The Surprising Virtues of Treating Trade Secrets as IP Rights

Mark A. Lemley - Stanford Law School

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Trade secret law is a puzzle. No one can seem to agree where trade secret law comes from or how to fit it into the broader framework of legal doctrine. Courts, lawyers, scholars, and treatise writers argue over whether trade secrets are a creature of contract, of tort, of property, or even of criminal law. None of these different justifications has proven entirely persuasive. Worse, they have contributed to inconsistent treatment of the basic elements of a trade secret cause of action and uncertainty as to the relationship between trade secret laws and other causes of action. Robert Bone has gone so far as to suggest that this theoretical incoherence indicates that there is no need for trade secret law as a separate doctrine at all. He reasons that whatever purposes are served by trade secret law can be served just as well by the common law doctrines that underlie it, whichever those turn out to be.1

In this Article, I suggest that trade secrets can be justified as a form, not of traditional property, but of intellectual property (IP). The incentive justification for encouraging new inventions is straightforward. Granting legal protection for those new inventions not only encourages their creation, but enables an inventor to sell her idea. And while we have other laws that encourage inventions, notably patent law, trade secrecy offers some significant advantages for inventors over patent protection. It is cheaper and quicker to obtain, since it doesn’t require government approval, and it extends to protection of types of business and process information that likely would not be patentable.

It seems odd, though, for the law to encourage secrets, or to encourage only those inventions that are kept secret. I argue that, paradoxically, trade secret law actually encourages disclosure, not secrecy. Without legal protection, companies in certain industries would invest too much in keeping secrets. Trade secret law develops as a substitute for the physical and contractual restrictions those companies would otherwise impose in an effort to prevent competitors from acquiring their information.

The puzzle then becomes why the law would require secrecy as an element of the cause of action if its goal is to reduce secrecy. I argue that the secrecy requirement serves a channeling function. Only the developers of some kinds of inventions have the option to overinvest in physical secrecy in the absence of legal protection. For products that are inherently self-disclosing (the wheel, say, or the paper clip), trying to keep the idea secret is a lost cause. We don’t need trade secret law to encourage disclosure of inherently self-disclosing products—inventors of such products will get patent protection or nothing. But if trade secret law prevented the use of ideas whether or not they were secret, the result would be less, not more, diffusion of valuable information. The secrecy requirement therefore serves a gatekeeper function, ensuring that the law encourages disclosure of information that would otherwise be kept secret, while channeling inventors of self-disclosing products to the patent system.

My argument has a number of implications for trade secret policy. First, the theory works only if we treat trade secrets as IP rights, requiring proof of secrecy as an element of protection. If we give the protection to things that are public, we defeat the purpose and give windfalls to people who may not be inventors (what we might call “trade secret trolls”). Courts that think of trade secret law as a common law tort rather than an IP right are apt to overlook the secrecy requirement in their zeal to reach “bad actors.” But it is the courts that emphasize secrecy, not appropriation, as the key element of the cause of action that have it right. Second, an IP theory of trade secrets also encourages preemption of “unjust enrichment” theories and other common law ways courts are tempted to give private parties legal control over information in the public domain. Thus, an IP theory of trade secrets is in part a “negative” one: the value of trade secret law lies in part in defining the boundaries of the cause of action and preempting others that might reach too far. Analyzing trade secret claims as IP claims rather than common law contract or tort claims requires courts to focus on what the law is protecting, how, and why—something the common law did not do. As a result, the unified trade secret approach does not expand, but rather cabins, the overbroad reach of the common law.


I.
Constructing an IP Theory of Trade Secrets

Trade secrets are best understood not as applications or extensions of existing common law principles (warranted or unwarranted), but as IP rights. In this Part, I explain the two critical features trade secrets share with other IP rights—they promote inventive activity and they promote disclosure of those inventions. I then seek to explain the most significant anomaly—the requirement of secrecy.


