Combination Trade Secrets and the Logic of Intellectual Property
Graves, Tait, Macgillivray, Alexander, Santa Clara Computer & High Technology Law Journal
There is a growing debate between the proponents of the public domain and supporters of private ownership of information. The contentious discussion on these issues has not yet focused on trade secret law, but it is time to subject trade secret law to the same questions of public policy now asked of copyright, patent, and trademark law. One theory of trade secret law that poses a direct threat to the public domain is the so-called combination trade secret, a concept that permits some combinations of publicly available information to be treated as intellectual property. Despite more than a century of case law on this theory, courts and commentators have never developed a set of tests to properly analyze whether an asserted combination trade secret should be recognized as such. We propose that such combination secrets must satisfy standards no less stringent than those applied for individual trade secrets in order to qualify for intellectual property protection. Specifically, combination trade secrets must not be obvious and must have functionally interrelated elements that provide economic value over combinations with publicly known alternatives. Furthermore, in order to have misappropriated a combination trade secret, a defendant must know about and intend to misappropriate the entire combination, and not have independently derived it. If applied, these tests would protect information in the public domain from overbroad or exaggerated combination claims, while ensuring that truly unique combinations receive intellectual property protection.
TABLE OF CONTENTS I. Abstract II. Introduction III. History: The Development of the Combination Concept IV. The Dangers Associated with Combination Claims A. The spectrum of secrecy in claimed combinations B. Risks posed by overbroad application of the combination concept V. Reform A. Is there a functional interrelationship between the elements in the claimed combination secret? B. Does the combination create value above and beyond the sum total value of the individual items that it encompasses? C. Is the combination obvious? D. Did the defendant know of and intend to misappropriate the combination qua combination? The knowledge element The intentional use or disclosure element E. Did the defendant independently derive one or more elements of the claimed combination? F. Has the Plaintiff omitted necessary parts of its true combination in order to match its allegations to the defendant's use of public domain information? VI. Conclusion
There is a growing movement to protect and enlarge the amount of information in the public domain against the countervailing drive towards expanding the boundaries of intellectual property and encroaching on what is publicly available. (1) This movement is important because the public domain commons is a rich source for innovation, whether in art and culture or science and technology. (2) At the same time, the value of information publicly available creates an incentive to assert sole dominion over ideas otherwise free for all to use. (3)
The debate between ownership and commons is being raised on every major intellectual property front: patent, trademark, copyright, and trade secret. Commentators have given prominent attention to the perils of patents governing common concepts, trademarks allowing the silencing of speech, copyrights lasting too long or covering too much, and the new para-copyrights destroying the delicate balance set by America's two hundred year history of copyright jurisprudence. (4) By contrast, scholars have largely ignored the battles over trade secret law. (5)
This silence is surprising for two reasons. First, how state law defines a trade secret directly affects innumerable employees and inventors, especially in high technology industries. The rights of hundreds of thousands of skilled employees are directly affected by state law trade secret decisions. Second, the sheer amount of information to which trade secret law is applicable dwarfs that encompassed by patent and trademark regulation, and may be as broad and amorphous as the fixed expressions governed by copyright. (6) Indeed, the concept of a trade secret is so elastic that it can encompass any economically valuable idea that is not in the public domain. (7) Thus, protecting the public domain may first and foremost be a battle over the scope of trade secrets law.
The time has come for trade secrets law to be subjected to the same rigorous analysis now expected when discussing federal intellectual property laws. In virtually every trade secrets case, the right of an employee to take the job of his or her choice and the public interest in fostering the growth of small and innovative businesses is balanced against a former employer's claim to a property right in some or all of the former employee's knowledge. Unfortunately, the current regime of trade secret law has been disproportionately shaped, since the mid-nineteenth century, by the narrow interests of former employers. (8) Lawyers representing the interests of former employers created a number of legal doctrines that make it easier to enjoin a former employee, including trade secret-based noncompetition and nonsolicitation agreements, inevitable disclosure, combination trade secrets, and the theory of negative know-how. (9) Courts nationwide have written these theories into law, and have sometimes done so without the detailed analysis one finds in published patent and copyright decisions. (10)
This article proposes a methodology to analyze whether a plaintiff's claimed ownership of a combination trade secret ought to be protected by trade secret law. In proposing a reform of this area of intellectual property law, we offer a critique of trade secrets law inspired by, and related to, the current debates over the application of copyright, patent, and trademark laws and the need to protect information in the public domain from further encroachment.
