Property as a potential justification.

• Author: Risch, Michael
• Position: Why Do We Have Trade Secrets?

Any normative justification of trade secrets must begin with consideration of whether trade secrets are property. To many, if trade secrets are property, then laws protecting them are normatively justified. Thus, the question of whether or not trade secrets are property has raged on for many years. While some wonder why it matters, (64) others believe that the shift toward calling intangible assets "property" has created and will continue to create a shift toward the overprotection of intellectual property. (65) Whether trade secrets are property depends on who you ask; I examine the competing theories below and then provide one of my own.

1. Defining Property

   Three primary theories consider trade secrets as property: exclusivity theory, integrated theory, and bundle theory.

   1. Exclusivity Theory

      Even those who believe exclusive rights are the sole requirement for property disagree about whether trade secrets should be property. For example, Judge Frank Easterbrook argues that intellectual property includes the right to exclude, just like real or personal property. (66) This analysis was followed in Ruckelshaus v. Monsanto Co.: (67) "The right to exclude others is generally 'one of the most essential sticks in the bundle of rights that are commonly characterized as property.'" (68) The problem with this argument is that trade secrets are not actually exclusive, as pointed out by the California Supreme Court: "The owner of the trade secret is protected only against the appropriation of the secret by improper means and the subsequent use or disclosure of the improperly acquired secret. There are various legitimate means, such as reverse engineering, by which a trade secret can be acquired and used." (69) Others, however, look to Thomas Jefferson's analysis of the issue:

      Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from anybody. (70) The limit of this argument is that regardless of the normative basis for such a right, the legally enforceable right to exclude is always defined by the "will and convenience of society," even for real property. (71) There is no reason why a real property owner must have a right to exclude others even if he or she has the ability to do so by building a fence; instead, the law allows the owner to exclude even without a fence. Similarly, those with patents are given the same rights--patent law does not have an independent development or fair use exception. (72) Ideas, real property, personal property, and other tangible or intangible assets all have the legal rights that the state grants. (73) The primary difference is the difficulty of enforcement; real and personal property may be unique, allowing for exclusivity through possession, (74) while current technology does not allow a purging of ideas in the brain. (75) Thus, it is not clear why the right to exclude should make trade secrets property, or the lack thereof should exclude trade secrets from being property.

   2. Integrated Theory

      Rather than looking at exclusion, integration theorists look at how the asset is acquired, used, and disposed. (76) They argue that exclusivity is not enough, nor even necessary, to define property. (77) Even then, scholars cannot agree. For example, Adam Mossoff argues that trade secrets are property because they are acquired by the actions of the trade secret owner because discoverers can make their "own use" of the information because it is secret and because the owners can decide how the information is disposed of by publication or transfer. (78) This theory, however, also fails to resonate. How is it that two people can acquire and use the same secret? Why should acquisition and use of an idea that is free for all to discover merit any protection?

      Pamela Samuelson argues the contrary. Even though information may be acquired, used, and transferred, she relies on the Masland point of view that trade secret misappropriation is about breach of confidences or other use of improper means. Trade secrets are not property, but instead the enforcement of social values. (79)

   3. Bundle Theory

      The middle ground is to treat trade secrets as a "Hohfeldian" bundle of rights, (80) wherein trade secret rights are simply a collection of social rights and duties. This is an approach this Article takes below as part of substantive property analysis. A problem with the bundle of rights theory is that the word "property" ceases to have any real meaning. (81) With the bundle, it is impossible to determine what particular bundle makes a set of rights property and what bundle renders a set of rights "not property."

   4. An Alternate Categorization

      It is because of the fundamental disagreement among the three theories above that the debate about trade secrets (and other intangible assets, for that matter) continues. In the alternative, this Article proposes different categories of intellectual property, at least as those categories apply to trade secrets. I call the categories "collateral property" and "substantive property."

      Aside from the effect that any nomenclature might have on the collective mindshare, (82) whether trade secrets are called property or not matters primarily in cases where a statutory or constitutional right is triggered by "property." (83) I call this "collateral property."

      For all other intents and purposes, trade secrets are a bundle of rights; the only differences between trade secrets, patents, and real property are the collection and mixture of rights. I call this "substantive property." Thus, whether trade secrets are normatively justified as "substantive property" will depend on whether the bundle of rights itself is normatively justified. (84)

      This is not to say that property rights are unimportant or that trade secrets are not property. Indeed, if you asked most business owners, they would say that their trade secrets are their property. This tends to support the philosophical and populist justification for trade secrets discussed below. However, because trade secrets are so different from real and personal property, and even from other forms of intellectual property, normative analysis of specific property rights granted is helpful to justify why trade secret owners call their information...