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Computer software can be protected as a “compilation” trade secret
July 27, 2009
Trade Secrets Alert

Novelty is not required for trade secret protection. The crucial characterization of a trade secret is secrecy not novelty. Whether a trade secret exists is a fact-intensive question that usually must be resolved at trial. The question presented in Decision Insights, Inc. v. Sentia Group, Inc., 2009 U.S. App. LEXIS 2654 (4th Cir. 2009) was whether identification of the entire source code relating to a computer software program can qualify as a total “compilation” trade secret.

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Novelty is not required for trade secret protection. The crucial characterization of a trade secret is secrecy not novelty. Whether a trade secret exists is a fact-intensive question that usually must be resolved at trial. The question presented in Decision Insights, Inc. v. Sentia Group, Inc., 2009 U.S. App. LEXIS 2654 (4th Cir. 2009) was whether identification of the entire source code relating to a computer software program can qualify as a total “compilation” trade secret.

The Decision Insights litigation involves competing software applications implementing decision-making models using expected utility theories. Plaintiff (DII) alleged that former employees of DII who were hired by Sentia disclosed trade secrets to Sentia in violation of the Virginia Uniform Trade Secrets Act.

Discovery disputes arose regarding DII’s identification of the alleged trade secrets at issue. The magistrate judge determined that DII’s discovery responses were inadequate, in part, due to DII’s failure to identify its trade secrets with specificity. The magistrate judge ordered DII to produce:

[A] clear and express verified statement containing only those items which Plaintiff considers to be actual trade secrets and which Plaintiff has reasonable grounds to believe were misappropriated by Defendant. Plaintiff shall clearly differentiate between the material which is public knowledge from that material which is allegedly Plaintiff’s trade secret, proprietary, or confidential material.

In response, DII identified 12 specific components of its source code as trade secrets as well as the entire DII source code for its “EU Model” software program as a total compilation trade secret.

These efforts by DII to identify its alleged trade secrets were deemed insufficient by the district court. Other than source code, DII had no additional documentation relating to the development of its EU Model more than 15 years ago such as algorithms, block flow diagrams, or narratives explaining how the software worked.

The district court dismissed DII’s trade secret claims on summary judgment. The court found that DII could not provide an adequate identification of its trade secrets and confidential information to permit the court or the defendants to ascertain what aspects of DII’s software are trade secrets and what portions of the code are publically available.

On appeal, the Fourth Circuit Court of Appeals reversed the district court and remanded the case for further proceedings because the district court failed to address whether or not the software program, as a total compilation, qualifies as a trade secret citing its earlier decision in Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655 (4th Cir. 1993).

It is a well established principle in trade secrets law that a trade secret can exist in a combination or “compilation” of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design, and operation of which, in unique combination, affords a competitive advantage and is a protectable secret, Imperial Chemical Industries, Ltd. v. National Distillers & Chemical Corp., 342 F.2d 737, 742, 144 U.S.P.Q. (BNA) 695 (2d Cir. 1965).

The recent decision in Decision Insights, Inc. v. Sentia Group, Inc., 2009 U.S. App. LEXIS 2654 (4th Cir. 2009) reaffirms this important principle of trade secrets law. An entire software program, as a total compilation, can exist as an independent trade secret if reasonable measures have been taken to preserve the secrecy of the software program. It is not necessary to parse out specific portions of the source code in order to establish a trade secret claim in computer software.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.