| 7th Circuit Rules in
Software Trade Secrets Case |
4/1. The U.S.
Court of Appeals (7thCir) issued its opinion
in IDX
v. Epic Systems, a trade secrets case involving
software. The Appeals Court affirmed the District Court's
summary judgment that IDX failed to identify with specificity
the trade secrets that it accused the defendants of
misappropriating. However, it reversed the District Court's
ruling that a confidentiality agreement regarding the software
was unenforceable.
Background. IDX Systems
and Epic Systems
both make software for use in managing the financial side of a
medical practice. A major customer of IDX, the University of Wisconsin
Medical Foundation (UWMF), which comprises more than 1,000
physicians, used IDX software until December 2000, when it
switched to Epic software.
The UWMF had contracted with IDX that it would not allow the
software and related materials furnished by IDX to be
"examined ... for the purpose of creating another
system". UWMF also contracted not to "use or
disclose or divulge to others any data or information relating
to" the system or "the technology, ideas, concepts,
know- how, and techniques embodied therein."
District Court. IDX filed a complaint in U.S. District Court (WDWisc)
against Epic, UWMF, and two employees of UWMF who had
previously worked for Epic. IDX alleged that the UWMF and the
two employees stole IDX's trade secrets, and broke contractual
promises of confidentiality. IDX alleged that Epic tortiously
induced UWMF and the two employees to do these things.
Jurisdiction was based upon diversity of citizenship. The
Court applied Wisconsin law.
In support of its misappropriation of trade secrets claims,
IDX submitted to the District Court a 43 page description of
the methods and processes underlying and the inter-
relationships among various features making up IDX's software
package.
The District Court dismissed the tort claims against Epic on
the pleadings, observing that the Wisconsin trade secrets
statute overrides any theory that conflicts with the state's
law of trade secrets. It also ruled that the confidentiality
agreements are invalid under Wisconsin law because they do not
contain temporal and geographic limitations. Finally, the
District Court granted summary judgment to the defendants on
the trade secret claim, after concluding that IDX had failed
to identify with specificity the trade secrets that it accused
the defendants of misappropriating.
Wisconsin Trade Secrets Statute. The District and
Appeals Court applied Wis. Stat. § 134.90(1)(c), which
provides that "Trade secret" means
"information, including a formula, pattern, compilation,
program, device, method, technique or process to which all of
the following apply: 1. The information 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. 2. The information is the subject of
efforts to maintain its secrecy that are reasonable under the
circumstances." See, Wisconsin Statutes, Chapter
134 [PDF].
Appeals Court: Trade Secrets. The Appeals Court
affirmed the District Court's conclusion that IDX had failed
to identify with specificity the allegedly misappropriated
trade secrets. The Appeals Court wrote that "to show that
particular information is a trade secret, a firm such as IDX
must demonstrate that it is valuable, not known to others who
might profit by its use, and has been handled by means
reasonably designed to maintain secrecy. Like the district
judge, we think that IDX failed to do this. It has been both
too vague and too inclusive, effectively asserting that all
information in or about its software is a trade secret."
The Court elaborated that IDX's 43 page submission "does
not separate the trade secrets from the other information that
goes into any software package. Which aspects are known to the
trade, and which are not? That's vital under the statutory
definition. Likewise, IDX's tender of the complete
documentation for the software leaves mysterious exactly which
pieces of information are the trade secrets."
The Court also commented on some of the items in IDX's 43 page
submission. "Perhaps screen displays could be
copyrighted, but no copyright claim has been advanced, and a
trade secret claim based on readily observable material is a
bust. ... Other details, such as the algorithms that the
software uses to do real-time error checking (a vaunted
feature of IDX's software), may be genuine trade secrets, but
IDX has not tried to separate them from elements such as its
input and output formats. Nor does it contend that the
defendants decompiled the object code or otherwise obtained
access to the algorithms that power the program; it alleges
only that [UWMF] transferred to Epic those details that
ordinary users of the software could observe without reverse
engineering."
The Appeals Court also offered some advice for parties seeking
to protect their software related intellectual property.
First, it commented that "Reluctance to be specific is
understandable; the more precise the claim, the more a party
does to tip off a business rival to where the real secrets lie
and where the rival's own development efforts should be
focused. Still, tools such as protective orders are available
to make this process less risky, and unless the plaintiff
engages in a serious effort to pin down the secrets a court
cannot do its job." Second, the Court wrote that since
"it is hard to prove that particular information
qualifies as a trade secret, many producers of intellectual
property negotiate with their customers for additional
protection."