A.     Incentives to Invent

Trade secret law confers an exclusive right on the possessor of valuable information not generally known to or readily ascertainable by competitors. Exclusivity is the hallmark of an IP right. Both patents and copyrights confer similar rights to prevent use by others on the developers of new and valuable information. In so doing, patents and copyrights are generally acknowledged to serve a utilitarian purpose—the grant of that legal control encourages the development of new and valuable information by offering the prospect of supracompetitive returns, returns possible only if the developer does not face competition by others who use the same idea. In this way, patents and copyrights avoid the risk of underinvestment inherent with public goods, which are more costly to invent than to imitate once invented.

Trade secrecy has the same effect. It gives the developer of new and valuable information the right to restrict others from using it, and therefore the prospect of deriving supracompetitive profits from the information. This may be true of business as well as technical secrets, since some protection for business ideas helps ensure a first-mover advantage for those who take risks on untested business models. True, the right of exclusion in trade secret law is not absolute. The trade secret owner cannot sue someone who develops the idea independently, or who reverse engineers a product on the open market to learn the secret. But the same is true of copyright law. A right to exclude does not have to be absolute to be effective in rewarding and therefore encouraging innovation. It need merely provide sufficient advantage in terms of lead time or relative costs to minimize or eliminate the public goods problem.

The additional incentive provided by trade secret law is important for innovation. Trade secret law reaches into a number of corners patent law cannot. The definition of trade secret (valuable information) is broader than the definition of patentable subject matter, for example, protecting business plans, customer lists, and so-called “negative know-how” against use by others. Patent law cannot protect valuable information of that sort. Further, inventors must apply for patents, publish their applications after eighteen months, and then wait perhaps four years for the Patent and Trademark Office to decide whether to grant protection. That significant delay renders patents unavailable as a practical matter in fast-moving industries. Trade secrets, by contrast, are automatically protected upon creation provided the requirements of the statute are met. Finally, patent litigation is as much as three times as expensive as trade secret litigation, with a price tag—a median of $5 million per side in legal fees for large cases—that puts it out of reach of many small firms. Small wonder, then, that economic literature suggests that some firms, particularly start-ups, rely heavily on the incentive to invent provided by trade secret law. In many cases patents are simply not an adequate substitute.

Trade secret law also reaches where contract alone cannot. Trade secret law precludes acquisition of information by strangers using improper means—computer hacking and other forms of corporate espionage. Further, it extends the reach of the law beyond privity of contract to anyone who comes into contact with a secret knowing that they have acquired it by accident, mistake, or by another’s malfeasance.


B.     Incentives to Disclose

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. There is decent evidence to support the idea that at least one function of an IP right is not just to encourage new invention, but to encourage the dissemination of those new ideas.

At first blush, trade secret law seems to push in the opposite direction. After all, protection under trade secret laws is conditioned on secrecy, and so it seems to encourage secrecy, or at least the development of inventions that can be kept secret. Paradoxically, however, trade secret law actually encourages broader disclosure and use of information, not secrecy. It does so in two ways. First, the legal protection trade secret law provides serves as a substitute for investments in physical secrecy that companies might otherwise make. The facts of E. I. du Pont de Nemours & Co. v. Christopher2 provide an example. There, the plaintiff was constructing a chemical plant, and during construction it was apparently possible to see the layout of the plant from the air and so to discern the secret process du Pont was using. The court noted that du Pont could have built a temporary roof over the plant during construction, but only at “enormous expense.” It didn’t need to build that roof because the law protected its interest in avoiding (aerial) prying eyes. Had the law not done so, however, it is reasonable to suppose that du Pont might have built the roof rather than risk loss of its trade secrets. That investment in secrecy would have been inefficient; it is cheaper (both for du Pont and for society) for the law to provide that protection. And even if the investment in secrecy were efficient for du Pont in the absence of the law, it would still impose a social cost by restricting the flow of information—a cost du Pont would have no reason to take into account.

