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Thir Agreement contained no express restriction on Painton's rise uroll:1000111m of this livrnerilere boncology, I'minlos nopired that allra termination it had an unsellered riglit lo use; Bourns, on the other hand, claimcıl that an implied negative covenant precluded) further usc.

Cros: motions for summary juuriyment wrse filmi on suluniter facts. On the contract issuc, Judge Mulley licld that California law would not supply a negative covenant. As an alternative and on entirely unsolicited (by arguinent or molion bricks) grounili, Juilgo Motley held for the licensce:

Our patent policy of strict regulation of inventions would be undercut is inventors could ensorce agreements for compensation for alleged sccrct idcas without being required to submit thosc idcas to the Patent Office, and, thereby, eventually have the ideas disclosed to the public. Furthermore, patent policy (rcaffirmed by the holding in Lear that esloppel will not be a bar to challenging the validity of a patent ...) which allows compensation only for ideas which risc to the level of invention would lxc Surther undermined by the enfcrcement of such a contract, since compensation would be awarded for non-inventions. And if this court were to hold that before a state could ensorce a trade secrets contract, thc idcas must be found to be an invention as prescribed by the rigid requiremenls of federal patent law, inventors would be able to circumvent "the manner in which (inventions may be protected." (Citing Lear, at 677.) Inventors would be encouraged to avoid filing applications altogether and contract for long licensing arrangements. The severely restricted area which the Supreme Court left open to applicable Staic law would become a yawning abyss. Fewer parent applications would be made. The l'atent Office would soon have a less accurate view of the state of the art in a particular field. And state courts, rather than thc Patent Office, would become the initial triers of whether a discovery is an invention.

For these reasons, this court holds that sederal patent law requires an inventor to submit his ideas to the Patent Office before he can compel consideration for the use of his idea. The court, however, does not decide whether under California law an inventor, if he makes a patent application, can be compensated for his disclosure before the patent has issued. (Citing Lear, at 676–77.] That

question is not before this court.30 In so holding, it is submitted, Judge Motley misconstrued the holding and thrust of Lear and followed, instead, Justice Black's dissent in Lear.31

80 Id. at 274.

31 395 U.S. at 676 (Black, J., Warren, C.J., & Douglas, J., concurring in part and dissenting in part). Since the significant portions of his opinion constitute a dissent, it is referred to in text as such. That Judge Mouley relied on Black's opinion was recognized by Painton: "The District Judge in substance abolished the law of trade secrets on th basis of the concurring opinion of Mr. Justice Black in Lear ... (she erroneously attributed the concurring opinion to Mr.

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. Black on Black That dissent purported in reiteratc a belief expresseul loy Juilic: 1iline.k when he wrote: 1.0: Coolil's opinion“. 190 cicut: we Compco:

I still cutretain the belief I (KJMCseed for thic ('mirt in Srars Anel Compro that no atnle has a right lo authorize any kind of menewly on what is claimed to be a now invention, rxccpt when a pillent has been obtained from the latent Office under the exaciing standards of the patent laws. Onc who makes a discovery mily, of course, korpo il sucrel is he wishes, but privalc arrangements under which self-styled "inventors" do not keep their discoveries

Justice Douglas ...)" Bricf for Appellee at 47, Painton & Co. v. Bourns, Inc., 309 F. Supp. 271 (S.D.N.Y. 1970) (reference is to brief on appeal). Since Lear, approximalcly 30 decisions have considered trade secret issucs. With the cxception of l'ainlon, not one opinion has found Lear, Scars or Compco imprediments to the continued vitality of trade secret principles; relief has been granted or denied on the basis of fundamental trade secret principles. list of the cases decided since Lear and involving trade secret issues is set forth below. For ready reference, the cases have been divided (somewhat arbitrarily) into five categories:

1. Trade secret protection granted. E.I. duPont de Nemours & Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970), cert. denied, 39 U.S.L.W. 3321 (U.S. Jan. 25, 1971); Water Servs., Inc. v. Tcseco Chems., Inc., 410 F.2d 163 (5th Cir. 1969); Mixing Equip. Co. v. Philadelphia Cear, Inc., 312 F. Supp. 1269 (ED. Pa, 1970); Sperry Rand Corp. v. Pentronix, Inc., 311 F. Supp. 910 (E.D. Pa. 1970); Raybestos-Manhattan, Inc. v. Rowland, 310 F. Supp. 993 (D.S.C. 1969) (recognizing trade secret status of pending patent application); Homes y. Thew Shovel Co., 305 F. Supp. 139 (N.D. Ohio 1969) (patent application); Heathbath Corp. v. Iskovits, 117 III. App. 2d 158, 254 N.E.2d 139 (1969); Carboline Co. v. Jarboe, 454 S.W.2d 540 (Mo. Sup. Ct. 1970); Glass Laboratories, Inc. v. Crystal, 165 U.S.P.Q. 647 (N.J. Super. Ct. 1970).

