Kewanee Oil Company v. Bicron Corporation 8212 187

• Court: U.S. Supreme Court
• Writing for the Court: BURGER
• Citation: Kewanee Oil Company v. Bicron Corporation 8212 187, 416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974)
• Decision Date: 13 May 1974
• Docket Number: No. 73,73
• Parties: KEWANEE OIL COMPANY, Petitioner, v. BICRON CORPORATION et al. —187

416 U.S. 470

94 S.Ct. 1879

40 L.Ed.2d 315

KEWANEE OIL COMPANY, Petitioner,

v BICRON CORPORATION et al.

No. 73—187.

Argued Jan. 9, 1974.

Decided May 13, 1974.

Syllabus

Harshaw Chemical Co., an unincorporated division of petitioner, over a period of years developed certain processes in the growth and encapsulation of synthetic crystals and purification of raw materials, some of which processes were considered to be trade secrets; it eventually succeeded for the first time in growing a 17-inch crystal of a type useful in the detection of ionizing radiation. The individual respondents, former employees of Harshaw who while working there had signed agreements not to disclose trade secrets obtained as employees, formed or later joined respondent Bicron Corp., which competed with Harshaw in producing crystals; Bicron, soon after its formation, also grew a 17-inch crystal. Petitioner brought this diversity action seeking injunctive relief and damages for misappropriation of trade secrets. The District Court, applying Ohio trade secret law, granted a permanent injunction. The Court of Appeals reversed on the ground that Ohio's trade secret law conflicted with the federal patent laws. Held: Ohio's trade secret law is not pre-empted by the federal patent laws. Pp. 474—493.

(a) The States are not forbidden to protect the kinds of intellectual property that may make up the subject matter of trade secrets; just as the States may exercise regulatory power over writings, Goldstein v. California, 412 U.S. 546, 93 S.Ct. 2303, 37 L.Ed.2d 163, so may they regulate with respect to discoveries, the only limitation being that regulation in the area of patents and copyrights must not conflict with the operation of federal laws in this area. Pp. 478—479.

(b) Abolition of trade secret protection would not result in increased disclosure to the public of discoveries in the area of nonpatentable subject matter, and the public would not be benefited by disclosure of such discoveries. Pp. 482—483.

(c) The federal patent policy of encouraging invention is not disturbed by the existence of another form of incentive to invention such as trade secret protection, and in this respect the two system are not in conflict. P. 484.

(d) Nor is the patent policy that matter once in the public domain must remain there incompatible with the existence of trade secret protection. P. 484.

(e) Nor is there any conflict between trade secret law and the patent policy of disclosure whether a trade secret concerning patentable subject matter is in the category of discovery which is (1) clearly unpatentable, (2) doubtfully patentable, or (3) clearly patentable. As to the first category, the patent alternative is not available and trade secret law will encourage invention and prompt the innovator to proceed with the discovery and exploitation of his invention, and to license others to exploit secret processes. As to the second category, the risk and cost of eventual patent invalidity may impel the inventor not to seek patent protection regardless of the existence of trade secret law, and the encouragement by the elimination of trade secret protection of patent applications by some with doubtfully patentable inventions is likely to have a deleterious effect on society and patent policy. As to the third category, trade secret law, which affords weaker protection than the patent laws, presents no reasonable risk of deterrence from patent application. Pp. 484—491.

(f) There being no real possibility that trade secret law will conflict with federal patent policy, partial pre-emption as to clearly patentable inventions would not be appropriate and could well unnecessarily burden administration of trade secret law by States. Pp. 491—492.

478 F.2d 1074, reversed and remanded for reinstatement of District Court Judgment.

Erwin N. Griswold, Washington, D.C., for petitioner.

William C. McCoy, Jr., Cleveland, Ohio, for respondents.

Mr. Chief Justice BURGER delivered the opinion of the Court.

We granted certiorari to resolve a question on which there is a conflict in the courts of appeals: whether state trade secret protection is pre-empted by operation of the federal patent law.¹ In the instant case the Court of Appeals for the Sixth Circuit held that there was pre-emption.² The Courts of Appeals for the Second, Fourth, Fifth and Ninth Circuits have reached the opposite conclusion.³

I

Harshaw Chemical Co., an unincorporated division of petitioner, is a leading manufacturer of a type of synthetic crystal which is useful in the detection of ionizing radiation. In 1949 Harshaw commenced research into the growth of this type crystal and was able to produce one less than two inches in diameter. By 1966, as the result of expenditures in excess of $1 million, Harshaw was able to grow a 17-inch crystal, something no one else had done previously. Harshaw had developed many processes, procedures, and manufacturing techniques in the purification of raw materials and the growth and encapsulation of the crystals which enabled it to accomplish this feat. Some of these processes Harshaw considers to be trade secrets.

