Trade Secret Policy and Election Companies

By Paul Holly
November 4, 2013

EDITOR’S NOTE: This is part 2 of a 3 part series. Paul Holly was a student of mine at JMLS during the Summer 2013 term. This article was originally written as a Note for the John Marshall Review of Intellectual Property Law (RIPL). To read part 1 please see Private Companies in Government Elections.

Paul Holly is currently a student at John Marshall Law School in Chicago, Illinois.

Election companies are privately held, yet deeply involved with what some consider a public infrastructure.[i]  With the passage of HAVA, the market for voting machines and government election services has become highly concentrated with the voting machine and election services market being serviced by five private companies.[ii]  This means a single, private company potentially controls a significant portion of the market.[iii]  But how is trade secret policy affected when it must be considered for public infrastructure use.

Commercial Use

For information to be considered a trade secret, the company that owns it must take reasonable measures to keep the information secret, thus showing that the information has value to the company.[iv]  Furthermore, the development and creation of valuable trade secrets is dependent on companies’ ability to keep valuable trade secrets out of the hands of their competitors.[v]

Additionally, there is commercial value and competitive advantage to trade secrets that does not exist with other forms of intellectual property protection.[vi]  This includes the ability to protect information that would not be covered by patent or copyright law or obtaining trade secret protection for knowledge that may be in use by a competitor as well.[vii]  This value encourages companies to invest in innovation to stay ahead of competitors.[viii]  Without trade secret protection, it is more difficult to justify putting time and money into research and development.[ix]  Elections do not benefit from outmoded methods and dated equipment.[x]

The election industry as it exists today consists of private companies bidding their equipment and services to various entities including local and state governments.[xi]  In order to win a contract, an election company must develop a better product, develop a cheaper product, or provide a higher standard of service just as if it were bidding jobs in the private sector.[xii]  The policy reasons for granting trade secret protection applies to these companies just as any other.[xiii]  Without trade secret protection, there is reduced incentive to put time and money into product development and industry advancement.[xiv]  Companies are instead incentivized to wait for the competition to expend the resources and then benefit from the result.[xv]

Policy as it relates to Transparency in Government

There is some conflict with trade secrecy policy application to private election companies and a desire for transparency in government.[xvi]  When the issue is as critical to the interaction between the citizens and their government as elections are, the policy behind trade secrets must be examined to determine whether an exception should be made.[xvii]

Transparency is generally a desired trait in government.[xviii]  It is a means of holding elected officials accountable for their actions and reducing corruption among those officials.[xix]

If the consequences are serious enough, there are exceptions to the desire for government transparency, however, such as when national security is determined to be at stake.[xx]  Government itself does not necessarily suffer consequences for lack of innovation if not granted trade secret protection of its governmental secrets and the public policy reasons do not apply as much.[xxi]  However, election companies are different, as mentioned before, because private entities are bidding to win contracts against other private entities to get election business.[xxii]  A key policy underlying trade secret protection is a desire to encourage innovation among private companies in order to not impede progress.[xxiii]

Computer Software

Discussions about trade secret policy and the use of computer technology in election equipment invariably focuses on the source code contained in the system.[xxiv]  The code running on the systems determines the interaction of the system with the voter, and more importantly, the recording, tracking, and tabulation of voters’ selections.[xxv]  Interaction with the hardware is apparent to the user and its functionality is more difficult to keep a secret.[xxvi]  Software is compiled code that cannot be easily viewed and contains the most valuable intellectual property that would be protected by trade secret.[xxvii]

It is an established principle in trade secret law that a trade secret can exist as a combination of characteristics and functionality, such as a fully functioning computer program.[xxviii]  If a complete computer program is a valuable asset to a company and reasonable efforts have been taken to keep the internal components of the code a secret, all the same policy reasons that exist for trade secrets in general will then also apply to the program.[xxix]

A. The UTSA and its Relationship to Election Companies

Individual states determine what constitutes misappropriation of trade secrets.[xxx]  The UTSA was created to foster uniformity across the states and most states have adopted some version of the UTSA.[xxxi]  In order to qualify for trade secret protection under the UTSA, the information, including a “formula, pattern, compilation, program, device, method, technique, or process” must derive “independent economic value, actual or potential.”[xxxii]

Independent Economic Value

In order for election companies to qualify their intellectual property for a trade secret there must be independent, economic value gained from their election equipment designs and computer programs.[xxxiii]

As discussed above in Section II, the election companies bid against each other for contracts to support elections, including government elections.[xxxiv]  Considerable value is gained by having election equipment that is easier and faster to use, easier to set up, cheaper to operate, and is more reliable.[xxxv]  For these reasons, there is independent economic value in election equipment that is designed with better hardware and running better software.[xxxvi]  This value is what allows one election company to win contracts to sustain its business at the expense of another election company.

