Summary and Background of the Case

Intel purchased some software (apparently some sort of circuit simulator) from a company called Circuit Semantics, Inc., knowing that Silvaco had successfully sued Circuit Semantics about ten years ago for misappropriating trade secrets. The software that Intel purchased apparently contained some of Silvaco’s technology in its source code, although it appears that this technology was not accessible to the end-user in the compiled version of the software. In this action, Silvaco alleged that Intel used the software they acquired with knowledge that contained code that Silvaco had asserted contained their trade secrets, and therefore Intel misappropriated the trade secrets.

It’s important to note here that Intel never had access to the software’s source code. What they purchased was intuitively the same as the sort of product we purchase when we buy a shrink-wrapped software product from a store shelf: executable object-code that is only readable by a computer.

Supposing for the sake of argument that the software was designed using at least one Silvaco trade secret, this case presented the question of whether the use of that software would subject one to liability for misappropriation of a trade secret.

Did Intel Use a Trade Secret?

Pivotal to this case was the question of whether Intel ever actually had, in its hands, Silvaco’s trade secrets.

If the software was designed using at least one Silvaco trade secret, this would mean that the source code behind the software was tainted by the use of Silvaco’s know-how. Sure, since that time the source code had been compiled into an executable program that runs on a computer and is only readable by a machine. But it still contains those features. And Intel bought the tainted software, and began using it. Does that use of the tainted software constitute use of a trade secret?

Under the CUTSA, there are three types of conduct that can constitute a “misappropriation”: acquisition, disclosure, or use.³ What’s interesting to me about these three possibilities is the extent to which “use” stands out. As Judge Rushing points out, you can’t easily “acquire” a trade secret inadvertently. Someone else needs to tell it to you. Similarly, you can’t “disclose” a trade secret without a volitional act. But, in the case of something like software, which originates in one form (human-readable source code) but then typically ships to users as compiled object code (which is only machine-readable), it’s not a stretch to think that I might be “using” several trade secrets right now as I type this blog post on a computer loaded to the brim with commercial software from Apple, Microsoft, and other companies.

Put bluntly, Silvaco asked the court to create a very bad public policy for them. It’s clear to me what they wanted out of this: a holding that would put the onus on users of software to prove ignorance about what trade secrets — even inaccessible ones — might be contained within their organization’s computers.

“Exploiting” vs. “Possessing”

Luckily for us, Judge Rushing blocked. But he did so using one of the most simultaneously satisfying and precarious analogies I’ve ever read in an IP case.

One who bakes a pie from a recipe certainly engages in the “use” of the latter; but one who eats the pie does not, by virtue of that act alone, make “use” of the recipe in any ordinary sense, and this is true even if the baker is accused of stealing the recipe from a competitor, and the diner knows of that accusation.

When explaining software development to people who are not technologically savvy, I have often used the “recipe :: dish” analogy to describe how a program starts as human-readable code and ends as object code, so it’s nice to see that this has been captured eloquently in a meaningful context, and used to make a good point. But, on a more conceptual level, I think the distinction that Judge Rushing draws between “exploit[ing] it for his own advantage” and “taking advantage of something that was made” is a blurry one. But luckily, it works for now.

Mens Rea: The Importance of “Knowledge”

The other important thing about the CUTSA is that it requires a particular mental state.⁴ When you combine that with what we just learned from Silvaco, you get some interesting results, especially when you throw open source software into the mix.

Suppose Software Company X’s trade secret makes it into an open source software project. If Company Y uses the open source software without looking at the source code, has it misappropriated a trade secret? No. But if Company Y does look at the source code, then we need to consider whether it had any knowledge that it contained X’s trade secret and sought to misappropriate it. I can imagine some pretty tangled discovery proceedings arising from this. And Silvaco’s Footnote 7 contains the following:

Nothing said here should be taken to suggest that a defendant cannot be liable for misappropriation unless he personally possessed knowledge of the trade secret. He can of course acquire such knowledge, and indeed can conduct the entire misappropriation, vicariously, e.g., through an agent. Further, constructive knowledge of the secret may well be sufficient, at least in some circumstances. Thus one who knowingly possesses information constituting a trade secret cannot escape liability merely because he lacks the technical expertise to understand it, or does not speak the language in which it was written.

