You have a brainstorm: there is a market for dumpster rentals, and what better place to make the rentals than The Home Depot? You go to Home Depot and have it sign a non-disclosure agreement before you disclose this idea to it. You disclose the dumpster idea to Home Depot executives, but after much discussion and a great deal of back and forth over several years with many Home Depot employees, Home Depot turns you down. The next thing you know, Home Depot is renting dumpsters, using a business model not too different from the one you proposed.

You cry foul. You sue Home Depot in Massachusetts state court for misappropriation of trade secrets. Home Depot removes the case to Massachusetts federal district court where it grinds through a couple of years of discovery. During that process you claim that the damages you’ve suffered are between $19 and $60 million.

Home Depot files a motion for summary judgment. U.S. District Court Judge Douglas Woodlock grants summary judgment. Judge Woodlock observes that the idea of renting dumpsters through Home Depot is not a trade secret.

(1) the idea of Home Depot renting and (2) the idea of renting dumpsters [was not a trade secret] . . . anyone even vaguely familiar with the home improvement industry could have put these two concepts together easily based upon information in the public domain.

Essentially, the court relied on the hoary Massachusetts trade secret doctrine which state that a confidentiality agreement cannot make secret that which is not secret. Case dismissed.

Here is a link to the decision.

By the way, most large companies will not sign an NDA in advance of receiving business ideas for this very reason – if they reject the idea and adopt it later, they are vulnerable to suit. They then have to show that either the idea is not a “secret” (as Home Depot did here) or that it was already under consideration somewhere within their company prior to disclosure. Most companies conclude that rather than take that risk, it’s better to just refuse to sign NDAs. Without the NDA, this case would never have been filed or, it would have been dismissed much earlier. Home Depot learned that lesson the hard way.

Clients often ask what measures they need to take to protect their trade secrets, should it be necessary to enforce them in court and prove that they were treated as secrets.

Here’s how Kentucky Fried Chicken does it, according to an AP story published today:

The recipe lays out a mix of 11 herbs and spices that coat the chain’s Original Recipe chicken, including exact amounts for each ingredient. It is written in pencil and signed by Harland Sanders.

The iconic recipe is now protected by an array of high-tech security gadgets, including motion detectors and cameras that allow guards to monitor the vault around the clock.

Thick concrete blocks encapsulate the vault, situated near office cubicles, that is connected to a backup generator to keep the security system operating in times of power outages.

The recipe is such a tightly held secret that not even Eaton knows its full contents. Only two company executives at any time have access to the recipe. KFC won’t release their names or titles, and it uses multiple suppliers who produce and blend the ingredients but know only a part of the entire contents.

“We’ve very comfortable with the security,” [KFC President Roger Eaton ]said. “I don’t think anyone can break into it.”

Hmmmm …. perhaps a real-life George Clooney will be interested. Of course, we don’t really know what’s in that vault, do we?

Steve Chow at Burns & Levinson has sent me the legislation attached below, which the Massachusetts Uniform Law Commission, of which he is a member, filed with the Massachusetts House of Representatives on November 5, 2008.

This is the sixth attempt since 1995 to get the 1985 Uniform Trade Secret Act (UTSA) enacted in Massachusetts; although there was no opposition, the furthest that a prior attempt progressed was to third reading in the House. The uniform act has been adopted by 45 states and the District of Columbia. Apart from Massachusetts, the only other states that have not adopted the act are New York, New Jersey, Texas and Wyoming.

Steve Chow advises me that, because of some interest from the Joint Committee on Economic Development and Emerging Technologies and the Associated Industries of Massachusetts, there is a better than even chance that the legislation will be adopted in Massachusetts before the end of this legislative session, which ends in July 2010.

Here is a link to the proposed legislation

The following is background that may be necessary for some readers to understand the issues raised in the Thompson v. Zotero lawsuit, discussed below.

The Mozilla Firefox web browser (the second-most popular web browser, after Microsoft Internet Explorer) allows anyone with the talent and interest to develop “add-ons”. An add-on is a computer functionality that is added to and integrated with the Firefox browser. The Firefox user downloads the add-on from the web, and the add-on is automatically “installed” by Firefox. The add-on can be used, disabled or deleted, at the user’s choice. What makes this possible is that Firefox is an open source web browser, allowing developers to fully integrate their software with the browser. Developers can register their add-ons with the Firefox web repository, where over 6,000 add-ons are available. The add-ons are rated and critiqued by users, creating a reliable marketplace based on reputation.

Microsoft’s Internet Explorer has add-onsin name, but it is a much more restricted, less open and less integrated technology, and therefore is far less robust than the Firefox add-ons. For this reason, the Firefox add-ons are growing at an exponential rate, and their availability is contributing to the growing popularity of Firefox.

Some of the add-on technologies are so robust that they are taking market share from conventional, for-profit companies. This seems to be the case with the Zotero add-on, which may be taking market share from the Thompson Reuters product, EndNote Software. Both products help academics and researchers create academic bibliographies and manage citations. However, EndNote’s traditional, packaged software costs almost $300, whereas Zotero’s add-on is free and can be downloaded in seconds. It appears that some potential purchasers of Endnote are opting for the lesser functionality of Zotero given the better price and convenience.

