Jorda on: Trade Secrets are Not Secrets

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It is a serious misconception that it is reprehensible to keep inventions secret, inasmuch as this supposedly flies in the face of the patent system, the essence of which is disclosure of inventions for the benefit of the public. However, in light of the decision in Dunlop Holdings v. Ram Golf (7th Cir. 1975), it is clear that the public does receive benefits from trade secrets, as there is no suppression in an economic sense.

More specifically, the Dunlop Holdings court gave three reasons

… why it is appropriate to conclude that a public use of an invention forecloses a finding of suppression or concealment even though the use does not disclose the discovery. First, even such a use gives the public the benefit of the invention. If the new idea is permitted to have its impact in the market place, and thus to ‘promote the progress of science and useful arts,’ it surely has not been suppressed in an economic sense. Second, even though there may be no explicit disclosure of the inventive concept, when the article itself is freely accessible to the public at large, it is fair to presume that its secret will be uncovered by potential competitors long before the time when a patent would have expired if the inventor had made a timely application and disclosure to the patent office. Third, the inventor is under no duty to apply for a patent; he is free to contribute his idea to the public, either voluntarily by an express disclosure, or involuntarily by a noninforming public use. In either case, although he may forfeit his entitlement by monopoly (sic) protection, it would be unjust to hold that such an election should impair his right to continue diligent efforts to make the product of his own invention.
Moreover, independent creation is quite likely, as was recognized by the Supreme Court in the Kewanee Oil case (1974):
Even were an inventor to keep his discovery completely to himself, something that neither the patent nor trade secret laws forbid, there is a high probability that it will be soon independently developed. If the invention, though still a trade secret, is put into public use, the competition is alerted to the existence of the inventor’s solution to the problem and may be encouraged to make an extra effort to independently find the solution thus known to be possible.
As a practical matter, others, often several or many employees, usually know the trade secret, suppliers may also be “in the know” and governmental agencies may likewise be informed. Moreover, there may be a licensee or several licensees who definitely would have the secret details of a product or process. And independent creation is indeed possible if not likely. Besides, most trade secrets may dissipate within a few years, given the high incidence of employee mobility on top of possible threats of reverse engineering or analysis of products. Hence, it is plausible to conclude that trade secrets can be considered as “wasting assets,” whose average life perhaps is only about three to five years. Indeed, Mary Lyndon estimates in her article “Secrecy and Innovation in Tort Law and Regulation” (N.Mex L. Rev., 1993) that “the useful life of patents — when designed around — (is) about four years and trade secrets (is) much shorter.” And Edwin Mansfield explains in his article “How Rapidly Does New Industrial Technology Leak Out?” (34 J. Indus. Econ. 217, 219-21 (1985)) that information about the detailed nature and operations of a new product or process is in the hands of at least some rival firms within a year, on the average, after a new product is developed, and sometimes within six month.” Edwin Mansfield is not only one of the best known American economists but in the 1980’s he was also a pioneering author on patents and Innovation, based on empirical studies. Therefore, I can contend with a straight face that trade secrets are “secret” only in a limited legal sense and the term “trade secret” is a constricted term of art.

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This page contains a single entry by Jon Cavicchi published on October 18, 2007 10:21 AM.

Jorda on : Terminology Misconceptions was the previous entry in this blog.

Jorda on: Trade Secrets Have a Long History is the next entry in this blog.

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