Intellectual Property Lee Fall 2011
Introduction
Theories of IP
· John Locke’s Labor (Natural Rights) Theory: You own what you labor. There is economic efficiency if we promote this
o Continental European scholars emphasize on the moral rights – the importance of reputation.
o Problem w/ Labor theory: someone invents MP3 player. A year later, another guy by his own efforts invent the same player. Labor theory would want to give him the IP rights. Today’s society would say no.
§ Critique: mere exertion of labor is not enough.
· Personhood Theory:
o Radin: to be a person, an individual needs some control over resources
o Hegel: a person is merely free will or autonomy and has no concrete existence until it interacts with the external world. Ie, to become a real person, you need to engage in property relationship.
§ Eg, it is not about the value of things. If your sofa changes color one day, you would be disturbed even though its value is the same still. This is b/c ur sofa is part of you
· Utilitarian/Economic incentive
o 1) Promote innovation which benefits society (cf w/ personhood and labour which are meant to benefit the individual)
o Eg, without incentive, nobody would do it. Just like lighthouses – you can’t protect who uses it,,, no body would ever provide lighthouse (free riders lead to market failure [ie, won’t produce optimal level of the good]). That’s why it's a public good. (same with army)
o But its paradoxical b/c IP rights is opposite of free market economy,,, we need a balance.
o 2) Promote integrity of market. Eg, TM law does not promote innovation.. but it protects integrity of market.
Trade Secret (TS)
Overview
· State law
o Uniform TS Acts (UTSA)
o Restatement of Torts
· Some Fed TS law (not much and not imp for class)
o Eg, Economic Espionage Act of 1996. Reverse engineering/independent invention may not be a defense under the fed law.
§ Prohibits stealing TS.
· SM: formulae, patterns, compilations, programs, devices, methods, techniques, processes that (i) derives independent economic value from not being generally known to, and not being readily ascertainable by proper means by other people and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (UTSA)
· RQMTS: secret and valuable, reasonable efforts to maintain secrecy
· Length: as long as it remains a secret
· Esp imp to small businesses that can’t afford for patent or IP litigation
· TS Protection is not in rem, it is in personam
o It is not a categorical right to exclude against the entire world. You only exclude certain ppl from doing certain things.
Factors to Consider:
· 1) The subject matter involved must qualify for TS protection
· 2) P must have taken reasonable precautions to prevent disclosure
· 3) The D acquired info wrongfully (eg, through deception, skullduggery, or theft)
· The UTSA requires all three factors for a valid cause of action.
Theories of TS
· Utilitarian
o Protect against theft of proprietary info,,, encouraging investments into secret info
o Ruckelshaus v. Monsanto held that TS is a form of property,,, it was a taking for federal law to require M to publicly disclose its TS
· (Tort Theory) Deters wrongful acts
Subject Matter
· Metallurgical Industries Inc. v. Fourtek, Inc. (5th Cir.) – M reclaims (reuses) carbide. M contracts with Thermovac to build a recovery system using zinc process. M modified the system extensively using basic scientific principles. Employees of T knew about the modifications, they started new company and incorporated M’s modifications. M sued for misappropriation of TS.
o It is okay to be TS even if the scientific principles involved are generally known if taken together they are unknown to improve a particular system.
§ The threshold for innovation required for there to be TS protection is low. In this case, the processes were known, a combination of the processes was enough for TS protection. Patents would be harder to obtain.
o TS requires secrecy: There was a showing that M tried to keep the modifications a secret (allowed only authorized personnel to see the furnaces, signing of non disclosure agreement)
§ It is OK for M to share this secret with others, it doesn’t have to be absolute. As long as the public doesn’t know, it’s fine to share. (especially helpful are if the sharing were for an economic interest or if there is evidence of a confidential relationship between the party you shared with).
o Court also says the secret has to have value – we satisfy that here. The process is good.
o Court also says the secret was costly to develop – we satisfy this here.
o Other than secrecy, all other factors are on a case by case basis. Cost and value of the TS is not always necessary. – we need secret and value.
· What is secret – depends on whether you use Restatement or Uniform Act
o Restatement [tort/wrongful act]: what is nto known by the defendant and he stole the information
o Uniform Act [property/utilitarian]: what is not knowable,,, it is actually secret and he stole the information
· What is value – depends on Restatement or Uniform Act
o Restatement [tort/wrongful act]: value is dependent on how egregious D’s conduct is to steal this information. There is redress even if P doesn’t value the secret that much himself.
o Uniform Act [utilitarian]: the secret must confer on its owner an actual economic advantage over competitors
Reasonable Efforts to Maintain Secrecy
· P’s must show that they have taken reasonable measures to protect the secrecy of their ideas
· Rockwell Graphic Systems Inc. v. DEV Industries (7th Cir.) – R makes printing presses and has some TS designs. It subK vendors to make some parts and give them the secret drawings.
o There are two theories of why we protect TS. Both of them require a proving of whether P has spent enough effort to maintain secrecy.
o 1) To deter ppl from stealing which is wrongful (Restatement of Torts)
§ P must prove that the D obtained the TS through wrongful act (eg, stealing)
§ The information can actually be known to the public, but D thought he was stealing TS
§ Unless you have direct evidence of stealing, you have to prove by showing that “if you didn’t steal, it would be hard to get the designs because they were securely hidden”
· Note: actually, not always true. This is circumstantial evidence and there is a circuit split as to whether this is sufficient to prove MofTA.
o 2) Encouraging innovations (Uniform TS Act)
§ Secret is not knowable to the D
§ P has to prove that the TS has real value and ,,, deserves the TS protection
§ To show this P has to show he spent a lot of money to protect his secret
§ It would be unfair if P didn't spend any effort and expects society to hide his secret for him through the law – in that case, P would get a windfall.
o Do we apply the Uniform Act’s rationale or the restatement’s rationale? – the distinction bw Uniform Act and restatement is only reason why we are interested. But the requirement of reasonable effort is the same for either approach you take.
o Rule: whether enough effort has been used to maintain secrecy is a QoF for jury, not for courts.,,, in this case summary judgment is inappropriate
§ Jury has to balance whether it is reasonable considering costs and benefits of the secrecy.. if 100% secure, the company can’t use the info themselves!
