Lynn Sharp Paine

Trade Secrets and the Justification of Intellectual Property

20 Philosophy & Public Policy 247 (1991)

In a recent article Edwin Hettinger considers various rationales for recognizing intellectual property. [Edwin C. Hettinger, "Justifying Intellectual Property," Philosophy & Public Affairs 18, no. I (Winter 1989): 31-52.] According to Hettinger, traditional justifications for property are especially problematic when applied to intellectual property because of its nonexclusive nature. Since possessing and using intellectual objects does not preclude their use and possession by others, there is, he says, a "strong prima facie case against the wisdom of private and exclusive intellectual property rights" (p. 35). There is, moreover, a presumption against allowing restrictions on the free flow of ideas (p. 51).

After rejecting several rationales for intellectual property, Hettinger finds its justification in an instrumental, or "utilitarian,"3 argument based on incentives (p. 47).4 Respecting rights in ideas makes sense, he says, if we recognize that the purpose of our intellectual property institutions is to promote the dissemination and use of information (p. 49) To the extent that existing institutions do not achieve this result, they should be modified.5 Skeptical about the effectiveness of current legal arrangements, Hettinger concludes that we must think more imagina-tively about structuring our intellectual property institutions - in particular, patent, copyright, and trade secret law - so that they increase the availability and use of intellectual products. He ventures several possibilities for consideration: eliminating certain forms of trade secret protection, shortening the copyright and patent protection periods, and public funding and ownership of intellectual objects (p. 49).

Hettinger's approach to justifying our intellectual property institutions rests on several problematic assumptions. It assumes that all of our intellectual property institutions rise or fall together - that the rationale for trade secret protection must be the same as that for patent and copyright protection.6 This assumption, I will try to show, is unwarranted. While it may be true that these institutions all promote social utility or well-being, the web of rights and duties understood under the general heading of "intellectual property rights" reflects a variety of more specific rationales and objectives.7 Second, Hettinger assumes that the rights commonly referred to as "intellectual property rights" are best understood on the model of rights in tangible and real property. He accepts the idea, implicit in the termi-nology, that intellectual property is like tangible property, only less corporeal (p. 31). This assumption leads him to focus his search for the justification of intellectual property on the traditional arguments for pri-vate property. I will try to show the merits of an alternative approach to thinking about rights in ideas - one that does not depend on the analogy with tangible property and that recognizes the role of ideas in defining personality and social relationships.

The combined effect of these assumptions is that trade secret law comes in for particularly serious criticism. It restricts methods of acquiring ideas (p. 35); it encourages secrecy (p. 36); it places unacceptable restrictions on employee mobility and technology transfer (p. 52); it can stifle competition (p. 50); it is more vulnerable to socialist objections (p. 52). In light of these deficiencies, Hettinger recommends that we consider the possibility of "eliminating most types of trade secrets entirely and letting patents carry a heavier load" (p. 49). He believes that trade secrets are undesirable in ways that copyrights and patents are not (p.36). Without disagreeing with Hettinger's recommendation that we re-evaluate and think more imaginatively about our intellectual property institutions, I believe we should have a clearer understanding of the various rationales for these institutions than is reflected in Hettinger's article. If we unbundle the notion of intellectual property into its constituent rights,8 we find that different justifications are appropriate for different clusters of rights.9 In particular, we find that the rights recognized by trade secret law are better understood as rooted in respect for individual liberty, confidential relationships, common morality, and fair competition than in the promotion of innovation and the dissemination of ideas. While trade secret law may serve some of the same ends as patent and copyright law, it has other foundations which are quite distinctive.10 In this article, I am primarily concerned with the foundations of trade secret principles. However, my general approach differs from Hettinger's in two fundamental ways. First, it focuses on persons and their relation-ships rather than property concepts. Second, it reverses the burden of justification, placing it on those who would argue for treating ideas as public goods rather than those who seek to justify private rights in ideas. Within this alternative framework, the central questions are how ideas may be legitimately acquired from others, how disclosure obligations arise, and how ideas become part of the common pool of knowledge. Before turning to Hettinger's criticisms of trade secret principles, it will be useful to think more broadly about the rights of individuals over their undisclosed ideas. This inquiry will illustrate my approach to thinking about rights in ideas and point toward some of the issues at stake in the trade secret area.

