The slippery slope of secrecy: why patent law preempts reverse-engineering clauses in shrink-wrap licenses.

AuthorMauk, John E.

As the world enters the twenty-first century, the U.S. economy is becoming increasingly driven by the value of ideas. (1) The United States has experienced a sharp increase during the past decade in the number (2) and value of patents filed, (3) primarily as a response to the rapid growth of high technology industry. In fact, the "competitive battles once fought for control of markets and raw materials are now increasingly being waged over the exclusive rights to new ideas and inventions." (4)

This growth and competition has created new legal challenges for America's intellectual property (IP) system. (5) One important challenge to this system is the proliferation of avoidance techniques threatening the underlying policies behind federal copyright and patent laws. One technique increasingly being employed is the use of "shrink-wrap" licenses in an attempt to contract around the policies behind IP law. (6)

The policy behind federal patent law--allowing limited exclusivity in exchange for long-term contribution to the public domain--runs counter to some of the clauses contained in these license agreements. When courts uphold these agreements under state contract law they are expanding the degree of exclusivity enjoyed by patent holders. Therefore, a conflict arises between federal patent law and state contract law over exactly how rights are to be held. (7) It is well settled that when federal and state law directly conflict, the doctrine of preemption holds that the state law is subordinate to the goals of the federal government. (8) Patent law should thus preempt the portions of these license agreements that run counter to the federal policy. This Note asserts that patent law preempts specific clauses of shrink-wrap licenses, primarily those restricting reverse-engineering, decompilation, and disassembly of a particular item, and should continue to do so, barring a change to current patent law.

The policy behind granting patent holders the right to exclude in exchange for public disclosure of their inventions is the promotion of the continued development of technology. (9) Some limited contravention of the policy is acceptable. For example, trade secret law runs contrary to this policy but is acceptable because it does not restrict valid reverse engineering (10) of unpatentable subject matter. (11) In fact, the Supreme Court has held that valid reverse engineering that reveals trade secrets negates any protection of unpatentable subject matter once the secret becomes public. (12) To allow state contract law, through the mechanism of shrink-wrap licenses, to prevent reverse engineering runs contrary to the policy surrounding the development of patent law, and would create a slippery slope that could result in all new inventions being shrouded in shrink-wrap with a license clause prohibiting reverse engineering. This secrecy would result in a drastic slowdown in the development of novel ideas, and would suppress the competitive spirit inherent in the U.S. economy.

This Note contains three parts. The first section discusses the historical development of the patent law, including its constitutional basis and the policy behind it at the time of the drafting of the Constitution. This portion also delineates the development of patent law from the years following the American Revolution to the present, and discusses recent overseas developments regarding the Trade Related Aspects of Intellectual Property (TRIPS) (13) agreement as part of the Uruguay Round of General Agreement on Tariffs and Trade (GATT) (14) talks. (15)

The second section of this Note provides an overview of preemption law, including its historical basis in the Constitution, its early exposition in landmark cases such as McCulloch v. Maryland (16) and Gibbons v. Ogden, (17) and the current state of preemption law. (18) This section then concentrates on the preemption history associated with patent law in particular, including policy justifications, and reviews the current state of the law in this area. (19)

The third section combines the history and policy of the first section with the preemption development of the second section in order to examine a standard shrink-wrap license's reverse-engineering clause. (20) The section then analyzes how such a clause violates the policy behind the development of patent law and demonstrates why such clauses should be preempted. (21) It also discusses the economics behind patent law and explains why financial policy leads to the conclusion that reverse engineering of unpatented subject matter is economically sound. (22) Finally, this section reviews the potential for harm associated with allowing the prohibition of reverse engineering by focusing on the likelihood of other industries adopting similar protective licenses. (23) Ultimately, this Note concludes that the current state of patent law demands that courts invalidate reverse-engineering clauses within shrink-wrap licenses.

BACKGROUND AND HISTORICAL DEVELOPMENT OF PATENT LAW

The protection of creative ideas has been an important part of the world's development stemming from ancient times. (24) In the Middle Ages, merchant guilds were granted exclusive rights within specific towns or trades, leading to the formation of similar guilds among craftsmen. (25) This initial foray into exclusivity spawned the development of common law monopolies in England during the fifteenth century, many of which were abolished by Queen Elizabeth in the early seventeenth century. (26) The remaining monopolies became subject to the common law of England and were finally abolished by act of Parliament in 1623 with the passing of the Statute of Monopolies. (27) Importantly, this statute expressly reserved an exception for "any letters-patent and grants of privilege for the term of fourteen years or under, hereafter to be made, of the sole working or making of any manner of new manufactures." (28) Part of the theory surrounding this exception revolves around the belief that inventions are a special form of property, and that the efforts of inventors should rightfully be rewarded in exchange for the public dissemination of their knowledge. (29)

The Framers of the U.S. Constitution realized the value of patents to such an extent that they included a specific provision granting Congress the regulatory power over patents. (30) The origins of the Clause have been alternatively attributed to James Madison and Charles Pinckney. (31) Both of these Framers submitted provisions for copyright and patent as separate clauses, which were considered by the Committee of Detail on September 5, 1787, combined into the existing Clause, and adopted that same day. (32) There are no records concerning any debate within this committee, and the legislative history and purpose are similarly sparse. It appears that this Clause involved very little controversy within the convention. (33) The only available mention of the Clause is a paragraph that was written by James Madison in The Federalist No. 43:

The utility of this power will scarcely be questioned. The copy right of authors has been solemnly adjudged, in Great Britain, to be a right at common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of individuals. The States cannot separately make effectual provision for either of the cases, and most of them have anticipated the decision of this point, by laws passed at the instance of Congress. (34) The lack of treatment suggests that the issue of granting the power over patent regulation to the federal government was not controversial.

Prior to the development of the Constitution, the states granted patents that were valid only within that specific state. As a result, it became necessary to seek patents from each state. For example, John Fitch received steamboat patents from New York, New Jersey, Pennsylvania, and Delaware, while James Rumsey obtained a steamboat patent in Maryland and contested Fitch's patents in New York and Pennsylvania. (35)

The first Congress passed the first patent statute in the early days of its second session. (36) The first patent was subsequently issued to Samuel Hopkins for a process for making potash from wood ashes. (37) The original system called for the Secretaries of State and War and the Attorney General to examine the invention's usefulness and importance. (38) This system proved to be unworkable because of the press of other important duties on these key officials. (39) As a result, Congress passed the Patent Act of 1793, changing the system to essentially a registration system with no true utility examination. (40) The lack of examination resulted in extensive litigation in the courts. (41) This led to passage of the Patent Act of 1836, (42) which reinstated the use of an examination scheme and created the Patent Office, which was to be headed by a commissioner appointed by the President and approved by the Senate. (43) Various amendments to this Act occurred throughout the nineteenth century as the Patent Office developed its bureaucracy. Those amendments were consolidated in the 1870s and remained the governing patent law until substantial revision in 1952. (44)

The fact that the governing Act was largely unchanged for so long, however, does not mean that the last century has lacked notable--and continual--change in the field of patents. The patent system faced substantial challenges in the 1920s and 1930s as a result of antitrust sentiment existing at the time. (45) These challenges were overcome by the need for new technologies as part of the World War II effort. (46) Despite this need, antipatent sentiment as associated with big business persisted into the early 1970s. (47) In the early 1980s, Congress passed the Federal Courts Improvement Act, (48) establishing the Court of Appeals for the Federal Circuit (CAFC), to hear all appeals from the federal...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT