and began to sell the copy for substantially less than the retail price of the Stiffel original Stiffel sued Semis în federal comt on two counts, infringement of the patents and unfair competition arising, from the likelihood of confusion as to the source of the products. The district court held the patents invalid but granted recovery under the Illinois law of unfair competition on the second count. The Seventh Circuit Court of Appeals affirmed. Reversing in Sears, Roebuck & Co. v. Stiffel Co.,3 the Supreme Court cut adrift the whale that has been bobbing about since:

Obviously a State could not, consistently with the Supremacy Clause of the Constitution, extend the life of a patent beyond its expiration date or give a patent on an article which lacked the level of invention required for federal patents. To do either would run counter to the policy of Congress of granting patents only to true inventions, and then only for a limited time. Just as a State cannot encroach upon the federal patent laws directly, it cannot, under some other law, such as that forbidding unfair competition, give protection of a kind that clashes with the objectives of the federal patent laws.

Little in the law of trade secrets" was clearer before Sears than the nonprotectibility of alleged trade secrets disclosed by 2 Stiffel Co. v. Sears, Roebuck & Co., 313 F.2d 115 (7th Cir. 1963), rev'd, 376 U.S. 225 (1964).

3 376 U.S. 225 (1964). See Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964). Compco presented essentially similar substantive issues of likelihood of confusion.

4376 US. at 231 (dictum).

5 Trade secret status is achieved when the subject matter is used in business, lends the owner a competitive advantage, is not generally known or readily ascertainable and is used and maintained with due regard to protecting secrecy. See Restatement of Torts § 757, comment b (1939). This definition has been adopted by every major commercial jurisdiction in the United States, and state law is universally regarded as controlling. See cases cited in R. Milgrim, Trade Secrets §§ 2.01 n.2, 7.02[3] (1967) [herinafter Trade Secrets). (Generally, an author who cites himself relies on questionable authority. I shall, therefore, only refer to Trade Secrets to avoid repetition of lengthy strings of citations or to conveniently state what I believe to be noncontroversial propositions.) Trade secret owners have the right to use and disclose their secrets subject to contractual restrictions and restrictions imposed by law, under the rubric "confidential relationship" or "implied contract." Restrictions imposed by law reflect the character of the legal relationship between the owner and the disclosee. Thus, trade secret protection in most instances is afforded on the basis of a relationship between a trade secret owner and a third party, such as an employee or a licensee. Trade secret law affords the owner no protection whatsoever against the independent development of the trade secret by third parties not subject to valid interpersonal restrictions.

Trade secret protection covers a vast array of subject matter such as plans, designs, processes, formulae, research and development and many items of business data such as customer requirements and cost and pricing information. The subject matter of a trade secret may or may not be eligible for patent protection. Until the utterance of the Supreme Court's dictum in Sears the viability of trade secret law separate and distinct from patent law had not been seriously questioned.

the sale of products." Indeed, sale of the product was not necessary to terminate proiecy, Advertising on circularizing has been suffi cient to put an end to any protection based on trade secrets.”

Had, therefore, the Court in Sears restricted the language of its decision to the facts before it, it would have stated that a marketed, nonpatented product can be copied freely by anyone. The decision would have been entirely consistent with established trade secret principles" and would not have raised an issue of "patent preemption." Indeed, the Court's holding was within the confines of trade secret law, thereby making the preemption language dictum.

No sooner was this dictum afloat, than no less prestigious a helmsman than the Ninth Circuit Court of Appeals, upon sighting the shoals, rocks and breakers of Scars, asserted that the Scars decision "precludes judicial recognition of a legally protectible interest in the secrecy of industrial information as such." Fortu

• Trade Secrets, supra note 5, § 2.05[2] n.8.

7 Id. at n.10.

See text accompanying notes 51-54 infra.

• In Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964), the companion case to Sears, Justice Black made clear that the Court's holding in Sears merely prevented a state from forbidding the copying of an article not protected by a patent or copyright-bardly heresy under the law of trade secrets. See text accompanying note 35 infra.

10 Winston Research Corp. v. Minnesota Mining & Mfg. Co., 350 F.2d 134, 138 (9th Cir. 1965). The Ninth Circuit concluded, however, that Sears did not prevent granting relief to a trade secret plaintiff based on "the integrity of confidential employer-employee relationships." Id. After Lear, Inc. v. Adkins, 395 U.S. 653 (1969), the Ninth Circuit expanded its views. Dekar Indus., Inc. v. Bissett-Berman Corp., 168 U.S.P.Q. 71 (9th Cir. 1970) (Sears and Compco do not prevent equitable relief for trade secret misuse by one bound by confidential relationship or by express or implied agreement).

