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IT:AM Seminar Series
Managing your secrets, protecting your
assets




Eversheds LLP,
28 November 2012
IT:AM Seminar Series
Agenda

• 08:30 – 09:30   The business of secrecy

• 09:30 – 09:45   Coffee break

• 09:45 – 10:05   UsedSoft GmbH v Oracle International Corp

• 10:05 – 10:25   Communications Data Bill

• 10:25 – Close   Q&A and networking
IT:AM Seminar Series
The business of secrecy




Matthew Gough, Partner
The business of secrecy
Secrecy today – a modern business issue
• 80% of your corporate value is intangible

• The value of trade secrets is rising, why?

• eg: America Invents Act, technology driving more effective data
  usage, IP is now firmly in the boardroom

• Are trade secrets underrated ………or even protected

• From Charlie and the Chocolate Factory to date – espionage is
  alive and well in 2012

                                                      .....scene 1
The business of secrecy
How does confidence arise?
• The necessary quality of confidence
   – not a precise concept, necessarily flexible
   – (non public) formulae, algorithms – obviously yes
   – matters in the public domain – obviously not
   – encryption may not protect confidentiality if decryption is
     possible and the encrypted version is published

   and...

• Disclosure in circumstances of confidence
   – under a NDA
   – an obviously confidential exchange
   – a confidential relationship, eg solicitor/client etc
The business of secrecy
Who owns confidential information?
• Distinguish ownership of physical materials and intangible rights
  – both are important

• Confidential materials may also attract protection from
  intellectual property rights eg copyright, database right

• Confidentiality is not an IP right so effective protection is via:
   – controlling disclosure of physical materials
   – establishing a contractual/tort based duty in your favour

• Trade secret transactions depend on this
The business of secrecy
Analysing NDAs – if you’re the discloser
• Ensure you have defined what you want to protect and consider
  duration based on the commercial longevity of the information

• Make clear records of disclosure – make it clear that disclosures
  made are subject to the NDA

• Reject residual clauses and consider the risk of a recipient
  generating new IP based on the disclosed material

• Consider governing law and forum for enforcement
The business of secrecy
Analysing NDAs – if you’re the recipient
• Define what information is covered – reject broad clauses and
  descriptions

• Ensure there is a duration to the obligations

• Consider risk of “taint” – is the disclosed information too close to
  what you are doing?

• Consider a residuals clause

• Consider ownership of derivative analyses
The business of secrecy
Analysing NDAs – mutual disclosure
• Is it really a mutual disclosure, have you got the right
  protections?

• Seek a fair middle ground

• Consider holding back key information
The business of secrecy
Escrow clauses – conventional position
• Material – software source code

• Release events – insolvency, material breach of support

• Scope of use – providing software support (by fixing) internally
The business of secrecy
Escrow clauses – consider other material
• Hardware – bill of materials

• Firmware

• Technical specifications

• Other materials
The business of secrecy
Escrow clauses – consider other release events
• Anticipatory insolvency/financial distress triggers

• Change of control

• Reputational risk – CSR

• Service level triggers

• General material breach/other breach

and any other situations where you would need the materials
The business of secrecy
Escrow clauses – consider scope of use
• Customer support

• Software distribution

• Hardware manufacture

• Subject to a reasonable royalty?

and assess these measures against your general business/product
continuity planning
The business of secrecy
Routes to enforcing trade secret protection
• Move quickly to limit damage and to increase prospects of
  obtaining an injunction


• Gather evidence by:
   – identifying links to party suspected of breach
   – speaking to employees and ex-employees
   – investigating IT systems and access to trade secrets
   – obtaining a copy of the solution (reverse engineering or
     carrying out a code comparison)
The business of secrecy
Routes to enforcing trade secret protection
• Consider whether an injunction and/or claim would be
  appropriate and proportionate


• Consider whether a criminal offence has been committed


• Take steps to protect your secrets from the outset
The business of secrecy
Employees and confidential information
• Employer/employee duty based on mutual trust and confidence

• Includes an implied obligation to respect the employer’s
  confidential information

• Most employers use express confidentiality obligations as well
The business of secrecy
Employees and confidential information – after
cessation of employment
• Trade secrets may not be used post termination

• Other “mere” confidential information is not protectable and the
  employee can use this (but is this limited to “tools of the trade”
  know how?)

