relies exclusively on trade secret protection on whether he uses it only during the patent pending period, the conflict will soon be resolved. Disclosure will usually be accomplished in the former situation by commercialization” and in the latter by the issuance of the patent

When an inventor licenses his invention but relies exclusively on trade secret protection, or relies on such protection while his patent application is pending, would enforcement of his contract frustrate the policy of the patent and antitrust laws? The refusal of the Lear Court to answer that question precipitated the concurrence by Justice Black." He argued that enforcement of a contract calling for royalties on the invention while a patent is pending would indeed frustrate federal policies if the invention is later deemed unpatentable, and that by enforcing such agreements the state was illegitimately creating a monopoly." To support his proposition he cited Sears, Roebuck & Co. v. Stiffel Co." and Compco Corp. v. Day-Brite Lighting Co.” in which an Illinois unfair competition law prohibiting a manufacturer from copying an unpatentable device was held to be preempted by the federal patent law. While it is true that the state's action in denying an independent manufacturer the opportunity to copy an unpatentable article by its unfair competition law-thereby granting an exclusive right to an invention to the inventor though he did not have a patent-must be overturned, it does not follow that all licenses of unpatentable or patent pending inventions are unenforceable.

By enforcing a contract based on an unpatented or patent pending invention, state law is not creating a monopoly in contravention of the patent laws since the licensee, under the common law of trade secrets, does not acquire the protection of the patent laws or its equivalent. Trade secret law provides that if a

95. See Adelman & Jaress, supra note 41, at 91-92. The exception to this position, however, is the "potentially perpetual secret." See note 92 supra and accompanying text.

96. 395 U.S. at 676-77. The majority of the Court held that the state court had not satisfactorily passed on the issue as yet so it decided to reserve the question for later determination. Id. at 674-75. Justice White, in a concurring opinion, reasoned that the Court should not pass on the issue since: (1) if the patent were determined valid on remand, the issue would be moot. (2) if the patent were held invalid and the state had a chance to pass on the issue it might accommodate federal and state law so as to dispense with the need for further review, and (3) the parties had not briefed or prepared the issue adequately. Id. at 682. 97. Id. at 677.

98. 376 U.S. 225 (1964).

99. 376 U.S. 234 (1964). For a recent discussion of Sears, Compco, and related trade secret decisions, see Adelman & Jaress, supra note 41, at 80-84.

191

100

member of the public develops the same device through independent research, such person is not prohibited from exploiting it TM* If a member of the public can, under these circumstances, exploit the invention there is no monopoly, and the contract should be enforced. Moreover, by enforcing such contracts, the courts would be furthering the policy of the federal patent laws promotion of invention for there is a greater economic incentive for an inventor to produce when he is assured that his discovery, even if not patentable, may be licensed for profit. There is a need for such incentive, for unpatentable, as well as patentable inventions, "promote the progress of science," and the former do not involve the grant of a legal monopoly.

104

Though not creating a monopoly, it is possible that state law enforcement of these licenses may create an unreasonable restraint of trade. If the restrictive convenants are not too broad and are necessary to accomplish a legitimate business purpose it is unlikely that there will be antitrust problems. A covenant not to disclose the invention qualifies as a necessary restrictions since once the invention is disclosed, trade secret protection terminates and the underlying discovery becomes accessible to the public in general. Moreover, despite the disclosure restriction, unpatented and patent pending licenses promote invention by giving the inventor a "head start" toward recouping research and development costs.' Although there may be some restraint on trade by the disclosure

100. See MILGRIM § 5.04[1].

101. See United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 593 (1957) (quoting Transamerica Corp. v. Board of Governors, 206 F.2d 163, 169 (3d Cir. 1953)). An Illinois law of unfair competition gave the holders of the trade secrets in Stiffel and Compco the power to prevent the copying of an article which represents too slight an advance to be patented ." Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 231-32 (1964). When the holder of the trade secret does not have this power to exclude competitors from his secret at will, no monopoly results.

