Amicus Curiae Brief — Kewanee Oil Co. v. Bicron Corp.

Supreme Court brief1974

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SUB

IN THE

Supreme Court of the United States

OcroBER TERM, 1973

No. 73-187

KEWANEE Ori CoMPANY

Bicron CorPORATION, ET AL.

On Writ of Certiorari to the United States Court of Appeals

for the Sixth Circuit

BRIEF FOR THE

ASSOCIATION FOR THE ADVANCEMENT OF

INVENTION & INNOVATION AS AMICUS CURIAE

Epwarp J. BRENNER, President

ASSOCIATION FOR THE ADVANCE-

MENT OF INVENTION AND

INNOVATION

1911 Jefferson Davis Highway

Arlington, Virginia 22202

Kari W. FLocks

~Paut L. Gomory

Epwakp J. BRENNER

Attorneys

Press or Brron S. ApamMs Paintine, Inc., Wasnincron, D. C.

=>,

IN THE

Supreme Court of the United States

OcToOBER TERM, 1973

No. 73-187

KEWANEE Or COMPANY

Vv.

BricrRoN CORPORATION, ET AL.

On Writ of Certiorari to the United States Court of Appeals

for the Sixth Circuit

BRIEF FOR THE

ASSOCIATION FOR THE ADVANCEMENT OF

INVENTION & INNOVATION AS AMICUS CURIAE

I. AUTHORITY TO FILE

In a letter dated October 9, 1973, the Office of the

Clerk of the Supreme Court advised that the Court

granted the motion of the Association for the Advance-

merit of Invention & Innovation for leave to file a

brief, as amicus curiae, in the present case.

II. PURPOSES OF BRIEF

The major purposes of this brief are to urge this

Court:

1. To hold that a state law which protects an in-

ventor or developer in the maintenance of his trade

secret, whether it may be of a patentable or unpatent-

able nature, is not in conflict with Patent Laws.

2. To rule that an inventor or developer has not

forfeited his right to protection under a state trade

secret law merely because he has used his technology

in commerce for more than a year, and

3. To reverse the decision of the Court below to the

extent it is contrary to the principles set forth above.

Ill. INTEREST OF THE ASSOCIATION FOR THE

ADVANCEMENT OF INVENTION & INNOVATION

The Association for the Advancement of Invention —

& Innovation is a non-profiit professional association

of inventors, entrepreneurs, research directors, busi-

nessmen, scientists, engineers, lawyers, patent at-

_torneys, educators, former government officials and

others who are dedicated to the proposition of im-

proving the climate for invention and innovation in

our country. The combined background of the mem-

bership embraces the entire spectrum of the process of

invention (conceiving the idea) and _ innovation

(bringing the invention to the marketplace).

The Association believes that to foster an appro-

priate climate for invention and innovation in our

country there must be adequate incentives to invest

the time, money and effort needed to bring forth inven-

tions to the marketplace. Such incentives are present-

ly provided by the Patent Laws and state trade secret

laws. To eliminate trade secret protection would re-

move one of the major incentives for invention and in-

novation in the country to the detriment of all con-

cerned.

IV. WHY THE DECISION OF THE COURT BELOW

SHOULD BE MODIFIED

1. The Nature of Trade Secret Protection Was Not Fully

Understood or Appreciated.

The decision of the Court below concludes that

‘by the use of the state trade secret law he is able

to exclude competition and prevent disclosure, thus

obtaining protection which he could not obtain under

the laws of the United States.’’ To the contrary, trade

secret protection does not carry with it a general right

to exclude others who happen upon the technology in

question through their own honest efforts. Any third

party who develops the same subject matter himself

is entirely free to use or disclose it in any way he

wishes. Trade secret protection only guards against

others acquiring the technology by theft or breach of

a confidential relationship.

The possibility of subsequent independent discovery

is the prime risk that is implicit in reliance on trade

secret protection. The courts heretofore have uni-

versally recognized that the law of trade secrets affords

no protection against the honest second discoverer ; see

for example Speedry Chems. & Prods., Inc. v. Carter’s

Ink Co., 306 F.2d 328, 330 (2nd Cir. 1962) ; Grepke v.

General Elec. Co., 280 F.2d 508, 512, 126 U.S.P.Q. 93

(7th Cir.), cert. denied, 364 U.S. 899 (1960) ; Ferro-

line Corp. v. General Aniline & Film Corp., 207 F.2d

912 (7th Cir. 1953) (applying New Jersey law), cert.

denied, 347 U.S. 953, rehearing denied, 348 U.S. 851

(1954). Indeed, there is substantial reason to believe

that the first user of a trade secret may not prevail

against the innocent wrongful user thereof, Speedry

Chems. & Prods., Inc. supra, wherein it was said:

‘‘However, the discoverer of such secrets has no

exclusive right against another who uncovers the

secret by fair means, or against those who acquire

knowledge of it without a breach of contract or

of a confidential relationship with the discoverer,

American Dirigold Corp. v. Dirigold Metals Corp.,

125 F.2d 446, 52 USPQ 510 (6 Cir. 1942) ; Nims,

Unfair Competition and Trademarks, 4th Ed. p.

418.”’

Thus, he who relies on trade secret protection has no

monopoly and no right of exclusion. His protection

is only against the wrongdoer, but this protection is of

prime importance when one has spent considerable re-

sources and effort in developing a valuable product or

process. By contrast, the Patent Law to the extent

pertinent concerns a Government grant of monopoly

rights in technology, which rights are assertible against

others wholly independent of the manner in which they

acquire the protected technology.

The Patent Law arms the patentee against any un-

authorized use of his invention no matter how the in-

vention becomes known to the infringing party. The

patent protects the patented technology for a term of

years no matter how well it may become known to the

world.

The Patent Laws operate in an entirely different

domain than trade secret laws which depend wholly

on a finding of wrongful derivation from a rightful

possessor. For these reasons, Patent Laws do not and

eannot conflict with trade secret laws such as to

preempt them.

2. To Correct an Inaccurate Impression That Trade Secret

Laws Duplicate the Patent Laws in Any Real Practical

Sense.

It is axiomatic that the first requirement of a trade

secret is the ability to maintain secrecy. The trade

secret must not be ascertainable from study of products

sold and is typically a formulation, factory process or

other manufacturing technology. In the absence of a

patent, technology which enters the public domain is

available for use freely by the public. State laws of

unfair competition and the like may not be used to

achieve a contrary result, Sears, Roebuck & Co. v.

Stiffel Co., 376 U.S. 225 (1964).

Where the technology may reasonably be kept in

secrecy, there is equally no convenient way for a pro-

spective patentee to know when the technology which

would be disclosed through a patent is used by others.

Ability of others also to retain use of the technology

seeret tends to render patent protection ineffectual.

Thus, while trade secrets are sometimes thought of

as an alternative to patenting, United States v.

Dubilier Condenser Corp., 289 U.S. 178 (1933), in a

very practical sense, trade secret protection is all that

is really available for an important class of innova-

tions.

3. To Prevent a Substantial Decrease in the Level of Inven-

tion and Innovation in the Country on Account of Reduced

Incentives.

The decision of the Court below is contrary to long

established legal doctrines and business practices, and,

as such, it substantially reduces the benefits that can be

derived from research and development. Thus, when

one embarks on a program of research and develop-

ment one does not know what patentable or un-

patentable inventions may be produced. Further, one

can really never be sure what inventions will ultimate-

ly be held patentable or unpatentable. Thus, the re-

sult is that budgets for research and development will

undoubtedly be reduced on account of decreased in-

centives for conducting, such programs since trade

secret protection would no longer be available as a

means to protect the fruits of one’s research and de-

velopment program.

The decision of the Court below will encourage com-

panies to raid their competitors for technical employ-

ees in order to learn their competitors’ business and

factory practices. It would be much less expensive to

appropriate competitors’ trade secrets through this

mechanism than to conduct an independent and ex-

pensive research and development program. It is to

be noted that the present law on trade secrets in most

jurisdictions provides a reasonable balance between

protecting as employer’s trade secrets while at the

same time protecting the employee’s right to change his

employment. See for example Allis-Chalmers Mfg.

Co. v. Continental Aviation & Eng’r. Corp., 255

F.Supp. 645 (E.D. Mich. 1966).

The decision of the Court below encourages com-

panies to shift their research and development pro-

grams to foreign countries where trade secret pro-

tection is available. Also, the decision encourages

companies to shift their manufacturing operations to

foreign countries for the same reason. The end result

of these shifts would obviosly be to reduce jobs for

American workers as well as to adversely affect our

international balance of trade. With regard to inter-

national aspects of the decision, the decision of the

Court below would appear to be in conflict with pro-

visions of international treaties signed by the United

States.

4. To Overcome Undesirable Disincentives for the Transfer

and Licensing of Technology.

If the decision of the Court below is permitted to

stand, licensees will be spurred into discontinuing the

payment of royalties under know-how license agree-

ments. This could result in the loss by American

licensors of a billion dollars of royalties per year from

foreign licensees, which would obviously also adversely

affect our international balance of payments. More

important, however, would be the reduced incentives

for licensors to conduct an active research and develop-

ment program to generate such know-how in the

future. Further, licensors would be discouraged from

licensing existing know-how because of the increased

likelihood that United States and foreign licensees

would not continue for long to pay royalties for such

know-how.

If the decision of the Court below is permitted to

stand, foreign licensors will hesitate to license their

technology to United States companies since U.S.

licensees cannot assure foreign licensors that their con-

fidential know-how can be maintained as trade secrets.

The net result of such actions would be to increase im-

ports of the products involved or to eliminate them al-

together from the American market to the detriment

of the American public, to reduce jobs for American

workers, and to thereby adversely affect our inter-

national balance of trade.

5. Congress and Other Branches of Government Have Long

Recognized the Validity of Trade Secret Protection.

By way of example, in the Consumer Product

Safety Act of 1972, 15 U.S.C.A. Section 2055 (a) (2)

entitled ‘‘Publie disclosure of information’’, Congress

provided for recognition and safeguarding of trade

secrets by express reference thereto. In the Armed

Services Procurement Regulations (ASPR), Section

9-201(c) provides for possible acquisition by the

Government of technical information with ‘Limited

Rights’? that in essence normally precludes publica-

tion or use by the Government outside the Government.

The Federal Rules of Civil Procedure refer at Rule

26(e)(7) to protection of . . . ‘fa trade secret or other

confidential research, developnient or commercial in-

formation ...’. While the right to confidentiality of

a trade secret is not absolute, for example such right

must bow to national emergencies and the require-

ments of pertinent evidence in litigation, nonetheless

the trade secret right has heretofor generally been re-

spected and upheld in law and its administration. The

basic principle as succinctly stated by Justice Holmes

in the often cited case of Board of Trade of City of

Chicago v. Christie Grain & Stock Co., 198 US 236,

25 S Ct 637, 49 L ed 1031 (1905), is

“The plaintiff has the right to keep the work

which it has done, or paid for doing, to itself. The

fact that others might do similar work, if they

wished, does not authorize them to steal plain-

tiff’s.’’

Vv. CONCLUSION

For the foregoing reasons, amicus urges this Court

to modify the decision of the Court below as recom-

mended herein so as to avoid the adverse influences

such decision would have on the climate for invention

and innovation in our country as well as world-wide.

A great strength of the United States relative to other

countries lies in its superior technology, much of

which is unpatented. Our favorable balance of trade

in technology-intensive products and know-how

license agreements where United States manufac-

turing companies are the licensor supply the practical

proof. The United States is primarily in the position

of a donor of technology. To condone misappropri-

ation of such technology only serves to dissipate this

great strength.

It is submitted that if the basic law is to be change

in this field in a way which will have such a major

impact on the economic system of the United States

(e.g., balance of trade, productivity, ete.) such a change

should be effected by Congressional action rather than

judicial action.

Respectfully submitted,

Epwarp J. BrenNER, President

ASSOCIATION FOR THE ADVANCE-

MENT OF INVENTION AND

INNOVATION

1911 Jefferson Davis Highway

Arlington, Virginia 22202

Karu W. FLocks

Pau. L. Gomory

EpwarD J. BRENNER

Attorneys

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OF THE

Ruited States

Ocroser Term, 1973

No. 73-187

Kewaner Or Company, Petitioner,

vs.

Bicron Corporation, eT AL., Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

BRIEF FOR AMICUS CURIAE

OPTICAL COATING LABORATORY, INC.

Harotp C. Homsaca,

. Davin J. Brezver,

4 160 Sansome Street,

San Francisco, Oalifornia 94104,

Counsel for Optical Coating

- Laboratory, Inc., Amicus Curiae.

PERNAU - WALSH PRINTING CO. . 562 MISSION STREET - SAN FRANCISCO - CA 84105

Subject Index

Page

I. The nature and the interest of the amicus ........... 1

A. Optical Coating Laboratory, Inc. .............. 1

B. Interest of the amicus .............06.0 202000 2

Th. ROO iconic eaegae cee we nn eensesarcawerees 3

A. Purpose of brief . 2... 1... ccc cece cee eens 3

B. The potential legal effect of affirmation .......... 3

C. OCLI’s research and development philosophy pro-

DAOWON. DEONTONE o5.ns 6686s hese e ses ce sence cines 4

D. OCLI proprietary information is not adequately

protected by patents ..........0 65.00 6

E. OCLI trade secret and know-how licensing bene-

fits the public ... cic yee cece c cece essen eee 7

1. Licensing domestic companies .............. 7

2. Licensing from foreign companies .......... 8

3. Licensing by OCLI to foreign companies ..... 9

F. Value of trade secret and know-how license sub-

stantially inereases after full commercialization.. 9

G. Adverse effect on OCLI sucontracts ............ 10

H. Intracompany policy effect—more limited access

to technical information ....................5. 11

I. OCLI’s use of outside consultants would be re-

OO xn ey scan ease he ee doe a ae et edee ee eens ll

J. Reduced incentive for OCLI to sell or license

machines to its competitors ...........0.000000.. 12

TEE.. CRMCIOMIO ei ix ce hkhesck cosnre es oe entasianss descr 12

ee"

Table of Authorities Cited

Cases Pages

Dekar Industries, Ine. v. Bisset-Berman Corporation, 434

F. 2d 1304 (9th Cir. 1970) Cert. Den. 402 U.S. 945

CXOTRD oes tiene och hh debe ine ea nck sods oysnueessans 3

‘Rules

Supreme Court Rule, 42(2) 2.2.2.0... 2... cee ce eee eee 1

' Statutes

35 U.S.C.:

PRA FE ois cave ace ence eye esen chk benenewers cass 4

Section 102 2.2... ccc cee cece ee eeees 4

Seetion 103 2.2... ccc cc cee eee eee eeees 4,6

In the Supreme Court

OF THE

United States

OcroBer TERM, 1973

No. 73-187

Kewanee Orn Company, Petitioner,

Vs.

Bicron Corporation, ET AL., Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

BRIEF FOR AMICUS CURIAE

OPTICAL COATING LABORATORY, INC.

I. THE NATURE AND THE INTEREST OF THE AMICUS

A. OPTICAL COATING LABORATORY, INC.

This brief amicus curiae is submitted by Optical Coat-

ing Laboratory, Ine. (herein ‘‘OCLI’’) under Rule 42(2)

of the Supreme Court. Letters in which the parties’ coun-

sel have acknowledged consent to the filing of this brief

are on file with the Clerk of this Court.

OCLI is a California corporation with advanced tech-

nology products and services for the design, fabrication,

and testing of vacuum deposited optical coatings. These

coatings are deposited on company manufactured parts or

on optical components supplied by custoiners for use in

the customers’ devices. OCLI coated parts are used in

important products to the consumer such as_ pollution

monitoring control devices, burglar alarms, and_ solar

energy conversion systems.

Although it is not a large corporation (net sales and

other revenues in 1972 of approximately 11.4 million dol-

lars) it has established a reputation for leadership in de-

veloping new processes, products and markets. Such de-

velopment expands the frontiers of knowledge in its field

and makes new products available to the public. How-

ever, it requires large expenditures of time and money in

research and development (herein ‘‘R&D”) with a sub-

stantial staff of highly trained technical personnel. The

reward for this investment of many years of costly ex-

perimentation is made possible by protecting trade secrets

and know-how using tight security. Such information gives

OCLI an advantage over those competitors which do not

expend comparable efforts towards R&D.

B. INTEREST OF THE AMICUS

OCLI is concerned that if the Cireuit Court decision

below is affirmed, this would create a legal precedent

under which a significant portion of the fruits of OCLI’s

costly R&D would become unprotectable. Therefore, it

would be vulnerable to dissemination by unscrupulous

competitors who, for example, could freely raid experi-

enced OCI.I employees and obtain the information at a

fraction of its cost to OCLI.

Il. ARGUMENT

A. PURPOSE OF BRIEF

The legal arguments as to the applicable law will be

presented in detail not only by the parties but by many

briefs amicus curiae which are being filed by othér amici.

The purpose of this brief is to present a case history of

OCLI’s technological information management program

and the potentially devastating effect upon OCLI which

would result from an affirmation of the decision of the

Cireuit Court. It is believed that this affirmation would

produce a similar harmful effect upon many other inno-

vative domestic companies to the detriment of the advance-

ment of technology in the United States.

Since OCLI is a California corporation, the applicable

California trade secret law is worthy of note. As enun-

ciated by the Ninth Circuit, equitable relief is available

to prevent disclosure of trade secrets under state law.

The Patent Law, Title 35 of the United States Code, has

not been construed as preempting this field!

B. THE POTENTIAL LEGAL EFFECT OF AFFIRMATION

If this Court affirms the decision below, this would, in

essence, establish a precedent termed for this discussion

the ‘‘Kewanee Rule’’. Under this rule, protection by the

1Dekar Industries, Inc. v. Bisset-Berman Corporation, 434 F. 2d

1304 (9th Cir. 1970) Cert. Den. 402 U.S. 945 (1971).

state law of trade secrets which are appropriate subjects

for patent would be preempted by the Patent Law, after

the subject matter of the trade secret has been ‘used

commercially’? for more than one year. Under 35 U.S.C.

