FALL 2010

Trade Secrets


Course No. 9200-704 (& 804)-801

ID No. 85737 & 85736

Time:  W 6:30 - 9:30 p.m.
Room:  W-215
Professor Jay Dratler, Jr.
Room Across from 231D (IP Alcove)
Home: 330-835-4537
Copyright © 2000, 2002, 2003, 2006, 2008, 2010   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on Bonito Boats and Aronson

1.  Bonito Boats is an important decision because it clarified the Supreme Court's then-current thinking on the scope of patent pre-emption in the field of intellectual property.  Yet scope of pre-emption in Bonito Boats was narrow.  Instead ot the broad field of unfair competition, as in Sears/Compco, or the whole field of trade secrets, as in Kewanee, the state law at issue in Bonito Boats addressed a narrow, special-purpose type of intellectual property designed to protect a particular industry—the boat industry in Florida.

The Florida statute purported to protect the design of boat hulls.  Did it protect boat-hull them in the abstract, or only against certain kinds of copying?  If the latter, what kinds?

Were the boat hulls at issue in Bonito Boats patented?  Would a design patent have been possible?  What determines the shape of a boat's hull?   Is it more likely to be determined by ornamental or aesthetic considerations, or by hydrodynamics and other physical-utilitarian concerns?  If the latter, would the average boat hull deserve a utility patent?  Would it represent something new and nonobvious when compared with "prior art," i.e., previous boat hulls?

2.  The Florida statute at issue in Bonito Boats raised some of the same questions that the Court had addressed in Goldstein.  Does the Constitution's grant of power to Congress under the Patent and Copyright Clause by its own force preclude the states from adopting boat-hull-protection statutes?  Did the patent laws by their express terms preclude Florida from adopting such as statute?  Did the federal law so "occupy the field" of intellectual property as to leave no room for such a state statute?  Or did such a statute irreconcilably conflict with the purposes and policies of Congress in adopting the federal patent laws?  On what was Court's holding of pre-emption based?

3.  Twice in its long opinion, the Bonito Boats Court refers to free competition as the underlying or "baseline" policy against which intellectual property protection is to be measured.  How important is competition to our national economic policy?  Is in just one of many competing goals, or is it a linchpin of our market economy?

How does federal patent law, which provides for exclusive rights in patented inventions—a time-limited monopoly—express a policy favoring free competition?  Is the goal of free competition explicity or implicit in the patent laws?  In the Constitution's Patent and Copyright Clause?

4.  The Bonito Boats Court refers to the balance between free competition and protection struck by the federal patent laws, and it suggests that only Congress, not the states, may alter that balance.  Yet it also notes "affirmative indications from Congress that both the law of unfair competition and trade secret protection are consistent with the balance struck by the patent laws."  What are those "affirmative indications"?  That is, what specific aspects of state-unfair competition law and state trade-secret law protect them from pre-emption?

What about the purposes of the state laws under challenge?  The Court seems to suggest that state laws are most vulnerable to pre-emption when they attempt to address the same purpose as the federal patent laws—encouraging innovation.  Do trade-secret laws do that, or do they address other policies?  Do the purposes of trade-secret law coincide with the chief purpose of patent law—encouraging innovation—to such an extent as to compel pre-emption?

What about unfair-competition laws?  Congress and the courts have indentified four purposes of unfair-competition law, at least insofar as it addresses trademark-like objects such as trade dress.  They are: (1) providing consumers with reliable and efficient "shorthand" means for indentifying products and services in the marketplace; (2) avoiding consumer confusion as to source, sponsorship, affiliation and approval, (3) protecting producers' investments in the goodwill and reputation of their products and services, and thereby encouraging that investment, and (4) preventing "dirty tricks," such as passing off and the like.  In a sense, all these purposes related to and support the first—providing consumers with a reliable system of symbols for comparison shopping. See Jay Dratler, Jr., Intellectual Property Law: Commercial, Creative, and Industrial Property § 9.02[1] (Law Journal Press, 1991).  Do these purpose coincide with the chief purpose of patent law—encouraging innovation—to such an extent as to compel pre-emption?

What about the Florida statute at issue in Bonito Boats?  Does its purpose coincide with the chief purpose of patent law—encouraging innovation—to such an extent as to compel pre-emption?

5.  In Bonito Boats, the Supreme Court for the first time discreetly acknowledged the confusion that its decisions in Sears and Compco had caused.  But did the Court dispel that confusion?  Did the Bonito Boats Court broaden or narrow the impact of Sears/Compco or leave it intact.  What specific words of the Court's opinion support your answer?

In what respects, if any did Bonito Boats reaffirm the basic principles of Sears/Compco?   In what respects might Bonito have weakened Sears/Compco? Is the federal law of unfair competition, if not pre-empted, constrained by the principles of Sears/Compco?  Would the Bonito Boats Court permit protection against acts of blatant copying under unfair-competition doctrine, as Justice Harlan suggested in his concurrence in Compco?

