V. REGISTERING A TRADEMARK

Federal trademark and service mark registrations are applied for with an application that sets forth the name of the owner of the mark and the owner's address and state of incorporation, if it is a corporation. The application must describe the goods to which the mark is applied or the services in connection with which the mark is advertised. The application must also state the date when the mark was first used on the goods or in connection with the services in interstate or foreign commerce. Finally, the application must state the manner in which the mark will be used on the goods -- on labels applied to the goods; on tags attached to the goods, or in newspaper advertisements, store signage, promotional letters, cards, or brochures advertising the services. The application also includes a drawing of the mark and a number of specimens of the mark as it is actually used. The application signed by the owner of the mark is forwarded to the U.S. Patent and Trademark Office with a transmittal letter and self-addressed postcard similar to those that accompany a patent application.

If the mark is not yet in use an "intent-to-use" application can be filed. This allows an applicant to begin the registration process before actually using the mark in commerce and can actually confer greater rights on the applicant as against a party who actually used the mark first but after the applicant filed the intent-to-use application.

The intent-to-use application is examined and processed just as is a normal application. That is, the Trademark Examiner reviews the case to determine whether the description of goods or services, specimens, classification, drawings of the mark and other formalities are met. The Examiner also determines whether the mark is arbitrary and fanciful or is suggestive and so is registerable, or is descriptive of the goods or services or is generic, in which case it is not registerable. Finally the Trademark Examiner does a search to see if there are any other existing similar marks for similar goods which would bar registration of the applied-for mark. The Examiner issues a letter or Office Action to the applicant relating any rejections of the mark and giving the reasons for the rejection. The applicant is required to file a Response, usually within six months, which attempts to overcome the Examiner's problems with the application either by amendment of the various parts of the application or by legal argument. This cycle of rejection and response may occur a second time, after which registration of the mark will either be allowed or finally refused. (Note the fact that the U.S. Patent and Trademark Office refuses to register your mark does not mean you cannot continue to use your mark or that you cannot sue infringers who copy your mark and use it in connection with similar goods or services.)

Assuming the application is allowed then the next step is the publication for opposition of the mark in the weekly edition of the Official Gazette - Trademark. For thirty (30) days from the date the mark is published for opposition in the Gazette, which issues on Tuesday of every week of the year, any interested party who will be harmed by the registration of the published mark can oppose its registration by filing a Notice of Opposition in the Patent and Trademark Office similar to a Complaint in a court of law. The opposition proceeds as an administrative "trial" to determine whether or not the opposer or the applicant is correct and as a result the mark is either refused registration or is registered.

During the fifth year after registration an affidavit must be filed stating that the mark is still in use. If the mark was registered on the Principal Register a separate affidavit can be filed to make the mark incontestable. The registration may be renewed every ten years as long as the mark is in use.

It is wise to have a search done before adopting a new mark. For if a mark is adopted and later someone else is found to have greater rights to the mark due to earlier use, there is a grave loss to you, the latecomer. First, you will not be able to register your mark. But even worse perhaps is the realization that all the printing, catalogs, advertising, spec.sheets, brochures and other promotional materials and efforts and expense in promoting your business under that mark have all been wasted when it becomes necessary to change the name or symbol. To help avoid this a preliminary registrability search can be performed at some level depending upon budget constraints and the applicant's familiarity with the industry. One search scans the marks in the U.S. Patent and Trademark Office and the trademark registers of the fifty states. Another includes those areas but adds the one million+ Dun & Bradstreet company name index, telephone books of the forty (40) largest U.S. cities, and industry reports, journals, indexes and the like.

Another party having registered or having used a particular mark does not absolutely preclude your company from using and registering the same or a similar mark, unless such use or registration is "likely to cause confusion." The determination of whether a likelihood of confusion exists depends upon an analysis of various factors, including the similarity or dissimilarity in sound, appearance and meaning of the marks themselves, the relationship of the goods or services in connection with which the marks are used, the sophistication of potential purchasers for such goods and services and the strength of the prior mark (resulting from years of use, uniqueness of the mark, extent of advertising, etc.)

Be aware of the possibility that prior trademark rights may have been acquired by users who are not disclosed by the trademark search report. While a search offers fairly extensive coverage, it is not capable of picking up every use of a given trademark.

In a preliminary trademark search, the search is still only a preliminary screening tool for finding a clear trademark. Certain registrations, as well as marks that are not registered but are rightfully in common law use, may not be covered in this search. Finally, there is the consideration that this is merely a preliminary trademark search and must be done within acceptable price limits.


VI. REGISTERING A COPYRIGHT

A copyright application is filed with the Copyright Office and requires certain specific information.

