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Intellectual Property
St. Johns University School of Law
Varadarajan, Deepa

Intellectual Property


Spring 2014

Introduction & Overview of IP – Trade Secrets I

What is intellectual property?

· Property law: a system of rights and duties among people with respect to tangible things, like real property or chattels.

· How is IP different from traditional property?

· Umbrella term that refers to several regimes: trademarks, patent, copyrights, and trade secrets

· Patent law: federal statutes

· Trade secrets: state common law and state statute

· Creations of the mind, ideas, intangible in nature

Theoretical Foundations of IP

Pen – can be owned – tangible property

· E = mc^2 – formula/idea cannot be protected.

· Ideas that revolutionize the pen industry – whats the idea, how much it’s worth etc.

1. Nonexcludability: ideas once given out cannot be taken back.

2. Nonrivalrousness: use of this information is not causing the idea to be depleted

= public goods problem:

§ Company A spends millions on anti-baldness drug. Lots of time and money is spent on this drug. Company B duplicates and sells it at a lower price – in a world without some kind of protection would stop inventing and start imitating. To free ride on someone elses ideas is free or cheaper than to come up with ideas of your own

§ They make investments of time, effort, money, and if they cannot make a reasonable return on these investments they will not invent.

§ We will not get enough creative works and society will be worse enough. To solve this public goods problems – make them more like traditional property because you can exclude people from it. Exclusion regimes to make it more like tangible property

§ IP rights gives authors and inventors to exclude others from their inventions to encourage people to invest and come up with their own ideas

Utilitarian/Incentive to Create: Article I Section 8. “promote the use of science and useful art”

§ Primary justification for IP is not to reward inventors, but to promote and provide the proper economic incentive to promote creation of ideas etc.

§ Einstein did not have a patent on e=mc^2 – Einstein came up with this earth shattering idea regardless of IP laws being in existence.

§ Mechanisms to induce creation or investment: fame, prestige, money, love of science, love of art etc., government funding to pursue this field,

§ Most ideas requires lots of money in investments (cancer drugs, movies etc.) things with such high start up investment costs and coordination of large groups of people will not be possible without IP laws

§ Government funding: government doesn’t have enough money to fund all inventions etc. government cannot anticipate everything (iPad, facebook etc.) Government doesn’t know what the public wants, they can be biased etc.

1. Market oriented, government interference is limited. Can skew priorities – pharmaceutical company may have different priorities

Incentive to Invent/Create

§ IP

§ Non-monetary reasons: prestige, fame

§ Government funding

§ Nobel Peace Prize: Prizes might be the Pullitzer price, book award etc. might provide an incentive to create in the scientific arenas

§ Business Advantages: companies are rewarded by being the first to bring something to the market (iPhone) etc.

§ Fashion – shapes our society – costs and time of imitation are very high, first person who markets has a huge gain to profit monetarily even w/out IP – because it might require new factories, or machinery. If the costs of imitation are sufficiently high they might have enough of a way to make profits. (First-Movers)

Disadvantages of IP/ COSTS

§ Monopoly/increased prices when we can get it cheaper if more joined the market

§ Prevents others from joining the market

§ Suppression of technology

§ Good priced competition versus IP

§ Might stifle innovation – versions 2,3,4 etc. of a phone or invention may not be made with IP and one person holding the rights – discourage subsequent inventors from improving because they must get permission from the original rights holders

§ Someone might invent a useful thing and might get the rights and might lock up the technology (hypo: oil company gets the patent for a fuel technology but they lock it up because they want people to use up more oil)

Goal of IP is to find a balance: economic incentives versus social/quest for balance. IP rights and patents expire. (20 years after the date of filing, trademark rights if you are not using them they go away, etc.)

· Ex: Airplanes: cumulative improvements to the Wright brother airplanes –

· Social costs of limiting the diffusion of knowledge

· Social benefits of providing economic incentives to create


· Utilitarian Justification for trademark: we want to make sure there are economic incentives to create so the public can benefit from more creations and inventions

· Make sure the consumer is well-informed and is able to tell the companies apart

i. Preserve the integrity of the marketplace

ii. Brand names indicate quality and this also gives the consumer a means of retaliation if the quality does not meet their expectations

iii. Trademark protection also ensures that they keep up with the consistent quality of their products

Non-Utilitarian Justifications for IP

1. Natural Rights/Reward to Labor theory: theory comes from John Locke – Lockian theory. You have natural rights to the fruits of your labor, blood sweat and tears. Entitled to all the social benefits of his/her hardwork.

2. Personhood Theory: Novel, things that are so bound up with our identity that we should have the right to exclude people from using them. Copyright context. Books, music, artists painting is bound up with their identity. Whereas Phizers invention of a drug doesn’t have a personhood. Personhood plays a larger role in Europe than the USA

4 IP Doctrines:

1. Trade Secrets: Protects companies from confidential information (marketing strategies, customer lists, etc.)

2. Patent Law: Creature of Federal Statute – feds play a significant role in interpretation of statutes. Patent must demonstrate that the invention is not obvious, plays a significant role etc. PTO grants patent and has 20 years.

3. Copyright: largely

than therefore it can be economic value. 9th circuit held that must have economic value not just spiritual value. See scientology case

· Negative know-how: you discover a lot of channels/avenues that don’t work and you go work at this new company. This can be a protected trade secret because millions of dollars are being sent to skip tests that were already conducted at your old place of employment. Competitive advantage. Departing employee cases.

· How to prevent breach: don’t say anything to anyone about all your experiments, can speak to employer about doing this for 4 years (but this is misappropriation)

§ The issue usually is whether the information is secret or readily ascertainable

§ Prevent people from claiming protection information that is commonly known in the industry

Metallurgical Industries v. Fourtek, Inc: Improvements were made to Carbide to Zinc under high heat under a cold stream to make these furnaces work better. After Metallurgical purchased a furnace for the reclamation of carbide from Therm-O-Vac they needed to make extensive modifications to it to make it function the way they wanted to. After TOV went out of business, Bielefeldt and several other former Therm-O-Vac employees formed Fourtek and began producing carbide reclamation furnaces which utilized the modification’s developed by Metallurgical. Metallurgical brought a claim against Fourtek for misappropriation of a trade secret in utilizing the modification process which Metallurgical had developed.

Court held Absolute secrecy is not required for trade secret. Just must be “Sufficiently secret” can be shared with employees, other entities etc. w/out it losing it’s status as a trade secret. Expert testimony is used sometimes to determine if something is generally secret.

1. in the industry and the information that was exchanged with 2 other businesses was needed for business purposes (“metallurgical wished to profit from the secrets in it’s business dealings and not to reveal it’s secrets to the public)

2. Value (actual or potential): court said this was not well known to the industry and that company had a clear advantage over the competition. It cost them a lot of money to come up with this idea. Court says why would they spend so much money coming up with this idea if it wouldn’t have value. Court makes a cost inquiry (they spent all this money to advance their techniques)

3. Reasonable steps to maintain secrecy

4. See page 45 for more factors that are subjective (first 3 questions are dealing with secrecy and last 3 questions are dealing with economic value