second tract. The O’Brian court held that because the act of burning a draft card was not–itself—pure expression (but a combination of speech and non-speech acts), the government could regulate the time, place and manner of such expression because a “legitimate reason” was articulated. Because the Court found that the act of burning a draft card in public was not pure expression the stricter scrutiny of a first tract analysis was escaped.

The primary tension that runs through the “second tract” cases dealing with information dissemination is whether a given piece of information (book or aeronautical chart) is a product or expression. When courts find that information is a product, as opposed to pure expression, then product liability is imposed.

The legal trend in these cases seems to reason that useful products like the navigational charts are products and books and magazine articles are not products, even if the information in the books is useful. One exception to the First Amendment’s protection of expression is found in Brandenburg v. Ohio. Brandenburg holds that speech inciting imminent lawless activity is unprotected.

Brocklesby v. United States[11] holds that a graphical instrument approach chart is a product, subject to strict liability law even though the charts are based on governmental data.[12] As a general proposition the Brocklesby case represents the idea that under product liability law information can be considered a product if the information is manifested in a tangible medium like aeronautical charts.

The court in Winter v. G.P. Putnam’s Sons held that an encyclopedia containing misleading information about harvesting the most deadly kind of mushrooms was not a product for the purpose of product liability under the Restatement of Torts s 402(A).[13] The court reasoned that product liability is “geared to the tangible world.”[14] But, the court recognized that books have a material part and an expressive part and held that a “How to Use” book is “pure thought and expression.”[15] The legal distinction between the ideas in a book and the book itself can be found in a variety of cases. These cases generally hold that the information contained in books should not be considered a product for products liability purposes, whether the information is useful or dangerous.

In McKown v. Illinois Publishing and Printing the court refused to hold a newspaper liable for injuries to one of its readers resulting from the use of a dandruff remedy contained in one of the paper’s articles.[16] The court agreed with the statement that, “negligent words are not actionable unless they are uttered directly, with knowledge or notice that they will be acted on, to one to whom the speaker is bound by some relation of duty.”[17] This case was later held to stand for the proposition that ideas hold a privileged position in our society and are therefore not equivalent to commercial products. [18]

In Walter v. Bauer the court denied a strict tort liability claim that information contained in a chemistry book was unreasonably dangerous. [19] The court held that the chemistry book was not a product.[20] Further, the court noted that the plaintiffs proposed theory would put a chilling effect on the First Amendment Freedoms of Speech and Press because authors might become liable for writing on any topic that is potentially dangerous, such as beekeeping or timbering.[21]

In Cardozo v. True the plaintiff was poisoned while cooking when she tasted a bit of the ingredients mentioned in a recipe book. The ingredient she tasted was poisonous until cooked.[22] Her claim was premised on a theory of breach of warranty because the cook book contained inadequate instructions. In denying the claim the court drew a distinction between the physical book and the ideas contained within the book.[23] The court also recognized that it is unthinkable to require a merchant bookseller to evaluate the thought processes of the many authors and publishers who supply books for sale.[24] Another similar case is Brimingham v. Fodor’s Travel Publications where the court held that a travel book was not a product under products liability law.[25] The case involved a person who bought the travel guide and subsequently was injured on a dangerous beach.

In Herceg v. Hustler Magazine, Inc. the court holds, as a matter of law, an article explaining how to engage in the practice of autoerotic asphyxia cannot be considered incitement under the First Amendment and is thus protected speech. [26] Further the court found that imposition of civil liability damages on Hustler Magazine for publishing the article “Orgasm of Death” violated the First Amendment. [27] The court also identified four elements that must be established for a court to find that the Hustler publication was insightful under Brandenburg:

1) autoerotic asphyxiation is a lawless act;
2) Hustler advocated this act;
3) Hustler’s publication went even beyond “mere advocacy” and amounted to incitement; and 4) the incitement was directed to imminent action.[28]

The Rice v. Paladin Enterprises, Inc. case involved a hit man who followed instructions on how to become an assassin for hire found in a book about the practices and procedures of killers for hire. [29] The court reasoned that, “the only category of unprotected speech which the book “Hit Man” could conceivably be placed is incitement to imminent, lawless activity under Brandenburg.”[30]

The court, however, did not find that the book would incite, even if it did advocate lawless activity.

Liability Issues

Fundamentally, one of three basic theories of liability must be shown in order for a business or non-profit business to be liable for damages in most typical intellectual property cases. Understanding these theories of liability can help to avoid getting slammed with a needless and costly lawsuit. Also, understandably, these liability theories help one to understand how the different intellectual property laws will apply to various factual situations. The three basic theories of liability are:
(1) direct infringement;
(2) contributory infringement; and
(3) vicarious liability.[31]

Direct Infringement

A direct infringement theory of liability is used when the person who infringed the copyright or violated the right of privacy, etc. is asked to pay for the alleged damage (e.g, “you damaged me and therefore you should pay for my damages”).

By way of example, individual on-line users typically engage in direct infringements, such as posting copyrighted or private works on a bulletin board system or unlawfully copying material from a web site.

Contributory Infringement / Liability

Equally typical, the direct infringers noted above may have few financial resources or are difficult to track down, making a claim for contributory or vicarious liability against an on-line service provider more attractive. The Supreme Court has recognized that vicarious liability is a broad third-party liability theory, of which contributory infringement is a species.[32]

As a general rule, “one who, with knowledge of the infringing activity, induces, causes, or materially contributes to the infringing activity of another, may be held liable as a contributory” infringer.”[33] The “knowledge” element of contributory copyright infringement is objective; that is, the alleged contributory infringer must know or have reason to know of the work in question that constitutes an infringement. [34]

Ordinarily, one who repeats or republishes defamatory material is liable as if he or she had originally published it. [35] Entities such as newspaper vendors or other information distributors are generally not liable for defamation if they did not know of or have reason to know of the defamatory material being distributed by them. [36]

There are two categories of actions that typically give rise to contributory liability. The first is when the defendant acts in concert with the direct infringer by contributing labor to the infringing activity. Newspaper vendors and/or other distributors of defamatory material, for example, are sometimes liable for contributory infringement when they know or have reason to know they are distributing defamatory material. The second kind of action that typically gives rise to contributory liability is when the defendant acts in concert with the direct infringer by contributing materials or equipment necessary for the infringement to occur.[37]

Vicarious Liability

Under a more general theory of vicarious liability, two elements must be established. First, the (vicariously liable) third party has the right and ability to supervise infringing activities by the direct infringer (but not necessarily knowledge of the same).[38] Second, the (vicariously liable) third party must have a direct financial interest in the direct infringement.[39]

Considering the different theories of liability is also helpful when considering strategies for reducing Internet related liability issues. The three basic theories of liability that should be considered are:
(1) direct infringement;
(2) contributory infringement; and
(3) vicarious liability.

Limiting Direct Infringement Actions

Direct copyright infringement occurs when a particular business or one of its employees, agents, etc. violates someone else’s copyright while acting on behalf or for the profit of the particular business. Third party liability, on the other hand, as explained above, is when a particular business is liable for the infringing activities of unrelated third parties. Limiting claims of direct infringement can sometimes be as easy as avoiding activities that infringe other people’s legal rights. The following is a list of activities to avoid or approach with caution.

Avoid using other people’s trademarks

Avoid use of other people’s trademarks, package configurations, distinctive elements of a competitor’s web site, etc., without their permission. Use of a competitor’s trademark is often acceptable in comparative advertising or when discussing a competitor.

Avoid using other people’s patented inventions

Avoid using or emulating any invention that is marked as “patented” or “patent pending” without the advice of counsel. Patent infringement can be very expensive; approach with caution.

Avoid using or copying material that is presumably copyrighted

Avoiding the use of material that is presumably copyrighted will reduce the likelihood of a copyright infringement action. Material that is presumably copyrighted includes: (1) email, (2) Usenet and news group posting, (3) bulletin board system (BBS) posting, (4) mailing list posting, (5) postings to Internet Service Providers (such as America Online and Microsoft Network), (6) interactive chat communications (IRC), (7) recordings of communications via Internet telephone and Internet video conferencing, (8) web page contents, (9) computer graphics, (10) sound, and (11) video.

Avoid violating other people’s privacy and publicity rights

As mentioned above, liability for posting someone else’s picture can violate the copyrights and also the privacy or publicity rights of the person appearing in the picture. Do not assume that insulation from copyright liability will protect you from liability for other actions based on privacy and publicity rights. When in doubt, get permission from the people whose image appears in a particular photograph, etc.

Avoid saying things that can be construed as false or untrue

Defamation of a person’s character and/or casting someone’s reputation in a false light can cause litigation woes if the person being defamed decides to take legal action. Imprudent
E-mail, or postings to a computer bulletin board can give rise to these types of actions. While truth is always an absolute defense, it is best to consider what proof you have before saying things about other people and companies that might not be true.

Direct infringement defamation actions against businesses are relatively rare. Actions based on an employee’s false statements, however, can give rise to a defamation suit based on vicarious liability with greater frequency.

Limiting Contributory Infringement Actions

Contributory infringement is when one acts with knowledge of an infringing activity or induces, causes, or materially contributes to an infringing activity of another.

If a business becomes aware that it, or its employees, agents, etc., are engaged in an infringing activity, then the business must take corrective steps.

So long as corrective steps are taken, the “knowledge” element of the contributory infringement cannot be met.

In addition to having knowledge of an infringing activity, a business must also be involved, e.g., contribute to the alleged infringement in some way, for a contributory infringement action to stand.

In some cases a business might unwittingly contribute labor or equipment or provide a forum that contributes to an infringing activity. To help avoid unwitting contributory infringement computer bulletin boards and/or web sites, that accept material from third parties, one should follow the “passive conduit” model. That is to say, on-line forums should be self-regulated and contain disclaimers to the same effect. An example disclaimer might read:

Company XYZ exercises no control over the content of the information passing through our on-line service or posted to our web site. The forum provided is self-regulated. Any unlawful acts are the sole responsibility of the individuals committing such acts.

Please be sensitive to the rights of ownership and assure compliance with the law. To the extent that an unlawful activity occurs, our registered copyright agent is available to receive reports of such. Even though the forum is self-regulated, we will cooperate with the parties involved in helping to prevent and correct unlawful activity occurring though the use of our on-line services.

Active control or management of a computer-related forum, on the other hand, can give rise to contributory infringement because both knowledge infringing activities and participation/facilitation of the infringing activities is potentially present.

As mentioned above, certain provisions of the Communications Decency Act provide on-line service providers with an extra layer of liability protection for defamation actions. Under the protective provisions of the Communications Decency Act, an on-line service provider can take a more active role asserting “editorial control”/self-regulation of their sponsored systems with less fear of being liable as a “publisher” of defamatory material. In some cases, the same provisions of the Communications Decency Act might provide liability insulation for other alleged wrongful acts such as violations of publicity and privacy rights. The same is also true of the Digital Millennium Copyright Act, discussed later in this book.

Limiting Vicarious Liability Actions

Vicarious liability has two elements: (1) the right and ability to supervise infringing activities (but not necessarily knowledge of the same); and (2) direct financial interest in the direct infringement. Minimizing claims of vicarious liability can be accomplished by reducing the likelihood that either of the two elements mentioned above will exist.

The right and ability to supervise infringing activities

Following a “passive conduit” model for web services, as mentioned above, should reduce the chances of being vicariously liable for infringing activities occurring on one’s web site or Internet service. If one’s web site or Internet service is simply a conduit for information, the “right and ability to supervise infringing activities” will not exist to any significant extent. As mentioned above, the Communications Decency Act and the Digital Millennium Copyright Act provide safe harbors for on-line service providers wishing to exercise some editorial control of their on-line services.

Direct financial interest in the direct infringement

In order to be vicariously liable for a third party’s infringing activity one must have a “direct financial interest in the direct infringement.” The best line of defense against this element of a vicarious liability claim is that there is no direct financial benefit attributable to the direct infringement. In situations where a fee is charged for an on-line service, the safest approach is to charge a flat fee. A flat fee, like the rent charged by a landlord, is constant, having no fluctuation in relation to any infringing activities. [40]
Thus, in most cases, a flat fee is not directly related to any particular infringing activity.

RECAP: Intellectual Property Liability Issues

Fundamentally, one of three basic theories of liability must be shown in order for a business or non-profit business to be liable for damages. The three basic theories of liability are: (1) direct infringement; (2) contributory infringement; and (3) vicarious liability. Limiting claims of direct infringement can sometimes be as easy as avoiding activities that infringe other’s people’s legal rights.

Avoid: (1) using or copying copyrighted material; (2) using other people’s trademarks; (3) using other people’s patented inventions; (4) violating other people’s privacy and publicity rights; (5) saying things that can be construed as false or untrue.

Contributory infringement is when one acts with knowledge of an infringing activity or induces, causes, or materially contributes to an infringing activity of another. To help avoid unwitting contributory infringement, computer bulletin boards and/or web sites, that accept material from third parties, should follow the “passive conduit” model. That is to say, on-line forums should be self-regulated and contain disclaimers to the same effect.