Appeals Court: Confidentiality Agreements and Competition
Analysis. The Appeals Court reversed the District Court's
holding that the contractual promises are unenforceable
because they are unlimited in temporal and geographic scope,
and thus unduly restrain trade.
The Appeals Court wrote that the District Court relied,
incorrectly, on precedent dealing with restrictive covenants
limiting competition between employers and their ex-employees.
It wrote that "Rules limiting the extent of no-compete
clauses are based on the fact that they tie up human capital
and, if widely adopted, may have the practical effect of
preventing horizontal competition in economically significant
markets. ... But neither rationale applies to contracts that
restrict the use of particular information between businesses
that have vertical (supplier- to- customer) rather than
horizontal (competitor- to- competitor) relations."
The Appeals Court continued that "IDX did not contract
for limitations on Epic's ability to compete; contracts
between IDX and the [UWMF] are vertical in nature and protect
intellectual property without affecting competition. They may
compel rivals such as Epic to do more work to develop software
independently, but this promotes rather than restricts
competition."
The Appeals Court added that "trade secret law is
compatible with antitrust law; the same can be said for
contracts protecting intellectual property that, though not
demonstrably a trade secret, is commercially valuable. Rivals
such as Epic, as non-parties to the vertical arrangements,
remain entitled to discover and use the information
independently and to compete vigorously.
Notable and Quotable. Judge Frank
Easterbrook, who wrote the opinion of the Appeals Court,
concluded: "Nothing in the antitrust laws gives one
producer a right to sponge off another's intellectual
property". |
|
|
|
| EPIC to File FOIA Suit
Against Office of Homeland Security |
4/2. The Electronic Privacy
Information Center (EPIC) announced that it will file a
complaint today in U.S.
District Court (DC) against the Office of Homeland
Security alleging violation of the Freedom of Information
Act (FOIA), 5 U.S.C.
§ 552. The EPIC seeks the expedited release of documents
concerning a government national identification system.
The EPIC submitted a FOIA request to the OHS in March. The
EPIC stated in a release that "News reports indicate that
Governor Ridge, head of the Office of Homeland Security, has
drafted legislation that would link state driver's license
records to federal agency databases." EPIC Executive
Director Marc Rotenberg stated that "the potential
privacy implications of these proposals are far reaching.
Under well established open record laws, Governor Ridge has an
obligation to the American people to ensure that these
decisions are made in the open."
The EPIC may face threshhold questions regarding whether the
OHS is required to provide access to all or some of its
records under the FOIA. The FOIA provides several statutory
exemptions, one of which pertains to national defense. Section
552(b)(1) exempts matters that are "(A) specifically
authorized under criteria established by an Executive order to
be kept secret in the interest of national defense or foreign
policy and (B) are in fact properly classified pursuant to
such Executive order".
Also, while the FOIA provides that all federal agencies are
covered, "including the Executive Office of the
President" (see, 5 U.S.C. § 552(f)), this has been
limited by court rulings. Many activities of the Executive
Office of the President are not subject to the FOIA. The OHS
is a part of the Executive Office of the President. |
|
|
| People and Appointments |
4/1. The Hewlett Packard
Board of Directors announced that it will not nominate Walter
Hewlett to the Board. HP stated in a release
that "The board's decision not to nominate Walter Hewlett
is based on his ongoing adversarial relationship with the
company, as evidenced by his recent litigation against HP, as
well as concerns about his lack of candor and issues of
trust."
4/1. Joanna McIntosh was named director of the Policy
for a Networked Society (PNS) program at the Markle Foundation. She was
previously vice president of International Affairs at AT&T. She represented
AT&T in Washington DC and before the WTO and other
multilateral, regional, and bilateral organizations, on
international policy matters, including efforts to liberalize
trade and foreign investment in international
telecommunications networks and services. Markle stated in a release
that the PNS program "works to promote international and
domestic policy making processes that are open, transparent,
and accountable to multiple stakeholders, including public,
private and non-profit organizations as well as the public at
large." |
|
|
| More News |
4/1. The Department of Commerce's (DOC) National Telecommunications
and Information Administration (NTIA) announced that it
"has exercised the option to extend the term of the
contract with ICANN
for IANA functions for the six-month period of 04/01/2002
through 09/30/2002." See, Modification
of Contract.