So, even though the compiled software itself might be usable without liability, the source code itself is still tainted, and will expose Y to liability if anyone, at any step of the usage process, meets one of the five types of actionable “use” indicated in § 3426[b][2]:

1. Used improper means to acquire knowledge of the trade secret.
2. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it;
3. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
4. At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
5. Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

I think this will go down as a landmark decision in the development of trade secrets in software. It has always been clear that software companies have trade secrets and use them. Now it’s also a little easier to tell when they misappropriate them.

1. Cal. Civ. Code §§ 3426.1-3426.11.
2. Cal. Civ. Code §§ 3426.1-3.
3. Cal. Civ. Code § 3426.1[b].
4. Cal. Civ. Code § 3426.1[b][2][A].

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Shownotes for The Singularity Law Podcast: Episode 8 for December 8, 2008

Our Panel for Today:

• Prof. Michael Scott of The Singularity Law Blog
• Josh Kagan of The Josh Kagan Blog

Video Game Law as a Hot New Practice Area: Hype or Reality?

• Wall Street Journal: Video-Game Law: The Niche Legal Practice Du Jour
• LA Times: These Lawyers Got (Video) Game
• Michael Scott’s blog: Videogame Law: New Legal Specialty or Marketing Hype?

The Limits of Section 230 Immunity, Part 1: Malware

• 47 U.S.C. §230
• Venkat Balasubramani’s SPAM NOTES blog: Could Facebook Be Liable for Spreading the Koobface Virus?
• Green v. AOL

The Limits of Section 230 Immunity, Part 2: Trademarks

• Alleyinsider: Amazon, Google: eBay Shouldn’t Have To Hunt For Trademark Infringers
• EFF: Jewelry Company Quest to Expand Trademark Law Could Quash Internet Commerce

Practice Pointer: The Continued Importance of Forum Selection Clauses

• “Internet Cases” blog: Court enforces forum selection clause in web hosting agreement
• Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991)

Turning Piracy Into Profit: The Myspace Experiment and Other DMCA Issues

• Reuters: MySpace, MTV Test Piracy-Profit Plan
• Michael Scott’s blog: Priming the Pump – Copyright Style

Final Thoughts: Entrapment by Emoticon

• Wall Street Journal: Emoticons on Trial at the Nebraska Supreme Court

This recording is an informational resource only. It is not designed to offer legal advice

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Click here to download this week’s show.

Here are the show notes for this week’s episode:

Shownotes for The Singularity Law Podcast: Episode 7 for November 17, 2008

Our Panel for Today:

• Prof. Michael Scott of The Singularity Law Blog
• Josh Kagan of The Josh Kagan Blog

President-Elect Obama Talks Technology Policy

• Barack Obama’s Technology Proposals (From Campaign)
• Digg Dialogg with Al Gore
• Michael’s blog: We Need a Technology Policy for the 21st Century
• Josh’s blog: On Technology Policy, Let’s Be More Specific
• CNET writes about Obama’s search for a national CTO
• Also from CNET: Obama’s Mixed Signals on Transparency

Net Neutrality

• Michael’s blog: Network Neutrality: To Regulate or Not to Regulate
• Wired: Net Neutrality Advocates In Charge of Obama Team Review of FCC

From Pages to Platforms: The Law of Web 2.0 and Beyond

• Webcast of Josh’s Talk

Practice Pointer: Conditional vs. Promissory Language in Licenses

• Jacobsen v. Katzer (Fed. Cir. Aug. 13, 2008)
• Josh’s blog: Win For Open Source in Jacobsen v. Katzer

Turbulence in the International Arena

• Torrentfreak: Record Labels to Sue Vuze, Limewire and SourceForge
• Intellectual Property Law Blog: Why US Web Site Owners Should Watch Foreign Suits (PDF)

Napster Judge Proposes Radical Copyright Reform

• Wired writes about Judge Patel’s proposals

Final Thoughts: Craigslist and Hookers

• Silicon Alley Insider: Craigslist: From Now On, All Hookers Require A Valid Credit Card

We apologize for the fluctuations in sound quality throughout this episode. We realized about 15 minutes into recording that our microphone had a bad connection.

