Trade Secrets
Robert E. Frederick
Information a firm reserves for its exclusive use, or for use by other firms to which it grants a license. In this respect trade secrets and patents are similar. But trade secrets differ from patents in four important ways.
First, while a patent is an official grant of certain rights from the US government to the patent holder, and patent cases are tried in federal courts, trade secrets are governed by state law and cases are usually tried in state courts. Second, patents expire after 17 years. The information can then be used by anyone. But trade secrets can be maintained indefinitely. The Zildjian family, for example, has kept its trade secret for manufacturing cymbals since 1623. Third, patented information must meet strict standards of novelty and un obviousness, and must represent a genuine advance in a particular field. The requirements for something to qualify as a trade secret are much less strict. In most states as long as information has some degree of novelty, cannot be readily discovered by public inspection, has genuine commercial utility, and, most importantly, is actively protected from disclosure by the firm that holds it, then it can qualify as a trade secret. Fourth, although the information in a patent is public, patent law protects it from any use not authorized by the patent holder. But trade secret law is quite different. A trade secret cannot be used if it is acquired by improper means (e.g., industrial espionage or unauthorized disclosure by an employee). However, if a firm X independently discovers Y’s trade secret, then X can legally use the information. Y cannot sue to prevent X from using it, nor can Y require that X pay a licensing fee.
Unpatentable proprietary information, such as customer lists and marketing plans, can be held as trade secrets. But so can patentable information. Whether to hold such information as a trade secret or apply for a patent is a matter for the firm to decide. In some cases keeping information secret, whether patentable or unpatentable, seems clearly justified. But is it always justified? Suppose, for instance, that a utility firm discovers a pollution free fusion process for making electricity cheaply, but decides to keep the process secret. Or suppose a pharmaceutical firm discovers and keeps secret an in expensive and effective cure for AIDS. In both these cases it seems obvious that the information ought to be disclosed, even if unpatentable, be cause the public benefit of disclosure would greatly outweigh anything the firm gains by keeping the secret. If this is right, then on some occasions a decision about whether to keep information as a trade secret has a moral as well as a commercial dimension. If benefit to the public could be significantly increased by revealing the secret, or if harm to the public could be significantly decreased, then the firm may have a moral obligation to disclose the information that over rides considerations of profit or other business advantage.
Bibliography
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Rosenberg, P. D. (1982). Patent Law Fundamentals, 2nd edn. New York: Clark Boardman, ch. 3.
Unkovic, D. (1985). The Trade Secrets Handbook: Strategies and Techniques for Protecting Corporate Information. Englewood Cliffs, NJ: Prentice-Hall.