an early trade secrecy case from New York, Tabor v. Hoffman, decided in 1889. A study of this case indicates that many present-day concerns about overlapping edges between trade secrecy and patent laws — and their interaction and interference with one another's aims — were latent, if not overtly raised, when American courts were just beginning to articulate the common law right of trade secrecy. After telling Tabor’s tale, I investigate some of the longstanding interactions and tensions between trade secrecy and patent laws, through the lens of the regimes’ encouragements of disclosure in some ways and secrecy in others. Moreover, even though trade secrecy law is predominantly focused on secrecy, in some ways it enables disclosure. By contrast, although patent law is preoccupied with disclosure, in some ways, it permits and encourages secrecy. In all, patent law and trade secrecy together create a legal tangle of secrets and disclosures in trade. A full review of the Tabor case suggests that the innovator there was able to take advantage both of trade secrecy’s disclosures and patent law’s secrets. The court did not appreciate this possibility, instead focusing on the unfairness to the plaintiff of the defendant’s appropriation.Fromer comments that
Current trade secrecy protection looks much like the protection conferred long ago in Tabor. Pertinently, the Uniform Trade Secrets Act, adopted in forty-six states and the District of Columbia, shields as a trade secret from certain types of misappropriation information that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons” and is “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Misappropriation occurs principally when the acquirer of another’s trade secret contravenes a pre-existing contractual or other obligation to the secret holder not to disclose the secret or commits an improper act of industrial espionage (often quasi-tortious, if not tortious) to get it. So long as a secret remains unrevealed, legal protection is everlasting. Of course, the information comprising the secret might always be properly revealed through acts that do not constitute misappropriation, principally independent discovery or reverse engineering of an available product. With this avenue of sanctioned uses of secrets so long as they are independently found, as Rochelle Dreyfuss explains, “trade secrecy laws … safeguard public access.”
As the Supreme Court has reasoned, there are thought to be two key purposes to trade secrecy laws: “maintenance of standards of commercial ethics” and “the encouragement of invention.” With regard to commercial ethics, the general idea is that trade secrecy liability will deter people from carrying out certain illicit forms of commercial behavior. Additionally, trade secrecy protection encourages investment in scientific and technological research, according to Mark Lemley, by “giv[ing] the developer of new and valuable information the right to restrict others from using it, and therefore the prospect of deriving supracompetitive profits from the information.” Both motivations have served to protect trade and innovation, particularly in an era of mass production, in which commercialization of innovation depends on access to trade secrets by a large number of employees and third parties.
Now consider patent law. Utilitarianism is the dominant purpose of American patent law. According to utilitarian theory, patent law provides the incentive of exclusive rights for a limited duration to inventors to motivate them to create technologically or scientifically valuable inventions. In exchange for this incentive, patent law also requires patentees to disclose their inventions to the public. Without the patent incentive, the theory goes, inventors might not invest the time, energy, or money necessary to create the works because such works might be copied cheaply and easily by free riders, thereby eliminating inventors’ ability to profit from their labors. According to utilitarian thinking, public benefits accrue by rewarding inventors for taking two steps they likely would not otherwise have taken: first, to invent, and possibly commercialize; and second, to reveal information to the public about their inventions that serves to stimulate further innovation.
Consistent with utilitarianism, the rights conferred by patent laws are designed to be limited in time and scope. The reason for providing patent protection to creators is to encourage them to produce socially valuable works, thereby maximizing social welfare. If the provided rights were exceedingly extensive, society would be hurt and social welfare diminished. Exclusive rights in patent law prevent competition in protected works, allowing the patent holder to charge a premium for access and ultimately limiting these valuable works’ diffusion into society. Moreover, given that knowledge is frequently cumulative, society benefits when subsequent creators are not prevented from building on previous scientific and technological creations to generate new works. Therefore, patent law ensures both that the works that it protects will fall into the public domain in due course and that third parties will be free to use the protected works for certain socially valuable purposes. Moreover, patent law’s requirement of disclosure of information about inventions can stimulate productivity, as I have previously explored, in two ways:
First, it permits society at large to apply the information by freely making or using the patented invention after the expiration of the patent. Second, the disclosure can stimulate others to design around the invention or conceive of new inventions—either by improving upon the invention or by being inspired by it—even during the patent term. Otherwise, the patent system would not require disclosure earlier than the expiration of the patent term, as it does here by requiring disclosure at the time of the patent grant, at the latest, and typically much sooner. ….
Disclosure of an invention sets out what others have already accomplished, thereby both revealing information about those discoveries—enabling the avoidance of wasteful duplication of the original inventor’s research—and noting, usually implicitly by omission, what has yet to be done. Patent disclosures act, as one commentator labels it, as an “invisible college of technology.” Use of these disclosures, in turn, speeds the rate of innovation in society, which is central to economic growth.
There are a number of reasons an innovator might prefer trade secrecy protection to patent protection. First, protection vests without any need for government approval, which is typically time-consuming and expensive to obtain. Second, because trade secrecy laws protect all economically valuable information from misappropriation, they cover inventions that are either unpatentable or of dubious patentability. Third, protection can last for a longer time, and potentially forever, if the chances are great that the invention will not be independently discovered by a third party for a time exceeding patent duration (or the time in which the invention is commercially important). That is, trade secrecy protection is particularly attractive for inventions that are likely to stay secret, such as chemical or mechanical processes, as they can be shielded from public view and are hard to reverse engineer even as the products they produce are commercialized. When those conditions do not hold, patent protection is likely to be favored over trade secrecy. An inventor is likely to be happy to forego trade secrecy protection in exchange for the more certain but time-limited protection that patent law confers if he is willing and able to spend the money and time to obtain patent protection for a patentable invention that is likely to be independently discoverable or reverse engineered once it is commercialized. More extremely, the Supreme Court, in ruling that the federal patent laws do not preempt Ohio’s trade secrecy laws, thought that patent protection would always be preferred to trade secrecy when an invention is patentable. Reasoning that trade secrets are at risk of honest discovery and failed lawsuits even when misappropriated, the Court stated that “[t]he possibility that an inventor who believes his invention meets the standards of patentability will sit back, rely on trade secret law, and … forfeit any right to patent protection is remote indeed.” Empirical evidence shows that the Supreme Court’s conclusion is categorically wrong, but there is a reasonable set of situations in which patent protection is preferable.
From this comparative description, it might seem that trade secrecy is focused heavily on keeping inventions secret from others for as long as possible, while patent law is centered on ensuring that inventions are disclosed widely to the public. In broad strokes, that is true. But it neglects the disclosures about inventions that trade secrecy enables and the secrets about inventions that patent law permits, sometimes in conflicting ways.