Trade Secret

Think Big! The Need for Patent Rights in the Era of Big Data and Machine Learning

Think Big! The Need for Patent Rights in the Era of Big Data and Machine Learning
By: Hyunjong Ryan Jin*   Download a PDF version of this article here  

Introduction

With AlphaGo’s triumph over the 9-dan Go professional Lee Sedol in March 2016, Google’s DeepMind team conquered the last remaining milestone in board game artificial intelligence.[1] Just nineteen years after IBM Deep Blue’s victory over the Russian chess grandmaster Garry Kasparov,[2] Google’s success exceeded expert predictions by decades.[3] AlphaGo demonstrated how machine learning algorithms could enable processing of vast amounts of data. Played out on a 19 by 19 grid, the number of possible configurations on a Go board is astronomical.[4] With near-infinite number of potential moves, conventional brute-force comparison of all possible outcomes is not feasible.[5] To compete with professional level human Go players, the gaming artificial intelligence requires a more sophisticated approach than the algorithms employed for chess — machine learning. The underlying science and implementation of machine learning was described in a Nature article two months prior to AlphaGo’s match with Lee. In the article, the Google team described how a method called “deep neural networks” decides between the insurmountable number of possible moves in Go.[6] The AlphaGo model was built by reinforcement learning from a database consisting of over thirty million moves of world-class Go players.[7] This allowed the algorithm to optimize the search space of potential moves, therefore reducing the required calculations to determine the next move.[8] In other words, the algorithm mimics human intuition based on the “experience” it gained from the database “fed” into the algorithm, which drastically increases computational efficiency by eliminating moves not worth subsequent consideration. This allows the algorithm to devote computational resources towards the outcomes of “worthwhile” moves. The advent of such powerful analytical tools, capable of mimicking human intuition alongside massive computation power, opens endless possibilities—early stage cancer detection[9], accurate weather forecasting,[10] prediction of corporate bankruptcies,[11] natural event detection,[12] and even prediction of elections.[13] For information technology (“IT”) corporations, investment in such technology is no longer an option, but a necessity. The question that this Note addresses is whether the current state of intellectual property law is adequate to harness the societal benefits that we hope to enjoy through the advances in machine learning. In particular, are patents necessary in the age of big data? And if they are, how should we apply patent protection in the field of big data and machine learning? Part I of this Note examines the need for intellectual property rights in machine learning and identifies the methods by which such protection may be achieved. The differences between trade secret, copyright and patent protection in software are discussed, followed by the scope of protection offered by each means. This background provides the basis to discuss the effectiveness of each method in the context of machine learning and big data innovations. Part II discusses the basics of the underlying engineering principle of machine learning and demonstrates how the different types of intellectual property protection may apply. Innovators may protect their contributions in machine learning by defending three areas—(1) the vast amount of data required to train the machine learning algorithm, (2) innovations in the algorithms itself including advanced mathematical models and faster computational methods, and (3) the resulting machine learning model and the output data sets. Likewise, there are three distinct methods of protecting these intellectual properties: patents, copyright, and secrecy.[14] This Note discusses the effectiveness of each method of intellectual property protection with three principles of machine learning innovation in mind: facilitating data sharing, avoiding barriers to entry from data network effects, and providing incentives to address the key technological challenges of machine learning. This Notes proposes that patents on computational methods adequately balance the concern of patent monopoly and promoting innovation, hence should be the primary means of intellectual property protection in machine learning. Part III then visits the legal doctrine of patentable subject matter starting with the United States Supreme Court’s Alice decision. While Alice imposed a high bar for software patents, the post-Alice Federal Circuit decisions such as Enfish, Bascom, and McRO suggest that certain types of software inventions are still patentable. Specifically, this section will discuss the modern framework pertinent to subject matter analysis: (1) inventions that are directed to improvements of computer functionality rather than an abstract idea, (2) inventions that contain an inventive concept, and (3) inventions that do not improperly preempt other solutions. The Note will apply this framework to innovations in machine learning. The Note proposes that patents for computational methods balance the need for intellectual property protection while permitting data sharing, paving the pathway for promoting innovation in machine learning. The Note further argues that machine learning algorithms are within patentable subject matter under 35 U.S.C. §101.

I. Need for Intellectual Property Rights in Machine Learning

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.” – Thomas Jefferson “I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this. They are scared to death, because they know they are guilty.” – Steve Jobs The two quotes above demonstrate the conflicting views on protecting intangible ideas with intellectual property law. Thomas Jefferson implied that the free circulation of inventive ideas and thoughts would not dampen the progress of innovation nor disadvantage innovators. On the other hand, Steve Jobs exhibited fury over the similarity between the iOS and the Android OS. Why? Was it because his company was worse off due to the similarity between the two products? Would Apple have refrained from inventing the iPhone had it known others would enter the smartphone market? This section discusses the motives behind the grant of intellectual property rights and whether such protection should be extended to machine learning innovations. Basics of patent law, copyright law, and trade secret are introduced to provide the analytical tools for subsequent discussion on which type of intellectual property protection best promotes the socially-beneficial effects of machine learning.

A. Do We Need Intellectual Property Rights for Machine Learning?

The primary objectives of intellectual property rights are to encourage innovation and to provide the public with the benefits of those innovations.[15] In the context of machine learning, it is not clear whether we need any additional incentives to promote participation in this field. Machine learning is already a “hot field,” with countless actors in industry and academia in active pursuit to keep pace.[16] Hence investment incentivizing may not be a valid justification for granting intellectual property rights in machine learning. Rather, such protection is crucial to promote competition and enhance public benefits. The quality of inferences that may be drawn from a given data set increases exponentially as the aggregation diversifies, which is why cross-industry data aggregation will greatly enhance the societal impact of machine learning.[17] Companies will need to identify new data access points outside of their own fields to gain access to other data sets to further diversity their data. Yet the incentive structures of behemoth corporations may not be well-suited to identify and grow niche markets.[18] It would be up to the smaller, specialized entities to find the gaps that the larger corporations overlooked and provide specialized services addressing the needs of that market. Protective measures that assist newcomers to compete against resource-rich corporations may provide the essential tools for startups to enter such markets. Sufficient intellectual property protection may serve as leverage that startups may use to gain access to data sets in the hands of the Googles and Apples of the world, thus broadening the range of social benefits from machine learning.

B. The Basics of Patent Law

To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries” – United States Constitution, Article I, § 8 The United States Constitution explicitly authorizes Congress to promote useful arts by granting inventors the exclusive rights of their discoveries. Such constitutional rights stems from two distinct bases — (1) a quid pro quo where the government issues a grant of monopoly in exchange for disclosure to society, and (2) property rights of the inventor. The purpose for such rights is explicitly stated in the Constitution—to promote new inventions. The goal is to prevent second arrivers who have not invested in the creation of the initial invention from producing competing products and services at a lower price, undercutting the innovator whose costs are higher for having invested to create the invention. As an incentive for innovators willing to invest in new, useful arts, the patent system provides the innovator rights to exclude others from practicing the invention. Another purpose of such rights is the concept of “ “mining rights.” Akin to the grant of mining rights to the owner in efforts to suppress aggressive mining, the inventor should have the right to define and develop a given field by excluding other people from the frontiers of that knowledge. Considering the importance of industry standards in modern electronics, such a purpose acknowledges the importance of early stage decisions that may define the trajectory of new technological advances.

C. The Thin Protection on Software Under Copyright Law

The Copyright Act defines a “computer program” as “a set of statements or instructions to be used directly or indirectly in a computer to bring about a certain result.”[19] Though it may be counterintuitive to grant copyright protection for “useful arts” covered by patents, Congress has explicitly mandated copyright protection for software.[20] However, as will be discussed below, copyright protection of software has been significantly limited due to case law. Copyright protects against literal infringement of the text of the program. Source code, code lines that the programmers “author” via computer languages such as C++ and Python, is protected under copyright as literary work.[21] In Apple v. Franklin Corp., the Third Circuit Court of Appeals held that object code, which is the product of compiling the source code, is also considered a literary work.[22] Given that compiled code is a “translation” of the source code, this ruling seems to be an obvious extension of copyright protection. Removing the copyright distinction between source code and object code better reflects the nature of computer languages such as Perl, where the source code is not translated into object code but rather is directly fed into the computer for execution. However, the scope of protection on either type of code is very narrow. The copyright system protects the author against literal copying of code lines. This leaves open the opportunity for competitors to avoid infringement by implementing the same algorithm using different text. Fortunately, in addition to protection against literal copying of code, copyright law may provide some protection of the structure and logical flow of a program. Equivalent to protecting the “plot” of a novel, the Second Circuit Court of Appeals ruled that certain elements of programming structure are considered an expression (copyrightable) rather than idea (not copyrightable), extending copyright protection to non-literal copying.[23] The Computer Associates International v. Altai court applied a three-step test to determine whether a computer program infringes other programs—(1) map levels of abstraction of the program; (2) filter out protectable expression from non-protectable ideas; and (3) compare which parts of the protected expression are also in the infringing program.[24] The merger doctrine is applied to step two of the Altai test to limit what may be protected under copyright law. Under the merger doctrine, code implemented for efficiency reasons is considered as merged with the underlying idea, hence not copyrightable.[25] Since most algorithms are developed and implemented for efficiency concerns, the Altai framework may prevent significant aspects of software algorithms from receiving copyright protection. This means that for algorithms related to computational efficiency, patents may provide significantly more meaningful protection than copyright. The Federal Circuit, in the 2016 case McRO Inc. v. Bandai Namco Games America Inc., ruled that patent claims with “focus on a specific means or method that improves the relevant technology” may still be patentable.[26] Although preemption concerns may impede patentability, exemption of patent right by preemption is narrow compared to that of copyright by the merger doctrine. Scène à faire doctrine establishes yet another limitation on copyright for computer programs. Aspects of the programs that have been dictated by external concerns such as memory limits, industry standards and other requirements are deemed as non-protectable elements.[27] For mobile application software, it is difficult to imagine programs that are not restricted by form factors such as mobile AP computation power, battery concerns, screen size, and RAM limitations. As for machine learning software, the algorithms determine the “worthiness” of computation paths based on conserving computational resources. The external factors that define the very nature and purpose of such machine learning algorithms may exempt them from copyright protection.

D. Comparing Trade Secret and Non-disclosures with Patents

The crucial distinction between trade secret and patent law is secrecy. While patent applicants are required to disclose novel ideas to the public in exchange for a government granted monopoly, trade secret requires owners to keep the information secret. Though trade secret protection prevents outsiders from acquiring the information by improper means, it does not protect the trade secret against independent development or even reverse engineering of the protected information. In trade secret doctrine, the existence of prior disclosed art is only relevant for discerning whether the know-how is generally known, a different and simpler analysis than the issue of novelty in patent law.[28] The United States Supreme Court has specified in Kewanee Oil that all matters may be protected under trade secret law, regardless whether it may or may not be patented.[29] The Kewanee Oil court predicted that inventors would not resort to trade secret when offered a presumptively stronger protection by patent law:
“The possibility that an inventor who believes his invention meets the standards of patentability will sit back, rely on trade secret law, and after one year of use forfeit any right to patent protection, 35 U.S.C. § 102(b), is remote indeed.”[30]
Trade secret is an adequate form of protection for innovators that are concerned with the limits of what may be patentable. The secrecy requirement of trade secret inherently provides protection that may potentially outlive any patent rights, provided a third party does not independently acquire the secret. This coincides with an interesting aspect of machine learning and big data—the need for massive amounts of data. Developers need data to “train” the algorithm, and increase the accuracy of the machine learning models. Companies that have already acquired massive amounts of data may opt to keep their data secret, treating the aggregated data as a trade secret. In addition to the amount of amassed data, companies have all the more reason to keep their data secret if they have access to meaningful, normalized data. Even if a company amasses an enormous amount of data, the data sets may not be compatible with each other. Data gathered from one source may have different reference points or methodologies that are not immediately compatible with data from another source. This raises the concern of “cleaning” massive amounts of data.[31] Such concerns of data compatibility mean that parties with access to a single, homogenous source of high quality data enjoy a significant advantage over parties that need to pull data from multiple sources. However, data secrecy may not be a suitable strategy for companies that are aiming for cross-industry data aggregation. Institutions such as Global Alliance for Genomics and Health are promoting data sharing between research participants. The Chinese e-commerce giant Alibaba announced a data sharing alliance with companies such as Louis Vuitton and Samsung to fight off counterfeit goods.[32] To facilitate the development of technology and to mitigate risks, various companies and research institutions across diverse fields are engaging in joint development efforts and alliances. Seeking protection under trade secret runs against this trend of engaging in effective cross-industry collaboration. Yet there are countervailing arguments that trade secret promotes disclosure by providing legal remedies that can replace the protection of secrets.[33] Parties can sidestep the limitations of trade secrets by sharing proprietary information under the protection of contract law. While data sharing practices may void trade secret protection, the nature of continued accumulation of data and carefully drafted contractual provisions may provide sufficient protection for the data owners.

II. Placing Machine Learning within Intellectual Property Law

Learning is any process by which a system improves performance from experience.” – Herbert Simon, Nobel Prize in Economics 1978. The concept of machine learning relates to computer programs that have the capability to improve performance based on experience, with limited intervention of the programmer.[34] Machine learning models have the capability to automatically adapt and customize for individual users, discover new patterns and correlations from large databases, and automate tasks that require some intelligence by mimicking human intuition.[35] This section dissects the mechanics of machine learning to identify the aspects of machine learning innovations that are at issue as intellectual property.

A. Machine Learning Basics

Machine learning methods are divided into two different approaches—supervised machine learning and unsupervised machine learning. For supervised machine learning, models are typically established by applying “labeled” sets of data to a learning algorithm. Labeled data refers to data sets that have both relevant features and the target results that the programmer is interested in. For example, we may be interested in developing a machine learning model that classifies images with dogs in them. The data sets for supervised machine learning would indicate whether a given images has dogs or not. The learning process begins with the algorithm fitting trends found in the training data set into different types of models. The algorithm compares the prediction errors of the models by inputting the validation set data into each model, measuring their accuracy. This allows the algorithm to decide which of the various models is best suited as the resulting machine learning model. Finally, the machine learning model is then evaluated by assessing the accuracy of the predictive power of the model. The developed model is then applied to data without a correct answer to test the validity of the model. In unsupervised machine learning, the data sets are “unlabeled” data, which may not contain the result that the programmer is interested in. Returning to our dog image classification example, data sets for unsupervised machine learning will have pictures of various animals that are not labeled—the computer does not know which pictures are associated with dogs. The unsupervised machine learning algorithm develops a model that extracts common elements from the picture, teaching itself the set of features that makes the subject of the picture a dog. In essence, unsupervised machine learning uses data sets that do not have specific labels fed into the algorithm for the purpose of identifying common trends embedded in that data set. The objective of developing such machine learning models varies. Sometimes the goal is to develop a prediction model that can forecast a variable from a data set. Classification, which assigns records to a predefined group, is also a key application of the algorithm. Clustering refers to splitting records into distinct groups based on the similarity within such group. Association learning identifies the relationship between features.         Figure 1. Overview of Machine Learning Model Development   Figure 1 illustrates the overall process of machine learning model development. The learning process of machine learning algorithms begins with aggregation of data. The data originates from an array of diverse sources ranging from user input, sensor measurement, or monitoring of user behavior.[36] The data sets are then preprocessed. The quality of data presents a challenge in improving machine learning models—any data that has been manually entered contains the possibility of error and bias.[37] Even if the data is collected through automatic means, such as health monitoring systems or direct tracking of user actions, the data sets require preprocessing to account for systematic errors associated with the recording device or method.[38] This includes data skews due to difference between individual sensors, errors in the recording or transmission of data, and incorrect metadata about the sensor.[39] Simply put, the data sets may have differing reference points, embedded biases, or differing formats. The “cleaning” process accommodates for the data skews. The objective of machine learning models is to identify and quantify “features” from a given data set. The term “feature” refers to individually measurable property of an observed variable.[40] From the outset, there may be an extensive list of features that are present in a set of data. It would be computationally expensive to define and quantify each feature, and then to identify the inter-feature relationships, from massive amounts of data. Due to the high demand for the computational power required for processing massive amounts of data, dedication of computational resources to features that are outside the scope of the designer’s interest would be a waste of such limited computational capacity.[41] The machine learning algorithm reduces waste of computational resources by applying dimensionality reduction to the pre-processed data sets.[42] The algorithm can identify an optimal subset of features by reducing the dimension and the noise of the data sets.[43] Dimensionality reduction allows the machine learning model to achieve higher level of predictive accuracy, increased speed of learning, and improves the simplicity and comprehensibility of the results.[44] However, the reduction process has limitations—reducing dimensionality inevitably imposes a limit on the amount of insights and information that may be extracted from the data sets. If the machine learning algorithm discerns a certain feature, the model would not be able to draw inferences related to said feature. Following dimensionality reduction, the machine learning algorithm attempts to fit the data sets into preset models. Typically, three different types of data are fed into the machine learning model—training set, validation set, and test set.[45] The machine learning algorithm “trains” the model by fitting the training set data into various models to evaluate the accuracy of each selection. Then the validation set is used to estimate error rates of each model when applied to data outside the training set that was used to develop each model. Through this process, the machine learning algorithm selects the model that best describes the characteristics and trends of the target features from the test and validation sets.[46] The test set is then used to calculate the generalized prediction error, which is reported to the end user for proper assessment of the predictive power of the model.[47] Simply put, the training test and validation set is used to develop and select a model that reflects the trends of the given data set, and the test set is used to generate a report on the accuracy of the selected model. The crucial elements in developing a machine learning model are (1) training data, (2) inventions related to the machine learning algorithm such as the method of preprocessing the training data, the method of dimensional reduction, feature extraction, and the method of model learning/testing, and (3) the machine learning model and output data.[48] An ancillary element associated with the three elements above is the human talent that is required to implement such innovation.[49] Innovators in the field of machine learning may protect their investments by protecting one or more of the elements listed above. The difference between training data and output data, as well as the difference between the machine learning algorithm and the machine learning model, are best illustrated with an example. Let us assume a credit card company wants to use machine learning to determine whether the company should grant a premium credit card to a customer. Let us further assume that the company would prefer to grant this card to customers that would be profitable to the company while filtering out applicants that are likely to file for bankruptcy. Data sets about prior applicant information would correspond to training data. The company would apply a mathematical method of extracting insight about the correlation between features and the criteria that the company wants to evaluate (e.g., profitable for the firm or likely to file bankruptcy). The mathematical methods are referred as machine learning algorithms. The resulting mechanism, such as a scoring system, that determines the eligibility of card membership is the machine learning model. The credit card applicant’s personal data would be the input data for the machine learning model, and the output data would include information such as expected profitability of this applicant and likelihood of bankruptcy for this applicant.

B. Industry Trends in Machine Learning

Discussing incentive structures and trends behind the machine learning industry is essential in identifying adequate methods of intellectual property rights. The current trends in the world of machine learning will predict what intellectual property regime is most useful to companies to protect their work. The United States has chronically struggled to maintain adequate supply of talent in the high-tech industry, a deficit of talent that continues in the field of machine learning.[50] From a report by the McKinsey Global Institute, the United States’ demand for talent in deep learning “could be 50 to 60 percent greater than its projected supply by 2018.”[51] Coupled with the dearth of machine learning specialists, the short employment tenure of software companies further complicates the search for talent. Software engineers from companies such as Amazon and Google have reported an average employment tenure of one year.[52] While some parts of the high attrition rate may be attributed to cultural aspects of the so-called “Gen Y” employees, the “hot” demand for programming talent has significant impact on the short employee tenure.[53] Job mobility within the software industry is likely to increase as the “talent war” for data scientist intensifies. Employee mobility and California’s prohibition against “covenants not to compete” have been accredited as a key factor behind the success of Silicon Valley.[54] Another trend in the field is the rapid advances in machine learning methods. Due to the fast-paced development of the field, data scientists and practitioners have every reason to work with companies that would allow them to work at the cutting edge of machine learning, using the best data sets. This may influence the attrition rates and recruiting practices of the software industry mentioned above.[55] Eagerness of employees to publish scientific articles and contribute to the general machine learning committee may be another factor of concern. To accelerate innovation by repurposing big data for uses different from the original purpose, and to form common standards for machine learning, more industries are joining alliances and collaborations.[56] Cross-industry collaborations may enable endless possibilities. Imagine the inferences that may be drawn by applying machine learning methods to dietary data from home appliances, biometric data, and data on the weather patterns around the user. Putting privacy nightmares aside, machine learning with diverse data sets may unlock applications that were not previously possible. More companies are attempting to capitalize on commercial possibilities that data sharing may unlock.[57]

C. Machine Learning Innovators – Protect the Data or Inventions?

Though it may seem intuitive that patent protection may be the best option, innovations in machine learning may not need patent protection. Trade secret protection on the data sets may be sufficient to protect the interests of practicing entities while avoiding disclosure of their inventions during the patent prosecution process. Furthermore, numerous software patents have been challenged as unpatentable abstract subject matter under 35 U.S.C. §101 since the Alice decision in 2014.[58] Though subsequent decisions provided guidelines for types of software patents that would survive the Alice decision, it is not clear how the judiciary will view future machine learning patents. Such issues raise the question about the patentability of machine learning – should we, and can we, resort to patents to protect machine learning inventions? Following the discussion on the building blocks of machine learning and recent emerging trends in the field, this section discusses the mode and scope of protection that current legal system provides for each element pertinent to innovation in machine learning. The possible options for protecting innovations are (1) non-disclosure agreements and trade secret law, (2) patent law, and (3) copyright. The three options for protection may be applied to the three primary areas of innovation—(1) training data, (2) inventions related to computation, data processing, and machine learning algorithms, and (3) machine learning models and output data. This discussion will provide context about the methods of protection for innovations in machine learning by examining the costs and benefits of the various approaches.
1. Protecting the Training Data—Secrecy Works Best
Access to massive amounts of training data is a prime asset for companies in the realm of machine learning. The big data phenomenon, which triggered the surge of interest in machine learning, is predicated on the need for practices to analyze large data resources and the potential advantages from such analysis.[59] Lack of access to a critical mass of training data prevents innovators from making effective use of machine learning algorithms. Previous studies suggest that companies resent sharing data with each other.[60] Michael Mattioli discusses the hurdles against sharing data and considerations involved with reuse of data in his article Disclosing Big Data.[61] Indeed, there may be practical issues that prevent recipients of data from engaging in data sharing. Technical challenges in comparing data from different sources, or inherent biases embedded in data sets may be reasons that complicate receiving outside data.[62] Mattioli also questions the adequacy of the current patent and copyright system to promote data sharing and data reuse—information providers may prefer not to disclose any parts of their data due to the rather thin legal protection for databases.[63] Perhaps this is why secrecy seems to be the primary method of protecting data.[64] The difficulty of reverse engineering to uncover the underlying data sets promotes the reliance on non-disclosure.[65] Compared to the affirmative steps required to maintain trade secret protection if the data is disclosed, complete non-disclosure may be a cost effective method of protecting data.[66] Companies that must share data with external entities may exhibit higher reliance on contract law rather than trade secret law. In absence of contract provisions, it would be a challenge to prove that the trade secret has been acquired by misappropriation of the recipient party. The “talent war” for data scientists may also motivate companies to keep the training data sets secret. With a shortage of talent to implement machine learning practices and rapid developments in the field, retaining talent is another motivation for protecting against unrestricted access to massive amounts of data. Companies may prefer exclusivity to the data sets that programmers can work with — top talents in machine learning are lured to companies with promises of exclusive opportunities to work with massive amounts of data.[67] The rapid pace of development in this field encourages practitioners to seek opportunities that provide the best resources to develop their skill sets. This approach is effective since a key limitation against exploring new techniques in this field is the lack of access to high quality big data. Overall, secrecy over training data fits well with corporate recruiting strategies to retain the best talents in machine learning. Non-disclosure and trade secret protection seems to be the best mode of protection. First, despite the additional legal requirements necessary to qualify as trade secrets, trade secret protection fits very well with non-disclosure strategy. On the other hand, patent law is at odds with the principle of non-disclosure. While trade secret law provides companies protection without disclosing information, patent law requires disclosure in exchange for monopolistic rights. Furthermore, neither patent nor copyright provide adequate protection for underlying data. Patent law rewards creative concepts and inventions, not compiled facts themselves. Copyright may protect labeling or distinct ways of compiling information, but does not protect underlying facts. Also, as a practical matter, the difficulty of reverse engineering of machine learning models does not lend well to detecting infringement. Analysis of whether two parties used identical training data would not only be time consuming and costly, but may be fundamentally impossible. If companies were to seek protection of training data, it would be best to opt for secrecy by non-disclosure. This would mean companies would opt out of the cross-industry collaborations that were illustrated above. This may be less of a concern for innovation, as companies may still exchange output data as means of facilitating cross-industry collaboration.
2. Protecting the Inventions—Patent Rights Prevail
Adequate protection over inventive approaches in processing data is becoming increasingly important as various industries begin to adopt a collaborative alliance approach in machine learning. Cross-industry collaboration requires implementation of methods such as preprocessing diverse data sets for compatibility. As the sheer amount of data increases, more processing power is required. The machine learning algorithm needs to maintain a high degree of dimensionality to accurately identify the correlations between a high number of relevant features. The need for more innovative ideas to address such technological roadblocks will only intensify as we seek more complex applications for machine learning. The three primary areas where novel ideas would facilitate innovations in machine learning are pre-training data processing, dimensional reduction, and the machine learning algorithm. Access to massive amounts of data alone is not sufficient to sustain innovation in machine learning. The raw data sets may not be compatible with each other, requiring additional “cleaning” of data prior to machine learning training.[68] The data provided to the machine learning algorithm dictates the result of the machine learning model, hence innovations in methods to merge data with diverse formats is essential to enhancing the accuracy of the models. As cross-industry data analysis becomes more prominent, methods of merging data will have more significant impact on advancing the field of machine learning than mere collection of large data sets. Cross-industry data sharing would be useless unless such data sets are merged in a comparable manner.[69] Companies can opt to protect their inventive methods by resorting to trade secret law. The difficulty of reverse engineering machine learning inventions, coupled with the difficulty of patenting software methods provides incentives for innovators to keep such inventions secret from the public. However, two factors would render reliance on non-disclosure and trade secret ineffective—frequent turnover of software engineers and rapid speed of development in the field. Rapid dissemination of information from employment mobility may endanger intellectual property protection based on secrecy. Furthermore, while the law will not protect former employees that reveal trade secrets to their new employers, the aforementioned fluid job market coupled with general dissemination of information make it difficult to distinguish between trade secrets from former employment and general knowledge learned through practice. The difficulties of reverse engineering machine learning models work against the trade secret owner as well in identifying trade secret misappropriation—how do you know others are using your secret invention? The desire for software communities to discuss and share recent developments in the field does not align well with the use of secrecy against innovations in machine learning. Secrecy practices disincentivize young data scientists from joining due to the limits against gaining recognition.[70] The rapid development of machine learning technology also presents challenges against reliance on trade secret law. Secret methods may be independently developed by other parties. Neither trade secret law nor non-disclosure agreements protect against independent development of the same underlying invention.[71] Unlike training data, machine learning models, or the output data, there are no practical limitations that impedes competitors from independently inventing new computational methods of machine learning algorithms. With such a fluid employment market, high degree of dissemination of expertise, and rapid pace of development, patent protection may provide the assurance of intellectual property protection for companies developing inventive methods in machine learning. Discussions on overcoming the barriers of patenting software will be presented in later sections.[72]
3. Protecting the Machine Learning Models and Results—Secrecy Again
The two primary products from applying the machine learning algorithms to the training data are the machine learning model and the accumulation of results produced by inputting data into the machine learning model. The “input data” in this context may refer to individual data that is analyzed by the insights gained from the machine learning model. In a recent article, Brenda Simon and Ted Sichelman discuss the concerns of granting patent protection for “data-generating patents,” which refers to inventions that generate valuable information in their operation or use.[73] Exclusivity based on patent protection may be extended further by trade secret protection over the data that has been generated by the patented invention.[74] Simon and Sichelman argue that the extended monopoly over data may potentially overcompensate inventors since the “additional protection was not contemplated by the patent system[.]”[75] Such expansive rights will cause excessive negative impact on downstream innovation and impose exorbitant deadweight losses.[76] The added protection over the resulting data derails the policy rationale behind the quid pro quo exchange between the patent holder and the public by excluding the patented information from public domain beyond the patent expiration date.[77] The concerns addressed in data-generating patents also apply to machine learning models and output data. Corporations may obtain patent protection over the machine learning models. Akin to a preference for secrecy for training data, non-disclosure would be the preferred mode of protection for the output data. The combined effect of the two may lead to data network effects where users have strong incentives to continue the use of a given service.[78] The companies that have exclusive rights over the machine learning model and output data gather more training data, increasing the accuracy of their machine learning products. The reinforcement by monopoly over the means of generating data allows few companies to have disproportionately strong dominance over their competitors.[79] Market dominance by data-generating patents becomes particularly disturbing when the patent on a machine learning model preempts other methods in the application of interest. Trade secret law does not provide protection against independent development. However, if there is only one specific method to obtain the best output data, no other party would be able to create the output data independently. The exclusive rights over the only methods of producing data provides means for the patent holder to monopolize both the patent and the output data.[80] From a policy perspective, the excessive protection does seem troubling. Yet such draconian combinations are less feasible after the recent rulings on patentable subject matter of software, which will be discussed below.[81] Mathematical equations or concepts are likely directed to an “abstract concept,” thus will be deemed directed to a patent ineligible subject matter.[82] Furthermore, though recent cases in the Federal Circuit have found precedents where software patents passed the patentable subject matter requirement, those cases expressed limitations against granting patents that would improperly preempt all solutions to a particular problem.[83] The rapid pace of innovation in the field of machine learning compared to the rather lengthy period required to obtain patents may also dissuade companies from seeking patents. Overall, companies have compelling incentives to rely on non-disclosure and trade secrets to protect their machine learning models instead of seeking patents. The secrecy concerns regarding training data applies to machine learning models and the output data as well. Non-disclosure would be the preferred route of obtaining protection over the two categories. However, use of non-disclosure or trade secrets to protect machine learning models and output data presents challenges that are not present in the protection of training data. The use of secrecy to protect machine learning models or output data conflicts with recruiting strategies to hire and retain top talent in the machine learning field. The non-disclosure agreements limit the employee’s opportunity to gain recognition in the greater machine learning community. In a rapidly developing field where companies are having difficulty hiring talent, potential employees would not look fondly on corporate practices that limit avenues of building a reputation within the industry.[84] Companies have additional incentives to employ a rather lenient secrecy policy for machine learning models and the output data. They have incentives to try to build coalitions with other companies to monetize on the results. Such cross-industry collaboration may be additional source of income for those companies. The data and know-how that Twitter has about fraudulent accounts within their network may aid financial institutions such as Chase with novel means of preventing wire fraud. The reuse of insights harvested from the large amount of raw training data can become a core product the companies would want to commercialize. Data reuse may have an incredible impact even for applications ancillary to the primary business of the company. Interesting aspects of disclosing machine learning models and output data are the difficulty of reverse engineering and consistent updates. If the company already has sufficient protection over the training data and/or the computational innovations, competitors will not be able to reverse engineer the machine learning model from the output data. Even with the machine learning model, competitors will not be able to provide updates or refinements to the model without the computational techniques and the sufficient data for training the machine learning algorithm. In certain cases, the result data becomes training data for different applications, which raises concerns of competitors using the result data to compete with the innovator. Yet the output data would contain less features and insights compared to the raw training data that the innovator possesses, and therefore would inherently be at a disadvantage when competing in fields that the innovator has already amassed sufficient training data. Grant of patents on machine learning models may incentivize companies to build an excessive data network while preempting competitors from entering competition. This may not be feasible in the future, as technological preemption is becoming a factor of consideration in the patentable subject matter doctrine. Companies may use secrecy as an alternative, yet may have less incentives to keep secrecy compared to the protection of training data.

D. Need of Patent Rights for Machine Learning Inventions in the Era of Big Data

The current system, on its surface, does not provide adequate encouragement for data sharing. If anything, companies have strong incentives to avoid disclosure of their training data, machine learning model, and output data. Despite these concerns, data reuse may enable social impacts and advances that would not be otherwise possible. Previous studies have pointed out that one of the major barriers preventing advances in machine learning is the lack of data sharing between institutions and industries.[85] Data scientists have demonstrated that they were able to predict flu trends with data extracted from Twitter.[86] Foursquare’s location database provides Uber with the requisite data to pinpoint the location of users based on venue names instead of addresses.[87] Information about fraudulent Twitter accounts may enable early detection of financial frauds.[88] The possibilities that cross-industry data sharing may bring are endless. To encourage free sharing of data, companies should have a reliable method of protecting their investments in machine learning. At the same time, protection based on non-disclosure of data would defeat of purpose of promoting data sharing. Hence protection over computation methods involved with machine learning maintains the delicate balance between promoting data sharing and protecting innovation. Protection over inventions in the machine learning algorithm provides one additional merit other than allowing data sharing and avoiding the sort of excessive protection that leads to a competitor-free road and data network effects. It incentivizes innovators to focus on the core technological blocks to the advancement of technology, and encourages disclosure of such know-how to the machine learning community. Then what are the key obstacles in obtaining patents in machine learning inventions? While there are arguments that the definiteness requirement of patent law is the primary hurdle against patent protection of machine learning models due to reliance on subjective judgment, there is no evidence that the underlying inventions driving big data faces the same challenge.[89] Definiteness may be overcome by providing reasonable certainty for those skilled in the art of defining what the scope of the invention is at the time of filing.[90] There is no inherent reason why specific solutions for data cleaning, enhancement of computation efficiency, and similar inventions would be deemed indefinite by nature. Since the United States Supreme Court invalidated a patent on computer implemented financial transaction methods in the 2014 Alice decision, the validity of numerous software and business method patents were challenged under 35 U.S.C. §101.[91] As of June 8th, 2016, federal district courts invalidated 163 of the 247 patents that were considered under patentable subject matter—striking down 66% of challenged patents.[92] The U.S. Court of Appeals for the Federal Circuit invalidated 38 of the 40 cases it heard.[93] Arguably, the public benefits more from such high rates of post-issuance invalidity. The public still has access to the disclosures from the patents and patent applications. In reliance on granted patents, companies may have already invested in growing related businesses, catering to the need of consumers. At the same time, the patent holder’s monopolistic rights have been shortened as the result of litigation. Effectively, the price that the public pays to inventors in exchange for the benefits of disclosure is reduced. Yet the high degree of invalidity raises several concerns for the software industry. Smaller entities, lacking market influence and capital, have difficulty competing against established corporations without the monopolistic rights granted through the patent system. Investors become hesitant to infuse capital into startups for fear that invalidity decreases the worth of patents. Reliance on trade secret has its own limitations due to the disclosure dilemma—the inventor needs to disclose the secret to lure inventors, but risks losing secrecy in the process. Copyright law does not provide appropriate protection. The restrictions imposed by the merger doctrine and scène à faire doctrine constrain copyright protection of software. Though copyright provides an alternative method of protecting literal copying of code, it does little to protect the underlying software algorithms and innovation. Ultimately, the increase of alliances and collaboration provides incentives for parties to obtain patent rights. Reliance on trade secret or copyright are not suitable methods of protecting their intellectual property. Furthermore, market power or network effects alone cannot sufficiently mitigate the risks involved with operating a business. Patents become even more important for startups since patents provide investors with assurance that in the worst case, the patents may still serve as potential collateral.        

III. Patentability of Machine Learning Innovations in the Era of Big Data

  Patentable subject matter continues to be a barrier for patenting innovations in software. Additional doctrines such as enablement, written description, and obviousness are also serious obstacles against obtaining patents, yet such requirements are specific to each claimed invention and the draftsmanship of claims. Subject matter is considered a broader, categorical exclusion of patent rights. This section explores the current landscape of the patentable subject matter doctrine in the software context.

A. Alice: The Legal Framework of Patentable Subject Matter in Software

The complexity involved with software, coupled with the relatively broad scope of software patents, has presented challenges in identifying the boundaries of the claims.[94] Many members of the software community detest imposing restrictions on open source material and attest that many key innovations in algorithms are rather abstract.[95] Such hostility against patenting software has raised the question of whether patent rights should be the proper method of protecting innovations in software. Alice was a case that embodied such opposition to the grant of software patents. The case involved patents on computerized methods for financial trading systems that reduce “settlement risk” when only one party to financial exchange agreement satisfies its obligation.[96] The method proposed the use of a computer system as a third-party intermediary to facilitate the financial obligations between parties.[97] The United States Supreme Court ruled that the two-step test established from Mayo governed all patentable subject matter questions.[98] In particular, for the abstract idea context, the Supreme Court established the following two-step framework for patentable subject matter of software inventions:  
1. Step one: “[D]etermine whether the claims at issue are directed to a patent-ineligible concept. If so, the Court then asks whether the claim’s [additional] elements, considered both individually and ‘as an ordered combination,’ ‘transform the nature of the claim’ into a patent-eligible application.”[99]
 
2. Step two: “[E]xamine the elements of the claim to determine whether it contains an ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application. A claim that recites an abstract idea must include ‘additional features’ to ensure that the [claim] is more than a drafting effort designed to monopolized the [abstract idea]” which requires “more than simply stat[ing] the [abstract idea] while adding the words ‘apply it.’”[100]
  The Alice Court found that the patent on financial transaction was “directed to a patent-ineligible concept: the abstract idea of intermediated settlement,” and therefore failed step one.[101] Furthermore, the Court ruled that the claims did “no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer” and did not provide an inventive concept that was sufficient to pass step two.[102]

B. The post-Alice cases from the Federal Circuit

The Alice framework was considered as a huge setback for the application of patentable subject matter doctrine to software. It was a broad, categorical exclusion of certain inventions that were deemed “directed to” an abstract idea, natural phenomenon, or law of nature. The biggest misfortune was the lack of guidance in the Alice decision on the threshold for such categorical exclusion—we were left without any suggestions on the type of software patents that would be deemed as patentable subject matter. The recent line of cases in the Federal Circuit provides the software industry with the much-needed clarification on the standards that govern patentability of software inventions. Enfish v. Microsoft, decided on March 2016, involved a “model of data for a computer database explaining how the various elements of information are related to one another” for computer databases.[103] In June 2016, the Federal Circuit decided another case on the abstract idea category for patentable subject matter. Bascom Global v. AT&T Mobility is on a patent disclosing an internet content filtering system located on a remote internet service provider (ISP) server.[104] Shortly after Bascom, the Federal Circuit decided McRO v. Bandai Namco Games in September 2016.[105] The case ruled that an automated 3D animation algorithm that renders graphics in between two target facial expressions is patentable subject matter.[106] The rulings from the Federal Circuit on the aforementioned three cases provide guidelines along the two-step Alice test of patentable subject matter. The software patents in Enfish and McRO were deemed “directed to” a patent eligible subject matter, informing the public of what may pass the first set of the Alice test. Bascom failed the first step.[107] Yet the court ruled that those patents had inventive concepts sufficient to transform a patent ineligible subject matter into a patent eligible application. Combined together, the three cases give more certainty in what may pass the 35 U.S.C. §101 patentable subject matter inquiry. Reiterating the Alice test, whether an invention is a patentable subject matter is determined by a two-step process—(1) is the invention directed to, rather than an application of, an abstract idea, natural phenomenon, or law of nature, and even if so, (2) do the elements of the claim, both individually and combined, contain an inventive concept that transforms this invention into a patent-eligible application? The Federal Circuit fills in the gaps that were left unexplained from the Alice ruling.
1. The Federal Circuit’s Standard for Alice Step One
The Enfish court discussed what constitutes an abstract idea at the first step of the Alice inquiry. Judge Hughes instructs us to look at whether the claims are directed to a specific improvement rather than an abstract idea. In this case, the patent provides the public with a solution to an existing problem by a specific, non-generic improvement to computer functionality. The Enfish court ruled that such invention is patent eligible subject matter.[108] McRO also ruled that the facial graphic rendering for 3D animation was not an abstract concept. Here, the Federal Circuit again emphasized that a patent may pass step one of the Alice test if the claims of the patent “focus on a specific means or method that improves the relevant technology.”[109] The McRO court also noted that preemption concerns may be an important factor for the 35 U.S.C. §101 subject matter inquiry—that improper monopolization of “the basic tools of scientific and technological work” is a reason why such categorical carve outs against granting patents on abstract ideas exist.[110] Bascom provides the standards on what would fail step one of the Alice patentable subject matter inquiry. If the patent covers a conventional, well-known method in the field of interest, then the invention would be considered abstract. This is akin to the inventive concept considerations conducted at the second phase of the 35 U.S.C. §101 subject matter inquiry. The main takeaway from Enfish and McRO is that in the first step of the Alice test, a patent application is not directed to an abstract idea if (1) the invention addresses an existing problem by specific improvements rather than by conventional, well-known methods and (2) the claims do not raise preemption concerns. This encourages practitioners to define the problem as broadly as possible, while defining the scope of improvement in definite terms.
2. The Federal Circuit’s Standard for Alice Step Two, and the Overlap with Step One
The second step of the Alice test is an inquiry of whether the patent application, which is directed to a patent ineligible subject, still contains a patent-worthy inventive concept. Bascom ruled in favor of granting the patent following the second step of the Alice test.[111] While the patent at hand was considered directed to patent ineligible subject matter, the Bascom court found that the content filter system invention still had an inventive concept worthy of a patent.[112] Even if elements of a claim are separately known in prior art, an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces. This inquiry seems like a lenient standard compared to the 35 U.S.C. §103 obviousness inquiry; hence, it is not clear if this step has an independent utility for invalidating or rejecting a patent. Nonetheless, the court found that merely showing that all elements of a claim were already disclosed in prior art was not sufficient reason to make an invention patent ineligible.[113] While it is possible to infer sufficient reasons of ruling out inventive concepts from the Bascom case, it is still unclear what would warrant an invention to pass the second step of the Alice test. Cases such as DDR Holdings v. Hotels.com have suggested that the second step of Alice is satisfied since it involved a solution to a specific technological problem that “is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”[114] This interpretation of inventive concept becomes perplexing when comparing the two steps of Alice—both steps look to whether the proposed solution addresses problems that are specific to a given field of interest. While we would need additional cases to gain insight on whether the two steps have truly distinct functions, at the very least the Federal Circuit provided essential guidelines on what may be deemed as patentable software.

C. Applying Patentable Subject Matter to Machine Learning Inventions

As the Bascom court has taught, the first step in the Alice inquiry is to ask whether an invention (1) provides a solution to an existing problem by (2) a specific, non-generic improvement that (3) does not preempt other methods of solving the existing problem. Applying this test to inventions in machine learning, mathematical improvements and computational improvements would be treated differently. As mentioned before, a key aspect of machine learning is the “noise” associated with the data sets.[115] Another concern is the fitting of a given algorithm to a certain model. Methods that facilitate the computations of the training process may be deemed as a specific improvement. However, machine learning algorithms themselves, including the base models that the algorithm fits the training into would not be pertinent to just a specific improvement. Hence, generic mathematical methods applicable to various problems are directed to an abstract idea. For example, an invention that addresses the issue of normalizing data from different sources would be a computational issue and hence would pass the Alice test given that it did not preempt other solutions to the problem of data normalization. On the other hand, a specific mathematical equation that serves as a starting model for the machine learning algorithm would be mathematical and hence directed to an abstract idea. Even if the mathematical starting model is only good for a specific application, the model is not a specific improvement pertinent to that application. Although the model may not necessarily be a good starting model for other applications, it is nonetheless a generic solution that applies to other applications as well.

