A new framework for assessing clinical data transparency initiatives.

Author:Lietzan, Erika
Position:II. Placing Disclosure Within The Legal Landscape B. Analytical Problems with Trade Secret Classification 2. The Doctrinal Debate Collapses through Conclusion, with footnotes, p. 57-85
  1. The Doctrinal Debate Collapses

    A great deal of scholarship has attempted to make sense of trade secret law, categorizing and critiquing its various justifications and objectives and, in at least one instance, also suggesting that at bottom there is no such thing as a coherent and separate body of trade secret law. (72) The story this scholarship tells of the history and black letter content of state trade secret law is consistent. What varies meaningfully, however, is whether and how scholars see an underlying doctrine and how they describe and assess its justifications. In particular, the scholarship is dominated by an enduring doctrinal debate: whether trade secret law is primarily a law of liability (relationship) principles or a law of property (exclusivity and ownership).

    The argument that trade secret law in the United States is primarily a law about the liability that attaches when parties in relationships violate social norms rely heavily on a key sentence in Justice Holmes's 1917 decision, E.I. du Pont de Nemours Powder Co. v. Masland. (73) Masland concerned secrets learned by Walter Masland while employed by DuPont. Masland was establishing a business that would manufacture artificial leather, and some of the secrets at issue were relevant, although Masland himself asserted that much of the information was in fact "well known to the trade." DuPont nevertheless sought an injunction to prevent Masland from using or disclosing those secrets. As part of the litigation, to defend against the injunction, Masland proposed to disclose the secrets in question to experts and witnesses. At issue before the Supreme Court was the appropriateness of an injunction against disclosing the trade secrets to experts, consultants, and defense counsel for purposes of defense. The case was put to the Court as a conflict between the right of property and the right to make a full defense. In a terse three-paragraph opinion, Justice Holmes brushed that proposed conflict aside. Rather than attempting to resolve a fundamental conflict of first principles, he picked a narrower resolution: "Whether the plaintiffs have any valuable secret or not[,] the defendant knows the facts, whatever they are, through a special confidence he accepted. The property may be denied, but the confidence cannot be." Thus, "the starting point for the present matter is not property or due process of law, but that the defendant stood in confidential relations with the plaintiffs, or one of them ... If there is any disadvantage in the fact that he knew the plaintiffs' secrets, he must take the burden with the good." (74)

    Those who favor the view that trade secret law is primarily a law of unfair competition suggest that Justice Holmes effectively rejected the argument that trade secrets were property. They note also that the drafters of the first Restatement in 1939 took pains to distance trade secret liability principles from property doctrine. Indeed, comment a noted that "[t]he suggestion that one has a right to exclude others from the use of his trade secret because he has a right of property in the idea has been frequently advanced and rejected." (75) According to the drafters, "[t]he theory that has prevailed is that the protection is afforded only by a general duty of good faith and that the liability rests upon breach of this duty." (76) In other words, they asserted, the essence of liability lies in breach of contract, abuse of confidence, or improprieties in obtaining the secret. (77) The ALI later moved trade secrets entirely to the Restatement (Third) of Unfair Competition, again reflecting the supposedly predominant view that trade secret law is primarily about enforcing behavioral norms in business relationships. (78) While the language of natural property rights can be found in early trade/business secret jurisprudence, this approach did not survive the emergence of legal realism in the early twentieth century. (79) Thus, this view holds, trade secrets are not really property at all. Rather, trade secrets are foundation (and therefore the "justifying theory") for trade secret law. Bone, supra note 57, at 251, 260 ("Why give legal protection to secret information? As I discuss later, this question had a relatively clear answer in the late nineteenth century, but the answer lost its power to persuade with the ascendancy of legal realism in the 1920s and 1930s."). Id at 251. merely the subject of undertakings within the context of a relationship between two parties. (80) Some also make policy and normative arguments against the treatment of trade secrets as property, suggesting that this leads to overprotection of the assets in question. (81)

