Intellectual Property: Goldman Fall 2010

I.  OVERVIEW

a.  PHILOSPHICAL PERSPECTIVES

i.  Natural Rights Perspective

  1. Locke considered the working of land & raw materials to be "labor" that justified ownership of property
  2. This philosophy would mean that the "sweat of the brow" of a new idea would be equally deserving of protection
  3. Inventor/ author is entitled to all social benefits produced by his efforts

ii. Personhood Perspective

  1. To achieve proper self-development-- to be a person-- an individual needs some control over resources in the external environment
  2. e.g. wedding rings
  3. Fairness à when people do really good things in our society, we want them to be rewarded

iii.  Utilitarian/ Economic Incentive Perspective

  1. Promoting innovation & creativity
  2. "to promote the progress of science and useful arts" Art. I, cl. 8
  3. Principal objective is to enrich the public at large
  4. Reward to the inventor/ author is secondary consideration
  5. Utilitarian principles:
  6. Intangible goods are public goods
  7. Intangible assets are nonrivalous-- they can be shared by multiple people w/o displacing the other people
  8. No cost to move information (IP)
  9. It takes time & money to create an idea, but little to no costs to copy it
  10. Second-comers can compete w/ the developer of the information w/o having to bear any of the initial costs, which will drive the price down to its marginal costs
  11. We offer payoff of a monopoly of the area that inventor develops, in return for them developing—they give us the benefit of their expertise & we can copy once the monopoly is up
  12. Downside: transaction costs to negotiate rights (lobbyists are only on the side of the copyright-owners)
  13. Options to ensure fairness:
  14. Subsidize “good work” that benefits society
  15. Innovators will get paid w/o us knowing if it’s any good—innovators are not incentivized to continue improving
  16. Incentivize people that actually deliver
  17. e.g. $1M for the first person that creates XYZ
  18. Come up w/ stuff, and if we like it, we’ll buy it (but there’s a valuation problem)
  19. OVERVIEW OF IP
  20. See IP Protection Chart

II.  TRADE SECRETS

a.  STATUS OF IDEAS OR INFORMATION AS TRADE SECRET

  1. What is a trade secret?

1.  A trade secret is information that:

  1. Derives actual or potential economic value from the fact that it is not known or readily ascertainable by others AND
  2. Is subject to reasonable efforts to maintain its secrecy
  3. Restatement definition: information or ideas that gives the holder an opportunity to gain advantage over competitors
  4. Factors considered when determining trade secret status:
  5. How widely the information is known outside the claimant’s business
  6. Who w/in the claimant’s company knows the information
  7. Whether the claimant has taken reasonable measures to ensure that the information remains secret
  8. How difficult it would be for others properly to acquire or duplicate the information
  9. Whether the information gives the claimant a commercial, competitive advantage over others who do not know it
  10. How much effort or money the claimant expended in developing or acquiring the information

iii.  Prima facie case:

  1. Subject matter qualifies for trade secret protection
  2. Holder of trade secret (P) took reasonable precautions under the circumstances to prevent its disclosure
  3. P must prove that D acquired the information wrongfully (that D misappropriated the trade secret)
  4. How to lose trade secret status:
  5. Publish the information
  6. At least provided the publication is accessible to those interested in the subject matter
  7. e.g. publish info in academic article, conference presentation describing what they are doing, patent application describing what they are doing (once it is approved, it is in the public)
  8. Sell the product commercially, where product specifications reveal the trade secret
  9. Someone else publically exposes the information
  10. e.g. reverse engineering; independent discovery
  11. Inadvertent disclosure
  12. Courts are inconsistent about this b/c trade secret is an equitable doctrine
  13. If it is a mistake, that is not inconsistent w/ their reasonable efforts to keep it secret
  14. Other courts say if they really wanted to keep it secret, they would not have made the mistake

