Academic journal article Iowa Law Review

The Trade Secret-Contract Interface

Academic journal article Iowa Law Review

The Trade Secret-Contract Interface

Article excerpt


Contract law and intellectual property law have a complicated relationship. on the one hand, intellectual property owners use contract law to share proprietary technologies, creative works, and information in efficient ways. On the other hand, intellectual property owners can dictate contract terms that deviate from intellectual property law's default rules. Laws governing patents, copyrights, and trade secrets impose eligibility requirements and limitations to balance the interests of intellectual property owners against users, follow-on innovators who build on existing works, and the public.1 These legislatively calibrated balances can be undermined when firms employ contract terms to restrict information uses that intellectual property laws permit.

The question of whether intellectual property laws are just default rules that parties can contract around or fixed policy judgments has generated significant scholarly debate.2 Much of it has analyzed (and criticized) copyright owners' imposition of non-negotiable licenses (e.g., "clickwraps" and "shrinkwraps") when selling access to mass-market software.3 These pervasive licenses, which often condition user access on contract terms that eliminate various limits built into copyright law (like fair use), threaten to become a form of "privately legislated intellectual property."4

Largely absent from this voluminous literature is a comprehensive treatment of trade secret law's complicated interaction with contract law.5 Such an analysis is warranted, for firms routinely rely on a combination of trade secret law and contract law to protect technical innovations and business information.6 Compared to other forms of intellectual property, trade secret law has received comparatively less scholarly attention. Yet, in recent years, trade secrets have become more significant-both in economic and legal terms.7 Just two years ago, Congress expanded the legal rights of trade secret owners by introducing a new federal civil claim for trade secret misappropriation-the Defend Trade Secret Acts ("DTSA").8 The growing importance of trade secrecy invites fresh examination of how firms' contractual practices impact the underlying policy goals of trade secret law.

Moreover, while insights from the copyright literature analyzing mass software licenses are relevant to the trade secret context,6 certain aspects of the trade secret-contract relationship are unique and merit specific focus. For instance, contracts play a distinctive evidentiary role in trade secret law. To obtain the protections of trade secret law and prove a valid trade secret exists, putative owners often have to impose non-disclosure contracts on recipients of information.10 By contrast, contracts are largely irrelevant to proving the validity of patents or copyrights.11 Contracts' centrality to trade secret law provides putative owners ample opportunity to define-and overstate-the boundaries of their trade secret rights, particularly to employees. Trade secret's intersection with contract law poses particular threats to employee mobility-as employee non-competes and non-disclosure provisions can deter employees from starting newjobs and competing enterprises.12

This Article provides a framework for understanding and critiquing these unique features of trade secret-contract interface. Part II outlines trade secret doctrine, situates its policy goals within the broader intellectual property landscape, and explains how intellectual property law's eligibility requirements and limitations address cumulative innovation and other important concerns.

Parts III and IV analyze the dual-and dueling-roles that contracts play in trade secret law. Part III demonstrates how, on the one hand, non-disclosure contracts serve a critical evidentiary role, helping trade secret owners prove two essential elements of a trade secret claim: (i) reasonable secrecy efforts, and (2) the existence of a confidentiality duty. …

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