There is empirical evidence that overinvestment in secrecy is a real problem in the absence of trade secret protection. Examples can be found as far back as the guild system that pervaded Western economies in the Middle Ages. Guilds were places that could and did develop technical knowledge, but in the absence of legal means to protect that knowledge they went to great lengths to prevent others from learning of it, imposing draconian limits on the mobility of employees and the development of competing firms. The same problem remains today in countries that do not provide legal protection for secrets. Robert Sherwood studied business practices in Mexico and Brazil, two countries that do not have strong legal protection for trade secrets and in which resort to the courts may not be viable for a variety of reasons.3 He found that companies in those countries make business decisions that inefficiently limit the disclosure of information because they fear that they cannot rely on the courts to prevent the use of information they do disclose. For example, they may be less willing to contract production out to third parties if it means giving out information about secret processes, even where the third party could use the process more efficiently. They may take elaborate security measures, building walls and fences and hiring armed guards. And they may hire employees whom they expect to be loyal—such as family members—rather than strangers who would do a better job.

The problem also remains for products or industries that do not qualify for IP protection. Michael Pollan explains that the developers of new breakfast cereals, for example, engage in enormous efforts to protect the secrecy of their new ideas in order to gain a few months’ first-mover advantage. For the same reason, they operate their own machine shops to design the cereals, rather than outsourcing that work to those presumably more specialized in it.4

None of this evidence is perfect. One of the problems with social science is that it is hard to run clean tests in the real world. Nonetheless, there are both logical and evidentiary reasons to believe that, without legal protection, companies in certain industries would invest too much in keeping secrets. These investments are inefficient, in several senses. In many cases, the problem they address could be avoided by the courts at lower cost than the building of walls and fences. Second, physical investments must be made for each secret, while legal investments need be made only if there is misappropriation. That means that even if a physical investment in secrecy is individually cheap, in the aggregate the cost of having to make that investment for every secret may outweigh the cost of resort to law, which will be necessary only in those few cases in which the secret is actually misappropriated. Finally, and most importantly, restrictions on the flow of information between business partners or to new employees slow the process of commercialization and improvement of the secret inventions, and therefore interfere with both the invention and disclosure functions of IP law. Trade secret law developed as a substitute for the physical and contractual restrictions those companies would otherwise impose in an effort to prevent a competitor from acquiring their information. In so doing, it encourages disclosure of information that companies might otherwise be reluctant to share for fear of losing the competitive advantage it provides.

To be sure, trade secret law still encourages some secrecy. So if the alternative were a world in which companies freely disclosed their inventions, that world might be preferable. But the empirical evidence suggests that is unlikely to be the alternative. Rather, a world without trade secret protection is likely to have more, not less, secrecy.

Trade secret laws can encourage disclosure in a second way as well: they serve as a partial solution to Arrow’s Information Paradox. The paradox is this: In the absence of any legal protection, the developer of a potentially valuable but secret idea will have a difficult time selling that idea to someone who could make more efficient use of it. In order to sell the idea he will have to disclose it to allow the buyer to evaluate it, but disclosing it destroys the value inherent in its secrecy. To see this, imagine that I tell you I have a great idea, and I’ll share it with you for $1 million. Should you take the deal? You can’t know the answer to that question unless I tell you what the idea is. But in the absence of legal protection, if I tell you what my idea is, you no longer need to pay me $1 million.

Now add trade secret law (or any IP right) to the picture. The existence of a legal right to prevent others from using or disclosing my idea in breach of a confidential relationship allows me to disclose the idea in precontractual negotiations, secure in the knowledge that the other side is not free to take the idea without compensating me. The law, by giving certain rights to the holder of the secret, allows him to disclose information he would otherwise have been unwilling to share, and therefore permits business negotiations that can lead to commercialization of the invention or sale of the idea, serving both the disclosure and incentive functions of IP law. True, the parties could have entered into a contract limiting what could be done with the information, but the putative buyer may be reluctant to sign such a contract without knowing what they might be limiting themselves from using. Both venture capitalists and Hollywood executives, for example, are notoriously unwilling to sign nondisclosure agreements before reading business plans or movie scripts. Trade secret law reaches beyond contract law by allowing courts to infer the existence of a confidential relationship from circumstances in which transactions might be difficult or impossible without that assumption.


