MOST NEW BUSINESSES are founded to capitalize on new technologies. Some of these technologies cannot be maintained in secrecy: For example, the structure of a new type of widget can be "reverse engineered" by anyone who buys one of the widgets. Many of these technologies can, however, be kept secret. The process by which a widget is made can be kept secret if a purchaser of the widget cannot tell how it was made by inspecting it. The precise formula of a complex compound, such as Coca-Cola syrup, also can be maintained in secrecy.

If a technology can be kept secret, it may be protected as a trade secret. The New Hampshire version of the Uniform Trade Secrets Act (the "Act"), Chapter 350-B, provides for injunctive relief and damages for the misappropriation of trade secrets. The Act defines trade secrets as:

Thus, companies that are founded on a technology that meets the definition of a trade secret are often faced with the decision of whether to protect the technology by patenting it or by treating it as a trade secret. This decision generally involves a balancing of the relative advantages and disadvantages of patents and trade secrets.

The up-front cost of approximately $10,000 for searching prior art and filing a patent application is balanced against the ongoing costs of reasonable measures to maintain the secrecy of a trade secret, of which costs can vary widely depending on the type of trade secret. Also, the 20-year term of a patent is balanced against the indefinite life of a trade secret, which may extend well beyond 20 years.

The disadvantages of a patent include the requirement (35 U.S.C. §112, Par. 1) that the best mode of the technology, known to its inventor at the time the patent application is filed, must be disclosed in the patent application. This disclosure may make it easier for competitors to "design around" the patent. Moreover, it is difficult to enforce process patent without access to a competitor's facilities to see what processes are being used. The disadvantage of trade secret protection is that it lasts only as long as the technology remains secret. Once the technology is disclosed, which has become more of a concern with the increasing mobility of employees, trade secret protection ends.

This traditional balancing has, however, been radically affected recently by the First Circuit in its Oct. 16, 2001 decision in Morris v. Reilly, 267 F.3d 45 (1st Cir. 2001). In the words of the dissent, "the majority's holding...allows states to ransack the trade secrets of virtually any business without providing even minimal recompense...." Id. at 68.

The plaintiffs in Morris were manufacturers of cigarettes and smokeless tobacco who reported using 700 chemical additives in their manufacturing processes. Each brand contained a combination of such ingredients that contributed to its distinctiveness and competitive success. The manufacturers, therefore, treated each such combination as a trade secret. The Massachusetts Legislature enacted a statute (the "Disclosure Act") requiring each manufacturer to provide for each brand "the identity of any added constituent...in descending order according to weight, measure or numerical count." Moreover, the Disclosure Act provided that such information "shall" become public if two conditions were met, a threshold that the court assumed would be reached. The manufacturers challenged these information-reporting provisions, asserting, among other arguments, that they equated to an uncompensated taking in violation of the Fifth Amendment.

The court analyzed the Disclosure Act to determine whether it involved either a per se taking or a regulatory taking. A per se taking exists if government action results in the "permanent physical occupation of property or if it denies the owner all economically beneficial use of his property." Id. at 55. The court in conclusory fashion merely stated that the statute established a regulatory scheme and therefore no per se taking occurred. The court then analyzed the three factors to be taken into account in determining whether government action has gone beyond regulation and effects a taking: the character of the government action, its economic impact, and its interference with reasonable investment-backed expectations. In doing so, the court quoted Ruckelshaus v. Monsanto, 467 U.S. 986 (1980):

The court was not, however, satisfied by implicitly finding no basis in trade secret law on which the manufacture could have a "reasonable investment-backed expectation" of secrecy. The court continued expressly to hold that "generalized, non-specific trade secret protection" was not a guarantee of confidentiality to submission of data, and absent an express promise, submitters of data had no reasonable, investment-backed expectation that the data would not be disclosed.

Judge Selya dissented. He warmed up by continuing his long-standing tradition of demonstrating that his dictionary is bigger than most lawyers' by using the words "repastinating" and "resupinate." He hit his stride, fortunately, in a well reasoned, scathing dissent that included the following:

A corrected order granting an en banc rehearing was entered on Nov. 6, 2001. For now, however, every lawyer must consider the results in Morris in balancing the relative advantages and disadvantages of patents and trade secrets.

Home | About the Bar | For Members | For the Public | Legal Links | Publications | Online Store
Lawyer Referral Service | Law-Related Education | NHBA•CLE | NHBA Insurance Agency | NHMCLE
Search | Calendar

New Hampshire Bar Association
2 Pillsbury Street, Suite 300, Concord NH 03301
phone: (603) 224-6942 fax: (603) 224-2910
email: NHBAinfo@nhbar.org
© NH Bar Association Disclaimer