I. In Relation to State Unfair Competition Law:

• A division of Kewanee (Kewanee was the plaintiff) developed a synthetic crystal and related manufacturing process.
  • These developments may have been patentable, although patent protection was not sought.
  A group of former employees of the plaintiff formed and/or went to work for the defendant, Bicron.
  • Bicron soon developed a similar crystal and plaintiff brought suit under Ohio trade secret law to enjoin its production and use.
    • The District Court held for the plaintiff and the Circuit Court reversed, finding preemption of the state statute by Federal patent law.
• The Court initially found, based upon the holding in Goldstein, infra, that, within their borders, the states were not entirely prohibited from regulating utilitarian discoveries.

• With the potential legitimacy of state regulation in this area as a given, it concluded that the states did not conflict with the operation of patent law by offering trade secret protection to subject matter outside the Patent Act's scope.
  • This was because such protection was merely against unauthorized disclosure and unfair dealing inside state borders.
    • Prevention of these was seen as a legitimate and non-conflicting state objective.
• Where subject matter within the scope of patent law was involved, whether that subject matter was patentable or unpatentable, the fact that both the Federal patent system and state trade secret law provided economic incentives to invention did not mean to the Court that they were in inherent conflict.
  • Statutes protecting trade secrets removed nothing from the public domain.
    • By definition, a trade secret could not have been disclosed to the public. Thus, trade secret protection presented no conflict with Federal objectives becasue it did not place limitations on the free use of functional subject matter in the public domain.
• With regard to the Federal policy objective of stimulating the public disclosure of inventions by offering patent protection, the Court addressed potential conflict with state objectives in relation to the following three categories of discoveries:

  1. Trade secrets believed to be patentable
  2. Trade secrets known to be not patentable
  3. Trade secrets whose patentability is doubtful

  • With regard to patentable inventions, in finding no conflict with Federal objectives, the Court emphasized the clear superiority of the economic incentive provided by the patent system over that provided by state trade secret protection. An inventor with a patentable invention would virtually never be dissuaded by the availability of trade secret protection from seeking patent protection and complying with its attendant disclosure requirements.
    • Under patent law, no inventor was seen as being forced to seek protection and make the corresponding disclosure of her invention.
    • Independent creation and reverse engineering were seen as remaining valid and available means for the general public of discovering trade secret protected inventions.
      • The Court also expressed that use of these means would be encouraged by protecting trade secrets, as inventors would be directed toward utilitarian solutions that were already known to exist.
    • The Court also expressed doubt that states could feasibly make the necessary preliminary determinations for there to be a system of partial preemption based on a trade secret protected invention's patentability.
  • Offering trade secret protection was seen by the Court as representing the most meaningful economic incentive for development of inventions in the second of the above categories - without it, licensing of unpatentable inventions simply could not occur on a large scale.
    • The system of disclosure offered by patent protection was not thwarted by protecting against breach of confidence in relation to inventions whose disclosure would never be obtained by patent law.
    • States also were seen in this light as having a legitimate interest in preventing industrial espionage and invasion of the "fundamental human right ... of privacy".
  • For inventions in the third of the above categories, the patent system was again seen as providing a superior pecuniary incentive in comparison with state trade secret protection.
    • For the sake of economic efficiency, some incentive to discovery, in the Court's view, should be provided for inventions likely to fall just beneath the threshold of patentability.
• Based on the above reasoning, the Court reversed the judgment of the Sixth Circuit and ordered that of the District Court reinstated.
• The dissenting justices felt the State of Ohio's trade secret protection statute should be preempted to the extent that it granted injunctive relief against use of a patentable discovery.
  • Yet, even with injunctive relief in place, those outside the misappropriating party(ies) are free to obtain patent protection for such inventions, so long as the requirements for patentability are met without violation of trade secret protection laws.

III. In Relation to State Statutory Protection of Hull Designs:

• Bonito Boats, the plaintiff, sought to protect a fiberglass boat hull design under a Florida statute enacted six years after the hull went on sale. The statute prohibited the copying of boat hull designs by a process known as direct molding.
• The District and Circuit Courts both found the statute to be preempted by Federal patent law, resulting in the dismissal of the plaintiff's claims.
• The Court, citing Kewanee, supra, reiterated that the states have the power to promote the creation of and to regulate intellectual property uniquely within their borders. The states under the ruling in Sears, supra, however, could not "water-down" the standards set by the patent system for removing utilitarian or functional subject matter from the public domain.
• No restrictions could be placed by state law on the use of unpatentable functional designs that were not confidentially held.
• The Florida statute was, thus, found by the Court to be preempted by Federal patent law.
• The general public, the defendant included, was seen by the Court as having been entitled to the full benefit of the standards of novelty and nonobviousness being satisfied before a design or invention was removed by patent protection from the public domain.
• After the plaintiff's likely obvious design was placed on sale and revealed to the general public, all were entitled to exploit it from the standpoint of invention.
  • This included commercial exploitation by the probable most economically efficient means, direct molding.
• The fact that the Florida statute prohibited the use of a particular process, rather than directly provided for rights in any design or invention, was not seen by the Court as placing it outside the area Congress intended to be regulated exclusively by Federal patent law.
• This case reemphasized the ruling in Sears v. Stiffel, supra, which provided for broad preemption by Federal patent law. Many thought this ruling to have been eroded by those in Goldstein, infra, and Kewanee, supra.
  • Bonito's practical effects on boat designers have been abrogated to an extent by the enactment of the Vessel Hull Design Protection Act (contained in Title V of the Digital Millennium Copyright Act), which provides for protection of boat hull designs under the Copyright Act.