Reasonable Means of Protecting Trade Secrets

In order for election companies to qualify for a trade secret, there must be a reasonable method of protecting those trade secrets from others.[xxxvii]

For election companies, much of the valuable information and intellectual property is contained in the documentation detailing the hardware design and the source code, which is compiled to create the software running on the equipment.[xxxviii]  Non-disclosure agreements with the entities that use the equipment represent one of the chief methods of complying with the reasonable efforts requirement when protecting schematics and other documentation.[xxxix]  Similar non-disclosure agreements can be used for the software source code as well as the inherent difficulty of ‘decompiling’ software once the source code has been compiled.[xl]

B. The FOIA and its Relationship to Election Companies

The FOIA was enacted to make government information more available to the public and thereby encourage a more transparent government.[xli]  Since Congress felt that some types of information should not be made available in this manner, there are a number of exemptions built into the Act.[xlii]  As a result, the Act has been amended several times since its enactment.

Exemptions

The exemption that is most relevant to the discussion in this article about trade secrets is exemption four, the trade secret exemption.[xliii]  The trade secret exemption covers commercial trade secrets the government confidentially obtained from commercial companies.[xliv]

Some state governments require by law to place documentation in escrow or archival format for election equipment used within the state.[xlv]  Subsequently, this can also include all source code used in the equipment.[xlvi]  If there was no privileged commercial trade secret exemption to FOIA requests, then this information would be subject to those requests.  FOIA requests can be made by any citizen and also by any business in the United States.[xlvii]

Subjecting the proprietary source code and documentation of private election companies to FOIA requests would destroy any trade secret value they might have.[xlviii]  Without the value given to these products through trade secret law, companies would be incentivized to forego the expense of innovating and creating better equipment because there would be no advantage over the competition.[xlix]

Changes to FOIA

While some amendments have limited the scope of the FOIA, the amendments in general have largely increased access to information and cultivated government transparency.  For example, The Privacy Act Amendments of 1974 allowed judicial review of any presidential executive secrecy claims.[l]  There were also numerous executive directives issued between 1995 and 1999 to allow the release of national security documents of historical interest.[li]

The FOIA has been amended and altered multiple times since it was first enacted.[lii]  With such expansions of access to information in mind, there is certainly the possibility it may again be amended to remove the exemption to trade secret protection.[liii]

Governmental Trade Secrets

It may be that there is no information created by the government that can be considered a trade secret.[liv]  This would contradict the principles of an open, transparent government.[lv]  The government is not a business that must keep information secret in order to gain advantage over a business competitor for mandated duties such as election administration.[lvi]

The situation becomes considerably different when the trade secrets in question are held by private companies that have bid and won contracts from the government to provide such things as election equipment and services.[lvii]

CONTINUE READING —-> Private Election Companies Should Have Trade Secret Protections

 


[i] See Nou supra note 19 at 748 (describing the “public-private partnership of election administration”);  See Levine supra note 74 at 138 (referring to voting equipment as the “public infrastructure” through which “elections are conducted, votes are counted, and the results are verified”).

[ii] Hart Intercivic, Inc. v. Diebold, Inc., 2009 U.S. Dist. LEXIS 92786 (D. Del. Sept. 30, 2009).

[iii] Id.  For example, ES&S served approximately 45% of the voting precincts in the United States in 2009.  Id.

[iv] See generally 1—1 Milgrim, supra note 28, § 1.03 (calling it “indispensable to an allegation of a trade secret” for the matter to be “more or less” secret);  Lamorte Burns & Co. v. Walters, 167 N.J. 285 (N.J. 2001) (holding that a substantial amount of secrecy must exist in order to have a trade secret but even confidential information that is not technically a trade secret can be subject to protection).