The Right to Control Disclosure

If a person has any right with respect to her ideas, surely it is the right to control their initial disclosure. 11 A person may decide to keep her ideas to herself, to disclose them to a select few, or to publish them widely. Whether those ideas are best described as views and opinions, plans and intentions, facts and knowledge, or fantasies and inventions is immate-rial. While it might in some cases be socially useful for a person to be generous with her ideas, and to share them with others without restraint, there is no general obligation to do so. The world at large has no right to the individual's ideas.12 Certainly, specific undertakings, relationships, and even the acquisition of specific information can give rise to disclosure obligations. Typically, these obligations relate to specific types of information pertinent to the relationship or the subject matter of the undertaking. A seller of goods must disclose to potential buyers latent defects and health and safety risks associated with the use of the goods. A person who under- takes to act as an agent for another is obliged to disclose to the principal information she acquires that relates to the subject matter of the agency. Disclosure obligations like these, however, are limited in scope and arise against a general background right to remain silent.

The right to control the initial disclosure of one's ideas is grounded in respect for the individual. Just as a person's sense of herself is intimately connected with the stream of ideas that constitutes consciousness, her public persona is determined in part by the ideas she expresses and the ways she expresses them. To require public disclosure of one's ideas and thoughts - whether about "personal" or other matters - would distort one's personality and, no doubt, alter the nature of one's thoughts.13 It would seriously interfere with the liberty to live according to one's chosen life plans. This sort of thought control would be an invasion of privacy and personality of the most intrusive sort. If anything is private one's undisclosed thoughts surely are.14 Respect for autonomy, respect for personality, and respect for privacy lie behind the right to control disclosure of one's ideas, but the right is also part of what we mean by freedom of thought and expression. Fre-quently equated with a right to speak, freedom of expression also implies a prima facie right not to express one's ideas or to share them only with those we love or trust or with whom we wish to share.15 These observations explain the peculiarity of setting up the free flow of ideas and unrestricted access as an ideal. Rights in ideas are desirable insofar as they strengthen our sense of individuality and undergird our social relationships. This suggests a framework quite different from Hettinger's, one that begins with a strong presumption against requiring disclosure and is in favor of protecting people against unconsented-to acquisitions of their ideas.16 This is the moral backdrop against which trade secrecy law is best understood.

Consequences of Disclosure

Within this framework, a critical question is how people lose rights in their ideas. Are these rights forfeited when people express their ideas or communicate them to others? Surely this depends on the circumstances of disclosure. Writing down ideas in a daily journal to oneself or recording them on a cassette should not entail such a forfeiture. Considerations of individual autonomy, privacy, and personality require that such expressions not be deemed available for use by others who may gain access to them.17 Likewise, communicating an idea in confidence to another should not render it part of the common pool of knowledge. Respect for the individual's desire to limit the dissemination of the idea is at stake, but so is respect for the relationship of trust and confidence among the persons involved. If A confides in B under circumstances in which B gives A reason to believe she will respect the confidence, A should be able to trust that B will not reveal or misuse the confidence and that third parties who may intentionally or accidentally discover the confidence will respect it.18 The alternative possibility is that by revealing her ideas to B, A is deemed to forfeit any right to control their use or communication. This principle is objectionable for a couple of reasons. First, it would most certainly increase reluctance to share ideas since our disclosure decisions are strongly influenced by the audience we anticipate. If we could not select our audience, that is, if the choice were only between keeping ideas to ourselves and sharing them with the world at large, many ideas would remain unexpressed, to the detriment of individual health as well as the general good.