A combination trade secret is a set of elements, each by itself in the public domain, whose synthesis can be a legally protected property right even though the elements by themselves are not. An easily understood example is the formula for Coca-Cola. Although the concept of a combination secret has been recognized and applied for more than a century, courts and commentators have never constructed an explicit test to determine whether or not such an intellectual property right in fact exists in any given case. The result is a muddled doctrine that poses a direct threat to employee mobility, competition, and innovation. At this time, when the scope of intellectual property law is a burning issue, the doctrine of combination secrets is in dire need of discussion and reform.
In that spirit, and based on our review of virtually every combination case in the published reports nationwide, we offer a battery of tests to separate what is truly protectable from makeweight allegations designed to punish employees for leaving their jobs and joining a competitor.
Despite being recognized as a legal concept for more than a century, and despite being described in well over one hundred published cases nationwide, there has been no systematic attempt to define a set of standards for the application of combination trade secrets. The three major efforts to systematically define trade secret law, the Restatement of Torts, the Uniform Trade Secrets Act, and the Restatement of Unfair Competition are either silent on the concept or mention it without elaboration. (11) Treatise-writers, in turn, have given the concept only general attention, and it appears that not a single law review article has ever been dedicated to the topic. (12)
Our goal, in this neglected area of intellectual property law, is a simple one: to propose useful judicial tests for deciding whether a combination trade secret misappropriation claim is valid. We aim to separate valid claims from artificial attempts to use the label of combination trade secret to re-claim information already in the public domain and available for society to use. The following sections are intended to act as a roadmap for any court's analysis of a combination claim.
III. HISTORY: THE DEVELOPMENT OF THE COMBINATION CONCEPT
The combination concept, like most of the trade secret law applied by state courts today, is rooted in the ethos of nineteenth century and early twentieth century employment law. As the nation industrialized, employers became concerned that former employees would use information learned during their employment to compete against them. (13) By the 1890s, they had begun seeking injunctive relief and the enforcement of noncompetition agreements against former employees to protect alleged secrets of the trade. (14)
It was against this backdrop--a crude and elementary body of common law not yet recognized as trade secrets law--that some courts began to apply the rules that information in the public domain could not be the property of any one company, and rules that required a plaintiff to establish the secrecy of the information on which it sued. (15) It was only after the public domain defense became established that the combination theory of trade secrets law was first developed as a plaintiff's response.
To our knowledge, the first published decision to enunciate the combination trade secret concept in its modern form was an 1894 New York decision in which Eastman-Kodak sued former chemists for using the company's innovations in photographic chemicals for their new business. (16) In Eastman Co. v. Reichenbach, the defendants argued that the chemicals they used "were already known to the scientific mind" and therefore were not the plaintiff's trade secrets. (17)
The court used a then-current analogy to demonstrate the flaw in the defense's argument:
It cannot be truly stated that Alexander Bell invented or discovered electricity, but it may be stated, without fear of contradiction, that he did invent the telephone, although it was known long before his day that by means of a continuous current of electricity both vibration and sound could be transmitted over considerable distances.... So in regard to some of the inventions or discoveries claimed as property by the plaintiff. They were obtained by compounding certain well-known ingredients, possessing well-defined properties, but in such a manner as to produce new results, and these results were found to be useful in the manufacture of photographic instruments and supplies to such an extent as to give the plaintiff great advantage over its competitors. (18)
Further applications of this concept appear to have been few and far between over the next fifty years. (19) By the 1950s, however, the combination concept was well-established and frequently recited. (20) More than a century after Eastman, its simple insight is still the working definition courts use when analyzing a claimed combination trade secret.
