Kewanee Oil Co. v. Bicron Corp.
416 U.S. 470, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974)
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Rule of Law:
Federal patent law does not preempt state trade secret law. States are free to protect confidential discoveries and processes through trade secret law, even if those discoveries are potentially patentable subject matter under federal law.
Facts:
- Harshaw Chemical Co. developed highly advanced processes for growing large synthetic crystals, culminating in the ability to grow a 17-inch crystal by 1966 after investing over $1 million in research.
- Harshaw considered many of these processes and manufacturing techniques to be trade secrets and did not seek patent protection for them.
- The individual respondents were former employees of Harshaw who had each signed employment agreements promising not to disclose confidential information or trade secrets.
- In 1969, these former employees formed or joined a new, competing company, Bicron Corp., to produce the same type of crystals.
- Within months, by April 1970, Bicron successfully grew a 17-inch crystal, allegedly using the trade secrets obtained by the individual respondents while they were employed at Harshaw.
Procedural Posture:
- Petitioner, Harshaw Chemical Co., brought a diversity action against respondents, Bicron Corp. and its employees, in the U.S. District Court for the Northern District of Ohio for misappropriation of trade secrets.
- The District Court, applying Ohio law, found for Harshaw and granted a permanent injunction against the respondents' use of 20 claimed trade secrets.
- Respondents appealed to the U.S. Court of Appeals for the Sixth Circuit.
- The Court of Appeals affirmed the District Court's findings of fact but reversed the judgment, holding that Ohio's trade secret law was preempted by federal patent law.
- The U.S. Supreme Court granted certiorari to resolve a conflict among the Courts of Appeals on the preemption issue.
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Issue:
Does federal patent law preempt state trade secret law, thereby preventing a state from providing legal protection against misappropriation for a discovery that constitutes a trade secret but is not patented?
Opinions:
Majority - Chief Justice Burger
No. Federal patent law does not preempt state trade secret law. The two systems of protection for intellectual property can coexist because they serve different, complementary purposes and do not create a direct conflict that would frustrate the objectives of Congress. The primary purposes of patent law are to encourage invention and promote public disclosure, while the purposes of trade secret law are to maintain standards of commercial ethics and encourage invention. The Court reasoned that for discoveries that are not patentable, trade secret law fills a void. For discoveries that are doubtfully or clearly patentable, the protections afforded by a patent are so superior to the protections of trade secret law (which does not protect against reverse engineering or independent discovery) that there is no substantial risk an inventor will forgo the patent process. Therefore, state trade secret law does not stand as an obstacle to the patent system's goal of disclosure.
Dissenting - Justice Douglas
Yes. Federal patent law preempts state trade secret law where it provides monopoly-like protection through an injunction. This decision conflicts with the principles of Sears and Compco, which hold that ideas not protected by a patent are in the public domain. The patent system offers a bargain: a limited 17-year monopoly in exchange for full public disclosure. By allowing a perpetual injunction based on state trade secret law, the Court allows Harshaw to secure a permanent monopoly without providing the public disclosure that is the entire purpose of the federal patent system. While damages for a breach of confidence may be permissible, an injunction against use is a form of protection that directly clashes with and is therefore preempted by federal patent law.
Concurring - Justice Marshall
No. While disagreeing with the majority's conclusion that the risk of an inventor choosing trade secret protection over patent protection is 'remote,' federal patent law still does not preempt state trade secret law. The dispositive factor is congressional intent. State trade secret laws and federal patent laws have coexisted for over a century, and Congress has demonstrated full awareness of trade secret law without any indication of disapproval; it has even passed laws to protect trade secrets. This long history of coexistence and congressional acquiescence demonstrates that there was no congressional design to occupy the field and preempt state law.
Analysis:
This case firmly establishes the parallel legitimacy of state trade secret law alongside the federal patent system, resolving a circuit split and providing crucial certainty for businesses. The Court's decision allows inventors to choose between the strong, exclusive, but time-limited protection of a patent (which requires public disclosure) and the potentially perpetual, but weaker, protection of a trade secret (which requires secrecy and is vulnerable to independent discovery). This ruling affirms that the federal patent system's goal is to incentivize disclosure through a bargain, not to forcibly extract all inventions into the public domain by invalidating alternative forms of protection. It preserves a state's traditional power to regulate commercial ethics and prevent unfair competition through misappropriation.
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