Essay, Research Paper: Trade Secrets


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country's economy thrives on its trade secrets and without them the economy
would lack its competitive edge and economic value. The trade secret laws date
back to Roman law which punished a person who forced another person to reveal
secrets relating to his master’s commercial affairs. The current trade secret
laws evolved in England during the Industrial Revolution and the first reported
trade secret case in the United States was Vickery versus Welch in 1837. In 1979
the National Conference of Commissioners of Uniform State Law imposed the
Uniform Trade Secrets Act which has now been adopted by a majority of the
states. In previous years these laws have been modified to meet the needs of our
growing technological society by incorporating such things as the Invention and
Nondisclosure Agreement and intellectual property laws. Trade secret laws
protect a company’s information that is not publicly known therefore allowing
a competitive and economic edge over their competition. Intellectual property
violations fall under the trade secret laws which are used to determine if a
company or individual has compromised any information of another company or
individual. The issue of ownership of intellectual property is not only a legal
issue but also an ethical issue that engineers face in their careers. In the
case of Vermont Microsystems, Inc. (VMI) versus Autodesk, Inc. the court
determined that Autodesk violated the trade secret laws despite the warnings by
VMI. In doing this they not only compromised themselves legally and economically
but also ethically. Otto Berkes developed a Display List Driver while working
for VMI. After completing that project he took a position at Autodesk in the
fall of 1991. At that time the president of VMI sent a letter to Autodesk
warning that Autodesk should be careful because Berkes was privy to VMI’s
trade secrets. However, in March of 1992, Berkes lobbied the management of
Autodesk to include the display list driver in R12 windows. He then became
directly involved in working on the specifications for a prototype of the
display list driver. In designing this prototype he used two algorithms, the
triangle shading algorithm and the BPS algorithm, that he had developed while
working for VMI. Soon after, VMI learned Berkes was working on the development
of the display list driver for Autodesk. VMI once again warned Autodesk, via a
written notification, that they were at risk of trade secret violation. In
October 1992, Autodesk and VMI met to attempt to resolve their differences. VMI
offered to transfer all technology to Autodesk for 25.5 million dollars. After
receiving VMI’s proposal Autodesk considered proposals from other company’s
in order to replace the display list driver Berkes had developed. Autodesk
rejected all proposals including the offer made by VMI and apparently for
economic reasons decided to go ahead and ship their current version of the
display list driver despite the ethical and legal ramifications. The issue the
court had to determine was whether or not trade secret misappropriation
occurred. It was VMI’s responsibility to prove to the court that a trade
secret misappropriation had occurred. In complying with these laws, VMI
submitted evidence of eleven instances of trade secret misappropriation. The
first instance was the issue of the overall architecture. The courts felt that
VMI’s next eight instances were incorporated into that of the first instance.
In comparing Autodesk and VMI’s architecture the variables, parameters,
structures, and implementation of management functions of the two software
programs were almost, if not, identical. The add-on software that Berkes
designed, for both Autodesk and VMI, included the same functions and tools.
Everything from the management of bounding boxes to the location of entities was
identical. There were such similarities between the design of both company’s
products that the courts could not help but rule that Autodesk had violated the
trade secret laws for the first instance. The last two instances of trade secret
misappropriation were the triangle shading and BPS algorithms. The triangle
shading algorithm was so close to that of VMI’s that one expert witness
reported that "the resemblance goes right down to the names of variables,
names of macros, and even many of the comments. Another pronounced the
algorithms ‘identical’" (United State District Court for the District
of Vermont 1996, 8). Concerning the BPS algorithm, Berkes filed a counterclaim
against VMI, claiming that he was entitled to use BPS algorithm even if VMI has
the same technology. He argued that he had developed the software on his own
time and was therefore entitled to use it as he pleased. It can be argued that
an employee has the right to carry his knowledge, skills, and experience from
one employer to the next. However, in that statement there is a "legal fine
line" as to exactly what is the employee’s and what is the employer’s.
The law attempts to define this "legal fine line" by stating that if
the product has an economic value and is not known to the public then it can be
considered information that is protected by the trade secret laws. The court
ruled against Berkes because he developed, discussed, and tested the algorithm
while being paid by VMI and using VMI’s equipment. He did not develop the BPS
algorithm on his own accord and therefore was not entitled to hold the rights to
this algorithm. If Berkes had developed the display list driver and its
algorithms on his own time and with his own resources it would have been another
story. Instead, knowing he was being paid by a company and using their resources
he had no right to disclose this information to Autodesk. Not only was he being
paid by VMI and using their resources but he was discussing and brainstorming
with other employee’s of VMI. Although he may have developed the display list
driver, he developed it with the help of VMI employee’s. Although Autodesk was
held liable, Berkes held some of the responsibility. When Autodesk initially
hired him they placed him in a position that was not in conflict with his
previous position at VMI. Three months later it was Berkes who went to the
company to ask to be placed in a position that directly conflicted with his
previous position at VMI. Once he obtained this position, instead of creating a
new architecture for the display list driver and deriving new algorithms, he
used the ones he had created while working for VMI, with some slight
modifications. "In two separate exit interviews with VMI, Berkes was
reminded of his confidentiality obligations under the Invention and
Nondisclosure Agreement."(United State District Court for the District of
Vermont 1996, 9). Autodesk and Berkes were well informed as to the potential of
violating the Trade Secret Laws but were obviously willing to take the risk.