Every application requires the title of the work, the name of the author or authors, and if the author or authors is a person, the date of birth and death of the person(s). If the person who actually created the work is a bona fide employee then the employer is listed as the author. The date that the work was created must be given, as well as the date when the work was first published if it is a published work. If the applicant for the registration is not the author but acquired ownership through a transfer or assignment, that must be noted. If the work sought to be registered by this application is derived from or is a compilation of one or more prior works this must be revealed and the underlying works identified. The application may be signed by the applicant or its attorney or agent. Copies of the work generally are submitted with the application to the U.S. Copyright Office.

In copyright applications, unlike in the case of patent and trademark applications, there is no examination with respect to prior existing works. For in the Copyright Office all registrations are categorized by title, not subject: one could not do a search for all poems relating to trees. Of course, if the Examiner recognizes the work as one already credited to another author or in the public domain, e.g., an applicant seeks to register the poem "Twinkle, Twinkle, Little Star", the Examiner will reject it over the well-known work. The Copyright Office Examiner does, however, review the application for formalities to be sure all the required information has been submitted and that it is correct. Further, the Examiner does consider whether the work as represented by the information in the application and the accompanying copies is a copyrightable work, and whether the work demonstrates at least a fundamental authorship, i.e., originality and creativity.

If the Examiner has any problems with the application he will send a letter to the applicant explaining the shortcoming or asking for more information. Within a few months after such a letter is responded to by the applicant, or if there is no such letter, within a few months of the filing of the application the copyright registration will issue. The duration of a copyright for an author who is a person is the life of that person plus fifty years; for an author who is a legal entity the duration is one hundred years from creation or seventy-five from publication, whichever period expires earlier. Copyrights are not renewable.


VII. SOFTWARE PROTECTION

Protection for computer software has been the subject of debate for many years. At one time there was strong opposition to the awarding of patents for inventions embodied in or involving software. That is no longer the case: now software is commonly patented. Copyright protection had been considered only for the coding. That, too, has changed: now it is clear that copyright protection covers not only the coding, the literal aspects of a computer program, but also the non-literal aspects such as the sequence and flow, organization and structure of the software, the user interface, menus, and the like. Trade secret protection was available but only if you kept the software secret, which made it awkward to embrace copyright. Now the Copyright Office has a procedure whereby software copyrights can be registered yet trade secrets contained in the software can be specifically preserved. There is then no excuse for releasing software without some sort of protection. Indeed, more than one form of protection can be acquired on the same software.


A. Patent Protection

Broad patent protection is available for software. The scope of patent protection extends beyond merely the coding or routines, beyond the structure and organization, beyond the user interface and menus of the program to the broad underlying concept or algorithm.

All manner of software is protectable by patent regardless of how it is perceived: as controlling industrial equipment or processes; as effecting data processing; or as operating the computer itself, for example.

Software that controls industrial equipment or processes is patentable: a system for automatically operating a rubber molding device used a computer, which was well known, to run a molding device, which was well known, too. The computer was programmed in accordance with a very well-known mathematical expression. The only thing that was new was the software, which controlled the whole system and opened the mold when the rubber part was properly cured. The software was the heart of the invention that for the first time automated that particular rubber molding device -- and it was patentable. A software method of operating entire systems of cooperating manufacturing plants was held patentable too. There is nothing surprising about this. A patentable system implemented in hardware should be no less patentable because it was also or alternatively implemented in software.

Software that effects data processing is patentable, too, even though no machines or processes are involved. It makes no difference that the resulting output, reports and documents of the software are not themselves patentable or that the activity which the software replaces is not itself patentable. For example, software implementation of steps normally performed mentally may be patentable subject matter. Thus, while a method of doing business is not patentable subject matter, the software for operation of a computer to effect a business activity may be, e.g., the software implementation of a system which automatically transferred a customer's funds among a brokerage Security Account, several money funds, and a Visa/Checking account automatically upon occurrence of preset conditions, was held to be patentable subject matter.

A software method of translating from one language to another (Russian to English), and a software method of preparing architectural specifications which describe the various materials and techniques used in the construction of a building were held patentable.

Many patents have been issued on data processing software: for a system for registering attendees at trade shows and conventions; for a securities brokerage cash management system; for an automated securities trading system; for funding a future liability by means of an insurance investment program; for managing an auto loan; for optimization of industrial resource allocation; for automatically determining and isolating differences between text files (word processing); for returning to a specified point in a document (word processing); and for determining premiums for insurance against specific weather conditions.

Software that operates the computer itself is patentable too. A data structure for allowing the portions of the system base of a computer stored in scratch pad registers to be altered or repositioned without completely reloading the system base or using special software was held patentable. The structure employed a firmware module which directed the data transfer between the scratch pad registers and a system base located in main memory. Patents have issued on software for converting a source program into an object program; for programs which translate from one programming language to another; for a cursor control for a pull-down menu bar; for displaying images in windows on the video display; and for a computer display with window capability.

It matters not that the software is composed of old routines if they are assembled in a different way and produce a different result, for it is well established in patent law that a combination of old parts is patentable when the resulting whole is new. Indeed, most inventions are a new assembly of well-known parts or steps.