b.  SUBJECT MATTER

  1. Subject matter elements:
  2. Must be the type of knowledge or information that trade secret law was meant to protect AND
  3. Must not be generally known to all
  4. Ensures that no one claims intellectual property protection for information commonly known in a trade or industry
  5. Current trend, exemplified by the UTSA:
  6. Protect as a trade secret any valuable information so long as the information is capable of adding economic value to P
  7. Secret combinations are eligible for protection as trade secrets, even if its items by themselves are publicly known
  8. Metallurgical Industries v. Fourtek (1986): P souped up the furnace, & after seeing the modifications, D made the same ones. Modification process was an application of already known technologies & was shared w/ certain partners & licensees
  9. Even though it was not absolutely secretive, it was a secret in that its disclosure was not to the public & it was only shared for economic benefit (partnership + licensing)
  10. P’s modification gave them an economic advantage over competitors
  11. A process can be a protectable trade secret, even if all the ingredients are known
  12. Coca Cola’s trade secret is not known, even though all the ingredients of the product are well known
  13. Strict novelty is not required for trade secret protection
  14. Idea may have occurred to someone before or be in use by another;
  15. As long as it is not generally known/ readily ascertainable to competitors in industry

c.  REASONABLE EFFORTS TO MAINTAIN SECRECY

  1. Holder of trade secret (P) took reasonable precautions under the circumstances to prevent its disclosure
  2. P must be consistently diligent in protecting information
  3. Precautions must include certain efforts to prevent theft or use of the idea by former employees
  4. No one may let information about products & operations flow freely to competitors at one time, & then later claim that competitors have wrongfully acquired valuable trade secrets
  5. Sharing a secret with "a limited number of outsiders for a particular purpose" is not definitive evidence that reasonable efforts to maintain secrecy were not made
  6. Rockwell Graphic Systems v. DEV Industries (1991): P kept part drawings in a safe. Vendors & employees had to sign them in & out.
  7. P’s sharing of part drawings w/ vendors, which has necessary to the efficient exploitation of the trade secret, does not invalidate trade secret protection
  8. Policy:
  9. Evidence that the trade secret is valuable enough to bother litigating
  10. Where reasonable precautions are taken, chances are that a D acquired the trade secret wrongfully
  11. Disclosure of Trade Secret
  12. Trade secrets continue indefinitely until the public disclosure of the secret
  13. As long as a trade secret remains “secret” it remains protectable
  14. Data General v. Digital Computer (1972): even though P distributed design documentation to many customers, that disclosure did not compromise its secrecy
  15. P took adequate measures to protect secrecy by stating that contents were confidential & requiring customers to agree to non-disclosure via contract
  16. See above for “how to lose trade secret status”

d.  MISAPPROPRIATION

  1. Misappropriation: acquisition or use of a trade secret where:
  2. It is done my improper means OR
  3. It involves a breach of confidence
  4. Improper Means
  5. E.I. DuPont deNemours v. Rolfe Christopher (1970): aerial photography was an improper method of discovering the trade secrets exposed during construction of P’s plant
  6. Court considered this “espionage through electronic or other means”
  7. Improper means includes: “Theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means"
  8. Confidential Relationship
  9. Misappropriation if secrets are used or disclosed in violation of a confidential relationship
  10. Confidential relationship can be created through agreement or arise w/o contract
  11. Smith v. Dravo (1953): D received patent apps and blueprints of other containers in seeking to buy them, but instead used them to create his own.
  12. D was only given the information for purposed of evaluating the deal, so using the info to create its own assets is improper use of the trade secret
  13. Today non-disclosure agreements (NDAs) are so common, that courts are likely to think that if you don’t care enough to use an NDA, you don’t deserve trade secret protection

