Intro to Trade Secrets
Intro to IP – Prof Merges
4.6.09
How does trade secret (TS) law
relate to federal statutory IP?
• Preemption cases
• General principles: federalism,
interrelationship
Kewanee Oil v. Bicron
The trade secret at the center of this case was a
process that would create 17-inch crystals useful
in detecting radiation. A division of the plaintiff
firm, Harshaw Chemicals, was involved in the
refining of uranium during World War II for the
Manhattan Project. This resulted in massive
ground pollution that is still a problem today.
Both companies involved in the case were later
bought out. Harshaw became a part of Engelhard
Corporation, while Bicron joined with SaintGobain Crystals and Detectors.
Kewanee Oil
• “Employee mobility” case
• Basic question: is TS law compatible with
federal statutory IP scheme?
Burger opinion
• State variation: 18th century state patents
• Goldstein v. California: state protection for
sound recordings (prior to federal statutory
protection in 1972)
Potential problem
• Federal preemption
• “Dormant commerce clause” analogy
– What should the courts infer from Congress’
failure to create federal TS protection?
Inference from federal inactivity
• Congress explicitly decided to leave
something unprotected?
• Congress was indifferent; or believed it
appropriate for states to protect the thing in
question?
Kewanee holding:
• State trade secret law is not preempted by
federal IP scheme
– TS law is a “sieve”, as opposed to a “barrier” like
patent law
• Why? Reverse engineering/independent invention;
“commercial ethics” as well as innovation policy
– A weaker, and quite different, form of IP law
Survey evidence:
• Yale survey (Levin, Klevorick, Nelson, and
Winter 1983)
• Carnegie-Mellon survey (Cohen, Nelson, and
Walsh 1994)
• Berkeley-Kauffman Survey 2009
• Firms value trade secret protection more
highly than patent, copyright, TM in
protecting investment in innovation
“(T)rade secret protection is an important part of
intellectual property, a form of property that is of
growing importance to the competitiveness of
American industry…The future of the nation
depends in no small part on the efficiency of
industry, and the efficiency of industry depends in
no small part on the protection of intellectual
property.”
--Rockwell Graphics (Posner, J.)
Bonito Boats
Boat molds
Bonito Boats
• Florida anti-molding statute
• Tennessee defendant
• Held: State statute pre-empted by federal law
• “Florida statute endows the original boat hull
manufacturer with rights against the world,
similar in scope and operation to the rights
accorded a federal patentee.”
• -- p. 953
Holding:
“[T]he [state] statute … so substantially
impedes the public use of the otherwise
unprotected design and utilitarian ideas
embodied in unpatented boat hulls as to run
afoul of [the Sears-Compco doctrine].”
-- p. 952
Aftermath of Bonito Boats
Congress passed the Vessel Hull Design Protection
Act as part of the Digital Millennium Copyright
Act. The VHDPA provides copyright protections
to hull designs, and many boat builders have
registered their designs. The law has been
incorporated into Chapter 13 of the Copyright
Act.
• Merges, “100 Years of Solicitude,” 88
Cal. L. Rev. 2187 (2000)
– History of IP rights, 1900-2000
“Strength”
of IP Rights
Value of Information
State Law Protection
Uniform Trade Secrets Act
• Trade secrets are protected under state law
• Uniform Trade Secrets Act - Model Act Amended in
1985
• 41 states have enacted statutes modeled after
UTSA
• 2 states (AL and MA) have separate state statutes
protecting trade secrets
• 7 states protect trade secrets under the common
law
Defining Trade Secrets
• Metallurgical Industries v. Fourtek
• Interesting facts
– Plaintiff was a customer of defendant’s
predecessor; contributed substantially to design
of technology
Facts
• Metallurgical sued when Fourtek signed K
with a Metallurgical competitor
• Common situation: the (informal) joint
venture, leading to technology exchange,
leading to an IP conflict
A Transactional View of Property
Rights, 20 Berkeley Tech. L.J. 1477
(2005)
Robert P. Merges
Property Rights Create a Legal
“Field” Around an Information
Asset (i), Protecting Seller (S)
During Buyer’s (B)
Precontractual Evaluation
S
i
B
Metallurgical Industries
• Were the “incremental” and “public domain”
contributions by plaintiff “trade secrets” as
defined by Texas law?
• Unitary heating elements, vacuum filters,
chill plates: all combined to form a useful –
and secret – set of improvements in furnace
design
Metallurgical holding
• “[Trial court] abused discretion in excluding
evidence”
• New trial, with evidence of existence of TS
Trade Secret in General
• In general, a trade secret can be defined as
any commercially valuable information or
compilation of information that is not
generally known to others who can profit
from its disclosure or use
Definition of TS
• Information, including a formula, pattern,
compilation, program, device, method,
technique, or process, that:
– derives independent economic value from not
being generally known or readily
ascertainable by proper means by other
persons and;
– is the subject of efforts that are reasonable
under the circumstances to maintain its
secrecy
UTSA
• Provides cause of action for “misappropriation” of trade
secrets
• 3 year statute of limitations - action must be brought
within 3 years after misappropriation is discovered or
should have been discovered
• "Misappropriation” defined as:
• (i) acquisition of a trade secret of another by a person
who knows or has reason to know that the trade secret
was acquired by improper means or;
• (ii) disclosure or use of a trade secret of another
without express or implied consent by a person
who:
– Improperly acquired trade secret
– At the time of disclosure or use, knew or had
reason to know that his knowledge of the
trade secret was:
• Derived from improper means
• Acquired under a duty to maintain secrecy
• Acquired by accident or mistake