If to the uncertain figures available as an annual rate of license income in fees and royalties, there is added the annual income from equity transactions, and these annual income figures are capitalized and added to the masses of know-how which is not licensed the total dollar value of U.S. industrial know-how must be estimated in the many-billion order of magnitude. Thus, the value of John. Q. Public's property in issue that sua sponte was taken from him by the trial Court in Painton, is as great as almost any single legal issue that has ever been litigated. The "Show-how" contract How is a know-how license, calling for disclosure of unpatentable know-how in exchange for money, - different from an ordinary teacher's employment contract? Or a continuing research and development service contract? Or a technical services contract? In all of these contract types, money is agreed to be paid in exchange for the teacher (know-how grantor) teaching by books and specifications and usually by some person-to-person instruction as well. The essence of the contract, is a "show-how" service contract. The difference is that when the information includes trade secrets and confidential know-how, the teaching is done in confidence and the student agrees to keep the confidence--so that the teacher (know-how grantor) can sell the same information again to others who do not wish to incur the loss of market lead time and the cost of doing their own engineering as the alternative. The same confidential know-how is often sold twice, three times, a dozen times, to different purchasers, and this can be done only if the confidence is maintained. By this comparison with the teacher's show-how contract we get a better picture of the essence of the relationship. A know-how license is a contract that A teach B what A knows or soon will know as a result of A's continuing research and development effort. If B gets the know-how it sought, B must be -11 62-614 O 71 6 required to pay what B promised to pay, whether or not the know-how was patentable or put into a patent application--because B got the value he agreed to pay for. -0-0-0 Employer-employee relationship It is important to note that most of this knowhow is not patentable, but business has a tremendous investment in it. It is important to note that if this know-how is not legally protectable, if the proprietor cannot compel compensation for disclosure of it (as the Painton opinion suggested with the possible exception of information covered by a pending patent application), then the law would urge every company to indulge employee raiding of its competitors with vigor, in a dog-eat-dog effort to get information that heretofore has been sold often at very substantial prices. Why pay $1,000,000 for know-how when you can get most of the same information by hiring the competitor's plant manager for $25,000? If as was stated in Painton, the proprietor cannot compel compensation from those who agree to pay money for disclosure or use of his information, assuredly there is no liability for a plant manager using the knowhow in a new employer's plant. Failure of the law to continue to protect confidential technical know-how against those who would wrongfully derive its possession or would wrongfully use, would force every business to strict internal secrecy lest departing employees take competitively valuable information with them. Such a secrecy program inherently begets large loss of business efficiency because of deterioration of internal communications and loss of cross-fertilization of technological intellect among the employee group. The contract for applications engineering services What of a hypothetical four-scientist partnership with a contract to do applications engineering for company X? Painton says that the partners cannot compel consideration for the disclosure or use of their ideas unless they be patentable. Such a rule must inherently put the four partners out of the applications engineering business. -12 Business R & D budgets Can business long justify large budgets for the development of new know-how, if when once developed it is to be available to competitors at no charge? In some areas where one year's market lead time will pay for the development of the new know-how, the answer would be at least partly, yes. But in areas which command really large developmental expenses at high risk that when the money is spent the new know-how may nevertheless prove to be uncommercial, the answer must in major part be, no. Industrial life in action Thus it is seen: (a) If the know-how obtained at great research and development expense is not protectable, then investment of private capital in that kind of research and development, must inevitably diminish--to the detriment of the advance of the useful arts. And when is occurs gradually over the years, budgetcommittee-decision by budget-committee-decision, who will k w who slew the goose that has been laying the go en eggs of rapid technological progress? (b) If know-how cannot be licensed for compensation and protected so far as the law of implied contracts and actual contracts would reach, then the ethical businessman's contractual dissemination of know-how, which results in advancement of competition and early public enjoyment of inventions, must terminate, forcing potential competitors either, (1) to stay out of a new line of business; (2) to pervert their ethics and misappropriate the requisite know-how in reliance on the law's inducement toward this immorality; or (3) spend the extended time and money necessary to redevelop the know-how that could previously have been purchased--time and money that otherwise might have been devoted to new developments instead of to repeating development work already done by others. -13 -0-0-0 From the above it is obvious that industry has been relying upon proprietary confidential information, including technical know-how, as an important part of its capital investment and of its salable stock in trade. Industry relies upon protection of its investment in unpatented know-how as against those who would derive from others without authority. Having noted the lines of distinction between patentable concepts, and unpatentable know-how, and how the two fit into industrial operations and economics, let us consider the history of the non-patent law under which the multi-billion dollar know-how investments and licensing practices were developed. A cause of action for wrongful disclosure of trade secrets has been recognized by some law at least since Roman times. Schiller, Trade Secrets and the Roman Law; The Actio Servi Corrupit, 30 Columbia Law Review 837 (1930). While there are several nonlegal reasons for there being fewer trade secret cases in this country before 1900 than since, it is fair to say that that law of this country has always protected confidential and trade secret information against unauthorized appropriation and use by those deriving from the possessor thereof. For example: Early Supreme Court Law At least as early as 1889 the United States Supreme Court was upholding contracts involving the conveyance of confidential information. Fowle v. Park, 131 U.S. 88 (1889). -14 In Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 250-51 (1905), Mr. Justice Holmes said: "In the first place, apart from special objections, the plaintiff's collection of quotations is entitled to the protection of the law. 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 [citation]. The plaintiff does not lose its rights by communicating the result to persons, 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. (Emphasis added.) The Supreme Court in 1911 stated: ་་ A "secret process may be the subject of confidential communication and of sale or license to use * * *" Dictum in Dr. Miles Medical Co. v. Park & Sons Co., 220 U.S. 373, 402 (1911). The Supreme Court again sustained trade secret protection in DuPont Powder Co. v. Masland, 244 U.S. 100 (1917). In 1929, the Supreme Court held: "It is plain that that suit had for its cause of action the breach of a contract or wrongful disregard of confidential relationships, both matters independent of the patent law, and that the subject matter of Oppenheimer's claim was an undisclosed invention which did not need a patent to protect it from disclosure by breach of trust. [citations] Oppenheimer's trade secret] right was independent of * * * the patent law, ** Becher v. Contoure Laboratories, Inc. et al, 279 U.S. 388, 391, 49 s.ct. 356, 357 (Emphasis added). -15 |