"More, Much More, on the Centrality of Trade Secrets"

James Pooley

Last Sunday this Kat posted a piece, "Whatever the Report Says: Can Trade Secrets Really Be That Important?", here, which has already generated quite a bit of reaction (the 11 comments posted at its foot testify to that).  This post has also generated a comment from James Pooley, World Intellectual Property Organization (WIPO) Deputy Director General for Innovation and Technology. The IPKat thinks that it is worthwhile these thoughts and thanks James for his willingness to let him host them here.

For the record, James emphasizes that the comments below are his personal opinion only and do not in any way represent any official position of WIPO.

"I think the major reason for your surprise about the preeminence of secrecy over patenting as a form of IP protection is that, as you observe, most IP lawyers do not deal with trade secrets very often. The IP profession tends to focus its attention on what we are most often called to do, and the three obvious categories -- patents, trademarks and copyrights -- are registration systems, which to varying degrees typically require legal talent in order to perfect one's rights. But these same attributes that make secrecy a lesser-known form of IP protection among lawyers are exactly what make it so popular with business. You don't have to file any paperwork with the government or negotiate for the boundaries of your right -- you just have it by virtue of possessing undisclosed information that you don't want the competition to know. Secrecy is ubiquitous, and it is cheap. Most of the time, you don't need to have lawyers involved unless you get into litigation. So why should we wonder at its popularity? 

Indeed, the NSF survey is not the first to come to this conclusion. The most frequently cited reference on the same point is a 2000 study by Prof. Wesley Cohen of Duke University, et al., "Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)", Nat’l Bureau of Econ. Research, Working Paper No. 7552 (2000). I am not familiar with the OECD paper you refer to. 

At least in the U.S., trade secret law receives a fair amount of attention from practitioners (at least some of us), and increasingly from academics. My own treatise on Trade Secrets (from Law Journal Press, here) has been published and updated since 1997. Earlier treatises similarly dedicated to the law and practice of trade secrets were authored by Roger Milgrim and by Mel Jager. For an excellent review of recent scholarship in the field of trade secret law, see The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research (Rochelle C. Dreyfuss & Katherine J. Strandburg eds., 2011, here). And there are in fact courses specifically and exclusively about trade secrets being given at U.S. law schools. I taught such a course as early as 1985 at Santa Clara, and did so continuously at Berkeley from 1999 to 2009. 

The IPKat and Merpel have their own secret recipe
for titanium dioxide. Here you see them watching
to make sure the latest batch doesn't boil over ...

There are good reasons for businesses to choose secrecy over patenting; the most common category is process technology, which is difficult (or impossible) to reverse engineer from a finished product, and which would be difficult (or impossible) to detect as patent infringement. An example is DuPont's method of producing titanium dioxide, developed in the 1930s and maintained since then as an extremely valuable trade secret, responsible for millions in profits. Source code is almost always protected by secrecy. And beyond technical information, an enormous amount of business data, such as strategies, financial information, customer lists and unreleased product plans, are covered exclusively by trade secret law. Consider Apple, which generates a lot of buzz while pundits guess about the features of the next iPad -- all of that speculation creates more market demand, and the legal basis for generating it is: trade secret law.

Frankly, in the global information economy, protection of secrets is more important than ever. This is mainly because of the increasing use of collaboration in the development of technology. The term "open innovation" has become popular to describe how companies turn to resources outside of their own laboratories to create new products. In the increasingly connected world, this leads to "networked innovation", in which problems are solved by teams opportunistically assembled among qualified participants wherever they are located around the globe. But in order for those networks to function, they need to share information on a trusted basis, and that in turn depends on robust (or at least adequate) trade secret laws. in the relevant jurisdictions".

Thanks, James, for this incisive and insightful comment.

Katnote: IPKat team member Jeremy is very excited to see James's reference to The Law and Theory of Trade Secrecy: A Handbook of Contemporary Research, since he is the editor of the series of Edward Elgar Research Handbooks of Intellectual Property, of which Rochelle and Katherine's book forms a valued part. He adds, watch out for Gurry on Breach of Confidence: the Protection of Confidential Information (second Edition, not quite published), which is now written by a talented trio of Australians, Tanya Aplin, Lionel Bently and Simon Malynicz. The book's web page is here and the Gurry in question is this one.

Merpel moans, since James was speaking in his personal capacity, I thought it would be a good idea to contact WIPO and ask what its official line on trade secrets was, but they wouldn't tell me: they said it was a secret ...