Electronic Design

Trade Secrets Under Attack: DVDs Now, Is IP Next?

California's 6th District Court of Appeals recently overruled trade-secret laws, giving free-speech advocates a major victory. Of course, the court's decision will be appealed. In the meantime, information can be posted on Web sites and newsgroups detailing the scrambling schemes used by the DVD industry.

This information will enable savvy individuals to crack security codes and access unencrypted digital files on the DVD. Once the decrypted files are accessed, perfect copies of the disk's digitized contents can be made. Naturally, the specter of such unfettered theft has the entertainment industry up in arms. Consumers (and pirates) could make unlimited copies of the content with no degradation, and significantly lower the potential revenue for each DVD release.

The scrambling algorithms used by DVD systems are based on standard encryption technology, and treated as trade secrets. However, trade secrets don't receive the same protection under the law as do patents, and there may be no legal protection if no patents are being violated. So the "crackers" are within their rights to publish those secrets on their Web sites. But should being within their rights allow them to disrupt the economics of major media corporations?

The court's decision is a prime example of both the best and the worst of our legal system. At its best, the legal system protects the rights of individuals to work with publicly available information, reverse-engineer, and then tell the world what they have found. But at its worst, the system may not protect the content providers who invest billions of dollars to create entertaining movies and music.

When the court eliminated the ability to use trade secrets to protect content (a form of intellectual property), it overlooked the intimate link between the scrambling and the content. This notable oversight shows how a court's lack of technology knowledge can negatively impact industry-critical judicial decisions.

Many aspects of intellectual property (IP) in the electronics industry mimic the dilemma in the entertainment industry. The electronics industry also is heavily leveraged with IP. Some is patented, and some IP is classified as trade secrets. This is especially true in the semiconductor sector, which treats a wide range of its manufacturing flow—from process formulas to circuit design libraries and design tools—as closely guarded trade secrets.

The court ruling could thus open such trade secrets to exposure. Therefore, many leading companies could see their market shares eroded by firms that spend only a fraction of what the leaders spend on product development. Clearly, IP protection is imperative. It's at the vanguard of advances in semiconductors and the tools used to design them. In a very real sense, protecting IP is akin to safeguarding the future of the electronics industry. But what can and what should we do to protect that IP? Let me hear from you.

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