101, such preempted ‘‘appropriate subjects”’ include any

‘‘new and useful process, machine, manufacture or com-

position of matter’’ and so are not limited to concepts

patentable under the stringent requirements of Sections

102 and 103 of the Patent Act. Accordingly, under the

Kewanee Rule, essentially the entire field of trade secrets

and proprietary know-how would be unprotectable under

State trade secret law after one year of commercial use.?

C. OCLI’s RESEARCH AND DEVELOPMENT PHILOSOPHY

PROMOTES PROGRESS

Because it is highly innovative and develops new prod-

ucts and markets simultaneously, OCLI expends substan-

tial amounts of time and effort upon research and devel-

opment. There are many times when this expense is not

fully recouped or when the product is not marketed at all.

There are a number of reasons why OCLI management

authorizes the large expenditures required for innovative

research and development on its products and processes

and the machines for producing them. If the new develop-

ment is suecessful, OCLI derives a competitive advantage

2Under the Patent Act, such commercial use commences at the

sale of one item for commercial purposes even though the trade

secret cannot be determined by viewing the product. Typically,

such sales oceur many vears prior to any profitable commercializa-

tion of the product and so, under the Kewanee Rule, the costly

creation of the information would go unrewarded.

during commercialization of the product, typically at least

five to ten years. Under the Kewanee Rule, this competi-

tive advantage would cease after the first year of com-

mercial use because the trade secret information would be

available; for example, to a competitor hiring away a

knowledgeable OCLI employee.

Another reason for such management authorization is

that, even if a particular project is unsuccessful, the in-

formation derived from such projects can be of great

value in creating a reservoir of OCLI expertise for use

in related areas of technology. For example, OCLI spent

approximately $250,000 to develop high grade products

(photomask blanks) for the electronic integrated circuit

industry. This money was primarily used to optimize the

processing steps to produce increased final product yield

and superior quality. Even though OCLI was not success-

ful in this specific market place the technical knowledge

gained from this effort is proving invaluable in other re-

lated fields.

If management knew that it could not legally protect

the information derived from such research and develop-

ment under applicable trade secret law, as would be the

case under the Kewanee Rule, it would hesitate to develop

innovative new products and markets where there is a

significant chance of failure to recoup the investment

from the product itself. Thus, management would be

forced to seriously consider a total re-emphasis of R&D

expenditures so that, for example, risky projects to de-

velop new advanced products are reduced in priority. In-

stead, the more profitable path in the absence of trade

secret protection would be to expend more funds to im-

prove the production efficiency in the manufacture of

existing products. The net effect would be to inhibit tech-

nological progress.

——d

D. OCLI PROPRIETARY INFORMATION IS NOT ADEQUATELY

PROTECTED BY PATENTS

A significant proportion of OCLI R&D expenditure

is for engineering the development of processing steps in

vacuum deposition of optical thin films. Precision coat-

ings, under high vacuum, often require deposition of as

many as 50 to 200 thin film layers .of different composi-

tions and thicknesses. For example, thousands of specific

coatings and coating procedures have been developed by

OCLI. OCLI considers the proprietary data and infor-

mation developed by such research to be of great value

and takes elaborate precautions to retain it in secret.

Such information includes what is understood to be ‘‘trade

secrets’? and ‘‘proprietary know-how’.

The great majority of the foregoing developments in-

volve the engineering optimization of detailed processes.

Typically, such details are characterized by the United-

States Patent Office as obvious subject matter to a person

having ordinary skill in the art as defined under 35 US.C.

103. Thus they would be considered by the Patent Office

to be unpatentable and therefore unprotectable in the

absence of state trade secret law. Thus, under the

Kewanee Rule, this valuable information could not be

protected at all.

OCLI develops as many as one thousand or more coat-

ing compositions and procedures a year. A company of

Ta Pea TS

ase

OCLI’s size does not have the resources to file patent

applications on each one. Thus, even if the compositions

and procedures were patentable, the only practical way

to protect most of this information is under applicable

state trade secret law.

E. OCLI TRADE SECRET AND KNOW-HOW LICENSING

BENEFITS THE PUBLIC

1. Licensing Domestic Companies

Domestic licensing has become an important source of

revenue to OCLI and is a reward for its R&D investment

which provides new products for the public. The public

is further benefited because the licensees often manufac-

ture products in direct competition with OCLI and other

companies making similar products.

When OCLI has licensed its trade secrets and know-

how, the agreements bind the licensees to keep the infor-

mation in strict confidence. Under the Kewanee Rule,

OCLI would not be able to domestically license such tech-

nology because the information could be freely dissemi-

nated by the licensees to third parties after one year of

commercial use of the information.

Another reason for the inability of OCLI to domesti-

cally. license under the Kewanee Rule would be that a

potential licensee might hesitate to expend considerable

sums of money for this information. Instead, it could,

if it is so desired, hire knowledgeable technical employees

of OCLI who had access to the company’s trade secrets

developed by OCLI personnel over the years. Indeed hir-

ing such an employee would not even be necessary if the

potential licensee could bribe or otherwise persuade him

to divulge the information. Sych methods of acquisition

would be at a small fraction of OCLI’s cost for the re-

search and development involved.

The undersirable net effect of the Kewanee Rule would

be to penalize OCLI because it is willing to support

progressive R&D programs.

2. Licensing From Foreign Companies

OCLI has licensed technology from abroad. In one in-

stance, OCLI paid almost $900,000 to a European com-

pany to obtain trade secrets and know-how relating to

durable thin films. Although the license was executed _~

after the first year of sale by the European company in

the United States, the information obtained by OCLI en-

abled it to begin production in new fields and to advance

the technology of the same. These products derived from

this licensed technology have returned many millions of

dollars over the years.

The management of OCLI believes that it would not

have attempted to expand into this field of technology

without the proprietary information it purchased under

the license agreement. Since the European company con-

tinued selling goods in the same market to the United

States, the above agreement established domestic competi-

tion of goods where none would have existed otherwise.

Under the above license agreement OCLI was obligated

to hold the proprietary information in strict confidence.

Under the Kewanee Rule, OCLI could not have protected

this information and so the European company might

not have licensed OCLI, resulting in a loss of revenue

to OCLI and lessened competition in the United States.

3. Licensing by OCLI to Foreign Companies

OCLI licensed trade secrets and know-how to a Japa-

nese company in an agreement in which proprietary in-

formation was strictly protected by both parties. The

license fees under the agreement amounted to an initial

payment of $150,000 and subsequent yearly payments of

about half that amount. Agreements of this type enable

OCLI to obtain the rewards for its costly and successful

R&D expenditures. Without such agreements OCLI would

be required to reduce such expenditures to the detriment

of domestic technological progress.

One reason why the Japanese company might not li-

cense under the Kewanee Rule is that it could hire away

employees of OCLI for a small percentage of the value

of the information under a license. Also, sinee OCLI

could not protect this information from its competitors,

the value of the information would be substantially re-

duced.

F. VALUE OF TRADE SECRET AND KNOW-HOW LICENSE SUB-

STANTIALLY INCREASES AFTER FULL COMMERCIALIZA-

TION.

It is a commercial reality that trade secrets and know-

how which have not been fully developed in the market

place are worth substantially less than the same informa-

tion relating to the same product after full scale com-

mercialization and development of the market. Because

this usually occurs long after the first commercial sale,

all of OCLI’s licenses over the years have been granted

long after one year of commercial product sale. Thus,

OCLI would not be able to enforce such licenses under

the Kewanee Rule.

Even if OCLI attempted to license its trade secrets

and know-how during the early stages of development

and before the expiration of one year after first commer-

cial sale, such license would be of negligible commercial

value. This is because potential licensees could wait until

after the one year period, and legally acquire the infor-

mation from a disloyal employee for a fraction of the

cost of licensing.

———

G. ADVERSE EFFECT ON OCLI SUBCONTRACTS

OCLI does a substantial amount of subcontract work

for large corporations such as Xerox, IBM, and Polaroid.

All of such contracts relate to OCLI’s developing new

component parts in the contractor’s complete devices and

include strict clauses to protect the proprietary informa-

tion of the contractor.

Under the Kewanee Rule, OCLI would not be in a posi-

tion to protect the contractor’s valuable proprietary in-

formation. Under such circumstances, such companies

would not risk OCLI’s custody of this information and

so most likely would attempt to perform such services

‘Sin house’’. This would damage small companies, such

as OCLI, which rely heavily upon subcontract work. Also,

it would tend to reduce competition in the United States.

H. INTRACOMPANY POLICY EFFECT—MORE LIMITED AC-

CESS TO TECHNICAL INFORMATION

All technical personnel of OCLI are subject to confiden-

tial employment agreements. OCLI encourages such tech-

nical personnel to become versed in all phases of OCLs

business. This leads to eross-pollination of information

and consequent greater efficiencies in both production and

R&D within the company.

Under the Kewanee Rule, technical personnel could not

be prevented from leaving the company and taking with

them trade seerets and know-how developed by OCLI over

the years. Thus, OCLI would be required to strictly re-

view its policy regarding free access of information to its

technical personnel in order to protect the company against

raids of such personnel by competitors. Such restrictions

would obviously lead to inefficiency within the company.

I OCLI'’s USE OF OUTSIDE CONSULTANTS WOULD BE

REDUCED

OCLI utilizes a number of outside consultants, all of

whom sign agreements to protect any proprietary infor-

mation to which they had access during consultation.

Under the Kewance Rule, OCLI would be extremely hesi-

tant to permit such consultants to have such access be-

cause it could not protect its proprietary information.

Many consultants are employed for their knowledge of

new fields into which OCLI is considering entry. OCLI’s

failure to use such consultants would tend to decrease

the efficient exploration of such new fields.

ARG Re PARAS OMT

J. REDUCED INCENTIVE FOR OCLI TO SELL OR LICENSE

MACHINES TO ITS COMPETITORS

OCLI has sold and licensed a number of its optical

coating machines to competitors under strict agreements

to protect its proprietary information. The purchasers of

such machines manufacture products which compete with

OCLI’s products in the United States.

Under the Kewanee Rule, OCLI would be less likely

to sell such machinery since it could not protect its valu-

able proprietary information.

Ill. CONCLUSION

In view of the foregoing, affirmance of the Circuit

Court would severely prejudice OCLI for its creative but

costly research and development in at least the following

ways:

(1) it would create incentive for predatory raiding of

OCLI’s valuable technical personnel by its less innovative

competitors ;

(2) OCLI would be forced to reduce the more risky

phase of its research and development, i.e., that directed

to new fields and products;

(3) it would greatly restrict OCLI’s access to foreign

technology and the ability of OCLI to sell its technology

in foreign countries, resulting in a competitive disadvan-

tage to OCLI with relation to companies in such foreign

countries ; | :

(4) .it would drastically reduce subcontract work by

OCLI, an important source of revenue to it; and

(5) it would require a reduction in OCLI’s use of out-

side consultants.

The domestic public would also suffer if the lower

- court is affirmed. Technological progress would be de-

celerated because OCLI and other innovative companies

would have reduced incentive to invest in costly research

and development and would have restricted access to

both foreign and domestic technical information. In addi-

tion, there would be a lessening of competition in the

United States market.

For the reasons stated it is respectfully submitted that

the judgment of the court below should be reversed.

Dated, San Francisco, California,

November 19, 1973.

Respectfully submitted,

Harotp C. Housacn,

Davin J. Brezner,

Counsel for Optical Coating

Laboratory, Inc., Amicus Curiae.

(Appendix Follows)

STATE OF CALIFORNIA )

COUNTY OF SONOMA SS) _

DANFORTH JOSLYN, being duly sworn,

deposes and states as follows:

1. He is executive vice president and

director of Optical Coating Laboratory, Inc.,

(OCLI). In that capacity, he is thoroughly

familiar with the technological information

program of OCLI and participates in management

decisions concerning such program.

2. He has carefully reviewed the foregoing

brief amicus curiae and affirms, on behalf of

himself and OCLI management, that the facts

are true within his knowledge and belief and the

opinions expressed reflect those of OCLI

management.

thas H ons

Subscribed and sworn to before me this

14th day of November, 1973.

Notary Public

» “OFFICIAL SEAL.

' BARBARA L. FISHER

NOTARY PUBLIC+CALIFORNIA

SONOMA COUNTY

My Commission Expires May 7, 1975

—s

ALND A PENNS

SUP |

No. 73-187

In the

Supreme Court of the United States

Ocroser TERM, 1973

KEWANEE OIL COMPANY,

Plaintiff-Petitioner,

vs.

BICRON CORPORATION et al,

Defendants-Respondents,

BRIEF AMICUS CURIAE OF THE

AMERICAN BAR ASSOCIATION

Donatp W. BANNER

200 South Michigan Avenue

Chicago, Illinois 60604

Tsomas F. McWriaMs

53 West Jackson Boulevard

Chicago, Illinois 60604

Joun C. DorFmMan

123 South Broad Street

Philadelphia, Pennsylvania 19109

Attormeys For American Bar

Association As Amicus Curiae

CHESTERFIELD SMITH

Post Office Drawer B.W.

Lakeland, Florida 33802

President

American Bar Association

The Scheffer Press, Inc.—(312) 263-6850

ETS EGRET EEL TE BOON POOL LEGS PERRET

IN THE

SUPREME COURT OF THE UNITED STATES

Ocroser Term, 1973

N. 0. 73-187

KEWANEE OIL COMPANY,

Plaintiff-Petitioner,

vs.

BICRON CORPORATION et al.,

Defendants-Respondents,

| emiaaemanaelE aaanaen AS

—— ame a

BRIEF AMICUS CURIAE OF THE

AMERICAN BAR ASSOCIATION

Interest of Amicus

The American Bar Association, consisting of over

175,000 lawyers throughout the United States, includes

a substantial number of members regularly counseling

clients concerning the assertion of and defense against

patent and trade secret rights. The Association appears

here in an attempt to assist the Court in the orderly

development and clarification of trade secret law.

The Background Facts

Trade secrets frequently are of immense value. They

are acquired by the expenditure of time and effort and

investment so as to afford an advantage over competitors.

wn.

They are the subject of extremely valuable licensing ar-

rangements both intranational and international.

Trade secrets are the subject of state criminal statutes.

At least 21 states of the United States have adopted

statutes making it a crime to fteal trade secrets—with

no distinction as to whether or' not they are patentable.’

For at least three quarters of # century state courts

throughout the United States, and many Federal. Courts

which have considered the issue, have found that the

common law of the states, or state statutes, protect the

owner of trade secrets from their theft or their unlawful

disclosure or use in violation of a contract or a fiduciary

relationship. Most of the states have held that their com-

mon law does so protect trade secrets, whether patent-

able or not. Representative of such decisions is that of

Ark. Stat. Ann. 6641-3949 to 6641-3951 (1967)

Cal. Penal Code §499ce (1967)

Colo. Rev. Stat. § 40-5-33 (1969), § 40-5-34 (1967)

Ga. Crim. Code § 26-1809 (1968)

Ill. Rev. Stat. Ch. 38 § 15-1 to 15-9, § 16-1 (1965)

Ind. Code §§ 35-17-3-1 to 35-17-3-5 - (1969)

Me. Rev. Stat. Ann. Tit. 17, § 2113 (1967)

Mass. Ann. Laws Ch. 266 §§ 30(4), 60A (1967)

Mich. Compl. Laws §§ 752.771 to 752.773 (1968)

Minn. Stat. Ann. § 609.52 (1967)

Neb. Rev. Stat. Ch. 28, §§ 548.01 to 548.03 (1965)

N.H. Rev. Stat. Ann. Ch. 580, § 32 (1967)

N.J. Stat. Ann. §§ 2A: 119-5.1 to 119-5.5 (1965)

N.M. Stat. Ann. § 40 A-16-23 (1967)

N.Y. Penal Code § 155.00(6), 155.30(3), 165.07 (1967)

N.C. Gen. Stat. § 1475.1 (1967)

Ohio Rev. Code Ann. Tit. 13, § 1333.51, 1333.99 (1967)

Okla. Stat. Tit. 21, § 1732 (1968)

Pa. Stat. Tit. 18, § 4899.2 (1965)

Tenn. Code Ann. §§ 21-4238 to 21-4240 (1967)

Wis, Stat. Ann, § 943.205 (1965)

_—e

the Connecticut Supreme Court entitled Plastic and Metal

Fabricators Inc. v. Roy reported at 163 Conn. 257, 303

A.2d 725 (1972).

This protection afforded to trade secrets in the United

States is similar to protection afforded in the other in-

dustrial countries of the world. Indeed, the United States

is party to international treaties which protect against

“eompetition contrary to honest practices in industrial or

commercial matters” and acts “contrary to commercial

good faith’.

In the case at bar, the pertinent findings, in the language

of the Circuit Court of Appeals, are as follows:

“On this record, as a whole, it appears clear to us,

as it did to the District Court, that the individual

defendants used the information obtained during

their employment by Harshaw for the benefit of

Bicron. There can be no question on this record but

what these individual defendants appropriated, to the

benefit of Bicron, Harshaw’s secrets, processes, pro-

cedures and manufacturing techniques. (478 F.2d 1076)

“In addition the mere showing or writing about

certain manufacturing techniques was found by the

District Judge to be insufficient to amount to a dis-

closure to the public of those trade secrets involved

2Article 10 bis of the Paris Convention Act of Lisbon,

1958, 13 U.S.T. 1 reads in part: “(1) The countries of

the Union are bound to assure to persons entitled to the

benefit of the Union effective protection against unfair

competition. (2) Any act of competition contrary to honest

practices in industrial or commercial matters constitutes

an act of unfair competition.” Article 20 of the Pan

American Convention, 46 Stat. 2907, reads in its en-

tirety, “Every act or deed contrary to commercial good

faith or to the normal and honorable development of

industrial or business activities shall be considered as

unfair competition and, therefore, unjust and prohibited.” .

ani

in this law suit, which were found by the District

Court to be trade secrets within the law. (478 F.2d

1077)

“After careful consideration of the entire record

it appears that the findings of fact of the District

Judge are not clearly erroneous within the meaning

of Rule 52, Federal Rules of Civil Procedure, 28

“U.S.C, and the District Judge properly applied the

Ohio law relating to trade secrets.” (478 F.2d 1077)

The Confusion Below

The American Bar Association respectfully suggests

that the Court below was in error in thinking that the

Ohio law relating to trade secrets resulted in “the main-

tenance of a monopoly”. This error led it to reason that

the state law could not be enforced because the patent

laws were the only ones which could provide a monopoly.