4/1. Qwest
announced that "as a result of an accounting rule change,
SFAS 142, it would potentially reduce the carrying value of
goodwill by an estimated $20-$30 billion". See, Qwest
release.
4/1. Xerox announced that "it
has reached an agreement in principle with the Division of
Enforcement of the Securities
and Exchange Commission, the terms of which the Division
has agreed to recommend to the Commission. The agreement in
principle concerns the settlement of proposed allegations on
matters that have been under investigation since June 2000.
The proposed agreement is subject to the approval of the
Commission." Xerox also stated that "The agreement
in principle calls for a restatement of Xerox's financials for
the years 1997 through 2000 as well as an adjustment of
previously announced 2001 results" and that "the
agreement in principle calls for the SEC to file a complaint
and a consent order in federal district court for injunctive
relief and a civil penalty of $10 million." However,
"Xerox would neither admit nor deny the allegations of
the complaint". See, Xerox
release.
3/27. The U.S.
District Court (NDCal) entered judgment against
Interactive Products and Services, Inc. (IPS) and Matthew
Bowin enjoining them from future fraudulent conduct and sales
of unregistered securities. IPS is a computer accessories
company based in Santa Cruz, California; Bowin is its CEO. The
judgment also requires Bowin to pay $236,176 in disgorgement
and interest and $110,000 in penalties. The Securities and Exchange Commission
(SEC) alleged in its 1998 civil complaint that IPS and Bowin
conducted a fraudulent offering of stock over the Internet.
Bowin is currently serving a 10 year prison sentence on
related state charges. See, SEC
release.
4/1. The U.S. Court of Appeals
(1stCir) issued its opinion
in Cashmere
v. Saks Fifth Avenue, a Lanham Act case. The
Cashmere & Camel Hair Manufacturers Institute, a trade
association of cashmere manufacturers dedicated to preserving
the name and reputation of cashmere, and one of its members,
filed a complaint in U.S.
District Court (DMass) against Saks Fifth Avenue
and others alleging the advertising of women's
"cashmere" blazers that contained no cashmere, in
violation of the Lanham Act, 15
U.S.C. § 1125(a), and Massachusetts state law. The
District Court dismissed. The Appeals Court reversed. |
|
|
|
| Tuesday, April 2 |
The House and Senate are both in recess for the Spring
District Work Period. Both bodies will return on Monday, April
8.
The Supreme Court of the U.S. is on recess until Monday, April
15.
10:00 AM. The U.S.
Court of Appeals (FedCir) will hear oral argument in Netscape
Communications v. Allen Konrad, No. 01-1455. Location:
Courtroom 201, LaFayette Square, 717 Madison Place, NW.
1:00 PM ET. The Electronic
Privacy Information Center (EPIC) will hold a press
conference call regarding its lawsuit, to be filed on April 2,
against the Office
of Homeland Security under the Freedom of Information Act
seeking the expedited release of documents regarding a
government national identification system.
1:00 PM ET. The Federal Trade
Commission (FTC) will hold a press conference to announce
an international law enforcement initiative targeting
deceptive spam and Internet fraud. See, FTC
release. Location: the press conference will be held at
the FTC office at 915 Second Ave., Suite 2896, Seattle,
Washington. There will be a video link at the FTC
headquarters, 600 Pennsylvania Ave., NW, Room 481.
2:00 PM. The Institute
for Health Freedom will hold a press conference regarding medical
privacy. For more information, contact Sue Blevins at 202
429-6610. Location: Lisagor Room, National Press Club, 529 14th
St. NW, 13th Floor. |
|
|
| Wednesday, April 3 |
10:00 AM. A group of trade associations will hold a press
conference to announce the formation of a group named the High
Tech Broadband Coalition. The speakers will be Robert
Holleyman (P/CEO of the Business
Software Alliance), Gary Shapiro (P/CEO of the Consumer Electronics Association),
Jerry Jasinowski (President of the National Association of
Manufacturers), George Scalise (President of the Semiconductor Industry
Association), and Matthew Flanigan (President of the Telecommunications Industry
Association). For more information, contact Jeff Joseph (CEA)
at 703 907-7664 or jjoseph@ce.org.
Location: Lisagor Room, National
Press Club, 529 14th St. NW, 13th Floor.