I recommend downloading (instead of allowing it to play in the browser) for a full-screen picture.

Common Ground

Copyleft licenses all have one big thing in common: they remove particular common copyright law restrictions on copies of works. For most works protected by U.S. copyrights, the owner of a copyright uses the law to prohibit others from reproducing, adapting, or distributing copies of his work. But copyleft licenses grant some or all of those rights to every person who receives a copy of the work. It’s wrong to think of this as the copyright owner surrendering one or more of his exclusive rights. The copyright owner is simply offering a license to use the work in one of a certain number of ways. Subsequent uses of the work are then “licensed uses” so long as they comply with the terms of the license selected by the copyright owner. But if someone uses the work without complying with the license, then his use is an infringing one.¹

So, copyleft isn’t an absence of copyright. In fact, copyleft licenses rely on copyright law to enforce their provisions, which are usually intended to ensure that subsequent users of the work will always have the same rights to a work as did the generations before them.

The Incompatibilities

The problem here is that these licenses are not created equal.

One common family of licenses that is used for Web content is the Creative Commons series. These are designed to encourage creativity among Web users by making content available with only “some rights reserved.” But there isn’t just one license called “Creative Commons;” even in this single “family” of licenses there are a number of versions available. For example, a copyright owner could decide to require attribution on each copy made, or require that the work and derivatives only be used for non-commercial purposes. The copyright owner could even prohibit modification of the work entirely. One provision allows licensors to require that licensees “share-alike,” meaning that copies and derivatives of the licensed work must be licensed under identical terms.²

Compare the Creative Commons licenses to the GNU General Public License (GPL) or the GNU Free Documentation License (GFDL) and you’ll find that there are stark differences that often make it impossible to create “mixed” works that incorporate content licensed under different terms. Michael Scott, my co-host on the Podcast, learned this the hard way when he sought to use material from the EFF’s website (licensed under a Creative Commons license that requires attribution and that all uses be noncommercial) on his IT Law Wiki, a reference project that makes all material available under the GFDL (which does not require attribution and permits commercial uses). This kind of “mixed” work couldn’t be done without asking the copyright owner of the original work to waive certain rights so that the material can be relicensed under new terms.

Similar incompatibilities exist between the GPL and the Apple Public Source License (APSL), the Mozilla Public License (MPL), and the OpenSSL license. Does this mean that a distribution of GNU Linux (GPL) can’t be bundled with a copy of the Firefox Web browser (MPL)? Of course not. But it does mean that a developer couldn’t use code from the Linux kernel’s TCP/IP stack to improve OpenSSL and then distribute copies of that improved software under the OpenSSL license.

The Compatibilities

Luckily, not all of these licenses are at war with each other. For reference materials and documentation, one terrific new development is section 11 of the new GFDL version 1.3, which permits most existing material that was previously licensed under the GFDL to be relicensed under the Creative Commons 3.0 Attribution-ShareAlike license. This means that a work that was published under a GFDL license prior to the start of this month can be used in many Creative Commons projects. Wikipedia, the driving force behind this revision, is licensed under the GFDL, which means that all content that was posted to that site prior to November 1 is now more compatible.³

On the software side of things, the Free Software Foundation has also made things simpler by making the GPL–by far the most popular open source license–compatible with a variety of other copyleft licenses. With other popular licenses like the two-clause FreeBSD license on the list, you might be surprised by just how usable GPL code really is.