Information service providers should limit and diminish any “editorial” control over user provided content. Vicarious liability has two elements: (1) the right and ability to supervise infringing activities (but not necessarily knowledge of the same); and (2) direct financial interest in the direct infringement.

Minimizing claims of vicarious liability can be accomplished by reducing the likelihood that either of the two elements mentioned above will exist.

[1] George B. Delta, et al., Law of the Internet 6-4 (1998) (quoting Restatement (Second) of Torts § 652 C (1977)).
[2] Id. (quoting Restatement (Second) of Torts § 652 E ).
[3] Id. (quoting Restatement (Second) of Torts § 652 D).
[4] Id. (quoting Restatement (Second) of Torts § 652 B).
[5] Restatement (Third) of Unfair Competition § 46 (1993).
[6] See, e.g., Cubby, Inc. v. CompuServe, Inc., 776 F. Supp. 135 (S.D.N.Y. 1991).
[7] Id. at 139.
[8] Id.
[9] See Zeran v. America Online, Inc., 958 F. Supp. 1124 (E.D. Va 1997) and Blumenthal v. Drudge, 992 F. Supp. 44 (D.D.C. 1998).
[10] An “interactive computer service” is defined as “any information service . . . that provides or enables computer access by multiple users to a computer server . . . .” 47 U.S. C. § 230 (f)(2). An “information content provider” is defined as “any person or entity that is responsible . . . for the creation or development of information provided through the Internet.” 47 U.S. C. § 230 (f)(3).
[11] See Brocklesby v. United States, 767 F.2d 1288, 1294-95 (9th Cir. 1985) (applying Restatement for the purpose of California law), cert. denied, 474 U.S. 1101, (1986); Saloomey v. Jeppesen & Co., 707 F.2d 671, 676 -77 (2d Cir. 1983) (applying Restatement for purpose of Colorado Law); Aetna Casualty & Surety Co. v. Jeppesen & Co., 642 F.2d 339, 342 – 43 (9th Cir. 1981) (applying Nevada law); Fluor Corp. v. Jeppesen & Co., 170 Cal. App. 3d 468, 475, 216 Cal rptr. 68, 71 (1985)(applying California law).
[12] Brocklesby v. United States, 767 F.2d 1288, 1294-95 (9th Cir. 1985) (applying Restatement for the purpose of California law), cert. denied, 474 U.S. 1101, (1986).
[13] Winter v. G.P. Putnam’s Sons, 938 F.2d 1033, 1034 (9th Cir. 1991).
[14] Id.
[15] Id.
[16] McKown v. Illinois Publishing and Printing, 289 Ill. App. 59, 6 N.E. 2d 526 (1937) (O’Connor, J.).
[17] 6 N.E. 2d 526 at 530.
[18] Sears Roebuck and Co. v. Employers Insurance of Wausau, 585 F.Supp. 739 (N.D. Ill., 1983) (explaining the holding in McKown v. Illinois Publishing and Printing, 289 Ill. App. 59, 6 N.E. 2d 526 (1937) (dandruff case)).
[19] Walter v. Bauer, 439 N.Y.S2d 821, 451 N.Y.S2d 533 (App. Div. 1982), 88 A.D.2d 787 (chemistry book case).
[20] 439 N.Y.S2d at 822-823.
[21] Id.
[22] Cardozo v. True, 342 So.2d 1053 (Fla. App. 1977) (recipe case).
[23] Id. at 1056.
[24] Id.
[25] Brimingham v. Fodor’s Travel Publications, 833 P.2d 70.
[26] Herceg v. Hustler Magazine, Inc., 814 F.2d 1017, 1024 (5th Cir. 1987).
[27] Id. at 1030 (Edith Jones, J., concurring and dissenting that the majority is grating almost complete protection from tort liability under the First Amendment).
[28] 814 F.2d 1017, 1022.
[29] Rice v. Paladin Enterprises, Inc., 1996 WL 515786 (D.Md. 1996).
[30] Id. at 5.
[31] See generally, On-line Copyright Issues: Recent Case Law and Legislative Changes Affecting Internet and Other On-line Publishers, J. Pat. and Trademark Off. Soc’y, January-February 1997)
[32] Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 435 (1984).
[33] Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971).
[34] Cable/Home Communication Corp. v. Network Prod. Inc., 902 F.2d 829, 844 (11th Cir. 1990).
[35] Id. at 139.
[36] Id.
[37] 2 P. Goldstein, Copyright § 1.1 (2d ed. 1996); see also Boz Scaggs Music v. KND Corp., 491 F. Supp. 908, 913 (D. Conn. 1980); Universal Pictures Co. v. Harold Lloyd Corp., 162 F.2d 354, 366 (9th Cir. 1947); Cable/Home Communication Corp. v. Network Prods., Inc., 902 F.2d 829, 845-47 (11th Cir. 1990).
[38] See Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963).
[39] See generally, On-line Copyright Issues: Recent Case Law and Legislative Changes Affecting Internet and Other On-line Publishers, J. Pat. and Trademark Off. Soc’y, January-February 1997) (winner of the prestigious Rossman Award for Outstanding Publication of 1997).
[40] See generally, et al., On-line Copyright Issues: Recent Case Law and Legislative Changes Affecting Internet and Other On-line Publishers, J. Pat. and Trademark Off. Soc’y, January-February 1997) (winner of the prestigious Rossman Award for Outstanding Publication of 1997).

II. ATTORNEY-CLIENT PRIVILEGE AND ELECTRONIC COMMUNICATIONS
A. Technology
B. Ethics and Professional Responsibility
C. Criminal Law
D. Practical Advice About E-Mail

III. CONFLICTS OF INTEREST ARISING FROM THE INTERNET
A. Evaluating Formation Of Attorney-Client Relationship
B. Practice Tips

VI. ADVERTISING FIELDS OF PRACTICE AND FIRM NAMES

V. NETIQUETTE AND ETHICS ON THE INTERNET

VI. ISSUES SPECIFIC TO INTELLECTUAL PROPERTY PRACTICE

A. Overview: A Comparison of ABA Model Rules of Professional Conduct and the Rules of Professional Conduct In the United States Patent and Trademark Office
B. Outline of the PTO Code of Professional Responsibility
C. Attorney-Client Privilege in Intellectual Property Litigation and Before the PTO
D. Unauthorized Practice of Law
E. Conflicts of Interest in Intellectual Property Practice
F. Duty of Candor to the PTO
G. Inequitable Conduct
H. Citing Information From One Client’s Application in Another Client’s Application

CLIENT RELATIONS: The Context Of Legal Ethics

A 1996 Consumer Report Survey indicated that the number one complaint from clients was that the attorney did not promptly return the client’s phone call. The second most frequent complaint was that the attorney did not pay adequate attention to the client’s case. Interestingly, a Lou Harris poll found that the least relevant reason clients leave a professional was that fees were unreasonable.

Why promptly return phone calls and have good communications with your clients?

Almost 80% of all malpractice claims result from poor client relations. Additionally, greater than 75% of disciplinary complaints are based on issues related to client relations. Thus, it’s important to maintain open channels of communication with a client. If there is a breakdown, have another member in the firm assist.

Also, keep clients advised as to the status of their cases and well informed of deadlines in advance. Why keep clients advised” Because Washington’s Rule of Professional Conduct 1.4 states that: A lawyer shall keep a client reasonably informed about the status of a matter and promptly comply with a reasonable request for information.

A lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.

Additionally, RPC 1.3 states that: “A lawyer shall act with reasonable diligence and promptness in representing a client.”

To help realize the mandates of RPC 1.3 and 1.4, technology has come to the aid of many busy attorneys by way of cordless telephones, cell phones, facsimile machines and electronic mail or “e-mail”

ATTORNEY-CLIENT PRIVILEGE AND ELECTRONIC COMMUNICATIONS

Rule RPC 1.6 on confidentiality states, “A lawyer shall not reveal confidences or secrets . . . . “A confidence is information received by the attorney that is protected by the evidentiary attorney-client privilege.”

Secrets include other information that the attorney receives under his or her relationship with a client, where the client requests such information to be kept confidential or where disclosure of such information would be embarrassing or detrimental to the client.

The attorney-client privilege applies to all confidential communications made by an attorney and client.  “[P]rivilege remains an exception to the general duty to disclose” Garner v. Wolfinbarger, 430 F. 2d 1093 (5th Cir. 1970).

Four elements are required to establish privilege. See United States v. Shoe Mach. Corp., 89 F. Supp. 357, 358-59 (D. Mass. 1950). The four elements are:
(1) the asserted holder of the privilege is or sought to become a client; (2) the person to whom the communication was made is a member of the bar of a court; (3) the communication relates to a fact of which the attorney is informed by his client in confidence in connection to legal services; and (4) the privilege has been claimed and not waived by the client, i.e., the communication must be made in confidence and not made in the presence of third parties.

The professional duty to preserve secrets is broader than the attorney-client privilege. An attorney’s obligation to keep secrets extends before and after the attorney-client relationship exists. Unlike the attorney-client privilege, the ethical duty to maintain secrets applies to information communicated by
the client even in the presence of others.

Technology

Understanding the technology that is giving rise to the many new ethical questions is important. In fact, one state bar ethics opinion points out that because technology is developing so rapidly, “any analysis and advice in this area is subject to change as the technology changes.” Pennsylvania Opinion 97-130, http://www.legalethics.com/states/97_130.htm.

Cordless Phones

Definition:
“In one sense, the cordless telephone is just what the name implies, a telephone. It looks and sounds like a normal land-line telephone. When you use a cordless phone, you dial a telephone number and talk to the party on the other end of the line. In actual operation, however, the cordless phone uses a radio signal. The typical cordless phone consists of a base unit, attached to the land-based telephone line, and a mobile unit which transmits and receives the radio signals that carry the actual conversation to and from the base unit.” U.S. v. Smith, 978 F.2d 171, 178 (5th Cir. 1992). Interception of Cordless Phones “As a factual matter, the broadcast of a cordless telephone can far more readily be intentionally intercepted or inadvertently overheard than a land-based call.”

David Hricik, Confidentiality and Privilege in High-Tech Communications, 8 No. 2 Prof. Law. 1, 18 (1997). “[C]ordless telephone calls can be intercepted by someone who is nearby and is using a device no more exotic than a police scanner, baby monitor, or radio.”

Peter R. Jarvis et al., Competence and Confidentiality in the Context of Cellular Telephone, Cordless Telephone, and E-Mail Communications, 33 Willamette L. Rev. 467, 476 (1997). “A cordless telephone uses AM or FM radio signals to transmit communications from the handset to the base unit. This signal can be easily intercepted by a standard AM radio.” Modern Communications Technology and the Duty of Confidentiality, http://barlinc.org/ethics/ethp215.html.[1]

At least on State Bar Ethics Opinion has stated that, “a lawyer conversing with a client over a cordless or mobile telephone should advise the client of the risk of loss of confidentially.” Illinois State Bar Association Advisory Opinion on Professional Conduct No. 96-10, http://www.illinoisbar.org/CourtsBull/EthicsOpinions/96-10.html; see also Kentucky Bar Association Opinion E-403, http://www.uky.edu/Law/kyethics/kba403.htm (finding that “a lawyer should not use cordless or other mobile telephones that were easily susceptible to interception when discussing confidential client matters. The Committee also opined that a lawyer conversing with a client over a cordless or mobile telephone should advise the client of the risk of the loss of confidentiality.”); Washington State Informal Opinion 91-1 (undated) (a lawyer may not discuss client business over a cordless telephone without first advising the client that the connection may not be confidential).

Cell Phones
Definition
There are two general varieties of cellular telephones on the market (digital and analog). From a lay perspective, the two varieties of phones work in the same way, i.e., the phones “broadcast conversations over the airwaves to receiving stations, which them transmit the calls over land-based phone lines.”  David Hricik, Confidentiality and Privilege in High-Tech Communications, 8 No.2 Prof. Law. 1, 18 (1997) (describing a analog cellular telephone). Currently, several state bar associations find digital cellular phones to be equivalent to land-line phones (Illinois, Kentucky).

Interception of Cellular Communications
Digital cell phones are newer on the market and are thought by some to be “more secure” than the traditional analog cellular telephone. From a technical point of view, the older analog cellular telephones should be regarded as insecure.

Since 1993, the type of scanner “used to intercept cellular communications may not be marketed in the United States.” David Hricik, Confidentiality and Privilege in High-Tech Communications, 8 No.2 Prof. Law. 1, 18 (1997) (citing Jose L. Nunez, Regulating the Airwaves: The Governmental Alternative to Avoid Cellular Uncertainty on Privacy and the Attorney-Client Privilege, 6 St. Thomas L. Rev. 479, 486 (discussing the Telephone Disclosure and Dispute Resolution Act of 1993, Pub. L. 102-556, 106 Stat. 4181)). It is interesting to note that many scanners sold prior to 1993 are capable of intercepting cellular phone calls and are still lawful to own. Further, many scanners still sold today can be modified (illegally) to intercept cellular telephone calls.

