Sunday, September 09, 2007

TRADE SECRET, CONTRACT AND REVERSE ENGINEERING

(Adopted from the speech 'Intellectual Property Rights in Computer Software' delivered by Justice Yatindra Singh Judge Allahabad High Court on 31st July 2005 at Judges' Round Table Conference on IPR held at Kolkata)

1890 advertisement of Coca cola - the best kept secret  - from Wikipedia

TRADE SECRET AND COMPUTER SOFTWARE
TRADE SECRET/ UNDISCLOSED INFORMATION
Trade secret or undisclosed information is an area of intellectual property required to be protected under TRIPS. Trade Secret, as its name suggests, is a secret.



It has been explained by the US Supreme Court in the Kewanee case (See End note-1) as follows:
‘Trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. …
The subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade or business. … This necessary element of secrecy is not lost, however, if the holder of the trade secret reveals the trade secret to another in confidence, and under an implied obligation not to use or disclose it. … These others may include those of the holder’s “employees to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.” … Often the recipient of the confidential knowledge of the subject of a trade secret is a licensee of its holder.

Novelty, in the patent law sense, is not required for a trade secret. … However, some novelty will be required merely because that which does not possess novelty is usually known; secrecy, in the context of trade secrets, thus implies at least minimal novelty.’

The US Supreme Court in the same case also explained the remedies and defences available for a breach of the trade secret,
‘The protection accorded to the trade secret holder is against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under the express or implied restriction of non-disclosure or non-use. The law also protects the holder of a trade secret against disclosure or use when the knowledge is gained, not by the owner’s volition, but by some improper means …, which may include theft, wiretapping, or even aerial reconnaissance. A trade secret, however, does not offer protection against discovery by fair and honest means, such as by independent invention, accidental disclosure, or by so-called reverse engineering.’

Article 39 of the TRIPS talks about Protection of Undisclosed Information (Trade Secret). There is no specific statute dealing with the protection of undisclosed information in our country. We have Official Secrets Act, 1923; it protects information given to or with the government. One can also file a suit for breach of trust or confidence.

COMPUTER SOFTWARE
The Berne Convention for the protection of literary and artistic works in 1986 had provided that computer software/programme (object code and source code) and the compilation of data should be protected under the Copyright Acts. TRIPS has proceeded from the Berne Convention and article 10 of the TRIPS requires members to amend the laws accordingly. Appropriate amendments have been made in the the Copyright Act to protect computer programmes as well as computer database as a copyright.


The object code is protected as a copyright. There is right with the writer of the software to publish or not publish the source code. However, in case it is published then it is protected as a copyright otherwise it is protected as a trade secret. Generally in proprietary software, source code is not published and is protected as trade secret.

CONTRACTUAL PROTECTION, TERMS OF LICENSE AND COMPUTER SOFTWARE
CONTRACT - LICENSE
No one ever purchases computer software: this is true even for the proprietary software. In a case of the open source software, one pays for the services and in case of the proprietary software, one takes a license to use it. The use of software depends on the terms of the license/contract. The terms are dealt with under the Contract Act and IPRs in computer programme/software can be protected by the terms of a license/contract. In case of their breach, remedies of damages or injunction, as the case may be, are available.

Shrink Wrap
Computer programme disks or CDs are normally sold sealed inside the product box. The terms of the license are printed on the sealed box with a condition that breaking the seal constitutes assent to those terms. This way of licensing is also called ‘shrink wrap’. The term shrink-wrap license is taken from the method of packaging software products in cellophane-wrapped boxes. Shrink-wrap licenses are common in the software industry. This practice is being replaced by direct downloading of software from the Internet. Two different words have been coined for these licenses: ‘click wrap’ and ‘browse-wrap’.

Click Wrap
The word click wrap refers to a license agreement splashed on a Web page when the software is first installed; prior to the use, the user is required to click on the button ‘I Agree’ to assent to the terms of the license.

Browse-Wrap
The term browse-wrap refers to a notice placed on a Web page indicating that the user of that software is subject to a license agreement, available for viewing, but usually on another page. Unlike the click wrap license, the notice does not require the user to click a button before downloading, installing or using the software.

Validity of Terms of Shrink/Click/ Browse Wrap Licenses
There is also a model law {Uniform Computer Information Transactions Act (UCITA)}, which is recommended for enactment by the States resolving enforceability issues and a few states in the US have also enacted such a law. However, there is a debate (see End note-2) in the US courts whether the terms of such licenses are valid or not. In India, this question is yet to be decided by a court of law though this dispute is to be resolved in the light of section 23 of the Contract Act. However, for purposes of our discussion I will assume that these licenses are valid.

The terms of these licenses mainly
  • limit use of the software to one central processing unit;
  • disclaim warranties;
  • limit liability;
  • prohibit making unauthorized copies of the software;
  • prohibit its rental;
  • prohibit modifications; and
  • prohibit reverse engineering (decompilation or disassembly).
The last term prohibiting reverse engineering is the most debatable term of a licence and I will discuss it in some detail.