Conclusion

While highly restrictive, the guidelines from the Federal Circuit still allow the grant of patent rights for the computational aspects of machine learning algorithms. The guidelines also would prevent highly preemptive mathematical innovations, including data-generating patents such as machine learning models. The narrow range of patentability makes a patent regime appealing for computational methods. The recent emphasis on preemption concerns acts in favor of preventing data network effects based on data-generating patents. While not discussed in this paper, other patentability requirements such as obviousness or definiteness would further constraint the grant of overly broad data-generating patents. Such an approach strikes the appropriate balance between promoting innovation and encouraging data reuse for societal benefits. Compared to other approaches of providing protection over innovations in machine learning, the narrowly tailored approach for patent rights for computational inventions fits best with the policy goal of promoting innovation through data reuse. The industry trends in collaboration and recruiting also matches the proposed focus on patent law protection.
* J.D. Candidate, New York University School of Law, 2018; Ph.D. in Electrical and Computer Engineering, University of Illinois at Urbana-Champaign, 2012. The author would like to thank Professor Katherine Jo Strandburg for her guidance; fellow JIPEL Notes Program participants Julian Pymento, Gia Wakil, Neil Yap, and Vincent Honrubia for their comments and feedback; and Dr. Sung Jin Park for her support throughout the process.
[1] Sang-Hun Choe & John Markoff, Master of Go Board Game Is Walloped by Google Computer Program, N.Y. Times (March 9, 2016), https://www.nytimes.com/2016/03/10/world/asia/google-alphago-lee-se-dol.html (reporting the shocking defeat of Go Master Lee Se-dol to Google DeepMind’s AlphaGo).
[2] Laurence Zuckerman, Chess Triumph Gives IBM a Shot in the Arm, N.Y. Times (May 12, 1997), http://politics.nytimes.com/library/cyber/week/051297ibm.html (detailing IBM’s highly publicized win through Deep Blue’s victory over world chess champion Garry Kasparov).
[3] See Choe & Markoff, supra note 1.
[4] David Silver et al., Mastering the game of Go with deep neural networks and tree search, 529 Nature 484, 484 (2016).
[5] Id.
[6] Id.
[7] Id. at 485.
[8] Id.
[9] See Andre Esteva et al., Dermatologist-level classification of skin cancer with deep neural networks, 542 Nature 115 (2017).
[10] See Sue Ellen Haupt & Branko Kosovic, Big Data and Machine Learning for Applied Weather Forecasts, (2015).
[11] See Wei-Yang Lin et al., Machine Learning in Financial Crisis Prediction: A Survey, 42 IEEE Transactions on Systems, Man, and Cybernetics 421 (2012).
[12] See Farzindar Atefeh & Wael Khreich, A Survey of Techniques for Event Detection in Twitter, 31 Computational Intelligence 132 (February 2015).
[13] See Corey Blumenthal, ECE Illinois Students Accurately Predicted Trump’s Victory, ECE Illinois (Nov. 18, 2016), https://www.ece.illinois.edu/newsroom/article/19754.
[14] For the purpose of this Note, secrecy refers to the use of trade secret and contract based non-disclosure agreements.
[15] Mark A. Lemley, The Surprising Virtues of Treating Trade Secrets As IP Rights, 61 Stan. L. Rev. 311, 332 (2008) (“Patent and copyright law do not exist solely to encourage invention, however. A second purpose — some argue the main one — is to ensure that the public receives the benefit of those inventions.”).
[16] Andrew Ng et al., How Artificial Intelligence Will Change Everything, Wall Street Journal (March 7, 2017), https://www.wsj.com/articles/how-artificial-intelligence-will-change-everything-1488856320.
[17] Limor Peer, Mind the Gap in Data Reuse: Sharing Data Is Necessary But Not Sufficient for Future Reuse, London Sch. Econ. & Poli. Sci. (Mar. 28, 2014) http://blogs.lse.ac.uk/impactofsocialsciences/2014/03/28/mind-the-gap-in-data-reuse (“The idea that the data will be used by unspecified people, in unspecified ways, at unspecified times . . . is thought to have broad benefits”).
[18] See Saeed Ahmadiani & Shekoufeh Nikfar, Challenges of Access to Medicine and The Responsibility of Pharmaceutical Companies: A Legal Perspective, 24 DARU Journal of Pharmaceutical Sciences 13 (2016) (discussing how “pharmaceutical companies find no incentive to invest on research and development of new medicine specified for a limited population . . .”).
[19] 17 U.S.C. §101 (2012).
[20] Id.
[21] 17 U.S.C. §102(a) (Copyright exists “in original works of authorship fixed in any tangible medium of expression . . .”).
[22] Apple Comput., Inc. v. Franklin Comput. Corp., 714 F.2d 1240 (3d Cir. 1983).
[23] Comput. Assocs. Int’l v. Altai, 982 F.2d 693 (2d Cir. 1992).
[24] Id.
[25] See id. at 707-09.
[26] 837 F.3d 1299, 1314 (Fed. Cir. 2016).
[27] Altai, 982 F.2d at 698.
[28] See Dionne v. Se. Foam Converting & Packaging, Inc., 240 Va. 297 (1990).
[29] Kewanee Oil v. Bicron Corp., 416 U.S. 470 (1974).
[30] Id. at 490.
[31] Nikolay Golova & Lars Rönnbäck, Big Data Normalization For Massively Parallel Processing Databases, 54 Computer Standards & Interfaces 86, 87 (2017).
[32] Jon Russell, Alibaba Teams Up with Samsung, Louis Vuitton and Other Brands to Fight Counterfeit Goods, TechCrunch (Jan. 16, 2017) https://techcrunch.com/2017/01/16/alibaba-big-data-anti-counterfeiting-alliance.
[33] Lemley, supra note 15, at 33
[34] See Lior Rokach, Introduction to Machine Learning, Slideshare 3 (July 30, 2012), https://www.slideshare.net/liorrokach/introduction-to-machine-learning-13809045.
[35] Id. at 4.
[36] Id. at 10.
[37] See Lars Marius Garshol, Introduction to Machine Learning, Slideshare 26 (May 15, 2012) https://www.slideshare.net/larsga/introduction-to-big-datamachine-learning.
[38] Id.
[39] Id.
[40] See Lei Yu et al., Dimensionality Reduction for Data Mining – Techniques, Applications and Trends, Binghamton University Computer Science 11, http://www.cs.binghamton.edu/~lyu/SDM07/DR-SDM07.pdf (last visited Feb. 23, 2018).
[41] Id.
[42] See Rokach, supra note 34, at 10.
[43] Yu et al., supra note 40.
[44] Laurens van der Maaten et al., Dimensionality Reduction: A Comparative Review, Tilburg Centre for Creative Computing, TiCC TR 2009-005, Oct. 26, 2009, at 1 (“In order to handle such real-world data adequately, its dimensionality needs to be reduced. Dimensionality reduction is the transformation of high-dimensional data into a meaningful representation of reduced dimensionality. Ideally, the reduced representation should have a dimensionality that corresponds to the intrinsic dimensionality of the data. The intrinsic dimensionality of data is the minimum number of parameters needed to account for the observed properties of the data”).
[45] Andrew Ng, Nuts and Bolts of Applying Deep Learning (Andrew Ng), YouTube (Sept. 27, 2016), https://www.youtube.com/watch?v=F1ka6a13S9I.
[46] Andrew Ng, Model Selection and Train/Validation/Test Sets, Machine Learning, https://www.coursera.org/learn/machine-learning/lecture/QGKbr/model-selection-and-train-validation-test-sets (last visited Feb. 23, 2018).
[47] Id.
[48] See Rokach, supra note 34, at 10.
[49] Alex Rampell & Vijay Pande, a16z Podcast: Data Network Effects, Andreesen Horowitz (Mar. 8, 2016), http://a16z.com/2016/03/08/data-network-effects/.
[50] James Manyika et. al., Big Data: The Next Frontier for Innovation, Competition, and Productivity, McKinsey Global Inst., May 2011, at 11, available at https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights/Big%20data%20The%20next%20frontier%20for%20innovation/MGI_big_data_exec_summary.ashx.
[51] Id.
[52] Leonid Bershidsky, Why Are Google Employees So Disloyal?, Bloomberg (July 13, 2013, 11:41 AM), https://www.bloomberg.com/view/articles/2013-07-29/why-are-google-employees-so-disloyal-.
[53] Id.
[54] Rob Valletta, On the Move: California Employment Law and High-Tech Development, Federal Reserve Bank of S.F. (Aug. 16, 2002), http://www.frbsf.org/economic-research/publications/economic-letter/2002/august/on-the-move-california-employment-law-and-high-tech-development/#subhead1.
[55] Id.
[56] See Quentin Hardy, IBM, G.E. and Others Create Big Data Alliance, N.Y. Times (Feb. 15, 2015), https://bits.blogs.nytimes.com/2015/02/17/ibm-g-e-and-others-create-big-data-alliance.
[57] See, e.g., Finicity and Wells Fargo Ink Data Exchange Deal, Wells Fargo (Apr. 4, 2017), https://newsroom.wf.com/press-release/innovation-and-technology/finicity-and-wells-fargo-ink-data-exchange-deal.
[58] Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
[59] Karen E.C. Levy, Relational Big Data, 66 Stan. L. Rev. Online 73, 73 n.3 (2013), https://review.law.stanford.edu/wp-content/uploads/sites/3/2013/09/66_StanLRevOnline_73_Levy.pdf (explaining that the big data phenomenon is due to the need of practices to analyze data resources).
[60] Christine L. Borgman, The Conundrum of Sharing Research Data, 63 J. Am. Soc’y for Info. Sci. & Tech. 1059, 1059-60 (2012) (discussing the lack of data sharing across various industries).
[61] See Michael Mattioli, Disclosing Big Data, 99 Minn. L. Rev. 535 (2014).
[62] See id. at 545-46 (discussing the technical challenges in merging data from different sources, and issue of subjective judgments that may be infused in the data sets).
[63] See id. at 552 (discussing how institutions with industrial secrets may rely on secrecy to protect the big data they have accumulated).
[64] See id. at 570 (“[T]he fact that these practices are not self-disclosing (i.e., they cannot be easily reverse-engineered) lends them well to trade secret status, or to mere nondisclosure”).
[65] Id.
[66] Id. at 552.
[67] Patrick Clark, The World’s Top Economists Want to Work for Amazon and Facebook, Bloomberg (June 13, 2016, 10:47 AM), https://www.bloombergquint.com/technology/2016/06/09/the-world-s-top-economists-want-to-work-for-amazon-and-facebook (“If you want to be aware of what interesting questions are out there, you almost have to go and work for one of these companies”).
[68] Bill Franks, Taming the Big Data Tidal Wave 20 (2012) (discussing that the biggest challenge in big data may not be developing tools for data analysis, but rather the processes involved with preparing the data for the analysis).
[69] See Borgman, supra note 60, at 1070 (“Indeed, the greatest advantages of data sharing may be in the combination of data from multiple sources, compared or “mashed up’ in innovative ways.” (citing Declan Butler, Mashups Mix Data Into Global Service, 439 Nature 6 (2006))).
[70] Jack Clark, Apple’s Deep Learning Curve, Bʟᴏᴏᴍʙᴇʀɢ Bᴜsɪɴᴇssᴡᴇᴇᴋ, (Oct 29, 2015) https://www.bloomberg.com/news/articles/2015-10-29/apple-s-secrecy-hurts-its-ai-software-development.
[71] Kewanee Oil v. Bicron Corp., 416 U.S. 470, 490 (1974).
[72] See infra Section III-B.
[73] Brenda Simon & Ted Sichelman, Data-Generating Patents, 111 Nw. U.L. Rev. 377 (2017).
[74] Id. at 379.
[75] Id. at 414.
[76] Id. at 415 (“[B]roader rights have substantial downsides, including hindering potential downstream invention and consumer deadweight losses . . .”).
[77] Id. at 417.
[78] Rampell & Pande, supra note 49.
[79] Lina Kahn, Amazon’s Antitrust Paradox, 126 Yale L.J. 710, 785 (2017) (“Amazon’s user reviews, for example, serve as a form of network effect: the more users that have purchased and reviewed items on the platform, the more useful information other users can glean from the site”).
[80] Simon & Sichelman, supra note 73, at 410.
[81] See infra Section III-A.
[82] Id.
[83] See infra Section III-B.
[84] Jack Clark, Apple’s Deep Learning Curve, Bʟᴏᴏᴍʙᴇʀɢ Bᴜsɪɴᴇssᴡᴇᴇᴋ (Oct 29, 2015), https://www.bloomberg.com/news/articles/2015-10-29/apple-s-secrecy-hurts-its-ai-software-development.
[85] Peer, supra note 17 (“The idea that the data will be used by unspecified people, in unspecified ways, at unspecified times . . . is thought to have broad benefits”).
[86] See Harshavardhan Achrekar et al., Predicting Flu Trends using Twitter data, IEEE Conference on Comput. Commc’ns. Workshops 713 (2011), http://cse.unl.edu/~byrav/INFOCOM2011/workshops/papers/p713-achrekar.pdf.
[87] Jordan Crook, Uber Taps Foursquare’s Places Data So You Never Have to Type an Address Again, TechCrunch, (May 25, 2016) https://techcrunch.com/2016/05/25/uber-taps-foursquares-places-data-so-you-never-have-to-type-an-address-again/.
[88] See Rampell & Pande, supra note 49.
[89] See Mattioli, supra note 61, at 554 (“A final limitation on patentability possibly relevant to big data is patent law’s requirement of definiteness”).
[90] See Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120 (2014).
[91] See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
[92] Robert R. Sachs, Two Years After Alice: A Survey of the Impact of a “Minor Case” (Part 1), Bilski Blog (June 16, 2016), http://www.bilskiblog.com/blog/2016/06/two-years-after-alice-a-survey-of-the-impact-of-a-minor-case.html.
[93] Id.
[94] Stephanie E. Toyos, Alice in Wonderland: Are Patent Trolls Mortally Wounded by Section 101 Uncertainty, 17 Loy. J. Pub. Int. L. 97,100 (2015).
[95] Id.
[96] Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2349 (2014).
[97] Id.
[98] Id.
[99] Id. at 2350 (emphasis added) (citation omitted).
[100] Id. at 2357 (emphasis added) (alteration in original) (citation omitted).
[101] Id. at 2350.
[102] Id. at 2351.
[103] Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1330 (Fed. Cir. 2016).
[104] Bascom Glob. Internet Servs. v. AT&T Mobility LLC, 827 F.3d 1341, 1349 (Fed. Cir. 2016).
[105] McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299, 1308 (Fed. Cir. 2016).
[106] Id.
[107] Bascom, 827 F.3d at 1349.
[108] Enfish, 822 F.3d at 1330.
[109] McRO, Inc., 837 F.3d at 1314.
[110] Id.
[111] Bascom, 827 F.3d at 1349.
[112] Id.
[113] Id.
[114] See Toyos, supra note 94, at 121; DDR Holdings, LLC v. Hotels.com, 773 F.3d 1245, 1257 (Fed. Cir. 2014).
[115] See supra Section II-A.

Lost and Found: Intellectual Property of the Fragrance Industry; From Trade Secret to Trade Dress

Lost and Found: Intellectual Property of the Fragrance Industry; From Trade Secret to Trade Dress
By Charles Cronin* Download a PDF version of this article here.  

Introduction

The foundations of the modern fragrance industry can be traced to fragrance producers established in the south of France during the sixteenth century.[1] France’s Mediterranean coast offers excellent conditions for cultivating plants whose flowers, fruit, stems, and roots are used to produce fragrances.[2] For centuries fragrance manufacturers located themselves near growers in order to obtain and process the plant materials as soon as possible after their harvest.[3] By the nineteenth century many of the essences produced by these manufacturers were shipped to Paris to be purchased by hundreds of small perfume houses there that mixed them and sold the compounds in branded retail products like fine fragrances, soaps, and cosmetics.[4] Throughout the nineteenth century, the farms, essential oil producers, and manufacturers of branded fragrances, were family enterprises.[5] With small staffs, often comprised of related individuals who spent their entire careers with the same firm, it was relatively easy for these businesses to maintain proprietary information about distillation techniques, the composition of branded perfumes, and other elements of the production process. During the twentieth century, the fragrance industry underwent radical changes. Increasing real estate values in the area of Grasse, coupled with rising labor costs, prompted the sale of land once used to cultivate jasmine and other flowers for more profitable uses like condominium developments.[6] Today, most of the crops used in fragrance manufacture are grown and processed in countries like Algeria and India where land and labor are relatively inexpensive.[7] Most of the small perfumeries in Paris have disappeared or have been consolidated. By the end of the twentieth century, five fragrance and flavor companies – none of them French – had come to supply over half of the world fragrance market.[8] Whereas the perfumeries in Paris in the nineteenth century created their own branded proprietary blends, today most perfumes are developed and manufactured by a few large corporations with branches all over the world.[9] The inexorable consolidation in the fragrance manufacturing industry over the past century has made the remaining fragrance houses more vulnerable to misappropriation of their intellectual property, particularly of fragrance formulas that they develop at significant expense. Members of the close-knit cadres of the small fragrance houses of the nineteenth century worked in one location, and on behalf of one enterprise, their entire career. Today, perfumers, like professionals in other high technology industries, commonly change not only their locations, but also their employers. This itinerancy has engendered an element of unease among fragrance houses as to the security of their most valuable assets: formulas and other trade secrets that can now be readily obtained, copied, and shared by employees with access to the relevant information stored on the company’s servers.[10] Another late-twentieth-century development that has unnerved fragrance manufacturers is the improving accuracy of analytic technologies in revealing a fragrance’s chemical composition. Unlike digital technologies that have unsettled the media industry by enabling surreptitious copyright infringement, chemical analytic technologies do not enable the illegal acquisition or distribution of intellectual property. It is generally considered lawful to use these technologies, not only to obtain the fragrance formulas of competitors, but also to develop competing products.[11] The fragrance business is by no means the only industry that has had to cope with developing analytic and reproduction technologies, or increasingly itinerant employees. For centuries, many industries have struggled to maintain the confidentiality of proprietary business information, and the ongoing viability of these industries has depended in part on negotiating these challenges. Chartreuse liqueur, and Meissen porcelain manufacturers, for instance, effectively confronted such provocations, and may offer perspectives on how the fragrance industry might best come to terms with its weakened capacity to maintain proprietary knowledge. Since the early seventeenth century, monks of the Carthusian Order have produced Chartreuse.[12] In 1903 the French government appropriated the order’s monastery, exiling the monks to Tarragona, Spain, where they reestablished their eponymous liqueur manufactory.[13] The government sold the monks’ distillery in France, along with the Chartreuse trademark, to private investors who attempted to produce the monks’ cordial.[14] In a demonstration of divine justice, the “new” Chartreuse failed utterly in the market because its makers could not determine the complex formula; the Carthusians were careful to leave no trace of their secret recipe and methodology when they were expelled from France.[15] Today the Carthusians thrive in France once again, thanks, in part, to their effective maintenance of this centuries-old trade secret.[16] Their ability to do so stems from the order’s remarkable avoidance of verbal communication, and extremely limited transfer of proprietary information; each monk vows to a life of silence, and only two monks know the formula for Chartreuse at any time.[17] Messien porcelain provides another perspective for how the fragrance industry might face threats to its trade secrets. Early in the eighteenth century Johann Böttiger, an alchemist working for the Saxon king in Meissen, discovered how to make porcelain.[18] Soon thereafter, Böttiger relocated his workshop to Albrechtsberg Castle, atop a high hill, which protected his trade secrets from the predacious eyes of competitors prowling the streets of Meissen.[19] Despite Böttiger’s precautions, his secrets of the materials and manufacturing techniques for porcelain were appropriated, and widely disseminated, within decades of his breakthrough.[20] Böttiger’s motley crew of laborers, artists, and chemists, were notoriously disloyal, tempted by potential financial windfalls from disclosing his secrets, or by establishing competing enterprises implementing them.[21] Despite the loss of its most precious asset, Böttiger’s enterprise still survives as “Meissen Couture” a luxury products manufacturer and retailer that sells an enormous range of products ranging from porcelain to clothing to furniture.[22] This diversification was essential for the survival of the enterprise. It was made possible, however, only by associating thousands of unrelated products to the porcelain on which the company was founded, and for which it is renowned.[23] All Meissen products are branded with the logo of crossed swords with which the company has marked its porcelain since the 1720s.
  The fragrance industry now faces a dilemma similar to that confronting the Meissen porcelain business 250 years ago, when Böttiger’s trade secrets were lost through breaches of physical security measures, and collegial disloyalty. To stanch a similar loss of their proprietary information, fragrance manufacturers could attempt to replicate the Carthusians’ success with Chartreuse. They could adopt the monks’ code of secrecy and silence, and relocate their manufactories to remote locations where they also cultivate the crops used to create new proprietary blends.[24] This solution, however, would be practically, agriculturally, and legally infeasible. Unlike the small cadre of monks whose conduct is governed by regulations that transcend the secular world, the fragrance industry, employs hundreds of thousands of direct and indirect workers, making secrecy practically impossible.[25] Legally, such restrictions would be indefensible, due to the extraordinary constraints on employees’ speech and movement.[26] Therefore, Chartreuse does not offer an apposite potential new business model for the fragrance industry. Meissen porcelain, however, may provide the fragrance industry an encouraging example of the value of reorienting its intellectual property focus. Despite the loss of its greatest asset, the Meissen porcelain business survived, not only by diversifying its merchandise, but also by invigilating over another significant intellectual property asset it has never lost: the crossed swords mark with which it has always branded its goods.[27] Like the secrets of porcelain manufacture, those used to create fragrances have been revealed, or are increasingly vulnerable to discovery, through reverse engineering and disclosure regulation.[28] Meanwhile, fragrances are increasingly being used as a component of trade dress in branding goods and services.[29] It is the corporate customers of the fragrance industry, rather than the fragrance manufacturers themselves, who benefit financially from fragrance trade dress. However, the increasingly widespread application of fragrances in this manner has added value to an expanding number of goods and services, and the fragrance manufacturers should reasonably expect to share in profits generated thereby.[30] This article proposes that while trade secret protections for fragrances have lost much of their efficacy, trademark and unfair competition law may offer currently unrealized legal protection of the use of fragrances as trade dress. Part I chronicles how reverse engineering has undermined the fragrance industry’s reliance, from time immemorial, on secrecy to protect its intellectual property. Part II considers the limited efficacy of copyright and patent protection for fragrances. Part III canvasses the growing practice of using of fragrance as a component of multisensory trade dress, and the potential legal protection of such uses through trademark and unfair competition law. The article concludes by drawing an analogy between the dissemination of fragrances and the performance of musical works, to enhance commercial spaces. It suggests that the fragrance industry might temper the economic injury incurred from the loss of intellectual property protection it once enjoyed by seeking a portion of the economic dividends generated by these enhancements of public and commercial venues.

I. The Fragrance Industry and the Challenge of Reverse Engineering

A. Regulation of Reverse Engineering in the United States and the European Union

In the twenty-first century, trade secrets have become increasingly vulnerable to disclosure, not only because of the ease with which information can be shared, but also because of advances in analytic technologies enabling reverse engineering.[31] Legislatures in both the United States and European Union are aware of this increased vulnerability affecting a broad range of industries, as evidenced in recent legislative proposals.[32] To obtain legal protection as a trade secret, information must be commercially valuable, not generally known, and subject to reasonable efforts to maintain its secrecy.[33] While trade secrets in the United States are not broadly protected under federal statute, they are regarded as intellectual property alongside information protected by patents, copyrights, and trademarks.[34] The recently proposed European Union Trade Secrets Directive, on the other hand, suggests that trade secrets, while intellectual “assets”, should not be protected as “formal” intellectual property rights like patents, etc., but rather as a “complement” or “alternative” to these “classical IP rights.”[35] Unlike owners of patents, copyrights, and trademarks, who are provided the right to prohibit most unauthorized uses of their protected intellectual property,[36] owners of trade secrets, do not enjoy this privilege. While trade secret law may protect a trade secret indefinitely, if another individual or organization acquires the information in question, it is no longer secret, and its original owner cannot prevent others from using it. Moreover, another person may independently develop secret know-how or, more commonly, will learn it through reverse engineering, i.e., by analyzing the composition of an object implementing the trade secret.[37] A trade secret’s vulnerability to reverse engineering depends on both the complexity of the secret and the nature of the product it implements. A material object, like a fragrance, is more tractable to reverse engineering than an intangible product or service, because it provides palpable and otherwise perceptible information. While it may be easier to “crack” trade secrets used in the production of material goods than of immaterial services, it may be more difficult to implement the acquired information, because the value of physical products depends – to varying degrees – upon the materials used in their manufacture. For example, the secret formula for a fine fragrance is more valuable to a company with established ties to suppliers of top-tier natural raw materials than to a start-up sourcing from an unknown grower selling adulterated plant essences. It is generally legally permissible in the United States to acquire trade secrets through reverse engineering.[38] This permissibility is desirable because it forestalls the possibility that trade secret law would provide monopolist protection for innovations, a right under the exclusive purview of federal patent law.[39] Federal legislation has, nevertheless, restricted unauthorized use of information acquired through reverse engineering of certain products. Congress has effected these limitations on reverse engineering by amending the copyright statute to provide sui generis protection for certain products like semiconductor chips, digital content anti-circumvention technologies, and original boat hull designs.[40] These protections constitute legislative “carve outs” from the broad right to reverse engineer a product and use the information learned thereby. In providing these protections, Congress’ purpose was to avert potentially gross unfairness that may occasion market failure, resulting from the easy replication of a technological advancement that may have cost another years of work and hundreds of thousands of R&D dollars.[41] On the other hand, the European Union’s proposed Directive on trade secrets would establish a liberal policy toward the acquisition of trade secrets through reverse engineering, akin to that found under United States law.[42] This approach is somewhat paradoxical: while the fundamental objective of the Directive is to harmonize and strengthen the legal protection of trade secrets across all member states, its permissive approach to reverse engineering would likely weaken extant trade secret protection available under the domestic law of some European Union members, such as Italy.[43] For example, while some states, such as Italy, consider trade secret law as a distinct form of intellectual property, the Directive transforms it into a component of unfair competition law.[44] Furthermore, as argued in a critique from the Max Planck Institute, the Directive’s liberal stance on reverse engineering is particularly troublesome to industries that depend upon innovative products embodying intellectual investment that is not protected as intellectual property.[45] The Institute’s Comments identify fragrance manufacturing as a prime example of such an industry, and suggest that the Directive’s lax approach to the acquisition of trade secrets eventually could result in the evisceration of innovation in this industry and lead to the failure of this market.[46]

B. Challenges to the Fragrance Industry’s Traditional Reliance on Trade Secrets

The modern fragrance industry has a longstanding reputation for exceptional secrecy.[47] Its clandestine nature is an outgrowth of its origins in early medical and pharmaceutical endeavors in France, in which the creators of curative potions and elixirs carefully guarded their formulas.[48] By the nineteenth century, fragrance manufacturing had become largely independent of the pharmaceutical business.[49] Many enterprises had been established in the area of Grasse exclusively for the production of fragrances, particularly perfumes to be applied to the body.[50] Unlike most retail products incorporating materials produced by the fragrance industry today, these goods were considered luxuries to be enjoyed by a few affluent consumers, and produced in small quantities by family-owned enterprises.[51] It was relatively easy to keep manufacturing know-how and formulas secret among the small staffs of these enterprises.[52] Moreover, these teams were often comprised of related employees, most of whom who would spend their entire careers at the company.[53] While the industry still produces luxury products, like fine fragrances, today it is highly consolidated and creates scents used for innumerable consumer products like laundry detergent and hair gel.[54] The largest of these fragrance manufacturers have thousands of employees who commonly move among companies over the course of their careers.[55] The enormous expansion of both the fragrance industry’s now-itinerant workforce, as well as the number of consumer products it affects, has made it much more difficult for fragrance producers today to maintain their trade secrets.[56] This difficulty has been reflected in a flurry of trade secret misappropriation claims made by former employers of perfumers and flavorists who joined competing firms.[57] One of the most acrimonious of these disputes involves the ongoing prosecution by Givaudan, a large Swiss-based fragrance manufacturer, of a claim against its former perfumer James Krivda.[58] The circumstances surrounding this ongoing dispute illustrate both a company’s vulnerability to misappropriation of proprietary information given employees’ itinerancy, and the difficulty of establishing misappropriation without disclosing the secrets themselves. In 2008 Krivda left a vice-president position at Givaudan for a similar appointment at Mane USA, Inc., a direct competitor.[59] Givaudan asserts that in the days immediately prior to resigning, Krivda downloaded and printed from the company’s secure database over 600 proprietary formulas that he brought with him to Mane.[60] At trial Givaudan offered detailed evidence that Mane had capitalized on thirty-four of the formulas that it claimed Krivda misappropriated, by marketing fragrances identical to Givaudan’s under new names.[61] The trial court, however, granted in part the defendants’ motion for summary judgment based on a finding of insufficient disclosure by Givaudan of information about 600 of the additional formulas that Givaudan claimed the defendants had misappropriated.[62] Accordingly, testimony at trial was limited to a small fraction of the information Givaudan claimed Krivda misappropriated. In February 2014 a federal district court jury in New Jersey exonerated Krivda and Mane of all liability, and Givaudan is now seeking a new trial.[63] In prosecuting this claim Givaudan faced a commonplace dilemma of plaintiffs in trade secret litigation. To establish a meaningful claim of trade secret misappropriation, an owner must convey information about the secret both to the court and to the defendant. Once this information is voluntarily disclosed, however, it may no longer be protectable as a trade secret, because its secrecy has been unquestionably compromised.[64] What rattled Givaudan most about Krivda’s alleged theft was that Mane obtained the information without any cost. By purportedly absconding with hundreds of Givaudan’s formulas, Krivda provided its competitor a windfall of valuable information without the reverse engineering costs that would be incurred through legal acquisition. Krivda could have purchased hundreds of products incorporating Givaudan’s fragrances, and worked with Mane’s chemical analysts on the painstaking task of isolating and dissecting them. Given the brief life cycle of most fragrances, however, the market success of an innovative product depends significantly on the potentially dissuasive expense and time lag incurred in reverse engineering and developing a competing product. Therefore, if Krivda provided to Mane the trade secrets Givaudan claims he stole, Mane could not only avoid the temporal and financial cost of reverse engineering, but also produce, within the period of market viability, competing merchandise offered at a lower price. Moreover, because reverse engineering technologies cannot always provide exact and complete information about the chemical composition of a fragrance, a competitor can avoid any potential ambiguities by simply lifting the formula itself.

C. The Impact of Gas Chromatography-Mass Spectrometry (GC-MS) Technologies on the Fragrance Industry

In the popular imagination, consumers have held to the romantic notion that fragrances, particularly perfumes applied to the body, are created from closely held and undetectable formulas. For instance, the conceit of Patrick Süskind’s novel Perfume centers on its murderous protagonist’s prodigious capacity to analyze scents.[65] Tom Robbin’s Jitterbug Perfume, on the other hand, tells the picaresque tale of the arduous quest to discover the formula of an ancient fragrance ultimately revealed to have contained the recherché ingredient of beet blossom essence.[66] In fact, using contemporary GC-MS technologies, one can learn with remarkable accuracy the formula of any fragrance.[67] GC-MS is a technique for separating the components of a vapor by observing the different speed by which each chemical component is expelled from a long tube through which a sample of the vapor is swept.[68] Once the components have been separated, a mass spectrometry apparatus identifies the various separated molecules and their relative volumes in the composition of the vapor.[69] GC-MS technology has disconcerted fragrance houses because it enables practically anyone to obtain a fragrance’s formula swiftly and inexpensively.[70] The most costly component of a fragrance, the formula is typically developed from months, or even years, of research costing hundreds of thousands of dollars.[71] Unsurprisingly, as GC-MS technologies have become increasingly affordable and effective, a parasitical industry has emerged, that manufactures and distributes lower cost “smell-alike” versions of well-known fragrances.[72] Five multinational corporations, four of which originated in Western Europe, dominate the world fragrance market.[73] For years this industrial concentration fostered a tacit agreement among the industry’s largest players. Under this informal understanding, the major fragrance houses would not cannibalize each other by manufacturing competing products based on formulas of a competitor acquired through reverse engineering.[74] Otherwise, a competitor could undercut an innovator’s market by selling products at prices that did not reflect the innovator’s R&D expenditures. The increasing accessibility and accuracy of GC-MS technologies in recent years has tested the stability of this “gentleman’s agreement” among fragrance manufacturers. Moreover, this understanding never extended to the client base of the major fragrance producers, ranging from consumer products giants like Unilever to couture houses like Dior (LVMH), that attach their brands to fine fragrances that are developed and manufactured by large external suppliers.[75] Moreover, GC-MS technologies have provided these clients a new means of negotiating lower prices for the development of new fragrances, as well as those for ongoing supplies of already commissioned products. If a fragrance house balks at the price negotiated by a client for ongoing supplies of a product that it developed for the client, the client could reverse engineer the fragrance, and then buy supplies of it at a lower price from a competitor of the initial supplier. The competitor would have legitimately obtained the formula without incurring the cost of creating it.[76] GC-MS technologies also make it more feasible for clients themselves to produce supplies of perfumes developed at their behest by fragrance houses. This discomfiting potential was realized in 2011, when the luxury conglomerate LVMH built a fragrance compounding facility outside Paris and began producing supplies of concentrates for their popular scents like “Miss Dior Chérie”, “Dior Homme”, and “Kenzo Flowers”.[77] Previously, they had obtained these supplies from Givaudan, Firmenich, and IFF, after these companies had developed the respective formulas.[78] LVMH claimed that the blends that they produced for these brands embodied subtle modifications of those that had been produced by Givaudan, et al., presumably a tactic to avert liability for breaching any contractual obligation to purchase concentrates from the companies that developed the original fragrances.[79] LVMH’s actions were particularly distressing to fragrance houses because they involved the production of successful and well-established perfumes.[80] Profits derived from sale of the liquid blends to produce these goods cover not only the costs of their development, but also the formulation of a constant stream of new proprietary blends that manufacturers use to compete for new business.[81] As the owner of fragrance brands like Givenchy and Dior, LVMH is one of the most significant players in the retail fragrance industry.[82] Moreover, the company is one of the most important clients for fragrance houses, continually commissioning the development of new products that capitalize on their deep R&D expertise. Therefore, fragrance houses are naturally reluctant to alienate themselves from such a powerful client. These companies could contractually preclude clients such as LVMH from certain uses of newly developed formulas, or from obtaining supplies of certain fragrance compounds from other sources. Such terms, however, would be difficult to negotiate in light of the bargaining advantage that analytic technologies now provide to these industry clients. Given the feasibility of legally reverse engineering and independently producing a fragrance, clients would agree not to do so only in exchange for price concessions, or guarantees regarding the ongoing manufacture and quality of a product, e.g., the sourcing of ingredients from a particular supplier. To summarize, over the past few decades, the availability and enhanced capacity of GC-MS technologies have significantly challenged the fragrance industry’s business model. The industry’s most valuable assets, proprietary formulas, can now be legally acquired by anyone with access to a well-equipped laboratory. The effects of the loss of trade secret protection, resulting from use of these technologies, have been compounded by unprecedented calls for greater government regulation of the industry’s products, which could require the public disclosure of the ingredients, or even the formulas, of proprietary fragrance compounds.[83] Now that trade secret protection has been compromised for the fragrance industry, are there other forms of intellectual property for which this industry should seek protection instead?

II. Patent and Copyright Protection for Fragrances

A. Patent

U.S. and E.U. law provides patent holders with a twenty-year monopoly on the manufacture, use, and sale of their inventions.[84] Even those who independently develop or reverse engineer an invention covered by patent are prohibited from unauthorized manufacture, use, and sale of products or services that implement it. However, this sweeping prohibition is tempered by the patent holder’s obligation to disclose, at the time of registration, the composition and functioning of his invention, which information enters the public domain when the patent term expires.[85] Despite the strength of patent protection, the fragrance industry does not rely heavily upon this form of intellectual property for the protection of fragrance formulas, and those of fine fragrances in particular.[86] An invention must be useful to be patentable.[87] Like the jewelry business, the fragrance industry promotes high-end perfumes as pure luxuries. Ascribing utility to these goods tarnishes their cachet of exclusivity, and thereby the economic value associated with entirely discretionary products.[88] Moreover, the fragrance industry eschews the trade-off between patent’s twenty-year term of monopolistic control and full disclosure of the patented invention. This is not only because the market for many of the industry’s high-end products lasts more than twenty years, but also because longevity in the marketplace of some of these products actually makes them more valuable over time.[89] While the fragrance industry does not primarily rely on patents to protect the formulas used to produce fragrances, there have been thousands of applications in U.S. Patent Class 512 covering “perfume compositions”.[90] However, most of these applications are for innovative means for extracting, manufacturing, or delivering fragrances.[91] The relatively few registered patents that protect the formulas of fragrant compounds are grounded in claims of the product’s useful capacity to supplant noxious odors or – more dubitably – to promote physical and mental health.[92] Fragrance companies also rely upon patents to protect some of their most valuable assets: new fragrance molecules that they have developed, known as “captives”.[93] These proprietary molecules typically are not valuable because of the beauty of their scent, but rather for their capacity to create original, safer, or less costly fragrances.[94] The handful of fragrance companies that dominate the world market create and own most captives because only these companies can afford the significant R&D investment required for their creation.[95] Companies that develop patentable molecules may initially manufacture fragrances employing these captives, but much of their profit is derived from selling or licensing them to other fragrance manufacturers that more exhaustively explore and capitalize on their potential.[96]

B. Copyright

Copyright registration is easier to acquire than patent,[97] because the registering author must simply claim that his work is more than de minimus original expression.[98] In other words, an author may register expression already copyrighted or in the public domain, as long as it is his expression produced independently of the preexisting work.[99] Copyright owners enjoy a “bundle of rights” in a protected work, including those to reproduce and perform it, and to create derivative works.[100] The term of copyright is significantly longer than that of a patent, although the protection copyright offers is moderated – particularly in the United States – by “fair use” and other exemptions permitting certain unauthorized uses of copyrighted works for educational and archival purposes.[101] Globally, the scope of copyrightable expression has grown exponentially since enactment of the Statute of Anne in 1710, which established authors’ rights in their books.[102] The margins of protection have expanded, accommodated by evolving copyright statutes that provide illustrative, but not exhaustive, examples of copyrightable works. The French copyright statute, for instance, delineates fourteen exemplary categories of works typically considered works of protectable authorship, but prefaces this list with a broad statement extending copyright protection to all intellectual creations, “regardless of their embodiment, merit, or purpose.”[103] The United States Copyright Statute offers a similarly broad definition of copyrightable authorship, followed by an illustrative list of eight categories of copyrightable works.[104] Because copyrights are easy to obtain and provide lengthy terms of protection, they would appear to be an attractive means of protection for the fragrance industry. Copyrights, like patents, provide owners near monopolies on the use of their protected information, so one could not reverse engineer and reproduce a copyrighted fragrance without authorization from the copyright owner.[105] Moreover, the term of protection offered by copyright is now several times that of a patent, typically providing owners control over their works for the better part of a century.[106] Fragrances are ultimately embodied and perceived as particular combinations of airborne molecules. Nevertheless, fragrances, like pharmaceuticals, may ultimately be reduced to works of information fixed in visual symbols comprising a formula. In this respect – and in others – they are akin to music scores whose visual information is used to produce a performance by which a work of music is typically broadly disseminated, and ultimately perceived as sound. A skilled and patient musician can “reverse engineer” and reproduce a music score from repeatedly listening to a performance.[107] Digital audio technologies can dissect the sounds of performances of even relatively complex musical works and render increasingly accurate scores in traditional music notation.[108] Just as an audio recording of the reading of a book is a copy of a literary work, a music score derived from the sounds of a performance is a copy of the musical work underlying both the performance and the score.[109] Likewise, if we consider man-made fragrances to be copyrightable works of authorship, the dissection and reconstruction of a fragrance, whether by a human with preternatural olfaction or by a mechanical apparatus for molecular analysis, results in a copy of that fragrance, which only the copyright owner is authorized to make. There is no indication, until the latter half of the twentieth century, that perfumers regarded copyright as a means to protect their original blends of fragrances.[110] Apart from the fact that the original focus of copyright protection was literary texts, there was no need for such protection given the difficulty of copying a fragrance by separating the components and determining their role in a particular blend.[111] Given this impediment, fragrance formulas could enjoy perpetual protection as trade secrets rather than merely a term of perhaps fourteen or twenty-eight years as copyrighted works of authorship.[112] By the end of the twentieth century, the breadth of copyrightable subject matter had grown to include works as disparate as fictional characters, and computer programs, far beyond the contemplation of those who promoted authors’ rights in the eighteenth century.[113] At the same time, technologies for molecular analysis had become so advanced and accessible that perfumers could no longer depend upon secrecy to prevent competitors from learning the formulas of their fragrances. Copyright surfaced, therefore, as a potential new means of protecting fragrance formulas, attractive to an increasing number of perfumers who consider themselves authors and artists creating original aesthetic works.[114] Although France is no longer a leading fragrance producer, it remains an influential force in the fragrance industry.[115] Though France has lost much of the agriculture and extraction work associated with the industry, it has retained the expertise for manufacturing fragrances and creating new blends. French ventures have capitalized upon this element of national patrimony, offering education and degrees for the study of fragrance creation.[116] Even today many perfumers at major fragrance companies have trained, at least in part, in France.[117] Not surprisingly then, the most significant débat on whether fragrances are copyrightable expression occurred in France.[118]

C. France and the Netherlands: Odor in the Courts[119]

In the early 1970’s, the French fragrance manufacturer De Laire contracted with the couture house Rochas to create several new fragrances.[120] De Laire agreed to divulge the formulas of these fragrances to Rochas in exchange for Rochas’s promise to purchase from De Laire all concentrates of any new fragrances that the fashion house chose to add to its perfume line. After providing Rochas the formula for one or two perfumes, but subsequently receiving no orders to produce them, De Laire sued, claiming that Rochas had infringed its copyright by producing a fragrance using De Laire’s formula. De Laire’s claim failed when an appeals court upheld a lower court’s finding that perfumes are practical works and therefore eligible only for patent protection.[121] Moreover, because perfumes are not tractable to meaningful and consistent description by those who perceive them, they cannot be considered copyrightable “works of intellect”.[122] The holding reflects a view that perfumes cannot be considered original expression because human olfaction is too crude to perceive and describe fragrances except in broad terms. Fifteen years after the Rochas dispute the French perfume house Molinard created a fragrance marketed as a “smell-alike” of “Angel,” the popular perfume created by Olivier Cresp for Quest International, commissioned by fashion designer Thierry Mugler.[123] When Mugler sued Molinard for copyright infringement, the Paris Tribunal de Commerce discounted the defendant’s argument based on Rochas that as products of industrial technique, perfumes couldn’t qualify as original works of personal intellection.[124] Comparing the formula of a perfume to a music score, the Mugler court suggested that variations among perceptions and reactions to a scent are akin to idiosyncratic receptions among those listening to the same musical work, and do not indicate ineligibility for copyright protection.[125] Several years after Mugler the cosmetic giant L’Oréal sued Bellure, an importer of “smell-alike” fragrances, claiming it was infringing L’Oréal’s copyright in Trésor.[126] Deciding the dispute in favor of L’Oréal, the Paris Cour d’appel noted that the fact that the French Intellectual Property Code does not include fragrances among its list of copyrightable works was not dispositive on the issue of copyrightability.[127] All works of intellect are eligible for copyright protection, even those that might also be patentable, or are not fixed, if they are perceptible and reveal the imprint of the creator’s personality.[128] At the same time L’Oréal was prosecuting its claim against Bellure in France, its subsidiary Lancôme initiated a copyright infringement action against the Dutch perfume seller Kecofa in the Netherlands.[129] Lancôme claimed Kecofa’s Female Treasure was not only a counterfeit of Trésor, but also infringed its copyright. The dispute advanced to the Netherlands’ Supreme Court, which ultimately confirmed the lower courts’ findings that fragrances are copyrightable.[130] The Court also noted that the Dutch copyright statute has a catholic scope of protection, and cannot be read as excluding fragrances that are perceptible, original (i.e., bearing the personal imprint of their creator) and not purely technical (i.e., useful).[131] Back in France, shortly after the conclusion of the Kecofa litigation in the Netherlands, the same Paris appeals court that determined L’Oréal’s Trésor could be protected by copyright reached a consistent conclusion in a claim involving designer Jean-Paul Gaultier’s perfume Le Mâle.[132] Gaultier’s perfume manufacturer, Beauté Prestige International, sued a competitor, Senteur Mazal for infringing the copyrights and trademarks of Gaultier’s perfumes by which it marketed “smell-alikes” sold at prices much lower than those of the Gaultier products.[133] Like the court in the earlier Mugler decision, the Gaultier court discounted the defendant’s argument that variances in human perception of fragrances make it impossible to establish that a perfume possesses the originality required for copyright protection.[134] Responding to this argument the court noted that literary, graphical, and musical works are also perceived variously, but these variations in perception do not undermine the originality of these works.[135] The opinions in these Dutch and French cases, which emphasize the role of the perfume creator, give short shrift to that of the user in determining whether fragrance may be copyrightable. The decision in L’Oréal’s case against Bellure, for instance, expressly found that a perfume could reveal the personality of its creator, and thereby be an original work.[136] Neither L’Oréal, nor any of the other cases, however, addressed the issue of what constitutes the “revelation” of a work, a question that necessarily implicates those perceiving the “revealed” work.[137] The shortcoming of these decisions lies not in their determination that the work of perfumers can be a complex intellectual and aesthetic endeavor akin to writing and painting, but rather in the fact that they do not consider the lack of human olfactory capacity to perceive the complexity of the work rendered from this intellectual investment. The ultimate issue in all of the cases involving the copyrightability of fragrance, therefore, is how perceptible must expression be to be protectable by copyright. Despite the pro-copyright outcomes of the Kecofa, Mugler, and Gaultier cases, the Cour de cassation recently delivered a severe check to those advocating copyright eligibility for fragrances in France, by addressing this issue of perception.[138] In 2006 Patrice Farque was prosecuted for selling counterfeit fragrances at a flea market outside Paris.[139] When the case foundered for lack of evidence Lancôme et al. claimed that by selling imitations of its fragrances Patrice Farque had infringed Lancôme’s copyright in these products.[140] When Lancôme’s case ultimately advanced to the Cour de cassation (commercial section) in 2013, the court determined unequivocally that fragrance is not copyrightable expression.[141] The court separated the act of creating a fragrance from that of perceiving it, finding that while the development of a perfume may involve creative intellection beyond technical know-how, this original thought cannot be broadly communicated because it cannot be sufficiently perceived.[142] With its 2013 decision in Lancôme v. Farque the Cour de cassation dashed expectations that French copyright law might offer the fragrance industry a new means by which to protect its perfume formulas. Courts in the United States have not yet fielded the question of whether fragrances may enjoy copyright protection. In fact, the existing classifications under which works may be registered in the United States would not accommodate an application for a work of fragrance.[143] Accordingly, except in the Netherlands, copyrights, like patents, offer little potential solace to an industry unsettled by the vulnerability of its most valuable intellectual property.