Facsimiles
Generally speaking, most people consider traditional phone lines to be secure (this would include fax machines, for the most part). While interception of traditional telephone signals is not impossible, it requires more than the interception of other modes of communication such as cordless phones. One common situation that gives rise to liability for practicing lawyers is the “misdirected fax.” Because there is usually not another
person on the other end of the phone line when sending a fax and facsimile numbers can get “mixed up”, it is easy to imagine how a sensitive fax might find its way into the office of opposing counsel. This is why almost
all fax cover sheets originating in legal offices contain a statement like the one below. Such confidentiality legends have been held to maintain the attorney-client privilege when the facsimile was inadvertently transmitted to a third party. A similar statement should be used on e-mail.

FACSIMILE TRANSMITTAL

CONFIDENTIALITY NOTICE: The information contained in this facsimile message is legally privileged and/or confidential information intended only for the use of the individual or entity named below. If you are not the intended recipient, you are hereby notified that any use, dissemination, distribution, or copying of this facsimile or its content is strictly prohibited. If you have received this facsimile in error, please immediately notify us by telephone and return the original facsimile message to us by mail or destroy it without making a
copy. Thank you.

ELECTRONIC MAIL TRANSMITTAL

=================================================
Confidential/Privileged Communication -Attorney Work Product

This Internet electronic mail (e-mail) message contains confidential, privileged information intended only for the above addressee(s). Do not read, store, copy or disseminate it unless you are an addressee.

If you have received this e-mail in error, please advise us immediately by return e-mail and then delete all copies from your system. If you have questions, please call us collect at (206) 622-4900 and ask to speak to
the message sender or Office Administrator. Thank you.
==================================================

Electronic Mail (”E-Mail”)
Private Networks
Private networks such as those found in most major law firms are generally secure. Likewise, direct computer to computer communications with clients can be thought of as secure (such a transmission is similar to a sending a facsimile because the information is transmitted directly from point “A” to point “B” across conventional telephone lines). The possibility of inadvertent communications such as the “misdirected e-mail” are virtually non-existent on private networks. The extent to which private networks are connected to other networks raises issues such as those described below.

Public Networks

Networks, such as America Online and the Microsoft Network can be considered “public” or “semi-public” networks because anyone who pays to use them can do so. This makes any risk and liability for “misdirected e-mails” greater. However, “public access to a network does not equate to public access to the information stored in private places on that network.” David Hricik, Confidentiality and Privilege in High-Tech Communications, 8 No.2 Prof. Law. 1 (1997). Following a similar vein the court in U.S. v. Maxwell, 43 Fed. R. Serv. 24 (U.S.A.F. Ct. App. 1995) held that e-mail stored on America Online and protected by a password was subject to a reasonable expectation of privacy.

Internet

The “Internet” describes “a collection of more than 50,000 networks linking some nine million host computers in ninety counties. . . ” American Reporter v. Reno, 930 F. Supp. 916, 925 (S.D.N.Y. 1996). When sending an e-mail from one computer to another using the Internet, the communication travels through several intermediate computers that essentially compose parts of the “network.”  In addition, e-mail is sometimes “replicated and split into separate ‘packets’ of information as it is being transmitted: thus, multiple copies can exist at any given time, but they may each be but a portion of the whole.” David Hricik, Confidentiality and Privilege in High-Tech Communications, 8 No. 2 Prof. Law. 1 (1997).

Accordingly, the “distinction between an e-mail message sent over the Internet and a land-based phone call boils down to this: Internet e-mail messages are temporarily stored in, and so can be accessed through, the [intermediate computers through which the e-mail travels]. An employee of the entity that owns the [intermediate computer] could lawfully be monitoring the[ir computer] and could read a confidential transmission.”  Id. Interception of E-Mail “All technologists agree . . . that obtaining information illegally from
the Internet is much easier than tapping regular phone or fax lines. Moreover, those who traffic in contraband information are drawn to the Internet . . . . “  ABA/BNA Lawyers’ Manual on Professional Conduct (1996), http://www.bna.com/prodhome/bus/mopc_adnew2.html. Esther Dyson, a well-known commentator on issues relating to the Internet states in her book, Release 2.0 that sending an e-mail is like sending a post card, meaning that there is really nothing to keep anyone who is interested from reading it from doing so. Esther Dyson, Release 2.0 at 260-61.

On the other hand, a Pennsylvania ethics opinion notes that there “do not appear to be any publicly reported instances of [e-mail] interception taking place.” Pennsylvania Opinion 97-130, http://www.legalethics.com/states/97_130.htm.
Modes of E-Mail Interception Tools of “SATAN”. Recently, a tool for probing a remote computer for security vulnerabilities became available. This [tool] is known as Security Administrator Tool for Analyzing
Networks (SATAN). SATAN not only analyzes the remote computer’s weak points, but it also provides extensive documentation on the vulnerabilities identified and how to repair them. SATAN . . . is widely available for both legitimate use by system administrators and diabolical use by people interested
in breaking into computer systems owned by others. Robert L. Jones, Client Confidentiality: A Lawyer’s Duties with Regard to Internet E-Mail (1995), http://www.kuesterlaw.com/netethics/bjones.htm (footnotes omitted).

E-mail “Sniffers”
Sniffer software can be programmed to select and store data being transmitted across the Internet based on who sends the data, where the data is coming from, or where the data is intended to go, including specific machines. See generally Robert L. Jones, Client Confidentiality: A Lawyer’s Duties with Regard to Internet
E-Mail (1995), http://www.kuesterlaw.com/netethics/bjones.htm. The really subtle thing about sniffer software is that it "does not require knowledge of your password to steal your client’s secrets, your litigation strategy, your analysis of potential jurors, your credit card number, or the Christmas shopping list you just sent to your relatives across the country. “Id. Computer Spoofers” “Spoofing” is where one uses an intermediate computer to intercept
e-mail data packets intended for another by configuring the intermediate machine to emulate the recipient’s machine.

When data comes along the network intended for the actual recipient, the spoof[ing] computer receives it instead and automatically sends a packet to the sender which makes the sender believe that the message was properly received. In fact, the “spoofer” can read the e-mail, and concoct a reply and send it back to the unsuspecting person who is unaware that he is communicating with an impostor. More subtly, the spoofer can alter the original e-mail and then relay it on to the intended recipient. [2] Robert L. Jones, Client Confidentiality: A Lawyer’s Duties with Regard to Internet E-Mail (1995), http://www.kuesterlaw.com/netethics/bjones.htm.

E-Mail Encryption
The Attorneys’ Liability Assurance Society (ALAS) (an insurance company that insures large firms for malpractice) maintains “it is not necessary – for either ethics, privilege, or liability purposes – to encrypt communications on the Internet, except for matters so important that any threat of interception must be avoided.” The ALAS, however, urges its members to “use” ‘great caution’ because of the lack of case law and the possibility that courts and ethics committees “will be tempted to bypass a careful analysis.” ABA/BNA Lawyers’ Manual on Professional Conduct (1996), http://www.bna.com/prodhome/bus/mopc_adnew2.html (quoting views of the ALAS). Some legal commentators have suggested that under a developing standard of care, attorneys who use e-mail might be required to use encryption technology even before it becomes more widely used.

Ethics and Professional Responsibility
Standard of Care For High-Tech Communications
The case of The T.J. Hooper, 60 F.2d 737 (2d Cir. 1932), might be instructive by analogy in arguing for an evolving higher standard of care applicable to lawyers in the realm of high-tech communications with clients. In The T.J. Hooper, the defendant was held to a standard of care that was higher than the prevailing standard at the time and subsequently found liable for not installing radio receivers on their tug boats. Most other tug boats at the time had not installed the radio receivers. See ABA/BNA Lawyers’ Manual on Professional Conduct (1996), http://www.bna.com/prodhome/bus/mopc_adnew2.html (noting that the “standard of care for lawyers using e-mail may require encryption at some point before [encryption] becomes more widely used.”); Robert L. Jones, Client Confidentiality: A Lawyer’s Duties with Regard to Internet E-Mail (1995), http://www.kuesterlaw.com/netethics/bjones.htm (noting that an “attorney holding herself out to be a ‘netlawyer’ or a technology lawyer
could be found to be on notice of the risks associated with communication on the Internet and thus have a higher standard of care with respect to protection of sensitive information that she chooses to transmit in that fashion despite her specialized knowledge.”); see also ABA Formal Opinion No. 99-413 (March
1999), Protecting Confidentiality of Unencrypted E-Mail, http://www.abanet.org/cpr/fo99-413.html.

Duty of Competent Representation
RPC 1.1 states that: “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” As if you did not have enough to worry about, now you may have to monitor technological advances in electronic communication interception technology. Attorneys holding themselves out as concentrating in Internet law, electronic commerce or otherwise a “net lawyer” may be subject to a higher standard of care with respect to protecting sensitive information than a general attorney.

One legal commentator has suggested that a lawyer’s duty of competent representation necessarily intersects with a lawyer’s duty to maintain confidentiality. See Peter R. Jarvis et al., Competence and Confidentiality in the Context of Cellular Telephone, Cordless Telephone, and E-Mail Communications, 33 Willamette L. Rev. 467, 476 (1997). As noted above, an evolving standard of care for the use of certain means of communication might indeed redefine the duty of competent representation to include keeping a client reasonably informed of waiver issues related to communications made across the Internet and other related means of communication.

Waiver of Attorney-Client Privilege
“No case in any jurisdiction has addressed the specific question of whether transmission of unencrypted confidential messages over the Internet is an intentional divulgence of that information so as to form a waiver of any claim to a privilege. Robert L. Jones, Client Confidentiality: A Lawyer’s Duties with Regard to Internet E-Mail (1995), http://www.kuesterlaw.com/netethics/ bjones.htm. As noted above, in order to qualify for the attorney-client privilege, communications must be made in confidence; the privilege may be waived in some cases where there is no reasonable expectation of privacy (such as in a crowded restaurant).
Future litigation might find that communicating sensitive and confidential information across the Internet affects the existence of the attorney-client privilege because of the “open” nature of such communications.

At least one state bar ethics opinion has noted that the Electronic Communications Privacy Act (as amended) “provides that ‘[n]o otherwise privileged wire, oral or electronic communication intercepted in accordance with, or in violation of, the provisions of this chapter shall lose its privileged character.’ 18 U.S.C. sect; 2517(4). Accordingly, interception will not, in most cases, result in a waiver of the attorney-client privilege.” Alaska Bar Association Opinion 98-2, Communication By Electronic Mail, http://wwwlegalethics.com/states/98-02.htm (noting that their opinion is “in accord with the prevailing view, though the answer in each specific case may depend, at least in part, on the circumstances of whether the disclosure is viewed as ‘intentional’ or ‘inadvertent.’ ” See Shubert v. Metrophone, Inc., 898 F.2d 401 (3d Cir. 1990).” ).

State Bar Ethics Opinions
At least 13 different state bar organizations have issued advisory opinions on the topic of e-mail communication over the Internet and the professional responsibility/legal ethics ramifications regarding the same. See generally http://www.legalethics.com/opins.htm. By far the majority of ethics opinions issued by state bar organizations hold that communication with clients across the Internet is acceptable and that e-mail encryption is not required under the Rules of Professional Conduct.

An Alaskan Bar Association Ethics Opinion, in expressing its own view, summarized the views of several other bar organizations as follows:
*Arizona Advisory Op. 97-04 (lawyers may want to have e-mail encrypted with a password known only to the lawyer and the client, but lawyers may still communicate with existing clients via e-mail about confidential matters);
*South Carolina Advisory Bar Op. 97-08 (finding a reasonable expectation of privacy when sending confidential information through electronic mail; the use of electronic mail will not affect the confidentiality of client communications under South Carolina Rule of Professional Conduct 1.6);
* Vermont Op. 97-5 (a lawyer may communicate with a client by e-mail, including the Internet, without encryption);
* Illinois State Bar Assoc. Op. 93-12 (lawyer does not violate Rule 1.6 by communicating with a client using electronic mail services, including the Internet, without encryption);
* Iowa Advisory Op. 95-30. (the only dissonant view has been expressed by the Iowa Bar, which suggests that, without encryption, confidential communications should not be sent by e-mail absent an express waiver by the client).
*Alaska Bar Association Opinion 98-2, Communication By Electronic Mail, http://www.legalethics.com/states/98-02.htm.

Choice of Law and Jurisdiction For Internet Communications – Ethical and Legal Considerations
One state ethics opinion warns:  “[a]s more lawyers and law firms race to create a presence on the World Wide Web, they should be aware that doing so brings with it the risk that they may be hailed into a foreign jurisdiction to answer charges of improper advertising or solicitation or unauthorized practice
of law. For the exercise of personal jurisdiction over an out-of-state lawyer, the lawyer’s physical presence in the forum state is not required. Contacts created solely through an Internet Web site may be sufficient. Lawyers should not, however, be subject to disciplinary proceedings in states where they, or members of their firm, are not licensed to practice.” Pennsylvania Inquiry 98-85, http://www.legalethics.com/states/98_85.html.