The Court’s confusion of state trade secret laws and

monopolies was, therefore, a pivotal error below.

The trade secret law of Ohio, and that ofall other states,

provides a type of protection for these secrets which is

distinetly different from the monopoly obtainable under

the patent laws. The right which the patent law grants

permits the patent owner “to exclude others from making,

using or selling the invention throughout the United

States” for a stated period. (35 USC 154) This is a broad

right to exclude, which extends even to those who may

independently make the same invention at some later time.

No sueh right to exclude arises out of state trade secret

law. On the contrary, the owner of a trade secret only

has (1) the right to prevent those who have stolen the

secret from him from disclosing or using it, and (2) the

right to prevent others from disclosing. or using it in

breath of contract or by violation of a fiduciary relation-

cae Wet

ship. It is impossible, for example, for the owner of such

a trade secret to assert any “trade secret” right against

any person who- independently develops the same secret.

Indeed, it is well settled that more than one person may

simultaneously and independently be in possession of the

same trade secret. The owner of a new technological

development which is patentable therefore has the option

of choosing between the broad right to exclude others—

the monopoly grant—provided under the patent laws, and

the narrow right to keep others from stealing or using

his secrets in breach of a contract or of a fiduciary rela-

tionship.

This Court Has Consistently Recognized The Differences

Between Patent Rights and Trade Secret Protection

These differences between the rights arising under

the patent law and the rights in trade secrets have been

stated by this Court many times. In Becher v. Contoure

Laboratories (279 U.S. 388), Mr. Justice Holmes said:

“It is plain that that suit had for its cause of action

the breach of a contract or wrongful disregard of

confidential relations, both matters independent of

the patent law, and that the subject matter of Op-

penheimer’s claim was an undisclosed invention which

did not need a patent to-protect it from disclosure by

breach of trusts Irving Iron Works v. Kerlow Steel

Flooring Co., 96 N.J. Eq. 702, 126 A. 291; Du Pont ,

deNemours Powder Co. v. Masland, 244 U.S. 100, 37

S.Ct. 575, 61 L.Ed. 1016. Oppenheimer’s right was

independent of and prior to any arising out of the

patent law, .. .”.

*(Callmann, The Law of Unfair Competition and Trade

Marks, 2nd Ed., 1950, Vol. 2, Ch. 14, Sections 51-54; Ellis,

— — 1953, Ch. 2; Restatement of Torts (1939)

on ;

siaibiian

In Chicago Board of Trade v. Christie G. & S. Co.,

(198 U.S. 236, 1905), Mr. Justice Holmes said:

“It stands like a trade secret. The plaintiff has the

right to keep the work which it has done, or paid

for doing, to itself. The fact that others might do

similar work, if they might, does not authorize them

to steal the plaintiff’s. Compare Bleistein v. Donald-

son Lithographing Co., 188 U.S. 239, 249, 250, 47 L.Ed.

460, 462, 23 Sup. Ct. Rep. 298. The plaintiff does

not lose its rights by communicating the result to per-

sons, even if many, in confidential relations to itself,

under a contract not to make it public, and strangers

to the trust will be restrained from getting at the

knowledge by inducing a breach of trust, and using

knowledge obtained by such a breach.” (198 U.S. 250)

In the United States v. Dubilier Condenser Corp. (289

U.S. 178, 1933), Mr. Justice Roberts said:

“An inventor deprives the public of nothing which

it enjoyed before his discovery, but gives something

of value to the co ity by adding to the sum of

human knowledge. (citing cases) He may keep his in-

vention secret and reap its fruits indefinitely. In con-

sideration of its disclosure and the consequent. bene-

fit to the community, the patent is granted. An ex-

clusive enjoyment is guaranteed him for seventeen

years, but, upon the expiration of that period, the

knowledge of the invention inures to the people, who

are thus enabled without restriction to practice it,and

profit by its use. Kendall v. Winsor, 21 How. 322, 327,

16 L.Ed. 165; United States v. American Bell Tele-.

phone Co., supra, page 239 of 167 U.S., 17 S.Ct. 809.

To this end the law requires such disclosure to be

made in the application for patent that others skilled

in the art may understand the invention and how

to put it to use.” (289.U.S. 186, 187)

—e may

Therefore, for almost three quarters of a century the

distinction between monopoly rights granted by a patent

and the protection granted by states under trade secret

laws has been thoroughly understood. Indeed, the two con-

cepts have lived in harmony, together supporting the

public interest in strengthening: and advancing the indus-

trial vitality of the United States. :

Congress and State Trade Secret Law

It is quite apparent that Congress is not aware that

it preempted trade secret law in adopting the eurrent

patent statute, passed in 1952. There is no statute en-

acted by Congress since that date which implies any pre-

emption of the trade secret law of the states. Additionally,

although state trade secret law was in existence for well

over half a century before passage of the 1952 patent

act, there is not one word in that entire statute which

provides for any preemption of any trade secret law.

Furthermore, the “Commentary on the New Patent

Act” which appears as part of the West Publishing Com-

pany’s United States Code Annotated, prepared by Mr.

P. J. Federico—one of the principal drafters of the 1952

patent act—has not one single word which would suggest

that the 1952 patent act was intended to preempt state

trade secret law.

In addition, and.even though there is no statute passed

by Congress since 1952 stating that the patent statute

of that vear created any preemption of the state law of

trade secrets, Congress has passed numerous statutes

which in other ways relate to trade secrets. This action

of Congress thus leads to the inexorable conclusion that

no such preemption was ever intended by Congress. (These

naa

statutes are listed as footnote 5 on page 13 of the Peti-

tion for Writ of Certiorari in this case, and therefore are

not repeated here.)

It is interesting to conjecture, however, what result

would obtain in the Sixth Circuit should a criminal action

be brought against an eniployee of the United States

under 18 USC 1905 (1970) which ‘makes it a federal

crime for a United States officer or employee wrong-

fully to disclose a trade secret which comes to him in the

course of his employment. There is, of course, nothing

in that statute which makes it inapplicable to the dis-

closure of a trade secret of a patentable nature which

has been used commercially for more than one year. If a

federal employee disclosed such a trade secret, obtained

by him from another in the course of his employment,

he would be criminally liable. It seems obvious that the

Congress would never have passed the criminal statute

recited above had it been under the impression it had

preempted a certain class of trade secrets from state pro-

tection when it passed the patent statute in 1952.

Preemption

The sole basis in law for the decision of the Court

below was not any action of Congress but rather the

question asked by this Court in Lear, Inc. v. John S.

Adkins, 395 U.S. 653 (1969). At that time—and very

wisely—this Court decided it should not “attempt to

define in even a limited way the extent, if any, to which

the states may properly act to enforce the contractual

rights of inventors of unpatented trade secre ” (page

675). The Court below, improvidently we urge, rushed

in to decide an issue which this Court refused to decide.

In so doing the Court below obviously did violence to a

soiica:

well-established body of law involving property rights

of immense value, having both national and international

ramifications.

If such law is to be changed, we submit it should only

be done by the Congress of the United States after com-

plete hearings. Such hearings should cover the manner

in which investment is made in the creation of trade

secrets and the extent of such investment. The hearings

should also embrace the effect of any proposed change

in trade secret law on: licensing practices and the inter-

national balance of payments; the import of foreign trade

secrets into the United States; the pertinent treaties

to which the United States is a party; our country’s tech-

nology resource, and all other issues which would be

affected by the overthrow of settled law in this area.

Clearly, only the Congress can obtain the requisite infor-

mation to determine whether there should be a change

in the law and, if so, to what extent. No Court is in as

favorable a position to do so. As this Court said in

Gottschalk v. Benson & Tabbot, 93 S.Ct. 253 (1972):

“It may be that the patent laws should be extended

to cover these programs, a policy matter to which

we are not competent to speak. ... . If these pro-

grams are to be patentable, considerable problems

are raised which only committees of Congress can

manage, for broad powers of investigation are needed,

including hearings which canvass the wide variety

of views which those operating in this field entertain.

_ The technological problems tendered in the many

briefs before us indicate to us that considered action

by Congress is needed.”

Furthermore, this precise issue of preemption of state

trade secret law by the patent statutes is before the Con-

ae ew

gress at this time. On September 27, 1973, President

Nixon ordered the Commerce ahd Justice Departments

to transmit to the Congress a proposed patent act. This

was introduced into the Senate by Senator Scott as $.2504.

The President’s message of transmittal states, inter alia,

that the legislation “would ensure that the patent laws

not be construed to replace or preempt state laws con-

cerning trade secrets so long as those state laws do not

interfere with the free flow of ideas in the public domain.”

It should be noted that in the case at bar—as distinguished

from the factual situation in Sears (376 U.S. 225, 11 L.Ed.

2d 661, 84 S.Ct. 784 (1964)) and in Compco (376 U.S. 234,

11 L.Ed.2d 669, 84 S.Ct. 779 (1964))—the courts below

agree that the fact is that we are dealing with trade

secrets and not with “ideas in the public domain.”

CONCLUSION

This case presents a simple, and yet historic, issue. Its

ramifications are of tremendous importance. The American

Bar Association urges that the decision below be reversed

and that any such dramatic change in state trade secret

law, as attempted by the Court below in this case, be

stated to be in the sole province of the @ongress of the

United States.

‘The American Bar Association has urged such legisla-

tive action, having adopted a resolution in 1970 favoring

legislation making it plain that the patent laws of the

Unitel States are not to be construed to preempt or to

affect state or other federal law relating to trade secrets.

This resolution was generated y ie decision of the trial

court in Painton & Company Ltd. v. Bourns, Inc. (309

F.Supp. 271). That decision was reversed by the Second

Cireuit Court of Appeals (442 F.2d 216).

ws Sh ola

Respectfully submitted,

AMERICAN Bar ASSOCIATION

Donatp W. BaNnNER

200 South Michigan Avenue

Chicago, Lllinois 60604

Tuomas F. McWr.uiamMs

’ 53 West Jackson Boulevard

Chicago, Illinois 60604

Joun C. DorFMan

123 S. Broad Street

Philadelphia, Pennsylvania 19109

Attorneys for American Bar

Assoctation as Amicus Curiae

CHESTERFIELD SMITH

P. O. Drawer B.W.

Lakeland, Florida 33802

President

American Bar Association

2; an “NMARYy |

i CCury :

@ uf >

IN THE

Supreme Court of the United States

OcToBER TERM 1973

No. 73-187

KEWANEE O11 Company, Petitioner,

vs.

Bicron Corporation, Luoyp H. HamMner, JuLious M.

MENEFEE, WittiamM P. Novak, RicHarp W.

SPURNEY AND Harry SuscHEK, Respondents.

BRIEF ON THE MERITS FOR

THE AMERICAN PATENT LAW ASSOCIATION,

AMICUS CURIAE

JoHN T. Kexton, President

American Patent Law Association

2001 Jefferson Davis Highway

Arlington, Virginia 22202

By Gerorce E. Frost

3044 West Grand Boulevard

- Detroit, Michigan 48202

Its Attorney

Press or Byron S. ApaMs Parntine, Inc., WasHincron, D. C.

aS »

eA gt ae greeny

Supreme Court of the United States

OctToBER TERM 1973

No. 73-187

KEWANEE Or Company, Petitioner,

vs.

Bicron Corporation, Luoyp H. HAMNER, JuLious M.

MENEFER, WittIAM P. Novak, RIcHARD W.

SPuURNEY AND Harry SuscHek, Respondents.

BRIEF ON THE MERITS FOR

THE AMERICAN PATENT LAW ASSOCIATION,

AMICUS CURIAE

INTRODUCTION

This brief amicus curiae is submitted by the Ameri-

can Patent Law Association under Rule 42(2) of this

Court. Letters of consent from counsel for’ the re-

spective parties are on file with the Clerk of this

Court. This brief is filed in support of the Petitioner

and to express our reasons for believing the Court

below has erred.

The filing of this brief on behalf of the Association

has been authorized by the Board of Managers, which

is elected by the members. The Association has over

, en

21 SRP A AOI. TT OP ot wa IE REESE BHM NF SEE TINT ME i lS ABTS CEP ERI e

3,800 members, including over half of the Patent

Lawyers in the United States.

The court below has held that the United States

patent law preempts state common law trade secret

protection to inventions which might be patentable.

In terms, the patent statutes neither require nor pre-

clude this holding. However, the scheme of the patent

law, past and present provisions of the patent and

related laws, and long standing judicial decisions,

show that the court below has erred. Indeed, the

omission of a preemption clause in the 1952 Patent

Code (66 Stat. 792) itself demonstrates Congressional

intent not to disturb the non-preemption implicit in

the well developed body of technical trade secret law.

In order to obtain a patent, the inventor must file

an application fully disclosing the invention. 35

USC 112. The application, and therefore the inven-

tion, is made public upon issuance of the patent. A

defective or inadequate specification will not support

a patent. But if the invention is patentable, and the

specification and other requirements of the patent law

are met, the inventor receives a ‘‘right to exclude

others’’ subsisting for 17 years despite the disclosure

of the invention. 35 USC 154. In short, the inventor

must forego secrecy. if he is to have a patent but he

obtains a right that survives disclosure.

When an invention is kept secret, no patent law

rights can be obtained. The inventor is relegated to

(a) whatever benefit he can obtain from his own secret

use of the invention, and (b) the limited tort or con-

tract based state law relief he can secure against per-

sons who discover the secret by improper means or

disclose or use the secret in violation of an obligation

of confidence or a contract. 4 Restatement, Torts § 757.

The date when secrecy is lost terminates the period for

_which state law relief is available and, at least in most

instances, ends the duration of any injunctive remedy.

See Forest Laboratories v. The Pillsbury Company,

452 F(2d) 621 (7th Cir., 1971).*

In short, the United States patent law operates in

the domain of disclosed public information, and the

state trade secret law operates in the domain of what

is kept secret. The protection is complementary, not

overlapping.” Except for the decision below, there

1The classic analysis of the rights of owners of ‘‘unpatented in-

ventions’’ is contained in Robinson, The Law of Patents (1890).

Sections 867-883 of this treatise are devoted to ‘‘ wrongs against

unpatented inventions.’’ These sections develop the non-pre-

emption doctrine that has been universally applied except for the

decision below and the District Court ruling in Painton v. Bourns,

309 Fed. Supp 271. (S.D.N.Y., 1970, rvsd. at 442 F (2d) (216)).

2The philosophical and practical difference between the state

trade secret law and the patent law is brought out by the require-

ments for a successful trade secret case. In such case, the plaintiff

must (a) identify the alleged secret, (b) prove adoption of ‘security

measures to insure secrecy, (c) show preservation of the secret by

reasonable, enforceable, agreements or other confidential relation-

ships with persons to whom the secret is revealed, (d) establish

that the defendant’s use of the secret stems from knowledge ob-

tained from the plaintiff, (e) establish that the secret is not

revealed by inspection or analysis of any marketed products, and

(f) be prepared to negate defenses such as independent development

of the trade secret by the defendant or others. There is, how-

ever, no requirement of ‘‘unobviousness’’ in the patent law sense.

On the other hand, the plaintiff-in a patent case need only prove

the fact of the patent, his ownership, and the fact of infringement.

It matters not whether defendant learned of the invention from

plaintiff or developed it independently. He must, however, be

prepared to overcome defenses such as anticipation by the prior

art and obviousness over the prior art.

AEE LES ORR LOL AGN EN eA a Te TNT, LPI ET Wet PARTY PL, PET COT Hit

ey FORM e

MER ESS EME RN GIS EP Ne PRA

is no occasion for the patent laws to disclaim pre-

emption of state trade secret law, for the two separate

laws can and do coexist without conflict.

It is clear from past and present provisions of the

patent law that Congress intended to maintain, not

destroy, traditional trade secret protection for inven-

tions. For example, 35 USC 24 provides for sub-

poenas in aid of testimony in contested matters before

the Patent Office. The statute provides that no ‘‘wit-

ness shall be deemed guilty of contempt . . . for re-

fusing to disclose any secret matter except ujion ap-

propriate order of the court which issued the sub-

poena.’’ Prior to the 1952 Patent Code, the statute

read ‘‘no witness shall be deemed guilty of contempt

... for refusing to disclose any secret invention or

discovery made or, owned by himself.’’ R.S. 4908,

Section 45 of the 1870 Patent Act (16 Stat. 198).

Significantly, this qualification was added in the 1870

Patent Act after a decade of experience under Section

1 of the 1861 Act (12 Stat. 246), which was otherwise

similar.

Likewise, from 1836 until after 1903, the patent

law provided for special disclosures known as caveats

to be filed in the Patent Office. It required that each

‘‘eaveat shall be filed in the archives of the office and

preserved in seerecy.’’ R.S. 4902, Section 40 of the

1870 Patent Act (16 Stat. 198), and Section 12 of the

1836 Patent Act (5 Stat. 117). Also, 35 USC 122

directs that ‘‘applications for patents shall be kept in

confidence by the Patent Office . .. .’’ The Reviser’s

Notes state that ‘*This section enacts the Patent Office

rule of secrecy of applications.”’

The foregoing statutes would be superfluous if, as

the court below has held, the patent law preempts

protection for trade secrets involving inventions.