2. Subject maller held not to be a Irade secret. Cataphote Corp. v. Hudson, 422 F.2d 1290 (5th Cir. 1970); Midland-Ross Corp. v. Sunbeam Equip. Corp., 316 F. Supp. 171 (W.D. Pa. 1970); Cudahy Co. v. American Laboratories, Inc., 313 F. Supp. 1399 (D. Neb. 1970); Central Specialties Co. v. Schaeffer, 165 U.S.P.Q. 15 (N.D. II. 1970); G.T.I. Corp. v. Calhoon, 309 F. Supp. 762 (S.D. Ohio 1969).

3. Absence of contractual or implied legal restriction on use or disclosure. Chemithron Corp. v. Procter & Gamble Co., 427 F.2d 893 (4th Cir. 1970); Bendix Corp. v, Balax, Inc., 421 F.2d 809 (7th Cir. 1970); Shatterproof Glass Corp. v. Guardian Glass Co., 168 U.S.P.Q. 212 (E.D. Mich. 1970); Superior Testers, Inc. v. Damco Testers, Inc., 315 F. Supp. 9.34 (E.D. La. 1970); Gallo v. Norris Dispensers, Inc., 315 F. Supp. 38 (ED. Mo. 1970); Thomson Mach. Co. v. LaRose, 306 F. Supp. 681 (E.D. La. 1969); Bimba Mig. Co. v. Starz Cylinder Co., 119 IN. App. 2d 251, 256 N.E.2d 357 (1969); J.T. Healy & Son, Inc. v. James A. Murphy & Son, Inc., 260 N.E.2d 723 (Mass. 1970).

4. Submission of ideas. Joseph Bancroft & Sons, Inc. v. M. Lowenstein & Sons, Inc., 167 U.S.P.Q. 137 (D. Del. 1970); Epstein v. Dennison Mig. Co., 314 F. Supp. 116 (S.D.N.Y. 1969) (Motley, J.); Flemming v. Ronson Corp., 107 N.J. Super. 311, 258 A.2d 153 (1969). As to submission of ideas generally, see M. Nimmer, Copyright, ch. 15 (1963); Trade Sccrels, supra nolc 5, $ 8.03.

5. Miscellaneous. Varo, Inc. v. Corbin Mig. Co., 168 U.S.P.Q. 95 (E.D. Pa. 1970) (burden of prool); Struthers Scientific & Int'l Corp. v. General Foods Corp., 314 F. Supp. 313 (D. Del. 1970) (discovery).

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Modrl, lost, rather disclose them, in return for contrariual payments, run counter to the plan of our patent laws, which fighly regulile. This kind of inventions that may be protected anıl the manner in whicho thory may loc fortelor fool. I lor national justio y regnoosoo in Ibor patent laws, lavoring srce comprelition and narrowly limiting woman inly, cannot be frustrated by private agreements ansong incliviiluals, with or willennit tlor apynavnl of lloc Sente."

Justice lllack's beguilingly briel remembrance of things past is disturbing for two retssons: (1) it rc::8% ujuoni a conopoletely inapplicablc notion of "monopoly' and (2) it plainly contradicts his own contemporanсous description of the Scars bolding in Compco Corp. v. Day-Brite Lighling, Inc.:*

Today we have held in Scars ... that when an article is unprotected by a patent or a copyright, state law may not forbid others to copy that article. To forbid copying would interfere with the folcral policy ... of allowing free access to copy whatever the federal patent and copyright laws leave in the public


The gospel according to Judge Motley would sweep trade secret law into obsolescence by reducing its subject matter solely to patentable inventions and then shortening its effective term to the period of gestation between patent application and patent grant. Painton was a predictable, conceptualistic adoption of the ill-defined formulae of Sears, Compco and Lear. But, were it taken at face value and given currency, the following are but a few of the far-ranging consequences.

First, only matter eligible for patent protection could be

32 395 U.S. at 677. A patentee is given slatutory exclusivity and third parties suliscquently and independently deriving a patented invention may not practice it during the terin of the patent. Trade secret owners, on the other hand, have no protection against independent developers. See text accompanying notes 41-45, 51-53 iníra.

33 Properly used, the term “monopoly" is applicabile when a privilege, previously available to the public, is restricted to the exclusive benefit of one party0.8., the seventeenth century trading monopolics of the colonial powers. While the term is often used to describe the stalus of an inventor who has scurcol statutory exclusivity in exchange for public disclosure, it is not accurate since "lajn inventor deprives the public of nothing which it enjoyed before his discovery, but Rives somcthing of value to the community by adding to the sum of human knowledge." United States v. Dubilier Condenser Corp., 289 U.S. 178, 186 (1933).

34 376 U.S. 234 (1964). There is quite a difference between saying that a state may not forbid copying of unpatented material and saying that individuals may not enter into a trade secret license agreement which in no way impairs the right of any independent third party to devclop, use and disclose the subject malter of such license.

86 376 U.S. at 237.

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muillead to the corect protection. This is contomy forudimentary tuneln script livw.