[v] See generally Michael Risch, ARTICLE: Why Do We Have Trade Secrets?, 11 Marq. Intell. Prop. L. Rev. 1, 7—8 (2007) (discussing how trade secrets can be used to gain an advantage over competitors that do not know how to use it).

[vi] Id. at 11—12;  Levine, supra note 35 at 69 (noting that trade secrecy, unlike patent or copyright protection, can protect commercial interests for a potentially unlimited duration of time).

[vii] Risch supra note 79 at 11—12.

[viii] See Id. at 71 (describing the utilitarian theory of trade secrecy which states that protection against the theft of trade secrecy encourages innovation and investment and ties the notion of trade secrecy to a form of property);  David S. Levine, Article: Secrecy and Unaccountability: Trade Secrets In Our Public Infrastructure, 59 Fla. L. Rev. 135, 137 (2007) (stating that trade secrets are a vitally important business practice for product innovation with one study showing that between the early 1980s and mid 1990s the use of trade secrecy had “increased dramatically”).

[ix] See Basic Am. v. Shatila, 133 Idaho 726, 738 (Idaho 1999) (stating that employers have a right to protect from disclosure information and process that were developed at considerable expense and that trade secrets encourage “innovation and development of new technologies”);  See BIEC Int’l, Inc. v. Global Steel Services, Ltd., 791 F. Supp. 489, 495 (E.D. Pa. 1992) (stating that “trade secret protection encourages the development and use of, to the consuming public’s advantage, of new and improved methods, techniques, ideas and concepts”).

[x] See Tokaji supra note 20 at 1803 (referring to the “Votomatic-style punch card ballot” as an example of an outmoded method of voting that “ought to be replaced”).

[xi] See Schwartz, supra note 9 at 630.  “In most states, counties or other municipal entities are permitted to select equipment from a list of approved, or ‘certified’, voting systems that the state division

of elections or similar entity maintains”.  Id.

[xii] See Peisch, supra note 23 at 915 (concluding that local officials dominate the election administration and must help guarantee that voting machines used in their jurisdictions “meet a certain floor of usability, reliability, security, and trustworthiness”).

[xiii] See 1—1 Milgrim, supra note 28, § 1.01. The very definition of a trade secret from Milgrim where it “covers any information (which can be embodied in a physical thing, such as a pattern or device) used in business and lending the opportunity to obtain a competitive advantage over others who do not know the information”.  Id.

[xiv] See Risch supra note 79 at 8 (arguing that not only is there increased incentive for the company when there is the existence of trade secrets but also because “the bundle of rights associated with a trade secret is justified because it enhances the marginal benefits of society more than the marginal costs”);  See DVD Copy Control Ass’n v. Bunner, 75 P.3d 1, 13 (Cal. 2003) (stating that trade secret law acts as an incentive for “investment in innovation” as well as listing other justifications for trade secrets).

[xv] See Risch supra note 79 at 28 (giving the example of the tax programs TurboTax and Taxcut and a new product “SuperTax” that could use their source code to create a new product with saved development time and cost that could be used to undercut the cost of the other two tax products).

[xvi] See Levine, supra note 74 at 137 (stating that “[t]transparency and accountability, especially in the last several decades, are among the core values that drive the fundamental model of a publicly elected and properly operating democratic government”);  But see Andy Thomson, Comment: Intellectual Property Protection of Computer Software: More Effective Than Skywriting On A Windy Day?, 37 Cumb. L. Rev. 289, 289 (stating that trade secrecy as one of the protective doctrines plays an important role in providing rights and remedies for those who use it to secure their intellectual property).

[xvii] Id. at 138 (stating that voting machines are a “signature example of a device designed to advance governmental and democratic interests” and that the machines are the “public infrastructure through which elections are conducted, votes are counted, and results verified”).

[xviii] See Levine, supra note 35 at 102.  Part III of the article discussing the requirement that governmental transparency exist in order to have governmental accountability with accountability defined as “requirement or expectation that [public officials] give reasoned explanations for their decisions”.  Id.  See Levine, supra note 74 at 160—161 (listing several examples of the value that the United States government puts on transparency such as “statutes, the exemption from copyright protection for works of authorship created by United States government

employees, and the fact that governments post  information on government websites”).