Second, the principle would pose an impediment to the formation and sustenance of various types of cooperative relationships - relationships of love and friendship, as well as relationships forged for specific purposes such as education, medical care, or business. It might be thought that only ideas of an intimate or personal nature are important in this regard. But it is not only "personal" relationships, but cooperative relationships of all types, that are at stake. Shared knowledge and information of varying types are central to work relationships and communities - academic departments and disciplines, firms, teams - as well as other organizations. The possession of common ideas and information, to the exclusion of those outside the relationship or group, contributes to the group's self-definition and to the individual's sense of belonging. By permitting and protecting the sharing of confidences, trade secret principles, among other institutions, permit "special communities of knowledge" which nurture the social bonds and cooperative efforts through which we express our individuality and pursue common purposes. FN19

Of course, by disclosing her idea to B, A runs the risk that B or anyone else who learns about the idea may use it or share it further. But if B has agreed to respect the confidence, either explicitly or by participating in a relationship in which confidence is normally expected, she has a prima facie obligation not to disclose the information to which she is privy.FN20 Institutions that give A a remedy against third parties who appropriate ideas shared in confidence reduce the risk that A's ideas will become public resources if she shares them with B. Such institutions thereby support confidential relationships and the cooperative undertakings that depend on them.

Yet another situation in which disclosure should not be regarded as a license for general use is the case of disclosures made as a result of deceit or insincere promises. Suppose A is an entrepreneur who has created an unusual software program with substantial sales potential. Another party, B, pretending to be a potential customer, questions A at great length about the code and other details of her program. A's disclosures are not intended to be, and should not be deemed, a contribution to the general pool of knowledge, nor should B be permitted to use A's ideas.FN21 Respect for A's right to disclose her ideas requires that involuntary disclosures - such as those based on deceit, coercion, and theft of documents containing expressions of those ideas - not be regarded as forfeitures to the common pool of knowledge and information. in recognition of A's right to control disclosure of her ideas and to discourage appropriation of her ideas against her wishes, we might expect our institutions to provide A with a remedy against these sorts of appropriation. Trade secrets law provides such a remedy.

Competitive fairness is also at stake if B is in competition with A. Besides having violated standards of common morality in using deceit to gain access to A's ideas, B is in a position to exploit those ideas in the marketplace without having contributed to the cost of their development. B can sell her version of the software more cheaply since she enjoys a substantial cost advantage compared to A, who may have invested a great deal of time and money in developing the software. Fairness in a competitive economy requires some limitations on the rights of firms to use ideas developed by others. in a system based on effort, it is both unfair and ultimately self-defeating to permit firms to have a free ride on the efforts of their competitors.FN22

Problematic Issues

Respect for personal control over the disclosure of ideas, respect for confidential relationships, common morality, and fair competition all point toward recognizing certain rights in ideas. Difficult questions will arise within this system of rights. If A is not an individual but an organization or group, should A have the same rights and remedies against B or third parties who use or communicate information shared with B in confidence? For example, suppose A is a corporation that hires an employee, B, to develop a marketing plan. If other employees of A reveal in confidence to B information they have created or assembled, should A be able to to restrain B from using this information to benefit herself (at A's expense)? Does it matter if A is a two-person corporation or a corporation with 100,000 employees? What if A is a social club or a private school?

Hettinger seems to assume that corporate A's should not have such rights - on the grounds that they might restrict B's employment possibilities. It is certainly true that giving A a right against B if she reveals information communicated to her in confidence could rule out certain jobs for B. However, the alternative rule - that corporate A's should have no rights in ideas they reveal in confidence to others - has problems as well.

One problem involves trust. if our institutions do not give corporate A's certain rights in ideas they reveal in confidence to employees, A's will seek other means of ensuring that competitively valuable ideas are protected. They may contract individually with employees for those rights, and if our legal institutions do not uphold those contracts, employers will seek to hire individuals in whom they have personal trust. Hiring would probably become more dependent on family and personal relationships and there would be fewer opportunities for the less well connected. Institutional rules giving corporate A's rights against employees who reveal or use information given to them in confidence are a substitute for per-sonal bonds of trust. While such rules are not cost-free and may have some morally undesirable consequences, they help sustain cooperative efforts and contribute to more open hiring practices.