III. Fragrance and Trademark Protection

A. The Expanding Scope of Trademark Protection

Like the sphere of copyrightable expression in the United States, the range of commercial indicators protectable as trademarks increased dramatically in the latter half of the twentieth century. By the end of the century, trademark protection extended to sounds,[144] and even single colors.[145] Moreover, legally protectable visual trademarks were no longer limited to those comprising words and/or designs, but had been extended also to the “trade dress” of products and services.[146] Although U.S. law now protects colors, scents, and sounds, international conventions and other national trademark regimes are typically less accommodating than the United States of these non-traditional marks. For example, the World Trade Organization’s multilateral Agreement on Trade-Related Aspects of Intellectual Property establishes only that combinations of colors may be eligible for trademark protection, and that registration may be conditioned on the mark having already acquired distinctiveness in the market through use.[147] There is considerable variation among national trademark regimes on trademark protection for color marks, and even relatively liberal regimes, like that of Germany, may protect only those single-color marks that have acquired secondary meaning.[148] There is a similar lack of consistency among national trademark regimes with respect to sound marks, stemming in part from the fact that some nations, like Mexico and Brazil, permit registration only of marks that are visually perceptible.[149] While sound marks are not visually perceptible, they can be verbally documented quite accurately. Many sounds, like the iconic NBC chimes comprising the intervals of a rising sixth followed by a falling third, can be represented visually through music notation. Similarly, scent marks can be accurately visually represented using the standard chemical symbols and verbal instructions of formulas, but are less tractable to verbal description than sound marks. Courts have been reluctant to recognize colors, scents, and flavors as trademarks because doing so could allow the initial user to unfairly monopolize the viable marks for particular categories of goods and services.[150] A fundamental purpose of trademark protection is to protect consumers from deceptively labeled goods.[151] However, courts have held that this objective should not limit competition in a market by rewarding early entrants with potentially perpetual exclusive use of a limited number of marks.[152] In particular, scent, flavor, and single-color marks are more readily depleted than design and word marks. This is not because there are fewer potential marks in these classes, but rather because consumers are less able to distinguish among them than among design, word, and sound marks.[153] For example, there are innumerable shades of red, but it is difficult to distinguish readily between Stanford’s “cardinal” and Harvard’s “crimson” without additional verbal or visual information. On the contrary, it is impossible to confuse the different verbal mottos also branding these universities.[154] Consumers would not be served by a prohibition on other universities using the color red as part of their “brand” simply because Harvard was the first to do so. It is desirable, however, to curtail another university’s branding itself with the color red, the motto “Veritas”, and – obviously – the name Harvard, because it curbs potential confusion on the part of consumers, as well as unwarranted derogation that the original Harvard might suffer.[155] Like single colors, scents and flavors are problematic trademarks because the typical consumer cannot distinguish variations in scents and flavors as easily as those of designs and words.[156] While there is an infinite variety of scents and flavors, we tend to classify them, as we do shades of color, using relatively limited taxonomies: “royal blue”, “blood red”, etc. For instance, we use “floral” to describe the scents of hundreds of different flowers, and “spicy” to refer to the taste of hundreds of different piquant flavors. The greater the number of words or designs that are combined in a mark, the more complex and inherently distinctive it is likely to be.[157] This is not true for scents and flavors. Combinations of different scents and of different flavors may yield more complex chemical compounds, but we tend to perceive these not as distinctive new scents and flavors but rather as muzzy blends of the relatively few existing generic categories: “this wine has a citrusy flavor;” “this moisturizer has a vegetal scent.”[158] There are, of course, thousands of varieties of vegetal scents and citrusy flavors but humans cannot readily distinguish among them using a broadly shared taxonomy. Accordingly, because this perceptual inadequacy presents a risk for trademark depletion, most trademark regimes do not accommodate scent marks.[159] International conventions touching on intellectual property, like the TRIPS Agreement and the European Union Trademark Directive, do not expressly permit or prohibit trademark protection for scent marks. However, international courts and national laws have made it difficult or impossible to register them.[160] On the national level the trademark statutes of France and Germany implicitly preempt scent mark registrations by limiting protection to marks that can be visually represented.[161] In 2002 the European Court of Justice (ECJ) considered the question of what constitutes graphical representation of a scent mark.[162] The dispute involved an appeal from the ruling of a German court that upheld the national trademark office’s refusal to register a scent.[163] The applicant, Ralf Sieckmann, had submitted a fragrance claiming it as a mark denoting a range of professional services.[164] As graphical representations of the mark Sieckmann provided a sample of the fragrance in a liquid, the chemical composition of the fragrance (C6H5-CH = CHCOOCH3), and a description of it as “balsamically fruity with a slight hint of cinnamon.”[165] The ECJ determined that none of these submissions, alone or combined, were an effective graphical representation of the scent as a trademark.[166] Although the submissions were visual, they did not enable consumers “… to guarantee the identity of the origin of the marked product or service…by enabling him, without any possibility of confusion, to distinguish that product or service from others…”[167] In other words, these representations are ineffective graphical representations because the appearance of an amber liquid, and the words “balsamically fruity” are so commonplace that when consumers encounter them they will conjure any number of scents (and tastes). Moreover, only a narrow sector of consumers who are trained as chemists might recognize “C6H5-CH = CHCOOCH3” as the fragrant compound Methyl Cinnamate. Consumers’ limited capacity to perceive Sieckmann’s mark through these visual representations would obscure the boundaries of protection trademark registration might provide. This would defeat the purpose of graphical representation, which is required “…specifically to avoid any element of subjectivity in the process of identifying and perceiving the sign,” and would provide overly broad protection that is potentially detrimental both to consumers and competitors of the trademark owner.[168] Moreover, even if consumers recognized the chemical formula for Methyl Cinnamate, as readily as we recognize H2O as that for water, the fragrance mark itself is inherently unstable “…because of different factors which influence the manner in which it can actually be perceived, such as concentration, quantity, temperature or the substance bearing the odor.”[169] Unlike the European Union, the United States does not require that trademarks be represented graphically to be registered. In fact, the United States Patent and Trademark Office (USPTO) has accommodated registration for such marks by establishing a classification for them: Mark Drawing Code 6, “for situations for which no drawing is possible, such as sound.”[170] Nevertheless, while there are many United States trademark registrations for sounds there are remarkably few for scents.[171] The first scent mark registration was issued in 1991, after the Trademark Trial and Appeal Board overturned the USPTO’s initial denial of a trademark registration for a floral scent used to brand sewing thread.[172] Since then, only fifteen additional fragrance marks have been registered, and only four are still “living”.[173] These include the scents of vanilla and citrus for cosmetics and fuel oil respectively, and that of coconut to mark the retail space of a beach apparel seller.[174] Most of the now expired fragrance marks were registered by Smead, Inc., a Minnesota office supplies manufacturer, to protect their branding of their paper products with fragrances like peppermint and peach.[175] The fact that Smead allowed their scent trademark registrations to lapse suggests that the company determined that consumers did not effectively associate the scents with their particular source. Smead might have more successfully developed consumer association between the scent of the paper products and their manufacturer if it had deployed a single fragrance across its entire line of products. While Smead could not monopolize the idea of scenting paper, which stationers have been doing for centuries, it might have monopolized the use of a particular fragrance for paper products. Smead’s use of various fragrances to mark interchangeable products, likely led consumers to associate the fragrance more with the particular variants – scent of peaches for the peach colored file folders, etc. – than with the manufacturer.

B. Growing Significance of Multisensory Trade Dress

Retail sales of consumer goods have always been driven in part by visual cues in the presentation of the merchandise, which comprise not only the distinctive packaging that we identify with specific products, but also the overall visual ambiance in which the products are displayed and sold. While one shops for apparel at Saks, the flattering lighting and carpeted dressing rooms promote lingering, and palliate sticker shock.[176] In contrast, the buzzing fluorescence and concrete floors of Costco generate brisk efficiency for the grim acquisition of huge quantities of “house brand” paper products and similar utilitarian goods sold at “volume discount” prices.[177] In general, the more a product’s economic value stems from its purported refinement and exclusivity (e.g., perfume, jewelry, haute couture) the more its retail sales are tied to visual presentation and other factors extrinsic to the product itself. The cost of presentation and other less immediately apparent external factors, like polite salesclerks, clean washrooms, or a forgiving returns policy, are built into the retail prices of these goods. Accordingly, while Target sells for $80 a two-and-a-half ounce bottle of the eau de toilette of Patou’s Joy, Nordstrom charges $130 for the same item.[178] Retailers also use sound to boost sales, which is not a recent phenomenon. Even before the advent of technologies for recording and broadcasting musical works, department stores engaged musicians whose live performances promoted not only sales of sheet music, but also the sale of other merchandise, once the music had lured customers into the store.[179] Some retailers, restaurants, and hotels still enhance their public spaces with live music performances.[180] However, with the development of recording and broadcasting technologies, this goal is now met mainly through recorded performances of musical works.[181] “Background music” is now so prevalent in commercial spaces in the United States that it is disconcerting to enter a shop or restaurant blessedly free of it.[182] Like the visual décor of commercial spaces, these aural ambiances are now artfully developed and deployed to promote sales of goods and services to specific populations of consumers.[183] This deployment is now so pervasive in retail spaces that the withholding of music and all visual adornment in “big box” stores like Costco, appears to be a deliberate reassurance to customers seeking to purchase goods at “no-frills” prices. Because the sound of recorded music is now so commonplace in retail locations, customers do not listen to it as they might have a century ago. Customers still hear the music, however, and the character of the music becomes a familiar and predictable attribute of a particular commercial milieu.[184] In other words, regardless what music being played, it is being deployed as “muzak”, i.e. an aural enhancement of an environment in which retailers anticipate that we will focus on something else, namely purchasing their goods or services.[185] This ambient music affects the experience and behavior of customers in these retail spaces.[186] Retailers play music to entice customers to linger over merchandise by providing familiar and affirmative “sound tracks”.[187] They tailor the music to appeal to consumers based on factors like age, race, gender, and economic class.[188] While a misogynist rap number broadcast in a Nike store might subliminally flatter the egos of young male customers, it would likely alienate shoppers at Tiffany’s browsing engagement rings and bone china.[189] Accordingly, shopping malls and department stores broadcast varied “soundscapes” in which the disparate “sound tracks” comprising them are regularly updated to conform to the evolving musical tastes of their targeted consumers.[190] Like music, scents have long been used in the marketing of goods and services. The aroma of baking cookies, with its homey associations, has often been used to market houses; the alarming odor of burnt wood has been used to sell fire insurance policies to protect such property.[191] Moreover, developers of scent delivery systems have capitalized upon existing technologies like ink-jet printing and smartphones to create new means of communicating scents, particularly in connection with advertising and entertainment.[192] Marketers, however, increasingly use fragrances not to conjure a narrowly defined good or service, but to mark an overall environment in which retail customers purchase the goods or services of a particular seller.[193] This practice is not limited to sellers of luxury goods and services: today “… marketing using scent is catching on among retailers and in car showrooms, sports stadiums, airports, banks and apartment buildings that seek to distinguish themselves with customers via the deeply influential sense of smell.”[194] For example, the air in the lobbies of all Omni hotels is infused with the scent of lemongrass.[195] Omni anticipates that its repeat customers will learn to associate this scent with comfortable accommodations, and specifically those offered by Omni. Hyatt’s objectives in their use of fragrance are more nuanced than Omni’s. Hyatt scents the air of the public spaces of each of its sumptuous “Park Hyatt” properties with a different and unique bespoke fragrance, which is also used to scent the lotions, soaps, and candles liberally sprinkled throughout the particular hotel’s public and private spaces.[196] Hyatt hopes that because customers will encounter a particular bespoke fragrancs only at the hotel in which it is deployed; they will associate it not with “Hyatt” – which has properties ranging from relatively austere to luxuriant – but with a particular top-tier Hyatt hotel that is purposefully distinct from all other Hyatt properties.[197] Retailers scent their salesrooms hoping to imprint customers’ memories with a positive association between a fragrance and the experience of shopping at their stores. Retailers may do so also to promote sales of the fragrance itself, like Abercrombie & Fitch’s “Fierce.” The distinctive environment of this retailer is a carefully manufactured mix: visual elements like dim lighting and exiguously dressed young clerks; a loud soundtrack of popular music that teenagers find appealing; and an atmosphere constantly infused with the scent of “Fierce,” the retailer’s “signature” scent.[198] As Abercrombie’s website proclaims, “Fierce”, sold as a cologne, body wash, and candles, is “[k]nown as the world’s hottest fragrance…a symbol of masculinity and great American achievement.”[199] In other words, the retailer’s hypertrophic sensory ambiance is intended to evoke that of attractive nuisances like Los Angeles’s Sunset Strip music “clubs” that entice the same customers that Abercrombie targets: just-legal teenagers untethered from their parents, but in possession of their credit cards.[200]

C. U.S. Trademark Protection for Trade Dress

Trade dress is the “total image and overall appearance” of a product, or the totality of elements that “may include features such as size, shape, color or color combinations, texture, graphics.”[201] A product’s trade dress may be a concatenation of elements that are not separately protectable as trademarks, but the amalgamation of these elements is protectable because of its capacity to identify the source of a product or service.[202] In this respect, the whole is greater than the sum of its parts. The trade dress of a product or service might also be the combination of separately protectable marks. If, for instance, a computer manufacturer tagged its products with an image of a lemon, colored them a bright yellow, and imbued their laptops and peripherals with a lemon scent, all three tags contribute to the products’ trade dress despite the fact that each of them might be separately protected as a trademark when applied to computing machinery. Trade dress can now be registered as trademarks on the Principal Register in the United States.[203] Nevertheless, the trade dresses for most products and services have not been registered.[204] This may be because a trade dress, like a trade secret, is typically developed incrementally over time, and its value often becomes apparent to the owner only when another tries to capitalize upon it.[205] Also, trade dress tends to be more protean than word and design marks. Whereas the hairstyle and apparel of Betty Crocker or the Morton Salt Girl needs to be updated only every few decades, the soundscape of a department store must be adjusted to evolving markets far more frequently to retain its potency.[206] Moreover, trade dress often combines non-traditional marks like sounds, colors, and scents that retailers use to create a deeper emotional response in consumers than that engendered by purely visual marks.[207] In recent decades, as these non-traditional marks and trade dress have become more prevalent, U.S. courts have recognized their capacity, like that of traditional word and design marks, to enable consumers to distinguish among sources of goods and services. Two Supreme Court cases, in particular, have established a vastly larger sphere of protectable trademarks than that of half a century ago.[208] In Two Pesos, Inc. v. Taco Cabana, Inc., the Supreme Court determined that trade dress was entitled to the same protection as that afforded to word and design trademarks.[209] The parties were small Mexican fast food chains that deployed a similar décor in all of their restaurants. Taco Cabana was established seven years earlier than Two Pesos, and claimed that Two Pesos infringed its trade dress by using interior decoration confusingly similar to theirs.[210] The plaintiff’s description of their trade dress was more discursive than those typically used for word or design marks, comprising not only specific ornamental objects like “artifacts, paintings, and murals,” but also color schemes and architectural features like “a stepped exterior,” and “bright awnings and umbrellas.”[211] A district court jury found Two Pesos liable for trademark infringement, having determined that that Taco Cabana’s décor was protectable trade dress because it was inherently distinctive, despite the fact that the plaintiff had not demonstrated that its trade dress had acquired secondary meaning.[212] The Fifth Circuit upheld the lower court’s judgment and Two Pesos appealed. The Supreme Court granted a writ of certiorari because of a circuit split; the Second Circuit precedent conflicted with that of the Fifth, holding that, unlike a registered trademark, unregistered trade dress like the plaintiff’s could obtain protection under the Lanham Act only if it were inherently distinctive and had acquired secondary meaning through use in commerce.[213] In Two Pesos, the Supreme Court rejected the Second Circuit’s narrower approach, and upheld the Fifth Circuit’s broader understanding of protection available to trade dress under the Lanham Act. Because trade dress serves exactly the same function as trademarks, the Court reasoned, there is no reason why trade dress should be subject to more stringent standards than traditional registered marks like words and designs, to obtain protection under the federal statute.[214] Three years later, in Qualitex Co. v. Jacobson Prods. Co., the Supreme Court further accommodated trade dress as protectable information, determining that a single color could constitute a valid trademark.[215] The single color at issue was a bilious green/gold hue that Qualitex used on the dry cleaning pads they manufactured.[216] When Jacobson appealed the district court’s ruling that it was liable for infringing Qualitex’s single-color trademark, the Ninth Circuit court overturned this decision, finding that color alone could not qualify for trademark protection.[217] Qualitex, in turn, appealed to the Supreme Court, which granted a writ of certiorari to resolve contradictory precedent from various federal circuit courts on the validity of single-color trademarks.[218] The Supreme Court overruled the Ninth Circuit and upheld the validity of Qualitex’s single-color trademark registration.[219] Like the multifaceted décor indicating Taco Cabana’s restaurant services, the particular shade of green with which Qualitex “dressed” its products distinguished them from those of others, and served no other practical purpose.[220] Moreover, Qualitex had used the color in this capacity for over thirty years, during which it acquired distinctiveness as consumers came to associate it with this company’s product.[221] Qualitex’s trade dress gradually matured into a protectable trademark as it developed secondary meaning through ongoing use in the marketplace.[222] In other words, it is only through ongoing exposure to a single color used to dress a product that consumers will begin to link that particular color with that product’s manufacturer. This gradually built association renders the color protectable despite the fact that consumers may have encountered or associated it with unrelated products. Taco Cabana’s décor, on the other hand, was found to be inherently distinctive and therefore did not require a similar incubatory period in which to establish its eligibility for trademark protection.[223] Such complex trade dress tends to be unique, and consumers are likely to immediately associate it with the source of the product or service it is “dressing”.[224]

D. Fragrance as Trade Dress

Trademark, and specifically trade dress, might ultimately provide the only legally protectable intellectual property to fragrances and their manufacturers. The earlier discussion of patents and copyrights concluded that neither form of legal protection held much potential for safeguarding the fragrance industry’s intellectual property.[225] The term for a patent is only twenty years – shorter than the market lifespan of a successful perfume.[226] Moreover, fragrances must be “useful” to be patented – not a designation that fragrance manufacturers would want applied to most of their products, particularly fine fragrances.[227] As French courts ultimately determined, copyright is not a viable form of protection for fragrances, despite the creative thought their creation may involve, because this intellection cannot be communicated or perceived in an effective and consistent manner.[228] Given these shortcomings of other forms of legal protection for intellectual property, trademark and trade dress emerge as the most viable options for protection. However, a number of idiosyncrasies particular to fragrance trade dress may condition its trademark protection. Recorded music is one of the most commonly used elements to create a distinctive trade dress, but recorded music is more tightly constrained by intellectual property law than is fragrance. Retailers typically do not own the copyrights of musical works that they broadcast in their stores, and therefore must pay royalties to their owners.[229] However, the legitimate use of another’s intellectual property might become part of the user’s legally protectable multisensory trade dress.[230] For instance, if one retailer were to consistently broadcast Bee Gees songs in its shops, it might be able to prevent other retailers from using these songs by claiming that consistent use and consumer association had transformed the music into a protectable component of its trade dress. Such use of another’s copyrighted material does not provide a retailer any legal interest in the music or the recordings themselves. If a retailer owns the underlying musical work being performed in connection with their goods, it might also seek trademark protection for the music itself. While sound marks typically comprise merely a few non-musical sounds or notes – like NBC’s – a larger musical work, like a jingle, can also function as a trademark.[231] The efficacy of such marks, however, may ultimately depend upon consumers’ ongoing familiarity with the words of the jingle that identify the retailer or brand. Accordingly, while NBC’s sound mark continues to be effective, that of Mr. Softee, Inc. for instance, has become genericized.[232] Today the tinkling sound of the Mr. Softee jingle, invariably heard without its long-forgotten words, conjures the sale of aerated ice cream from itinerant trucks by any number of purveyors.[233] In fact, any singsong tune, rendered in a chimey timbre, and sounding from a truck on a city street during the summer will elicit memories of ice cream and popsicles.[234] Because fragrance enjoys relatively limited intellectual property law protection, retailers are less legally constrained in their deployment of fragrance in their public sales spaces.[235] Fragrances are not copyrightable works, so the copyright performance and display rights applicable to musical and artistic works do not regulate their release into communal spaces, even commercial spaces.[236] Many small retailers and service providers like spas routinely scent their atmospheres, delivering established brands of fragrances through various delivery methods, such as aerosols, scented candles, and potpourris. For example, there is nothing objectionable to Diptyque or Shoyeido about a clothing boutique owner lighting a Diptyque candle in his shop, or a spa manager burning a stick of Shoyeido incense on the premises, because doing so promotes sales of these products among customers who inquire about what they smell. Fragrance brands would likely object, however, if a large retailer used their air conditioning system to disseminate one of their fragrances consistently, and without authorization. With scant intellectual property protection fragrance producers possess little control over use of their products, but trademark protection may offer an untapped compensatory benefit. Once Chanel sells a bottle of its well-known No. 5 the company has virtually no legal means of controlling how the buyer uses it. However, trademark may allow it to regain some authority over sales and use of this product. For instance, if Omni Hotels began to scent all of their properties with No. 5, rather than using their proprietary lemongrass fragrance, Chanel would likely assert a claim under the Lanham Act of unfair competition, and “passing off”.[237] Even if Omni used no visual evidence of the brand, Chanel would argue that by “marking” their air with the well-known No. 5 Omni was attempting to lead consumers to believe that its mid-range hotels are legitimately associated with this purveyor of top-tier luxury products. This association would potentially sully Chanel’s image.[238] Therefore, even though no other business uses No. 5 as trade dress, Chanel could prevent such use if it can demonstrate that consistently scenting the air of a commercial space would likely create confusion “as to the source, sponsorship, or association between goods or services.”[239] Fragrance’s relatively brief period of perceptibility affects its trademark capacity. While consumers may “tune out” the sounds and images of a retailer’s trade dress they cannot stop hearing and seeing them unless they block or replace the sounds and images.[240] In contrast, humans become habituated to scent relatively swiftly.[241] Once we have perceived an odor, our awareness of it rapidly wanes even though we continue to be exposed to the same concentration of it in the atmosphere.[242] Because of its brief period of perceptibility, fragrance is more likely to be protected as trade dress when used in a multisensory combination of various stimuli like colors, images, and sounds. When one first enters an interior space, a signature fragrance by itself may be the first confirmation that one is at a particular retailer, hotel, or spa. As that perception wanes, however, visual and aural stimuli will play a more prominent role in consumers’ awareness of a particular vendor. In fact, the consistent combination of a particular fragrance with other visual and aural stimuli will likely strengthen through such amalgamation, the association of that fragrance with a specific retailer. The greater the number of sensory elements comprising a trade dress, the more likely it is to be protectable as a distinctive indicator of a particular source of goods or services. Taco Cabana’s trade dress was protectable only because it combined a number of architectural and decorative elements; the murals, umbrellas, and interior design only become distinctive when combined.[243] The greater the complexity of the trade dress, however, the narrower the scope of its protection. Accordingly, if Abercrombie were to claim a trade dress that comprises visual elements as well as sounds and scents, it would be difficult for this retailer to establish unfair competition based upon a competitor’s use of a discrete element of Abercrombie’s multisensory trade dress. Fragrance’s capacity for trademark protection may directly benefit retailers and fragrance brands, but not the industrial manufacturers of fragrance blends. A fragrance manufacturer cannot protect a fragrance as trade dress for its products or services because fragrances are its products and services. As such they cannot acquire the distinctiveness, or secondary meaning necessary to obtain trademark protection. Manufacturers sell even fine fragrances to retail products manufacturers like couture houses and cosmetic companies that package and label commissioned blends under their own brands.[244] These brands, like retailers and hotel chains that scent their atmospheres, do not publicize the name of the manufacturer that produced the scent. In short, major fragrance manufacturers are akin to ghostwriters who cede copyright in their writings in exchange for fees from the commissioning parties to whom the published works are attributed.[245] Although they are not the primary beneficiaries of fragrance trade dress protection, fragrance manufacturers may indirectly capitalize on the growing accommodation under U.S. trademark law for the protection of non-traditional trade dress. Ghostwriters are aware of the economic value of the copyrights that they assign to the attributed author of their works, and this value is reflected in their fees. The fact that a commissioned fragrance may now be deployed and protected as trade dress adds economic value greater than that of fragrances distributed exclusively as retail products. Given that fragrances increasingly function as valuable and legally protectable branding agents, fragrance creators should factor this development into the fees they charge for the creation and production of products deployed in this innovative manner.

