* The Honorable Edward D. Re, Chief Judge, United States Court of International Trade, sitting by designation.  

This case presents a difficult question pertaining to the interaction of the federal antitrust laws and state trade secrets law.  Guidance in resolving these questions can be found in analogous, but not identical, issues presented in cases in which patent infringement suits have been brought in bad faith with an intent to restrain competition or monopolize.  See, e.g., Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 15 L. Ed. 2d 247, 86 S. Ct. 347 (1965); Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282 (9th Cir. 1984), cert. denied, 469 U.S. 1190, 105 S. Ct. 963, 83 L. Ed. 2d 968 (1985) (Handgards II); Kearney & Trecker Corp. v. Cincinnati Milacron Inc., 562 F.2d 365 (6th Cir. 1977) . . . .

In examining "bad faith" patent infringement claims, courts have balanced the public interest in free competition, as manifested in the antitrust laws, with the federal interest in the enforcement of the patent laws, and the first amendment interest in the free access to courts.  See, e.g., Walker Process, supra, 382 U.S. at 177-78; Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986, 993-96 (9th Cir. 1979), cert. denied, 444 U.S. 1025, 100 S. Ct. 688, 62 L. Ed. 2d 659 (1980) (Handgards I) . . .  In the Walker Process case, the Supreme Court held that the enforcement of a patent obtained by fraud may constitute monopolization or attempted monopolization in violation of section 2 of the Sherman Act, provided the other elements of a monopolization claim are established.  In evaluating actions brought under this theory, courts have protected the federal interests in patent law enforcement and the free access to the courts by requiring, in addition to the other necessary elements of an antitrust claim, "clear and convincing evidence" of fraud in asserting or pursuing patent infringement claims. . . .  [*850]

Hence, a patentee who has a good faith belief in the validity of a patent will not be exposed to antitrust damages even if the patent proves to be invalid, or the infringement action unsuccessful. The requirement of clear and convincing evidence is intended to prevent a frustration of the patent laws.  It also ensures the free access to the courts by allowing honest patentees to protect their patents without undue risk of incurring liability for asserting their rights.

There are, of course, significant differences between patent and trade secret protection.  The scope of protectible trade secrets is far broader than the scope of patentable technology.  See, e.g., Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 486, 40 L. Ed. 2d 315, 94 S. Ct. 1879 (1974) . . . .

* * *

The basis for the federal patent system is found expressly in the Constitution.  See U.S. Const. art. I, § 8, cl. 8.  A patent confers a legal monopoly for a limited period of time.  In return for the patent, the patentee must fully disclose the patented invention or process.  After the expiration of the statutory period, the patentee loses all exclusive rights to the patent.

The cornerstone of a trade secret, however, is secrecy.  Once a trade secret enters the public domain, the possessor's exclusive rights to the secret are lost. Moreover, unlike a patent, a trade secret affords no rights against the independent development of the same technology or knowledge by others. See, e.g., Kewanee Oil Co., supra, 416 U.S. at 475-76 . . . .

As with patent law, the rationale behind state trade secret law is to encourage invention, and to provide innovators with protection for the fruits of their labors.  In addition, trade secret law is intended to maintain and promote standards of commercial ethics and fair dealing.

In this case, the court must resolve a dispute which brings into focus the tension between the antitrust laws and the public interest in the licensing of trade secrets.  Generally, there is a significant public interest in the licensing of trade secrets.  By licensing a trade secret, the licensor partially releases his monopoly position and effectively disseminates information.  See Kewanee Oil Co., supra, 416 U.S. at 486 . . . .  The result, it is hoped, is greater competition that will enure to the benefit of the public.  

Like the holders of other intellectual property rights, possessors of trade secrets are entitled to assert their rights against would-be infringers and to defend their rights in court.  See Handgards I, supra, 601 F.2d at 993 (citing Eastern Railroad Presidents Conference v. Noerr Motor Freight, 365 U.S. 127, 5 L. Ed. 2d 464, 81 S. Ct. 523 (1961), and United Mine Workers v. Pennington, 381 U.S. 657, 14 L. Ed. 2d 626, 85 S. Ct. 1585 [*851] (1965)).  Nevertheless, the assertion in bad faith of trade secret claims, that is, with the knowledge that no trade secrets exist, for the purpose of restraining competition does not further the policies of either the antitrust or the trade secrets laws. . . .   Thus, it seems clear that the assertion of a trade secret claim in bad faith, in an attempt to monopolize, can be a violation of the antitrust laws.  Similarly, it is well established that an agreement which purports to license trade secrets, but in reality, is no more than a sham, or device designed to restrict competition, may violate the antitrust laws.