C.     Channeling Protection Between Patents and Trade Secrets

So far, so good. But at this point the reader might object that, if the goal of trade secret law is to give legal rights over an invention while encouraging its disclosure, we don’t really need the secrecy requirement at all. In this vein, a number of scholars have suggested that any investment in protecting trade secrecy is wasted, since the law is requiring companies to spend money in ways that reduce, not increase, the dissemination of ideas. If the goal of trade secret law is to encourage dissemination by giving the security of a legal right, this argument runs, why not just grant that right to any information, regardless of whether it is secret?

The problem with this argument is that without some basis for defining the legal right, it will sweep too broadly. If I can get ownership rights in any information, no matter how public, the result will be to deter, not promote, the dissemination of that information. Broad legal rights may restrict employee mobility, with negative consequences for the economy. If any idea, no matter how public, is subject to a claim of legal rights, individuals and companies will reasonably worry about using any information they do not themselves develop. If I could sue you for repeating my explanation of trade secret law, the result is not likely to be wide discussion of that explanation, even if I have no intention of actually suing you for discussing my idea.5 And while we could theoretically substitute a defendant’s conduct for proof of secrecy as the basis for entitlement to a legal right, such conduct-based definitions are circular—competition is unfair if it is likely to be defined by courts as unfair—and ultimately empty.

Granted that we need some definition of the entitlement, why secrecy? The answer, I believe, is that the secrecy requirement serves to channel inventors into the appropriate form of IP protection. Consider three different types of inventions: one that is impossible to conceal once it is in widespread use (think of the wheel or the paper clip), one that is impossible to discern by evaluating the product (think of the formula for Coca-Cola), and one that can be discerned by evaluating the product, but only with difficulty (think of software source code, which is not evident from the object code sold to customers but which might be reverse engineered). In a world with patent law but no trade secret law, companies with inventions in the first category—those who have developed inherently self-disclosing inventions—will turn to patent law if they can. If not, they will be out of luck. If the paper clip were not patentable, companies wouldn’t be able to keep it secret and still make much profit from it. Their best option would likely be to sell the paper clip and hope to make some profit from brand recognition or first-mover advantages.

Companies with inventions in the second category, by contrast—those who develop inventions that are not transparent to the world, such as chemical processes and some formulas—might well decide to keep an invention secret in the absence of legal protection. They may reason that secrecy may give them a greater advantage than patent law, since patents may be held invalid, may be easy to design around, and in any event will expire within twenty years. Indeed, there is some empirical evidence that they do so—that where secrecy is possible, inventors choose it over patent protection. Without trade secret law, the efforts those companies take to protect their secrets may be excessive. That overinvestment may be specific—protection of a particular idea—or general—imposing too many restrictions on employees and business partners. Either way, the result is both inefficiency from overinvestment in secrecy and the loss of the benefits of public disclosure of information.

A secrecy requirement provides protection to companies in the second category, not in the first. Thus, it ensures that trade secret law provides legal protection in circumstances in which inventors might otherwise choose excessive secrecy, but denies protection to inventions that companies would not keep secret in the absence of patent protection. By drawing this line, even the secrecy requirement of trade secret law has the surprising effect of reducing, not increasing, the secrecy of inventions.

What, then, of inventions in the intermediate category? Companies with inventions in this third category might or might not rely on secrecy rather than patent law. Both approaches have risks. As noted above, patents might be invalid, or easy to evade, and in any event will expire in a set period of time. On the other hand, reliance on secrecy provides only tenuous protection, since the secret could be discerned by reverse engineering or independent development or disclosed by an employee or business partner in the absence of trade secret law. In this case, the effects of introducing trade secret law are ambiguous. If companies in this third category would have opted for secrecy, then the introduction of trade secret law reduces the negative effects of that secrecy for the same reasons it did in the second category. But if they would have opted for patent protection rather than secrecy without law, adding trade secret law might encourage them to keep secret information they would otherwise have patented (and therefore disclosed).

