USA / TRADE SECRETS / RECAPTURE

Trade Secret Reclamation: An Equitable Approach in a Relative World

William L O'Brien

John Marshall Journal of Computer & Information Law, Vol XXI No 2, Winter 2003

Since, in the nature of things, a trade secret depends largely for its value on the secrecy of its content, the question arises whether the loss of that secrecy may nevertheless allow the trade secret status to be reclaimed. This article addresses the question on the basis that a legal resolution of the problem is necessary; that reliance on a strict property analysis of trade secrets is misplaced; and that trade secrets law needs to fulfil the expectations both of the market and of society. As to the definition of trade secrets, the author of the article relies principally on the words used in the Uniform Trade Secrets Act, that a trade secret is information deriving economic value from not being known or readily ascertainable by proper means from others who can gain such value from use or disclosure, so long as reasonable efforts have been made to maintain the secrecy of such information. The definition does not require absolute secrecy (Thin Film Lab Inc); but measures to maintain confidentiality must be reasonable (Lasermaster Corporation v Sentinel Imaging). In the author's opinion, "the existence and scope of trade secrets are founded on equitable considerations". Yet the courts have tended to apply a "property", as distinct from an "equitable", analysis to determine the existence of a trade secret; and one of the consequences of the property approach has been a judicial tendency to think in terms of a trade secret being "lost" or "abandoned" (Hoechst Diafoil v Nan Ya Plastics). The author derives some consolation from the Supreme Court's decision in Kewanee Oil v Bicron, in which the court noted two fundamental purposes or policies of trade secret law: "the maintenance of standards of commercial ethics and the encouragement of incentive". From this, the author concludes that the secrecy requirement is relative, a conclusion borne out in the case of Goldberg v Medtronic to the effect that trade secret protection may persist even where the underlying secrecy has been lost as the result of the defendant's acts. A common sense rule for the recapture of trade secret status would therefore be for the court to "balance the ethical and innovative purposes of trade secret law with a policy of not unnecessarily inhibiting competition". Ethical considerations already condemn the discovery of trade secrets by means of commercial espionage, but may not justify accidental losses of valuable documents. The author recommends that the six factors listed in 1939 in the First Restatement of Torts should be used not as elements to be proved to establish the existence of a trade secret but as a basis for enquiries to establish whether it is equitable to find that trade secret status exists. [20100]