How Do You Create a Trade Secret?

Dear Rich: How are trade secrets made official? Do you have someone sign a NDA? Here's how you create a trade secret: (1) you think something up that will give your business an advantage (2) you keep it to yourself and hide it from others, and (3) if you need to tell someone you make sure that person is bound not to disclose it under the terms of an enforceable agreement (or under a law--for example, most states bar employees from disclosing an employer's trade secrets). There are a few other common sense requirements but that's basically it. The real test of your trade secret program occurs if someone steals your secrets or violates an NDA. For more info, check out this website we created about trade secrets.

Can an Inventor Ditch Her Investors?

Dear Rich: I entered into a corporate agreement with someone who had a patent pending idea. After a year of back and forth, we finally started a corporation in February 2010. In total we spent 1 year talking about creating a corporation together and 1.5 years involved in the corporation; she always kept meeting the next big investor at the club where she worked and would drop me until the investor lost interest. As per our agreement, she was to bring the patent into the corporation and I was to bring the business management and necessary prototyping funding. In the agreement, I was getting 38% of the company, she was getting the remainder. At the this point, the patent is close to being finalized, the trademark and slogan are now done, and the prototyping is virtually done. Unfortunately, she now wants to terminate the agreement and is going around me and telling the patent attorney and others not to speak with me. Her certified termination letter to me states nothing in regard to the amount of time, money, and work I have put into our company. We have a corporation formed with an operating agreement clearly indicating our roles and percentages. She now has amnesia and says she never agreed to give me part of the patent even though she has the original contract and corporate operating agreement. Ideally, I feel she has defaulted from the agreement and loses any rights whatsoever on the patent. This would have been the case had done something similar; I would lose my investment, work, time, and ownership if I defaulted and acted unethically behind her back. How should I best handle this situation? What would happen to one of the entrepreneurs on Shark Tank if they tried to do this to one of the Sharks? Please don't ask the Dear Rich Staff hypothetical questions about reality TV shows. We're not equipped to answer. It's not so much that we're old and out of touch (which is true), it's just that after the first season of Survivor -- the one where Susan and Richard got on each other's nerves ("Your inability to admit your failures without going into a whiney speech makes you a bit of a loser in life ...") -- we decided that the human race had created a fork in the road and we would take the path without reality TV.
Right, you had a question. The resolution of your problem depends on two things: your paperwork and the amount of money each party is willing to spend on a legal battle. Your lawyer needs to review the initial agreement, the corporate formation documents, and hopefully, if there is one, the assignment of patent rights. Even if there is no assignment to the corporation, your lawyer may still be able to force the transfer of rights (or at least a financial judgment tied to the value of the patent) if the remaining paperwork conclusively proves that the inventor was going to hand over the invention. In any case, based on the facts in your letter, it appears as if this matter is headed for some legal martial arts so we urge you to see an attorney ASAP.
Alternative courses of action. If you have an arbitration clause in your agreement, that may enable you to resolve the matter quicker, or you could always ask for arbitration if the inventor is willing to agree. More importantly, have you evaluated the patent's commercial potential? We know that you believe in the patent so much so that you're willing to fight about it, but the objectivity of a third-party evaluation my save you a lot of time and effort. As you may be aware, it's estimated that 50% of patent applications     never become patents and of those that do get issued, less than 2% are commercialized (offered for sale). (We're not sure how reliable these statistics are but they give you an idea.) In other words if the idea is uncommercial, its possible that your inventor friend is offering you a chance to walk away from your obligations without any more risk or investment. That may be a better choice than being trapped in a reality TV show with your so-called "partner."

Are Nonprofits Liable for Photo Infringement?

Dear Rich: I have been collecting black-and-white snapshots at antiques shops and flea markets for several years. This year i started posting some of them with slightly irreverent captions on my website. I think I understand that orphan works produced before 1923 are considered to be in the public domain. But what about the later photos? I haven't been too concerned about copyright violations because it is a nonprofit site. However what if I wanted to reproduce the images for profit? What kind of legal issues would I face? We think you're operating under a few misconceptions so maybe we should clear those up, first.
Nonprofits can be liable for infringement. Being a nonprofit won't shield you from a lawsuit. Nonprofits are occasionally named as defendants -- for example, the Internet Archive was sued over its caching of old web pages (and some nonprofits have filed suits as well). Nonprofit status may affect fair use determinations (as explained here). But in general, it makes little difference for purposes of determining infringement, whether the theft was for profit or not. You should also be aware that nonprofit status is a corporate tax status; a failure to profit doesn't make you a nonprofit.
Orphan works are not public domain. You are correct that works published in the U.S. before 1923 are in the public domain in the U.S. But these are not orphan works. An orphan work is one that is still protected under copyright but whose owner is missing in action and there's nobody to contact for permission. We think that's the case with most of the photos at your website.
Right, you had a question. We think the odds are slim that you will be the subject of a lawsuit. A copyright owner of one of your vintage photos (the owner would be whoever took the picture) is unlikely to see your work, unlikely to threaten a lawsuit and unlikely to recover much if the lawsuit should it actually go to court. So the chances are low that you will be hassled. Still, for the record, these are infringements. There is also a slim possibility that one of the subjects of these photos will see your site and claim an invasion of privacy or (if you sell the images) a violation of the right of publicity.  Again, unlikely, but possible ... kind of like guessing whether an earthquake will hit Virginia.