We believe that the proper balance between the antitrust laws and trade secrets law is achieved by requiring an antitrust plaintiff to prove, in addition to the other elements of an antitrust violation, by clear and convincing evidence, that the defendant asserted trade secrets with the knowledge that no trade secrets existed.  In order to prove a contract or combination in restraint of trade in violation of section 1 of the Sherman Act, the plaintiff must also prove that the defendant had market power in the relevant market, and the specific intent to restrain competition.  To succeed in an attempted monopolization claim under section 2 of the Sherman Act, the plaintiff must prove that the defendant had the specific intent to monopolize the relevant market, and a dangerous probability of success.  As other courts have noted, a specific intent to monopolize or restrain competition can often be inferred from a finding of bad faith.  Handgards II, supra, 743 F.2d at 1293 (quoting Handgards I, supra, 601 F.2d at 993 n. 13).  

This case differs from the Walker Process line of cases in that Raytheon did not actually initiate litigation against the plaintiffs.  Instead, the evidence indicates that it used the threat of litigation to exact a licensing agreement from the plaintiffs.  In this case, litigation with Raytheon would have proved ruinous to the newly formed corporation, and effectively foreclosed competition in the relevant market.  Under these circumstances, we hold that the threat of unfounded trade secrets litigation in bad faith is sufficient to constitute a cause of action under the antitrust laws, provided that the other essential elements of a violation are proven.  

Defendant Raytheon argues strenuously that reliance is a necessary element to establish a cause of action against it.  Since the plaintiffs did not rely on any of Raytheon's misstatements, and entered into the agreement while represented by [*855] competent counsel, Raytheon contends that plaintiffs are precluded from relief.  In an action to rescind the contract or recover damages on a theory of fraud, under Massachusetts law, this contention might have merit. . . .  Nevertheless, it is clear that the policies expressed in the federal antitrust laws will override any agreement in contravention of those policies, regardless of the agreement's legality under private contract law. . . .

It is also well established that the federal interest in the "full and free use of ideas in the public domain" will override state law in conflict with it.  Lear, Inc. v. Adkins, 395 U.S. 653, 668, 674, 23 L. Ed. 2d 610, 89 S. Ct. 1902 (1969).  Cf.  Dynamics Research Corp. v. Analytic Sciences Corp., 9 Mass. App. Ct. 254, 278, 400 N.E.2d 1274, 1288 (1980) (an "agreement which seeks to restrict the employee's right to use an alleged trade secret which is not such in fact or in law is unenforceable as against public policy").  

In Lear, Inc. v. Adkins, 395 U.S. 653, 23 L. Ed. 2d 610, 89 S. Ct. 1902 (1969), the Supreme Court held that the policies underlying the federal patent laws outweighed principles of state contract law when a patent licensee wished to challenge the validity of the licensed patent. Thus, the Court held that a licensee was not estopped from challenging the validity of its patent in court, and rescinding the licensing agreement if successful.  

In this case, the jury found that Raytheon had no trade secrets in its cvd process.  The jury further found that Raytheon knew it had no trade secrets, yet asserted their existence in order to exact a licensing agreement from CVD and restrain competition.  

Donadio and Connolly testified that, although they believed that no trade secrets existed, they agreed to sign the licensing agreement with Raytheon because they had no alternative.  Donadio testified that threatened litigation with Raytheon would have foreclosed them from obtaining financing for their new company.  Thus, the plaintiffs testified, the threat of litigation with Raytheon would have effectively prevented them from entering into the business.  Both men had been asked to resign from Raytheon and were unemployed.  However, since they did not believe that Raytheon possessed any trade secrets, there was no evidence that they "relied" on any material misrepresentation in entering into the license. Nor do these facts establish duress to the extent that the plaintiffs were placed under the influence of fear as preclude[d them] from exercising free will and judgment. . . .

Essentially, fraud under Massachusetts law is derived from the common law tort of deceit or misrepresentation.  The practice at issue in this case, the assertion of claims in bad faith, is a predatory practice under the antitrust laws.  As a cause of action, it descends directly from the Walker Process case and its progeny.  Under the antitrust laws, plaintiffs need not necessarily be deceived.  They are often simply the victims of the predatory practices of a powerful competitor who seeks to restrain competition or monopolize the market.  The assertion of trade secret claims in bad faith has been identified as a predatory practice. . . .  Thus, the behavior complained of in this case is properly analyzed according to established principles of antitrust law, rather than under a common law fraud theory of action. Reliance, therefore, is not an essential element to be proven.  [*856]

In Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 20 L. Ed. 2d 982, 88 S. Ct. 1981 (1968), the Supreme Court held that the defense of in pari delicto is not a defense to an antitrust complaint.  In that case, the Court held that the plaintiff-franchisees were not barred by their voluntary entry into the franchise agreements from maintaining an antitrust action against the defendant franchiser.  The court found that:

"Although petitioners may be subject to some criticism for having taken any part in respondents' allegedly illegal scheme and for eagerly seeking more franchises and more profits, their participation was not voluntary in any meaningful sense.  They sought the franchises enthusiastically but they did not actively seek each and every clause of the agreement.  Rather, many of the clauses were quite clearly detrimental to their interests, and they alleged that they had continually objected to them.  Petitioners apparently accepted many of these restraints solely because their acquiescence was necessary to obtain an otherwise attractive business opportunity."