Autodesk in turn was given ample opportunity to fix the code that violated the
trade secret laws but due to deadlines they opted not to, apparently for
economic reasons. The protection of trade secrets has been going on for
century’s. Companies and individuals not only rely on the law to protect them
but also take their own extreme measures. In the case of the Coca-Cola Company
they have their ingredients list, mixing, and brewing formulas locked in an
Atlanta bank vault. Although this may seem extreme it is necessary in order to
maintain their competitive and economic edge. While a company or individual can
place written material containing ideas, formulas, plans and other material
manifestations of one’s inventive creation under lock and key, it cannot place
an individual or an individual’s mind under lock and key. It is for this very
reason that Non-Compete Agreements and Invention and Nondisclosure Agreements
are frequently entered into between employers and employees. Some company’s
might require their employees to sign a Non-Compete Agreement. Although the
Non-Compete Agreements are meant to protect a company’s interests, the courts
tend to frown on them. For a Non-Compete Agreement to hold up in a court of law
it must contain realistic expectations, geographic and/or industry limitations,
and a time frame. The Non-Compete Agreement typically restricts an employee from
working in an identical job at a direct competitor for approximately six to
eighteen months. However, the Non-Compete Agreement cannot put undue hardship on
the employee. The employee must be able to find gainful employment in their area
of expertise. This agreement is usually directed at high level executives and
creative employees, such as engineers. Non-Compete Agreements are illegal in
California but legal in New York and many of the eastern states. The Invention
and Nondisclosure Agreement generally covers a broader language and is construed
by the courts as a protection agent for companies. The Invention and
Nondisclosure Agreement prevents the disclosure of Trade Secrets outside of the
company an employee is or was employed by. This is agreement is easily enforced
by the courts because it is an extension of the Uniform Trade Secrets Act,
established in 1979. The Invention and Nondisclosure Agreement tends to be
required at all levels of a company. The agreement is legal in most states. In
both cases Non-Compete Agreements and Invention and Nondisclosure Agreements are
usually heavily worded in order to protect the company. They also provide the
company with ammunition if they are forced to go to court because of a Trade
Secret Violation. In the case of VMI versus Autodesk, Berkes had signed an
Invention and Nondisclosure Agreement which gave VMI the upper hand in court.
However Berkes attempted to argue that VMI was not specific as to what trade
secrets it was attempting to protect under the Invention and Nondisclosure
Agreement, therefore, VMI was seeking to transform the agreement into a
Non-Compete Agreement that would unfairly interfere with future employment
options. It must have been obvious to the court that this Invention and
Nondisclosure Agreement of which VMI and Autodesk were aware did not keep Berkes
from being hired by Autodesk and initially being assigned to non-competing
projects. This in and of itself shows that Berkes was marketable based on his
skills and abilities apart from what he developed at VMI. To argue otherwise
Berkes and Autodesk would be practically admitting that Berkes was hired so that
Autodesk could benefit from the technology Berkes helped develop while he was
employed by VMI. The trade secret laws were put into effect to protect the ideas
and products of an individual or company. Although trade secret laws were meant
to protect they can also harm an individual. An employee should be aware of any
agreement he signs upon entering a company and should uphold the agreement to
which he committed. Engineers gain their ideas, techniques, and knowledge from
experience which in turn enhances their careers. There is a fine line between
what knowledge is considered an individual’s and what knowledge is considered
a company’s. It is the job, responsibility, and ethical duty of the employee
and the employer, both former and current, to make sure all parties are well
informed and do not cross the boundaries set forth by the law. In the case of
Vermont Microsystems, Inc. (VMI) versus Autodesk, Inc. these lines were crossed
and ultimately Autodesk paid the consequences both financially, legally, and
ethically. Works Cited Anderson, Judy. 1998. Plagiarism, Copyright Violation,
and Other Thefts of Intellectual Property. Jefferson, NC: McFarland & Co..
Bettig, Ronald V.. 1996. Copyrighting Culture: The Political Economy of
Intellectual Property. Boulder, CO: Westview Press. Bowyer, Kevin W.. 1996.
Ethics and Computing: Living Responsibly in a Computerized World. Los Alamitos,
CA: IEEE Computer Society Press. Cundiff, Victoria A.. "Hiring a
Competitors’ Employees: A Trade Secret Perspective". 1997.
Accessed: September 12, 1998. United State District Court for the District of
Vermont. "Vermont Microsystems v. Autodesk Inc.". 1996.
7279.html. Accessed: September 11, 1998. U.S. Department of Justice.
"Federal Prosecution of Violations of Intellectual Property Right".
Accessed: September 12, 1998. "Reasonable royalty award appropriate, but
amount was error, 2nd Cir. Rules". Mealey’s Litigation Reports:
Intellectual Property, Section on Trade Secrets, vol. 6 no. 13. April 1, 1998.
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