Kenneth D. Sibley

Since passage of the Bayh-Dole act in 1982, research universities have become extremely active in technology transfer. Most of major research universities have established technology transfer offices to carry out the act, and the Association of University Technology Managers (see http://autm.rice.edu/autm) has become the leading organization that supports this profession. The task carried out by these offices is not simple: Objectives that must be balanced include those of facilitating technology transfer, meeting federal government reporting requirements, insuring compliance with privately funded research agreements, protecting institutional concerns of free and open communication, facilitating publications, and monitoring potential conflicts of interest and commitment. Nevertheless, the university technology transfer offices have sucessfully transferred a significant amount of technology to the private sector (including both small and large industry alike).

In general, universities transfer technology in the form of (i) patents and patent applications, (ii) tangible property (e.g., cell lines, DNA, antibodies), and (iii) copyrights (e.g., computer software). Trade secret protection, at least in the form of ongoing efforts to preserve technology that has been developed on campus as a trade secret over an extended period of time, is avoided by virtually all major research universities.

Trade secret protection is a problematic form of protection for university research for a number of reasons. First, this form tends to conflict with the goal of providing a free and open forum for the exchange of ideas. Technology to be protected by patent or copyright can be divulged to the public in a timely manner (at least if appropriate planning steps are taken), and even tangible property can be described in publications and its dissemination protected by materials transfer agreements. Trade secret protection, on the other hand, requires establishing procedures to avoid disclosure that a research university is ill-equipped to implement and enforce, even if the institution so desired.

In addition to the practical issues discussed above, tax considerations – both for non-profit status and for tax-exempt bond status – severely limit the ability of a research university to transfer technology in the form of trade secrets. Finally, the access to information provided by the Freedom of Information Act (for federal records) and the Public Records Act (for state records) block trade secret protection for a considerable body of information. The North Carolina Public Records Act is discussed in greater detail below.

The North Carolina Public Records Act, N.C.G.S. §§132.1 et seq., permits the discovery of non-confidential information contained within public records. While a trade secret exemption to this act exists, this exemption is relatively narrow. Embodied in N.C.G.S. §132-1.2, the exemption reads:

1. Constitutes a "trade secret" as defined in G.S. 66-152(3);
2. Is the property of a private "person as defined in G.S. 66-152(2);
3. Is disclosed or furnished to the public agency in connection with the owner’s performance of a public contract or in connection with a bid, application, proposal, industrial development project, or in compliance with laws, regulations, rules, or ordinances of the United States, the State, or political subdivisions of the state; and
4. Is designated or indicated as "confidential" or "trade secret" at the time of its initial disclosure to the public agency.

Two decisions have clarified how this section may apply to trade secrets developed on a university campus. In the first, S.E.T.A. UNC-CH v. Huffines, 101 N.C. App. 292 (1991), plaintiff Students for the Ethical Treatment of Animals, sought documents of the Institutional Animal Care and Use Committee (IACUC) relating to the use of animals in four scientific experiments. The trial court denied SETA’s application, concluding (among other things) that the requested documents contained "trade secrets", and that a "Qualified privilege of academic freedom" exempted the documents from disclosure. SETA appealed, and the appeals court reversed.

The appeals court observed that, after the research proposal was received by the IACUC, a much more detailed application for funding was submitted to the applicable federal funding agency, and that the federal applications were subject to disclosure under the Freedom of Information Act (5 U.S.C. §§552 et seq.). Interestingly, the court drew an important distinction for patentable technology. It said:

The requested material, noted the court, mainly concerned what type and how many animals were going to be used in a particular research project, pre and postoperative procedures, anesthesia and surgical procedures, how animal pain and discomfort was to be minimized, and methods of euthanasia. The court emphasized that it could not permit procedures such as these to be withheld from the public when they were performed daily by many people and taught in schools all over the world. However, the court commented that "it is conceivable that some of the answers to questions in future [IACUC] applications could contain "trade secrets" or be patentable and hence excludable." Id. at 298.

Wilmington Star-News v. New Hanover Regional Medical Center, 125 N.C.App. 174 (1997) involved "trade secret" information that had allegedly been provided from a third party to a public institution. PHP Inc., an HMO, negotiated a Hospital Participation Agreement with New Hanover (Medical Center). The agreement included appendices that contained pricing information. When the Wilmington Morning Star requested these appendices, PHP had advised New Hanover that the pricing information was confidential and contained trade secrets, and that disclosure may subject New Hanover to liability for misappropriation. When Morning Star filed an Application for an Order Compelling Disclosure under the Public Records Act, New Hanover filed a third party complaint against PHP. PHP filed a counterclaim for declaratory relief requesting the trial court to enter an order declaring the price lists to be trade secret. The trial court ordered disclosure of the price lists, but then issued a stay pending appeal.

The Court of Appeals affirmed the disclosure order. After reviewing the four requirements for excusing disclosure as a trade secret, the court concluded that the second requirement, that the confidential information be the property of a private "person", was not met. The court observed that "it would defy logic to insist that negotiated price lists belong solely to PHP and not also to Medical Center."