• However, is this activity:
   – genuine trade secret; or
   – employee know-how and skill
The business of secrecy
Employees and confidential information – practical
measures
• Garden leave or other covenants

• Monitor IT activity

• Exit interview - reminder

• Review subsequent activity for suspicious similarity
IT:AM Seminar Series
UsedSoft GmbH v Oracle International Corp




Mark Rhys-Jones, Partner
UsedSoft GmbH v Oracle International Corp
Facts
• Oracle
   – software owner and distributor
   – software is downloaded by customers from the Oracle website
   – customer enters into licence agreement with Oracle under
     which the customer is granted a perpetual, non-exclusive,
     non-transferable right to use the software

• UsedSoft
   – seller of used software licences, including Oracle licences
UsedSoft GmbH v Oracle International Corp
Decision
• Article 4(2) of the Directive on the Legal Protection of computer
  programs (2009/24) (“the Software Directive”) provides that the
  first sale of a copy of a software program in the EU by the
  copyright holder or with the copyright holder’s consent exhausts
  the distribution right of that copy within the EU

• After the first authorised sale of a copy of a copyright-protected
  work, the work may be freely distributed within the EU

• ECJ consideration: did the downloading of a copy of a software
  program with the copyright holder’s consent fall within the scope
  of Article 4(2) and constitute a first sale?
UsedSoft GmbH v Oracle International Corp
Decision...
• ECJ held that Article 4(2) was triggered if the copyright holder
  authorises a download of a copy and a consequential right to use
  the software perpetually in return for a payment of a fee
  corresponding to the economic value of the copy

• It also found that there was no difference between an intangible
  medium (such as a download) and a tangible medium (CD-ROM,
  DVD etc) for the purposes of Article 4(2)
UsedSoft GmbH v Oracle International Corp
Decision...
• UsedSoft were therefore entitled to rely on the exhaustion of
  distribution rights under Article 4(2) to continue to purchase and
  resell Oracle licences

• Certain restrictions:
   – not entitled to split out licences and resell part
   – original acquirers of software must make own copy unusable
     at the time of resale
   – copyright holders are entitled to ensure that the original
     acquirers copy of the software is made unusable
UsedSoft GmbH v Oracle International Corp
Decision...
• Maintenance agreements do not fall under Article 4(2) but Article
  4(2) will extend to the resulting software updates and added
  functionalities as they form an integral part of the software
  downloaded
UsedSoft GmbH v Oracle International Corp
What are the implications for software owners?
• Undermines the ability of software owners to control the transfer
  of software

• Non-transfer and non-assignment provisions in licensing
  arrangements will have no effect if ‘licence’ is granted
  perpetually, for a lump sum fee

• Under the principles applied by the ECJ, if these elements are
  met, then will deemed to be a ‘first sale’
UsedSoft GmbH v Oracle International Corp
Avoiding the trigger!
• Time-limited licences
   – annually renewable
   – fixed short terms
   – longer 15 years+ terms (Note: ‘sham’ terms)

•   ‘Software as a Service’ model

• Pricing structures- avoid lump sum payments

• Employ technical methods so as to prevent the licensee’s copy of
  the software remaining usable on transfer
UsedSoft GmbH v Oracle International Corp
Other considerations
• Provisions for early termination - how are these to be treated?
   – breach
   – change of control
   – insolvency

• To what extent will a transferee be bound by the terms of the
  original licence?

• Is any positive action required by the transferor? Supply of
  dongle, disk, etc?

