The surprising virtues of treating trade secrets as IP rights

Stanford Law Review

Volumn 61, Issue 2, 2008, Pages 311-353

  Lemley, Mark A ^a  

^a STANFORD LAW SCHOOL   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 62449266716     PISSN: 00389765     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (332)

1. Among the academic treatments of trade secret law and theory, see, for example, MELVIN F. JAGER, TRADE SECRETS LAW (2007);
2. ROGER M. MILGRIM & ERIC E. BENSEN, MILGRIM. ON TRADE SECRETS (2008);
3. JAMES POOLEY, TRADE SECRETS (2008);
4. William. B. Barton, A Study in the Law of Trade Secrets, 13 U. CIN. L. REV. 507, 558 (1939);
5. Vincent Chiappetta, Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law, 8 GEO. MASON L. REV. 69 (1999);
6. David D. Friedman, William M. Landes & Richard A. Posner, Some Economics of Trade Secret Law, 5 J. ECON. PERSP. 61 (1991);
7. Charles Tait Graves, Trade Secrets as Property: Theory and Consequences, 15 J. INTELL. PROP. L. 39 (2007);
8. James W. Hill, Trade Secrets, Unjust Enrichment, and the Classification of Obligations, 4 VA. J.L. & TECH. 2 (1999);
9. Edmund W. Kitch, The Law and Economics of Rights in Valuable Information, 9 J. LEGAL STUD. 683 (1980);
10. David S. Levine, Secrecy and Unaccountability: Trade Secrets in Our Public Infrastructure, 59 FLA. L. REV. 135 (2007);
11. Robert P. Merges, The Law and Economics of Employee Inventions, 13 HARV. J.L. & TECH. 1, 12-31 (1999);
12. Chris Montville, Reforming the Law of Proprietary Information, 56 DUKE L.J. 1159 (2007);
13. Christopher Rebel J. Pace, The Case for a Federal Trade Secrets Act, 8 HARV. J.L. & TECH. 427, 435-42 (1995);
14. Gale R. Peterson, Trade Secrets in an Information Age, 32 HOUS. L. REV. 385 (1995);
15. Michael Risch, Why Do We Have Trade Secrets?, 11 MARQ. INTELL. PROP. L. REV. 1 (2007);
16. Sharon K. Sandeen, The Cinderella of Intellectual Property Law: Trade Secrets, in 2 INTELLECTUAL PROPERTY AND INFORMATION WEALTH 399 (Peter K. Yu ed., 2007);
17. Jon Chally, Note, The Law of Trade Secrets: Toward a More Efficient Approach, 57 VAND. L. REV. 1269 (2004);
18. Note, Equitable Protection of Trade Secrets, 23 COLUM. L. REV. 164 (1923);
19. Note, Nature of Trade Secrets and Their Protection, 42 HARV. L. REV. 254 (1928);
20. Note, Protection and Use of Trade Secrets, 64 HARV. L. REV. 976 (1951);
21. Note, Protection of Information in the Nature of Trade Secrets, 14 MINN. L. REV. 546 (1930);
22. Michael P. Simpson, Note, The Future of Innovation: Trade Secrets, Property Rights, and Protectionism-An Age - Old Tale, 70 BROOK. L. REV. 1121 (2005).
23. See infra notes 23-62 and accompanying text.
24. Miles J. Feldman, Comment, Toward a Clearer Standard of Protectable Information: Trade Secrets and the Employment Relationship, 9 HIGH TECH. L.J. 151, 161-63 (1994) (arguing that much of the uncertainty in trade secret law can be traced to the disagreement over justifications for trade secret law).
25. Robert G. Bone, A New Look at Trade Secret Law: Doctrine in Search of Justification, 86 CAL. L. REV. 241, 243 (1998).
26. The conventional complaint is the opposite-that treating trade secrets as IP leads to overly broad protection. See, e.g., Simpson, supra note 1, at 1136. As I suggest in this Article, that traditional view is wrong.
27. See Vickery v. Welch, 36 Mass. (19 Pick.) 523, 527 (1837);
28. Newbery v. James, (1817) 35 Eng. Rep. 1011, 1013 (Ch.).
29. See Taylor v. Blanchard, 95 Mass. (13 Allen) 370 (1866);
30. Yovatt v. Winyard, (1820) 37 Eng. Rep. 425, 426 (Ch.).
31. One scholar traces the earliest legal protection against "misappropriation of trade secrets" to the Roman Empire. See A. Arthur Schiller, Trade Secrets and the Roman Law: The Actio Servi Corrupti, 30 COLUM. L. REV. 837, 838-39 (1930). The Roman courts created a cause of action called actio servi corrupti-literally, an action for corrupting a slave. According to Schiller, the actio servi corrupti was used to protect slave owners from, third parties who would "corrupt" slaves (by bribery or intimidation) into disclosing their owners' confidential business information. The law made such third parties liable to the slave owner for twice the damages he suffered as a result of the disclosure. While more recent scholarship has cast some doubt on. the enforcement of trade secret protection in the Roman Empire,
32. see Alan Watson, Trade Secrets and Roman Law: The Myth Exploded, 11 TUL. EUR. & Civ. L.F. 19, 19 ( 1996), the concept that so-called business or "trade secrets" were entitled to legal protection spread rapidly throughout the world. As early as the Renaissance, most European nation-states had laws that protected businesses (notably, the guild cartels) from those who used their secret processes and ideas without permission. These early laws were translated during the Industrial Revolution into statutes that protected "industrial secrets." Many of these statutes are still in force today, albeit in modified form. The roots of trade secrecy in slavery law were further evident in the treatment of employees in the centuries before the Industrial Revolution. Both commerce and foreign policy included a strong dose of "mercantilism." Governments and private guilds attempted to keep "their" IP within their grasp, using a combination of rewards to inventors and rules that reduced employee mobility. These developments are tracked in. CARLO M. CIPOLLA, BEFORE THE INDUSTRIAL REVOLUTION: EUROPEAN SOCIETY AND ECONOMY, 1000-1700, at 90, 190 (2d ed. 1980)
33. and DAVID J. JEREMY, TRANSATLANTIC INDUSTRIAL REVOLUTION: THE DIFFUSION OF TEXTILE TECHNOLOGIES BETWEEN BRITAIN AND AMERICA, 1790-.183os, at 185-89 (1981). These authors give examples such as restrictive British secrecy laws, rewards to woolen craftsmen in thirteenth-century Bolognese cities, and, on the other hand, the 1660 French kidnapping of skilled Swedish ironworkers.
34. See ROBERT P. MERGES, PETER S. MENELL & MARK A. LEMLEY, INTELLECTUAL PROPERTY IN THE NEW TECHNOLOGICAL AGE 34 (rev. 4th ed. 2007).
35. Japan has only recently enacted a trade secret protection statute. See Hideo Nakoshi, New Japanese Trade Secret Act, 75 J. PAT. & TRADEMARK OFF. SOC'Y 631 (1993). Nakoshi provides some interesting thoughts on why Japan considered such a trade secret statute unnecessary for so long. He argues that cultural norms of assumed trust made it socially uncomfortable to insist on formal confidentiality agreements, and that long-term or lifetime employment eliminated many trade secret issues associated with employee mobility.
36. Agreement on Trade-Related Aspects of Intellectual Property (TRIPs) art. 39, Apr. 15, .1994, 33 I.L.M. 81.
37. On the role of the term "property" in IP rights throughout history, see, for example, Justin Hughes, Copyright and Incomplete Historiographies: Of Piracy, Propertization, and Thomas Jefferson, 79 S. CAL. L. REV. 993, 1005-08 (2006);
38. Adam Mossoff, Who Cares What Thomas Jefferson Thought About Patents? Reevaluating the Patent "Privilege" in Historical Context, 92 CORNELL L. REV. 953, 992-98 (2007). But as I note below, "property" in the nineteenth century meant something rather different than most people understand it to mean today, so one must be cautious about drawing meaning from labels.
39. E.I. du Pont de Nemours Powder Co. v. Masland, 244 U.S. 100, 102 (1917).
40. RESTATEMENT OF TORTS § 757 (1939).
41. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001-04 (1984).
42. The UTSA, a project of the American Law Institute, codified the common law of trade secrets for the first time.
43. The first four paragraphs of this Subpart are adapted from. MERGES ET AL., supra note 8, at 37.
44. For discussion of the problem of once-secret information disclosed on the Internet, see, for example, Elizabeth A. Rowe, Introducing a Takedown for Trade Secrets on the Internet, 2007 WIS. L. REV. 1041. For an interesting legislative effort to hold back the tide,
45. see NEV. REV. STAT. ANN. § 600A.055 (West 2007) (defining information released on the Internet as "secret" for purposes of trade secret law if the owner succeeds in getting it removed within a reasonable time).
