INTELLECTUAL PROPERTY – SUBOTNIK FALL 2016
Reasons for Trade Secret, Patent, Copyright and Trademark
What unites trade secret, patent, copyright and trademark law are ideas. Some reasons why intellectual property exists is (1) non-excludability, where it makes it hard to exclude people from information once it is out; (2) non-rivalrousness, where multiple people can use the idea at the same time, property does not deplete with its use and does not interfere with others ability to use it; and (3) the “public goods” problem. One danger with the non-excludability is that if you cannot prevent others from piggybacking on your information, then other people will not do the invention to begin with. We, as a society, want inventors and creators, not just imitators and copycats.
Utilitarian – “Incentive to create”
The Utilitarian idea of necessity for intellectual property law is in the U.S. Constitution; Article I §8 states that “the congress shall have the power . . . to promote the progress of science and useful arts, by securing the limited times to authors and inventors the exclusive right to their respective writings and discoveries . . .” Similarly, in Mazer v. Stein, the court held that “the economic policy behind the clause empowering Congress to grant patents and copyrights is the conviction that it is the best way to advance public welfare through the talents of authors and inventors in science and useful arts.”
Incentivized creation is giving credit, prestige, reputation, first market mover, prizes and awards, and government funding for the inventors’ hard work and labor in creating something useful for the public.
Pros to IP
Intellectual property encourages people to make, create, invent things, and does not depend on the government to decide what is needed. It is market-oriented.
Cons of IP
Intellectual property however, has four negative effects: (1) it can chill other people from using technology with a threat of lawsuit; (2) it can inflate costs, preventing competition on sale of works. Intellectual property right holders can raise price way above the cost of production, which increases monopoly concerns which may result in decreased access to the public; (3) it can suppress technology and promotion of technology; and (4) it can discourage improvement and cumulative innovation.
We must balance the cost of limiting diffusion of knowledge with social benefits of proving economic incentives to create. It results in balancing the results in exceptions, defenses and durational limitations of intellectual property rights.
Utilitarian Justification for Trademark
The utilitarian theory for trademark is that it may lower consumer search costs and integrity of the market place. George A. Akerlof, in The Market for Lemons stated that “the purchaser’s problem, of course, is to identify quality. The presence for people in the market who are willing to offer inferior goods tend to drive the market out of existence . . . Brand names not only indicate quality but also give the consumer a means of retaliation if the quality does not meet expectations . . . This ensures the prospective consumer of the quality of the product.” Trademark law counteracts the “market for lemons.”
Non-Utilitarian Justification for IP
There are two non-utilitarian justifications for intellectual property. The first is the “Natural Rights/Reward to Labor” theory, where “[e]very man has a property in his own person . . . the labor of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided . . . he hath mixed his labor with . . . and thereby makes it his property . . . This labor being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others.”—John Locke, Two Treatises on Government §27.
The second theory is Personhood. “One may gauge the strength or significance of someone’s relationship with an object by the kind of pain that would be occasioned by its loss . . . Not all object-loss is equally important. Some objects may approach the fungible end of the continuum so that the justification for protecting them as specially related to persons disappears . . . A few objects may be so close to the personal end of the continuum that no compensation could be just.”—Margaret Radin, Property and Personhood.
Trade Secret – Creature of state law, protects companies from misappropriation of confidential business information (ex. Coca Cola formula) protects against competitors or employees who left the firm.
Patent Law – gives rights of exclusivity to certain inventions. Need patent application, must be novel, nonobvious and have utility.
Copyright: Software, books, artistic works. Doesn’t need application. Upon fixation works are copyrighted.
Trademark – Federal statute largely, product names, logos, symbols, don’t need applications, advantages to registration though.
Intellectual property can be justified through the theory of Torts: (1) Requirements for the IP right (is there a duty?); (2) Infringement of the IP owner’s rights (breach of duty?); (3) Defense (is there a justification for what defendant had done?) and (4) Remedies.
Uniform Trade Secret Act §1(4)
The Uniform Trade Secret Act §1(4) defines “Trade Secret” as “information, including a formula, pattern, compilation, program, device, method, technique or process, that . . . (i) 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 (ii) is the subject of efforts . . . to maintain its secrecy.”
Elements of a Trade Secret Claim
The elements of a trade secret claim is that it is (1) protectable subject matter, (2) there were reasonable secrecy efforts and (3) there was misappropriation.
Protectable Subject Matter basically defines whether it is a trade secret to begin with. The Uniform Trade Secret Act §1(4) defines “Trade Secret” as “information, including a formula, pattern, compilation, program, device, method, technique or process, that . . . (i) 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 (ii) is the subject of efforts . . . to maintain its secrecy.” From this definition, a trade secret is (1) information; (2) has economic value (actual or potential); (3) it is a secret, namely not generally known or readily ascertainable; and (4) is a subject of rea
Smith v. Dravo. We want to protect and promote economic growth while having civility in the marketplace among competitors.
Defense to Misappropriation
Defenses to trade secret litigation is that (1) the information isn’t secret or valuable; (2) there were no secrecy efforts (e.g. claimant already publicly disclosed information); or (3) it was obtained by proper means.
One defense to “improper means” is that it wasn’t developed in improper means, rather it was developed in proper means. Two ways that something can be developed properly is by independent development, where you develop it yourself without having any information on the trade secret, or reverse engineering. Reverse engineering is when a defendant starts with a prototype of a product that the defendant acquired lawfully in the open market. Then he/she figures out how to make that product using the prototype. In Kadant, the Defendant claimed that it had reversed engineered the products from existing products that were freely available in the public domain and unprotected by published patent applications, in-force patents, or trade secrets. The Court held that trade secret protection is not appropriate where plaintiff does not provide evidence showing that the defendant improperly obtained and reversed engineered its products.
When it comes to trade secret law for departing employees, we must distinguish confidential information that is disclosed to the employee and the information that is a part of the employee’s general skill level. Common law separated them in three different categories: (1) if the employee was hired to invent, then the employer owns the product; (2) if the employee used employer’s time and resources, the employee owned it but the employer had shop right to it; or (3) in cases of independent invention, the employee would own it.
There are three categories of employment agreements: (1) confidentiality agreements—the employee will receive confidential information during employment, and she will keep it secret and not use it except to benefit the employer; (2) invention assignment—employer will have the right to any intellectual property created by the employee while employed by the employer, whether or not it has anything to do with what the company does; or (3) non-compete agreements—limiting the employee’s ability to compete with employer once she leaves the employer for an agreed amount of time. The minority approach for non-compete agreements states that non-compete agreements are void as against public policy. Edwards v. Arthur Andersen LLP. However, the majority approach is that non-compete agreements should be employed as a rule of “reasonableness” (i.e. duration, geography, line of business).