There has been no basic change in the patent laws since 1836. A presidential commission on patents was formed and it made numerous recommendations for altering the patent laws."! So far, none of these suggestions have been implemented. Due to problems similar to those facing the United States Patent Office, including ever increasing numbers of patent applications with resulting backlogs and difficulty in checking, prior art, several foreign countries have recently made sweep ing changes in their patent systems." Three possible changes in the system would alleviate the present uncertainty surrounding patent litigation. If a claim rejected by an examiner and the Patent Office Board of Appeals could not be reversed unless clearly erroneous," Patent Office decisions would be vested with greater finality and the temptation to litigate patent validity, now increased with the abolition of licensee estoppel, would be significantly limited. A more far-reaching change would be the establishment of a special court composed of experts to review patent validity cases." "A third change might be the incorporation of adversary procedures into the disposition of patent applications, as is currently done in several European countries." In those countries, notice is given of an examiner's acceptance of an application, and interested persons may oppose the final grant within

60 Report of the President's Commission on the Patent System at 1 (1966). 61 Id.

62 In Germany, due to a 5 year delay in the processing of patent applications, a law was enacted in 1967 which generally reorganized their patent system. Hollman, The German Patent Examining Procedure, 51 J. Pat. Off. Soc'y 4 (1969). No major changes had been made prior to this since 1877. Id. Japan in 1960, and France in 1968 have also drastically altered their patent laws to keep pace with changing industrial conditions. See Hiance & Plasseraud, The New French Patent Law, 50 J. Pat. Off. Soc'y 209 (1968); Jarkovsky, A Comparative Review of Japanese and U.S. Patent and Related Laws, 50 J. Pat. Off. Soc'y 76 (1968). Some of the major changes in these systems are limitations on amending patent applications, opposition proceedings, an increase in personnel, reorganization of examining procedures and the elimination of chemical substances from patent protection-a procedure which greatly reduces the number of patent applications. For a summary of recent changes in foreign patent systems see Gambrell, Kayton & Trucano, Patent Law, 1969-70 Ann. Survey Am. L. 139.

63 The law currently provides that patents are presumed valid and places the burden of showing invalidity on the challenging party. 35 U.S.C. § 282 (Supp. IV, 1969). However, this standard does not seem to have greatly hindered those parties contesting patent validity. See text accompanying note 46 supra. The main difficulty in instituting the clearly erroneous rule would be compelling the courts to adhere to such a rule. Courts easily could find many ways to circumvent this type of rule.

64 The use of a special court was discussed in Harris, A Dual Patent Program: To Increase Patent Reliability and Decrease Litigation Costs, 13 Idea 1 (1969).

For a brief discussion of these opposition proceedings see Harris & Weiser, Informed Foreign Experience and the Opinion on Provisions Similar to Commission Recommendations, 12 Idea 1021 (1968); Stuart-Prince, Patent Oppositions in Great Britain, 40 J. Pat. Off. Soc'y 769 (1958); Reichel & Frishauf, Opposition Proceedings in the German Patent Office in the Light of the Sixth Transfer Law, 44 J. Pat. Off. Soc'y 52 (1962).

a limited time. If there is no opposition, then a patent is issued. Under This system, secrecy is maintained for those applications rejected by the examiners.

Greater public disclosure of unpatented ideas could be achieved by the establishment of a utility law similar to that used by Germany, Japan and Italy." The utility system provides protection for subject matter of slight novelty or ideas which would not merit regular patent protection. These utility products would receive monopoly status for only a limited time, such as three years. The system would involve smaller fees and prompter registration than that provided by the patent system, and inventors would be more likely to apply for a utility patent than rely upon state protection. Such new legislation, moreover, seems more appropriate for realizing the goals of the federal patent system than the Court's expansive interpretation of federal policy in Stiffel, Compco and Lear.87

66 See Mott, The Concept of Small Patent in European Legal Systems and Equivalent Protection Under United States Law, 49 U. Va. L. Rev. 232 (1963). 67 Two bills have been introduced into Congress by Senator McClellan which would preserve the right to enter into licensing agreements and also continue to have state law protect trade secrets. S. 2756, 91st Cong., 1st Sess. § 301 (1969); S. 766, 91st Cong., 1st Sess. § 43(a)(3) (1969). Section 301 was proposed as an addition to the new Patent Act, while § 43 (a) (3) was part of a proposed Federal Unfair Competition Act. Thus, congressmen seem to be concerned about the continued protection of trade secrets.

SEARS TO LEAR TO PAINION, OF VIHALES
AND OTHER MATTERS

ROGER M. MILGRIM⚫

A recent decision in the Southern District of New York jeopardizes the entire law of trade secrets. Based upon dictum in nontrade secret Supreme Court cases, Painton & Co. v. Bouns, Inc. holds that the law of trade secrets is applicable only to patentable inventions and only during the time between the application for and issuance of the patent. Mr. Milgrim, a noted expert in trade secrets, traces the genealogy of this case and warns of the perils of permilling a concept expressed as dictum in response to one sel of circumstances to become a rule of law of general applicability. Ile concludes that trade secret protection is too important in our technological society to be cast lightly aside through mechanical application of questionable dictum.

WH

I

A CETOLOGICAL APPROACH TO TRADE SECRETS

A. Conceptualism

HEN a captured whale's riches of oil, flesh and bone have been exhausted its carcass is cast astern. Melville chronicles that the leviathan's funeral is attended by sharks and fowls who feast upon the remains.

Nor is this the end. Desecrated as the body is, a vengeful ghost survives and hovers over it to scare. Espied by some timid man-of-war or blundering discovery-vessel from afar, when the distance obscuring the swarming fowls, nevertheless still shows the white mass floating in the sun, and the white spray heaving high against it; straightway the whale's unharming corpse, with trembling fingers is set down in the log-shoals, rocks, and breakers hereabouts: beware! And for years afterwards, perhaps, ships shun the place; leaping over it as silly sheep leap over a vacuum, because their leader originally leaped there when a stick was held. There's your law of precedents; there's your utility of traditions; there's the story of your obstinate survival of old beliefs never bottomed on the earth, and now not even hovering in the air! There's orthodoxy!1

B. The Whale is Cast Adrift

Stiffel & Co., the pioneer of the popular pole lamp, secured a mechanical and a design patent for it. Scars duplicated the lamp

Member, New York Bar. A.B., 1958, University of Pennsylvania; LL.B., 1961, New York University; LL.M., 1962, New York University.

1 II. Melville, Moby Dick 284 (Dodd, Mead & Co. ed. 1942). For those who And the ensuing cetological data incomplete, see V. Scheffer, The Year of the Whale (1969), a pleasant book that has nothing to do with this Article.

and began to sell the copy for substantially less than the retail price of the Stiffel original Stiffed sued Senis in federal count 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., 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.

4 376 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 erotety, 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."1o Fortu

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

7 Id. at n.10.

8 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