Criminal Law
One local commentator feels that the criminal sanctions of the Electronic Communications Privacy Act is, “[t]he correct starting point for analyzing privilege and confidentiality on the Internet is the criminal law, not ethics rules or the technology itself." ABA/BNA Lawyers’ Manual on Professional Conduct
(1996), http://www.bna.com/prodhome/bus/mopc_adnew2.html (quoting views of Albert Gidari, of Seattle’s Perkins Coie set out in the article Privilege and Confidentiality in Cyberspace, http://www.perkinscoie.com/pracarea/intnet/priv.htm).[3] The Electronic Communications Privacy Act (the “ECPA”) (as amended) makes it a felony to intercept communications made over phone lines, wireless communications (including cordless phones), and e-mail sent through the Internet (including while the e-mail is in transit or after it is received). See 18 U.S.C. 2510 et seq. In many cases the ECPA may prevent information that is illegally obtained from being used as evidence.

See also Alaska Bar Association Opinion 98-2, Communication By Electronic Mail, http://wwwlegalethics.com/states/98-02.htm (noting that, [t]he Electronic Communications Privacy Act (as amended) makes
it a crime to intercept communications made over phone lines, wireless communications, or the Internet, including e-mail, while in transit, when stored, or after receipt.).

Practical Advice About E-Mail
One state bar ethics opinion concludes that a lawyer may do the following:
* A lawyer may use e-mail to communicate with or about a client without encryption; the lawyer should advise a client concerning the risks associated with the use of e-mail and obtain the client’s consent either orally or in writing;
* A lawyer should not use unencrypted e-mail to communicate information concerning the representation, the interception of which would be damaging to the client, absent the client’s consent after consultation;
* A lawyer may, but is not required to, place a notice on client e-mail warning that it is a privileged and confidential communication[4]; and,
* A lawyer should consider that e-mail records are discoverable, and include the time and date of transmission, and all recipients. Lawyers should advise their clients of this fact since clients often regard e-mail transmissions as harmless oral conversations.
* If the e-mail is about the lawyer or the lawyer’s services and is intended to solicit new clients, it is lawyer advertising similar to targeted, direct mail and is subject to the same restrictions under the Rules of Professional Conduct.

Pennsylvania Opinion 97-130, http://www.legalethics.com/states/97_130.htm.

One author writing on the subject suggests three rules for avoiding disciplinary actions or civil liability for failing to exercise reasonable care in protecting sensitive client information. First, lawyers need to be well advised of how differing means of communication have varying levels of “security.” Second, lawyers should discuss such matters with their clients. Third, lawyers must be ready to upgrade their practices when technology changes. Peter R. Jarvis et al., Competence and Confidentiality in the Context of Cellular Telephone, Cordless Telephone, and E-Mail Communications, 33 Willamette L. Rev. 467,
476 (1997).

Still another view is that, “lawyers should grade the security risks for various e-mail communications just as they do for other methods of communication.” A local commentator on Internet and on-line issues, said “he avoids using the Internet for material that he does not want to be discoverable–and he says so to clients.”  ABA/BNA Lawyers’ Manual on Professional Conduct (1996), http://www.bna.com/prodhome/bus/mopc_adnew2.html (quoting views of
Keith Cochran, of Heller, Erhman, White & McAuliffe in Seattle).

Conflicts of Interest Arising from the Internet Evaluating Formation Of Attorney-Client Relationship

In re McGlothlen, 99 Wn. 2d 515 (1983), the Washington State Supreme Court held that the reasonable understanding of the putative client determines whether an attorney-client relationship was established. This subjective believe must be based on realistic objective facts. See, e.g., Sherman v. State, 128 Wn.
2d 164 (1965). While being fact specific, only a minimum number of contacts are effectively needed to establish an attorney-client relationship. See, e.g., Teja v. Saran, 68 Wn. App. 793 (1993).

A client’s intention to seek legal advise and / or a client’s belief that he or she is consulting an attorney will determine whether the attorney-client privilege is invoked. 3 Joesph M. McLaughlin, Weinstein’s Federal Evidence § 503.11 (1998); see, e.g., United States v. Dennis, 843 F.2d 652, 656-57 (2d Cir. 1988)
(”initial statements” made when client “intended to employ [attorney] would be privileged “even though the employment was not accepted”).

Practice Tips
* Do not give legal advice to unknown third parties over the Internet;
*  Do not post personal opinions on publicly-accessible “bulletin boards” or “User-groups” that could harm or embarrass a client;
* Be careful about the creation of attorney-client relationships in Internet “chat rooms.”

Advertising Fields of Practice and Firm Names On advertising, RPC 7.1 states:
A lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. A communication is false or misleading if it:
(a) contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading;
(b) is likely to create an unjustified expectation about results the lawyer can achieve, or states or implies that the lawyer can achieve results by means that violate the rules of professional conduct or other law; or
(c) compares the lawyer’s services with other lawyer’s services, unless the comparison can be factually substantiated.

There is no formal guidance for Washington lawyers on how the RPCs apply to the use of the Internet. You should keep a copy of your Internet website, together with the dates, and all updates made thereafter, for two years. Other states have enacted certain restrictions. In Arizona,[5] for example, a lawyer may
place on-line intake forms for prospective clients on their websites for clients to download and complete off-line, since there is no unethical solicitation involved and there is no communication of confidential information via the Internet. Prospective clients should be cautioned to avoid possible inadvertent
disclosures of confidential information and should not be able to send the completed form back electronically. Likewise, the New York Bar permits similar on-line intake forms.

The Illinois Bar finds attorney websites to be the functional equivalent of Yellow Page entries or firm brochures. The Iowa Bar found a lawyer referral program set up by a county bar association
and administered as a “community bulletin board/web page” on a non-profit community bulletin board did not quality as a referral program, but simply another form of direct advertising and thus was required to apply with all applicable rules.

The Iowa Bar also found lawyers may not participate in a computerized communications service that, upon request, provides to other subscribers the names of lawyers and law firms who subscribe to the service. This communication service constituted a referral service to which lawyers would give something of value, which would be improper. Likewise, a lawyer may not participate in “Attorney Find Inc.” an Internet advertising program that charges annual listing fees for listing under as many category headings as the lawyer wants.
The Massachusetts Bar has stated that the bar association may establish an Internet membership directory containing hypertext links to the home pages of individual members and that such a directory did not constitute a lawyer referral service. Interestingly, however, if an attorney’s website recorded
the e-mail addresses of visitors to the site for purposes of target solicitation (e.g., responding e-mails), then the web pages must be clearly labeled “advertising.”

The Pennsylvania Bar found a lawyer may not participate in a real estate lead and referral program marketed through the Internet in which the lawyer would pay a fee in exchange for exclusive marketing rights within a certain area of the state.

A lawyer shall not directly or through a third person solicit, in person or by telephone, professional employment from a prospective client with whom the lawyer has no family or prior professional relationship, when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary gain. A lawyer shall not send a written communication to a prospective client for the purpose of obtaining professional employment if the person has made known to the lawyer a desire not to receive communications from the lawyer. Washington has not adopted the ABA’s 1989 amendments to the model rules that permit pre-recorded telephone solicitations. Such pre-recorded communications to individual potential clients would likely violate RPC 7.3 as a ban on direct telephone solicitation.

Lawyers may make presentations to groups, but lawyers may not follow up such group presentations with in-person or telephone solicitations. Barrie Althoff, the Washington State Bar Association’s chief disciplinary counsel, notes in an article he wrote that follow-up e-mail solicitations are likely also prohibited.
Washington State Bar News, May 1997.

The Tennessee Bar Association is one of the only state bar organizations prohibiting on-line transmissions with potential clients unless the attorney complies with certain enumerated requirements (Spamming effectively prohibited).

A lawyer’s participation in an electronic bulletin board, chat group, or similar service may implicate the rules governing solicitation, to the extent that the lawyer seeks to initiate unrequested contact through a specific person or group through the use of such services.

The Arizona Bar found communication with a potential client via cyberspace to be permissible since there is not the same degree of confrontation and immediacy as with in person or telephone communications.

The Illinois Bar found that a lawyer’s participation in an electronic bulletin board, chat group, or similar service may implicate the rules governing solicitation.

Likewise, the Michigan, Utah and Massachusetts Bar Associations are more strict regarding solicitation and chat rooms.

When a lawyer participates in a chat group or other on-line service that may involve offering personalized legal advice to anyone who happens to be connected to the service, the recipients of the advice may become the lawyer’s client.

Consider whether a “potential client” would believe that you were their attorney, and thus whether an attorney-client relationship has been established.

The Arizona Bar requires attorneys to answer only general legal questions since the lawyer cannot screen for potential conflicts and may run the risk of disclosing confidential information during a chat room session. A lawyer may communicate the fact that he or she does or does not practice in particular
fields of law.

Iowa Bar: A law firm may not place an advertisement on a homepage/website that refers to “governmental relations,” “lobbying,” “administrative/regulatory matters,” “governmental litigation,” and “governmental
procurement”, notwithstanding the inclusion of a requisite disclaimer. Only lawyers, not law firms, may advertise areas of practice, and only after filing a compliance report with the Iowa Bar. The name of a lawyer holding a public office shall not be used in the name of a law firm, or in communications on its behalf, during any substantial period which the lawyer is not actively and regularly practicing with the firm.

Lawyers may state or imply that they practice in a partnership or other organization only when that is the fact, and not simply practicing out of the same office.

Lawyers in private practice may not use a trade name. The Arizona Bar prohibits lawyers from using a trade name in their websites, but domain names are not firm names and therefore not subject to this limitation.
Kansas Bar: A lawyer employed by a corporation may not give customers of the corporation legal advice with technical computer advice when the advice is designed to sell a company’s computer software package that purports to remedy legal problems. The Kansas Bar found this would intrude on the professional
independent judgment on the lawyer regardless of whether there is fee splitting with a non-lawyer. The Kansas Bar further noted that a corporate lawyer who gives legal advice to corporate customers is not engaged in unethical fee splitting unless there was a direct or indirect charge by the corporation for that advice; if the cost of the legal service is recouped by the corporation through the sale of the company’s product, this pass through is only an indirect rule violation.

The New York Bar allows lawyers to accept payment by credit card, including credit card transactions over the Internet, provided that the client’s credit card information is kept confidential.

Netiquette AND Ethics on the Internet
Netiquette has been defined to mean proper behavior on the Internet, which has become increasingly more important because text-only messages fail to communicate other important information including facial expressions and tone. Thus, authors of electronic mail messages (”e-mail”) typically use textual techniques to convey tone, such as: ”emoticons,” which are emotional icons represented as punctuation abbreviations for grin and big grin respectively; and all caps to connote shouting. One commentator and grammarian
believes that all e-mail is written correspondence and thus should not include any “cute” or nonstandard English and grammatical usage. P. O’Conner, Woe is I, The Grammarphobe’s Guide to Better English in Plain English, G.T. Putnam’s Sons, New York, p. 126 (1996). Ms. O’Conner also dissuades against nonstandard abbreviations and contractions, such as “IMHO” (in my humble opinion), “CLU”; (see you later), “BTW” (by
the way), and “pls”; for please, “yr” for your and “thnx” for thanks.

To help you communicate effectively and avoid unintentionally offending the recipient of your e-mail, Virginia Shea has created ten rules of “netiquette,” which are summarized below. Her ten “rules” of netiquette can be found, for example, at http://www.albion.com/netiquette/corerules.html.

First, “remember the human" – don’t forget that the recipient of your message sees only the text, and not your tone, gestures, facial expressions, and other ways of communicating your message. Don’t say anything that you would not say to the recipient face to face. Additionally, don’t forget that e-mail
is written communication, and as Microsoft has found, it can and will be used against you.

Second, “adhere to the same standards of behavior online that you follow in real life” – while the chances of “getting caught” are slim on the Internet, the same standards in real space apply to cyberspace. Breaking the law is not only illegal, but poor etiquette. Assume that everything you see or read on the Internet is copyrighted and should not be copied without the author’s prior permission.

Third, “know where you are in cyberspace” – passing on gossip in a chat group with friends may be acceptable, but forwarding unsubstantiated rumors in a news group is unacceptable.

Fourth, “respect other people’s time and bandwidth” – don’t waste people’s time on wordy messages you post for others, waste storage space in databases storing such messages, and clog telecommunication lines sending your message around. Provide important information at the beginning of your message or in a subject line so that others reading the message can quickly determine whether to read it. Avoid copying your message to multiple recipients who do not need, or do not care, about what you have to say.

Fifth, “make yourself look good on line” – make your spelling and grammar count and write articulately. Being clear, concise and intelligent will help you win friends and influence people in cyberspace. Also, don’t swear or post messages for the sole sake provoking confrontation.

