Kewanee revisited: returning to first principles of intellectual property law to determine the issue of federal preemption.

AuthorSandeen, Sharon K.

INTRODUCTION I. THE HISTORICAL AND LEGAL CONTEXT OF KEWANEE A. The Sears/Compco Doctrine B. Applying the Sears/Compco Doctrine to Trade Secret Cases II. KEWANEE DE-CONSTRUCTED A. Argument One: The Limited Scope of Trade Secret Law B. Argument Two: Constitutional Preemption C. Argument Three: Conflict Preemption D. Argument Four: The Partial Preemption Theory E. The Missing Analyses: Field Preemption and Free Competition III. THE CHANGED ASSUMPTIONS OF KEWANEE A. Changes to Patent Law since 1974. B. Changes to Copyright Law since 1974 C. Changes to Trade Secret Law since 1974 IV. KEWANEE REFRESHED A. Problem One: The Court's Preemption Analysis is Incomplete 1. Express Preemption 2. Field Preemption B. Problem Two: The Court's Conflict Preemption Analysis is Incomplete and Based upon Unsupported Factual Assumptions C. Problem Three: The Court's Failure to Articulate a Clear, Unifying Test for Intellectual Property Preemption D. Problem Four: The Court's Reluctance to Engage in an "As Applied" Analysis V. GUARDING AGAINST THE ANTI-COMPETITIVE EFFECTS OF STATE LAWS CONCLUSION INTRODUCTION

In 1973, members of the American Bar Association (ABA), Section on Patent, Trademark and Copyright (hereinafter the PTC Section) faced a dilemma. For more than six years, they had written, scrutinized, debated, and re-worked a draft uniform law to govern trade secrets. (1) In August 1972, their efforts finally bore fruit when a draft law was read before the National Conference of Commissioners on Uniform State Laws (hereinafter NCCUSL). (2) At the time, and despite the U.S. Supreme Court's decisions in the Sears, Roebuck & Co. v. Stiffel Co. and Compco Corp. v. Day-Brite Lighting, Inc. (hereinafter Sears/Compco) cases, (3) it was thought that states could regulate in the area of trade secrets without interfering with federal patent policies. (4) With the decision of the Sixth Circuit Court of Appeals in Kewanee Oil Co. v. Bicron Corp., (5) however, this conclusion was called into question, and further consideration of a uniform trade secrets act was suspended pending clarification from the U.S. Supreme Court or an act of Congress. (6)

The PTC Section did not have to wait long for the clarification it needed. In its 1974 decision in Kewanee, a divided Supreme Court ruled that Ohio's trade secret law was not preempted by patent law. (7) Rejecting the fact-specific analysis that had been applied by the Sixth Circuit and calls for application of so-called "partial preemption," the Court concluded that trade secret protection did not "constitute too great an encroachment on the federal patent system to be tolerated." (8) Based upon this conclusion, the PTC Section resumed its efforts to enact a uniform law in early 1975, ultimately culminating in NCCUSL's approval of the Uniform Trade Secret Act (hereinafter the UTSA) in August 1979, and the subsequent adoption of the UTSA by forty-five states. (9)

While the decision of the Supreme Court in Kewanee is frequently cited for the proposition that state trade secret laws are not preempted by federal law, this broad proposition belies five aspects of the decision. First, Kewanee is based upon the Supreme Court's understanding of the trade secret law of the State of Ohio. (10) Although the Ohio common law governing trade secrets was found not to be preempted by federal patent policies, Kewanee is not a direct endorsement of the trade secret laws of all states. (11) Second, Kewanee was decided before the enactment of the UTSA, and the Court has not subsequently determined whether the UTSA is preempted by federal law. Third, Kewanee was decided based upon the Court's understanding of U.S. patent law in 1974 and does not reflect the significant changes in patent law that have occurred since that time. Fourth, due to changes that occurred in U.S. copyright law post-Kewanee, the Court did not consider the possibility that trade secret law may interfere with federal copyright policies. Finally, the Kewanee decision is based upon the Supreme Court's preemption jurisdiction circa 1974 and does not reflect its current views on preemption including, in particular, the reasoning of the Court's decision in the 1989 case of Bonito Boats, Inc. v. Thunder Craft Boats, Inc. (12)

This Article revisits the issues raised in Kewanee in light of the Supreme Court's current preemption jurisprudence, the numerous changes that have been made to patent, copyright, and trade secret law since 1974, and the resulting and significant overlaps that exist between those intellectual property doctrines. To set the stage for what will ultimately be a critique of the Supreme Court's reasoning in Kewanee, the Article begins with a review of the history and context of the Kewanee decision. In Section II, the Supreme Court and court of appeals cases that set the stage for Kewanee are summarized. In Section III, the reasoning of Kewanee and the legal and factual assumptions upon which it is based are explained.