When the Congress has intended preemption in

patent matters, it has said so. Thus 28 USC 1338

states that the jurisdiction of the Unted States District

Courts in ‘‘any civil action arising under any Act of

Congress relating to patents . . . shall be exclusive of

the courts of the states in patent cases."’ Even this

preemption is limited. In Becher v. Contoure Labora-

tories, 279 U.S. 388 (1929) a state court suit “‘had for

its cause of action the breach of a contract or wrongful

disregard of confidential relations both matters inde-

pendent of the patent law’’ and ‘“‘subject matter (of)

undisclosed invention (that) did not need a patent to

protect it from disclosure by breach of trust.”’ Id. at

391. This Court refused to enjoin the state court

action because the ‘‘right was independent of and

prior to any arising out of the patent law.’’ Idem.

Both this Court’s ruling in Becher, and the statute

upon which it is based, are inconsistent with the pre-

emption doctrine applied below in this case.

The theory of the ruling below is similar to the

petitioner’s contention in Mazer v. Stein, 347 U.S. 201

(1954). In Mazer it was argued that the design patent

‘law preempted copyright law protection to works of

art incorporated in utilitarian lamp bases. Rejecting

this contention, this Court held that ‘‘the patentability

of the statutes, fitted as lamps or unfitted, does not bar

principle applies in the present case. The patentabil-

ity of a trade secret, or its former patentability, does

not preclude common law trade secret protection. In

Mazer v. Stein the copyright statute showed Congres-

sional intent inconsistent with preemption. In the

present case, the above-discussed provisions of the

patent and other laws, taken in conjunction with the

long-standing judicial recognition of common law

oe hy? ee PS ae a RY PRS GEO HEED OL ERIE — SE ee"

Ph NOME ’ me ry

trade secret protection to inventions, show a like Con-

gressional intent to leave such trade secret protection

unaffected.

Il.

The court below specifically applied its doctrine of

preemption to trade secrets that once could have been

patented but are no longer patentable because of more

than one year’s commercial use.

The doctrine of unpatentability relied upon stems

from Macbeth-Evans Glass Co. v. General Electric

Co., 246 Fed. 695 (6th Cir., 1917). The court was not

there concerned with whether trade secret rights did

or did not exist. Rather, the suit was upon a patent,

and the patent disclosure itself had terminated trade

secret rights. The court did hold that there was a

forfeiture of the right to patent protection because

‘“*the ... choice made (between trade secret and patent)

was deliberate and is unmistakable; it was the secret

use for profit and was persisted in for years’’ and

“Tf the right to secure protection of the patent laws

ean be effectively repudiated, it certainly has been

here.”’ Id. at p. 701. In Metallizing Eng. Co. v.

Kenyon Bearing, 153 F(2d) 516 (2d Cir., 1946),

Judge Learned Hand—applying the Macbeth-Evans

doctrine—stated that the inventor ‘‘must content him-

self with either secrecy, or legal (patent) monopoly.”’

Id. at p. 520.

Rather than supporting the ruling below in the

present case, these decisions show that patent protec-

tion and trade secret protection are two different

things—and that only an attempt both to use a trade

secret commercially for a prolonged period and there-

after obtain a patent is contrary to the patent law.

In any event, the patent statutes do not express any

preemption doctrine as to trade secrets, much less one

that applies to some secrets and not to others. Any

effort to confine preemiptien to once-patentable inven-

tions leads to the illogical result that an unobvious and

therefore patentable tirade secret is preempted from

trade secret protection. by the patent law whereas the

less deserving obvious and unpatentable trade secret is

not preempted. See 35 USC 103. This would lead

to the absurd requirement that a plaintiff needs to

show that the secret ‘is trivial and unpatentable in

order to prevail in a tirade secret case.

The ruling below must stand or fall on whether the

patent law preempts common law trade secret protec-

tion to inventions generally, not on the nature of the

particular trade secrets before the court. As discussed

in part I, above, there is no such general preemption.

ITl.

Finally, the ruling below is unsound as a matter of

policy. Whether the law protects the trade secret or

not, the owner oftem can physically maintain the

secret. Where the owner cannot bear the expenses of

patents and their enfforcement, such secrecy can be

especially attractive. An opportunity to disclose and

to license, based on the quite limited protection af-

forded by the state laws of trade seercts, benefits both

the owner of the secret and the public. Judge

Friendly was right im stating that: |

‘‘Rather than having a monopolistic tendency,

like the Illinois law involved in doare and Compco,

the upholding of private agreements for the shar-

ing of trade secrets on mutually acceptable terms

‘tends against the owner’s hoarding them.’’

ma) v. Bourns, 442 F.(2d) 216, 223 (2d Cir.,

1971) ).

An unbroken line of decisions in the one hundred and

eighty-three years since the 1790 Patent Act has

recognized the benefits of protecting trade secrets and

has given narrow and limited protection to trade

secrets—implicity denying any federal preemption.

Surely, this is not the time to upset an uncountable

number of business decisions and agreements based on

this established law.

The judgment below should be reversed.

Respectfully submitted,

JoHN T. Ketron, President

American Patent Law’

_ Association

2001 Jefferson Davis Highway

Arlington, Virginia 22202

By Gerorce E. Frost

3044 West Grand Boulevard

Detroit, Michigan 48202

Its Attorney

Certificate of Service

The undersigned hereby certifies that copies of the

foregoing were, on the 20 day of November, 1973,

_mailed by registered airmail, as follows:

Mr. Epwarp P. TROXELL

1750 Union Commerce Building

Cleveland, Ohio 44115

Counsel for Petitioner

_Mr. WriuiaM C. McCoy, JR.

625 National City Bank Building

Cleveland, Ohio 44114

Counsel for Respondent

GEORGE E. Frost

3044 West Grand Boulevard

Detroit, Michigan 48202

Attorney for American Patent

Law Association

PPh a A, NI

= LIBRA RY id i ay Sunreme owt :

Sr) : Via E as ree

OB pin Boe Oe ;

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1973

No. 73-187 ‘

KEWANEE OIL COMPANY, q

Petitioner ;

versus

BICRON CORPORATION, et al.

Respondents

BRIEF OF SOUTHWIRE COMPANY AS AMICUS CURIAE

Van C. Wilks

P. O. Box 1000

Carrollton, Georgia 30117

Attorney for Amicus Curiae

Of Counsel:

D. R. Sloan, Jr.

P. O. Box 1000

Carrollton, Georgia 30117

che

ath

. ;

* .

wean Runegpnceo. Cranage NH GO

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1973

No. 73—187

KEW ANEE OIL COMPANY,

Petitioner

versus

BICRON CORPORATION, et al.

Respondents

BRIEF OF SOUTHWIRE COMPANY AS AMICUS CURIAE

This brief is submitted with the written consent of all parties

to the case.

INTEREST OF AMICUS CURIAE

Southwire Company, the Amicus Curiae, has a significant

research and development effort in terms of both manpower

and financial expenditure. Southwire Company has extensively

licensed patented and unpatented developments both within

and without the United States. Further, Southwire has in

the past, and needs in the future, to rely upon numerous

confidentiality agreements with both its employees and licens-

ees. Southwire believes that the practical economic impact of

this decision was not understood by the Sixth Circuit. that the

practical economic impact was not pointed out to that court

by the Parties, and that there is great danger that the practical

economic impact of this case will not be presented to this

Court by the Parties.

ARGUMENT

Southwire Company (herein called Southwire) believes that

the hard legal issues raised by this case will be presented ade-

quately to the Court by others. However, a few legal points

concerning the economic impact are noteworthy here.

The enforceability of contracts involving the transfer of con-

fidential information has been upheld in this Country, by this

Court, at least since Fowler v. Park, 131 U. S. 88 (1889).

These contracts have become so numerous and involve such

fantastic financial commitments by American industry in re-

liance upon almost a century of case law supporting their vali-

dity that any change in the law should properly come from the

Congress, not from the Courts. The Congress alone, among the

governmental entities, has both the power and the investigative

resources to evaluate fully the practical economic impact of

trade secret law and the need for, or desirability of, changing

almost a century of precedent.

An interesting contrast in the treatment of trade secret law

and confidentiality agreements is presented by three recent de-

cisions of the Sixth Circuit. In United States v. Greenwald,

No. 72-2117 (6th Cir. June 1, 1973) the court upheld Green-

wald’s conviction for transportation of stolen property in in-

terstate commerce. The “property” in question was a “secret

chemical formula”. The court had no trouble in finding that

unpatented trade secrets are assets. Greenwald is totally incon-

sistent with Kewanee Oil Company v. Bicron Corporation, et al,

Nos. 71-1041, 71-1042 (6th Cir. May 10, 1973) which was

decided a mere three weeks earlier by the same court. Two

wecks ‘after Greenwald, the Sixth Circuit decided Screw Ma-

chine ‘Tool Company v. Slater Tool and Engineering Corpo-

ration, et al, No. 72-1950 (6th Cir. June 15, 1973), which held

uncopyrighted matter could not be copied if the result would

be unfair competition. The defendant was found in contempt

of court in Screw Machine Tool. Thus the Sixth Circuit ap-

pears to be saying that if a confidence is betrayed, it may con-

stitute a crime, or it may constitute contempt of a court order,

but there is no civil remedy. If the policy in favor of uphold-

ing confidences is strong enough that betrayal of a confidence

is a crime, it appears that one of the most powerful forces for

enforcing confidences—a private civil action—should not be de-

nied as it was in Kewanee.

The Sixth Circuit failed completely, as evidenced by its

opinion, to understand the practical, economic significance of

its Kewanee decision. Southwire is a relatively small company,

but it has a significant research and development effort. South-

wire now owns some sixty-one United States patents and over

three hundred foreign patents and has over forty-eight pending

United States patent applications. In addition to the patents

and patent applications, Southwire has developed significant

trade secrets or “know-how”. The development and licensing

of patents and know-how contribute heavily to Southwire’s

viability as a competitor of the giant nonferrous metal com-

panies both in the United States and abroad. Southwire now

has in force technology licensing agreements with nine U. S.

companies involving a gross amount of $6,140,000, and with

sixteen foreign companies involving a gross amount of

$14,440,000. Each of the license agreements involves the

transfer of trade secrets as a significant portion thereof. No

matter what the formal words of the particular agreement

specify, what foreigners are most interested in buying is our

know-how, and not our patents. Patents alone are rarely sale-

able. Southwire has relied, and must continue to rely, upon the

enforceability of confidentiality agreements to continue its re-

search and development program. If a competitor could hire a

Southwire employee, and that employee could divulge with

impunity any Southwire trade secret over one year old, our re-

search program could not possibly pay for itself. Southwire

would become, in effect, a development agency for its com-

petitors. Millions of dollars of revenue would be lost to South-

wire. Also, foreign licensing would, as a practical matter, be-

come impossible. What foreign company would take a license

for trade secrets that it could obtain by simply hiring a South-

wire employee? The United States’ balance of payments would

continually deteriorate if foreign licensing of unpatented tech-

nology became impracticable. Worse still, research and de-

velopment within the United States would be drastically de-

creased. What company could afford to spend millions on

development just to have its competitors obtain the benefits of

that development without spending the time and money nor-

mally required? A research oriented company, instead of main-

taining.a competitive advantage, would suddenly find itself at a

competitive disadvantage. Significant research and develop-

ment within the United States would stop. Thereafter, in

order to be competitive in a world market, United States com-

panies would be forced to buy technology from abroad—if any

foreign companies would license within the United States, be-

cause United States entities could not enforce confidentiality.

The practical impact of the Sixth Circuit’s Kewanee de-

cision could not have been thoroughly considered by that

court. The potential for economic harm to the Country as a

whole is unparalleled. Southwire is but one company. Mag-

nify the impact upon Southwire and project the impact upon

the national economy, and it becomes abundantly clear that

billions or hundreds of billions of dollars annually could be in-

volved. This Court should reverse the Sixth Circuit and defer

to the Congress any changes in a century of precedent on an

: issue with such a momentus potential impact upon this Nation.

| | CONCLUSION

For the foregoing reasons, Amicus Curiae, Southwire Com-

pany, respectfully requests that this Court reverse the court

below.

Respectfully submitted,

Van C. Wilks

P. O. Box 1000

Carrollton, Georgia 30117

Attorney for Amicus Curiae

4 “

! - Of Counsel:

D. R. Sloan, Jr.

P. O. Box 1000

Carrollton, Georgia 30117

Gute

CERTIFICATE OF SERVICE

This is lo certify that copies of this Brief were served

upon the Parties through their attorneys of record in accord-

ance with Rule 33 of the Supreme Court of the United

States, revised rules, on November 21, 1973.

Van C. Wilks

P. O. Box 1000

Carrollton, Georgia 30117

Attorney for Amicus Curiae

— an AROS OEE CY PIT NR

eng MN AAMT TATRA

ne et ote 5

AIRE NTE PITTE LENCE MTN ATTN TT

OO LLL

MICHAEL RO:

IN THE |

Supreme Court of the United Sates

OCTOBER TERM, 1973

a cnn

No. 73-187

cteneaneenspprsietens

KEWANEE OIL COMPANY,

Petitioner,

BICRON CORPORATION, et al.,

; Respondents.

cxmvelpuvenssain

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS BOR THE SIXTH CIRCUIT

a en

BRIEF AMICUS CURIAE FOR

BURROUGHS CORPORATION

James M. Clabault

Edward G. Fiorito

C. Paul Padgett, Jr.

Attorneys for Amicus Curiae

Burroughs Corporation

Burroughs Place

Detroit, Michigan 48232

Of Counsel:

Kenneth L. Miller

Paul W. Fish

Leonard C, Suchyta

Edward F. Langs

Burroughs Corporation

Burroughs Place —

Detroit, Michigan 48232

Interstate Brief & Record Co., 1036 Beaubien St., Detroit. Michigan 48226

WO. 2-8745—WO., 2-8732

eo a

TABLE OF CONTENTS

Page

Preliminary Statement ............. cece eeeeeeees 1

Questions Presented ............cccee cece eeeeees 2

Interest of Amicus Curiae..... 0... cece cece ee eens 2

Sammary of Argument.............cccccsccesees 4

ATEUMONE 6i is Geecciveccctesesersecssseeeces

I. THE KEWANEE HOLDING PLACES

AN UNDUE BURDEN ON TECHNOL-

OGY-ORIENTED INDUSTRIBS.......... 6

A. The Decision Below Usurps The Power

Of Congress And Judicially Legislates

Away A Vast Body Of Existing Trade

Beeret TiGW xxx a0 650465 davcaswcewsueces 6

B. The Decision Below And Its Accompany-

ing Penumbra Of Uncertainty Will Have

A Severe Impact Upon Business Activi-

ties And Will Operate To Hinder The

Progress Of Science And Technology... . 12

Il. THE U.S. CONSTITUTION DOES NOT

PROHIBIT THE STATES FROM EN-

ACTING LEGISLATION PROTECTING

TRADE SECRETS; SUCH LEGISLA-

TION WAS NOT PREEMPTED WHEN

CONGRESS ENACTED THE FEDERAL

PATENT LAWS; AND TRADE SECRET

LAWS DO NOT CONFLICT WITH THE

POLICIES AND OBJECTIVES UNDER-

LYING THE FEDERAL PATENT LAWS 19

A. The States Have Not, Under The U.S.

Constitution, Relinquished To The Fed-

Page

eral Government, For Its Exclusive Exer-

cise, The Power To Enact Laws Affecting

Inventions And Innovations............ 19

B. The Vast Body Of Existing State Trade

Secret Law Was Neither Expressly Nor

Impliedly Preempted By Congress In

Enacting The Federal Patent Laws.... 23

C. State Trade Secret Laws Do Not Stand

As An Obstacle To The Accomplishment

And Execution Of The Full Purposes And

Objectives Of Congress In Enacting The

Patent Laws And Hence Are Not To Be

Struck Down Under The Supremacy

UN ooh es pabassecceessessscens 24

Ill THE COURT BELOW ERRONEOUSLY

CONCLUDED THAT ITS RESULT WAS

COMPELLED BY PRIOR DECISIONS OF

THIS COURT ............... ccc cece eee 26

Conclusion ....... ewes G45 oeeuneveus oe cenevavs ex 30

TABLE OF AUTHORITIES

Cases:

Becker v. Contoure Laboratories, Inc., 279 U.S.

se Bh: |) ee eer 6

Board oj Trade v. Christie Grain & Stock Co.,

198 U.S. 236 (1905) ......... ccc eee eee 6

Compco Corp. v. Day-Brite Lighting, Inc., 376

U.S. 235 (1964) 2.0... cece cece eee 27

Goldstein v. California, 412 U.S. 546 (1973)....

19, 20, 21, 22

Page

Gottschalk v. Benson, 409 U.S. 63 (1972)...... 11, 15, 16

Kellogg Co. v. National Biscuit Co., 305 U.S. 111

(ob 2) | SESE eee eee eee 26

Kewanee Oil Co. v. Bicron Corp., 478 F.2d 1074,

178 U.S.P.Q. 3 (6th Cir. 1973) ........ 1, 6, 8, 20, 27

Lear, Inc. v. Adkins, 395 U.S. 653 (1969) ...... 28

People v. Hull, No. 2610 (Troy Mun. Ct., filed

PEOTER D0; 1918) scan on cence snes esewasa es 18

Sears Roebuck & Co. v. Stiffel, 376 U.S. 225 (1964) 27

Telex Corp. v. International. Business Machines

Corp., Nos. 72-C-18 and 72-C-89 (D.C.N.D.

Okla., Sept. 17, 1975) 2060 ccevessaeeseavers 14

United States v. Akfirat, No. 4-80300 (D.C.E.D.