I’m an open source advocate because copyleft licenses enable people to create tools that can change the world,⁴ while providing future generations with code and text that can be used to solve absolutely any problem for which it is suited, including new problems that the original author did not foresee. But I also recognize that tangled and competing licenses don’t provide any benefit to anyone. In the future I hope to see an organization like the Free Software Foundation take more of a leadership role in this area, bringing the community together so that creative people can make the most of their work.

1. Jacobsen v. Katzer.
2. Hard-core copyleft advocates argue that only this version of the license is truly “copyleft.”
3. The November 1st date was a tactical decision designed to prevent people from gaming the system by adding materials to Wikipedia just to be able to use them under a Creative Commons license afterward.
4. No hyperbole here. Where would we be without Apache?

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Click here to download this week’s show.

Here are the show notes for this week’s episode:

Shownotes for The Singularity Law Podcast: Episode 6 for November 4, 2008

Our Panel for Today:

• Prof. Michael Scott of The Singularity Law Blog
• Josh Kagan of The Josh Kagan Blog

DMCA’s 10th Anniversary: Where Do We Go From Here?

• EFF: “Unintended Consequences: Ten Years Under the DMCA”

The Google Book Search Settlement

• Michael Scott: “Google Stares Down Book Industry: Publishers Blink, Google Book Search Wins”
• EFF: “Google Book Search Settlement: A Reader’s Guide”
• EFF: “Google Reaches Settlement With Authors and Publishers Over Google Book Search”
• Google Watch (eWeek): “Google Gets Great Deal in Book Search Settlement”
• Authors Guild: “$125 Million Settlement in Authors Guild v. Google”
• Text of Settlement Agreement
• Class Notice

Regulating Violent Video Games

• Josh Kagan: “Violent Video Games Go (Back) to Court”

Final Thoughts

• Southwestern’s Summer Abroad Program on International Information Technology Law in London
• Lawrence Lessig: “Enormously Important News from the Free Software Foundation”

As a content-based regulation, § 1746 requires a strict scrutiny analysis,³ which means that such a law is only constitutional when the state (1) has a compelling interest and (2) the law uses the least restrictive means to further that interest. The State argued that it had a compelling interest in preventing minors from accessing violent games and presented a study that purported to link violent behavior with violent games. The Court didn’t buy the State’s argument, finding that the plaintiffs raised serious questions about whether there is a causal connection between access to such games and harm to children. In the end, the plaintiffs were awarded an injunction against enforcement of the statute. Fast-forward to October 2008, and § 1746 has reared its ugly head again in the form of an appeal by Governor Schwarzenegger.

The video game industry is no stranger to controversy over game content. In 1994 it established a self-regulatory organization called the Entertainment Software Rating Board (ESRB) that applies ratings to all video games and sets certain advertising guidelines that publishers agree to. Its ratings mimic the ones used by the motion picture industry, with distinct categories for age groups like “Everyone,” “Teen,” and “Mature 17+.” Like the film rating system, the ESRB’s ratings are technically voluntary, but that doesn’t mean they’re without consequences. For example, Wal-Mart will only stock ESRB-rated games and won’t sell any games that carry an “Adults Only 18+” rating. Wal-Mart is currently the U.S.’s biggest reseller of games, so that means an AO rating is a kiss of death for most titles. A few months ago when I was working for a game publisher making a game based on the SAW movies, this was a significant concern. Ratings have real effects on the way publishers do business.

For what it’s worth, I don’t disagree that some games can be harmful to children. Grand Theft Auto IV, Soldier of Fortune: Payback, Brothers in Arms: Hell’s Highway, and many other games contain content that isn’t suitable for children. But so do at least as many Hollywood movies and popular TV shows. The industry recognizes this, which is why self-regulating programs like the ESRB have developed to keep violent games out of children’s hands while ensuring that games are still widely available. But more importantly, it’s not the state government’s place to restrict the sale of content that qualifies as speech. As courts have already found in other states that tried similar legislation including Arizona, Illinois, Louisiana, Massachusetts, and Oklahoma, this kind of law can’t survive a First Amendment attack on its face.