2100), unless pointcul appolleation has seen made for maller ultimatrly entitled to patent protection, contractual and confidential relationship, would afford 110 protection. Thu:s, for example, cven expres3 restrictions on use and disclosure of trade secrets in employmenil contract would, in mo:it in:tance, bc unenforccallc. This would come as an unwelcome surprise to the numerous employers who rely upon some form of cmployment agreement to protect their trade secrets."7 Similarly, a confidential relationship, such as that between cmployer and employce, would no longer impose any restriction on use or disclosure of nonpatentable matter nor even on patentablc matter if patent application has not been effected. Heretofore, the sanctity of trade secret matter imparted in the employment relationship has been widely recognized. 38

Third, practically all existing technology licenses would be invalid to the extent that patent application had not been made. Such a result also conflicts with settled law.30

Fourth, monied corporations could elect to retain processes and other secrct matter and to use their assets to keep such matter solely in-house. In contrast, smaller developers and owners of trade secrets, lacking sufficient assets to exploit their trade secrets adequately, would not have available to them the capital-substitution technique of licensing such matter.

Fifth, Painton involves a domestic trade secret licensor and a foreign licensee; it presents in microcosm the potential economic impact of its trade secret holding. If all foreign licensees of United States licensors' technology which does not meet the standard established in Puinlon's trade sccrct holding halıcd payment of royalties, the United States balance of payments would be adversely affected by a sum estimated to be in excess of $1 billion."

30 Sec Restatement of Torts $ 757, comment b at "Dafinition of Trade Secrct" and "Novelty and Prior Art" (1939); Trade Secrets, supra noic 5, $ 2.08.

37 Sce, c.8., Employce Patent and Secrecy Agreements 13 (Nat'l. Indus. Coní. Bd. Pamphlet No. 199 (1965)).

In Trade Secrets, supra note 5, $ 5.02(1).

39 Imperial Chem. Indus., Ltd. v. National Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir.), modified on other grounds and on new findings of fact, 354 F.2d 459 (2d Cir. 1965); Formulabs, Inc. v. Hartley Pen Co., 275 F.2d 52 (9th Cir.), cert. denicd, 363 U.S. 830 (1960); Foundry Servs., Inc. v. Beneflux Corp., 206 F.2d 214 (2d Cir. 1953).

40 1969 secs and royaltics from direct foreign investments are estimated at $2.052 billion. Office of Business Economics, United States Dep't of Commerce, 50 Survey of Current Business No. 3 (Mar. 1970). The National Industrial Conference Board, in its 1969 research report "Appraising Foreign Licensing Performance," citing published and unpublished data from the United States Department Taking into account patent and trademark royalties which may be included in those figures, when know-how licenses and cquity-type transactions are added In, a $1 billion order of magnitude for know-how licensing is a plausible estimate. See also Lightman, Compensation Patterns in U.S. Forcign Licensing, 14 Idea 1 (1970). Thc figures from 1961 are of interest although nine years old.

While the cract anmount can be only conjreturned locausn. of thir. ulozrnnen of precise statistical data, it is corinin that thrir wolle Ise an inmediate and significant del bors to the limited Editor' toil. ance of payments if domestic and foreign licensees of trade secret licensors were free from Surther inally poilymnocuitos.

Before allowing trade secrets to be excommu by Judge Mollcy, perhaps we should review the controlling theology. Wc can do this by contrasting the substantive character of patents with that of trade sccrcts. Only after such an examination can we consider whether "preemption” is a real issue.

A. Palents The Constitution authorizes Congress to promote the progress of science and the useful arts by granting exclusive rights to inventors for limited periods." Exercising this power, Congress enacted the Patent Act." Section 101 grants eligibility for patent protection to inventors of new, useful and nonobvious processes, machines and manufacture or composition of matter.“Assuming proper and timely disclosure of the invention in a successful application, the patentee secures, for a term of seventeen years, the right to exclude all others from making, using or selling the ihvention throughout the United States." Any infringer of a validly of Commerce, states that "receipts of royalties and license fees from abroad bave more than doubled over the course of the last ten years, rising from around $378 million in 1957 to an estimated $786 million in 1967." National Industrial Conserence Board, United States Dep't of Commerce, Sludies in Business Policy No. 128 (1969).

An important clement of our international balance of payments is what is called the technological balance of payinents. This international account relccts payments for technical know-how, patent royaltics and the like. ... A recent study shows the U.S. rocciving roughly ten times the technological payments from abroad as goes out in pynients to other nations. This is a very significant secondary cllect of innovation in the American

economy. In 1961 payments by the United States to other countrics amounted to $63 milijon; receipts by the United Statcs from others, $557 million; nct balance to the United States in 1961, $493 million. United States Dept of Commerce, Technological Innovation: Ils Environment and Management, A Report of the Panel on Invention and Innovation (1967). The author wishes to cxpress his gratitude to Tom Arnold of the Texas Bar for the economic information cited above.

41 U.S. Const. art. I, § 8, c. 8.

12 35 U.S.C. 99 1-293 (1964), as amended, 35 U.S.C. $8 41-282 (Supp. V, 1970) (hereinafter Patent Act).

13 Id. $ 101 (1964).
44 Id. 154 (1964), as amended, (Supp. V, 1970).

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