[xix] Id.  Mr. Levine is discussing how a more transparent government process increases accountability and that such values are “entrenched in democratic government operations” with government policies “often analyzed or criticized based upon their adherence to these principles”.  Id.

[xx] See Levine, supra note 35 at 110 (while advocating a solution to having trade secrets in government states the existence of national security exemptions would remain “unencumbered by this solution”).

[xxi] See generally Joel West, Open Source and Proprietary Models of Innovation: Beyond Ideology: PART I: Business, 30 Wash. U. J.L. & Pol’y 17, 30 (2009) (discussing how there are “research spillovers” from innovations arising from government research labs, government-funded university projects and other public sources that are traditionally allowed to enter the private sector and that “[s]uch funding for innovation is a public good provided to promote societal welfare”).

[xxii] See Nou supra note 19 at 749 (discussing the role of private entities in the administration of elections and production of election equipment).

[xxiii] DVD Copy Control Ass’n, 75 P.3d 1 at 13 (discussing trade secret law and how it acts as an incentive to encourage innovation).

[xxiv] See generally Andre Massey, NOTE: “But we have to protect our source!”: How Electronic Voting Companies’ Proprietary Code Ruins Elections, 27 Hastings Comm. & Ent. L.J. 233 (2004).  The entire law journal article focuses on the proprietary source code contained in electronic voting companies’ equipment.  Id.  Stephanie Philips, COMMENTARY: The Risks of Computerized Election Fraud: When Will Congress Rectify a 38-Year-Old Problem?, 57 Ala. L. Rev. 1123 (2006).  This is a law review article with an entire section discussing concerns voiced by computer scientists about the source code running on election equipment.  Id.  Tokaji supra note 20 at 1722 (extensively discussing source code used in elections in general and DRE election equipment specifically);  Levine, supra note 74 at 181 (with an example of trade secrecy and unaccountability using a DRE manufactured by the company Diebold and their refusal to reveal the source code to public inspection).

[xxv] See Massey, supra note 98 at 234 (stating that examination of the source code would be needed to see how the machine is tabulating votes).

[xxvi] 1—1 Milgrim, supra note 28, § 1.05. Public disclosure results in information losing its character as a trade secret. Id.

[xxvii] Id. at 239.  “Once compiled, however, the source code cannot reliably be decompiled, making access to the exact original source code underlying the software program nearly impossible”.  Id.  David S Evans, Bernard J. Reddy, Article;  Government Preferences For Promoting Open-Source Software: A Solution In Search of a Problem, 9 Mich. Telecomm. Tech. L. Rev. 313, 319 (2003).  ”[I]f a programmer had only the binary code… as he would with the typical proprietary program, he would have a very difficult time figuring out the source that generated that binary code or any of the intellectual property that was relied on in creating that binary code”.  Id.  Massey, supra note 98 (for examples and references where the source code is described as valuable intellectual property).

[xxviii] See Thomson, supra note 65 at 295.  While analyzing the intellectual property status, including trade secrets, of computer software, Thomson notes that “[a]n amalgamation of fractional components, each individually unable to garner protection alone, can in the aggregate be afforded trade secret status”.  Id.

[xxix] Id. at 295 (stating that it is “well established that computer software can avail itself of the protection provide by trade secrets”).  See MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511, 522 (9th Cir. 1993) (recognizing that computer software, specifically under the UTSA, qualifies for trade secret protection).

[xxx] Levine, supra note 35 at 69 (stating that state law doctrine governs trade secrets).

[xxxi] See 1—1 Milgrim, supra note 28, § 1.01 (stating that states began to adopt the Uniform Trade Secrets Act in the 1980s and also listing each state with descriptions of how they implement their own version of a trade secret act if they have not adopted the UTSA).

[xxxii] Id.

[xxxiii] Id.

[xxxiv] See Nou supra note 19 at 749.  The article describing how elections are administered by private entities and the equipment and software produced by private entities.  Id.