To avoid inadvertently encouraging secrecy rather than disclosure, trade secret law incorporates limits on the scope of the right, notably the defenses of independent development and reverse engineering. As the Supreme Court suggested in Kewanee Oil Co. v. Bicron Corp.,6 and as commentators have suggested, these defenses weaken the trade secret right sufficiently that it does not entice inventors to choose secrecy over patent protection. That isn’t always true, of course; the inventors of Coca-Cola could have chosen to patent it but didn’t. But importantly, weakening trade secrets means that those in the intermediate category are unlikely to choose secrecy over patenting. Taken together, the secrecy requirement and the relative weakness of the trade secret law help ensure that the law protects those who would otherwise rely on secrecy without law, and encourages disclosure in those cases, while not displacing patent law as the means of protection for self-disclosing inventions. Put another way, the secrecy requirement channels particular inventors to the form of IP protection that best achieves the goals of society.


II.
Implications for Trade Secret Law

The IP theory of trade secret rights has several implications for the development of trade secret doctrine.


A.     The Centrality of Secrecy

One implication of the theory I articulated in Part I is that the requirement of secrecy is not an accident or a mistake. It is a central part of what makes trade secret law work. A significant benefit of thinking of trade secrets as IP rights rather than as unfair competition torts is that it puts the focus of the legal inquiry first and foremost on whether the plaintiff has an IP right at all. The UTSA, for example, defines the legal rights of trade secret owners by requiring the existence of a secret and defining what constitutes a secret. Doing so prevents plaintiffs from ignoring or glossing over proof of the existence of a trade secret in their effort to prevent what they see as improper use of their information.

This point may seem obvious—of course winning a trade secret case requires the plaintiff to prove the existence of a trade secret. But in fact a number of cases and commentators that have applied the tort theory of trade secrecy have minimized or even ignored that requirement. The Supreme Court itself led courts astray in E.I. du Pont de Nemours Powder Co. v. Masland, where it said that “[w]hether the plaintiffs have any valuable secret or not, the defendant knows the facts, whatever they are, through a special confidence that he accepted. The property may be denied, but the confidence cannot be.”7 A number of courts applying the Restatement of Torts have followed the lead of the Masland dictum, holding that defendants misappropriated trade secrets by acquiring or using a secret by improper means or in breach of a confidential relationship without determining that the information was itself a secret at all. An example is Smith v. Dravo Corp., in which the defendant had clearly made use of information obtained from the plaintiff during acquisition negotiations in later entering the market in competition with the plaintiff.8 The court found liability on the basis of the defendant’s admittedly troubling business behavior. But in doing so, the court elided the distinction between the use of information that was truly secret, such as the plaintiff’s confidential patent applications, and information that was readily accessible to the public, such as the dimensions of plaintiff’s shipping containers that were already on the market.

There are a number of other examples. In United States Sporting Products, Inc. v. Johnny Stewart Game Calls, Inc.,9 for example, the court held that publicly sold, uncopyrightable recordings of bird calls were protectable. The court focused on the labor the plaintiff had put into collecting them, but ignored the fact that they were not secret. In Rohm & Haas Co. v. Adco Chemical Co.,10 the court ignored the fact that the defendant’s alleged secret process was in fact disclosed in a number of industry publications because it found that the defendant did not in fact learn the information from those publications, but instead from the plaintiff. And in Franke v. Wiltschek, the Second Circuit elevated this idea to a general rule based on Masland:

It matters not that defendants could have gained their knowledge from a study of the expired patent and plaintiffs’ publicly marketed product. The fact is that they did not. Instead they gained it from plaintiffs via their confidential relationship, and in so doing incurred a duty not to use it to plaintiffs’ detriment. This duty they have breached.11

These courts have departed from the principle of trade secrets as IP rights. Perhaps they are blinded by the defendant’s suspicious conduct, or perhaps they view employee mobility itself as suspect. Whatever the reason, they ignore the critical limit on the scope of that IP right. Doing so risks turning trade secrets from a well-defined legal right that serves the broader purposes of IP law into a standardless, free-roaming right to sue competitors for business conduct that courts or juries might be persuaded to deem objectionable. Secrecy is critical to ensuring that trade secret law does not interfere with robust competition or with the dissemination of new ideas. Courts that ignore that requirement undermine the purpose of trade secret law. The dictum of Masland should not only be disregarded but reversed: “The starting point in every case of this sort is not whether there was a confidential relationship, but whether, in fact, there was a trade secret to be misappropriated.” Understanding trade secrets as IP rights, and therefore as premised first and foremost on the existence of such a legal right, will help restore the centrality of the secrecy inquiry. And as a corollary, it may help ensure that the plaintiff clearly defines what it claims to own, rather than (as happens all too often in practice) falling back on vague hand waving.