Conclusion

Over the past twenty-five years advances in analytic technologies, and increasingly stringent government disclosure regulations, have challenged fragrance manufacturers’ efforts to maintain exclusive control over their most valuable assets: proprietary information relating to the creation and manufacture of fragrances.[246] As discussed earlier, once this information has been disseminated there is little recourse under copyright or trade secret law to check its distribution or implementation.[247] Patents also are of limited efficacy to fragrance manufacturers, effectively protecting only newly discovered “captive” molecules.[248] Johann Böttiger’s enterprise (Meissen Porcelain) lost its most valuable, and seemingly mission-critical, trade secret within decades of its establishment. Yet, hundreds of years after what would appear to have been a devastating loss, Meissen Porcelain is flourishing not only because it diversified its merchandise, but more importantly because it capitalized upon the prestige associated with the quality of its porcelain, and also its market lead, made possible by the fact that it was the first European enterprise capable of producing it. Like Meissen Porcelain, major fragrance houses have long histories, most having existed for well over a century.[249] Unlike Meissen, however, these fragrance companies have functioned as ghostwriters, creating and manufacturing products ultimately sold as emanations of their customers, including couture houses, retailers, and consumer products companies. To an increasing extent, these fragrances are not merely sold by retailers as consumer products but are also used, like broadcast recordings of musical works, as a component of a larger trade dress by which consumers identify a particular retailer or service provider. The economic potential in fragrance trade dress can be analogized to that inherent in the public performance of copyrighted musical works. Copyright owners of musical works cannot control, or derive financial benefit from, private performances of their songs. When their copyrighted compositions are performed in public, however, they are legally entitled to receive royalties for these uses of their works.[250] Like copyright owners, fragrance manufacturers and retailers cannot control, or derive financial benefit from, private uses of their legitimately acquired products. Nonetheless, as these products are increasingly deployed in public – especially commercial – spaces, they acquire value beyond that ascribable to their hedonic attributes, by contributing to the branding of a commercial product or service. In other words, just as a copyrighted song realizes greater economic value through public performances, a fragrance acquires greater economic value when it becomes part of a legally protectable trade dress through its deployment in a commercial public space. The legal protections for fragrance remain limited. Like the Meissen Porcelain enterprise in the 1720s, individual fragrance manufacturers today can never recapture once-secret information that is now widely known, or readily and legitimately ascertained by others through reverse engineering. Accordingly, trade secret protection is an increasingly elusive quarry for this industry. Patent protection is similarly inefficacious, due to its limited duration and requirement of usefulness — a characterization unpalatable to luxury purveyors. As works of fragrance are not copyrightable, their diffusion in public spaces cannot be regulated as performances of them. When such use results in the establishment of legally protectable trade dress, however, fragrance creators could acquire a portion of the economic value of this interest, in the creation of which they have played a significant role. By capitalizing on the value stemming from the increasing use of fragrances in establishing protected brands, fragrance houses might find through trademark law partial compensation for this loss of intellectual property.
* B.M. Oberlin; J.D. American Univ.; M.A., Ph.D. Stanford; M.I.M.S., Berkeley; Lecturer, USC Law School (ccronin@law.usc.edu). Un grand merci to Claire Guillemin, collègue hambourgeoise, for sustaining my interest in this curious industry.
[1] See Richard Stamelman, Perfume: Joy, Obsession Scandal Sin; A Cultural History of Fragrance from 1750 to the Present 94 (2006).
[2] Id.
[3] See Eugénie Briot, From Industry to Luxury: French Perfume in the Nineteenth Century, 85 Bus. Hist. Rev. 273, 277 (2011).
[4] Id.
[5] See id. at 277–79.
[6] See generally Sue Minter, Fragrant Plants, in The Cultural History of Plants ch. 13 (2005). The small city of Grasse is situated a few miles north of Cannes on the Ligurian sea.
[7] See id. See also Stamelman, supra note 1, at 95 (noting that the production of jasmine in Grasse peaked in the 1920s and 1930s but subsequently declined dramatically).
[8] See Leffingwell & Associates, 1999–2002 Flavor and Fragrance Industry Leaders, http://www.leffingwell.com/top_10_2.htm (last visited Jan. 12, 2016).
[9] See id.
[10] See infra text accompanying note 57.
[11] See infra text accompanying note 38.
[12] In the eleventh century , on a mountainside north of Grenoble, Saint Bruno of Cologne established the Carthusian monastic order. See John F. Fink, 100 Important Events in Catholic History: From Pope Peter to Pope Francis 43 (2013). The region’s harsh climate, however, accommodated the cultivation of little more than medicinal herbs. See La Vallée du Secret, VSD Magazine (Jun. 18, 2014). Faute de mieux, the Carthusians grew herbs that they eventually used in the manufacture of the “elixir” that in the eighteenth century they began to distribute beyond the monastery as “Chartreuse”. See id.
[13] Their expulsion appears to have been motivated by the French government’s resentment of the order’s financial prosperity. See France Banishes Carthusian Monks, N.Y. Times, Mar. 27, 1903, at 3.
[14] See History of the Chartreuse Liqueurs, Chartreuse.fr, http://www.chartreuse.fr/en/histoire/history-of-the-chartreuse-liqueurs/ (last visited Jan. 12, 2016).
[15] See id. Meanwhile, the Carthusians in Spain continued to produce the original liqueur that they then called “Tarragone” because the French government forbade their use of the trademark “Chartreuse” on products sold in France. Id. Accordingly, until 1929, when the trademark “Chartreuse” was restored to the Carthusians, those drinking Chartreuse in cafes and restaurants in France would order “a Tarragone”. Id.
[16] See generally, Into Great Silence (Zeitgeist Films 2005).
[17] See The Carthusian Order, Quick Presentation, http://www.chartreux.org/en/quick-presentation.php (last visited Jan. 11, 2016). Carthusian monks avow a life of silence, which is spent at one monastery. Many aspects of their life are hermetic, but the Carthusians are a coenobitic order in which all monks work for the communal good, with no ambition for personal financial gain. Id. Only two monks know the formula for Chartreuse at any time. See History of the Chartreuse Liqueurs, supra note 14. Like wine, Chartreuse is a volatile drink, the quality of which typically improves over time. Accordingly, even if one successfully reverse engineered the molecular composition of Chartreuse, one would need also to discover the techniques by which to nurse the liqueur to maturity over many years, to match the quality of that of the monks’. See id. Moreover, there are over 100 ingredients in Chartreuse, many of which grow only in Alpine locations like that of the Carthusians’ motherhouse. See Christina Rebuffet-Broadus, Chartreuse, France Today (Apr. 9, 2013), http://www.francetoday.com/articles/2013/04/09/chartreuse.html. Over time there have been a number of attempts to market counterfeit Chartreuse, the bottles of which are displayed at the museum of the Caves de la Chartreuse in Voiron, located near La Grande Chartreuse. WikiMedia Commons, File:Chartreuse-fake.jpg, https://commons.wikimedia.org/wiki/File:Chartreuse-fake.jpg (last visited Jan. 22, 2016).
[18] See Janet Gleeson, The Arcanum 56 (1998). After Vasco da Gama discovered a sea route between Europe and the Orient in the late-fifteenth century, Europeans began to collect Chinese porcelain. As porcelain became popular in Europe, huge quantities were obtained at great cost from China because Europeans did not possess the information needed to manufacture it. Id. at 45 (noting porcelain’s imperviousness to the water damage that threatened other luxuries like tea, silk, and spices shipped from the Orient).
[19] See text panels for exhibition: The Arnhold Collection of Meissen Porcelain, 1710 – 50 (Frick Collection, 2008) (copy on file with author). I am grateful to Frick curator Charlotte Vignon who provided me a copy of these text panels.
[20] See Gleeson, supra note 18, at 295 (noting how “the efforts of discontented employees and wandering arcanists had demolished its monopoly and spread the secret arcanum for porcelain far and wide”). Moreover, the manufacture of Böttiger’s porcelain depended upon a rare white clay called kaolin, available at the time from a sole provider in the Saxon town of Aue. When the Aue clay merchant realized that Böttiger no longer monopolized porcelain manufacture, he increased the price for clay that he charged Böttiger. He also began to sell his clay to Böttiger’s competitors, despite the fact that he was contractually bound to supply only Böttiger’s enterprise. See id. at 106.
[21] Id. In the eighteenth century the nation we now call Germany was comprised of many independent states like Saxony, Bavaria, and Württemberg. Each state had its own legal regime and there was little chance of being prosecuted for a malfeasance like trade secret misappropriation outside the jurisdiction of the owner of the trade secret. See James Sheehan, German History, 1770 – 1866 14 (1989) (noting that the “Reich came from a historical world in which nationality had no political meaning and states did not command total sovereignty.”).
[22] See Meissen Couture, Our Famous Brands, http://www.meissen.com/en/world-meissen-couture/maison-meissen-couture/our-famous-brand (last visited Jan. 11, 2016).
[23] Id. Martin Lindstrom refers to this association as the “Organizational Selling Proposition” in which not a physical product, but rather “the organization or corporation behind the brand in fact became the brand.” See Martin Lindstrom, Brand Sense: Build Powerful Brands Through Touch, Taste, Smell, Sight, and Sound 4 (2005).
[24] The quality of a fragrance, like a culinary dish, depends upon not only the formula or recipe, but also the particular ingredients used to instantiate it. If Chanel were to use jasmine from India rather than that from France to manufacture No. 5 the scent of this perfume would differ slightly from that of No. 5 – made from jasmine grown in the south of France – despite the fact that the same chemical formula would be used in creating it. Accordingly, even if one successfully reverse engineers the formula for a fragrance, one still may not be able to replicate exactly the original without access to the same source of ingredients used in the original. Cathy Newman offers a bird’s-eye view of fragrance manufacturing in her book Perfume: The Art and Science of Scent. (1998).
[25] See Int’l Fragrance Ass’n, The Socio-Economic Impact of Fragrance in Europe 7 (2012).
[26] The tension between employees’ rights of free expression and employment mobility, and employers’ right to control the dissemination of information they consider proprietary underlies most trade secret misappropriation claims today. See Roger Milgrim, Milgrim on Trade Secrets § 5.01 (1994) (noting that “as reliance on trade secret protection increases, controversies between former employers and ex-employees … will not only increase in number, they will be contested for significantly higher stakes”).
[27] See Meissen Couture, supra note 22.
[28] See infra Part I.B.
[29] See infra text accompanying note 189.
[30] Most fragrance manufacturers do not produce retail products but rather develop and produce proprietary blends that are sold to consumer goods producers like Unilever, Proctor & Gamble, and brands like Dior. See infra note 75 and accompanying discussion.
[31] See Tracy Lewis & Jerome Reichman, Using Liability Rules to Stimulate Local Innovation in Developing Countries: Application to Traditional Knowledge, in International Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime 342 (Keith Maskus & Jerome Reichman eds., 2005).
[32] See infra notes 44, 46 and accompanying text.
[33] See Unif. Trade Secrets Act (amended 1985), 14 U.L.A. 433 (1990). This Act has now been adopted by 47 of the United States. Unif. Law Comm., Legislative Fact Sheet – Trade Secrets Act, http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade%20Secrets%20Act. The same criteria define trade secrets in the pending European Union trade secret legislation. See Commission Proposal for a Directive of the European Parliament and of the Council on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against their Unlawful Acquisition, Use and Disclosure, COM (2013) 813 final (Nov. 28, 2013) [hereinafter Commission Proposal].
[34] The United States Economic Espionage Act criminalizes the misappropriation of trade secrets on behalf of a foreign government. See 18 U.S.C. §§ 1831–1839 (2012). In 2015, for the third time, United States legislators have introduced a bill that would create allow civil trade secret claims to be brought in federal court. See Defend Trade Secrets Act of 2015, S. 1890, 114th Cong. (2015). The United States Patent & Trademark Office identifies trade secrets as “a fourth type of intellectual property, in addition to patents, trademarks, and copyrights.” See USPTO, Trade Secrecy Policy, http://www.uspto.gov/patents-getting-started/international-protection/office-policy-and-external-affairs-patent-trade (last visited Jan. 12, 2016).
[35] “Although not protected as a classical IPR, trade secrets are nevertheless a key complementary instrument for the required appropriation of intellectual assets that are the drivers of the knowledge economy of the 21st century. The holder of a trade secret does not have exclusive rights over the information covered by the trade secret.” Commission Proposal, supra note 33, at 3.
[36] Under U.S. law the rights of copyright owners are limited by statutory provisions allowing for unauthorized uses of copyrighted information by journalists, educators, et al. See 17 U.S.C. §§ 107, 108 (2012).
[37] Many manufacturers anticipate and avert such losses through sales contract provisions that prohibit customers from reverse engineering products acquired from the manufacturer.
[38] See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 490–493 (1974) (distinguishing patent protection that operates “against the world” from trade secret protection that does not protect against independent creation or reverse engineering).
[39] See Chicago Lock Co. v. Fanberg, 676 F.2d 400, 405 (9th Cir. 1982) (finding that federal patent law would preempt any state-conferred monopoly through absolute protection of a trade secret).
[40] See Semiconductor Chip Protection Act of 1984, 17 U.S.C. §§ 901–914. (2012) (providing ten years protection for registered computer chip topographies); Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (codified in scattered sections of 5, 17, and 28 U.S.C.) (restricting the production and use of devices whose purpose is to circumvent digital rights management technologies). See Vessel Hull Design Protection Act, 17 U.S.C. §§ 1301–1332 (2012). The fashion industry has attempted, so far unsuccessfully, to obtain similar sui generis federal protection for apparel designs. See Innovative Design Protection and Piracy Prevention Act, H.R. 2511, 112th Cong. (2011).
[41] See J.H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 Colum. L. Rev. 2432, 2443 (1994) (discussing the economic and social underpinnings of sui generis intellectual property protection enacted in the United States and Europe “owing to the advent of new, information-based technologies, including computer science … whose industrial applications were costly to develop but vulnerable to rapid duplication.”).
[42] Article 4 of the Directive states: “The acquisition of trade secrets shall be considered lawful when obtained by any of the following means: (a) independent discovery or creation; (b) observation, study, disassembly or test of a product or object that has been made available to the public or that it is lawfully in the possession of the acquirer of the information; (c) exercise of the right of workers representatives to information and consultation in accordance with Union and national law and/or practices; (d) any other practice which, under the circumstances, is in conformity with honest commercial practices.” Commission Proposal, supra note 33. The underlying motivation for the proposed Directive was the lack of harmonization among the trade secret laws of the twenty-eight member states of the European Union. See Study on Trade Secrets and Confidential Business Information in the Internal Market, at 15-16 (Apr. 2013), http://ec.europa.eu/growth/tools-databases/newsroom/cf/itemdetail.cfm?item_id=8269. In June 2015 the EU Parliament approved the key features of the draft prepared by the EU Commission and EU Council. See Report on the Proposal for a Directive of the European Parliament and of the Council on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use and Disclosure, COM (2013) 813 final (Jun. 25, 2015), http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+REPORT+A8-2015-0199+0+DOC+XML+V0//EN&language=en – title1. The Directive is now being reviewed by the EU Council that will finalize a draft that will be become EU law and ultimately the basis of member states domestic legislation for trade secrets. See Mark P. Wine, One Step Closer: European Parliament Legal Affairs Committee Approves Trade Secret Directive, Orrick Trade Secrets Watch (Jun. 26, 2015), http://blogs.orrick.com/trade-secrets-watch/2015/06/26/one-step-closer-european-parliament-legal-affairs-committee-approves-trade-secret-directive/.
[43] See Roland Knaak, et al., Comments of the Max Planck Institute for Innovation and Competition On the Proposal of the European Commission for a Directive on the Protection of Undisclosed Know-how and Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use and Disclosure of 28 November 2013, COM (2013) 813 Final, Max Plank Institute for Innovation and Competition Research Paper No. 14-11, 11 (2014) (noting that the Directive does not consider trade secret protection an exclusive right but rather one obtained under unfair competition law, whereas Italian law considers trade secrets to be an intellectual property right).
[44] Id.
[45] See id. ¶ 37.
[46] Id.
[47] “Perfumers work in the strictest secrecy, jealously guarding the mysteries of their art. Since the beginning of perfume, formulas have been kept hidden from prying eyes….” Elizabeth Barillé & Catherine Laroze, The Book of Perfume 45 (1995).
[48] The still-secret formula for the liqueur Chartreuse was originally used to create a more potent potable used as medicine. See History of the Chartreuse Liqueurs, supra note 14.
[49] Napoleon III, Emperor of France between 1852 and1870, was perhaps indirectly responsible for the separation of the fragrance and pharmaceutical industries by promulgating a regulation requiring makers of pharmaceuticals to disclose on the labels of their products the ingredients they contained. To preserve the secrecy of their formulas, perfume manufacturers disassociated themselves and their products with pharmacists and pharmaceuticals. See Stamelman, supra note 1, at 95.
[50] Id.
[51] “Hubigant legend … is that Marie Antoinette, in disguise on her flight to Varennes, was wearing a Houbigant fragrance, which caused her to be identified as royalty when her coach was stopped, because none but royalty would have possessed such a magnificent perfume!” Lightyears Collection: Houbigant, PerfumeProjects.com, http://www.perfumeprojects.com/museum/marketers/Houbigant.php (last visited Jan. 19, 2016).
[52] See Briot, supra note 3, at 276 (reporting that by the end of the nineteenth century there were over 300 perfume producers in France and around 2000 small perfume shops in Paris).
[53] See, e.g., Anna Chesters, A Brief History of Guerlain, The Guardian (Mar. 26, 2012), http://www.theguardian.com/fashion/fashion-blog/2012/mar/26/brief-history-guerlain (discussing the origins of Guerlain, long a family enterprise).
[54] Eighty percent of the fragrances sold today are incorporated into personal care and household care products. See Int’l Fragrance Ass’n, supra note 25, at 14-17.
[55] In 2013, Givaudan, the world’s largest producer of flavors and fragrances had 9,331 employees distributed throughout eighty-eight locations in five continents. Givaudan, Annual Report 3 (2013).
[56] The same factors have simultaneously challenged many other high technology industries that rely on trade secrets, resulting in an enormous increase in trade secret litigation in federal courts. See David Almeling, et al., A Statistical Analysis of Trade Secret Litigation in Federal Courts, 45 Gonz. L. Rev. 291, 293 (2009/10).
[57] One such example is IPRA Fragrances’ (France) claim in 2012 against employees who joined a competitor. See Mathilde Tranoy, Deux Salairiés Accusés d’avoir Vendu des Formules Aromatiques Secrètes, Nice Matin (Mar. 30, 2012, 7:37 AM), http://archives.nicematin.com/faits-divers/deux-salaries-accuses-d%E2%80%99avoir-vendu-des-formules-aromatiques-secretes-a-grasse.830888.html. Another example is Estée Lauder’s claim against ex-employee Shashi Batra for sharing its trade secrets with a direct competitor. See Estée Lauder Cos. Inc v. Batra, 430 F. Supp. 2d 158, 160 (S.D.N.Y. 2006). A third example is, Intarome Fragrance & Flavor’s prosecution of fired employee Michael Zarkades for sharing trade secrets with E.T. Horn, a flavor manufacturer. See Intarome Fragrance & Flavor Corp. v. Zarkades, No. 07-873, 2007 U.S. Dist. LEXIS 22780, *4 (D.N.J. Mar. 29, 2007).
[58] Givaudan Fragrances Corp. v. Krivda, No. 08-04409, 2013 U.S. Dist. LEXIS 153437, *1 (D.N.J. Oct. 25, 2013).
[59] See id.
[60] Id. at *4.
[61] Id. at *6.
[62] See id.
[63] See generally Motion for New Trial by Givaudan Fragrances Corporation, Givaudan Fragrances Corp. v. Krivda, No. 08-04409 (D.N.J. Mar. 7, 2014).
[64] Apparently Givaudan did not trust the efficacy of the court’s protective order that would have purportedly prevented the disclosure of over 600 Givaudan formulas through their inclusion in the docket for this litigation. Because Givaudan would not fully disclose these formulas to the defendant and the court, the court dismissed the case based on its determination that the plaintiff failed to provide defendant adequate notice of the allegedly misappropriated trade secrets. See id. at 7–8.
[65] See generally Patrick Süskind, Perfume: The Story of a Murderer (1985).
[66] See generally Tim Robbins, Jitterbug Perfume (1984).
[67] See Arian van Asten, The Importance of GC and GC-MS in Perfume Analysis, 21 Trends in Analytical Chemistry 698, 699 (2002) (noting that there is little discussion in the open literature about the work of analytic chemists in the fragrance industry because “that is usually not in the best interest of the companies operating in this highly competitive market.”).
[68] See John Daintith, A Dictionary of Chemistry (6th ed. 2008).
[69] See id.
[70] See Arian van Asten, supra note 67, at 701.
[71] See Int’l Fragrance Ass’n, supra note 25, at 22-23.
[72] For example, Pirate Parfum, the self-proclaimed producer of “[t]he greatest perfumes, at impertinent prices,” is a significant player in this industry. It does not sell counterfeits of well-known perfumes, but rather copies of them that are branded with different names, and sold in uniform and non-descript packaging with no resemblance to that of the original products. See Pirate Parfum: Master Perfumer, https://us.pirate-parfum.com (last visited Jan. 19, 2016).
[73] See Leffingwell & Associates, 2010–2014 Flavor and Fragrance Industry Leaders, http://www.leffingwell.com/top_10.htm (last visited Jan. 12, 2016). International Flavors & Fragrances (IFF) is headquartered in the United States, but originated in the Netherlands. See IFF, History Timeline, http://www.iff.com/company/history-timeline – /timeline (last visited Jan. 19, 2016).
[74] See Claire Guillemin, Law and Odeur: Fragrance Protection in the Fields of Perfumery and Cosmetics Part I, § 3 (forthcoming 2016) (discussing the origins of this understanding in the quasi-familial ethos of the fragrance industry through the early twentieth century).
[75] See Nicole Vulser, Le Groupe LVMH se Réapproprie la Fabrication de ses Parfums, Le Monde 16 (May 28, 2011) (noting that LVMH owns the Sephora chain, one of the largest retail outlets for perfume). See also, Fabien Pigalle, Grasse: Louis Vuitton se (Re)met au Parfum, Nice-Matin 36 (Apr. 13, 2012) (discussing LVMH’s plans to open in 2014 a workshop for fragrance development in Grasse).
[76] Vulser, supra note 75.
[77] Id.
[78] Id.
[79] Id.
[80] “We were presented with a fait accompli. Dior did not warn us that it would no longer market one of our flagship products,” said Frédéric Rivoire, CEO of Givaudan Fine Fragrances Europe. The shortfall for the company, even though it is working for other brands, amounts to several million euros of turnover.” Id.
[81] See Int’l Fragrance Ass’n, supra note 25, at 44.
[82] See LVMH, Perfumes & Cosmetics, http://www.lvmh.com/houses/perfumes-cosmetics/ (last visited Jan. 19, 2016).
[83] See, e.g., Commission Regulation 1367/2006 of Sept. 6, 2006, The Application of the Provisions of the Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters to Community Institutions and Bodies, 2006 O.J. (L 264) 13, 14 (granting a public right of access to information held by EU agencies relating to “emissions into the environment”).
[84] See 35 U.S.C. § 154 (2012); Convention on the Grant of European Patents, Oct. 5, 1973, 1065 U.N.T.S. 199.
[85] See 35 U.S.C. § 112 (2012).
[86] Within the fragrance industry “fine fragrances” refers to stand-alone perfumes that are worn on the body for aesthetic purposes.
[87] See 35 U.S.C. § 101 (2012).
[88] The appeal and economic value of a perfume are actually enhanced by its lack of utility. Lysol underscores the utility of its stolidly named aerosol Sanitizing Spray as an economical and effective product to control “bathroom, pet, garbage, and diaper odors,” whereas Patou fosters an attitude of hedonic and heedless extravagance in advertising Joy as “the costliest perfume in the world.” See Lysol, Lysol Neutra Air Sanitizing Spray, http://www.lysol.com/products/neutra-air/lysol-neutra-air-sanitizing-spray/ (last visited Jan. 22, 2016); Two Sides of Dear: Demystifying Patou’s Joy Perfume Promotion, Perfume Shrine (May 13, 2014), http://perfumeshrine.blogspot.com/2014/05/two-sides-of-dear-demystifying-patous.html. Economist Thorstein Veblen (1857-1929) pointed out the value associated with conspicuous wastefulness and lack of utility of certain products. “The superior gratification derived from the use and contemplation of costly and supposedly beautiful products is, commonly in great measure a gratification of our sense of costliness masquerading under the name of beauty.” Thorstein Veblin, The Theory of the Leisure Class 128 (Prometheus Books 1998) (1899).
[89] The prestige and prices of Chanel’s No. 5 and Patou’s Joy for instance, are bolstered by the fact that both products have endured since 1929 and 1921 respectively, in a market in which hundreds of new fragrances are launched (and typically fail) annually. On the other hand, most new seasonal or “celebrity” fragrances have such a limited shelf life that they need no IP protection whatever.
[90] See USPTO, USPC Index: Class 512 Perfume Compositions (2011), http://www.uspto.gov/web/patents/classification/uspc512/sched512.htm.
[91] Id. (providing an interactive index of applications).
[92] E.g., U.S. Patent No. 7,169,746 col 1 l. 6–7 (filed Mar. 26, 2002) (Shiseido’s patent for a “perfume for effecting mental control through psycho-sedation or psycho-stimulation.”). United States regulation of fragrances has been relatively sparing. The United States Fair Packaging and Labeling Act requires disclosure of ingredients used in consumer products unless such disclosure would reveal trade secrets. 15 U.S.C. § 1453 (2006). Because fragrance manufacturers assert that their compositions constitute trade secrets, their incorporation into a product is typically indicated not with a list of constituent chemicals but rather simply the term “fragrance”. The United States Food and Drug Administration (USFDA), however, classifies fragrances that are marketed for their aroma-therapeutic capacities as drugs that are subject to the Administration’s more stringent regulation. See USFDA, Aromatherapy (2015), http://www.fda.gov/Cosmetics/ProductsIngredients/Products/ucm127054.htm.
[93] See Erin McAvoy, Chemical Romance: How did Chemists Become the Greatest Force in Fragrance? The Independent (Dec. 10, 2010), http://www.independent.co.uk/life-style/fashion/features/chemical-romance-how-did-chemists-become-the-greatest-force-in-fragrance-2155817.html (noting that “synthetic raw materials, usually single molecules, enable perfumers to create entirely new smells….”).
[94] See id. See also Emma Davies, The Sweet Scent of Success, 2009 Chemistry World 40 (Feb. 2009) (discussing the deployment of several of the most significant proprietary perfume molecules in fragrances like Dior’s Poison and Donna Karan’s Be Delicious).
[95] See Leffingwell & Associates, supra note 73.
[96] See generally Wendy Wolfson, In the Fragrance Business, the Right Molecule Smells like Money, 12 Chemistry & Biology 857 (2005) (discussing Flexitrol’s attempt to become a clearinghouse for scent molecule licensing).
[97] A patent is costly and difficult to obtain because the claimant must establish that his invention effectuates new information for a useful purpose. See 35 U.S.C. §§ 101–103 (2012). Patent prosecution is costly in large part because it involves the work of highly trained examiners who investigate claims of novelty against the state of the art in a given class of goods. See MPEP § 2131 (9th ed. 2014).
[98] One must register an invention to obtain a patent for it; an author automatically obtains a copyright, however, simply by recording his original expression as text, sound, images or other copyrightable content. 17 U.S.C. § 102 (2012).
[99] In the timeworn words of Judge Learned Hand: “if by some magic a man who had never known it were to compose anew Keat’s Ode on a Grecian Urn, he would be an ‘author,’ and, if he copyrighted it, others might not copy the poem, though they might of course copy Keats’s.” Sheldon v. Metro-Goldwyn-Mayer Pictures Corp., 81 F.2d 49, 54 (2d Cir. 1936).
[100] See 17 U.S.C. § 106 (2012); WIPO, Summary of the Berne Convention for the Protection of Literary and Artistic Works (1866), http://www.wipo.int/treaties/en/ip/berne/summary_berne.html (last visited Jan. 19, 2016).
[101] See 17 U.S.C. §§ 107-110 (2012). Germany’s copyright law, for instance, has no general fair use provision, and specifies all limitations on authors’ rights under the statute. See Wencke Bäsler, Technological Protection Measures in the United States, the European Union and Germany: How Much Fair Use do We Need in the “Digital World”?, 8 Va. J.L. & Tech. 13, ¶ 4 (2003).
[102] 8 Anne, c. 19 (1710).
[103] Code de la Propriété Intellectuelle [Intellectual Property Code] Art. L. 112-1 (the last of the fourteen categories covers articles of haute couture).
[104] The House Report on the Copyright Act of 1976 states: “The bill does not intend either to freeze the scope of copyrightable subject matter at the present stage of communications technology or to allow unlimited expansion into areas completely outside the present congressional intent. Section 102 implies neither that the subject matter is unlimited nor that new forms of expression within that general area of subject matter would necessarily be unprotected.” H.R. Rep. No. 94-1476, at 51 (1976), as reprinted in 1976 U.S.C.C.A.N. 5659, 5664.
[105] Theoretically, another fragrance manufacturer could independently and legitimately re-create the copyrighted fragrance as long as this effort were done without access to the original fragrance. See discussion supra note 99.
[106] See 17 U.S.C. § 302 (2012).
[107] The most famous example of such a transcription from memory is Mozart’s of the score of Gregorio Allegri’s “Miserere” after hearing two performances of it at the Vatican in 1770. The Vatican owned the only score and parts to Allegri’s work that was performed only twice a year, during Holy Week, in the Sistine Chapel. Performers with access to the score and parts were threatened with excommunication if they were found to have copied or distributed the work outside the Vatican. “The Papacy, realising that it owned a composition of exceptional appeal, shrewdly heightened its reputation by refusing to allow any copy to leave the Sistine Chapel. This ban was supported by threats of severe punishment.” Peter Phillips, Brochure Notes to The Tallis Scholars Recording of Allegri’s Miserere (Gimell Records 1985).
[108] Makers of Sibelius music notation software, for instance, claim that their program can convert the sound of “up to 16 instruments or notes at a time into multiple staves, with up to four voices per staff.” AudioScore Ultimate 8, Sibelius, http://www.sibelius.com/products/audioscore/ultimate.html (last visited Jan. 13, 2016).
[109] See generally U.S. Copyright Office, Circular No. 50, Copyright Registration for Musical Compositions 1 (2012).
[110] See infra note 120 and accompanying text.
[111] This difficulty is nicely illustrated in one of the opening scenes of the film adaptation of Patrick Süskind’s novel Perfume: The Story of a Murderer, in which the hapless perfumer played by Dustin Hoffman struggles vainly to analyze a popular fragrance of one of his competitors. Perfume: The Story of a Murderer (Dreamworks Pictures 2006).
[112] The 1909 Copyright Act that was effective until 1978, provided an initial term of twenty-eight years, which could be renewed. Act of Mar. 4, 1909, Pub. L. No. 60-349, 35 Stat. 1035, as amended (formerly codified at 17 U.S.C. § 1 et seq.). When copyright (and patent) terms expire, the once-protected work enters the public domain and can be used by anyone.
[113] See Sid & Marty Krofft Television Productions, Inc. v. McDonald’s Corp., 562 F.2d 1157 (9th Cir. 1977) (finding that characters used in a McDonald’s television commercial copied not merely the plaintiffs’ idea of fanciful characters in action, but substantially also their specific means of conveying the idea); Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983) (finding that if “other programs can be written or created which perform the same function as an Apple’s operating system program, then that program is an expression of the idea and hence copyrightable”).
[114] See About Us, Editions de Parfums-Frédérick Malle, http://www.fredericmalle.com/about-us/frederic-malle (last visited Jan. 13, 2016).
[115] E.g., the American company International Flavors & Fragrances designated the French-educated Carlos Benaim as its first “master perfumer”. IFF Names Carlos Benaim Master Perfumer, Perfumer & Flavorist (Jan. 18, 2013), http://www.perfumerflavorist.com/networking/news/people/IFF-Names-Carlos-Benaim-Master-Perfumer-187443131.html.
[116] See, e.g., Perfumery School, Givaudan, https://www.givaudan.com/fragrances/perfumery-school (last visited Jan. 13, 2016); Perfumery School in Grasse, Grasse Inst. of Perfumery, http://www.grasse-perfumery.com/perfumery-school-in-grasse/ (last visited Jan. 13, 2016).
[117] See generally Perfumery School, supra note 116; Perfumery School in Grasse, supra note 116.
[118] See Guillemin, supra note 74, at Part IV (providing exhaustive coverage of French and Dutch copyright litigation involving fragrances).
[119] Olivia Su, Odor in the Courts! Extending Copyright Protection to Perfumes May Not Be so Nonscentsical: An Investigation of the Legal Bulwarks Available for Fine Fragrances Amid Advancing Reverse Engineering Technology, 23 S. Cal. Interdisc. L.J. 663 (2014).
[120] See Rochas v. de Laire, Cour d’appel [CA] [regional court of appeal] Paris, 4e ch., July 3, 1975, Gaz. Pal. 1976.
[121] See id.
[122] “Oeuvres de l’esprit.” Id.
[123] Mugler v. Molinard, Tribunal de commerce [T. Com.] [court of commerce] Paris, 15e ch., Sept. 24, 1999, Gaz. Pal. 2001, 17-18.01, at 5. Quest International was subsequently acquired by Givaudan in 2006. See Sam Cage, Givaudan Buys Quest from ICI, Reuters Business News (Nov. 22, 2006), http://uk.reuters.com/article/2006/11/22/uk-chemicals-givaudan-idUKL2288827020061122.
[124] See Mugler v. Molinard, Gaz. Pal. 2001, 17-18.01, at 5. Historically, in civil law regimes, like that of France, courts pay less obeisance to case law precedence than their common law counterparts; see generally Vincy Fon & Francesco Parisi, Judicial Precedents in Civil Law Systems: A Dynamic Analysis, 26 Int’l Rev. L. & Econ. 519 (2006). Accordingly, the Mugler court evidently felt no compunction about rendering a decision incompatible with that of the earlier Rochas decision by a higher court.
[125] See Mugler v. Molinard, Gaz. Pal. 2001, 17-18.01.
[126] See Bellure v. L’Oréal, Cour d’appel [CA] [regional court of appeal] Paris, 4e ch. A, Jan. 25, 2006, D. 2006, at 580, J. Daleau, aff’g Bellure v. L’Oréal, Tribunal de Grande Instance [TGI] [ordinary court of original jurisdiction] Paris, May 26, 2004, D. 2004, at 2641, note Galloux.
[127] See id.
[128] Id.
[129] HR 16 juni 2006, NJ 2006, 585 m.nt. JHS (Lancôme/Kecofa) (Neth.).
[130] See id.
[131] Id.
[132] See Beauté Prestige Int’l v. Senteur Mazal, Cour d’appel [CA] [regional court of appeal] Paris, 4e ch., Feb. 14, 2007, D. 2007, at 735, J. Daleau.
[133] Id.
[134] Id.
[135] Id.
[136] See Bellure v. L’Oréal, Cour d’appel [CA] [regional court of appeal] Paris, 4e ch. A, Jan. 25, 2006, D. 2006, at 580, J. Daleau.
[137] See Charles Cronin, Genius in a Bottle: Perfume, Copyright, and Human Perception, 56 J. Copyright Soc’y U.S.A. 427 (2009) (discussing relative acuity of human senses and its relevance to intellectual property protection).
[138] The Cour de cassation is France’s highest appellate court that is separated into six subject-matter divisions, e.g., labor, criminal, civil, etc.
[139] Société Lancôme v. Patrice Farque, Cass. com., Dec. 10, 2013 [pourvoi n° 11-19872] available at http://www.cecoa.eu/images/cecoa/artdroit201312001.pdf.
[140] See id.
[141] Id.
[142] Jean-Michel Bruguière has argued that the court’s rationalizing its decision on the imperceptibility of the intellectual investment in the creation of a fragrance is flawed: “[t]he olfactory notes of Chanel No. 5 or Eau Sauvage are as reliably and accurately identifiable as musical notes – the harmony of the Beach Boy’s “Good Vibrations” or the melody of the Rolling Stones’ “Satisfaction”. Jean-Michel Bruguière, Chroniques: Droit d’Auteur et Droits Voisins [News Column: Copyright and Neighboring Rights], 50 Propriétés Intellectuelles 51, 52 (2014). He also suggests that some contemporary works of [classical] music are no more intelligible to the public than are fragrances. See id.
[143] The U.S. Copyright Office accepts registrations for works of: literature, visual arts, performing arts, sound recordings, and single serials. See eCO Frequently Asked Questions, U.S. Copyright Office, http://copyright.gov/eco/faq.html (last visited Jan. 14, 2016).
[144] See generally Trademark “Sound Mark” Examples, U.S, Patent & Trademark Office, http://www.uspto.gov/trademark/soundmarks/trademark-sound-mark-examples (last visited Jan. 14, 2016).
[145] See, e.g., Qualitex Co. v. Jacobson Products Co., 514 U.S. 159 (1995).
[146] See discussion infra Part III.C. “The ‘trade dress’ of a product is essentially its total image and overall appearance. It ‘involves the total image of a product and may include features such as size, shape, color or color combinations, texture, graphics, or even particular sales techniques.’” Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 765 n.1 (1992) (citing Blue Bell Bio Medical v. Cin Bad, Inc., 864 F.2d 1253 (5th Cir. 1989), and John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966 (11th Cir. 1983)).
[147] See Daniel Zendel & Dennis Prahl, Making Sense of Trademarks: An International Survey of Non-Visual Marks, Trademark World, Issue 89 (1996), http://ladas.com/making-sense-trademarks-colors-sounds-scents/.
[148] See id. (noting that while the German Marks Act of 1995 accommodates color marks, the German Patent Office internal guidelines require these marks to be combined with other distinctive features to be registrable).
[149] See id. (noting the “visual perceptibility” requirement of both the Mexican Industrial Property Law and Brazilian Industrial Property Code).
[150] In 1949, for instance, in Campbell Soup Co. v. Armour & Co., the Third Circuit rejected plaintiff’s claim to the exclusive right to use the color combination of red and white on food products: “If they may thus monopolize red in all of its shades the next manufacturer may monopolize orange in all its shades and the next yellow in the same way. Obviously, the list of colors will soon run out.” Campbell Soup Co. v. Armour & Co., 175 F.2d 795, 798 (3d Cir. 1949). Over forty years later, in NutraSweet Co. v. Stadt Corp., the Seventh Circuit rejected the plaintiff’s claim to the exclusive right to use pastel blue on its sugar substitutes packaging: “if each of the competitors presently in the tabletop sweetener market were permitted to appropriate a particular color for its product, new entrants would be deterred from entering the market.” NutraSweet Co. v. Stadt Corp., 917 F.2d 1024, 1028 (7th Cir. 1990). Ultimately, in Qualitex, the Supreme Court “concluded that the color depletion issue would rarely arise and could be resolved, if necessary, by applying the functionality doctrine to prevent anticompetitive results.” 1-2 Gilson on Trademarks § 2.11.
[151] See William Landes & Richard Posner, Trademark Law: An Economic Perspective, 30 J. L. & Econ. 265, 269 (1987) (discussing this benefit as reducing “consumer search costs”).
[152] See NutraSweet, 917 F.2d at 1028.
[153] See Cronin, Genius in a Bottle, supra note 137.
[154] “Die Luft der Freiheit weht” and “Veritas” respectively. The greater the number of different colors in a mark the greater the likelihood of its distinctiveness. Nevertheless, the particular perception of color marks depends to a greater extent than that of word marks on geographical location. San Franciscans will associate a combination of the colors blue and gold with the University of California at Berkeley while residents in St. Paul will think of their city’s Bethel University. Residents of both cities will associate the combination of red, white, and blue with the United States; those of Paris and Lyon, on the other hand, will think of France (though they will reorder the colors to that of their tricolore: blue, white, and red).
[155] See 1-2 Gilson on Trademarks § 2.11 (discussing case law establishing that school colors, when used with “other indicia” of the school, can acquire secondary meaning to qualify for trademark protection).
[156] See Douglas Churovich, Intellectual Property: Policy Considerations from a Practitioner’s Perspective: Scents, Sense or Cents? Something Stinks in the Lanham Act: Scientific Obstacles to Scent Marks, 20 St. Louis U. Pub. L. Rev. 293, 293–94 (2001) (claiming that “the landmark In re Clarke decision was ill-advised since it was founded upon a poor, if not non-existent, understanding of osphresiology and the misguided application of legal principles that fail to apply to scents”); Bettina Elias, Do Scents Signify Source? An Argument Against Trademark Protection for Fragrances, 82 Trademark Rep. 475 (1992) (claiming that “fragrances only rarely, if ever, function as trademarks in the marketplace and, in those few cases in which fragrances do arguably indicate a product’s source, their trademark protection remains doctrinally problematic and potentially impossible to implement and enforce in a consistent fashion.”).
[157] Visually or verbally complex marks, however, may be weaker than simple marks because they demand more intellectual effort on the part of consumers to decipher and recall their association with a particular product or service.
[158] Most notorious is the wine industry’s attempts to suppress the fact of weak human perception of tastes and smells, with the humbuggery it uses to market its products. See David Derbyshire, Wine-Tasting: It’s Junk Science, Guardian (June 22, 2013, 7:01 PM), http://www.theguardian.com/lifeandstyle/2013/jun/23/wine-tasting-junk-science-analysis.
[159] On this question “[t]he door is firmly closed in … countries such as Brazil Japan, China and Taiwan, where scent marks are neither registrable and the courts do not appear to have considered the protection of unregistered scent marks under other legal theories.” See Zendel & Prahl, supra note 147.
[160] See First Council Directive to Approximate the Laws of the Member States Relating to Trade Marks, art. 2, O.J. L 40/1, at 2 (1989) (broadly defining trademarks as comprising “any sign capable of being represented graphically … provided that such signs are capable of distinguishing the goods or services of one undertaking from those of another undertaking”); Agreement on Trade Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments-Results of the Uruguay Round, 1869 U.N.T.S. 299, 33 I.L.M. 1197 (1994) (offering a similarly broad definition of trademarks, and the right of convention members to “require, as a condition of registration that signs be visually perceptible”).
[161] See Zendel & Prahl, supra note 147.
[162] Case C-273/00, Ralf Siekmann v. German Pat. & Tmk. Office , 2002 E.C. R. I- 11754.
[163] Id. at ¶14-15.
[164] Id. at ¶ 10-11.
[165] Id. at ¶11-13.
[166] Id. at ¶39, 45-48.
[167] Id. at 35.
[168] Id. at 54.
[169] Id. at 63.
[170] See TMEP § 807.09 (8th ed. Oct. 2014).
[171] See Trademark “Sound Mark” Examples, supra note 144.
[172] See In re Celia Clarke, 17 U.S.P.Q.2d 1238 (T.T.A.B. 1990) (finding that “the scent of a product may be registrable if it is used in a non-functional manner”).
[173] Sixteen records were obtained July 21, 2015 using the USPTO’s Trademark Electronic Search System searching the terms “for situations for which no drawing is possible, such as sound,” in the Mark Drawing Code field, and the term “fragrance” in the Description of Mark field. Trademark Electronic Search System (TESS), U.S. Patent & Trademark Office, http://tmsearch.uspto.gov (last visited Jan. 15, 2016).
[174] CITRUS FRAGRANCE, Registration No. 3,726,789 (issued 2009 for biofuel); the mark consists of a coconut scent or fragrance, Registration No. 4,113,191 (issued 2012 for retail sales); the mark consists of a high impact fragrance primarily consisting of musk, vanilla, rose, and lavender, Registration No. 4,057,947 (issued 2011 for cosmetics).
[175] The specific paper products they sought to protect were hanging file folders. See, e.g., APPLE CIDER SCENT, Registration No. 3,140,701 (cancelled in 2013).
[176] See generally, Martin Lindstrom, Buyology: truth and Lies About Why We Buy (2008) (discussing tactics by which retailers and consumer products companies sell products through the use of various sensory stimuli).
[177] See generally id.
[178] These prices were found on websites of these retailers on July 28, 2015. Target does not sell Joy in its physical stores, so its presentation costs for this product are minimal. Target, http://www.target.com/ (last visited July 28, 2015); Nordstrom, http://www.nordstrom.com/ (last visited July 28, 2015). Target’s decision not to sell Joy in stores may have been motivated by fears that the small but relatively expensive item would be attractive to shoplifters. It may also have contracted with Patou not to do so based on Patou’s concern about the pollution of its brand through association with Target. The existing arrangement benefits both companies because underlying it is a conspiratorial understanding between them and consumers who would be embarrassed by purchasing a high-end product at a brick-and-mortar Target bargain-counter. Eau de toilette is the most diluted version of a fine fragrance, and the only version of Joy sold by Target. Nordstrom also sells Eau de parfum that is less diluted, and more expensive, than the Eau de toilette. Nordstrom does not sell the parfum, a half ounce of which is sold only at top-tier shops like Neiman Marcus for about $350. Target, http://www.target.com/ (last visited July 28, 2015); Nordstrom, http://www.nordstrom.com (last visited July 28, 2015); Nieman Marcus, http://www.niemanmarcus.com/ (last visited July 28, 2015).
[179] See David Suisman, Selling Sounds: The Commercial Revolution in American Music 66 (2012).
[180] These venues include not only restaurants featuring the dreaded “strolling musicians” but also Nordstrom department stores where former U.S. Secretary of State Condoleezza Rice once anticipated making a living as a musician. See Elisabeth Bumiller, Condoleezza Rice: An American Life 56 (2007).
[181] See Suisman, supra note 179.
[182] “[M]usic, any music at all, is so welcome to the weak of mind and so readily supplied by their commercial manipulators that almost all the music you hear, at least all you hear inadvertently, is BAD.” Paul Fussell, Bad: Or, The Dumbing of America 126 (1991).
[183] See generally George Prochnik, In Pursuit of Silence: Listening for Meaning in a World of Noise (2010) (discussing soundscapes developed on behalf of Abercrombie & Fitch).
[184] See Lindstrom, Brand Sense, supra note 23, at 72 (observing that “while hearing involves receiving auditory information through the ears, listening relies on the capacity to filter, selectively focus, remember, and respond to sound”).
[185] Broadcasting music recordings has also been used effectively to alienate undesirables from commercial spaces. See Twilight of the Yobs: How Classical Music Helps Keep Order, Economist (Jan. 6, 2005), http://www.economist.com/node/3536150.
[186] See Lindstrom, Brand Sense, supra note 23, at 74 (noting that in Disney World “carefully choreographed sound is piped through the entire park. Even the bird sounds are controlled. It’s a whole environment designed to capture the hearts of children and waken the child within each adult.”).
[187] A Gap store in San Francisco enables customers to use smart phones to select the muzak they hear while shopping. See Gap Pilots In-Store DJ System, Lets Customers Pick and Play Music, VentureBeat (Nov. 21, 2011, 9:13 AM), http://venturebeat.com/2011/11/21/roqbot-gap/. It seems unlikely, however, that retailers would ever provide customers the wondrous capacity simply to turn off a soundtrack.
[188] See generally Prochnik, supra note 183.
[189] Marketing researchers have established that classical music played in a commercial setting increases the “quality sensation”. See Annabel Elliott, The Buy-ology of a Shopping Spree: How Stores like Apple and Victoria’s Secret Use Scent, Sound and Color to Make You Spend More Money, Daily Mail (Dec. 5, 2014), http://www.dailymail.co.uk/femail/article-2861386/The-Buy-ology-shopping-spree-stores-like-Apple-Victoria-s-Secret-use-scent-sound-color-make-spend-money.html. Accordingly, one is more likely to hear classical music in a high-end restaurant or art gallery catering to discerning customers than in a fast-food joint or sneaker shop targeting teenagers. See id.
[190] See id.
[191] In the 1930s, a Connecticut home insurance firm impregnated their advertising brochures with the scent of charred wood. See Marston Bogert, Your Nose Knows, 39 Sci. Monthly 345 (1934). Such uses of scents capitalize on their potential to conjure powerful memories instantaneously, a phenomenon known as the “Proustian effect”. See Sarah Dowdey, Does What You Smell Determine What You Buy?, How Stuff Works, http://money.howstuffworks.com/scent-marketing.htm (last visited Jan. 14, 2016). “When you first perceive a scent, you connect it to an event, person or thing. When you smell the scent again, it often triggers memory in the form of a conditioned response . . . smell can also activate the subconscious and influence your mood. Instead of reminding you of specific details from [a] vacation, [an] ocean scent might make you feel content or happy.” Id.
[192] See Roxie Hammill & Mike Hendricks, Scent Received, With a Tap of a Smartphone, N.Y. Times (July 8, 2015), http://www.nytimes.com/2015/07/09/technology/personaltech/scent-received-with-a-tap-of-a-smartphone.html (discussing “Scentee”, “oPhone Duo” and other mechanisms developed to generate specific scents in response to digitally communicated instructions).
[193] “The real action, however, lies in projecting olfactory character into indoor commercial spaces. This application has been fully embraced in one large business sector: the gaming industry. Las Vegas is the trend’s epicenter; half the major properties on the Strip have scent systems. The MGM Grand has deployed as many as nine scents simultaneously around its property and the Venetian features a corporate logoscent called ‘Seduction’.” Lindstrom, Brand Sense, supra note 193, at 171.
[194] Alexia Elejalde-Ruiz, For Branding, Many Places Adopt Signature Scents, L.A. Times (April 14, 2014, 7:05 PM), at http://www.latimes.com/business/la-fi-scent-branding-20140419-story.html – page=1. Even Goodwill Industries now infuse the air of their retail shops with a bespoke fragrance. See id. Goodwill’s motivations for doing so, however, differ from those of a retailer like Bloomingdales. Bloomingdales scents its air to promote an atmosphere of luxury and exclusivity; Goodwill uses fragrance to counter an atmosphere of frugality, if not penury, associated with the sale of used apparel of questionable cleanliness.
[195] See L. Aruna Dhir, Scent of a Hotel, 4 Hoteliers (Dec. 3, 2013), http://www.4hoteliers.com/features/article/8037.
[196] See Caroline Cerny, A New Scent at Park Hyatt Zurich, Hyatt (May 1, 2008), http://newsroom.hyatt.com/2008-05-01-A-New-Scent-At-Park-Hyatt-Zurich (discussing how parfumeur Blaise Mautin creates different scents for Hyatt depending upon the location of the hotel; Zurich’s commercial vibe is captured in an astringent scent).
[197] “Global Hyatt offers… more than 750 hotels in more than 45 countries.” Id.
[198] In one branding study, a teenager expressed confidence that the Abercrombie jeans she had been handed were authentic, and not a knockoff pair bought from a sidewalk vendor, because they were imbued with Abercrombie’s signature scent. See Lindstrom, Brand Sense, supra note 23, at 2.
[199] Fierce Cologne, Abercrombie & Fitch, http://www.abercrombie.com/shop/us/mens-cologne/fierce-cologne-5217072_01 (last visited Jan. 14, 2016). “Fierce” was created by Christophe Laudamiel, a gay parfumeur from France. See Serguey Borisov, Intervew with Christophe Laudamiel, Fragrantica (Apr. 13, 2014, 7:03 AM), http://www.fragrantica.com/news/Interview-with-Christophe-Laudamiel-5381.html.
[200] Abercrombie & Fitch is a “retailer of men’s and women’s casual clothing, such as t-shirts, outerwear, sweatshirts, woven shirts, sweaters, jeans, khakis, shorts, baseball caps, belts, socks, and other accessories . . . designed primarily to appeal to young men and women of college age.” Abercrombie & Fitch Stores, Inc. v. Am. Eagle Outfitters, Inc., 280 F.3d 619, 624 (6th Cir. 2002). See generally Prochnik, supra note 183, at 89 – 106 (2010) (documenting the marketing tactics of Abercrombie and similar retailers to attract young customers by creating alluringly risqué environments)
[201] Tmep, § 1202.02 (8th ed. Oct. 2014).
[202] See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992) (finding that the overall décor of the respondent’s restaurant was inherently distinctive, and therefore protectable trade dress, even though respondent had not demonstrated that this décor had acquired secondary meaning).
[203] Marks that are not inherently distinctive, but otherwise meet registration requirements, may be registered on the Secondary Register. See Glynn S. Lunney, The Trade Dress Emperor’s New Clothes: Why Trade Dress Does Not Belong on the Principal Register, 51 Hastings L.J. 1131 (2000) (discussing significance of registration on the Principal rather than Supplemental Register).
[204] See 1-2 Gilson on Trademarks § 2A.01 (noting that “although there is no empirical evidence, it appears that most trade dress is not registered and may instead be judicially protected under Section 43(a) of the Lanham Act”).
[205] This was true, for example, of the trade dress at issue in Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159 (1995). Qualitex had been using the contested trade dress for about thirty years and only attempted to register it as a trademark when a competitor began using a similar trade dress.
[206] General Mills, History of Innovation: The History of Betty Crocker, www.generalmills.com/~/media/Files/history/hist_betty.pdf; History of the Morton Salt Girl, Morton Salt, http://www.mortonsalt.com/our-history/history-of-the-morton-salt-girl (last visited Jan. 14, 2016).
[207] See 1-2 Gilson on Trademarks § 2.11 (citing Martin Lindstrom’s Brand Sense: Build Powerful Brands Through Touch, Taste, Smell, Sight, and Sound, in which the author argues that given the overload of information in today’s marketplace, retailers must develop multisensory brands to reach consumers). Lindstrom, Brand Sense, supra note 23.
[208] See generally Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992); Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159 (1995).
[209] See Two Pesos, 505 U.S. at 767.
[210] See id. at 766.
[211] See id. at 764.
[212] See id. at 766. The plaintiff’s exhibits of images of the competing restaurants suggest that the district court jury was likely swayed in their verdict of infringement by the fact that the defendant not only copied the plaintiff’s colors, and architectural features, but also the size and arrangement of these features, down to the flower pots along an exterior wall. Photos of both restaurants are provided in the slides of Michael Atkins’ presentation Trade Dress Protection in the United States, given at the University of Washington School of Law. Michael Atkins, Trade Dress Protection in the United States, SlideShare, http://www.slideshare.net/mikeatkins/alicante-presentation-7504041 (last visited Jan. 14, 2016).
[213] See Two Pesos, 505 U.S. at 767.
[214] See id. at 766.
[215] Qualitex Co. v. Jacobson Prods. Co., 514 U.S. 159 (1995).
[216] See id. The pads, sold to dry cleaning establishments, look like ironing board covers. See SunGlow Press Pads, Qualitex, http://www.qualitexco.com/http/pads.html (last visited Jan. 15, 2016).
[217] See Qualitex Co. v. Jacobson Prods. Co., 13 F.3d 1297 (9th Cir. 1994).
[218] See Qualitex, 514 U.S. at 161.
[219] See id. at 174.
[220] See id. at 164.
[221] See Qualitex Co. v. Jacobson Prods. Co., 13 F.3d 1297, 1299 (9th Cir. 1994).
[222] See id.
[223] See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 775 (1992).
[224] See, e.g., AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531, 1536 (11th Cir. 1986) (basing its finding that plaintiffs owned protectable trade dress in their packaging of Klondike ice cream bars on the fact that the images were not “a basic shape or common design [but] . . . [r]ather . . . a complex composite of size, color, texture and graphics . . . [creating] a distinctive visual impression”).
[225] See discussion supra Part I.
[226] See discussion supra Part I.
[227] See discussion supra Part I.
[228] See supra note 139 and accompanying text.
[229] See Copyright Act of 1976, 17 U.S.C. §106 (2012). “Mom & Pop” restaurants and retail establishments are exempt from this requirement. See id. at § 110. These royalties are managed by performing rights organizations, the largest of which is ASCAP. See Am. Soc’y of Composers, Authors & Publishers, http://www.ascap.com (last visited Jan. 14, 2016).
[230] See Kimberlianne Podlas, I Do Not Endorse This Message! Does a Political Campaign’s Unauthorized Use of a Song Infringe on the Rights of the Musical Performer?, 24 Fordham Intell. Prop. Media & Ent. L.J. 1 (2013) (arguing that performers of copyrighted musical works should not be able to prevent uses of their performances that are legitimate under copyright law, based on trademark claims).
[231] See id.
[232] Mr. Softee, Inc. could still assert copyright to control performances of their registered song, written by jingle composer Les Waas in 1958. See Daniel Neely, Ding, Ding!: The Commodity Aesthetic of Ice Cream Truck Music, in Mobile Music Studies, Vol. II 155 (2014). In fact, Les Waas’s melody is highly derivative of the English Folk tune, “How many miles to Babylon?”. See Eloise Hubbard Linscot, Folk Songs of Old New England 18 (1939) (providing words and music notation of the song).
[233] The same fate did not befall Coca Cola Company’s jingle “I’d Like to Buy the World a Coke” despite the fact that Coca Cola later authorized the use of its melody in the pop song “I’d Like to Teach the World to Sing,” recorded by The Hillside Singers. See The “Hilltop” Ad: The Story of a Commercial, Libr. of Congress, http://lcweb2.loc.gov/ammem/ccmphtml/colaadv.html (last visited Jan. 15, 2016). This is because whenever Coca-Cola advertised its products using the jingle, the words identifying Coca-Cola were always heard along with the melody.
[234] See Neely, supra note 232, at 146 (noting that the sound of ice cream truck music is not Pavlovian – i.e. stimulating a reflexive response to want ice cream – but rather plays on an “anamnesis” conditioned on the ability to recognize a specific product through sound).
[235] Health regulations rather than intellectual property rights are more likely to affect a retailer’s use of fragrances in commercial and public spaces. See Stuart Elliott, Joint Promotion Adds Stickers to Sweet Smell of Marketing, N.Y. Times (Apr. 2, 2007), http://www.nytimes.com/2007/04/02/business/media/02adcol.html (discussing the San Francisco’s Municipal Transportation Authority’s order to the California Milk Processor Board to remove chocolate-scented advertisements posted near public bus stops); Rachel Herz, The Scent of Desire: Discovering Our Enigmatic Sense of Smell 14 (2007) (noting that Halifax, Nova Scotia has enacted regulations making illegal the wearing of fragrances in public).
[236] See Copyright Act of 1976, 17 U.S.C. §106 (2012). The possibility of copyright protection for fragrances raises the question how moral rights of attribution, reputation, etc. would be applicable to them under copyright regimes like that of France, that provide such protection. See Code de la Propriété Intellectuelle [Intellectual Property Code] L. 121-1- L. 121-4 (1992).
[237] Lanham Act § 43(a), 15 U.S.C. § 1125 (2012) (prohibiting conduct “likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person. . . .”).
[238] See John Tagliabue, Why European Computer Makers Flop, N.Y. Times (Oct. 7, 1996), http://www.nytimes.com/1996/10/07/business/why-european-computer-makers-flop.html.
[239] Lanham Act § 43(a), 15 U.S.C. § 1125 (2012).
[240] Such efforts would involve wearing unwieldy headphones, blinders, or similar paraphernalia, the use of which may elicit ambivalence by spectators as to the mental stability of the wearer.
[241] See Jennifer Chen, Human Olfactory Perception: Mechanism, Characteristics, and Functions (May, 2013) (unpublished Ph.D. dissertation, Rice University) (on file with author); see also Avery Gilbert, What the Nose Knows: The Science of Scent in Everyday Life 85 (2008) (positing that “[t]he longer you are exposed to an odor, the more you adapt to it. Step into a garlic factory and the reek will overwhelm you. A few minutes later its intensity fades, and after an hour you might not be able to smell garlic at all, no matter how hard you try. Work there a few months and this adjustment will happen almost as soon as you step in the door”).
[242] See Gilbert, supra note 241, at 85. It is this habituation that prompts retailers of perfumes to keep at hand a saucer of coffee beans, the odor of which contrasts sharply with that of fine fragrances, thereby enabling customers to “reset” their olfaction, allowing them to perceive fragrances anew. Nevertheless, Gilbert notes that: “the bean meme is now a fixture in perfume retailing… The Jo Malone display in Saks had them [coffee beans] in an apothecary jar with a metal lid. It’s all good fun and marketing, but there is not a jot of science behind it. (There are twenty-seven aroma impact molecules in roasted Arabica coffee – how could smelling all these help clear the nose?)” Id. at 108.
[243] See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992).
[244] Dior’s fragrances like Miss Dior and Diorissimo, for instance, were developed, and manufactured by Givaudan. See supra note 77 and accompanying text
[245] See Roberta Kwall, The Soul of Creativity: Forging a Moral Rights Law for the United States 91 (2009) (suggesting an inherent “degradation” of both attributed author and ghostwriter when the ghostwriter creates most of a literary work but without attribution).
[246] See, e.g., United Nations Economic Commission for Europe, Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters, June 25, 1998, 2161 U.H.T.S. 450 (granting the public right of access to any information held by European Union agencies relating to emissions into the environment); International Fragrance Association, North America, Federal Regulatory Chart, http://ifrana.org/advocacy/laws-and-regulations/federal/ (identifying seven federal agencies involved in regulating fragrance ingredients and manufacturing in the United States).
[247] See discussion supra Parts I & II.
[248] See discussion supra Part II.A.
[249] Givaudan, the largest fragrance manufacturer, dates its origins to 1786. See A Rich Heritage of Growth, Givaudan, https://www.givaudan.com/our-company/rich-heritage (last visited Jan. 14, 2016). IFF was established in 1889. See History Timeline, Int’l Flavors & Fragrances, Inc., http://www.iff.com/Company/IFF-History (last visited Jan. 14, 2016). Firmenich was established in 1895. See Company, Firmenich, http://www.firmenich.com/en_INT/company.html (last visited Jan. 14, 2016). Symrise merged Haarmaan & Reimer (1874) and Dragoco (1919). See History, Symrise, https://www.symrise.com/company/organization/history/ (last visited Jan. 14, 2016). Only Takasago was established in the twentieth century. See History of Taskago, Takasago, http://www.takasago.com/en/aboutus/history/1920.html (last visited Jan. 14, 2016).
[250] See generally, Podlas, supra note 230 and accompanying text.

Addressing Climate Change: Domestic Innovation, International Aid and Collaboration

Addressing Climate Change: Domestic Innovation, International Aid and Collaboration
By Joy Y. Xiang* Download a PDF version of this article here.
 

Introduction

“[T]he question before us is no longer the nature of the challenge — the question is our capacity to meet it.”

– Barack Obama[1]

In December 2009, at the 15th global climate change conference in Copenhagen, leaders from 115 nations gathered to negotiate an international agreement for addressing climate change.[2] The agreement was expected to include provisions to enhance the international transfer of technologies capable of adapting to or mitigating climate change.[3] Unfortunately, the talks stalled. Developed and developing nations disagreed on a host of issues, especially the treatment of intellectual property rights “IPR” protecting clean technologies.[4] Even before the Copenhagen conference, developing nations proposed to exclude clean technologies held by developed nations from patent protection.[5] Developed nations, meanwhile, considered that IPR should not be part of the global climate change negotiations and proposed to remove provisions dealing with IPR from the negotiations.[6] The Copenhagen conference resulted in a non-binding agreement[7] that did not reference IPR issues.[8] Nevertheless, the debate regarding IPR persisted through the subsequent global climate change negotiations. The global climate change conference, held in Lima in December 2014, presented both developed nations’ and developing nations’ positions regarding IPR as equal options to be negotiated at the next global climate change conference in Paris in December 2015.[9] The agreement resulting from the 2015 Paris conference, however, did not mention IPR issues; just as in the Copenhagen conference, the preference of developing nations was not reflected.[10] The debate regarding the treatment of IPR in the climate change context breaks down as follows: developed nations[11] insist on strong IPR for clean technologies, viewing IPR as indispensable for incentivizing the development of such technologies and facilitating their deployment. Conversely, developing nations[12] have sought to weaken or even remove IPR for clean technologies, viewing the existence of IPR as a major barrier to the international transfer of clean technologies. Hence, an ongoing divide exists between developing and developed nations regarding the role of IPR in the international transfer of clean technologies for addressing climate change. International agencies such as the World Trade Organization “WTO”, the World Intellectual Property Organization (‘WIPO”, the United Nations Environmental Programme “UNEP”, the World Meteorological Organization, and the World Bank have all initiated discussions to resolve the divide.[13] The stakeholders in this discussion include governments, public entities, and commercial entities from developed and developing nations, and those with interests in combatting climate change. To date, these shareholders are still searching for effective solutions. This article joins the search by exploring whether the existence of IPR is a major barrier to the international transfer of clean technologies, and the possible reasons behind the currently limited transfer of clean technologies to developing nations. After analyzing evidential data available on clean technologies and reviewing current scholarship on international technology transfer, this article concludes that IPR has been a major barrier to the international transfer of clean technologies, and that successful and sustainable international transfer of clean technologies needs certain conditions, which require efforts from both developing and developed nations. To create such conditions, and continue advancing the effort of leveraging clean technologies to address climate change, this article proposes a solution based on domestic innovation, international aid, and international technology collaboration, instead of the international transfer of clean technologies. This article proceeds as follows. Part I reviews climate change, the role of clean technologies in addressing climate change, the reality of international transfer of clean technologies, and the disagreement between developed and developing nations over how to improve international transfer of clean technologies to developing nations. Part II explores whether the existence of IPR is a major barrier to the international transfer of clean technologies to developing nations and what may be the reasons for the currently limited international transfer of clean technologies to developing nations. Based on Part II’s analysis and findings, Part III proposes the solution summarized above. Part IV discusses the advantages and concerns regarding the solution.