46. See, e.g., Rockwell Graphic Sys., Inc. v. DEV Indus., 925 F.2d 174, 178-79 (7th Cir. 1991).
47. 431 F.2d 1012, 1017 (5th Cir. 1970).
48. Id. at 10.16. Some question whether courts would reach the same result today, see Kevin Werbach, Sensors and Sensibilities, 28 CARDOZO L. REV. 2321, 2348-49 (2007), but that is because technology has changed expectations of privacy, not because the application of trade secret law to third parties has changed.
49. 203 F.2d 369, 376 (7th Cir. 1953).
50. A "head start" injunction precludes the defendant from working on a project for a limited period of time, to put it back in the position it would have occupied had misappropriation of the plaintiffs trade secrets not given it a head start on competition. See, e.g., Winston Research Corp. v. Minn. Mining & Mfg. Co., 350 F.2d 134, .142 (9th Cir. 1965).
51. Cf. KIM. LANE SCHEFFELE, LEGAL SECRETS: EQUALITY AND EFFICIENCY IN THE COMMON LAW 263, 308, 312 (1988) (arguing that cases involving legal secrets-including trade secret cases-are better explained in terms of principles all would be willing to agree to rather than in the efficiency terms of law and economics).
52. 1 JAGER, supra note 1, § 1:3, 1-4.
53. 244 U.S. .100, 102 (1917). The actual issue in Masland was whether the trial court had discretion to prohibit disclosure of the secret to an outside expert during litigation. POOLEY, supra note 1, § 1.02[8][b], 1-16. The Court in Ruckelshaus v. Monsanto Co. attempted to distinguish Masland in a footnote, claiming that "Justice Holmes did not deny the existence of a property interest; he simply deemed determination of the existence of that interest irrelevant to the resolution, of the case." 467 U.S. 986, 1004 n.9 (1984). This seems a weak argument; the point of Masland was that the plaintiff did not need a property right in order to obtain relief under the trade secret laws. That point is at fundamental odds with the property theory of trade secrets.
54. See also Eastman Co. v. Reichenbach, 20 N.Y.S. 110, 115-16 (Sup. Ct. 1892).
55. RESTATEMENT OF TORTS §§ 757-58 (1939). Notably, the ALI had abandoned that position by the time the Second Restatement was published in 1979, on the grounds that the law of trade secrets had developed into an independent body of law that no longer relied on general principles of tort law.
56. See, e.g., Hill, supra note 1, at 2;
57. Lynn Sharp Paine, Trade Secrets and the Justification of Intellectual Property: A Comment on Hettinger, 20 PHIL. & PUB. AFF. 247, 249 (1991);
58. cf. Chiappetta, supra note 1, at 93, 94 (dividing trade secret law into distinct categories, including some based on unjust enrichment or contract law).
59. See, e.g., Pamela Samuelson, Privacy as Intellectual Property?, 52 STAN. L. REV. 1125, 1153 (2000).
60. For such a proposal, see C. Owen Paepke, An Economic Interpretation of the Misappropriation Doctrine: Common Law Protection for Investments in Innovation, 2 HIGH TECH. L.J. 55, 56, 69 (1987).
61. Robert Bone makes this point. Bone, supra note 4, at 244;
62. see also David A. Rice, Public Goods, Private Contract and Public Policy: Federal Preemption of Software License Prohibitions Against Reverse Engineering, 53 U. PITT. L. REV. 543, 622 (1992) ("Contract plays a critical role in trade secret protection. Although neither the fountain nor foundation of trade secret law, it is an important instrument in defining and securing protection of closely held information.").
63. Bone, supra note 4, at 298-99.
64. 431 F.2d 1012 (5th Cir. 1970).
65. Id. at 1016.
66. Something similar has arguably happened in trademark law, where the multifactor likelihood of consumer confusion test-designed to evoke and rely upon consumer perceptions of the marks-has in practice devolved into an inquiry primarily focused on the judge's perception of the defendant's intent in adopting the mark. See Barton Beebe, An Empirical Study of the Multifactor Tests for Trademark Infringement, 94 CAL. L. REV. 1581, .1623-31 (2006) (demonstrating this empirically). On the problems that creates,
67. see Stacey L. Dogan & Mark A. Lemley, Grounding Trademark Law Through Trademark Use, 92 IOWA L. REV. 1669, 1694 (2007) ("The trademark owners that have succeeded in holding defendants liable for non-trademark uses have done so by claiming that the defendant engaged in 'free riding.' But permissible free riding is everywhere. Since we lack any normative baseline for defining what forms of free riding should be forbidden, the likelihood-of-confusion test standing alone cannot establish any limits on the ability of trademark owners to forbid a new category of uses.").
68. Graves, supra note 1, at 45-46, makes this point.
69. See 1 JAGER, supra note 1, § 4:1 (discussing contract theories of trade secret law);
70. Thornton Robison, The Confidence Game: An Approach to the Law About Trade Secrets, 25 ARIZ. L. REV. 347, 383 (1983);
71. cf. ConFold Pac, Inc. v. Polar Indus., Inc., 433 F.3d 952, 959 (7th Cir. 2006) (reading trade secret law as dictated by a combination of contract and tort);
72. Edmund W. Kitch, Intellectual Property and the Common Law, 78 VA. L. REV. 293 (1992) (arguing that contract underlies IP more generally).
73. UNIF. TRADE SECRETS ACT § 1(2)(ii)(C), 14 U.L.A 433 (1985).
74. Id. § 1(2)(ii)(B). On this problem, see Ashish Arora & Robert P. Merges, Specialized Supply Firms, Property Rights and Firm Boundaries, 13 INDUS. & CORP. CHANGE 451 (2004);
75. Dan L. Burk, Intellectual Property and the Firm, 71 U. CHI. L. REV. 3, 8-9 (2004);
76. Dan L. Burk & Brett H. McDonnell, The Goldilocks Hypothesis: Balancing Intellectual Property Rights at the Boundary of the Firm, 2007 U. III. L. REV. 575, 592-93, 608-09;
77. Oren Bar-Gill & Gideon Parchomovsky, Intellectual Property Law and the Boundaries of the Firm 2 (Univ. of Pa. Law Sch. Law & Econ. Research Paper Series, Paper No. 04-19, 2004), available at http://papers.ssrn.com/sol3/papers.cfm.?abstract-id-702464 (adopting Burk's framework).
78. Cf. Merges, supra note 1 (adopting a theory of the firm approach to employee inventions).
79. For a discussion of the differences between trade secret law and contract law, see Alan J. Tracey, The Contract in the Trade Secret Ballroom - A Forgotten Dance Partner?, 16 TEX. INTELL. PROP. L.J. 47, 69-79 (2007).
80. I discuss those ways, and their importance, infra notes 159-64 and accompanying text.
81. See Peabody v. Norfolk, 98 Mass. 452, 458 (1868). For a critical analysis of the history of trade secrets as property, see Miguel Deutch, The Property Concept of Trade Secrets in Anglo-American Law: An Ongoing Debate, 31 U. RICH. L. REV. 313 (1997).
82. Robert Bone discusses the nineteenth century history in detail. See Bone, supra note 4, at 251-59.
83. 467 U.S. 986, 1001-04 (1984). For property-based defenses of trade secret law, see, for example, Deutch, supra note 42, at 320;
84. Graves, supra note 1, at 41-42; Adam Mossoff, What Is Property? Putting the Pieces Back Together, 45 ARIZ. L. REV. 371, 415-18 (2003);
85. Pace, supra note 1, at 428. For criticism, of the property conception in general, and Monsanto in particular, see Pamela Samuelson, Information as Property: Do Ruckelshaus and Carpenter Signal a Changing Direction in Intellectual Property Law?, 38 CATH. U. L. REV. 365, 374-83 (1989).
86. Monsanto, 467 U.S. at 1002-04. To the same effect is Philip Morris, Inc. v. Reilly, 312 F.3d 24 (1st Cir. 2002) (en banc) (holding that state regulation requiring disclosure of the content of cigarettes was a regulatory taking of trade secrets).