To determine patentability of a new piece of software one need only consider the underlying concept or algorithm and compare it to existing competitive software. This can be done by reducing the software to a flow chart which illustrates the innovative notion embodied in the software. If this flow chart differs from similar illustrations for competitive systems then there is the possibility that patent protection may be available. If this new software product is an important one then the possibility of patent protection should be investigated.

Design patents too have been used to protect software. Design patents have been issued for visual features which are produced on the screen by the computer software, such as various screen display icons, e.g., an icon for a telephone display.

A software patent must contain a written description of the software in such full and clear terms as to enable a person skilled in the art to which the software pertains to create and use the invention. Without a sufficient disclosure the patent will be held invalid and all remedies against infringers will be lost.

To avoid such problems, those patenting computer software should provide: (1) complete flow charts of the system; (2) actual coding or instructions for coding where the coding is not routine; and (3) a clear explanation of the preferred hardware and how the hardware operates with the software to produce the desired results.


B. Copyright Protection

Copyright protection for software, while not as broad as patent protection, is nevertheless quite broad. Copyright protects not just against the copying of the coding but also against the copying of the organization and structure. That is what "look and feel" is all about: if a subsequent developer creates software that looks and feels like earlier copyrighted software there is infringement, whether or not the coding of the two are similar. Thus it appeared to some that the very idea of a program could be protected.

Some in the industry were in favor of such strong protection, as it would do away with the need for licensing every piece of software to every customer, such as by the use of "shrink wrap" licenses: the industry could rely solely on copyright protection the way the recording and film industries do. Others felt that such broad protection would completely stifle creation and development of new software products because once a basic product such as a spreadsheet or word processor was launched, all others would be foreclosed.

But "look and feel" really embraces neither extreme. Copyright does not protect the idea behind the software; it protects only the form of the expression of the idea. For example, a copyright on a book which teaches how to turn lead into gold cannot prevent a reader from applying the teachings of the book to make gold from lead: that's the idea. However, if the reader places the book on a photocopier and makes copies of the pages, then the copyright is infringed: that is the form of the expression. But that does not mean that infringement can be avoided simply by rewriting the book in different words. And the copyright in software cannot be defeated simply by avoiding copying the code line for line. What the "look and feel" theory really does is make clear that copyright protection for software prevents against copying of non-literal as well as literal elements. The literal aspects of a program, the source code, object code and flow chart, are copyrightable. The non-literal elements which include the overall organization of a program, the structure of its command system, and the presentation of information on the screen are protected by copyright, too.

A simple three-part test has been suggested for determining infringement under the "look and feel" doctrine: first, determine what the idea of the program is so it can be distinguished from the expression; second, determine whether the particular expression of the idea is essentially the only way to express the idea or whether there are other ways to express the idea; and third, determine whether or not the elements of the expression have been substantially copied.

The heart of the test is step two. Under step two of the test, proof that the particular expression of the program is not the only expression of the idea can be established by showing that other overall appearances, structures and sequences of audio-visual displays can be used; that the particular titles, menu screens, typefaces and instructions are only one choice from a wide range of expression. The existence of similar products of other parties can establish that, as can proof that the software has been customized in different ways for different purchasers.

The look and feel investigation focuses quite literally on the visible impact of the software and the sequence or flow of the action. For example, courts have examined the menu structure, the order of commands in each menu line, the choice of letters, words, or "symbolic tokens" to represent each command, the presentation of these symbolic tokens on the screen (e.g., first letter only, abbreviations, full words, full words with one or more letters capitalized or underlined), the type of menu system used (e.g. one-, two-, or three-line moving-cursor menus, pull-down menus, or command drive interfaces), and the length of the prompts.

Courts have also examined labelling, single line boxes, reverse video cursor, alternative highlighting or capitalized letter selection options, positioning of file, cursor location and window information across the top of the screen, the use of editing screens both to edit and enter new data, the highlighting of the initial letter of each of the menus, and the form of the menu windows.

That some of these specific command terms are quite obvious or merge with the idea of such a particular command term does not preclude copyrightability for the structure taken as a whole. If particular characteristics not distinctive individually have been brought together in a way that makes the "whole" a distinctive expression of an idea -- one of many possible ways of expressing it -- then the "whole" may be copyrightable.

The fact that the allegedly infringing software was written in a different programming language and/or for different hardware does not avoid the application of the look and feel theory. If the user interface and functions are similar, infringement is likely.

It is not by chance that the touchstones of the courts' investigation into look and feel are the visually perceived features of the program. In early software infringement cases the complex task of mastering the details of the coding structure in order to determine copying naturally gave way to the somewhat more understandable approach of examining the result of the coding, the user interface on the screen. And the fact that many of the early software infringement cases dealt with video games, whose significant value was in the displays, created even greater impetus in that direction.