• Associated support and maintenance agreements
UsedSoft GmbH v Oracle International Corp
What are the implications for licensees?
• Opens up potential revenue streams- licensees will now have the
  ability to resell software which is no longer required by them

• In order to do this, licensees must ensure that they
   – obtain a supply copy of the software
   – obtain a perpetual licence
   – pay a lump sum licence fee

• Licensees should consider the commercial implications of a lump
  sum fee

• May not be as beneficial for sophisticated software
IT:AM Seminar Series
Communications Data Bill




Eve England, Associate
Communications Data Bill
Background
• All businesses use communications data

• Existing laws governing the retention of data apply to public
  communications providers

• Draft Communications Data Bill will permit ‘authorised body’ to
  order a telecommunications provider to generate, collect, retain
  and disclose data to authorities that may require it
Communications Data Bill
What does the Communications Data Bill provide for?
• Secretary of State has power to:

   – ensure communications data is available from
     telecommunications operators by public authorities; or

   – otherwise facilitate availability of communications data
Communications Data Bill
Who is a telecommunications operator?
• Telecommunications operator
   – person who controls or provides a telecommunication system
     or provides a telecommunications service

• Telecommunications system
   – ...for the purpose of facilitating the transmission of
     communications by an means involving the use of electrical or
     electro-magnetic energy

• Telecommunications service
   – ...consists in the provision of access to, and of facilities for
     making use of, a telecommunication system
Communications Data Bill
What is communications data?
• Subscriber data – information about those to whom a
  telecommunications service is provided

• Traffic data – information identifying any person, apparatus or
  location to or from which a communication is transmitted

• Use data – information about the use made by a person of a
  telecommunications service or system
Communications Data Bill
What orders can the Secretary of State make?
• Broad powers e.g. collection and generation of data, processing
  and destruction of data

• Require operators to enter into arrangements with Secretary of
  State or other third parties on commercial or other basis to
  enable operators to collect data

• Enforce compliance with requirements regarding specified
  standards, specified equipment/systems and specified techniques
  in relation to collection and retention of data
Communications Data Bill
Are there any protections as to how the Secretary of
State can exercise its powers?
• Few protections

• Secretary of State must consult with Ofcom and Technical
  Advisory Board (established under RIPA) before issuing an
  order

• However, no obligation for Secretary of State to heed any
  concerns raised during the consultation process
Communications Data Bill
Best practice
• Businesses should prepare for the bill now

• Consider:
   – change control procedures
   – vendors’ technical resources to collect/retain data
   – provisions to pass compliance responsibilities to outsourcing
     providers
   – termination rights for non-compliance or where a business
     needs to change communications vendor to ensure
     compliance

• Raise concerns with stakeholders and MPs
IT:AM Seminar Series
Q&A




Thank you for attending
Eversheds LLP

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IT:AM Semina Series - Managing your secrets, protecting your assets - Cardiff

