Professor Varadarajan –
I. Introduction & Overview
A. What is intellectual Property (IP)
1. Def.: Intangible creations of the mind
2. Difference between chattel (personal property) and Idea? You can lend chattel (e.g. pen), you cannot lend and idea.
B. Underlying theories of Intellectual Property
1. Utilitarian/Economic incentives
o Utilitarian view protects the public at large by giving authors/inventors incentives to produce for the public at large.
a. Incentive to invent/create
i Theory reflected in the constitution (Art. I, Sec. 8). “To promote the progress of science and useful Arts, be securing for limited time to authors and inventors the exclusive right to their respective writing and discoveries”
ii Economic Incentive Benefit – Intellectual property protection is necessary to encourage inventors, authors, and artists to invest in the process of creation. Without such protection, others could copy or otherwise imitate the intellectual work without incurring the costs and efforts of creation, thereby inhibiting the original creators from reaping reasonable return on their investment.
iii Non-Monetary incentives
Ø Altruism/bettering humanity
b. Reduce consumer search costs (Trademark)
i Assures the prospective consumer the quality of a product. (e.g. if you buy apple and don’t like the product, you know not to buy apple again)
o Different from Utilitarian theory in that it rewards the author/inventor for their efforts.
a. Natural Rights/ Reward to labor
ii Merit-based rationale: natural rights for the fruit of your labor
iii Theory that ideas, inventions, and creations are so bound up with creators’ identities that we should have the right to exclude others
Ø Resonates more in the copyright area than in patent law
C. Social Costs of IP and Potential alternatives
1. Low competition, higher prices
2. Deter improvements
a. Improvers need licenses to improve upon inventions. License may not be approved.
3. Suppression of technology.
a. Marketing competing technologies – inventor doesn’t sell or display technology which he has a patent on to suppress competing technologies.
D. The American System of Intellectual Property
1. Trade Secret
a. Source of Law – State laws
b. Generally: protects companies rom the misappropriations of certain confidential information (e.g. secret formulas, Marketing/business strategies)
a. Source of Law: federal Statutes; courts play a significant role
b. Generally: Allows inventor to exclude others from making, using, selling exporting product
a. Source of law: Federal statute; courts play a significant role
b. Generally: gives owners exclusive right to copy, display; no formal registration process; lasts 70 years + life of author
a. Source of Law: Federal Statute
b. Generally: no need to register mark
II. Trade Secret Law
A. Theory of Trade Secret Protection
1. Utilitarian theory – protecting against the theft of proprietary information encourages investment in such information
2. Tort theory – deterrence of wrongful acts – aim of trade secret law is to punish and prevent illicit behavior, and even to uphold reasonable standard of commercial behavior
B. Compared to Patents
a. Probably cheaper
b. Doesn’t require disclosure of information
c. Potentially unlimited time of protection
d. Larger pool of protectable subject matter
2. Disadvantages over parents
a. Patent gives you stronger rights (exclusivity) à puts others on notice
b. Trade secret is vulnerable to independent discovery and reverse engineering
C. Elements of a Trade Secret Claim
1. Protectable Subject Matter (value? Secret?)
2. Reasonable Secrecy Efforts
D. ELEMENT 1: Protectable Subject Matter of Trade Secrets
1. Statutory definitions
a. Uniform Trade Secrets Act § 1(4): “trade secret means information, including a formula, patterns, compilation, program, device, method, technique, or process that… derives independent value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of the efforts… to maintain secrecy.”
i Trade secret =
Ø Information, including a formula, patterns, compilation, program, device, method, technique, or process that
Ø Has economic value (actual or potential)
Ø Because it’s a secret (i.e. not generally known or readily ascertainable
§ Relative secrecy, not absolute secrecy
§ Limited disclosure to business partners, employees will not destroy secrecy (Metallurgical)
Ø Subject to reasonable secrecy efforts
b. Metallurgical v. Fourtek
i Facts: Metallurgical purchased a furnace for the reclamation of carbide from therm-o-vac. It needed many extensive modifications to function the way they wanted. Employee of TOV involved to a small degree as a consultant in these modifications. TOV goes out of business, TOV employees & other former TOV employees formed Fourtek and began producing furnaces, which utilized the modifications developed by Metallurgical. Metallugical brought a claim against Fourtek for misappropriations of trade secret in utilizing the modification process which M had developed.
ii Issue: did D’s modifications process qualify for protection of trade secret, even it was only a specific application of already known technologies and was shared with certain partners?
iii Holding. Yes
Ø M’s modification process, while not absolutely secretive, was a secret in that its disclosure was not to the public and the only groups to whom it was disclosed were for economic benefit (Secret)
Ø Metallurgical’s modification gave them an advantage because it yielded the highest quality of carbide powder at a cost, which made reclaimed carbide an economic alternative to virgin carbide. (actual or potential economic benefit)
2. Factors to consider (Restatement of torts §757)
a. The extent to which the information is known outside the claimant’s business
b. The extent to which it is know by employees and other involved in the business
c. The extent of measures taken by the claimant to guard the secrecy of the information
d. The value of the information to the business and its competitors
e. The amount of effort or money expended by the business in developing the information
f. The ease or difficult with which the information could be properly acqu
Other ways that could be publicly disclosed
§ Reverse engineering
§ Independent creation
· Developer discovers secret and publishes
¨ Multiple people can own the same trade secret (distinguishes trade secret law from patent law
F. ELEMENT 3: Misappropriation of Trade Secrets
1. Acts that constitute misappropriation (Uniform Trade Secret Act §1)
a. Acquisition, use, or disclosure by improper means
b. Use or disclosure in breach of confidential relations
c. Before a material change in position, use or disclosure of secrets that you knew or acquired by accident or mistake (rare)
· “from another person” and know or had reason to know
o Secondary liability exists à larger pool of liability
o i.e. third party may be liability if they knew or had reason to know that acquisition, use or disclosure was through improper means
2. IMPROPER MEANS
a. Generally: usually means theft, fraud, things that are independently unlawful à but being unlawful is not a qualification
b. IMPROPER MEANS
o Not limited to specific wrongs – broader than that
§ Person may not uncover the process without permission from the owner when the owner had taken reasonable precautions to maintain secrecy.
c. EI Dupont Denemours & Co v. Rolfe Christopers Et. Al (1970)
o Facts. Dupont discovers a way to make methanol that gave it a competitive edge over other manufacturers in the same line of business. D hired by 3rd party to take aerial photographs of the plant where the methanol creating process took place. Dupont claims that the sued D and sought injunction. D’s theory: there must be a trespass, other illegal conduct, or breach of confidential relationship.
o Court. No illegal conduct needed to establish improper means.
o Rationale: taking aerial photographs fall below the general accepted standard of commercial morality.
§ Incentive argument-don’t want to cost so much to protect against spying that people don’t strive for innovation.
§ Natural Law – Morality/decency argument
§ Economic argument – if not protected, the cost and efforts of added security would drive costs up – wasted resources
§ P’s had not reason to anticipate D’s taking aerial photos à lack of a roof was not unreasonable – reasonable anticipation changes as technology advances and the acceptable standard in the market place changes.
§ IMPROPER = Means which fall below the generally accepted standard of commercial morality
§ Cannot put burden on P for unreasonably anticipated means.
o Theory behind rule:
§ Devoted to free-wheeling industrial competition must not force us to accepting the law of the jungle as the standard of morality expected in our commercial relations