After Five Years of Experimentation and Research, DGS Industries Invented

question 3

Essay

After five years of experimentation and research, DGS industries invented a new kind of drill head for use in drilling extremely hard surfaces with a great deal of precision. The technique has particular applications in medical equipment and aircraft. DGS considered applying for a patent on its invention, but determined that the 20-year period of exclusivity granted by a patent was insufficient. DGS sought instead to protect the invention as a trade secret. Two years later, a competitor, Copley Co., began producing precision parts so identical to DGS's that it seemed clear to DGS that misappropriation must have occurred. DGS started an investigation and quickly discovered that the lead scientist involved in the creation of the drill head had left for Copley just six weeks prior to Copley's production of the precision parts.
DGS has filed suit for misappropriation. Copley has defended by arguing that because DGS could have qualified for a patent but failed to apply for one, DGS was prohibited from claiming trade secret protection for its invention. Is Copley right? Explain.

---

Definitions:

Crossover Point

The point at which two or more alternative investments achieve the same cumulative cash flow or rate of return.

Mutually Exclusive

A condition where the occurrence of one event precludes the occurrence of another in decision making or statistical probability.

Discount Rate

The rate applied in DCF assessment to compute the present worth of imminent cash flows.

Internal Rate

Short for Internal Rate of Return (IRR), a financial metric used to estimate the profitability of potential investments by calculating the rate of return at which net present value of all cash flows (both positive and negative) from a project equals zero.