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E-Commerce News
Family Entertainment and Copyright Act of 2005; Password Protection Alone Isn't Enough To Protect Customer Lists As Trade Secrets
May 10, 2005
FAMILY ENTERTAINMENT AND COPYRIGHT ACT OF 2005
On April 27th, President Bush signed into law legislation to legalize devices that allow viewers to skip objectionable portions of DVDs, and to criminally penalize both the "camcording" of movies in theaters and the pre-release of movies and records on computer networks. The legislation, called the Family Entertainment and Copyright Act of 2005, also contains provisions related to preserving and gaining access to films and older copyrighted works.
The Act revives several initiatives that were passed by the House in the 108th Congress, but were not acted on by the Senate. The first is the Family Movie Act, which creates an exemption in the Copyright Act permitting the distribution of devices that allow viewers to skip or mute objectionable material in pre-recorded DVDs.
Another provision, the Artists’ Right and Theft Prevention Act, or "Art Act," seeks to curb the unauthorized dissemination of works that have not yet been released to the public. This provision imposes criminal penalties for infringement of such pre-release works and provides for "pre-registration" of those works with the Copyright Office. It also creates new penalties for those who camcord movies in public theaters.
PASSWORD PROTECTION ALONE ISN'T ENOUGH TO PROTECT CUSTOMER LISTS AS TRADE SECRETS
A company’s failure to restrict paper copies of its customer list, or to require employees to sign a confidentiality agreement, doomed its claim for trade secret protection in its password-restricted list. The Illinois Court of Appeals has recently held that customer lists stored online in password protected directories were not entitled to trade secret protection where employer did not adequately make employees aware of the lists' confidential nature.
John Mazur worked in sales for Liebert Corp. Before leaving the company, he unloaded some 40 banker boxes of company data onto CD. That data included budgets, quotes, customer lists and the company’s price book. Liebert Corporation filed suit for violations of the Illinois Trade Secrets Act (ITSA), and sought a preliminary injunction against the former sales representative. The court denied the motion for preliminary injunction, and plaintiffs appealed.
Liebert claimed that one of the trade secrets the defendant had misappropriated was the plaintiffs' customer lists. These customer lists were stored online on a server in password protected directories, and each sales representative had a copy on his or her desktop computer. One of the issues on appeal was whether the customer lists could be protected as a trade secret under the ITSA.
To establish that information is a trade secret under the ITSA, two requirements must be met: (1) the plaintiff must show the information was sufficiently secret to give the plaintiff a competitive advantage, and (2) the plaintiff must show that it took affirmative measures to prevent others from acquiring or using the information. Although the court determined in this case that the customer lists met the first requirement, it denied trade secret protection based on the second requirement.
The court held that "restricting access to sensitive information by assigning employees passwords on a need-to-know basis is a step in the right direction." This precaution in and of itself, however was not enough. The court was "troubled by the failure to either require employees to sign confidentiality agreements, advise employees that its records were confidential, or label the information as confidential." There was insufficient evidence in the record to show the employees understood the information to be confidential, thus the trial court's finding that the customer lists were not trade secrets was not against the manifest weight of the evidence.
The lesson of this case is clear -- if a company wants to claim that information is a trade secret, it needs to treat that information like a secret at all times!
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If you have questions about any of the above information, please contact Jack Greiner at 513-629-2734 or jgreiner@graydon.com.
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.