Such expressions are rather superficial. Since nonsecret technology cannot be protected by reason of a confidential relationship or by an implied or express contract, it is logically more appropriate to state that a legal right which is recognized in trade secret ownership is the right to disclose or impart it to others subject to a confidential relationship or contractual protection.

The right of the owner of a trade secret to use and disclose in specified contractual or so-called confidential relationships is the principal "property right" which inheres in a trade secret. Although discarded with little or no analysis by some commentators, see, eg., R. Ellis, Trade Secrets 12 (1953); A. Turner, Trade Secrets 12 (1962), in practice the property view is often critical. It underlies the view that trade secrets are (a) capital assets, the sale of which entitles the owner to capital gains treatment, see E.I. duPont de Nemours & Co. v. United States, 288 F.2d 904, 912 (Ct. Cl. 1961); (b) assets which may be the subject of bankruptcy claims, see In re Bettinger Corp., 197 F. Supp. 273 (D. Mass. 1961), order vacated and case remanded on other grounds sub. nom Walker Mfg. Co. v. Bloomberg, 298 F.2d 688 (1st Cir. 1962); (c) property which may be the subject of larcenous taking, see Hancock v. State, 402 S.W.2d 906, 908 (Tex. Crim. App. 1966); (d) assets for purposes of § 7 of the Clayton Act, 15 U.S.C. § 18 (1964), see United States v. Allied Chem. Corp., 1964 CCH Trade Cases [ 71,193 (S.D.N.Y. 1964); (e) property affording an interested party the right to intervene under

nately, however, the overwhelming majority of trade secret dec.). sions since Scars have refused to be lured off course, noting in their logs that Beurs does not apply to trade secrets," but Sears' broad conceptual dictum has remained afloat.

C. The Supreme Court Sights the Shoals

If Mr. Adkins had had any notion what he was to be in for when he went to work for Lear, he might have taken up horticulture. At the beginning of the employment (January 1953) Adkins and Lear entered into an agreement which provided that Adkins' new ideas, discoveries and inventions relating to vertical gyros were to be his property and that he would license them to Lear on a mutually satisfactory royalty basis. Soon thereafter, he developed a gyro for which a patent application was filed (February 1954). Some eighteen months later, after long and undoubtedly tedious negotiations, Lear took a license under which it had the right to terminate if a patent was not granted on the substantial claims of the application or if a patent issued but was subsequently held invalid.

From 1954 to 1957 Adkins' patent application was twice rejected and, on the basis of such rejections and its own patent search, Lear notified Adkins that Lear would no longer pay royalties on most of its gyros of the Adkins type. In 1959 Lear ceased making royalty payments to Adkins although it continued to produce the gyros. A year later a patent was finally granted on the design of a gyroscope apparatus-a claim much narrower in scope than those intially sought, but nonetheless covering the Lear gyros.

In the California state court litigation that ensued when Adkins sought back royalties and damages for breach of the license agreement, Lear attempted to raise the invalidity of Adkins' patent as a defense. The trial court, however, and ultimately the California Supreme Court,12 held that the doctrine of

the Federal Rules of Civil Procedure, see Formulabs, Inc. v. Hartley Pen Co., 275 F.2d 52, 56-57 (9th Cir.), cert. denied, 363 U.S. 830 (1960), and (f) property in exchange for which corporate stock may be issued, see Herold v. Herold China & Pottery Co., 257 F. 911, 912-13 (6th Cir. 1919).

It should be kept in mind that in order for a trade secret owner to have legal protection he must meet the difficult burden of proving (a) that the subject matter was a trade secret, (b) that it was disclosed or imparted to the defendant, (c) subject to valid legal restrictions and (d) that the defendant has used or disclosed the trade secret to the owner's detriment. Trade Secrets, supra note 5, § 7.07[1] at text accompanying nn.5-10.

11 See cases cited in Trade Secrets, supra note 5, § 7.08[2][c] n.43.

12 Adkins v. Lear, Inc., 67 Cal. 2d 882, 435 P.2d 321, 64 Cal. Rptr. 554 (1967), rev'd, 395 U.S. 653 (1969).

licensee estoppel precluded such a defense," The United States Supreme Court renounced the doctrine of patent licenser estoppel in Lear, Inc. v. Adking,'" and remanded the ense to permit Lear to avoid payment of royalties accruing after issuance of Adkins' patent if Lear could establish patent invalidity.