The individual respondents former employees of Harshaw who formed or later joined respondent Bicron. While at Harshaw the individual respondents executed, as a condition of employment, at least one agreement each, requiring them not to disclose confidential information or trade secrets obtained as employees of Harshaw. Bicron was formed in August 1969 to compete with Harshaw in the production of the crystals, and by April 1970, had grown a 17-inch crystal.

Petitioner brought this diversity action in United States District Court for the Northern District of Ohio seeking injunctive relief and damages for the misappropriation of trade secrets. The District Court, applying Ohio trade secret law, granted a permanent injunction against the disclosure or use by respondents of 20 of the 40 claimed trade secrets until such time as the trade secrets had been released to the public, had otherwise generally become available to the public, or had been obtained by respondents from sources having the legal right to convey the information.

The Court of Appeals for the Sixth Circuit held that the findings of fact by the District Court were not clearly erroneous, and that it was evident from the record that the individual Respondents appropriated to the benefit of Bicron secret information on processes obtained while they were employees at Harshaw. Further, the Court of Appeals held that the District Court properly applied Ohio law relating to trade secrets. Nevertheless, the Court of Appeals reversed the District Court, finding Ohio's trade secret law to be in conflict with the patent laws of the United States. The Court of Appeals reasoned that Ohio could not grant monopoly protection to processes and manufacturing techniques that were appropriate subjects for consideration under 35 U.S.C. § 101 for a federal patent but which had been in commercial use for over one year and so were no longer eligible for patent protection under 35 U.S.C. § 102(b).

We hold that Ohio's law of trade secrets is not preempted by the patent laws of the United States, and, accordingly, we reverse.

II

Ohio has adopted the widely relied-upon definition of a trade secret found at Restatement of Torts § 757, comment b (1939). B. F. Goodrich Co. v. Wohlgemuth, 117 Ohio App. 493, 498, 192 N.E.2d 99, 104 (1963); W. R. Grace & Co. v. Hargadine, 392 F.2d 9, 14 (C.A.6 1968). According to the Restatement,

'(a) trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.'

The subject of a trade secret must be secret, and must not be of public knowledge or of a general knowledge in the trade or business. B. F. Goodrich Co. v. Wohlgemuth, supra, 117 Ohio App., at 499, 192 N.E.2d, at 104; National Tube Co. v. Eastern Tube Co., 3 Ohio Cir.Ct.R., N.S., 459, 462 (1902), aff'd, 69 Ohio St. 560, 70 N.E. 1127 (1903). This necessary element of secrecy is not lost, however, if the holder of the trade secret reveals the trade secret to another 'in confidence, and under an implied obligation not to use or disclose it.' Cincinnati Bell Foundry Co. v. Dodds, 10 Ohio Dec.Reprint 154, 156, 19 Weekly Law Bull. 84 (Super.Ct.1887). These others may include those of the holder's 'employes to whom it is necessary to confide it, in order to apply it to the uses for which it is intended.' National Tube Co. v. Eastern Tube Co, supra, 3 Ohio Cir.Ct.R., N.S., at 462. Often the recipient of confidential knowledge of the subject of a trade secret is a licensee of its holder. See Lear, Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969).

The protection accorded the trade secret holder is against the disclosure or unauthorized use of the trade secret by those to whom the secret has been confided under the express or implied restriction of nondisclosure or nonuse. ⁴ The law also protects the holder of a trade secret against disclosure or use when the knowledge is gained, not by the owner's volition, but by some 'improper means,' Restatement of Torts § 757(a), which may include theft, wiretapping, or even aerial reconnaissance.⁵ A trade secret law, however, does not offer protection against discovery by fair and honest means, such as by independent invention, accidental disclosure, or by so-called reverse engineering, that is by starting with the known product and working backward to divine the process which aided in its development or manufacture.⁶

Novelty, in the patent law sense, is not required for a trade secret, W. R. Grace & Co. v. Hargadine, 392 F.2d, at 14. 'Quite clearly...