Next Wednesday when the appeal comes before the Ninth Circuit, I suspect the Court will agree. There isn’t really any uncertainty there. The real question here is whether lawmakers in Sacramento and other state legislatures will get the message as well.

1. Formerly known as California Assembly Bill 1179.
2. Video Software Dealers Ass’n v. Schwarzenegger, 2007 WL 2261546 (N.D. Cal. Aug. 6, 2007).
3. R. A. V. v. City of St. Paul, 505 U.S. 377 (1992).

Not surprisingly, three of the most useful of these feeds are maintained by my friend Michael Scott of The Singularity Law Blog, who goes by the handle @LawProf on Twitter. His first feed, @CopyrightLaw, features broad coverage of copyright issues with an emphasis on new media. His second feed, @InternetLaw, provides coverage of Internet Law news scoured from sources like Slashdot, Ars Technica, TechDirt, and many others. One of Michael’s talents here is his ability to filter the news for us, picking out the most interesting and well-written stories to save us time. His third feed is called @PrivacyLaw and it specifically focuses on privacy on the Internet. I follow all three of Michael’s tech law feeds and I find them useful.

In addition to Michael Scott, there are also a few other legal bloggers and pundits who have begun using Twitter to provide occasional insights. Harvard Law Professor and author Jonathan Zittrain has a feed at @zittrain although his updates are somewhat sporadic, and fellow blogger/podcaster Denise Howell has her own feed at @dhowell that can be interesting at times.

Of course, I also have my own feed at @JoshKagan where I post updates regularly.

Do you have a favorite feed that should be on this list? Tell me about it by adding a comment below!

Click the play button below to listen, or click here to subscribe to us on iTunes!

Click here to download this week’s show.

Here are the show notes for this week’s episode:

Shownotes for The Singularity Law Podcast: Episode 5 for October 27, 2008

Our Panel for Today:

• Josh Kagan, author of The Josh Kagan Blog
• Prof. Michael Scott of The Singularity Law Blog

Search Engine Caches Covered by Implied Licenses: Parker v. Yahoo!, Inc.

• Parker v. Yahoo!, Inc. 2008 U.S. Dist. LEXIS 74512 (E.D. Pa. Sep. 26, 2008).
• Perfect 10 v. Google, Inc., et al., 416 F. Supp. 2d 828 (C.D. Cal. 2006).
• Perfect 10 v. Amazon.com, Inc., 487 F.32 701 (9th Cir 2007).
• Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir 2003).
• S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081 (9th Cir. 1989).
• MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993).
• Ticketmaster Corp. v. Tickets.com, U.S.P.Q.2d (BNA) 1344 (C.D. Cal 2000). This is an unpublished decision.
• Ticketmaster Corp. v. Microsoft Corp., Case No. 97-3055 DDP (C.D. Cal., filed Apr. 28, 1997).
• Josh Kagan: Is a Search Engine Cache a Copy? Revisiting Kelly v. Arriba Soft through Parker v. Yahoo!, Inc.
• Eric Goldman: Search Engine “Cache” Function Covered by Implied License–Parker v. Yahoo.
• Jeff Neuburger: Challenge to Search Engine Caching Dismissed on Most (But Not All) Grounds.

eBay Libel and the Danger of Libel Tourism

• Eric Krangel, writing for Silicon Valley Insider: eBay Business Sues Buyer For Leaving Bad Feedback.

Apple Drops the iPhone NDA for Released Applications

• Robert Palmer, writing for The Unofficial Apple Weblog: iPhone NDA dropped, developers rejoice.
• Josh Kagan’s Recommended Reading: The Future of the Internet–And How to Stop It by Jonathan Zittrain.

Practical Corner: The Dangers of Screening Employees via Social Networking Sites

• William-Arthur Haynes, writing for The San Jose Business Journal: Screening via social media sites may leave employers exposed.

Final Thoughts: Murder in Cyberspace!