I. Groundwork: Climate Change, Clean Technologies, and International Transfer of Clean Technologies

The development and deployment[14] of clean technologies are a central part of the response to climate change. Because of developing nations’ need for clean technologies, and because developed nations own the majority of the existing clean technologies, transfer of clean technologies from developed nations to developing nations has been the focus of the global effort in leveraging clean technologies to address climate change. However, despite this focus, such transfers have been limited in the past two decades, with the majority going to the emerging economies,[15] and little being transferred to the other developing nations. Meanwhile, developed and developing nations continue to disagree on how to improve the situation.

A. Climate Change

Climate change is occurring, and its impact is global. Human activities using high-carbon technologies have been deemed the main cause of climate change. In the context of this article, the term “climate change” refers to change in global or regional climate patterns, such as increasing global temperature and the rising sea level, which have become particularly apparent from the mid to late 20th century onwards.[16] The Intergovernmental Panel on Climate Change “IPCC”,[17] the leading international scientific organization for assessing climate change, concluded that the period spanning from 1983-2012 was likely the warmest period of the past 1,400 years.[18] The IPCC also concluded that greenhouse gases “GHG” present in the atmosphere are at levels unprecedented in at least the past 800,000 years.[19] The effect of climate change on human and natural environments is global. The IPCC found that changes in climate have impacted natural and human systems on all continents and across the oceans.[20] These impacts include alteration of ecosystems, disruption of water supply, reduction of crop yields that result in increased food price and food insecurity, excess heat-related human mortalities, and infectious disease patterns.[21] According to a 2009 report by the Global Humanitarian Forum, climate change costs 300,000 human lives each year, and leaves 300 million people vulnerable to its effects, a number set to double by 2030.[22] The United Nations Framework Convention for Climate Change “UNFCCC”,[23] the main global agreement designed for addressing climate change, attributes climate change “directly or indirectly to human activity that alters the composition of the global atmosphere.”[24] In its latest assessment report, the IPCC once again confirmed that, using statistical qualification methods on the scientific data collected, “it is extremely likely that human influence has been the dominant cause of the observed warming since the mid-20th century.”[25] The human influence or activities referred to involve the use of fossil fuel,[26] e.g., by developed nations’ coal-fired industries since the Industrial Revolution and today’s hydro-carbon fueled transportation industries. These human activities account for the 70% increase in GHG emissions from 1970 to 2004.[27] Technologies relying heavily on fossil fuel — such as steam-engine locomotives, ships, airplanes, and power grids — were the backbone of these human activities. These high-carbon technologies attributed to the increased GHG emissions, leading to climate change.

B. Clean Technologies

Going forward, clean technologies[28] play a critical role in the solution for climate change. These technologies produce low GHG emissions and enable us to mitigate or adapt to climate change. Rapid development and deployment of clean technologies is needed to address climate change and to make clean technologies viable market alternatives to traditional high-carbon technologies. Stakeholders in climate change have agreed that the ability for humans to survive climate change largely depends on the rapid development and global deployment of a wide variety of clean technologies.[29] The UNFCCC recognized clean technologies as an important route for addressing climate change.[30] The United Nations General Assembly also adopted resolutions recognizing the fundamental role played by innovative clean technologies in addressing climate change.[31] Discussions about addressing climate change have generally focused on mitigation and adaption. The UNFCCC defines mitigation as human intervention to reduce the production or enhance the removal of GHGs, and adaptation as adjustment in natural or human systems in response to actual or expected climatic change, which moderates harm or exploits beneficial opportunities brought by climate change.[32] Mitigating climate change is crucial. Assessments have suggested that to avoid the catastrophic effects of climate change, global average temperature should rise no more than 2°C above pre-industrial level “the 2°C goal”.[33] In order to limit temperature increase, GHG concentrations in the atmosphere need to be stabilized so that they will not continue to cause further atmospheric warming. Nations that are parties to the UNFCCC have committed to limit GHG emissions in a way to achieve the 2°C goal.[34] However, achieving this goal would require the development and deployment of a wide range of clean technologies.[35] For example, the IPCC determined that the necessary mitigation technologies include technologies that utilize renewable energy sources — e.g., solar, wind, biomass, geothermal and hydro energy — to produce electricity, clean coal technologies that reduce GHG emissions from fossil fuel burning, and technologies to improve energy efficiency.[36] While mitigation is crucial, adapting to the impact of climate change is also an important, long-term effort. Many GHGs stay in the atmosphere for a hundred years or more.[37] Even if we were to completely stop GHG emissions now, the existing GHG concentration in the atmosphere would still cause a certain amount of future rise in global average temperature. Like mitigation, adaption will also require the development and deployment of certain technologies, such as seeds that can survive flooding caused by rising sea levels, irrigation technologies for resisting droughts, and early-warning or defense systems for extreme weather.[38] Clean technologies have developed significantly in the past decades. For example, technological advancements have reduced the production cost of wind energy by 80% over the last twenty years and solar power by 90% since the 1970s.[39] However, even with these achievements, there remains a considerable gap between current efforts to develop clean technologies and the level of investment required. First, multiple sectors of clean technologies will require breakthroughs in development. The UNFCCC indicates that further breakthroughs are needed in the areas of carbon capture and storage, hydrogen and fuel cells, biofuels, power storage systems and micro-generation, clean energy technologies, early warning systems for extreme weather events and biotechnology.[40] For example, waves of retiring fossil-fuel-based power plants are ready to adopt clean coal technologies, such as carbon capture and sequestration.[41] However, carbon capture and sequestration technologies have advanced slowly.[42] In order to meet the 2°C goal, carbon capture and sequestration technologies must double their capture and storage rates by 2025.[43] Second, further technical advancements are needed to reduce the price of clean technologies and make them viable alternatives to traditional high-carbon technologies. Currently, clean technologies are often more expensive than existing fossil-fuel-based technologies.[44] For example, renewable energy technologies still need significant innovation to compete with traditional hydrocarbon-based technologies at similar price level.[45] The World Bank indicated that energy storage would need further cost reduction and performance improvement for large-scale deployment of solar and wind power and electric vehicles.[46] In 2012, the global energy demand for fossil fuels was 82% while the demand for renewable energies was a mere 13%.[47] The consumption of modern renewable energies has risen at an annual growth rate of 4%, while an annual growth rate of 7.5% is needed.[48] Third, the deployment of clean technologies needs to accelerate. To meet the 2°C goal, the net volume of global anthropogenic GHG emissions will need to be reduced 60% by 2050, using the 2000 global anthropogenic GHG emissions as a base line.[49] However, the traditional model of technology deployment may be too slow to achieve a 60% reduction in global GHG emissions by 2050. Studies show that inventions in the energy sector generally take 20-30 years to reach mass markets, which normally start first in the nations where the inventions are developed.[50] Under the traditional model of deployment, developed nations develop new technologies, which reach developing nations via commercial roll-outs.[51] To accelerate the development and deployment of clean technologies, one possible approach is for both developing and developed nations to develop and deploy clean technologies independently and collaboratively, instead of relying on the traditional model of deployment. The recent rapid R&D efforts for clean technologies in Brazil, China, India, and a few other developing nations illustrate the independent effort by developing nations, and the Mediterranean Solar Plan illustrates the collaboration between developed and developing nations on a large scale.[52] However, these exemplary practices are yet to become common practice.

C. International Transfer of Clean Technologies to Developing Nations

While rapid development and deployment of clean technologies is important, widespread transfer of clean technologies to developing nations has been deemed as much so, if not more, important. Developing nations are increasingly in need of clean technologies due to rising energy consumption and the corresponding environmental impact. Since developed nations currently own the majority of the existing clean technologies, transfer of clean technologies from developed nations to developing nations has become a focus of the global climate change efforts. However, during the past two decades, actual transfer of clean technologies to developing nations has been limited.
1. Transferring Clean Technologies to Developing Nations Has Been an Important Focus of International Climate Change Efforts
International instruments such as the IPCC and the UNFCCC have emphasized the transfer of clean technologies from developed to developing nations. This emphasis seems appropriate, given developed nations’ ownership of most existing clean technologies under IPR protection and the growing need of developing nations to employ clean technologies to address climate change and to develop their economies.[53] In developing their economies, developing nations have increased their demand for energy resources, and have thus increased their impact on the environment. For example, in 2014, China became the world’s largest overall energy consumer, followed by the U.S., the EU, and India.[54] Historically, developed nations dominated in GHG emissions.[55] However, starting in 2004, developing nations’ GHG emissions from energy use surpassed those of developed nations;[56] by 2010, the GHG emissions from developing nations exceeded those of developed nations by about 40%.[57] Much of this increase may be traced to the rapid growth of China, India and other emerging economies. This figure is expected to increase to 130% by 2040.[58] Therefore, to prevent further aggregation on the climate, it is important that developing nations fully utilize clean technologies in the pursuit of economic development. On the other hand, developed nations currently own most of the existing clean technologies that are protected by IPR.[59] For example, according to a 2008 international survey, developed nations owned 80% of patents covering relevant clean technologies (though the percentage was a significant reduction from ten years ago, where developed nations owned 95% of the patents on clean technologies.)[60] Consequently, global climate change technology efforts have focused on the transfer of clean technologies from developed nations to developing nations. As early as 1992, the IPCC pointed out that “as the GHG emissions in developing nations are increasing with their population and economic growth, rapid transfer, on a preferential basis to developing nations, of technologies which help to monitor, limit or adapt to climate change, without hindering their economic development, is an urgent requirement.”[61] The UNFCCC, signed in 1992, subsequently listed technology transfer as a main method for addressing climate change. The UNFCCC requires developed nations to take “all practicable steps to promote, facilitate and finance, as appropriate, the transfer of or access to environmentally sound technologies and know-how” to other nations, particularly developing nations.[62] The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights “TRIPS Agreement”, signed in 1994, also asks developed nations to promote and encourage technology transfer to the least developed countries “LDCs” members.[63] Specifically, the TRIPS Agreement asks developed nations to “provide incentives to enterprises and institutions in their territories” so as to promote and encourage technology transfer to the LDCs to “enable them to create a sound and viable technological base.”[64] To facilitate the transfer of clean technologies, the UNFCCC has set up several mechanisms. The first mechanism is a technology transfer framework established in 1992, when the UNFCCC was signed. The framework has several components,[65] including a Technology Needs Assessment component wherein parties of the UNFCCC identify and prioritize the clean technologies needed, as well as determine the major barriers for the inbound transfer of clean technologies.[66] The second is the Clean Development Mechanism (CDM) and Joint Implementation (JI) mechanism established by the UNFCCC Kyoto Protocol[67] in 1997. The CDM and JI mechanisms allow a nation with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to implement an emission-reduction or emission-removal project in developing nations. Such projects can earn scalable emission reduction credits that are counted toward the Kyoto commitment of the providing nation.[68] The third is the Technology Mechanism established by the 2010 Cancun climate change conference, to help nations develop and transfer clean technologies.[69] The Technology Mechanism aims to support and accelerate clean technology diffusion via a nation-driven approach, based on national circumstance and priorities of developing nations.[70]
2. Technology Transfer Defined
The IPCC defines technology transfer as “a broad set of processes covering the flows of know-how, experience and equipment for mitigating and adapting to climate change” among and between all nations.[71] The IPCC considers technology transfer to include the adaptation of the transferred technology, “the process of learning to understand, utilize, and replicate the technology, including the capacity to choose and adapt to local conditions and integrate it with indigenous technologies.”[72] The Kyoto Protocol of the UNFCCC also has a broad definition of technology transfer, which includes providing developing nations the know-how and best practices associated with a transferred technology.[73] Channels for technology transfer can be market-based, such as trade, foreign direct investment and technology licensing.[74] Transfer can also be informal. Organizations or individuals may engage in unsanctioned imitation and technical and managerial personnel may bring “know-how” with them as they change employment.[75] Technology transfer can be initiated by the commercial sector or the public sector. In practice, most technology transfer occurs in the commercial sector.[76] Nevertheless, the role of the public sector is important. Technology transfer normally is neither an automatic nor a costless process, and it can become subject to market failures; in such cases, public interventions such as legal and policy incentives are necessary.[77]
3. International Transfer of Clean Technologies to Developing Nations Has Been Limited
In spite of the support mechanisms provided by the UNFCCC system and TRIPS Agreement, the international transfer of clean technologies to developing nations has been limited. In particular, extensive surveys conducted in the past two decades reveal that foreign clean technologies are not reaching developing nations adequately, especially the LDCs.[78] In 2011, researchers from the London School of Economics and Political Science and the Organization for Economic Cooperation and Development “OECD” published a global survey on the invention and transfer of climate change mitigation technologies “Study A”.[79] Study A analyzed the geographic distribution of thirteen classes of climate mitigation technologies during 1978-2005, and was based on patent data from over eighty national and international patent offices.[80] As the figure below shows, Study A found that international transfer of clean technologies mostly occurred between developed nations (73% of the overall exported inventions).[81] It also noted that exports of clean technology inventions from developed nations to emerging economies — such as China, Brazil, and India — were growing rapidly (22% of the overall exported inventions).[82] The study further found that the flow of clean technology inventions from developing nations to developed nations made up 4%, while the flow between developing nations was much less, a mere 1% of the overall flow.[83] This implies that the transfer of clean technologies from developed nations to developing nations that are not emerging economies was almost nonexistent.
X
A different global patent survey confirms the findings of Study A. In 2010, the UNEP, the European Patent Office and the International Centre for Trade and Sustainable Development conducted a study[84] of the patenting landscape and licensing practices of key clean energy technologies[85] “Study B”. This study discovered that 58% of its respondents (entities based in developed nations) reported they had not entered into licensing agreements with entities based in a developing nation during the three years before 2010, the time when Study B was conducted.[86] Conversely, Study B found that the owners of clean technologies were willing to transfer the technologies. Of the respondents in Study B, 73% believed it was important to seek opportunities to license out their technologies, and 82% viewed IPR as vital to licensing transactions.[87] This data indicates that clean technology owners do want to transfer the technologies, and the existence of IPR is critical to facilitating such transfers. Study B also found that clean technology owners, especially academic and public organizations, were generally open to providing flexible licensing terms to entities based in developing nations with limited financial resources.[88] Similar to Study A, Study B also found that emerging economies such as China, Brazil, India and Russia were the main beneficiaries of licensing flows from developed nations.[89] Study B indicated that companies from developing nations experienced some difficulties in obtaining clean technologies from entities based in developed nations, [90] resulting from the high cost of licensing the foreign clean technologies and/or having to resort to obtaining less-advanced substitutes.[91] A third survey, a 2009 United Nations report, assessed the effect of the CDM — one of the technology transfer mechanisms mentioned in Part I.C.1 “Study C”. [92] The study noted that only 36% of the 3,296 documented CDM projects involved the transfer of clean technologies.[93] Study C also noted that the CDM projects had been concentrated in only a few developing nations, e.g., Brazil, China, India, Mexico.[94] These, again, are emerging economies. The rest of developing nations had taken up only 25% share of the overall CDM projects.[95] In summary, the available empirical evidence shows that the international transfer of clean technologies occurs mainly between developed nations. The more infrequent, but growing transfer of clean technologies from developed nations to developing nations flows mainly to emerging economies, such as China, Brazil, India, Mexico, Russia and South Africa. Little transfer occurs between developed nations and the rest of the developing nations, or among developing nations themselves.

D. How to Increase Transfer of Clean Technologies to Developing Nations — An Ongoing Debate

Developing and developed nations have been discussing how to increase the international transfer of clean technologies to developing nations. However, they disagree over the means to achieve this goal. Developing nations claim that IPR is a major barrier to the international transfer of clean technologies and ask for the reduction or elimination of IPR protections on clean technologies. Developed nations, on the other hand, insist that IPR facilitates development and deployment of clean technologies and assert that the barrier to the international transfer of clean technologies is developing nations’ lack of capacity to attract foreign clean technologies.
1. Developing Nations
Developing nations regard IPR as an inherent barrier to the international transfer of, and affordable access to, clean technologies in a rapid time frame.[96] According to this view, IPR of clean technologies keeps prices of clean technologies high and limits access. Developing nations have pointed to specific instances to support this view. For example, firms and R&D institutions in developing nations have indicated that commercial firms and public institutions in developed nations refused to license important technologies related to fuel-cells.[97] Local firms in India indicated that they were refused licenses for patented technologies on ozone reduction.[98] Several developing nations have also criticized a small group of multinational companies “MNC”s) owning clean technologies needed by developing nations. These MNCs were criticized for using their ownership of clean technologies as a means to control production, therefore limiting their transfer to the developing nations who needed these clean technologies.[99] During recent UNFCCC climate change conferences, developing nations suggested limiting or eliminating IPR for clean technologies. Specifically, Brazil, South Africa, China, India, and Russia have suggested rethinking the existing IPR regime, excluding clean technologies from patent protections, introducing a compulsory licensing scheme for clean technologies, and pushing for technology transfer, flexible licensing mechanisms, and institutional mechanisms.[100] The president of Bolivia likewise commanded that “innovation and technology related to climate change must be within the public domain, not under any private monopolistic patent regime that obstructs and makes technology transfer more expensive to developing countries.”[101] In 2013, the WTO TRIPS Council[102] organized a discussion on IP, Climate Change, and Development. Ecuador submitted a proposal “Ecuador 2013 proposal”.[103] In the proposal, Ecuador argued that IPR could “create a monopolistic situation characterised by high prices and a restriction of the dissemination of knowledge” for adapting to climate change and use of clean technologies.[104] Ecuador proposed to exclude clean technologies from patentable subject matter, include in the TRIPS Agreement a new provision on the transfer of expertise or know-how, implement compulsory licensing, and reduce the life term of patents on clean technologies.[105] A number of developing nations such as Cuba, Bangladesh, Bolivia, Brazil, India, Indonesia, Nepal, Rwanda and the Dominican Republic supported Ecuador’s proposal.[106] India especially supported the proposal’s stance regarding compulsory licensing and reduction of patent life term.[107] India stated:
On any principle of equity, industrialized countries have to bear a large share of the burden. They are historically responsible for the bulk of the accumulated greenhouse gas emissions and this alone suggests a greater responsibility. They also have high per capita incomes, which give them the highest capacity to bear the burden. They are technically the most advanced, and to that extent best placed to provide environmentally sound technology to developing countries at fair and favourable terms and conditions.[108]
India’s statement captured the essential position of developing nations toward the proposal.
2. Developed Nations
Meanwhile, entities in developed nations have insisted that IPR is not a barrier, but a facilitator for development and deployment (e.g., international transfer) of clean technologies. Their arguments focus on the incentives and legal certainty that IPR provides. For example, General Electric, a large producer of clean technologies, argues that IPR helps incentivize R&D investments in clean technologies, especially by the commercial sectors, which account for 70% of the overall R&D investments.[109] Industry associations, such as Alliance for Clean Technology Innovation, assert that strong IPR protection provides “legal certainty” for technology owners to engage in “voluntary, market-based technology transfer in all its possible forms.”[110] Researchers for the International Centre for Trade and Sustainable Development “ICTSD” stated that IPR provides incentives for clean technology innovations, especially in sectors such as wind, solar, carbon capture and storage, and biofuels that need major R&D investments.[111] Consequently, governments of developed nations — such as the U.S., Australia, Japan, and the EU — have insisted on strong IPR protection for clean technologies.[112] Todd Stern, the U.S. Special Envoy for Climate Change, stated: “we must make the development and dissemination of technology a top priority in order to help bring sustainable, low-carbon energy services to people around the world, AND we must do so in a way that recognizes the importance of protecting and enforcing intellectual property rights.”[113] The EU, Japan, Canada, New Zealand have expressed similar views.[114] Australia denied that IPR could be a significant barrier to technology cooperation or use. Instead, Australia argued, greater incentives should be provided so that the commercial sectors—responsible for 86% of overall global investment and financial flows—can engage in technology transfer.[115] Responding to Ecuador’s 2013 proposal, which gained support from quite a few developing nations, several developed nations countered with the position that IPR encourages the development of clean technologies and allows their transfer at accessible prices.[116] The EU’s response noted that a large quantity of key clean technologies are already in the public domain, the LDCs offer market values insufficient to attract commercial businesses in developed nations, and the LDCs do not provide IPR; therefore the LDCs can use foreign clean technologies for free.[117] Further, the EU argued that without patent protection for products and processes, companies owning the clean technologies in developed nations may be reluctant to engage in technology transfer and associated investments.[118] The EU stated: “IPR, particularly patents, will be a catalyst, not a barrier, to creating and deploying low-carbon technologies….Threat[s] to strong IPR, such as easily-obtained compulsory licensing, are likely to be a strong disincentive to invest.”[119] The EU’s position likely represents the essential view of developed nations on IPR’s role in the international transfer of clean technologies to developing nations.

II. Analysis: Possible Reasons for the Limited International Transfer of Clean Technologies to Developing Nations

One may ask: why has transfer of clean technologies to developing nations been limited? Is the existence of IPR in fact a major barrier to the international transfer of clean technologies? After reviewing and analyzing currently available data on clean technologies and scholarship regarding international technology transfer, this article finds that the existence of IPR has not been a major barrier to the international transfer of clean technologies. This article also finds that for a nation to attract inbound transfer of foreign technologies, it needs to offer: sufficient IPR protection, the capacity to absorb and adopt foreign technologies, sufficient market size, policy certainty, and transparency.[120]

A. Is the Existence of IPR a Major Barrier for Transfer of Clean Technologies to Developing Nations?

Examining IPR’s role in the development and deployment of clean technologies, and assessing IPR’s impact on developing nations in attracting international transfer of clean technologies, this section concludes that the existence of IPR has not been a major barrier to the international transfer of clean technologies.
1. IPR and Its Role
IPR has been viewed as an important tool to incentivize investments in innovation; it has also been viewed as increasing the cost of accessing IPR innovation. Though both climate and public health are public goods, IPR has different impacts in corresponding technology industries. Due to the specific nature of the clean technology industries, IPR plays less of a defining role in clean technology industries than in pharmaceutical industries. Therefore, solutions for IPR issues in pharmaceutical industries may not apply directly to IPR issues in clean technology industries. The term “intellectual property” refers broadly to creations of the human mind.[121] Intellectual property rights “IPR” protect the interests of the creators by giving them property rights over their creations.[122] The major forms of IPR include patents, trade secrets, copyrights and trademarks. Patents generally protect innovative technical improvements, trade secrets generally protect confidential information which can include innovative business or technical know-how, trademarks generally protect the distinctive symbols identifying a product or service, and copyrights generally protect the artistic expressions of ideas. When discussing the development and deployment of technologies, patent rights are the most relevant form of IPR, followed by trade secrets, which come into play when transfer of the know-how associated with a technology or business practice is involved. From this point forward, unless indicated otherwise, the article will use the term “IPR” to refer to patent protection. Trade secret laws may be discussed in relation to the transfer of confidential business or technical know-how. Other intellectual property forms such as trademarks and copyrights will be specifically identified and discussed as needed. Patent rights are territorial, granted by individual national governments and are effective only within the particular geographic regions covered by the national governments.[123] In order to gain patent protection on an innovation in a particular nation, the owner must file for a patent right on the innovation from the government of the particular nation.[124] Therefore, when this article mentions that a technology owner has a patent on a technology, it means the technology owner has applied for patent protection from a specific nation, the nation has granted patent protection on the technology, and the technology owner can enforce the patent within the territory of the nation. As exemplified by the debate discussed in Part I.D, IPR’s role in the development and deployment of technologies has been controversial. Traditionally, IPR has been a policy tool for incentivizing investments — especially commercial investments — in innovation.[125] Once an innovation is granted patent protection by the government of a nation, the owner of the invention can exclude a third party from practicing the innovation in the nation, or grant the permission with a fee, generating license revenue. The prospect of a monopoly or profit-making on a patented invention is presumed to incentivize investments in R&D to create the invention. Meanwhile, IPR has been viewed to increase the cost for accessing the IPR-protected technologies or to increase the cost of learning them via imitation.[126] For example, when technology is protected by a patent or a trade secret in a nation, access to the technology in the nation is barred unless the owner of the technology gives permission, which may come attached with restrictive conditions and/or a higher price due to its IPR. IPR may also have the effect of diminishing the speed of innovation, as IPR is alleged to demotivate owners of -protected technologies for continuous innovation, since it grants the owners a monopoly power (albeit temporary) over the protected technologies.[127] Because both climate and public health are public goods and have global impact, there is a potential parallel between IPR issues regarding clean technologies with IPR issues regarding pharmaceutical technologies.[128] However, this parallelism may not be warranted. First, IPR may be less significant to clean technologies than to pharmaceutical technologies. Patents on many of the technologies that are fundamental to modern clean technologies have long been expired and these fundamental technologies are in the public domain.[129] Existing patents mostly protect only specific features or incremental improvements over the fundamental technologies in the public domain.[130] These specific features and incremental improvements likely would be easy to design around, and therefore would have multiple alternatives and substitutes on the market. The availability of these alternatives and substitutes will likely bring down the price that might be charged under a monopoly afforded by IPR protection.[131] Meanwhile, patents on clean technologies tend to be diffused and owned by a large number of firms.[132] Hence, the power of patent owners in clean technologies tends to be limited. In the pharmaceutical industry, IPR plays a significant role. The general assumption is that the originator pharmaceutical sector is highly dependent on strong patent protection, mainly because of the high cost involved in developing novel medicines and the low cost of reverse engineering these new medicines.[133] The owner of a new medicine needs to rely on the monopoly secured by a patent to recuperate the R&D investments and generate significant economic returns. Also, in the pharmaceutical industry, one firm usually owns the patent of a key pharmaceutical technology, which normally has no alternative or substitute technologies, granting the firm dominant market power.[134] Furthermore, unlike pharmaceutical technologies, clean technologies involve a variety of different industries, and IPR is less important in some industries than others.[135] For example, clean technologies include sophisticated bio-tech engineering, such as genetically modified seeds for drought resistance, and low-tech mechanical innovations, such as farming techniques.[136] Patent rights are likely more relevant to the drought-resistant seeds, which may require more R&D investments than the mechanical farming techniques.
2. Evidential Data
This article will now examine IPR’s influence on the development and deployment of clean technologies for developing and developed nations, through analyzing available evidential data on global investments and patenting of clean technologies. Investments such as commercial investments and R&D expenditures are a measure of the input to innovation, while patenting data is a measure of the output to innovation.[137] Meanwhile, patenting data can be one indication of international transfer of technology, as patenting data identifies the location of an invention — e.g., where the patent was filed originally, and also where the invention is transferred — by where else the patent was filed besides the location of the invention.[138] Patenting of foreign technologies likely occurs in nations that have well-enforced IPR and have a high capacity to absorb and implement the foreign technologies.[139] Going forward, this article will group developing nations into three sets according to their stages of economic development. One group is the emerging economies, such as Brazil, Russia, India, China, and South Africa. Another group is the LDCs, such as Cambodia, Nepal, Haiti, and Uganda.[140] The remaining group encompasses the rest of developing nations, whose economic developments are between those of the emerging economies and the LDCs. This article calls them the mid-tier developing nations “MDCs”; Georgia, Egypt, Cuba, and Argentina may be considered MDCs.
i. Investments for Clean Technologies
The examination of evidential data on global investments in clean technologies provides two revelations. First, commercial investments in developing nations have increased rapidly and even surpassed those in developed nations in 2012. This implies that IPR may become increasingly important to developing nations as they can leverage IPR to harvest and protect innovations that result from the increased commercial investments in clean technologies. IPR can also help sustain momentum in commercial investments in clean technologies. Second, at least in developed nations, commercial investments in clean technologies overshadow government investments. Therefore, governments in developed nations may have a difficult time relaying the developing nations’ requests for the removal or weakening of IPR protection on clean technologies to their domestic commercial sectors. This is due to the significant roles these sectors play in the investments in clean technologies and these sectors’ preference for strong IPR for clean technologies. In recent decades, investments in clean technologies have increased rapidly, especially in developing nations. The 2014 Science and Engineering Indicators[141] published by U.S. National Science Foundation “Study E” illustrates the phenomena well.[142] According to Study E, global commercial investments in clean energy technologies have risen from less than 30 billion USD to 160 billion USD from 2005-2012.[143] The figure below provides further details.
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As shown, developing nations’ commercial investments in clean technologies rose rapidly from 2004-2012. The input rose from 8 billion USD in 2004 to nearly 100 billion USD in 2012, making up over 61% of the global total. In 2012, China’s commercial investments in clean technology totaled about 61 billion USD. Other developing nations, led by emerging economies such as Brazil, India, Indonesia, and Mexico, made up about 36 billion USD. The rapid increase in commercial investments in clean technologies by developing nations indicates that IPR may be utilized to harvest the inventions from these commercial investments. Currently, governments of developing nations may prefer no or weak IPR on clean technologies. However, increased domestic holdings in clean technologies and an increased desire on the part of domestic industries to apply IPR protection to their own technologies will likely change the current preference. Meanwhile, during 2004-2012, developed nations’ commercial investments in clean technologies rose from about 19 billion USD in 2004 to about 63 billion USD in 2012, comprising 39% of the global total.[144] In 2012, the U.S. and the EU, with 27 billion USD and 29 billion USD respectively, tied as the second-largest sources of clean technology commercial investments. However, both investments were significantly less than the 61 billion USD from China, which led the commercial investments in clean technologies among developing nations. In 2012, commercial investments of the other developed nations were much lower than those of the U.S. and the EU, only amounting to a collective 7 billion USD.[145] In the meantime, commercial investments in clean technologies in developed nations far exceed investments in clean technologies by governments of these nations. As shown in the figure below, in 2011, the governments of developed nations invested only 13 billion USD in research, development and demonstration “RD&D” for clean technologies, compared to the total 110 billion USD spent by the commercial sectors in developed nations.[146] Specifically, the U.S. government and the Japanese government invested the most, with each spending 4 billion USD for RD&D in clean technologies in 2011; the EU was the next largest, with 2.6 billion USA. The governments of Canada, Australia, and South Korea each spent 1 billion USD, 600 million USD, and 500 million USD respectively.[147]
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As shown in the figure, the distance between government RD&D investments and commercial investments in clean technologies in developed nations has increased consistently over the past years; the ratio (as shown under the horizontal axis of the figure) changed from 1:2 in 2004 to 1:9 in 2011. In general, there are two types of government support for the development and deployment of technologies. One is the enforcement of private rights, such as IPR, for incentivizing commercial investments.[148] Another is direct government funding of innovation.[149] The data above reveal the significant role commercial investments play in the development and deployment of clean technologies in developed nations. It thus implies that incentives such as IPR, which motivate commercial investments in clean technologies, probably should not be easily abridged. The governments of developed nations will have a difficult time supporting proposals to remove or weaken IPR on clean technologies, as such a proposals likely would not be accepted by the commercial sectors in developed nations.
ii. Patent Ownership for Clean Technologies
The examination of global patenting data on clean technologies identified three specific findings. First, developed nations own a majority of the patents on existing clean technologies. Second, the emerging economies are catching up rapidly in the number of clean technology patents, though patents on foreign clean technologies have taken up a significant share of these clean technology patents, Third, the rest of the developing nations have had few patents of clean technologies by domestic or foreign entities. The findings imply that IPR may be an issue for emerging economies’ access to some foreign clean technologies due to the existence of local patents, but not an issue for the rest of the developing nations’ access, since there are few local patents on foreign clean technologies. Study A, cited in Part I.C, examined the original filings of patents during 1978-2005 in thirteen climate change mitigation technologies.[150] Original filings of patents typically indicate where the patented inventions were developed. Study A found that 60% of the inventions patented worldwide in 1978-2005 originated from three developed nations: Japan, the U.S., and Germany.[151] Emerging economies represent 15% of the total inventions covered by Study A.[152] A 2009 study on patent ownership of clean technologies by European economic consultancy Copenhagen Economics “Study F”[153] confirms the pattern found by Study A. As shown in the figure below, Study F found that from 1998 to 2008, the ratio between developing and developed nations’ patent holdings on seven key clean technologies[154] grew from 1:20 to 1:5.[155] The improvement is significant, though the gap in patent ownership of clean technologies between developing nations and developed nations remains considerable.
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A closer look at the data in Study F reveals a larger contrast of patent ownership between the emerging economies and the other developing nations — i.e., the MDCs and the LDCs. Study F found that in 2008, the emerging economies accounted for 99.4% of all protected patents filed by developing nations in the seven key clean technology areas reviewed, while the MDCs and the LDCs accounted for only the remaining 0.6%.[156] As shown in the figure below, this means that emerging economies owned 19.88% of the patents filed globally in the seven clean technology areas in 2008, while the MDCs and the LDCs owned a mere 0.12%. Furthermore, Study F found that two thirds of these patents owned by the emerging economies were filed by foreigners and one third by local residents.[157]
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The above-identified findings of Study F are consistent with findings from Study B, which was discussed in Part I.C. Study B also found that patents on clean energy technologies in low-income nations — e.g., the LDCs and at least some MDCs — are relatively rare.[158] Study B further found that six developed nations — Japan, the U.S., Germany, South Korea, the United Kingdom, and France — accounted for almost 80% of patent filings in clean energy generation technologies.[159] Some of the emerging economies, such as Argentina, Brazil, China, India, Russia, the Philippines, and the Ukraine, have dramatically increased their patenting on clean technologies to such an extent that some of them filed 4,000 patent applications on clean technologies annually.[160] Meanwhile, current scholarship also indicates proprietary clean technologies do not enjoy protection in a number of jurisdictions, particularly in the most vulnerable economies.[161] The fact that the MDCs and the LDCs held few patents in clean technologies indicates that owners of foreign clean technologies were not filing patents in these developing nations. This is consistent with the finding in Part I.C that the MDCs and the LDCs had little inbound transfer of foreign clean technologies. The fact that emerging economies have had the most share of the clean technology patents filed in developing nations and that two thirds of these patents were filed by foreigners has at least two implications. First, emerging economies have developed and owned certain clean technologies, and second, owners of foreign clean technologies value the emerging markets and thus applied for patent protections for clean technologies there.
3. Assessment
This article will now assess IPR’s impact on the international transfer of clean technologies to developing nations, based on the evidence identified above, the author’s professional experience in global IPR practice, and current scholarship on IPR and technology transfer. Multiple factors impact the international transfer of clean technologies. The existence of proper IPR protection in a receiving nation is a positive factor; other factors include the market and policy conditions in the receiving nation. As of now, the existence of IPR in the emerging economies has helped to attract foreign clean technologies to the emerging economies. The lack of IPR or weak IPR may have further deterred foreign clean technologies from dispersing to the remaining developing nations. IPR systems in developed and developing nations possess varying levels of maturity and sophistication. Developed nations have developed their IPR systems over a long time.[162] The emerging economies likely have established the formal structures of an IPR system within the past century, and can improve upon IPR enforcement.[163] The MDCs and especially the LDCs in general tend to have limited or non-existent IPR systems.[164] Patents may, at best, be one of many factors encouraging investment in technology research and development.[165] Studies have found that in most circumstances, the promise of patent protection is not an important ex ante inducement to investments in technologies, though firms do register patents ex post to protect their inventions.[166] Evidence indicates that commercial investment in developing new clean technologies depends on more factors than just IPR, such as anticipated market demand, relative prices of alternative energy sources, regulatory demands, the costs of investment, and public research subsidies and tax inducements.[167] However, patents play a stronger role in international technology transfer. Foreign technology owners want to be sure that the technologies will be protected from unwanted leaks caused by unsanctioned imitation or movements of personnel.[168] Empirical studies have shown that the volume and technology content of licensing contracts from U.S.-based firms to partners with developing nations rises significantly when developing nations strengthen their patent rights.[169] Furthermore, strong patent reforms in developing nations have been demonstrated to bring more imports of capital goods and high-tech goods from developed nations.[170] Meanwhile, studies further suggest that the ability of IPR to support international technology transfer may depend on other factors such as the market and policy conditions in the receiving nations.[171] This explains why positive impacts of IPR on international technology transfer have been found only in emerging economies, but not in the MDCs and especially not in the LDCs. Technology owners tend not to transfer technologies to the LDCs, because the LDCs tend to have small domestic markets along with relative low capacity for local absorption of technologies, skilled labor, weak governance, and infrastructure.[172]
i. The Emerging Economies
Though IPR may have increased the cost for the emerging economies to access foreign clean technologies, that does not justify why IPR has been a major barrier for emerging economies to access foreign clean technologies. In contrast with the MDCs and the LDCs, the emerging economies have established more mature IPR systems. [173] Therefore, owners of clean technologies from developed nations may prefer to apply for patent protection for their clean technologies in the emerging economies than in the MDCs or the LDCs.[174] The cost of transferring such clean technologies from developed nations may include the cost of securing IPR on these technologies in the emerging economies. However, IPR that protects foreign clean technologies in the emerging economies should not pose an overwhelming threat to the emerging economies’ access to clean technologies. As discussed in Part II.A.1, the basic technical solutions of climate change have long expired from patent protection; rather, incremental improvements or individual features are being patented.[175] Second, a clean technology tends to have different alternatives and substitutes in the market; weakening a single patent holder’s control over the market.[176] Both facts imply that a singular IPR-protected clean technology may not have significant dominance in the relevant market. Meanwhile, the emerging economies benefit from IPR for clean technologies. First, given the emerging economies’ increasing commercial investments in clean technologies,[177] they need IPR for clean technologies to capture these investments and build up their own IP portfolios in the clean technologies. In addition, in order for the emerging economies to attract more inbound transfer of foreign clean technologies and to stimulate local innovations, they need to enhance their IPR systems rather than weaken them. International trade flows respond positively to increases in patent protections in the emerging economies, especially in industries that rely heavily on patent protection.[178]
ii. The LDCs
IPR should not be a major barrier for the LDCs to access foreign clean technologies. Few foreign clean technology owners have applied for patents in the LDCs.[179] Conversely, as the above review of data on global patenting of clean technologies shows, the LDCs administer few patents on clean technologies.[180] These consequences are likely multiplied by factors such as limited market sizes and potential profit returns that the LDCs offer to foreign firms, and/or their lack of confidence in the investment environment offered by the LDCs.[181] On the contrary, the LDCs’ lack of or limited IPR protection may be one of the reasons for the almost non-existent rate of inbound transfer of foreign clean technologies. Lack of or limited IPR protection in the LDCs enables users in the LDCs to imitate, reverse engineer, and use foreign clean technologies for free. Hence, foreign firms owning clean technologies may choose not to transfer the technologies to the LDCs voluntarily, fearing the loss of control over the technologies.[182]
iii. The Other Developing Nations — i.e., the Mid-tier Developing Nations
When an MDC is building up its economy to become more like an emerging economy, IPR will likely help the MDC attract owners of foreign clean technologies to apply for IPR protection of their technologies in the MDC. In such a situation, IPR may increase the price of the MDC’s access to the IPR-protected foreign clean technologies. On the other hand, IPR should not be part of the cost for an MDC’s access to foreign clean technologies, especially if the MDC remains at status quo or recedes to become more like an LDC. As data on the global patenting of clean technologies have shown, the MDCs along with the LDCs owned few clean technology patents.[183] Lack of or limited IPR protection in the MDCs may be one reason for this phenomena.