These video game cases established that an audio-visual display was appropriate for copyright protection even if the underlying computer program was not copyrighted. Further, these cases held liable for copying of the audio-visual scenes not just the owners and operators of the games, but also the electronic assemblers and manufacturers who made the printed circuit boards that contained the ROMs that held the underlying coding, which often was not itself copyrighted.

Even where the idea of the game itself was unprotectable, the courts found protectable the expression of the game in the shapes, sizes, colors, sequences, arrangements and sounds of the game. The seeds of the tests used in look and feel were sown in the analysis of video game copyright infringement. The video game decisions introduced the notion that one must determine whether the similar forms of expression used by the alleged infringer are those that simply cannot be avoided, that is, the expression and idea are merged, or there are other ways to express the idea.

The cross protection between the display and the coding became confused when some courts held that the copyright in one did not protect the other: each was the subject for separate copyright protection. The U.S. Copyright Office stepped in and settled the matter by promulgating new rules for copyright registration establishing that all copyrightable expression embodied in a program, including the screen displays, is to be registered as a single work. Such a single registration is sufficient to protect the copyright in a computer program, including related screen displays, without need to refer in the copyright application to the displays. Such a registration will cover all copyrightable material contained in the computer program and screen displays even if only some or no identifying material for the screens is presented. In fact the author is invited to decide whether the dominant authorship is in the coding or in the pictorial/graphics and to use the application form appropriate to that type of work.

All forms of programs are protectable: flow charts, source programs, assembly programs, object programs. And it makes no difference whether the program is an operating system or an applications program. No distinction is made between the copyrightability of those programs which directly interact with the computer user and those which, unseen, only manage the computer system internally. Beyond that, protection is afforded for microcode or microprograms which are buried in a microprocessor and even for those programs embedded in a silicon chip. Databases, too, are protected by copyright. The input of a copyrighted database into a computer results in the making of a copy and so there is copyright infringement. It makes no matter that the data copied from indices and graphs or maps is rearranged not as another book or visual aid, but as an electronically stored database: it is infringement. And this is so even if new and different maps, graphs and text are produced from it by the computer. Even more subtle problems have occurred regarding databases. The purveyor of a computer program that permits users to access and analyze the copyrighted database of another was liable for copyright infringement because in order to analyze the data the program had first to copy portions of the database.

The Copyright Office, noting the dynamic, changing nature of databases, has instituted a regulation to permit a streamlined registration every three months of all automated databases and their updates or other revisions.

Some interesting twists have arisen in software copyright infringement cases. In the case of video games, enhancements such as speed-ups were found to infringe because the final display either looked like or used the coding of the original copyrighted work. In another case where a consultant developed a program to remove unwanted governors in a copyrighted program used by the consultant's customers, the owner of the copyright charged infringement and won, because in order to find and remove the governors the copyrighted program had to be printed out. That was copying.

An owner of a copy of a copyrighted program is permitted to copy the program in the course of adapting it for his own use. In the process of adapting it, it is permissible to translate the program from one language to another or to add new features. However, the owner of the adapted program cannot offer for sale copies of the adapted program, nor can it be offered for resale as the original. Even more sensitive is the question of who did the adapting. If it was an outside consultant, the consultant's work must be clearly defined and authorized by the owner of the copy or the consultant will be liable for copyright infringement.

The delicate balance of how much help the owner of a copy of a copyrighted program can receive from a third party before the owner of the copyright charges infringement was demonstrated in a case in which a monthly magazine published in each issue twelve to fifteen programs that its readers had permission to copy into their computers. When an enterprising fellow typed all of the programs into his computer, copied them onto disks, and sold copies to the readers, the magazine charged infringement and won, even though it seems clear that there would have been no infringement if a reader had hired the fellow specifically to type in the programs for that reader.

It is well accepted that merely translating a program from one computer language to another does not avoid infringement. But it appears that translating a concept from English text to a computer program is infringement too. A copyrighted book contained a step-by-step method for trading in commodities. When a competitor wrote a program that carried out the method in the book it was held to be an infringement of the copyright in the book. The court said that the source code was not an entirely new, unique expression of ideas; it was simply a translation from one language, English, into another, the computer language! It has even been held that the description of a computer program, not the program itself, in a written proposal is an infringement of the copyright in the program.

Another area of interest is security programs. Security programs are those installed on a disk to prevent copying of all the other programs on the disk. Disks containing the security program were sold to software producers who placed their programs on the disk and sold them to customers. An enterprising programmer wrote a program which disabled the security program so customers could copy the protected program. This activity did not constitute infringement: the security program was not being copied, only the protected programs were and they were not in issue.