The only issue before the Supreme Court in Lear was "the [California Supreme] court's reliance upon the doctrine of estoppel to bar Lear from proving that Adkins' ideas were dedicated to the common welfare by federal law." The Court stated that it granted certiorari solely to reconsider the validity of its prior patent estoppel position" "in the light of our recent decisions emphasizing the strong federal policy favoring free competition in ideas which do not merit patent protection." By framing the issue with this sweeping language, did the Court hint it was about to announce that federal policy subjects the owner of any unpatented matter to use or disclosure notwithstanding contractual or confidential restrictions? Not at all. Federal law, even as enunciated in Scars and Compco, merely "requires that all ideas in general circulation be dedicated to the common good unless they are protected by a valid patent." "19 A comforting statement, being at one with trade secret law.20 But, unfortunately, the Court did not leave the matter there.

921

Instead, it considered Adkins' claim for pre-1960 royalties, which Adkins said were due whether or not his patent was found valid, a position which the Court characterized as "extreme." Despite the Court's earlier clear statement that only the patent estoppel issue was before it,22 the Court went on to state that "[a]t the core of this case, then, is the difficult question whether

13 The doctrine of licensee estoppel forecloses a patent licensee from attacking the validity of his licensor's patent. As to the licensee estoppel portions of the case, see Comment, 45 N.Y.U.L. Rev. 386 (1970).

14 The foregoing facts are those recited by the Court in Adkins v. Lear, Inc., 395 U.S. 653, 657-61 (1969).

15 Id. at 674.

16 395 U.S. at 662. The estoppel issue was question 1 in Lear's Petition for Certiorari at 3, Lear, Inc. v. Adkins, supra, and the sole issue in the Brief for United States as Amicus Curiae at 2, Lear, Inc. v. Adkins, supra. Neither party nor the Amicus raised any issue of trade secrets in the various petitions, replies and briefs before the Court. 395 U.S. at 682 (White, J., concurring).

17 See, e.g., Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827 (1950); Comment, 45 N.Y.U.L. Rev. 386, 387-88 (1970).

18 395 U.S. at 656 (citing Scars and Compco).

19 Id. at 668 (emphasis added). The majority's statement in Lear is a close parallel to Justice Black's characterization of Sears as he enunciated it in Compco. See text accompanying note 35 infra.

20 See Trade Secrets, supra note 5, §2.05.

21 395 U.S. at 672.

22 See text accompanying notes 16-18 supra.

federal patent policy bars a State from enforcing a contract regulating weens to an unpatented secret Iden,””" Thus, after striking down licensee estoppel so that a patent licensee would not be liable for patent royalties accruing after the licensee challenges the patent's validity until final adjudication of validity," the Court expressly reserved the more difficult question of

whether, and to what extent, the States may protect the owners of unpatented inventions who are willing to disclose their ideas to Inanufacturers only upon payinent of royaltics. . . . Our decision today will, of course, require the state courts to reconsider the theoretical basis of their decisions enforcing the contractual rights of inventors and it is impossible to predict the extent to which this re-evaluation may revolutionize the law of any particular State in this regard. Consequently, . . . even though an important question of federal law underlies this phase of the controversy, we should not now attempt to define... the extent, if any, to which the States may properly act to enforce the contractual rights of inventors of unpatented secret ideas . . . . Indeed, on remand, the California courts may well reconcile the competing demands of patent and contract law in a way which would not warrant further review in this Court.25

As Justice White aptly noted, the Court did not have jurisdiction to raise the foregoing question.20 Aside from this jurisdictional issue, Justice White questioned the wisdom of disregarding the Court's rule that only "the questions set forth in the petition or fairly comprised therein will be considered by the court." Nevertheless, the question has been posed and can be satisfactorily answered under trade secret principles which are consonant with the federal patent scheme.2

28

D. The Sheep Continue To Leap Over the Stick

Oh Justice White's prophetic soul! Enter Judge Motley in Painton & Co. v. Bourns, Inc.29-a declaratory judgment action brought by Painton, an English licensee, against Bourns, its California licensor of unpatented potentiometer technology. The license agreement between the parties had been terminated by Bourns for the licensee's failure to attain minimum production.

23 395 U.S. at 672.

24 Id. at 673-74.

25 Id. at 674-75. Matter contained in patent applications and not otherwise disclosed or generally known is treated as being in the nature of a trade secret. See Trade Secrets, supra note 5, § 8.02[7].

20 395 US. at 678 (concurring opinion).

27 Id. at 681. See U.S. Sup. Ct. Rule 23(1)(c).

28 See text accompanying notes 59-63 infra.

29 309 F. Supp. 271 (S.D.N.Y. 1970), appeal docketed, No. 34959 (2d Cir., June 1, 1970). Argument was heard on February 11, 1971.