Contract Worker Broke My NDA!

Dear Rich: I just found out that a contract sewing employee I had sign an NDA is making my product! What can I do to stop him? An NDA is helpful if you want to stop someone from disclosing or using your secrets. So if the contractor took a confidential process or secret information, you can sue. If, however, your products are publicly available and there is no secret element in their production or marketing, you may have a hard time claiming trade secret theft and violation of the NDA.
What else? If you have a noncompete provision and your state enforces noncompetes, you also may have a solid claim. Is your product protected under copyright or trade dress laws? That may be a way to stop copying. Bottom line dept. Assuming this product is important to your business, you should have a lawyer look at your agreement and your product.

When Does New Patent Law Go Into Effect?

A.G. Bell takes a call
(c) Sasha Stim-Fogel

Dear Rich: I read that Congress passed a new patent law. Will this affect a provisional patent application that I filed last month? [Note: the law discussed in this question was finally enacted on September 16, 2011] No, the new law (The America Invents Act aka Patent Reform) has not been enacted, yet. ] Both the Senate and House of Representatives have passed versions but the two versions haven't been 'harmonized.' The Dear Rich staff believes that the Act will be enacted next month. In fact, we're so sure that we've prepared a timeline explaining when the 37 provisions of the bill go into effect.

Can I Use Book Covers on T-Shirts and Buttons?

Dear Rich: What is the law regarding reproducing book cover artwork as bookmarks, t-shirts, buttons, etc.? I was particularly wondering about older jacket art from before 1970. The Dear Rich Staff reports that the use of copyrighted cover art on merch is an infringement and one that is highly unlikely to be excused as a fair use. The copyright is owned either by the publisher or cover artist.
Lowering Risks. You're totally safe to use cover art published in the U.S. before 1923 (public domain). You may also be safe using cover art published between 1923 and 1964 because a large percentage of works from that period were never renewed and fell into the public domain. (You can learn how to research renewals here). After 1964, most cover art is likely to be protected under copyright. Of course, there's always the possibility that a publisher has gone out of business, the cover artist has passed away, or nobody cares about the reproduction, and there is nobody interested in going after you (the orphan works syndrome). Non-merchandise thumbnail uses of book covers for purposes such as this blog are likely to be fair use.

Can I Reproduce Magazine Cover When My Product Is Featured?

Dear Rich: My product has been recently featured in a national magazine along with my company name. I've asked the magazine's permission to use their magazine name and the pictures that display my product, but they haven't responded. Could I use a picture of their magazine cover and state that my product was featured in their magazine on my ecommerce site without their permission? Wow, congratulations on getting some serious inka-dinka-doo and good luck with your product sales. Reproducing the magazine cover without permission is most likely an infringement of the copyright owned by the magazine, the cover artist/photographer, or both. But there are ways you can use it that can seriously lower your risks.
Copyright issues. The safest use (and one that would likely be excused) would be to use a thumbnail of the magazine cover -- something in the ballpark of the illustration size above. Recent cases have considered thumbnails as permissible fair uses, including a case in which magazine covers were used in a book. You can probably even claim fair use successfully using larger sizes, though we must always remind readers that fair use is a defense that you have to prove in court (a scary proposition). You can also consider another factor that we mention to Dear Rich readers. Will the magazine find out about your use and will they care? Obviously -- based on the zillions of unauthorized reproductions of product reviews -- many people in your position take this "stop me if you don't like it approach."
Trademark issues. We know that the writer of the magazine article endorsed your product (Yay!) but that doesn't necessarily mean that the magazine endorses your product and it may have a policy that asks readers not to associate the magazine's name with product or service advertising. Other magazines may have a policy prohibiting use of the logo or other trademarks in advertising. Check out the magazine's trademark rules (usually posted at its website or within the magazine) and look for any blanket prohibitions. As a general rule you should be okay with straight informational statements like "Our cool binoculars were mentioned in Bird Magazine and the writer called them "extraordinary." (You can probably include a few lines from the review without running into copyright problems.)