B.     The Relationship Between Trade Secret Law and Other Torts

The importance of secrecy in channeling inventors between patent and non-patent IP protection has a second implication as well. Requiring trade secret plaintiffs to prove that they own real secrets will do little good if those same plaintiffs can turn to other legal doctrines to provide equivalent protection without the requirement of secrecy. Unfortunately, there are a number of state common law doctrines that offer just that prospect. The common law doctrine of breach of confidence, for example, required only proof that something was offered to the defendant in confidence, and that the defendant disclosed that information. Other common law doctrines, including misappropriation, unfair competition, and unjust enrichment (at least in those states in which it is an independent cause of action), similarly have no elements other than a loose definition of improper conduct. And still other torts, such as interference with contract or “idea submission,” may well overlap almost completely with trade secret claims in particular cases.

Trade secret law should preempt these torts when they are applied to protect information that would, if secret, have been protected by trade secret law. That is, a plaintiff who complains of the defendant’s use of its information, but who cannot prove that the information is secret, should not be able to rely on one of these torts (or any other common law variants) to bypass the requirement that it prove secrecy. If trade secret law does not preempt these torts, the point of the secrecy requirement will be lost, and with it the benefits of dissemination of new inventions. Companies will be unable to rely on the presence of ideas in the public domain; any information might potentially be subject to one of these torts. As a result, companies will be less willing to compete vigorously on the merits. Departing employees will be less willing to rely on information in the public domain to start new companies, and as a result more reluctant at the margins to start those companies. As Jim Pooley notes, “there is arguably little social utility” in allowing state claims based on misappropriation of trade secrets to go forward if the plaintiff cannot prove the elements of a trade secret claim.

Trade secret law should not, however, preempt state laws that have as an object something other than the protection of information. A defendant who breaks into an office to steal information has committed a tort (and indeed a crime) regardless of whether the information in question was secret. Trade secret law should preempt laws within the same general scope as trade secrecy, but not laws that serve fundamentally different purposes.

Once again, conceiving of trade secrets as IP rights helps achieve the goal of preemption of conflicting common law torts. If trade secret law is one tort among many common law torts, there is no reason to privilege it over other torts when the two conflict. But we have a well-established set of principles by which IP rights preempt state common law rules that interfere with those rights. We have those preemption principles because we recognize IP rights as utilitarian rules created by government to address public-goods problems, and the policy decisions implicit in those rules will at a minimum be complicated and may even be overridden by layering on additional causes of action not designed with public goods problems in mind. Treating trade secret law as an IP right dependent on proof of secrecy highlights the policy stakes, and will encourage courts to preempt common law claims that threaten to undermine the balance trade secret law strikes. In so doing, it may further advance the trade secret policy of disclosure by removing state laws that block the flow of non-trade secret information.


C.     Reasonable Efforts to Protect Secrecy

While proof that the plaintiff’s information is secret serves a critical role in channeling towards trade secret protection only those inventions that are best served by trade secret law, the same is not necessarily true of the parallel requirement that trade secret owners take reasonable efforts to protect their secrets. That requirement seems to stem from traditional tort notions of contributory negligence, under which plaintiffs were barred from relief if they themselves contributed to the tort. The explanation I have offered for trade secret law (and for the secrecy requirement) is not one that values secrecy as an end in itself; far from it. The benefit of trade secret law is that it reduces investment in secrecy compared to what would happen absent that law. So there is no reason we should want to establish a minimum investment level as an end in itself. And it may have negative consequences in particular circumstances.