Section IV of the Article details the key changes that have been made to patent, copyright, and trade secret law since 1974. Section V then explores whether, in light of those changes, the Kewanee Court's preemption analysis has withstood the test of time. Although, like the Court in Kewanee, this Article concludes that the UTSA is not preempted by federal law, it reveals the weaknesses in the Kewanee Court's reasoning and applies a different preemption analysis. The Article concludes in Section VI by detailing a simplified analysis for what this author calls "IP preemption," to be applied to all state laws that appear to protect content falling within the ambit of patent or copyright law. In so doing, this Article presages the difficulties that state lawmakers will face if they attempt to expand the current scope of trade secret law, e.g., by adopting so-called "data exclusivity" laws. (13)


    1. The Sears/Compco Doctrine

      The Kewanee case was not the first time that the U. S. Supreme Court considered whether state law was preempted by U.S. patent law. Just ten years earlier in the Sears/Compco cases, the Court ruled that state unfair competition laws could be preempted by federal patent law. (14) Both the Sears and Compco cases involved claims that the defendants engaged in unfair competition by copying the design of light fixtures sold by the plaintiffs. (15) Due to the perceived novelty of each light fixture, the plaintiffs had obtained patents and brought their claims in federal court alleging patent infringement under federal law and unfair competition under state law. (16) When the patents were held invalid, the only question before the courts was whether the defendants' acts of copying the design of the light fixtures constituted unfair competition under Illinois law. Finding such a violation, the trial court entered judgment for plaintiffs. After the decisions of the district court were affirmed by the Seventh Circuit Court of Appeals, (17) the Supreme Court granted certiorari to consider "whether the use of a state unfair competition law to give relief against the copying of an unpatented industrial design conflicts with the federal patent laws." (18)

      The decision of the Illinois court reflected a prevalent sentiment among state law makers and members of the judiciary concerning the unfairness of copying a competitor's product. (19) Indeed, as of 1974 when the Kewanee case was decided, a rich body of common law had developed that proscribed a litany of acts that constituted unfair competition. (20) Due to the fact that patent law is within the exclusive purview of the U.S. Congress and the federal judiciary and, as a result, is often misunderstood by state court judges and state law makers, there was not much occasion prior to the Sears/Compco cases for state courts to reflect upon the potential conflict between federal patent policy and state unfair competition law.

      In ruling that the unfair competition laws of Illinois conflicted with U.S. patent law, the Court in Sears noted that patent law has its basis in the U.S. Constitution and is "the supreme law of the land." (21) It further explained that "it is 'familiar doctrine' that the federal policy 'may not be set at naught, or its benefits denied' by state law." (22) While acknowledging that the principal purpose of federal patent law is to encourage innovation, (23) the Court was careful to recognize the duality that is built into U.S. patent law. On one hand, U.S. patent law reflects a desire to encourage innovation. On the other hand, it seeks to encourage that innovation without unduly restricting free competition. (24) As the court explained, "the patent system is one in which uniform federal standards are carefully used to promote invention while at the same time preserving free competition." (25) The Court emphasized that inventions that do not meet the strict requirements of patent law or that are the subject of an expired patent belong to the public. (26)

      Because Illinois law sought to protect an article of commerce that was not protected under U.S. patent law, the Court concluded that there was "too great an encroachment on the federal patent system." (27) This is because Illinois law restricted free competition in areas where federal patent law said it could not.

      Until the decisions in the Sears/Compco cases, state unfair competition law had peacefully co-existed with federal law. Indeed, since the decision of the U.S. Supreme Court in the case of Erie R.R. v. Tompkins (28) in 1938, it was understood that only states could develop a common law of unfair competition. (29) The decisions in Sears/Compco created doubt about the role of states in preventing unfair competition and led to concern about the continued viability of state trade secret law. (30) This concern explains why the PTC Section decided in 1966 to consider the need for a uniform trade secret law. (31) It was thought that in order...

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