A New Look at Trade Secret Law: Doctrine in Search of Justification

Abstract

Professor of Law, Boston University School of Law. I am grateful to all those who participated in a Boston University School of Law Faculty Workshop on an early draft of this article.

An Economic Analysis of Trade-Secret Protection in Buyer-Seller Relationships

“…Our analysis is complementary to the existing literature on trade secrets mentioned in the beginning (Kitch 1980;Friedman et al 1991;Bone 1998), though clearly distinct since we focus on asymmetric information in vertical trading relationships, whereas the existing literature is concerned primarily with horizontal cases.…”

“…that has commercial value and that the firm possessing the information wants to conceal from its competitors in order to prevent them from duplicating it. (Friedman et al 1991: 61) Keeping such information secret seems warranted since-similar to patent protection-it creates incentives to invest in the generation of such valuable information in the first place (see, e.g., Kitch 1980;Friedman et al 1991;Bone 1998).…”

Choosing the scope of trade secret law when secrets complement patents

“…Trade secret laws are then justified by the economic benefits that flow from their existence, in particular incentives for innovators to spend less money protecting secret information and for imitators attempting to appropriate secret information. According to Risch (2007) and Lemley (2008), the reduction of such costs is a sufficient reason for the existence of a trade secret law as a separate doctrine, whereas Bone (1998) has an opposite opinion.…”

“…1 However, while the interest in optimal patent design is long standing and has given rise to large 1 In some papers the choice between patent and trade secret protection is explicitly considered, but literature in the field, whose origins can be dated back to Nordhaus (1969), 2 the issue of the optimal strength of trade secret protection has received little attention until a short time ago. Only recently, starting from a provocative paper by Bone (1998), some authors have widely discussed the question of whether trade secret deserves a legal protection which goes beyond the contract law or the tort law. In the words of Lemley (2008), "Trade secret law is a puzzle.…”

“…Moreover, it is well known that in the software industry source code secrecy frequently complements patents. 4 Accurate analyses of the relation between costs incurred by rival firms in order to protect or misappropriate secret information and the scope of trade secret law can be found in the cited papers by Bone, (1998), Risch, (2007, and Lemley (2008).…”