The Surprising Virtues of Treating Trade Secrets as IP Rights
Lemley, Mark A., Stanford Law Review
INTRODUCTION I. TRADE SECRET DOCTRINE A. The History of Trade Secret Law B. The Scope of Trade Secret Law II. EFFORTS TO UNDERSTAND TRADE SECRET THEORY A. Tort Law B. Contract Law C. Property Law D. Commercial Morality and Other Theories E. Bone's Challenge: Does Trade Secret Law Serve a Purpose? III. CONSTRUCTING AN IP THEORY OF TRADE SECRETS A. Incentives To Invent B. Incentives To Disclose C. Channeling Protection Between Patents and Trade Secrets IV. IMPLICATIONS FOR TRADE SECRET LAW A. The Centrality of Secrecy B. The Relationship Between Trade Secret Law and Other Torts C. Other Implications for Trade Secret Doctrine 1. Reasonable efforts to protect secrecy 2. Contracting around trade secret law 3. IP, property, and "absolute dominion" 4. How long does secrecy last? CONCLUSION
Trade secret law is a puzzle. Courts and scholars have struggled for over a century to figure out why we protect trade secrets. The puzzle is not in understanding what trade secret law covers; there seems to be widespread agreement on the basic contours of the law. Nor is the problem that people object to the effects of the law. While scholars periodically disagree over the purposes of the law, and have for almost a century, (1) they seem to agree that misappropriation of trade secrets is a bad thing that the law should punish. Rather, the puzzle is a theoretical one: 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. (2) 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. (3) 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. (4)
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. …