Sixth, “share expert knowledge” – don’t be afraid to share your expert knowledge on a topic with someone who may have posted a question or raised an issue during a chat discussion. If you post a question, it’s often polite to share answers you get with others who may find the answer relevant.

Seventh, “keep flame wars under control” – “flaming” (very emotionally expounding a position) has a tradition is cyberspace, but you should not perpetuate long strings of angry messages exchanged between parties.

Eighth, “respect other people’s privacy” – you should not read another’s e-mail, or otherwise hack into people’s computers.

Ninth, “don’t abuse your power” – even though you may know more than another in cyberspace, such as a system administrator, you should not abuse your authority, such as by reading private e-mail.

Finally, “be forgiving of other people’s mistakes” – while you may be a cyberspace veteran, you should forgive novices and politely correct any violations of the above rules.

ISSUES SPECIFIC TO INTELLECTUAL PROPERTY PRACTICE

Overview: A Comparison of ABA Model Rules of Professional Conduct and the Rules of Professional Conduct In the United States Patent and Trademark Office

Canons of Professional Responsibility

“The Canons are statements of axiomatic norms, expressing in general terms the standards of professional conduct expected of practitioners in their relationships with the public, with the legal system, and with the legal profession.” 37
C.F.R. * 10.20 (a)
Language of ABA Canons Compared to Language of PTO Canons
The language of the PTO Canons of Professional Responsibility and the American
Bar Association Canons of Professional Responsibility are textually identical
except that the PTO Canons use the term “Practitioner” in the place
of “lawyer.”
Canons Disciplinary Rules Before the PTO
Disciplinary Rules (different from the Canons) are mandatory in character and
state the minimum level of conduct below which no practitioner can fall without
being subject to disciplinary action. 37 C.F.R. * 10.20(b).
Outline of the PTO Code of Professional Responsibility