Contrary to Hettinger's suggestion, giving corporate A's rights in the ideas they reveal in confidence to others does not always benefit the strong at the expense of the weak, or the large corporation at the expense of the individual, although this is surely sometimes the case.FN23 Imagine three entrepreneurs who wish to expand their highly successful cookie business. A venture capitalist interested in financing the expansion naturally wishes to know the details of the operation - including the prized cookie recipe - before putting up capital. After examining the recipe, however, he decides that it would be more profitable for him to sell the recipe to Cookie Co. a multinational food company, and to invest his capital elsewhere. Without money and rights to prevent others from using the recipe, the corporate entrepreneurs are very likely out of business. Cookie Co. which can manufacture and sell the cookies much more cheaply, will undoubtedly find that most of the entrepreneurs' customers are quite happy to buy the same cookies for less at their local supermarket.

Non-Property Foundations of Trade Secret Law

To a large extent, the rights and remedies mentioned in the preceding discussion are those recognized by trade secret law. As this discussion showed, the concept of property is not necessary to justify these rights. Trade secret law protects against certain methods of appropriating the confidential and commercially valuable ideas of others. It affords a remedy to those whose commercially valuable secrets are acquired by misrepresentation, theft, bribery, breach or inducement of a breach of confidence, espionage, or other improper means.FN24 Although the roots of trade secret principles have been variously located, respect for voluntary disclosure decisions and respect for confidential relationships provide the best account of the pattern of permitted and prohibited appropriations and use of ideas. FN25 As Justice Oliver Wendell Holmes noted in a 1917 trade secret case, "The property may be denied but the confidence cannot be."FN26 Trade secret law can also be seen as enforcing ordinary standards of morality in commercial relationships, thus ensuring some consistency with general social morality.FN27 It may well be true, as Hettinger and others have claimed, that the availability of trade secret protection provides an incentive for intellectual labor and the development of ideas. The knowledge that they have legal rights against those who "misappropriate" their ideas may encourage people to invest large amounts of time and money in exploring and developing ideas. However, the claim that trade secret protection promotes invention is quite different from the claim that it is grounded in or justified by this tendency. Even if common law trade secret rights did not promote intellectual labor or increase the dissemination and use of information, there would still be reasons to recognize those rights. Respect for people's voluntary disclosure decisions, respect for confidential relationships, standards of common morality, and fair competition would still point in that direction.

Moreover, promoting the development of ideas cannot be the whole story behind trade secret principles, since protection is often accorded to information such as customer data or cost and pricing information kept in the ordinary course of doing business. While businesses may need incentives to engage in costly research and development, they would certainly keep track of their customers and costs in any event. The rationale for giving protection to such information must be other than promoting the invention, dissemination, and use of ideas. By the same token, trade secret principles do not prohibit the use of ideas acquired by studying products available in the marketplace. If the central policy behind trade secret protection were the promotion of invention, one might expect that trade secret law, like patent law, which was explicitly fashioned to encourage invention, would protect innovators from imitators.

The fact that Congress has enacted patent laws giving inventors a limited monopoly in exchange for disclosure of their ideas without at the same time eliminating state trade secret law may be a further indication that trade secret and patent protection rest on different grounds.FN28 By offering a limited monopoly in exchange for disclosure, the patent laws implicitly recognize the more fundamental right not to disclose one's ideas at all or to disclose them in confidence to others.FN29

Reassessing Hettinger's Criticisms of Trade Secret Law

If we see trade secret law as grounded in respect for voluntary disclosure, confidential relationships, common morality, and fair competition, the force of Hettinger's criticisms diminishes somewhat. The problems he cites appear not merely in their negative light as detracting from an ideal "free flow of ideas," but in their positive role as promoting other important values.

a. Restrictions on Acquiring Ideas. Hettinger is critical, for example, of the fact that trade secret law restricts methods of acquiring ideas. But the prohibited means of acquisition - misrepresentation, theft, bribery, breach of confidence, and espionage - all reflect general social morality. Lifting these restrictions would undoubtedly contribute to the erosion of important values outside the commercial context.

