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THE SURPRISING VIRTUES OF TREATING TRADE SECRETS AS IP RIGHTS

Mark A. Lemley

copy; 2008 by Mark A. Lemley and the Board of Trustees of the Leland Stanford Junior University, from the Stanford Law Review at 61 STAN. L. REV. 311 (2008). For information visit http://lawreview.stanford.edu.

THE SURPRISING VIRTUES OF TREATING TRADE SECRETS AS IP RIGHTS

Mark A. Lemley*

INTRODUCTION 312

1. TRADE SECRET DOCTRINE 315
   1. The History of Trade Secret Law 315
   2. The Scope of Trade Secret Law 317
2. EFFORTS TO UNDERSTAND TRADE SECRET THEORY 319
   1. Tort Law 320
   2. Contract Law 323
   3. Property Law 324
   4. Commercial Morality and Other Theories 327
   5. Bonersquo;s Challenge: Does Trade Secret Law Serve a Purpose? 328
3. CONSTRUCTING AN IP THEORY OF TRADE SECRETS 329
   1. Incentives To Invent 329
   2. Incentives To Disclose 332
   3. Channeling Protection Between Patents and Trade Secrets 338
4. IMPLICATIONS FOR TRADE SECRET LAW 341
   1. The Centrality of Secrecy 342
   2. The Relationship Between Trade Secret Law and Other Torts 344
   3. Other Implications for Trade Secret Doctrine 348
      1. Reasonable efforts to protect secrecy 348
      2. Contracting around trade secret law 350
      3. IP, property, and “absolute dominion” 351

* William H. Neukom Professor, Stanford Law School; of counsel, Keker amp; Van Nest LLP. copy; 2008 Mark A. Lemley and the Board of Trustees of the Leland Stanford Junior University.

Thanks to Chuck Adams, John Barton, Bob Bone, Dick Craswell, Zohar Efroni, Paul Goldstein, Wendy Gordon, Tait Graves, Joe Grundfest, Rose Hagan, Eran Kahana, Larry Lessig, David Levine, Jacqueline Lipton, Rob Merges, Mike Meurer, Roger Milgrim, Michael Risch, Sharon Sandeen, Peter Swire, Rebecca Tushnet, and participants in workshops at Stanford Law School and the IP Scholarsrsquo; Conference for discussions of these issues or comments on a prior draft.

This Article does not address perhaps the most divisive issue facing the law of trade secrecy: whether it is “trade secret law” (5983 cites in Westlawrsquo;s “allcases” and “tp-all” databases combined) or “trade secrets law” (a mere 2144 cites). Westlaw search conducted February 15, 2008. I use “trade secret” throughout—who am I to argue with 73.6 percent of all courts and commentators?—but that doesnrsquo;t mean Irsquo;m taking a definitive position on the issue.

311

• • 1. How long does secrecy last? 352

CONCLUSION 353

INTRODUCTION

Trade secret law is a puzzle. Courts and scholars have struggled for over a century to figure out why we protect trade secrets. The puzzle is not in understanding what trade secret law covers; there seems to be widespread agreement on the basic contours of the law. Nor is the problem that people object to the effects of the law. While scholars periodically disagree over the

purposes of the law, and have for almost a century,1 they seem to agree that

misappropriation of trade secrets is a bad thing that the law should punish. Rather, the puzzle is a theoretical one: no one can seem to agree where trade secret law comes from or how to fit it into the broader framework of legal doctrine. Courts, lawyers, scholars, and treatise writers argue over whether trade secrets are a creature of contract, of tort, of property, or even of criminal

law.2 None of these different justifications has proven entirely persuasive.

Worse, they have contributed to inconsistent treatment of the basic elements of a trade secret cause of action and uncertainty as to the relationship between trade secret laws and other causes of action.3 Robert Bone has gone so far as to

1. Among the academic treatments of trade secret law and theory, see, for example, MELVIN F. JAGER, TRADE SECRETS LAW (2007); ROGER M. MILGRIM amp; ERIC E. BENSEN, MILGRIM ON TRADE SECRETS (2008); JAMES POOLEY, TRADE SECRETS (2008); William B. Barton, A Study in the Law of Trade Secrets, 13 U. CIN. L. REV. 507, 558 (1939); Vincent Chiappetta, Myth, Chameleon, or Intellectual Property Olympian? A Normative Framework Supporting Trade Secret Law, 8 GEO. MASON L. REV. 69 (1999); David D. Friedman, William M. Landes amp; Richard A. Posner, Some Economics of Trade Secret Law, 5 J. ECON. PERSP. 61 (1991); Charles Tait Graves, Trade Secrets as Property: Theory and Consequences, 15 J. INTELL. PROP. L. 39 (2007); James W. Hill, Trade Secrets, Unjust Enrichment, and the Classification of Obligations, 4 VA. J.L. amp; TECH. 2 (1999); Edmund W. Kitch, The Law and Economics of Rights

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