* 10.20 Canons and Disciplinary Rules.
* 10.21 Canon 1: A practitioner should assist in maintaining the integrity
and
competence of the legal profession.
* 10.22 Maintaining integrity and competence of the legal profession.
* 10.23 Misconduct.
* 10.24 Disclosure of information to authorities.
* 10.30 Canon 2: A practitioner should assist the legal profession in
fulfilling its
duty to make legal counsel available.
* 10.31 Communications concerning a practitioner’s services.
* 10.32 Advertising.
* 10.33 Direct contact with prospective clients.
* 10.34 Communications of fields of practice.
* 10.35 Firm names and letterheads.
* 10.36 Fees for legal services.
* 10.37 Division of fees among practitioners.
* 10.38 Agreements restricting the practice of a practitioner.
* 10.39 Acceptance of employment.
* 10.40 Withdrawal from employment.
* 10.46 Canon 3: A practitioner should assist in preventing the unauthorized
practice of law.
* 10.47 Aiding unauthorized practice of law.
* 10.48 Sharing legal fees.
* 10.49 Forming a partnership with a non – practitioner.
* 10.56 Canon 4: A practitioner should preserve the confidences and secrets
of
a client.
* 10.57 Preservation of confidences and secrets of a client.
* 10.61 Canon 5: A practitioner should exercise independent professional
judgment on behalf of a client.
* 10.62 Refusing employment when the interest of the practitioner may
impair
the practitioner’s independent professional judgment.
* 10.63 Withdrawal when the practitioner becomes a witness.
* 10.64 Avoiding acquisition of interest in litigation or proceeding before
the Office.
* 10.65 Limiting business relations with a client.
* 10.66 Refusing to accept or continue employment if the interests of
another
client may impair the independent professional judgment of the
practitioner.
* 10.67 Settling similar claims of clients.
* 10.68 Avoiding influence by others than the client.
* 10.76 Canon 6: A practitioner should represent a client competently.
* 10.77 Failing to act competently.
* 10.78 Limiting liability to client.
* 10.83 Canon 7: A practitioner should represent a client zealously within
the bounds of the law.
* 10.84 Representing a client zealously.
* 10.85 Representing a client within the bounds of the law.
* 10.87 Communicating with one of adverse interest.
* 10.88 Threatening criminal prosecution.
* 10.89 Conduct in proceedings.
* 10.92 Contact with witnesses.
* 10.93 Contact with officials.
* 10.100 Canon 8: A practitioner should assist in improving the legal
system.
* 10.101 Action as a public official.
* 10.102 Statements concerning officials.
* 10.103 Practitioner candidate for judicial office.
* 10.110 Canon 9: A practitioner should avoid even the appearance
of professional impropriety.
* 10.111 Avoiding even the appearance of impropriety.
* 10.112 Preserving identity of funds and property of client.
Attorney-Client Privilege in Intellectual Property Litigation and Before the
PTO
Two Basic Kinds of Privilege
Attorney-Client
“[P]rivilege remains an exception to the general duty to disclose” Garner
v. Wolfinbarger, 430 F. 2d 1093 (5th Cir. 1970). Four elements are required
to establish privilege. See United States v. Shoe Mach. Corp., 89 F. Supp.
357, 358-59 (D. Mass. 1950). The four elements are: (1) the asserted holder
of the privilege is or sought to become a client; (2) the person to whom the
communication was made is a member of the bar of a court; (3) the communication
relates to a fact of which the attorney is informed by his client in confidence
in connection to legal services; and (4) the privilege has been claimed and
not waived by the client, i.e., the communication must be made in confidence
and not made in the presence of third parties.
Work-Product
Attorneys’ mental impressions, conclusions, opinions or legal theories prepared
in anticipation of litigation are generally protected as “work product.” See
Fed. R. Civ. P. 26(b)(3).
Work product immunity is different than the attorney-client privilege; it
is a qualified immunity that can be overcome in some cases. An attorneys’ mental
impressions, conclusions, opinions or legal theories prepared in anticipation
of litigation are generally protected. The work product privilege does not
apply to the preparation and prosecution of patent applications. See Golden
Valley Microwave Foods v. Weaver Popcorn Co., 132 F.R.D. 204, 212 (N.D. Ind.
1990). Likewise, the identification of patents uncovered in patent searches
conducted in anticipation of litigation are not protected from discovery. 5
Lester Horwitz et al., Intellectual Property Counseling and Litigation * 75.08[1][a]
citing EZ Loader Boat Trailers, Inc. v. Shoreline Trailer Sales, 207 U.S.P.Q. ** 1002,
1004 (N.D. Tex. 1979).
Patent and Trademark Searches and Investigation
“Opinions based on these search results conducted in anticipation of litigation
are subject to the attorney-client privilege” Id. (citing EZ Loader Boat
Trailers, Inc. v. Shoreline Trailer Sales, Inc., 207 U.S.P.Q. 1002, 1004 (N.D.
Tex. 1979).
Attorney-client privilege will apply to “communications concerned with
preparation of application, the scope of the claims to be made, patent prosecution
procedures, and advice as to the merits of appealing an examiner’s rejection.” 5
Lester Horwitz et al., Intellectual Property Counseling & Litigation * 75.02[1],
p. 75-11 (1998) (citing Hercules Inc. v. Exxon Corp., 434 F. Supp. 136 (D.
Del. 1977); Burlington Indus. v. Exxon Corp., 65 F.R.D. 26, 34 (D. Md. 1974);
In re Natta, 48 F.R.D. 319, 321 (D. Del. 1969); Chore-Time Equip., Inc. v.
Big Dutchman, Inc., 255 F. Supp. 1020 (D. Mich. 1966)).
Technical Data / Communications
There is a split of authority as to what extent technical communications between
patent attorneys and the inventors is protected. As a result, the extent
of protection afforded communications of a technical nature may vary from
jurisdiction to jurisdiction.
The “Jack Winter” line of cases establishes the “conduit of
information” view of the patent attorney (so named for two early decisions,
Jack Winter, Inc. v. Koratron Co., 50 F.R.D. 225, 166 U.S.P.Q. 295 (N.D. Cal.
1970) (”Jack Winter I”) and Jack Winter, Inc. v. Koratron Co., 54
F.R.D. 44, 46, 172 U.S.P.Q. 201 (N.D. Cal. 1971) (”Jack Winter II”)).
As the court stated in Jack Winter I,
Much of the information passing from client to attorney for purposes of preparation
of patent application is technical material relating to descriptions of the
products and/or processes sought to be patented, explanations of prior art,
public use and sale, and samples of the product. So also in connection with
the examination there is no room for game playing or withholding. As we view
it, the attorney exercises no discretion as to what portion of this information
must be relayed to the Patent Office. He must turn all such factual information
over in full to the patent office pursuant to 35 U.S.C. * 112, and hence
with respect to such material he acts as a conduit between his client and the
Patent Office. As to all such matters it is concluded that a basic element
required for the assertion of an attorney-client privilege is absent — that
is, a communication not for relay but for the attorney’s ears alone.
Jack Winter I, 166 U.S.P.Q. at 297, 298. The Jack Winter line was recently
followed by the United States District Court in Colorado. In McNeil-PPC v.
The Proctor & Gamble Co., 136 F.R.D. 666 (D. Colo. 1991), the defendant
sought to depose the plaintiff’s attorney, who had prosecuted a patent for
the plaintiff. Plaintiff’s attorney attempted to invoke client attorney privilege
and the work product doctrine to avoid disclosure. The McNeil-PPC court stated
that:
Because the patent attorney had a duty of disclosure at the time of the patent
application, to that limited extent, this Court holds that the communications
involved in processing the patent application are discoverable and that the
attorney-client privilege is not a bar to discovery of this evidence. 136 F.R.D.
666 at 670.
A second line of cases has granted greater protection to attorney client communications.
The Court of Claims in Kongo Corp. v. United States, 213 U.S.P.Q. 936 (Ct.
Cl. 1980), stated that:
The attorney is not a mere conduit for either the client’s communications
containing the technical information or the technical information itself .
. . the reality of the cooperative effort put forth by the inventor and the
attorney is far different from the Jack Winter portrayal. . . . The signed,
sworn, and filed application might be considered a communication for relay
and not for the attorney’s ears alone, but the same cannot be said about the
technical communications which preceded the signed, sworn, and filed patent
application.
Id. at 940-41.[6] This Kongo line of cases was recently followed by the United
States District Court for the Northern District of California in Advanced Cardiovascular
Systems Inc. v. C.R. Bard Inc., 25 U.S.P.Q.2d 1354 (N.D. Cal. 1992).[7] The
Advanced Cardiovascular court, in denying disclosure of communications between
inventor and attorney, stated that the position espoused by the McNeil-PPC
court has “clearly been rejected.” 25 U.S.P.Q.2d 1354 at 1356. The
court stated that it was not comfortable with the suggested distinction between
patent attorneys and other types of attorneys. Id. at 1356 n.2. The court instead
went on to hold that:
The communications from inventor to patent lawyer, even those that are entirely
technical, remain presumptively protected by the attorney-client privilege.
We
would consider ordering these communications disclosed only on a very compelling
showing, e.g., that despite the presumption of confidentiality, the inventor
in fact
expected specific communications he or she made to patent counsel to be
disclosed, without editing, to the PTO.
25 U.S.P.Q.2d 1354 at 1359. It is important to note, however, that the Advanced
Cardiovascular court also stated:
As significant for present purposes, we believe that the nature of the dynamic
between inventor and patent lawyer as an application is prepared supports
an inference that the inventors assume that their private communications with
counsel will remain confidential. Again we emphasize that what we are focusing
on is expectations about communications, not expectations about
substantive technical data itself.
25 U.S.P.Q.2d 1354 at 1358 (emphasis in the original).
Draft Patent Applications
“Draft patent applications are not protected by the attorney-Client privilege.” 5
Lester Horwitz et al., Intellectual Property Counseling & Litigation * 75.02[3],
p. 75-14.
The courts reason that the application is prepared for filing with the PTO
and is therefore a communication containing technical information, as opposed
to legal advice. Id. (citing Stryker Corp. Intermedics Orthopedics Inc., 24
U.S.P.Q.2d 1676, 1678 (E.D.N.Y. 1992)); see also Quantum Corp v Western Digital
Corp., 15 U.S.P.Q.2d 1062 (N.D. Cal. 1990) (ordering production of draft applications
and transmittal letters); Howes v. Medical Components, Inc., 7 U.S.P.Q.2d 1511
(E.D. Pa. 1988) (ordering production of draft applications and cover letters).
Other Non-Privileged Communications Relating to the PTO
The following have been held to be non-privileged:
· authorization by client to file application;
· business advice relating to the product;
· transmittal letters;
· the prosecution history and its papers;
· filing fee calculations;
· technical information communicated to counsel where a legal
opinion was not called for or given; and
· documents to or from third parties.
5 Lester Horwitz et al., Intellectual Property Counseling & Litigation * 75.02[4],
p. 75-15 (citing Burroughs Wellcome Co. v. Barr Lab., Inc., 143 F.R.D. 611,
615 (E.D.N.C. 1992); Westvaco Corp. v. International Paper Co., 23 U.S.P.Q.
1401, 1406-1407 (E.D. Va. 1991); Bulk Lift Int’l, Inc. v. Flexcon & Sys.,
Inc., 122 F.R.D. 482, 492 (W.D. La. 1988); Detection Sys., Inc. v. Pittway
Corp., 96 F.R.D. 152, 155 (W.D.N.Y. 1982); Ashland Oil, Inc. v. Delta Oil Prods.
Corp., 209 U.S.P.Q. 151, 153 (E.D. Wisc. 1979); Duplan Corp. v. Deering Milliken,
Inc., 397 F. Supp. 1146, 1168 (D.S.C. 1975); Jack Winter, Inc. v. Koratron,
54 F.R.D. 44, 47 (N.D. Cal. 1971)); see also Quantum Corp. v Western Digital
Corp., 15 U.S.P.Q.2d 1062 (N.D. Cal. 1990) (ordering production of draft applications
and transmittal letters).
Patent Agents
The attorney-client privilege acting under the supervision of an attorney and
also acting alone has been extended to patent agents registered with the
PTO. Glaxo, Inc. v. Novopharm Ltd., 148 F.R.D. 535, 539 (E.D.N.C. 1993) Stryker
Corp. v. Intermedics Orthopedics, Inc., 145 F.R.D. 298, 304 (E.D.N.Y. 1992);
Chubb Integrated Sys. Ltd. v. National Bank of Wash., 103 F.R.D. 52, 56 (D.D.C.
1984). Cf. Jabloner v. Korshak, 194 U.S.P.Q. 165 (P.O. Bd. Int. 1976) (refusing
to recognize privilege between applicant and patent agent who is not an attorney).
Patent agents and lawyers are bound by the same ethical rules. See In re
Ampicillin Antitrust Litig., 81 F.R.D. 377, 393 (D.D.C. 1978); Vernitron Med.
Prods., Inc. v. Baxter Labs., Inc., 186 U.S.P.Q. 325 (D.N.J. 1975).
Duty of Candor and the Attorney-Client Privilege
Breaching one’s duty of candor violates the PTO Code of Professional Responsibility
and can result in sanctions or disbarment. 37 C.F.R. * 10.23 (c)(10);
Jaskiewicz v. Mossinghoff, 822 F.2d 1053, 1057 (Fed. Cir. 1987) (”[W]here
a person entitled to practice before the PTO has breached that duty of candor
. . . it may well be appropriate or necessary to issue sanctions directly
against that attorney”); Kingland v. Dorsey, 338 U.S. 318, 319 (1949)
(affirming disbarment for breach of the duty of candor); Klein v. Peterson,
866 F.2d 412, 417 (Fed. Cir. 1989) (affirming two-year suspension and five-year
probation for violating duty of candor).
Federal Circuit dicta regarding the attorney-client privilege offers three
distinctive views. In Molins PLC v. Textron, Inc., 48 F.3d 1172 (Fed. Cir.
1995), the issues of inequitable conduct arose from the simultaneous representation
of two clients before the PTO. While the court resolved the matter of inequitable
conduct on other grounds, it did speak to the issue of attorney-client privilege
in dicta:
[D]ual representation of two clients seeking patents in closely related technologies
created a risk of sacrificing the interest of one client for that of the other
and of failing to discharge his duty of candor to the PTO with respect to each
client.
Whether or not there was a conflict of interest, however, is not before us,
and we express no opinion thereon. Nor do we express any opinion regarding
the apparent conflict between an attorney’s obligations to the PTO and the
attorney’s obligation to clients.
Nies, J., dissenting in part states, “Smith’s representation of clients
with conflicting interests provides no justification for deceiving the PTO.”)
(reaching the conflict of interest issue and finding that the duty to the PTO
outweighs any duty arising from the conflicting interests of two clients).
Newman, J., dissenting in part states, “[Smith's] obligation to preserve
the confidentiality of his client Lemelson was absolute.” (implying that
the attorney’s duty to his client supercedes the general duty to the PTO).
Unauthorized Practice of Law
Lawyer Competency – What the Lawyer Should Do, As Opposed to What the Lawyer
is Allowed to Do[8]
IP Litigation
Trademark Practice
Copyright Practice
Patent Practice
Trade Secret Practice
General IP Counseling
Technology Licensing
Antitrust
Practicing Patent Law
Patent Agents, Lawyers, and Non-lawyers
In patent practice, representation of an applicant may be undertaken by either
an attorney, or an agent, provided that registration to practice before the
Patent and Trademark Office has been obtained. Pro se prosecution of a patent
application is permitted. The PTO will not aid in selection of an attorney
or agent. See 37 C.F.R. * 1.31.
A registered patent agent is not an attorney. See Blodgett v. United States,
214 U.S.P.Q. 407 (Ct. Cl. 1980). Tax deduction for costs associated with legal
education of patent agent ruled not deductible as job related expense: “…a
registered patent agent is simply not an attorney.”
Patent agents cannot appeal the rejection of patent claims by the PTO to the
US Court of Appeals for the Federal Circuit even when the appeal is based on
claims drafted by the patent agent.
Unauthorized Representation as a Practitioner is Strictly Forbidden
General practitioners forbidden to practice before Patent and Trademark Office
in patent matters unless registered. See Vernitron Med. Prod., Inc. v. Baxter
Labs., Inc., 186 U.S.P.Q. 324 (D.N.J. 1975). Although general practitioners
may appear in courts where admitted, they cannot prosecute applications before
the Patent and Trademark Office.
Patent and Trademark Office determines qualification and fitness to practice
before it in patent matters. See In re Doe, 26 U.S.P.Q.2d 1235 (Comm’r Pat.
1993): Courses in Mathematics and Statistics not sufficient to demonstrate
requisite scientific and technical knowledge necessary to qualify for Patent
and Trademark Office registration examination. See also Leeds v. Mossbacher,
14 U.S.P.Q.2d 1455 (D.C. 1990): Applicant for registration as Patent Agent
who was formerly an Examiner with the Patent and Trademark Office denied waiver
of examination based upon his involuntary termination as Patent Examiner; Weiffenbach
v. Gould, 18 U.S.P.Q.2d 1397 (Comm’r Pat. 1989) Attorney suspended from practice
of law in Maine received reprimand for failure to inform Office of Enrollment
and Discipline of suspension from practice of law. Stein v. Coleman, 214 U.S.P.Q.
118 (S.D.N.Y. 1982). Attorney employed as patent attorney for corporation not
allowed admission to bar without examination based upon law which permits waiver
of examination where applicant had actively practiced law.
Former Patent Examiners are prohibited for two years from working on matters
related to their work at the PTO. 37 C.F.R. ** 10.10(b) and (c).
Work on prohibited matters can prevent registration / reinstatement of the
agent to the patent bar and can result in patent invalidity. Kearney & Trecker
Corp. v. Gidding & Lewis, Inc., 452 F.2d 579, 171 U.S.P.Q. 650 (7th Cir.
1971); see also Beall v. Kearney & Trecker Corp., 350 F. Supp. 978, 175
U.S.P.Q. 410 (D. Md. 1972).
Patent preparation is practice of law. See Lefkowitz v. Napatco, Inc., 212
U.S.P.Q. 617 (N.Y. App. Div. 1980). Patent preparation is not clerical activity,
but one that can only be performed by registered patent attorney or agent,
and is therefore legal service within meaning of state law. See also State
of New York v. Lawrence Peska Assoc., Inc., 201 U.S.P.Q. 321 (N.Y. 1977): preparation
of patent applications constitutes the practice of law in the State of New
York. Although state cannot regulate activities by non-lawyer practitioners
registered before the U.S. Patent Office, state has authority to control non-lawyers
not so registered as unlicensed practice of law within state.
State Regulation of Patent Lawyers and Agents
States cannot regulate practice of registered attorneys and agents not members
of State Bar. See Sperry v. Florida, 373 US 378, 137 U.S.P.Q. 578 (1963). “…since
patent practitioners are authorized to practice only before the Patent Office,
the State maintains control over the exercise of law within its borders, except
to the limited extent necessary for the accomplishment of the federal objectives.”
States not precluded from regulating unlicensed activity when federal registration
is lacking; see In re Amalgamated Dev. Co. & Blasius, 195 U.S.P.Q. 194
(D.C. Cir. 1977). Although state cannot interfere with patent practice by registered
practitioner (see Sperry v. Florida) state does not interfere with any federal
objective where state imposes its own licensing requirements upon unregistered
and unlicensed practitioner. State is not precluded from concurrently preventing
unlicensed practice of law even though the Commissioner may also punish such
activity.
Penalties For Unauthorized Practice of Law
Implied cause of action for unregistered representation in patent cases under
35 U.S.C. * 33. See Arnesen v. The Raymond Lee Organization, Inc., 172
U.S.P.Q. 1 (D. Cal. 1971): Implied right of action exists under 35 U.S.C. * 33
where party is a member of the class that the statute was intended to protect.
Enders v. American Patent Search Co., 189 U.S.P.Q. 569 (9th Cir. 1976): 35
U.S.C. * 33 not an act relating to patents, but to unregistered activity.
Leblanc v. Spector, 183 U.S.P.Q. 408 (D. Conn. 1973). Implied right of action
for unlicensed patent preparation under 35 U.S.C. * 33. Here, civil action
was permitted under 28 U.S.C. * 1338(a).
“Whoever, not being recognized to practice before the Patent and Trademark
Office, holds himself out or permits himself to be held out as so recognized,
or as being qualified to prepare or prosecute applications for patent, shall
be fined not more than $1,000 for each offense.”
Practicing Trademark Law
Representation of an applicant for Federal Trademark registration must be undertaken
by an attorney. No registration to practice before the Patent and Trademark
Office is required. An exception exists if the non-lawyer was recognized
to practice before the Patent and Trademark Office in trademark matters prior
to January 1, 1957. See 37 C.F.R. * 10.14; see also Jennifer Stiver
Chicoski, A Trademark Attorney’s Ethical Guide to the Patent & Trademark
Office and Its Code of Professional Responsibility, 8 Georgetown J. of Legal
Ethics 1013 (1994-95).
Individuals Who May Practice Before the PTO in Trademark
and Other Non-Patent Cases. Attorneys
Any individual who is an attorney may represent others before the Office in
Trademark and other non-patent cases. An attorney is not required to apply
for registration or recognition to practice before the Office in trademark
and other non-patent cases.
Non-lawyers
Individuals who are not attorneys are not recognized to practice before the
Office in trademark and other non-patent cases, except that individuals not
attorneys who were recognized to practice before the Office in trademark cases
under this chapter prior to January 1, 1957, will be recognized as agents to
continue practice before the Office in trademark cases.
Pro se representation before the Patent and Trademark Office in trademark
matters is permitted. Office will not aid in the selection of an attorney.
See 37 C.F.R. * 2.11.
Applicants may be represented by an attorney. The owner of a trademark may
file and prosecute his or her own application for registration of such trademark,
or he or she may be represented by an attorney or other individual authorized
to practice in trademark cases under * 10.14 of this subchapter. The Patent
and Trademark Office cannot aid in the selection of an attorney or other representative.
Representation in Trademark matters by Registered Patent Agent forbidden.
See Weiffenbach v. Frank, 18 U.S.P.Q.2d 1397 (Comm’r Pat. 1991): Patent agent
who was not attorney violated Patent and Trademark Office Code of Professional
Responsibility by representing for a fee trademark applicants before Patent
and Trademark Office. Patent agent received reprimand.
Representation by Patent Agent in Trademark matters may lead to exclusion
from patent practice. See Weiffenbach v. Klempay, 18 U.S.P.Q.2d 1397 (Dept.
of Comm. 1994): Patent agent who is not an attorney who represented trademark
applicants before the Patent and Trademark Office excluded from practice as
Patent Agent.
Practicing Copyright Law
The following persons are legally entitled to submit an application form:
The author. This is either the person who actually created the work or, if
the work was made for hire, the employer or other person for whom the work
was prepared.
The copyright claimant. The copyright claimant is defined in Copyright Office
regulations as either the author of the work or a person or organization that
has obtained ownership of all the rights under the copyright initially belonging
to the author. This category includes a person or organization who has obtained
by contract the right to claim legal title to the copyright in an application
for copyright registration.
The owner of exclusive right(s). Under the law, any of the exclusive rights
that go to make up a copyright and any subdivision of them can be transferred
and owned separately, even though the transfer may be limited in time or place
of effect. The term “copyright owner” with respect to any one of
the exclusive rights contained in a copyright refers to the owner of that particular
right. Any owner of an exclusive right may apply for registration of a claim
in the work.
The duly authorized agent of such author, other copyright claimant, or owner
of exclusive right(s). Any person authorized to act on behalf of the author,
other copyright claimant, or owner of exclusive rights may apply for registration.
There is no requirement that applications be prepared or filed by an attorney.
United States Copyright Office Circular No. 1, Copyright Basics, http://lcweb.loc.gov/copyright/circs/
circ1.html.
Conflicts of Interest in Intellectual Property Practice