B. What Are the Potential Underlying Reasons for the Limited Transfer of Clean Technologies to Developing Nations?

While the existence of IPR has not been a major barrier to the international transfer of clean technologies to developing nations, this begs the question: what is? To find the answer, this article analyzes available evidential data such as data supplied by developing nations themselves on what constitutes major barriers to the inbound transfer of clean technologies. This article then supplements the analysis with a review of current scholarship regarding international technology transfer.
1. Evidential Data
Data from developing nations collected by the United Nations identify a number of barriers to the inbound transfer of foreign clean technologies. Though IPR was initially listed as a barrier, it has not been considered one since 2009. Data from different surveys on international transfer of clean technologies suggest that IPR helps a developing nation to attract foreign clean technologies. Such data also indicates that IPR is not the sole determinant; other conditions include a developing nation’s market size and its capacity to absorb and implement foreign clean technologies.
i. Developing Nations’ Own Assessments
As introduced earlier in Part I.C, one mechanism that the UNFCCC established via its international technology transfer framework is the Technology Needs Assessment “TNA” reports. These reports are for developing nations that are parties to the UNFCCC, to identify both their needs for specific clean technologies and the barriers these nations perceive to the inbound transfer of clean technologies.[184] Thus far, these nations have submitted three sets of TNA reports: the first in 2006 with 23 participating developing nation parties, the second in 2009 with 70 participating developing nation parties, and the third in 2013 with 31 participating developing nation parties.[185] The TNA reports by developing nations from 2006 to 2013 identify a number of barriers for inbound transfer of foreign clean technologies. Whereas IPR is listed as a barrier in the 2006 TNA reports, it is not in later reports. The TNA reports do not seem to support the claim that the existence of IPR has been a major barrier to the transfer of clean technologies to developing nations. The three sets of TNA reports identified very similar patterns on what constituted major barriers to the inbound transfer of clean technologies to developing nations. In all the three sets of TNA reports, developing nations highlighted economic and market barriers as one of the major barriers to the inbound transfer of clean technologies.[186] Specifically, 83%, 82%, and 90% of the reporting nations in the 2006, 2009, and 2013 TNA reports did so, respectively.[187] The figure below ranks the major barriers reported in 2006, according to the percentage of reporting nations who cited these major barriers in their 2006 TNA reports.[188]
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In these three sets of TNA reports, the reporting nations also identified what constituted economic and market barriers. The figure below shows such data from the 2006 TNA reports.[189] As shown, here, IPR issues were identified as one of the barriers, though by the fewest reporting nations.
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However, the 2009 and 2013 TNA reports made no mention of IPR issues. The 2009 report, for instance, as shown below, identified “underdeveloped economic infrastructure,” “lack of support from national banks, “low affordability by population,” and “high costs/limited state resources” as economic and market barriers, and did not include IPR on the list.[190]
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One possible reason for the disappearance of IPR issues from the TNA reports is that the reporting nations no longer considered IPR issues a barrier to the international transfer of clean technologies. Alternatively, the reporting nations may have merged IPR issues with another barrier, for instance the barriers relating to high costs or incompatible prices. Only high costs consistently appeared in all three sets of TNA reports. Developing nation parties of the UNFCCC have consistently cited high costs and/or lack of financial resources as an economic and market barrier to the inbound transfer of clean technologies and it has consistently ranked the highest in term of the number of reporting nations citing it as a barrier.[191] These reports, however, did not identify what caused the high investment cost or high cost for transfer for clean technologies. They also did not mention IPR an element of these high costs. Could IPR price be a necessary part of the cited high costs or high investment cost for inbound transfer of clean technologies for developing nations? The answer depends on a developing nation’s ability to attract technologies with IPR. If a developing nation is able to attract foreign firms to apply for and obtain IPR locally on the firms’ clean technologies, the high cost of technology transfer may include the price premium added by local IPR on the foreign clean technology. Otherwise, when foreign firms do not apply for IPR protection for their clean technologies in developing nation, the high cost of the transfer of clean technologies likely does not include IPR costs. The high costs facing the MDCs and the LDCs for inbound transfer of foreign clean technologies are not likely the result of IPR protection. The MDCs and the LDCs have few patents on clean technologies.[192] These nations may not have provided sophisticated IPR systems that foreign technology owners can rely on. Furthermore, foreign technology owners may choose not to transfer their technologies to these nations due to their limited market sizes and low potentials for financial profits.[193] On the other hand, IPR might have contributed to the high costs for inbound transfer of foreign clean technologies to emerging economies. As the analysis of the patent data in Part II.A shows, the emerging economies have held most of the clean technology patents in developing nations, and two-thirds of these patents were on foreign clean technologies. Because of the market size and potential profitability emerging economies can offer, foreign technology owners may be attracted to transfer their technologies to the emerging economies. Meanwhile, the emerging economies tend to have established IPR systems which allow the foreign technology owners to secure local IPR protection on their technologies.
ii. Other Evidential Data
Other evidential data[194] supplement the findings from the TNA reports, which suggest that IPR helps attract foreign clean technologies to developing nations. The data also indicates that IPR is not the sole determinant; other conditions that attract these technologies include adequate market size and the capacity to absorb and implement foreign clean technologies. The additional evidence correlates with developing nations’ TNA reports, which identified multiple domestic barriers such as economic and market, public policy, human capital, institutional, infrastructure, etc., for attracting inbound transfer of clean technologies. Surveys have found that IPR is good for the international transfer of clean technologies to developing nations. For example, a 2010 study examining factors driving international transfer of clean technologies “Study G” using patent data from sixty-six nations during 1990-2003 found that strong IPR has a positive impact on in-bound transfer of clean technologies.[195] Further, Study B (cited in Part I.C) found that the patent system can support and enhance technology transfer, because without patents to protect the foreign companies’ products and processes, the foreign companies may be reluctant to engage in technology transfer and associated investments.[196] However, studies also discovered that IPR is not the only factor in attracting foreign clean technologies to developing nations. For example, Study G finds that a nation’s capacity to absorb foreign clean technologies is determinative for local patent filing and thus the inbound transfer of foreign clean technologies.[197] For example, Study G found that patent filings on foreign technologies increase in nations that have active R&D in the same technology field,[198] and restrictions on international trade negatively affect international technology transfer.[199] Furthermore, Study B found that the main factors that impede international transfer of clean technologies include access to trade secrets, developing nations’ ability to provide suitable skilled staff, scientific infrastructure, and favorable market conditions.[200] These are collectively known as access to know-how from the foreign companies. Meanwhile, Study B enlisted necessary complementary factors such as infrastructure, effective government policies and regulations, knowledge institutions, and access to credit and venture capital, skilled human capital, and networks for research collaboration.[201] These factors correlate with the major barriers identified by developing nations in the TNA reports discussed above.
2. Assessment
The analysis below examines what impacts the transfer of clean technologies to developing nations via each of the three market-based venues i.e., international technology licensing, FDI, and international trade. The analysis leverages current scholarship on international technology transfer, finding that IPR protection, capacity to absorb and adopt foreign technologies, market size and policy certainty and transparency are likely conditions for a nation attracting inbound transfer of foreign technologies. Further, although IPR helps attract foreign technologies, strong IPR likely stifle the development of local industries for some developing nations — such as the LDCs — that are at the beginning stages of technology development and rely on learning via duplicative imitation.
i. International Technology Licensing
Technology licensing occurs when an owner of a proprietary technology consents to another party’s use of the technology in exchange for value.[202] International technology licensing is a particularly important source for the transfer of standalone technologies, e.g., technical information or know-how that is not embodied in equipment or hardware.[203]The main criteria for a nation to attract foreign technologies via international technology licensing include market size, policy certainty and transparency, capacity to absorb and implement foreign technologies, and sufficient IPR protection. For example, studies shows that nations with substantial engineering skills and R&D programs for adaptation and learning attract more international technology licensing than other nations.[204] IPR is another important factor for international technology transfer via technology licensing. When developing nations with the capacities to absorb and use foreign technologies strengthen their IPR protections, developed nations are more likely to license their technologies to these developing nations due to their low wage and production cost.[205] Study B, cited in Part I.B, also found that the state of IPR in the nation of the licensee was an important factor in a licensor’s decision to enter into a licensing agreement; and that licensing-intensive respondents viewed IPR as a more important factor than others in the nation of the licensee such as scientific infrastructure, human capital, favorable market conditions, and investment climates.[206]
ii. Foreign Direct Investment
Foreign direct investment “FDI” refers to when one nation’s commercial entity invests cross-border in another nation.[207] Such an investment can be the commercial entity establishing business operations, acquiring assets, or taking up stakes in businesses in the other nation.[208] The investment may involve the transfer of capital, management, technology, and organizational skills.[209] FDI likely contributes positively to international transfer of technologies to developing nations. Factors such as the market size, policy clarity and transparency, human capital, and availability of IPR protection of the recipient nation all would enhance inbound FDI. FDI by commercial entities, such as the MNCs, provides developing nations with more access to foreign technologies. Developing nations may also benefit from FDI’s spillover effects, i.e., the demonstrations of foreign technical and business operations, labor turnover by personnel movements, and interactions among businesses in the chain of moving a product or service to the end users.[210] Multiple factors affect a nation’s ability to receive FDI. Similar to international technology licensing, market size, policy clarity and transparency of the recipient nations affect FDI.[211] A study testing the effects of inbound FDI on growth in 69 developing nations found that inbound FDI contribute more to domestic growth than domestic investments do, but only when the recipient nation has a minimum threshold stock of human capital.[212] Multiple studies show a positive correlation between perceived strength of IPR protection in developing nations and the volume and quality of FDI they attract.[213] When developing nations failed to provide patent protection for foreign inventions, foreign firms resorted to use “less than best-practice technologies” in developing nation.[214]
iii. International Trade
International trade likely increases developing nations’ access to foreign technologies. IPR protection and the capacity to absorb and adapt foreign technologies will attract trade inflows. However, for LDCs or other developing nations that are still at the beginning stages of their domestic technology development, strong IPR will likely be restrictive for the development of local industries. International trade is the cross-border exchange of capital, goods, and services.[215] Similar to the spillover effects caused by FDI, openness in trade facilitates international technology transfer by allowing the recipient nations to access foreign technologies via exposure to new equipment, foreign business and technical operations. Besides being open to international trade, developing nations’ capacity for absorbing and adapting foreign technologies is important for foreign technologies to effect local technical change.[216] When a developing nation lacks such capacity, it may utilize open trade to learn of foreign practices and/or use FDI to acquire technology.[217] Meanwhile, IPR likely attracts the inflow of trade, at least for some developing nations. An empirical study of international trade flows from 1984, when there were still huge gaps in IPR systems among different nations, shows that stronger IPR significantly expands bilateral imports.[218] A more recent study on the impact of IPR on China’s import industries indicated that strong IPR stimulates imports, especially for knowledge-intensive products.[219] However, IPR’s positive effect on technology transfer via trade may not apply to all developing nations. Through open trade, developing nations can rise up the “duplicative imitation, creative imitation and inventing” ladder of technology development by imitating and reverse engineering advanced foreign technical and related business operations.[220] If a developing nation is in the duplicative imitation stage, in the absence of technology licensing, strong IPR would raise developing nation’s imitation costs, restrict technology diffusion, and reduce long-term incentives to innovate. Currently, many developing nations are at the duplicative imitation stage, hoping to absorb foreign technologies into labor-intensive export production and evolve into higher value-added stages such as creative imitation or inventing over time. In particular, the LDCs have barely stepped onto this ladder of technology learning.[221] Therefore, for these developing nations, differentiated IPR systems reflecting these developmental realities likely make more sense than the strong IPR systems used in developed nations. Such developing nations probably would also benefit from having access to mechanisms — e.g., international aid, subsidies or differential pricing schemes — that reduce the cost of importing IPR-protected goods or services.[222]

C. Summary

As discussed in Part I.B, addressing climate change is a pressing issue; in order to meet the 2°C goal, we need to reduce 60% of the anthropogenic GHG emissions by 2050, using 2000 as a base line.[223] Rapid development and deployment of clean technologies to meet this goal requires developed and developing nations to act independently and collaboratively. The stalemate between developing nations and developed nations regarding IPR’s role in improving international transfer of clean technologies must cease. As the analysis in Part II.A shows, the existence of IPR has not been a major roadblock for the transfer of clean technologies to developing nations.[224] Instead, lack of proper IPR protection for clean technologies may impede the international transfer of clean technologies. Commercial sectors in developed nations play a significant role in the development and transfer of clean technologies, and they are concerned about losing their control of the technologies to be transferred if developing nations do not offer proper IPR protections. Therefore, developing nations need to offer IPR in order to attract inbound transfer of clean technologies. However, developing nations should be allowed to customize their IPR protections to address the realities of their countries’ economic development. Strong IPR protections may not benefit all developing nations equally. For developing nations that currently rely on duplicative imitation of foreign practices for technology development, strong IPR protections will likely inhibit such practice and hence the growth of domestic industries. Meanwhile, IPR is just one of the conditions enabling developing nations to attract inbound transfer of clean technologies. According to the analysis in Part II.B, in order to attract inbound transfer of foreign clean technologies, a developing nation also needs to have certain capacity. Such capacity includes a good investment environment (such as market conditions, policy clarity and transparency) openness to trade for attracting international technology transfer, and domestic scientific infrastructure and human capital for absorbing and implementing foreign technologies into the local production process. Likely due to a lack of some of such capacity, most developing nations—especially the MDCs and the LDCs—have had difficulties attracting foreign clean technologies. Meanwhile, as the examination in Part I.C shows, emerging economies have been attracting most of the limited international transfer of clean technologies to developing nations. This is likely due to the fact that emerging economies have most of such capacity, e.g., market sizes and profitability, more established IPR systems and domestic ability to absorb and implement foreign clean technologies. The MDCs and the LDCs have yet to build up such capacity to attract inbound transfer of foreign clean technologies. Developed nations can help developing nations—especially the MDCs and the LDCs–build up such capacity. Because of climate change’s global impact and developed nations’ historical contributions to climate change, developed nations have the self-interest and moral duty to help developing nations address climate change, e.g., via international aid. Furthermore, the governments of developed nations can set up domestic initiatives and mechanisms to encourage their commercial sectors to transfer clean technologies to developing nations.

III. Proposal: Focus on Domestic Innovation, International Aid, and International Technology Collaboration

This article proposes that domestic innovation, international aid and international technology collaboration should be the focus, rather than international transfer of clean technologies, in order to effectively address climate change via clean technologies. The proposal aims to encourage the rapid and sustainable development and deployment of clean technologies, while addressing the factors that likely have induced the limited amount of transfer of clean technologies to developing nations during the past two decades. The proposed solution has three prongs. First, both developed nations and developing nations should stimulate domestic innovations on clean technologies by leveraging diverse tools for encouraging innovations. This includes developed nations optimizing their IPR systems to encourage advancements in clean technologies, along with developing nations building customized IPR systems reflecting their national realities. Second, developed nations and even the emerging economies should provide financial and technical aid to developing nations, especially the MDCs and the LDCs, to help them combat climate change and build the sustainable national capacity to attract, absorb and implement foreign clean technologies. Third, when applicable, developed nations and developing nations should construct collaboration platforms for clean technology developments that would benefit both parties.

A. Domestic Innovation

Both developed nations and developing nations should focus on encouraging domestic innovations in clean technologies by leveraging diverse means for cultivating innovation. Such means include optimizing existing IPR systems (e.g., in developed nations) or building up customized IPR systems that reflect the nation’s developmental realities (e.g., in developing nations). They may also include utilizing, where appropriate, open source movement, open innovation, prizes, patent pools and patent commons.
1. Developed Nations
Developed nations should focus on advancing the development of clean technologies, as discussed in Part I.B, to make the needed technical breakthroughs and provide clean technologies as attractive and affordable alternatives to the traditional high-carbon technologies. Developed nations have the resources and human capital to invest in advancing clean technology innovations, and are thus well suited to take leadership in driving them. To do so may require that developed nations optimize their existing IPR systems for rapid development and deployment of clean technologies. It also may require leveraging other tools for promoting innovations. Ideally, developed nations will optimize their existing IPR systems so as to encourage advanced development of clean technologies and facilitate outbound transfer of clean technologies to developing nations. Different proposals have been put forth regarding how to optimize the existing IPR systems to facilitate development of clean technologies.[225] Accelerated patent examination, reduction, waiver or cancellation of administration fees for patent applications on clean technologies, earlier publication of clean technology patent applications, priority for clean technology patents at the opposition and infringement stage, and better classification of the clean technologies are a few possible approaches for encouraging the patenting of clean technologies. Quite a few nations have implemented special IPR treatments for clean technologies. For example, patent offices in the U.K., the U.S., Japan, Australia, China, Korea, Israel, and Brazil have instituted fast-track examinations for clean technology patents applications.[226] Expediting the examination process for patent applications on clean technologies means less delays in granting protection to a patentable clean technology. Under the U.K. fast track program for patent applications of clean technologies,[227] the examination time is reduced from 2-3 years to 9 months – a 75% reduction of examination time.[228] Such reduced delay brings earlier awareness of and access to the patented technologies by the general public, including developing nations. Optimizing the IPR system is just one approach to advance development of clean technologies. Other means should be explored as well. For example, the open source movement for the software industry may work for fostering development in a specific clean technology field. Prizes for specific clean technology sectors may inspire the breakthrough innovations needed for these sectors. Patent pools and patent commons can also be formed to ease access to proprietary clean technologies.
2. Developing Nations
Developing nations should focus on building environments that foster domestic development of clean technologies while attracting inbound transfers of foreign clean technologies. Most importantly, for their own sustainable development, developing nations need to build up an environment fostering domestic development of clean technologies. This way, developing nations can build their own portfolios in clean technologies, empowering themselves for a low-carbon economy and to have better negotiation positions with entities from developed nations.[229] Similar to developed nations, developing nations need to leverage diverse tools for promoting domestic innovation of clean technologies. In addition, developing nation’s internal knowledge of the geographic regions, traditional technology and indigenous practice may also provide a holistic approach for addressing climate change when integrated with modern clean technologies. In order to increase inbound transfer of foreign clean technologies, developing nations need to build the national capacity identified in Part II.B for attracting, absorbing and implementing foreign technologies. Offering IPR protection is part of such national capacity. IPR may also encourage domestic innovation, when appropriately adapted to a nation’s developmental reality.
i. Building National IPR Systems That Reflect Developmental Realities
The reality of today’s global economy suggests the necessity of a domestic IPR system for a developing nation. Developed nations have had their dominant imprints on the operations of the global economy, including in integrating their IPR standards into the WTO TRIPS Agreement, with which all WTO member nations are required to comply. Further, as data on global investments in clean technologies discussed in Part II.A show, commercial sectors in developed nations far outpace governments insofar as investments in clean technologies. Such disparity means the governments of developed nations will likely have difficulties in requesting the commercial sectors to forego their preferences for strong IPR, as developing nations’ demand of weakened or no IPR on clean technologies would require. Hence, the use of IPR will most likely persist in global trade. Instead of resisting it, developing nations should utilize IPR for their long-term economic development and build domestic IPR systems that address and reflect national developmental realities. The global economy may offer developing nations additional leverage for technology development besides the traditional model of “duplicative imitation, creative imitation, and inventing.” Instead of relying mainly on imitating advanced foreign practices to jumpstart local technology development, integrating a developing nation’s local economy into the global economy and opening it up to global trade may speed up its technology development via the inflow of capital and modern business or technical practices. Such integration likely requires membership in the WTO.[230] The WTO, meanwhile, requires its member nations to comply with the TRIPS Agreement, which sets up minimum IPR requirements.[231] Joining the WTO and complying with the TRIPS Agreement probably would not prevent a developing nation from having a customized IPR system, which could reflect a developing nation’s own needs in technology development.[232] While the TRIPS Agreement establishes minimum requirements for IPR protection in a WTO member nation, it also offers flexibilities that can be leveraged at member nations’ discretions.[233] In particular, it recognizes the LDCs’ need to have “maximum flexibility” in implementing the requirements of the agreement.[234] The TRIPS Agreement provides individual WTO member nations policy space for regulating patentability of clean technologies or denying patent protection for certain technologies. For example, it does not define what constitutes an “invention” nor the criteria for patentability,[235] thus each national government can provide its own criteria regulating what inventions can be granted patent protection. The TRIPS Agreement also leaves room for each member nation to deny patent protection to technologies that are necessary to “protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment.”[236] Thus, when necessary, polluting technologies can be construed as posing serious harm to the environment, the health of human, animal or plant life and be denied patent protection, even when such technologies satisfy the patentability criteria. The TRIPS Agreement also provides a WTO member nation the means to regulate the use of a patented invention. For example, the TRIPS Agreement allows compulsory licensing.[237] However, this article recommends judicious use of compulsory licensing, as it does not bring in the know-how and trade secrets associated with the patented invention and may discourage domestic innovation, FDI, and inbound technology transfer. Further, the TRIPS Agreement provides competition measures wherein a national government can address IPR licensing practices or conditions that “may have adverse effects on trade and may impede the transfer and dissemination of technology.”[238] This means that for technologies locally protected by IPR, a WTO member nation can regulate abusive licensing practices or conditions related to such technologies, including foreign technologies. Therefore, developing nations may leverage domestic competition regulations to address anti-competition practices involving the transfer of foreign clean technologies. Furthermore, the security provision in the TRIPS Agreement enables a WTO member nation to identify threats to essential national security — e.g., famine, mass migration, and war — and to take proper actions.[239] As predicted by the IPCC, climate change has the potential to cause mass human migration, to threaten national security, and even to cause civil wars when access to key living resources such as water and food becomes an issue.[240] Developing nations may frame climate change as a threat to national security or energy security and take necessary actions to address it. Hence, even in light of the minimum IPR requirements of the TRIPS Agreement, a developing nation still has the flexibility to determine whether certain clean technologies have IPR protection, as well as whether to leverage compulsory license, competition and/or security measures to regulate the use of IPR-protected clean technologies. Meanwhile, in building a customized IPR system reflecting a developing nation’s own realities, the developing nation needs to balance stimulating domestic innovations and attracting inbound transfer of clean technologies. As indicated in Part II.B, strong IPR helps to attract foreign technologies, but unduly strong IPR may stifle a developing nation’s domestic technology development.[241]
ii. Building up National Capacity to Attract Inbound Transfer of Clean Technologies
While fostering domestic innovation in clean technologies, developing nations should also incorporate clean technologies already developed by the global community. To do so, as discussed in Part II.B, developing nations need to build up the national capacities necessary for attracting, absorbing and implementing foreign clean technologies. For example, developing nations can remove entry barriers to make technology transfer more attractive to foreign firms.[242] In practice, many nations seek to attract foreign investments through special economic zones, subsidies, tax holidays and other grants.[243] In addition, developing nations can also use subsidies or similar incentives to encourage domestic firms to adopt risky foreign clean technologies, and/or impose stricter environmental regulations to increase domestic demand for clean technologies. [244] Policy interventions, including implicit and explicit subsidies, paved the way for the miraculous economic development in South Korea and Taiwan.[245] Meanwhile, developing nations may further invest in local human capital. Human capital, such as well-trained technical staff and technology managers, are essential for local absorption and implementation of foreign clean technologies.[246]

B. International Aid

Developed nations have both an ethical imperative to and self-interest in finding ways to help developing nations combat climate change.[247] Historically, developed nations contributed largely to the climate change. As suggested by developing nations, developed nations should address such negative externality produced by their pursuit of economic development. At the same time, helping developing nations address climate change is in the interest of developed nations, as they will receive the global impact on environment by developing nations’ increasing energy consumption as a result of their economic developments. Meanwhile, developing nations — especially the LDCs and the MDCs — do need help in combatting climate change. In particular, LDCs that are most vulnerable to climate change require special assistance, since they experience the impact of climate change most acutely while contributing to climate change the least. Further, trade and investment flows to these nations are not as responsive to IPR protection as to the emerging economies.[248] Developing nations request support from developed nations to address climate change via financial aid, technology transfer and capacity building.[249] The proposal considers that developed nations are able to assist developing nations via capacity building, financial aid, and technology transfer. First, developed nations can contribute the most by helping the MDCs and the LDCs build up sustainable national capacities to attract, absorb and implement foreign clean technologies. Such assistance would benefit developed nations as well. It would enable developing nations to build low-carbon economies so as to reduce their future impact on the global climate and enhance their contributions to the global community. It would also expand the international markets that are suitable for the deployment of the clean technologies owned by developed nations’ commercial sectors. Second, developed nations should also pool resources together to help developing nations address climate change. Financial aid can be an important factor in helping developing nations to access, develop, and deploy clean technologies. The UNFCCC stipulates that developed nations must provide financial resources for developing nations to address climate change.[250] As the discussion of the TNA reports in Part II.B shows, the majority of developing nations perceive the high cost of foreign clean technologies as a barrier to accessing such clean technologies. This article therefore suggests that at a minimum, a global fund such as the Green Climate Fund “GCF” should be maintained and expanded to facilitate international transfer of clean technologies. Such a fund can be used to pay for the high costs encountered by developing nations in importing foreign clean technologies.[251] Developed nations can supply the balance of the fund to fulfill their obligations detailed in the UNFCCC and other international treaties. Other venues for funding can come from carbon tax or auction incomes in the carbon-trade systems.[252] On the financial aid front, there has been positive progress recently. The GCF reached its 10 billion USD threshold during the Lima climate change conference held in December 2014.[253] This is an encouraging step toward the ultimate goal of developed nations providing financial aid in the amount of 100 billion USD per year by 2020.[254] Thus far, both developed nations and emerging economies have contributed to the fund.[255] In 2014, the U.S. pledged 2.3 billion USD, Germany and France each pledged 1 billion USD, and China pledged 500 million USD.[256] During the latest climate change conference, which occurred in Paris in December 2015, the commitment of 100 billion USD per year by 2020 is reaffirmed, with an aspiration to go beyond this commitment by 2025.[257] The third approach for developed nations to assist developing nations involves technology transfer. Under the stipulations of international treaties such as the WTO TRIPS Agreement and the UNFCCC, developed nations have committed to facilitate technology transfer to developing nations, especially the LDCs.[258] The governments of developed nations can do so by, e.g., implementing domestic initiatives for encouraging transfer of clean technologies.[259] More specifically, the governments of developed nations can award preferential tax treatment for R&D performed in developing nations by firms from developed nations,[260] or for the firms’ transfer of clean technologies to developing nations, or making these technologies publically available.[261]

C. International Technology Collaboration

The UNFCCC requires all participating parties to “promote and cooperate in the development, application and diffusion, including transfer, of technologies” relevant to GHG emissions.[262] While international aid may focus primarily on the MDCs and the LDCs, international technology collaboration will likely occur between a developed nation and an emerging economy. The reason is that the emerging economies likely have the necessary IPR systems and national capacities to support mutually-benefiting joint development or deployment of clean technologies. As described in Part I.C, the 2010 Cancun global climate change conference established the Technology Mechanism to enhance action on clean technology development and deployment in developing nations.[263] This mechanism is expected to be a good platform for bringing developed nations and developing nations together to accelerate development and deployment of clean technologies.[264] For example, a developing nation may identify its needs for certain clean technology development. Technology Mechanism may help identify a developed nation that is interested in working with the developing nation to co-develop the clean technology needed or adapt and deploy the clean technology if the developed nation has already developed it. Meanwhile, bilateral collaborations on developing clean technologies have started among some nations and should be expanded to a larger scale. For example, the U.S. Department of Energy has established bilateral collaborations with China and India to develop clean energy technologies.[265] It is predicted that such collaboration between developed nations and the emerging economies can be a “win-win solution.”[266] Additional international collaboration for the development and deployment of clean technologies can occur at the global community level. Some examples might include the formation of global patent pools, a global clean technology information repository, or a global patent clearing house.

IV. Appraisal: Advantage and Concerns Regarding the Proposal

As discussed throughout this Article, in spite of the emphasis by international instruments such as the UNFCCC and the TRIPS agreement, international transfer of clean technologies to developing nations has been limited in the past two decades. This article proposes that we focus on domestic innovation, international aid and international technology collaboration instead, so to facilitate the much needed rapid development and global deployment (including international transfer) of clean technologies. The proposal offers several advantages and may raise addressable concerns as well.

A. Advantages

The proposal de-emphasizes the focus on international transfer of clean technologies to developing nations, which has not been effective in the past two decades or more. Instead, the proposal addresses the possible reasons for the failure, and re-focuses attention on the critical need for a global collective effort in sustainable development and deployment of clean technologies. The proposal is based on four major insights gained from empirical analysis of evidential data on clean technologies and international transfer of clean technologies. First, rapid development and wide deployment of clean technologies is critical for addressing climate change. Second, IPR has not been a major barrier, but is a necessary element for attracting foreign clean technologies to developing nations. Third, to increase inbound transfer of clean technologies, developing nations need to have national capacities for attracting, absorbing, and implementing foreign clean technologies. Fourth, developed nations have the obligation and self-interest to aid and/or collaborate with developing nations in addressing climate change. The proposal is constructed to address the more plausible reasons that the current transfer of clean technologies to developing nations is limited. It addresses developing nations’ lack of pulling power on inbound transfer of foreign clean technologies by suggesting that developing nations build up sustainable national capacities for attracting, absorbing, and implementing foreign clean technologies. The proposal also asks that developed nations facilitate better international transfer of clean technologies by helping developing nations build up such national capacities, and by installing domestic initiatives to encourage outbound transfer of clean technologies to developing nations. The approach also explores the potential of expanding international technology collaborations that benefit both a developing nation and a developed nation. Considering the importance of rapid development of clean technologies on a global scale, the proposal further suggests all nations focus on domestic innovation of clean technologies. Realizing the significant weight commercial sectors carry in the development and deployment of clean technologies, the proposal suggests that IPR remain as one of the incentivizing tools to stimulate domestic innovation in clean technologies in each nation and to attract inbound transfer of clean technologies.

B. Concerns

One concern for the proposal is that some developing nations, such as the LDCs, lack resources such as capital and IPR assets, and therefore that they may lack the bargaining powers for meaningful technology collaboration with developed nations. The proposal addresses this concern by suggesting that developed nations provide international aid particularly to such developing nations to assist them in combatting climate change and in building up their sustainable national capacities for attracting foreign clean technologies. Developed nations have the obligation and the self-interest to provide such aid.[267] The more advanced developing nations, i.e., the emerging economies, may join developed nations in providing such aid. As the proposal suggests, international technology collaborations will likely occur between developed nations and developing nations that can offer certain resources such as established IPR systems, or human/financial capital.[268] A second concern is that some developing nations may not want to employ clean technologies, since traditional technologies may have already been in place and are cheaper to use. These nations may prefer to pursue economic development regardless of its environmental costs, since developed nations did not pay attention to environmental issues in the early stages of their own economic development. This article recognizes this concern but doubts that such developing nations will persist in this inclination. Currently, it seems like all nations are engaged in the recent global climate change conferences. For example, all 196 nations attended the Lima and the Paris climate change conferences, which occurred in December 2014 and December 2015 respectively. This attendance rate indicates that all nations are engaged with the climate change issues and are interested in addressing it together as a global community. Such an interest, coupled with persuasion, pressure, and aid from the international community would gradually push a disinclined nation toward pursuing economic development regardless of its environmental costs. A third concern is that international financial aid and government subsidies that aim to encourage the development and deployment of clean technologies may be used as a means to sustain the high costs of accessing clean technologies, therefore distorting the operations of the market economy. This article agrees with this concern. Yet, as of now, under the operation of the free market mechanism, the MDCs and the LDCs essentially are not receiving the needed clean technologies,[269] which is a market failure. When there is a market failure, intervention is necessary. Interventions such as international aid and government subsidies may help the MDCs and the LDCs to develop or gain access to the needed clean technologies. Another possible intervention is to weaken or remove IPR protection for clean technologies in general, as proposed by developing nations, but such an intervention seems unrealistic. First, the commercial sectors, whether in developing or developed nations, won’t respond well to such an intervention. As discussed in Part II.A, IPR is an important tool for incentivizing commercial investments in clean technologies. Second, also shown in Part II.A, in developed nations, commercial investments in clean technologies far overweigh government investments, which means governments in developed nations won’t be able to heavily influence their commercial sectors’ preferences on IPR, i.e., the preference for strong IPR for clean technologies.