[xxxv] See Tokaji supra note 20 at 1754—1755 (describing empirical research that shows that new generation voting equipment can reduce the number of uncounted votes, reduce the “racial gap” in uncounted votes, and decrease the incidence of residual votes, which is the sum of undervotes and overvotes).

[xxxvi] Id.

[xxxvii] See 1—1 Milgrim, supra note 28, § 1.01 (stating that information in question was the subject of efforts “reasonable under the circumstances to maintain… secrecy”).

[xxxviii] See 1—2 Milgrim on Trade Secrets, § 2.01.  Trade secrets are a property right with some of the rights being “the right to use information, to disclose it to others, such as employees, licensees and persons standing in a confidential relationship (such as potential licensees or acquirers) subject to restrictions on use and disclosure and to seek redress for unauthorized acquisition or disclosure by third parties who do not stand in a confidential or contractual relationship and who wrongfully took or knowingly received or used the information”.  Id.

[xxxix] Schalk v. State, 823 S.W.2d 633 (Tex. Crim. App. 1991) (finding that non-disclosure agreements helped support trade secret status for computer programs).

[xl] Id.  Massey, supra note 98 at 234 (noting that once compiled, source code cannot reliably be decompiled, making access to the exact original source code underlying the software program nearly impossible).

[xli] See Levine, supra note 74 at 157 (stating that after passage of the FOIA especially, “democratic government is driven by notions of transparency and accountability”).

[xlii] See 3—12 Milgrim, supra note 50, § 12.03.  There are different exemptions to FOIA requests such as the first three exemptions which covers potential threats to trade secrets in agency files and the fourth exemption which covers matters that are “trade secrets and commercial or financial information obtained from a person and privileged or confidential”.  Id.

[xliii] 5 U.S.C.S. § 552.  The statute covers two categories of matters in section b, exemption four.  Id.  One category covered is trade secrets and the other is “commercial or financial information obtained from a person and privileged and confidential”.  Id.

[xliv] Id.  Both categories whether it is a trade secret or commercial information given to the government as privileged and confidential is covered by exemption four.  Id.

[xlv] See e.g., Cal Elec Code § 19103 (part of the election code for the state of California).

[xlvi] Id.

[xlvii] 5 U.S.C.S. § 552.  The language used is that the public can make requests.  Id.  See Levine, supra note 35 at 78 (stating that the FOIA permits an citizen or business to request information from the government as a result of “increased interest in allowing investigative journalism” in the 1960s).

[xlviii] 1—1 Milgrim, supra note 28, § 1.05[2].  “[I]f the owner of proprietary data permits it to be published for government procurement purposes, absent express contractual or statutory protection he will forfeit his proprietary right”.  Id.

[xlix] DVD Copy Control Ass’n at 13 (discussing trade secret law and how it acts as an incentive to encourage innovation);  Risch supra note 79 at 8 (stating that the existence of trade secrets creates increased incentive for a company and that trade secrets enhance the marginal benefits of society).

[l] See Heidi Kitrosser, ARTICLE: Secrecy and Separated Powers: Executive Privilege Revisited, 92 Iowa L. Rev. 489, 530—531 (2007) (noting that the 1974 amendment imposed de novo judicial review over executive branch determinations that information is “properly classified”).

[li] See generally 5 U.S.C.S. § 552.  This is the text of Freedom of Information Act and all amendments.  Id.

[lii] See 3—12 Milgrim, supra note 50, § 12.03 (describing Congress’s amending the third exemption in 1976 and limiting the statutes to which it applies).

[liii] Id.

[liv] See Levine, supra note 35 at 64 (making the argument that a “government trade secret” should be a contradiction in terms since the “existence of a government trade secret conflicts with the policies underlying and purposes of trade secrecy”).

[lv] Id.

[lvi] Local governments are not in competition with other local governments to administer elections in their areas.

[lvii]See Nou supra note 19 at 749 (describing that private companies play a role in the administration of election and manufacture of election equipment);  3—12 Milgrim, supra note 50, § 12.03.  “[I]t has long been apparent that information placed in the hands of the government is more apt to be sought for competitive use than any public purpose, trade secret owners may find it regrettable that federal agencies are given broad access to competitively sensitive information”.  Id.

The Author

Paul Holly

Paul Holly

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently No Comments comments.