Mich., filed Aug. 30, 1973)..:............... 17

United States v. Bottone, 365 F.2d 389 (2d Cir.) .

cert. denied 385 U.S. 974 (1966).............. 24

United States v. Dublier Condenser Corp., 289

MS, AIG CUS) opie cess csaesines Senseess 6

United States v. Greenwald, 479 F.2d 320 (6th

MP. ASTD). sens ecy ees erode seat eancenss: 24

United States Constitution and Statutes:

U.S. Const. art I, $8, el.8...........0.....000.. 19, 21, 24

U.S. Const. art. VI, cl. 8............. cece eee 20

18 U.S.C. 92314 (1968) ......... eee eee eee 24

35 U.S.C. §101 (1952) ...................086. 2, 8, 9,15

35 U.S.C. §$102(b) (1952) ..................... 9, 10

Page

Bo Us, S108 (1900 )in cs xn cons ee xnseesynewenses 9

BB UBC. S122 (962) cc sisccscsescseusceussess 24

Mich. Cds. ISTO SIOZ 102 6acsn cone vccctwesavens 18

Treaties and Bills:

Agreement with Belgium on Patent Rights and

Technical Information, Oct. 12, 1954, oad

5 U.S.T. 2318, T.LA.S. 8003. ...........0c00.

Agreement with Denmark on Patent Rights and

Technical Information, Feb. 19, 1960, [1960]

11 U.S.T. 148, T.LA.S. 4423................ 7

Agreement with Federal Republic of Germany on

Patent Rights and Technical Information,

Jan. 4, 1956, [1956] 7 U.S.T. 45, T.LA.S. 3478 7

Agreement with France on Patent Rights and

Techincal Information, March 12, 1957,

[1957] 8 US.T. 353, T.LA.S. 3782......... 7

Agreement with Greece on Patent Rights and

Technical Information, June 16, 1955, [1955]

6 UST. 2178, T.LA.S. S286. « <n0s050054s035% 7

Agreement with Italy on Patent Rights and Tech-

nical Information, Oct. 3, 1952, [1960] 12

UST. 189, TLAS: 4090 cess cncsassciaccs 7

Agreement with Japan on Patent Rights and

Technical Information, March 22, 1956, [1956]

7 US.T. 1021, T.LA.S. 3585. .......... 0000. 7

Agreement wtih Netherlands on Patent Rights

and Technical Information, April 29, 1955,

[1955] 6 U.S.T. 2187, T.LA.S. 3287.......... 7

Agreement with Norway on Patent Rights and

Technical Information, April 6, 1955, [1955]

Page

6 US.T. 799, TILA. SRS. « «500000 cs0ssases 7

Agreement with United Kingdom of Great Britain

and Northern Ireland on Patent Rights and

Technical Information, Jan. 19, 1953, [1953]

re De ieee FS ig 7

S. 2504, 93d Cong., Ist Sess. §301 (1973)........ 23

Rules:

Rule 14(a) of the United States Patent Office

Rules of Practice ...... | See bestanenatswaes 24

Miscellaneous

R.M. Milgrim, Trade Secrets, §§1.10[1], 2.03

2901S) eunidewcacewees CN Depeebueesaxeeeses T, 27

Restatement of Torts $757, comment b (1939).... 27

53 U.S. Dept. of Commerce, Survey of Current

Business 42, No. 9, Sept. 1973 .............. 14

Milgrim, Sears to Lear to Painton: Of Whales

and Other Matters, 46 N.Y.U. L.Rev. 17 (1971)

7, 17, 23

Plant, $31—Budllion for Research, Ind. Res. 42

COMM. TOE) cose c cudwnpswesnssaeesurasesss<

LBL BT PTE ERT LEEPER PRD DIES) PELE

i a a SAE TERETE IEE OPIN! GIO TNR SEE ES

IN THE

Supreme Court of the United States

OCTOBER TERM, 1973

No. 73-187

———_>—_—_——_—

KEWANEE OIL COMPANY,

Petitioner,

BICRON CORPORATION, et al.,

Respondents.

———>—

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SIXTH CIRCUIT

—__4+—__

BRIEF AMICUS CURIAE FOR

BURROUGHS CG@RPORATION

___ \

PRELIMINARY STATEMENT

Burroughs Corporation (hereinafter Burroughs) is fil-

ing this brief amicus curiae on the merits in support of

the petitioner, Kewanee Oil Company, pursuant to Rule ©

42(2) of the Rules of the Supreme Court of the United _

States. The requisite written consents of the parties are

on file with the Clerk of the Court. The matter is before

the Court on a writ of certiorari to the United States

Court of Appeals for the Sixth Cireuit which reversed the

decision of the District Court for the Northern District of

Ohio, Eastern Division, and which held that Kewanee Oil

Company did not have a protectable property right in cer-

tain of its trade secrets.’

» ¢

1 Kewanee Oil Co. v. Bicron Corp., 478 F.2d 1074, 178 U.S.P.Q. 3

(6th Cir. 1973). The District Court decision was not reported.

SPP MEET PSE AF 2S Na ARSE NNER RET IBALL i

QUESTIONS PRESENTED

1. Whether the U.S. Constitution and the federal patent

laws enacted thereunder preempt state trade secret

law prohibiting the wrongful appropriation of secret

technology to the extent it is encompassed within the

categories of patentable subject matter as defined in 35

U.S.C. § 101.

2. Whether such state trade secret laws are in conflict

with the policies and objectives underlying the federal

patent laws and are. therefore required to be struck

down under the Supremacy Clause of the U.S. Consti-

tution even though Congress did not express an intent

to preempt such trade secret laws when enacting the

federal patent laws.

INTEREST OF AMICUS CURIAE

Burroughs was incorporated in 1905, and is engaged in

the business of designing, manufacturing and marketing a

_ comprehensive range of products for the recording, stor-

ing, computing, processing and‘ communicating of data.

This business involves a wide variety of research and de-

velopment efforts since success in this dynamic industry

depends upon innovation, invention and _ technological

growth. Burroughs, including its world-wide subsidiaries,

has considerable investments in manpower and capital de-

voted to the promotion of technological development. Ap-

proximately 1800 employees are involved directly in re-

search and development related activities and many thou-

sands of additional employees are exposed in some manner

to proprietary information.

For the year which ended December 31, 1972, the dol-

lar value of Burroughs’ world-wide revenue amounted to

$1,053,000,000. For this same year approximately 51 mil-

lion dollars was spent on research and development related

activities. For the current year over 60 million dollars

will be spent for research and development, and over 80

million dollars is being budgeted for the year 1974. Bur-

roughs has invested hundreds of millions of dollars in re-

search and development activities and will continue to in-

vest in research and development in the future. In order

to protect this investment, Burroughs has relied not only

on the patent laws, but also on the law of trade secrets.

Accordingly, Burroughs is interested in maintaining the

trade secret laws intact to protect both past and future

investments.

Burroughs is not currently involved in any action in

which it is asserting the theft of its trade secrets, and it

is not in any way affiliated with either of the parties to

this particular action. However, Burroughs has a deep in-

terest in the proper resolution of the legal questions pre-

sented in this case not only because of the impact the de-

cision below will have upon Burroughs, but also because

of the impact it will have upon all technology-oriented

businesses, upon the economy, and upon the United States

as a whole.

SUMMARY OF ARGUMENT

The decision below, which refused to afford protection

under the trade secret law of the state of Ohio, erodes a

vast body of trade secret law which has coexisted with

the patent laws of this country for well over a hundred

years. Congress, prior decisions of this Court and deci-

sions in other courts have unanimously recognized trade se-

crets and the owner’s right to protect such secrets from

wrongful appropriation. The decision below is extremely

broad because it encompasses all categories of subject mat-

ter coming within the scope of the patent laws, and because

nearly every trade secret of any value is eventually com-

mercialized. Many agreements involving trade secrets were

entered into in reliance upon established trade secret law.

The decision below renders uncertain this body of law

and the enforceability of these aprocmenits.

Technology-oriented industries investing in research and

development activities require an assurance of some re-

turn on their investment. The preemption of state trade

secret laws removes a large portion of the protection upon

which they have previously relied. The inability to safe-

guard these investments may lead to a cutback in re-

search and development investments or to a misallocation

of research and development funds by redirecting expendi-

tures to segnrity measures aimed at protecting their dis-

coveries. Such a cutback may weaken the technological

base of the United States, injure its economy, and destroy

its position as the world’s technological leader.

The power to enact laws prohibiting the misappropria-

tion of secret technological information was neither dele-

gated to the federal government for its exclusive use nor

was it expressly denied the states by the U.S. Constitu-

ee ee

tion. The existence of such a power in the states is not

contradictory and repugnant to the existence of a similar

power in the federal government.

Congress, in enacting the federal patent laws, gave no

indication, either express or implied, of an intent to pre-

empt the entire field of law relating to inventions and dis-

coveries. Congress, on numerous occasions, has expressed

a contrary intent by recognizing the existence of trade se-

erets and the importance of protecting them.

State trade secret laws are not in conflict with the poli-

| cies and objectives underlying the federal patent laws and

hence are not required to be struck down under the Su-

premacy Clause of the Constitution. The federal patent

laws provide the inventor with a right to exclude all others

from making, using and selling his invention for a limited

period of time. Trade secret law, on the other hand, offers

a desirable alternative even though it provides only a very

limited form of protection to the trade secret owner. He

has no right to exclude all others from using his trade

secrets but only has a cause of action against one who has

wrongfully appropriated his secret. In practice, the pat-

ent laws operate to stimulate research and development,

encourage innovation, reward the inventor, and benefit

the public through commercialization of new and improved

products. State trade secret laws have similar practical

effects and are compatible with the constitutional purpose

of promoting the progress of science and the useful arts.

The court below erred in its assumption that its result

was compelled by prior decisions of this Court. Accord-

ing to these prior decisions, all ideas which are in the pub-

lic domain are subject to free use by all, and states

may not grant a patent-like form of protection on an idea

ETE RLM PIM TEE MERD TN PLN, SET ELT HAMLET YP RET Re ae Ee ee eM Ee ak, ded 8

in the public domain. Existing trade secret law is in com-

plete harmony with the prior decisions of this Court, since

trade secret protection is not granted for an alleged se-

eret which has fallen into the public domain.

ARGUMENT

THE KEWANEE HOLDING PLACES AN UN-

DUE BURDEN ON TECHNOLOGY-ORIENTED

INDUSTRIES.

A. The Decision Below Usurps The Power Of Con-

gress And Judicially Legislates Away A Vast Body

Of Existing Trade Secret Law.

Trade secret laws have been recognized by Congress, the

states and the courts. The lower court has acknowledged

that the common law in most states includes cases recog-

nizing the protectability of trade secrets.? The lower court

further acknowledges that this Court has approved the

protection of a trade secret, if not as a property right,

then at least via the enforcement of confidential relation-

ships.’ Congress has recognized the existence of trade

secrets, the right to protect trade secrets, and impliedly,

? “Without the numerous citations of cases we suggest that instances

of protection of trade secrets by the courts may be found in most of

the states of the United States.” Kewanee Oil Co. v. Bicron Corp.,

478 F.2d 1074, 1081, 178 U.SP.Q. 3, 8 (6th Cir. 1973). ~

“In DuPont Powder Co. v. Masland, 244 U.S. 100, 375 S. Ct. 575,

61 L. Ed. 1016, the Supreme Court of the United States approved pro-

tection of a trade secret.” Kewanee Oil Co. v. Bicron Corp., 478 F.2d

1074, 1081, 178 U.S.P.Q. 3, 8 (6th Cir. 1978). See also Becher v. Con-

‘toure Laboratories, Inc., 279 U.S. 388 (1929); Board of Trade v.

Christie Grain & Stock Co., 198 U.S. 236 {1905); and United States

v. Dublier Condenser Corp., 289 U.S. 178 (1933).

ERAT FETT ARNT AEN IRIS ROMY SNS, NOG SENT OR IRAE SIT

PEAY

—-

the ability of trade secret laws and the federal patent laws

to function effectively to protect the same subject matter.

This congressional recognition is evidenced, for example,

by the ratification of several treaties* and the enactment of

numerous legislative acts* which expressly recognize trade

secrets. Since 1965, many states have enacted criminal

laws dealing with the misappropriation of trade secrets.

Further, as acknowledged by the lower court, its deci-

‘The following treaties recognize the existence of trade secrets:

Agreement with Belgium on Patent Rights and Technical Informa-

tion, Oct. 12, 1954, [1954] 5 U.S.T. 2818, T.I.A.S. 3098 ;

Agreement with Denmark on Patent Rights and Technical Informa-

tion, Feb. 19, 1960, [1960] 11 U.S.T. 148, T.LA.S. 4423 ;*

Agreement with Federal Republic of Germany on Patent Rights

and Technical Information, Jan. 4, 1956, [1956] 7 U.S.T. 45,

T.LA.S. 3478;

Agreement with France on Patent Rights and Technical Informa-

tion, March 12, 1957, [1957] 8 U.S.T. 358, T.LALS. 3782;

Agreement with Greece on Patent Rights and Technical Informa-

tion, June 16, 1955, [1955] 6 U.S.T. 2178, T.LA.S. 3286;

Agreement with Italy on Patent Rights and Technical Informa-

tion, Oct. 3, 1952, [1960] 12 U.S.T. 189, T.I.A.S. 4693;

Agreement with Japan on Patent Rights and Technical Informa-

tion, March 22, 1956, [1956] 7 U.S.T. 1021, T.LA.S. 3585 ;

Agreement with Netherlands on Patent Rights and Technical In-

formation, April 29, 1955, [1955] 6 U.S.T. 2187, T.I-A.S. 3287;

Agreement with Norway on Patent Rights and Technical Informa-

tion, April 6, 1955, [1955] 6 U.S.T. 799, T.LA.S. 3226; and

Agreement with United Kingdom of Great Britain and Northern

Ireland on Patent Rights and Technical Information, Jan.

19, 1953, [1953] 4 U.S.T. 150, T.I.A.S. 2773.

5 Milgrim, Sears to Lear to Painton: Of Whales and Other Matters,

46 N.Y.U. L.Rev. 17, 32, n. 67 (1971).

* R. M. Milgrim, Trade Secrets, § 1.10[1] (1978).

Pavrennc:

PSPS EY %

sion is in direct conflict with the law in other circuits.’

These laws represent a vast and fairly uniform system of

trade secret law presently existing in the United States.

Billions of dollars are atid « annually in research and

development activities.’ While it is true that patents are

available to protect a portion of the resultant technology,

there still remains a substantial portion of valuable infor-

mation, data and know-how which can only be protected

under state trade secret laws. It may be argued that a

considerable body of trade secret law is still available to

protect this resultant technology since the court below

found that “ ... the trade secrets in question relating

to the processes, procedures and manufacturing techniques

of Harshaw, as conceded by counsel for Kewanee, were

‘patentable’, that is, appropriate subjects for considera-

tion under the provisions of Title 35 U.S.C. § 101" Ke-

wanee Ou Co. v. Bicron Corp., 478 F2d 1074, 1078, 178

™“We recognize that our holding in this case is in conflict with the

previously cited decisions of other Circuits, Servo Corp. of America v.

General Electric Co., 337 F.2d 716 (4th Cir. 1964), cert. den. 883 U.S.

934, 86 S.Ct. 1061, 15 L.Ed. 2d 851 (1966), rehearing denied 384 U.S.

914, 86 S.Ct. 1333, 16 L.Ed. 2d 366 (1966); Dekar Industries, Inc. v.

Bissett-Berman Corp., 434 F.2d 13804 (9th Cir. 1970), cert. den, 402

U.S. 945, 91 S.Ct. 1621, 29 L.Ed. 2d 113 (1971); Water Services, Inc.

v. Tesco Chemicals, Inc., 410 F.2d 163 (5th Cir. 1969); Painton & Co.

v. Bourns, Inc., 442 F.2d 216 (2nd Cir. 1971). . . .” Kewanee Oil Co. v.

Bicron Corp., 478 F.2d 1074, 1086, 178 U.S.P.Q. 3, 12 (6th Cir. 1973).

8A recent survey of the R&D industry predicts a total research

and development expenditure for the current fiscal year, 1973, in excess

of $31 billion. Plant, $31-Billion for Research, Ind. Res. 42 (Jan. 1978).

®35 U.S.C. §101 (1952) defines the categories of subject matter

which come within the jurisdiction of the federal patent laws as follows:

“Whoever invents or discovers any new and useful process, machine,

manufacture, or composition of matter, or any new and useful improve-

ment thereof, may obtain a patent therefor, subject to the conditions

and requirements of this title.” These statutory categories are broadly

construed and most of the fruits of today’s research and development

efforts are encompassed within this broad definition.

SCOR ENTS ATER A ERE EE EN

Pht SL OO DORR ENTR RETURN PILL ROT OE IS eS cad eR eas

—

U.S.P.Q. 3, 5 (6th Cir. 1973). While the court below

seemed to consider this limitation to be a substantial nar-

rowing of the range of trade secrets affected by its deci-

sion, such is not the case since most trade secrets in exist-

ence today deal with technological information relating to

a process, machine, article of manufacture or composition

of matter and therefore are encompassed within the cate-

gories of patentable subject matter as defined in 35 U.S.C.

y101 (1952). Many trade secrets that are encompassed

within the categories of patentable subject matter would

not successfully pass examination” by the United States

Patent Office and issue as valid and enforceable patents.

However, the lower court did not limit the impact of its

decision to only those trade secrets that could pass such an

examination.

Even if the lower court’s decision can be construed to

limit its effect to only those trade secrets that could pass

such an examination, the ambiguities inherent in the deci-

sion below pose many unanswered questions. Who is quali-

fied to answer the difficult question of whether or not a

given trade secret could pass the examination? Must the

proprietor file a patent application in order to have an

already overburdened United States Patent Office make

this determination? If a patent application must be filed,

at what point in the prosecution of a patent application may

an applicant accept the Patent Office’s determination that

the subject matter is unpatentable and seek protection via

10 One of the usual tests applied during the examination of patent

applications by the U.S. Patent Office is the so-called “obviousness”

test as defined in 35 U.S.C. §108 (1952): “A patent may not be ob-

tained though the invention is not identically disclosed or described as

set forth in section 102 of this title, if the differences between the sub-

ject matter sought to be patented and the prior art are such that the

subject matter as a whole would have been obvious at the time the in-

vention was made to a person having ordinary skill in the art to which

said subject matter pertains. Patentability shall not be negatived by

the manner in which the invention was made.”

