Proprietary Data-Transfer Protocols are not all published so conflicts may arise
By Justin M. Pawluk, Attorney, Reid and Reige, P.C.
 "Problems may develop because proprietary data-exchange protocols may be considered “trade secrets” under the law, which are a form of intellectual property similar to patents or copyrights." |
In any business relationship or collaboration it is critical to avoid misunderstandings, especially any that may give rise to legal disputes if the relationship breaks down. Computer software and hardware developers who design or create proprietary data-transfer protocols need to be careful in collaborating on projects with outside vendors, customers or business partners.
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It is common knowledge that we live in a world of ever-expanding computer networks. Machines are linked together by a dizzying multitude of common protocols, conventions and standards; which have been around for years. TCP/IP, FTP and HTTP are commonly used protocols in both local networks and the Internet.
Others, such as USB and RS-232 enable host systems to communicate with a wide array of peripheral devices. Even within a base system, conventions such as PCI allow components by different manufacturers to interact, enhancing the system’s functionality.
Not all data-transfer protocols, however, are commonly known or published in specifications by ANSI or other industry groups. In many instances, by design or by accident, developers collaborate to create standards that are not commonly known in the industry. Whenever such standards are used between individuals or separate business entities there is a potential for conflict and legal challenges down the road.
As an example, two companies collaborate to create a network for controlling a manufacturing automation system. One company, ServerCom, may choose to design a control system designed to interface with a number of client devices to drive machine tools on the factory floor; while another company, ServoNet, may create the client devices themselves.
In order for the system to work, ServerCom and ServoNet need to agree on conventions such as command sets, error checking routines and sequencing formats. Both need to incorporate the agreed upon protocols into their devices in order for the system to work. Unless the protocols are disclosed to the public, however, they are proprietary to ServerCom and ServoNet.
Problems may develop because proprietary data-exchange protocols may be considered “trade secrets” under the law, which are a form of intellectual property similar to patents or copyrights. Unlike patents or copyrights, trade secrets are not publicly disclosed or registered.
Under the law, a trade secret is any non-public piece of information which has economic value to its owner. Most states have some version of the Uniform Trade Secrets Act that provides for penalties and damages for misappropriation of trade secrets.
The previous example, the protocols developed by ServerCom and ServoNet may be considered trade secrets because they have economic value. Let’s say the two companies jointly sell their products to numerous customers over the years. Since the protocols are not widely known, ServoNet can charge a higher premium for replacement devices because it has no competition in building equipment to work with ServerCom’s control system. Likewise, ServerCom can charge premiums for system upgrades without having to worry about competitors developing a system to control ServoNet’s devices.
Conflict may occur if there is a misunderstanding between ServerCom and ServoNet as to who owns the proprietary data protocols. For example, ServerCom may decide to disclose the protocols to a third company, call it ServoSource, in order to ensure that its customers have more options when purchasing system hardware.
This, in turn, creates more competition for ServoNet, which may cause it to lose sales or lower its prices. Unless ServoNet agreed beforehand that ServerCom had the right to disclose the protocols, ServoNet may decide to bring a legal claim against ServerCom for misappropriation of trade secrets.
There are many other factors in determining whether non-standard protocols can be considered trade secrets. Generally, design information that can be reverse-engineered from a finished product is not a trade secret; therefore, ServoSource would be free to duplicate ServoNet’s devices by analyzing examples of the devices already on the market.
Also, companies claiming trade secret misappropriation must show that they took adequate steps to protect their proprietary protocols from disclosure to competing businesses.
Although the modern trend in personal computing is for standardization of data formats, there are countless specialized applications for which devices with non-standard data formats are used. Devices with embedded networking capability are becoming more and more ubiquitous.
As new applications are found, developers are more likely to create specialized protocols for efficient data transfer and processing. Whenever such protocols are created, it is important to determine before the product is released who should have access to those protocols. Otherwise, there is a danger that expensive litigation may arise later on.
For morel information e-mail jpawluk@rrlawpc.com.