• Mari Yamaguchi, writing for the Associated Press: Japanese Woman Jailed After “Killing” Virtual Husband.

This recording is an informational resource only. It is not designed to offer legal advice.

The job of a search engine is to organize information on the Web and present that information to users in a way that is meaningful and skimmable. Modern search engines like Google and Yahoo! work by scouring Web sites for information and then indexing the contents of each page in a database from which it can draw information to respond to queries. This process involves creating a cache, which is a copy of the text or other content of each Web page added to the index.

It’s certainly not a new story to hear about a copyright owner complaining about this cache. Perfect 10 litigated the hell out of this issue¹ two years ago when they demanded that a court enjoin Google from creating “thumbnail” (small low-resolution) images for its Google Image Search. Perfect 10 prevailed in their initial action but then lost on appeal when the 9th Circuit found that Google’s fair use defense trumped Perfect 10’s infringement claim. This appellate decision followed the tradition of Kelly v. Arriba Soft,² an earlier case which established that the use of thumbnail images on a search engine is a fair use.

The Kelly decision gave us a doctrine that I support, even though I have to admit I’m not entirely comfortable with it. It’s not hard to see why the Ninth Circuit found that a cached thumbnail image is a fair use. The four-pronged fair use test in § 107 of the Copyright Act weighed heavily in favor of Arriba Soft, with the all-important fourth prong–the effect of the use upon the potential market for the original–solidly on the search engine’s side because, if anything, a low-quality thumbnail preview will guide consumers to the original copyrighted works.

Fair enough. This means that we need to consider whether a copy accomplishes the goals of the original, whatever those may be. Arriba Soft’s thumbnail copies didn’t, because they were low-resolution versions of Kelly’s epic photos. But what about Perfect 10’s images? Perfect 10 is a pornographic magazine. In fact, their business model includes selling small cell-phone-sized versions of their images that are similar to the thumbnail images cached by Google, Arriba Soft, and other search engines. Clearly the thumbnails can substitute for the originals of similar size. Luckily, this isn’t why Perfect 10 lost; Google prevailed largely because the Web sites supplying the source for its thumbnails were not even owned by Perfect 10. The Court found that those third-party sites might be infringing, but that was an issue that would need to be litigated independently of Google.³

But what if a copyright owner brought suit over something like those Perfect 10 thumbnail images without the messy third-parties involved? I don’t think that wouldn’t be a fair use under § 107. It would mean that search engines are making full copies that can completely fulfill the purpose of the source images. And when a search engine copies a Web page in its entirety and makes it available in something like the Google cache, that’s also not a fair use for the same reason. That means that search engines either needed (1) another defense or (2) a license.

This is the situation that presented in Parker v. Yahoo!, Inc.⁴ Parker claimed that Yahoo! infringed by copying text from his Web site into its cache, but the Court rejected his argument because, according to a well-known and well-accepted Internet convention, Parker could have prevented the indexing and caching of his page by using a robots.txt file. Parker even admitted that he was aware of this. The Court reasoned that, by not including a robots.txt file, Parker granted Yahoo! and other search engines an implied license for that use.

This is a great precedent for search engines. Decisions like Parker and others have gone a long way toward making me feel comfortable with Kelly. I’d still like to see the courts square off this concept in future cases. For example, one of the characteristics of the Web is that information is released it’s very hard to contain. One of the questions that survived Parker was whether the implied license is revocable. Saying “yes” to that might be like telling a newspaper that it can recall old editions of its paper at will. But judging by the trend we’re seeing in these search engine caching cases, I’m not terribly worried.

1. Perfect 10 v. Google, Inc., et al., 416 F. Supp. 2d 828 (C.D. Cal. 2006).
2. 336 F.3d 811 (9th Cir 2003).
3. Perfect 10, Inc. v. Amazon.com, Inc., 487 F.32 701 (9th Cir 2007).
4. 2008 U.S. Dist. LEXIS 74512 (E.D. Pa. Sep. 26, 2008).