e.  REVERSE ENGINEERING & DEPARTING EMPLOYEES

  1. Reverse Engineering: starting w/ the known product & working backward to find the method by which it was developed.
  2. Acquisition of the known product must also be by a fair & honest means (e.g. purchase of the item on the open market)
  3. Policy à there is nothing unmoral about reverse engineering—D is still working hard, developing and competing (the American way)
  4. Use & disclosure by employees & former employees
  5. An employee owes a duty of confidentiality to his employer, which prohibits him from using/ disclosing trade secrets that the employer discloses to him w/in the scope of his employment
  6. Implied agreement when employee was especially hired to create information of the type involved for the employer put in resources for that purpose
  7. Kadant v. Seeley Machine (2003): former employee knew all of former employer’s designs & replicated them by reverse engineering products
  8. P cannot prove that D stole designs (P’s burden to disprove reverse engineering)
  9. Noncompetition Agreements
  10. Employer & employee may expressly agree that the employee will not disclose the employer’s trade secrets &/ or that the employee will assign all his inventions in advance to the employer
  11. Employer can require employee to sign a non-compete agreement for a specified time in a specified geographical area after leaving employer
  12. Courts will only enforce non-compete agreements if (1) it’s reasonably necessary to protect employer, (2) agreement is reasonable as to time & geographical area, (3) restrictions are not harmful to the public, AND (4) restrictions are not unreasonably burdensome to the employee
  13. Edwards v. Arthur Anderson LLP (2008): CA Business & Professions code prohibits employee noncompetition agreement even if narrowly drawn
  14. The agreement was a product of an abusive power relationship rather than a product of negotiation
  15. Non-compete agreements are valid in the sale of business à once you sell your business, you cannot “re-create” it b/c it’s not fair to the buyer
  16. Inevitable disclosure doctrine
  17. Court will enjoin P’s former employee from taking a new position if (1) former employee knows P’s trade secrets, (2) former employee’s new job duties are similar or related to those of his former position & it would be difficult for him not to rely on P’s trade secrets in new position, (3) there’s evidence that former employee or new employer cannot be relied on to avoid using trade secrets
  18. PepsiCo v. Redmond (1995): D had intimate knowledge of P’s marketing plan, so there is no way he can separate himself from that knowledge. Because D has specialized knowledge of “particularized plans or processes” D cannot use that w/ competitors
  19. As a practical matter, this doctrine will not apply to low level employees—P cannot stop former employees from taking their regular skills elsewhere

f.  NON-DISCLOSURE AGREEMENTS (NDA)

  1. NDA: contract provision that restricts the use & disclosure of confidential information
  2. If you own a trade secret, & want to share it w/ a partner, you have to sign a NDA to continue to protect that secret
  3. NDAs can protect information that is clearly a trade secret, and things that may not be a trade secret (e.g. licensing non-trade secret information)
  4. Even if a trade secret subsequently enters the public domain, royalty payments under trade secret licensing agreements can continue indefinitely
  5. Warner-Lambert Pharmaceutical v. John Reynolds (1959): even though the Listerine formula was no longer a trade secret, it’s no bar for P to stop paying licensing fees to D

g.  REMEDIES

  1. Injunctions
  2. D may be enjoined from using or disclosing P’s trade secret
  3. Jurisdictions differ regarding the appropriate length of such injunctions—most generally limit length of injunction to duration of secrecy
  4. Damages
  5. Damages may be measured by:
  6. The profits P lost as a result of D’s misappropriation,
  7. A reasonable royalty for D’s use of the trade secret, OR
  8. Rarely used—it puts court in position of determining what the pricing should be
  9. Amount of profits D made as a result of misappropriation
  10. If infringement is willful, then 2x damages are permitted
  11. Criminal Prosecution
  12. Many states have made theft of trade secrets a criminal offense
  13. The Economic Espionage Act of 1996 makes it a federal crime in many situations
  14. Winston Research v. 3M (1965): no damages were awarded

III.  PATENTS

a.  OVERVIEW

  1. Nature of Patent Law
  2. Broad nature of patent
  3. A patent gives holder the right to sue those who (1) steal the invention, (2) reverse engineer it, & even (3) develop the same invention independently

Why get a patent?
Benefits: / Disadvantages:
·  Power à exclude people from entering market
o  Power to kick people out of the marketplace
o  Control of the marketplace—giving you more control over revenues
o  Even if you are not in that market, you can threaten revenues of competitors in the marketplace
o  You can sell licenses by threatening litigation
·  Defensive purposes
o  If anyone comes & threatens you, you have a "war chest" of patents to explore & threaten that person w/ patent infringement suit
o  You give license to someone, in exchange for a license to their patent
o  Getting a patent prevents others from patenting the same thing
·  Sign of technological innovation
·  Motivates employees
o  Rewards employees that do something that leads to an issued patent / ·  Need to make public disclosures
·  Cost of enforcement is often more than the what the patent would bring in
  1. Elements of Patentability:
  2. Patentable subject matter
  3. Utility
  4. Novelty (no identical prior art)
  5. Non-obviousness (nontrivial extension to prior art)
  6. Enablement (invention described so “one of ordinary skill in the art” could replicate the invention)
  7. Theories of Patent Law
  8. Central theory à inventions are public goods that are costly to make & that are difficult to control once they are released into the world
  9. Absent patent protection, inventors will not have sufficient incentive to invest in creating, developing & marketing new products

b.  SUBJECT MATTER