87. See also E. I. du Pont de Nemours & Co. v. United States, 288 F.2d 904, 912 (Ct. Cl. 1961) (upholding takings claim);
88. DVD Copy Control. Ass'n v. Bunner, 75 P.3d 1, 14 (Cal. 2003) (holding that trade secrets represent "a constitutionally recognized property interest in [information]");
89. Cadence Design Sys., Inc. v. Avant! Corp., 57 P.3d 647 (Cal. 2002) (treating trade secrets as property rights for purposes of determining statute of limitations);
90. MILGRIM & BENSEN, supra note 1, § 2.01[1]-[2], 2-23 (claiming that "[p]ractically all jurisdictions have recognized that a trade secret is property" at least in certain senses);
91. Richard A. Epstein, The Constitutional Protection of Trade Secrets Under the Takings Clause, 71 U. CHI. L. REV. 57, 61 (2004) (endorsing a takings analysis of trade secrets).
92. See, e.g., Lynn C. Tyler, Trade Secrets in Indiana: Property vs. Relationship, 31 IND.L.REV. 339, 339 (1998).
93. See Garrett Hardin, The Tragedy of the Commons, 162 SCIENCE 1243 (1968). Some scholars have argued that information isn't a public good, and therefore is subject to the tragedy of the commons, because its value may depend on secrecy.
94. See Amitai. Aviram & Avishalom Tor, Overcoming Impediments to Information Sharing, 55 ALA. L. REV. 231, 234-35 (2004). But that argument confuses the intrinsic value and characteristics of the information with the private value that may result from the legal decision to protect that information as a secret. For further discussion,
95. see Mark A. Lemley, Property, Intellectual Property, and Free Riding, 83 TEX. L. REV. 1031, 1052 n.87 (2005).
96. While trade secret law is now statutory in most states, it originally developed as common law in all of them.
97. See, e.g., Metallurgical Indus., Inc. v. Fourtek, Inc., 790 F.2d 1195, 1200-01 (5th Cir. 1986).
98. Bone believes that the core features of trade secret law, unlike other forms of IP law, are limited to relations between parties. Bone, supra note 4, at 244. But I think he understates the importance of trade secret rules that reach beyond the bounds of any formal relationship to punish some conduct vis-à-vis strangers, and overstates the relationshipindependence of other IP rights. Copyright in particular requires copying, and therefore a "relationship" with the plaintiff's subject matter in just the same way trade secret law does. Cf. Risch, supra note 1, at 18-23 (discussing a distinction between "collateral property" and "substantive property" rights). Whether IP rights should be thought of as property rights is a matter of some dispute. It seems clear that IP rights differ in fundamental respects from land and other forms of tangible property.
99. See, e.g., Lemley, supra note 47, at 1033-46. A number of scholars have argued that the concept of property is much broader than its tangible instantiations, and that it should include IP rights even though they are properly treated very differently than other forms of property.
100. See, e.g., Michael A. Carrier, Cabining Intellectual Property Through a Property Paradigm, 54 DUKE L.J. 1 (2004);
101. Richard A. Epstein, Intellectual Property: Old Boundaries and New Frontiers, 76 IND. LJ. 803, 804 (2001).
102. But see Peter S. Menell, The Property Rights Movement's Embrace of Intellectual Property: True Love or Doomed Relationship?, 3A ECOLOGY L.Q. 713 (2007);
103. Stewart E. Sterk, Intellectualizing Property: The Tenuous Connections Between Land and Copyright, 83 WASH. U. L.Q. 417 (2005). For purposes of this Article, it does not matter whether IP is property. It is sufficient to say that when trade secret courts speak of property, they mean IP.
104. Richard Epstein conceives of trade secrets as property, but minimizes the difference between real property and IP. Richard A. Epstein, The Constitutional Protection of Trade Secrets Under the Takings Clause, 71 U. CHI. L. REV. 57, 58 (2004). My disagreements with the latter point are set out in detail elsewhere.
105. See Lemley, supra note 47, at 1033-46.
106. See infra notes 69-83 and accompanying text.
107. 416 U.S. 470, 481-85 (1974).
108. Bone, for example, argues that there is no evidence that we need the additional incentive provided by trade secret law in areas patent does not reach, and that that incentive comes at too great a cost. Bone, supra note 4, at 266-70. As I explain in Part III, I believe Bone is mistaken about the choice set facing technology companies absent trade secret law, and accordingly about the relative costs of having and not having that law.
109. See, e.g., Bruce T. Atkins, Trading Secrets in the Information Age: Can Trade Secret Law Survive the Internet?, 1996 U. III. L. REV. 1151 (arguing for a reconception of trade secrets as a privacy right). Ironically, Sharon Sandeen argues for the reverse: rethinking privacy as a trade secret right.
110. Sharon K. Sandeen, Relative Privacy: What Privacy Advocates Can Learn from Trade Secret Law, 2006 MICH. ST. L. REV. 667.
111. E.I. du Pont de Nemours & Co. v. Christopher, 431 F.2d 1012, 1016 (5th Cir. 1970) (refusing to accept "the law of the jungle as the standard of morality expected in our commercial relations");
112. Jet Spray Cooler, Inc. v. Crampton, 385 N.E.2d 1349, 1354-55 (Mass. 1979) (stating that the law encourages trade secrets because of the public interest "in the maintenance of standards of commercial ethics") (citation omitted);
113. Hyde Corp. v. Huffines, 314 S.W.2d 763, 773 (Tex. 1958) ("[T]he undoubted tendency of [trade secret] law has been to recognize and enforce higher standards of commercial morality in the business world.");
114. RESTATEMENT OF TORTS § 757 cmt. fat 10 (1939) (stating that improper means are those "which fall below the generally accepted standards of commercial morality and reasonable conduct");
115. JAGER, supra note 1, § 1:3, 1-4;
116. Chiappetta, supra note 1, at 73 (defending trade secret law in part as directed against torts that "threaten public order");
117. Harry Wingo, Dumpster Diving and the Ethical Blindspot of Trade Secret Law, 16 YALE L. &POL'Y REV. 195 (1997).
118. On the historical role of commercial morality in trade secret law, see Catherine L. Fisk, Working Knowledge: Trade Secrets, Restrictive Covenants in Employment, and the Rise of Corporate Intellectual Property, 1800-1920, 52 HASTINGS L.J. 441, 443 (2001).
119. Interestingly, Yuval Feldman has conducted surveys suggesting that departing employees are in fact motivated by their beliefs both as to what is moral and, more importantly, what their new employer would, consider legitimate. See Yuval Feldman, The Behavioral Foundations of Trade Secrets: Tangibility, Authorship, and Legality, 3 J. EMPIRICAL LEGAL STUD. 197 (2006).
120. Christopher, 431 F.2d at 1017.
121. Stephen L. Carter, Custom, Adjudication, and Petrushevsky's Watch: Some Notes From the Intellectual Property Front, 78 VA. L. REV. 129, 140 (1992);
122. see also Jennifer E. Rothman, The Questionable Use of Custom in Intellectual Property, 93 VA. L. REV. 1899, .1905-06 (2007) (challenging judicial efforts to discern and rely upon private customs in IP cases).
123. Chally, supra note 1, at 1271.
124. Anita Cava & Don Wiesner, Stealing Trade Secrets Ethically, 47 MD. L. REV. 1076, 1127-28 (1988).
125. Bone, supra note 4, at 246 (citations omitted).
126. Id.; cf. James H.A. Pooley, Restrictive Employee Covenants in California, A SANTA CLARA COMPUTER & HIGH TECH. L.J. 251, 282 (1988) (arguing for an understanding of trade secret law that combines property theory and tort theory).
127. Bone, supra note 4, at 297-98, 302-04.
128. Bone's criticism receives support from a surprising source-Landes and Posner, who assert that "there is no law of trade secrets." WILLIAM. M. LANDES & RICHARD A. POSNER, THE ECONOMIC STRUCTURE OF INTELLECTUAL PROPERTY LAW 355 (2003);
129. see also Edwin C. Hettinger, Justifying Intellectual Property, 18 PHIL. & PUB. AFF. 31, 51-52 (1989) (noting problematic theoretical aspects of trade secret law).
130. See, e.g., MILGRIM & BENSEN, supra note 1, § 3.01;
131. Neel Chatterjee, Should Trade Secret Appropriation Be Criminalized?, 19 HASTINGS COMM. & ENT. L.J. 853, 874-75 (1997). One might also read Chiappetta's fragmented theory of trade secret justifications, while styled as a response to Bone, as more of a concession that Bone is at base correct, for Chiappetta believes there is no one justification for trade secret law.
132. See Chiappetta, supra note 1, at 73-75.
133. See ConFold Pac., Inc. v. Polaris Indus., Inc., 433 F.3d 952 (7th Cir. 2006) (citing a variety of theories as justifying trade secret protection).