One of the potentially most troublesome areas of copyright protection for software is that of authorship and title: who created the program and who owns it? This is particularly so because much of the development work in the software industry involves consultants, not just employees. If an employee creates the software, the employer owns the copyright even in the absence of a written agreement and has full control over copying and selling the software. If, however, a consultant creates the software without a contract that assigns title, the consultant owns the copyright and controls the copying and selling of the software. All the employer gets is the use of the single copy that the consultant developed for the employer. The law is clear. And in order for a person to be designated an employee under copyright law the person must be a real employee. Full time work at the employer's premises, salary, withholding, FICA, benefits, all will be examined. The simple and only sensible way to avoid serious unexpected loss of rights is for there to be an executed contract between the employer and the consultant to define ownership before any work begins and any consideration is paid.

Registering a copyright in software where trade secrets are not involved is relatively straightforward. The copyright owner need only submit a completed application for registration along with the source code of the software for deposit in the Library of Congress. When the code is more than fifty pages in length, only the first and last twenty-five pages need be submitted. If the software contains a copyright notice, then the page or portion bearing the notice should be included. Notice should appear: on the title screen produced by the software; on the media itself, such as on labels or jackets on disks; in the coding itself so it appears on any printout of the program; and in any accompanying documentation. In cases where a user's manual normally accompanies the software, then a copy of that should be submitted too.

If the owner of the copyright will not or cannot supply the source code for deposit, the Copyright Office will accept the object code, accompanied by a written statement that the work embodied in the object code contains copyrightable authorship. The Copyright Office will then grant registration, but with the warning that the work is registered under the "rule of doubt", i.e., the Copyright Office has made no determination as to the existence of copyrightable authorship in the work.


C. Trade Secret Protection

Software may also be protected through a trade secret approach, separately or overlapping with patent and copyright protection. All information disclosed in a published copyrighted work is in the public domain. The contents or ideas may be used without restriction, even though the form of the work may not be copied. But when a software developer sold software that bore both a copyright notice and a trade secret warning legend which prohibited unauthorized use or disclosure, the trade secrets in the software were protected. The customer had no right to rely on the existence of the copyright notice on the work as a representation that the work has been generally published and that therefore the contents cannot qualify as a trade secret.

There was no inherent conflict between the copyright law and trade secret law, since the former protects the form of the work while the latter protects the contents or ideas of the work. The fixing to a document of a statutory notice of copyright does not automatically prevent the owner from subsequently asserting that the documents have not been generally published but instead contain subject matter which is a trade secret.

Difficulties also arise in situations when the customer claims trade secret rights in the software and the developer/consultant contends there are none. In one such case the developer defeated the trade secret claim by showing the system used a number of off-the-shelf subroutines and some that it had developed for other customers.

The U.S. Copyright Office fully recognizes the compatibility of copyright and trade secret protection. Its rules provide special filing procedures to protect trade secrets in the software.

Copyright owners who wish to protect their trade secrets but avoid clouding their registration with a "rule of doubt" approach have a number of options. In addition to the page containing the copyright notice, if there is one, the deposit for copyright may include either: (a) the first and last twenty-five (25) pages of source code with portions blocked out, or (b) the first and last ten (10) pages of source code in their entirety with no blocked out portions, or (c) the first and last twenty-five (25) pages of object code and any ten (10) or more successive pages of source code with no blocked out portions, or (d) when the program is no more than fifty (50) pages in length, the entire source code with the trade secret portions blocked out.

The permissible blocking out of portions of the source code includes "striping". This is the practice of blanking out vertical or diagonal stripes of the printed code so that the copyrightable expression is partially obscured. The part that is not blocked out must constitute more than the part that is blocked. There must be visible a significant portion of the source code sufficient to permit the Copyright Office to determine that there is a copyrightable work present.


VIII. CONTRACTUAL PROTECTION

Frequently when a person thinks of protecting his new idea or product, his thoughts go to patents, trade secrets and copyrights. But the game can be won or lost long before the opportunity to establish those forms of protection. That is why the fundamental forms of protection are so important: confidential disclosure agreements, employment contracts, consultant contracts. Whether or not an idea or product is protectable by such exclusive statutory rights as patent or copyright, there still is a need, at the early stages before such protection can be obtained, for keeping the basic information confidential to prevent public use or disclosure which can result in the loss of rights and/or inspire others to seek statutory rights before you can. Confidential disclosure agreements, employment agreements and consultant agreements, have some things in common. They define the obligations of the parties during the critical early stages of development of a new concept, product or process. They are often overlooked until it's too late: the relationship is well under way, and a problem has arisen.

Before a patent, copyright or trade secret is obtained, even before the occurrence of the idea that gives rise to them, all rights can be lost if the proper preliminary steps are not taken. That is why for proper protection of the business there must be agreements with employees, consultants and even in some cases with suppliers and customers to keep secret all important information of the business and to assign to the business all rights to that information.

Often it is thought that only technical information can be protected. This is not so. Ideas for new products or product lines, a new advertising or marketing program, a new trademark, the identity of a critical supplier, a refinancing plan, can all be protectable information and can be even more valuable than the technical matters when it comes to establishing an edge over competition and gaining a greater market share.