With that as background, the lawsuit.

Zotero was created by employees of George Mason University, which is owned by the Commonwealth of Virginia. George Mason is a licensee of EndNote, and the license prohibits reverse-engineering. Thompson alleges that the George Mason developers reverse engineered EndNote in order to allow Zotero to convert proprietary EndNote files into open source Zotero files.

Now, a word about the law. It is clear that a software program may be reverse engineered (decompiled or disassembled, for example) as part of the process of developing a compatible product. This so-called “intermediate copying” was held to be copyright fair use in the Sega v. Accolade case in 1992 and was reaffirmed by no less a legal luminary than Judge Richard Posner in Assessment Technologies v. WIREdata decided in 2003.

However, it is also true (as the Assessment Technologies case points out) that this right of fair use may be restricted by a contract. (See Bowers v. Baystate Technologies (2003), to the same effect). A contract or license may prohibit reverse engineering or the creation of intermediate copies.

If George Mason’s contract with Thompson contained a “no reverse engineering” provision as Thompson asserts in its lawsuit, and George Mason did in fact reverse engineer EndNote to achieve compatibility, George Mason/Virginia may be liable for breach of contract. In fact, EndNote may have blocked the legal ability of any legal licensee of EndNote to reverse engineer EndNote for this purpose, since presumably not only George Mason but every proper licensee would be similarly restricted.

Whether this turns out to be the case – whether George Mason did reverse engineer EndNote to achieve compatibility, and whether EndNote has built a legal “Maginot Line” with no breaks or faults, across which no competitive developer can cross, remains to be seen as the facts of the case develop. It may be the case that the EndNote software did not require reverse engineering in order for Zotero to access its formats. It may also be the case that Zotera (or others in the marketplace, even nonlicensees) can technically and legally sidestep any contractual restrictions, and still provide conversion to EndNote file formats.

Whichever way this case goes, this dispute is interesting because it represents the clash of the old and the new: old, in the sense that savvy IP lawyers have been advising their clients for years to use contracts, in addition to copyright, to protect their software, and it appears that EndNote has tried to do this. New, in the sense that open source, when combined with new web technologies, may present a competitive and technical challenge to products like EndNote that good lawyering may be able to delay, but may prove unable to stop.

The complaint in this case can be accessed here.

As the lawyer drifts off to sleep the fantasy of the “perfect” IP case drifts across his mind. Not a patent case (way, way too complicated), not a copyright case (too boring if straightforward, and too difficult if not) ), not a trademark case (surveys, secondary meaning, no thanks), but a straightforward, meat and potatoes, trade secret case: there is a trade secret, and someone stole it, case over.

The lawyer falls asleep thinking about the perfect case, a big case, but a realtively easy case. After all, most cases are so hard, everyone deserves an easy case once in a while, right?

In the lawyer’s dream a former former employee of the lawyer’s client (lets call the employee him Jameel Ahed, or simply Mr. Ahed) has started a competitive company. The client has obtained the competitive product, taken it apart, and concluded that Mr. Ahed very likely used the client’s trade secrets to create the product. The lawyer files suit, and hires private investigators to follow and observe Mr. Ahed after the lawsuit is served on him.

A thought drifts through the lawyer’s dreams – the stakes, the stakes need to be high, very high for this to be a good case. His unconscious mind provides the answer: his client and Mr. Ahed’s company are competing for a $280 million contract to sell “tactical robots” to the U.S. military, to be used to detect and disable improvised explosive devices (“IEDs”) in Iraq and Afghanistan. If he can prove trade secret misappropriation his client will clinch the contract. Robots, war, the security of U.S. troops, big dollars, what could be better than that?

In the dream, the very same day that Mr. Ahed’s new company is served with the trade secret suit the investigators observe Mr. Ahed gathering 100 backup and archival CD-ROMs and several hard drives, which contain designs of his company’s product, as well as other key equipment. Mr. Ahed puts these items in a duffel bag, and the next day puts them in a dumpster, from which the lawyer’s investigators immediately recover them as evidence. In fact, Mr. Ahed makes several trips between his office and the dumpster, and the investigators follow him, unseen.

Mr. Ahed doesn’t discard the CD-ROMs, however. Instead, he purchases a shredder, which he uses to destroy them. In fact, when the first shredder jams, he quickly purchases a second shredder in order to finish the job.

Mr. Ahed also purchases a drive scrubber, which he uses to obliterate data on the laptop computer he has owned since he was employed by the client. The next day, he uses the scrubber on several computers at his company’s offices.

All of this is observed by the lawyer’s private investigators.

