Collaboration, 3D Printing, and The Defend Trade Secrets Act - A perfect storm for litigation? Or an opportunity to implement steps now to manage this risk?
Collaboration in an emerging market like 3D Printing is the ideal breeding ground and birthplace for many trade secrets. Ownership of the trade secrets appears obvious and straightforward. Yet shared ideas, broken business deals and employee mobility fuel many of the fact intensive (and expensive) disputes over who “owns” these trade secrets. The newly enacted federal trade secret act, the Defend Trade Secrets Act (“DTSA”)1, defines the term “owner” as “the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed.” 18 U.S.C. §1839(4). If you have agreements in place with the companies you do business with (i.e. suppliers, vendors, co-development relationships, contract manufacturing relationships), it is time to take another good hard look at exactly how you are addressing the “rightful legal or equitable title” of trade secrets, and in particular, what unforeseen complications you may have overlooked. If you have no agreements in place, or you are about to enter into a collaborative relationship where trade secrets are involved, or may result, here are five things to consider.
1. There Are No Default Rules Regarding Trade Secret Ownership.
There is no uniform “default rule” as to joint ownership of trade secrets. See, Partnerships, Joint Ventures and Strategic Alliances §20.04(c). Instead, the focus will be on the agreements between, and the behavior and intent of, the parties. There is an open question as to whether broadly worded generic trade secret ownership provisions entered into prior to the trade secret coming into existence will, by themselves, be sufficient to establish “rightful legal or equitable title to, or license in,” a specific trade secret under the new DTSA. Future litigation under the DTSA will determine the answer to this question. The State laws based upon the Uniform Trade Secret Act (“UTSA”) do not contain the “rightful legal or equitable title or license” language. Cases under the State Acts still require proof of ownership, but focus ownership analysis on much more basic information: Do you know it (the trade secret)? Do you possess it? Can you identify it? Have you kept it secret? See, also, “Specifically Identifying Your Trade Secrets Is The First Step In Being Able To Protect Them.” By Thad Felton. Rightful legal or equitable title or license is required under the DTSA.
Carefully addressed agreements, and conduct and intent of the parties, will be a very important part of your trade secret development and protection protocol.
2. Carefully Think Through the Cycle of Innovation Before Finalizing Ownership Provisions of Any Agreement
Before reaching any agreement with a collaborator regarding trade secret ownership, it is very important to anticipate and understand the items of value being created for your business during a collaborative relationship. For example, assume your new proprietary design is to be manufactured using one of the known additive manufacturing processes, but the parties want to experiment with use of a new combination of materials. Contract manufacturing services of a 3D printer supplier will be engaged to assist in the application based decision making for this project. Under this scenario the collaboration and cycle of innovation begins in many different areas.
The use of the existing technology with a new proprietary design, or a new layering material, may each be an innovation. The new combination of layering material itself may be another innovation. The material and application may require the 3D printing machine or process to be modified to function for the new material or the proprietary design, leading to potentially more innovation. In addition to other intellectual property rights2, this cycle is likely to use existing trade secrets of each party involved in the collaboration, and create new trade secrets - including what to do, or what not to do (also known as negative know-how).
3. Anticipate Trade Secret Rights Needed If You Have To Continue On Your Own
Collaborative relationships end. Sometimes the relationship ends before the project is complete and under adverse circumstances. Sometimes it ends because it is simply the end of the particular project.
- Anticipate, before the breakup, the IP rights you are going to need to move your own project forward, whether with another partner, on your own, for other customers, etc.
- Further anticipate how you may want to use the information developed during the collaboration for other projects or improvements to the initial project. If the relationship ends can you use this information internally and with other potential collaborators? Do you need to?
- Similarly, think through what you may or may not want the others in the collaboration to be able to use after the relationship is over. Know that the other party will be conducting the same analysis and making the same requests of you. What compromises or limitations allow you to still function?