  • 1. IT:AM Seminar Series Managing your secrets, protecting your assets Eversheds LLP, 28 November 2012
  • 2. IT:AM Seminar Series Agenda • 08:30 – 09:30 The business of secrecy • 09:30 – 09:45 Coffee break • 09:45 – 10:05 UsedSoft GmbH v Oracle International Corp • 10:05 – 10:25 Communications Data Bill • 10:25 – Close Q&A and networking
  • 3. IT:AM Seminar Series The business of secrecy Matthew Gough, Partner
  • 4. The business of secrecy Secrecy today – a modern business issue • 80% of your corporate value is intangible • The value of trade secrets is rising, why? • eg: America Invents Act, technology driving more effective data usage, IP is now firmly in the boardroom • Are trade secrets underrated ………or even protected • From Charlie and the Chocolate Factory to date – espionage is alive and well in 2012 .....scene 1
  • 5. The business of secrecy How does confidence arise? • The necessary quality of confidence – not a precise concept, necessarily flexible – (non public) formulae, algorithms – obviously yes – matters in the public domain – obviously not – encryption may not protect confidentiality if decryption is possible and the encrypted version is published and... • Disclosure in circumstances of confidence – under a NDA – an obviously confidential exchange – a confidential relationship, eg solicitor/client etc
  • 6. The business of secrecy Who owns confidential information? • Distinguish ownership of physical materials and intangible rights – both are important • Confidential materials may also attract protection from intellectual property rights eg copyright, database right • Confidentiality is not an IP right so effective protection is via: – controlling disclosure of physical materials – establishing a contractual/tort based duty in your favour • Trade secret transactions depend on this
  • 7. The business of secrecy Analysing NDAs – if you’re the discloser • Ensure you have defined what you want to protect and consider duration based on the commercial longevity of the information • Make clear records of disclosure – make it clear that disclosures made are subject to the NDA • Reject residual clauses and consider the risk of a recipient generating new IP based on the disclosed material • Consider governing law and forum for enforcement
  • 8. The business of secrecy Analysing NDAs – if you’re the recipient • Define what information is covered – reject broad clauses and descriptions • Ensure there is a duration to the obligations • Consider risk of “taint” – is the disclosed information too close to what you are doing? • Consider a residuals clause • Consider ownership of derivative analyses
  • 9. The business of secrecy Analysing NDAs – mutual disclosure • Is it really a mutual disclosure, have you got the right protections? • Seek a fair middle ground • Consider holding back key information
  • 10. The business of secrecy Escrow clauses – conventional position • Material – software source code • Release events – insolvency, material breach of support • Scope of use – providing software support (by fixing) internally
  • 11. The business of secrecy Escrow clauses – consider other material • Hardware – bill of materials • Firmware • Technical specifications • Other materials
  • 12. The business of secrecy Escrow clauses – consider other release events • Anticipatory insolvency/financial distress triggers • Change of control • Reputational risk – CSR • Service level triggers • General material breach/other breach and any other situations where you would need the materials
  • 13. The business of secrecy Escrow clauses – consider scope of use • Customer support • Software distribution • Hardware manufacture • Subject to a reasonable royalty? and assess these measures against your general business/product continuity planning
  • 14. The business of secrecy Routes to enforcing trade secret protection • Move quickly to limit damage and to increase prospects of obtaining an injunction • Gather evidence by: – identifying links to party suspected of breach – speaking to employees and ex-employees – investigating IT systems and access to trade secrets – obtaining a copy of the solution (reverse engineering or carrying out a code comparison)
  • 15. The business of secrecy Routes to enforcing trade secret protection • Consider whether an injunction and/or claim would be appropriate and proportionate • Consider whether a criminal offence has been committed • Take steps to protect your secrets from the outset
  • 16. The business of secrecy Employees and confidential information • Employer/employee duty based on mutual trust and confidence • Includes an implied obligation to respect the employer’s confidential information • Most employers use express confidentiality obligations as well
  • 17. The business of secrecy Employees and confidential information – after cessation of employment • Trade secrets may not be used post termination • Other “mere” confidential information is not protectable and the employee can use this (but is this limited to “tools of the trade” know how?) • However, is this activity: – genuine trade secret; or – employee know-how and skill
  • 18. The business of secrecy Employees and confidential information – practical measures • Garden leave or other covenants • Monitor IT activity • Exit interview - reminder • Review subsequent activity for suspicious similarity
  • 19. IT:AM Seminar Series UsedSoft GmbH v Oracle International Corp Mark Rhys-Jones, Partner
  • 20. UsedSoft GmbH v Oracle International Corp Facts • Oracle – software owner and distributor – software is downloaded by customers from the Oracle website – customer enters into licence agreement with Oracle under which the customer is granted a perpetual, non-exclusive, non-transferable right to use the software • UsedSoft – seller of used software licences, including Oracle licences