How much trade secrecy laws inhibit the development and spread of ideas is also open to debate. Hettinger and others have claimed that trade secrecy is a serious impediment to innovation and dissemination because the period of permitted secrecy is unlimited. Yet, given the fact that trade secret law offers no protection for ideas acquired by examining or reverse-engineering products in the marketplace, it would appear rather difficult to maintain technical secrets embodied in those products while still exploiting their market potential. A standard example used to illustrate the problem of perpetual secrecy, the Coke formula, seems insufficient to establish that this is a serious problem. Despite the complexity of modern technology, successful reverse-engineering is common. Moreover, similar technical advances are frequently made by researchers working independently. Trade secret law poses no impediment in either case. Independent discoverers are free to exploit their ideas even if they are similar to those of others.

As for nontechnical information such as marketing plans and business strategies, the period of secrecy is necessarily rather short since implementation entails disclosure. Competitor intelligence specialists claim that most of the information needed to understand what competitors are doing is publicly available.FN30 All of these considerations suggest that trade secret principles are not such a serious impediment to the dissemination of information.

b. Competitive Effects. Hettinger complains that trade secret principles stifle competition. Assessing this claim is very difficult. On one hand, it may seem that prices would be lower if firms were permitted to obtain cost or other market advantages by using prohibited means to acquire protected ideas from others. Competitor access to the Coke formula would most likely put downward pressure on the price of "the real thing." Yet, it is also reasonable to assume that the law keeps prices down by reducing the costs of self-protection. By giving some assurance that commercially valuable secrets will be protected, the law shields firms from having to bear the full costs of protection. It is very hard to predict what would happen to prices if trade secret protection were eliminated. Self-protection would be more costly and would tend to drive prices up, while increased competition would work in the opposite direction. There would surely be important differences in morale and productivity. Moreover, as noted, any price reductions for consumers would come at a cost to the basic moral standards of society if intelligence-gathering by bribery, misrepresentation, and espionage were permitted.

c. Restrictions on Employee Mobility. Among Hettinger's criticisms of trade secret law, the most serious relate to restrictions on employee mobility. In practice, employers often attempt to protect information by overrestricting the postemployment opportunities of employees. Three important factors contribute to this tendency: vagueness about which information is confidential; disagreement about the proper allocation of rights to ideas generated by employees using their employers’ resources; and conceptual difficulties in distinguishing general knowledge and employer-specific knowledge acquired on the job. Courts, however, are already doing what Hettinger recommends, namely, limiting the restrictions that employers can place on future employment in the name of protecting ideas.FN31 Although the balance between employer and employee interests is a delicate one not always equitably struck, the solution of eliminating trade secret protection altogether is overbroad and undesirable, considering the other objectives at stake.

d. Hypothetical Alternatives. Hettinger's discussion of our intellectual property institutions reflects an assumption that greater openness and sharing would occur if we eliminated trade secret protection. He argues that trade secret principles encourage secrecy. He speaks of the "free flow of ideas" as the ideal that would obtain in the absence of our intellectual property institutions. This supposition strikes me as highly unlikely. People keep secrets and establish confidential relationships for a variety of reasons that are quite independent of any legal protection these secrets might have. The psychology and sociology of secrets have been explored by others. Although much economic theory is premised on complete information, secrecy and private information are at the heart of day-to-day competition in the marketplace.

In the absence of something like trade secret principles, I would expect not a free flow of ideas but greater efforts to protect information through contracts, management systems designed to limit information access, security equipment, and electronic counterintelligence devices. I would also expect stepped-up efforts to acquire intelligence from others through espionage, bribery, misrepresentation, and other unsavory means. By providing some assurance that information can be shared in confidence and by protecting against unethical methods of extracting information and undermining confidentiality, trade secret principles pro-mote cooperation and security, two important conditions for intellectual endeavor. In this way, trade secret principles may ultimately promote intellectual effort by limiting information flow.

The Burden of Justification

We may begin thinking about information rights, as Hettinger does, by treating all ideas as part of a common pool and then deciding whether and how to allocate to individuals rights to items in the pool. Within this framework, ideas are conceived on the model of tangible property.FN32 Just as, in the absence of social institutions, we enter the world with no particular relationship to its tangible assets or natural resources, we have no particular claim on the world's ideas. In this scheme, as Hettinger asserts, the "burden of justification is very much on those who would restrict the maximal use of intellectual objects" (p. 35).