102. See R. CALLMANN, THE LAW OF UNFAIR COMPETITION, TRADEMARKS AND MONOPOLIES § 57(c) (3d ed. 1968).

103 For an example of an agreement that was held to be too broad, see United States v. National Lead Co., 63 F. Supp. 513 (S.D.N. Y. 1945), aff'd, 332 U.S. 319 (1947).

104. See R. CAllmann, supra note 102, at § 57(c).

105. "So far as these contracts limit the communication of what the [inventor] might have refrained from communicating to anyone, there is no monopoly... and no contract in restraint of trade, either under the [Sherman Act] or at common law." Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236, 252 (1905). But see Associated Press v. United States, 326 U.S. 1, 15-16 n. 14 (1945).

106. See 395 U.S. at 682 n.2 (White, J., concurring); Adelman & Jaress, supra note 41, at 88-91; Doerfer 1451.

restriction, this minimal restraint should not be held to be unreasonable since the restraint is necessary to effectuate a licensing agreement in furtherance of a legitimate business purpose which promotes invention

Therefore, trade secret law, in general, and licenses of unpatented and patent pending inventions in particular, stimulate invention, the primary purpose of the patent law, and this stimulation outweighs the non-disclosure and minimal restraints on trade brought about by trade secret law and licensing agreements under its sole protection. Consequently, the Lear holding should not be extended as proposed by Justice Black, but patent and trade secret law should co-exist through enforcement of non-patent and patent pending licenses.

CONCLUSION

Lear broadly represents an attempt to strictly circumscribe the existence of lawful patent monopolies. The legal right to invalidate a patent has been given to the party with the greatest economic interest in its elimination. The licensee who has developed a sophisticated marketing system and can absorb the costs of litigation will not hesitate to challenge voidable patents, because he can immediately realize a profit free of royalty costs. This incentive of economic self-interest should not be frustrated through devices such as consent judgments or by royalty recoupment; otherwise "the public... [will] continually be required to pay tribute to would-be monopolists without need or justification." Nevertheless, post-Lear patent policy should not bar the enforcement of contracts regulating access to unpatented or patent pending secret ideas and thereby lead to the demise of state trade secret law.

107. 395 U.S. at 670.

PATENT LAW ESTOPPEL Doctrine or Licensee EstorrEL OVERRULED; State ProtectiON OF UNPATENTED INVENTIONS

The federal patent laws,' granting statutory monopolies for inventions, represent an exception to the general federal policy of maximizing competition. In order to limit the anti-competitive effects of the patent system, the Supreme Court has construed patents strictly" and, in a series of decisions, consistently narrowed the scope of patentee's rights." In addition, the Court has relied upon the supremacy clause to strike down state unfair competition law. which conflict with the system of patent monopolies established by federal law.* In Lear, Inc. v. Adkins,3 The Court formally removed a barrier to challenging the validity of patents by overruling the doctrine of licensee estoppel. In so doing, however, the Court questioned but left unanswered the issue of whether the states may protect the owners of unpatented inventions who wish to disclose their ideas to manufacturers for the payment of royalties. The Lear case thus raises the larger question of the permissibility of state protection of secret inventions and ideas outside the federal patent system.

Plaintiff Adkins was hired by Lear in 1953 to help develop an improved gyroscope for the company. In 1954, Adkins applied for a patent on the inventions which he had developed and executed a licens ing agreement with Lear, under which Lear agreed to pay royalties for the use of Adkins' methods during the pendency of his patent application and thereafter until a patent was either finally refused,' or

* 395 U.S. 653 (1969).

1 See 35 U.S.C. §§ 1-293 (1964).

2 United States v. Masonite Corp., 316 U.S. 265, 280 (1942).

3 The patent cannot be used to secure any monopoly beyond that contained in the patent, Morton Salt Co. v. GS. Suppiger Co., 314 U.S. 488, 492 (1942); the patentee's control over the product when it leaves his hands is sharply limited, United States v. Univis Lens Co., 316 U.S. 241, 250-52 (1942); the patent monopoly may not be used in disregard of the antitrust laws, International Business Machs. Corp. v. United States, 298 U.S. 131, 136-38 (1936); when the patent expires the monopoly created by it expires, Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 120 (1938).