134. UNIF. TRADE SECRETS ACT § 1(4), 14 U.L.A. 433 (1985).
135. See Mark A. Lemley, The Economics of Improvement in Intellectual Property Law, 75 TEX. L. REV. 989, 993-1000 (1997) and sources cited therein for discussion of this basic proposition.
136. Chally, supra note 1, at 1270-71.
137. But see Risch, supra note 1, at 26 (contending that "creating incentives to innovate is a very minor justification of trade secret law").
138. David D. Friedman, Trade Secret, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 604-06 (Peter Newman ed., 1998);
139. cf. Michael Abramowicz & John F. Duffy, Intellectual Property for Market Experimentation, 83 N.Y.U. L. REV. 337 (2008) (making the case for IP protection for new business ideas). I think Abramowicz and Duffy's thought experiment goes rather too far-there is a difference between, protecting secrets from prying eyes and giving an exclusive franchise to a new market-but the incentive point has merit.
140. See RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 43 (1995) (defining improper means of acquiring a trade secret and listing proper means that do not give rise to liability);
141. RESTATEMENT OF TORTS § 757 cmt. f (1939).
142. See, e.g., Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1520-23 (9th Cir. 1992) (holding that reverse engineering for interoperability is protected fair use under copyright);
143. ERGES ET AL., supra note 8, at 373 (noting that "[t]he independent development of a similar or even identical work is perfectly legal" under copyright law).
144. 416 U.S. 470 (1974).
145. Id. at 484-85. But see Winston Research Corp. v. Minn. Mining & Mfg. Co., 350 F.2d 134, 138 n.2 (9th Cir. 1965) ("[S]tate law protecting trade secrets cannot be based 'on a policy of rewarding or otherwise encouraging the development of secret processes or devices.'"
146. (quoting RESTATEMENT OF TORTS § 757 cmt. b (1939))).
147. But see Chiappetta, supra note .1, at 74 (referring to incentives to invent as "solely a byproduct" of his theory of moral behavior). I believe Chiappetta has the tail wagging the dog here.
148. This does not mean that every piece of information should be protectable. Cf. Annemarie Bridy, Trade Secret Prices and High-Tech Devices: How Medical Device Manufacturers Are Seeking to Sustain Profits by Propertizing Prices, 17 TEX. INTELL. PROP. LJ. 187 (forthcoming 2009), available at http://ssrn.com/abstract=1242462 (arguing that prices should not be trade secrets).
149. While patent law has expanded in recent years to cover new and nonobvious business methods, see State St. Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d .1368, 1375-77 (Fed. Cir. 1998), it does not reach information not embodied in some technical form, such as a customer list. Cf. In re Comiskey, 499 F.3d 1365, 1377-78 (Fed. Cir. 2007) (holding that a method for mandatory arbitration was unpatentable subject matter).
150. Although it took patents an average of 2.77 years to issue in the late 1990s, see John R. Allison & Mark A. Lemley, Who's Patenting What? An Empirical Exploration of Patent Prosecution, 53 VAND. L. REV. 2099, 2101 (2000), the backlog has increased significantly since that time.
151. AM. INTELL. PROP. L. ASS'N, REPORT OF THE ECONOMIC SURVEY 2007, at 25-26 (2007) (noting that high-end patent litigation costs a median of $3 million per side through discovery, and $5 million per side if it goes to trial; high-end trade secret cases, by contrast, cost a median of $1 million through discovery and $1.75 million through trial).
152. See, e.g., Josh Lerner, The Importance of Trade Secrecy: Evidence from Civil Litigation (Harvard Bus. Sch. Working Paper 95-043, 1999), available at http://ssrn.com/abstract=6089 (documenting the significance of trade secrets to small firms). For a contrary view, pointing to the benefits to start-ups of using information from others,
153. see ALAN HYDE, WORKING IN SILICON VALLEY: ECONOMIC AND LEGAL ANALYSIS OF A HIGH-VELOCITY LABOR MARKET 29-31 (2003).
154. UNIF. TRADE SECRETS ACT §§ 1(2)(i), 1(2)(ii)(B)(i)-(iii), 1(2)(ii)(C), 14 U.L.A. 433 (1985).
155. See, e.g., Robert A. Kreiss, Accessibility and Commercialization in Copyright Theory, 43 UCLAL. REV. 1 (1995).
156. 35 U.S.C. § 112 (2000).
157. 35 U.S.C. § 122(b).
158. See, e.g., Matthew J. Conigliaro et al., Foreseeability in Patent Law, 16 BERKELEY TECH. L.J. 1045, 1056-57 (2001). On the social benefits of design-arounds that can result from disclosure, see, for example, Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 36 (1997), which contrasts "the intentional copyist making minor changes to lower the risk of legal action" with "the incremental innovator designing around the claims, yet seeking to capture as much as is permissible of the patented advance."
159. See also Slimfold Mfg. Co. v. Kinkead Indus., Inc., 932 F.2d 1453, 1457 (Fed. Cir. 1991) ("Designing around patents is, in fact, one of the ways in which the patent system works to the advantage of the public in promoting progress in the useful arts, its constitutional purpose.");
160. State Indus., Inc. v. A.O. Smith Corp., 751 F.2d 1226, 1236 (Fed. Cir. 1985) ("One of the benefits of a patent system, is its so-called 'negative incentive' to 'design around' a competitor's products, even when they are patented, thus bringing a steady flow of innovations to the marketplace.");
161. Craig Allen Nard, A Theory of Claim Interpretation, 14 HARV. J.L. & TECH. 1, 40-41 (2000) ("The practice of designing-around extant patents creates viable substitutes and advances, resulting in competition among patented technologies. The public clearly benefits from such activity." (citations omitted)).
162. Section 102(b) requires prompt filing once an inventor begins using an invention in its business, at the risk of losing the right to protection. 35 U.S.C. § 102(b). And § 102(g) provides that those who "suppress" or "conceal" an invention lose their claim to be the first inventor, at least until they start down the path to public disclosure. 35 U.S.C. § 102(g);
163. Paulik v. Rizkalla, 760 F.2d 1270 (Fed. Cir. 1985) (en banc). As a result, patent law discourages reliance on secrecy, to the point that a first inventor who maintains that invention as a trade secret may not only lose the right to claim patent protection, but may even be sued for patent infringement by a second inventor who did disclose the invention. See, e.g., Gillman v. Stern, 1.14 F.2d 28 (2d Cir. 1940);
164. ARK A. LEMLEY ET AL., SOFTWARE AND INTERNET LAW 193-95 (3d ed. 2006). But cf. E.I. du Pont de Nemours & Co. v. Phillips Petroleum Co., 849 F.2d 1430, 1436 n.5 (Fed. Cir. 1988) (holding that secret research doesn't necessarily lead to a finding of concealment).
165. Many companies discourage their engineers from reading patents. See, e.g., Dennis Fernandez, Move Over Letterman: Top 10 Most Common IP Management Mistakes for New Companies, PAT. STRATEGY & MGMT. (Law Journal Newsletters, Phila., Pa.), July 2003 ("Additionally, in many cases it may be appropriate for companies, as a matter of policy, to discourage looking at issued patents owned by other entities so as to avoid awareness of potentially infringed patents.");
166. Mark A. Lemley & Ragesh K. Tangri, Ending Patent Law's Willfulness Game, 18 BERKELEY TECH. L.J. 1085 (2003);
167. Edwin H. Taylor & Glenn E. Von Tersch, A Proposal to Shore Up the Foundations of Patent Law that the Underwater Line Eroded, 20 HASTINGS COMM. & ENT. L.J. 721, 737 (1998) ("As matters now stand many companies discourage employees from reading patents. This presumably lessens the chance that the company will be found to have knowledge of a patent. However, this defeats the basic purpose of the patents [sic] laws, dissemination of information."). While recent changes to the law have reduced the incentive to hide one's head in the sand,
168. see In re. Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007) (en banc), they have not eliminated it. Further, many don't do a patent search before developing a new product. Iain. M. Cockburn & Rebecca Henderson, The 2003 Intellectual Property Owners Association Survey on Strategic Management of Intellectual Property, at F. 6 (2004) (unnumbered working paper) (finding that 67 percent of IP managers disagreed with the statement, "We always do a patent search before initiating any R&D or product development effort"). Even when they do, the quality of the information actually disclosed in a patent may not be particularly helpful to scientists. See Jeanne C. Fromer, Patent Disclosure, 94 IOWA L. REV. (forthcoming 2009), available at http://ssrn.com/abstract-1116020 (arguing that patents are not written in ways that communicate useful information to engineers). For an overview of these problems,
169. see Note, The Disclosure Function of the Patent System (Or Lack
170. Katherine J. Strandburg, What If There Were a Business Method Use Exemption to Patent Infringement?, 2008 MICH. ST. L. REV. 245, 250.
