Trade secrets and their history.

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

The history of trade secret law is an interesting study in how certain intellectual property rights have developed. Whereas copyright and patent law in the United States find legal justification in the Constitution (14) and implementing federal statutes, trade secret law grew out of the common law and has now been codified separately in most states. Indeed, the very assumptions underlying patent and copyright laws--that government-granted rights can serve to incentivize the creation and sharing of new ideas and expression (15)--are diametrically opposed to the notion of keeping information secret to gain a competitive advantage.

1. Trade Secret Basics

   1. Definition of a Trade Secret

      In broad strokes, a trade secret is some sort of information that has value because it is not generally known. The notion of secrecy exempts trade secrets from preemption by patent law. (16) The UTSA defines a trade secret as follows: (17)

      "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

      (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable (18) by proper means by, other persons who can obtain economic value from its disclosure or use, and

      (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

      For those states that have not implemented the UTSA, and for most judicial opinions that predate the UTSA, (19) the definition of a trade secret is set forth in the comment to section 757 of the Restatement (First) of Torts: (20)

      Definition of trade secret. A trade secret may consist of any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. (21)

      Secrecy. The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. (22)

      The Restatement definition of a trade secret is different from that of the UTSA, but it is also similar. Key differences are: (a) the exception for "single use" information, which can be trade secret under the UTSA; (b) the requirement of continuous use in business, which is not required under the UTSA; and (c) less emphasis on efforts to maintain secrecy than under the UTSA.

   2. Trade Secret Misappropriation

      Misappropriation of a trade secret involves improper means used to acquire or use a trade secret. (23) Trade secret law outlaws three different acts: (a) acquisition of a trade secret--merely obtaining the information; (b) disclosure of the trade secret--merely telling the information to another; and (c) use of the trade secret--using the information to one's advantage.

      The categories of defendants who may be liable for misappropriation are also threefold: (a) the knowing acquirer of information is liable--this person obtains the information by improper means; (b) the knowing discloser of information is liable--this person discloses the information that has been improperly acquired, or perhaps properly acquired but for which there is a duty of secrecy; and (c) the constructively improper acquirer/discloser of information is liable--this person obtains the information with reason to know that the information was improperly obtained. (24)

      The discussion above uses the term "improper" extensively. Under the UTSA, "'improper means' includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means." (25) In large part, "improper means" includes acts that are actionable in and of themselves--trespass, breach of contract, conversion of physical property, and, under modern laws, the misuse of computer networks. (26) It is this reliance on common law wrongs that causes Bone to call trade secret law "parasitic" (27) and Landes and Posner to declare that "there is no law of trade secrets." (28)

      However, the list of particular improper means outlined by the UTSA is not all inclusive; it also includes a catchall for any sort of espionage. (29) The rule is the same under the Restatement (First) of Torts. (30) In fact, the Restatement makes it clear that some form of ethical standards determines improper means: "A complete catalogue of improper means is not possible. In general they are means which fall below the generally accepted standards of commercial morality and reasonable conduct." (31)

      It is up to the jury to determine improper means, (32) but in most cases improper means will involve some other legally actionable wrong. The most cited case to the contrary is E.I. duPont deNemours & Co. v. Christopher. (33) In Christopher, the defendant took aerial photographs of a plant under construction. (34) The Fifth Circuit ruled that although the photographs had not violated any law, the "espionage" was, nonetheless, an improper means of obtaining trade secrets. (35) Landes and Posner discuss Christopher with respect to the claim that there is no law of trade secrets, but argue that this holding simply expands the notion of "trespass"; this argument is belied by the fact that the aerial photographs would not have been "illegal" but for the fact that there were trade secrets on the property.

   3. Differentiation from Other (36) Intellectual Property

      Trade secrets differ from other forms of intellectual property in many ways. The most significant difference is the role of public disclosure. Copyright law and patent law are founded on the notion that creativity and innovation, respectively, are rewarded by limited governmental protection to facilitate recoupment of the costs of creation. Furthermore, the policies of patent and...