Joint work often ends up with new trade secrets that both parties feel are improvements on a trade secret that they, and not the other, originally brought to the relationship. If the viability of your project depends on your ability to own or use these rights, you need to secure ownership and the ability to use them.
4. Original Non-Disclosure Agreements (“NDA”) Are Necessary, But Important Areas Can Be Overlooked.
Going into a collaborative type relationship will often involve a broadly (yet generically) worded mutual confidentiality agreement where “any disclosure” relating to non-public aspects of the business is defined as “Confidential Information.” Each party typically agrees to use “only for the purpose defined”, disclose “only to those employees, representatives, agents or affiliates as necessary”, and to destroy or return the information at the end. Most agreements contain a “termination” provision where the duty of confidentiality terminates within a specified period of time.
- Make sure to continue the duty of confidentiality for trade secrets for as long as the trade secret exists. Do not place trade secrets under the definition of “confidential information” and then terminate the duty to maintain the confidentiality.
- As collaborations advance, the “purpose defined” in the NDA rarely remains the same and typically evolves into something different or beyond the purpose stated in the NDA. The scope and body of “confidential information” once collaboration begins also expands to include joint information, and “improvements” to original trade secrets. Check your NDA to determine if these circumstances are addressed.
- Carefully monitor the documentation that is generated during the relationship to protect the trade secrets you bring into the relationship. Boilerplate “Entire Agreement” provisions includes language that the later agreement “supersedes” all prior and contemporaneous representations, promises, statements, agreements and understandings, written or oral, regarding the subject matter of the later agreement. This could impact the original NDA.
5. Critically Analyze “Standard” Terms and Conditions
“Standard terms and conditions” are often presented with the provision and sale of products and services. For an example, in the 3D Printing industry, see the Stratasys terms and conditions of sale posted on their website. http://www.stratasys.com/legal/terms-and-conditions-of-sale. These types of provisions can also appear on the back of purchase orders. Many court cases have involved disputes over the application of these types of terms and conditions for IP and trade secret ownership.
- Read these terms. This may sound obvious, but unfortunately because the terms are perceived as “boilerplate” many people fail to really read them in context with the specific project.
- “Entire Agreement” provisions are often present in standard terms and conditions. Is the original NDA impacted?
- Be careful not to unknowingly give away the right to own and use the trade secret assets developed during or as a result of the collaboration. Think about whether you are satisfied with giving the other side “sole” ownership, or whether you should modify the language in the proposed standard terms to provide for joint ownership or license to your business as well. Your analysis in steps 2-3 above will inform this evaluation.
- Look also to see if the standard terms impact the confidential information or trade secrets brought into the relationship. Some “standard terms” contain language providing the other party with a license to this information, and/or covenants not to sue for use of the information. This could modify the NDA.
- If you are the one requesting an agreement to the standard terms, and you want the “ownership terms” to be a binding transfer of title, make sure they are signed, and signed by all of the appropriate individuals with authority to assign IP ownership to another company. If you are working with an international company consider if other international laws are implicated.
- As disputes arise over the sufficiency of the product or equipment, sometimes parties will “cancel” the purchase order, or “revoke” the contract and seek return of the purchase price. If the IP or trade secret ownership or license provisions are part of this purchase order, these chosen contract remedies could result in unanticipated IP and trade secret ownership or license complications.
With the enactment of the DTSA, securing “legal or equitable title” to the trade secrets are going to be instrumental to preserving your right to bring an action under this new Act. Ownership provisions, as they relate to trade secrets in an emerging market like 3D Printing, are not “one size fits all” and should not be addressed in generic terms and conditions of sale or boilerplate on the backside of a purchase order without careful review, evaluation, and tailoring to the specific project.
If you have any questions about the topics covered in this Alert, please contact any member of Greensfelder’s Intellectual Property Group or your regular Greensfelder contact.
1President Obama signed the DTSA into law on May 11, 2016.
2This article addresses only trade secrets. Other ownership of intellectual property rights such as patents and copyrights will not be addressed in this article, but certainly should also be addressed.