171. See, e.g., Am. Visuals Corp. v. Holland, 239 F.2d 740, 744 (2d Cir. 1956) (discussing requirement of publication under the 1909 Act).
172. 17 U.S.C. § 407 (2000).
173. See, e.g., Risch, supra note 1, at 38 (noting this objection);
174. Simpson, supra note 1, at 1144-45 (making this argument).
175. See Friedman et al., supra note 1 (making a version of this argument);
176. Friedman, supra note 72, at 604-05 (same).
177. 431 F.2d 1012 (5th Cir. 1970).
178. Id. at 1016. Putting a cover on the large plant during construction might or might not itself be an "enormous expense." The better point is that protecting oneself against all the possible ways prying eyes could discern the secret would collectively require enormous expense.
179. LANDES & POSNER, supra note 66, at 369 ("A decision in favor of Christopher would have induced firms in DuPont's position to invest heavily in roofing their construction sites.");
180. cf. Kitch, supra note 1, at 696-98 (reading Christopher as motivated by the desire to prevent "wasteful expenditures," albeit not necessarily by the desire to prevent excessive secrecy).
181. See, e.g., CIPOLLA, supra note 8, at 261 (arguing that guilds restricted competition and therefore technological progress).
182. ROBERT M. SHERWOOD, INTELLECTUAL PROPERTY AND ECONOMIC DEVELOPMENT 111-17 (1990).
183. Id. at 113-16.
184. Similarly, Michael Risch recounts the story of a client in China that invested extraordinary amounts to protect its secrets, installing fingerprint scanners, limiting Internet access, and filtering outgoing email. Risch, supra note 1, at 44.
185. 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."). To be fair, this example can cut both ways-apparently cereal companies don't trust trade secret law enough to disclose information. But it is consistent with the idea that companies will opt for excessive secrecy in the absence of what they consider adequate legal protection.
186. The reverse can sometimes be true, however. If a single fence can protect a host of secrets that the owner would have to sue individually to protect in court, fencing might be cheaper than legal protection. But when secrets are released to third parties-as most of the good ones generally must be-that becomes less likely.
187. See Risch, supra note 1, at 42-43. Economists sometimes suggest that a benefit of patents over secrets is that the disclosure of inventions in a patent communicates information to competitors and therefore avoids wasteful duplication of research and development. See, e.g., Steven N.S. Cheung, Property Rights in Trade Secrets, 20 ECON. INQUIRY 40, 47 (1982);
188. Nancy T. Gallini, Patent Policy and Costly Imitation, 23 RAND J. ECON. 52 (1992). I don't find this argument persuasive, however, both because I think parallel research by independent companies can often be valuable,
189. see Lemley, supra note 70, and because available evidence suggests that patents do not in fact serve much of a disclosure function. See, e.g., Mark A. Lemley, Ignoring Patents, 2008 MICH. ST. L. REV. 19;
190. Note, supra note 89.
191. Kenneth J. Arrow, Economic Welfare and the Allocation of Resources for Invention, in NAT'L BUREAU OF ECON. RESEARCH, THE RATE AND DIRECTION OF INVENTIVE ACTIVITY: ECONOMIC AND SOCIAL FACTORS 609, 615 (1962) (arguing that sellers will not disclose information to buyers absent legal protection, and so buyers will be unable to value that information).
192. There is substantial literature on patents (as opposed to trade secrets) as a way out of Arrow's paradox. See, e.g., James J. Anton & Dennis A. Yao, Expropriation and Inventions: Appropriable Rents in the Absence of Property Rights, 84 AM. ECON. REV. 190, 190-92 (1994);
193. Paul J. Heald, Transaction Costs and Patent Reform, 23 SANTA CLARA COMPUTER & HIGH TECH. L.J. 447, 453-54 (2007);
194. Robert P. Merges, A Transactional View of Property Rights, 20 BERKELEY TECH. L.J. 1477 (2005);
195. Robert P. Merges, Intellectual Property and the Costs of Commercial Exchange: A Review Essay, 93 MICH. L. REV. 1570, 1590 (1995).
196. Cf. E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 COLUM. L. REV. 217, 267 (1987) (discussing efforts to avoid Arrow's paradox by entering into "agreement[s] to agree" and the like).
197. Thus, Simpson has it backwards to suggest that trade secret law will discourage cooperation between companies. Simpson, supra note 1, at 1154-55. It will encourage such cooperation far more than the absence of protection.
198. One way around this is to sign a contract that agrees to keep the information secret only if it is in fact a trade secret, and to allow the use of public domain information or information already in the buyer's possession. But writing a contract like this merely attempts to re-create between the parties what trade secret law already provides.
199. See, e.g., Deborah J. Ludewig, Optimizing the Benefits of Term Sheets and Ancillary Agreements, in DRAFTING CORPORATE AGREEMENTS 2008, at 43, 52 (PLI Corp. Law & Practice, Course Handbook Series No. 14397, 2008) ("As practitioners in Silicon Valley are aware, venture capital firms will not execute any form of nondisclosure agreement, except in very rare and unusual circumstances, even though they require prospective investment targets to provide extensive confidential information before a funding event.").
200. But cf. Arthur R. Miller, Common Law Protection for Products of the Mind: An "Idea" Whose Time Has Come, 119 HARV. L. REV. 703, 714 (2006) (asserting without support that this was untrue for a brief period in the 1990s).
201. This was the case in Smith v. Dravo Corp., 203 F.2d 369 (7th Cir. 1953), for instance, in which the court implied a confidential relationship between parties negotiating over the sale of a business, despite the fact that the parties did not sign a nondisclosure agreement. See also Phillips v. Frey, 20 F.3d 623, 630-32 (5th Cir. 1994).
202. Bone, supra note 4, at 264-72.
203. On the role of legal doctrines in channeling behavior, see generally L.L. Fuller & William R. Perdue Jr., The Reliance Interest in Contract Damages, 46 YALE L.J. 52 (1936).
204. Kitch, supra note 1, at 698 (suggesting that it makes no sense to require proof of efforts to protect secrets, except perhaps as evidence of the existence of a secret);
205. cf. Friedman et al., supra note 1, at 67 (arguing that trade secret protection should be available if, but only if, the costs of legal enforcement are less than the costs of secrecy). Friedman, Landes, and Posner are correct only if the social as well as the private costs of secrecy are taken into account. One might also include as a variant of this point Bone's argument that we don't need trade secret law because existing legal doctrines of contract, tort, and property already serve those purposes.
206. See Bone, supra note 4, at 245-46.
207. Burk & McDonnell, supra note 39, at 608-09.
208. I don't.
209. For purposes of this discussion, I ignore the persistent rumors that the formula for Coca-Cola has in fact been reverse engineered. Courts have treated it as still secret. See Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co., 107 F.R.D. 288, 294 (D. Del. 1985).
210. The useful distinction between self-disclosing and non-self-disclosing inventions was developed by Kathy Strandburg in her analysis of the experimental use defense in patent law. See Katherine J. Strandburg, What Does the Public Get? Experimental Use and the Patent Bargain, 2004 WIS. L. REV. 81, 104-18.
211. It was. Indeed, there were many different claimed inventors and even substantial litigation over ownership of the exclusive rights to the paper clip. See, e.g., Cushman & Denison Mfg. Co. v. Denny, 147 F. 734, 734-35 (S.D.N.Y. 1906). And more modern variants are still patented today.
212. See Plastic Paper Clip, U.S. Patent No. 5,179,765 (issued Jan. 8, 1992).
213. Gordon L. Doerfer, The Limits on Trade Secret Law Imposed by Federal Patent and Antitrust Supremacy, 80 HARV. L. REV. 1432, 1441 (1967) (noting the argument that companies that can successfully keep information secret won't opt for patent law in any event).
214. See also Friedman et al., supra note 1, at 63-64;
215. Risch, supra note 1, at 38 (arguing that the possibility that companies will keep information secret anyway means that the marginal social cost of legal protection for withholding information from the public is "minimal"). As I discuss in the text, I think Risch is right, but does not take this point far enough. It's not just that the possibility of secrecy without protection reduces the net social cost of trade secret law; eliminating the secrecy that would occur without the law is an affirmative social benefit of having trade secret law.