Conclusion

The focus on the international transfer of clean technologies to developing nations in order to address climate change has not worked well during the past two decades. This article analyzes evidential data on clean technologies and their transfer and finds that the existence of IPR has not been a major barrier to such transfer, as suggested by developing nations during the debates with developed nations on how to improve the situation. This article also studies possible reasons for the currently limited transfer of clean technologies to developing nations and concludes that developing and developing nations need to work together to improve the situation. Specifically, developing nations need to improve their national capacities in attracting, absorbing, and implementing foreign clean technologies, and developed nations have the moral duty and self-interest to provide concrete and effective assistance to developing nations in building such capacities and in helping developing nations address climate change. By understanding and addressing these possible reasons, this article proposes that we focus on domestic innovation of clean technologies, international aid and collaboration, instead of international transfer of clean technologies. This approach makes possible and sustainable the needed rapid development and deployment — including international transfer — of clean technologies, which is essential for us to successfully address climate change.
* Intellectual Property Fellow, IIT Chicago-Kent College of Law. The author thanks the colleagues who contributed to this article, including participants in various conferences where the work was presented and the anonymous subject experts for Edward Elgar Publishing, which will publish the author?s book on this topic in 2017. In particular, the author thanks Richard Wilder, a former colleague, who started the author on the research, Nives Dolšak and Toshiko Takenaka at University of Washington, Edward Lee, Felice Batlan, Sungjoon Cho, David Schwaltz, Chris Buccafusco, Martin Malin, and the other faculty at IIT Chicago-Kent College of Law, for their input to the work at its different stages, Josiah Harrist for proofreading the article, and the editors at the NYU Journal of Intellectual Property & Entertainment Law for their great editorial input.
[1] Barack Obama, Speech to the Copenhagen Summit, (Dec. 18, 2009), in Guardian, http://www.theguardian.com/environment/2009/dec/18/obama-speech-copenhagen-climate-summit. There may still be skeptics of climate change, of its causes, or of the optimal timing for addressing climate change. For the purpose of discussion, this article adopts the international consensus, manifested at the United Nations, which presumes that climate change is unequivocal and that the time to address climate change is now, rather than in the future.
[2] Copenhagen Climate Change Conference – December 2009, U.N. Framework Convention on Climate Change, http://unfccc.int/meetings/copenhagen_dec_2009/ meeting/6295.php (last visited July 15, 2015).
[3] Tove Iren S. Gerhardsen, Technology Transfer Will Be Part of Copenhagen Climate Deal, Intell. Prop. Watch (Sept. 16, 2009), http://www.ip-watch.org/2009/09/16/technology-transfer-will-be-part-of-copenhagen-climate-deal/.
[4] See id.
[5] United Nations Framework Convention on Climate Change, Bangkok, Thai. / Barcelona, Spain, Sept. 28-Oct. 9, 2009 / Nov. 2-6, 2009, Report of the Ad Hoc Working Group on Long-Term Cooperative Action Under the Convention on its Seventh Session, at 156, U.N. Doc. FCCC/AWGLCA/2009/14 (Nov. 20, 2009).
[6] Hira Jhamtani, US Proposal to Remove IPRs from the Table Arouses Developing Countries’ Objections, TEBTEBBA (Aug. 11, 2009), http://www.tebtebba.org/index.php/content/137-technology-us-proposal-to-remove-IPR-from-the-table-arouses-developing-countries-objections.
[7] Copenhagen Climate Change Conference – December 2009, supra note 2.
[8] Gerhardsen, supra note 3.
[9] See United Nations Framework on Climate Change, Conference of the Parties, Twentieth Session, Lima, Peru, Dec. 1-14, 2014, Lima Call for Climate Action, U.N. Doc. FCCC/CP/2014/10/Add.1 (Feb. 2, 2015).
[10] United Nations Framework Convention on Climate Change, Twenty-First Session, Paris, Fr., Nov. 30-Dec. 11, 2015, Adoption of the Paris Agreement, U.N. Doc. FCCC/CP/2015/L.9 (Dec. 12, 2015).
[11] Developed nations are nations which rank highly in the United Nations developed indicators such as GDP, industrialization, life expectancy, and education level. The U.S., Canada, Europe, and Japan are typical examples. International groups, like the WTO, do not have an official definition. See, e.g., Who Are Developing Countries in the WTO?, World Trade Org., https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm (last visited July 2, 2015).
[12] Developing nations are countries other than developed nations. Id. This article groups developing nations into three categories: the emerging economies, the least developed countries “LDC”s), and the rest of developing nations, which this article will call mid-tier developing countries “MDC”s). See Emerging Markets, Wikipedia, https://en.wikipedia.org/wiki/Emerging_markets (last visited Oct. 23, 2015); List of Least Developed Countries, United Nations (Dec. 4, 2013), http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf.
[13] E.g., Climate Change and the WTO Intellectual Property (TRIPS) Agreement, World Trade Org., https://www.wto.org/english/tratop_e/trips_e/cchange_e.htm (last visited Aug. 20, 2015); Climate Change and IP, World Intell. Prop. Org., http://www.wipo.int/policy/en/climate_change/ (last visited July 23, 2015).
[14] For the purpose of this Article, deployment of clean technologies includes both the implementation and distribution of clean technologies, as well as cross-border transfer of technologies.
[15] Emerging economies are developing nations that have experienced rapid economic growth. These countries have the potential to continue this growth, but also pose substantial political, financial, or social risk. As of 2015, typical nations that are considered emerging economies include Brazil, Russia, India, China, Mexico, Indonesia, Turkey, Saudi Arabia, Iran. Similar terms used include emerging markets and emerging market economies. See, e.g., Definition of Emerging Markets, Fin. Times, http://lexicon.ft.com/Term?term=emerging-markets (last visited Oct. 23, 2015); Emerging Economies, BusinessDictionary.com, http://www.businessdictionary.com/definition/emerging-economies.html (last visited Oct. 23, 2015); Definition of Emerging Market, Fin. Times, http://lexicon.ft.com/Term?term=emerging-markets (last visited Oct. 23, 2015); Emerging Markets, Wikipedia, https://en.wikipedia.org/wiki/Emerging_markets (last visited Oct. 23, 2015).
[16] Climate Change, Oxford Dictionaries, http://www.oxforddictionaries.com/us/definition/american_english/climate-change (last visited July 2, 2015).
[17] Organization, Intergovernmental Panel on Climate Change, http://www.ipcc.ch/organization/organization.shtml (last visited July 30, 2015) [hereinafter IPCC Organization].
[18] Lisa V. Alexander et al., IPCC 2013: Summary for Policymakers, in Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change 5 (Stocker et al. eds., 2013), http://www.ipcc.ch/pdf/assessment-report/ar5/wg1/WG1AR5_SPM_FINAL.pdf [hereinafter IPCC Fifth Synthesis Report].
[19] Id., at 11.
[20] Christopher B. Field et al., IPCC, 2014: Summary for Policymakers in Climate Change 2014: Impacts, Adaptations, and Vulnerability. Part A: Global and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change 4 (Christopher B. Field et al. eds., 2014), http://www.ipcc.ch/pdf/assessment-report/ar5/wg2/ar5_wgII_spm_en.pdf.
[21] Id. at 4-7.
[22] Hilary Whiteman, Report: Climate Change Crisis ‘Catastrophic,’ CNN (May 29, 2009, 1:17 PM), http://www.cnn.com/2009/WORLD/europe/05/29/annan.climate.change.human/index.html?eref=rss_world.
[23] The goal of UNFCCC is to stabilize “greenhouse gas concentration in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” UNFCCC has become the main framework under which global negotiations on addressing climate change occur. See Background on the UNFCCC: The International Response to Climate Change, U.N. Framework Convention on Climate Change, http://unfccc.int/essential_background/items/6031.php (last visited July 2, 2015).
[24] United Nations Framework Convention on Climate Change, art 1.2, May 9, 1992, S. Treaty Doc No. 102-38, 1771 U.N.T.S. 107 [hereinafter UNFCCC Treaty].
[25] IPCC Fifth Synthesis Report, supra note 18, at 17.
[26] Intergovernmental Panel on Climate Change, Climate Change 2007: Synthesis Report 5 (2007), http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr_spm.pdf [hereinafter IPCC Fourth Synthesis Report].
[27] Id. Others have cited higher numbers. For example, WIPO Director Francis Curry stated that developed countries were responsible for 77% total GHG emissions in the past. See Francis Gurry, Dir. Gen., World Intell. Prop. Org., WIPO’s Role in Green Technology, Presentation at Conference on IP and Public Policy Issues (July 13-14, 2009), http://www.wipo.int/export/sites/www/meetings/en/2009/ip_gc_ge/presentations/gurry.pdf.
[28] Similar terms include climate friendly technology, environmentally sound technology, green technology, low-carbon technology, etc.
[29] Ahmed Abdel Latif et al., Overcoming the Impasse on Intellectual Property and Climate Change at the UNFCCC: A Way Forward, Int’l Ctr. Trade & Sustainable Dev. Policy Brief No.11, 1 (Nov. 11, 2011), http://www.ictsd.org/sites/default/files/research/2012/03/overcoming-the-impasse-on-intellectual-property-and-climate-change-at-the-unfccc-a-way-forward.pdf (“the rapid development and diffusion of these technologies is a key component of the global response to climate change”); Catherine Saez, Human Survival Depends on Shared Technology, Says New UN Climate Chief, Intell. Prop. Watch (Mar. 9, 2010), http://www.ip-watch.org/2010/09/03/human-survival-depends-on-technology-says-new-un-climate-chief/ (“survival depends on our improvement of technology”).
[30] See Background on the UNFCCC, supra note 23
[31] E.g., U.N. Secretary-General, Promotion of New and Renewable Sources of Energy, U.N. Doc. A/66/100 (Aug. 15, 2011); Protection of Global Climate for Present and Future Generations of Mankind, G.A. Res. 43/53, U.N. Doc. A/RES/43/53 (Dec. 6, 1988).
[32] Glossary of Climate Change Acronyms, U.N. Framework Convention on Climate Change, http://unfccc.int/essential_background/glossary/items/3666.php (last visited July 24, 2015).
[33] IPCCC Fourth Synthesis Report, supra note 26 ; see also Michael E. Mann, Earth Will Cross the Climate Danger Threshold by 2036, Scientific American (Mar. 18, 2014), http://www.scientificamerican.com/article/earth-will-cross-the-climate-danger-threshold-by-2036/; Jeff Tollefson, Global-Warming Limit of 2°C Hangs in the Balance, Nature (Mar. 27, 2015), http://www.nature.com/news/global-warming-limit-of-2-c-hangs-in-the-balance-1.17202; William D. Nordhaus, Strategies for the Control of Carbon Dioxide, 39-40 (Cowles Found. for Research in Econ., Discussion Paper No. 443, 1977), http://cowles.yale.edu/sites/default/files/files/pub/d04/d0443.pdf. Some scientists have argued that the current 1°C rise has had effects similar to the predicted effects of the 2°C rise, and that a 4°C rise is likely by 2050-2070. Kevin Anderson, Climate Change: Going Beyond Dangerous… Brutal Numbers & Tenuous Hope or Cognitive Dissonance? SlideShare (July 5, 2011), http://www.slideshare.net/DFID/professor-kevin-anderson-climate-change-going-beyond-dangerous.
[34] United Nations Framework Convention on Climate Change, Conference of the Parties, Fifteenth Session, Copenhagen, Den., Dec. 7-18, 2009, Copenhagen Accord, U.N. Doc. FCCC/CP/2009/L.7 (Dec. 18, 2009); see also The Cancun Agreements, U.N. Framework Convention on Climate Change, http://cancun.unfccc.int/ (last visited July 23, 2015).
[35] Hans Joachim Schellnhuber et al., Technological Options, in Avoiding Dangerous Climate Change 333, 335 (Hans Joachim Schellnhuber et al. eds., 2006).
[36] Frank Ackerman, et al., Technological and Economic Potential of Greenhouse Gas Emissions Reduction, in Climate Change 2001: Mitigation: Contribution of Working Group III to the Third Assessment Report of the Intergovernmental Panel on Climate Change (2001), http://www.ipcc.ch/ipccreports/tar/wg3/index.php?idp=90.
[37] Overview of Greenhouse Gases, U.S. Envtl. Prot. Agency, http://www3.epa.gov/climatechange/ghgemissions/gases.html (last visited Aug. 1, 2015).
[38] Climate Change Secretariat [U.N. Framework Convention on Climate Change], Technologies for Adaptation to Climate Change 9 (2006), http://unfccc.int/resource/docs/publications/tech_for_adaptation_06.pdf.
[39] Diana Propper de Callejon et al., Clean Technology: A Compelling Investment Opportunity, Lifestyles of Health and Sustainability, http://www.lohas.com/clean-technology (last visited Aug. 1, 2015).
[40] U.N. Framework Convention on Climate Change, Fact Sheet: Why Technology Is so Important 2 (2009), https://unfccc.int/files/press/backgrounders/application/pdf/fact_sheet_on_technology.pdf.
[41] ‘Clean Coal’ Technologies, Carbon Capture & Sequestration, World Nuclear Ass’n (Aug. 2015), http://www.world-nuclear.org/info/Energy-and-Environment/-Clean-Coal–Technologies/.
[42] See Energy Technology Perspectives 2014: Harnessing Electricity’s Potential, Int’l Energy Agency 5 (May 12, 2014), http://www.iea.org/media/140512_ETP_slides.pdf.
[43] Id., at 8.
[44] Fact Sheet, supra note 40.
[45] Parsons Brinckerhoff, Power the Nation Update Report 2010 (2010), http://www.pbworld.com/pdfs/regional/uk_europe/pb_ptn_update2010.pdf.
[46] World Bank, World Development Report 2010: Development and Climate Change 218 (2010), https://openknowledge.worldbank.org/handle/10986/4387.
[47] Int’l Energy Agency, Tracking Clean Energy Progress 2015 10 (2015), http://www.iea.org/publications/freepublications/publication/Tracking_Clean_Energy_Progress_2015.pdf.
[48] Sustainable Energy For all, Progress Towards Sustainable Energy – Global Tracking Framework 2015 Key Findings 5 (2015), http://www.se4all.org/wp-content/uploads/2013/09/GTF_2015-Key_Findings.pdf.
[49] IPCC Fourth Assessment Report: Climate Change 2007 – Emission Trajectories for Stabilisation, Intergovernmental Panel on Climate Change, https://www.ipcc.ch/publications_and_data/ar4/syr/en/mains5-4.html (last visited Aug. 20, 2015).
[50] Bernice Lee et al., Who Owns Our Low Carbon Future? Intellectual Property and Energy Technologies vii (Chatham House 2009), https://www.chathamhouse.org/sites/files/chathamhouse/public/Research/Energy, Environment and Development/r0909_lowcarbonfuture.pdf.
[51] World Bank, World Development Report 2010, supra note 46, at 220.
[52] Mediterranean Solar Plan Links North Africa to Europe, The Africa-EU Partnership, http://www.africa-eu-partnership.org/en/success-stories/mediterranean-solar-plan-links-north-africa-europe (last visited Dec. 12, 2015).
[53] This emphasis on the transfer of clean technologies from developed nations to developing nations seems to assume that these clean technologies are useful to developing nations, as well as easily transferred and adopted. Such assumptions are yet to be verified.
[54] Total Energy Consumption, EnerData, https://yearbook.enerdata.net/ (last visited July 20, 2015).
[55] Johannes Friedrich & Thomas Damassa, The History of Carbon Dioxide Emissions, World Res. Inst. (May 21, 2014), http://www.wri.org/blog/2014/05/history-carbon-dioxide-emissions.
[56] Wanna Tanunchaiwatana, Manager, Technology, UNFCCC Secretariat, Role of Patents in Green Technology Transfer in the Context of Climate Change, WIPO Conference on Intellectual Property and Public Policy Issues (July 13, 2009) (on file with the author.)
[57] Developing Countries’ Carbon Emissions Will Vastly Outpace Developed Nations, U.S. EIA Says, Huffington Post (July 25, 2013, 7:25 PM), http://www.huffingtonpost.com/2013/07/25/carbon-emissions-developing-countries_n_3651513.html.
[58] Id.
[59] The ownerships of IPR-protected clean technologies are identifiable because of the registration data in national IPR offices. Data on clean technologies not protected by IPR needs to be gathered and made available for the public to access.
[60] Copenhagen Economics & The IPR Company, Is IPR a Barrier to the Transfer of Climate Change Technology? 18 (2009), http://trade.ec.europa.eu/doclib/docs/2009/february/tradoc_142371.pdf [hereinafter Study F].
[62] UNFCCC Treaty, supra note 24, at art. 4.5; see also id. at art. 4.1, 4.3, and 4.7.
[63] Agreement on of Aspects of Intellectual Property Rights, art. 66.2, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 183, 33 I.L.M. 1197 [hereinafter TRIPS Agreement].
[64] Id.
[65] Technology Transfer Framework, U.N. Framework Convention on Climate Change, http://unfccc.int/ttclear/templates/render_cms_page?TTF_home (last visited Aug. 1, 2015).
[66] Id.
[67] Kyoto Protocol, U.N. Framework Convention on Climate Change, http://unfccc.int/kyoto_protocol/items/2830.php (last visited July 24, 2015).
[68] Kyoto Protocol to the United Nations Framework Convention on Climate Change, art. 5-6, Dec. 10, 1997, U.N. Doc. FCCC/CP/1997/7/Add.1, 37 I.L.M. 22 (1998) [hereinafter Kyoto Protocol].
[69] The Technology Mechanism of the Convention, U.N. Framework Convention on Climate Change, http://unfccc.int/ttclear/templates/render_cms_page?TEM_home (last visited on July 15, 2015).
[70] United Nations Framework Convention on Climate Change, Copenhagen, Denmark, Dec. 7-15, 2009, Report of the Ad Hoc Working Group on Long-Term Cooperative Action Under the Convention on its Eighth Session, at 24-27, U.N. Doc. FCCC/AWGLCA/2009/17 (Feb. 5, 2010).
[71] Intergovernmental Panel on Climate Change, Methodological and Technological Issues in Technology Transfer 3 (Bert Metz et al. eds, 2000).
[72] Id.
[73] Kyoto Protocol, supra note 70 .
[74] Keith Maskus, Private Rights and Public Problems: The Global Economics of Intellectual Property in the 21st Century 66-69 (2012); see also Bernard M. Hoekman et al., Transfer of Technology to Developing Countries: Unilateral and Multilateral Policy Option, 33(10) World Dev. 1587, 1588-1590 (2005) (channels of technology transfer include trade in goods, FDI and licensing, labor turnover and movement of people); Bronwyn H. Hall & Christian Helmers, The Role of Patent Protection in (Clean/Green) Technology Transfer (Nat’l Bureau Econ. Research, Working Paper No. 16323, 2010), http://www.nber.org/papers/w16323.pdf; Matthew Littleton, The TRIPS Agreement and Transfer of Climate-Change-Related Technologies to Developing Countries 2 (United Nations Dep’t Econ. & Soc. Affairs, Working Paper No. 71, 2008), U.N. Doc. ST/ESA/2008/DWP/7, http://www.un.org/esa/desa/papers/2008/wp71_2008.pdf (Technology transfer includes intra-firm, inter-firm, FDI, and unsanctioned technology transfer through imitation).
[75] See generally, Maskus, Private Rights and Public Problems, supra note 74; Hoekman et al., supra note 74.
[76] Commercial investments made up at least 70% of total global investments in clean energy technologies. See General Electric, Innovation, Protection and Transfer of Green Technologies, World Intell. Prop. Org. 3, (July 13, 2011), http://www.wipo.int/edocs/mdocs/mdocs/en/wipo_inn_ge_11/wipo_inn_ge_11_ref_t.pdf.
[77] Int’l Ctr. for Trade & Sustainable Dev., Climate Change, Technology Transfer and Intellectual Property Rights 2 (2008), https://www.iisd.org/pdf/2008/cph_trade_climate_tech_transfer_ipr.pdf.
[78] Most of the surveys are based on patent data on clean technologies. Evidential studies on unpatented clean technologies are difficult to accomplish and find.
[79] Antoine Dechezleprêtre et al., Invention and Transfer of Climate Change-Mitigation Technologies: A Global Analysis, 5(1) Rev. Envtl Econ. & Pol’y 109, 109-10 (2011), http://reep.oxfordjournals.org/content/5/1/109.full.pdf+html [hereinafter Study A].
[80] Id. (These technologies include six renewable energy technologies (wind, solar, geothermal, ocean energy, biomass, and hydropower), waste-to-energy, methane destruction, energy conservation in buildings, climate-friendly cement, motor vehicle fuel injection, and energy-efficient lighting. They involve very diverse sectors such as electricity and heat production, the manufacturing industry, and the residential sector.)
[81] Id. at 122.
[82] Id.
[83] Id.
[84] U.N. Envtl. Programme, Eur. Patent Office & Int’l Ctr. for Trade & Sustainable Dev., Patent and Clean Energy: Bridging the Gap Between Policy and Evidence, Final REPORT 9 (2010), http://documents.epo.org/projects/babylon/eponet.nsf/0/cc5da4b168363477c12577ad00547289/$FILE/patents_clean_energy_study_en.pdf [hereinafter Study B].
[85] Clean energy technologies are technologies that reduce energy consumption and/or enable the transition to a renewable-based energy economy. See, Categories, MIT Clean Energy Prize, http://cep.mit.edu/structure/categories (last visited Dec. 10, 2015).
[86] Study B, supra note 84, at 58.
[87] Id.
[88] Id. at 60.
[89] Id. at 58.
[90] Id. at 23.
[91] Id.
[92] U.N. Dep’t of Econ & Soc. Affairs, World Economic and Social Survey 2009: Promoting Development, Saving the Planet, at 138, U.N. Doc. ST/ESA/319, U.N. Sales No. E.09.II.C.1 (2009) [hereinafter Study C].
[93] Id.
[94] Id. (citing Antoine Dechezleprêtre et al., The Clean Development Mechanism and the International Diffusion of Technologies: An Empirical Study. 36(4) Energy Policy 1273 (2008)).
[95] Id.
[96] Id.
[97] Methodological and Technological Issues in Technology Transfer, supra note 71.
[98] Keith Maskus, Encouraging International Technology Transfer, Int’l Ctr. Trade & Sustainable Dev. Issue Paper No. 7 (2004), http://www.iprsonline.org/resources/docs/Maskus%20-%20Encouraging%20International%20ToT-%20Blue%207.pdf.
[99] The Energy & Resources Inst., Emerging Asia Contribution on Issues of Technology for Copenhagen 30 (2009), http://www.indiaenvironmentportal.org.in/files/Paper_AEI.pdf.
[100] Matthew Rimmer, Intellectual Property and Climate Change — Inventing Clean Technologies 48 (2011) (hereinafter Rimmer, Inventing Clean Technologies).
[101] Open Letter, President Evo Morales Ayma, Save the Planet from Capitalism (Nov. 28, 2008), http://links.org.au/node/769.
[102] Work of the TRIPS Council, World Trade Org., https://www.wto.org/english/tratop_e/trips_e/intel6_e.htm (last visited on July 25, 2015) (“the Council for TRIPS is the body, open to all members of the WTO, that is responsible for administering the TRIPS Agreement”).
[103] World Trade Org., Contribution of Intellectual Property to Facilitating the Transfer of Environmentally Rational Technology — Communication from Equator (2013), https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=115118&CurrentCatalogueIdIndex=0&FullTextSearch= (hereinafter “Ecuador 2013 Proposal”).
[104] Id.
[105] Id.
[106] World Trade Org., Extract from Minutes of Meeting Held on Oct. 10-11, 2013 of the Council for Trade-related Aspects of Intellectual Property Rights 28 (2013), https://www.wto.org/english/tratop_e/trips_e/october2013_on_climate_e.pdf.
[107] World Trade Org., Extract from Minutes of Meeting Held on June 11-12, 2013 of the Council for Trade-related Aspects of Intellectual Property Rights 32 (2013), https://www.wto.org/english/tratop_e/trips_e/june2013_on_climate_e.pdf [hereinafter TRIPS Meeting Minutes June 11-12, 2013]; see also Matthew Rimmer, WTO Debate on IP, Climate Change, and Development in the TRIPS Council, Storify, https://storify.com/DrRimmer/wto-debate-on-ip-climate-change-and-development-in (last visited July 25, 2015).
[108] TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[109] General Electric, Innovation, Protection and Transfer of Green Technologies, supra note 76 .
[110] Alliance for Clean Technology Innovation, et al., IPR-Related Demands in UN Climate Change Negotiations, U.S. Council for Int’l Bus. (Nov. 26, 2014), http://www.uscib.org/docs/2014_11_26_UNFCCC_Association_Letter.pdf.
[111] Latif et al., supra note 29.
[112] Rimmer, Inventing Clean Technologies, supra note 100, at 62.
[113] Todd Stern, Special Envoy for Climate Change, U.S. Dept’t of State, The Current State of Our Negotiations on a New International Climate Agreement, (Sept.10, 2009), http://www.state.gov/e/oes/rls/remarks/2009/129204.htm (emphasis added).
[114] Rimmer, Inventing Clean Technologies, supra note 100, at 64.
[115] Austl., Technology Cooperation: Submission to the Ad-Hoc Working Group for Long Term Cooperative Action under the United Nations Framework Convention on Climate Change (2008), http://unfccc.int/files/kyoto_protocol/application/pdf/australia_lca_technology.pdf.
[116] TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[117] Id. at 40 (EU comments on Ecuador’s 2013 proposal).
[118] Id.
[119] Id. (quoting Ian Harvey, Intellectual Property Rights: The Catalyst to Deliver Low Carbon Technologies (The Climate Group 2008), http://www.theclimategroup.org/_assets/files/intellectual-property-rights.pdf).
[120] The evidential data and scholarship cited herein are utilized to answer the above questions; the inherent limitations in the evidential data and scholarship will be identified, compensated by rational analysis, (e.g., using the author’s own experience in global IPR practice,) or left open for further research and/or to be addressed in future articles.
[121] What is Intellectual Property?, World Intell. Prop. Org., http://www.wipo.int/about-ip/en/ (last visited July 25, 2015).
[122] Id.
[123] Patents, World Intell. Prop. Org., http://www.wipo.int/patents/en/ (last visited Nov. 2, 2015).
[124] Id.
[125] Latif et al., supra note 29 , at 1.
[126] Hall & Helmers, supra note 74, at 6.
[127] Keith Maskus, Globalizing Information: The Economic of International Technology Trade 5 (2014).
[128] Study F, supra note 60, at 7.
[129] John Barton, Patenting and Access to Clean Energy Technologies in Developing Countries, WIPO Mag., (Mar. 2009), http://www.wipo.int/wipo_magazine/en/2009/02/article_0005.html; see also John Barton, Intellectual Property and Access to Clean Energy Technologies in Developing Countries: An Analysis of Solar Photovoltaic, Biofuel, and Wind Technologies, Int’l Ctr. Trade & Sustainable Dev. Issue Paper No. 2 (2007).
[130] Barton, Patenting and Access to Clean Energy Technologies in Developing Countries, supra note 129.
[131] Id.
[132] See generally id.
[133] Frederick M. Abbott, Innovation and Technology Transfer to Address Climate Change: Lessons from the Global Debate on Intellectual Property and Public Health (Int’l Ctr. For Trade note & Sustainable Dev. 2009), http://ictsd.org/i/publicatons/ 50454.
[134] Study F, supra note 60, at 7.
[135] Hall & Helmers, supra note 74, at 19.
[136] Id.
[137] Study A, supra note 79, at 111.
[138] Id.
[139] Antoine Dechezleprêtre et al., What Drives the International Transfer of Climate Change Mitigation Technologies? Empirical Evidence from Patent Data, 54(2) Eɴᴠᴛʟ. & Rᴇsᴏᴜʀᴄᴇ Eᴄᴏɴ. 161, 165 (2013) [hereinafter Study G].
[140] List of Least Developed Countries, United Nations (Dec. 4, 2013), http://www.un.org/en/development/desa/policy/cdp/ldc/ldc_list.pdf.
[141] Nᴀᴛ’ʟ Sᴄɪ. Foundation, Industry Technology and the Global Marketplace, in Sᴄɪᴇɴᴄᴇ ᴀɴᴅ Eɴɢɪɴᴇᴇʀɪɴɢ Iɴᴅɪᴄᴀᴛᴏʀs 2014 6, 6-21 (2014), http://www.nsf.gov/statistics/seind14/content/chapter-6/chapter-6.pdf [hereinafter Study E].
[142] Id. at 6-49, 6-50.
[143] Id.
[144] Id. at 6-51 (“Investment has been volatile in the aftermath of the global recession. Investment rebounded in 2010 and reached a new high of $110 billion in 2011 before plunging to $63 billion in 2012, its lowest level since 2006. After rising steadily prior to the global recession, U.S. investment fell sharply in 2008 before recovering to $32 billion in 2010, near its pre-recession level.”).
[145] Id.
[146] Id. at 6-51 to 6-52.
[147] Id. at 6-52.
[148] Nicolas Stern, The Economics of Climate Change: The Stern Review 398 (2007).
[149] Id.
[150] Study A, supra note 79.
[151] Id. at 124.
[152] Id. at 116 (demonstrating that inventions from these countries had a lower export rate, indicating lower values in these innovations).
[153] Study F, supra note 60.
[154] Id. at 4 (reviewing patent ownerships in these clean technology areas: waste and biomass energy, solar, fuel cell, ocean, geothermal and wind power.)
[155] Id.
[156] Id. at 4-5.
[157] Id. at 22.
[158] Study B, supra note 84, at 58.
[159] Id. at 4.
[160] Latif et al., supra note 29, at 4.
[161] Id.; see also Abbott, supra note 133.
[162] The first formal patent system came from the Western Hemisphere in 1474 in Venice. Patent laws in England and the U.S. were formally established in the 1620’s and 1790’s, respectively. See Daniel C.K. Chow & Edward Lee, International Intellectual Property 252-3 (2d ed. 2012).
[163] For example, the modern Indian patent law was established in 1970. See Jeffrey Colin, Coming into Compliance with TRIPS: A Discussion of India’s New Patent Laws, 25 Cardozo Arts & Ent. L.J. 877, 880 (2013). Similarly, the modern Chinese patent law was established in 1984. See Joy Y. Xiang, How Wide Should the Gate of Technology Be? Patentability of Business Methods in China, 11 Pac. Rim L. & Pol’y J. 795, 801 (2002).
[164] Understanding the WTO: Developing Countries, World Trade Org., http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e.htm (last visited July 25, 2015).
[165] Keith Maskus, Differentiated Intellectual Property Regimes for Environmental and Climate Technologies 16 (OECD Envir., Working Paper No. 17, 2010), http://dx.doi.org/10.1787/5kmfwjvc83vk-en [hereinafter Maskus, Differentiated IP Regimes].
[166] Levin, Richard C. et al., Appropriating the Returns from Industrial Research & Development, Brookings Papers on Econ. Activity, Special Issue, 783, 812-818 (1987), http://www.brookings.edu/~/media/projects/bpea/1987%203/1987c_bpea_levin_klevorick_nelson_winter_gilbert_griliches.pdf.
[167] Maskus, Differentiated IP Regimes, supra note 165.
[168] Keith E. Maskus, Intellectual Property Rights in the Global Economy 136-141 (2000).
[169] Lee G. Branstetter et al., Do Stronger Intellectual Property Rights Increase International Technology Transfer? Empirical Evidence from U.S. Firm-level Panel Data, 121 Q.J. Eᴄᴏɴ. 321, 321 (2006).
[170] Olena Ivus, Do Stronger Patent Rights Raise High-Tech Exports to the Developing World? 81 J. Int’l Econ. 38, 45 (2010).
[171] Maskus, Differentiated Intellectual Property Regimes for Environmental and Climate Technologies, supra note 165.
[172] Id.
[173] See discussion supra notes 163164.
[174] See supra Part II.A.2 (emerging economies have had most of the patent filings in developing nations, and patents on foreign clean technologies have taken about two thirds of the clean technologies patents owned by the emerging economies.)
[175] Barton, Intellectual Property and Access to Clean Energy Technologies in Developing Countries, supra note 129, at 13.
[176] Id.
[177] See discussion supra Part II.A.2.i.
[178] Maskus, Encouraging International Technology Transfer, supra note 98, at 10.
[179] See discussion supra Part II.A.2.ii (on patent ownership for clean technologies).
[180] See discussion supra Part II.A.2.ii.
[181] See TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[182] Study G, supra note 139, at 167.
[183] See discussion supra Part II.A.2.ii (on patent ownership for clean technologies).
[184] Synthesis of Technology Needs Assessments, U.N. Framework Convention on Climate Change, http://unfccc.int/ttclear/templates/render_cms_page?TNA_ida (last visited July 26, 2015).
[185] Data extracted from the 2006, 2009, and 2013 TNA synthesis reports. United Nations Framework Convention on Climate Change, Subsidiary Body for Scientific and Technological Advice, Twenty-Fourth Session, Bonn, Ger., May 18-26, 2006, Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, U.N. Doc. FCCC/SBSTA/2006/INF.1 (Apr. 21, 2006) [hereinafter 2006 TNA Reports]; United Nations Framework Convention on Climate Change, Subsidiary Body for Scientific and Technological Advice, Thirtieth Session, Bonn, Ger., June 1-10, 2009, Second Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, U.N. Doc. FCCC/SBSTA/2009/INF.1 (May 29, 2009) [hereinafter 2009 TNA Reports]; United Nations Framework Convention on Climate Change, Subsidiary Body for Scientific and Technological Advice, Thirty-Ninth Session, Warsaw, Pol., Nov. 11-16, 2013, Third Synthesis Report on Technology Needs Identified by Parties not Included in Annex I to the Convention, U.N. Doc. FCCC/SBSTA/2013/INF.7 (Oct. 21, 2013) [hereinafter 2013 TNA Reports].
[186] 2006 TNA Reports, supra note 185. 2009 TNA Reports, supra note 185; 2013 TNA Reports, supra note 185.
[187] 2006 TNA Reports, supra note 185. 2009 TNA Reports, supra note 185; 2013 TNA Reports, supra note 185.
[188] 2006 TNA Reports, supra note 185.
[189] Id.
[190] 2009 TNA Reports, supra note 185, at 29-30.
[191] For example, 30% of the reporting nations in the 2006 TNA reports cite high investment costs as an economic and market barrier, 50% of the reporting nations in the 2009 TNA reports cite high costs and limited state resources as an economic and market barrier; and 85% of the reporting nations in the 2013 TNA reports cite lack of or inadequate access to financial resources as an economic and market barrier to the development and transfer of mitigation technologies within the energy sector. See 2006 TNA Reports, supra note 185; 2009 TNA Reports, supra note 185; 2013 TNA Reports, supra note 185. The 2013 reports have separated reporting regarding developing nations’ needs on mitigation technologies from those of adaptation technologies. The 2006 and 2009 TNA reports did not make such a distinction.
[192] See discussion supra Part II.A.
[193] See TRIPS Meeting Minutes June 11-12, 2013, supra note 107.
[194] See Study G, supra note 139; Study B, supra note 84.
[195] Study G, supra note 139, at 180.
[196] Study B, supra note 84, at 9.
[197] Study G, supra note 139.
[198] Id. at 180.
[199] Id. at 181 (However, Study G finds that restrictions to FDI promote technology transfer. Study G reasons that this may be because the restrictions ask for technology transfer, or force foreign technology owners rely more on patents as an alternative or to secure their FDI.)
[200] Study B, supra note 84, at 50.
[201] Id.
[202] World Intell. Prop. Org., Successful Technology Licensing 5 (2015), http://www.wipo.int/edocs/pubdocs/en/licensing/903/wipo_pub_903.pdf.
[203] See Hoekman et al., supra note 74, at 1589.
[204] Guifang Yang & Keith E. Maskus, IPR, Licensing and Innovation in an Endogenous Product-Cycle Model (World Bank, Working Paper No. 2973, 2003), https://openknowledge.worldbank.org/bitstream/handle/10986/19156/multi0page.pdf?sequence=1.
[205] Maskus, Globalizing Information, supra note 127.
[206] Latif et al., supra note 29; Study B, supra note 84, at 50-58.
[207] Foreign Direct Investment Definition, Fin. Times, http://lexicon.ft.com/Term?term= foreign-direct-investment (last visited July 12, 2015).
[208] Id.
[209] Id.
[210] Hoekman et al., supra note 74, at 1588.
[211] Id.
[212] E. Borensztein et al., How Does Foreign Direct Investment Affect Economic Growth? 45(1) J. Int’l Econ. 115, 117 (1998).
[213] See, e.g., Branstetter et al., supra note 169, at 322; Jeong-Yeon Lee & Edwin Mansfield, Intellectual Property Protection and U.S. Foreign Direct Investment, 78(2) Rev. of Econ. and Stat. 181, 181 (1996); Edwin Mansfield, Intellectual Property Protection, Direct Investment, and Technology Transfer, (Int’l Fin. Corp., Discussion Paper No. 27, 1995).
[214] M. Scott Taylor, TRIPS, Trade, and Technology Transfer, 26(3) Can. J. Econ. 625, 637 (1993).
[215] Reem Heakal, What Is International Trade?, Investopedia, http://www.investopedia.com/articles/03/112503.asp (last visited Aug. 18, 2015)
[216] Hoekman et al., supra note 74, at 1588.
[217] Id.
[218] Maskus, Globalizing Information, supra note 127, at 5.
[219] Titus O. Awokuse & Hong Yin, More Bilateral Trade? Evidence from China’s Imports, 38(8) World Dev. 1094, 1104 (2010).
[220] Hoekman et al., supra note 74, at 1593.
[221] Id.
[222] Id.
[223] See IPCC Fourth Assessment Report, supra note 49.
[224] See analysis supra Part II.A.
[225] Rimmer, Inventing Clean Technologies supra note 100; Joshua D. Sarnoff, The Patent System and Climate Change, 16 Va. J.L. & Tech. 301 (2011).
[226] Antoine Dechezleprêtre, Fast-Tracking Green Patent Applications: An Empirical Analysis, Int’l Ctr. Trade & Sustainable Dev. Issue Paper No. 37 (2013), http://www.ictsd.org/downloads/2013/02/fast-tracking-green-patent-applications-an-empirical-analysis.pdf.
[227] Patents: Accelerated Processing, U.K. Intell. Prop. Office (June 13, 2014), https://www.gov.uk/patents-accelerated-processing#green-channel.
[228] Dechezleprêtre, Fast Tracking Green Patent Applications, supra note 227.
[229] Some developing nations such as the emerging economies are more or less doing so. Different national priorities and barriers such as the ones identified by developing nations in the TNA reports may have deterred other developing nations from making domestic development of clean technologies a priority.
[230] As of July 2015, there are 196 countries in the world, 161 of them are WTO member nations. See Understanding WTO, the Organization, World Trade Org., https://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm (last visited July 13, 2015).
[231] Vandana Shiva, Protect or Plunder? Understanding Intellectual Property Rights 51 (2001).
[232] The costs and benefits associated with joining the WTO are not within the scope of this Article. Instead, the discussion here is limited to whether joining the WTO would prevent a nation from having a customized IPR system reflecting the nation’s reality in technology development.
[233] Advice on Flexibilities Under the TRIPS Agreement, World Intell. Prop. Org., http://www.wipo.int/ip-development/en/legislative_assistance/advice_trips.html (last visited Nov. 3, 2015).
[234] TRIPS Agreement, supra note 63, at Preamble.
[235] Typical patentability criteria include novelty, inventiveness, and industrial utility. For example, the U.S. requires an invention to be novel and non-obvious, besides being patent eligible and useful. Note the difference between patentability and patent eligibility; the latter means patentable subject matter. TRIPS art. 27 allows “all fields of technology” to be patentable subject matter; but TRIPS did not define patentability, i.e., what is novelty, inventiveness, etc. See id. at art. 27.
[236] Id. at art. 27.2.
[237] Id. at art. 31.
[238] Id. at art. 8.2, art. 40.1.
[239] Id. at art. 73.
[240] IPCC Fourth Synthesis Report, supra note 26.
[241] See discussion supra Part II.B.
[242] Maskus, Encouraging International Technology Transfer, supra note 98.
[243] World Bank, World Development Report 2005: A Better Investment Climate for Everyone (2005), https://openknowledge.worldbank.org/handle/10986/5987.
[244] Maskus, Globalizing Information, supra note 127, at 173-176.
[245] Id.
[246] Littleton, supra note 74, at 20.
[247] Id. at 21.
[248] Id. at 15.
[249] Summary of Climate Summit 2014, Intern’l Inst. Sustainable Dev. (September 23, 2014), http://www.iisd.ca/climate/cs/2014/html/crsvol172num18e.html (for example, statements by leaders from India, Equatorial Guinea, Malaw, Guinea-Bissau, Fiji, Lesotho, Mauritania, Namibia, Sweden, Tanzania).
[250] Id. at art. 4.3.
[251] Climate Change Update: Technology, ICTSD (May 1, 2008), http://www.ictsd.org/ bridges-news/biores/news/climate-change-update-technology-ip-issues-on-the-table (“under the Montreal Protocol, the technology funds included money to pay for the necessary license fees”).
[252] Id.
[253] Green Climate Fund Exceeds $10 Billion, U.N. Framework Convention on Climate Change (Dec. 10, 2014), http://newsroom.unfccc.int/financial-flows/green-climate-fund-exceeds-10billion.
[254] United Nations Framework Convention on Climate Change, Conference of the Parties, Copenhagen, Den., Dec. 7-19, 2009, Report of the Conference of the Parties on Its Fifteenth Session – Addendum Part II: Actions Taken by the Parties at Its Fifteenth Session, U.N. Doc. FCCC/CP/2009/11/Add.1 (Mar. 10, 2013) (Green Climate Fund established in COP17, to mobilize USD100 billion per year by 2020 by developed nations to address the needs of developing nations for addressing climate change).
[255] Summary of Climate Summit 2014, supra note 251.
[256] Id.
[257] Historic Paris Agreement on Climate Change: 195 Nations Set Path to Keep Temperature Rise Well Below 2 Degrees Celsius, UNFCCC (Dec. 12, 2015), http://newsroom.unfccc.int/unfccc-newsroom/finale-cop21/.
[258] TRIPS Agreement, supra note 62, at art. 66.2; UNFCCC Treaty, supra note 24, at art. 4.1, 4.7, 4.3, 4.5.
[259] Cameron Hutchison, Does TRIPS Facilitate or Impede Climate Change Technology Transfer into Developing Nations?, 3 Univ. Ottawa L. & Tech. J. 517-537 (2006).
[260] Maskus, Encouraging International Technology Transfer, supra note 98.
[261] Littleton, supra note 74, at 20.
[262] UNFCCC Treaty, supra note 24, at art. 4.1.
[263] The Cancun Agreement, supra note 34.
[264] Latif et al., supra note 29, at 2.
[265] U.S.-China Clean Energy Research Center, U.S. Dep’t of Energy, http://energy.gov/ia/initiatives/us-china-clean-energy-research-center-cerc (last visited Nov. 13, 2015); U.S.-India Clean Energy Cooperation, U.S. Dep’t of Energy, http://energy.gov/ia/initiatives/us-india-energy-cooperation (last visited Nov. 13, 2015).
[266] Maria van der Hoeven & Didier Houssin, Energy Technology Perspectives 2015: Mobilising Innovation to Accelerate Climate Action, Intn’l Energy Agency (May 4, 2015), http://www.iea.org/newsroomandevents/speeches/150504_ETP_slides.pdf.
[267] See discussion supra Part III.B.
[268] See discussion supra Part III.C.
[269] See discussion supra Part I.C.3.

Where the Trade Secret Sits: How the Economic Espionage Act Is Inflaming Tensions in the Employment Relationship, and How Smart Employers and Employees Are Responding

Where the Trade Secret Sits: How the Economic Espionage Act Is Inflaming Tensions in the Employment Relationship, and How Smart Employers and Employees Are Responding
By Adam Waks* A pdf version of this article may be downloaded here.
 
“We dance round in a ring and suppose, But the Secret sits in the middle and knows.” Robert Frost, The Secret Sits, 1942.

I. Introduction

Homaro Cantu’s Chicago restaurant, Moto, is a unique destination. Customers entering the space are greeted, not by a floral arrangement or bubbling fountain, but by a Class IV laser set on a pedestal.[1] What draws most patrons to Moto however is not the unusual décor but the inventive food, which includes an edible menu, synthetic “champagne,” and dessert flapjacks frozen to -273 degrees Fahrenheit.[2] To foodie diners familiar with molecular gastronomy, such bizarre fare is par for the course. For these customers, the real surprise comes when Moto’s signature cotton candy “paper” dessert[3] arrives and they see the following written in edible ink on the confection itself: Confidential Property of and © H. Cantu. Patent Pending. No further use or disclosure is permitted without prior approval of H. Cantu.[4] As remarkable as it is for restaurant customers to see a claim of ownership on their food, it is not surprising that Chef Cantu wants to protect what he considers his intellectual property. The inventive Chef is notoriously secretive, and for good reason: in addition to twelve prospective patents awaiting approval by the Patents and Trademarks Office (“PTO”), Chef Cantu has both invented and perfected a bevy of techniques, materials, machines, and processes that he chooses to keep as trade secrets.[5] Chef Cantu’s desire to protect his intellectual property extends to his employees as well: eager chefs seeking apprenticeships receive a full background check and must sign a confidentiality agreement before ever entering his kitchen.[6] This state of affairs creates a vexing problem for those who study under Cantu: when they move on to other restaurants or open one of their own, what knowledge and information are they allowed to take with them, and what, if anything, are they required by law to leave behind? Trade secrets have always created headaches in the employment relationship. However, as exemplified by Chef Cantu, the dawning of the information age, coupled with a greater understanding of the value of intellectual property, has increased the quantity of economically valuable confidential information businesses (high-tech and low-tech alike) choose to classify as trade secrets. As a result, employers and employees frequently find themselves in convoluted legal and contractual relationships beyond their own expectations or comprehension. Further complicating the matter is the Economic Espionage Act (“EEA”), passed by Congress in 1996. It is the first federal statute to criminalize the theft of trade secrets, and it increases the stakes of employer-employee conflict throughout the nation by allowing the use of government resources to criminally prosecute alleged trade secret misappropriation. This Note is organized into three sections. In Part I, I outline the current status of trade secrecy law at both the state and federal levels. In Part II, I discuss the conflicts created in the employment relationship by trade secrets, and explore how the EEA and its recent amendments are exacerbating these conflicts. In Part III, I provide a summary of best practices aimed at allowing employers to maintain their trade secrets, while allowing employees to preserve their ability to accumulate general knowledge and skill on the job and still retain an optimum level of job mobility.

II. The Current Status of Trade Secrecy Law

A. Civil Law: The Uniform Trade Secrets Act

Trade secrets predate any specific legal regime; they are not statutory creations, but rather secrets kept by one entity to gain advantage over other entities.[7] Over time, laws were developed to provide basic rights to trade secret holders.[8] Modern civil trade secrecy law is primarily governed by state law, which is heavily influenced by the Uniform Trade Secrets Act (“UTSA”).[9] With a few notable exceptions,[10] the laws in states that have adopted the UTSA are relatively uniform. While there are differences in the laws of states that have not adopted the UTSA,[11] those differences are largely procedural and do not effect a merits-based determination of a trade secret’s existence or its misappropriation.[12] A trade secret is broadly defined as information which (1) is secret and (2) has value from being unknown to the general public.[13] Information is considered “secret” if the trade secret holder takes reasonable steps to prevent the secret from discovery,[14] and the information has “value” if it can be defined as having worth in general economic terms (although there is some disagreement between states as to how that worth should be calculated).[15] A trade secret is “misappropriated” when an individual or company (1) obtains the trade secret through improper means, (2) obtains the trade secret through proper means but uses or discloses it against the wishes of the owner, or (3) obtains the trade secret from a third party and knows or has reason to know that the trade secret was not properly obtained or disclosed by that party.[16] The remedies available for misappropriation in the civil context include both monetary damages[17] and injunctions.[18] General monetary damages are measured by economic loss and unjust enrichment, and usually take the form of a reasonable royalty for the period of time it would have taken the violator to discover the trade secret independently.[19] In extreme cases, a damages award may be doubled as punishment to the violator.[20] A successful suit can also leave the violator liable for the trade secret holder’s attorney’s fees.[21] Injunctions can be tailored to fit the needs of any given situation, but the general practice requires barring the violator from utilizing the misappropriated secret for as long as is necessary to eliminate any commercial advantage gained or potentially gained through the misappropriation.[22] An injunction is even available in limited circumstances to prevent an employee possessing trade secrets from joining a competitor.[23]

B. Criminal Law: Enter the Economic Espionage Act

The federal government passed the Economic Espionage Act in 1996[24] in an attempt to create a “comprehensive and systematic” approach to address trade secrecy misappropriation through the federal criminal justice system.[25] The EEA’s definition of “trade secret” is similar to, and informed by, the definition in the UTSA,[26] requiring that the information be both “secret” and have “value” from being generally unknown.[27] The EEA definition of “misappropriation” includes the three acts prohibited by the UTSA, as well as attempt and conspiracy, for which there is no corresponding civil liability.[28] The EEA also contains a mens rea element not required by the UTSA: there is no criminal misappropriation unless the violator (1) intends to misappropriate the secret and (2) either intends to use it for the economic benefit of someone besides the owner or intends or knows that the use of the misappropriated secret will injure the owner.[29] No criminal liability will attach under the EEA unless the misappropriated property is used or intended for use in interstate or foreign commerce.[30] Remedies under the EEA for violations by an individual include a fine with no enumerated cap and a prison sentence of up to ten years.[31] Organizations convicted under the EEA can face fines of up to $5 million.[32] Courts have significant discretion when determining the amount of the fine.[33] A separate provision of the EEA, meant to discourage foreign economic espionage, criminalizes trade secret misappropriation intended to benefit a foreign government, instrumentality, or agent.[34] A violation of this section by an individual carries a maximum fine of $5 million and a prison sentence of up to fifteen years.[35] An organization that violates this provision will be fined the greater of $10 million or “three times the value of the stolen trade secret to the organization, including expenses for research and design and other costs of reproducing the secret that the organization has thereby avoided.”[36]

C. The Impact of the Economic Espionage Act on Trade Secrets Generally

While there are some substantive differences between the EEA and existing civil trade secrecy laws,[37] the main practical difference is that the EEA is a federal criminal statute. As a result, violators of the EEA are subject to criminal penalties, and prosecutions are financed with public funds. Criminal prosecutions also implicate constitutional protections for defendants not implicated in civil trials, including the Fifth Amendment protection against self-incrimination, the Sixth Amendment guarantee to a speedy/prompt/timely trial, and the higher burden placed on prosecutors of proof beyond a reasonable doubt.

III. Trade Secrecy Law in the Employment Context

An economically efficient trade secrecy regime should allow employers to feel secure in their possession of trade secrets[38] and allow employees to gain general knowledge and skills in the workplace[39] while retaining an appropriate level of job mobility.[40] Such a regime requires that participants be able to distinguish between unprotected information that employees can take with them to subsequent jobs and protected information that they cannot. Current trade secrecy laws do a poor job of making this distinction and, as a result, create tension in the employment relationship.

A. Trade Secrecy and the Employment Relationship: Policy

To date, much of the commentary on trade secrecy in the employment context has focused on striking a balance between an employer’s interest in protecting proprietary information and an employee’s interest in gaining and using knowledge and skill to earn a living.[41] In reality, these interests are complementary: employers and employees both benefit from a regime that seeks to maximize the protection of these interests.[42] Although there are strong public policy rationales for favoring a trade secrecy regime that recognizes the relative importance of these complementary interests, this Note focuses on the practical implications for each party in the employment relationship.[43] Employees benefit from laws protecting trade secrets because if employers do not feel secure in their possession of a trade secret, they will superficially limit the employee’s access to that information. Employers will do this by hiring fewer employees, by unduly limiting which existing employees may work with the secret, or by installing economically inefficient safeguards in the workplace,[44] all of which result in negative outcomes for employees.[45] Meanwhile, employers benefit when their employees gain knowledge and skill on the job, as the fruits of an experienced employee generally accrue to the employer. Employers also benefit from a high level of employee mobility: if an employee suspects that experience or knowledge gained on the job is a trade secret, and thus not marketable, the employee has less of an incentive to acquire the experience or knowledge in the first place. Furthermore, employers do not want to limit themselves to the employees they already have; they also want to be able to hire new, highly skilled, highly knowledgeable employees away from their competitors.[46] In a world where trade secrecy laws unduly restrict employee’s mobility, employers will be left with a disillusioned workforce with little incentive to expand their knowledge and experience, while also lacking the ability to hire new, quality employees.

B. Trade Secrets or “Know-How” v. General Knowledge and Skill

Whether a particular piece of information is a protectable trade secret owned by an employer, or general knowledge and skill an employee may take between jobs, is the crux of the issue creating tension in the employment relationship regarding trade secrets. Unfortunately, it is impossible to draft a set of rules ex ante to describe the millions of potential scenarios involving the classification of a particular piece of information as protectable or not.[47] This issue is significant—if too much information is protected as trade secrets employees lose job mobility, but if too little information is protected employers lose some of the economic value of their information when their employees leave for a new company. As described above, either scenario will have adverse impacts on both employees and employers. Historically, courts have attempted to distinguish unprotectable “general knowledge and skill” from protectable trade secrets or “know-how,”[48] on the basis that the former stem from an employee’s “education, ability, and experience,”[49] while the latter “derive their economic value from not being public information or general knowledge within an industry”[50] or are “informational and experiential expertise related to [the] practical application of specifics.”[51] Courts often rely on lists of factors, such as those enumerated in past versions of the Restatement of Torts, for additional guidance.[52] While this approach provides some direction, balancing multiple lists of factors and wading through complex judicial prose is a heady task for those formally trained in legal analysis, let alone the average American, and there remain many circumstances in which an employee or employer will be unsure ex ante whether a piece of information is general knowledge or skill or a protected trade secret. This confusion results in a system of after-the-fact litigation, even in cases where neither party is aggressively flouting cultural or legal norms. An example of information that can be difficult to classify is “negative information,” a form of legally protected know-how that “has commercial value from a negative viewpoint.”[53] Put simply, negative information is the knowledge that some technique, process, formula etc. does not work. The UTSA expressly protects negative information as a trade secret, but gives no express justification for doing so.[54] On the one hand, the thought that an employee cannot take and utilize negative information seems strange; we, as a society, want inventors to find solutions to problems, and the knowledge that something does not work is precisely the sort of information we think of as a starting point that can lead to scientific and cultural breakthroughs.[55] On the other hand, it makes perfect sense that an employer would want to keep and protect this information if it is not generally known in the industry.[56] Regardless of whether a given piece of information is protected or not, unless the employer and the employee agree on its classification up front, there may be legal ramifications down the road if that information turns out to be valuable.

C. How the EEA Increases Conflict in the Employment Relationship

As of September 2012, only 124 cases have been filed under either Section 1831 or 1832 of the EEA, with the vast majority brought under Section 1832.[57] However, the dearth of prosecutions under the act to date should not be taken as proof that the EEA is not currently affecting employment relationships. To begin with, Congress recently amended the Act,[58] and President Obama has stated that he intends to step up prosecutions under the Act as amended.[59] The broad bipartisan support for these amendments, coupled with the President’s statement, has already led the Department of Justice (“DOJ”) to place an increased emphasis on prosecuting trade secrecy misappropriation under the EEA.[60] Furthermore, regardless of the number of prosecutions the DOJ brings, the Act is still likely to have a chilling effect on job mobility and innovation as employees must consider the “worst-case scenario” when making decisions about how to treat potentially actionable information. The lack of clarity about what information is protected, combined with the potential for massive fines and jail time for misappropriation, likely deters employee action to an extent above and beyond what is suggested by the number of prosecutions actually filed.
1. Issues for Employers
The EEA benefits employers in two ways: (1) employers do not need to use private money to prosecute alleged violators and (2) criminal penalties provide a strong deterrent to potential violators. However, these benefits are not easily realized. For one, while the federal government will use public money to prosecute alleged EEA violators, trade secret holders must first convince the DOJ to take their case.[61] In the past, this has required trade secret holders to invest considerable time and money, up to and including actually preparing the case for the DOJ.[62] Moreover, the increased deterrent created by the EEA cuts both ways for employers: while the threat of criminal sanctions may prevent an employer’s employees from leaving to join a competitor and taking trade secrets with them, that employer may not be able to hire competitors’ employees, since those employees too fear the risk of changing jobs. Even worse, employers now have to worry about exposing themselves to the threat of criminal sanctions for misappropriating trade secrets when hiring employees from a competitor. The EEA also has the potential to hurt employers in other ways. First, the federal government will receive the money from any fines assessed for a criminal conviction of trade secret misappropriation, meaning there will be fewer assets available to compensate the intellectual property holder for economic damages caused by the misappropriation.[63] In fact, it is feasible that an intellectual property holder might spend significant time and money working up a case for the DOJ, only to find that there is no money left to compensate the intellectual property holder when the criminal case is over, leaving the intellectual property holder worse off than he or she was before initiating the prosecution. Second, a criminal trial means that the intellectual property holder may be forced to disclose private financial information he or she would prefer to keep secret,[64] and possibly even be required to disclose the trade secret itself.[65]
2. Issues for Employees
For employees, the EEA is uniformly negative. The creation of serious federal criminal penalties results in over-deterrence, as employees who genuinely believe they possess unprotected information may still choose not to utilize it, fearing that if the information is later found to be protected, they will face jail time, large monetary fines, and the stigma associated with a criminal conviction. As a result, fewer employees will move between companies to new positions where they would be more economically useful, and fewer employees will leave to start businesses that compete with those of their current employers. Furthermore, employees generally now have less of an incentive to gain experience on the job, knowing that their employer might appropriate any knowledge or skill the employee gains simply by classifying it as a trade secret.

IV. Best Practices

As companies increase the amount of valuable, protectable information they create, and as the EEA provides for the federal prosecution of, and criminal penalties for, trade secret misappropriation, employers and employees are placed in an uncomfortable position regarding the classification and use of trade secrets. While this state of affairs is clearly adding to the inherent tension trade secrets generate in the employer/employee relationship, the question remains: what actions can employers and employees take to exploit new incentives produced by this regime, while minimizing their exposure to new risks?