4 See, e.g., Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964); Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225 (1964). See text accompanying notes 20-24 infra.

395 US. 653 (1969).

Id. at 671. This doctrine prohibited a licensee from contracting to use patented device and then suing to have the patent declared invalid. The effect of declaring the patent invalid would be to allow the licensee to continue using the device while avoiding all royalty payments. The underlying principle was that the licensee should not be allowed to reap the benefits afforded by the license while arguing that the patent which provided the major consideration for the agreement was invalid. Thus, principles of contract law and unjust enrichment were at the core of licensee estoppel.

7 The Patent Office does not have to make a final judgment on the inves tor's initial application. Generally, the original application seeks patent protection

if issued, held to be invalid. By 1959 Adkins had not yet obtained a patent despite several amendments to his original patent application Lean terminatorf the contract and refused to continue paying royaltie for inventions which it had concluded were not patentable. A patent was subsequently issued to Adkins and he brought suit against Lem for breach of the license agreement. At trial Lear sought to invalidate the patent by showing that Adkins' improvements were obvious from the prior art and that Adkins was therefore not justified in collecting royalties for their use. The trial court held that Lear was estopped from challenging the validity of the licensor's patent. The California District Court of Appeals held Lear was within its contractual rights in terminating the license and did not have to pay royalties for the use of the gyroscopes after this repudiation. The California Supreme Court rejected this contention and held licensee estoppel prevented Lear from challenging the validity of the patent." On certiorari, the United States Supreme Court held that the licensee estoppel doctrine should be discarded. The case was remanded to the California Supreme Court for further proceedings to determine the validity of the patent.10

The question of licensee estoppel did not present a difficult issue for the Court. Although it had at one time been referred to as "the general rule," the doctrine had in fact been eroded to the point where it had little vitality at the time of the Lear case. In each case where licensee estoppel was raised, the Court had developed a new exception to allow a challenge of the patent, and hence the "general rule" was rarely applied. Commentators generally agreed that the

on as broad a claim as possible. When this happens and the inventor is not entitled to such broad protection, the Patent Office rejects the application while giving the inventor the right to amend his claim. This process of rejection and amendment continues until the Patent Office either allows the claims and grants a patent or rejects all of the inventor's claims. The Patent Office acts on the average application from two to four times, so that the process in Lear was typical. See 395 U.S. at 658-59.

Adkins v. Lear, Inc., 52 Cal. Rptr. 795 (Dist. Ct. App. 1966), rev'd, 67 Cal. 2d 882, 435 P.2d 321, 64 Cal. Rptr. 545 (1967), rev'd, 395 U.S. 653 (1969). The court determined that since the Patent Office had rejected Adkins' claims, the basis of the contract failed and the contract was validly terminated. Id. at 804. Adkins was prevented from invoking licensee estoppel for the court held validity of the patent was not in issue. Id. at 805.

67 Cal. 2d 882, 435 P.2d 321, 61 Cal. Rptr. 545 (1967).

10 395 U.S. at 676. On remand, the California Supreme Court is holding in abeyance its decision on the extent to which California can act to enforce the contractual rights of owners of unpatented secret ideas until the federal district in California determines the validity of Adkins' patent. The trial in federal court has been tentatively set for April 20, 1970.

11 Automatic Radio Mfg. Co. v. Hazeltine Research, Inc., 339 U.S. 827, 8.36 (1950).

12 The exceptions to licensee estoppel began in 1924 when the Court held that while the validity of the patent could not be directly challenged, evidence could be introduced to narrow the claims made in the patent. Westinghouse Elec. Mfg. Co. v. Formica Insulation Co., 266 U.S. 342 (1924). The licensee, while not being allowed to directly attack the validity of the patent, could avoid pay.