REVERSE ENGINEERING/ DECOMPILATION/ DISASSEMBLY
Reverse engineering means ‘starting with the known product and working backward to derive the process which aided in its development or manufacture.’ In other words reverse engineering is taking apart an object to see how it works in order to duplicate or enhance the object.

Reverse Engineering in the context of a computer programme is also referred to as decompilation or disassembly. There is some difference among the three but the word reverse engineering is a general word and is broader than the other two: this is my reason for using it.

The reasons for reverse engineering in the software industry could be to,
  • Retrieve the source code of a programme because the source code was lost; or
  • Study how the programme performs certain operations; or
  • Improve the performance of a programme; or
  • Fix a bug (correct an error in the programme when the source code is not available); or
  • Identify malicious content in a programme such as a virus; or
  • Adapt a programme written for use with one microprocessor for use with a differently designed microprocessor; or
  • Achieve interoperability.

The last reason of the preceding paragraph is the most debatable; some countries have declared the terms of the license, prohibiting reverse engineering to achieve interoperability to be void (see End note-3). It is relevant to consider,
  • When is reverse engineering legal?
  • When does it amount to infringement of IPRs?
  • In case it is not illegal then, can it be prohibited by the terms of a contract?

COPYRIGHTED SOFTWARE
US Law
The leading case on the aforesaid point is the Sega case (Sega Enterprises Ltd. v. Accolade, Inc. 977 F2d 1510; 93 Daily Journal DAR 304) though Atari Games Corp. v. Nintendo of America Inc. 975 F.2d 832, 24 U.S.P.Q.2D (BNA) 1015 is prior in time.

In Sega case, a computer game company, reverse engineered Sega game programmes in order to get information necessary to make its games compatible with the Sega Genesis console. Accolade then sold its independently developed games. These games were in competition with those made by Sega and third-party developers, who had been given a license by Sega. In the suit filed by Sega for infringement of its IPRs, Accolade raised the defence of fair use. One of the points involved in the case was,
‘Whether the [US] Copyright Act permits persons who are neither copyright holders nor licensees to disassemble [reverse engineer] a copyrighted computer programme in order to gain an understanding of the unprotected functional elements of the programme.’
The Court, in the light of the public policies underlying the US Copyright Act, held that,
'When the person seeking the understanding has a legitimate reason for doing so and when no other means of access to the unprotected elements exists, such disassembly is, as a matter of law, a fair use of the copyrighted work.’

The aforesaid case has been followed in almost all subsequent cases in the US (see End note-4). However there seems to be some deviation in Davidson & Associates Vs Tim Jung and others (the Blizzard case) but this case is distinguishable on facts.

Davidson & Associates are doing business as Blizzard Entertainment and Vivendi Universal Games. They are copyright owners in computer game software and online gaming service. The licenses of these software prohibited reverse engineering nevertheless the defendants reverse engineered the same. Davidson & Associates filed a case for breach of contract, circumvention of copyright protection system, and trafficking in circumvention technology. The trial court held that the contract prohibited reverse engineering. This order was upheld by the US court of Appeals. This judgement may be seen in the light of the finding that the programmers (who had used reverse engineering) had 'failed to establish a genuine issue of material fact as to the applicability of the interoperability exception'.

Indian Law
The law in India regarding permissibility of reverse engineering in respect of copyrighted computer software is similar to the law laid down in the Sega case. Section 52 of the Copyrights Act defines acts that do not constitute an infringement of copyright. Sub-sections (aa) to (ad) to Section 52 of the Copyright Act (see End Note-5) relate to computer software. This section broadly protects acts (including those of reverse engineering) in order,
  • To obtain information essential for operating inter-operability of an independently created computer programme with other programmes if such information is not otherwise readily available and
  • To determine the ideas and principles which underline any element of the programme for which the computer programme was supplied;
  • To make copies or adaptations of legally obtained copy of the computer programme for non-commercial personal use.

In our country contractual rights are dealt with under the Indian Contract Act. Section 23 of the Indian Contract Act declares a contract to be void if it is against public policy. Public policy has been declared under section 52 of the Copyright Act. Reverse engineering has been permitted in a limited way. A contract, prohibiting reverse engineering in software to the extent permitted by the Copyright Act, may not stand in a court of law.

PATENTED SOFTWARE
Unlike in the US copyright law, there is no clause in the US Patent Law to permit fair use of Patents. In India also there is no provision in the Patents Act, similar to section 52 of the Copyrights Act. What would be the position if reverse engineering—even to achieve interoperability or for fair use—is prohibited by a contract?

The law—as to when patented software may be reverse engineered—is not clear. Some legal commentators in the US (see End note-6) have recommended that there should be similar clauses in the US protecting the fair use of patented computer programmes. This may not be necessary.