216. See Paul M. Janicke & LiLan Ren, Who Wins Patent Infringement Cases?, 34 AIPLA Q.J. 1, 5 (2006) (finding that patent owners win only about 25 percent of infringement suits). The doctrine of equivalents exists to deal with the problem of patent claims that are too easy to evade, but its impact on modern patent law is relatively minimal.
217. See John R. Allison & Mark A. Lemley, The (Unnoticed) Demise of the Doctrine of Equivalents, 59 STAN. L. REV. 955 (2007) (documenting the small number of cases in which the patentee wins a doctrine of equivalents argument).
218. See Petra Moser, Why Don't Inventors Patent? (Nat'l Bureau of Econ. Research, Working Paper No. .13294, 2007). Moser studies over 7000 inventions in the United States and Britain between 1851 and 1915. She finds that as reverse engineering an invention becomes more feasible, inventors are more likely to turn from secrecy to patent protection.
219. The same can be said-with some adaptations-of business rather than technical trade secrets. Consider customer information, some of which is readily accessible to the public (phone numbers) and some of which is not (purchasing budget for each customer, likes and dislikes, etc.). In a world without trade secret protection, companies might put too much effort into protecting the latter category of information from disclosure. Unlike technical information disclosed in products, these efforts are likely to take the form, of compartmentalization of information within the company or of efforts to prevent salespeople from leaving the company through noncompetition agreements and the like. Trade secret law may substitute for some of those efforts, as it does in California, which forbids restrictions on employee mobility, see CAL. BUS. & PROF. CODE § 16600 (West 2008), but allows enforcement of claims to information that is in fact secret.
220. See Edwards v. Arthur Andersen LLP, 189 P.3d 285 (Cal. 2008).
221. See Risch, supra note 1, at 43.
222. While the example I use here involves computer source code, for simplicity's sake I ignore the fact that software is subject to both patent and copyright protection.
223. 416 U.S. 470, 482-85 (1974);
224. see also Paul Goldstein, Kewanee Oil Co. v. Bicron Corp.: Notes on a Closing Circle, 1974 SUP. CT. REV. 81.
225. See. Bone, supra note 4, at 272-81 (detailing some of those costs). One cost often taxed to trade secrecy-the encouragement of wasteful duplication of inventive effort in races by competitors who don't know that the other is working on the same problem - I do not in fact think qualifies as a cost. First, it is far from, clear that "races" to innovate are a bad thing; they can speed up the invention process,
226. see. John F. Duffy, Rethinking the Prospect Theory of Patents, 71 U. CHI. L. REV. 439 (2004), and they often produce valuable new insights that a single approach would not,
227. see Conigliaro et al, supra note 87. Second, as Friedman, Landes, and Posner observe, the prospect of stronger patent protection may encourage racing to a greater extent than legal rights in secrets, as companies spend money in rent seeking. Friedman et al., supra note 1, at 65.
228. See Chiappetta, supra note 1, at 88. For a more general discussion of this problem,
229. see Lemley, supra note 47; David McGowan, Copyright Nonconsequentialism, 69 MO. L. REV. 1 (2004).
230. UNIF. TRADE SECRETS ACT § 1(4), 14 U.L.A. 433 (1985).
231. That their doing so stems from the tort theory of trade secrets is evident from Kamin v. Kuhnau, 374 P.2d 912, 9.18 (Or. 1962), which said that "[t]he cases adopting the higher standard of 'commercial morality' emphasize the breach of confidence reposed in the defendant, rather than the existence of the trade secret."
232. See also FMC Corp. v. Vareo Int'l, Inc., 677 F.2d 500, 503 (5th Cir. 1982) ("The fact that a trade secret is of such a nature that it can be discovered by experimentation or other fair and lawful means does not deprive its owner of the right to protection from those who would secure possession of it by unfair means." (quoting K & G Oil Tool & Serv. Co. v. G & G Fishing Tool Serv., 314 S.W.2d 782, 788 (Tex. 1958))). Among commentators arguing against strict application of the secrecy requirement on tort grounds,
233. see William L. O'Brien, Trade Secret Reclamation: An Equitable Approach in a Relative World, 21 J. MARSHALL J. COMPUTER & INFO. L. 227 (2003).
234. 244 U.S. 100, 102 (1917).
235. 203 F.2d 369 (7th Cir. 1953).
236. The defendant rejected the plaintiff's business proposal on January 30, announced that it would compete the next day, and launched its competing product five days after that. Id. at 372.
237. Indeed, the Pennsylvania Supreme Court later criticized Smith on that basis. Van Prods. Co. v. Gen. Welding & Fabricating Co., 213 A.2d 769, 779-80 (Pa. 1965). For other cases implying duties of confidence, see 1 MILGRIM & BENSEN, supra note 1, §§ 3.01-.02.
238. 865 S.W.2d 214 (Tex. Ct. App. 1993).
239. 689 F.2d 424 (3d Cir. 1982).
240. 209 F.2d 493, 495 (2d Cir. 1953). Among others, see, for example, Kamin v. Kuhnau, 374 P.2d 912 (Or. 1962);
241. Note, The "Genetic Message" from the Cornfields of Iowa: Expanding the Law of Trade Secrets, 38 DRAKE L. REV. 631 (1989) (describing a similar case involving publicly sold grain). For a discussion of this approach,
242. see, for example, Sandeen, supra note 55, at 696-97, 702 ("[T]rade secret law, prior to the UTSA, arguably overemphasized relationships.").
243. Thus, I disagree with Risch, who argues that competitors should be held liable if they acquire information from the plaintiff even though it was readily accessible from public sources. Risch, supra note 1, at 54-55. Nor do I think Risch's position is supported by California law; while California modified the UTSA to make "ready ascertainability" of information a defense, there seems little question that that move merely shifted the burden of proof, and did not change the UTSA rule that secrecy, not merely misappropriation, is a required element of the cause of action.
244. See, e.g., Forma v. Martin, 323 P.2d 146 (Cal. Ct. App. 1958).
245. Den-Tal-Ez, Inc. v. Siemens Capital Corp., 566 A.2d 1214, 1228 (Pa. Super. Ct. 1989) (citing Van Prods. Co., 213 A.2d at 780);
246. accord Patriot Homes, Inc. v. Forest River Hous., Inc., 512 F.3d 412, 415 (7th Cir. 2008).
247. Luigino's, Inc. v. Peterson, No. CIV 00-1246, 2002 WL .122389, at *8 (D. Minn. Jan. 28, 2002) (holding that the threshold focus in a trade secret case must be on the existence of "property rights"-that is, on secrecy), aff'd, 317 F.3d 909 (8th Cir. 2003);
248. Graves, supra note .1, at 47 ("A property conception may help convince a court to require a more detailed identification of the claims and thus give the defense a better opportunity to show that the information is in the public domain. If the court views a trade secret as a property right, that right necessarily must have metes and bounds").
249. California is one of the few states to require any specificity in the definition of a trade secret. CAL. CIV. PROC. CODE § 2019.210 (West 2008). For an argument for greater specificity,
250. see Julie A. Henderson, Comment, The Specifically Defined Trade Secret: An Approach to Protection, 27 SANTA CLARA L. REV. 537 (1987).
251. See, e.g., Lehman v. Dow Jones & Co., 783 F.2d 285, 299 (2d Cir. 1986) (defining the tort as protecting "information that does not qualify as a trade secret if the information is disclosed in confidence and later used in a manner that breaches the confidence"). The idea derives from a comment in the original Restatement of Torts to the effect that "[although given information is not a trade secret one who receives the information in a confidential relation or discovers it by improper means may be under some duty not to disclose or use that information." RESTATEMENT OF TORTS § 757 cmt. b (1939). For a discussion of the doctrine and its relationship to trade secret law,
252. see POOLEY, supra note 1, § 3.04[4].
253. Int'l News Serv. v. Associated Press, 248 U.S. 215 (1918).
254. See POOLEY, supra note 1, § 3.04[2] (discussing the tort of unfair competition as a "catchall theoretical rubric").
255. This is true in Colorado, for example. See Univ. of Colo. Found., Inc. v. Am. Cyanamid Co., 342 F.3d 1298 (Fed. Cir. 2003) (recognizing an independent cause of action for unjust enrichment in Colorado).
256. Cf. ConFold Pac., Inc. v. Polaris Indus., Inc., 433 F.3d 952, 957 (7th Cir. 2006) (referring to the "bewildering array" of common law claims in the shadow of trade secrecy).