Alternatively, we may begin, as I do, by thinking of ideas in relation to their originators, who may or may not share their ideas with specific others or contribute them to the common pool. This approach treats ideas as central to personality and the social world individuals construct for themselves. Ideas are not, in the first instance, freely available natural resources. They originate with people, and it is the connections among people, their ideas, and their relationships with others that provides a baseline for discussing rights in ideas. Within this conception, the burden of justification is on those who would argue for disclosure obligations and general access to ideas.

The structure of specific rights that emerges from these different frameworks depends not only on where the burden of justification is located, but also on how easily it can be discharged.FN33 It is unclear how compelling a case is required to overcome the burden Hettinger sets up and, consequently, difficult to gauge the depth of my disagreement with him.FN34 Since Hettinger does not consider the rationales for trade secret principles discussed here, it is not clear whether he would dismiss them altogether, find them insufficiently weighty to override the presumption he sets up, or agree that they satisfy the burden of justification.

One might suspect, however, from the absence of discussion of the personal and social dimension of rights in ideas that Hettinger does not think them terribly important, and that his decision to put the burden of justification on those who argue for rights in ideas reflects a fairly strong commitment to openness. On the assumption that our alternative start-ing points reflect seriously held substantive views (they are not just procedural devices to get the argument started) and that both frameworks require strong reasons to overcome the initial presumption, the resulting rights and obligations are likely to be quite different in areas where nei-ther confidentiality nor openness is critical to immediate human needs. Indeed, trade secrecy law is an area where these different starting points would be likely to surface.

The key question to ask about these competing frameworks is which is backed by stronger reasons. My opposition to Hettinger's allocation of the burden of justification rests on my rejection of his conception of ideas as natural resources and on different views of how the world would look in the absence of our intellectual property institutions. In contrast, my starting point acknowledges the importance of ideas to our sense of ourselves and the communities (including work communities) of which we are a part. It is also more compatible with the way we commonly talk about ideas. Our talk about disclosure obligations presupposes a general background right not to reveal ideas. If it were otherwise, we would speak of concealment rights. To use the logically interesting feature of nonexclusiveness as a starting point for moral reasoning about rights in ideas seems wholly arbitrary.


Knives, forks, and spoons are all designed to help us eat. In a sense, however, the essential function of these tools is to help us cut, since without utensils, we could still consume most foods with our hands. One might be tempted to say that since cutting is the essential function of eating utensils, forks and spoons should be designed to facilitate cutting. One might even say that insofar as forks and spoons do not facilitate cutting, they should be redesigned. Such a modification, however, would rob us of valuable specialized eating instruments.

Hettinger's train of thought strikes me as very similar. He purports to examine the justification of our various intellectual property institutions. However, he settles on a justification that really only fits patent and, arguably, copyright institutions. He then suggests that other intellectual property rights be assessed against the justification he proposes and redesigned insofar as they are found wanting. In particular, he suggests that trade secret principles be modified to look more like patent principles. Hettinger fails to appreciate the various rationales behind the rights and duties understood under the heading "intellectual property," especially those recognized by trade secret law.

I agree with Hettinger that our intellectual property institutions need a fresh look from a utilitarian perspective. FN35 The seventeen-year monopoly granted through patents is anachronistic given the pace of technological development today. We need to think about the appropriate balance between employer and employee rights in ideas developed jointly. Solutions to the problem of the unauthorized copying of software may be found in alternative pricing structures rather than in fundamental modifications of our institutions. Public interest considerations could be advanced for opening access to privately held information in a variety of areas. As we consider these specific questions, however, I would urge that we keep firmly in mind the variety of objectives that intellectual property institutions have traditionally served.FN36 If, following Hettinger's advice, we single-mindedly reshape these institutions to maximize the short-term dissemination and use of ideas, we run the risk of subverting the other ends these institutions serve.