12:15 PM. The Federal
Communications Bar Association's International Practice
Committee will host a brown bag lunch. The speakers will be Tom
Tycz (Chief of the FCC's International Bureau's Satellite
Division), James Ball (Chief of the FCC's International
Bureau's Policy Division), and Kathryn O'Brien (Chief
of the FCC's International Bureau's Strategic Analysis and
Negotiations Division). RSVP to Laurie Sherman at 202 223-7365
or Patricia Paoletta at 202 719-7532. Location: FCC, 445 12th
Street, SW, Conference Room 6-B516. |
|
|
| Thursday, April 4 |
8:30 AM - 5:30 PM. Day one of a two day event hosted by the
Department of Commerce's (DOC's) NTIA
titled "Spectrum Summit". The summit will address
spectrum allocation and efficiency, the spectrum requirements
of new technologies, and regulatory processes. See, NTIA
notice and notice
in Federal Register, March 8, 2002, Vol. 67, No. 46, at Page
10682. Location: auditorium, Department of Commerce, 1401
Constitution Ave., NW.
2:00 - 4:00 PM. There will be a meeting of the FCC's Advisory
Committee for the 2003 World Radiocommunication Conference.
See, FCC
notice [PDF], and notice
in Federal Register, March 14, 2002, Vol. 67, No. 50, at Pages
11483. Location: FCC, Commission Meeting Room, Room TW-C305,
445 12th Street, SW.
4:00 PM. Dan
Burk (Professor, University of Minnesota Law School) will
give a lecture titled "Anti Circumvention Misuse".
He will review the history of the equitable misuse doctrine in
the context of patents and copyrights, and argue that the DMCA
anti circumvention right is a new form of intellectual
property that should be subject to the equitable misuse
doctrine. For more information, contact Prof. Robert Brauneis
at rbraun
@main.nlc.gwu.edu or (202) 994-6138. Location: The George
Washington University Law School 720 20th Street, NW. |
|
|
| Friday, April 5 |
8:30 AM - 4:15 PM. Day two of a two day event hosted by the
Department of Commerce's (DOC's) NTIA
titled "Spectrum Summit". The summit will address
spectrum allocation and efficiency, the spectrum requirements
of new technologies, and regulatory processes. See, NTIA
notice and notice
in Federal Register. Location: Ronald Reagan International
Trade Center, 1300 Pennsylvania Ave., NW.
9:00 AM. The FCC's
electronic filing systems will be shut down for maintenance
purposes. This shut down will last through 1:00 PM on April 7.
See, FCC
notice.
9:30 AM. The U.S. Court of Appeals
(DCCir) will hear oral argument in Global Naps Inc v.
FCC, No. 01-1192. Judges Edwards, Roger and Tatel will
preside. Location: 333 Constitution Ave. NW.
Extended deadline to submit comments to the Copyright Office in
response to its Notice of Proposed Rulemaking on "the
requirements for giving copyright owners reasonable notice of
the use of their works for sound recordings under statutory
license and for how records of such use shall be kept and made
available to copyright owners." See, original notice
in Federal Register, and extension notice
in Federal Register. |
|
|
| Monday, April 8 |
The House and Senate return from the Spring District Work
Period. The Senate is scheduled to meet at 3:00 PM.
9:30 AM. The U.S.
Court of Appeals (DCCir) will hear oral argument in Morris
Communications v. FCC, No. 01-1123. Judges Edwards, Tatel
and Silberman will preside. Location: 333 Constitution Ave.
NW. |
|
|
| About Tech Law Journal |
Tech Law Journal publishes a free access web site and
subscription e-mail alert. The basic rate for a subscription
to the TLJ Daily E-Mail Alert is $250 per year. However, there
are discounts for entities with multiple subscribers. Free one
month trial subscriptions are available. Also, free
subscriptions are available for law students, journalists,
elected officials, and employees of the Congress, courts, and
executive branch, and state officials. The TLJ web site is
free access. However, copies of the TLJ Daily E-Mail Alert and
news items are not published in the web site until one month
after writing. See, subscription
information page.
Contact: 202-364-8882; E-mail.
P.O. Box 4851, Washington DC, 20008.
Privacy
Policy
Notices
& Disclaimers
Copyright 1998 - 2002 David Carney, dba Tech Law Journal. All
rights reserved. |
|
|