A Computer Software/programme consists of two parts: source code and object Code. It is the source code that will help in achieving interoperability of other computer programmes. Sometimes it is disclosed in the patent application. However, generally it is not disclosed and in a patent application only flow charts are given showing how the devise works. In such a situation, the computer programme only will be protected as a trade secret or copyright.

The US Supreme Court in the Kewanee case held that trade secret does not prohibit any one from finding out or developing it by fair and honest means including reverse engineering. A condition in a contract prohibiting reverse engineering to find out the source code which is protected as a trade secret may also amount to creating a monopoly in an idea forever without getting it patented and such a condition may run foul of section 23 of the Contract Act. In this connection one may also refer to the U.S. Supreme Court decision in Bonito Boats v. Thunder Craft Boats, 489 US 141 (see End note-7). In case the computer programme is protected as a copyright then the same principles as I have discussed earlier should apply.

End Note-1: In Kewanee Oil Co. v. Bicron Corp., 416 US 470, the plaintiff company was engaged in making synthetic crystal useful in the detection of ionizing radiation. It developed a novel 17-inch crystal as a result of processes that were considered trade secrets. Some of its employees—who had entered into an agreement to maintain secrecy—joined the defendant company. The defendant also started manufacturing 17-inch crystals. The plaintiff filed a suit for injunction and damages for misappropriation of trade secrets. The trial court applied the Ohio trade secret law and granted permanent injunction. The appellate court reversed the decision on the ground that the Ohio trade secret law was in conflict with the patent law of the US. The US Supreme Court allowed the appeal and upheld the Ohio trade secret law.

End Note-2: One chain of decisions holding terms of the licenses to be valid is Pro CD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Hill v. Gateway, 2000, 105 F.3d 1147 (7th Cir. 1997); Mortenson v. Timberline, 970 P.2d 803 (Wash. Ct. App. 1999); and Brower v. Gateway, 2000, Inc. (1998) NY App. Div. Lexis 8872 (13 August 1998).
The other chain of decisions holding them to be unenforceable is Klocek v. Gateway, Inc., 104 F.Supp.2d 1332; Specht v. Netscape Communications Corp., 150 F.Supp.2d 585 (S.D.N.Y. 2001); Step-Saver

End Note-3: The European Union has declared anti-decompilation clauses in software contracts prohibiting reverse engineering to achieve interoperability to be void. See Council Directive 91/250 on Legal Protection of Computer 1991 O.J. (L122) 42. A few other countries, notably Australia, have followed suit. See Jonathan Band, Software Reverse Engineering Amendments in Singapore and Australia, J. Internet L. 17, 20 (Jan. 2000).

End Note-4: See, e.g., DSC Communications Corp. v. DCI Techs., Inc., 81 F.3d 597, 601 (5th Cir. 1996); Bateman v. Mnemonics, Inc., 79 F. 3d 1532, 1539 n.18 (11th Cir. 1996); Mitel, Inc. v. Iqtel, Inc., 896 F. Supp. 1050, 1056-57 (D. Colo. 1995), 124 F.3d 1366 (10th Cir. 1997); Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596.

End note-5: Section 52(1)(aa) was substituted by Act number 38 of 1994 and section 5291)(ab) to (ad) were substituted by Act number 49 of 1999. The relevant part of Section 52 of the Copyrights Act is as follows:
52. Certain acts not to be infringement of copyright.—(1) The following acts shall not constitute an infringement of copyright, namely:—
(aa) the making of copies or adaptation of a computer programme by the lawful possessor of a copy of such a computer programme, from such copy—
(i) in order to utilise the computer programme for the purpose for which it was supplied; or
(ii) to make back-up copies purely as a temporary protection against loss, destruction or damage in order only to utilise the computer programme for the purpose for which it was supplied.
(ab) the doing of any act necessary to obtain information essential for operating inter-operability of an independently created computer programme with other programmes by a lawful possessor of a computer programme provided that such information is not otherwise readily available;
(ac) the observation, study or test of functioning of the computer programme in order to determine the ideas and principles which underline any elements of the programme while performing such acts necessary for the functions for which the computer programme was supplied;
(ad) the making of copies or adaptation of the computer programme from a personally legally obtained copy for non-commercial personal use.

End note-6: Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of ‘Lock-Out’ Programmes by Julie E. Cohen 68 S. Cal. L. Rev. 1091 (1995). The Law of economics of Reverse Engineering by Pamela Samuelson & Suzanne Scotchmer.

End note-7: In the Bonito case, Bonito Boats developed a hull design for a fibreglass recreational board. It wasn’t patented. Florida legislature enacted a statute that prohibited the use of a direct moulding process to duplicate the unpatented boat hulls and forbade the knowing sale of such hulls. Bonito Boats filed a suit against Thunder Craft Boats for the violation of this statute. The US Supreme Court held the statute to be against the US Patent Law and as creating a monopoly in an unpatented item.

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