Adverse Parties in Contemporaneous Litigation and Representation
in Non-litigation Matters
· The Gilman Corp. v. The Gilman Brothers Co., 20 U.S.P.Q.2d 1238
(Comm’r Pat. 1991) Disqualification of attorney in trademark cancellation proceeding
not warranted, even assuming that attorney “expressly or inherently” represented
adverse party in patent matter since no showing of “substantial relationship” was
shown.
· Parker Chem. Co. v. Widger Chem. Corp., 225 U.S.P.Q. 336 (E.D.
Mich. 1984) (law firm that had pending trademark applications for an accused
trade secret misappropriator should be disqualified from representing trade
secret owner in action against accused misappropriator).
· Koehring Co. v. The Manitowoc Co., Inc., 192 U.S.P.Q. 144 (E.D.
Wisc. 1976) Attorney that represented patent owner in patent validity suit
is disqualified from representing accused infringer in action involving same
patents.
Former-Client Conflicts
· Kearns v. Fred Lavery Porsche Audi, 223 U.S.P.Q. 881 (Fed. Cir.
1984) (upholding district court disqualification of attorney who had represented
a client in an infringement action when the attorney had been consulted earlier
by the patent owner regarding representation in a patent infringement action
involving the same patents against another defendant).
· DCA Food Industries, Inc. v. Tasty Foods, Inc., 227 U.S.P.Q.
874 (W.D. Wisc. 1985). Attorney who had represented assignor when subpoenaed
as a third party witness in a suit involving patent validity is not disqualified
from representing defendants in subsequent patent infringement proceedings
brought by patent assignee since assignee failed to demonstrate that it submitted
confidential information to attorney.
· SMI Industries Canada Ltd. v. Caelter Industries, Inc., 223 U.S.P.Q.
742 (N.D.N.Y. 1984) (absent evidence that the attorney “ought to” testify
in a pending action, and absent evidence that continued representation would
prejudice the party seeking disqualification, disqualification of counsel was
not required under Canon 5 for an attorney who formerly handled intellectual
property matters for company whose assets were acquired by party seeking disqualification).
· Abbott Lab. v. Centaur Chem. Corp., Inc., 214 U.S.P.Q. 670 (N.D.
Ill. 1980) (law firm representing Centaur Chemical in a patent matter not disqualified
from representing Centaur where attorney had previously represented Abbott
in a patent interference unrelated to the present proceeding).
· Cameron Iron Works, Inc. v. Hydril Co., 208 U.S.P.Q. 672 (S.D.
Texas 1980), firm representing Cameron disqualified when one member of firm
was formerly a patent attorney in charge of Hydril’s patent matters at a different
law firm when a patentability and infringement study was prepared relating
to the subject matter of case.
Imputed Disqualification
· Panduit Corp. v. All States Plastic Mfg. Co., Inc., 223 U.S.P.Q.
465 (Fed. Cir. 1984) (partner of law firm who was previously associated with
another firm where patent owner’s counsel was retained to handle a foreign
patent filing is not disqualified from representing an accused infringer, where
the partner had no involvement in any matter related to the patent owner).
· L. Gore and Associates, Inc. v. International Medical Prosthetics
Research Associates, Inc., 223 U.S.P.Q. 884 (Fed. Cir. 1984) (upholding disqualification
of attorneys of law firm who represented an accused infringer where one of
the partners had worked directly for the patent owner in a substantially related
case, and whose other partner, now accused infringer’s lead counsel, had been
an associate in a firm that represented the patent owner in a prior related
case).
· EZ Paintr Corp. v. Padco, Inc., 223 U.S.P.Q. 1065 (Fed. Cir.
1984) (upholding district court decision disqualifying law firm in an infringement
action where disqualified attorneys, who had previously worked with the patent
owner in the same action did not delay joining the firm until litigation was
completed, and where the firm failed to shield the disqualified attorneys once
they had arrived).
· Sunkist Growers, Inc. v. The Benjamin Ansehl Co., 221 U.S.P.Q.
1077 (Comm’r Pat. 1984) (although disqualification of a member of a law firm
will generally lead to disqualification of the firm, each case must be decided
on its facts. Since the disqualified attorney is an associate as opposed to
a partner, the use of screening avoids disqualification of firm).
· Plus Prod. v. Con-Stan Industries, Inc., 221 U.S.P.Q. 1071 (Comm’r
Pat. 1984) (attorney disqualified in trademark opposition matter since petitioner
was able to show that attorney was petitioner’s former attorney, who now represents
an adverse party).
· Beghin-Say v. Rasmussen, 212 U.S.P.Q. 614 (Comm’r Pat. 1980)
(the threshold question in disqualification cases is whether attorney had attorney-client
relationship with party seeking disqualification).
· General Electric Co. v. The Valeron Corp., 203 U.S.P.Q. 1053
(6th Cir. 1979) (disqualification of attorney by trial court upheld where substantial
relationship shown by access to files, patents, patent applications, and access
to confidential disclosures).
· Hooper v. Steelplank Corp., 215 U.S.P.Q. 829 (E.D. Mich. S. Div.
1981) (it is improper to assist one client in obtaining a patent, then to assist
another client in proving that the patent was not valid).
· Schloetter v. Railoc of Indiana, Inc., 192 U.S.P.Q. 566 (7th
Cir. 1976) (attorney precluded from representing accused infringer when attorney
was responsible for prosecution of original patent).
· The Foxboro Co. v. Spectrum Assoc. Inc., 213 U.S.P.Q. 439 (D.
Mass. 1981) (attorney’s work on single patent application not sufficient to
disqualify firm from representation in a trademark matter adverse to former
client, since matter not “substantially related”).
PTO Conflicts and Conflicts with Former Government Lawyers
· SCM Co. v. Aktieselskrabet Niro Atomizer, 212 U.S.P.Q. 93 (Comm’r
Pat. 1981) (disqualification of practitioners in proceedings before the Patent
and Trademark Office is discretionary with the Commissioner, but the Commissioner
has adopted the Code of Professional Responsibility of the American Bar Association
as the standard which governs conduct in disqualification cases).
· Phillips Petroleum, Inc. v. Hercules, Inc., 212 U.S.P.Q. 757
(Comm’r Pat. 1980) (former examiner was precluded from representing party in
a patent reissue protest where the former examiner had substantial responsibility
in matter while in government service).
· Friedman v. Lehman, 40 U.S.P.Q.2d 1206 (D.C. 1996) (upholding
public reprimand issued by Commissioner of Patents and Trademarks to attorney
that testifies as expert witness in proceeding where patents that that he had
examined while Examiner at Patent Office were at issue. See 37 C.F.R. * 10.111(b);
former patent office employees prohibited from accepting “private employment
in a matter in which he or she had personal responsibility while a public employee”).
Duty of Candor to the PTO
Under 37 C.F.R. * 1.56(a) (1995), each individual associated with the
filing and prosecution of a patent application has a duty of candor and good
faith in dealing with the U.S. Patent and Trademark Office (”PTO”).
This duty includes the duty to disclose to the PTO all information known to
that individual to be material to the patentability of a pending U.S. patent
application. “Individuals associated with the filing or prosecution of
a patent application” are defined under 37 C.F.R. * 1.56(c) as:
Each inventor named in the application, each attorney or agent who prepares
or prosecutes the application, and every person who is substantively involved
in the preparation or prosecution of the application and who is associated
with the inventor, with the assigned or with anyone to whom there is an obligation
to assign the application.
“Information material to the patentability” of an application is
defined under 37 C.F.R. * 1.56(b) as information that is not cumulative
to information of record in the application and which: (1) establishes, by
itself or in combination with other information, a prima facie case of unpatentability
of a claim, or (2) refutes, or is inconsistent with, a position that the applicant
takes in (i) opposing an argument of unpatentability that the PTO relies on,
or (ii) asserting an argument of patentability.[9] Failure to comply with the
duty of disclosure can result in any issued patent as being declared unenforceable
based on an inequitable conduct attack.
Inequitable Conduct
In general, even though a patent may be valid, a patent may be deemed unenforceable
by reason of inequitable conduct. Paragon Podiatry Lab. v. KLM Labs., 984
F.2d 1182, 1193 (Fed. Cir. 1993); LaBounty Mfg. v. United States Int’l Trade
Comm’n, 958 F.2d 1066, 1070 (Fed. Cir. 1992). Therefore, inequitable conduct
may be used as an affirmative defense to patent infringement. See Molins
PLC v. Textron, 48 F.3d 1172, 1177 (Fed. Cir. 1995); Paragon, 984 F.2d at
1184.
The doctrine of inequitable conduct prevents a party from enforcing a patent
that was procured by breaching the duty of candor owed to the PTO during prosecution
of the patent. LaBounty, 958 F.2d at 1070. A court may determine that inequitable
conduct has occurred when it finds that an associated individual, such as the
patent applicant/inventor or the applicant’s attorney, intentionally withheld
material information from the PTO during prosecution of the patent.[10] A determination
of inequitable conduct is left to the discretion of a judge; a party does not
have a constitutional right to a trial by jury on this issue. General Electro
Music Corp. v. Samic Music Corp., 19 F.3d 1405, 1408 (Fed. Cir. 1994); Paragon,
984 F.2d at 1190.
Specifically, a party shows inequitable conduct by producing clear and convincing
evidence that material information was misrepresented or not disclosed to the
PTO with intent to deceive the PTO. Molins PLC, 48 F.3d at 1178. To be intentional,
knowledge of the information or “prior art” and its materiality needs
to be chargeable to the associated individual. Id. Thus, the prior art must
be “material” and the applicant / associated individual must have “intended” to
deceive the PTO.
Essentially, information is considered material if there is a substantial
likelihood that a reasonable patent examiner would have considered such information
important in determining whether to allow the application to issue as a patent.
Id. at 1178. Whether or not the information would actually have been relied
upon by the PTO is irrelevant. Merck & Co. v. Danbury Pharmaceutical, 10
U.S.P.Q.2d 1682, 1686 (Fed. Cir. 1989). However, a finding that a withheld
reference anticipates a claim (thus rendering it invalid) satisfies “the
most stringent standard of materiality.” Fox Indus. v. Structural Preservation
Sys., 17 U.S.P.Q.2d 1579, 1581 (Fed. Cir. 1990).
Intent to deceive the PTO can be proved directly or inferred from the surrounding
circumstances. Molins PLC, 48 F.3d at 1180-81. However, intent to deceive can
be inferred from the circumstances only when “the involved conduct, viewed
in light of all the evidence, including evidence indicative of good faith,
[is sufficiently culpable] to require a finding of intent to deceive.” Id.
at 1181 (citing Kingsdown Med. Consultants v. Hollister, Inc., 863 F.2d 867
(Fed. Cir. 1988)); see also Paragon, 984 F.2d at 1189. In particular, gross
negligence by itself is not sufficient to justify an inference of intent to
deceive; rather the “conduct in its totality” needs to manifest a
state of mind indicating that the conduct was inequitable. See Consolidated
Aluminum Corp. v. Foseco Int’l Ltd., 910 F.2d 804, 808-809 (Fed. Cir. 1990).
In practice, such a standard may be difficult to meet because it requires clear
and convincing evidence. LaBounty, 958 F.2d at 1070. However, a party need
not submit proof of the associated individual’s actual state of mind. General
Electro Music, 19 F.3d at 1411. To establish a prima facie case (which must
be disproved by the patent holder), the party charging inequitable conduct
can produce evidence of an unexplained violation of the duty of candor. Paragon,
984 F.2d at 1192. In a case involving nondisclosure of information, the evidence
must show that “the applicant made a deliberate decision to withhold a
known material reference. Molins PLC, 48 F.3d at 1181. To disprove this showing,
the patent holder may need to refute this evidence with more than a “mere
denial of intent to mislead.” LaBounty, 958 F.2d at 1076; General Electro
Music, 19 F.3d at 1411.
Determinations of inequitable conduct have been made based upon proof of misleading
arguments to the PTO in conjunction with the withholding of highly pertinent
contemporaneously known prior art. LaBounty, 958 F.2d at 1076. For example,
in LaBounty, the court found inequitable conduct when the patentee failed to
disclose prior sales or public use of related devices. In Trilogy Communications,
Inc. v. Comm Scope Co., 754 F. Supp. 509 (W.D.N.C. 1990), a court found inequitable
conduct when the patentee failed to disclose known similar results available
from the prior art, internal memoranda unfavorably describing a method documented
in the patent specification, and a known more pertinent patent than that cited
by the patent examiner.
In addition, inequitable conduct has been found where the patentee made a
deliberate decision to withhold a known material reference from the PTO, even
without misleading statements. See Molins PLC, 48 F.3d. In Molins, the original
prosecuting attorney failed to disclose to the PTO a reference that was cited
in related foreign prosecution. Id. at 1181. The attorney had represented in
the foreign prosecution that the reference was the “closest prior art” and
over the ten years involved had on numerous occasions been reminded of the
materiality of the reference. Id. Attached below as Appendix A is a summary
of cases addressing inequitable conduct.
A successful determination of inequitable conduct has powerful consequences.
Under the doctrine of inequitable conduct, all claims of a patent are unenforceable
if a court establishes inequitable conduct with respect to any one claim. See
Fox, 17 U.S.P.Q.2d at 1581. Moreover, if one patent in a suit of related patents
is found unenforceable due to inequitable conduct, then, under the equitable
doctrine of unclean hands, a court has discretion to also find the other related
patents unenforceable. See Consolidated Aluminum, 910 F.2d at 809-12; Fox,
17 U.S.P.Q.2d at 1581. In essence, the doctrine of unclean hands provides that
a person who seeks equity from a court “must come with clean hands,” implying
that to obtain fairness, one must operate in a fair manner. See Consolidated
Aluminum, 910 F.2d at 809. Patents in a lawsuit can be considered related,
for the purpose of finding that the inequitable conduct extends to all of the
patents, if the inequitable conduct found in one patent “has an immediate
and necessary relation” to the remedy sought in court. Id. at 810. Such
a relation may be established if, for example, the patents in a lawsuit relate
to the same subject matter and the granting of later patents was based in some
part upon the inequitable conduct. See, e.g., id. at 811-12; Keystone Driller
Co. v. General Excavator Co., 290 U.S. 240 (1933).
Citing Information From One Client’s Application in Another
Client’s Application
One interesting issue involves a conflict between a patent attorney’s duty
of candor to the PTO and the duty of confidentiality to multiple clients. In
other words, what duty does an attorney representing both clients A and B have
toward the PTO when he or she becomes aware of material information during
the prosecution of client A’s patent application which is relevant to client
B’s patent application” The M.P.E.P. states at * 2001.06 that:
All individuals covered by 37 C.F.R. * 1.56 have a duty to disclose
to the Patent and Trademark Office all material information they are aware
of regardless of the source of or how they become aware of the information.
Materiality controls whether information must be disclosed to the Office, not
the circumstances under which or the source from which the information is obtained.
If material, the information must be disclosed to the Office.
M.P.E.P. * 2001.06, 6th ed., Jan. 1995 (emphasis in original). The M.P.E.P.
additionally states that:
Individuals covered by 37 C.F.R. * 1.56 have a duty to bring to the
attention of the patent examiner information within their knowledge as to other
co-pending United States applications which are “material to patentability” of
the application in question . . . accordingly the individuals . . . must .
. . bring such applications to the attention of the patent examiner.
M.P.E.P. * 2001.06(b), 6th ed., Jan. 1995. Although the M.P.E.P. then
recites the example of a particular inventor who must disclose information
from different pending applications material to the present application, the
language is clearly broad enough to cover cases in which the material information
comes from applications of different inventors or clients.
M.P.E.P. * 2001.06 was recently interpreted by the Federal District Court,
District of Delaware in Molins PLC v. Textron, Inc., 821 F. Supp. 1551 (D.
Del. 1992). In that case, attorney Smith represented Williamson, a Molins inventor
in the prosecution of a patent application while at the same time representing
Jerome Lemelson in the prosecution of an application involving similar technology.
The District Court found that Smith’s failure to disclose the co-pending application
of Lemelson during the prosecution of the Williamson application constituted
inequitable conduct because (1) the court found that claim 11 of the Lemelson
application was material to the patentability of claim 160 of the Williamson
application, and (2) because the court inferred an intent to deceive the PTO
from the fact of Smith’s dual representation of Molins and Lemelson. 821 F.
Supp. 1551 at 1577, 1578.
The Federal Circuit reversed the District Court’s finding of inequitable conduct.
In Molins PLC v. Textron, 48 F.3d 1172 (Fed. Cir. 1995), the Federal Circuit
stated that it did not “express any opinion regarding the apparent conflict
between an attorney’s obligations to the PTO and the attorney’s obligation
to clients,” 48 F.3d 1172 at 1185, but “regarding Smith’s obligation
to the PTO, which is before us, we agree with Smith that Textron failed to
establish by clear and convincing evidence that inequitable conduct occurred
in the non-disclosure of claim 11 of the Lemelson application.” Id. The
Federal Circuit found that Lemelson claim 11 was not material because it was
cumulative art already made of record during the prosecution of the Williamson
patent. 48 F.3d 1172 at 1186.
Textron had also asserted that Smith took inconsistent positions before the
PTO in the course of his dual representation, although Textron did not assert
that this in itself amounted to inequitable conduct. The reviewing court found
that the assertions Smith made during the prosecution of the Williamson patent
were not inconsistent with the statements he made during the prosecution of
the Lemelson patent. Id.
Thus, the Federal Circuit did not find inequitable conduct where the information
discovered during the prosecution of one client’s application is not material
to the prosecution of another client’s application. The court specifically
did not address (because it did not have to) the situation which arises when
the information pertaining to client A is material to client B’s application
and a conflict arises between the duty of confidentiality owed by the attorney
to the client and the duty of disclosure owed by the attorney to the PTO.
[1] Website may no longer be viable.
[2] “Of course it is also possible for someone to gain access to another’s
password and use that person’s computer to send out inauthentic messages. This
is a common but low-tech method of spoofing as well.” Robert L. Jones,
Client Confidentiality: A Lawyer’s Duties with Regard to Internet E-Mail (1995),
http://www.kuesterlaw.com/netethics/bjones.htm.
[3] Website may no longer be viable.
[4] See examples of facsimile and e-mail disclaimers in earlier section of
this paper.
[5] Why is the Arizona Bar so active” Because it was forced early to deal
with an issue of “spamming.”
· “Spamming” is a random indiscriminate posting of
items (often advertisements) on computer bulletin boards or by e-mail.
· Notorious “green card” incident – April 1993, two
immigration lawyers in a Phoenix firm posted an ad to thousands of Internet
news groups.
· Over 30,000 irate recipients “flamed” the firm
for breaking the unwritten rules of “netiquette” that prohibit unsolicited
advertising.
· The firm’s Internet access was dropped by their ISP.
· The lawyers were never disciplined for any ethics violations.
· Arizona Bar responded by noting that solicitations sent to
all members of a particular group (a listserve of environmental matters) are
acceptable.
· Washington State has enacted an anti-spamming law. ftp://ftp.leg.wa.gov/pub/rcw/title_19/chapter_190/.
[6] See also FMC Corp. v. Old Dominion Brush Co., 229 U.S.P.Q. 150 (W.D. Mo.
1985), in which the court stated that:
the attorney-client privilege protects communications from a client to its
counsel, not the information contained in the communication. The expectation
of confidentiality applies to the communication but not to the information
contained in the communication.
229 U.S.P.Q. 150, 151.
[7] Interestingly, the Advanced Cardiovascular court in the Northern District of California did not follow the Jack Winter line, although both Jack Winter cases were decided by the Northern District of California, while the McNeil-PPC
court, in Colorado did follow the Jack Winter line. Perhaps the fact that the
Jack Winter line was decided by Jack Doyle, a Colorado District Court judge
sitting by designation in the Northern District of California, has some bearing
on this outcome.
[8] See Chief Justice Warren Burger, The Special Skills of Advocacy: Are Specialized
Training & Certification of Advocates Essential to Our System of Justice”
42 Fordham L. Rev. 227 (1973) (charging that between 1/3 and 1/2 of the nation’s
trial lawyers were incompetent).
[9] 37 C.F.R. * 1.56(b) further defines a prima facie case of unpatentability
as being established when “the information compels a conclusion that a
claim is unpatentable under the preponderance of evidence, burden-of-proof
standard, giving each term in the claim its broadest reasonable construction
consistent with the specification, and before any consideration is given to
evidence which may be submitted in an attempt to establish a contrary conclusion
of patentability.”
[10] Rule 1.56 was modified in part in 1992 to more clearly delineate what
sort of information may be considered material to the PTO. Any changes to a
patent applicant’s duty of disclosure or that affect the rule’s use in defending
against an inequitable conduct assertion will likely apply only to applications
submitted after promulgation of the new rule.