257. On the latter, see for example, Nadel v. Play-by-Play Toys & Novelties, Inc., 208 F.3d 368 (2d Cir. 2000);
258. Desny v. Wilder, 299 P.2d 257 (Cal. 1956);
259. Mary LaFrance, Something Borrowed, Something New: The Changing Role of Novelty in Idea Protection Law, 34 SETON HALL L. REV. 485 (2004). For a suggestion that the prior "idea submission" case law has been rolled into modern trade secret law,
260. see Edmund W. Kitch, The Expansion of Trade Secrecy Protection and the Mobility of Management Employees: A New Problem for the Law, 47 S.C. L. REV. 659, 663 (1996).
261. Compare Convolve, Inc. v. Compaq Computer Corp., No. 00 CV 5141, 2006 WL 839022 (S.D.N.Y. Mar. 31, 2006) (holding that interference claims are preempted under California law), with Ethypharm S.A. France v. Bentley Pharms., Inc., 388 F. Supp. 2d 426 (D. Del. 2005) (holding that interference claim was not preempted because it is not necessarily coextensive with trade secret protection).
262. And indeed the UTSA does preempt state torts, with the notable exception of contract law. UNIF. TRADE SECRETS ACT § 7, 14 U.L.A. 433 (1985);
263. see also Digital Envoy, Inc. v. Google, Inc., 370 F. Supp. 2d 1025 (N.D. Cal. 2005);
264. Auto Channel, Inc. v. Speedvision Network, LLC, 144 F. Supp. 2d 784 (W.D. Ky. 2001);
265. R.K. Enters, v. ProComp Mgmt., Inc., 158 S.W.3d 685 (Ark. 2004). Contra PostX Corp. v. Secure Data in Motion, Inc., No. C 02-04483, 2004 WL 2663518 (N.D. Cal. Nov. 20, 2004) (holding that unfair competition claim was not preempted). For an argument that the UTSA must be read to preempt the common law torts described in text,
266. see James H. Pooley, The Uniform Trade Secrets Act: California Civil Code § 3426, 1 SANTA CLARA COMPUTER & HIGH TECH. L.J. 193, 209 (1985).
267. See ConFold Pac, Inc., 433 F.3d at 959 ("[T]f information is not a trade secret and is not protected by ... a broader intellectual property right..., anyone is free to use the information without liability.").
268. But see Julie Piper, Comment, I Have, a Secret?: Applying the Uniform Trade Secrets Act to Confidential Information That Does Not Rise to the Level of Trade Secret Status, 12 MARQ. INTELL. PROP. L. REV. 359 (2008) (arguing for protection of information that doesn't qualify as a trade secret).
269. POOLEY, supra note 1, § 3.04[4], 3-43 to -44. This is why I believe Bone has it backwards to suggest that a world without trade secret law, but with common law torts, would give greater freedom to reverse engineering, independent development, and employee mobility.
270. See Robert G. Bone, Exploring the Boundaries of Competitive Secrecy: An Essay on the Limits of Trade Secret Law, in LAW, INFORMATION & INFORMATION TECHNOLOGY 99, 121-23 (Eli Lederman & Ron Shapira eds., 2001). Trade secret law has limits, and can supplant the application of common law torts that lack those limits.
271. Admittedly, drawing this line will not always be easy. Privacy torts, for instance, might reasonably be cast as serving purposes unrelated to the control of information, but they also serve to restrict access to secret information, and one can imagine plaintiffs using privacy torts to substitute for a failed trade secret case. The analysis in these borderline cases should probably be case-by-case, rather than categorical. That is, rather than preempting privacy law altogether, trade secret law should preempt applications of that law that interfere with the purposes of trade secrecy.
272. See Graves, supra note 1, at 56.
273. Indeed, some courts applying the tort theory have allowed claims for misappropriation to proceed where trade secret claims failed, even in jurisdictions in which the UTSA seems clearly to foreclose application of those torts. See, e.g., Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1169 (9th Cir. .1998);
274. City Solutions, Inc. v. Clear Channel Commc'ns, Inc., 242 F. Supp. 2d 720, 735 (N.D. Cal. 2003), affd in relevant part, 365 F.3d 835, 842 (9th Cir. 2004);
275. Burbank Grease Servs., Inc. v. Sokolowski, 717 N.W.2d 781 (Wis. 2006). But see Mortgage Specialists, Inc. v. Davey, 904 A.2d 652 (N.H. 2006) (rejecting Burbank Grease). For criticism of these cases based on lack of uniformity, see Sarah Gettings, Burbank Grease Services, LLC v. Sokolowski: Frustrating Uniformity in Trade Secret Law, 22 BERKELEY TECH. L.J. 423 (2007).
276. See, e.g., Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141 (1989);
277. Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234 (1964);
278. Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 (1964);
279. Paul Heald, Federal Intellectual Property Law and the Economics of Preemption, 76 IOWA L. REV. 959 (1991);
280. Rice, supra note 31; John Shepard Wiley Jr., Bonito Boats: Uninformed But Mandatory Innovation Policy, 1989 SUP. CT. REV. 283. For a detailed discussion of those rules as applied to trade secret law, see Sharon K. Sandeen, A Contract by Any Other Name Is Still a Contract: Examining the Effectiveness of Trade Secret Clauses to Protect Databases, 45 IDEA 119 (2005).
281. Compco Corp., 376 U.S. at 234; Sears, Roebuck & Co., 376 U.S. at 229. Doug Lichtman has criticized the preemption of state IP-like rights. Douglas Gary Lichtman, The Economics of Innovation: Protecting Unpatentable Goods, 81 MINN. L. REV. 693 (1997). But his argument is based on narrowly tailored state laws that serve only to recoup development costs. Trade secret may fit that model; amorphous notions of misappropriation and unfair competition do not.
282. Cf. Dan L. Burk, Protection of Trade Secrets in Outer Space Activity: A Study in Federal Preemption, 23 SETON HALL L. REV. 560 (1993) (discussing the possibility of federal preemption of state law in a territory where federal law is exclusive).
283. Cel-Tech Commc'ns v. L.A. Cellular Tel. Co., 973 P.2d 527 (Cal. 1999) (holding that state antitrust law preempts allegations of unfair competition between competitors unless those allegations are sufficient to state an antitrust claim).
284. See AcryMed, Inc. v. ConvaTec, 317 F. Supp. 2d 1204, 1217 (D. Or. 2004);
285. Automed Techs., Inc. v. Eller, 160 F. Supp. 2d 915, 921-22 (N.D. Ill. 2001);
286. Auto Channel, Inc. v. Speedvision Network, LLC, 144 F. Supp. 2d 784, 790 (W.D. Ky. 2001);
287. Frantz v. Johnson, 999 P.2d 351, 358 n.4 (Nev. 2000);
288. POOLEY, supra note 1, § 2.03[6]. But see Hecny Transp., Inc. v. Chu, 430 F.3d 402 (7th Cir. 2005) (refusing to preempt theft and fraud claims);
289. Boeing Co. v. Sierracin Corp., 738 P.2d 665, 673-74 (Wash. 1987) (en banc) (refusing to preempt breach of confidence claim);
290. Burbank Grease Servs., Inc., 717 N.W.2d 781 (refusing to preempt misappropriation claim). The UTSA expressly preempts other state claims. UNIF. TRADE SECRETS ACT § 7, 14 U.L.A. 433 (1985). But common law courts have done so as well.
291. See Sheets v. Yamaha Motors Corp., U.S.A., 849 F.2d 179, .184 (5th Cir. 1988) ("Sheets is not entitled to fall back on the equitable doctrine of unjust enrichment after failing to establish a trade secret.");
292. Gary Van Zeeland Talent, Inc. v. Sandas, 267 N.W.2d 242, 249 (Wis. 1978). Sharon Sandeen argues that federal law should step in to preempt some of these state claims notwithstanding
293. Kewanee. Sharon K. Sandeen, Kewanee Revisited: Returning to First Principles of Intellectual Property Law to Determine the Issue of Federal Preemption,12 MARQ. INTELL.PROP. L. REV. 299, 355-57 (2008). That shouldn't be necessary if the UTSA will do the job, except perhaps in states that still apply common law doctrines.
294. On that requirement, see UNIF. TRADE SECRETS ACT § 1(4)(ii); Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174 (7th Cir. 1991);
295. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983).
296. See, e.g., Elizabeth A. Rowe, Rethinking "Reasonable Efforts" To Protect Trade Secrets in a Digital World 38 (July 19, 2008) (unpublished manuscript), available at http://ssrn.com/abstract=1161166 (relying on a tort conception of trade secrecy to justify strengthening the reasonable efforts requirement in the online environment).