In the Context of Copyright Law:

I. In Relation to State Statutory Protection of Sound Recordings:

• The defendants made and sold taped duplicates of sound recordings that had originally been sold by others on phonograph records.
  • At the time of this conduct (i.e., prior to February 15, 1972), sound recordings were not protected by the Copyright Act.
  • A California criminal statute prohibited the making and sale of sound recordings without the permission of the owner of the master recording.
    • The defendants were charged with and convicted of violating this statute.
• The defendants challenged the constitutionality of the California statute on the grounds that it violated Article I, Section 8, clause 8 of the Constitution by creating copyrights of unlimited duration, that it was preempted by the Copyright Act, and that state protection of unpublished works, as authorized by the then current Copyright Act, could not allow for the prohibition in question because the sound recordings had been published.
  • The Court found that Article I, Section 8, clause 8 did not vest copyright authority exclusively with the Federal government.
    • Its basis for this reasoning was that the Copyright Clause did not deem all writings to be of national interest or state legislation in this area, including that affecting the duration of permitted state protection, to be unnecessary or precluded.
    • The conflict that could be produced by seperate state legislation was not seen as sufficiently harmful to the workings of federalism to require a finding that state legislation in this area was implicitly forbidden by the Constitution.
      • In attempting to clarify the "potential interstate conflict" ameliorating measures seen as being available to Congress under the Copyright Clause, the Court wrote, "At any time Congress determines that a particular category of 'writing' is worthy of national protection and the incidental expenses of federal administration, federal copyright protection may be authorized. Where the need for free and unrestricted distribution of a writing is thought to be required by the national interest, the Copyright Clause and the Commerce Clause would allow Congress to eschew all protection."
  • The Court's acknowledgement of the Constitutional permissibility of certain state regulation in the area of intellectual property represents the current primary significance of this case.
    • See Kewanee v. Bicron, supra.
• With regard to preemption, the Court found that by omitting sound recordings made before February 15, 1972 from the listing of works protected under the Copyright Act, Congress left the states free, inside their territorial confines, to legislate with regard to the protection of this category of artistic work.
  • This also addressed the third of the defendants" arguments.
  • Sears, supra, was distinguished in that Congress intended to specifically address an economic incentive system for "mechanical designs", those for pole lamps included, in creating the patent system, whereas, sound recordings made prior to a certain date were not within the intended subject matter coverage of the Copyright Act.
• The dissents to Goldstein reasoned that Congress, in enacting copyright legislation, as it did with the patent system, intended a uniform Federal approach.
  • Thus, in the dissents' view, subject matter within the scope of the Copyright Act which falls outside or below the threshold for Federal protection simply could not be removed from the public domain by the states.
    • The existence of free access to design ideas and to expressive ideas was seen as the public interest protected by Congress declining to make specific extension of patent or copyright law protection to certain kinds of subject matter which fell within the scope of these two bodies of law.
  • It should be noted that patents and copyrights (i.e., "Writings and Discoveries") are referred to conjunctively in the Constitution and the opinion in Sears.
    • For example, the Sears decision, supra, explicitly states, "...[A] State may not, when the article itself is unpatented and uncopyrighted, prohibit the copying of the article itself or award damages for such copying."

• Preemption under the Copyright Act is currently dealt with under Section 301, which became law in 1976.
  • Section 301 makes the scope of preemption correspond in theory to that of the Patent Act under the holding in Sears, supra.
  • See NBA v. Motorola, Inc., 105 F.2d 841 (2nd Cir. 1997), citing Harper & Row v. Nation Enterprises, 471 U.S. 539 (1985) and the rendering court's own decision in Harper & Row v. Nation Enterprises, 723 F.2d 195 (2nd Cir. 1983) in stating (in the context of partial preemption) that once the subject matter requirements of the Copyright Act are met, a work "falls within the ambit of copyright protection" and any state law protection of it which grants equivalent rights is preempted, even if portions of the work are uncopyrightable. See also Wrench LLC v. Taco Bell Corp., 2001 FED App. 0210P (6th Cir.).
    • The formally stated elements for preemption under Section 301 are:
      1. That the subject matter affected by state law is within the scope of the Copyright Act as specified by Sections 102 and 103; and
      2. That the rights granted under state law are the equivalent of any of the rights granted by Section 106.
      • With regard to the first requirement, uncopyrightable elements which are contained in and taken into consideration as a part of a copyrightable work fall within the scope of the Copyright Act.
      • If an "extra element" instead of or beyond violation of the rights conferred by Section 106 is required for recovery under state law, the second of the above elements will not be satisfied.

I. In Relation to the Patent and Interstate Commerce Clauses