· Ie, we don’t want perfect security. We just want optimal security in light of the costs and benefits.
o Note though: merely treating something that is publicly known as a secret does not make it a secret.
· There’s also a third theoretical function of TS Law:
o 3) Remedial: because reasonable precautions were taken, a remedy is justified
Disclosure of a TS
· TS’s can be disclosed and not be secret anymore in a number of ways:
o 1) If it is published and accessible to those interested
o 2) Selling a commercial product that embodies the secret IF the secret is apparent from the product. If it is not apparent, it is fine. Eg, Coke’s formula, or some encrypted computer code.
o 3) TS can be disclosed by a third party, not the TS owner
§ eg, someone independently developed the secret and discloses it.
o 4) Inadvertent disclosures
§ eg, by being left on a train
§ Case law is not clear, but it seems like truly inadvertent disclosures should not defeat TS if there are reasonable precautions
o 5) Govt requiring disclosure of TS by private parties to serve social purposes
§ eg, requiring the labeling of ingredients of food.
Misappropriation of TS
· Uniform Trade Secrets Act – Misappropriation means:
o (i) acquisition of TS by a person who knows or has reason to know that the TS was acquired by improper means [IMPROPER MEANS] or
o (ii) disclosure or use of a TS of another without express or implied consent by a person who
§ (A) used improper means to acquire knowledge of the TS [IMPROPER MEANS] –both?; or
§ (B) at the time of disclosure, knew or had reason to know that his knowledge of the TS was (I) derived from a person who had utilized improper means to acquire it [IMPROPER MEANS]; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use [CONFIDENTIAL RELATIONSHIP]; or (III) derived from or through a person who owned a duty to the person seeking r
sonable. Court says no. it means any restriction… regardless of how narrow.
o Rule 2: previously, the 9th Circuit made a narrow-restriant exception: if the noncompetition agreement is narrow enough so that it doesn’t completely restrain one from practicing his profession, trade, or business, then it’s okay. SCT says no, we don't care because 9th Circuit is not binding and we don’t adopt their rule here.
o Holding: NCA here is invalid because it restrained E from practicing his profession.
· Common Law Rule: NCAs are valid as long as they are reasonable.
o CA’s rule is minority rule. Most states allow some kind of reasonable restraint.
o Eg, Virginia has a 3 part test for assessing reasonableness fo restrictive employment K’s
§ 1) is it reasonable from employer’s perspective
§ 2) is it reasonable from employee’s perspective
§ 3) is it reasonable from public policy’s perspective
§ if yes for all 3, it msut be enforced, but employer bears the burden of proof.
o Silicon Valley vs. Route 128 in Boston.. Silicon Valley way more successful.
§ Possibly: CA narrowly construes NCAs ,,, technical employees can move around freely and can begin start ups,,, knowledge moves around.
· Doctrine of Inevitable Disclosure by Employee
o Some courts allow use of “inevitable disclosure” as a basis for an injunction against employment despite lack of proof of TS misappropriation or an enforceable noncompetition agreeeement.
§ Some courts all
o Eg, Quacker can’t hire Peopsi’s general manager b/c he knows Pepsi’s distribution and pricing secrets which will help Quaker’s Gatorade and Snapple anticipate and know Pepsi’s future plasn.
§ (they weren’t worried that Quacker would STEAL the plans because they were different products, but it would help them anticipate what Pepsi would do).
§ Redmond was enjoined from working for 6 mos.
Remedies
· Uniform Trade Secrets Act (Section 2)
o (a) injunctions for actual or threatened misappropriation
§ terminated when the TS has ceased to exist, but may be continued to eliminate commercial advantage
o (b) if it is unreasonable to prohibit future use of TS, court may order for payment of reasonable royalty
§ How long does the royalty last? No longer than the period fo time that the use could have been prohibteid.
o (c) courts may order compulsory affirmative acts by the D to protect the TS
· UTSA Section 3
o (a) Complainant may (in addition or in lieu of injunctive relief above) receive damages for actual loses and unjust enrichment
o (b) Court may also award exemplary damages for willful and malicious misappropriation
· UTSA Section 4
o Reasonable attorneys fees for bad faith claims or willful and malicious misappropriation may also be awarded.
· Property rule (broad rights of exclusion)
o Owner can prohibit all access to a resource; the right to exclude; resource is protected by an injunction
· Liability Rule (torts)
o Owners cannot prevent access to a resource, but can get damages
· Injunctions are nto automatic in IP (this is in contrast with property law). Some questions to ask:
o Will P be irreparably injured absent an injunction?; whether grant or denial fo an injunction would impose more hardship; where does the public interest lie?
· Winston Research Corp. v. 3M Corp. – J and T were ex-employee of Mincom, a company. They helped develop a v. precise tape recorder. But they left and formed own company, Winston. In 14 mo’s, W also made this very precise tape recorder.
o DC found that the method J and T used to create the invention was the same as M’s method, but this was a general concept approach and ,,, not TS.
o DC found that the particular embodiment of these general concepts was M’s TS,,, there was misappropriation.