A. For Employers

1. Protecting Your Trade Secrets
a. Make Sure Your Intellectual Property Satisfies the Trade Secrecy Requirements
For information to qualify as a trade secret, the information must be secret and derive value from being generally unknown.[66] Value is something information usually does or does not have, and, while “value” is defined differently in different statutes,[67] there are few practical things you as an information holder can do to ensure your information has value.[68] More important, from the standpoint of practical action, you must ensure that your information remains secret. The secrecy condition has three requirements: you must (1) identify the information as a trade secret, (2) notify others that you consider the information a trade secret, and (3) take precautions against reasonably foreseeable intrusions.[69] The first requirement simply implies that you, as a possessor of information, should determine whether that information is a trade secret, as opposed to general knowledge or skill.[70] This requirement can be satisfied with some generality, but it is important: taking time ex ante to determine what information you consider proprietary places you in a better position to satisfy the next two requirements of the test, and to prevail in court if litigation becomes necessary. There is a large body of literature concerning what it takes to satisfy the second and third requirements of notification and protection against intrusion.[71] Generally speaking, no one expects a trade secret owner to hold daily meetings to apprise employees of what information is or is not protected, but employers are expected to make some effort to notify employees where trade secrets exist. Potential actions include updating employee and contractor contracts, agreements, and handbooks to include information on trade secrecy, marking trade secrets in the workplace as “confidential,” and posting notices reminding workers that they are working with trade secrets.[72] Regarding efforts to protect the information from intrusion, examples of steps an intellectual property owner can take include installing computer security (such as firewalls and passwords) and physical restrictions (such as locked doors and locked file cabinets) where trade secrets are stored.[73]
b. When Hiring a New Employee
i. Contract and Employee Hiring Materials Contracts are the single most important factor affecting the outcome of trade secrecy litigation and are the primary means by which employers and employees negotiate the boundaries between “know-how” and “general knowledge and skill” ex-ante.[74] Through contracts, you can tell your employees exactly what you expect of them, including what information they need to keep secret. While employees have a common law duty not to reveal an employer’s trade secrets,[75] it is in both parties’ interest to have an express, written contractual agreement addressing trade secrecy.[76] Contracts can contain either general trade secrecy provisions or a separate non-compete agreement (“NCA”) or non-disclosure agreement (“NDA”).[77] You should have your employees sign your trade secrecy agreement when you first hire them, ensuring that the secrecy provisions are considered part of your overall business arrangement, and thus obtained in return for valuable consideration.[78] If you require additional contractual protection at a later date, you may need to give the employee additional consideration in return.[79] If you do not have a formal employment contract with some of your workforce, you should require all such individuals working with or around protectable information to sign an NDA. When contracting for trade secrecy protections and limits to employee mobility, specificity is key. If a contract is too broad, an employee may refuse to sign it, or may demand compensation beyond what you are willing to pay. In the worst-case scenario for an employer, an employee may agree to the terms of a contract, only to have a court find the contract unenforceable or modify it.[80] All employees should receive and sign an employee handbook, updated regularly, to remind them about your trade secrets and their duty to safeguard them. Additionally, all contracts, handbooks, and NDAs should specify what information you consider proprietary.[81] When hiring someone specifically to develop or improve intellectual property you intend to keep as a trade secret, you should include contractual provisions expressly assigning any and all information developed in the course and scope of the employment (if the individual is an employee) or project (if the individual is a contractor) to you. Where negative information is a concern, you should announce your intention to retain this information up front to avoid confusion later.[82] You may also wish to ask the employee/contractor to assign to you any intellectual property he or she is bringing into the relationship that relates to the work-product being developed.[83] In limited circumstances, you may also want to have your employees sign an NCA. While NCAs do not generally influence trade secrecy litigation,[84] NCAs can be useful as a blunt instrument to protect intellectual property whose usefulness is of limited duration. Several states, including California, will not enforce NCAs on general policy grounds.[85] In states that do enforce NCAs, courts will require that the NCA comply with the “rule of reason,” meaning that any restraints placed on the employee are (1) no greater than necessary to protect the employer, (2) not unduly oppressive to the employee, and (3) reasonable in light of sound public policy. If the judge finds, on balance, that the NCA does more to limit employee mobility than is necessary, the judge can either find the NCA unenforceable altogether or limit its terms to the extent the judge deems sufficient to protect the employer.[86] Specificity is helpful for a “rule of reason” analysis: the more specific the agreement limiting an employee’s right to work, the more likely a court will find that it satisfies the rule of reason.[87] ii. Have Certain Employees Conduct a Brain Dump[88] Employees who leave their jobs to start ventures that compete with their former employers will often claim that they had the idea for their venture before beginning employment, and that any information they learned on the job was general knowledge and skill, not protected intellectual property.[89] This tactic is a common defense to allegations of trade secret misappropriation, and if successful, allows these employees to retain the intellectual property for themselves. The best way to prevent this defense is to ask all employees to conduct a “brain dump” prior to beginning the employment relationship, wherein they lay out all relevant intellectual property they own.[90] Employees should retain a copy of the brain dump and should give you a copy for your records. Brain dumps benefit both employees and employers. A brain dump will put the employee at ease regarding ownership of the items the employee records, facilitate the transition into the employment relationship, and give you clear notice regarding what the employee believes he or she is bringing into the relationship. The brain dump will also provide you with specific knowledge regarding the boundaries of the employee’s claims to any intellectual property developed for you. A further benefit is that brain dumps are notoriously under-inclusive, and you may actually capture some otherwise protectable intellectual property the employee brings into the relationship.[91] Some employees may push back against writing this information down and handing it to their employer – they may worry that you will appropriate this information and use it yourself. You can try to answer the employee’s concerns by letting the employee know that the purpose of the exercise is specifically to make sure the employee gets to keep his or her prior intellectual property. You can also emphasize that it is up to the employee to phrase the brain dump, so the employee can control the conversation by writing down just enough to keep his or her intellectual property without actually giving away potential business ideas. In some cases this will not assuage the employee, who will refuse to hand any brain dump over to you.
c. Terminating an Employee/When an Employee Chooses to Leave
i. Exit Interview The exit interview gives you an opportunity to remind your employee of his or her contractual obligations regarding your intellectual property.[92] Where no contract exists, the exit interview provides you with a chance to tell the employee about his or her common law duties not to reveal your trade secrets.[93] The exit interview also enables you to control the conversation regarding potential future conflicts by telling the employee exactly what information you consider proprietary.[94] Equally important, the exit interview allows you to learn where your soon-to-be ex-employee is going. This information can help you determine how much attention you should pay to the employee’s future activities to ensure no trade secrets are misappropriated. Knowing your employee’s plans will also help you determine whether this is one of the rare instances in which you should seek a preliminary injunction to prevent your employee from taking the new position.[95] Additionally, knowing where the employee is going enables you to contact the employee’s new employer with any concerns you may have. Any conversation with, or letter to, the new employer should include the statement that your ex-employee possesses trade secrets, and should be as specific as possible without placing your trade secrets in danger of disclosure.[96] When deciding whether or not to contact the new employer, it is important to remember that conversations between competitors can raise the specter of anti-trust issues: any conversation you have with your employees’ future employer should steer well clear of any topics which might even suggest the appearance of impropriety regarding competition for employees.[97] Finally, the exit interview gives you the ability to maintain your relationship with your ex-employee, or at the very least, end the relationship on a professional, civil note. This simple touch can, in some cases, make an employee think twice before walking away with information he or she suspects might be a trade secret. While only successful in this capacity on the margins, the cost of an exit interview is an hour of time, as opposed to the massive monetary, emotional, and reputational costs of litigation. There is no reason not to try it, and every reason to hope it works. ii. Do Not Delete the Employee’s Records When an employee leaves, it is not always immediately clear whether he or she has misappropriated a trade secret. Upon receiving notice of the employee’s upcoming departure, you should prepare an inventory of sensitive information the employee worked with, placing you on notice of what potential misappropriation, if any, you should be concerned about. You should also plan to retain the employee’s records in case they are needed later for litigation. If the employee’s physical workstation is required for another employee, you should have your IT department make a copy of the employee’s hard drive and store it in order to maintain these records.
d. If You Need to Sue
i. Civil, Criminal, or Both? If you determine that your trade secrets have been misappropriated, you will likely want to seek a legal remedy. Which legal remedy is right for you will depend on many case-specific factors, including but not limited to the extent of your damages, what assets the violator has, the expected cost of civil litigation, whether you plan to seek a preliminary injunction, and whether the additional weight of criminal sanctions on the violator might harm your prospects of receiving damages. Before you can make an informed decision regarding a legal remedy however, you must first conduct a preliminary investigation to obtain all the relevant details about the misappropriation. This information will benefit you regardless of your eventual decision.[98] Following the investigation, you can weigh your options and decide whether to initiate a private civil lawsuit, refer the issue to the DOJ for criminal prosecution, or pursue a dual suite strategy.[99] ii. Be “White of Heart and Empty of Head”[100] At every stage in a trade secrecy case, from the initial discussions between a trade secret holder and an accused violator, to the time a verdict is handed down by a judge or jury, facts trump law.[101] This means that you should not do anything that gives even the appearance of impropriety. Instead, you should contract up front to protect your trade secrets, be clear with employees about what information you consider protected, and remind outgoing employees of their continuing contractual obligations and what you consider protected information. Above all, you should be reasonable regarding what information you claim is protected – inevitable disclosure doctrine aside,[102] judges tend to have little patience for employer’s attempts to wrest legal protection from employees they failed to bargain with up front or to prevent employees from seeking meaningful employment elsewhere.[103]
2. Protecting Yourself From Liability For Misappropriating Others’ Trade Secrets
Employers must be as careful to protect themselves from violating the trade secrets of their competitors as they are when protecting their own trade secrets. The civil liability for trade secret misappropriation can be large,[104] and the criminal liability can be even larger.[105] The key to protecting yourself from civil liability under the UTSA is defeating the “knowledge” requirement in the statute,[106] while in the criminal context, avoiding liability under the EEA is most easily accomplished by defeating the statute’s “intent” requirement.[107] Fortunately, there are several simple steps employers can take to essentially guarantee this freedom from liability.
a. Employment Contract and Acknowledgement Forms
The employee contract and/or employee handbook should state that you take trade secrecy seriously, that it is your employees’ responsibility to police their own actions regarding their previous employer’s trade secrets, and that employees should report any concerns they have to you. You should require new employees to sign a statement acknowledging your policy and agreeing to its terms. The handbook should also give an overview of state trade secrecy laws and the EEA, and you should require new employees to sign a statement that the laws have been explained to them, that they understand them, and that they acknowledge their responsibility to use all possible efforts to avoid misappropriating a previous employer’s trade secrets.
b. Entrance Interview With the New Employee
An entrance interview will let you discern what, if any, potential trade secrets your new employee possesses from previous employment. Whether or not you are aware of any red flags, during the entrance interview you should repeat the admonishment contained in your employment contract and acknowledgement forms: it is the employee’s responsibility to police his or her actions with respect to his or her former employer’s trade secrets, that you take trade secrecy seriously, and that the employee should immediately bring any concerns he or she has to your attention. If there are any red flags, you should take the additional steps discussed below.
c. Contact the Employee’s Previous Employer[108]
Contacting your new employee’s previous employer has two benefits. First, it allows you to form a relationship with the previous employer before any issues arise. Second, it gives you the opportunity to go on the record about your company policy regarding trade secrecy and the EEA. You should specifically mention the EEA in your conversation, and, depending on your level of concern, even suggest that they instruct their former employee, if they have not already done so, what information that was within that employee’s purview they regard as a protected trade secret.
d. Construct “Ethical Walls”[109]
Where a specific concern exists that an employee possesses actionable proprietary information from a previous employer relevant to his or her new position with your company, you may wish to construct an “ethical wall” around the employee to prevent disclosure. Effective restraints include hiring the employee into a position where trade secret disclosure is unlikely, telling your other employees not to discuss troubling topics with the new employee, and, if necessary, completely separating the new employee from employees engaged in the area of concern.[110]

B. For Employees

While a system that enhances employee mobility benefits employees and employers equally, individual employees have a stronger incentive to retain mobility.[111] To succeed in this endeavor, employees must be aware of the issues trade secrecy laws present so they can take action to gain marketable skills, retain job mobility, and protect themselves from the threat of future litigation. Negotiating this complex landscape is not easy, and there is significant variability regarding a given employee’s ability to bargain with his or her employer. Regardless, there are several actions most employees can take to help effectuate a positive outcome in their employment relationships regarding the use and retention of information.
1. When Hired At a New Company
a. Conduct Your Own Brain Dump[112]
The absolute worst-case scenario for you as an employee is to have your employer lay claim to knowledge, skill, or intellectual property that you rightfully owned before beginning employment.[113] If you are starting a job where you will be working with trade secrets, in an area where you believe you already possess intellectual property, it is imperative that you create a record of that property before beginning employment.[114] The most efficient way to do this is to write down all of the aforementioned information, and send a copy, certified mail, to a professional such as your attorney or accountant.[115] This way, if you ever face trade secrecy litigation, you will have a record of what property was rightfully yours prior to employment, backed up by a quality witness.[116]
b. Encourage Specificity in Your Contract
If your employer asks you to assign your rights regarding trade secrets, or demands that you sign an NDA or NCA, you should request that your employer specify what information you are being asked to renounce your claim to. Specificity in the contract provides you, as an employee, with two important benefits. First, it is important to know your employer’s expectations. Your employer’s expectations are especially important if you are going to be working directly with information that you believe may create negative information.[117] You should stress that this is for your employer’s benefit as much as your own – you want to be sure you do not accidentally misappropriate information your employer believes to be a trade secret because you thought it was general knowledge or skill. Second, to the extent that you do have any leverage when it comes to negotiating your contract, you increase that leverage by requesting specifics – it is easier to demand a higher salary when you are asked to give up all future rights to x, y, and z than it is when you are, for example, asked to sign a simple, standard NDA form. Tell your employer that the work you will do for them is worth more than their initial offer, since you are not simply agreeing to do work in exchange for a salary, but also being asked to give up rights to a higher salary in the future. This tactic will have varying degrees of success based on your negotiating leverage as a potential employee, but it is worth the chance to get either a higher salary or be allowed to keep rights you otherwise would have to give up.
c. Be Prepared to Walk Away
Job prospects can be few and far between, even for highly educated employees. However, it is imperative that you remember what is at stake when a potential employer demands that you give up intellectual property rights in return for employment. When you agree to forego those rights, you decrease your future employment mobility, impair your ability to gain knowledge and skill while on the job, and face the prospect of civil and criminal liability in the future if you do not live up to your end of the bargain. If an employer demands that you give up rights above and beyond what the employer is willing to compensate you for, you must be prepared to turn down the job.
2. When Terminated and/or Resigning
a. Keep the Moral High Ground
When your relationship with your employer ends, voluntarily or not, it is vital that you maintain a “white heart and an empty head.”[118] This means you should comply with all agreements executed between you and your now former employer and not take any company data or property with you.[119] In addition, you should refrain from conveying any memorized data to your next employer. This will require you to determine where your previous employer’s trade secrets stop and where your general knowledge and skills begin. You may wish to be conservative in this regard until you have an opportunity to talk to your previous employer about what information he or she considers proprietary. If you are leaving voluntarily, you should be open and honest with your ex-employer about your new employment and what it entails.
b. Request an Exit Interview
Few employees ever think of requesting an exit interview if their employer does not plan on conducting one, but there are several ways an exit interview can be beneficial. For example, while an exit interview does give your employer the opportunity to define what he or she considers protected intellectual property, it can also apprise you of your employer’s expectations regarding that property, provide you an opportunity to protest if you think your employer is being unreasonable, and give you some idea of how aggressively your employer may pursue alleged trade secret misappropriation.[120] Second, and more important, the exit interview enables you to maintain your relationship with your ex-employer. It will surprise many employees to hear, but employers can feel genuinely hurt when a trusted employee decides to leave. Taking a few minutes to make sure you leave on good terms is well worth the investment.
3. When Leaving to Start Your Own Company
Employees leaving to start their own company or join an emerging company face a more difficult situation than those moving to an established company. The clout of an established company will deter litigation over intellectual property, because established companies are more likely to have the resources to defend against such litigation, as well as intellectual property of their own they can use as a shield.[121] Furthermore, the chance that an ex-employer will detect a small or inadvertent misappropriation by an ex-employee working for a large, well-financed organization is relatively small. Individuals starting or joining an emerging company will not have the benefit of money or an organization to stand behind them, and the cost of litigation against startups is much lower than against established companies.[122] Potential misappropriation is also more easily detected, especially where the startup’s business model revolves around the information at issue. Finally, startup investors are easily scared away by the threat of litigation, making the new company extremely vulnerable.[123] For all of these reasons, employees looking to leave an existing employer and start a new company must be extremely careful regarding the potential disclosure of that employer’s trade secrets.
a. Request an Exit Interview
If you are planning to leave your current position to start a new company, it is essential that you request, and obtain, an exit interview. In the exit interview, you should be clear that you are leaving to start or join a new company. If your employer intends to assert ownership claims to any information required for your business, you want to know that as soon as possible. This is your opportunity to try to settle any potential issues without litigation – take full advantage of this meeting. In certain circumstances, you may wish to disclose your basic business model to your employer in the exit interview for the purpose of determining if your employer believes that your business plan infringes on their intellectual property. For example, if your business plan does touch on your employer’s intellectual property, then you are likely leaving because you have perceived an opening in the market that your employer is not currently exploiting. If it is not possible for you to discuss your business model without surrendering this knowledge to your employer, and you believe your employer might wish to expand into the market and compete with you if they become aware of the market opportunity, you will likely not wish to discuss it. On the other hand, if you can discuss your business plan generally without betraying your core competitive advantage, or if you do not believe your employer intends to expand into that market and compete with you, then it can be helpful to get your employer’s tacit “approval” before you even walk out the door.
b. Construct Ethical Walls
If you are concerned that you are in danger of disclosing information you know to be your ex-employer’s trade secret, you should place a wall between yourself, as an entrepreneur building and running a new company, and any position within the new company that works with the information in question.[124] Even where you do not think you are in danger of disclosure, when hiring someone to do work you performed for your previous employer, it makes sense to put up an ethical wall to protect yourself from even the appearance of impropriety.

V. Conclusion

As the modern world continues to shift to an information-based economy, more companies of all stripes are relying on intellectual property laws to protect their valuable information assets. To the extent that companies rely on trade secrecy to protect these assets, they create tension in the employment relationship. The EEA increases this tension by making public money available to prosecute trade secret misappropriation and establishing criminal liability for those convicted. Fortunately, there remain ways for employers and employees to protect themselves and continue innovating in a global marketplace. Just look at Homaro Cantu: he is working to protect his intellectual property in the kitchen while also training the next generation of molecular gastronomists, several of whom have already gone on to start successful operations of their own.[125] Trade secrecy may be increasing, but as long as employers and employees alike are knowledgeable about the issues trade secrets create, there is no reason why it should arrest innovation.
* Adam Waks is a 2014 J.D. candidate at the New York University School of Law. He received a B.A. in Psychology and in English and Creative Writing from the George Washington University in 2007. He would like to thank Professors Rochelle Dreyfuss and Harry First for their comments and editing during the Innovation Policy Colloquium, for which this note was originally written. He would also like to thank Molly Ryan, Leah Rosenbaum, and the rest of the JIPEL editorial team for their thoughtful assistance.
[1] The laser, normally used for surgery, is used at Moto for food preparation. See Jennifer Reingold, Weird Science, Fast Company, May 2006, at 40, 42.
[2] See id. at 47.
[3] The dessert is a flat sheet resembling a leaf of paper, embossed with an image of a stick of cotton candy, and which tastes like the fairground treat when dissolved on the tongue.
[4] See Pete Wells, New Era of the Recipe Burglar, Food & Wine (Nov. 2006), http://www.foodandwine.com/articles/new-era-of-the-recipe-burglar.
[5] See Reingold, supra note 1, at 48; Wells, supra note 4. [6] See Reingold, supra note 1, at 48.
[7] See Thomas J. Rechen & Peter L. Costas, Trade Secrets Law – Principles, Pitfalls and Pronouncements, 71 Conn. B.J. 360, 362 (1997) (tracing the evolution of trade secrecy laws from the common law to state and then federal statutes).
[8] Because of its common law roots, trade secrecy doctrines developed differently in the different states across the United States. See id.; see also Unif. Trade Secrets Act, Prefatory Note (with 1985 amendments) (“Notwithstanding the commercial importance of state trade secret law to interstate business, this law has not developed satisfactorily. In the first place, its development is uneven. Although there typically are a substantial number of reported decisions in states that are commercial centers, this is not the case in less populous and more agricultural jurisdictions. Secondly, even in states in which there has been significant litigation, there is undue uncertainty concerning the parameters of trade secret protection, and the appropriate remedies for misappropriation of a trade secret.”).
[9] In 1979, the Uniform Trade Secrets Act was published in an attempt to codify a national standard for trade secrecy law by offering states a comprehensive package of trade secrecy legislation ready for adoption. See Unif. Trade Secrets Act, Prefatory Note (amended 1985). States quickly obliged, and as of March 2013, 46 states have adopted the broad principles of the Act, and legislation to formally adopt the UTSA has been introduced in a 47th state. See The Nat’l Conference of Comm’rs on Unif. State Laws, Legislative Fact Sheet Trade Secrets Act, Uniform L. Commission (2014), http://www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trade%20Secrets%20Act.
[10] See infra note 23 on inevitable disclosure and the related discussion.
[11] The laws of states that have not adopted the UTSA are still primarily governed by state common law, even in instances where those states have enacted their own trade secrecy statutes.
[12] Differences include statutes of limitations, the availability of attorneys’ fees, and the requirements for preliminary injunctions. One merits based difference is the “continuous use requirement,” which exists in some jurisdictions but not others, and which dictates that trade secret holders must continue to use a trade secret in a commercial manner for it to continue to be subject to trade secrecy protection. The UTSA does not include this requirement. See Michael H. Bunis & Anita Spieth, Common Law v. UTSA: The Last States Standing, Law360 (Apr. 02, 2012, 12:22 PM ET), available at http://www.choate.com/uploads/113/doc/bunis-spieth-law360-common-law-v-utsa-the-last-states-standing.pdf.
[13] See Unif. Trade Secrets Act § 1 (1985); Restatement (Third) of Unfair Competition §39 (1993).
[14] See Unif. Trade Secrets Act § 1 (1985); Restatement (Third) of Unfair Competition § 39 (1993).
[15] Compare Tex. Penal Code Ann. § 31.05(a)(4) (West 2013) (“‘Trade secret’ means the whole or any part of any scientific or technical information, design, process, procedure, formula, or improvement that has value and that the owner has taken measures to prevent from becoming available to persons other than those selected by the owner to have access for limited purposes.”), and H.B. 1225, 2013 Mass. 188th Gen. Ct. (Mass. 2013) (proposing a value requirement), with Mass. Gen. Laws Ann. ch. 93, § 42 (West 2014) (not requiring any value for the existence of a trade secret); see also C. Rachal Pugh, Bernier v. Merrill Air Engineers, 17 Berkeley Tech. L.J. 231, 235 (2002) (noting that the UTSA and the First Restatement definition of trade secret differ in that the UTSA omits any requirement that the information be “used in one’s business,” signaling support for a broader definition placing less emphasis on the actual value of the secret).
[16] Unif. Trade Secrets Act § 1(2) (1985) (“(i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (ii) disclosure or use of a trade secret of another without express or implied consent by a person who (A) used improper means to acquire knowledge of the trade secret; or (B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was (I) derived from or through a person who had utilized improper means to acquire it; (II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) before a material change of his [or her] position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.”).
[17] Unif. Trade Secrets Act § 3 (1985).
[18] Unif. Trade Secrets Act § 2 (1985).
[19] Unif. Trade Secrets Act § 3(a) (1985).
[20] Id. at § 3(b).
[21] Id. at § 4.
[22] Id. at § 2 cmt. (“The general principle of Section 2(a) and (b) is that an injunction should last for as long as is necessary, but no longer than is necessary, to eliminate the commercial advantage or ‘lead time’ with respect to good faith competitors that a person has obtained through misappropriation. Subject to any additional period of restraint necessary to negate lead time, an injunction accordingly should terminate when a former trade secret becomes either generally known to good faith competitors or generally knowable to them because of the lawful availability of products that can be reverse engineered to reveal a trade secret.”).
[23] The judicially created doctrine of “inevitable disclosure” holds that where an employee in possession of trade secrets wishes to take a new position with a different company, and where the new position is of such a nature that it is inevitable that the employee will disclose the trade secrets in the course and scope of his or her new employment, the court may enjoin the employee from taking the new position. Although a potent tool for employers, the doctrine is inconsistently applied by courts, and has been rejected entirely in some circuits. See Barry L. Cohen, The Current Status of the Inevitable Disclosure Doctrine A Unique Trade Secret Litigation Tool, 3 Landslide 40, 41 (2010); see also Adam Waks, Keeping the Cat in the Bag: Inevitable Disclosure Doctrine and Its Inevitable Evolution, Jipel Blog (Feb. 6, 2014, 4:58 PM), https://jipel.law.nyu.edu/2014/02/keeping-the-cat-in-the-bag-inevitable-disclosure-doctrine-and-its-inevitable-evolution/.
[24] Economic Espionage Act of 1996, Pub. L. No. 104–294, 110 Stat 3488.
[25] See Presidential Statement on Signing the Economic Espionage Act, 2 Pub. Papers 1814 (Oct. 11, 1996). (“This Act establishes a comprehensive and systemic approach to trade secret theft and economic espionage, facilitating investigations and prosecutions.”). While the EEA does not preempt state criminal law, it can provide guidance to trade secret holders and their employees in a globalized world where job opportunities often extend beyond state lines. See 18 U.S.C. § 1838 (2012).
[26] H.R. Rep. No. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4031 (“The definition of the term ‘trade secret’ is based largely on the definition of that term in the Uniform Trade Secrets Act.”).
[27] 18 U.S.C. § 1839(3) (2012).
[28] Id. § 1832(a).
[29] Id.
[30] See Theft of Trade Secret Clarification Act of 2012, Pub. L. No. 112-236, 126 Stat. 1627 (2102). The statute used to require that the trade secret be “included in a product that is produced for or placed in interstate or foreign commerce,” but the definition was broadened as a result of a congressional amendment passed in the wake the acquittal of Sergey Aleynikov, a computer programmer accused of stealing information relating to his employer’s high frequency trading system. See United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012).
[31] 18 U.S.C. § 1832(a) (2012).
[32] Id. § 1832(b).
[33] See United States v. Howley, 707 F. 3d 575, 582 (6th Cir. 2013) (“Determining the value of a trade secret, we acknowledge, is no easy task. But district courts need not reach an exact figure for the loss a victim suffered or the amount of harm a defendant caused or intended to cause; a “reasonable estimate” will do. U.S.S.G. § 2B1.1, cmt. n. 3(C).”).
[34] 18 U.S.C. § 1831 (2012).
[35] Economic Espionage Act 18 U.S.C. § 1831 (2013) amended by the Foreign and Economic Espionage Penalty Enhancement Act (Pub. L. 112-269, January 14, 2013, 126 Stat. 2442) (increasing the available fine for individuals from $500,000).
[36] Economic Espionage Act 18 U.S.C. § 1831(b) (2013) (increasing the available fine for organizations from $10 million).
[37] For example, the EEA expressly defines several technologies not mentioned in the UTSA as trade secrets, ostensibly for the purpose of updating the definition to keep pace with fast changing technologies. The EEA also defines “value” more broadly than the UTSA to include any information that has value from not being known by the public, whether or not the trade secret owner is actually capable of capturing any of that value. See Gerald J. Mossinghoff et. al., The Economic Espionage Act: A New Federal Regime of Trade Secret Protection, 79 J. Pat. & Trademark Off. Soc’y 191, 197 (1997).
[38] See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 178 (7th Cir. 1991) (describing the dual purpose of trade secrecy law as protecting personal property and regulating interpersonal relationships, and noting that each rationale serves a different purpose: the first encourages inventive activity, and the second prevents the undeserved redistribution of wealth).
[39] See e.g. Peter C. Quittmeyer, Trade Secrets and Confidential Information Under Georgia Law, 19 Ga. L. Rev. 623, 656 (1985) (“The distinction between trade secrets and general trade information reflects the principle that an individual should not be precluded from practicing his chosen trade or profession merely because he has become more skillful, sophisticated, and proficient as a result of prior experience and business associations.”).
[40] High levels of job mobility are beneficial to both employees and employers: employees want to work for employers who need them most and will compensate them accordingly, and employers want to hire the most skilled employees. See, e.g., Charles Tait Graves, Trade Secrets as Property: Theory and Consequences, 15 J. Intell. Prop. L. 39, 43–44 (2007).
[41] See generally Melvin F. Jager, Trade Secrets Law § 8.01[3] (rev. 1992); see also Trade Secrets § 5.02 (rev. 1990).
[42] See Graves, supra note 40; see also Miles J. Feldman, Toward A Clearer Standard of Protectable Information: Trade Secrets and the Employment Relationship, 9 High Tech. L.J. 151, 157 (1994).
[43] As a society, we have an interest in maximizing the productivity and satisfaction of our citizenry – having citizens trapped in jobs they cannot leave is a perversion of that interest. Moreover, many of those citizens were educated and trained using public funds, at public schools and universities. In order to get the best return on our educational investment, we need to ensure that each citizen can maximize the use of his or her skills. Additionally, we as a society benefit from the free exchange of information; we want to balance, within reason, the ability of an individual or group of individuals to work with and improve on the knowledge of others, while at the same time understanding that people want to benefit from their creations, and will likely demand some protection in order to invest in the creative process in the first place.
[44] See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991) (“If trade secrets are protected only if their owners take extravagant, productivity-impairing measures to maintain their secrecy, the incentive to invest resources in discovering more efficient methods of production will be reduced, and with it the amount of invention.”).
[45] Fewer employees hired means fewer job prospects for potential employees, and fewer employees allowed to work with the secret or increased safegaurds means fewer employees are able to gain valuable knowledge and skill while on the job.
[46] See Quittmeyer, supra note 39.
[47] See Restatement (First) of Torts § 757, cmt. b (1939). (“The law of trade secrets looks to be stretched in further directions with the development of new forms of technology.”); see also Restatement (Third) of Unfair Competition § 39, cmt. d (1995) (“It is not possible to state precise criteria for determining the existence of a trade secret. The status . . . [is] ascertained through a comparative evaluation of all the relevant factors, including the value, secrecy, and definiteness of the information as well as the nature of the defendant’s conduct.”).
[48] The concept of “know-how” is so important that it is expressly included in the definition of a trade secret in the UTSA commentary. See Unif. Trade Secrets Act § 1, cmt. 5 (1985) (“The words ‘method, technique’ are intended to include the concept of ‘know-how.’”).
[49] 2 Trade Secrets Law § 8:6.
[50] ¶ 4.01 Nature of the Asset (Trade Secrets), 1998 WL 1038678, 3.
[51] Id. at 1 (quoting 1 R. Milgrim, Milgrim on Trade Secrets § 1.09[3] (Matthew Bender, 1995)).
[52] See e.g. Richard F. Dole, Jr., The Uniform Trade Secrets Act-Trends and Prospects, 33 Hamline L. Rev. 409, 420-21 (2010) (“A number of courts have found that the six factors identified by the Restatement (First) of Torts as pertinent to the existence of a trade secret remain relevant under the Uniform Act. The factors are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of the information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.”).
[53] Unif. Trade Secrets Act § 1 (1985).
[54] See Charles Tait Graves, The Law of Negative Knowledge: A Critique, 15 Tex. Intell. Prop. L.J. 387, 391 (2007)
[55] See id. (“The perceived mistakes and errors of one’s predecessors, or of one’s own making, can be a springboard to new ideas. Indeed, it is commonplace that creative individuals sometimes use detailed knowledge about previous approaches to problems in order to reject them.”). Moreover, it can be almost impossible for an employee not to take this sort of information with them from job to job; how is an architect, hired to design an office building, supposed to ignore any failures he experienced in the past when designing similar office buildings?
[56] For example, a contractor hired to build a complicated piece of software might spend six months exploring multiple avenues that lead to dead ends before finally completing the project. If another company subsequently hires that same contractor to produce a similar product, he or she would produce it in significantly less time as a result of not having to repeat those previous mistakes. Since the contractor’s previous employer paid for this knowledge, they have an interest in ensuring that their competitors do not benefit from it down the road.
[57] A Report on Prosecutions Under the Economic Espionage Act, Peter Toren, Esq., (Trade Secret Law Summit AIPLA Annual Meeting, Washington, D.C. October 23, 2012). Most prosecutions were brought against former employees, and the sentences for those convicted range from probation to over five years in prison. See id. at 5, 11.
[58] See The Foreign and Economic Espionage Penalty Enhancement Act (Pub. L. 112-269, January 14, 2013, 126 Stat. 2442); see also Theft of Trade Secret Clarification Act of 2012 Pub. L. No. 112-236, 126 Stat. 1627 (2012).
[59] See Executive Office of the President, Administrations Strategy on Mitigting the Theft of U.S. Trade Secrets 7 (2013), available at http://www.whitehouse.gov//sites/default/files/omb/IPEC/admin_strategy_on_mitigating_the_theft_of_u.s._trade_secrets.pdf (last visited March 31, 2013).
[60] Colloquium on Innovation Policy Class Discussion with Andrea Sharrin, Deputy Chief, Computer Crime and Intellectual Property Section of the United States Dep’t. of Justice (April 2, 2013) (citing a 39% increase in prosecutions in 2012 compared to 2011 and a desire on the part of the DOJ to work with companies to bring additional prosecutions on their behalf).
[61] To date, the DOJ has been notoriously picky regarding EEA prosecutions. See Toren, supra note 57 (noting that only 124 cases have been initiated under the EEA since it was passed in 1996).
[62] With limited federal dollars to spend on prosecutions, the DOJ has in the past been more likely to take cases that were already worked up by private entities. While the DOJ claims to be interested in working with trade secret holders to prosecute alleged misappropriations, it is likely that they will continue to choose which cases to pursue based on a reasonable cost-benefit analysis. Andrea Sharrin, Deputy Chief, Computer Crime and Intellectual Property Section of the United States Dep’t. of Justice, Colloquium on Innovation Policy Class Discussion (April 2, 2013).
[63] While it is possible for a trade secret holder to both initiate a private suit and refer a criminal case to the DOJ, the DOJ is less likely to prosecute a case that is pending in civil court. Id. (citing as reasons the inability to control the actions of a private party engaged in a parallel suit coupled with a lessened need to initiate a criminal prosecution where a civil suit is already ongoing).
[64] For example, when determining fines in a criminal case, courts will often require intellectual property holders to disclose their research and development budgets so the court can place a “cost” on the misappropriation.
[65] Judges can issue protective orders to prevent the disclosure of trade secrets. See e.g. Fed. R. Civ. P. 26(c)(1)(G). In fact the EEA contains a clause specifically instructing judges to do just that. Orders to Preserve Confidentiality, 18 U.S.C. § 1835 (1996). However, the fact remains that in a criminal trial the focus is on the defendant; intellectual property holders face the possibility that their rights will not be at the forefront, and that they will not be respected to the degree they might be were the intellectual property holders an actual party to the litigation. See Federal Open Market Committee v. Merrill, 443 U.S. 340, 362 n. 24 (1979); see also Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co., 107 F.R.D. 288, 292 (D. Del. 1985) (“It is well established that trade secrets are not absolutely privileged from discovery in litigation.”); Centurion Industries, Inc. v. Warren Steurer & Associates, 665 F.2d 323, 325 (10th Cir. 1981). But see Susan V. Metcalfe, Protecting Trade Secrets: Is the Remedy Worse Than the Wrong?, 104 Dick. L. Rev. 503, 504 (2000).
[66] See supra Section II.A Unif. Trade Secrets Act discussion; see also supra Section II.B EEA discussion.
[67] See Unif. Trade Secrets Act § 1 (1985), and Restatement (Third) of Unfair Competition §39 (1993); See also Tex. Penal Code Ann. § 31.05(a)(4) (West 2013) and Mass. Gen. Laws Ann. ch. 93, § 42 (West 2014).
[68] Generally speaking, it is unlikely that any piece of intellectual property will not meet the legal definition of “value” if you as a trade secret holder believe it is valuable. As previously noted, some states require that a trade secret be used in the trade secret holder’s business in order to have “value.” See Bunis & Spieth, supra note 12. Generally speaking, if your secret has so little value to your business that you are not currently using it, it is likely not worth your time to find a way to use just to retain the right to protect it from misappropriation.
[69] See supra Section II.A Unif. Trade Secrets Act discussion; see also supra Section II.B EEA discussion.
[70] In most cases this is not a hard question to answer: a machine you designed with unpatented components or an unpatented mixture you invented is clearly a trade secret. Furthermore, no one expects a property owner to spend all of his or her time categorizing every component in an invention for intellectual property purposes. On the other hand, a property owner who simply declares that everything in his or her factory is a trade secret is likely to face a higher level of scrutiny if a lawsuit for misappropriation becomes neccessary at a later date.
[71] See e.g. Laurence H. Reece, III, Developing a Program for the Protection of Trade Secrets, Mass. Continuing Legal Education, April 1998; see also Diane Siegel Danoff, New U.S. Laws Criminalize Theft of Trade Secrets, Including Quantitative Trading and Investment Models, Dechert LLP (February 2013), http://sites.edechert.com/10/926/february-2013/2013-02-06—ip—new-u.s.-laws-criminalize-theft-of-trade-secrets–including-quantitative-trading-and-investment-models.asp.
[72] See id.
[73] See id.
[74] See Alois Valerian Gross, What is “Trade Secret” So As to Render Actionalable Under State Law Its Use or Disclosure by Former Employee, 59 A.L.R. 4th 641 (1988).
[75] See L.S. Tellier, Implied Obligation of Employee Not to Use Trade Secrets or Confidential Information for His Own Benefit or That of Third Persons After Leaving the Employment, 165 A.L.R. 1453 (1946); see also Unif. Trade Secrets Act, § 2 (ii)(B) (1985).
[76] Regardless of the common law duty, employees may use as a defense to infringement the claim that they were not put on notice that the information was protected. A good way to put an employee on notice is to make them sign a contract specifically stating that they are working with trade secrets, and listing (with some generality) the trade secrets involved.
[77] NDAs limit an employee’s ability to disclose certain information from their job for a certain period of time. NCAs require that the employee not do certain work within a defined set of parameters (usually a time-frame or geographical location, although geographic limitations are not as useful in the modern age).
[78] See Restatement (Second) of Contracts § 71 (1981). Any agreement between parties must be made in return for consideration (meaning essentially that each party gets something out of the deal). At the start of a business relationship, the law will view any trade secrecy restrictions placed on the employee as being exchanged in consideration for the job.
[79] See Maura Irene Strassberg, An Ethical Rabbit Hole: Model Rule 4.4, Intentional Interference with Former Employee Non-Disclosure Agreements and the Threat of Disqualification, Part II, 90 Neb. L. Rev. 141, 145–46 (2011).
[80] See Michael J. Garrison & John T. Wendt, The Evolving Law of Employee Noncompete Agreements: Recent Trends and an Alternative Policy Approach, 45 Am. Bus. L.J. 107, 130 (2008) (“Although some states continue to reject partial enforcement of any kind or limit the courts’ power to rewrite the terms of a restrictive covenant based on common law contract principles, there has been a clear shift from the blue pencil doctrine to reformation.”).
[81] There is some disagreement regarding the benefits of specificity in an employment contract, handbook and/or NDA. On the one hand, telling employees exactly what information they can and cannot take with them following their employment can help prevent misunderstandings, and will decrease after-the-fact litigation in scenarios where employees misappropriate your intellectual property because they honestly did not know that it was your protected intellectual property. On the other hand, it can be problematic to draw employees’ attention to specific information you consider valuable, and may result in more after-the-fact litigation involving employees who purposefully misappropriate your most valuable trade secrets. You need to decide for yourself which of these situations is more relevent to you and your business.
[82] See id. regarding specificity.
[83] Assignment will only cover information that is traded for consideration and that is not general knowledge and skill. See e.g. 2 Trade Secrets L. § 8:6.
[84] NCAs generally do not influence trade secrecy litigation: an employee agreeing not to work in a certain field for a certain time will not necessarily be on notice that any trade secrets exist, just that the employee is not allowed to do certain work for contractual reasons.
[85] See a full list of such states at Carmen Nobel, Non-competes Push Talent Away, HBS Working Knowledge (July 11, 2011), http://hbswk.hbs.edu/item/6759.html (last visited March 30, 2013).
[86] See e.g., Picker Intl, Inc. v. Parten, 935 F.2d 257 (11th Cir. 1991) (giving examples of “rule of reason” cases and their outcomes); see also Pugh, supra note 15, at 246.
[87] Examples of good limitations include lists of the specific protectable interests (a trade secret is generally a reasonable protectable interest), the type of protectable interest, the length of time before competition can resume, the geographical area where competition is disallowed, and the specific type of competition that is disallowed (e.g. a court is more likely to find enforceable an NCA that prohibits building a specific type of high frequency trading system than one which prohibits building high frequency trading systems in general). As previously stated, the value of a geographical limitation will greatly depend on the type of information at issue, as such limitations no longer serve a purpose in many types of businesses.
[88] Telephone Interview with Charles Valauskas, Senior Partner, Valauskas Corder LLC (March 20, 2013) (using “brain dump” as a term of art, meaning the transfer of all of the employee’s knowledge on a given subject from one person to another or to a document).
[89] Id.
[90] At this point, it is imperative to let the employee know that you do not want them to divulge any trade secrets from their previous employer. In order to protect yourself from liability under the EEA, you should give the employee the disclaimer discussed in Section IV.A.2 below.
[91] See the limits on capturing value brought into the relationship by the employee, supra note 83.
[92] To the extent that they exist, you should remind the employee of any NDAs, NCAs, or contractual agreements entered into with you or your organization.
[93] See Tellier, supra note 75.
[94] See supra text accompanying note 81.
[95] See supra text accompanying note 23.
[96] This will help fulfill the “on notice” requirement in the EEA regarding the new employer. Specifically mentioning the EEA is not a requirement, but it is a good idea.
[97] In a theoretical world, employers would not engage in this sort of anti-competative behavior because any agreement that limits the ability of competitors to poach talent from each other limits the competitor’s ability to hire talented employees. Unfortunately, these sorts of arrangements do happen in the real world. See, e.g., US v. Adobe Systems, Inc., No. 10-CV-01629, settlement announced (D.D.C. Sept. 24, 2010) (several high technology companies, including Adobe, Apple, Intel, and Google, agreed not to actively contact each other’s employees with job opportunities). Whether or not such conversations between employers make sense from a public policy standpoint, they certainly make sense from the standpoint of an individual employer looking to protect his or her intellectual property, so long as the employer takes care to make sure that no anti-competitive discussions take place.
[98] See supra discussion at III.C.1. The DOJ is less likely to take a case that has not been worked up for them already.
[99] You can also try and have your state government prosecute your ex-employee under state criminal law, where it exists. This option however is outside the scope of this Note.
[100] Telephone Interview with Charles Valauskas, Senior Partner, Valauskas Corder LLC (March 20, 2013) (using the phrase as a term of art, meaning the individual in question should behave in a way that avoids even the appearance of impropriety while actively avoiding information that could subject the individual to liability).
[101] Id. (stating a general principle of law as practiced in the real world that the circumstances surrounding a case, and how those circumstances reflect on the parties involved, will often determine the outcome of the litigation, regardless of the legal principles implicated).
[102] See supra text accompanying note 23.
[103] See Strassberg, supra note 79.
[104] See Unif. Trade Secrets Act § 3 (1985).
[105] See Economic Espionage Act of 1996, Pub. L. No. 104–294, October 11, 1996, 110 Stat 3488 and related discussion, supra Section II.B.
[106] See Unif. Trade Secrets Act § 2 (1985) (“‘Misappropriation’ means: (i) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means”) (emphasis added).
[107] See 18 U.S.C. 1832(a) (2012) and related discussion, supra Section II.B.
[108] See supra text accompanying note 97.
[109] “A process for avoiding conflicts of interest by limiting disclosure of information to certain attorneys or individuals within a firm or corporation, thereby building a metaphorical wall between the holders of information and colleagues who represent interests or hold opinions which conflict. Also known as a Chinese wall.” Ethical Wall – Legal Definition, Your Dictionary, http://law.yourdictionary.com/ethical-wall (last visited March 31, 2013).
[110] Telephone Interview with Charles Valauskas, Senior Partner, Valauskas Corder LLC (March 20, 2013).
[111] See supra Section III.A. Employees have the strongest incentive in a given relationship because, economically speaking, the most efficient outcome for an individual employer is a system in which everyone else’s employees have maximum job mobility, but that employer’s employees do not.
[112] See supra note 88.
[113] See Trade Secrets Law § 8:6, supra note 83.
[114] The information you write down can include general knowledge and skill in addition to any protectable ideas. It is better to be over-inclusive then under-inclusive when conducting a brain dump.
[115] Telephone Interview with Charles Valauskas, Senior Partner, Valauskas Corder LLC (March 20, 2013).
[116] Attorneys and accountants you utilize in a professional capacity are good people to send this information to; they have a professional responsibility to be truthful regarding their interactions with you, which makes them particularly believable and reliable witnesses. Telephone Interview with Charles Valauskas, Senior Partner, Valauskas Corder LLC (March 20, 2013).
[117] See supra Section III.B and notes 5356.
[118] Telephone Interview with Charles Valauskas, Senior Partner, Valauskas Corder LLC (March 20, 2013).
[119] Telephone Interview with Professor Daniel DeWolf, Adjunct Professor of Law at the New York University School of Law, and Member, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (June 25, 2013) (noting that in many cases it is not the act itself, but the cover up of an act, that leads to legal action).
[120] On the other hand, most employees should already have some idea of what their employer considers intellectual property, and should have a feel for the company culture and how aggressively the employer might pursue perceived trade secret misappropriation. Moreover, employees have very little leverage at this stage in the process, so it is unlikely that they will change the employer’s mind regarding the classification of information the employer considers protected. Telephone Interview with Professor Daniel DeWolf, Adjunct Professor of Law at the New York University School of Law, and Member, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (June 25, 2013).
[121] See e.g. § 21:8. Intellectual property strategy: Defensive protection, mutually assured destruction (MAD), 2 Internet Law and Practice § 21:8 (noting that intellectual property can be equally valuable as a shield as it can as a sword, by functioning as a defense against lawsuits from companies worried about potential cross-suits).
[122] Since startups have fewer resources and often possess no intellectual property with which to threaten a cross-suit.
[123] While actual or threatened litigation will scare away potential investors, the mere possibility of future lawsuits is unlikely to have a dramatic effect. For early stage investors especially, such a possibility is simply one of many potential outcomes of an already high risk venture, and will likely not effect their decision regarding investment. Telephone Interview with Professor Daniel DeWolf, Adjunct Professor of Law at the New York University School of Law, and Member, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (June 25, 2013).
[124] This strategy is not universally embraced. Professor DeWolf disagrees with the assertion that it makes sense to hire an otherwise unnecessary individual and put up an ethical wall when dealing with potential trade secrets, reasoning that an ex-employer who believes an ex-employee’s new company is infringing on a trade secret is likely to litigate regardless of any ethical walls the ex-employee claims to have put in place. Meanwhile, hiring an additional employee in the early stages of a company means giving up valuable equity. Telephone Interview with Professor Daniel DeWolf, Adjunct Professor of Law at the New York University School of Law, and Member, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (June 25, 2013).
[125] See, e.g., D’Andre Cater, the creative force behind pop-up restaurant Feast & Imbibe (http://chicago.eater.com/archives/2013/01/08/feast-on-new-popups-from-former-moto-chef.php) and Mike Ryan, the mixologist at Sable Kitchen and Bar (http://www.starchefs.com/cook/chefs/bio/mike-ryan-0). Both studied under Homaro Cantu (Chef Carter as an intern and then as a sous chef, and Mike Ryan as a sous-chef and then as a mixologist). Both continue to utilize molecular gastronomy in their current positions.