The Surprising Virtues of Treating Trade Secrets as IP Rights

Abstract

Trade secret law is a puzzle. Courts and scholars have struggled for over acentury to figure out why we protect trade secrets. The puzzle is not inunderstanding what trade secret law covers; there seems to be widespreadagreement on the basic contours of the law. Nor is the problem that peopleobject to the effects of the law. Rather, the puzzle is a theoretical one:no one can seem to agree where trade secret law comes from or how to fit itinto the broader framework of legal doctrine. Courts, lawyers, scholars,and treatise writers argue over whether trade secrets are a creature ofcontract, of tort, of property, or even of criminal law. None of thesedifferent justifications have proven entirely persuasive. Worse, they havecontributed to inconsistent treatment of the basic elements of a tradesecret cause of action, and uncertainty as to the relationship betweentrade secret laws and other causes of action. Robert Bone has gone so faras to suggest that this theoretical incoherence suggests that there is noneed for trade secret law as a separate doctrine at all.In this article, I suggest that trade secrets can be justified as a form,not of traditional property, but of intellectual property (IP). Theincentive justification for encouraging new inventions is straightforward.Granting legal protection for those new inventions not only encouragestheir creation, but enables an inventor to sell her idea. And while we haveother laws that encourage inventions, notably patent law, trade secrecyoffers some significant advantages for inventors over patent protection.It seems odd, though, for the law to encourage secrets, or to encourageonly those inventions that are kept secret. I argue that, paradoxically,trade secret law is actually designed to encourage disclosure, not secrecy.Without legal protection, companies in certain industries would invest toomuch in keeping secrets. Trade secret law develops as a substitute for thephysical and contractual restrictions those companies would otherwiseimpose in an effort to prevent a competitor from acquiring theirinformation.The puzzle then becomes why the law would require secrecy as an element ofthe cause of action if its goal is to reduce secrecy. I argue that thesecrecy requirement serves a channeling function. Only the developers ofsome kinds of inventions have the option to over-invest in physical secrecyin the absence of legal protection. For products that are inherentlyself-disclosing (the wheel, say, or the paper clip), trying to keep theidea secret is a lost cause. We don't need trade secret law to encouragedisclosure of inherently self-disclosing products - inventors of suchproducts will get patent protection or nothing. But if trade secret lawprevented the use of ideas whether or not they were secret, the resultwould be less, not more, diffusion of valuable information. The secrecyrequirement therefore serves a gatekeeper function, ensuring that the lawencourages disclosure of information that would otherwise be kept secret,while channeling inventors of self-disclosing products to the patentsystem.My argument has a number of implications for trade secret policy. First,the theory works only if we treat trade secrets as an IP right, requiringproof of secrecy as an element of protection. If we give the protection tothings that are public, we defeat the purpose and give windfalls to peoplewho may not be inventors (what we might call "trade secret trolls"). Courtsthat think of trade secret law as a common law tort rather than an IP rightare apt to overlook the secrecy requirement in their zeal to reach "badactors." Second, an IP theory of trade secrets also encourages preemptionof "unjust enrichment" theories and other common-law ways courts aretempted to give private parties legal control over information in thepublic 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 boundariesof the cause of action and preempting others that might reach too far.Finally, treating trade secrets as IP rights helps secure their place inthe pantheon of legal protection for inventions. The traditional conceptionof the tradeoff between patents and trade secrets views the disclosurefunction of the patent system as one of its great advantages over tradesecret law. And indeed the law operates in various ways to encourageinventors to choose patent over trade secret protection where both arepossible. But for certain types of inventions we may actually get moreuseful "disclosure" at less cost from trade secret than from patent law.

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