  • 21. UsedSoft GmbH v Oracle International Corp Decision • Article 4(2) of the Directive on the Legal Protection of computer programs (2009/24) (“the Software Directive”) provides that the first sale of a copy of a software program in the EU by the copyright holder or with the copyright holder’s consent exhausts the distribution right of that copy within the EU • After the first authorised sale of a copy of a copyright-protected work, the work may be freely distributed within the EU • ECJ consideration: did the downloading of a copy of a software program with the copyright holder’s consent fall within the scope of Article 4(2) and constitute a first sale?
  • 22. UsedSoft GmbH v Oracle International Corp Decision... • ECJ held that Article 4(2) was triggered if the copyright holder authorises a download of a copy and a consequential right to use the software perpetually in return for a payment of a fee corresponding to the economic value of the copy • It also found that there was no difference between an intangible medium (such as a download) and a tangible medium (CD-ROM, DVD etc) for the purposes of Article 4(2)
  • 23. UsedSoft GmbH v Oracle International Corp Decision... • UsedSoft were therefore entitled to rely on the exhaustion of distribution rights under Article 4(2) to continue to purchase and resell Oracle licences • Certain restrictions: – not entitled to split out licences and resell part – original acquirers of software must make own copy unusable at the time of resale – copyright holders are entitled to ensure that the original acquirers copy of the software is made unusable
  • 24. UsedSoft GmbH v Oracle International Corp Decision... • Maintenance agreements do not fall under Article 4(2) but Article 4(2) will extend to the resulting software updates and added functionalities as they form an integral part of the software downloaded
  • 25. UsedSoft GmbH v Oracle International Corp What are the implications for software owners? • Undermines the ability of software owners to control the transfer of software • Non-transfer and non-assignment provisions in licensing arrangements will have no effect if ‘licence’ is granted perpetually, for a lump sum fee • Under the principles applied by the ECJ, if these elements are met, then will deemed to be a ‘first sale’
  • 26. UsedSoft GmbH v Oracle International Corp Avoiding the trigger! • Time-limited licences – annually renewable – fixed short terms – longer 15 years+ terms (Note: ‘sham’ terms) • ‘Software as a Service’ model • Pricing structures- avoid lump sum payments • Employ technical methods so as to prevent the licensee’s copy of the software remaining usable on transfer
  • 27. UsedSoft GmbH v Oracle International Corp Other considerations • Provisions for early termination - how are these to be treated? – breach – change of control – insolvency • To what extent will a transferee be bound by the terms of the original licence? • Is any positive action required by the transferor? Supply of dongle, disk, etc? • Associated support and maintenance agreements
  • 28. UsedSoft GmbH v Oracle International Corp What are the implications for licensees? • Opens up potential revenue streams- licensees will now have the ability to resell software which is no longer required by them • In order to do this, licensees must ensure that they – obtain a supply copy of the software – obtain a perpetual licence – pay a lump sum licence fee • Licensees should consider the commercial implications of a lump sum fee • May not be as beneficial for sophisticated software
  • 29. IT:AM Seminar Series Communications Data Bill Eve England, Associate
  • 30. Communications Data Bill Background • All businesses use communications data • Existing laws governing the retention of data apply to public communications providers • Draft Communications Data Bill will permit ‘authorised body’ to order a telecommunications provider to generate, collect, retain and disclose data to authorities that may require it
  • 31. Communications Data Bill What does the Communications Data Bill provide for? • Secretary of State has power to: – ensure communications data is available from telecommunications operators by public authorities; or – otherwise facilitate availability of communications data
  • 32. Communications Data Bill Who is a telecommunications operator? • Telecommunications operator – person who controls or provides a telecommunication system or provides a telecommunications service • Telecommunications system – ...for the purpose of facilitating the transmission of communications by an means involving the use of electrical or electro-magnetic energy • Telecommunications service – ...consists in the provision of access to, and of facilities for making use of, a telecommunication system
  • 33. Communications Data Bill What is communications data? • Subscriber data – information about those to whom a telecommunications service is provided • Traffic data – information identifying any person, apparatus or location to or from which a communication is transmitted • Use data – information about the use made by a person of a telecommunications service or system
  • 34. Communications Data Bill What orders can the Secretary of State make? • Broad powers e.g. collection and generation of data, processing and destruction of data • Require operators to enter into arrangements with Secretary of State or other third parties on commercial or other basis to enable operators to collect data • Enforce compliance with requirements regarding specified standards, specified equipment/systems and specified techniques in relation to collection and retention of data
  • 35. Communications Data Bill Are there any protections as to how the Secretary of State can exercise its powers? • Few protections • Secretary of State must consult with Ofcom and Technical Advisory Board (established under RIPA) before issuing an order • However, no obligation for Secretary of State to heed any concerns raised during the consultation process
  • 36. Communications Data Bill Best practice • Businesses should prepare for the bill now • Consider: – change control procedures – vendors’ technical resources to collect/retain data – provisions to pass compliance responsibilities to outsourcing providers – termination rights for non-compliance or where a business needs to change communications vendor to ensure compliance • Raise concerns with stakeholders and MPs
  • 37. IT:AM Seminar Series Q&A Thank you for attending Eversheds LLP