297. See, e.g., Kitch, supra note 1, at 698. One author has argued that "[c]ourts should require firms to invest in precautionary measures until the marginal cost of those measures equals the marginal expected economic loss in. the event of misappropriation." Note, Trade Secret Misappropriation: A Cost-Benefit Response to the Fourth Amendment Analogy, 106 HARV. L. REV. 461, 473 (1992). But that makes no sense. It would essentially require dissipation of all the rents that might be gained from protecting trade secrets. This leads to the conclusion that any expenditure on secrecy is wasteful unless it serves some identifiable social purpose.
298. See, e.g., Harry Wingo, Dumpster Diving and the Ethical Blindspot of Trade Secret Law, 16 YALE L. & POL'Y REV. 195 (1997) (arguing that "dumpster diving" for discarded secrets should be illegal regardless of the efforts to prevent it, albeit on a "commercial morality" theory).
299. Rockwell Graphic Sys., Inc., 925 F.2d at 178.
300. Trade secret law does have such a requirement, though it rarely becomes an issue, probably because the requirement of misappropriation by improper means limits the number of cases in which defendants act in good faith but still meet the test for infringement. See Rohm & Haas Co. v. Adco Chem. Co., 689 F.2d 424, 433 n.9 (3d Cir. 1982) (imposing a negligence requirement as to whether the information taken constituted a secret and concluding that "[a] good faith belief, even if credited, is no defense to an action for misappropriation of trade secrets");
301. POOLEY, supra note 1, § 6.04[1], 6-30 ("Knowledge on the part of the defendant is an element of liability for misappropriation.").
302. Compare RESTATEMENT OF TORTS § 757 cmt. b (1939) (including "the extent of measures taken by [the claimant] to guard the secrecy of the information" among six factors to be considered in determining whether information is secret), and RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 39 cmt. g (1995) ("[Precautions taken to maintain the secrecy of information are relevant in determining whether the information qualifies for protection as a trade secret," but "if the value and secrecy of the information are clear, evidence of specific precautions taken by the trade secret owner may be unnecessary."), with UNIF. TRADE SECRETS ACT § 1(4)(ii), 14 U.L.A 433 (1985) (requiring "efforts that are reasonable under the circumstances to maintain secrecy" as an element of proof of a trade secret).
303. On the copyright rule permitting reverse engineering, see, for example, Sony Computer Entm't, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000); Sega Enters. Ltd. v. Accolade, Inc., 977 F.2d 1510 (9th Cir. 1992);
304. Julie E. Cohen, Reverse Engineering and the Rise of Electronic Vigilantism: Intellectual Property Implications of "Lock-Out" Programs, 68 S. CAL. L. REV. 1091 (1995);
305. Philip J. Weiser, The Internet, Innovation, and Intellectual Property Policy, 103 COLUM. L. REV. 534 (2003). On the question of whether parties can contract around this rule, compare Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988) (answering no) with Davidson & Assoes, v. Jung, 422 F.3d 630 (8th Cir. 2005) (answering yes) and. Bowers v. Baystate Techs., Inc., 320 F.3d 1316 (Fed. Cir. 2003) (answering yes).
306. See Mark A. Lemley, Beyond Preemption: The Law and Policy of Intellectual Property Licensing, 87 CAL. L. REV. 111 (1999).
307. Compare Celeritas Techs., Ltd. v. Rockwell Int'l Corp., 150 F.3d 1354, 1358 (Fed. Cir. 1998) (finding breach of contract in use of information that was in the public domain), Warner-Lambert Pharm. Co. v. John J. Reynolds, Inc., 178 F. Supp. 655 (S.D.N.Y. 1959) (holding that parties could agree to treat information as secret even after it was published), Bernier v. Merrill Air Eng'rs, 770 A.2d 97 (Me. 2001) (holding that employee violated nondisclosure agreement by publishing non-secret information), and Simplified Telesys, Inc. v. Live Oak Telecom, LLC, 68 S.W.3d 688, 693-94 (Tex. App. 2000), with Sarkes Tarzian, Inc. v. Audio Devices, Inc., 166 F. Supp. 250, 265-66 (S.D. Cal. 1958), aff'd, 283 F.2d 695 (9th Cir. 1960), Am. Paper & Packaging Prods., Inc. v. Kirgan, 228 Cal. Rptr. 713, 717 (Ct. App. 1986) ("An agreement between employer and employee defining a trade secret may not be decisive in determining whether the court will so regard it."), Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 903 (Minn. 1983) (same), and Gary Van Zeeland Talent, Inc. v. Sandas, 267 N.W.2d 242 (Wis. .1978). For a detailed discussion,
308. see Sandeen, supra note 154.
309. See, e.g., Technicon Data Sys. Corp. v. Curtis 1000, Inc., 244 U.S.P.Q. 286, 1984 Del. Ch. LEXIS 588 (Aug. 21, 1984);
310. Data Gen. Corp. v. Digital Computer Controls, Inc., 357 A.2d 105 (Del. Ch. 1975). For further discussion, see Rice, supra note 31, at 623-25 (arguing for preemption of contractual restrictions on the reverse engineering of trade secrets in most cases).
311. See, e.g., Phillips v. Frey, 20 F.3d 623, 631-32 (5th Cir. 1994) (implying a confidential relationship between negotiating parties absent a confidentiality agreement); Smith v. Dravo Corp., 203 F.2d 369 (7th Cir. 1953) (same).
312. But see Bateman v. Mnemonics, Inc., 79 F.3d 1532 (11th Cir. 1996) (noting that the court was "wary" of implied, confidential relationships because of the potential for abuse);
313. cf. Omnitech Int'l v. Clorox Co., 11 F.3d 1316 (5th Cir. .1994) (holding that it was not illegal for a company to use trade secret to evaluate company for purchase where parties did not sign nondisclosure agreement).
314. As Jim Pooley puts it: The law relating to trade secrets reflects a balance of public and private interests in the encouragement of innovation, the preservation of ethics and the maintenance of a free marketplace of ideas and movement of labor. This balance should not be upset in any given transaction by private understandings between the parties. POOLEY, supra note 1, § 3.04[3], 3-38 to -39;
315. see also RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 41 cmt. d (1995);
316. MILGRIM & BENSEN, supra note 1, § 4.02[1][b] ("The mere presence of a confidentiality agreement does not elevate nontrade secret matter to trade secret status.");
317. Rice, supra note 3.1, at 623.
318. While it is possible that contract law itself could reach this result through doctrines like unconscionability or mutual mistake, the law is more likely to get the policy judgment right if it is expressly considering trade secret policy.
319. See, e.g., Alan E. Garfield, Promises of Silence: Contract Law and Freedom of Speech, 83 CORNELL L. REV. 261, 303-06 (1998);
320. Lemley, supra note 166.
321. See, e.g., Geraldine Szott Moohr, The Problematic Role of
322. Pamela Samuelson, Principles for Resolving Conflicts Between Trade Secrets and the First Amendment, 58 HASTINGS L.J. 777, 807 (2007);
323. Simpson, supra note 1.
324. For example, Katarzyna Czapracka suggests that the E.U. antitrust authorities give less deference to trade secret claims than their U.S. counterparts because the European Union has no conception of trade secrets as property rights. Katarzyna A. Czapracka, Antitrust and Trade Secrets: The U.S. and the EU Approach, 24 SANTA CLARA COMPUTER & HIGH TECH. L.J. 207 (2008).
325. On the potential conflict between trade secrets and the First Amendment, see, for example, Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property Cases, 48 DUKE L.J. 147, 229-32 (1998);
326. Samuelson, supra note 173.
327. See, e.g., Graves, supra note 1.
328. Chally, supra note 1, at 1280-82.
329. Lemley & Volokh, supra note 175, at 182-85 (debunking the argument that "property" is entitled to any special deference under the First Amendment).
330. While copyrights theoretically expire, a series of eleven term extensions has meant that almost no copyrights have expired since 1961. Cf. Eldred v. Ashcroft, 537 U.S. 186 (2003) (upholding the legality of these term extensions).
331. See. MERGES ET AL., supra note 8, at 58.
332. Cf. Simpson, supra note 1, at 1.156-58 (arguing for a defense applicable to secrets that cannot be reverse engineered, and so might last forever). This isn't a necessary implication; trademarks are similarly protected for an indefinite term so long as they are used in commerce and renewed every ten years. 15 U.S.C. § 1059 (2000).