BEI yy

state trade secret laws? If the Patent Office initially rejects

the application, is the applicant free to assume that the sub-

ject matter was not patentable and therefore proceed as

though it was protectable as a trade secret? Must the ap-

plicant prosecute the application through a final action;

through a decision from the Board of Appeals; through a

decision from the Court of Customs and Patent Appeals or

appropriate district court; or must he prosecute through

an appeal to this Court? How many inventors, or em-

ployers for that matter, will have the necessary time and

funds to follow this procedure, and even if they were fi-

nancially able, should they be required to do so? If the pro-

prietor of a trade secret has not filed a patent application

and brings an action in the state courts, should the state

court be given the responsibility of determining whether

or not the trade secret would have passed the examination

of the United States Patent Office? These unanswered

questions are so substantial that the practical effect of

even a limited, narrow construction of the lower court’s de-

cision would be to deny industry the ability to depend upon

the state laws for the protection of trade secrets.

It may also be argued that the lower court tried to fur-

ther narrow its decision by limiting it to only those trade

secrets which have been in commercial use” for more than

1135 U.S.C. §102 (1952) provides that “A person shall be entitled

to a patent unless—

(b) . . . the invention was . . . in public use or on sale in this

country, more than one year prior to the date of the application

for patent in the United States,... .”

This provision in the federal patent laws prevents an inventor from

maintaining his invention as a trade secret while commercializing it

for more than one year and then filing a patent application if he be-

lieves his secret will be discovered or for any other reason. This pro-

vision gives the inventor who commercializes his invention one year

during which he must elect either to seek patent protection or to forego

his rights under the federal patent laws.

FS OER RII, 2 NOES NR PTR IT TR ET Fr HLH REN ATE TS RD

Qe, SOE EAR ETON ARON EERE ST ET HH

one year prior to the commencement of the suit. The pro-

prietor of a trade secret normally intends to recoup his

research and development expenses by commercially ex-

ploiting his innovation through his own use or that of his

licensee. Accordingly, most trade secrets of any value will

eventually be put into commercial use, and come within the

scope of the decision below after the lapse of one year.

Limiting the time for recouping research and development

investinent to one year would substantially erode the value

of the trade secret laws. Therefore, this second attempt by

the lower court to narrow the effect of the decision is also

ineffective for most practical business situations.

If the far-reaching changes made by the lower court are

in fact required, Congress is the proper body to effect

such changes. This Court has recently considered the de-

cision of a lower court which would have had a great im-

pact upon the protection of proprietary rights in a com-

plex technological field and concluded: “. . . considerable

problems are raised which only committees of Congress

can manage, for broad powers of investigation are needed,

including hearings which canvass the wide variety of

views which those operating in this field entertain. The

technological problems tendered in the many briefs before

us indicate to us that considered action by the Congress

is needed.” Gottschalk v. Benson, 409 U.S. 63. 74 (1972).

B. The Decision Below And Its Accompanying Pe-

numbra Of Uncertainty Will Have A Severe Im-

pact Upon Business Activities And Will Operate

To Hinder The Progress Of Science And Tech-

nology.

All technology-oriented corporations. with world-wide

interests are immediately and directly affected by the

decision below. Burroughs, for example, is currently a

party to many existing agreements involving the pro-

tection of proprietary information, but the validity of

these agreements has been cast in doubt by the decision

below.

The types of business agreements relating to’ proprie-

tary information are many and varied. Most technology-

oriented business organizations offer some type of agree-

ment regarding employment to at least their technical

personnel. In a typical agreement, an employee who is

exposed to trade secret or confidential information, or

who is hired to invent or improve products, agrees not to

disclose proprietary information acquired on a confidential

basis without the permission of the employer. Frequently

he also agrees to assign his inventions and ideas to his

employer who supports his inventive efforts. Increased

compensation, technical training and opportunities for

advancement within the business organization provide the

quid pro quo for the employee’s agreement.

Many provisions of these agreements may be unen-

forceable under the decision below which permitted the

employees to leave the company from which they had ac-

quired proprietary trade secret information on a confi-

dential basis during the course of their employment and

to immediately set up their own corporation founded on

these misappropriated secrets in direct competition with

PAG ESR PAM ENT IEEE TOI ITN MRE IE LEI HB EN ALAR ET NEES

their former employer. The lower court ruled that state

trade secret law could not be used to stop such piracy

and appeared to imply that this served a higher good asso-

ciated with the concept of free competition. The decision

below is more likely to have the opposite effect. The in-

ability to protect technology and to secure a return on

research and development investments, will likely result

in the diminution of a prime economic incentive for re-

search and innovation and may eventually lead to a cut-

back in research and development expenditures or to a

misallocation of available resources by redirecting expen-

ditures to security measures designed to guard self-de-

veloped technology. As security within the business organ-

ization is tightened, the dissemination of technology with-

in the organization will be restricted resulting in ineffi-

ciency and a slow-down in the rate of technological pro-

gress. This cannot further free competition, but clearly

will serve instead to hinder the progress of science and

the useful arts.

Another area of uncertainty fostered by the decision be-

low is in the numerous technology-oriented business or-

ganizations which employ trade secret-type agreements in

vendor-vendee situations. These organizations frequently

have suppliers build sub-assemblies or devices in aeccord-

ance with the organization’s proprietary information and

contractually obligate the supplier and his employees to

protect the organization’s proprietary information. Un-

der the decision below, the supplier and his employees are

free to use the secret information to make and sell devices

to others, or even to sell the valuable and costly informa-

tion to the organization’s competitors. It would appear

that only large corporations capable of fulfilling all of

their needs in-house would be able to effectively compete

since they would not be forced to rely on others for sup-

RTE SL ARS SPP ‘ CRS RS oe

plying the necessary parts or sub-assemblies for their

products. However, even the large, self-sufficient corpora-

tions are effected by the risk that the corporation’s em-

ployees will steal its trade secrets.”

Similarly, it may be noted that as a result of many of

today’s complicated technical systems, field tests must be

conducted by customers, or at the customer’s location. If

such tests cannot be conducted on a confidential basis,

competitors may acquire test data and other proprietary

information without restriction.

KNOW-HOW LICENSES

Many technology-oriented business organizations are

operating today under trade secret agreements or know-

how licenses. Billions of dollars in royalty payments are

paid and received for such licenses annually.* Indeed,

such licenses often form the only source of income for

small research and development oriented businesses. Un-

der the decision below, businesses receiving royalty pay-

ments under such licenses may not be able to collect even

12 International Business Machines Corp. has proven damages re-

sulting from the theft of its trade secrets by its former employees and

has been awarded $21.9 million on that basis in a recent decision. Telex

Corp. v. International Business Machines Corp., Nos. 72-C-18 and 72-

C-89 (D.C.N.D. Okla., Sept. 17, 1973).

18 United States business organizations received from abroad some

$3.1 billion in royalty payments and paid to foreign organizations some

$276 million in royalty payments for the year 1972. 58 U.S. Dept. of

Commerce, Survey of Current Business 42, No. 9, September 1973.

While the entire amount is not attributable to trade secret licenses, a

considerable portion is, and furthermore, this figure relates only to

foreign licenses. It can be assumed that a much larger dollar amount

is involved in licenses between United States business organizations.

after costly and extended litigation. Companies which are

obligated to make royalty payments under such agree-

ments may refuse to pay and may choose to destroy the

’ license and the existence of the trade secret by publicly

disclosing the trade secrets themselves. Finally, there is

a substantial risk that a prospective licensee will be less

inclined to take a royalty bearing license under a trade

secret so long as the less costly opportunity exists for

hiring one or more of the licensor’s employees who are

in possession of such trade secrets. Alternatively, a pro-

spective licensee may find it easier and less expensive to

simply steal the trade secret.

COMPUTER PROGRAMS

Computer programs or software represent a consider-

able portion of the total cost of a computer system and

any given program represents a substantial investment

of time and capital. Many computer corporations and

small businesses specializing in developing computer pro-

grams have elected to market their programs under an

agreement licensing the customers’ use and limiting the dis-

semination of the programs. This Court in Gottschalk v.

Benson, 409 U.S. 63 (1972), held that a computer program

directed to a mathematical algorithm could not be pat-

ented where the effect of the patent would be to cover all

practical uses of the mathematical algorithm itself. This

would take certain computer programs out from under the

scope of the decision below since they are not encom-

passed within the category of patentable subject matter

defined by 35 U.S.C. § 101 (1952). However, the dividing

line between. those types of _programs that are not pat-

entable and those that should be patentable has not yet

been established by Congress in accordance with the rec-

ommendation of this Court in Gottschalk v. Benson. Until

such time as Congress acts, many businesses which rely

upon trade secret protection will have to continue their

practice with respect to both types of programs even

though only some programs would be protectable as a

result of the decision below. If such programs can be dis-

seminated or misused with impunity, many businesses,

which depend on such programs for a significant portion

of their income, will suffer an impairment of their ability

to compete, and the amount of competition in the computer

industry will be even further reduced.

NATIONAL ASSET

Many businesses have competitors in foreign countries

and will be impacted by the international aspects of the

decision below. The inability to stop the theft of trade

secrets and to control the flow of technical information

leaving this country could ultimately lead to a substan-

tial weakening of our position as the world’s technologi-

cal leader. United States companies have billions of dol-

lars invested in research and development activities’ and

license their resulting technology to others or are li-

censed under another’s technology. The ability to license

existing domestic technology in foreign countries consti-

tutes a vast national asset. Foreign corporations will

have a reduced incentive to take licenses under U. S. tech-

nology on a royalty bearing basis since it will be far eas-

ier and less expensive to merely hire another’s trusted

employees or otherwise misappropriate the desired trade

14 Plant, supra note 8, at &

secrets." The decision below results in a lessening of the

value of this asset with corresponding detrimental effects

upon the competitive position of the United States in

markets throughout the world, upon our already strained

balance of payments,’ and upon the very health and vital-

ity of our American economy.

Further, foreign corporations may refuse to license

domestic corporations because the domestic corporations

cannot guarantee the security of the trade secret and,

once the security is breached, the trade secret is lost. The

inability of domestic corporations to secure technology

from abroad further operates to stifle technological growth

and development and to hinder the progress of seienc*

and the useful arts.

*8 Even with the current availability of trade secret protection,

foreign corporations have been implicated in the misappropriation of

trade secrets valued at millions of dollars; for example, a recent theft

of trade secrets from the Ford Motor Company related to glass manu-

facturing techniques valued at over a million dollars. United States v.

Akfirat, No. 4-80300 (D.C.E.D. Mich., filed August 30, 1973).

16 Since the yearly revenue received from licensing foreign businesses

under domestic technology exceeds $3.1 billion, while the outflow of royal-

ties paid by domestic organizations for foreign technology is only $276

million, the total loss to the American economy could exceed $2.8 billion.

53 U.S. Dept. of Commerce, Survey of Current Business 42, No. 9,

September, 1973. Compensating for the proportion of this amount at-

tributable to patent and trademark royalties, we may reasonably con-

clude that over $1.5 billion are lost to the American economy. Milgrim,

Sears te Lear to Painton: Of Whales And Other Matters, 46 N.Y.U.

L. Rev. 17, 26, n. 40 (1971).

OTHER POLICY CONSIDERATIONS

There is justifiable concern over the possible effect of

this decision on state and federal criminal laws dealing

with the theft of trade secrets. This decision affects the

determination of what is protectible as a trade secret, and

it may be that such laws could be rendered void for vague-

ness or preempted by the policy behind the federal pat-

ent laws. The decision of the lower court has already been

cited in a recent criminal action brought in the State of

Michigan” in which the defendant is being prosecuted un-

der the Michigan trade secret theft statute, CL 1970,

§ 752.772.% The defendant in that case moved for dismissal

of the complaint against him, urging that the statute was

void because it conflicts with the patent laws of the United

States.

The type of permissiveness encouraged by the decision

below may lead to a further deterioration in commercial

morality, to a lessening of a citizen’s obligation to respect

the property rights of others, and to a possible substitu-

tion of trade secret thievery in place of legitimate research

and development efforts. A corporation which attempts

to operate in this environment will find itself at,a com-

mercial disadvantage if its competitors are free to deal

17 People v. Hull, No. 2610 (Troy Mun. Ct., filed March 30, 1973).

18 Mich. C.L. 1970, §752.772 provides: “Any person who, with intent

to deprive or withhold from the owner thereof the control of a trade se-

cret, or with an intent to appropriate a trade secret to his own use or to

the use of another, steals or embezzles an article representing a trade

secret or without authority makes or causes to be made a copy of an

article representing a trade secret, is guilty of a misdemeanor and shall

be fined not more than $1,000.00 or imprisoned for not more than 1

year, or both.”

PPO TR Ee og ET A & ONS EES STG PE TT ¥ vs ated ae a lS ate

in trade secret thievery and in that brand of ‘‘instant

technology” which is achieved by hiring another’s trusted

employee and using the proprietary knowledge which the

employee gained through his position of confidence and

trust.

IL.

THE U.S. CONSTITUTION DOES NOT PROHI-

BIT THE STATES FROM ENACTING LEGISLA-

TION PROTECTING TRADE SECRETS; SUCH

LEGISLATION WAS NOT PREEMPTED WHEN

CONGRESS ENACTED THE FEDERAL PATENT

LAWS; AND TRADE SECRET LAWS DO NOT

CONFLICT WITH THE POLICIES AND OBJEC-

TIVES UNDERLYING THE FEDERAL PATENT

LAWS.

A. The States Have Not, Under The U.S, Constitution,

Relingquished To The Federal Government, For Its

Exclusive Exercise, The Power To Enact Laws Af-

fecting Inventions And Innovations.

In Goldstem v. California, 412 U.S. 46 (1973), which

was decided after the decision of the lower court in this

action, this Court enunciated the test to be applied in re-

solving the preemption issue. Goldstein is particularly

pertinent since it involved U. S. Const. art. I, § 8, el. 8,"

the very constitutional clause involved in the present case:

A state statute proscribing tape piracy was challénged

in Goldstein as violative of U. S. Const. art. I, § 8, el. 8

and of the federal statutes enacted thereunder. This

Court held that this clause does not expressly or by infer-

ence vest all power to grant copyright protection exclu-

sively in the federal government, nor did the state statute

19“To promote the Progress of Science and useful Arts, by secur-

ing for limited Times to Authors and Inventors the exclusive Right to

their respective Writings and Discoveries;” U.S. Const. art. I, § 8, el. 8.

. . ie Vee

ST RNR

conflict with the federal copyright laws so as to fall under

the Supremacy Clause” of the U. S. Constitution.”

Initially, this Court inquired as to whether the state

statutes were beyond the powers which the states re-

served in our federal system.” If the states have relin-

quished such powers to the federal government for its

exclusive exercise, they cannot exercise these powers.”

This Court, in Goldstein, applied the three tests of Alex-

ander Hamilton which pronounced that the states retain

all rights and powers unless (1) the Constitution expressly

grants an exclusive authority to the federal government;

(2) the Constitution grants a particular power to the fed-

eral government and simultaneously prohibits the exer-

cise of a similar power by the states; or (3) it grants

a power to the federal government to which a similar

power in the states would be absolutely and tota!lv con-

tradictory and repugnant.”

While the lower court in the present case did not have

the opportunity to apply these tests since Goldstein was

decided after the decision below, it is seemingly appro-

priate to apply them by. analogy to the facts of Kewanee.

The first two tests present no barrier to the State’s enact-

ment of trade secret laws. Art. I, §8, cl. 8 of the U.S.

20“This Constitution, and the Laws of the United States which

shall be made in Pursuance thereof; and all Treaties made, or which

shall be made, under the Auth¢rity of the United States, shall be the su-

preme Law of the Land; and the Judges in every State shall be bound

thereby, any Thing in the Constitution or Laws of any State to the

Contrary notwithstanding.” U.S. Const. art. VI, cl. 2.

21 Goldstein v. California, 412 U.S. 546, 571 (1978).

22 Id. at 552.

23 Id.

24 Id.

Constitution, granting to Congress the power to grant

patents for certain inventions and innovations, does not

expressly provide that such powers shall vest exclusively

in the federal government nor does the U. S. Constitution

expressly provide that such power shall not be exercised

by the state.* The third test requires examination of the

manner in which the power to grant patents operates in

our federal system.** Specifically, it requires the exami-

nation of the differences between those situations in which

the exercise of the power by the federal government and

the states, or by the states alone, may possibly lead to

conflicts, and those situations where conflicts will neces-

sarily arise.” This Court specifically stated that ‘‘It is

not ...a mere possibility of inconvenience in the exercise

of powers, but an immediate constitutional repugnancy

that can by implication alienate and extinguish a pre-

existing right of [state] sovereignty.’ The Federalist, No.

32, at 243.” Goldstein v. California, 412 U.S. 546, 554

(1973).

Art. I, §8, cl. 8 of the U. S. Constitution has as its ob-

jective the promotion of the progress of science and the

useful arts.* One objective of this clause was clearly to

facilitate the granting of rights national in scope, but, as

recognized in Goldsteim, the fact that this clause recog-

nized the potential benefits of a national system does not

indicate that all discoveries of inventors are of national

interest or that state legislation is, in all cases, unneces-

25 Td. at 558.

26 Td,

27 Id. at 554.

28 Td. at 555.

— - ——_— 7 < TS Sara

sary or precluded.” The patents granted by the states in

the 18th century show, to the contrary, a willingness on

the part of the states to promote those portions of science

and the arts which were of local importance. Since the

subject matter to which this clause is addressed may be

of purely local importance and not worthy of national at-

tention or protection, there can be no unyielding na-

tional interest which requires an inference that state

power to legislate in related areas has been relinquished

to exclusive federal control.*

The exercise of the power by one state to enact trade

secret laws which may involve patentable subject matter

will not prejudice the interest of other states.** This Court

in Goldstein held that a state copyright law no more preju-

diced the interest of other states than other state mono-

polies, such as park concessions or lotteries.** Accordingly,

by analogy, existing trade secret laws of one state do not

prejudice the interest of other states. Further the trade

secret laws of each state will serve to stimulate invention

and innovation within each state and, hence, promote the

progress of science and the useful arts—the very objec-

tive of the constitutional grant.*

The concurrent exercise of powers affecting inventions

and innovations by both Congress and the states will not

necessarily and inevitably lead to difficulty®’ and, if diffi-

culties do arise, Congress remains free to eschew all such

29 Td. at 556.

30 Td. at 557.

81 Td. at 558.

82 Td.

38 Id,

84 Id.

35 Id. at 559.

protection.* Since all of these tests have been satisfied, it

is reasonable to conclude that the states have not relin-

quished to the federal government all power to enact trade

secret laws involving the protection of inventions or dis-

coveries.*"

B. The Vast Body Of Existing State Trade Secret Law

Was Neither Expressly Nor Impliedly Preempted

By Congress In Enacting The Federal Patent Laws.