Employment contracts, consultant contracts and confidential disclosure agreements, all should be in writing and signed before the relationship begins, before any work is done, before any critical information is exposed, and before any money changes hands. A business must not be in such a rush to get on with the project that it ends up without full ownership of the very thing it paid for. And the employee or consultant or other party must know clearly at the outset what he is giving up in undertaking this relationship with the company.


A. Employment Contracts

Employment contracts must be fair to both parties, should be signed by all employees, at least all employees who either may be exposed to company confidential matters or may contribute ideas or inventions to the business and they should be short and readable.

Employment contracts, like all agreements, must have considerations flowing both ways. In an employment contract the consideration from the employee is all those promises to keep secrets and assign ideas and inventions; the consideration from the business is to employ the employee. Thus it is best to present these contracts to the prospective employee well before he begins work. After the job begins the consideration will be the employee's "continued" employment and that sounds a bit threatening. While "continued" employment is certainly proper consideration, courts in construing these contracts can decide that the employer has the superior bargaining position and so courts generally like to know that at the point the contract was offered for signature the employee had a fair opportunity to decline without suffering severe hardship.

One of the most important clauses in an employment contract is the agreement of the employee to transfer his entire right, title and interest in and to all ideas, innovations and creations to the company. These include designs, developments, inventions, improvements, trade secrets, discoveries, writings, and other works including software, databases and other computer related products and processes. The transfer is required whether or not these things are patentable or copyrightable. They must be assigned to the company if they were made or conceived or first reduced to practice by the employee. This obligation should adhere whether or not the employee was working alone or with others and whether or not during normal working hours or on the company premises. So long as the work is within the scope of the company's business, research or investigation or the work resulted from or is suggested by any of the work performed for the company, its ownership is required to be assigned to the company.

This clause should not seek to compel transfer of ownership in everything an employee does even if it has no relation to the company's business. An engineer employed to design phased array radar for an electronics company may invent a new horseshoe or write a book on the history of steeplechase racing. An attempt to compel assignment of ownership in such works to an employer under an employment agreement could be seen as overreaching and be refused enforceability. Overreaching could also jeopardize a clause which seeks to vest in the employer ownership of inventions, innovations, or other works made for a period of time after employment is ended or before employment begins.

Ancillary to this transfer or assignment clause is the agreement of the employee to promptly disclose the inventions, innovations and works to the company or to any person designated by the company and to assist in obtaining protection for the company including patents and copyrights in any and all countries as the company sees fit. The employee at this point also agrees to execute patent applications, copyright applications, to execute assignments of issued patents and copyright registrations, and to execute any other documents necessary to perfect the various properties and vest their ownership clearly in the company. If these activities are called for after the employee has left the company he is still obligated to perform but he must be paid for his time and expenses.

Another important concern is moonlighting in related work areas. To prevent this the employee agrees in the employment contract that during his employment by the company he will not engage in any employment or activity in which the company is now or may later become involved.

A closely related notion to this is a non-competition provision whereby the employee agrees not to compete during his employment and for some period after he leaves the company's employ. This is a more sensitive area. It may be perfectly understandable that a company does not want its key salesman, an officer, or manager, the head of marketing or engineering to take a job with a competitor and have the inside track on the company's best customers, new product plans, manufacturing techniques, or new marketing program. But the courts do not like to prevent a person from earning a livelihood. Courts do not compel a lifelong radar engineer to turn down a job with a competitor in the same field and take a job designing cellular phones. A person who spent his life in marketing and selling drapes and curtains cannot be made to sell floor coverings or used cars. However, the higher up and more important a person is in running the company, the greater is the probability that he will be prevented from competing, especially if the employment agreement specifically provides for it. Officers, directors, founders, majority investors and other key personnel have had such provisions enforced against them, but even then the scope of the exclusion must be fair and reasonable in both time and distance. A few months, a year or even two years could be acceptable depending on how fast the technology and market is moving. A worldwide exclusion might be acceptable for a salesman of transport airplanes. In the restaurant business a few miles might be all that is acceptable. A contract that seeks to extend the exclusion beyond what's fair typically will not be enforced.

One way to ensure that an ex-employee does not compete is to provide that the company can employ him on a consultant basis over some designated period of time. In this way his involvement in critical information areas can be phased out so that by the time he is free to go to a competitor he is no longer a threat and at the same time the ex-employee is being fairly compensated.

Bear in mind, however, that even if an ex-employee is free to compete, he is not free to take with him, in his memory or recorded form, any trade secrets, confidential or proprietary information of the company or to use it or disclose it in any way. To reinforce this the employment contract would provide that the employee will not during his employment or at any time thereafter disclose to others or use for his own benefit or the benefit of others any trade secrets, confidential or proprietary information pertaining to any of the businesses of the company -- technical, commercial, financial, sales, marketing or otherwise. The restriction could also protect such information pertaining to the business of any of the company's clients, customers, consultants, licensees, affiliates and the like.

