FALL 2008

Trade Secrets


Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on Data General and Secure Services Technology

1.  Both of these cases address problems of the computer software industry.  Data General addresses the question how widely a trade secret may be disseminated and still remain secret.  Over 6000 technical manuals on Data General's computer were circuated to customers and others, and the court holds that the design of the machine remained a trade secret.  Secure Services Technology raises and even more specialized issue, namely a risk that a firm takes when it provides computer software or technical data (including databases) to the federal government.

2.  The first issue is vital to the use of trade secrecy in the computer industry, because little in that industry is done in small numbers.  Both computer software and databases are marketed in the thousands or millions.  Should the mere fact of wide distribution deprive them of trade-secret protection if the they are protected by contractual provisions and/or technical barrier to "reverse engineering"?  Data General appears to answer that question in the negative. Was the decision right?

3.  Consider the software that all of us use in our personal computers.  Nearly always, that software is marketed and distributed in the form of binary executable code (often called "object code"), rather than source code.  The difference is significant for practical and business purposes.  Source code looks like abbreviated English or mathematical expressions and is easy for trained programmers to read and modify.  As the name suggests, however, binary executable code is code in binary numbers—a long string of undifferentiated ones and zeroes, without any demarcation of subprograms, lines, or even the instruction and memory-location part of a machine command.  Although trained programmers in theory could decipher binary executable code with Herculean effort, people rarely do; there are, however, some computer programs that will do the job.

If a software vendor distributes computer programs to the public in the form of binary executable code only, does that preserver trade secrets, such as algorithms and programming techniques, hidden in the code?  Can the software vendor argue, if someone gets those ideas by improper means, that she should have taken the effort to reverse engineer the object code, just as Hoffman should have taken the effort to reverse engineer the pump patterns, and should not have taken the "shortcut" of using improper means?  Does it help or hurt that argument is the software license, to which every person who uses the software must agree, prohibits reverse engineering of the binary executable code?  Does Data General support or undermine such an argument?

4.  Secure Services Technology raises another issue entirely: the effect of the federal government's procurement regulations for technical data and computer software.  These regulations are part of the Federal Acquisition Regulations, or FAR, which is a telephone-book sized compendium of regulations affecting federal government procurement, codified in Volume 48 of the Code of Federal Regulations.

The FAR and their corresponding contract clauses give the government one of three levels of rights in technical data developed or furnished under government contract: unlimited rights, government purpose rights, and limited rights.  See 48 C.F.R. § 252.227-7013.  Limited rights restrict use of the technical data to use inside the government, or by government contractors with protection of secrecy.  See 48 C.F.R. § 252.227-7013(a)(12). They probably preserve trade secrecy, at least to the extent the technical data have economic value in nongovernmental use.  Government purpose rights are similar, but they permit disclosure by the government outside the government (including abroad), for government purposes.  See 48 C.F.R. § 252.227-7013(a)(13)   These rights may abrogate trade secrecy if unprotecteed disclosures are made by government. The third level of rights—unlimited rights—gives the government the authority to disclose the technical data at will and therefore endanger trade secrecy the most.

As outlined in the decision, the government requires contractors to provide specific notices, including labels on tangible matter containing technical data, if they claim that the government has anything less than unlimited rights in their technical data.  According to the regulations, failure to use these notices or to adhere to government procedures for contesting the notices can result in the grant of unlimited rights to the government and therefore risk loss of trade secrecy.

5.  If the government exercises its unlimited rights and discloses a secret subject to unlimited rights to the public, or to the relevant industry, no doubt the trade secret is extinguished.  But is the Secure Services court right in saying that the mere grant of unlimited rights, even if inadvertent, ipso facto extinguishes trade secrecy?  Does it matter if the secret never gets out, or, for example, if the government has a political, military, or intelligence motive for keeping the information secret, even though it has no legal obligation to the contractor to do so?

A similar question applies to trade-secret questions involving purely private parties.  Suppose, for example, that A otherwise maintains "reasonable efforts" to protect A's trade secret, but carelessly discloses it to B under circumstances that give B no duty to A to keep it secret.  Suppose further that B nevertheless keeps it secret for motives of B's own, for example, a desire to maintain the same advantage over competitors that A has.  Does A's disclosure to B under these circumstances ipso facto abrogate trade secrecy?  Or is this case like that in which B discovers A's trade secret by reverse engineering A's products, and therefore has no duty to A to keep the secret, but nevertheless keeps it secret for B's own competitive motives?  In that case, don't both A and B still have a protected secret?  And, if so, what difference does it make whether B got the secret (without a duty to A) through A's carelessness?

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