6.  One of the Bonito Boats Court's most provocative statements is as follows: "For almost 100 years it has been well established that in the case of an expired patent, the federal patent laws do create a federal right to 'copy and to use.'"  489 U.S. at 164.  Analyze that statement as applied to trade secrets.  How does an expired patent affect the protection of trade secrets?  Does it affect them any more than an unexpired patent does?  Does the answer depend upon what the patent itself discloses?   To see how an expired patent affects trade-dress protection, see TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23, 29-30, 32, 121 S.Ct. 1255, 149 L.Ed.2d 164 2001, 58 U.S.P.Q.2d (BNA) 1001 (2001).

7.  As the Federal Circuit noted in Interpart v. Italia, discussed in Bonito Boats, the Florida statute prohibited only one method of copying boat hulls.  How did that prohibition conflict with federal patent policy?  What adverse effects did Court fear if this law were validated?  Do you think its fears were justified?

8.  Athough Florida's boat industry lost the battle in Bonito Boats, it eventually won the war.  In 1998, as Title III of the Digital Millennium Copyright Act, Congress adopted a special design-protection bill limited to vessel hulls. See Vessel Hull Design Protection Act, Chapter 13 of Title 17, United States Code, 17 U.S.C. §§ 1301 - 1332, as added by Digital Millennium Copyright Act, Pub. L. No. 105-304, Title V, § 502, 112 Stat. 2860, 2905-2916 (Oct. 28, 1998).  The text of this statute was adapted from one in the long succession of bills intended to protect industrial designs more generally but was modified in passage to limit its protection to vessel hulls. See: 17 U.S.C. § 1301(a)(1), as added by Digital Millennium Copyright Act, Pub. L. No. 105-304, § 502, 112 Stat. 2860, 2905-2906 (Oct. 28, 1998) (promising protection for "an original design of a useful article"); 17 U.S.C. § 1301(b)(2), as added by Digital Millennium Copyright Act, Pub. L. No. 105-304, § 502, 112 Stat. 2860, 2906 (Oct. 28, 1998) (defining "useful article" as "vessel hull" and related plug or mold); 17 U.S.C. § 1301(a)(2), as added by Digital Millennium Copyright Act, Pub. L. No. 105-304, § 502, 112 Stat. 2860, 2906 (Oct. 28, 1998) (promising protection for "[t]he design of a vessel hull, including a plug or mold"); 17 U.S.C. § 1301(b)(3), (4), as added by Digital Millennium Copyright Act, Pub. L. No. 105-304, § 502, 112 Stat. 2860, 2905-2906 (Oct. 28, 1998) (defining "vessel" and "hull"). This special-interest legislation was apparently the result of lobbying by Florida's boat industry in the wake of Bonito Boats.

9.  At its core, Aronson was just another pre-emption case; yet is has profound implications for licensing, which we will explore in the next session. Sears/Compco addressed pre-emption of state unfair-competition law, Goldstein a state record-piracy statute, Kewanee state trade-secret protection, and Bonito Boats a special statute designed to protect boat hulls.  What specific state law did Aronson address?  Is that law important to business generally?

10.  The Aronson Court notes that "[t]he stringent requirements for patent protection seek to ensure that ideas in the public domain remain there for the use of the public."  440 U.S. at 262.  Was Mrs. Aronson's keychain design in the public domain at the time of the lawsuit?  Was it in the public domain at time agreement was made?  Was any intellectual property transferred at the time the contract was made? What was the primary consideration flowing to Quick Point in exchange for its agreement to pay royalties in general?  Was it the promise of a patent or disclosure of the trade secret?  What about the promise to pay the 2-1/2% royalty if the patent never issued?  What was the consideration for that?  Do you agree with Court that patent leverage played no part  in the agreement to pay the lower 2-1/2% royalty?  Or do you share Justice Blackmun's doubts?

11.  The case of Brulotte v. Thys Co., discussed in Aronson, is generally cited for the rule that patent royalties cannot be charged or collected after the patent has expired.  What features of the patent system suppport that rule?  Is it of constitutional dimension?  Without such a rule, would the limited term of patent protection have any real meaning?  Can you reconcile the result in Aronson with the rule of Brulotte?

12.  The Aronson Court interprets Brulotte as a prohibition against using the "leverage" of a patent monopoly to extract royalties where there is not patent.  Is a search for such "leverage" a good test for invalidating agreements?   Will it lead to clear and consistent results?

In any event, did Mrs. Aronson use patent leverage in extracting from Quick Point a promise to pay the 2/1/2% royalty in perpetuity?  Did this case give Mrs. Aronson a perpetual patent monopoly in contravention of the Patent and Copyright Clause?  Is a perpetual royalty obligation on the part of Quick Point tantaomount to a perpetual patent?  Is it reconcilable with trade secret cases providing for only "lead time" or "head start" injunctions?

13.  If Mrs. Aronson's agreement had not provided for a two-tier royalty arrangement, could she have continued to collect royalties after no patent issued?  Marshall your arguments pro and con.  Does the answer, or at least the uncertainty of the answer, suggest that the special care should be taken in drafting the royalty provisions of patent and trade-secret licensing agreements?  Did Mrs. Aronson's licensing attorney do a good job, or was he/she just lucky?

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