This country's economy thrives on its trade secrets and without them the economy would lack its competitive edge and economic value. The trade secret laws date back to Roman law which punished a person who forced another person to reveal secrets relating to his master’s commercial affairs. The current trade secret laws evolved in England during the Industrial Revolution and the first reported trade secret case in the United States was Vickery versus Welch in 1837.
In 1979 the National Conference of Commissioners of Uniform State Law imposed the Uniform Trade Secrets Act which has now been adopted by a majority of the states. In previous years these laws have been modified to meet the needs of our growing technological society by incorporating such things as the Invention and Nondisclosure Agreement and intellectual property laws. Trade secret laws protect a company’s information that is not publicly known therefore allowing a competitive and economic edge over their competition. Intellectual property violations fall under the trade secret laws which are used to determine if a company or individual has compromised any information of another company or individual. The issue of ownership of intellectual property is not only a legal issue but also an ethical issue that engineers face in their careers.
In the case of Vermont Microsystems, Inc. (VMI) versus Autodesk, Inc. the court determined that Autodesk violated the trade secret laws despite the warnings by VMI. In doing this they not only compromised themselves legally and economically but also ethically.
Otto Berkes developed a Display List Driver while working for VMI. After completing that project he took a position at Autodesk in the fall of 1991. At that time the president of VMI sent a letter to Autodesk warning that Autodesk should be careful because Berkes was privy to VMI’s trade secrets. However, in March of 1992, Berkes lobbied the management of Autodesk to include the display list driver in R12 windows. He then became directly involved in working on the specifications for a prototype of the display list driver. In designing this prototype he used two algorithms, the triangle shading algorithm and the BPS algorithm, that he had developed while working for VMI.
Soon after, VMI learned Berkes was working on the development of the display list driver for Autodesk. VMI once again warned Autodesk, via a written notification, that they were at risk of trade secret violation. In October 1992, Autodesk and VMI met to attempt to resolve their differences. VMI offered to transfer all technology to Autodesk for 25.5 million dollars. After receiving VMI’s proposal Autodesk considered proposals from other company’s in order to replace the display list driver Berkes had developed.
Autodesk rejected all proposals including the offer made by VMI and apparently for economic reasons decided to go ahead and ship their current version of the display list driver despite the ethical and legal ramifications. The issue the court had to determine was whether or not trade secret misappropriation occurred. It was VMI’s responsibility to prove to the court that a trade secret misappropriation had occurred. In complying with these laws, VMI submitted evidence of eleven instances of trade secret misappropriation. The first instance was the issue of the overall architecture.
The courts felt that VMI’s next eight instances were incorporated into that of the first instance. In comparing Autodesk and VMI’s architecture the variables, parameters, structures, and implementation of management functions of the two software programs were almost, if not, identical. The add-on software that Berkes designed, for both Autodesk and VMI, included the same functions and tools. Everything from the management of bounding boxes to the location of entities was identical. There were such similarities between the design of both company’s products that the courts could not help but rule that Autodesk had violated the trade secret laws for the first instance.
The last two instances of trade secret misappropriation were the triangle shading and BPS algorithms. The triangle shading algorithm was so close to that of VMI’s that one expert witness reported that "the resemblance goes right down to the names of variables, names of macros, and even many of the comments. Another pronounced the algorithms ‘identical’" (United State District Court for the District of Vermont 1996, 8). Concerning the BPS algorithm, Berkes filed a counterclaim against VMI, claiming that he was entitled to use BPS algorithm even if VMI has the same technology. He argued that he had developed the software on his own time and was therefore entitled to use it as he pleased. It can be argued that an employee has the right to carry his knowledge, skills, and experience from one employer to the next.
However, in that statement there is a "legal fine line" as to exactly what is the employee’s and what is the employer’s. The law attempts to define this "legal fine line" by stating that if the product has an economic value and is not known to the public then it can be considered information that is protected by the trade secret laws. The court ruled against Berkes because he developed, discussed, and tested the algorithm while being paid by VMI and using VMI’s equipment. He did not develop the BPS algorithm on his own accord and therefore was not entitled to hold the rights to this algorithm. If Berkes had developed the display list driver and its algorithms on his own time and with his own resources it would have been another story.