As the lawyer falls into REM sleep his dreams become even more vivid: he obtains a court order that allows him, protected by U.S. Marshals and computer forensic experts, to enter Mr. Ahed’s company’s office and his home and seize evidence. As they enter Mr. Ahed’s apartment his laptop computer screen shows that its data has been destroyed by the drive scrubbing software program and Mr. Ahed is observed trying to hide this computer under his bed. The laptop is found, opened, and the screen is photographed as evidence.

The lawyer goes to court seeking a preliminary injunction. He gets a smart, hard working and conscientious federal judge, Judge Nancy Gertner. Judge Gertner holds a four day hearing on the injunction. Mr. Ahed’s credibility is totally destroyed by reason of his actions, and the judge refuses to believe anything he says. The judge enters an injunction that disqualifies Mr. Ahed’s company from obtaining the military contract. The lawyer’s client get the contract.

The lawyer wakes up. It’s 3:00 in the morning. All of the problems waiting for him at work, large and small, collide in his brain. All of the bad cases, the hard cases, the dog cases, the cases he lost but should have won, drift through his mind. His dream, the greatest victory of his life, the “easy one,” fades fast. In the morning, when he wakes up, he’s completely forgotten the dream. It’s cold and raining outside and he’s exhausted from a poor night’s sleep. Groaning, he drags himself out of bed to face the commute.

This could never happen, right? Click the image …..

iRobot’s trade secret case against Robotic FX has attracted a fair amount of attention in Boston, and has been reported in detail by Xconomy here.

On Friday Judge Gertner issued her decision on iRobot’s motion for preliminary injunction, which has been posted by Xconomy here.

I’ll update this posting once I’ve had a chance to read her Order in detail.

In Cambridge Literary Properties, Inc. v. W. Goebel Porzellanfabrik Magistrate Judith Dein issued an extensive Report and Recommendation (adopted by Judge Nancy Gertner) on issues relating to the statute of limitations as a bar to a claim of copyright infringement. The case involves facts going back as far as 1931 which involved the drawings of Berta Hummel, and is a valuable primer on the defense of statute of limitations in copyright actions.

District court Judge Gorton has issued a decision in Echomail, Inc. v. American Express denying IBM’s (a co-defendant) motion to dismiss claims of trade secret misappropriation, unfair competition and violation of M.G.L. c. 93A.

In T-Peg, Inc. v. Vermont Timber Works, Inc. the First Circuit applied the Architectural Works Copyright Protection Act for the first time in this circuit. Reversing summary judgment for the defendant and remanding for trial, the court not only recapped the legal standard for substantial similarity (the test by which infringement is judged under copyright law), but clarified its position on expert testimony in copyright cases, making clear that there is no per se rule against expert testimony, and that whether or not it is appropriate depends on the complexity of the subject matter at issue.

Trade Secrets, Procedure. Warning: if you’re seeking discovery in a trade secret case in the Suffolk Business Litigation Session make sure that you have (a) provided the court with a detailed description of your trade secrets, and (b) filed a protective order that strictly complies with the Uniform Rules of of Impoundment.

For a recent decision making these points, written by Judge Allan Van Gestel in the Suffolk Business Litigation Session, click [here]. The decision, Tourtellotte Solutions, Inc. v. Tradestone Software, Inc., was featured on the front page of Massachusetts Lawyers Weekly last October. In a nutshell, the plaintiff asked for expedited discovery (in other words, the right to take discovery on a schedule faster than allowed in the ordinary course by the rules of civil procedure), so that the plaintiff could obtain evidence necessary to bring a preliminary injunction against the defendant. The plaintiff’s basic claim was that the defendant had engaged in “software misappropriation,” a term that Judge Van Gestel stated “sounds very much like trade secret misappropriation.”

The judge denied the motion, stating: “a detailed description of what is claimed to be a trade secret must be provided and a protective order of some sort needs to be worked out.”

Neither conclusion is surprising in the least. Many decisions in trade secret cases have held that the plaintiff must identify its trade secrets with particularity. The courts recognize that to permit the plaintiff to launch a “fishing expedition” into the defendant’s technology before identifying its trade secrets is fundamentally unfair. California has even codified this rule by state statute. What is surprising is when (as we have seen from time-to-time), a court does not compel a plaintiff to describe its trade secrets with particularity before commencing discovery.

On the subject of an acceptable protective order, Judge Van Gestel was offended that the protective order proposed by the plaintiff did not comply with the Uniform Rules of Impoundment, which require that a “sealed” filing (in other words, a filing in a sealed envelope that is segregated from the case file that is available to the public) be preceded by a motion and an affidavit explaining why the court should deviate from the standard procedure of making all documents filed with the courts available to the public. Because filing documents “under seal” requires the clerk’s office to go to the inconvenience of identifying and segregating these filings (with the concomitant risks of lost documents and inadvertent disclosure), the party seeking this exception must obtain the court’s permission before putting the court to this inconvenience. Lawyers requesting protective orders in the Business Litigation Session (which are standard in trade secret cases and many other types of business litigation) should keep Judge Van Gestel’s warning in mind. An example of a protective order referencing the Uniform Rules of Impoundment can be found here: [link]