While it is possible for Congress to expressly or im-

pliedly preempt state trade secret laws, Congress has

given no express indication of an intent to preempt the

vast body of pre-existing and long-established state laws

relating to trade secrets.** Further, Congress has not im-

plied that the federal patent laws preempt the state trade

secret laws, since it has enacted legislation both before

and after the enactment of the patent laws which ex-

pressly recognizes the existence of trade secrets and the

importance of protecting them.’* Indeed, the patent laws

themselves show some evidence of an intent to protect

trade secrets by providing that pending patent applications

86 Td,

87 Id. at 560.

88 While it does not offer positive proof, it is interesting to consider

that no one has pointed to a single indication of an express congressional

intent to preempt; that several proposed revisions to the patent laws

containing preemption provisions have failed to pass; and that the

most recent proposed patent law revision, yhich has full Administration

support, contains an express provision specifying that the patent laws

do not preempt rights or obligations arising by operation of state laws

concerning trade secrets. S. 2504, 98d Cong., Ist Sess. §301 (1973).

8® Milgrim, supra note 5 at 7.

be preserved in secrecy’ thereby preserving the applicant’s

right to trade secret protection pending publication of the

issued patent."

C. State Trade Secret Laws Do Not Stand As An

Obstacle To The Accomplishment And Execution

Of The Full Purposes And Objectives Of Congress

In Enacting The Patent Laws And Hence Are Not

To Be Struck Down Under The Supremecy Clause.

The purpose behind U. S. Const. art. I, §8, cl. 8 is to

promote the progress of science and the useful arts. The

federal patent laws represent the means enacted by Con-

gress for achieving this end’ The patent laws grant to an

inventor the right to éxclude all others from making, us-

ing and selling his invention for a period of seventeen

years in exchange for the dedication of his invention to

the public upon the expiration of the patent. The patent

laws provide the inventor with the broad right to exclude

all others from the practice of his invention for the term of

the patent. State trade secret laws, on the other hand,

provide no such exclusionary rights. The owner of a

trade secret only has a cause of action against those who

#035 U.S.C. §122 (1952) provides as follows: “Applications for

patents shall be kept in confidence by the Patent Office and no informa-

tion concerning the same given without authority of applicant or owner

unless necessary to carry out the provisions of any Act of Congress

or in such special circumstances as may be determined by the Com-

missioner.” Rule 14(a) of the United States Patent Office Rules of

Practice, which was promulgated under 35 U.S.C. §122 (1952), provides

that pending applications be preserved in secrecy.

41It may also be interesting to note that the United States Court

of Appeals for the Second Circuit held in United States v. Bottone,

865 F.2d 389 (2d Cir.) cert. denied 385 U.S. 974 (1966), that Con-

gressional intent requires that the Federal Stolen Property Act, 18

U.S.C. § 2314 (1968), be made applicable to the theft of trade secrets.

See also United States v. Greenwald, 479 F.2d 320 (6th Cir. 1973).

would steal his secret or use it in such a manner so as to

breach a confidential relationship. The trade secret owner

cannot prevent any person from practicing the same trade

secret if such person independently develops it or discovers

it through legitimate means. Should the trade secret be-

come public, the whole world is free to use it. In order to

protect his secret, the owner must take measures to ensure

that the secret is in fact maintained in secrecy and he is

not aided by the presumption of validity which accompanies

the issuance of a patent. The nature and scope of the pro-

tection afforded under state trade secret laws are different

from the nature and scope of the protection afforded under

the patent laws. The practical results sought to be achieved

by the patent laws are not frustrated by the effect of state

trade secret laws. The patent laws encourage research and

development efforts, stimulate invention and innovation,

reward inventors and innovators, and benefit the public

through the commercialization of new and improved prod-

ucts by the owner or by his licensee. The enforcement of

state trade secret laws similarly benefits the public and pro-

duces results which are compatible with the overall pri-

mary purpose and objective of promoting the progress of

Science and the useful arts.

In summary, the state has the power to enact trade se-

eret laws which affect inventions and discoveries, and nei-

ther the United States Constitution nor the patent laws

enacted by Congress preempt state trade secret laws; nor

do such laws conflict with the policies and objectives un-

derlying the patent laws so as to be struck down under

the Supremacy Clause of the Constitution. The two sys-

tems offer alternative types of protection differing in na-

ture and scope, but achieve practical results which are

compatible with one another—both operating to promote

the progress of science and the useful arts.

ae | Be een AERA APIO EAT LL EIN IRR

0 ee

Il.

THE COURT BELOW ERRONEOUSLY CON-

CLUDED THAT ITS RESULT WAS COMPELLED

BY PRIOR DECISIONS OF THIS COURT.

The decision below rests precariously on the assump-

tion that its result was “compelled’** by the preemption

doctrine enunciated in prior decisions of this Court. One

of the earliest cases relied on by the court below was

Kellogg Co. v. National Biscuit Co., 305 U.S. 111 (1938),

which involved a suit by the National Biscuit Company

against Kellogg for alleged unfair competition. National

Biscuit charged that Kellogg’s use of the term “Shredded

Wheat” and the use of the pillow-shaped biscuit amounted

to both a violation of National Biscuit’s trademark and a

wrongful “passing-off” under state unfair competition

laws. National Biscuit was the successor in title to

the original shredded wheat patents which had expired.

This Court found that the term ‘‘shredded wheat” was

generic and that the shape of the biscuit was functional.

The basic issue was whether the law of unfair competition

could be used to exclude anyone from practicing the teach-

ings of an expired patent. This Court held that such use

of the law of unfair competition was in conflict with fed-

eral patent policy which permitted the full and free use

of all patented ideas upon the expiration of the patent.

Kellogg did not involve trade secrets but dealt with a

blatant attempt to extend the term of patent protection

beyond the expiration date of the patent and thereby re-

move from the public domain something which had pre-

“2 Kewanee Oil Co. v. Bicron Corp., 478 F.2d 1074, 1086, 178

U.S.P.Q. 8, 11 (6th Cir. 1978).

viously been in general circulation and had been expressly

dedicated to the public in exchange for the grant of a

patent. It is well-settled in the law of trade secrets to-

day that no protection may be granted on any idea which

has been in general circulation and is in the public domain.

Since Kellogg involved subject matter which was within

the public domain, its holding is completely compatible

with existing trade secret law.*

The decision below placed even greater reliance upon

the two most frequently cited preemption doctrine cases

decided by this Court—Sears Roebuck & Co. v. Stiffel,

376 U.S. 225 (1964), and Compco Corp. v. Day-Brite Light-

ing, Inc., 376 US. 235 (1964). In Sears, Stiffel pioneered

the development of a pole lamp and obtained a design

patent. Sears copied the design of the lamp and began

to sell its copies for less than the price offered by Stiffel.

Stiffel sued Sears for patent infringement and unfair

competition. The lower court held the patent invalid, but

allowed recovery under the Illinois law of unfair competi-

tion. This Court refused to allow a recovery under that

state’s unfair competition laws and held that a state can-

not grant patent-like protection on an unpatented device

which is in the public domain, because to do so conflicts

with the policy behind the United States patent laws.

Compco involved a similar factual situation wherein

Compco copied the lighting fixtures developed by Day-

Brite. The two cases enunciate a common proposition that

the federal law requires that all ideas in general circula-

tion be dedicated to the public, unless they are protected

by valid patents.

‘sR. M. Milgrim, Trade Secrets, § 2.08 (1978) and Restatement of

Torts § 757, comment b (1989).

pet

Neither of the above cases involved a trade secret.

Both, however, involved an attempt to extend patent-like

protection to the design of articles which had been fully

disclosed to the public by the sale of a product. Both cases

are in accord with existing trade secret law which pre-

vents subject matter within the public domain from being

afforded state trade secret protection.“

Furthermore, state trade secret laws do not confer a

prohibited patent-like form of protection on the owner.

Patents convey a broad right to exclude all others from

making, using and selling the invention. Trade secret

laws afford only a very limited cloak of protection. The

owner of a trade seéret has no right to exclude all others,

but has a cause of action only against a third party who

has wrongfully appropriated the secret.

The most recent case upon which the lower court relies -

for support of its preemption finding is Lear, Inc. v. Ad-

kins, 395 U.S. 653 (1969), in which this Court held that

a licensee should not be required to pay royalties while

challenging the validity of a patent because the enforce-

ment of such contractual provisions would undermine the

federal policy favoring the free use of ideas in the pub-

lic domain. This policy is also in accord with existing

trade secret law which categorically denies protection to

secrets which have fallen into the public domain.“

On the facts of the present case, the trade secrets were

not in the public domain. The secrets had been disclosed

in confidence to trusted employees who were bound by state

law not to disclose these secrets to outsiders nor to use

“Td.

5 Id.

POPE EW LET BAF OR NOY NY

m PER NENT SCT AES aes 5 ee. ae SNS me — 2

EET MEM ET

these secrets in competition with the rightful owner. These

trusted employees left their employer and, as found by

the court below, breached their position of confidence;

took their employer’s trade secrets and used them for

their own benefit to the competitive economic detriment of

their former employer. The trade secrets had never been

dedicated to the public. They had been maintained as

secrets and disclosed only on a confidential basis. There-

fore, the public had no right to the full and free use of

these secrets.

Considering therefore the facts of the present case in

light of the prior decisions, it is clear that the decision

reached by the lower court is not compelled nor is it sup-

ported by the prior decisions of this Court. Hence the en-

forcement of the state’s trade secret laws is compatible

with all prior decisions of this Court and the governing

State law should have been applied.

CONCLUSION

For the foregoing reasons, amicus curiae urges this

Court to find that state trade secret laws are not pre-

empted by the U. S. Constitution and the federal patent

laws enacted thereunder; that state trade secret laws are

not in gonflict with the policies and objectives underlying

the federal patent laws and therefore are not struck down

under the Supremacy Clause of the Constitution ; and,

accordingly, that the decision of the United States Court

of Appeals for the Sixth Circuit be reversed.

Respectfully submitted,

James M. Clabault

Edward G. Fiorito

. C. Paul Padgett, Jr.

Attorneys for Amicus Curiae

Burroughs Corporation

Burroughs Place

Detroit, Michigan 48232

Of Counsel:

Kenneth L. Miller

Paul W. Fish

Leonard C. Suchyta

Edward F. Langs

Burroughs Corporation

Burroughs Place

Detroit, Michigan 48232

Date: November, 1973

LIBRARY =>:

SUPREME COURT, uU.

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1973

No. 73-187

KEWANEE OIL COMPANY,

Petitioner,

BICRON CORPORATION, ef ai,

Respondents.

BRIEF AMICUS CURIAE FOR

THE BUDD COMPANY

HERMAN FOSTER

EDWARD M. FARRELL

2155 West Big Beaver Road

Troy, Michigan 48084

Attorneys for The Budd Company

Washington, OC. e CLE PUBLISHERS e LAW PRINTING CO. e (20?) 393.0625

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1973

No. 73-187

KEWANEE OIL COMPANY,

Petitioner,

Vv.

BICRON CORPORATION, ef al,

Respondents.

BRIEF AMICUS CURIAE FOR

THE BUDD COMPANY

The Budd Company, a Pennsylvania corporation, with

an office at 2155 Big Beaver Road, Troy, Michigan

48084, files this brief amicus curiae in support of

Petitioner, together with letters of consent from both

Petitioner and Respondents.

QUESTIONS PRESENTED

1. Do the Patent Laws of the United States pre-empt

subject matter sought to be protected under a state trade

secret law?

2. Does failure of an inventor to avail himself of a

right under the Patent Laws of the United States destroy

his right to protect his invention in other ways including

by contracts or trade secrets?

INTEREST OF AMICUS CURIAE

This company has a vital interest in this case because it

has its corporate office located in the Sixth Circuit. It

engages in activities including export sales, overseas

manufacturing and licensing of technology and expertise

in 15 foreign countries. It has substantial ownership in

five foreign companies, and is licensor to 28 foreign

manufacturers, including most of the world’s major

automotive companies, and has a worldwide network of

some 200 distributors.

This company relies heavily on the protection afforded

its technological information, including trade secrets, by

means of contract. If the opinion of the Sixth Circuit is

upheld, the value of technological information conveyed

or received as trade secrets by this company, and other

companies conducting similar activities would be greatly

diminished.

SUMMARY OF ARGUMENT

1. No preemption by the Federal Government should

occur with respect to Trade Secrets in the absence of

specific Federal Statutes when no preemption has

occurred with respect to other forms of Intellectual

Property to which both Federal and State Statutes have

been directed.

2. An inventor has a right to protect his invention by

secrecy if he so chooses. A patent gives him an additional

means of protection by granting the right to prevent

others from making, using, and selling his invention, but

this additional protection is not mandatory. The two

rights are entirely distinct. By granting an inventor an

additional right, Congress did not intend to deprive an

inventor of the right to select the protective means which

may be to his best advantage.

ARGUMENT

THE PATENT LAWS OF THE UNITED STATES DO

NOT PREEMPT SUBJECT MATTER SOUGHT TO BE

PROTECTED UNDER A TRADE SECRET LAW.

A. Three Tests for Preemption

In Head v. New Mexico Board of Examiners in

Optometry, 374 U.S. 442, 443, 444, Justice Brennan in a

concurring opinion applied three settled tests for deter-

mining whether federal legislation has displaced state

regulation of a given subject matter. Citing Florida Lime

and Avocado Growers, Inc. v. Paul, 373 U.S. 132, 143,

the first test is that the subject matter by its very nature

admits only of national supervision. The second test is

that there be evidence of congressional intent to occupy

the field. The third test is that both State and Federal

regulations can be enforced without impairing the federal

superintendance of the field.

In applying the first of the aforementioned three tests,

it is submitted that the nature of trade secrets is entirely

different than patents. Trade secrets have been pro-

tectable under state laws for many years and cannot be °

said to be of such a nature so as to admit only national

supervision.

Regarding the second test, in the present case there is

no evidence of congressional intent exclusively to occupy

the field of trade secrets. In this connection it is unlikely

that Congress overlooked the important field of trade

secrets in enacting the patent laws.

The third test referred to relates to the fact that both

patent and trade secret laws have existed side by side for

many years. Because of the rights protectable under the

patent and trade secret laws are completely different

— 08 EN FSET MET OSE RPL TE RE RAT

there is no conflict therebetween. The federal patent laws

do not conflict with state trade secret laws and may be

adequately enforced by the Federal Government without

interferring with state trade secret laws.

B. Federal and State Governments Are

Both in Copyright Field

In Goldstein v. California, 93 S.Ct. 2303 (1973), the

court was concerned as in the present case with Article 1,

Section 8, Clause 8, of the Constitution which provides

that the Congress shall have power... . “To promote the

Progress of Science and useful Arts, by securing for

limited Times to Authors and Inventors the exclusive

Right to their respective Writings and Discoveries.”

The court stated in connection with copyrights and

this clause as follows:

“Since the subject matter to which the copyright

Clause is addressed may thus be of purely local

importance and not worthy of national attention or

protection, we cannot discern such an unyielding

national interest as to require an inference that state

power to grant copyrights has been relinquished to

exclusive federal control.”

It is submitted that an analogy may be drawn between

patents and copyrights and that trade secrets are of

purely local importance not requiring exclusive federal

control.

C. Common Law Rights Of Inventor

Intellectual Property has been defined as, “Those

property rights which result from the physical manifesta-

tions of original thought.””!

"Ballentine’s Law Dictionary, Third Edition (The Lawyers

Co-Operative Publishing Company, Rochester, New York).

a SL ae

nes

a a a a acl

— a

Included as rights to Intellectual Property are patents,

Trademarks and Copyrights. Patents, however, is only

one of two ways to protect an invention.? The common

law right of secret property is the other.?

It should be noted that while Trademarks and Copy-

rights have been the subject of both State and Federal

Legislation;* patents are dealt with under Federal Law, as

for example, Title 35 United States Code, and Trade

secrets ‘usually by state statutes. See for example,

Michigan Compiled Laws Sections 752.771 to 752.773

(1968).

Thus, it becomes apparent that if no preemption has

occurred in those areas (Trademarks and Copyrights) of

intellectual property rights treated by both Federal and

State Statutes, then no preemption should occur where

the portion in question (Trade Secrets) of the remaining

protected area of Intellectual Property has not been

specifically covered by Federal Statute.

*Smith, “Patent Law, Cases, Comments and Materials”, Page 3.

31d. Page 115.

4 Copyrights

Federal — Title 17 of the United States Code

State — As for example:

California — West’s Ann. Cal. Pen Code, §653h.

Trademarks

Federal — Chapter 22, Title 15 of the United States Code.

State — See campilation entitled:

“State Trademark Statutes” by The United States

Trademark Association, New York, New York.

INVENTOR HAS A RIGHT TO CHOOSE HOW HE

WISHES TO PROTECT HIS INVENTION.

35 U.S.C. 101 states:

“Whoever invents or discovers any new and useful

process, machine, manufacture, or composition of

matter, or any new and useful improvement thereof,

may obtain a patent therefor, subject to the

conditions and requirements of this title.”

The wording of this statute by utilizing the word

“may”, and being directed at the inventor rather than a

public official, makes the initiation of the patenting

procedure a discretionary rather than mandatory act of

the inventor. Mason, et al. v. Fearson, 50 U.S. (9 How.)