Along with this the employment contract will provide that all documents, records, models, electronic storage devices, prototypes or other tangible items representing or embodying company property or information are the sole and exclusive property of the company and must be surrendered to the company no later than the termination of employment or at any earlier time upon request of the company. This is an important provision for both the employer and employee to understand. The employee may not take away, use or disclose trade secrets, confidential or proprietary information in his memory or in physical form without subjecting himself to serious legal sanctions. In some states the law imposes serious criminal sanctions and fines for the removal of tangible trade secret property.

Another potential area of conflict is employee raiding, the hiring away of employees by an ex-employee who is now employed by a competitor or who has founded a competing business. This is a particularly sensitive situation when the ex-employee holds a position of high trust and confidence and was looked up to by the other employees he is now attempting to hire. And it is particularly damaging when the loss of the employees being seduced is critical to operations either because of their expertise or their sheer number. In all circumstances such an outflow of employees is threatening because of the potential loss to a competitor of trade secrets and know-how.

One of the most hazardous areas of ownership is that dealing with title to copyrights. If a copyrighted work is created or authored by an employee the company automatically owns the copyright. But the employee must be a bona fide employee. That is, there must be all the trappings of regular employment. If a dispute arises over ownership between the company and the author the courts will seek to determine whether the author was really an employee. Was there provided for this person a full work week, benefits, income tax withholding, unemployment insurance, workmen's compensation, an office or workspace? If the author was anything less than a full employee, the copyright in the work belongs to the person. It does not belong to the company!

This means that if the company hires a part time employee, a consultant, a friend, a relative or moonlighter or your Uncle George, that person, not the company, will end up owning the copyright in the work. Thus when that non-employee completes that software system which will revolutionize the industry and bring income cascading to the enterprise, he, not the company, will own the copyright. That is, the company will own the embodiment of the system that the employee developed for the company but the non-employee, not the company, will own the right to reproduce, copy and sell the system over and over again.


B. Consultant Contracts

Consultant contracts should contain provisions similar to those in an employment contract along with some additional provisions. A consultant agreement should clearly define the task for which the consultant is hired: research a new area, analyze a problem, solve a problem, design or redesign a product, set up a production line, assist in marketing, sales, management, technical or financial matters. It is important to show why he was hired, what he is expected to do, what he may be exposed to in the way of company trade secrets, confidential and proprietary information, and what he is expected to assign to the company in the way of innovations, inventions, patents and copyrights.

An important feature of a consultant contract is the time when the task will be completed. There should be stepping stones or tunable benchmarks so both parties know what has to be achieved and by when. Goals such as purely time, specified achievements or total solution should be set forth. Payment must be clearly stated, both the amount and the plan of payment: Is the payment to be based on mere passage of time or on specified achievements or milestones? There should be a reporting process with clear delineation of when reports are due, initial, interim and final; their form and content; and the keying of payments to the timely receipt of satisfactory reports. Another area to be clarified is: Who will actually do the work -- the consultant or one of his employees or apprentices?

Clearly a company hiring a consultant wants to own the result of whatever the consultant was hired to do just as in the case of an employee. But in the case of a consultant, his stock in trade is his expertise and his ability to solve problems swiftly and elegantly in his specific area. Sharp lines must be drawn as to what the consultant must and will not assign to give both parties peace of mind. In any task in which software is part of the solution the ownership problem is magnified. Commonly, a software system uses many different routines and subroutines, some of which the consultant may have used before and may intend to use again. Who will own them? The company wants to secure the position which it identified and hired the consultant to assist with. But the consultant cannot afford to assign away rights which will prevent him from earning a living in the future. Closely related to this is the problem of preventing a consultant from working for a competitor or a customer. It would be suicide to hire a consultant who after solving the company's problem is free to move on and simply reapply what he learned at the company to solve the same problem for a competitor (who may not have even been aware of the problem) or teach a customer how to do certain tasks for itself that the company previously did for that customer. Sometimes, the consultant's work opens up a whole new door for him by revealing a problem he never knew existed until the company identified it and hired him to investigate it or solve it. Consultants are uncomfortable too in these situations. A consultant's reputation for honesty and ethical dealing is essential to his success. But freedom to consult to others is important too. If a consultant has a niche in designing a certain type of machinery he must be allowed to continue to work in that field. Good fences make good neighbors. Define the boundaries early and precisely.

In addition to careful delineation of these troublesome areas, the approach of a joint endeavor could work. The newly identified problem or new solution to an old problem would be owned by one party, the one best situated to exploit the market, with the profits being shared between them: ownership in the company, royalties to the consultant. Such a sharing arrangement can work where a consultant whose expertise the company really needs balks at providing a solution that will bring the company millions of dollars in cost savings or increased profits for payment of only a few hours of consultant time.