Instead, knowing he was being paid by a company and using their resources he had no right to disclose this information to Autodesk. Not only was he being paid by VMI and using their resources but he was discussing and brainstorming with other employee’s of VMI. Although he may have developed the display list driver, he developed it with the help of VMI employee’s. Although Autodesk was held liable, Berkes held some of the responsibility. When Autodesk initially hired him they placed him in a position that was not in conflict with his previous position at VMI.
Three months later it was Berkes who went to the company to ask to be placed in a position that directly conflicted with his previous position at VMI. Once he obtained this position, instead of creating a new architecture for the display list driver and deriving new algorithms, he used the ones he had created while working for VMI, with some slight modifications. "In two separate exit interviews with VMI, Berkes was reminded of his confidentiality obligations under the Invention and Nondisclosure Agreement."(United State District Court for the District of Vermont 1996, 9). Autodesk and Berkes were well informed as to the potential of violating the Trade Secret Laws but were obviously willing to take the risk. Autodesk in turn was given ample opportunity to fix the code that violated the trade secret laws but due to deadlines they opted not to, apparently for economic reasons.
The protection of trade secrets has been going on for century’s. Companies and individuals not only rely on the law to protect them but also take their own extreme measures. In the case of the Coca-Cola Company they have their ingredients list, mixing, and brewing formulas locked in an Atlanta bank vault. Although this may seem extreme it is necessary in order to maintain their competitive and economic edge.
While a company or individual can place written material containing ideas, formulas, plans and other material manifestations of one’s inventive creation under lock and key, it cannot place an individual or an individual’s mind under lock and key. It is for this very reason that Non-Compete Agreements and Invention and Nondisclosure Agreements are frequently entered into between employers and employees. Some company’s might require their employees to sign a Non-Compete Agreement. Although the Non-Compete Agreements are meant to protect a company’s interests, the courts tend to frown on them. For a Non-Compete Agreement to hold up in a court of law it must contain realistic expectations, geographic and/or industry limitations, and a time frame. The Non-Compete Agreement typically restricts an employee from working in an identical job at a direct competitor for approximately six to eighteen months.
However, the Non-Compete Agreement cannot put undue hardship on the employee. The employee must be able to find gainful employment in their area of expertise. This agreement is usually directed at high level executives and creative employees, such as engineers. Non-Compete Agreements are illegal in California but legal in New York and many of the eastern states. The Invention and Nondisclosure Agreement generally covers a broader language and is construed by the courts as a protection agent for companies. The Invention and Nondisclosure Agreement prevents the disclosure of Trade Secrets outside of the company an employee is or was employed by.
This is agreement is easily enforced by the courts because it is an extension of the Uniform Trade Secrets Act, established in 1979. The Invention and Nondisclosure Agreement tends to be required at all levels of a company. The agreement is legal in most states. In both cases Non-Compete Agreements and Invention and Nondisclosure Agreements are usually heavily worded in order to protect the company.
They also provide the company with ammunition if they are forced to go to court because of a Trade Secret Violation. In the case of VMI versus Autodesk, Berkes had signed an Invention and Nondisclosure Agreement which gave VMI the upper hand in court. However Berkes attempted to argue that VMI was not specific as to what trade secrets it was attempting to protect under the Invention and Nondisclosure Agreement, therefore, VMI was seeking to transform the agreement into a Non-Compete Agreement that would unfairly interfere with future employment options. It must have been obvious to the court that this Invention and Nondisclosure Agreement of which VMI and Autodesk were aware did not keep Berkes from being hired by Autodesk and initially being assigned to non-competing projects. This in and of itself shows that Berkes was marketable based on his skills and abilities apart from what he developed at VMI. To argue otherwise Berkes and Autodesk would be practically admitting that Berkes was hired so that Autodesk could benefit from the technology Berkes helped develop while he was employed by VMI.
The trade secret laws were put into effect to protect the ideas and products of an individual or company. Although trade secret laws were meant to protect they can also harm an individual. An employee should be aware of any agreement he signs upon entering a company and should uphold the agreement to which he committed. Engineers gain their ideas, techniques, and knowledge from experience which in turn enhances their careers.
There is a fine line between what knowledge is considered an individual’s and what knowledge is considered a company’s. It is the job, responsibility, and ethical duty of the employee and the employer, both former and current, to make sure all parties are well informed and do not cross the boundaries set forth by the law. In the case of Vermont Microsystems, Inc. (VMI) versus Autodesk, Inc. these lines were crossed and ultimately Autodesk paid the consequences both financially, legally, and ethically.
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April 1, 1998.