The question then becomes whether reasonable efforts serve some other end. For example, some courts suggest that efforts to protect information as a secret are a sufficiently strong proxy for the secrecy of the invention that we should rely on them as evidence in support of the existence of a secret. But they are surely not perfect evidence; any litigator will tell you that companies regularly label as secret lots of things that clearly are not secret. Even assuming that reasonable efforts at secrecy do offer such evidence, that doesn’t justify the imposition of reasonable efforts as a separate requirement, just the consideration of that evidence in the overall secrecy inquiry. Alternatively, it may be that efforts to protect secrecy serve to put potential defendants on notice of the claim of secrecy, and therefore prevent inadvertent misappropriation. This may be true of some, but not all, efforts at secrecy, so again, it seems to justify reasonable efforts only as evidence, not as a separate requirement. More to the point, it will be true only as to some defendants; others may be aware of the secrecy of the information they take whether or not those secrets were reasonably protected. It seems more logical to cabin the risk of liability for inadvertent misappropriation by imposing some kind of scienter requirement than through this kind of constructive notice through enforcement efforts.

Reasonable efforts to protect secrecy, then, may make sense as evidence of secrecy or even as evidence of scienter, but they probably don’t make sense as a separate requirement.


Conclusion

Trade secrets are IP rights. They serve the same purposes as patent and copyright law—they encourage innovation and the disclosure and dissemination of that innovation, though they sometimes serve those purposes in surprising ways. Trade secret law reduces investments in secrecy and encourages the dissemination of the secret to more people who can make productive use of it. Indeed, trade secret rights may serve the purposes of IP law better than more traditional IP rights, at least for certain classes of inventions. The public disclosure function of the patent system doesn’t work very well in most industries, and doesn’t work at all if inventors opt out of the patent system.

Understanding trade secrets as IP rights allows them to take their proper place in the pantheon of social policy designed to encourage innovation. It also gives us a way to think about how those rights are designed, a way that has significant implications for how trade secret law looks and how it interacts with other laws. Most surprisingly, those implications are ones that offer greater, not lesser, latitude for competitors and departing employees than the unfair competition rationale most commonly articulated as an alternative.dingbat

Acknowledgments:

Copyright © 2009 Stanford Law Review.

Thanks to Chuck Adams, John Barton, Bob Bone, Dick Craswell, Zohar Efroni, Paul Goldstein, Wendy Gordon, Tait Graves, Joe Grundfest, Rose Hagan, Eran Kahana, Larry Lessig, David Levine, Jacqueline Lipton, Rob Merges, Mike Meurer, Roger Milgrim, Michael Risch, Sharon Sandeen, Peter Swire, Rebecca Tushnet, and participants in workshops at Stanford Law School and the IP Scholars’ Conference for discussions of these issues or comments on a prior draft.

Mark Lemley is William H. Neukom Professor at Stanford Law School and Of Counsel at Durie Tangri Lemley Roberts & Kent LLP.

This Legal Workshop Editorial is based on the following Article:   Mark A. Lemley, The Surprising Virtues of Treating Trade Secrets as IP Rights, 61 STAN. L. REV. 311 (2008).

  1. Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 CAL. L. REV. 241, 243 (1998).
  2. 431 F.2d 1012 (5th Cir. 1970).
  3. ROBERT M. SHERWOOD, INTELLECTUAL PROPERTY AND ECONOMIC DEVELOPMENT 111-17 (1990).
  4. MICHAEL POLLAN, THE OMNIVORE’S DILEMMA: A NATURAL HISTORY OF FOUR MEALS 92 (2006) (quoting one cereal company executive as saying: “Recipes are not intellectual property; you can’t patent a new cereal. All you can hope for is to have the market to yourself for a few months to establish your brand before a competitor knocks off the product. So we’re very careful not to show our hand.”).
  5. I don’t.
  6. 416 U.S. 470, 482-85 (1974).
  7. 244 U.S. 100, 102 (1917).
  8. 203 F.2d 369 (7th Cir. 1953).
  9. 865 S.W.2d 214 (Tex. Ct. App. 1993).
  10. 689 F.2d 424 (3d Cir. 1982).
  11. 209 F.2d 493, 495 (2d Cir. 1953).

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