Consulting relationships by their nature can expose each of the parties to a great deal of the other party's trade secret, confidential and proprietary information. The company protects itself with clear definitions of the pertinent information and by employing the usual safeguards for trade secrets and also limits disclosure to the consultant of only what is necessary for him to do his job, and also limits the consultant's freedom to use the information for others and to disseminate the information. The consultant protects himself in the same way to prevent the company from misappropriating the consultant's special knowledge, problem solving approaches and analytical techniques.

An often overlooked area is the ownership of the notes, memos and failed avenues of investigation. False starts and failures can be as important as the solution, especially to competitors. Related to this is the question of the ownership of the raw data. Not only can the raw data be extremely valuable in its own right but it may be used to easily reconstruct the end result of the consultant's work, e.g., a market survey.

Finally, the company and the consultant should be sure that the consultant is free to engage in the work the company needs done. A consultant may warrant that he is free is free to carry out his promises. The consultant may identify any similar work and any potential or actual competitors or customers for which he has worked. The company and consultant should review the pertinent parts of previous agreements to see that the consultant is not violating them in doing this work for the company. The consultant may warrant that he will not use information, ideas, designs, routines for this job that he has used for others who may claim superior rights.


C. Confidential Disclosure Contracts

Wherever an idea, information, an invention or any knowledge of peculiar value is to be revealed, a confidential disclosure agreement should be signed by the receiving party to protect the disclosing party. The disclosure may be necessary to interest a manufacturer in taking a license to make and sell a new product; to hire a consultant to advise in a certain area; to permit a supplier to give an accurate bid; to allow a customer to determine whether or not it wants a product or wants a product modified; to interest investors to invest in the business. Such agreements are not only important to protect the knowledge or information itself but also to preserve valuable related rights such as domestic and foreign patent rights. These agreements should be short and to the point.

Basically the receiver of the disclosure should agree to keep confidential all information disclosed to it. Information is defined as all trade secrets, proprietary and confidential information, whether tangible or intangible, oral or written, of whatever nature, e.g., technical, sales, marketing, advertising, promotional, merchandising, financial, commercial.

The receiver should agree to receive all such information in confidence and not to use or disclose the information without the express written consent of the company. It should be made clear that there is no obligation incurred by the receiver for any information which it can show was in the public domain, or which the receiver already knew, or that was told to the receiver by another party.

The receiver should be limited to disclosing the information to only those of its employees who need to know in order to carry out the purposes of the agreement and who have obligations of secrecy and confidentiality to the receiver. Further the receiver should agree that all of its employees to whom any information is communicated are obligated under written employment agreements to maintain secret information. The receiver should also represent that it will exercise the same standard of care in safeguarding this information as it does for its own and in no event less than a reasonable standard of care. This latter phase is necessary because some businesses have no standard of care or a very sloppy attitude toward even their own important information.

Provision should be made for return of all tangible embodiments of the confidentially disclosed information, e.g., drawings, blueprints, designs, parameters of design, monographs, specifications, flow charts, sketches, descriptions, data. A provision could also be included preventing the receiving party from entering a competing business, or introducing a competing product or service in the area of the disclosed information. Often a time limit is requested by the receiver after which the receiver is free to disclose or use the information. If acceptable, such a time period could extend from a few months to a number of years depending upon the life cycle, tendency to copy, competitive lead time, and other factors present in a particular industry. Strong, clear language should be used to establish that no license or any other right, express or implied, whether or not it results in a patent or copyright, is given by the agreement.

While such confidential disclosure agreements between the discloser and receiver are the ideal, they are not always obtainable. Often the receiver argues that no such agreement is necessary, saying in effect: trust me. Or the receiver may flatly refuse on the grounds that it is against the receiver's policy. Some large corporations turn the tables and will demand that their non-confidential disclosure contract be signed before they will receive any information. Under such idea submission agreements the discloser gives up all rights to the ideas except as covered by a U.S. patent or copyright. Outside of those protections the receiver is free to use, disclose, do whatever it wishes with the information. This is not due simply to arrogance or orneriness. A large corporation has many departments and divisions where research and development of new ideas is occurring unknown to other areas of the corporation. In addition, in a number of cases courts have held corporations liable for misappropriation of ideas and information when no written agreement existed and even where a non-confidential disclosure agreement purported to free the receiver from any restriction against dissemination and use of the idea.

If no agreement can be reached or the Non-confidential Disclosure Contract counter-offer occurs, the discloser must decide whether to keep the idea in his mattress or take a chance on the honesty of the receiver while paring initial disclosure down to a minimum to cut the losses should a careless or unscrupulous receiver make public or misappropriate the idea.

Continue at IX. LICENSING AND TECHNOLOGY TRANSFER

This Passage was Posted with the Exclusive Permission of Wiley & Sons Publishers and It May NOT Be Reproduced, Edited, Transmitted or Reprinted in ANY Fashion without the Written Permission of Wiley & Sons Publishers.