IV. THE DANGERS ASSOCIATED WITH COMBINATION CLAIMS
Despite a century of law on combination secrets, courts nationwide have not fully developed the concept or applied precise standards to separate what is truly secret from what is common knowledge. With few exceptions, the courts appear not to have recognized the ease by which plaintiffs (or, more precisely, their attorneys) can rhetorically construct a combination trade secret out of individual, publicly known items of information that the defendant has a right to use. These problems are due, at least in part, to the absence of an analysis for combination claims that distinguishes the elements of such claims from the standard analysis applied to the far more commonplace individual trade secret claims.
The vast majority of trade secret lawsuits involve intellectual property claims to information asserted as individual trade secrets, rather than as a combination: customer lists, novel software or hardware architectures, and specific implementations of generally known manufacturing concepts, to take some common examples. In such cases, defendants seek to prove, often successfully, that the plaintiff cannot have a property right in the information because it is in the public domain. (21) This is typically done by reference to technical papers, academic presentations, and materials published by competitors in the field.
A plaintiff's assertion of a combination claim is often a riposte to the defendant's showing that some or all of the items in question are in the public domain. The plaintiff points out that a combination of items that, in isolation, are publicly known can still be a protectable trade secret. But how this combination is conceived, and what relations must be demonstrated between its constituent elements in order for trade secret protection to accrue, is something the common law has failed to spell out. Not every combination of known elements is a trade secret, but where do courts draw the line?
A. The spectrum of secrecy in claimed combinations
In beginning the analysis of combination trade secret claims, we must take note of the broad spectrum of information that can be brought within the concept. At one extreme, the concept is almost superfluous, because the combination itself can also be defined as a single, individual trade secret. Almost any individual trade secret claim includes both components and ideas--engineering techniques, software programming languages--that in themselves are public domain knowledge free for anyone to use.
Take, for example, the fact that the formula for Coca-Cola includes sugar, corn syrup, and other elements that by themselves are in the public domain. Their chemical combination into a recipe is not something that can be derived from mere knowledge of the individual elements. Nobody would seriously dispute the claim that Coca-Cola owns the chemical formula by which it creates its soft drink from common ingredients, and nobody would seriously claim that because those ingredients are known, the exact proportions at which the elements are chemically combined do not constitute a secret. (22)
At the other extreme, let us imagine a scenario where not only are all of the individual elements of a claimed combination secret in the public domain, but the combination of those elements is itself in the public domain. In one case, for example, a plaintiff claimed a combination trade secret in the general idea of preparing, breading, and frying skinless fried chicken, as opposed to any unique steps or secret recipe for particular ingredients. (23) No impartial observer would accept the claim that a company owns an exclusionary property right in such information (though trade secrets plaintiffs attempt such claims with some frequency). (24)
Both of these extremes are easily dealt with without complex analysis. Many claimed combination trade secrets, however, are in the middle--some or all of their individual elements are in the public domain, and competitors know about and use similar combinations of similar elements. Courts therefore face the difficult task of determining whether the claimed combination of known elements is close enough to the industry's common practice to be deemed "generally known," (25) or, by contrast, whether the set of elements differs enough from common practice to constitute a trade secret. (26) In these cases, the generalized definition of a combination secret so often employed is not sufficient to separate legitimate claims from fabricated allegations.
It is this middle ground scenario--that is, the intellectual space between the easily-defeated combination claim entirely in the public domain and a combination claim whose elements are all individually secret or are otherwise so intertwined that protection through a combination theory is redundant--that is the focus of this article. Without a proper framework for analyzing such claims, there is a serious and real risk to innovation, competition, and employee mobility.
B. Risks posed by overbroad application of the combination concept
The risks of the overbroad combination trade secrets misappropriation claims are not hypothetical. Recent scholarship regarding factors promoting the regional growth of innovative technology companies suggests that, although it may seem counterintuitive, new ideas, new businesses,