A Trade Secret is Not a Copyright

Bankruptcy courts (and lawyers) continue to mystify by their inability to tell the difference between types of intellectual property, confusing patents, copyrights and trademarks as if they are all just variations on the same theme. In the Virgin Offshore USA, Inc. case, the US District Court for the Eastern District of Louisiana had to deal with lawyers who had trouble telling the difference between copyrights and trade-secrets (or at least argued as if they did).

The case involved a debtor that had paid a one-time fee to access and use geological data resulting from seismic surveys for a limited time period. The licensor, TGS-NOPEC Geophysical Company, L.P., objected to the debtor's attempt to assume the license agreement under 11 U.S.C. sec 365. After the bankruptcy court overruled the objection, the licensor appealed the matter to the District Court. The idea that copyright licenses are personal to the licensor and can only be assigned in bankruptcy with the licensor's consent is well known as a result of decisions like Everex Systems, Inc. v. Cadtrak Corporation, so the licensor argued that the data was protected by copyright - notwithstanding the fact that the agreement was labeled a trade secret agreement, the licensor never attempted to copyright the information, and decisions from numerous courts existed holding that seismic data is not protected by copyright. It lost.

The District Court went on, in dicta, to talk about whether an inability to "assume" the license under 11 U.S.C. sec 365 would prevent "assumption" of the license by the reorganizing debtor. The Court recognized that the Fifth Circuit has not yet explicitly adopted the "actual test," which would allow assumption, over the "hypothetical test," which would not. Discussing the prior decisional history in the Fifth Circuit, the Court stated that the actual test is the correct test, based on the Court of Appeals' holdings in In re Mirant and In re O'Connor.