    This Article subscribes to the position that trade secret law is instead primarily about protection of property. Under this view, Masland must be understood as an exercise in judicial restraint, a refusal to resolve the doctrinal conflict presented by the petitioner. Justice Holmes meant only that the property question--the tension between first principles--did not need to be resolved in order for the case to be decided. (82) Further, it has been established that despite the prompting of the ALI drafters, the cases that followed did not accept the distancing from property concepts. (83) It is possible the ALI reporters were reading the cases selectively or attempting to shape the law prospectively in the first Restatement. To be sure, the ALI continued on its own path, omitting the chapter on trade secrets in the second Restatement of Torts and ultimately placing them in the third Restatement of Competition. But of these Restatements, it is the initial 1939 Restatement of Torts that remains influential in the courts and agencies with respect to trade secrets, comment a--which most aggressively distanced trade secrets from property--generally forgotten. (84)

    Professor Epstein also points to a fundamental theoretical problem with the view that trade secret protection derives from a relationship between two parties: this would imply a lack of protection where the information is not shared with anyone, which is illogical. (85)

    The debate endures, with some questioning why it even matters, (86) and others arguing that the early cases and writings evidence strains from many strands of thought, including contracts, torts, and ethics. (87) Professor Milgrim marries the two strands by arguing that the law of unfair competition applies only because there is some sort of property at issue in the first instance and that a property right is therefore inherently a relational right. (88) The debate is not only about where the origins of trade secret law lie but also, of course, what the appropriate approach should be going forward. This is an essentially positivist debate to be having in the first instance. If assets generated through intellectual labor are "property" in any sort of natural law sense--which most writers today seem to discount--the debate would be beside the point. It is probably also true that in the private law setting it is "unnecessary to call trade secrets 'property' in order to enforce confidences and penalize those who use improper means to obtain ... [those] secrets." (89)

    But the question whether trade secrets are property in any meaningful sense or simply an interest or posture that is protected through liability rules and behavioral norms collapses in a regulatory setting. The content in question is provided to the government in exchange for a license to do business. The relationship between the parties to this transaction is not one of private entities on equal footing. Further, in a regulatory state, concepts like business ethics, commercial morality, and even misappropriation are replaced functionally by due process and other Fifth Amendment principles. Here, property status is dispositive. Moreover, even the distinction between the doctrines collapses. It makes no sense to consider whether the doctrine is property law (under which reallocation of assets occurs through voluntary negotiation) or liability law (under which reallocation of assets leads through business norms to a payment requirement), because the government may in fact lawfully "take and pay" with respect to property. Thus, all roads lead to the property question.

    To be sure, in the regulatory setting, the trade secret label matters because various applicable public laws use the phrase. The Federal Trade Secrets Act, Exemption 4 of FOIA, and section 301(j) of the FDCA use the phrase. But, as noted, these are not part of the substantive law of trade secrets; they simply incorporate the concept by reference. In the core law that limits the actions of the government with respect to the governed--the Constitution, and here the Fifth Amendment--what really matters in this context is whether there is "property" at issue. This Article therefore proposes laying aside the trade secret question and working from first principles on the question whether the content at issue is property.

    1. The Property Question

  2. Defining the Content as Property

    In chapter 5 of his Second Treatise of Government, published in 1690, John Locke posited that when one creates something of value through one's labor, one owns the end result of that labor. (90) There is a fundamental difference of opinion as to whether property arises automatically by operation of natural law, in the sense that Locke envisioned, or is instead a creation of law, dependent on the judgment of society that a particular right to use or exclude should be protected. Locke's formulation was enormously influential in early American political thought, (91) however, and, despite the influence of legal realism, continues to echo through U.S. property doctrine. (92) Moreover, the Peabody case itself echoed Locke. (93)

    Locke was writing about a resource open for development--non-scarce land in the new world. (94) In the most relevant respects, pharmaceutical research and...

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