248, 259; 13 L.Ed. 125; Levers v. Anderson, 326 U.S.

219, 223; 90 L.Ed. 26.

Nothing in this statute suggests that an inventor if he

elects not to seek a patent must give up whatever

common-law rights he has in his property (e.g., his

invention), and can personally protect. This court has

affirmed that such an election can be made. United States

v. Dubilier Condenser Corp., 289 U.S. 178.

If an inventor could not afford the payment of the

Patent Office fees and thus was unable to obtain a patent

a requirement by the courts that the sole remedy to

protect an invention lies under the Patent Laws, would

impose a hardship and inequity on such an inventor.

CONCLUSION

The decision of the lower Court should be overruled.

Respectfully submitted,

HERMAN FOSTER

EDWARD M. FARRELL

2155 Big Beaver Road

Troy, Michigan 48084

Counsel for The Budd Company

SPH A AER PE

SMD ke SRT NS

’

a hp

Slips é

LIBRARY | $2

IN THE

Supreme Court of the United States t

OcToOBER TERM, 1973

No. 73-187

KEWANEE OIL Company, Plaintiff-Petitioner

BicRoN CorporaTIon, ET AL., Defendants-Re spondents

On Writ of Certiorari to the United States Court of Appeals

for the Sixth Circuit

BRIEF OF CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA AS AMICUS

CURIAE IN SUPPORT OF PETITIONER

Minton A. SMITH

General Counsel

Chamber of Commerce of the

United States of America

1615 H Street, N.W.

Washington, D.C. 20006

Marcus B. FINNEGAN

Dovc.Las B. HENDERSON

KENNETH E. PayNeE

Finnegan, Henderson,

Farabow & Garrett

1775 K Street, N.W.

Washington, D.C. 20006’

Counsel For Chamber of

Commerce of the

United States of America

November 21, 1973

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

SS,

OPINIONS BELOW 2.2... . ccc ccc cc ccc cece ccecnuce

INTEREST OF THE CHAMBER OF COMMERCE OF THE UNITED

Staves OF AMERICA ...... 0.00... ccc cece ccc cue 2

SUMMARY OF ARGUMENT ..... 0.0.0 c ccc cc ccc ec wee cce 3

ARGUMENT 20... cc cc cc ccc ccc cece ccc ucucucucuecues 6

I. Tue Srxta Crrcurr Errongovsty Conciupep

TxHat ConGress INTENDED To Pre-pmpt STaTe

Trape Secret Laws spy Enactine THe Patent

BAM hers aks ba wuceennc bcwrbakawexwaceateca 6

II. Tuere Is No Conrurcr Between Feperat Par-

ENT Law anp State TrRape Secret Law ....... 8

A. The Objective of Trade Secret Laws Is Not

in Conflict With the Objective of the Patent A

RM nsdn 5 x40 5 55546560060 kene een eauees

B. The Nature of Patent ‘‘Protection’’ Is Fun-

damentally Different from the Nature of

Trade Secret ‘‘Protection”’ ............... 10

III. Tue Intent or Concress To Pre-empr State

Trave Secret Laws SHovip Not Be Iwpuien

Wuere THE Resutt Wovutp* Be Economic Up-

| ee er ae Senn 12

A. The Sixth Cireuit’s Decision Strikes Down

the Most Meaningful Area of Trade Secret

Protection 22... 0... cc ccc cee ce cee ees 12

B. Proteetion of Billions of Dollars Worth of

Technology Will Be Destroyed by the Sixth

Cireuit Decision 2.2.2... 0... cece eee 16

C. This Decision Comes at a Time of Mounting

Concern for the Economic Well-Being of the

United States as an Effective Competitor in

World Markets ....................000055 20

RE sacewacnaceasnausacaes Hadeeecertedne 25

" Would Have a Withering Effect on Invest-

ROU OE FORE 6 xi cond ccaiscenenscccaeceena 27

IV.

Index Continued

Page

The Effectiveness of R&D Efforts Will Be

Severely Impaired ....................05,

1. Industry Will Compartmentalize R&D

Efforts in Direct Derogation of the Ad-

vantages of the Team Approach ........

2. Wasteful Duplication of R&D Effort Will

Be Encouraged by the Demise of Know-

How Licensing ....................0005

3. Supplier Relations Will Be Disrupted ..

4, The Flow of Technology to This Country

Would Be Crippled ....................

. The Sixth Circuit’s Eradication of the Crit-

ical Area of Trade Secret Protection Would

Require Greater Governmental Interference

in Industrial Activities ...................

STRIPPING THE STATES OF THE Power To Protect

Trave Secrets WiLL FrRustrate THE OBJECTIVES

OF THE PaTEeNT SYSTEM ...............0ceeeee

State Trade Secret Laws Do Not Suppress

Disclosure of Valuable Technology to the

Detriment of the Public ..................

Free and Public Disclosure of Technical

Know-How Now Possessed as Trade Secrets

Cannot Reasonably Be Expected ..........

. Withdrawal of Legal Protection for Tech-

nology Will Decrease Competition in Our

Marketplaces. ........... 0... ccc cece eee

Voiding State Trade Secret Laws Will Have

a Real and Adverse Effect Upon the Eco-

nomic Welfare of the United States .......

Tue Decision Betow Is Not Founpep on Sounp

LecaL REASONING OR PRECEDENT ..............

CONCLUSION 2... ccc cece ccc cece cece cccccecces

se eee ee eee eee ee eeeeeeaeeeeeeeeeeeeeeeeeees

Index Continued . iii

TABLE OF AUTHORITIES

CasEs : Page

CO COIS) iii hia heh Ric ak wannenane esa 3

American Infra-Red Radiant Co. v. Lambert Indus-

tries, Inc., 360 F.2d 977 (Sth Cir. 1966) ......... 20

Bethlehem Steel Co. v. New York State L.R.B., 330

Ra UOT COGS esicea iii ycwn kee vaadnnedccc 43

Charleston & W.C.R. Co. v. Varnville Furniture Co.,

S37 U.S. G7 (1915) oo... ccc ccc ccc cece cee ccs 44

BOO CUOGR) iste fons aie hea vixen , 44, 45

Cooley v. Board of Wardens, 53 U.S. (12 How.) 299

CEOS? inc «dearer neatwoninatud sand oawinveiecs 7

Davies Warehouse Co. v. Bowles, 321 U.S. 144 (1944) 42

E. I. duPont de Nemours Powder Co. v. Masland, 244

Wi BOO (IGT seis echidna cs Pekawccins’s 11

Kichholz v. P.S.C. of Missouri, 306 U.S. 268 (1939) ;

rehearing denied, 306 U.S. 669 (1939) ............

Florida v. United States, 282 U.S. 194 $s} rere 43

F.T.C. v. Bunte Bros., Inc., 312 U.S. 349 CID8L) siacxs 43

Goldstein v. California, 412 U.S. 546 (1973) .......... 45

Graham v. John Deere Co., 383 U.S. 1 (1966) ...... 16, 18

H. P. Welch Co. v. New Hampshire, 306 U.S. 79 (1939) 43

Hill v. Florida, 325 U.S. 538 (1945) 2.2.0... 000. c ee 45

Hines v. ‘Davidowitz, 312 U.S. 52 (1941) ...........

7, 44

Hotchkiss v. Greenwood, 52 U.S. (11 How.) 248 (1850) 18

Rite BOO {a eis iy ice iivun bvancaxe 43

Kelly v. Washington, 302 U.S. 1 (1987) ............. 2

Kewanee Oil Co. v. Bicron Corp., 478 F.2d 1074 (6th

COR, EOURE ces a ek wen san xnws 1, 2, 12, 13, 15

In re Levin, 178 F.2d 945 (C.C.P.A. 1949) .......... 17

In re Mason, 156 F.2d 189 (C.C.P.A. 1946) 2.0.00...

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) 6

Minnesota Rate Cases, 230 U.S. 352 (1913) ..........

Napier v. Atlantic Coast Line R. Co., 272 U.S. 605

CROSS Pa en An een Anh as Caw i Tice ku & 48

New York C. R. Co. v. Winfield, 244 U.S. 147 (1917) .. 44

New York State Dept. of Social Services v. Dublino,

413 U.S. 405, 37 L. Ed. 2d 688 (1973) ...........

iv Index Continued

Page

Osborn v. The Bank of the United States, 22 U.S. (9

Wheat.) 738 (1824) ........ MkeGRGaREGE eRe ESS

Pennsylvania v. Nelson, 350 U.S. 497 (1956) .......--. 7

Pennsylvania R. Co. v. P.S.C. of Pennsylvania, 250

U.S. 566 (1919) ....... cece cece cece eee eees 44

Prudential Insurance Co. v. Benjamin, 328 U.S. 408

(194) ccc cccncccccccccccesenscensensessccces 47

Reid v. Colorado, 187 U.S. 137 (1902) .............. 43, 46

Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947)

Savage v. Jones, 225 U.S. 501 (1912) ..........-..-- 43

Schwartz v. Texas, 344 U.S. 199 (1952) ............ 9, 43

Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964) 48

Smith v. Nichols, 88 U.S. (21 Wall.) 112 (1874) ...... 19

South Carolina State Highway Dept. v. Barnwell Bros.,

BOB UGE. ATE CHBBB) onc cc csesccaswescasecssecss

Southern R. Co. v. Railroad Commission of Indiana,

pis Qe 2b: |.) ee eeee ee eTeereeerereee 44

Townsend v. Yeomans, 301 U.S. 441 (1937) .......... 42

Union Brokerage Co. v. Jensen, 322 U.S. 202 (1944) .. 42

In re White, 39 F.2d 974 (C.C.P.A. 1930) ............ 17

CoNSTITUTION OF THE UniTeD STATEs:

Article I, Section 8, Clause 8 ................ ee ee ee 10

Article VI, Clnmne 8 2... ccc cc ccc cccsccccctecsscecs 7

STaTUTES:

Bid TOT Cl) re eeeeree ere reece errr re 46

BG UBC. BOBIED os ac cnn ccdencvecsccccccsccesences 46

25 UBC. EFWiala), TOG onc cance sncesewcscccesecas 46

BS UAL, BMD 5 vcs cdencccvecscccesccecessacngset 46

Bik Ce B)- OC) ere ere 46

BB UBG, BOE conc ccc ccnceswccccsccccedsansenecess

gk Ce rer rere rrr rile 13, 15, 16, 17, 18, 19

, Bi? Cee). SPIT TerECyerrcerTe Tract Tes. .

Bit se Fe eeeeT rere rr rer eras 14, 16, 17, 18, 19

ee Ce Rees eerrereer err re rrr rrr rir

BO UB.G. FBO occ cccccccnccccveccceseccesswess 37

RvLgEs .

Federal Rules of Civil Procedure, Rule 26 .......... 46

Index Continued Vv

Page

OTHER AUTHORITIES:

L. Alder, Lag Time and New Product Development,

Journal of Marketing, vol. 31 (January, 1966) ... 30

Arthur D. Little, Inc./Industrial Researeh Institute,

Inc., Barriers to Innovation in Industry: Oppor-

tunities for Public Policy Changes (1973) ...... 40, 41

Finnegan and Brunsvold, The Law and Business of

Patent and Know-How Licensing, 2d ed. (1972) .. 24

National Commission on Materials .Policy, Material

Needs and the Environment Today and Tomorrow

CORTSY hv xcecneavansssbscesecs Lascieassendceeas 21

National Commission on Technology, Automation, and

Economie Progress, Technology and the American

Economy, vol. 1 (1966) ............ cece eeeeee 29

National Industrial Conference Board, Inc., Employee

Patent and Secrecy Agreements, Studies in Per-

sonnel Policy, No. 199 (1965) .................. 18

National Science Foundation, Research and Develop-

ment and Economic Growth/Productivity, NSF

FEBS CIBER) anne. cca nncccweeesecwwviecessccas 18

National Science Foundation, Science Resources

Studies Highlights, NSF 73-301 (February 28,

re er Te errr rr ree 28, 32

Peter G. Peterson, The United States and the Changing

World Economy (1971) ................0.0008. 21, 22

President Nixon, March 16, 1972, Message to Congress

on Science and Technology, Weekly Compilation

of Presidential Documents, vol. 8 (1972) ....... 27, 28

Samuelson, Economies, 8th ed. (1970) ............... 16

Secretary of Interior, Mining and Minerals Policy 1973,

Second Annual Report of the Secretary of Interior

Under the Mining and Minerals Policy Act of 1970

Bo eer ree Te Teer TS er Teer Te 21, 22

U.S. Department of Commerce, Best Export Perform-

ance Since 1951 Cuts Deficit in Merchandise Trade,

Commerce Today, vol. III (August 20, 1973) .... 21

U.S. Department of Commerce, Policy Aspects of For-

eign Investment by U.S. Multinational Corpora-

ee Lee eee eye Te Tre ee Tee 23

U.S. Department of Commerce, Survey of Current

Business, vol. 53 (June, 1973) .................4. 24

U.S. Department of Commerce, Technological Innova-

tion: Its Environment and Management (1967) .25, 26,

28, 29

IN THE

Supreme Court of the United States

OcToBER TERM, 1973

No. 73-187

KEWANEE Ort Company, Plaintiff-Petitioner

Vv.

Brcron CorPoRATION, ET AL., Defendants-Respondents

On Writ of Certiorari to the United States Court of Appeals

for the Sixth Circuit

BRIEF OF CHAMBER OF COMMERCE OF THE

UNITED. STATES OF AMERICA AS AMICUS

CURIAE IN SUPPORT OF PETITIONER

OPINIONS BELOW

The opinion of the United States Court of Appeals

for the Sixth Circuit is reported as Kewanee Oil Co.

v. Bicron Corp., 478 F.2d 1074 (6th Cir. 1973). By

its own order, the opinion of the District Court was

not reported. The Sixth Circuit held that the federal

patent laws pre-empt the State trade secret law of»

Ohio to the extent that Ohio law provides protection

to a trade secret which is ‘‘an appropriate subject for

patent ... [and] has been used commercially for more

than one year.’"”

INTEREST OF THE CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA .

The Chamber of Commerce of the United States of

America is a national membership association. It in-

cludes over thirty-six hundred (3,600) local and State

chambers of commerce and trade associations. These

State and local chambers, in turn, have an underlying

membership of over five million (5,000,000) business

firms and individuals in both metropolitan and rural

areas. The national Chamber’s direct business mem-

bership numbers in excess of forty-six thousand

(46,000) firms.

Many members of the Chamber rely heavily on the

protection of trade secret laws. Unless the Kewanee

decision is reversed, these members stand to lose their

valuable trade secrets, including technical know-how,

since almost all of these trade secrets, to the extent they

are valuable, have been in use for more than one year.

The member firms also stand to suffer severe financial

loss and erosion of their competitive strength, not

only in the United States, but in world markets.

Moreover, trade secrets, developed at great expense,

will be rendered legally available to others for nothing.

The inevitable resulting transmission of the legally

available trade secrets to others will occur by acts

that offend traditional views of fair competition and

business morality.

1478 F.2d at 1086.

The Chamber of Commerce of the United States of

America, as Amicus Curiae, takes no position with

regard to the private dispute between the parties to

this case. The Chamber’s concern is solely with the

holding of federal pre-emption of Ohio’s laws for pro-

tection of trade secrets, and the effect this holding

would have on the Chamber’s members, particularly if

the Sixth Circuit decision is given national application.

The Chamber is not seeking to characterize the motives,

intentions, or conduct of the parties to this ease.

Rather, the Chamber seeks to bring to this Court’s

attention the probable economie and moral conse-

quences. of the decision, and the severe detriment to

the Chamber’s members, and this nation, which would

follow from upholding the decision.

Each of the parties has consented, in writing, to the

filing of an Amicus Brief on the merits by the Chamber

of Commerce of the United States of America. Copies

of these written consents accompany this brief as an

appendix. The originals have been filed with the Clerk.

SUMMARY OF ARGUMENT

The issue of federal pre-emption of State legislation

raises difficult and complex constitutional questions.

Historie doctrine, developed by this Court to resolve

these questions in a manner best comporting with the

requirements imposed by our federal system of gov-

ernment, was misapplied or ignored by the court below.

There is, in fact and law, no conflict between the

federal patent laws and State laws protecting trade

secrets. The two bodies of law are bottomed on dif-

ferent legislative concerns; yet the obligations they

impose, and the results they require, are harmonious

and complementary.

The decision below strikes at the heart of critical

trade secret protection, and portends extreme economic

consequences for the United States. The Sixth Circuit’s

decision reaches a vast area of unpatentable tech-

nology, depriving it of any protection.

The seope of the Sixth Circuit’s decision is sweep-

ing. Technical developments and refinements which

are unpatentable or cannot be practicably patented are

deprived, by the court’s decision, of legal protection

despite the enormous capital investment they repre-

sent. The result will inevitably be that investment of

capital in development of technical know-how will be

diminished.

We are now faced with a critical international trade

problem which threatens the effectiveness of the United

States as a competitor in world markets. Exportation

of technology-intensive products has been the most

positive aspect of our trade balance picture. This is,

therefore, a time when the nation can ill afford a dim-

inution of investment in technology.

There is a clear relationship between the nation’s

investment in Research & Development (R&D) and

its economic strength. Commitment of risk capital to

R&D depends upon the existence of a legal framework

protecting a fair chance for the investor to recover his

money.

The Sixth Circuit decision, if allowed to stand, will

have a severe impact on the willingness of industry to

commit capital to R&D efforts. A competitor who has

pirated technical know-how without cost will compete

from a highly-favored position. Industry cannot be

expected to commit large sums to R&D efforts, if those

expenditures will not, at least, promise an improve-

ment in the investor’s competitive position. The con-

sequences of industry reluctance to invest in develop-

ing new products bode ill for the national economy.

Continued investment in R&D will be encouraged,

if at all, only by large expenditures for increased

measures of secrecy and nondisclosure. Thus, to min-

imize exposure of many workers to the technology

being researched and developed, industry will aban-

don the team approach to technical problem solving.

This will result in loss of efficiency and savings, which

othe

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