Steps into China: Chinese Trademarks and Other Intellectual Properties

Just as the Chinese character and concept of Tao (Dao) has no direct equivalent in English, there is, perhaps no single “road” or “way” to doing business in China. There are, however, some practical steps that can be identified and followed.

Step One: Think About China as a Source and a Sale

There is a Chinese saying, “Those” that go to China to kill will be killed. Those who have tried to take advantage of China’s market without “buy-in” from the same understand this proverb only too well. The idea here is to think about how your business can benefit from China and how China can benefit from your business.

Step Two: Create a Product Protection Plan

Even a relatively small market share in China amounts to huge potential sales.

A 5 percent market share of China’s 1.2 billion people is about 50 million people – roughly equivalent to one-fifth of the population of the United States.

Think about not just getting into China, but how to stay there. Registering your important trademarks in the Chinese language, for example, is one effective way of building a foothold in the emerging Chinese market.

In addition to considering your long-term strategy, the most effective second step into China is the formal legal protection of your products and technology.

China is on the leading edge of international and domestic legal developments, offering tremendous potential protection for those doing or planning to do business in China. China’s membership in the World Intellectual Property Organization (WIPO) is one exciting recent development. Many of the legal protections outlined below are becoming even more valuable as China moves ever closer to legal harmonization of world intellectual property legal protection standards. With that said, caution is still advised.

An overlapping portfolio of copyright protection, product design protection, trademark protection and patent protection helps assure one’s competitive advantage in China, Hong Kong and, indeed, the world. Intellectual property registrations in other areas of the world, especially in key markets such as the United States, can be used to help bolster product protection in China. Steps three through six outline some important elements of a product protection plan.

Step Three: Trademark Protection Plan

A trademark is used to promote and identify one’s goods and services. Trademarks also enable the purchasing public to distinguish goods and services sold by different manufacturers. A trademark may be any sign that is visually perceptible and capable of being represented graphically and may, in particular, consist of words, personal names, letters, numerals, figurative elements or combination of colors, and include any combination of such signs. Chinese character trademarks are available to foreign companies in China too. Additionally, U.S. trademark registrations can be used to stop unauthorized (pirated or copycat) goods from entering the United States.

Step Four: Copyright Protection in China

Copyright protects creativity. The efforts of writers, artists, designers, software programmers and others need to be protected so that hard work can be rewarded. Copyrights, like patents and trademarks, are an effective tool against unauthorized manufacture, use, sales or imports of one’s creative expression, including package design and, in some cases, product configuration securing the necessary intellectual property rights protection, including copyright protection, helps assure your competitive advantage in China, Hong Kong and the world. Also, with the help of the United States Customs and copyright registrations, unauthorized (pirated or copycat) goods can be stopped at U.S. orders.

Step Five: Registered Product Designs In China

Product designs can be registered in China and Hong Kong to stop unauthorized manufacture, import, use, sale or hiring of your product designs in China and Hong Kong. Licensing product designs is another possibility once designs have been registered.

Designs not registered in China and Hong Kong may still be protected under copyright law for articles produced from your original design drawings. Protection under copyright law is for 15 years from first marketing of the article. But protection under copyright law has limitations. You cannot take legal action for copyright infringement where another person independently produces a similar design. If a design is registered, a similar design will infringe, even if it was independently created! It is also easier to defend against pirates when a design is registered.

Additionally, internal policies, agreements and forms can be leveraged to help assure a company’s rights in intellectual property developed by its employees, contractors or partners.

Step Six: Patent Protection

Patent protection is helpful in stopping unauthorized manufacturing, use, sales or imports of your invention in the countries where the patent has issued.

Patent protection is required in China and. Hong Kong, for example, to stop unauthorized manufacture, use or sales of your invention in China and Hong Kong. Likewise, patents in China and Hong Kong are important if you intend to license someone else to manufacture, use, sell or import an invention Hong Kong. Applying for a patent elsewhere in the world does not automatically give you patent protection in China and Hong Kong.

Step Seven: Licensing and Other Contracts

License agreements and other contracts can be used to help bolster your rights in the Chinese market. Technology is frequently commercialized by an entity other than its creator. Licensing a technology can give a company quick access to new market niches, and this has been the basis for many successful technology start-ups. Licensing also provides revenue to the technology’s creator, which can be a research lab or a company with technology outside its own focused niche.

Step Eight: Research and Collaboration

Sometimes it helps to have a partner. Many companies chose to collaborate with Chinese businesses to develop or improve technologies or products through joint research effort. The respective rights of the collaborators vis-à-vis new developments must be protected through well-crafted research and/or collaboration agreements.

Step Nine: Organizational Structures

In some cases, it helps to have a business entity in China. This is becoming less important as China harmonizes its trade laws in conjunction with its participation in WIPO Nevertheless, establishing an appropriate organizational structure for your business, high-tech. start-ups or otherwise, can be an important part of any “road to China.” Typically, one consider corporations, partnership agreements, single proprietorships, Limited Liability Companies (LLCs), joint ventures and off shore entities.

Navigating the “way” into China may seem as complicated as mastering the quiet profundities of Laozi’s Dao De Jing, but the nine steps outlined above should help in simplifying the journey.